File Nos. 33-74174
811-8306
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 3 [X]
(Check appropriate box or boxes.)
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
_______________________________________
(Exact Name of Registrant)
FIRST COVA LIFE INSURANCE COMPANY
__________________________________
(Name of Depositor)
120 Broadway, New York, New York 10271
____________________________________________________ _________
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (800) 469-4545
Name and Address of Agent for Service
Lorry J. Stensrud, President
First Cova Life Insurance Company
120 Broadway
New York, NY 10271
(800) 469-4545
Copies to:
Judith A. Hasenauer and Frances S. Cook
Blazzard, Grodd & Hasenauer, P.C. First Vice President and Associate
P.O. Box 5108 General Counsel
Westport, CT 06881 First Cova Life Insurance
Company
(203) 226-7866 120 Broadway
New York, NY 10271
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on May 1, 1998 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
_____ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Title of Securities Registered:
Individual Variable Annuity Contracts
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CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
- -------- --------------------------------
PART A
Item 1. Cover Page . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . Index of Special Terms
Item 3. Synopsis . . . . . . . . . . . . . . . Summary
Item 4. Condensed Financial Information . . . Not Applicable
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies . . Other Information - Cova; The
Separate Account; Cova
Series Trust; Lord Abbett Series
Fund, Inc.; General American
Capital Company
Item 6. Deductions and Expenses. . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts. . . . . . . . . . . The Annuity Contract
Item 8. Annuity Period . . . . . . . . . . . . Annuity Payments
(The Income Phase)
Item 9. Death Benefit. . . . . . . . . . . . . Death Benefit
Item 10. Purchases and Contract Value . . . . . Purchase
Item 11. Redemptions. . . . . . . . . . . . . . Access to Your Money
Item 12. Taxes. . . . . . . . . . . . . . . . . Taxes
Item 13. Legal Proceedings. . . . . . . . . . . None
Item 14. Table of Contents of the Statement of
Additional Information . . . . . . . . Table of Contents of the
Statement of Additional
Information
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CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
- -------- -----------------------
PART B
Item 15. Cover Page . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . Company
Item 18. Services . . . . . . . . . . . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered . Not Applicable
Item 20. Underwriters . . . . . . . . . . . . . Distribution
Item 21. Calculation of Performance Data. . . . Performance Information
Item 22. Annuity Payments . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements . . . . . . . . . Financial Statements
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PART C
Information required to be included in Part C is set forth under the
appropriate Item so numbered in Part C to this Registration Statement.
THE FIXED
AND VARIABLE ANNUITY
ISSUED BY
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
AND
FIRST COVA LIFE
INSURANCE COMPANY
This prospectus describes the Fixed and Variable Annuity Contract offered by
First Cova Life Insurance Company (First Cova).
The annuity contract has 13 investment choices - a fixed account which offers an
interest rate which is guaranteed by First Cova, and 12 investment portfolios
listed below. The 12 investment portfolios are part of the Cova Series Trust,
the Lord Abbett Series Fund, Inc. or the General American Capital Company. You
can put your money in the fixed account and/or any of these investment
portfolios.
Cova Series Trust:
Managed by J.P. Morgan
Investment Management Inc.:
Select Equity
Large Cap Stock
Small Cap Stock
International Equity
Quality Bond
Managed by Lord, Abbett & Co.:
Bond Debenture
Mid-Cap Value
Large Cap Research
Developing Growth
Lord Abbett Growth & Income
Lord Abbett Series Fund, Inc.:
Managed by Lord, Abbett & Co.:
Growth and Income
General American Capital Company:
Managed by Conning Asset
Management Company:
Money Market
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the First Cova Fixed and
Variable Annuity Contract.
To learn more about the First Cova Fixed and Variable Annuity Contract, you can
obtain a copy of the Statement of Additional Information (SAI) dated May 1,
1998. The SAI has been filed with the Securities and Exchange Commission (SEC)
and is legally a part of the prospectus. The SEC maintains a Web site
(http://www. sec.gov) that contains the SAI, material incorporated by reference,
and other information regarding registrants that file electronically with the
SEC. The Table of Contents of the SAI is on Page ___ of this prospectus. For a
free copy of the SAI, call us at (800) 523-1661 or write us at: One Tower Lane,
Suite 3000, Oakbrook Terrace, Illinois 60181-4644.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
May 1, 1998
TABLE OF CONTENTS Page
INDEX OF SPECIAL TERMS
SUMMARY
FEE TABLE
EXAMPLES
1. THE ANNUITY CONTRACT
2. ANNUITY PAYMENTS (THE INCOME PHASE)
3. PURCHASE
Purchase Payments
Allocation of Purchase Payments
Accumulation Units
4. INVESTMENT OPTIONS
Cova Series Trust
Lord Abbett Series Fund, Inc.
General American Capital Company
Transfers
Dollar Cost Averaging Program
Automatic Rebalancing Program
Voting Rights
Substitution
5. EXPENSES
Insurance Charges
Contract Maintenance Charge
Withdrawal Charge
Reduction or Elimination of the
Withdrawal Charge
Transfer Fee
Income Taxes
Investment Portfolio Expenses
6. TAXES
Annuity Contracts in General
Qualified and Non-Qualified Contracts
Withdrawals - Non-Qualified Contracts
Withdrawals - Qualified Contracts
Diversification
7. ACCESS TO YOUR MONEY
Systematic Withdrawal Program
8. PERFORMANCE
9. DEATH BENEFIT
Upon Your Death
Death of Annuitant
10. OTHER INFORMATION
First Cova
The Separate Account
Distributor
Ownership
Beneficiary
Assignment
Suspension of Payments or Transfers
Financial Statements
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
APPENDIX A
Condensed Financial Information
APPENDIX B
Performance Information
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the contract, however, certain technical words
or terms are unavoidable. We have identified the following as some of these
words or terms. They are identified in the text in italic and the page that is
indicated here is where we believe you will find the best explanation for the
word or term.
Page
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Date
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Fixed Account
Income Phase
Investment Portfolios
Joint Owner
Non-Qualified
Owner
Purchase Payment
Qualified
Tax Deferral
SUMMARY
THE SECTIONS IN THIS SUMMARY CORRESPOND TO SECTIONS IN THIS PROSPECTUS WHICH
DISCUSS THE TOPICS IN MORE DETAIL.
1. THE ANNUITY CONTRACT: The fixed and variable annuity contract offered by
First Cova is a contract between you, the owner, and First Cova, an insurance
company. The contract provides a means for investing on a tax-deferred basis in
a fixed account of First Cova and 12 investment portfolios. The contract is
intended for retirement savings or other long-term investment purposes and
provides for a death benefit and guaranteed income options.
The fixed account offers an interest rate that is guaranteed by the insurance
company, First Cova. This interest rate is set once each year. While your money
is in the fixed account, the interest your money will earn as well as your
principal is guaranteed by First Cova.
This contract also offers 12 investment portfolios which are listed in Section
4. These portfolios are designed to offer a better return than the fixed
account. However, this is NOT guaranteed. You can also lose your money.
You can put money into any or all of the investment portfolios and the fixed
account. You can transfer between accounts up to 12 times a year without charge
or tax implications. After 12 transfers, the charge is $25 or 2% of the amount
transferred, whichever is less.
The contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving regular payments
from your Contract.
The amount of money you are able to accumulate in your account during the
accumulation phase will determine the amount of income payments during the
income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE): If you want to receive regular income
from your annuity, you can choose one of three options. Once you begin
receiving regular payments, you cannot change your payment plan. During the
income phase, you have the same investment choices you had during the
accumulation phase. You can choose to have payments come from the fixed account,
the investment portfolios or both. If you choose to have any part of your
payments come from the investment portfolios, the dollar amount of your payments
may go up or down.
3. PURCHASE: You can buy this contract with $5,000 or more under most
circumstances. You can add $2,000 or more any time you like during the
accumulation phase. Your registered representative can help you fill out the
proper forms.
4. INVESTMENT OPTIONS: You can put your money in any or all of these investment
portfolios which are described in the prospectuses for the funds:
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MANAGED BY J.P. MORGAN INVESTMENT MANAGED BY LORD, ABBETT & CO. MANAGED BY CONNING ASSET
MANAGEMENT INC. Bond Debenture MANAGEMENT COMPANY
Select Equity Growth and Income Money Market
Large Cap Stock Mid-Cap Value
Small Cap Stock Large Cap Research
International Equity Developing Growth
Quality Bond Lord Abbett Growth and Income
</TABLE>
Depending upon market conditions, you can make or lose money in any of these
portfolios.
5. EXPENSES: The contract has insurance features and investment features, and
there are costs related to each.
Each year First Cova deducts a $30 contract maintenance charge from your
contract. During the accumulation phase, First Cova currently waives this charge
if the value of your contract is at least $50,000. First Cova also deducts for
its insurance charges which total 1.40% of the average daily value of your
contract allocated to the investment portfolios.
If you take your money out, First Cova may assess a withdrawal charge which is
equal to 7% of each payment you take out in the first and second years after
First Cova receives the payment, 5% of each payment you take out in the third,
fourth and fifth years, and 3% of each payment you take out in the sixth and
seventh years.
There are also investment charges which range from 0.205% to 1.10% of the
average daily value of the investment portfolio depending upon the investment
portfolio.
6. TAXES: Your earnings are not taxed until you take them out. If you take money
out, earnings come out first and are taxed as income. If you are younger than 59
1/2 when you take money out, you may be charged a 10% federal tax penalty on the
earnings. Payments during the income phase are considered partly a return of
your original investment. That part of each payment is not taxable as income.
7. ACCESS TO YOUR MONEY: You can take money out at any time during the
accumulation phase. After the first year, you can take up to 10% of your total
purchase payments each year without charge from First Cova. Withdrawals in
excess of that will be charged 7% of each payment you take out in the first and
second years after First Cova receives the payment, 5% of each payment you take
out in the third, fourth and fifth years, and 3% of each payment you take out in
the sixth and seventh years. After First Cova has had a payment for 7 years,
there is no charge for withdrawals. Of course, you may also have to pay income
tax and a tax penalty on any money you take out. Each purchase payment you add
to your Contract has its own 7 year withdrawal charge period.
8. PERFORMANCE: The value of the contract will vary up or down depending upon
the investment performance of the investment portfolios you choose. First Cova
provides performance information in Appendix B and the SAI. Past performance is
not a guarantee of future results.
9. DEATH BENEFIT: If you die before moving to the income phase, the person you
have chosen as your beneficiary will receive a death benefit.
10. OTHER INFORMATION: Free Look. If you cancel the contract within 10 days
after receiving it we will send you whatever your contract is worth on the day
we receive your request (this may be more or less than your original payment)
without assessing a withdrawal charge. If you have purchased the contract as an
Individual Retirement Annuity (IRA) you will receive back your purchase payment.
(Currently, the contract is not available under an IRA until the IRA Endorsement
is approved by the State of New York Insurance Department.)
No Probate. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
However, the avoidance of probate does not mean that the beneficiary will not
have tax liability as a result of receiving the death benefit.
Who should purchase the Contract? This contract is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes. The tax-deferred feature is most attractive to people in
high federal and state tax brackets. You should not buy this contract if you are
looking for a short-term investment or if you cannot take the risk of getting
back less money than you put in.
Additional Features. This contract has additional features you might be
interested in. These include:
* You can arrange to have money automatically sent to you each month while
your contract is still in the accumulation phase. Of course, you'll have to pay
taxes on money you receive. We call this feature the Systematic Withdrawal
Program.
* You can arrange to have a regular amount of money automatically invested
in investment portfolios each month, theoretically giving you a lower average
cost per unit over time than a single one time purchase. We call this feature
Dollar Cost Averaging.
* First Cova will automatically readjust the money between investment
portfolios periodically to keep the blend you select. We call this feature
Automatic Rebalancing.
11. INQUIRIES: If you need more information about buying a contract, please
contact us at:
Cova Life Sales Company
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181
800-523-1661
If you have any other questions, please contact us at our Home Office:
120 Broadway
New York, NY 10271
(800) 469-4545
(212) 766-0012
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FEE TABLE
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OWNER TRANSACTION EXPENSES
Withdrawal Charge (as a percentage of Years Since
purchase payments) (see Note 2 below) Payment Charge
----------- ------
1 7%
2 7%
3 5%
4 5%
5 5%
6 3%
7 3%
8+ 0%
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Transfer Fee (see Note 3 below)
No charge for first 12 transfers in a contract year; thereafter, the fee is $25
per transfer or, if less, 2% of the amount transferred.
Contract Maintenance Charge (see Note 4 below)
$30 per contract per year
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SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Premium 1.25%
Administrative Expense Charge .15%
-----
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES 1.40%
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INVESTMENT PORTFOLIO EXPENSES
(as a percentage of the average daily net assets of an investment portfolio)
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Other Expenses
(after expense
reimbursement for
Management 12b-1 certain Portfolios - Total Annual
Fees Fees see Note 5 below) Portfolio Expenses
---------- ----- -------------------- ------------------
COVA SERIES TRUST
Managed by J.P. Morgan
Investment Management Inc.
Select Equity .75% - - .10% .85%
Large Cap Stock .65% - - .10% .75%
Small Cap Stock .85% - - .10% .95%
International Equity .85% - - .10% .95%
Quality Bond .55% - - .10% .65%
Managed by Lord, Abbett & Co.
Bond Debenture .75% - - .10% .85%
Mid Cap Value* 1.00% - - .10% 1.10%
Large Cap Research* 1.00% - - .10% 1.10%
Developing Growth* .90% - - .10% 1.00%
Lord Abbett Growth and Income** .65% - - .10% .75%
LORD ABBETT SERIES FUND, INC.
Managed by Lord, Abbett & Co.
Growth and Income# .50% .15% .02% .67%
GENERAL AMERICAN CAPITAL COMPANY
Managed by Conning Asset
Management Company
Money Market .125% - - .08% .205%
<FN>
* Annualized. The Portfolio commenced regular investment operations on
August 20, 1997.
** Estimated. The Portfolio has not yet commenced regular investment
operations.
# The Growth and Income Portfolio of Lord Abbett Series Fund, Inc. has a
12b-1 plan which provides for payments to Lord, Abbett & Co. for remittance
to a life insurance company for certain distribution expenses (see the Fund
Prospectus). The 12b-1 plan provides that such remittances, in the
aggregate, will not exceed .15%, on an annual basis, of the daily net asset
value of shares of the Growth and Income Portfolio. For the year ending
December 31, 1998 the 12b-1 fees are estimated to be .15%. The examples
below for this Portfolio reflect the estimated 12b-1 fees.
</FN>
</TABLE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
5% annual return on assets:
(a) upon surrender at the end of each time period;
(b) if the contract is not surrendered or is annuitized.
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Time Periods
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1 year 3 years 5 years 10 years
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COVA SERIES TRUST
Managed by J.P. Morgan
Investment Management Inc.
Select Equity (a)$93.80 (a)$118.16 (a)$169.99 (a)$266.24
(b)$23.80 (b) 73.16 (b)$124.99 (b)$266.24
Large Cap Stock (a)$92.80 (a)$115.15 (a)$164.95 (a)$256.13
(b)$22.80 (b)$ 70.15 (b)$119.95 (b)$256.13
Small Cap Stock (a)$94.80 (a)$121.17 (a)$175.00 (a)$276.23
(b)$24.80 (b)$ 76.17 (b)$130.00 (b)$276.23
International Equity (a)$94.80 (a)$121.17 (a)$175.00 (a)$276.23
(b)$24.80 (b)$ 76.17 (b)$130.00 (b)$276.23
Quality Bond (a)$91.79 (a)$112.12 (a)$159.89 (a)$245.92
(b)$21.79 (b)$ 67.12 (b)$114.89 (b)$245.92
Managed by Lord, Abbett & Co.
Bond Debenture (a)$93.80 (a)$118.16 (a)$169.99 (a)$266.24
(b)$23.80 (b)$ 73.16 (b)$124.99 (b)$266.24
Mid-Cap Value (a)$96.30 (a)$125.66
(b)$26.30 (b)$ 80.66
Large Cap Research (a)$96.30 (a)$125.66
(b)$26.30 (b)$ 80.66
Developing Growth (a)$95.30 (a)$122.67
(b)$25.30 (b)$ 77.67
Lord Abbett Growth and
Income (a)$72.80 (a)$115.15
(b)$22.80 (b)$ 70.15
LORD ABBETT SERIES FUND, INC.
Managed by Lord, Abbett & Co.
Growth and Income (a)$91.99 (a)$112.73 (a)$160.90 (a)$247.97
(b)$21.99 (b)$ 67.73 (b)$115.90 (b)$247.97
GENERAL AMERICAN CAPITAL COMPANY
Managed by Conning Asset
Management Company
Money Market (a)$87.31 (a)$ 98.54 (a)$137.02 (a)$199.08
(b)$17.31 (b)$ 53.54 (b)$ 92.02 (b)$199.08
</TABLE>
Explanation of Fee Table and Examples
1. The purpose of the Fee Table is to show you the various expenses you will
incur directly or indirectly with the contract. The Fee Table reflects expenses
of the Separate Account as well as of the investment portfolios.
2. The withdrawal charge is 7% of each payment you take out in the first and
second years after First Cova receives the payment, 5% of each payment you take
out in the third, fourth and fifth years, and 3% of each payment you take out in
the sixth and seventh years. After First Cova has had a purchase payment for 7
years, there is no charge by First Cova for a withdrawal of that purchase
payment. You may also have to pay income tax and a tax penalty on any money you
take out. After the first year, you can take up to 10% of your total purchase
payments each year without a charge from First Cova.
3. First Cova will not charge you the transfer fee even if there are more than
12 transfers in a year if the transfer is for the Dollar Cost Averaging or
Automatic Rebalancing Programs.
4. During the accumulation phase, First Cova will not charge the contract
maintenance charge if the value of your contract is $50,000 or more,
although, if you make a complete withdrawal, First Cova will charge the
contract maintenance charge.
5. An affiliate of First Cova currently reimburses the investment portfolios of
Cova Series Trust for all operating expenses (exclusive of the management fees)
in excess of approximately .10%. Absent this expense reimbursement, the expenses
(on an annualized basis) for the period ended December 31, 1997 would have been:
1.00% for the Select Equity Portfolio, 1.39% for the Small Cap Stock Portfolio,
1.53% for the International Equity Portfolio, 1.08% for the Quality Bond
Portfolio, 1.08% for the Large Cap Stock Portfolio, 1.07% for the Bond
Debenture Portfolio, 8.41% for the Mid-Cap Value Portfolio, 10.04% for the Large
Cap Research Portfolio and 9.00% for the Developing Growth Portfolio.
6. Premium taxes are not reflected. New York does not assess premium taxes.
7. The assumed average contract size is $30,000.
8. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1. THE ANNUITY CONTRACT
This Prospectus describes the Fixed and Variable Annuity Contract offered by
First Cova.
An annuity is a contract between you, the owner, and an insurance company (in
this case First Cova), where the insurance company promises to pay you an
income, in the form of annuity payments, beginning on a designated date that's
at least one year after we issue your contract. Until you decide to begin
receiving annuity payments, your annuity is in the accumulation phase. Once you
begin receiving annuity payments, your contract switches to the income phase.
The contract benefits from tax deferral.
Tax deferral means that you are not taxed on earnings or appreciation on the
assets in your contract until you take money out of your contract.
The contract is called a variable annuity because you can choose among 12
investment portfolios and, depending upon market conditions, you can make or
lose money in any of these portfolios. If you select the variable annuity
portion of the contract, the amount of money you are able to accumulate in
your contract during the accumulation phase depends upon the investment
performance of the investment portfolio(s) you select. The amount of the
annuity payments you receive during the income phase from the variable
annuity portion of the contract also depends upon the investment performance
of the investment portfolios you select for the income phase.
The contract also contains a fixed account. The fixed account offers an interest
rate that is guaranteed by First Cova. If you select the fixed account, your
money will be placed with the other general assets of First Cova. If you
select the fixed account, the amount of money you are able to accumulate in
your contract during the accumulation phase depends upon the total
interest credited to your contract. The amount of the annuity payments you
receive during the income phase from the fixed account portion of the contract
will remain level for the entire income phase.
As owner of the contract, you exercise all rights under the contract. You can
change the owner at any time by notifying First Cova in writing. You and another
person can be named joint owners. We have described more information on this in
Section 10 - Other Information.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
Under the contract you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the annuity
date. Your annuity date must be the first day of a calendar month. You can also
choose among income plans. We call those annuity options.
We ask you to choose your annuity date and annuity option when you purchase the
contract. You can change either at any time before the annuity date with 30 days
notice to us. Your annuity date cannot be any earlier than one year after we
issue the contract. Annuity payments must begin by the annuitant's 90th
birthday. The annuitant is the person whose life we look to when we make annuity
payments.
If you do not choose an annuity option at the time you purchase the contract, we
will assume that you selected Option 2 which provides a life annuity with 10
years of guaranteed payments.
During the income phase, you have the same investment choices you had just
before the start of the income phase. At the annuity date, you can choose
whether payments will come from the fixed account, the investment portfolio(s)
or a combination of both. If you don't tell us otherwise, your annuity payments
will be based on the investment allocations that were in place on the annuity
date.
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things: 1) the value of your contract in the investment portfolio(s) on the
annuity date, 2) the 3% assumed investment rate used in the annuity table for
the contract, and 3) the performance of the investment portfolios you selected.
If the actual performance exceeds the 3% assumed rate, your annuity payments
will increase. Similarly, if the actual rate is less than 3%, your annuity
payments will decrease.
You can choose one of the following annuity options or any other annuity
option acceptable to First Cova. After annuity payments begin, you cannot
change the annuity option.
OPTION 1. LIFE ANNUITY. Under this option, we will make an annuity payment each
month so long as the annuitant is alive. After the annuitant dies, we stop
making annuity payments.
OPTION 2. LIFE ANNUITY WITH 5, 10 OR 20 YEARS GUARANTEED. Under this option, we
will make an annuity payment each month so long as the annuitant is alive.
However, if, when the annuitant dies, we have made annuity payments for less
than the selected guaranteed period, we will then continue to make annuity
payments for the rest of the guaranteed period to the beneficiary. If the
beneficiary does not want to receive annuity payments, he or she can ask us for
a single lump sum.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. Under this option, we will make
annuity payments each month so long as the annuitant and a second person are
both alive. When either of these people dies, we will continue to make annuity
payments, so long as the survivor continues to live. The amount of the annuity
payments we will make to the survivor can be equal to 100%, 66-2/3% or 50% of
the amount that we would have paid if both were alive.
Annuity payments are made monthly unless you have less than $2,000 to apply
toward a payment. In that case, First Cova may provide your annuity payment in a
single lump sum. Likewise, if your annuity payments would be less than $20 a
month, First Cova has the right to change the frequency of payments so that your
annuity payments are at least $20.
3. PURCHASE
PURCHASE PAYMENTS
A purchase payment is the money you give us to buy the contract. The minimum we
will accept is $5,000 when the contract is bought as a non-qualified contract.
If you are buying the contract as part of an IRA (Individual Retirement Annuity)
the minimum we will accept is $2,000. (Currently, the contract is not available
under an IRA until the IRA Endorsement is approved by the State of New York
Insurance Department.) The maximum we accept is $1 million without our prior
approval. You can make additional purchase payments of $2,000 or more to either
type of contract.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your purchase payment to the
fixed account and/or one or more of the investment portfolios you have selected.
If you make additional purchase payments, we will allocate them in the same way
as your first purchase payment unless you tell us otherwise. There is a $500
minimum balance requirement for the fixed account and for each investment
portfolio.
If you change your mind about owning this contract, you can cancel it within 10
days after receiving it. When you cancel the contract within this time period,
First Cova will not assess a withdrawal charge. You will receive back whatever
your contract is worth on the day we receive your request. If you have purchased
the contract as an IRA, we are required to give you back your purchase payment
if you decide to cancel your contract within 10 days after receiving it.
Once we receive your purchase payment and the necessary information, we will
issue your contract and allocate your first purchase payment within 2 business
days. If you do not give us all of the information we need, we will contact you
to get it. If for some reason we are unable to complete this process within 5
business days, we will either send back your money or get your permission to
keep it until we get all of the necessary information. If you add more money to
your contract by making additional purchase payments, we will credit these
amounts to your contract within one business day. Our business day closes when
the New York Stock Exchange closes, usually 4:00 P.M. Eastern time.
ACCUMULATION UNITS
The value of the variable annuity portion of your contract will go up or down
depending upon the investment performance of the investment portfolio(s) you
choose. In order to keep track of the value of your contract, we use a unit of
measure we call an accumulation unit. (An accumulation unit works like a share
of a mutual fund.) During the income phase of the contract we call the unit an
annuity unit.
Every day we determine the value of an accumulation unit for each of the
investment portfolios. We do this by:
1. determining the total amount of money invested in the particular investment
portfolio;
2. subtracting from that amount any insurance charges and any other charges such
as taxes we have deducted; and
3. dividing this amount by the number of outstanding accumulation units.
The value of an accumulation unit may go up or down from day to day.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited is determined by dividing the
amount of the purchase payment allocated to an investment portfolio divided by
the value of the accumulation unit for that investment portfolio.
We calculate the value of an accumulation unit for each investment portfolio
after the New York Stock Exchange closes each day and then credit your contract.
EXAMPLE:
On Monday we receive an additional purchase payment of $5,000 from you. You have
told us you want this to go to the Quality Bond Portfolio. When the New York
Stock Exchange closes on that Monday, we determine that the value of an
accumulation unit for the Quality Bond Portfolio is $13.90. We then divide
$5,000 by $13.90 and credit your contract on Monday night with 359.71
accumulation units for the Quality Bond Portfolio.
4. INVESTMENT OPTIONS
The Contract offers 12 investment portfolios which are listed below.
Additional investment portfolios may be available in the future.
YOU SHOULD READ THE PROSPECTUSES FOR THESE FUNDS CAREFULLY BEFORE INVESTING.
COPIES OF THESE PROSPECTUSES ARE ATTACHED TO THIS PROSPECTUS.
COVA SERIES TRUST
Cova Series Trust is managed by Cova Investment Advisory Corporation (Cova
Advisory) which is an affiliate of First Cova. Cova Series Trust is a mutual
fund with multiple portfolios. Each investment portfolio has a different
investment objective. Cova Advisory has engaged sub-advisers to provide
investment advice for the individual investment portfolios. The following
investment portfolios are available under the contract:
J.P. MORGAN INVESTMENT MANAGEMENT INC. IS THE SUB-ADVISER TO THE FOLLOWING
PORTFOLIOS:
Select Equity Portfolio
Large Cap Stock Portfolio
Small Cap Stock Portfolio
International Equity Portfolio
Quality Bond Portfolio
LORD, ABBETT & CO. IS THE SUB-ADVISER TO THE FOLLOWING PORTFOLIOS:
Bond Debenture Portfolio
Mid-Cap Value Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Lord Abbett Growth and Income Portfolio
LORD ABBETT SERIES FUND, INC.
Lord Abbett Series Fund, Inc. is a mutual fund. The following portfolio
managed by Lord, Abbett & Co. is available under the contract:
Growth and Income Portfolio
GENERAL AMERICAN CAPITAL COMPANY
General American Capital Company is a mutual fund with multiple portfolios. Each
portfolio is managed by Conning Asset Management Company. The following
portfolio is available under the contract:
Money Market Fund
TRANSFERS
You can transfer money among the fixed account and the investment portfolios.
You can make transfers by telephone. If you own the contract with a joint owner,
unless First Cova is instructed otherwise, First Cova will accept instructions
from either you or the other owner. First Cova will use reasonable procedures to
confirm that instructions given us by telephone are genuine. If First Cova fails
to use such procedures, we may be liable for any losses due to unauthorized or
fraudulent instructions. First Cova tape records all telephone instructions.
TRANSFERS DURING THE ACCUMULATION PHASE.
You can make 12 transfers every year during the accumulation phase without
charge. We measure a year from the anniversary of the day we issued your
contract. You can make a transfer to or from the fixed account and to or from
any investment portfolio. If you make more than 12 transfers in a year, there is
a transfer fee deducted. The fee is $25 per transfer or, if less, 2% of the
amount transferred. The following apply to any transfer during the accumulation
phase:
1. The minimum amount which you can transfer is $500 or your entire value in the
investment portfolio or fixed account.
2. Your request for transfer must clearly state which investment portfolio(s) or
the fixed account are involved in the transfer.
3. Your request for transfer must clearly state how much the transfer is for.
4. You cannot make any transfers within 7 calendar days of the annuity date.
TRANSFERS DURING THE INCOME PHASE.
You can only make transfers between the investment portfolios once each year. We
measure a year from the anniversary of the day we issued your contract. You
cannot transfer from the fixed account to an investment portfolio, but you can
transfer from one or more investment portfolios to the fixed account at any
time.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount each month from the Money Market Fund of General American Capital Company
or the fixed account to any of the other investment portfolio(s). By allocating
amounts on a regular schedule as opposed to allocating the total amount at one
particular time, you may be less susceptible to the impact of market
fluctuations. The Dollar Cost Averaging Program is available only during the
accumulation phase.
The minimum amount which can be transferred each month is $500. You must have at
least $6,000 in the Money Market Fund of General American Capital Company or the
fixed account, (or the amount required to complete your program, if less) in
order to participate in the Dollar Cost Averaging Program.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
AUTOMATIC REBALANCING PROGRAM
Once your money has been allocated among the investment portfolios, the
performance of each portfolio may cause your allocation to shift. You can direct
us to automatically rebalance your contract to return to your original
percentage allocations by selecting our Automatic Rebalancing Program. You can
tell us whether to rebalance quarterly, semi-annually or annually. We will
measure these periods from the anniversary of the date we issued your contract.
The transfer date will be the 1st day after the end of the period you selected.
The Automatic Rebalancing Program is available only during the accumulation
phase. If you participate in the Automatic Rebalancing Program, the
transfers made under the program are not taken into account in determining any
transfer fee.
EXAMPLE:
Assume that you want your initial purchase payment split between 2 investment
portfolios. You want 40% to be in the Quality Bond Portfolio and 60% to be in
the Select Equity Portfolio. Over the next 2-1 2 months the bond market does
very well while the stock market performs poorly. At the end of the first
quarter, the Quality Bond Portfolio now represents 50% of your holdings because
of its increase in value. If you had chosen to have your holdings rebalanced
quarterly, on the first day of the next quarter, First Cova would sell some of
your units in the Quality Bond Portfolio to bring its value back to 40% and use
the money to buy more units in the Select Equity Portfolio to increase those
holdings to 60%.
VOTING RIGHTS
First Cova is the legal owner of the investment portfolio shares. However, First
Cova believes that when an investment portfolio solicits proxies in conjunction
with a vote of shareholders, it is required to obtain from you and other owners
instructions as to how to vote those shares. When we receive those instructions,
we will vote all of the shares we own in proportion to those instructions. This
will also include any shares that First Cova owns on its own behalf. Should
First Cova determine that it is no longer required to comply with the above, we
will vote the shares in our own right.
SUBSTITUTION
First Cova may be required to substitute one of the investment portfolios you
have selected with another portfolio. We would not do this without the prior
approval of the Securities and Exchange Commission. We will give you notice of
our intent to do this.
5. EXPENSES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses are:
INSURANCE CHARGES
Each day, First Cova makes a deduction for its insurance charges. First Cova
does this as part of its calculation of the value of the accumulation units and
the annuity units. The insurance charge has two parts: 1) the mortality and
expense risk premium and 2) the administrative expense charge.
MORTALITY AND EXPENSE RISK PREMIUM. This charge is equal, on an annual basis, to
1.25% of the daily value of the contracts invested in an investment portfolio,
after expenses have been deducted. This charge is for all the insurance benefits
e.g., guarantee of annuity rates, the death benefits, for certain expenses of
the contract, and for assuming the risk (expense risk) that the current charges
will be sufficient in the future to cover the cost of administering the
contract. If the charges under the contract are not sufficient, then First Cova
will bear the loss. First Cova does, however, expect to profit from this charge.
The mortality and expense risk premium cannot be increased. First Cova may use
any profits we make from this charge to pay for the costs of distributing the
contract.
ADMINISTRATIVE EXPENSE CHARGE. This charge is equal, on an annual basis, to .15%
of the daily value of the contracts invested in an investment portfolio, after
expenses have been deducted. This charge, together with the contract maintenance
charge (see below) is for all the expenses associated with the administration of
the contract. Some of these expenses are: preparation of the contract,
confirmations, annual reports and statements, maintenance of contract records,
personnel costs, legal and accounting fees, filing fees, and computer and
systems costs. Because this charge is taken out of every unit value, you may pay
more in administrative costs than those that are associated solely with your
contract. First Cova does not intend to profit from this charge. However, if
this charge and the contract maintenance charge are not enough to cover the
costs of the contracts in the future, First Cova will bear the loss.
CONTRACT MAINTENANCE CHARGE
During the accumulation phase, every year on the anniversary of the date when
your contract was issued, First Cova deducts $30 from your contract as a
contract maintenance charge. This charge is for administrative expenses (see
above). This charge cannot be increased.
First Cova will not deduct this charge during the accumulation phase if when
the deduction is to be made, the value of your contract is $50,000 or more.
First Cova may some time in the future discontinue this practice and deduct the
charge.
If you make a complete withdrawal from your contract, the contract maintenance
charge will also be deducted. A prorata portion of the charge will be deducted
if the annuity date is other than an anniversary. After the annuity date, the
charge will be collected monthly out of the annuity payment.
WITHDRAWAL CHARGE
During the accumulation phase, you can make withdrawals from your contract.
First Cova keeps track of each purchase payment. Once a year after the first
year, you can withdraw up to 10% of your total purchase payments and no
withdrawal charge will be assessed on the 10%, if on the day you make your
withdrawal the value of your contract is $5,000 or more. Otherwise, the charge
is 7% of each payment you take out in the first and second years after First
Cova receives the payment, 5% of each payment you take out in the third, fourth
and fifth years, and 3% of each payment you take out in the sixth and seventh
years. After First Cova has had a purchase payment for 7 years, there is no
charge when you withdraw that purchase payment. For purposes of the withdrawal
charge, First Cova treats withdrawals as coming from the oldest purchase payment
first. When the withdrawal is for only part of the value of your contract, the
withdrawal charge is deducted from the remaining value in your contract.
NOTE: For tax purposes, withdrawals are considered to have come from the last
money into the contract. Thus, for tax purposes, earnings are considered to come
out first.
First Cova does not assess the withdrawal charge on any payments paid out as
annuity payments or as death benefits.
REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE
First Cova will reduce or eliminate the amount of the withdrawal charge when the
contract is sold to an officer, director or employee of First Cova. In no event
will elimination of the Withdrawal Charge be permitted where elimination will be
unfairly discriminatory to any person.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 or 2% of the amount that is transferred whichever is less.
If the transfer is part of the Dollar Cost Averaging Program or the Automatic
Rebalancing Program it will not count in determining the transfer fee.
INCOME TAXES
First Cova will deduct from the contract for any income taxes which it incurs
because of the contract. At the present time, we are not making any such
deductions.
INVESTMENT PORTFOLIO EXPENSES
There are deductions from and expenses paid out of the assets of the various
investment portfolios, which are described in the attached fund prospectuses.
6. TAXES
NOTE: First Cova has prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. First Cova
has included in the Statement of Additional Information an additional discussion
regarding taxes.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of contract -
qualified or non-qualified (see following sections).
You, as the owner, will not be taxed on increases in the value of your contract
until a distribution occurs - either as a withdrawal or as annuity payments.
When you make a withdrawal you are taxed on the amount of the withdrawal that is
earnings. For annuity payments, different rules apply. A portion of each annuity
payment is treated as a partial return of your purchase payments and will not be
taxed. The remaining portion of the annuity payment will be treated as ordinary
income. How the annuity payment is divided between taxable and non-taxable
portions depends upon the period over which the annuity payments are expected to
be made. Annuity payments received after you have received all of your purchase
payments are fully includible in income.
When a non-qualified contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than tax-qualified trusts), the
contract will generally not be treated as an annuity for tax purposes.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the contract as an individual and not under an Individual
Retirement Annuity (IRA), your contract is referred to as a non-qualified
contract.
If you purchase the contract under an IRA, your contract is referred to as a
qualified contract. Currently, the contract is not available under an IRA until
the IRA Endorsement is approved by the State of New York Insurance Department.
WITHDRAWALS - NON-QUALIFIED CONTRACTS
If you make a withdrawal from your contract, the Code treats such a withdrawal
as first coming from earnings and then from your purchase payments. Such
withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts: (1) paid on or after the
taxpayer reaches age 59-1/2; (2) paid after you die; (3) paid if the taxpayer
becomes totally disabled (as that term is defined in the Code); (4) paid in a
series of substantially equal payments made annually (or more frequently) under
a lifetime annuity, (5) paid under an immediate annuity; or (6) which come from
purchase payments made prior to August 14, 1982.
WITHDRAWALS - QUALIFIED CONTRACTS
The above information describing the taxation of non-qualified contracts does
not apply to qualified contracts. There are special rules that govern with
respect to qualified contracts. We have provided a more complete discussion in
the Statement of Additional Information.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. First Cova believes that the investment portfolios are being
managed so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not First Cova
would be considered the owner of the shares of the investment portfolios. If
this occurs, it will result in the loss of the favorable tax treatment for the
contract. It is unknown to what extent under federal tax law owners are
permitted to select investment portfolios, to make transfers among the
investment portfolios or the number and type of investment portfolios owners may
select from. If any guidance is provided which is considered a new position,
then the guidance would generally be applied prospectively. However, if such
guidance is considered not to be a new position, it may be applied
retroactively. This would mean that you, as the owner of the contract, could be
treated as the owner of the investment portfolios.
Due to the uncertainty in this area, First Cova reserves the right to modify the
contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
You can have access to the money in your contract: (1) by making a withdrawal
(either a partial or a complete withdrawal); (2) by electing to receive annuity
payments; or (3) when a death benefit is paid to your beneficiary. Withdrawals
can only be made during the accumulation phase.
When you make a complete withdrawal you will receive the value of the contract
on the day you made the withdrawal less any applicable withdrawal charge, less
any premium tax and less any contract maintenance charge. (See Section 5.
Expenses for a discussion of the charges.)
Unless you instruct First Cova otherwise, any partial withdrawal will be made
pro-rata from all the investment portfolios and the fixed account you selected.
Under most circumstances the amount of any partial withdrawal must be for at
least $500. First Cova requires that after a partial withdrawal is made you keep
at least $1,000 in your contract.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE.
SYSTEMATIC WITHDRAWAL PROGRAM
If you are 59-1/2 or older, you may use the Systematic Withdrawal Program. This
program provides an automatic monthly payment to you of up to 10% of your total
purchase payments each year. No withdrawal charge will be deducted for these
payments. First Cova does not have any charge for this program. If you use this
program, you may not also make a single 10% free withdrawal. For a discussion of
the withdrawal charge and the 10% free withdrawal, see Section 5. Expenses.
INCOME TAXES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
8. PERFORMANCE
First Cova periodically advertises performance of the various investment
portfolios. First Cova will calculate performance by determining the percentage
change in the value of an accumulation unit by dividing the increase (decrease)
for that unit by the value of the accumulation unit at the beginning of the
period. This performance number reflects the deduction of the insurance charges.
It does not reflect the deduction of any applicable contract maintenance charge
and withdrawal charge. The deduction of any applicable contract maintenance
charge and withdrawal charges would reduce the percentage increase or make
greater any percentage decrease. Any advertisement will also include total
return figures which reflect the deduction of the insurance charges, contract
maintenance charges, and withdrawal charges.
First Cova may, from time to time, include in its advertising and sales
materials, tax deferred compounding charts and other hypothetical illustrations,
which may include comparisons of currently taxable and tax deferred investment
programs, based on selected tax brackets.
Appendix B contains performance information that you may find informative. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and the results shown are not necessarily
representative of future results.
9. DEATH BENEFIT
UPON YOUR DEATH
If you die before annuity payments begin, First Cova will pay a death benefit to
your beneficiary (see below). If you have a joint owner, the death benefit will
be paid when the first of you dies. The surviving joint owner will be treated as
the beneficiary.
The amount of the death benefit depends on how old you or your joint owner is.
Prior to you, or your joint owner, reaching age 80, the death benefit will be
the greater of:
1. Total purchase payments, less withdrawals (and any withdrawal charges paid on
the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent seven year anniversary before
the date of death, plus any subsequent purchase payments, less any withdrawals
(and any withdrawal charges paid on the withdrawals.)
After you, or your joint owner, reaches age 80, the death benefit will be the
greater of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or 3.
The value of your contract on the most recent seven year anniversary on or
before you or your joint owner reaches age 80, plus any subsequent purchase
payments, less any withdrawals (and any withdrawal charges paid on the
withdrawals).
The entire death benefit must be paid within 5 years of the date of death unless
the beneficiary elects to have the death benefit payable under an annuity
option. The death benefit payable under an annuity option must be paid over the
beneficiary's lifetime or for a period not extending beyond the beneficiary's
life expectancy. Payment must begin within one year of the date of death. If the
beneficiary is the spouse of the owner, he/she can continue the contract in
his/her own name at the then current value. If a lump sum payment is elected and
all the necessary requirements are met, the payment will be made within 7 days.
DEATH OF ANNUITANT
If the annuitant, not an owner or joint owner, dies before annuity payments
begin, you can name a new annuitant. If no annuitant is named within 30 days of
the death of the annuitant, you will become the annuitant. However, if the owner
is a non-natural person (for example, a corporation), then the death or change
of annuitant will be treated as the death of the owner, and a new annuitant may
not be named.
Upon the death of the annuitant after annuity payments begin, the death benefit,
if any, will be as provided for in the annuity option selected.
10. OTHER INFORMATION
FIRST COVA
First Cova Life Insurance Company (First Cova) was organized under the laws of
the State of New York on December 31, 1992. First Cova is a wholly-owned
subsidiary of Cova Financial Services Life Insurance Company, a Missouri
insurance company. On June 1, 1995, a wholly-owned subsidiary of General
American Life Insurance Company purchased First Cova which on that date changed
its name to First Cova Life Insurance Company.
First Cova is licensed to do business only in the state of New York.
THE SEPARATE ACCOUNT
First Cova has established a separate account, First Cova Variable Annuity
Account One (Separate Account), to hold the assets that underlie the contracts.
The Board of Directors of First Cova adopted a resolution to establish the
Separate Account under New York insurance law on December 31, 1992. We have
registered the Separate Account with the Securities and Exchange Commission as a
unit investment trust under the Investment Company Act of 1940.
The assets of the Separate Account are held in First Cova's name on behalf of
the Separate Account and legally belong to First Cova. However, those assets
that underlie the contracts, are not chargeable with liabilities arising out of
any other business First Cova may conduct. All the income, gains and losses
(realized or unrealized) resulting from these assets are credited to or charged
against the contracts and not against any other contracts First Cova may issue.
DISTRIBUTOR
Cova Life Sales Company (Life Sales), One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644, acts as the distributor of the contracts. Life
Sales is an affiliate of First Cova.
Commissions will be paid to broker-dealers who sell the contracts.
Broker-dealers will be paid commissions of up to 3.5% of purchase payments. In
addition, under certain circumstances, an expense allowance of up to 2.75% of
purchase payments may be payable. The New York Insurance Department has ruled
that asset based compensation is permissible under certain circumstances. First
Cova may, in the future, adopt an asset based compensation program in addition
to, or in lieu of, the present compensation program.
OWNERSHIP
OWNER. You, as the owner of the contract, have all the rights under the
contract. Prior to the annuity date, the owner is as designated at the time the
contract is issued, unless changed. On and after the annuity date, the annuitant
is the owner. The beneficiary becomes the owner when a death benefit is payable.
JOINT OWNER. The contract can be owned by joint owners. Upon the death of either
joint owner, the surviving owner will be the designated beneficiary. Any other
beneficiary designation at the time the contract was issued or as may have been
later changed will be treated as a contingent beneficiary unless otherwise
indicated.
BENEFICIARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued unless
changed at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before you die.
ASSIGNMENT
You can assign the contract at any time during your lifetime. First Cova will
not be bound by the assignment until it receives the written notice of the
assignment. First Cova will not be liable for any payment or other action we
take in accordance with the contract before we receive notice of the assignment.
AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the contract is issued pursuant to a qualified plan, there may be limitations
on your ability to assign the contract.
SUSPENSION OF PAYMENTS OR TRANSFERS
First Cova may be required to suspend or postpone payments for withdrawal or
transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the investment
portfolios is not reasonably practicable or First Cova cannot reasonably value
the shares of the investment portfolios;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of owners.
First Cova has reserved the right to defer payment for a withdrawal or transfer
from the fixed account for the period permitted by law but not for more than six
months.
FINANCIAL STATEMENTS
The financial statements of First Cova and the Separate Account have been
included in the Statement of Additional Information.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Company
Experts
Legal Opinions
Distribution
Performance Information
Federal Tax Status
Annuity Provisions
Financial Statements
APPENDIX A
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUE HISTORY
The following schedule includes accumulation unit values for the period
indicated. This data has been extracted from the Separate Account's Financial
Statements. This information should be read in conjunction with the Separate
Account's Financial Statements and related notes which are included in the
Statement of Additional Information.
<TABLE>
<CAPTION>
<S> <C>
Period
Ended
12/31/97
-----------
COVA SERIES TRUST
Managed by J.P. Morgan Investment
Management Inc.
Select Equity Sub-Account
Beginning of Period $11.76
End of Period $14.05
Number of Accum. Units Outstanding 1,321
Small Cap Stock Sub-Account
Beginning of Period $10.92
End of Period $13.49
Number of Accum. Units Outstanding 530
International Equity Sub-Account
Beginning of Period $11.14
End of Period $11.46
Number of Accum. Units Outstanding 3,836
Quality Bond Sub-Account
Beginning of Period $10.45
End of Period $11.16
Number of Accum. Units Outstanding 2,068
Large Cap Stock Sub-Account
Beginning of Period $12.40
End of Period $14.89
Number of Accum. Units Outstanding 2,807
Managed by Lord, Abbett & Co.
Bond Debenture Sub-Account
Beginning of Period $11.74
End of Period $12.88
Number of Accum. Units Outstanding 8,928
LORD ABBETT SERIES FUND, INC.
Growth and Income Sub-Account
Beginning of Period $27.01
End of Period $30.84
Number of Accum. Units Outstanding 5,547
<FN>
*The accumulation unit values shown above for the beginning of the period
reflect the date these accumulation units first invested in the investment
portfolio as follows: Select Equity (3/11/97), Small Cap Stock (3/17/97);
International Equity (3/11/97); Quality Bond (5/15/97); Large Cap Stock
(3/11/97); Bond Debenture (5/15/97). The Mid-Cap Value, Large Cap Research
and Developing Growth Sub-Accounts had not commenced investment operations
as of December 31, 1997. The Lord Abbett Growth and Income Sub-Account and
the General American Capital Company Money Market Sub-Account had
not commenced regular investment operations as of December 31, 1997.
</FN>
</TABLE>
APPENDIX B
PERFORMANCE INFORMATION
Future performance will vary and the results shown are not necessarily
representative of future results.
PART 1
J.P. Morgan Investment Management Inc. is the sub-adviser for the following
portfolios of Cova Series Trust: Select Equity, Small Cap Stock, International
Equity, Quality Bond and Large Cap Stock. Lord Abbett & Co. is the sub-adviser
for the following Portfolios of Cova Series Trust: Bond Debenture, Mid-Cap
Value, Large Cap Research and Developing Growth. Lord, Abbett & Co. is the
investment adviser for Lord Abbett Series Fund, Inc. which currently has one
operating portfolio: Growth and Income. All of these portfolios began operations
before May 1, 1998. As a result, performance information is available for the
accumulation unit values investing in these portfolios.
Column A presents performance figures for the accumulation units which
reflect the insurance charges as well as the fees and expenses of the
investment portfolio. Column B presents performance figures for the
accumulation units which reflect the insurance charges, the contract
maintenance charge, the fees and expenses of the investment portfolio,
and assume that you make a withdrawal at the end of the period and
therefore the withdrawal charge is reflected. The inception dates shown
below reflect the dates the Separate Account first invested in the
Portfolio.
<TABLE>
<CAPTION>
PART 1 COVA SERIES TRUST
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/97
Accumulation Unit Performance
Column A Column B
(reflects insurance (reflects all
charges and charges and
portfolio expenses) portfolio expenses)
-----------------------------------------------
<S> <C> <C>
Separate Account
inception date since since
Portfolio in Portfolio inception inception
- ------------------- --------------- --------- ----------
Select Equity 3/11/97 19.49% 12.10%
Small Cap Stock 3/17/97 23.52% 16.15%
International Equity 3/11/97 2.85% (4.46)%
Quality Bond 5/15/97 6.78% (0.53)%
Large Cap Stock 3/11/97 20.11% 12.70%
Bond Debenture 5/15/97 9.74% 2.38%
</TABLE>
<TABLE>
<CAPTION>
PART 1 LORD ABBETT SERIES FUND, INC.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/97
Accumulation Unit Performance
Column A Column B
(reflects insurance (reflects all
charges and charges and
portfolio expenses) portfolio expenses)
-----------------------------------------------
<S> <C> <C>
Separate Account
inception date since since
Portfolio in Portfolio inception inception
- ------------------- --------------- --------- ----------
Growth and Income 3/11/97 14.17% 6.32%
</TABLE>
PART 2
GENERAL
Shares of the General American Capital Company Money Market Fund were offered
under the contract on May 1, 1997. Shares of the Lord Abbett Series Fund, Inc.
Growth and Income Portfolio were offered under the contract on February 18,
1997. Shares of the Select Equity, Small Cap Stock, International Equity,
Quality Bond, Large Cap Stock and Bond Debenture Portfolios of Cova Series Trust
were offered under the contracts on February 3, 1997 and shares of the Mid-Cap
Value, Large Cap Research and Developing Growth Portfolios of Cova Series Trust
were offered under the contracts on November 15, 1997. However, the Portfolios
have been in existence for a longer time and therefore have an investment
performance history. In order to show how the historical performance of the
Portfolios affect accumulation unit values, we have developed performance
information.
The chart below shows the investment performance of the Portfolios and the
accumulation unit performance calculated by assuming that accumulation units
were invested in the Portfolios for the same periods.
The performance figures in Column A reflect the fees and expenses paid by the
Portfolio. Column B presents performance figures for the accumulation
units which reflect the insurance charges as well as the fees and expenses
of the Portfolio. Column C presents performance figures for the accumulation
units which reflect the insurance charges, the contract maintenance charge,
the fees and expenses of the Portfolio, and assumes that you make a withdrawal
at the end of the period and therefore the withdrawal charge is reflected.
<TABLE>
<CAPTION>
PART 2 COVA SERIES TRUST
TOTAL RETURN FOR THE PERIODS ENDED 12/31/97
Fund Performance Accumulation Unit Performance
Column A Column B Column C
(reflects insurance charges (reflects all charges
and portfolio expenses) and portfolio expenses)
----------------- ----------------------------------------------------
<S> Portfolio <C> <C> <C> <C> <C> <C>
inception since since since
Portfolio date 1 yr inception 1 yr inception 1 yr inception
- ----------------- ----------- ---- --------- ---- --------- ---- ---------
Select Equity 5/1/96 31.55% 23.74% 29.67% 21.97% 22.57% 15.37%
Small Cap Stock 5/1/96 20.89% 17.72% 19.31% 16.10% 12.21% 9.50%
International Equity 5/1/96 5.96% 8.67% 4.52% 7.14% (2.58)% 0.54%
Quality Bond 5/1/96 9.06% 8.87% 7.58% 7.42% 0.48% 0.82%
Large Cap Stock 5/1/96 33.25% 28.66% 31.36% 26.87% 24.26% 20.27%
Bond Debenture 5/1/96 15.63% 17.28% 14.05% 15.69% 6.95% 9.09%
Mid-Cap Value 8/20/97 4.90% 4.68% (2.42)%
Large Cap Research 8/20/97 (0.74)% (1.00)% (8.10)%
Developing Growth 8/20/97 5.52% 5.28% (1.82)%
</TABLE>
<TABLE>
<CAPTION>
PART 2 GENERAL AMERICAN CAPITAL COMPANY MONEY MARKET FUND
TOTAL RETURN FOR THE PERIODS ENDED 12/31/97
Fund Performance Accumulation Unit Performance
Column A Column B Column C
(reflects insurance charges (reflects all charges
and portfolio expenses) and portfolio expenses)
Portfolio ----------------- ----------------------------------------------------
<S> inception <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio date 1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
- ----------------- ----------- ---- ----- ------ ---- ----- ------ ---- ----- ------
Money Market Fund 10/1/87 5.71% 4.89% 5.99% 4.31% 3.49% 4.59% (2.79)% (1.11)% 4.49%
</TABLE>
<TABLE>
<CAPTION>
PART 2 LORD ABBETT SERIES FUND, INC. GROWTH AND INCOME PORTFOLIO
TOTAL RETURN FOR THE PERIODS ENDED 12/31/97
Fund Performance Accumulation Unit Performance
Column A Column B Column C
(reflects insurance charges (reflects all charges
and portfolio expenses) and portfolio expenses)
Portfolio ----------------- ----------------------------------------------------
<S> inception <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio date 1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
- ----------------- ----------- ---- ----- ------ ---- ----- ------ ---- ----- ------
Growth and Income 12/11/89 24.30% 17.90% 16.60% 22.91% 16.28% 14.99% 15.81% 11.68% 14.89%
</TABLE>
- ---------------------------
- --------------------------- STAMP
- ---------------------------
First Cova Life
Insurance Company
Attn: Variable Products
120 Broadway, 10th Floor
New York, New York 10271
Please send me, at no charge, the Statement of Additional Information
dated May 1, 1998, for The Annuity Contract issued by First Cova.
(Please print or type and fill in all information)
---------------------------------------------------------------------------
Name
---------------------------------------------------------------------------
Address
---------------------------------------------------------------------------
City State Zip Code
CNY-1090(10/97) FIRST COVA VA
[Back Cover]
COVA
First Cova Life Insurance Company
Home Office
120 Broadway, 10th Floor
New York, NY 10271
800-469-4545
Annuity Service Office
P.O. Box 10366
Des Moines, IA 50306
515-243-5834
800-343-8496
CNY-1023(_____) Policy Form Series CNY-672 21-VARI-NY (______)
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT
ISSUED BY
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
AND
FIRST COVA LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 1998, FOR THE
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT WHICH IS DESCRIBED
HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE THE
COMPANY AT: One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois
60181-4644, (800) 831-LIFE.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 1998.
TABLE OF CONTENTS
Page
COMPANY
EXPERTS
LEGAL OPINIONS
DISTRIBUTION
PERFORMANCE INFORMATION
Total Return
Historical Unit Values
Reporting Agencies
Performance Information
FEDERAL TAX STATUS
General
Diversification
Multiple Contracts
Contracts Owned by Other than Natural Persons
Tax Treatment of Assignments
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
ANNUITY PROVISIONS
Variable Annuity
Fixed Annuity
Annuity Unit
Net Investment Factor
Mortality and Expense Guarantee
FINANCIAL STATEMENTS
COMPANY
First Cova Life Insurance Company (the "Company") was organized under the laws
of the state of New York on December 31, 1992. The Company is presently
licensed to do business only in the state of New York. The Company is a
wholly-owned subsidiary of Cova Financial Services Life Insurance Company
("Cova Life"), a Missouri insurance company. On December 31, 1992, Cova Life
acquired Wausau Underwriters Life Insurance Company ("Wausau"), a stock life
insurance company organized under the laws of the state of Wisconsin. On April
16, 1993, Wausau was merged into the Company, with the Company as the
surviving corporation.
On June 1, 1995, a wholly-owned subsidiary of General American Life Insurance
Company ("General American") purchased Cova Life from Xerox Financial
Services, Inc. The acquisition of Cova Life included related companies,
including the Company. On June 1, 1995, the Company changed its name to
First Cova Life Insurance Company.
General American is a St. Louis-based mutual company with more than $300
billion of life insurance in force and approximately $24 billion in assets.
It provides life and health insurance, retirement plans, and related financial
services to individuals and groups.
EXPERTS
The statutory statements of admitted assets, liabilities, and capital stock and
surplus of the Company as of December 31, 1997 and 1996, and the related
statutory statements of operations, capital stock and surplus, and cash flow for
each of the years in the three-year period ended December 31, 1997, and the
statement of assets and liabilities of the Separate Account as of December 31,
1997, and the related statement of operations, statement of changes in contract
owners' equity, and the financial highlights for the period from commencement of
operations through December 31, 1997, have been included herein in reliance upon
the reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP covering the
statutory financial statements of the Company contains an explanatory paragraph
which states that the financial statements were prepared using accounting
practices prescribed or permitted by the New York State Insurance Department,
which practices differ from generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles are described in the
notes to the financial statements.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
DISTRIBUTION
Cova Life Sales Company ("Life Sales") acts as the distributor. Prior to June
1, 1995, Cova Life Sales Company was known as Xerox Life Sales Company. Life
Sales is an affiliate of the Company. The offering is on a continuous basis.
PERFORMANCE INFORMATION
TOTAL RETURN
From time to time, the Company may advertise performance data. Such data will
show the percentage change in the value of an Accumulation Unit based on the
performance of an investment portfolio over a period of time, usually a
calendar year, determined by dividing the increase (decrease) in value for
that unit by the Accumulation Unit value at the beginning of the period.
Any such advertisement will include total return figures for the time periods
indicated in the advertisement. Such total return figures will reflect the
deduction of a 1.25% Mortality and Expense Risk Premium, a .15% Administrative
Expense Charge, the expenses for the underlying investment portfolio being
advertised and any applicable Contract Maintenance Charges and Withdrawal
Charges.
The hypothetical value of a Contract purchased for the time periods described
in the advertisement will be determined by using the actual Accumulation Unit
values for an initial $1,000 purchase payment, and deducting any applicable
Contract Maintenance Charges and any applicable Withdrawal Charges to arrive at
the ending hypothetical value. The average annual total return is then
determined by computing the fixed interest rate that a $1,000 purchase payment
would have to earn annually, compounded annually, to grow to the hypothetical
value at the end of the time periods described. The formula used in these
calculations is:
n
P ( 1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods used (or
fractional portion thereof) of a hypothetical $1,000 payment made
at the beginning of the time periods used.
The Company may also advertise performance data which will be calculated in
the same manner as described above but which will not reflect the deduction of
any Withdrawal Charge. The deduction of any Withdrawal Charge would reduce any
percentage increase or make greater any percentage decrease.
Owners should note that the investment results of each investment portfolio
will fluctuate over time, and any presentation of the investment portfolio's
total return for any period should not be considered as a representation of
what an investment may earn or what an Owner's total return may be in any
future period.
HISTORICAL UNIT VALUES
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the investment
portfolios against established market indices such as the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average or other
management investment companies which have investment objectives similar to
the investment portfolio being compared. The Standard & Poor's 500
Composite Stock Price Index is an unmanaged, unweighted average of 500 stocks,
the majority of which are listed on the New York Stock Exchange. The Dow
Jones Industrial Average is an unmanaged, weighted average of thirty blue chip
industrial corporations listed on the New York Stock Exchange. Both the
Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average assume quarterly reinvestment of dividends.
REPORTING AGENCIES
The Company may also distribute sales literature which compares the
performance of the Accumulation Unit values of the Contracts with the unit
values of variable annuities issued by other insurance companies. Such
information will be derived from the Lipper Variable Insurance Products
Performance Analysis Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is
published by Lipper Analytical Services, Inc., a publisher of statistical data
which currently tracks the performance of almost 4,000 investment
companies.The rankings compiled by Lipper may or may not reflect the deduction
of asset-based insurance charges. The Company's sales literature utilizing
these rankings will indicate whether or not such charges have been deducted.
Where the charges have not been deducted, the sales literature will indicate
that if the charges had been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect
the deduction of asset-based insurance charges. In addition, VARDS prepares
risk adjusted rankings, which consider the effects of market risk on total
return performance. This type of ranking may address the question as to which
funds provide the highest total return with the least amount of risk. Other
ranking services may be used as sources of performance comparison, such as
CDA/Weisenberger.
Morningstar rates a variable annuity against its peers with similar investment
objectives. Morningstar does not rate any variable annuity that has less than
three years of performance data.
PERFORMANCE INFORMATION
The Growth and Income Portfolio of Lord Abbett Series Fund, Inc., and the
Select Equity, Small Cap Stock, Large Cap Stock, International Equity,
Quality Bond and Bond Debenture Portfolios of Cova Series Trust were not
available under the contract until February 3, 1997 and the Mid-Cap Value,
Large Cap Research and Developing Growth Portfolios of Cova Series Trust
were available under the contract on November 15, 1997. The Money Market
Fund of General American Capital Company became available under the Contract
on May 1, 1997. However, these funds have been in existence for some time
and consequently have an investment performance history. In order to
demonstrate how investment experience of these Portfolios affects
Accumulation Unit values, performance information was developed. The
information is based upon the historical experience of the Portfolios and
is for the periods shown. The prospectus contains a chart of performance
information.
Future performance of the Portfolios will vary and the results shown
are not necessarily representative of future results. Performance for
periods ending after those shown may vary substantially from the
examples shown. The performance of the Portfolios is calculated for a
specified period of time by assuming an initial Purchase Payment of
$1,000 allocated to the Portfolio. There are performance figures for the
Accumulation Units which reflect the insurance charges as well as the
portfolio expenses. There are also performance figures for the Accumulation
Units which reflect the insurance charges, the contract maintenance charge,
the portfolio expenses, and assume that you make a withdrawal at the end of
the period and therefore the withdrawal charge is reflected. The
percentage increases (decreases) are determined by subtracting the
initial Purchase Payment from the ending value and dividing the remainder
by the beginning value. The performance may also show figures when no
withdrawal is assumed.
FEDERAL TAX STATUS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF
THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE
TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE
FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT
SPECIAL RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS.
MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER
TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. An Owner is
not taxed on increases in the value of a Contract until distribution occurs,
either in the form of a lump sum payment or as annuity payments under the
Annuity Option selected. For a lump sum payment received as a total withdrawal
(total surrender), the recipient is taxed on the portion of the payment that
exceeds the cost basis of the Contract. For Non-Qualified Contracts, this cost
basis is generally the purchase payments, while for Qualified Contracts there
may be no cost basis. The taxable portion of the lump sum payment is taxed at
ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments
based on a fixed annuity option is determined by multiplying the payment by
the ratio that the cost basis of the Contract (adjusted for any period or
refund feature) bears to the expected return under the Contract. The exclusion
amount for payments based on a variable annuity option is determined by
dividing the cost basis of the Contract (adjusted for any period certain or
refund guarantee) by the number of years over which the annuity is expected to
be paid. Payments received after the investment in the Contract has been
recovered (i.e. when the total of the excludable amount equals the
investment in the Contract) are fully taxable. The taxable portion is taxed at
ordinary income tax rates. For certain types of Qualified Plans there may be
no cost basis in the Contract within the meaning of Section 72 of the Code.
Owners, Annuitants and Beneficiaries under the Contracts should seek competent
financial advice about the tax consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury
Department ("Treasury Department"), adequately diversified. Disqualification
of the Contract as an annuity contract would result in the imposition of
federal income tax to the Owner with respect to earnings allocable to the
Contract prior to the receipt of payments under the Contract. The Code
contains a safe harbor provision which provides that annuity contracts such as
the Contract meet the diversification requirements if, as of the end of each
quarter, the underlying assets meet the diversification standards for a
regulated investment company and no more than fifty-five percent (55%) of the
total assets consist of cash, cash items, U.S. Government securities and
securities of other regulated investment companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas.
Reg.1.817-5), which established diversification requirements for the
investment portfolios underlying variable contracts such as the Contract. The
Regulations amplify the diversification requirements for variable contracts
set forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if: (1) no more than 55% of the value of the total
assets of the portfolio is represented by any one investment; (2) no more than
70% of the value of the total assets of the portfolio is represented by any
two investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer."
The Company intends that all investment portfolios underlying the Contracts
will be managed in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be
contained in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available,
would cause the Owner to be considered as the owner of the assets of the
Separate Account resulting in the imposition of federal income tax to the
Owner with respect to earnings allocable to the Contract prior to receipt of
payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owners
being retroactively determined to be the owners of the assets of the Separate
Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from
such combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation or certain other entities. Such Contracts
generally will not be treated as annuities for federal income tax purposes.
However, this treatment is not applied to a Contract held by a trust or other
entity as an agent for a natural person nor to Contracts held by Qualified
Plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross
income of the Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at
the rate of 10% from non-periodic payments. However, the Owner, in most cases,
may elect not to have taxes withheld or to have withholding done at a
different rate.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code, which are not
directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity, are subject to a
mandatory 20% withholding for federal income tax. The 20% withholding
requirement generally does not apply to: a) a series of substantially equal
payments made at least annually for the life or life expectancy of the
participant or joint and last survivor expectancy of the participant and a
designated beneficiary, or for a specified period of 10 years or more; b)
distributions which are required minimum distributions; or c) the portion of
the distributions not includible in gross income (i.e. returns of after-tax
contributions). Participants should consult their own tax counsel or other
tax adviser regarding withholding requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate
purchase payments made, any amount withdrawn will be treated as coming first
from the earnings and then, only after the income portion is exhausted, as
coming from the principal. Withdrawn earnings are includible in gross income.
It further provides that a ten percent (10%) penalty will apply to the income
portion of any premature distribution. However, the penalty is not imposed on
amounts received: (a) after the taxpayer reaches age 59 1/2; (b) after the
death of the Owner; (c) if the taxpayer is totally disabled (for this purpose
disability is as defined in Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the taxpayer or for the joint lives (or
joint life expectancies) of the taxpayer and his or her Beneficiary; (e) under
an immediate annuity; or (f) which are allocable to purchase payments made
prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
QUALIFIED PLANS
The Contracts offered herein may also be used as Qualified Contracts. Owners,
Annuitants and Beneficiaries are cautioned that benefits under a Qualified
Contract may be subject to the terms and conditions of the plan regardless of
the terms and conditions of the Contracts issued pursuant to the plan. The
following discussion of Qualified Contracts is not exhaustive and is for
general informational purposes only. The tax rules regarding Qualified
Contracts are very complex and will have differing applications depending on
individual facts and circumstances. Each purchaser should obtain competent tax
advice prior to purchasing Qualified Contracts.
Qualified Contracts include special provisions restricting Contract provisions
that may otherwise be available as described herein. Generally, Qualified
Contracts are not transferable except upon surrender or annuitization.
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. Qualified Contracts will utilize annuity tables
which do not differentiate on the basis of sex. Such annuity tables will also
be available for use in connection with certain non-qualified deferred
compensation plans.
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity (IRA).
THE CONTRACTS ARE NOT AVAILABLE AS QUALIFIED CONTRACTS UNTIL AN IRA
ENDORSEMENT IS APPROVED BY THE STATE OF NEW YORK INSURANCE DEPARTMENT. Under
applicable limitations, certain amounts may be contributed to an IRA which
will be deductible from the individual's gross income. These IRAs are subject
to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts"
below.) Under certain conditions, distributions from other IRAs and other
Qualified Plans may be rolled over or transferred on a tax-deferred basis into
an IRA. Sales of Contracts for use with IRAs are subject to special
requirements imposed by the Code, including the requirement that certain
informational disclosure be given to persons desiring to establish an IRA.
Purchasers of Contracts to be qualified as Individual Retirement Annuities
should obtain competent tax advice as to the tax treatment and suitability of
such an investment.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of
any distribution from qualified retirement plans, including Contracts issued
and qualified under Code Section 408(b) (Individual Retirement Annuities). To
the extent amounts are not includible in gross income because they have been
rolled over to an IRA or to another eligible Qualified Plan, no tax penalty
will be imposed. The tax penalty will not apply to the following
distributions: (a) if distribution is made on or after the date on which the
Annuitant reaches age 59 1/2; (b) distributions following the death or
disability of the Annuitant (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (c) distributions that are part of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the Annuitant or the joint lives (or
joint life expectancies) of the Annuitant and his or her designated
Beneficiary; (d) distributions made to the Owner or Annuitant (as applicable)
to the extent such distributions do not exceed the amount allowable as a
deduction under Code Section 213 to the Owner or Annuitant (as applicable) for
amounts paid during the taxable year for medical care; (e) distributions
from an Individual Retirement Annuity for the purchase of medical insurance
(as described in Section 213(d)(1)(D) of the Code) for the Owner or
Annuitant (as applicable) and his or her spouse and dependents if the
Owner or Annuitant (as applicable) has received unemployment compensation for
at least 12 weeks (this exception will no longer apply after the Owner or
Annuitant (as applicable) has been re-employed for at least 60 days); (f)
distributions from an Individual Retirement Annuity made to the Owner or
Annuitant (as applicable) to the extent such distributions do not exceed the
qualified higher education expenses (as defined in Section 72(t)(7) of the
Code) of the Owner or Annuitant (as applicable) for the taxable year; and
(g) distributions from an Individual Retirement Annuity made to the Owner or
Annuitant (as applicable) which are qualified first-time home buyer
distributions (as defined in Section 72(t)(8) of the Code).
Generally, distributions from a qualified plan must commence no later than
April 1 of the calendar year following the year in which the employee attains
age 70 1/2. Required distributions must be over a period not exceeding the
life expectancy of the individual or the joint lives or life expectancies of
the individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
ANNUITY PROVISIONS
VARIABLE ANNUITY
A variable annuity is an annuity with payments which: (1) are not
predetermined as to dollar amount; and (2) will vary in amount with the net
investment results of the applicable investment portfolio(s) of the Separate
Account. At the Annuity Date, the Contract Value in each investment portfolio
will be applied to the applicable Annuity Tables. The Annuity Table used will
depend upon the Annuity Option chosen. If, as of the Annuity Date, the then
current Annuity Option rates applicable to this class of Contracts provide a
first Annuity Payment greater than guaranteed under the same Annuity Option
under this Contract, the greater payment will be made. The dollar amount of
Annuity Payments after the first is determined as follows:
(1) the dollar amount of the first Annuity Payment is divided by the
value of an Annuity Unit as of the Annuity Date. This establishes the number
of Annuity Units for each monthly payment. The number of Annuity Units remains
fixed during the Annuity Payment period.
(2) the fixed number of Annuity Units is multiplied by the Annuity Unit
value for the last Valuation Period of the month preceding the month for which
the payment is due. This result is the dollar amount of the payment.
The total dollar amount of each Variable Annuity Payment is the sum of all
investment portfolios' Variable Annuity Payments reduced by the applicable
Contract Maintenance Charge.
FIXED ANNUITY
A fixed annuity is a series of payments made during the Annuity Period which
are guaranteed as to dollar amount by the Company and do not vary with the
investment experience of the Separate Account. The General Account Value on
the day immediately preceding the Annuity Date will be used to determine the
Fixed Annuity monthly payment. The first monthly Annuity Payment will be based
upon the Annuity Option elected and the appropriate Annuity Option Table.
ANNUITY UNIT
The value of an Annuity Unit for each investment portfolio was arbitrarily set
initially at $10. This was done when the first investment portfolio shares
were purchased. The investment portfolio Annuity Unit value at the end of any
subsequent Valuation Period is determined by multiplying the investment
portfolio Annuity Unit value for the immediately preceding Valuation Period by
the product of (a) the Net Investment Factor for the day for which the Annuity
Unit value is being calculated, and (b) 0.999919.
NET INVESTMENT FACTOR
The Net Investment Factor for any investment portfolio for any Valuation
Period is determined by dividing:
(a) the Accumulation Unit value as of the close of the current
Valuation Period, by
(b) the Accumulation Unit value as of the close of the immediately
preceding Valuation Period.
The Net Investment Factor may be greater or less than one, as the Annuity Unit
value may increase or decrease.
MORTALITY AND EXPENSE GUARANTEE
The Company guarantees that the dollar amount of each Annuity Payment after
the first Annuity Payment will not be affected by variations in mortality or
expense experience.
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be considered
only as bearing upon the ability of the Company to meet its obligations under
the Contracts.
INDEPENDENT AUDITORS' REPORT
The Contract Owners of Cova Variable
Annuity Account One, Board of
Directors and Shareholder of First Cova Life Insurance Company:
We have audited the accompanying statement of assets and liabilities of the Bond
Debenture, Quality Bond, Small Cap Stock, Large Cap Stock, Select Equity, and
International Equity sub-accounts (investment options within the Cova Series
Trust) and the Growth and Income sub-account (investment option within the Lord
Abbett Series Fund, Inc.) of First Cova Variable Annuity Account One of First
Cova Life Insurance Company (the Separate Account), as of December 31, 1997, and
the related statement of operations, statement of changes in contract owners'
equity, and the financial highlights for the period from commencement of
operations through December 31, 1997. These financial statements and financial
highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1997, by
correspondence with transfer agents. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
sub-accounts of First Cova Variable Annuity Account One of First Cova Life
Insurance Company as of December 31, 1997, and the results of its operations,
the changes in its contract owners' equity, and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
Chicago, Illinois
February 20, 1998
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------------------------------------
Investments:
Cova Series Trust:
<S> <C> <C> <C> <C>
Bond Debenture Portfolio - 9,496 shares at a net asset value of $12.11 per share (cost $114,969) $ 115,015
Quality Bond Portfolio - 2,217 shares at a net asset value of $10.40 per share (cost $22,968) 23,069
Small Cap Stock Portfolio - 545 shares at a net asset value of $13.10 per share (cost $6,843) 7,146
Large Cap Portfolio - 3,019 shares at a net asset value of $13.85 per share (cost $42,399) 41,801
Select Equity Portfolio - 1,330 shares at a net asset value of $13.97 per share (cost $17,465) 18,567
International Equity Portfolio - 3,833 shares at a net asset value of $11.47 per share (cost $45,941) 43,976
Lord Abbett Series Fund, Inc. Growth and Income Portfolio - 8,768 shares at a net asset value of
$19.51 per share (cost $178,810) 171,066
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 420,640
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND CONTRACT OWNERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
Liabilities:
Trust Bond Debenture $ 4
Trust Quality Bond 1
Trust Small Cap Stock -
Trust Large Cap Stock 2
Trust Select Equity 1
Trust International Equity 2
Fund Growth and Income 6
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 16
- --------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Trust Bond Debenture - 8,928 accumulation units at $12.882042 per unit 115,011
Trust Quality Bond - 2,068 accumulation units at $11.155130 per unit 23,068
Trust Small Cap Stock - 530 accumulation units at $13.492111 per unit 7,146
Trust Large Cap Stock - 2,807 accumulation units at $14.889594 per unit 41,799
Trust Select Equity - 1,321 accumulation units at $14.053502 per unit 18,566
Trust International Equity - 3,836 accumulation units at $11.462941 per unit 43,974
Fund Growth and Income - 5,547 accumulation units at $30.837096 per unit 171,060
- --------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity 420,624
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and contract owners' equity $ 420,640
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Period from commencement of operations through December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
Lord Abbett
Series Fund,
Cova Series Trust Inc.
----------------------------------------------------------------- -------------
Small Large Interna- Growth
Bond Quality Cap Cap Select tional and
Debenture Bond Stock Stock Equity Equity Income Total
- ----------------------------------------------------------------------------------------------------------------------------
Investment income:
Dividends and capital gains
<S> <C> <C> <C> <C> <C> <C> <C> <C>
distributions $ 3,442 755 17 2,373 103 424 13,386 20,500
- ----------------------------------------------------------------------------------------------------------------------------
Total investment income 3,442 755 17 2,373 103 424 13,386 20,500
- ----------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 370 96 15 133 62 239 739 1,654
Administrative fee 45 12 2 16 7 29 89 200
- ----------------------------------------------------------------------------------------------------------------------------
Total expenses 415 108 17 149 69 268 828 1,854
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 3,027 647 - 2,224 34 156 12,558 18,646
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments 77 3 1 (4) 1 184 1,447 1,709
Net change in unrealized
gain (loss) on investments 46 101 303 (598) 1,102 (1,965) (7,744) (8,755)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 123 104 304 (602) 1,103 (1,781) (6,297) (7,046)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity
resulting from operations $ 3,150 751 304 1,622 1,137 (1,625) 6,261 11,600
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Contract Owners' Equity
Period from commencement of operations through December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
Lord Abbett
Series Fund,
Cova Series Trust Inc.
----------------------------------------------------------------- -------------
Small Large Interna- Growth
Bond Quality Cap Cap Select tional and
Debenture Bond Stock Stock Equity Equity Income Total
- ----------------------------------------------------------------------------------------------------------------------------
From operations:
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income $ 3,027 647 - 2,224 34 156 12,558 18,646
Net realized gain (loss)
on investments 77 3 1 (4) 1 184 1,447 1,709
Net change in unrealized
gain (loss) on investments 46 101 303 (598) 1,102 (1,965) (7,744) (8,755)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity
resulting from operations 3,150 751 304 1,622 1,137 (1,625) 6,261 11,600
- ----------------------------------------------------------------------------------------------------------------------------
From account unit transactions:
Proceeds from units
of the account sold 89,575 - 5,151 14,027 14,032 31,664 134,766 289,215
Payments for units of
the account redeemed (381) (350) (9) (341) (145) 52 (851) (2,025)
Account transfers, net 22,667 22,667 1,700 26,491 3,542 13,883 30,884 121,834
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in contract
owners' equity from account
unit transactions 111,861 22,317 6,842 40,177 17,429 45,599 164,799 409,024
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in
contract owner's equity 115,011 23,068 7,146 41,799 18,566 43,974 171,060 420,624
- ----------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Beginning of period - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------
End of period $ 115,011 23,068 7,146 41,799 18,566 43,974 171,060 420,624
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Cova Series Trust - Bond Debenture Portfolio (Managed by Lord, Abbett & Co.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
May 15, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 11.74
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .46
Net realized and unrealized
gain from security
transactions .68
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 1.14
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 12.88
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 9.71%
Contract owners' equity,
end of period $ 115,011
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity 10.11%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Cova Series Trust - Quality Bond Portfolio (Managed by J.P. Morgan Investment Management, Inc.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
May 15, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 10.45
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .50
Net realized and unrealized
gain from security
transactions .21
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .71
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 11.16
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 6.79%
Contract owners' equity,
end of period $ 23,068
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity 8.36%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Cova Series Trust - Small Cap Stock Portfolio (Managed by J.P. Morgan Investment Management, Inc.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
March 17, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 10.92
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (.05)
Net realized and unrealized
gain from security
transactions 2.62
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 2.57
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 13.49
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 23.53%
Contract owners' equity,
end of period $ 7,146
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity .04%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Cova Series Trust - Large Cap Stock Portfolio (Managed by J.P. Morgan Investment Management, Inc.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
March 11, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 12.40
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .79
Net realized and unrealized
gain from security
transactions 1.70
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 2.49
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 14.89
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 20.08%
Contract owners' equity,
end of period $ 41,799
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity 20.65%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Cova Series Trust - Select Equity Portfolio (Managed by J.P. Morgan Investment Management, Inc.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
March 11, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 11.76
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income -
Net realized and unrealized
gain from security
transactions 2.29
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 2.29
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 14.05
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 19.47%
Contract owners' equity,
end of period $ 18,566
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity .67%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Cova Series Trust - International Equity Portfolio (Managed by J.P. Morgan Investment Management, Inc.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
March 11, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 11.14
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .02
Net realized and unrealized
gain from security
transactions .30
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .32
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 11.46
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 2.87%
Contract owners' equity,
end of period $ 43,974
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity .81%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Lord Abbett Series Fund, Inc. Growth and Income Portfolio (Managed by Lord, Abbett & Co.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
March 11, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 27.01
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 2.07
Net realized and unrealized
gain from security
transactions 1.76
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 3.83
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 30.84
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 14.18%
Contract owners' equity,
end of period $ 171,060
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity 21.06%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) ORGANIZATION
First Cova Variable Annuity Account One (the Separate Account) is a
separate investment account established by a resolution of the Board of
Directors of First Cova Life Insurance Company (Cova). The Separate
Account operates as a Unit Investment Trust under the Investment Company
Act of 1940.
The Separate Account is divided into sub-accounts with the assets of
each sub-account invested in the Cova Series Trust (Trust) or Lord
Abbett Series Fund, Inc. (Fund). The Trust offers six portfolios, of
which one portfolio is managed by Lord, Abbett & Co. and five portfolios
are managed by J.P. Morgan Investment Management, Inc. The Trust
portfolios are the Bond Debenture, Quality Bond, Small Cap Stock, Large
Cap Stock, Select Equity, and International Equity portfolios. The Fund
offers the Growth and Income portfolio. Not all portfolios are available
for investment depending upon the nature and specific terms of the
different contracts currently being offered for sale. The Trust and Fund
are diversified, open-end, management investment companies which are
intended to meet differing investment objectives.
The sub-accounts commenced operations as follows:
March 11, 1997 Trust Large Cap Stock, Trust Select Equity
Trust International Equity and
Fund Growth and Income
March 17, 1997 Trust Small Cap Stock
May 15, 1997 Trust Bond Debenture and Trust Quality Bond
(2) SIGNIFICANT ACCOUNTING POLICIES
(A) INVESTMENT VALUATION
Investments in shares of the Trust and Fund are carried in the statement
of assets and liabilities at the underlying net asset value of the Trust
and Fund. The net asset value of the Trust and Fund has been determined
on the market value basis and is valued daily by the Trust and Fund
investment managers. Realized gains and losses are calculated by the
average cost method.
(B) REINVESTMENT OF DIVIDENDS
Dividends received from net investment income and net realized capital
gain distributions are reinvested in additional shares of the portfolio
of the Trust or Fund making the distribution. Dividends and capital gain
distributions are recorded as income on the ex-dividend date.
(C) FEDERAL INCOME TAXES
Operations of the Separate Account form a part of Cova, which is taxed
as a "Life Insurance Company" under the Internal Revenue Code (Code).
Under current provisions of the Code, no Federal income taxes are
payable by Cova with respect to earnings of the Separate Account.
Under the principles set forth in Internal Revenue Ruling 81-225 and
Section 817(h) of the Code and regulations thereunder, Cova believes
that it will be treated as the owner of the assets invested in the
Separate Account for Federal income tax purposes, with the result that
earnings and gains, if any, derived from those assets will not be
included in a contract owner's gross income until amounts are withdrawn
or received pursuant to an Optional Payment Plan.
(3) CONTRACT FEES
There are no deductions made from purchase payments for sales fees at
the time of purchase. However, if all or a portion of the contract value
is withdrawn, a withdrawal fee is calculated and deducted from the
contract value. The withdrawal fee is imposed on withdrawals of contract
values attributable to purchase payments within seven years after
receipt and is equal to 7% of the purchase payment withdrawn in the
first and second years, 5% of the purchase payment withdrawn in the
third, fourth and fifth years, and 3% of the purchase payment withdrawn
in the sixth and seventh years. After the first contract anniversary
year, provided that the contract value prior to the withdrawal exceeds
$5,000, an owner may make a withdrawal each contract year of up to 10%
of the aggregate purchase payments free from withdrawal fees.
An annual contract maintenance fee of $30 is imposed on all contracts
with contract values less than $50,000 on their policy anniversary. The
fee covers the cost of contract administration for the previous year and
is prorated between the sub-accounts to which the contract value is
allocated.
Subject to certain restrictions, the contract owner may transfer all or
a part of the accumulated value of the contract among other offered and
available account options of the Separate Account and fixed rate
annuities of Cova. If more than 12 transfers have been made in the
contract year, a transfer fee of $25 per transfer or, if less, 2% of the
amount transferred will be deducted from the account value. If the owner
is participating in the Dollar Cost Averaging program, such related
transfers are not taken into account in determining any transfer fee.
For the period from commencement of operations through December 31,
1997, there were no withdrawal, account transfer, or contract
maintenance fees deducted from the contract values in the Separate
Account.
Mortality and expense risks assumed by Cova are compensated by a fee
equivalent to an annual rate of 1.25% of the value of net assets. The
mortality risks assumed by Cova arise from its contractual obligation to
make annuity payments after the annuity date for the life of the
annuitant, and to waive the withdrawal fee in the event of the death of
the contract owner.
In addition, the Separate Account bears certain administration expenses,
which are equivalent to an annual rate of .15% of net assets. These fees
cover the cost of establishing and maintaining the contracts and
Separate Account.
Cova currently advances any premium taxes due at the time purchase
payments are made and then deducts premium taxes from the contract value
at the time annuity payments begin or upon withdrawal if Cova is unable
to obtain a refund. Cova, however, reserves the right to deduct premium
taxes when incurred.
(4) GAINS (LOSSES) ON INVESTMENTS
The table below summarizes the realized and change in unrealized gains
and losses on investments.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Period from
commencement of
operations through
December 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Trust Bond Debenture Portfolio:
<S> <C>
Aggregate proceeds from sales $ 24,281
Aggregate cost of redemptions 24,204
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 77
- ---------------------------------------------------------------------------------------------------------------------------
Trust Quality Bond Portfolio:
Aggregate proceeds from sales $ 172
Aggregate cost of redemptions 169
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 3
- ---------------------------------------------------------------------------------------------------------------------------
Trust Small Cap Stock Portfolio:
Aggregate proceeds from sales $ 17
Aggregate cost of redemptions 16
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 1
- ---------------------------------------------------------------------------------------------------------------------------
Trust Large Cap Stock Portfolio:
Aggregate proceeds from sales $ 1,700
Aggregate cost of redemptions 1,704
- ---------------------------------------------------------------------------------------------------------------------------
Net realized loss on investments $ (4)
- ---------------------------------------------------------------------------------------------------------------------------
Trust Select Equity Portfolio:
Aggregate proceeds from sales $ 1,651
Aggregate cost of redemptions 1,650
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 1
- ---------------------------------------------------------------------------------------------------------------------------
Trust International Equity Portfolio:
Aggregate proceeds from sales $ 25,579
Aggregate cost of redemptions 25,395
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 184
- ---------------------------------------------------------------------------------------------------------------------------
Fund Growth and Income Portfolio:
Aggregate proceeds from sales $ 74,949
Aggregate cost of redemptions 73,502
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 1,447
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Period from
commencement of
operations through
December 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Trust Bond Debenture Portfolio:
<S> <C>
End of period $ 46
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gain on investments $ 46
- ---------------------------------------------------------------------------------------------------------------------------
Trust Quality Bond Portfolio:
End of period $ 101
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gain on investments $ 101
- ---------------------------------------------------------------------------------------------------------------------------
Trust Small Cap Stock Portfolio:
End of period $ 303
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gain on investments $ 303
- ---------------------------------------------------------------------------------------------------------------------------
Trust Large Cap Stock Portfolio:
End of period $ (598)
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized loss on investments $ (598)
- ---------------------------------------------------------------------------------------------------------------------------
Trust Select Equity Portfolio:
End of period $ 1,102
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gain on investments $ 1,102
- ---------------------------------------------------------------------------------------------------------------------------
Trust International Equity Portfolio:
End of period $ (1,965)
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized loss on investments $ (1,965)
- ---------------------------------------------------------------------------------------------------------------------------
Fund Growth and Income Portfolio:
End of period $ (7,744)
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized loss on investments $ (7,744)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
- --------------------------------------------------------------------------------
(5) UNIT TRANSACTIONS
The change in the number of accumulation units resulting from account
transactions from commencement operations through December 31, 1997 is as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Lord Abbett
Series Fund,
Cova Series Trust Inc.
------------------------------------------------------------------- ---------------
Small Large Interna- Growth
Bond Quality Cap Cap Select tional and
Debenture Bond Stock Stock Equity Equity Income
- ----------------------------------------------------------------------------------------------------------------------------
Balance at commencement of
<S> <C> <C> <C> <C> <C> <C> <C>
operations - - - - - - -
Units sold 7,125 - 390 978 1,037 2,663 4,526
Units redeemed (28) (32) - (23) (8) (15) (15)
Units transferred, net 1,831 2,100 140 1,852 292 1,188 1,036
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 8,928 2,068 530 2,807 1,321 3,836 5,547
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
First Cova Life Insurance Company:
We have audited the accompanying statutory statements of admitted assets,
liabilities, and capital stock and surplus of First Cova Life Insurance Company
(the Company) as of December 31, 1997 and 1996, and the related statutory
statements of operations, capital stock and surplus, and cash flow for each of
the years in the three-year period ended December 31, 1997. These statutory
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these statutory financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in note 2 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the New York State Insurance Department, which practices differ
from generally accepted accounting principles. The effects on the financial
statements of the variances between the statutory basis of accounting and
generally accepted accounting principles are also described in note 2.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of First Cova Life Insurance Company as of December 31, 1997 and 1996, or the
results of its operations or its cash flows for each of the years in the
three-year period ended December 31, 1997.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities, and capital stock
and surplus of First Cova Life Insurance Company as of December 31, 1997 and
1996, and the results of its operations and its cash flow for each of the years
in the three-year period ended December 31, 1997, on the basis of accounting
described in note 2.
Our audits were made for the purpose of forming an opinion on the basic
statutory financial statements taken as a whole. The supplementary information
included in the accompanying schedule is presented for purposes of additional
analysis and is not a required part of the basic statutory financial statements.
Such information has been subjected to the auditing procedures applied in the
audits of the basic statutory financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic statutory
financial statements taken as a whole.
Chicago, Illinois
March 5, 1998
FIRST COVA LIFE INSURANCE COMPANY
Statutory Statements of Admitted Assets, Liabilities,
and Capital Stock and Surplus
December 31, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ADMITTED ASSETS 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bonds $ 159,738 155,710
Mortgage loans on real estate 8,866 8,747
Policy loans 20,544 18,893
Cash and short-term investments 3,026 3,989
- ----------------------------------------------------------------------------------------------------------------------------
Total cash and investments 192,174 187,339
Investment income due and accrued 3,017 2,582
Federal income taxes recoverable 66 -
Other assets 9 1
- ----------------------------------------------------------------------------------------------------------------------------
Total admitted assets excluding separate account assets 195,266 189,922
Separate account assets 421 -
- ----------------------------------------------------------------------------------------------------------------------------
Total admitted assets $ 195,687 189,922
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND CAPITAL STOCK AND SURPLUS
- ----------------------------------------------------------------------------------------------------------------------------
Aggregate reserve for life policies and annuity contracts 164,208 158,304
Supplementary contracts without life contingencies 120 91
Life policy and annuity contract claims 726 272
Interest maintenance reserve 1,583 1,461
General expenses due or accrued 95 63
Transfers to separate accounts due or accrued (21) -
Taxes, licenses, and fees due or accrued
excluding Federal income taxes 220 211
Federal income taxes - 333
Remittances and items not allocated (14) 5
Unearned investment income 3 -
Asset valuation reserve 1,529 1,470
Payable to parent, subsidiaries, and affiliates 35 30
Reinsurance payable to parent 2,372 2,457
Checks outstanding 46 72
Accounts payable - security purchases - 2,010
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities excluding separate account liabilities 170,902 166,779
Separate account liabilities 421 -
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 171,323 166,779
- ----------------------------------------------------------------------------------------------------------------------------
Common capital stock, $10 par value. Authorized,
issued, and outstanding 200,000 shares 2,000 2,000
Gross paid-in and contributed surplus 11,501 11,501
Unassigned surplus 10,863 9,642
- ----------------------------------------------------------------------------------------------------------------------------
Total capital stock and surplus 24,364 23,143
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and capital stock and surplus $ 195,687 189,922
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
FIRST COVA LIFE INSURANCE COMPANY
Statutory Statements of Operations
Years ended December 31, 1997, 1996, and 1995
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C>
Deposit-type funds $ 6,851 569 127
Considerations for supplementary contracts
without life contingencies 54 81 33
Net investment income 13,771 13,507 12,526
Amortization of interest maintenance reserve (244) (206) (211)
- ----------------------------------------------------------------------------------------------------------------------------
Total income 20,432 13,951 12,475
- ----------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Death benefits 3,294 2,691 2,101
Annuity benefits 365 - 359
Surrender benefits and other fund withdrawals 7,222 8,719 9,185
Interest on policy or contract funds 11 10 9
Payment on supplementary contracts without
life contingencies 24 12 6
Increase (decrease) in aggregate reserves
for life policies and annuity contracts 5,904 (928) 1,911
Increase in reserve for supplementary
contracts without life contingencies 30 66 25
Commissions on premiums and annuity
considerations 239 20 2
Commissions and expense allowances on
reinsurance assumed 423 400 439
General insurance expenses 966 663 665
Insurance taxes, licenses, and fees,
excluding Federal income taxes 142 25 811
Net transfers to separate accounts 386 - -
Other expenses 1 1 1
- ----------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 19,007 11,679 15,514
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations before Federal income taxes
and realized capital gains 1,425 2,272 (3,039)
Federal income tax expense (benefit),
excluding tax on capital gains 145 445 (1,007)
- ----------------------------------------------------------------------------------------------------------------------------
Net gain (loss) from operations before realized capital gains 1,280 1,827 (2,032)
Realized capital gains (net of tax benefit of $89, $111, and $3,509 in 1997,
1996, and 1995, respectively, and net of amounts transferred to the IMR of
$(122), $(153), and $(4,647)
in 1997, 1996, and 1995, respectively) - - -
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,280 1,827 (2,032)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
FIRST COVA LIFE INSURANCE COMPANY
Statutory Statements of Capital Stock and Surplus
Years ended December 31, 1997, 1996, and 1995
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital stock - balance at beginning and end of year $ 2,000 2,000 2,000
- ----------------------------------------------------------------------------------------------------------------------------
Gross paid-in and contributed surplus:
Balance at beginning of year 11,501 11,501 10,501
Capital contribution - - 1,000
- ----------------------------------------------------------------------------------------------------------------------------
Balance at end of year 11,501 11,501 11,501
- ----------------------------------------------------------------------------------------------------------------------------
Unassigned surplus:
Balance at beginning of year 9,642 8,028 10,211
Net income (loss) 1,280 1,827 (2,032)
Change in non-admitted assets - - 204
Change in asset valuation reserve (59) (285) (355)
Prior period FIT adjustment - 72 -
- ----------------------------------------------------------------------------------------------------------------------------
Balance at end of year 10,863 9,642 8,028
- ----------------------------------------------------------------------------------------------------------------------------
Total capital stock and surplus $ 24,364 23,143 21,529
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
FIRST COVA LIFE INSURANCE COMPANY
Statutory Statements of Cash Flow
Years ended December 31, 1997, 1996, and 1995
(In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Cash from operations:
<S> <C> <C> <C>
Deposit-type funds $ 6,852 569 127
Considerations for supplementary contracts without 54 81 33
life contingencies
Net investment income 13,310 13,499 13,037
Miscellaneous income - 72 -
- -------------------------------------------------------------------------------------------------------------------------
20,216 14,221 13,197
- -------------------------------------------------------------------------------------------------------------------------
Death benefits 2,842 2,716 1,955
Surrender benefits and other fund withdrawals 7,222 8,719 9,185
Other benefits to policyholders, primarily annuity benefits 399 23 381
Commissions, other expenses, and taxes paid,
excluding Federal income tax 1,709 1,089 1,170
Net transfers to separate accounts 407 - -
Federal income taxes paid (recovered), excluding
tax on capital gains 544 156 (1,413)
- -------------------------------------------------------------------------------------------------------------------------
13,123 12,703 11,278
- -------------------------------------------------------------------------------------------------------------------------
Net cash from operations 7,093 1,518 1,919
- -------------------------------------------------------------------------------------------------------------------------
Cash from investments:
Proceeds from investments sold, matured, or repaid:
Bonds 40,473 40,506 156,913
Mortgage loans 364 1,316 112
Net losses on cash and short-term investments - - (20)
- -------------------------------------------------------------------------------------------------------------------------
Total investment proceeds 40,837 41,822 157,005
- -------------------------------------------------------------------------------------------------------------------------
Taxes recovered on capital losses 67 84 2,527
- -------------------------------------------------------------------------------------------------------------------------
Cost of investments acquired:
Bonds 44,688 41,686 156,015
Mortgage loans 479 - 10,171
- -------------------------------------------------------------------------------------------------------------------------
Total investments acquired 45,167 41,686 166,186
- -------------------------------------------------------------------------------------------------------------------------
Net increase in policy loans 1,651 1,970 1,277
- -------------------------------------------------------------------------------------------------------------------------
Net cash from investments (4,330) 136 (9,181)
- -------------------------------------------------------------------------------------------------------------------------
Cash from financing and miscellaneous sources:
Cash provided:
Capital and surplus paid-in - - 1,000
Other cash provided 13 2,015 1,379
- -------------------------------------------------------------------------------------------------------------------------
Total cash provided 13 2,015 2,379
Cash applied - other (2,155) (935) (13)
- -------------------------------------------------------------------------------------------------------------------------
Net cash from financing and miscellaneous sources (2,142) 1,080 2,366
- -------------------------------------------------------------------------------------------------------------------------
Net change in cash and short-term investments (963) 848 (3,646)
Cash and short-term investments at beginning of year 3,989 3,141 6,787
- -------------------------------------------------------------------------------------------------------------------------
Cash and short-term investments at end of year $ 3,026 3,989 3,141
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
FIRST COVA LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
December 31, 1997, 1996, and 1995
- --------------------------------------------------------------------------------
(1) COMPANY OWNERSHIP AND NATURE OF BUSINESS
COMPANY OWNERSHIP
First Cova Life Insurance Company (the Company) is a wholly owned
subsidiary of Cova Financial Services Life Insurance Company (CFSLIC).
On June 1, 1995, a subsidiary of General American Life Insurance Company
(GALIC), a Missouri domiciled life insurance company, purchased the
Company's parent and its affiliates from their previous owner, Xerox
Financial Services, Incorporated (XFSI), a wholly owned subsidiary of
Xerox Corporation, for approximately $106.1 million in cash and
additional future contingent consideration. Following the acquisition,
the Company's name changed from First Xerox Life Insurance Company to
First Cova Life Insurance Company.
NATURE OF BUSINESS
The Company is licensed to do business in the state of New York. The
Company markets and services single premium deferred annuities and
variable annuities. Most of the policies issued present no significant
mortality nor longevity risk to the Company, but rather represent
investment deposits by the policyholders. Life insurance policies
provide policy beneficiaries with mortality benefits amounting to a
multiple, which declines with age, of the original premium.
Under the deferred annuity contracts, interest rates credited to
policyholder deposits are guaranteed by the Company for periods from one
to seven years, but in no case may renewal rates be less than 3%. The
Company may assess surrender fees against amounts withdrawn prior to
scheduled rate reset and adjust account values based on current
crediting rates. Policyholders may also incur certain Federal income tax
penalties on withdrawals.
Although the Company markets its products through numerous distributors,
including regional brokerage firms, national brokerage firms, and banks,
approximately 58% of the Company's sales were through Dreyfus Service
Organization and 40% through Edward Jones and Company in 1997.
Approximately 91% and 92% of the Company's sales were through one
specific brokerage firm, Advest, in 1996 and 1995, respectively.
(2) BASIS OF PRESENTATION
The accompanying statutory financial statements have been prepared in
conformity with accounting practices prescribed or permitted by the New
York State Insurance Department, which is a comprehensive basis of
accounting other than generally accepted accounting principles.
Prescribed statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners
(NAIC). Permitted statutory accounting practices encompass all
accounting practices that are not prescribed; such practices differ from
state to state, may differ from company to company within a state, and
may change in the future. All material transactions recorded by the
Company during 1997, 1996, and 1995 are in conformity with prescribed
practices.
Generally accepted accounting principles (GAAP) differ in certain
respects from the accounting practices prescribed or permitted by
insurance regulatory authorities (statutory accounting principles).
The major differences arise principally from the immediate expense
recognition of policy acquisition costs and intangible assets for
statutory reporting, determination of policy reserves based on
different discount rates and methods, the non-recognition of financial
reinsurance for GAAP reporting, the establishment of an Asset
Valuation Reserve as a contingent liability based on the credit
quality of the Company's investment securities on a statutory basis,
and the establishment of an Interest Maintenance Reserve on a
statutory basis as an unearned liability to defer the realized gains
and losses of fixed income investments presumably resulting from
changes to interest rates and amortize them into income over the
remaining life of the investment sold. In addition, adjustments to
record the carrying values of debt securities and certain equity
securities at market are applied only under GAAP reporting.
Another difference arises from Federal income taxes being charged to
operations based on income that is currently taxable. Deferred income
taxes are not provided for the tax effect of temporary differences
between book and tax basis of assets and liabilities on a statutory
basis.
Purchase accounting creates another difference as it requires the
restatement of GAAP assets and liabilities to their estimated fair
values and shareholder's equity to the net purchase price. Statutory
accounting does not recognize the purchase method of accounting.
The following schedules set forth the adjustments to statutory net
income and capital stock and surplus necessary to present them in
accordance with generally accepted accounting principles (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Net income (loss):
<S> <C> <C> <C>
As reported under statutory accounting practices $ 1,280 1,827 (2,032)
Deferred acquisition costs 477 48 186
Change in reserve for policies and contracts 344 409 3,757
Interest maintenance reserve 122 53 (4,437)
Deferred income taxes (827) (642) (925)
Amortization of intangible assets and liabilities (216) (189) (526)
Other, net 421 163 252
- ---------------------------------------------------------------------------------------------------------------------------
As reported under generally accepted accounting principles $ 1,601 1,669 (3,725)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's net loss for 1995 reported under GAAP of $3,725 includes
the periods from January 1, 1995 to May 31, 1995 (the pre-sale period)
and June 1, 1995 to December 31, 1995 (the post-sale period). These
periods are considered to be separate and distinct accounting periods
under GAAP as the Company was sold on June 1, 1995 (see note 1) causing
the Company's GAAP balance sheet and income statement to be restated
according to purchase accounting.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Capital stock and surplus:
<S> <C> <C> <C>
As reported under statutory accounting practices $ 24,364 23,143 21,529
Deferred acquisition costs 525 48 -
Reserves for policies and contracts 5,173 4,829 4,423
Asset valuation reserve 1,528 1,470 1,185
Interest maintenance reserve 1,583 1,461 1,408
Unrealized appreciation (depreciation) of investments 2,964 (1,470) 3,328
Deferred income taxes (1,163) 325 (610)
Present value of future profits 3,350 5,572 5,249
Goodwill 2,131 2,254 2,377
Other, net - (5) -
- ---------------------------------------------------------------------------------------------------------------------------
As reported under generally accepted accounting principles $ 40,455 37,627 38,889
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
In March 1998, the NAIC adopted the Codification of Statutory Accounting
Principles (the Codification). The Codification will constitute the only
source of "prescribed" statutory accounting practices. Accordingly, once
implemented, the definitions of what comprises prescribed versus
permitted statutory accounting practices may result in changes to the
accounting policies that insurance enterprises use to prepare their
statutory financial statements. The implementation date is ultimately
dependent on an insurer's state of domicile. The Company is currently
evaluating the impact of the Codification on its statutory financial
statements.
In preparing the statutory financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly from
those estimates. Investment valuation is most affected by the use of
estimates and assumptions.
The fair value of the Company's investments is subject to the risk that
interest rates will change and cause a temporary increase or decrease in
the liquidation value of debt securities. To the extent that
fluctuations in interest rates cause the cash flow of assets and
liabilities to change, the Company might have to liquidate assets prior
to their maturity and recognize a gain or a loss. Interest rate exposure
for the investment portfolio is managed through asset/liability
management techniques which attempt to control the risks presented by
differences in the probable cash flows and reinvestment of assets with
the timing of crediting rate changes in the Company's policies and
contracts. Changes in the estimated prepayments of mortgage-backed
securities also may cause retrospective changes in the amortization
period of such securities and the related recognition of income.
(3) BASIS OF VALUATION AND INCOME RECOGNITION OF INVESTED ASSETS
Asset values are generally stated as follows:
Investments are valued as prescribed by the NAIC.
Bonds not backed by other loans are valued at amortized cost using
the interest method.
Mortgage-backed bonds, included in bonds, are valued at amortized
cost. Amortization of the discount or premium from the purchase of
these securities is recognized using a level-yield method which
considers the estimated timing and amount of prepayments of the
underlying mortgage loans. Actual prepayment experience is
periodically reviewed and effective yields are recalculated when
differences arise between the prepayments originally anticipated
and the actual prepayments received and currently anticipated. When
such differences occur, the net investment in the mortgage-backed
bond is adjusted to the amount that would have existed had the new
effective yield been applied since the acquisition of the bond with
a corresponding charge or credit to interest income (the
retrospective method).
Mortgage loans and policy loans are stated at the aggregate unpaid
principal value. Short-term investments are carried at amortized cost
which approximates fair value.
Investment income is recorded when earned. Realized capital gains and
losses on the sales of investments are determined on the basis of
specific costs of investments and are credited or charged to income net
of federal income taxes.
(4) REVENUE AND EXPENSE RECOGNITION
Premiums, annuity considerations and deposit-type funds are credited to
revenue when collected. Expenses, including acquisition costs related to
acquiring new business, are charged to operations as incurred.
(5) ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
Life insurance companies are required to establish an Asset Valuation
Reserve (AVR) and an Interest Maintenance Reserve (IMR). The AVR
provides for a standardized statutory investment valuation reserve for
bonds, preferred stocks, short-term investments, mortgage loans, common
stocks, real estate, and other invested assets. The IMR is designed to
defer net realized capital gains and losses presumably resulting from
changes in the level of interest rates in the market and to amortize
them into income over the remaining life of the bond or mortgage loan
sold.
The IMR represents the unamortized portion not yet taken into income.
(6) FEDERAL INCOME TAXES
Federal income taxes are charged to operations based on income that is
currently taxable. No charge to operations is made nor liability
established for the tax effect of timing differences between financial
reporting and taxable income.
For 1997, the Company will file a consolidated Federal income tax return
with its parent company, CFSLIC. The method of allocation between the
companies is both subject to written agreement and approval by the Board
of Directors. Allocation is to be based upon separate return
calculations, adjusted for any tax deferred intercompany transactions,
with current credit for net losses to the extent recoverable in the
consolidated return. Intercompany tax balances are to be settled no
later than 30 days after related returns are filed.
Amounts payable or recoverable related to periods before June 1, 1995
are subject to an indemnification agreement with Xerox Corporation which
has the effect that the Company is not at risk for any income taxes or
entitled to recoveries related to those periods.
The actual Federal income tax expense differed from the expected tax
expense computed by applying the U.S. Federal statutory rate to the
1997, 1996, and 1995 net gain from operations before Federal income
taxes as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax expense $ 499 35.0% $ 795 35.0% $ (1,064) 35.0%
Tax basis reserve adjustment 13 .9 (30) (1.3) 847 (27.9)
IMR amortization 85 6.0 72 3.2 74 (2.4)
Proxy tax on insurance
acquisition costs 33 2.3 4 .2 (455) 15.0
Adjustment for prior years (127) (8.9) - - - -
Intangible amortization (376) (26.4) (376) (16.6) (126) 4.1
Tax-exempt income, net - - - - - -
Other 18 1.3 (20) (.9) (283) 9.3
- ---------------------------------------------------------------------------------------------------------------------------
$ 145 10.2% $ 445 19.6% $ (1,007) 33.1%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Budget Reconciliation Act of 1990 requires life insurers to
capitalize and amortize a "proxy" amount of policy acquisition costs
beginning in 1990. This proxy amount is based on a percentage of the
life insurance company's premium income and not on actual policy
acquisition costs.
(7) INFORMATION CONCERNING PARENT AND AFFILIATES
The Company was organized under the laws of the State of New York on
December 31, 1992 and became licensed to do business in the State of New
York on March 12, 1993. The Company is a wholly owned subsidiary of
CFSLIC (formerly Xerox Financial Services Life Insurance Company), a
Missouri domiciled life insurance company. On December 31, 1992, Xerox
Financial Services Life Insurance Company acquired Wausau Underwriters
Life Insurance Company (Wausau Life), a stock life insurance company
organized under the laws of the state of Wisconsin and licensed to
transact life insurance in Wisconsin and New York. On April 16, 1993,
Wausau Life was merged into the Company, with the Company as the
surviving corporation.
The Company has entered into a service agreement and an investment
accounting service agreement with its parent, CFSLIC. The Company has
also entered into an investment services agreement with Conning Asset
Management Company, a Missouri corporation and an affiliate of the
Company, pursuant to which the Company receives investment advice. Under
the terms of the agreements, the companies (Service Providers) perform
various services for the Company which include investment, underwriting,
claims, and certain administrative functions. The Service Providers are
reimbursed for their services. Expenses and fees paid to affiliated
companies during 1997, 1996, and 1995 were $339,670, $337,994, and
$349,771, respectively.
(8) CAPITAL STOCK AND SURPLUS RESTRICTIONS
The amount of dividends which can be paid by State of New York insurance
companies to shareholders is subject to prior approval of the Insurance
Commissioner. There have been no other restrictions placed on the
unassigned surplus funds.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About
Fair Value of Financial Instruments (SFAS 107), extends fair value
disclosure practices with regard to financial instruments, both assets
and liabilities, for which it is practical to estimate fair value. In
cases where quoted market prices are not readily available, fair values
are based on estimates that use present value or other valuation
techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Although
fair value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions or market conditions
could cause these estimates to vary materially. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in the
immediate settlement of the instruments. SFAS 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS
AND ACCRUED INVESTMENT INCOME
The carrying value amounts reported in the balance sheets for these
instruments approximate their fair values.
INVESTMENT SECURITIES AND MORTGAGE LOANS
(INCLUDING MORTGAGE-BACKED SECURITIES)
Fair value for bonds are based on quoted market prices, where available.
For bonds not actively traded, fair values are estimated using values
obtained from independent pricing services. In some cases, such as
private placements, certain mortgage-backed securities, and mortgage
loans, fair values are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit
quality, and maturity of the investments. (See note 11 for fair value
disclosures). As of December 31, 1997 and 1996, the fair value of the
Company's mortgage loans are equivalent to the carrying value.
POLICY LOANS
Fair values of policy loans approximate carrying value as the interest
rates on the majority of policy loans are reset periodically and,
therefore, approximate current interest rates.
INVESTMENT CONTRACTS
The Company's policy contracts require beneficiaries commence receipt of
payments by the later of age 85 or 10 years after purchase, and
substantially all permit earlier surrenders, generally subject to fees
and adjustments. Fair values for the Company's liabilities under
investment type contracts are estimated as the amount payable on demand.
As of December 31, 1997, the cash surrender value of policyholder funds
on deposit was $159,521,000 and the carrying value was $164,208,000. As
of December 31, 1996, the cash surrender value of policyholder funds on
deposit was $154,674,632 and the carrying value was $158,304,214.
(10) LIFE AND ANNUITY ACTUARIAL RESERVES
There are no deferred fractional premiums on any policies sold or
currently in force. There are no premiums beyond the date of death.
There are no required reserves for the waiver of deferred fractionals or
refund of premiums beyond the date of death.
Substandard policies are valued using a modification of the standard
valuation tables based on the substandard rating. The modification is a
25% additional mortality increase of the standard table for each table
rating.
As of December 31, 1997, the Company had no insurance in force for which
the gross premiums were less than the net premiums according to the
standard valuation set by the State of New York.
The tabular interest has been determined from the basic data for the
calculation of policy reserves.
Tabular interest for funds not involving life contingencies for each
valuation rate and contractual guaranteed rate was determined as the
statutory amount required to support the required statutory reserve
based on the Commissioner's annuity reserve valuation method. Generally
it is 1/100 of the product of such valuation rate of interest times the
mean funds at the beginning and end of the valuation period or issue
date of the policy, if less.
The life and annuity actuarial reserves as provided in the accompanying
statutory financial statements segregated by type and valuation
characteristics for 1997 and 1996 are given below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 Valuation Withdrawal
- ---------------------------------------------------------------------------------------------------------------------------
Type reserve reserve basic/rate characteristic
(in thousands)
<S> <C> <C> <C> <C>
Structured settlements $ 1,058 1,027 1983 IAM 8.25% No withdrawal permitted
SPDA - 1 year 11,732 11,818 CARVM 5.75% - 7.00% Fixed surrender charge
SPDA - 5 year 15,030 14,320 CARVM 7.00% - 8.00% Withdrawal limited to
10% per year
SPDA - 6 year 37 - CARVM 5.75% Market value adjustment
SPDA - 5 year 285 - CARVM 7.25% Market value adjustment
SPDA - 7 year 6,027 - CARVM 7.25% Market value adjustment
Variable 75 - CARVM 5.50% Fixed surrender charge
Ordinary life 116 107 1958 CSO 3.5% NL Fixed surrender charge
Ordinary life 39 36 1980 CSO CRVM Fixed surrender charge
Ordinary life 243 228 1980 CSO 4.5% NO Fixed surrender charge
Ordinary life 2 2 Group conversion Fixed surrender charge
excess mortality
Ordinary life 3 3 Guaranteed insurability Fixed surrender charge
Ordinary life 18,747 19,536 1958 CSO ALB 5.5% NL Fixed surrender charge
Group life 31,291 31,528 1958 CSO ALB 5.5% NL Fixed surrender charge
Ordinary life 20,849 20,453 1980 CSO ANB Male Fixed surrender charge
5.5% NL
Group life 21,581 21,642 1980 CSO ANB Male Fixed surrender charge
5.5% NL
Ordinary life 18,564 18,394 1980 CSO ANB Female Fixed surrender charge
5.5% NL
Group life 19,990 20,613 1980 CSO ANB Female Fixed surrender charge
5.5% NL
Miscellaneous 16 7 - -
Reinsurance ceded (1,477) (1,410) - -
- ---------------------------------------------------------------------------------------------------------------------------
$ 164,208 158,304
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(11) INVESTMENTS
The cost or amortized cost and estimated fair value of bonds at December
31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997
Cost or Gross Gross Estimated
amortized unrealized unrealized fair Carrying
cost gains losses value value
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Bonds:
<S> <C> <C> <C> <C>
Governments $ 1,267 2 - 1,269 1,267
Public utilities 7,134 13 - 7,148 7,134
Industrial and miscellaneous 151,337 3,261 299 154,299 151,337
- ---------------------------------------------------------------------------------------------------------------------------
Total bonds $ 159,738 3,276 299 162,716 159,738
- ---------------------------------------------------------------------------------------------------------------------------
1996
Cost or Gross Gross Estimated
amortized unrealized unrealized fair Carrying
cost gains losses value value
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Bonds:
Governments $ 764 - (33) 731 764
Nonguaranteed bonds -
U.S. Government 41,241 60 (175) 41,126 41,241
Public utilities 7,789 19 (231) 7,577 7,789
Industrial and miscellaneous 105,916 421 (1,531) 104,806 105,916
- ---------------------------------------------------------------------------------------------------------------------------
Total bonds $ 155,710 500 (1,970) 154,240 155,710
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of bonds at December 31,
1997, by contractual maturity, are shown in the following table.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties. Maturities of mortgage-backed
securities will be substantially shorter than their contractual maturity
because they may require monthly principal installments and mortgagees
may prepay principal.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Estimated
Carrying fair
value value
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Due in one year or less $ 406 406
Due after one year through five years 26,233 26,524
Due after five years through ten years 48,743 50,070
Due after ten years 14,662 14,961
Mortgage-backed securities 69,694 70,755
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 159,738 162,716
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Approximately 56.8% of the Company's bonds are of highest quality, 35.6%
are of high quality, and 7.6% are of medium quality based on NAIC rating
methodology. No provision was made for possible decline in the fair
value of individual bonds, other than the establishment of AVR, as of
December 31, 1997 or 1996, as the Company intends to hold the
investments until such time as no significant loss would result.
The components of net investment income were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Income on bonds $ 11,354 11,274 7,907
Income on mortgage loans 786 940 373
Income on short-term investments 197 106 3,132
Income on cash on deposit 7 4 -
Income on policy loans 1,531 1,281 1,281
Miscellaneous interest - 4 -
- ---------------------------------------------------------------------------------------------------------------------------
Total investment income 13,875 13,609 12,693
Investment expenses (104) (102) (167)
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $ 13,771 13,507 12,526
- ---------------------------------------------------------------------------------------------------------------------------
Realized capital losses:
Bonds (211) (264) (8,136)
Short-term investments - - (20)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized losses on investments $ (211) (264) (8,156)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales, redemptions, and paydowns of investments in bonds
during 1997 were $40,473,142. Gross gains of $213,835 and gross losses
of $424,506 were realized on those sales.
Proceeds from sales, redemptions, and paydowns of investments in bonds
during 1996 were $40,506,099. Gross gains of $51,375 and gross losses of
$315,006 were realized on those sales.
Proceeds from sales, redemptions, and paydowns of investments in bonds
during 1995 were $156,912,944. Gross gains of $1,830,297 and gross
losses of $9,966,745 were realized on those sales.
Bonds with a carrying value of approximately $817,610 at December 31,
1997 were deposited with governmental authorities as required by law.
The Company held the following individual securities which exceeded 10%
of capital stock and surplus as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997
Long-term debt Amortized Long-term debt Amortized
securities cost securities cost
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
FNMA Remic Tr 1992-159 Pk $ 9,858 Salomon Inc. $ 4,870
Countryside Mtg. 1993-12 A4 8,957 American Trans Air 1996-1 4,850
FNMA Remic Tr 1993 Ser 54-J 6,663 Newmont Mining Corp. 4,084
Community First Bankshares 6,000 Res Funding Mtg. Svcs 1993-S26 A8 4,009
Time Warner 5,419 Union Acceptance Corp.
Develope Div Rlty 5,053 Senior Notes 4,000
Swire Pacific Finance Ltd. 5,003 Independent Natl Mtg. 1995-M A2 3,998
CS First Bost. Fin. Co. Sr Pru Home Mtg. Sec 1993-31 A10 3,771
Sec 1995-A 144AAA 5,000 Sears Mtg. Securities 1993-7 T5 3,751
American Airlines 4,984 Countrywide Mtg. Sec 1994-7 A5 3,518
FNMA Remic Tr 1992 Ser 124-PH 4,965 Cox Communications Inc. 3,352
FHLMC Mc Mtg. Prt Crt Ser 1406-G 4,954 Pru Home Mtg. Sec 1994-20 A6 3,066
RJR Nabisco Inc. 4,898 Ensearch Exploration 3,000
Alcoa Aluminum 4,894 Enron Corp. 3,000
Telecommunications Inc. 2,851
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1996
Long-term debt Amortized Long-term debt Amortized
securities cost securities cost
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
FNMA Remic Tr 1996-50 A1 $ 10,456 FHLMC Mc Mtg. Prt Crt Ser 1506-G $ 4,939
FNMA Remic Tr 1992-159 Pk 9,821 RJR Nabisco Inc. 4,884
Countryside Mtg. 1993-12 A4 8,908 Salomon Inc. 4,851
FNMA Remic Tr 1993 Ser 5/4-J 6,641 Telecommunications Inc. 4,728
Time Warner 5,499 Nabisco, Inc. 4,492
American Airlines 5,183 Res Funding Mtg. Svcs 1993-S26 A8 4,010
Develope Div Rlty 5,072 Union Acceptance Corp. Senior Notes 4,000
Kirby Corp. 5,035 Independent Nat'l Mtg. 1995-M A2 3,998
Swire Pacific Finance Ltd. 5,003 Pru Home Mtg. Sec 1993-31 A10 3,777
CS First Bost. Fin. Co. Sr Sec
1995-A 144AAA 5,000 Sears Mtg. Securities 1993-7 T5 3,741
American Trans Air 1996-1 5,000 FHLMC MC Mtg. Prt Crt Ser 1266-F 3,459
Washington Water Power Co. 5,000 Enserch Exploration 3,000
FNMA Remic Tr 1992 Ser 124-PH 4,956 First USA Bank 2,967
Alcoa Aluminum 4,948
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(12) NON-ADMITTED ASSETS
Assets must be included in the statements of assets and liabilities at
admitted asset value, and non-admitted assets, principally agents'
balances greater than 90 days past due, must be excluded through a
charge against unassigned surplus.
FIRST COVA LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
- --------------------------------------------------------------------------------
(13) REINSURANCE
In 1993, the Company entered into a reinsurance treaty with its parent,
CFSLIC. The underlying block of business assumed was single premium
whole life policies. Reserves assumed at December 31, 1997 and 1996
approximated $131.0 million and $132.2 million, respectively.
Wausau Life maintained a closed block of whole life policies and
structured settlements which were ceded 100% to Nationwide Life
Insurance Company as of the purchase date of Wausau Life, December 31,
1992. Total reserves ceded to Nationwide at December 31, 1997 and 1996,
were $1,584,622 and $1,409,928, respectively. Reinsurance does not
discharge the Company from its primarily liability to policyholders.
(14) RISK-BASED CAPITAL
The NAIC has developed certain risk-based capital (RBC) requirements for
life insurers. If prescribed levels of RBC are not maintained, certain
actions may be required on the part of the Company or its regulators. At
December 31, 1997, the Company's total adjusted capital and authorized
control level - RBC were $25,892,685 and $2,408,857, respectively. At
this level of adjusted capital, no action is required.
(15) GUARANTY FUND ASSESSMENTS
The Company participates, along with all life insurance companies
licensed in New York, in an association formed to guarantee benefits to
policyholders of insolvent life insurance companies. Under the state
law, the Company is contingently liable for its share of claims covered
by the guaranty association for insolvencies incurred through 1997 but
for which assessments have not yet been determined.
The Company has not established an estimated liability for unassessed
guarantee fund claims incurred prior to December 31, 1997 as management
believes that such assessments are not material to the financial
statements.
(16) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business the Company is involved in various
legal actions for which it establishes reserves where appropriate. In
the opinion of the Company's management, based upon the advice of legal
counsel, the resolution of such litigation is not expected to have a
material adverse effect on the statutory financial statements. Under an
indemnification agreement with Xerox Corporation, the Company is not
liable for any litigation expenses arising from events occurring prior
to the sale of the Company on June 1, 1995.
Schedule 1
FIRST COVA LIFE INSURANCE COMPANY
Schedule of Selected Financial Data from Annual Statement
Year ended December 31, 1997
(In thousands of dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Investment income earned:
<S> <C>
Government bonds $ 48
Other bonds (unaffiliated) 11,306
Bonds of affiliates -
Preferred stocks (unaffiliated) -
Preferred stocks of affiliates -
Common stocks (unaffiliated) -
Common stocks of affiliates -
Mortgage loans 786
Real estate -
Premium notes, policy loans, and liens 1,531
Collateral loans -
Cash on hand and on deposit 7
Short-term investments 197
Other invested assets -
Derivative instruments -
Aggregate write-in for investment income -
- ---------------------------------------------------------------------------------------------------------------------------
Gross investment income 13,875
- ---------------------------------------------------------------------------------------------------------------------------
Real estate owned - book value less encumbrances -
Mortgage loans - book value:
Farm mortgages -
Residential mortgages -
Commercial mortgages 8,866
- ---------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 8,866
- ---------------------------------------------------------------------------------------------------------------------------
Mortgage loans by standing - book value:
Good standing 8,866
Good standing with restructured terms
Interest overdue -
Foreclosure in process -
Other long-term assets - statement value -
Collateral loans -
Bonds and stocks of parents, subsidiaries, and affiliates - book value:
Bonds -
Preferred stocks -
Common stocks -
(Continued)
</TABLE>
Schedule 1
FIRST COVA LIFE INSURANCE COMPANY
Schedule of Selected Financial Data from Annual Statement
(In thousands of dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Bonds and short-term investments by class and maturity: Bonds by maturity -
statement value:
<S> <C> <C>
Due within 1 year or less $ 12,230
Over 1 year through 5 years 65,104
Over 5 years through 10 years 75,280
Over 10 years through 20 years 10,037
Over 20 years 52
- ---------------------------------------------------------------------------------------------------------------------------
Total by maturity 162,703
- ---------------------------------------------------------------------------------------------------------------------------
Bonds by class - statement value:
Class 1 90,789
Class 2 56,884
Class 3 12,065
Class 4 -
Class 5 -
Class 6 -
- ---------------------------------------------------------------------------------------------------------------------------
Total by class 159,738
- ---------------------------------------------------------------------------------------------------------------------------
Total bonds publicly traded 119,877
Total bonds privately placed 39,861
Preferred stocks - statement value -
Common stocks - market value -
Short-term investments - book value 2,965
Financial options owned - statement value -
Financial options written and in force - statement value -
Financial futures contracts open - current price -
Cash on deposit 61
Life insurance in force (000's omitted):
Industrial -
Ordinary 77
Credit life -
Group life 93
- ---------------------------------------------------------------------------------------------------------------------------
Amount of accidental death insurance in
force under ordinary policies 170
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
Schedule 1
FIRST COVA LIFE INSURANCE COMPANY
Schedule of Selected Financial Data from Annual Statement
(In thousands of dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Life insurance policies with disability provisions in force:
<S> <C>
Industrial $ -
Ordinary 2
Credit life -
Group life -
Supplementary contracts in force:
Ordinary - not involving life contingencies 5
Amount on deposit -
Income payable 32
Ordinary - involving life contingencies -
Income payable -
Group - not involving life contingencies -
Amount on deposit -
Income payable -
Group - involving life contingencies -
Income payable -
Annuities:
Ordinary:
Immediate - amount of income payable Deferred - fully paid account
balance 33,888 Deferred - not fully paid - account balance -
Group:
Immediate - amount of income payable -
Fully paid account balance -
Not fully paid - account balance -
Accident and health insurance - premiums in force:
Ordinary -
Group -
Credit -
Deposit funds and dividend accumulations:
Deposit funds - account balance -
Dividend accumulations - account balance -
Claim payments 1996:
Group accident and health year ended December 31, 1997:
1997 -
1996 -
1995 -
</TABLE>
(Continued)
Schedule 1
FIRST COVA LIFE INSURANCE COMPANY
Schedule of Selected Financial Data from Annual Statement
(In thousands of dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Other accident and health:
<S> <C> <C>
1997 $ -
1996 -
1995 -
Other coverages that use developmental methods to calculate claims reserves:
1997 -
1996 -
1995 -
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying independent auditors' report.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
a. Financial Statements
---------------------------------------------------------------
The following financial statements of the Separate Account
are included in Part B hereof:
1. Independent Auditors' Report.
2. Statement of Assets and Liabilities as of December 31, 1997.
3. Statement of Operations from commencement of operations through
December 31, 1997.
4. Statement of Changes in Contract Owners' Equity from commencement
of operations through December 31, 1997.
5. Financial Highlights from commencement of operations through
December 31, 1997.
The following financial statements of the Company are included in Part B hereof:
1. Independent Auditors' Report.
2. Statutory Statements of Admitted Assets, Liabilities, and
Capital Stock and Surplus as of December 31, 1997 and 1996.
3. Statutory Statements of Operations for the Years Ended
December 31, 1997, 1996, and 1995.
4. Statutory Statements of Capital Stock and Surplus for
the Years Ended December 31, 1997, 1996, and 1995.
5. Statutory Statements of Cash Flow for the Years Ended
December 31, 1997, 1996, and 1995.
6. Notes to Statutory Financial Statements - December 31, 1997,
1996, and 1995.
b. Exhibits
---------------------------------------------------------------
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account.*
2. Not Applicable.
3. Principal Underwriter's Agreement.*
4. Individual Flexible Purchase Payment Deferred Variable Annuity
Contract.
(i) Rebalancing Transfers Endorsement.**
(ii) Automatic Withdrawals Endorsement.**
(iii)Dollar Cost Averaging Endorsement.**
5. Application for Variable Annuity.**
6.(i) Copy of Articles of Incorporation of the Company.*
(ii) Copy of the Bylaws of the Company.*
7. Not Applicable.
8. Not Applicable.
9. Opinion and Consent of Counsel.
10. Consent of Independent Auditors.
11. Not Applicable.
12. Not Applicable.
13. Calculation of Performance Information.
14. Company Organizational Chart.**
27. Not Applicable
<FN>
* incorporated by reference to Registrant's initial filing on
Form N-4 (File No. 811-8306) as filed on January 21, 1994.
** incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 to Form N-4 (File No. 33-74174) as electronically
filed on May 14, 1996.
</FN>
</TABLE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
Richard A. Liddy Chairman of the Board and Director
700 Market Street
St. Louis, MO 63101
Leonard M. Rubenstein Director
700 Market Street
St. Louis, MO 63101
Lorry J. Stensrud President and Director
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
John W. Barber Director
13045 Tesson Ferry Road
St. Louis, MO 63128
Norse N. Blazzard Director
4401 West Tradewinds Avenue
Suite 207
Lauderdale by the Sea, FL 33308
Frances S. Cook Secretary
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Connie A. Doern Vice President
1776 West Lakes Parkway
West Des Moines, IA 50266
Judy M. Drew Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Francis A. Goodhue III Director
Morgan Guaranty
9 West 57th Street
New York, NY 10019
Patricia E. Gubbe Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Philip A. Haley Executive Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Richard A. Hemmings Director
Lord, Bissell & Brook
115 S. LaSalle Street
Chicago, IL 60603
J. Robert Hopson Vice President,
One Tower Lane, Suite 3000 Chief Actuary and Director
Oakbrook Terrace, IL 60181-4644
Lisa O. Kirchner Vice President
1776 West Lakes Parkway
West Des Moines, IA 50266
E. Thomas Hughes, Jr. Treasurer
700 Market St.
St. Louis, MO 63101
Sum Leong Vice President, Chief
120 Broadway Administrative Officer
New York, NY 10271 and Assistant Secretary
William C. Mair Vice President,
One Tower Lane, Suite 3000 Controller and Director
Oakbrook Terrace, IL 60181-4644
Matthew P. McCauley Assistant Secretary and Director
700 Market St.
St. Louis, MO 63101
Thomas A. Price Director
Bank of New York
1 Wall Street
New York, NY 10286
Mark E. Reynolds Executive Vice President &
One Tower Lane, Suite 3000 Director
Oakbrook Terrace, IL 60181-4644
Br. Thomas J. Scanlan, F.S.C. Director
Manhattan College
Riverdale, NY 10471
Peter L. Witkewiz Vice President
1776 West Lakes Parkway
West Des Moines, IA 50266
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
A company organizational chart was filed as Exhibit 14 in Registrant's
Pre-Effective Amendment No. 1 and is incorporated herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 6, 1998, there were 16 Non-Qualified Contract Owners and 0
Qualified Contract Owners.
ITEM 28. INDEMNIFICATION
The Bylaws of the Company (Article II, Section 13) provide that:
Each person who is or was a director, officer or employee of the Corporation
or is or was serving at the request of the Corporation as a director, officer
or employee of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise (including the heirs, executors, administrators
or estate of such person) shall be indemnified by the Corporation as of right
to the full extent that officers and directors are permitted to be indemnified
by the laws of the State of New York, as now in effect and as hereafter amended,
against any liability, judgment, fine, amount paid in settlement,cost orexpense
including attorneys' fees) asserted or threatened against or incurred by such
person in his capacity as or arising out of his status as a director, officer
or employee of the Corporation or if serving at the request of the Corporation,
as a director, officer or employee of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise. The indemnification
provided by this By-Law provision shall not be exclusive of any other rights to
which those indemnified may be entitled under any other By-Law or under any
agreement, resolution of shareholders or directors or otherwise, which forms of
indemnification are hereby expressly authorized, and shall not limit in any way
any right which the Corporation may have to make different or further
indemnification with respect to the same or different persons or classes of
persons. Notwithstanding the foregoing, a director shall not be entitled to
indemnification for liability to the Corporation or any of its shareholders
under the By-Laws or under any agreement or resolution of shareholders or
directors, if such liability is of the type described in subsections (i) or
(ii) of Section 10 of the Corporation's Certificate of Incorporation and
Charter.
The Corporation shall have the power, in furtherance of the provisions of this
Section 13, to apply for, purchase and maintain insurance of the type and in
such amounts as is or may hereafter be permitted by Section 726 of the Business
Corporation Law.
No payment of indemnification, advancement or allowance under Sections 721 to
726, inclusive, of the Business Corporation Law shall be made unless a notice
has been filed with the Superintendent of Insurance of the State of New York,
not less than thirty days prior to such payment, specifying the payees, the
amounts, the manner in which such payment is authorized and the nature and
status, at the time of such notice, of the litigation or threatened litigation.
If any action with respect to indemnification of directors and officers of the
Corporation shall be taken by resolution of directors, or by agreement or
otherwise, a notice shall be filed with the Superintended of Insurance of the
State of New York not less than thirty days thereafter specifying the action
taken.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Cova Life Sales Company is the principal underwriter for the
following investment companies (other than Registrant):
Cova Variable Annuity Account One
Cova Variable Annuity Account Five
Cova Variable Life Account One
Cova Variable Life Account Five
Cova Variable Annuity Account Four
(b) Cova Life Sales Company is the principal underwriter for the
Contracts. The following persons are the officers and directors of Cova Life
Sales Company. The principal business address for each officer and director
of Cova Life Sales Company is One Tower Lane, Suite 3000, Oakbrook Terrace,
Illinois 60181-4644.
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Underwriter
Judy M. Drew President, Chief Operations Officer and Director
Lorry J. Stensrud Director
Patricia E. Gubbe Vice President and Chief Compliance Officer
William C. Mair Director
Philip A. Haley Vice President
Frances S. Cook Assistant Secretary
Robert A. Miner Treasurer
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Robert Miner, whose address is One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644 maintains physical possession of the accounts,
books or documents of the Variable Account required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
sixteen (16) months old for so long as payment under the variable annuity
contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under
this Form promptly upon written or oral request.
d. First Cova Life Insurance Company ("Company") hereby represents that
the fees and charges deducted under the Contracts described in the Prospectus,
in the aggregate, are reasonable in relation to the services rendered, the
expenses to be incurred and the risks assumed by the Company.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities
Act Rule 485(b) for effectiveness of this Registration Statement and has
caused this Registration Statement to be signed on its behalf, in the City
of Oakbrook Terrace, and State of Illinois on this 23rd day of April, 1998.
<TABLE>
<CAPTION>
<S> <C>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
(Registrant)
By: FIRST COVA LIFE INSURANCE COMPANY
By: /s/LORRY J. STENSRUD
____________________________________
FIRST COVA LIFE INSURANCE COMPANY
Depositor
By: /s/LORRY J. STENSRUD
____________________________________
</TABLE>
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------- Chairman of the Board and ------
Richard A. Liddy Director Date
/s/LORRY J. STENSRUD President and Director 4/23/98
- ---------------------- -------
Lorry J. Stensrud Date
- ---------------------- Director ------
Leonard M. Rubenstein Date
/s/ J. Robert Hopson* Director 4/23/98
- ---------------------- -------
J. Robert Hopson Date
/s/ William C. Mair* Controller and Director 4/23/98
- ---------------------- -------
William C. Mair Date
/s/ Matthew P. McCauley* Director 4/23/98
- ------------------------ -------
Matthew P. McCauley Date
Director 4/23/98
- ---------------------- -------
John W. Barber Date
/s/ Norse N. Blazzard* 4/23/98
- ---------------------- Director -------
Norse N. Blazzard Date
/s/ Francis A. Goodhue III* 4/23/98
- --------------------------- Director -------
Francis A. Goodhue III Date
/s/ Richard A. Hemmings* 4/23/98
- ---------------------- Director -------
Richard A. Hemmings Date
/s/ Thomas A. Price* 4/23/98
- ---------------------- Director -------
Thomas A. Price Date
/s/ Thomas J. Scanlan, FSC* 4/23/98
- ---------------------- Director -------
Thomas J. Scanlan, FSC Date
- ---------------------- Director -------
Mark E. Reynolds Date
</TABLE>
*By: /s/LORRY J. STENSRUD
____________________________________
Lorry J. Stensrud, Attorney-in-Fact
INDEX TO EXHIBITS
EXHIBIT NO.
99.B4. Individual Flexible Purchase Payment Deferred Variable Annuity
Contract
99.B9 Opinion and Consent of Counsel
99.B10 Consent of Independent Auditors
99.B13 Calculation of Performance Information
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM N-4
FOR
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
COVA LIFE INSURANCE COMPANY
First Cova Life Insurance Company
A New York stock insurance company
120 Broadway
New York, New York 10271
FIRST COVA LIFE INSURANCE COMPANY (the "Company") will make Annuity Payments to
the Annuitant starting on the Annuity Date subject to the terms of this
Contract. This Contract is issued in return for the Application and payment of
the initial Purchase Payment. A copy of the Application is attached to and made
a part of the Contract. This is a legal contract between the Owner and the
Company.
TEN DAY FREE LOOK
Within 10 days of the date of receipt of this Contract by the Owner, it may be
returned by delivering or mailing it to the Company or to the agent through whom
it was purchased. When this Contract is received by the Company, it will be
voided as if it had never been in force. The Company will refund the Contract
Value computed at the end of the Valuation Period during which this Contract is
mailed to or delivered to the Company at its Home Office or the agent through
whom it was purchased.
Signed for the Company.
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE AND FIXED ANNUITY CONTRACT
NONPARTICIPATING
NO DIVIDENDS
READ YOUR CONTRACT CAREFULLY
ANNUITY PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE
INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT
GUARANTEED AS TO DOLLAR AMOUNT. VARIABLE ACCOUNT EXPENSES CONSIST OF A MORTALITY
AND EXPENSE RISK PREMIUM, AN ADMINISTRATIVE EXPENSE CHARGE, A CONTRACT
MAINTENANCE CHARGE AND A TRANSFER FEE. THESE CHARGES ARE SHOWN ON THE CONTRACT
DATA PAGE. VARIABLE ANNUITY PAYMENTS WILL NOT DECREASE AS LONG AS THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT EQUALS OR EXCEEDS 3% PER YEAR.
THE VARIABLE PROVISIONS OF THIS CONTRACT CAN BE FOUND ON PAGES 9 AND 11.
INDEX
Page
Definitions................................................................ 7
General Provisions......................................................... 7
The Contract............................................................... 7
Incontestability........................................................... 7
Non-Participating.......................................................... 7
Misstatement of Age or Sex................................................. 7
Contract Settlement........................................................ 8
Reports.................................................................... 8
Taxes...................................................................... 8
Evidence of Survival....................................................... 8
Modification of Contract................................................... 8
Annuitant, Ownership, Assignment Provisions................................ 8
Annuitant.................................................................. 8
Ownership.................................................................. 8
Assignment................................................................. 8
Beneficiary Provisions..................................................... 8
Beneficiary................................................................ 8
Change of Beneficiary...................................................... 8
Purchase Payment Provisions................................................ 8
Purchase Payments.......................................................... 8
Change in Purchase Payments................................................ 8
Allocation of Purchase Payments............................................ 8
No Default................................................................. 8
General Account Provisions................................................. 8
General Account Value...................................................... 8
Interest To Be Credited.................................................... 9
Contract Value Provision................................................... 9
Contract Value............................................................. 9
Variable Account Provisions................................................ 9
The Variable Account....................................................... 9
Investments of the Variable Account........................................ 9
Valuation of Assets........................................................ 9
Accumulation Unit.......................................................... 9
Mortality and Expense Risk Premium......................................... 9
Administrative Expense Charge.............................................. 9
Mortality and Expense Guarantee............................................ 10
Contract Maintenance Charge................................................ 10
Deduction for Contract Maintenance Charge.................................. 10
Transfer Provision......................................................... 10
Transfers.................................................................. 10
Death Benefit.............................................................. 10
Death of Annuitant......................................................... 10
Death of Owner............................................................. 10
Payment of Death Benefit................................................... 11
Annuity Provisions......................................................... 11
Annuity Date............................................................... 11
Election of Annuity Option................................................. 11
Frequency and Amount of Annuity Payments................................... 11
Annuity Options............................................................ 11
Annuity.................................................................... 11
Fixed Annuity.............................................................. 11
Variable Annuity........................................................... 11
Annuity Unit............................................................... 12
Net Investment Factor...................................................... 12
Transfers During the Annuity Period........................................ 12
Protection of Proceeds..................................................... 12
Withdrawal Provisions...................................................... 12
Withdrawals................................................................ 12
Withdrawal Charge.......................................................... 12
Waiver of Withdrawal Charge................................................ 13
Suspension or Deferral of Payments or Transfers from the Variable Account.. 13
Deferral of Payments or Transfers from the General Account................. 13
Reserves, Values and Benefits.............................................. 13
Tables.....................................................................14-17
CONTRACT DATA PAGE
ANNUITANT: [John Doe] AGE AT ISSUE: [35]
OWNER: [John Doe] AGE AT ISSUE: [35]
CONTRACT NUMBER: [123] ISSUE DATE: [6/1/1995]
INITIAL PURCHASE PAYMENT: [$25,000] ANNUITY DATE: [6/1/2025]
MINIMUM SUBSEQUENT PURCHASE
PAYMENT: [$2,000]
BENEFICIARY:
AS STATED IN THE APPLICATION FOR THIS CONTRACT UNLESS CHANGED IN
ACCORDANCE WITH THE CONTRACT PROVISIONS.
INITIAL INTEREST RATE APPLICABLE TO THE GENERAL ACCOUNT:
[7% GUARANTEED THROUGH THE END OF THE CURRENT CALENDAR YEAR]
MINIMUM GUARANTEED INTEREST RATE: 3% PER YEAR.
CONTRACT MAINTENANCE CHARGE: $30.00 EACH CONTRACT YEAR.
AFTER THE ANNUITY DATE, THE CONTRACT MAINTENANCE CHARGE WILL BE
COLLECTED ON A MONTHLY BASIS.
MORTALITY AND EXPENSE RISK PREMIUM:
EQUAL ON AN ANNUAL BASIS TO 1.25% OF THE AVERAGE DAILY NET ASSET VALUE
OF THE VARIABLE ACCOUNT.
ADMINISTRATIVE EXPENSE CHARGE:
EQUAL ON AN ANNUAL BASIS TO .15% OF THE AVERAGE DAILY NET ASSET VALUE
OF THE VARIABLE ACCOUNT.
TRANSFER FEE:
$25 OR, IF SMALLER, 2% OF THE AMOUNT TRANSFERRED PER TRANSACTION IF
THERE ARE MORE THAN 12 TRANSFERS IN A CONTRACT YEAR.
ELIGIBLE INVESTMENTS:
- COVA SERIES TRUST
- J.P. MORGAN INVESTMENT MANAGEMENT
- SELECT EQUITY PORTFOLIO
- LARGE CAPITAL STOCK PORTFOLIO
- SMALL CAPITAL STOCK PORTFOLIO
- INTERNATIONAL EQUITY PORTFOLIO
- QUALITY BOND PORTFOLIO
- LORD ABBETT BOND DEBENTURE PORTFOLIO
- LORD ABBETT SERIES FUND, INC.
- LORD ABBETT GROWTH AND INCOME PORTFOLIO
- CONNING ASSET MANAGEMENT COMPANY
- MONEY MARKET
VARIABLE ACCOUNT: FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
HOME OFFICE:
First Cova Life Insurance Company
120 Broadway
New York,New York 10271
1 (800) 469-4545
(212) 766-0012
FOR USE WITH FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
A SEPARATE INVESTMENT ACCOUNT OF
FIRST COVA LIFE INSURANCE COMPANY
DEFINITIONS
ACCOUNT -- General Account and/or one or more of the Subaccount(s) of the
Variable Account.
ACCUMULATION UNIT -- An accounting unit of measure used to calculate the
Contract Value in a Subaccount of the Variable Account.
ANNUITANT -- The natural person on whose life Annuity Payments are based.
ANNUITY OR ANNUITY PAYMENTS -- The series of payments made to the Annuitant
after the Annuity Date under the Annuity Option elected.
ANNUITY DATE -- The date on which Annuity Payments begin. The Annuity Date is
shown on the Contract Data Page.
ANNUITY PERIOD -- The period starting on the Annuity Date.
ANNUITY UNIT -- An accounting unit of measure used to calculate Variable Annuity
Payments after the Annuity Date.
ATTAINED AGE -- The age on the birthday prior to any date for which age is to be
determined.
BENEFICIARY -- The person(s) who will receive the Death Benefit.
COMPANY -- First Cova Life Insurance Company at its Home Office shown on the
Contract Data Page.
CONTRACT ANNIVERSARY -- An anniversary of the Issue Date.
CONTRACT VALUE -- The sum of the Owner's interest in the General Account and the
Subaccounts of the Variable Account.
CONTRACT YEAR -- One year from the Issue Date and from each Contract
Anniversary.
ELIGIBLE INVESTMENT(S) -- An investment entity shown on the Contract Data Page.
FIXED ANNUITY -- A series of payments made during the Annuity Period which are
guaranteed as to dollar amount by the Company and do not vary with the
investment experience of the Variable Account.
GENERAL ACCOUNT -- The Company's general investment account which contains all
the assets of the Company with the exception of Cova Variable Annuity Account
One (the "Variable Account") and other segregated asset accounts.
GENERAL ACCOUNT VALUE -- The Owner's interest in the General Account.
ISSUE DATE -- The date this Contract is issued. The Issue Date is shown on the
Contract Data Page.
OWNER -- The person or entity named in the Application who/which has all rights
under this Contract.
PORTFOLIO -- A segment of an Eligible Investment which constitutes a separate
and distinct class of shares.
SUBACCOUNT -- A segment of the Variable Account.
SUBACCOUNT VALUE -- The Owner's interest in a Subaccount.
VALUATION DATE -- The Variable Account will be valued each day that the New York
Stock Exchange is open for trading.
VALUATION PERIOD -- The period beginning at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
VARIABLE ACCOUNT -- A separate investment account of the Company designated on
the Contract Data Page.
VARIABLE ACCOUNT VALUE -- The sum of the Owner's interest in each of the
Subaccounts of the Variable Account.
VARIABLE ANNUITY -- A series of payments made during the Annuity Period which
vary in amount with the investment experience of each applicable Subaccount.
WITHDRAWAL VALUE -- The Withdrawal Value is:
1) the Contract Value for the Valuation Period next following the Valuation
Period during which a written request for a withdrawal is received at the
Company; less
2) any applicable taxes not previously deducted; less
3) the Withdrawal Charge, if any; less
4) the Contract Maintenance Charge, if any.
GENERAL PROVISIONS
THE CONTRACT -- The entire contract consists of:
1) this Contract;
2) the Application which is attached to this Contract; and
3) any riders or endorsements attached to this Contract.
This Contract may be changed or altered only by the President or Secretary of
the Company. A change or alteration must be made in writing.
INCONTESTABILITY -- The Company will not contest this Contract from the Issue
Date.
NON-PARTICIPATING -- This Contract will not share in any distribution of
dividends.
MISSTATEMENT OF AGE OR SEX -- The Company may require proof of age or sex of the
Annuitant before making any life Annuity Payments under this Contract. If the
age or sex of the Annuitant has been misstated, the amount payable will be the
amount that the Contract Value would have provided at the correct age or sex.
After the Annuity Date, any under payments will be made up in one sum, including
interest at 6% per year, with the next Annuity Payment. Any overpayments,
including interest at 6% per year, will be deducted from future Annuity Payments
until the total is repaid.
CONTRACT SETTLEMENT -- This Contract must be returned to the Company prior to
any settlement. Prior to any payment as a death claim, due proof of death must
be submitted to the Company.
REPORTS -- At least once each calendar year, the Company will furnish the Owner
with a report showing the Contract Value and any other information as may be
required by law. The Company will also furnish an annual report of the Variable
Account. Reports will be sent to the last known address of the Owner.
TAXES -- Any taxes paid to any governmental entity relating to this Contract
will be deducted from the Purchase Payments or Contract Value when incurred. The
Company will, in its sole discretion, determine when taxes have resulted from:
the investment experience of the Variable Account; receipt by the Company of the
Purchase Payments; or commencement of Annuity Payments. The Company may, at its
sole discretion, pay taxes when due and deduct that amount from the Contract
Value at a later date. Payment at an earlier date does not waive any right the
Company may have to deduct amounts at a later date. The Company will deduct any
withholding taxes required by applicable law.
EVIDENCE OF SURVIVAL -- The Company may require satisfactory evidence of the
continued survival of any person(s) on whose life Annuity Payments are based.
MODIFICATION OF CONTRACT -- This Contract may not be modified by the Company
without the consent of the Owner except as may be required by applicable law.
ANNUITANT, OWNERSHIP, ASSIGNMENT PROVISIONS
ANNUITANT -- The Annuitant is the person on whose life Annuity Payments are
based. The Annuitant is the person designated in the Application, unless
changed.
OWNERSHIP -- The Owner has all rights and may receive all benefits under this
Contract. Prior to the Annuity Date, the Owner is the person designated in the
Application, unless changed. On and after the Annuity Date:
1) the Annuitant is the Owner; and
2) upon the death of the Annuitant, the Beneficiary is the Owner.
The Owner may change the Owner at any time. A change of Owner will automatically
revoke any prior designation of Owner. A request for change must be:
1) made in writing; and
2) received at the Company.
The change will become effective as of the date the written request is signed. A
new designation of Owner will not apply to any payment made or action taken by
the Company prior to the time it was received.
ASSIGNMENT -- The Owner may, at any time during his or her lifetime, assign his
or her rights under this Contract. The Company will not be bound by any
assignment until written notice is received by the Company. The Company is not
responsible for the validity of any assignment. The Company will not be liable
as to any payment or other settlement made by the Company before receipt of the
assignment.
BENEFICIARY PROVISIONS
BENEFICIARY -- The Beneficiary is named in the Application, unless changed. The
Beneficiary is entitled to receive the benefits to be paid at the death of the
Owner.
Unless the Owner provides otherwise, the Death Benefit will be paid in equal
shares or all to the survivor as follows:
1) to the Primary Beneficiaries who survive the Owner's death; or if there are
none,
2) to the Contingent Beneficiaries who survive the Owner's death; or if there
are none,
3) to the estate of the Owner.
CHANGE OF BENEFICIARY -- Subject to the rights of any irrevocable Beneficiary,
the Owner may change the Primary Beneficiary or Contingent Beneficiary. A change
may be made by filing a written request with the Company. The change will take
effect as of the date the notice is signed. The Company will not be liable for
any payment made or action taken before it records the change.
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENTS -- The Initial Purchase Payment is due on the Issue Date.
Thereafter, a Purchase Payment may be made at any time in any amount, subject to
the Minimum Subsequent Purchase Payment shown on the Contract Data Page. The
Company reserves the right to reject any Application or Purchase Payment.
CHANGE IN PURCHASE PAYMENTS -- Subject to the minimum shown on the Contract Data
Page, the Owner may increase or decrease or change the frequency of subsequent
Purchase Payments.
ALLOCATION OF PURCHASE PAYMENTS -- The allocation of the initial Purchase
Payment is elected by the Owner on the Application. Unless elected otherwise by
the Owner, subsequent Purchase Payments are allocated in the same manner as the
initial Purchase Payment. Allocation of the Purchase Payments is subject to the
terms and conditions imposed by the Company.
NO DEFAULT -- Unless the Owner makes a total withdrawal, this Contract will
remain in force until the Annuity Date. This Contract will not be in default if
subsequent Purchase Payments are not made.
GENERAL ACCOUNT PROVISIONS
GENERAL ACCOUNT VALUE -- The General Account Value at any time is equal to:
1) the Purchase Payments allocated to the General Account; plus
2) amounts transferred to the General Account; plus
3) interest credited to the General Account; less
4) any prior partial withdrawals and Withdrawal Charges deducted from the
General Account; less
5) amounts transferred from the General Account; less
6) any applicable premium taxes, Contract Maintenance Charge or Transfer Fee.
INTEREST TO BE CREDITED -- The Company guarantees that the interest rate
credited to the General Account will not be less than the Minimum Guaranteed
Interest Rate. The Minimum Guaranteed Interest Rate is 3% per year. The Company
may credit additional interest at its sole discretion.
CONTRACT VALUE PROVISION
CONTRACT VALUE -- Each Purchase Payment is allocated to a Subaccount of the
Variable Account and/or the General Account. A Purchase Payment allocated to a
Subaccount of the Variable Account is converted into Accumulation Units. The
number of Accumulation Units in a Subaccount credited to this Contract is
determined by dividing the Purchase Payment allocated to that Subaccount by the
Accumulation Unit Value for that Subaccount. The Contract Value on any Valuation
Date is the sum of the Owner's interest in the General Account and the
Subaccounts of the Variable Account. The value of the Owner's interest in a
Subaccount is determined by multiplying the number of Accumulation Units
attributable to that Subaccount by the Accumulation Unit Value for that
Subaccount.
Withdrawals will result in the cancellation of Accumulation Units in a
Subaccount or a reduction of the General Account Value.
VARIABLE ACCOUNT PROVISIONS
THE VARIABLE ACCOUNT -- The Variable Account is a separate investment account of
the Company. It is shown on the Contract Data Page. The Company has allocated a
part of its assets for this and certain other contracts to the Variable Account.
The assets of the Variable Account are the property of the Company. However,
they are not chargeable with the liabilities arising out of any other business
the Company may conduct.
INVESTMENTS OF THE VARIABLE ACCOUNT -- Purchase Payments applied to the Variable
Account are allocated to a Subaccount of the Variable Account. The assets of the
Subaccount are allocated to the Eligible Investment(s) and the Portfolio(s), if
any, within an Eligible Investment shown on the Contract Data Page. The Company
may, from time to time, and with the prior approval of the Superintendent of
Insurance of the state of New York, add additional Eligible Investments or
Portfolios to those shown on the Contract Data Page. The Owner may be permitted
to transfer Contract Values to the additional Eligible Investments or
Portfolios. However, the right to make any transfer will be limited by the terms
and conditions imposed by the Company.
If the shares of any of the Eligible Investment(s) or any Portfolio(s) within
the Eligible Investments become unavailable for investment by the Variable
Account, or the Company's Board of Directors deems further investment in these
shares inappropriate, the Company may substitute shares of another Eligible
Investment for shares already purchased under this Contract.
VALUATION OF ASSETS -- Assets of the Variable Account are valued at their fair
market value in accordance with procedures of the Company.
ACCUMULATION UNIT -- A Purchase Payment allocated to the Variable Account is
converted into Accumulation Units for each elected Subaccount. The number of
Accumulation Units in a Subaccount credited to this Contract is determined by
dividing the Purchase Payment allocated to that Subaccount by the Accumulation
Unit Value for that Subaccount as of the Valuation Period during which the
Purchase Payment is allocated to the Subaccount. The Accumulation Unit Value for
each Subaccount was arbitrarily set initially at $10. The Accumulation Unit
Value for any later Valuation Period is determined by subtracting (b) from (a)
and dividing the result by (c) where:
(a) is the net result of
1) the assets of the Subaccount; i.e., the aggregate value of the
underlying Eligible Investment shares held at the end of such Valuation
Period; plus or minus
2) the cumulative charge or credit for taxes reserved which is determined
by the Company to have resulted from the operation of the Subaccount of
the Variable Account;
(b) is the cumulative unpaid charge for the Mortality and Expense Risk Premium
and for the Administrative Expense Charge which are shown on the Contract
Data Page; and
(c) is the number of Accumulation Units in a Subaccount of the Variable Account
outstanding at the end of the Valuation Period.
Withdrawals from a Subaccount will result in the cancellation of Accumulation
Units in each Subaccount of the Variable Account. The Contract Value
attributable to a Subaccount of the Variable Account is determined by
multiplying the number of Accumulation Units attributable to the Subaccount by
the Accumulation Unit Value for that Subaccount. An Accumulation Unit Value may
increase or decrease from Valuation Period to Valuation Period.
MORTALITY AND EXPENSE RISK PREMIUM -- The Company deducts a Mortality and
Expense Risk Premium from the Variable Account which is equal, on an annual
basis, to the amount shown on the Contract Data Page. The Mortality and Expense
Risk Premium compensates the Company for assuming the mortality and expense
risks under this Contract.
ADMINISTRATIVE EXPENSE CHARGE -- The Company deducts an Administrative Expense
Charge from the Variable Account which is equal, on an annual basis, to the
amount shown on the Contract Data Page. The Administrative Expense Charge
compensates the Company for the costs associated with the administration of this
Contract and the Variable Account.
MORTALITY AND EXPENSE GUARANTEE -- The Company guarantees that the dollar amount
of each Annuity Payment after the first Annuity Payment will not be affected by
variations in mortality or expense experience.
CONTRACT MAINTENANCE CHARGE
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE -- The Company deducts an annual
Contract Maintenance Charge from the Contract Value by cancelling Accumulation
Units from each applicable Subaccount or reducing the General Account Value to
reimburse it for expenses relating to maintenance of this Contract. The Contract
Maintenance Charge is shown on the Contract Data Page. The Contract Maintenance
Charge will be deducted from the Contract Value on each Contract Anniversary
while this Contract is in force.
If a total withdrawal is made on other than a Contract Anniversary, the Contract
Maintenance Charge will be deducted at the time of withdrawal. If the Annuity
Date is not a Contract Anniversary, a prorata portion of the annual Contract
Maintenance Charge will be deducted on the Annuity Date. After the Annuity Date,
the Contract Maintenance Charge will be collected on a monthly basis and will
result in a reduction of each Annuity Payment.
TRANSFER PROVISION
TRANSFERS -- Prior to the Annuity Date, the Owner may transfer all or part of an
Account without the imposition of any fee or charge if there have been no more
than 12 transfers made in the Contract Year. All transfers are subject to the
following:
1) if more than 12 transfers have been made in the Contract Year, the Company
will deduct a Transfer Fee. The Transfer Fee is shown on the Contract Data
Page. The Transfer Fee will be deducted from the Account from which the
transfer is made. However, if the entire interest in an Account is being
transferred, the Transfer Fee will be deducted from the amount which is
transferred.
2) the minimum amount which may be transferred is the lesser of: (A) $500; or
(B) the Owner's entire interest in the Account.
3) transfers will be effected during the Valuation Period next following
receipt by the Company of a written transfer request containing all
required information. However, no transfer may be made effective within
seven calendar days of the Annuity Date.
4) any transfer direction must clearly specify: (A) the amount which is to be
transferred; and (B) the Accounts which are to be affected.
If the Owner elects to use the transfer privilege, neither the Company nor its
Home Office will be liable for transfers made in accordance with the Owner's
instructions.
DEATH BENEFIT
DEATH OF ANNUITANT -- Upon death of the Annuitant prior to the Annuity Date, the
Owner must designate a new Annuitant. If no designation is made within 30 days
of the death of the Annuitant, the Owner will become the Annuitant.
Upon death of the Annuitant after the Annuity Date, the Death Benefit, if any,
will be as specified in the Annuity Option elected and the remaining Annuity
Payments will be distributed at least as rapidly as prior to the Annuitant's
death.
DEATH OF OWNER -- Upon death of the Owner prior to the Annuity Date, the Death
Benefit will be paid to the Beneficiary designated by the Owner.
Upon death of the Owner after the Annuity Date, the Death Benefit, if any, will
be as specified in the Annuity Option elected and the remaining Annuity Payments
will be distributed at least as rapidly as prior to the Owner's death.
Prior to the Owner, or a Joint Owner, attaining age 80, the Death Benefit will
be the greater of:
1) the Purchase Payments less any Withdrawals and any applicable Withdrawal
Charge;
2) the Contract Value; or
3) the Contract Value on the most recent seven year Contract Anniversary plus
any subsequent Purchase Payments less any subsequent Withdrawals and any
applicable Withdrawal Charge.
After the Owner, or a Joint Owner, attains age 80, the Death Benefit will be the
greater of:
1) Purchase Payments less any Withdrawals and any applicable Withdrawal
Charge;
2) the Contract Value; or
3) the Contract Value on the most recent seven year Contract Anniversary on or
before the Owner's 80th birthday plus any subsequent Purchase Payments less
any subsequent Withdrawals and any applicable Withdrawal Charge.
If Joint Owners are named, the Death Benefit is payable upon the first death of
a Joint Owner. However, a surviving Joint Owner who is both the spouse of the
other Joint Owner and the Beneficiary may elect that this Contract remain in
effect.
The Death Benefit will be determined and paid as of the Valuation Period next
following the date of receipt by the Company of both due proof of death and an
election for a single sum payment or election under an Annuity Option.
If a single sum payment is requested, the proceeds will be paid within seven (7)
days of receipt of proof of death and the election. Payment under an Annuity
Option may only be elected during the sixty-day period beginning with the date
of receipt of proof of death or a single sum payment will be made to the
Beneficiary at the end of the sixty-day period.
The entire Death Benefit must be paid within five (5) years of the date of death
unless the Beneficiary elects to have the Death Benefit payable under an Annuity
Option over the Beneficiary's lifetime or for a period not extending beyond the
Beneficiary's life expectancy, beginning within one (1) year of the date of
death.
If the Beneficiary is the spouse of the Owner, the spouse may elect to become
the Owner and continue this Contract in effect at the then current Contract
Value.
PAYMENT OF DEATH BENEFIT -- The Company will require due proof of death before
any Death Benefit is paid. Due proof of death will be:
1) a certified death certificate;
2) a certified decree of a court of competent jurisdiction as to the finding of
death;
3) a written statement by a medical doctor who attended the deceased; or
4) any other proof satisfactory to the Company.
Any Death Benefit will be paid in accordance with applicable law or regulations
governing death benefit payments.
ANNUITY PROVISIONS
ANNUITY DATE -- The Annuity Date is elected by the Owner on the Application. The
Annuity Date is shown on the Contract Data Page. The Annuity Date must be the
first day of a calendar month and must be at least one year after the Issue
Date. The Annuity Date may not be later than the first day of the calendar month
following the Annuitant's 90th birthday.
Prior to the Annuity Date, the Owner may, subject to the above, change the
Annuity Date upon 30 days prior written notice to the Company.
ELECTION OF ANNUITY OPTION -- The Annuity Option is elected by the Owner on the
Application. If no Annuity Option is elected, Option 2 with 10 years guaranteed
will automatically be applied. Prior to the Annuity Date, the Owner may, upon 30
days prior written notice to the Company, change the Annuity Option.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS -- Annuity Payments will be paid as
monthly installments. The Contract Value on the Annuity Date is applied to the
Annuity Table for the Annuity Option elected. If the amount of the Contract
Value to be applied under an Annuity Option is less than $2,000, the Company
reserves the right to make one lump sum payment in lieu of Annuity Payments. If
the amount of any Annuity Payment would be or become less than $20, the Company
will reduce the frequency of payments to an interval which will result in each
payment being at least $20.
The Annuity Tables are based on the 1983 Individual Annuity Mortality Tables
with interest at the rate of 3% per year.
ANNUITY OPTIONS -- The following Annuity Options or any other Annuity Option
acceptable to the Company may be elected.
Option 1 -- Life Annuity -- The Company will make monthly payments during the
life of the Annuitant.
Option 2 -- Life Annuity with 5, 10 or 20 Years Guaranteed -- The Company will
make monthly Annuity Payments during the life of the Annuitant. If payments have
been made for less than the guaranteed period at the death of the Annuitant,
payments will continue to the Beneficiary for the remainder of the guaranteed
period. However, the Beneficiary may elect to receive a single sum payment. A
single sum payment will be equal to the present value of remaining payments as
of the date of receipt of due proof of death commuted at the assumed investment
rate of 3%. If any life income optional settlement with a period certain
provides for installment payments of the same amount at some ages for different
periods certain, the contract must provide that the insurer will deem an
election to have been made for the longest period certain which could have been
elected for such age and amount.
Option 3 -- Joint and Last Survivor Annuity -- The Company will make monthly
Annuity Payments for the joint lifetime of the Annuitant and another person. At
the death of either Payee, Annuity Payments will continue to be made to the
survivor Payee. The survivor's Annuity Payments will be equal to 100%, 66 2/3%
or 50% of the amount payable during the joint lifetime, as chosen.
ANNUITY -- If all of the Contract Value on the seventh calendar day before the
Annuity Date is allocated to the General Account, the Annuity will be paid as a
Fixed Annuity. If all of the Contract Value on the Annuity Date is allocated to
the Variable Account, the Annuity will be paid as a Variable Annuity. If the
Contract Value on the Annuity Date is allocated to both the General Account and
the Variable Account, the Annuity will be paid as a combination of a Fixed
Annuity and a Variable Annuity to reflect the allocation between the Accounts.
Variable Annuity Payments will reflect the investment performance of the
Variable Account in accordance with the allocation of the Contract Value to the
Subaccounts on the Annuity Date.
The Contract Value will be applied to the applicable Annuity Tables. The Annuity
Table used will depend upon the Annuity Option elected. The amount of the first
payment for each $1,000 of Contract Value is shown in the Annuity Tables. If, as
of the Annuity Date, the then current Single Premium Immediate Annuity rates
applicable to this class of contracts provide a first Annuity Payment greater
than guaranteed under the same Annuity Option under this Contract, the greater
payment will be made.
FIXED ANNUITY -- The General Account Value on the day immediately preceding the
Annuity Date will be used to determine the Fixed Annuity monthly payment. The
first monthly Annuity Payment will be based upon the Annuity Option elected and
the appropriate Annuity Option Table.
VARIABLE ANNUITY -- Variable Annuity Payments:
1) are not predetermined as to dollar amount; and
2) will vary in amount with the net investment results of the applicable
Subaccount(s) of the Variable Account at the Annuity Date.
The dollar amount of Variable Annuity Payments for each applicable Subaccount
after the first is determined as follows:
1) the dollar amount of the first Variable Annuity Payment is divided by the
value of an Annuity Unit for each applicable Subaccount as of the Annuity
Date. This establishes the number of Annuity Units for each monthly
payment. The number of Annuity Units for each applicable Subaccount remains
fixed during the Annuity Period;
2) the fixed number of Annuity Units per payment in each Subaccount is
multiplied by the Annuity Unit Value for that Subaccount for the last
Valuation Period of the month preceding the month for which the payment is
due. This result is the dollar amount of the payment for each applicable
Subaccount.
The total dollar amount of each Variable Annuity Payment is the sum of all
Subaccount Variable Annuity Payments reduced by the applicable Contract
Maintenance Charge.
ANNUITY UNIT -- The value of an Annuity Unit for each Subaccount of the Variable
Account was initially set on an arbitrary basis. This was done when the first
Eligible Investment shares were purchased.
The Subaccount Annuity Unit Value at the end of any subsequent Valuation Period
is determined by multiplying the Subaccount Annuity Unit Value for the
immediately preceding Valuation Period by the net investment factor for the day
for which the Annuity Unit Value is being calculated; and multiplying the result
by 0.999919 for each day within the Valuation Period.
NET INVESTMENT FACTOR -- The Net Investment Factor for any Subaccount of the
Variable Account for any Valuation Period is determined by dividing:
1) the Accumulation Unit Value as of the close of the current Valuation
Period; by
2) the Accumulation Unit Value as of the close of the immediately preceding
Valuation Period.
The Net Investment Factor may be greater or less than one, as the Annuity Unit
Value may increase or decrease.
TRANSFERS DURING THE ANNUITY PERIOD -- During the Annuity Period, the Owner may
make transfers, by written request, as follows:
1) the Owner may make a transfer once each Contract Year between Subaccounts
of the Variable Account.
2) the Owner may at any time, make a transfer from one or more Subaccounts to
the General Account. The Owner may not make a transfer from the General
Account to the Variable Account.
The amount transferred to the General Account from a Subaccount of the Variable
Account will be equal to the annuity reserve for the payee's interest in that
Subaccount. The annuity reserve is the product of "(a)" multiplied by "(b)"
multiplied by "(c)", where (a) is the number of Annuity Units representing the
Owner's interest in the Subaccount per Annuity Payment; (b) is the Annuity Unit
Value for the Subaccount; and (c) is the present value of $1.00 per payment
period as of the Attained Age of the Owner at time of transfer for the Annuity
Option, determined using the 1983 Individual Annuity Mortality Tables with
interest at 3% per year. Amounts transferred to the General Account will be
applied under the Annuity Option elected at the attained age of the Owner at the
time of the transfer. All amounts and Annuity Unit Values will be determined as
of the end of the Valuation Period preceding the effective date of the transfer.
PROTECTION OF PROCEEDS -- No Payee may commute, encumber, alienate or assign any
payments under this Contract. To the extent permitted by law, no payments will
be subject to the debts, contracts or engagements of any Payee or to any
judicial process to levy upon or attach the same for payment thereof.
WITHDRAWAL PROVISIONS
WITHDRAWALS -- Prior to the Annuity Date, the Owner may, upon written request
received by the Company, make a total or partial withdrawal of the Withdrawal
Value. A withdrawal will result in the cancellation of Accumulation Units from
each applicable Subaccount of the Variable Account or a reduction in the General
Account Value in the ratio that the Subaccount Value and/or the General Account
Value bears to the total Contract Value. The Owner must specify in writing in
advance which units are to be cancelled or values are to be reduced if other
than the above method is desired. The Company will pay the amount of any
withdrawal within seven (7) days of receipt of a request in good order unless
the Suspension Or Deferral Of Payments Or Transfers From The Variable Account
provision or the Deferral Of Payments Or Transfers From The General Account
provision is in effect.
Each partial withdrawal must be for an amount which is not less than $500 or, if
smaller, the remaining Withdrawal Value. The remaining Withdrawal Value must be
at least $1,000 after a partial withdrawal is completed.
WITHDRAWAL CHARGE -- A Withdrawal Charge may be deducted in the event of a
withdrawal of all or a portion of the Contract Value. The Withdrawal Charge is
imposed on a withdrawal of Contract Value attributable to a Purchase Payment
within seven (7) years of receipt of the Purchase Payment. The Withdrawal
Charge, if any, is equal to 7% of the Purchase Payment withdrawn within first
and second years following receipt, 5% of the Purchase Payment withdrawn during
third, fourth and fifth years following receipt and 3% of the Purchase Payment
withdrawn during sixth and seventh years following receipt.
For a partial withdrawal, the Withdrawal Charge will be deducted from the
remaining Withdrawal Value, if sufficient, or from the amount withdrawn. The
Withdrawal Charge will be deducted by cancelling Accumulation Units from each
applicable Subaccount or reducing the General Account Value in the ratio that
the Subaccount Value and/or General Account bears to the total Contract Value.
The Owner must specify in writing in advance if other than the above method of
cancellation is desired.
WAIVER OF WITHDRAWAL CHARGE -- A withdrawal of 10% of the aggregate Purchase
Payments may be made without the Withdrawal Charge on a non-cumulative basis as
follows:
1) Once each Contract Year after the first Contract Year, as a single sum
payment if the Contract Value prior to the withdrawal exceeds $5,000; or
2) At any time, subject to any conditions the Company may impose, as equal
periodic installments.
Any equal periodic installments made to which the Waiver of Withdrawal Charge
applies are made in accordance with the following:
1) Total monthly withdrawals cannot exceed 10% of Purchase Payments in any 12
month period; and
2) The Owner must be over age 591/2.
SUSPENSION OR DEFERRAL OF
PAYMENTS OR TRANSFERS FROM
THE VARIABLE ACCOUNT
The Company reserves the right to suspend or postpone payments for a withdrawal
or transfer for any period when:
1) the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2) trading on the New York Stock Exchange is restricted;
3) an emergency exists as a result of which disposal of securities held in the
Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
4) during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Owners; provided that applicable
rules and regulations of the Securities and Exchange Commission will govern
as to whether the conditions described in (2) and (3) exist.
DEFERRAL OF PAYMENTS OR TRANSFERS FROM THE GENERAL ACCOUNT
The Company reserves the right to defer payment for a withdrawal or transfer
from the General Account for the period permitted by law but not for more than
six months after written election is received by the Company.
RESERVES, VALUES AND BENEFITS
All reserves are greater to or equal to those required by statute. Any values
and death benefits that may be available under this Contract are not less than
the minimum benefits required by any statute of the state in which this Contract
is delivered.
<TABLE>
<CAPTION>
ANNUITY TABLE 1
Monthly Annuity Payment Under Option 1
For Each $1,000 Of Contract Value Applied
Male Female Male Female Male Female
Monthly Monthly Monthly Monthly Monthly Monthly
Age Payment Payment Age Payment Payment Age Payment Payment
...... ........... ........... ...... ........... ........... ..... ........... ...........
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 2.82 2.76 32 3.35 3.19 59 5.18 4.63
6 2.83 2.77 33 3.38 3.21 60 5.31 4.74
7 2.85 2.78 34 3.42 3.24 61 5.45 4.85
8 2.86 2.79 35 3.46 3.27 62 5.61 4.97
9 2.87 2.80 36 3.50 3.30 63 5.77 5.10
10 2.88 2.81 37 3.54 3.33 64 5.95 5.24
11 2.90 2.82 38 3.58 3.37 65 6.13 5.38
12 2.91 2.83 39 3.62 3.40 66 6.34 5.54
13 2.93 2.84 40 3.67 3.44 67 6.55 5.71
14 2.94 2.85 41 3.72 3.48 68 6.78 5.89
15 2.96 2.87 42 3.77 3.52 69 7.02 6.08
16 2.97 2.88 43 3.83 3.56 70 7.29 6.29
17 2.99 2.90 44 3.88 3.60 71 7.57 6.51
18 3.01 2.91 45 3.94 3.65 72 7.87 6.76
19 3.03 2.93 46 4.01 3.70 73 8.19 7.02
20 3.05 2.94 47 4.07 3.75 74 8.53 7.31
21 3.07 2.96 48 4.14 3.80 75 8.90 7.62
22 3.09 2.97 49 4.21 3.86 76 9.30 7.96
23 3.11 2.99 50 4.29 3.92 77 9.72 8.33
24 3.13 3.01 51 4.36 3.98 78 10.18 8.73
25 3.15 3.03 52 4.45 4.05 79 10.67 9.16
26 3.18 3.05 53 4.53 4.12 80 11.19 9.63
27 3.20 3.07 54 4.63 4.19 81 11.75 10.14
28 3.23 3.09 55 4.72 4.27 82 12.35 10.69
29 3.26 3.11 56 4.83 4.36 83 12.99 11.29
30 3.29 3.14 57 4.94 4.44 84 13.66 11.94
31 3.32 3.16 58 5.05 4.54 85+ 14.37 12.64
</TABLE>
<TABLE>
<CAPTION>
ANNUITY TABLE 2
Monthly Annuity Payment Under Option 2
For Each $1,000 Of Contract Value Applied
Male 5 Years 10 Years 20 Years Male 5 Years 10 Years 20 Years
Age Guaranteed Guaranteed Guaranteed Age Guaranteed Guaranteed Guaranteed
.......... .............. .............. ............. ........ .............. .............. ..............
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 2.82 2.82 2.82 46 4.00 3.98 3.88
6 2.83 2.83 2.83 47 4.06 4.04 3.94
7 2.84 2.84 2.84 48 4.13 4.10 3.99
8 2.86 2.86 2.85 49 4.20 4.17 4.04
9 2.87 2.87 2.86 50 4.27 4.27 4.10
10 2.88 2.88 2.88 51 4.35 4.31 4.16
11 2.90 2.89 2.89 52 4.43 4.39 4.22
12 2.91 2.91 2.90 53 4.52 4.47 4.28
13 2.92 2.92 2.92 54 4.61 4.56 4.34
14 2.94 2.94 2.93 55 4.70 4.65 4.40
15 2.96 2.95 2.95 56 4.80 4.74 4.47
16 2.97 2.97 2.96 57 4.91 4.84 4.53
17 2.99 2.99 2.98 58 5.03 4.94 4.60
18 3.01 3.00 3.00 59 5.15 5.05 4.66
19 3.03 3.02 3.02 60 5.28 5.17 4.73
20 3.04 3.04 3.04 61 5.41 5.29 4.79
21 3.06 3.06 3.05 62 5.56 5.42 4.86
22 3.09 3.08 3.07 63 5.72 5.55 4.92
23 3.11 3.10 3.10 64 5.88 5.69 4.98
24 3.13 3.13 3.12 65 6.06 5.84 5.04
25 3.15 3.15 3.14 66 6.25 5.99 5.10
26 3.18 3.17 3.16 67 6.45 6.15 5.15
27 3.20 3.20 3.19 68 6.66 6.31 5.20
28 3.23 3.23 3.21 69 6.88 6.48 5.24
29 3.26 3.25 3.24 70 7.12 6.65 5.29
30 3.29 3.28 3.27 71 7.37 6.82 5.32
31 3.32 3.31 3.30 72 7.63 7.00 5.36
32 3.34 3.34 3.33 73 7.91 7.18 5.39
33 3.38 3.38 3.36 74 8.20 7.36 5.41
34 3.42 3.41 3.39 75 8.51 7.53 5.43
35 3.45 3.45 3.42 76 8.83 7.71 5.45
36 3.49 3.49 3.46 77 9.16 7.88 5.47
37 3.53 3.53 3.49 78 9.51 8.05 5.48
38 3.58 3.57 3.53 79 9.88 8.21 5.49
39 3.62 3.61 3.57 80 10.25 8.37 5.50
40 3.67 3.66 3.61 81 10.64 8.51 5.51
41 3.72 3.71 3.65 82 11.03 8.65 5.51
42 3.77 3.76 3.70 83 11.42 8.78 5.52
43 3.82 3.81 3.74 84 11.82 8.90 5.52
44 3.88 3.86 3.79 85+ 12.21 9.00 5.52
45 3.91 3.92 3.84
</TABLE>
<TABLE>
<CAPTION>
ANNUITY TABLE 2
Monthly Annuity Payment Under Option 2
For Each $1,000 Of Contract Value Applied
Female 5 Years 10 Years 20 Years Female 5 Years 10 Years 20 Years
Age Guaranteed Guaranteed Guaranteed Age Guaranteed Guaranteed Guaranteed
........... .............. .............. ............. ......... .............. .............. ..............
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 2.76 2.76 2.75 46 3.70 3.69 3.65
6 2.77 2.77 2.76 47 3.75 3.74 3.69
7 2.78 2.78 2.77 48 3.80 3.79 3.74
8 2.79 2.79 2.78 49 3.86 3.84 3.79
9 2.80 2.80 2.79 50 3.92 3.90 3.84
10 2.81 2.81 2.80 51 3.98 3.96 3.89
11 2.82 2.82 2.82 52 4.04 4.03 3.94
12 2.83 2.83 2.83 53 4.11 4.09 4.00
13 2.84 2.84 2.84 54 4.19 4.16 4.06
14 2.85 2.85 2.85 55 4.26 4.24 4.12
15 2.87 2.87 2.86 56 4.35 4.32 4.18
16 2.88 2.88 2.88 57 4.43 4.40 4.25
17 2.90 2.90 2.89 58 4.53 4.49 4.31
18 2.91 2.91 2.91 59 4.62 4.58 4.38
19 2.92 2.92 2.92 60 4.73 4.68 4.45
20 2.94 2.94 2.94 61 4.84 4.78 4.52
21 2.96 2.96 2.95 62 4.95 4.89 4.60
22 2.97 2.97 2.97 63 5.08 5.00 4.67
23 2.99 2.99 2.99 64 5.21 5.12 4.74
24 3.01 3.01 3.00 65 5.35 5.25 4.81
25 3.03 3.03 3.02 66 5.50 5.38 4.88
26 3.05 3.05 3.04 67 5.66 5.53 4.95
27 3.07 3.07 3.06 68 5.83 5.68 5.02
28 3.09 3.09 3.08 69 6.02 5.83 5.08
29 3.11 3.11 3.10 70 6.22 6.00 5.14
30 3.14 3.14 3.13 71 6.43 6.17 5.20
31 3.16 3.16 3.15 72 6.66 6.35 5.25
32 3.19 3.19 3.17 73 6.90 6.54 5.29
33 3.21 3.21 3.20 74 7.17 6.73 5.33
34 3.24 3.24 3.23 75 7.45 6.93 5.37
35 3.27 3.27 3.25 76 7.75 7.13 5.40
36 3.30 3.30 3.28 77 8.06 7.33 5.43
37 3.33 3.33 3.31 78 8.40 7.53 5.45
38 3.36 3.36 3.34 79 8.76 7.73 5.47
39 3.40 3.40 3.38 80 9.14 7.93 5.48
40 3.44 3.44 3.41 81 9.54 8.12 5.49
41 3.47 3.47 3.45 82 9.95 8.30 5.50
42 3.51 3.51 3.48 83 10.39 8.47 5.51
43 3.56 3.56 3.52 84 10.83 8.63 5.51
44 3.60 3.60 3.56 85+ 11.29 8.78 5.52
45 3.65 3.65 3.60
</TABLE>
<TABLE>
<CAPTION>
ANNUITY TABLE 3
Monthly Annuity Payment Under Option 3
For Each $1,000 Of Contract Value Applied
Joint And 50% Survivor Annuity
Female
Age Male Age
......... ......................................................................
50 55 60 65 70 75
..... ...... ..... ..... ..... ......
<S> <C> <C> <C> <C> <C> <C> <C>
50 4.03 4.21 4.42 4.68 4.98 5.32
55 4.20 4.40 4.63 4.92 5.25 5.62
60 4.41 4.63 4.89 5.21 5.58 6.01
65 4.67 4.91 5.21 5.57 6.00 6.49
70 4.97 5.25 5.59 6.01 6.52 7.10
75 5.34 5.67 6.06 6.56 7.17 7.87
</TABLE>
<TABLE>
<CAPTION>
Joint And 662/3% Survivor Annuity
Female
Age Male Age
......... ......................................................................
50 55 60 65 70 75
..... ...... ..... ..... ..... ......
<S> <C> <C> <C> <C> <C> <C> <C>
50 3.86 4.00 4.16 4.33 4.51 4.70
55 4.02 4.19 4.38 4.58 4.79 5.02
60 4.20 4.40 4.63 4.87 5.14 5.41
65 4.40 4.64 4.91 5.22 5.55 5.89
70 4.61 4.90 5.23 5.62 6.04 6.49
75 4.85 5.18 5.58 6.06 6.62 7.22
</TABLE>
<TABLE>
<CAPTION>
Joint And 100% Survivor Annuity
Female
Age Male Age
......... ......................................................................
50 55 60 65 70 75
..... ...... ..... ..... ..... ......
<S> <C> <C> <C> <C> <C> <C> <C>
50 3.57 3.65 3.72 3.76 3.80 3.82
55 3.71 3.83 3.94 4.02 4.08 4.13
60 3.83 4.01 4.17 4.31 4.42 4.50
65 3.94 4.17 4.41 4.64 4.83 4.98
70 4.02 4.31 4.63 4.96 5.28 5.54
75 4.09 4.42 4.82 5.27 5.74 6.19
</TABLE>
Information about different age combinations will be furnished upon
request.
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE AND FIXED ANNUITY CONTRACT
NONPARTICIPATING
NO DIVIDENDS
First Cova Life Insurance Company
120 Broadway
New York, New York 10271
CNY-672 (4/96)
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 30, 1998
Board of Directors
First Cova Life Insurance Company
120 Broadway
New York, NY 10271
RE: Opinion of Counsel - First Cova Variable Annuity Account One
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form N-4 for the Fixed and Variable Annuity
Contracts (the "Contracts") to be issued by First Cova Life Insurance Company
and its separate account, First Cova Variable Annuity Account One.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below.
We are of the following opinions:
1. First Cova Variable Annuity Account One is a Unit Investment Trust as
that term is defined in Section 4(2) of the Investment Company Act of 1940
(the "Act"), and is currently registered with the Securities and Exchange
Commission, pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by an Owner pursuant to
a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such an Owner
will have a legally-issued, fully paid, non-assessable contractual interest
under such Contract.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /S/RAYMOND A. O'HARA III
_____________________________________
Raymond A. O'Hara III
Consent of Independent Auditors
The Board of Directors
First Cova Life Insurance Company
We consent to the use of our reports included herein on the statutory financial
statements of First Cova Life Insurance Company (the Company) dated March 5,
1998 and on the financial statements of the subaccounts of First Cova Variable
Annuity Account One dated February 20, 1998 and to the reference to our firm
under the heading "Experts" in the Statement of Additional Information, in the
Post-Effective Amendment No. 2 to the Registration Statement (Form N-4, No.
33-74174) of First Cova Variable Annuity Account One. The report of KPMG Peat
Marwick LLP covering the statutory financial statements of the Company contains
an explanatory paragraph which states that the financial statements were
prepared using accounting practices prescribed or permitted by the New York
State Insurance Department, which practices differ from generally accepted
accounting principles. The effects on the financial statements of the variances
between the statutory basis of accounting and generally accepted accounting
principles are described in the notes to the financial statements.
/s/KPMG Peat Marwick LLP
Chicago, Illinois
April 27, 1998
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One (NY)
Non-Standard Inception to Date Performance Return Data
As of 12/31/97
Transaction Amount Unit Transaction Unit Account
Value Units Balance Value
<S> <C>
6 Lord Abbett Growth & Income
6 03/11/97 Purchase 1,000.00 27.008943 37.0248 37.0248 1,000.00
6 12/31/97 annual fee 0.00 30.837096 0.0000 37.0248 1,141.74
6 12/31/97 surrender fee 0.00 30.837096 0.0000 37.0248 1,141.74
8 LA Bond Debenture
8 05/15/97 Purchase 1,000.00 11.739181 85.1848 85.1848 1,000.00
8 12/31/97 annual fee 0.00 12.882042 0.0000 85.1848 1,097.35
8 12/31/97 surrender fee 0.00 12.882042 0.0000 85.1848 1,097.35
15 JPM Quality Bond
15 05/15/97 Purchase 1,000.00 10.446609 95.7248 95.7248 1,000.00
15 12/31/97 annual fee 0.00 11.155130 0.0000 95.7248 1,067.82
15 12/31/97 surrender fee 0.00 11.155130 0.0000 95.7248 1,067.82
16 JPM Small Cap Stock
16 03/17/97 Purchase 1,000.00 10.922871 91.5510 91.5510 1,000.00
16 12/31/97 annual fee 0.00 13.492111 0.0000 91.5510 1,235.22
16 12/31/97 surrender fee 0.00 13.492111 0.0000 91.5510 1,235.22
17 JPM Large Cap Stock
17 03/11/97 Purchase 1,000.00 12.396556 80.6676 80.6676 1,000.00
17 12/31/97 annual fee 0.00 14.889594 0.0000 80.6676 1,201.11
17 12/31/97 surrender fee 0.00 14.889594 0.0000 80.6676 1,201.11
18 JPM Select Equity
18 03/11/97 Purchase 1,000.00 11.761258 85.0249 85.0249 1,000.00
18 12/31/97 annual fee 0.00 14.053502 0.0000 85.0249 1,194.90
18 12/31/97 surrender fee 0.00 14.053502 0.0000 85.0249 1,194.90
19 JPM International Equity
19 03/11/97 Purchase 1,000.00 11.144845 89.7276 89.7276 1,000.00
19 12/31/97 annual fee 0.00 11.462941 0.0000 89.7276 1,028.54
19 12/31/97 surrender fee 0.00 11.462941 0.0000 89.7276 1,028.54
</TABLE>
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One (NY)
Inception to Date Performance
Non-Standard Returns
12/31/97
Sub-Account Account 12/31/97 Initial Inception Days Since
Value AUV Investment Date Inception
<S> <C> <C> <C> <C> <C> <C> <C>
6 Lord Abbett Growth & Income 1,141.74 30.837096 1,000.00 03/11/97 295
8 LA Bond Debenture 1,097.35 12.882042 1,000.00 05/15/97 230
15 JPM Quality Bond 1,067.82 11.155130 1,000.00 05/15/97 230
16 JPM Small Cap Stock 1,235.22 13.492111 1,000.00 03/17/97 289
17 JPM Large Cap Stock 1,201.11 14.889594 1,000.00 03/11/97 295
18 JPM Select Equity 1,194.90 14.053502 1,000.00 03/11/97 295
19 JPM International Equity 1,028.54 11.462941 1,000.00 03/11/97 295
</TABLE>
Note: returns are cumulative (not annualized) since period is less than 1 year.
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One (NY)
Standard Inception to Date Performance Return Data
As of 12/31/97
Transaction Amount Unit Transaction Unit Account
Value Units Balance Value
6 Lord Abbett Growth & Income
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 03/11/97 Purchase 1,000.00 27.008943 37.0248 37.0248 1,000.00
6 12/31/97 annual fee (8.51) 30.837096 (0.2760) 36.7488 1,133.23
6 12/31/97 surrender fee (70.00) 30.837096 (2.2700) 34.4788 1,063.23
8 LA Bond Debenture
8 05/15/97 Purchase 1,000.00 11.739181 85.1848 85.1848 1,000.00
8 12/31/97 annual fee (3.55) 12.882042 (0.2756) 84.9092 1,093.80
8 12/31/97 surrender fee (70.00) 12.882042 (5.4339) 79.4753 1,023.80
15 JPM Quality Bond
15 05/15/97 Purchase 1,000.00 10.446609 95.7248 95.7248 1,000.00
15 12/31/97 annual fee (3.08) 11.155130 (0.2761) 95.4487 1,064.74
15 12/31/97 surrender fee (70.00) 11.155130 (6.2751) 89.1736 994.74
16 JPM Small Cap Stock
16 03/17/97 Purchase 1,000.00 10.922871 91.5510 91.5510 1,000.00
16 12/31/97 annual fee (3.72) 13.492111 (0.2757) 91.2753 1,231.50
16 12/31/97 surrender fee (70.00) 13.492111 (5.1882) 86.0871 1,161.50
17 JPM Large Cap Stock
17 03/11/97 Purchase 1,000.00 12.396556 80.6676 80.6676 1,000.00
17 12/31/97 annual fee (4.11) 14.889594 (0.2760) 80.3916 1,197.00
17 12/31/97 surrender fee (70.00) 14.889594 (4.7013) 75.6903 1,127.00
18 JPM Select Equity
18 03/11/97 Purchase 1,000.00 11.761258 85.0249 85.0249 1,000.00
18 12/31/97 annual fee (3.88) 14.053502 (0.2761) 84.7488 1,191.02
18 12/31/97 surrender fee (70.00) 14.053502 (4.9810) 79.7678 1,121.02
19 JPM International Equity
19 03/11/97 Purchase 1,000.00 11.144845 89.7276 89.7276 1,000.00
19 12/31/97 annual fee (3.16) 11.462941 (0.2757) 89.4519 1,025.38
19 12/31/97 surrender fee (70.00) 11.462941 (6.1066) 83.3453 955.38
</TABLE>
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One (NY)
Inception to Date Performance
Standard Returns
12/31/97
Sub-Account Account 12/31/97 Initial Inception Days Since
Value AUV Investment Date Inception
<S> <C> <C> <C> <C> <C> <C> <C>
6 Lord Abbett Growth & Income 1,063.23 30.837096 1,000.00 03/11/97 295
8 LA Bond Debenture 1,023.80 12.882042 1,000.00 05/15/97 230
15 JPM Quality Bond 994.74 11.155130 1,000.00 05/15/97 230
16 JPM Small Cap Stock 1,161.50 13.492111 1,000.00 03/17/97 289
17 JPM Large Cap Stock 1,127.00 14.889594 1,000.00 03/11/97 295
18 JPM Select Equity 1,121.02 14.053502 1,000.00 03/11/97 295
19 JPM International Equity 955.38 11.462941 1,000.00 03/11/97 295
</TABLE>
Note: returns are cumulative (not annualized) since period is less than 1 year.
