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, 1999 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, 1999.
TABLE OF CONTENTS
Page
COMPANY....................................................... 3
EXPERTS....................................................... 3
LEGAL OPINIONS.............................................. 3
DISTRIBUTION................................................. 4
CALCULATION OF PERFORMANCE INFORMATION...................... 4
Total Return................................................ 4
Historical Unit Values..................................... 5
Reporting Agencies.......................................... 5
Performance Information...................................... 6
FEDERAL TAX STATUS........................................... 7
General...................................................... 7
Diversification.............................................. 8
Multiple Contracts.......................................... 9
Contracts Owned by Other than Natural Persons.......... 9
Tax Treatment of Assignments and Transfer of Ownership.... 10
Income Tax Withholding..................................... 10
Tax Treatment of Withdrawals - Non-Qualified Contracts... 10
Qualified Plans............................................. 11
Tax Treatment of Withdrawals - Qualified Contracts..... 12
ANNUITY PROVISIONS.......................................... 13
Variable Annuity............................................ 13
Fixed Annuity............................................... 13
Annuity Unit Value.......................................... 14
Net Investment Factor...................................... 14
Mortality and Expense Guarantee........................... 14
FINANCIAL STATEMENTS........................................ 14
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, 1998 and 1997, 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, 1998, and the
statement of assets and liabilities of the Separate Account as of December 31,
1998, and the related statement of operations for the year then ended, and the
statements of changes in net assets for the year then ended and the statement of
changes in net assets for the period from commencement of operations through
December 31, 1997, have been included herein in reliance upon the reports of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
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.
CALCULATION OF 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.
You 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 your 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 Select Equity, Small Cap Stock, Large Cap Stock, International Equity,
Quality Bond and Bond Debenture Portfolios of Cova Series Trust were available
under the contract starting 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 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 Internal Revenue Code of 1986, as amended (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. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
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 AND TRANSFER OF OWNERSHIP
An assignment, pledge or transfer of ownership of a Contract may be a taxable
event. Owners should therefore consult competent tax advisers should they wish
to assign, pledge or transfer ownership of 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); or d) hardship withdrawals. 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.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
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 taxable 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 Annuitant to the extent
such distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Annuitant 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 Annuitant and his or her spouse and dependents if the Annuitant has
received unemployment compensation for at least 12 weeks (this exception will no
longer apply after the Annuitant has been re-employed for at least 60 days); (f)
distributions from an Individual Retirement Annuity made to the Annuitant 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 Annuitant for the taxable
year; and (g) distributions from an Individual Retirement Annuity made to the
Annuitant which are qualified first-time home buyer distributions (as defined in
Section 72(t)(8) of the Code).
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
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 VALUE
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.
FIRST COVA VARIABLE
ANNUITY ACCOUNT ONE
Financial Statements
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
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, Developing Growth, Large Cap Research, Mid-Cap Value,
Quality Bond, Small Cap Stock, Large Cap Stock, Select Equity, and
International Equity sub-accounts (investment options within the Cova
Series Trust), the Growth and Income sub-account (investment option within
the Lord Abbett Series Fund, Inc.), and the Money Market sub-account
(investment option within the General American Capital Company) of First
Cova Variable Annuity Account One of First Cova Life Insurance Company (the
Separate Account), as of December 31, 1998, and the related statement of
operations for the year then ended, and statement of changes in net assets
for the year then ended, and the period from commencement of operations
through December 31, 1997. These financial statements are the
responsibility of the Separate Account's management. Our responsibility is
to express an opinion on these 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 audit 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. Our procedures included confirmation of securities owned as of
December 31, 1998, 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements 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, 1998, and the results of their operations, and
the changes in their net assets for each of the periods presented, in
conformity with generally accepted accounting principles.
Chicago, Illinois
March 1, 1999
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Assets and Liabilities
December 31, 1998
<S> <C>
Assets:
Investments:
Cova Series Trust (Trust):
Bond Debenture Portfolio - 12,987 shares at a net asset value of $12.38 per share (cost: $158,170) $ 160,789
Developing Growth Portfolio - 164 shares at a net asset value of $11.24 per share (cost: $1,723) 1,844
Large Cap Research Portfolio - 2,681 shares at a net asset value of $11.96 per share (cost: $29,121) 32,079
Mid-Cap Value Portfolio - 1,467 shares at a net asset value of $10.58 per share (cost: $15,435) 15,522
Quality Bond Portfolio - 6,227 shares at a net asset value of $11.02 per share (cost: $65,574) 68,615
Small Cap Stock Portfolio - 2,813 shares at a net asset value of $11.98 per share (cost: $33,316) 33,710
Large Cap Stock Portfolio - 7,181 shares at a net asset value of $18.12 per share (cost: $108,380) 130,087
Select Equity Portfolio - 5,502 shares at a net asset value of $16.08 per share (cost: $77,845) 88,453
International Equity Portfolio - 6,973 shares at a net asset value of $12.86 per share (cost: $84,527) 89,654
Lord Abbett Series Fund, Inc. (Lord Abbett) Growth and Income Portfolio -
15,147 shares at a net asset value of $20.65 per share (cost: $310,389) 312,770
General American Capital Company (GACC) Money Market Portfolio -
1,247 shares at a net asset value of $19.25 per share (cost: $24,000) 24,011
-----------
Total assets $ 957,534
===========
Liabilities:
Trust Bond Debenture $ 6
Trust Large Cap Research 1
Trust Mid-Cap Value 1
Trust Quality Bond 3
Trust Small Cap Stock 1
Trust Large Cap Stock 5
Trust Select Equity 3
Trust International Equity 3
Lord Abbett Growth and Income 12
GACC Money Market 3
-----------
Total liabilities $ 38
===========
Net assets:
Trust Bond Debenture - 11,913 accumulation units at $13.496763 per unit $ 160,783
Trust Developing Growth - 167 accumulation units at $11.068002 per unit 1,844
Trust Large Cap Research - 2,713 accumulation units at $11.825475 per unit 32,078
Trust Mid-Cap Value - 1,487 accumulation units at $10.437999 per unit 15,521
Trust Quality Bond - 5,759 accumulation units at $11.914486 per unit 68,612
Trust Small Cap Stock - 2,679 accumulation units at $12.583415 per unit 33,709
Trust Large Cap Stock - 6,695 accumulation units at $19.428714 per unit 130,082
Trust Select Equity - 5,207 accumulation units at $16.987197 per unit 88,450
Trust International Equity - 6,954 accumulation units at $12.891430 per unit 89,651
Lord Abbett Growth and Income - 9,112 accumulation units at $34.325420 per unit 312,758
GACC Money Market - 2,161 accumulation units at $11.109941 per unit 24,008
-----------
Total net assets $ 957,496
===========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
TRUST
----------------------------------------------------------------------------
Bond Developing Large Cap Mid-Cap Quality
Debenture Growth Research Value Bond
-------------- --------------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Income -
dividends $ 3,976 -- 48 13 1,502
-------------- --------------- --------------- ----------- ---------
Expenses:
Mortality and expense risk fee 1,723 1 196 97 742
Administrative fee 207 -- 23 12 89
-------------- --------------- --------------- ----------- ---------
Total expenses 1,930 1 219 109 831
-------------- --------------- --------------- ----------- ---------
Net investment income (loss) 2,046 (1) (171) (96) 671
-------------- --------------- --------------- ----------- ---------
Realized gain (loss) on investments:
Realized gain (loss) on sale of
fund shares 20 -- 3 (4) 64
Realized gain distributions 1,546 -- -- -- --
-------------- --------------- --------------- ----------- ---------
Net realized gain (loss) 1,566 -- 3 (4) 64
-------------- --------------- --------------- ----------- ---------
Change in unrealized appreciation
during the year 2,573 121 2,958 87 2,940
-------------- --------------- --------------- ----------- ---------
Net increase (decrease) in net assets
from operations $ 6,185 120 2,790 (13) 3,675
============== =============== =============== =========== =========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
Trust
-------------------------------------------------------------
Small Cap Large Cap Select International
Stock Stock Equity Equity
------------ -------------- ---------- ----------------
<S> <C> <C> <C> <C>
Income -
dividends $ 17 212 124 1,119
------------ -------------- ---------- ----------------
Expenses:
Mortality and expense risk fee 196 981 581 816
Administrative fee 24 118 70 98
------------ -------------- ---------- ----------------
Total expenses 220 1,099 651 914
------------ -------------- ---------- ----------------
Net investment income (loss) (203) (887) (527) 205
------------ -------------- ---------- ----------------
Realized gain (loss) on investments:
Realized gain (loss) on sale of
fund shares (11) 210 37 28
Realized gain distributions 443 697 2,479 14
------------ -------------- ---------- ----------------
Net realized gain (loss) 432 907 2,516 42
------------ -------------- ---------- ----------------
Change in unrealized appreciation
during the year 91 22,305 9,506 7,092
------------ -------------- ---------- ----------------
Net increase (decrease) in net assets
from operations $ 320 22,325 11,495 7,339
============ ============== ========== ================
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
LORD ABBETT GACC
---------------------------
Growth and Money
Income Market Total
--------------- ------------------------
<S> <C> <C> <C>
Income -
dividends $ 4,585 -- 11,596
--------------- ---------- -----------
Expenses:
Mortality and expense risk fee 3,059 3 8,395
Administrative fee 367 -- 1,008
--------------- ---------- -----------
Total expenses 3,426 3 9,403
--------------- ---------- -----------
Net investment income (loss) 1,159 (3) 2,193
--------------- ---------- -----------
Realized gain (loss) on investments:
Realized gain (loss) on sale of
fund shares 12 -- 359
Realized gain distributions 14,742 -- 19,921
--------------- ---------- -----------
Net realized gain (loss) 14,754 -- 20,280
--------------- ---------- -----------
Change in unrealized appreciation
during the year 10,125 11 57,809
--------------- ---------- -----------
Net increase (decrease) in net assets
from operations $ 26,038 8 80,282
=============== ========== ===========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
TRUST
-----------------------------------------------------------------------------
Bond Developing Large Cap Mid-Cap Quality
Debenture Growth Research Value Bond
--------------- --------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ 2,046 (1) (171) (96) 671
Net realized gain (loss) 1,566 -- 3 (4) 64
Unrealized appreciation
during the year 2,573 121 2,958 87 2,940
--------------- --------------- -------------- ------------- ----------
Net increase (decrease)
from operations 6,185 120 2,790 (13) 3,675
--------------- --------------- -------------- ------------- ----------
Contract transactions:
Payments received from contract
owners 25,475 -- 28,039 14,334 34,865
Transfers between sub-accounts
(including fixed account), net 16,036 1,724 1,249 1,200 8,993
Transfers for contract benefits
and terminations (1,924) -- -- -- (1,989)
--------------- --------------- -------------- ------------- ----------
Net increase in
net assets from
contract transactions 39,587 1,724 29,288 15,534 41,869
--------------- --------------- -------------- ------------- ----------
Net increase
in net assets 45,772 1,844 32,078 15,521 45,544
Net assets at beginning of period 115,011 -- -- -- 23,068
--------------- --------------- -------------- ------------- ----------
Net assets at end of period $ 160,783 1,844 32,078 15,521 68,612
=============== =============== ============== ============= ==========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
---------------------------------------------------------------
Small Cap Large Cap Select International
Stock Stock Equity Equity
--------------- -------------- ---------- -----------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (203) (887) (527) 205
Net realized gain (loss) 432 907 2,516 42
Unrealized appreciation
during the year 91 22,305 9,506 7,092
--------------- -------------- ---------- -----------------
Net increase (decrease)
from operations 320 22,325 11,495 7,339
--------------- -------------- ---------- -----------------
Contract transactions:
Payments received from contract
owners 9,652 35,989 39,613 16,232
Transfers between sub-accounts
(including fixed account), net 16,587 31,944 18,967 22,607
Transfers for contract benefits
and terminations 4 (1,975) (191) (501)
--------------- -------------- ---------- -----------------
Net increase in
net assets from
contract transactions 26,243 65,958 58,389 38,338
--------------- -------------- ---------- -----------------
Net increase
in net assets 26,563 88,283 69,884 45,677
Net assets at beginning of period 7,146 41,799 18,566 43,974
--------------- -------------- ---------- -----------------
Net assets at end of period $ 33,709 130,082 88,450 89,651
=============== ============== ========== =================
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
LORD ABBETT GACC
---------------- ----------
Growth and Money
Income Market Total
---------------- ---------- ------------
<S> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ 1,159 (3) 2,193
Net realized gain (loss) 14,754 -- 20,280
Unrealized appreciation
during the year 10,125 11 57,809
---------------- ---------- ------------
Net increase (decrease)
from operations 26,038 8 80,282
---------------- ---------- ------------
Contract transactions:
Payments received from contract
owners 66,977 24,000 295,176
Transfers between sub-accounts
(including fixed account), net 50,718 -- 170,025
Transfers for contract benefits
and terminations (2,035) -- (8,611)
---------------- ---------- ------------
Net increase in
net assets from
contract transactions 115,660 24,000 456,590
---------------- ---------- ------------
Net increase
in net assets 141,698 24,008 536,872
Net assets at beginning of period 171,060 -- 420,624
---------------- ---------- ------------
Net assets at end of period $ 312,758 24,008 957,496
================ ========== ============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Period ended December 31, 1997
TRUST
--------------------------------------------------------
BOND QUALITY SMALL CAP LARGE CAP
Debenture BOND STOCK STOCK
-------------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ 3,013 552 (2) 30
Net realized gain (loss) 91 98 3 2,190
Unrealized appreciation
during the year 46 101 303 (598)
-------------- --------- ----------- --------------
Net increase (decrease)
from operations 3,150 751 304 1,622
-------------- --------- ----------- --------------
Contract transactions:
Payments received from contract
owners 89,575 -- 5,151 14,027
Transfers between sub-accounts
(including fixed account), net (381) (350) (9) (341)
Transfers for contract benefits
and terminations 22,667 22,667 1,700 26,491
-------------- --------- ----------- --------------
Net increase in net assets
from contract transactions 111,861 22,317 6,842 40,177
-------------- --------- ----------- --------------
Net increase in net assets 115,011 23,068 7,146 41,799
Net assets at beginning of period -- -- -- --
-------------- --------- ----------- --------------
Net assets at end of period $ 115,011 23,068 7,146 41,799
============== ========= =========== ==============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Period ended December 31, 1997
TRUST LORD ABBETT
------------------------------ ---------------
SELECT INTERNATIONAL GROWTH AND
EQUITY EQUITY INCOME TOTAL
--------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ 4 126 1,914 5,637
Net realized gain (loss) 31 214 12,091 14,718
Unrealized appreciation
during the year 1,102 (1,965) (7,744) (8,755)
--------- ---------------- --------------- -----------
Net increase (decrease)
from operations 1,137 (1,625) 6,261 11,600
--------- ---------------- --------------- -----------
Contract transactions:
Payments received from contract
owners 14,032 31,664 134,766 289,215
Transfers between sub-accounts
(including fixed account), net (145) 52 (851) (2,025)
Transfers for contract benefits
and terminations 3,542 13,883 30,884 121,834
--------- ---------------- --------------- -----------
Net increase in net assets
from contract transactions 17,429 45,599 164,799 409,024
--------- ---------------- --------------- -----------
Net increase in net assets 18,566 43,974 171,060 420,624
Net assets at beginning of period -- -- -- --
--------- ---------------- --------------- -----------
Net assets at end of period $ 18,566 43,974 171,060 420,624
========= ================ =============== ===========
</TABLE>
See accompanying notes to financial statements.
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(1) ORGANIZATION
First Cova Variable Annuity Account One (the Separate Account), a unit
investment trust registered under the Investment Company Act of 1940 as
amended, was established by First Cova Life Insurance Company (Cova) and
exists in accordance with the regulations of the New York Department of
Insurance. The Separate Account is a funding vehicle for variable
annuity contracts issued by Cova.
The Separate Account is divided into sub-accounts with the assets of
each sub-account invested in the corresponding portfolios of the
following investment companies:
Cova Series Trust (Trust) 9 portfolios
Lord Abbett Series Fund, Inc. (Lord Abbett) 1 portfolio
General American Capital Company (GACC) 1 portfolio
Each investment company is a diversified, open-end, management
investment company registered under the Investment Company Act of 1940
as amended. Not all sub-accounts are available for investment depending
upon the terms of the variable annuity contracts offered for sale by
Cova.
(2) SIGNIFICANT ACCOUNTING POLICIES
(A) INVESTMENT VALUATION
Investments made in the portfolios of the investment companies are
valued at the reported net asset value of such portfolios, which
value their investment securities at fair value. The average cost
method is used to compute the realized gains and losses on the
sale of portfolio shares owned by the sub-accounts. Income from
dividends and gains from realized gain distributions are recorded
on the ex-distribution date.
(B) REINVESTMENT OF DISTRIBUTIONS
With the exception of the GACC Money Market Fund, dividends and
gains from realized gain distributions are reinvested in
additional shares of the portfolio.
GACC follows the federal income tax practice known as consent
dividending, whereby substantially all of its net investment
income and realized capital gains are deemed to pass through to
the Separate Account. As a result, GACC does not distribute
dividends and realized gains. During December of each year, the
accumulated net investment income and realized capital gains of
the GACC Money Market Fund are allocated to the Separate Account
by increasing the cost basis and recognizing a capital gain in the
Separate Account.
(C) FEDERAL INCOME TAXES
The operations of the Separate Account are included in the federal
income tax return of Cova, which is taxed as a Life Insurance
Company under the provisions of the Internal Revenue Code (IRC).
Under current IRC provisions, Cova believes it will be treated as
the owner of the Separate Account assets for federal income tax
purposes and does not expect to incur federal income taxes on the
earnings of the Separate Account to the extent the earnings are
credited to the variable annuity contracts. Based on this, no
charge is being made currently to the Separate Account for federal
income taxes. A charge may be made in future years for any federal
income taxes that would be attributable to the contracts.
(3) SEPARATE ACCOUNT EXPENSES
Cova deducts a daily charge from the net assets of the Separate Account
equivalent to an annual rate of 1.25% for the assumption of mortality
and expense risks and 0.15% for administrative expenses. 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. The administrative fees cover the cost of establishing
and maintaining the variable annuity contracts and the Separate Account.
(4) CONTRACT FEES
There are no deductions made from purchase payments for sales fees at
the time a variable annuity contract is purchased. However, if all or a
portion of the contract value is withdrawn, a withdrawal fee may be
assessed and deducted from the contract value or payment to the contract
owner. 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 payments withdrawn in the first and
second years, 5% of the purchase payments withdrawn in the third,
fourth, and fifth years, and 3% of the purchase payments withdrawn in
the six and seventh years. After the first contract anniversary,
provided the contract value exceeds $5000, the contract owner may make
one withdrawal each contract year of up to 10% of the aggregate purchase
payments (on deposit for more than one year) without incurring a
surrender fee. There were no surrender fees deducted from the contract
values in the Separate Account in 1998.
An annual contract maintenance fee of $30 is imposed on all variable
annuity contracts with contract values less than $50,000 on their policy
anniversary. This fee covers the cost of contract administration for the
previous year and is prorated between the sub-accounts and the fixed
rate account to which the contract value is allocated. In 1998, contract
maintenance fees of $117 were deducted from the contract values in the
Separate Account.
Subject to certain restrictions, the contract owner may transfer all or
a part of the accumulated value of the contract among the available
sub-accounts of the Separate Account and the fixed rate account offered
by 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 amount
transferred, will be deducted from the contract account value. Transfers
made in the Dollar Cost Averaging program are not subject to the
transfer fee. There were no transfer fees deducted from the contract
values in the Separate Account in 1998.
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. Cova reserves the right to deduct
premium taxes when incurred.
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(5) SUBSEQUENT EVENT
On January 8, 1999, the Lord Abbett Growth and Income sub-account ceased
operations and its assets were transferred to the Trust Lord Abbett
Growth and Income sub-account which commenced operations on January 8,
1999. The Trust Lord Abbett Growth and Income sub-account invests in the
Trust Lord Abbett Growth and Income Portfolio which commenced operations
on January 8, 1999. The Trust Lord Abbett Growth and Income Portfolio is
managed by Lord Abbett who also manages the Lord Abbett Growth and
Income Portfolio.
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(6) UNIT FAIR VALUES
<TABLE>
<CAPTION>
A summary of accumulation unit values, net assets, performance returns,
and expense ratios for each sub-account follows:
Commenced Accumulation Unit Value Net Assets
------------------------------- ----------------------------
Operations 1998 1997 1998 1997
---------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Trust Bond Debenture 5/15/97 $ 13.496763 12.882042 160,783 115,001
Trust Developing Growth 11/23/98 11.068002 -- 1,844 --
Trust Large Cap Research 3/3/98 11.825475 -- 32,078 --
Trust Mid-Cap Value 3/4/98 10.437999 -- 15,521 --
Trust Quality Bond 5/15/97 11.914486 11.155130 68,612 23,068
Trust Small Cap Stock 3/17/97 12.583415 13.492111 33,709 7,146
Trust Large Cap Stock 3/11/97 19.428714 14.889594 130,082 41,799
Trust Select Equity 3/11/97 16.987197 14.053502 88,450 18,566
Trust International Equity 3/11/97 12.891430 11.462941 89,651 43,974
Lord Abbett Growth and Income* 3/11/97 34.325420 30.837096 312,758 171,060
GACC Money Market 12/28/98 11.109941 -- 24,008 --
================ =============== ============== ============= =============
</TABLE>
* Sub-account ceased operations on January 8, 1999.
** Performance returns for sub-accounts that commenced operations during the
year are not annualized. Expense ratios for sub-accounts that commenced
operations during the year are annualized.
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(6) UNIT FAIR VALUES
<TABLE>
<CAPTION>
A summary of accumulation unit values, net assets, performance returns,
and expense ratios for each sub-account follows:
SEPARATE
ACCOUNT
Expenses to
Total to Average
Commenced Return** Net Assets**
---------------------- ----------------------
---------------------- ---------- ----------
Operations 1998 1997 1998 1997
---------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Trust Bond Debenture 5/15/97 4.77 % 9.71 1.40 1.40
Trust Developing Growth 11/23/98 8.57 -- 1.40 --
Trust Large Cap Research 3/3/98 8.01 -- 1.40 --
Trust Mid-Cap Value 3/4/98 (5.54) -- 1.40 --
Trust Quality Bond 5/15/97 6.81 6.79 1.40 1.40
Trust Small Cap Stock 3/17/97 (6.74) 23.53 1.40 1.40
Trust Large Cap Stock 3/11/97 30.49 20.08 1.40 1.40
Trust Select Equity 3/11/97 20.88 19.47 1.40 1.40
Trust International Equity 3/11/97 12.46 2.87 1.40 1.40
Lord Abbett Growth and Income* 3/11/97 11.31 14.18 1.40 1.40
GACC Money Market 12/28/98 -- -- -- --
================ ========= ========== ========== ==========
</TABLE>
* Sub-account ceased operations on January 8, 1999.
** Performance returns for sub-accounts that commenced operations during the
year are not annualized. Expense ratios for sub-accounts that commenced
operations during the year are annualized.
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION
<TABLE>
<CAPTION>
The table below summarizes the realized gain (loss)
on the sale of fund shares and the change in unrealized
appreciation for each sub-account during the year.
1998 1997
----------- ----------
<S> <C> <C>
Realized gain (loss) on sale of fund shares:
Trust Bond Debenture:
Aggregate proceeds from sales of fund shares $ 3,263 24,281
Aggregate cost of fund shares redeemed 3,243 24,204
----------- ----------
Realized gain (loss) $ 20 77
=========== ==========
Trust Developing Growth:
Aggregate proceeds from sales of fund shares $ 1 --
Aggregate cost of fund shares redeemed 1 --
----------- ----------
Realized gain (loss) $ -- --
=========== ==========
Trust Large Cap Research:
Aggregate proceeds from sales of fund shares $ 206 --
Aggregate cost of fund shares redeemed 203 --
----------- ----------
Realized gain (loss) $ 3 --
=========== ==========
Trust Mid-Cap Value:
Aggregate proceeds from sales of fund shares $ 105 --
Aggregate cost of fund shares redeemed 109 --
----------- ----------
Realized gain (loss) $ (4) --
=========== ==========
Trust Quality Bond:
Aggregate proceeds from sales of fund shares $ 2,573 172
Aggregate cost of fund shares redeemed 2,509 169
----------- ----------
Realized gain (loss) $ 64 3
=========== ==========
Trust Small Cap Stock:
Aggregate proceeds from sales of fund shares $ 205 17
Aggregate cost of fund shares redeemed 216 16
----------- ----------
Realized gain (loss) $ (11) 1
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
----------- ----------
<S> <C> <C>
Realized gain (loss) on sale of fund shares, continued:
Trust Large Cap Stock:
Aggregate proceeds from sales of fund shares $ 2,908 1,700
Aggregate cost of fund shares redeemed 2,698 1,704
----------- ----------
Realized gain (loss) $ 210 (4)
=========== ==========
Trust Select Equity:
Aggregate proceeds from sales of fund shares $ 759 1,651
Aggregate cost of fund shares redeemed 722 1,650
----------- ----------
Realized gain (loss) $ 37 1
=========== ==========
Trust International Equity:
Aggregate proceeds from sales of fund shares $ 1,440 25,579
Aggregate cost of fund shares redeemed 1,412 25,395
----------- ----------
Realized gain (loss) $ 28 184
=========== ==========
Lord Abbett Growth and Income:
Aggregate proceeds from sales of fund shares $ 3,648 74,949
Aggregate cost of fund shares redeemed 3,636 73,502
----------- ----------
Realized gain (loss) $ 12 1,447
=========== ==========
GACC Money Market:
Aggregate proceeds from sales of fund shares $ -- --
Aggregate cost of fund shares redeemed -- --
----------- ----------
Realized gain (loss) $ -- --
=========== ==========
Unrealized appreciation (depreciation):
Trust Bond Debenture:
Appreciation (depreciation), end of period $ 2,619 46
Appreciation (depreciation), beginning of period 46 --
----------- ----------
Unrealized appreciation (depreciation) $ 2,573 46
=========== ==========
Trust Developing Growth:
Appreciation (depreciation), end of period $ 121 --
Appreciation (depreciation), beginning of period -- --
----------- ----------
Unrealized appreciation (depreciation) $ 121 --
=========== ==========
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
----------- ----------
Unrealized appreciation (depreciation), continued:
Trust Large Cap Research:
Appreciation (depreciation), end of period $ 2,958 --
Appreciation (depreciation), beginning of period -- --
----------- ----------
Unrealized appreciation (depreciation) $ 2,958 --
=========== ==========
Trust Mid-Cap Value:
Appreciation (depreciation), end of period $ 87 --
Appreciation (depreciation), beginning of period -- --
----------- ----------
Unrealized appreciation (depreciation) $ 87 --
=========== ==========
Trust Quality Bond:
Appreciation (depreciation), end of period $ 3,041 101
Appreciation (depreciation), beginning of period 101 --
----------- ----------
Unrealized appreciation (depreciation) $ 2,940 101
=========== ==========
Trust Small Cap Stock:
Appreciation (depreciation), end of period $ 394 303
Appreciation (depreciation), beginning of period 303 --
----------- ----------
Unrealized appreciation (depreciation) $ 91 303
=========== ==========
Trust Large Cap Stock:
Appreciation (depreciation), end of period $ 21,707 (598)
Appreciation (depreciation), beginning of period (598) --
----------- ----------
Unrealized appreciation (depreciation) $ 22,305 (598)
=========== ==========
Trust Select Equity:
Appreciation (depreciation), end of period $ 10,608 1,102
Appreciation (depreciation), beginning of period 1,102 --
----------- ----------
Unrealized appreciation (depreciation) $ 9,506 1,102
=========== ==========
Trust International Equity:
Appreciation (depreciation), end of period $ 5,127 (1,965)
Appreciation (depreciation), beginning of period (1,965) --
----------- ----------
Unrealized appreciation (depreciation) $ 7,092 (1,965)
=========== ==========
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
----------- ----------
Unrealized appreciation (depreciation), continued:
Lord Abbett Growth and Income:
Appreciation (depreciation), end of period $ 2,381 (7,744)
Appreciation (depreciation), beginning of period (7,744) --
----------- ----------
Unrealized appreciation (depreciation) $ 10,125 (7,744)
=========== ==========
GACC Money Market:
Appreciation (depreciation), end of period $ 11 --
Appreciation (depreciation), beginning of period -- --
----------- ----------
Unrealized appreciation (depreciation) $ 11 --
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(8) UNIT TRANSACTIONS
The change in the number of accumulation units is as follows:
TRUST
--------------------------------------------------------------------------
Bond Developing Large Cap Mid-Cap Quality
Debenture Growth Research Value Bond
------------------------------- --------------------------- -----------
<S> <C> <C> <C> <C> <C>
Unit balance at 12/31/96
Contract units purchased 7,125 -- -- -- --
Contract units transferred, net 1,831 -- -- -- 2,100
Contract units redeemed (28) -- -- -- (32)
-------------- --------------- ------------- ------------ -----------
Unit balance at 12/31/97 8,928 -- -- -- 2,068
Contract units purchased 1,929 -- 2,602 1,370 3,068
Contract units transferred, net 1,205 167 111 117 794
Contract units redeemed (149) -- -- -- (171)
-------------- --------------- ------------- ------------ -----------
Unit balance at 12/31/98 11,913 167 2,713 1,487 5,759
============== =============== ============= ============ ===========
</TABLE>
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(8) UNIT TRANSACTIONS
The change in the number of accumulation units is as follows:
LORD ABBETT GACC
------------------------------------------------------ ----------------------------
Small Cap Large Cap Select International Growth and Money
Stock Stock Equity Equity Income Market
-------------- ----------- ---------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Unit balance at 12/31/96
Contract units purchased 390 978 1,037 2,663 4,526 --
Contract units transferred, net 140 1,852 292 1,188 1,036 --
Contract units redeemed -- (23) (8) (15) (15) --
-------------- ----------- ---------- ------------ -------------- -----------
Unit balance at 12/31/97 530 2,807 1,321 3,836 5,547 --
Contract units purchased 711 2,093 2,639 1,307 2,036 2,161
Contract units transferred, net 1,439 1,930 1,260 1,863 1,600 --
Contract units redeemed (1) (135) (13) (52) (71) --
-------------- ----------- ---------- ------------ -------------- -----------
Unit balance at 12/31/98 2,679 6,695 5,207 6,954 9,112 2,161
============== =========== ========== ============ ============== ===========
</TABLE>
FIRST COVA LIFE INSURANCE COMPANY
Statutory Financial Statements and Schedule
December 31, 1998, 1997, and 1996
(With Independent Auditors' Report Thereon)
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, 1998 and 1997, 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,
1998. 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 audit 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, 1998 and 1997, or the results of its operations or its cash
flows for each of the years in the three-year period ended December 31,
1998.
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, 1998 and 1997, and the results of its operations and its cash
flow for each of the years in the three-year period ended December 31,
1998, 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
April 23, 1999
<TABLE>
<CAPTION>
FIRST COVA LIFE INSURANCE COMPANY
Statutory Statements of Admitted Assets, Liabilities,
and Capital Stock and Surplus
December 31, 1998 and 1997
(In thousands, except share data)
ADMITTED ASSETS 1998 1997
----------- -----------
<S> <C> <C>
Bonds $ 58,302 159,738
Mortgage loans on real estate -- 8,866
Policy loans -- 20,544
Cash and short-term investments 5,894 3,026
----------- -----------
Total cash and investments 64,196 192,174
----------- -----------
Investment income due and accrued 829 3,017
Federal income taxes recoverable -- 66
Other assets 8 9
----------- -----------
Total admitted assets excluding separate account assets 65,033 195,266
Separate Account assets 958 421
----------- -----------
Total admitted assets $ 65,991 195,687
=========== ===========
LIABILITIES AND CAPITAL STOCK AND SURPLUS
Aggregate reserve for life policies and annuity contracts $ 30,366 164,208
Supplementary contracts without life contingencies 288 120
Life policy and annuity contract claims (1) 726
Interest maintenance reserve 3,192 1,583
General expenses due or accrued 64 95
Transfers to Separate Accounts due or accrued (31) (21)
Taxes, licenses, and fees due or accrued
excluding Federal income taxes 216 220
Federal income taxes 1,393 --
Remittances and items not allocated 22 (14)
Unearned investment income -- 3
Asset valuation reserve 523 1,529
Payable to parent, subsidiaries, and affiliates 20 35
Reinsurance payable to parent 1,369 2,372
Checks outstanding 291 46
Accounts payable - security purchases 480 --
----------- -----------
Total liabilities excluding separate account liabilities 38,192 170,902
Separate Account liabilities 958 421
----------- -----------
Total liabilities 39,150 171,323
----------- -----------
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 13,340 10,863
----------- -----------
Total capital stock and surplus 26,841 24,364
----------- -----------
Total liabilities and capital stock and surplus $ 65,991 195,687
=========== ===========
</TABLE>
See accompanying notes to statutory financial statements.
<TABLE>
<CAPTION>
FIRST COVA LIFE INSURANCE COMPANY
Statutory Statements of Operations
Years ended December 31, 1998, 1997, and 1996
(In thousands)
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Income:
Premiums and annuity considerations $ (128,883) -- --
Deposit-type funds 948 6,851 569
Considerations for supplementary contracts
without life contingencies 219 54 81
Net investment income 13,813 13,771 13,507
Amortization of interest maintenance reserve (347) (244) (206)
Separate Account net gain from operations
excluding unrealized gains or losses 11 -- --
Separate Account administration fee income 9 2 --
------------ ------------ ----------
Total income (114,230) 20,434 13,951
------------ ------------ ----------
Benefits and expenses:
Death benefits 2,471 3,294 2,691
Annuity benefits 383 365 --
Surrender benefits and other fund withdrawals 12,758 7,222 8,719
Interest on policy or contract funds 47 11 10
Payment on supplementary contracts without
life contingencies 62 24 12
Increase (decrease) in aggregate reserves
for life policies and annuity contracts (134,624) 5,904 (928)
Increase in reserve for supplementary
contracts without life contingencies 168 30 66
Commissions on premiums, annuity
considerations and deposit-type funds 44 239 20
Commissions and expense allowances on
reinsurance assumed 405 423 400
General insurance expenses 679 966 663
Insurance taxes, licenses, and fees,
excluding Federal income taxes (170) 142 25
Net transfers to Separate Accounts 446 388 --
Other expenses -- 1 1
------------ ------------ ----------
Total benefits and expenses (117,331) 19,009 11,679
------------ ------------ ----------
Income from operations before Federal income taxes
and realized capital gains 3,101 1,425 2,272
Federal income tax expense, excluding
tax on capital gains 837 145 445
------------ ------------ ----------
Net gain from operations before realized capital gains 2,264 1,280 1,827
Realized capital gains (net of tax expense of $992 in 1998 and tax benefit of
$89 and $111 in 1997 and 1996, respectively, and net of amounts transferred
to the IMR of $1,263, $(122),
and $(153) in 1998, 1997, and 1996, respectively) -- -- --
------------ ------------ ----------
Net income $ 2,264 1,280 1,827
============ ============ ==========
</TABLE>
See accompanying notes to statutory financial statements.
<TABLE>
<CAPTION>
FIRST COVA LIFE INSURANCE COMPANY
Statutory Statements of Capital Stock and Surplus
Years ended December 31, 1998, 1997, and 1996
(In thousands)
1998 1997 1996
--------- --------- ---------
<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 and end of year 11,501 11,501 11,501
--------- --------- ---------
Unassigned surplus:
Balance at beginning of year 10,863 9,642 8,028
Net income (loss) 2,264 1,280 1,827
Change in reserve on account of change in valuation basis (781) -- --
Change in asset valuation reserve 1,005 (59) (285)
Other changes in surplus in Separate Accounts Statement (11) -- --
Prior period Federal Income Tax adjustment -- -- 72
--------- --------- ---------
Balance at end of year 13,340 10,863 9,642
--------- --------- ---------
Total capital stock and surplus $ 26,841 24,364 23,143
========= ========= =========
</TABLE>
See accompanying notes to statutory financial statements.
<TABLE>
<CAPTION>
FIRST COVA LIFE INSURANCE COMPANY
Statutory Statements of Cash Flow
Years ended December 31, 1998, 1997, and 1996
(In thousands)
1998 1997 1996
----------- ------------ ---------
<S> <C> <C> <C>
Cash from operations:
Premiums and annuity considerations $ (128,883) -- --
Deposit-type funds 948 6,852 569
Considerations for supplementary contracts without
life contingencies 219 54 81
Net investment income 15,912 13,310 13,499
Separate Account administration fee income 9 2
Miscellaneous income -- -- 72
----------- ------------ ---------
(111,795) 20,218 14,221
----------- ------------ ---------
Death benefits 3,196 2,842 2,716
Surrender benefits and other fund withdrawals 12,758 7,222 8,719
Other benefits to policyholders, primarily annuity benefits 495 399 23
Commissions, other expenses, and taxes paid,
excluding Federal income tax 1,262 1,709 1,089
Net transfers to Separate Accounts 456 409 --
Federal income taxes paid (recovered), excluding
tax on capital gains (622) 544 156
----------- ------------ ---------
17,545 13,125 12,703
----------- ------------ ---------
Net cash (used in) from operations (129,340) 7,093 1,518
----------- ------------ ---------
Cash from investments:
Proceeds from investments sold, matured, or repaid:
Bonds 118,066 40,473 40,506
Mortgage loans 11,057 364 1,316
----------- ------------ ---------
Total investment proceeds 129,123 40,837 41,822
----------- ------------ ---------
Taxes (paid) recovered on capital losses (721) 67 84
----------- ------------ ---------
Cost of investments acquired:
Bonds 14,981 44,688 41,686
Mortgage loans 1,500 479 --
----------- ------------ ---------
Total investments acquired 16,481 45,167 41,686
----------- ------------ ---------
Net increase (decrease) in policy loans (20,544) 1,651 1,970
----------- ------------ ---------
Net cash from (used for) investments 132,465 (5,914) (1,750)
----------- ------------ ---------
Cash from (used in) financing and miscellaneous sources:
Cash provided - other 761 13 2,015
Cash applied - other (1,018) (2,155) (935)
----------- ------------ ---------
Net cash from financing and miscellaneous sources (257) (2,142) 1,080
----------- ------------ ---------
Net change in cash and short-term investments 2,868 (963) 848
Cash and short-term investments at beginning of year 3,026 3,989 3,141
----------- ------------ ---------
Cash and short-term investments at end of year $ 5,894 3,026 3,989
=========== ============ =========
</TABLE>
See accompanying notes to statutory financial statements.
FIRST COVA LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
December 31, 1998, 1997, and 1996
(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), which is a downstream subsidiary of General American
Life Insurance Company (GALIC), a Missouri domiciled 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.
Under the variable annuity contracts, policyholder deposits are
allocated to various separate account sub-accounts or the general
accounts. A sub-account is valued at the sum of market values of
the securities in its underlying investment portfolio. The
contract value allocated to a sub-account will fluctuate based on
the performance of the sub-accounts. The contract value allocated
to the general accounts is credited with a fixed interest rate for
a specified period. The Company may assess surrender fees against
amounts withdrawn prior to the end of the withdrawal charge
period. Policyholders also may 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 54% of the Company's
sales were through Edward Jones and Company in 1998. Approximately
58% of the Company's sales were through Dreyfus Service
Organization in 1997 and 91% of the Company's sales were through
one specific brokerage firm, Advest, in 1996.
(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 1998, 1997, and 1996 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.
<TABLE>
<CAPTION>
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):
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Net income (loss):
As reported under statutory accounting practices $ 2,264 1,280 1,827
Deferred acquisition costs 51 477 48
Change in reserve for policies and contracts (4,872) 344 409
Interest maintenance reserve (1,609) 122 53
Deferred income taxes 3,003 (827) (642)
Amortization of intangible assets and liabilities (4,370) (216) (189)
Gain on securities due to reinsurance recapture 1,986 -- --
Other, net 766 421 163
------------ ------------ -----------
As reported under generally accepted accounting
principles $ (2,781) 1,601 1,669
============ ============ ===========
1998 1997 1996
------------ ------------ -----------
Capital stock and surplus:
As reported under statutory accounting practices $ 26,841 24,364 23,143
Deferred acquisition costs 576 525 48
Reserves for policies and contracts 301 5,173 4,829
Asset valuation reserve 523 1,528 1,470
Interest maintenance reserve 3,192 1,583 1,461
Unrealized appreciation (depreciation) of investments 897 2,964 (1,470)
Deferred income taxes 2,191 (1,163) 325
Present value of future profits 491 3,350 5,572
Goodwill 2,009 2,131 2,254
Other, net -- -- (5)
------------ ------------ -----------
As reported under generally accepted accounting
principles $ 37,021 40,455 37,627
============ ============ ===========
</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 1998, 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.
<TABLE>
<CAPTION>
The actual Federal income tax expense differed from the expected tax
expense computed by applying the U.S. Federal statutory rate to the
1998, 1997, and 1996 net gain from operations before Federal income
taxes as follows:
1998 1997 1996
------------------------- ------------------------- -------------------------
(IN THOUSANDS)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax expense $
1,085 35.0% 499 35.0% 795 35.0%
Tax basis reserve adjustment
41 1.3 13 .9 (30) (1.3)
IMR amortization 121 3.9 85 6.0 72 3.2
Proxy tax on insurance
acquisition costs 3 0.1 33 2.3 4 .2
Adjustment for prior years 48 1.5 (127) (8.9) -- --
Intangible amortization (376) (12.1) (376) (26.4) (376) (16.6)
Other (85) (2.7) 18 1.3 (20) (.9)
------------ ----------- ------------ ----------- -------------------------
$ 837 27.0% 145 10.2% 445 19.6%
============ =========== ============ =========== =========================
</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) TRANSACTIONS WITH AFFILIATES
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 1998, 1997, and 1996 were $386,821, $339,670, and
$337,994, 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, 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 may 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, 1998 and 1997, the cash
surrender value of policyholder deposits was approximately
$1,118,000 and $4,050,000 less than their stated carrying value.
Of the contracts permitting surrender, substantially all provide
the option to surrender without fee or adjustment during the 30
days following reset of guaranteed crediting rates. The Company
has not determined a practical method to determine the present
value of this option.
(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, 1998, 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.
<TABLE>
<CAPTION>
The life and annuity actuarial reserves as provided in the accompanying
statutory financial statements segregated by type and valuation
characteristics for 1998 and 1997 are given below.
1998 1997 VALUATION WITHDRAWAL
--------- ----------
TYPE RESERVE RESERVE BASIC/RATE CHARACTERISTIC
--------- ---------- --------------------------- ----------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Structured settlements $ 1,090 1,058 1983 IAM 8.25% No withdrawal permitted
SPDA - 1 year 11,585 11,732 CARVM 5.75% - 7.00% Fixed surrender charge
SPDA - 5 year 11,867 15,030 CARVM 7.00% - 8.00% Withdrawal limited to
10% per year
SPDA - 6 year 42 37 CARVM 5.75% Market value adjustment
SPDA - 5 year 314 285 CARVM 7.25% Market value adjustment
SPDA - 7 year 6,249 6,027 CARVM 7.25% Market value adjustment
Variable 310 75 CARVM 5.50% Fixed surrender charge
Ordinary life 123 116 1958 CSO 3.5% NL Fixed surrender charge
Ordinary life 39 39 1980 CSO CRVM Fixed surrender charge
Ordinary life 249 243 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 1958 CSO ALB 5.5% NL Fixed surrender charge
Group life - 31,291 1958 CSO ALB 5.5% NL Fixed surrender charge
Ordinary life - 20,849 1980 CSO ANB Male Fixed surrender charge
5.5% NL
Group life - 21,581 1980 CSO ANB Male Fixed surrender charge
5.5% NL
Ordinary life - 18,564 1980 CSO ANB Female Fixed surrender charge
5.5% NL
Group life - 19,990 1980 CSO ANB Female Fixed surrender charge
5.5% NL
Miscellaneous 16 16 -- --
Reinsurance ceded (1,523) (1,477) -- --
--------- ----------
$ 30,366 164,208
========= ==========
</TABLE>
<TABLE>
<CAPTION>
(11) INVESTMENTS
The cost or amortized cost and estimated fair value of bonds at December
31, 1998 and 1997 is as follows:
1998
-----------------------------------------------------------------------------------
COST OR GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
--------------- --------------- --------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Bonds:
Governments $ 1,288 45 -- 1,333 1,288
Public utilities 1,800 45 -- 1,845 1,800
Industrial and
miscellaneous 55,214 1,039 114 56,139 55,214
--------------- --------------- --------------- --------------- ---------------
Total bonds $ 58,302 1,129 114 59,317 58,302
=============== =============== =============== =============== ===============
1997
-----------------------------------------------------------------------------------
COST OR GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
--------------- --------------- --------------- --------------- ---------------
(IN THOUSANDS)
Bonds:
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
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
The amortized cost and estimated fair value of bonds at December 31,
1998, 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.
ESTIMATED
CARRYING FAIR
VALUE VALUE
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 400 404
Due after one year through five years 22,175 22,859
Due after five years through ten years 12,924 13,054
Due after ten years 4,470 4,667
Mortgage-backed securities 18,333 18,333
--------------- ---------------
Total $ 58,302 59,317
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
Approximately 48.1% of the Company's bonds are of highest quality, 44.9%
are of high quality, and 7.0% 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, 1998 or 1997, 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:
1998 1997 1996
------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income on bonds $ 11,211 11,354 11,274
Income on mortgage loans 855 786 940
Income on short-term investments 242 197 106
Income on cash on deposit 6 7 4
Income on policy loans 1,588 1,531 1,281
Miscellaneous interest -- -- 4
------------- -------------- --------------
Total investment income 13,902 13,875 13,609
Investment expenses (89) (104) (102)
------------- -------------- --------------
Net investment income 13,813 13,771 13,507
============= ============== ==============
Realized capital gains/(losses):
Mortgages 661 -- --
Bonds 1,594 (211) (264)
Short-term investments -- -- --
------------- -------------- --------------
Net realized gains/(losses) on investments $ 2,255 (211) (264)
============= ============== ==============
</TABLE>
Proceeds from sales, redemptions, and paydowns of investments in bonds during
1998 were $118,066,396. Gross gains of $2,641,028 and gross losses of $1,046,860
were realized on those sales.
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.
Bonds with a carrying value of approximately $837,431 at December 31, 1998 were
deposited with governmental authorities as required by law.
<TABLE>
<CAPTION>
The Company held the following individual securities which exceeded 10% of
capital stock and surplus as of December 31, 1998 and 1997:
1998
- -------------------------------------------------------------------
AMORTIZED
LONG-TERM DEBT SECURITIES COST
------------------
(IN THOUSANDS)
<S> <C>
Community First Bankshares $ 4,000
FNMA Remic Tr 1992 Ser 124-PH 3,433
Countryside Mtg. 1993-12 A4 3,211
Time Warner 3,200
Develop Div Rlty 3,019
ERAC USA Finance 2,998
RJR Nabisco Inc. 2,947
Salomon Inc. 2,934
</TABLE>
<TABLE>
<CAPTION>
1997
- --------------------------------------------------------------------------------------------------------------------
AMORTIZED AMORTIZED
LONG-TERM DEBT SECURITIES COST LONG-TERM DEBT SECURITIES COST
------------- -------------
(IN THOUSANDS)
<S> <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. Senior Notes 4,000
Develop Div Rlty 5,053 Independent Natl Mtg. 1995-M A2 3,998
Swire Pacific Finance Ltd. 5,003 Pru Home Mtg. Sec 1993-31 A10 3,771
CS First Bost. Fin. Co. Sr Sears Mtg. Securities 1993-7 T5 3,751
Sec 1995-A 144AAA 5,000
American Airlines 4,984 Countrywide Mtg. Sec 1994-7 A5 3,518
FNMA Remic Tr 1992 Ser 124 PH Cox Communications Inc 3,352
4,965
FHLMC Mc Mtg. Prt Crt Ser 1406-G Pru Home Mtg. Sec 1994-20 A6 3,066
4,954
RJR Nabisco Inc. 4,898 Ensearch Exploration 3,000
Alcoa Aluminum 4,894 Enron Corp. 3,000
Telecommunications Inc. 2,851
</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
December 31, 1998, 1997, and 1996
(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. On December 31, 1998, the reinsurance contract was
terminated and CFSLIC recaptured all of the single premium whole life
policies previously assumed by the Company. Reserves assumed at December
31, 1997 approximated $131.0 million.
Reserves ceded at December 31, 1998 and 1997, were $1,634,569 and
$1,584,622, 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, 1998, the Company's total adjusted capital and authorized
control level - RBC were $27,364,306 and $959,369, 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 1998 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, 1998 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.
(17) OTHER
Certain 1997 and 1996 amounts have been reclassified to conform to the
1998 presentation.
SCHEDULE 1
<TABLE>
<CAPTION>
FIRST COVA LIFE INSURANCE COMPANY
Schedule of Selected Financial Data from Annual Statement
Year ended December 31, 1998
(In thousands of dollars)
<S> <C>
Investment income earned:
Government bonds $ 74
Other bonds (unaffiliated) 11,137
Bonds of affiliates --
Preferred stocks (unaffiliated) --
Preferred stocks of affiliates --
Common stocks (unaffiliated) --
Common stocks of affiliates --
Mortgage loans 855
Real estate --
Premium notes, policy loans, and liens 1,588
Collateral loans --
Cash on hand and on deposit 6
Short-term investments 242
Other invested assets --
Derivative instruments --
Aggregate write-in for investment income --
----------
Gross investment income 13,902
----------
Real estate owned - book value less encumbrances
Mortgage loans - book value:
Farm mortgages --
Residential mortgages --
Commercial mortgages --
----------
Total mortgage loans --
----------
Mortgage loans by standing - book value:
Good standing --
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 --
</TABLE>
SCHEDULE 1, CONT.
<TABLE>
<CAPTION>
FIRST COVA LIFE INSURANCE COMPANY
Schedule of Selected Financial Data from Annual Statement
Year ended December 31, 1998
(In thousands of dollars)
<S> <C>
Bonds and short-term investments by class and maturity: Bonds by maturity -
statement value:
Due within 1 year or less $ 14,593
Over 1 year through 5 years 28,981
Over 5 years through 10 years 17,886
Over 10 years through 20 years 2,660
Over 20 years --
----------
Total by maturity 64,120
----------
Bonds by class - statement value:
Class 1 33,873
Class 2 26,159
Class 3 4,088
Class 4 --
Class 5 --
Class 6 --
----------
Total by class 64,120
----------
Total bonds publicly traded 40,981
Total bonds privately placed 17,321
Preferred stocks - statement value --
Common stocks - market value --
Short-term investments - book value 5,818
Financial options owned - statement value --
Financial options written and in force - statement value --
Financial futures contracts open - current price --
Cash on deposit 76
Life insurance in force (000's omitted):
Industrial --
Ordinary 3
Credit life --
Group life --
----------
Amount of accidental death insurance in
force under ordinary policies --
----------
</TABLE>
SCHEDULE 1, CONT.
<TABLE>
<CAPTION>
FIRST COVA LIFE INSURANCE COMPANY
Schedule of Selected Financial Data from Annual Statement
Year ended December 31, 1998
(In thousands of dollars)
<S> <C>
Life insurance policies with disability provisions in force:
Industrial $ --
Ordinary --
Credit life --
Group life --
Supplementary contracts in force:
Ordinary - not involving life contingencies 7
Amount on deposit --
Income payable 64
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 30,994
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 1997:
Group accident and health year ended December 31, 1998:
1998 --
1997 --
1996 --
</TABLE>
SCHEDULE 1, CONT.
<TABLE>
<CAPTION>
FIRST COVA LIFE INSURANCE COMPANY
Schedule of Selected Financial Data from Annual Statement
Year ended December 31, 1998
(In thousands of dollars)
<S> <C>
Other accident and health:
1998 $ --
1997 --
1996 --
Other coverages that use developmental methods to calculate claims reserves:
1998 --
1997 --
1996 --
==========
</TABLE>
See accompanying independent auditors' report.
