File Nos. 33-74174
811-8306
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 3 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 4 [X]
(Check appropriate box or boxes.)
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
_______________________________________
(Exact Name of Registrant)
FIRST COVA LIFE INSURANCE COMPANY
__________________________________
(Name of Depositor)
120 Broadway, New York, New York 10271
____________________________________________________ _________
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (800) 469-4545
Name and Address of Agent for Service
Lorry J. Stensrud, President
First Cova Life Insurance Company
120 Broadway
New York, NY 10271
(800) 469-4545
Copies to:
Judith A. Hasenauer and Frances S. Cook
Blazzard, Grodd & Hasenauer, P.C. First Vice President and Associate
P.O. Box 5108 General Counsel
Westport, CT 06881 First Cova Life Insurance
Company
(203) 226-7866 120 Broadway
New York, NY 10271
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on May 1, 1999 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
_____ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Title of Securities Registered:
Individual Variable Annuity Contracts
<TABLE>
<CAPTION>
<S> <C> <C>
CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
- -------- --------------------------------
PART A
Item 1. Cover Page . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . Index of Special Terms
Item 3. Synopsis . . . . . . . . . . . . . . . Summary
Item 4. Condensed Financial Information . . . Appendix A - Condensed Financial
Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies . . Other Information - Cova; The
Separate Account; Cova
Series Trust; General American
Capital Company
Item 6. Deductions and Expenses. . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts. . . . . . . . . . . The Annuity Contract
Item 8. Annuity Period . . . . . . . . . . . . Annuity Payments
(The Income Phase)
Item 9. Death Benefit. . . . . . . . . . . . . Death Benefit
Item 10. Purchases and Contract Value . . . . . Purchase
Item 11. Redemptions. . . . . . . . . . . . . . Access to Your Money
Item 12. Taxes. . . . . . . . . . . . . . . . . Taxes
Item 13. Legal Proceedings. . . . . . . . . . . None
Item 14. Table of Contents of the Statement of
Additional Information . . . . . . . . Table of Contents of the
Statement of Additional
Information
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
- -------- -----------------------
PART B
Item 15. Cover Page . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . Company
Item 18. Services . . . . . . . . . . . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered . Not Applicable
Item 20. Underwriters . . . . . . . . . . . . . Distribution
Item 21. Calculation of Performance Data. . . . Performance Information
Item 22. Annuity Payments . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements . . . . . . . . . Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item so numbered in Part C to this Registration Statement.
PART A
The Fixed
And Variable Annuity
issued by
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
and
FIRST COVA LIFE
INSURANCE COMPANY
This prospectus describes the Fixed and Variable Annuity Contract offered by
First Cova Life Insurance Company (First Cova).
The annuity contract has 12 investment choices - a fixed account which offers an
interest rate which is guaranteed by First Cova, and 11 investment portfolios
listed below. The 11 investment portfolios are part of Cova Series Trust or
General American Capital Company. You can put your money in the fixed
account and/or any of these investment portfolios.
Cova Series Trust:
Managed by J.P. Morgan
Investment Management Inc.:
Select Equity
Large Cap Stock
Small Cap Stock
International Equity
Quality Bond
Managed by Lord, Abbett & Co.:
Bond Debenture
Mid-Cap Value
Large Cap Research
Developing Growth
Lord Abbett Growth and Income
General American Capital Company:
Managed by Conning Asset
Management Company:
Money Market
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the First Cova Fixed and
Variable Annuity Contract.
To learn more about the First Cova Fixed and Variable Annuity Contract, you can
obtain a copy of the Statement of Additional Information (SAI) dated May 1,
1999. The SAI has been filed with the Securities and Exchange Commission (SEC)
and is legally a part of the prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information regarding companies that file electronically with the SEC.
The Table of Contents of the SAI is on Page __ of this prospectus. For a free
copy of the SAI, call us at (800) 523-1661 or write us at: One Tower Lane, Suite
3000, Oakbrook Terrace, Illinois 60181-4644.
The Contracts:
* are not bank deposits
* are not federally insured
* are not endorsed by any bank or government agency
* are not guaranteed and may be subject to loss of principal
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
May 1, 1999
TABLE OF CONTENTS Page
INDEX OF SPECIAL TERMS
SUMMARY
Fee Table
Examples
THE ANNUITY CONTRACT
ANNUITY PAYMENTS (THE INCOME PHASE)
PURCHASE
Purchase Payments
Allocation of Purchase Payments
Accumulation Units
INVESTMENT OPTIONS
Cova Series Trust
General American Capital Company
Transfers
Dollar Cost Averaging Program
Automatic Rebalancing Program
Voting Rights
Substitution
EXPENSES
Insurance Charges
Contract Maintenance Charge
Withdrawal Charge
Reduction or Elimination of the
Withdrawal Charge
Transfer Fee
Income Taxes
Investment Portfolio Expenses
TAXES
Annuity Contracts in General
Qualified and Non-Qualified Contracts
Withdrawals - Non-Qualified Contracts
Withdrawals - Qualified Contracts
Diversification
ACCESS TO YOUR MONEY
Systematic Withdrawal Program
Suspension of Payments or Transfers
PERFORMANCE
DEATH BENEFIT
Upon Your Death
Death of Annuitant
OTHER INFORMATION
First Cova
Year 2000
The Separate Account
Distributor
Ownership
Beneficiary
Assignment
Financial Statements
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
APPENDIX A
Condensed Financial Information
APPENDIX B
Performance Information
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the contract, however, certain technical words
or terms are unavoidable and need an explanation. We have identified the
following as some of these words or terms. They are identified in the text in
italic and the page that is indicated here is where we believe you will find
the best explanation for the word or term.
Page
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Date
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Fixed Account
Income Phase
Investment Portfolios
Joint Owner
Non-Qualified
Owner
Purchase Payment
Qualified
Tax Deferral
SUMMARY
The sections in this Summary correspond to sections in this prospectus which
discuss the topics in more detail.
THE ANNUITY CONTRACT:
The fixed and variable annuity contract offered by First Cova is a contract
between you, the owner, and First Cova, an insurance company. The contract
provides a means for investing on a tax-deferred basis. The contract is
intended for retirement savings or other long-term investment purposes and
provides for a death benefit and guaranteed income options.
This contract offers 11 investment portfolios. These portfolios are designed
to offer a better return than the fixed account. However, this is NOT
guaranteed. You can also lose your money.
The fixed account offers an interest rate that is guaranteed by the insurance
company, First Cova. This interest rate is set once each year. While your money
is in the fixed account, the interest your money will earn as well as your
principal is guaranteed by First Cova.
You can put money into any or all of the investment portfolios and the fixed
account. You can transfer between accounts up to 12 times a year without
charge or tax implications.
The contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving regular payments
from your contract.
The amount of money you are able to accumulate in your account during the
accumulation phase will determine, in part, the amount of income payments
during the income phase.
ANNUITY PAYMENTS (THE INCOME PHASE):
If you want to receive regular income from your annuity, you can choose an
annuity option. Once you begin receiving regular payments, you cannot change
your payment plan. During the income phase, you have the same investment
choices you had during the accumulation phase. You can choose to have payments
come from the fixed account, the investment portfolios or both. If you choose to
have any part of your payments come from the investment portfolios, the dollar
amount of your payments may go up or down.
HOW TO PURCHASE THE CONTRACT:
You can buy this contract with $5,000 or more under most circumstances. You can
add $2,000 or more any time you like during the accumulation phase. Your
registered representative can help you fill out the proper forms.
INVESTMENT OPTIONS:
You can put your money in any or all of these investment portfolios which are
described in the prospectuses for the funds:
MANAGED BY J.P. MORGAN INVESTMENT
MANAGEMENT INC.
Select Equity
Large Cap Stock
Small Cap Stock
International Equity
Quality Bond
MANAGED BY LORD, ABBETT & CO.
Bond Debenture
Mid-Cap Value
Large Cap Research
Developing Growth
Lord Abbett Growth and Income
MANAGED BY CONNING ASSET
MANAGEMENT COMPANY
Money Market
Depending upon market conditions and the performance of the portfolio(s) you
select, you can make or lose money in any of these portfolios.
EXPENSES:
The contract has insurance features and investment features, and there are costs
related to each.
* Each year First Cova deducts a $30 contract maintenance charge from
your contract. During the accumulation phase, First Cova currently waives this
charge if the value of your contract is at least $50,000.
* First Cova also deducts for its insurance charges which total 1.40% of
the average daily value of your contract allocated to the investment
portfolios.
* If you take your money out, First Cova may assess a withdrawal charge which
is equal to 7% of each payment you take out in the first and second years after
First Cova receives the payment, 5% of each payment you take out in the third,
fourth and fifth years, and 3% of each payment you take out in the sixth and
seventh years. After First Cova has had a purchase payment for seven years,
there is no charge by First Cova for a withdrawal of that purchase payment.
* The first 12 transfers in a year are free. After that, a transfer fee of
$25 or 2% of the amount transferred (whichever is less) is assessed.
* There are also investment charges which range from .205% to 1.30% of
the average daily value of the investment portfolio depending upon the
investment portfolio.
TAXES:
Your earnings are not taxed until you take them out. If you take money out,
earnings come out first and are taxed as income. If you are younger than 59 1/2
when you take money out, you may be charged a 10% federal tax penalty on the
earnings. Payments during the income phase are considered partly a return of
your original investment. That part of each payment is not taxable as income.
ACCESS TO YOUR MONEY:
You can take money out at any time during the accumulation phase. After the
first year, you can take up to 10% of your total purchase payments each year
without charge from First Cova. Withdrawals of purchase payments in excess of
that may be charged a withdrawal charge, depending on how long your money has
been in the contract. However, First Cova will never assess a withdrawal charge
on earnings you withdraw. Earnings are defined as the value in your contract
minus the remaining purchase payments in your contract. Of course, you may also
have to pay income tax and a tax penalty on any money you take out.
DEATH BENEFIT:
If you die before moving to the income phase, the person you have chosen as your
beneficiary will receive a death benefit.
OTHER INFORMATION:
Free Look. If you cancel the contract within 10 days after receiving it we will
send you whatever your contract is worth on the day we receive your request
(this may be more or less than your original payment) without assessing a
withdrawal charge. If you have purchased the contract as an Individual
Retirement Annuity (IRA) you will receive back your purchase payment.
(Currently, the contract is not available under an IRA until the IRA Endorsement
is approved by the State of New York Insurance Department.)
No Probate. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
However, the avoidance of probate does not mean that the beneficiary will not
have tax liability as a result of receiving the death benefit.
Who should purchase the contract? This contract is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes. The tax-deferred feature is most attractive to people in
high federal and state income tax brackets. You should not buy this contract if
you are looking for a short-term investment or if you cannot take the risk of
getting back less money than you put in.
Additional Features. This contract has additional features you might be
interested in. These include:
* You can arrange to have money automatically sent to you each month while
your contract is still in the accumulation phase. Of course, you'll have to
pay taxes on money you receive. We call this feature the Systematic
Withdrawal Program.
* You can arrange to have a regular amount of money automatically invested in
investment portfolios each month, theoretically giving you a lower average
cost per unit over time than a single one time purchase. We call this
feature Dollar Cost Averaging.
* First Cova will automatically readjust the money between investment
portfolios periodically to keep the blend you select. We call this feature
Automatic Rebalancing.
These features may not be suitable for your particular situation.
INQUIRIES:
If you need more information about buying a contract, please contact us at:
Cova Life Sales Company
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181
800-523-1661
If you have any other questions, please contact us at our Home Office:
120 Broadway, 10th Floor
New York, NY 10271
(800) 469-4545
(212) 766-0012
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE FEE TABLE
The purpose of the Fee Table is to show you the various expenses you will incur
directly or indirectly with the contract. The Fee Table reflects expenses of
the Separate Account as well as the investment portfolios.
OWNER TRANSACTION EXPENSES
Withdrawal Charge (as a percentage of Years Since
purchase payments) (see Note 1 below) Payment Charge
1 7%
2 7%
3 5%
4 5%
5 5%
6 3%
7 3%
8+ 0%
Transfer Fee (see Note 2 below)
No charge for first 12 transfers in a contract year; thereafter, the fee is
$25 per transfer or, if less, 2% of the amount transferred.
CONTRACT MAINTENANCE CHARGE (see Note 3 below) $30 per contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Premium 1.25%
Administrative Expense Charge .15%
---
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES 1.40%
<TABLE>
<CAPTION>
Investment Portfolio Expenses
(as a percentage of the average daily net assets of an investment portfolio)
Other Expenses
(after expense
reimbursement for
Management certain Portfolios - Total Annual
Fees see Note 4 below) Portfolio Expenses
- -------------------------------------------------------------------------------------------------------------------------------
Cova Series Trust
Managed by J.P. Morgan
Investment Management Inc.
<S> <C> <C> <C>
Select Equity .68% .18% .86%
Large Cap Stock .65% .10% .75%
Small Cap Stock .85% .27% 1.12%
International Equity .80% .28% 1.08%
Quality Bond .55% .10% .65%
- -------------------------------------------------------------------------------------------------------------------------------
Managed by Lord, Abbett & Co.
Bond Debenture .75% .10% .85%
Mid-Cap Value 1.00% .30% 1.30%
Large Cap Research 1.00% .30% 1.30%
Developing Growth .90% .30% 1.20%
Lord Abbett Growth and Income* .65% .07% .72%
- --------------------------------------------------------------------------------------------------------------------------------
General American Capital Company
Managed by Conning Asset
Management Company
Money Market .125% .08% .205%
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
* Estimated. The Portfolio commenced investment operations on January 8,
1999.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Examples
The examples should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
For purposes of the examples, the assumed average contract size is $30,000.
You would pay the following expenses on a $1,000 investment, assuming a 5% annual
return on assets:
(a) if you surrender the contract at the end of each time period;
(b) if you do not surrender the contract or if you apply the contract value
to an annuity option.
Time Periods
- ------------------------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------------------------------------
Cova Series Trust
Managed by J.P. Morgan
Investment Management Inc.
<S> <C> <C> <C> <C>
Select Equity (a) $93.90 (a) $118.46 (a) $152.49 (a) $267.24
(b) $23.90 (b) $ 73.46 (b) $125.49 (b) $267.24
Large Cap Stock (a) $92.80 (a) $115.15 (a) $146.95 (a) $256.13
(b) $22.80 (b) $ 70.15 (b) $119.95 (b) $256.13
Small Cap Stock (a) $96.50 (a) $126.26 (a) $165.47 (a) $292.98
(b) $26.50 (b) $ 81.26 (b) $138.47 (b) $292.98
International Equity (a) $96.10 (a) $125.06 (a) $163.48 (a) $289.07
(b) $26.10 (b) $ 80.06 (b) $136.48 (b) $289.07
Quality Bond (a) $91.79 (a) $112.12 (a) $141.89 (a) $245.92
(b) $21.79 (b) $ 67.12 (b) $114.89 (b) $245.92
- ------------------------------------------------------------------------------------------------------------------------------------
Managed by Lord, Abbett & Co.
Bond Debenture (a) $93.80 (a) $118.16 (a) $151.99 (a) $266.24
(b) $23.80 (b) $ 73.16 (b) $124.99 (b) $266.24
Mid-Cap Value (a) $98.30 (a) $131.62 (a) $174.35 (a) $310.37
(b) $28.30 (b) $ 86.62 (b) $147.35 (b) $310.37
Large Cap Research (a) $98.30 (a) $131.62 (a) $174.35 (a) $310.37
(b) $28.30 (b) $ 86.62 (b) $147.35 (b) $310.37
Developing Growth (a) $97.30 (a) $128.65 (a) $169.42 (a) $300.75
(b) $27.30 (b) $ 83.65 (b) $142.42 (b) $300.75
Lord Abbett Growth and Income (a) $92.49 (a) $114.24 (a) $145.43 (a) $253.08
(b) $22.49 (b) $ 69.24 (b) $118.43 (b) $253.08
- ------------------------------------------------------------------------------------------------------------------------------------
General American Capital Company
Managed by Conning Asset
Management Company
Money Market (a) $87.31 (a) $98.54 (a) $119.02 (a) $119.08
(b) $17.31 (b) $53.54 (b) $ 92.02 (b) $199.08
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
Explanation of Fee Table
1. After First Cova has had a purchase payment for 7 years, there is
no charge by First Cova for a withdrawal of that purchase payment.
You may also have to pay income tax and a tax penalty on any money you
take out. After the first year, you can take up to 10% of your total
purchase payments each year without a charge from First Cova.
2. First Cova will not charge you the transfer fee even if there are more than
12 transfers in a year if the transfer is for the Dollar Cost Averaging or
Automatic Rebalancing Programs.
3. During the accumulation phase, First Cova will not charge the contract
maintenance charge if the value of your contract is $50,000 or more,
although, if you make a complete withdrawal, First Cova will charge the
contract maintenance charge.
4. Since May 1, 1996, an affiliate of First Cova (Cova) has been reimbursing
the investment portfolios of Cova Series Trust for all operating expenses
(exclusive of the management fees) in excess of approximately .10%.
Beginning May 1, 1999, Cova will discontinue this reimbursement arrangement
for the Select Equity, Small Cap Stock and International Equity Portfolios.
Therefore, the amounts shown above under "Other Expenses" have been restated
to reflect the actual expenses for these Portfolios for the year ended
December 31, 1998. Also beginning May 1, 1999, Cova will reimburse the
Mid-Cap Value, Large Cap Research and Developing Growth Portfolios for all
operating expenses (exclusive of the management fees) in excess of
approximately .30%, instead of .10%. This change is reflected above under
"Other Expenses" for these three Portfolios. Absent the expense
reimbursement, the percentages shown for total annual portfolio expenses
for the year ended December 31, 1998 would have been .86% for the Quality
Bond Portfolio, .94% for the Large Cap Stock Portfolio, .93% for the Bond
Debenture Portfolio, 1.68% for the Mid-Cap Value Portfolio, 1.95% for the
Large Cap Research Portfolio and 1.70% for the Developing Growth Portfolio.
5. Premium taxes are not reflected. New York does not assess premium taxes.
THERE IS AN ACCUMULATION UNIT VALUE HISTORY (CONDENSED FINANCIAL INFORMATION)
CONTAINED IN APPENDIX A.
</FN>
</TABLE>
THE ANNUITY CONTRACT
This Prospectus describes the Fixed and Variable Annuity Contract offered by
First Cova.
An annuity is a contract between you, the owner, and an insurance company (in
this case First Cova), where the insurance company promises to pay an income to
you, in the form of annuity payments, beginning on a designated date that is at
least one year after we issue your contract. Until you decide to begin receiving
annuity payments, your annuity is in the accumulation phase. Once you begin
receiving annuity payments, your contract switches to the income phase.
The contract benefits from tax deferral. Tax deferral means that you are not
taxed on earnings or appreciation on the assets in your contract until you take
money out of your contract.
The contract is called a variable annuity because you can choose among 11
investment portfolios and, depending upon market conditions, you can make or
lose money in any of these portfolios. If you select the variable annuity
portion of the contract, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the investment performance
of the investment portfolio(s) you select. The amount of the annuity payments
you receive during the income phase from the variable annuity portion of the
contract also depends, in part, upon the investment performance of the
investment portfolios you select for the income phase.
The contract also contains a fixed account. The fixed account offers an interest
rate that is guaranteed by First Cova. If you select the fixed account, your
money will be placed with the other general assets of First Cova. If you select
the fixed account, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the total interest credited
to your contract. The amount of the annuity payments you receive during the
income phase from the fixed account portion of the contract will remain level
for the entire income phase.
As owner of the contract, you exercise all interest and rights under the
contract. You can change the owner at any time by notifying First Cova in
writing. You and another person can be named joint owners. We have described
more information on this under "Other Information."
ANNUITY PAYMENTS (THE INCOME PHASE)
Annuity Date
Under the contract you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the annuity
date. Your annuity date must be the first day of a calendar month.
We ask you to choose your annuity date when you purchase the contract. You can
change it at any time before the annuity date with 30 days notice to us. Your
annuity date cannot be any earlier than one year after we issue the contract.
Annuity Payments
You will receive annuity payments during the income phase. In general, annuity
payments must begin by the annuitant's 90th birthday. The annuitant is the
person whose life we look to when we make annuity payments.
During the income phase, you have the same investment choices you had just
before the start of the income phase. At the annuity date, you can choose
whether payments will come from:
* the fixed account,
* the investment portfolio(s), or
* a combination of both.
If you don't tell us otherwise, your annuity payments will be based on the
investment allocations that were in place on the annuity date.
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things:
1) the value of your contract in the investment portfolio(s) on the
annuity date,
2) the 3% assumed investment rate used in the annuity table for the
contract, and
3) the performance of the investment portfolios you selected.
If the actual performance exceeds the 3% assumed investment rate, your
annuity payments will increase. Similarly, if the actual investment rate
is less than 3%, your annuity payments will decrease.
Annuity payments are made monthly unless you have less than $2,000 to apply
toward a payment and you have not made a purchase payment in 3 years. In that
case, First Cova may provide your annuity payment in a single lump sum.
Likewise, if your annuity payments would be less than $20 a month, First Cova
has the right to change the frequency of payments so that your annuity payments
are at least $20.
Annuity Options
You can choose among income plans. We call them annuity options. We ask you to
choose an annuity option when you purchase the contract. You can change it at
any time before the annuity date with 30 days notice to us. If you do not
choose an annuity option at the time you purchase the contract, we will assume
that you selected Option 2 which provides a life annuity with 10 years of
guaranteed payments.
You can choose one of the following annuity options or any other annuity option
acceptable to First Cova. After annuity payments begin, you cannot change the
annuity option.
Option 1. Life Annuity. Under this option, we will make an annuity payment each
month so long as the annuitant is alive. After the annuitant dies, we stop
making annuity payments.
Option 2. Life Annuity with 5, 10 or 20 Years Guaranteed. Under this option, we
will make an annuity payment each month so long as the annuitant is alive.
However, if, when the annuitant dies, we have made annuity payments for less
than the selected guaranteed period, we will then continue to make annuity
payments for the rest of the guaranteed period to the beneficiary. If the
beneficiary does not want to receive annuity payments, he or she can ask us for
a single lump sum.
Option 3. Joint and Last Survivor Annuity. Under this option, we will make
annuity payments each month so long as the annuitant and a second person are
both alive. When either of these people dies, we will continue to make annuity
payments, so long as the survivor continues to live. The amount of the annuity
payments we will make to the survivor can be equal to 100%, 66 2/3% or 50% of
the amount that we would have paid if both were alive.
PURCHASE
Purchase Payments
A purchase payment is the money you give us to invest in the contract. The
minimum we will accept is $5,000 when the contract is purchased as a non-
qualified contract. If you are purchasing the contract as part of an IRA
(Individual Retirement Annuity) the minimum we will accept is $2,000.
(Currently, the contract is not available under an IRA until the IRA
Endorsement is approved by the State of New York Insurance Department.)
The maximum purchase payment we accept is $1 million without our prior
approval. You can make additional purchase payments of $2,000 or more to
either type of contract.
Allocation of Purchase Payments
When you purchase a contract, we will allocate your purchase payment to the
fixed account and/or one or more of the investment portfolios you have selected.
If you make additional purchase payments, we will allocate them in the same way
as your first purchase payment unless you tell us otherwise. There is a $500
minimum allocation requirement for the fixed account and for each investment
portfolio.
Once we receive your purchase payment and the necessary information, we will
issue your contract and allocate your first purchase payment within 2 business
days. If you do not give us all of the information we need, we will contact you
to get it. If for some reason we are unable to complete this process within 5
business days, we will either send back your money or get your permission to
keep it until we get all of the necessary information. If you add more money to
your contract by making additional purchase payments, we will credit these
amounts to your contract within one business day. Our business day closes when
the New York Stock Exchange closes, usually 4:00 P.M. Eastern time.
Free Look
If you change your mind about owning this contract, you can cancel it within 10
days after receiving it. When you cancel the contract within this time period,
First Cova will not assess a withdrawal charge. You will receive back whatever
your contract is worth on the day we receive your request. If you have purchased
the contract as an IRA, we are required to give you back your purchase payment
if you decide to cancel your contract within 10 days after receiving it.
Accumulation Units
The value of the variable annuity portion of your contract will go up or down
depending upon the investment performance of the investment portfolio(s) you
choose. In order to keep track of the value of your contract, we use a unit of
measure we call an accumulation unit. (An accumulation unit works like a share
of a mutual fund.) During the income phase of the contract we call the unit an
annuity unit.
Every day we determine the value of an accumulation unit for each of the
investment portfolios. We do this by:
1. determining the total amount of money invested in the particular investment
portfolio;
2. subtracting from that amount any insurance charges and any other charges
such as taxes we have deducted; and
3. dividing this amount by the number of outstanding accumulation units.
The value of an accumulation unit may go up or down from day to day.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited is determined by dividing the
amount of the purchase payment allocated to an investment portfolio by the value
of the accumulation unit for that investment portfolio.
We calculate the value of an accumulation unit for each investment portfolio
after the New York Stock Exchange closes each day and then credit your contract.
Example:
On Monday we receive an additional purchase payment of $5,000 from you. You
have told us you want this to go to the Quality Bond Portfolio. When the
New York Stock Exchange closes on that Monday, we determine that the value
of an accumulation unit for the Quality Bond Portfolio is $13.90. We then
divide $5,000 by $13.90 and credit your contract on Monday night with
359.71 accumulation units for the Quality Bond Portfolio.
INVESTMENT OPTIONS
The contract offers 11 investment portfolios which are listed below. Additional
investment portfolios may be available in the future.
YOU SHOULD READ THE PROSPECTUSES FOR THESE FUNDS CAREFULLY BEFORE INVESTING.
COPIES OF THESE PROSPECTUSES ARE ATTACHED TO THIS PROSPECTUS.
Cova Series Trust
Cova Series Trust is managed by Cova Investment Advisory Corporation (Cova
Advisory) which is an affiliate of First Cova. Cova Series Trust is a mutual
fund with multiple portfolios. Each investment portfolio has a different
investment objective. Cova Advisory has engaged sub-advisers to provide
investment advice for the individual investment portfolios. The following
investment portfolios are available under the contract:
J.P. Morgan Investment Management Inc. is the sub-adviser to the following
portfolios:
Select Equity Portfolio
Large Cap Stock Portfolio
Small Cap Stock Portfolio
International Equity Portfolio
Quality Bond Portfolio
Lord, Abbett & Co. is the sub-adviser to the following portfolios:
Bond Debenture Portfolio
Mid-Cap Value Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Lord Abbett Growth and Income Portfolio
General American Capital Company
General American Capital Company is a mutual fund with multiple portfolios. Each
portfolio is managed by Conning Asset Management Company. The following
portfolio is available under the contract:
Money Market Fund
Transfers
You can transfer money among the fixed account and the investment portfolios.
Telephone Transfers. You can make transfers by telephone. If you own the
contract with a joint owner, unless First Cova is instructed otherwise, First
Cova will accept instructions from either you or the other owner. First Cova
will use reasonable procedures to confirm that instructions given us by
telephone are genuine. If First Cova fails to use such procedures, we may be
liable for any losses due to unauthorized or fraudulent instructions. First
Cova tape records all telephone instructions.
Transfers During the Accumulation Phase.
You can make 12 transfers every year during the accumulation phase without
charge. We measure a year from the anniversary of the day we issued your
contract. You can make a transfer to or from the fixed account and to or from
any investment portfolio. If you make more than 12 transfers in a year, there is
a transfer fee deducted. The following apply to any transfer during the
accumulation phase:
1. The minimum amount which you can transfer is $500 or your entire value in
the investment portfolio or fixed account.
2. Your request for transfer must clearly state which investment portfolio(s)
or the fixed account are involved in the transfer.
3. Your request for transfer must clearly state how much the transfer is for.
4. You cannot make any transfers within 7 calendar days of the annuity date.
Transfers During the Income Phase.
You can only make transfers between the investment portfolios once each year. We
measure a year from the anniversary of the day we issued your contract. You
cannot transfer from the fixed account to an investment portfolio, but you can
transfer from one or more investment portfolios to the fixed account at any
time.
Dollar Cost Averaging Program
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount each month from the Money Market Fund or the fixed account to any of the
other investment portfolio(s). By allocating amounts on a regular schedule as
opposed to allocating the total amount at one particular time, you may be
less susceptible to the impact of market fluctuations. The Dollar Cost
Averaging Program is available only during the accumulation phase.
The minimum amount which can be transferred each month is $500. You must have at
least $6,000 in the Money Market Fund or the fixed account, (or the amount
required to complete your program, if less) in order to participate in the
Dollar Cost Averaging Program. Currently, First Cova does not charge for
participating in the Dollar Cost Averaging Program.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
First Cova may, from time to time, offer other dollar cost averaging programs
which may have terms different from those described above.
Automatic Rebalancing Program
Once your money has been allocated to the investment portfolios, the
performance of each portfolio may cause your allocation to shift. You can direct
us to automatically rebalance your contract to return to your original
percentage allocations by selecting our Automatic Rebalancing Program. You can
tell us whether to rebalance quarterly, semi-annually or annually. We will
measure these periods from the anniversary of the date we issued your contract.
The transfer date will be the 1st day after the end of the period you selected.
The Automatic Rebalancing Program is available only during the accumulation
phase. Currently, First Cova does not charge for participating in the
Automatic Rebalancing Program. If you participate in the Automatic Rebalancing
Program, the transfers made under the program are not taken into account in
determining any transfer fee.
Example:
Assume that you want your initial purchase payment split between 2
investment portfolios. You want 40% to be in the Quality Bond Portfolio and
60% to be in the Select Equity Portfolio. Over the next 2 1/2 months the
bond market does very well while the stock market performs poorly. At the
end of the first quarter, the Quality Bond Portfolio now represents 50% of
your holdings because of its increase in value. If you have chosen to have
your holdings rebalanced quarterly, on the first day of the next quarter,
First Cova will sell some of your units in the Quality Bond Portfolio to
bring its value back to 40% and use the money to buy more units in the
Select Equity Portfolio to increase those holdings to 60%.
Voting Rights
First Cova is the legal owner of the investment portfolio shares. However, First
Cova believes that when an investment portfolio solicits proxies in conjunction
with a vote of shareholders, it is required to obtain from you and other
affected owners instructions as to how to vote those shares. When we receive
those instructions, we will vote all of the shares we own in proportion to those
instructions. This will also include any shares that First Cova owns on its
own behalf. Should First Cova determine that it is no longer required to
comply with the above, we will vote the shares in our own right.
Substitution
First Cova may be required to substitute one of the investment portfolios you
have selected with another portfolio. We would not do this without the prior
approval of the Securities and Exchange Commission. We will give you notice of
our intent to do this.
EXPENSES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses are:
Insurance Charges
Each day, First Cova makes a deduction for its insurance charges. First Cova
does this as part of its calculation of the value of the accumulation units and
the annuity units. The insurance charge has two parts:
1) the mortality and expense risk premium, and
2) the administrative expense charge.
Mortality and Expense Risk Premium. This charge is equal, on an annual basis, to
1.25% of the daily value of the contracts invested in an investment portfolio,
after fund expenses have been deducted. This charge is for the insurance
benefits e.g., guarantee of annuity rates, the death benefits, for certain
expenses of the contract, and for assuming the risk (expense risk) that the
current charges will be sufficient in the future to cover the cost of
administering the contract. If the charges under the contract are not
sufficient, then First Cova will bear the loss. First Cova does, however, expect
to profit from this charge. The mortality and expense risk premium cannot be
increased. First Cova may use any profits we make from this charge to pay for
the costs of distributing the contract.
Administrative Expense Charge. This charge is equal, on an annual basis, to .15%
of the daily value of the contracts invested in an investment portfolio, after
fund expenses have been deducted. This charge, together with the contract
maintenance charge (see below) is for the expenses associated with the
administration of the contract. Some of these expenses are: preparation of the
contract, confirmations, annual reports and statements, maintenance of contract
records, personnel costs, legal and accounting fees, filing fees, and computer
and systems costs. Because this charge is taken out of every unit value, you may
pay more in administrative costs than those that are associated solely with your
contract. First Cova does not intend to profit from this charge. However, if
this charge and the contract maintenance charge are not enough to cover the
costs of the contracts in the future, First Cova will bear the loss.
Contract Maintenance Charge
During the accumulation phase, every year on the anniversary of the date when
your contract was issued, First Cova deducts $30 from your contract as a
contract maintenance charge. This charge is for administrative expenses (see
above). This charge cannot be increased.
First Cova will not deduct this charge during the accumulation phase if when the
deduction is to be made, the value of your contract is $50,000 or more. First
Cova may some time in the future discontinue this practice and deduct the
charge.
If you make a complete withdrawal from your contract, the contract maintenance
charge will also be deducted. A prorata portion of the charge will be deducted
if the annuity date is other than an anniversary. After the annuity date, the
charge will be collected monthly out of the annuity payment.
Withdrawal Charge
During the accumulation phase, you can make withdrawals from your contract.
First Cova keeps track of each purchase payment. Once a year after the first
year, you can withdraw up to 10% of your total purchase payments and no
withdrawal charge will be assessed on the 10%, if on the day you make your
withdrawal the value of your contract is $5,000 or more. Otherwise, unless the
purchase payment was made more than 7 years ago, the charge is:
* 7% of each payment you take out in the first and second years after First
Cova receives the payment,
* 5% of each payment you take out in the third, fourth and fifth years after
receipt,
* 3% of each payment you take out in the sixth and seventh years after
receipt, and
* 0% thereafter.
After First Cova has had a purchase payment for 7 years, there is no charge
when you withdraw that purchase payment. First Cova does not assess a
withdrawal charge on earnings withdrawn from the contract. Earnings are
defined as the value in your contract minus the remaining purchase payments
in your contract. The withdrawal order for calculating the withdrawal charge
is shown below.
* 10% of purchase payments free.
* Remaining purchase payments that are over 7 years old and not subject to
a withdrawal charge.
* Earnings in the contract free.
* Remaining purchase payments that are less than 7 years old and are
subject to a withdrawal charge.
For purposes of calculating the withdrawal charge, slightly different rules may
apply to Section 1035 exchanges.
When the withdrawal is for only part of the value of your contract, the
withdrawal charge is deducted from the remaining value in your contract.
First Cova does not assess the withdrawal charge on any payments paid out as
annuity payments or as death benefits.
NOTE: For tax purposes, earnings are considered to come out first.
Reduction or Elimination of the Withdrawal Charge
First Cova will reduce or eliminate the amount of the withdrawal charge when the
contract is sold to an officer, director or employee of First Cova. In no event
will elimination of the Withdrawal Charge be permitted where elimination will be
unfairly discriminatory to any person.
Transfer Fee
You can make 12 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 or 2% of the amount that is transferred whichever is less.
If the transfer is part of the Dollar Cost Averaging Program or the Automatic
Rebalancing Program it will not count in determining the transfer fee.
Income Taxes
First Cova will deduct from the contract for any income taxes which it incurs
because of the contract. At the present time, we are not making any such
deductions.
Investment Portfolio Expenses
There are deductions from and expenses paid out of the assets of the various
investment portfolios, which are described in the attached fund prospectuses.
TAXES
NOTE: First Cova has prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. First Cova
has included an additional discussion regarding taxes in the Statement of
Additional Information.
Annuity Contracts in General
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of contract -
qualified or non-qualified (see following sections).
You, as the owner, will not be taxed on increases in the value of your contract
until a distribution occurs - either as a withdrawal or as annuity payments.
When you make a withdrawal you are taxed on the amount of the withdrawal that is
earnings. For annuity payments, different rules apply. A portion of each annuity
payment is treated as a partial return of your purchase payments and will not be
taxed. The remaining portion of the annuity payment will be treated as ordinary
income. How the annuity payment is divided between taxable and non-taxable
portions depends upon the period over which the annuity payments are expected to
be made. Annuity payments received after you have received all of your purchase
payments are fully includible in income.
When a non-qualified contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than a trust holding the contract
as an agent for a natural person), the contract will generally not be treated
as an annuity for tax purposes.
Qualified and Non-Qualified Contracts
If you purchase the contract as an individual and not under an Individual
Retirement Annuity (IRA), your contract is referred to as a non-qualified
contract.
If you purchase the contract under an IRA, your contract is referred to as a
qualified contract. Currently, the contract is not available under an IRA until
the IRA Endorsement is approved by the State of New York Insurance Department.
Withdrawals - Non-Qualified Contracts
If you make a withdrawal from your contract, the Code treats such a withdrawal
as first coming from earnings and then from your purchase payments. Such
withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts:
(1) paid on or after the taxpayer reaches age 59 1/2;
(2) paid after you die;
(3) paid if the taxpayer becomes totally disabled (as that term is defined
in the Code);
(4) paid in a series of substantially equal payments made annually (or more
frequently) for life or a period not exceeding life expectancy,
(5) paid under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
Withdrawals - Qualified Contracts
The above information describing the taxation of non-qualified contracts does
not apply to qualified contracts. There are special rules that govern with
respect to qualified contracts. We have provided a more complete discussion in
the Statement of Additional Information.
Diversification
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. First Cova believes that the investment portfolios are being
managed so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not First Cova
would be considered the owner of the shares of the investment portfolios. If you
are considered the owner of the shares, it will result in the loss of the
favorable tax treatment for the contract. It is unknown to what extent under
federal tax law owners are permitted to select investment portfolios, to make
transfers among the investment portfolios or the number and type of investment
portfolios owners may select from without being considered the owner of the
shares. If any guidance is provided which is considered a new position, then the
guidance would generally be applied prospectively. However, if such guidance is
considered not to be a new position, it may be applied retroactively. This would
mean that you, as the owner of the contract, could be treated as the owner of
the shares of the investment portfolios.
Due to the uncertainty in this area, First Cova reserves the right to modify the
contract in an attempt to maintain favorable tax treatment.
ACCESS TO YOUR MONEY
You can have access to the money in your contract:
(1) by making a withdrawal (either a partial or a complete withdrawal);
(2) by electing to receive annuity payments; or
(3) when a death benefit is paid to your beneficiary.
You can only make withdrawals during the accumulation phase.
When you make a complete withdrawal you will receive the value of the contract
on the day you made the withdrawal:
* less any applicable withdrawal charge,
* less any premium tax, and
* less any contract maintenance charge.
(See "Expenses" for a discussion of the charges.)
Unless you instruct First Cova otherwise, any partial withdrawal will be made
pro-rata from all the investment portfolios and the fixed account you selected.
Under most circumstances the amount of any partial withdrawal must be for at
least $500. First Cova requires that after a partial withdrawal is made you keep
at least $500 in your contract.
When you make a withdrawal, the amount of the death benefit may be reduced. See
"Death Benefits."
INCOME TAXES AND TAX PENALTIES MAY APPLY TO ANY WITHDRAWAL YOU MAKE.
Systematic Withdrawal Program
If you are 59 1/2 or older, you may use the Systematic Withdrawal Program. This
program provides an automatic monthly payment to you of up to 10% of your total
purchase payments each year. No withdrawal charge will be deducted for these
payments. First Cova does not have any charge for this program. If you use this
program, you may not also make a single 10% free withdrawal. For a discussion of
the withdrawal charge and the 10% free withdrawal, see Section 5. Expenses.
Income taxes may apply to Systematic Withdrawals.
Suspension of Payments or Transfers
First Cova may be required to suspend or postpone payments for withdrawals
or transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of
the investment portfolios is not reasonably practicable or First
Cova cannot reasonably value the shares of the investment portfolios;
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of owners.
First Cova has reserved the right to defer payment for a withdrawal or transfer
from the fixed account for the period permitted by law but not for more than six
months.
PERFORMANCE
First Cova periodically advertises performance of the various investment
portfolios. First Cova will calculate performance by determining the percentage
change in the value of an accumulation unit by dividing the increase (decrease)
for that unit by the value of the accumulation unit at the beginning of the
period. This performance number reflects the deduction of the insurance charges.
It does not reflect the deduction of any applicable contract maintenance charge
and withdrawal charge. The deduction of any applicable contract maintenance
charge and withdrawal charges would reduce the percentage increase or make
greater any percentage decrease. Any advertisement will also include total
return figures which reflect the deduction of the insurance charges, contract
maintenance charges, and withdrawal charges.
For periods starting prior to the date the contracts were first offered, the
performance will be based on the historical performance of the corresponding
investment portfolios for the periods commencing from the date on which the
particular investment portfolio was made available through the Separate Account.
In addition, for certain investment portfolios, performance may be shown for the
period commencing from the inception date of the investment portfolio. These
figures should not be interpreted to reflect actual historical performance of
the Separate Account.
First Cova may, from time to time, include in its advertising and sales
materials, tax deferred compounding charts and other hypothetical illustrations,
which may include comparisons of currently taxable and tax deferred investment
programs, based on selected tax brackets.
Appendix B contains performance information that you may find informative. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and the results shown are not necessarily
representative of future results.
DEATH BENEFIT
Upon Your Death
If you die before annuity payments begin, First Cova will pay a death benefit to
your beneficiary (see below). If you have a joint owner, the death benefit will
be paid when the first of you dies. The surviving joint owner will be treated as
the beneficiary.
The amount of the death benefit depends on how old you or your joint owner is.
Prior to you, or your joint owner, reaching age 80, the death benefit will
be the greater of:
1. Total purchase payments, less withdrawals (and any withdrawal charges
paid on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent seven year anniversary before
the date of death, plus any subsequent purchase payments, less any
withdrawals (and any withdrawal charges paid on the withdrawals.)
After you, or your joint owner, reaches age 80, the death benefit will be the
greater of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent seven year anniversary on or
before you or your joint owner reaches age 80, plus any subsequent purchase
payments, less any withdrawals (and any withdrawal charges paid on the
withdrawals).
The entire death benefit must be paid within 5 years of the date of death unless
the beneficiary elects to have the death benefit payable under an annuity
option. The death benefit payable under an annuity option must be paid over the
beneficiary's lifetime or for a period not extending beyond the beneficiary's
life expectancy. Payment must begin within one year of the date of death. If the
beneficiary is the spouse of the owner, he/she can continue the contract in
his/her own name at the then current value. If a lump sum payment is elected and
all the necessary requirements are met, the payment will be made within 7 days.
Payment under an annuity option may only be elected during the 60 day period
beginning with the date First Cova receives proof of death. If First Cova does
not receive an election during such time, it will make a single sum payment to
the beneficiary at the end of the 60 day period.
Death of Annuitant
If the annuitant, not an owner or joint owner, dies before annuity payments
begin, you can name a new annuitant. If no annuitant is named within 30 days of
the death of the annuitant, you will become the annuitant. However, if the owner
is a non-natural person (for example, a corporation), then the death or change
of annuitant will be treated as the death of the owner, and a new annuitant may
not be named.
Upon the death of the annuitant after annuity payments begin, the death benefit,
if any, will be as provided for in the annuity option selected.
OTHER INFORMATION
First Cova Life Insurance Company (First Cova) was organized under the laws of
the State of New York on December 31, 1992. First Cova is a wholly-owned
subsidiary of Cova Financial Services Life Insurance Company, a Missouri
insurance company. On June 1, 1995, a wholly-owned subsidiary of General
American Life Insurance Company purchased First Cova which on that date changed
its name to First Cova Life Insurance Company.
First Cova is licensed to do business only in the state of New York.
YEAR 2000
First Cova has developed and initiated plans to assure that its computer systems
will function properly in the year 2000 and later years. These efforts have
included receiving assurances from outside service providers that their computer
systems will also function properly in this context. Included within these plans
are the computer systems of the advisers and sub-advisers of the various
investment portfolios underlying the Separate Account.
Although an assessment of the total cost of implementing these plans has not
been completed, the total amounts to be expended are not expected to have a
material effect on First Cova's financial position or results of operations.
First Cova believes that it has taken all reasonable steps to address these
potential problems. There can be no guarantee, however, that the steps taken
will be adequate to avoid any adverse impact.
The Separate Account
First Cova has established a separate account, First Cova Variable Annuity
Account One (Separate Account), to hold the assets that underlie the contracts.
The Board of Directors of First Cova adopted a resolution to establish the
Separate Account under New York insurance law on December 31, 1992. We have
registered the Separate Account with the Securities and Exchange Commission as a
unit investment trust under the Investment Company Act of 1940. The Separate
Account is divided into sub-accounts.
The assets of the Separate Account are held in First Cova's name on behalf of
the Separate Account and legally belong to First Cova. However, those assets
that underlie the contracts, are not chargeable with liabilities arising out of
any other business First Cova may conduct. All the income, gains and losses
(realized or unrealized) resulting from these assets are credited to or charged
against the contracts and not against any other contracts First Cova may issue.
Distributor
Cova Life Sales Company (Life Sales), One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644, acts as the distributor of the contracts. Life
Sales is an affiliate of First Cova.
Commissions will be paid to broker-dealers who sell the contracts.
Broker-dealers will be paid commissions of up to 3.5% of purchase payments. In
addition, under certain circumstances, an expense allowance of up to 2.75% of
purchase payments may be payable. The New York Insurance Department has ruled
that asset based compensation is permissible under certain circumstances. First
Cova may, in the future, adopt an asset based compensation program in addition
to, or in lieu of, the present compensation program.
Ownership
Owner. You, as the owner of the contract, have all the interest and
rights under the contract. Prior to the annuity date, the owner is as
designated at the time the contract is issued, unless changed. On and
after the annuity date, the annuitant is the owner (this may be a taxable
event). The beneficiary becomes the owner when a death benefit is payable.
When this occurs, some ownership rights may be limited.
Joint Owner. The contract can be owned by joint owners. Upon the death of
either joint owner, the surviving owner will be the designated beneficiary.
Any other beneficiary designation at the time the contract was issued or as
may have been later changed will be treated as a contingent beneficiary
unless otherwise indicated.
Beneficiary
The beneficiary is the person(s) or entity you name to receive any
death benefit. The beneficiary is named at the time the contract is issued
unless changed at a later date. Unless an irrevocable beneficiary has been
named, you can change the beneficiary at any time before you die.
Assignment
You can assign the contract at any time during your lifetime. First Cova will
not be bound by the assignment until it receives the written notice of the
assignment. First Cova will not be liable for any payment or other action we
take in accordance with the contract before we receive notice of the assignment.
AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the contract is issued pursuant to a qualified plan, there may be
limitations on your ability to assign the contract.
Financial Statements
The financial statements of First Cova and the Separate Account have been
included in the Statement of Additional Information.
Table of Contents of the Statement of Additional Information
Company
Experts
Legal Opinions
Distribution
Calculation of Performance Information
Federal Tax Status
Annuity Provisions
Financial Statements
<TABLE>
<CAPTION>
APPENDIX A
Condensed Financial Information
Accumulation Unit Value History
The following schedule includes accumulation unit values for the period
indicated. This data has been extracted from the Separate Account's Financial
Statements. This information should be read in conjunction with the Separate
Account's Financial Statements and related notes which are included in the
Statement of Additional Information.
Period Period
Ended 12/31/98 Ended 12/31/97
- -----------------------------------------------------------------------------------------------
Cova Series Trust
Managed by J.P. Morgan
Investment Management Inc.
Select Equity Sub-Account
<S> <C>
Beginning of Period $14.05 $11.76
End of Period 16.99 14.05
Number of Accum. Units Outstanding 5,207 1,321
Small Cap Stock Sub-Account
Beginning of Period $13.49 $10.92
End of Period 12.58 13.49
Number of Accum. Units Outstanding 2,679 530
International Equity Sub-Account
Beginning of Period $11.46 $11.14
End of Period 12.89 11.46
Number of Accum. Units Outstanding 6,954 3,836
Quality Bond Sub-Account
Beginning of Period $11.16 $10.45
End of Period 11.91 11.16
Number of Accum. Units Outstanding 5,759 2,068
Large Cap Stock Sub-Account
Beginning of Period $14.89 $12.40
End of Period 19.43 14.89
Number of Accum. Units Outstanding 6,695 2,807
- -------------------------------------------------------------------------------------------------------------------
Managed by Lord, Abbett & Co.
Bond Debenture Sub-Account
Beginning of Period $12.88 $11.74
End of Period 13.50 12.88
Number of Accum. Units Outstanding 11,913 8,928
- -------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Sub-Account
Beginning of Period $11.05 N/A
End of Period 10.44
Number of Accum. Units Outstanding 1,487
- -------------------------------------------------------------------------------------------------------------------
Large Cap Research Sub-Account
Beginning of Period $10.95 N/A
End of Period 11.83
Number of Accum. Units Outstanding 2,713
- -------------------------------------------------------------------------------------------------------------------
Developing Growth Sub-Account
Beginning of Period $10.19 N/A
End of Period 11.07
Number of Accum. Units Outstanding 167
- -------------------------------------------------------------------------------------------------------------------
General American Capital Company
Money Market Sub-Account
Beginning of Period $11.11 N/A
End of Period 11.11
Number of Accum. Units Outstanding 2,161
<FN>
* The accumulation unit values shown above for the beginning of the period
reflect the date these accumulation units first invested in the Cova Series
Trust investment portfolios as follows: Select Equity (3/11/97), Small Cap
Stock (3/17/97), International Equity (3/11/97), Quality Bond (5/15/97),
Large Cap Stock (3/11/97), Bond Debenture (5/15/97), Mid-Cap Value (3/4/98),
Large Cap Research (3/3/98), and Developing Growth (11/23/98). The General
American Capital Company Money Market Sub-Account commenced investment
operations on December 28, 1998.
</FN>
</TABLE>
<TABLE>
<CAPTION>
APPENDIX B
PERFORMANCE INFORMATION
FUTURE PERFORMANCE WILL VARY AND THE RESULTS SHOWN ARE NOT NECESSARILY
REPRESENTATIVE OF FUTURE RESULTS.
Note: The figures below present investment performance information for the
periods ended December 31, 1998. While these numbers represent the returns
as of that date, they do not represent performance information of the
portfolios since that date. Performance information for the periods after
December 31, 1998 may be different than the numbers shown below.
PART 1 - SEPARATE ACCOUNT PERFORMANCE
J.P. Morgan Investment Management Inc. is the sub-adviser for the following
portfolios of Cova Series Trust: Select Equity, Small Cap Stock, International
Equity, Quality Bond and Large Cap Stock. Lord, Abbett & Co. is the sub-adviser
for the following Portfolios of Cova Series Trust: Bond Debenture, Mid-Cap
Value, Large Cap Research and Developing Growth. All of these portfolios
began operations before December 31, 1998. As a result, performance information
is available for the accumulation unit values investing in these portfolios.
* Column A presents performance figures for the accumulation units which
reflect the insurance charges, the contract maintenance charge, the fees and
expenses of the investment portfolio, and assumes that you make a withdrawal
at the end of the period and therefore the withdrawal charge is reflected.
* Column B presents performance figures for the accumulation units which
reflect the insurance charges as well as the fees and expenses of the
investment portfolio.
The inception dates shown below reflect the dates the Separate Account
first invested in the Portfolio.
Part 1 Cova Series Trust
Average Annual Total Return for the period ended 12/31/98:
- -------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects all charges (reflects insurance
and portfolio charges and
expenses) portfolio expenses)
Separate Account
Inception Date since since
Portfolio in Portfolio 1 yr inception 1 yr inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Select Equity 3/11/97 13.75% 19.09% 20.88% 22.55%
Small Cap Stock 3/17/97 (13.83)% 4.37% (6.74)% 8.22%
International Equity 3/11/97 5.35% 4.58% 12.46% 8.38%
Quality Bond 5/15/97 (0.30)% 4.13% 6.81% 8.40%
Large Cap Stock 3/11/97 23.36% 24.87% 30.49% 28.21%
Bond Debenture 5/15/97 (2.33)% 4.68% 4.77% 8.94%
Mid-Cap Value 3/04/98 (12.63)% (5.54)%
Large Cap Research 3/03/98 0.90% 8.01%
Developing Growth 11/23/98 1.46% 8.57%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PART 1 General American Capital Company Money Market Fund
Average Annual Total Return for the period ended 12/31/98:
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects all charges (reflects insurance
and portfolio charges and
expenses) portfolio expenses)
- ------------------------------------------------------------------------------------------------------------------------------------
Separate Account
Inception Date 1 yr since 1 yr since
Portfolio in Portfolio inception inception
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 12/28/98 (7.07)% 0.04%
</TABLE>
<TABLE>
<CAPTION>
PART 2 - HISTORICAL FUND PERFORMANCE
Shares of the General American Capital Company Money Market Fund were offered
under the contract on May 1, 1997. Shares of the Select Equity, Small Cap
Stock, International Equity, Quality Bond, Large Cap Stock and Bond Debenture
Portfolios of Cova Series Trust were offered under the contracts on February 3,
1997 and shares of the Mid-Cap Value, Large Cap Research and Developing Growth
Portfolios of Cova Series Trust were offered under the contracts on November 15,
1997. However, the Portfolios have been in existence for a longer time and
therefore have an investment performance history. In order to show how the
historical performance of the Portfolios affect accumulation unit values,
we have developed performance information.
The chart below shows the investment performance of the Portfolios and the
accumulation unit performance calculated by assuming that accumulation units
were invested in the Portfolios for the same periods.
* The performance figures in Column A reflect the fees and expenses paid by
the Portfolio.
* Column B presents performance figures for the accumulation units which
reflect the insurance charges, the contract maintenance charge, the fees and
expenses of the investment portfolio, and assumes that you make a withdrawal
at the end of the period and therefore the withdrawal charge is reflected.
* Column C presents performance figures for the accumulation units which
reflect the insurance charges as well as the fees and expenses of the
Portfolio.
Part 2 Cova Series Trust
Average Annual Total Return for the period ended 12/31/98:
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column B Column C
(reflects all charges (reflects insurance
Fund Performance and portfolio charges and
Column A expenses) portfolio expenses)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio
Inception since since since
Portfolio Date 1 yr inception 1 yr inception 1 yr inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Select Equity 5/1/96 22.56% 23.30% 13.75% 15.50% 20.88% 21.90%
Small Cap Stock 5/1/96 (5.40)% 8.47% (13.83)% 0.67% (6.74)% 7.07%
International Equity 5/1/96 14.07% 10.66% 5.35% 2.86% 12.46% 9.26%
Quality Bond 5/1/96 8.37% 8.68% (0.30)% 0.88% 6.81% 7.28%
Large Cap Stock 5/1/96 32.31% 30.02% 23.36% 22.22% 30.49% 28.62%
Bond Debenture 5/1/96 6.26% 13.03% (2.33)% 5.23% 4.77% 11.63%
Mid-Cap Value 8/20/97 1.11% 4.40% (6.69)% (3.40)% (0.29)% 3.00%
Large Cap Research 8/20/97 21.04% 14.37% 13.24% 6.57% 19.64% 12.97%
Developing Growth 8/20/97 6.60% 8.99% (1.20)% 1.19% 5.20% 7.59%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Part 2 General American Capital Company Money Market Fund
Average Annual Total Return for the period ended 12/31/98:
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column B Column C
(reflects all charges (reflects insurance
Fund Performance and portfolio charges and
Column A expenses) portfolio expenses)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio
Inception
Portfolio Date 1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market 10/1/87 5.62% 5.40% 5.78% (2.18)% 1.20% 4.28% 4.22% 4.00% 4.38%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
- ------------------------
- ------------------------
First Cova Life
Insurance Company
Attn: Variable Products
120 Broadway, 10th Floor
New York, New York 10271
Please send me, at no charge, the Statement of Additional Information dated May
1, 1999, for The Annuity Contract issued by First Cova.
(Please print or type and fill in all information)
- ------------------------------------------------------------------------
Name
- ------------------------------------------------------------------------
Address
- ------------------------------------------------------------------------
City State Zip Code
CNY-1090 (5/99) FIRST COVA VA
[Back Cover]
COVA
First Cova Life Insurance Company
Home Office
120 Broadway, 10th Floor
New York, NY 10271
800-469-4545
Annuity Service Office
P.O. Box 10366
Des Moines, IA 50306
800-343-8496
CNY-1023(5/99) Policy Form Series CNY-672 21-VARI-NY (5/99)
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT
ISSUED BY
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
AND
FIRST COVA LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 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
EXPERTS
LEGAL OPINIONS
DISTRIBUTION
CALCULATION OF PERFORMANCE INFORMATION
Total Return
Historical Unit Values
Reporting Agencies
Performance Information
FEDERAL TAX STATUS
General
Diversification
Multiple Contracts
Contracts Owned by Other than Natural Persons
Tax Treatment of Assignments
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
ANNUITY PROVISIONS
Variable Annuity
Fixed Annuity
Annuity Unit
Net Investment Factor
Mortality and Expense Guarantee
FINANCIAL STATEMENTS
COMPANY
First Cova Life Insurance Company (the "Company") was organized under the laws
of the state of New York on December 31, 1992. The Company is presently
licensed to do business only in the state of New York. The Company is a
wholly-owned subsidiary of Cova Financial Services Life Insurance Company
("Cova Life"), a Missouri insurance company. On December 31, 1992, Cova Life
acquired Wausau Underwriters Life Insurance Company ("Wausau"), a stock life
insurance company organized under the laws of the state of Wisconsin. On April
16, 1993, Wausau was merged into the Company, with the Company as the
surviving corporation.
On June 1, 1995, a wholly-owned subsidiary of General American Life Insurance
Company ("General American") purchased Cova Life from Xerox Financial
Services, Inc. The acquisition of Cova Life included related companies,
including the Company. On June 1, 1995, the Company changed its name to
First Cova Life Insurance Company.
General American is a St. Louis-based mutual company with more than $300
billion of life insurance in force and approximately $24 billion in assets.
It provides life and health insurance, retirement plans, and related financial
services to individuals and groups.
EXPERTS
The statutory statements of admitted assets, liabilities, and capital stock
and surplus of the Company as of December 31, 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.
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 a chart of performance
information.
Future performance of the Portfolios will vary and the results shown
are not necessarily representative of future results. Performance for
periods ending after those shown may vary substantially from the
examples shown. The performance of the Portfolios is calculated for a
specified period of time by assuming an initial Purchase Payment of
$1,000 allocated to the Portfolio. There are performance figures for the
Accumulation Units which reflect the insurance charges as well as the
portfolio expenses. There are also performance figures for the Accumulation
Units which reflect the insurance charges, the contract maintenance charge,
the portfolio expenses, and assume that you make a withdrawal at the end of
the period and therefore the withdrawal charge is reflected. The
percentage increases (decreases) are determined by subtracting the
initial Purchase Payment from the ending value and dividing the remainder
by the beginning value. The performance may also show figures when no
withdrawal is assumed.
FEDERAL TAX STATUS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF
THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE
TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE
FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT
SPECIAL RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS.
MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER
TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. An Owner is
not taxed on increases in the value of a Contract until distribution occurs,
either in the form of a lump sum payment or as annuity payments under the
Annuity Option selected. For a lump sum payment received as a total withdrawal
(total surrender), the recipient is taxed on the portion of the payment that
exceeds the cost basis of the Contract. For Non-Qualified Contracts, this cost
basis is generally the purchase payments, while for Qualified Contracts there
may be no cost basis. The taxable portion of the lump sum payment is taxed at
ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments
based on a fixed annuity option is determined by multiplying the payment by
the ratio that the cost basis of the Contract (adjusted for any period or
refund feature) bears to the expected return under the Contract. The exclusion
amount for payments based on a variable annuity option is determined by
dividing the cost basis of the Contract (adjusted for any period certain or
refund guarantee) by the number of years over which the annuity is expected to
be paid. Payments received after the investment in the Contract has been
recovered (i.e. when the total of the excludable amount equals the
investment in the Contract) are fully taxable. The taxable portion is taxed at
ordinary income tax rates. For certain types of Qualified Plans there may be
no cost basis in the Contract within the meaning of Section 72 of the Code.
Owners, Annuitants and Beneficiaries under the Contracts should seek competent
financial advice about the tax consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury
Department ("Treasury Department"), adequately diversified. Disqualification
of the Contract as an annuity contract would result in the imposition of
federal income tax to the Owner with respect to earnings allocable to the
Contract prior to the receipt of payments under the Contract. The Code
contains a safe harbor provision which provides that annuity contracts such as
the Contract meet the diversification requirements if, as of the end of each
quarter, the underlying assets meet the diversification standards for a
regulated investment company and no more than fifty-five percent (55%) of the
total assets consist of cash, cash items, U.S. Government securities and
securities of other regulated investment companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas.
Reg.1.817-5), which established diversification requirements for the
investment portfolios underlying variable contracts such as the Contract. The
Regulations amplify the diversification requirements for variable contracts
set forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if: (1) no more than 55% of the value of the total
assets of the portfolio is represented by any one investment; (2) no more than
70% of the value of the total assets of the portfolio is represented by any
two investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer."
The Company intends that all investment portfolios underlying the Contracts
will be managed in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be
contained in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available,
would cause the Owner to be considered as the owner of the assets of the
Separate Account resulting in the imposition of federal income tax to the
Owner with respect to earnings allocable to the Contract prior to receipt of
payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owners
being retroactively determined to be the owners of the assets of the Separate
Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from
such combination of contracts. 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 Owner or Annuitant (as applicable)
to the extent such distributions do not exceed the amount allowable as a
deduction under Code Section 213 to the Owner or Annuitant (as applicable) for
amounts paid during the taxable year for medical care; (e) distributions
from an Individual Retirement Annuity for the purchase of medical insurance
(as described in Section 213(d)(1)(D) of the Code) for the Owner or
Annuitant (as applicable) and his or her spouse and dependents if the
Owner or Annuitant (as applicable) has received unemployment compensation for
at least 12 weeks (this exception will no longer apply after the Owner or
Annuitant (as applicable) has been re-employed for at least 60 days); (f)
distributions from an Individual Retirement Annuity made to the Owner or
Annuitant (as applicable) to the extent such distributions do not exceed the
qualified higher education expenses (as defined in Section 72(t)(7) of the
Code) of the Owner or Annuitant (as applicable) for the taxable year; and
(g) distributions from an Individual Retirement Annuity made to the Owner or
Annuitant (as applicable) which are qualified first-time home buyer
distributions (as defined in Section 72(t)(8) of the Code).
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
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.
[NAME] fcova98
[CIK] 0000917952
[CCC] p#pdhjo4
[/MODULE]
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.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
a. Financial Statements
---------------------------------------------------------------
The following financial statements of the Separate Account
are included in Part B hereof:
1. Independent Auditors' Report.
2. Statement of Assets and Liabilities as of December 31, 1998.
3. Statement of Operations for the year ended December 31, 1998.
4. Statement of Changes in Net Assets for the year ended December
31, 1998 and the period from commencement of operations through
December 31, 1997
5. Notes to Financial Statements - December 31, 1998 and 1997.
The following financial statements of the Company are included in
Part B hereof:
1. Independent Auditors' Report.
2. Statutory Statements of Admitted Assets, Liabilities, and
Capital Stock and Surplus as of December 31, 1998 and 1997.
3. Statutory Statements of Operations for the Years ended
December 31, 1998, 1997, and 1996.
4. Statutory Statements of Capital Stock and Surplus for
the Years ended December 31, 1998, 1997, and 1996.
5. Statutory Statements of Cash Flow for the Years ended
December 31, 1998, 1997, and 1996.
6. Notes to Statutory Financial Statements - December 31, 1998,
1997, and 1996.
b. Exhibits
---------------------------------------------------------------
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account.*
2. Not Applicable.
3. Principal Underwriter's Agreement.*
4. Individual Flexible Purchase Payment Deferred Variable Annuity
Contract.***
(i) Rebalancing Transfers Endorsement.**
(ii) Automatic Withdrawals Endorsement.**
(iii)Dollar Cost Averaging Endorsement.**
5. Application for Variable Annuity.**
6.(i) Copy of Articles of Incorporation of the Company.*
(ii) Copy of the Bylaws of the Company.*
7. Not Applicable.
8. Not Applicable.
9. Opinion and Consent of Counsel.
10. Consent of Independent Auditors.
11. Not Applicable.
12. Not Applicable.
13. Calculation of Performance Information.
14. Company Organizational Chart.**
27. Not Applicable
<FN>
* incorporated by reference to Registrant's initial filing on
Form N-4 (File No. 811-8306) as filed on January 21, 1994.
** incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 to Form N-4 (File No. 33-74174) as electronically
filed on May 14, 1996.
*** incorporated by reference to Registrant's Post-Effective Amendment
No. 2 as electronically filed on April 30, 1998.
</FN>
</TABLE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
Richard A. Liddy Chairman of the Board and Director
700 Market Street
St. Louis, MO 63101
Leonard M. Rubenstein Director
700 Market Street
St. Louis, MO 63101
Lorry J. Stensrud President and Director
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
John W. Barber Director
13045 Tesson Ferry Road
St. Louis, MO 63128
Norse N. Blazzard Director
4401 West Tradewinds Avenue
Suite 207
Lauderdale by the Sea, FL 33308
Frances S. Cook Secretary
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Constance A. Doern Vice President
1776 West Lakes Parkway
West Des Moines, IA 50266
Francis A. Goodhue III Director
Morgan Guaranty
9 West 57th Street
New York, NY 10019
Patricia E. Gubbe Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Philip A. Haley Executive Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Richard A. Hemmings Director
Lord, Bissell & Brook
115 S. LaSalle Street
Chicago, IL 60603
J. Robert Hopson Vice President,
One Tower Lane, Suite 3000 Chief Actuary and Director
Oakbrook Terrace, IL 60181-4644
E. Thomas Hughes, Jr. Treasurer
700 Market St.
St. Louis, MO 63101
James W. Koeger Assistant Treasurer
700 Market Street
St. Louis, MO 63101
Lisa O. Kirchner Vice President
1776 West Lakes Parkway
West Des Moines, IA 50266
Sum Leong Vice President, Chief
120 Broadway Administrative Officer
New York, NY 10271 and Assistant Secretary
William C. Mair Vice President and Director
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Matthew P. McCauley Assistant Secretary and Director
700 Market St.
St. Louis, MO 63101
Thomas A. Price Director
Bank of New York
1 Wall Street
New York, NY 10286
Mark E. Reynolds Executive Vice President, Chief Financial
One Tower Lane, Suite 3000 Officer and Director
Oakbrook Terrace, IL 60181-4644
Br. Thomas J. Scanlan, F.S.C. Director
Manhattan College
Riverdale, NY 10471
Bernard J. Spaulding Senior Vice President and General Counsel
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Patricia M. Wersching Assistant Treasurer
700 Market Street
St. Louis, MO 63101
Peter L. Witkewiz Vice President and Controller
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
A company organizational chart was filed as Exhibit 14 in Registrant's
Pre-Effective Amendment No. 1 and is incorporated herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 22, 1999, there were 33 Non-Qualified Contract Owners and 6
Qualified Contract Owners.
ITEM 28. INDEMNIFICATION
The Bylaws of the Company (Article II, Section 13) provide that:
Each person who is or was a director, officer or employee of the Corporation or
is or was serving at the request of the Corporation as a director, officer or
employee of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise (including the heirs, executors, administrators
or estate of such person) shall be indemnified by the Corporation as of right to
the full extent that officers and directors are permitted to be indemnified by
the laws of the State of New York, as now in effect and as hereafter amended,
against any liability, judgment, fine, amount paid in settlement, cost or
expense including attorneys' fees) asserted or threatened against or incurred by
such person in his capacity as or arising out of his status as a director,
officer or employee of the Corporation or if serving at the request of the
Corporation, as a director, officer or employee of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
The indemnification provided by this By-Law provision shall not be exclusive of
any other rights to which those indemnified may be entitled under any other
By-Law or under any agreement, resolution of shareholders or directors or
otherwise, which forms of indemnification are hereby expressly authorized, and
shall not limit in any way any right which the Corporation may have to make
different or further indemnification with respect to the same or different
persons or classes of persons. Notwithstanding the foregoing, a director shall
not be entitled to indemnification for liability to the Corporation or any of
its shareholders under the By-Laws or under any agreement or resolution of
shareholders or directors, if such liability is of the type described in
subsections (i) or (ii) of Section 10 of the Corporation's Certificate of
Incorporation and Charter.
The Corporation shall have the power, in furtherance of the provisions of this
Section 13, to apply for, purchase and maintain insurance of the type and in
such amounts as is or may hereafter be permitted by Section 726 of the Business
Corporation Law.
No payment of indemnification, advancement or allowance under Sections 721 to
726, inclusive, of the Business Corporation Law shall be made unless a notice
has been filed with the Superintendent of Insurance of the State of New York,
not less than thirty days prior to such payment, specifying the payees, the
amounts, the manner in which such payment is authorized and the nature and
status, at the time of such notice, of the litigation or threatened litigation.
If any action with respect to indemnification of directors and officers of the
Corporation shall be taken by resolution of directors, or by agreement or
otherwise, a notice shall be filed with the Superintended of Insurance of the
State of New York not less than thirty days thereafter specifying the action
taken.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Cova Life Sales Company is the principal underwriter for the
following investment companies (other than Registrant):
Cova Variable Annuity Account One
Cova Variable Annuity Account Five
Cova Variable Life Account One
Cova Variable Life Account Five
Cova Variable Annuity Account Four
General American Separate Account Twenty-Eight
General American Separate Account Twenty-Nine
(b) Cova Life Sales Company is the principal underwriter for the
Contracts. The following persons are the officers and directors of Cova Life
Sales Company. The principal business address for each officer and director
of Cova Life Sales Company is One Tower Lane, Suite 3000, Oakbrook Terrace,
Illinois 60181-4644.
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Underwriter
Lorry J. Stensrud Director
Patricia E. Gubbe President, Chief Compliance Officer and Director
William C. Mair Director
Philip A. Haley Vice President
Frances S. Cook Secretary
Shari Ruecker Vice President
Mark E. Reynolds Treasurer
James W. Koeger Assistant Treasurer
Mark A. Kowalczyk Vice President
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
William Flory, whose address is One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644 maintains physical possession of the accounts,
books or documents of the Variable Account required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
sixteen (16) months old for so long as payment under the variable annuity
contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under
this Form promptly upon written or oral request.
d. First Cova Life Insurance Company ("Company") hereby represents that
the fees and charges deducted under the Contracts described in the Prospectus,
in the aggregate, are reasonable in relation to the services rendered, the
expenses to be incurred and the risks assumed by the Company.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities
Act Rule 485(b) for effectiveness of this Registration Statement and has
caused this Registration Statement to be signed on its behalf, in the City
of Oakbrook Terrace, and State of Illinois on this 23rd day of March, 1999.
<TABLE>
<CAPTION>
<S> <C>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
(Registrant)
By: FIRST COVA LIFE INSURANCE COMPANY
By: /S/ LORRY J. STENSRUD
____________________________________
FIRST COVA LIFE INSURANCE COMPANY
Depositor
By: /S/ LORRY J. STENSRUD
____________________________________
</TABLE>
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------- Chairman of the Board and ------
Richard A. Liddy Director Date
/S/ LORRY J. STENSRUD President and Director 3/23/99
- ---------------------- -------
Lorry J. Stensrud Date
- ---------------------- Director ------
Leonard M. Rubenstein Date
/s/ J. Robert Hopson* Director 3/23/99
- ---------------------- -------
J. Robert Hopson Date
/s/ William C. Mair* Controller and Director 3/23/99
- ---------------------- -------
William C. Mair Date
/s/ Matthew P. McCauley* Director 3/23/99
- ------------------------ -------
Matthew P. McCauley Date
Director
- ---------------------- -------
John W. Barber Date
/s/ Norse N. Blazzard* 3/23/99
- ---------------------- Director -------
Norse N. Blazzard Date
/s/ Francis A. Goodhue III* 3/23/99
- --------------------------- Director -------
Francis A. Goodhue III Date
/s/ Richard A. Hemmings* 3/23/99
- ---------------------- Director -------
Richard A. Hemmings Date
/s/ Thomas A. Price* 3/23/99
- ---------------------- Director -------
Thomas A. Price Date
/s/ Thomas J. Scanlan, FSC* 3/23/99
- ---------------------- Director -------
Thomas J. Scanlan, FSC Date
/S/ MARK E. REYNOLDS 3/23/99
- ---------------------- Director -------
Mark E. Reynolds Date
</TABLE>
*By: /S/ LORRY J. STENSRUD
____________________________________
Lorry J. Stensrud, Attorney-in-Fact
INDEX TO EXHIBITS
EXHIBIT NO.
99.B9 Opinion and Consent of Counsel
99.B10 Consent of Independent Auditors
99.B13 Calculation of Performance Information
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM N-4
FOR
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
April 29, 1999
Board of Directors
First Cova Life Insurance Company
120 Broadway
New York, NY 10271
Re: Opinion of Counsel - First Cova Variable Annuity Account One
------------------------------------------------------------
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form N-4 for the Fixed and Variable Annuity
Contracts (the "Contracts") to be issued by First Cova Life Insurance Company
and its separate account, First Cova Variable Annuity Account One.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below.
We are of the following opinions:
1. First Cova Variable Annuity Account One is a Unit Investment Trust as
that term is defined in Section 4(2) of the Investment Company Act of 1940
(the "Act"), and is currently registered with the Securities and Exchange
Commission, pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by an Owner pursuant to a
Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such an Owner
will have a legally-issued, fully paid, non-assessable contractual interest
under such Contract.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/RAYMOND A. O'HARA III
-----------------------------
Raymond A. O'Hara III
Consent of Independent Auditors
The Board of Directors
First Cova Life Insurance Company
We consent to the use of our reports on the statutory financial statements
of First Cova Life Insurance Company (the Company) dated April 23, 1999, and
on the financial statements of the sub-accounts of First Cova Variable
Annuity Account One dated March 1, 1999, and to the reference to our firm
under the heading "Experts" in the Statement of Additional Information, in
the Post-Effective Amendment No. 3 to the Registration Statement (Form N-4,
No. 33-74174) of First Cova Variable Annuity Account One.
/s/KPMG LLP
KPMG LLP
Chicago, Illinois
April 29, 1999
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One
Standard 1 Year Return Data
As of 12/31/98
Date Transaction Amount Unit Units Transaction Units
Value Before Units After
Transaction Transaction
<S> <C> <C> <C> <C> <C> <C>
LA Bond Debenture 12/31/97 purchase 1,000.00 12.882042 77.6274 77.6274
12/31/98 annual fee (1.05) 13.496763 77.6274 (0.0778) 77.5496
12/31/98 surrender fee (70.00) 13.496763 77.5496 (5.1864) 72.3632
JPM Quality Bond 12/31/97 purchase 1,000.00 11.155130 89.6449 89.6449
12/31/98 annual fee (1.07) 11.914486 89.6449 (0.0898) 89.5551
12/31/98 surrender fee (70.00) 11.914486 89.5551 (5.8752) 83.6799
JPM Small Cap Stock 12/31/97 purchase 1,000.00 13.492111 74.1174 74.1174
12/31/98 annual fee (0.93) 12.583415 74.1174 (0.0739) 74.0435
12/31/98 surrender fee (70.00) 12.583415 74.0435 (5.5629) 68.4806
JPM Large Cap Stock 12/31/97 purchase 1,000.00 14.889594 67.1610 67.1610
12/31/98 annual fee (1.30) 19.428714 67.1610 (0.0669) 67.0941
12/31/98 surrender fee (70.00) 19.428714 67.0941 (3.6029) 63.4912
JPM Select Equity 12/31/97 purchase 1,000.00 14.053502 71.1566 71.1566
12/31/98 annual fee (1.21) 16.987197 71.1566 (0.0712) 71.0854
12/31/98 surrender fee (70.00) 16.987197 71.0854 (4.1208) 66.9646
JPM International Equity 12/31/97 purchase 1,000.00 11.462941 87.2376 87.2376
12/31/98 annual fee (1.12) 12.891430 87.2376 (0.0869) 87.1507
12/31/98 surrender fee (70.00) 12.891430 87.1507 (5.4300) 81.7207
</TABLE>
<TABLE>
<CAPTION>
Account Account
Value Value
Before After
Transaction Transaction
<S> <C>
1,000.00
1,047.72 1,046.67
1,046.67 976.67
1,000.00
1,068.07 1,067.00
1,067.00 997.00
1,000.00
932.65 931.72
931.72 861.72
1,000.00
1,304.85 1,303.55
1,303.55 1,233.55
1,000.00
1,208.75 1,207.54
1,207.54 1,137.54
1,000.00
1,124.62 1,123.50
1,123.50 1,053.50
</TABLE>
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One
Standard 1 Year Returns
As of 12/31/98
Total Account 12/31/98 Initial
Return Value AUV Investment
<S> <C> <C> <C> <C>
LA Bond Debenture -2.33% 976.67 13.496763 1,000.00
GACC Money Market 11.109941 1,000.00
LA Developing Growth 11.068002 1,000.00
LA Large Cap Research 11.825475 1,000.00
LA Mid-Cap Value 10.437999 1,000.00
JPM Quality Bond -0.30% 997.00 11.914486 1,000.00
JPM Small Cap Stock -13.83% 861.72 12.583415 1,000.00
JPM Large Cap Stock 23.36% 1,233.55 19.428714 1,000.00
JPM Select Equity 13.75% 1,137.54 16.987197 1,000.00
JPM International Equity 5.35% 1,053.50 12.891430 1,000.00
</TABLE>
<TABLE>
<CAPTION>
Inception Days Since
Date Inception
<S> <C> <C>
5/15/97 595
12/28/98 3
11/23/98 38
3/3/98 303
3/4/98 302
5/15/97 595
3/17/97 654
3/11/97 660
3/11/97 660
3/11/97 660
</TABLE>
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One
Standard Inception to Date Return Data
As of 12/31/98
Date Transaction Amount Unit Units Transaction Units
Value Before Units After
Transaction Transaction
<S> <C> <C> <C> <C> <C> <C>
LA Bond Debenture 5/15/97 purchase 1,000.00 11.739181 85.1848 85.1848
5/15/98 annual fee (1.15) 13.492811 85.1848 (0.0852) 85.0996
12/31/98 annual fee (1.15) 13.496763 85.0996 (0.0852) 85.0144
12/31/98 surrender fee (70.00) 13.496763 85.0144 (5.1864) 79.8280
GACC Money Market 12/28/98 purchase 1,000.00 11.106100 90.0406 90.0406
12/31/98 annual fee (1.00) 11.109941 90.0406 (0.0900) 89.9506
12/31/98 surrender fee (70.00) 11.109941 89.9506 (6.3007) 83.6499
LA Developing Growth 11/23/98 purchase 1,000.00 10.194480 98.0923 98.0923
12/31/98 annual fee (1.09) 11.068002 98.0923 (0.0985) 97.9938
12/31/98 surrender fee (70.00) 11.068002 97.9938 (6.3245) 91.6693
LA Large Cap Research 3/3/98 purchase 1,000.00 10.948763 91.3345 91.3345
12/31/98 annual fee (1.08) 11.825475 91.3345 (0.0913) 91.2432
12/31/98 surrender fee (70.00) 11.825475 91.2432 (5.9194) 85.3238
LA Mid-Cap Value 3/4/98 purchase 1,000.00 11.049791 90.4994 90.4994
12/31/98 annual fee (0.94) 10.437999 90.4994 (0.0901) 90.4093
12/31/98 surrender fee (70.00) 10.437999 90.4093 (6.7063) 83.7030
JPM Quality Bond 5/15/97 purchase 1,000.00 10.446609 95.7248 95.7248
5/15/98 annual fee (1.09) 11.366225 95.7248 (0.0959) 95.6289
12/31/98 annual fee (1.14) 11.914486 95.6289 (0.0957) 95.5332
12/31/98 surrender fee (70.00) 11.914486 95.5332 (5.8752) 89.6580
JPM Small Cap Stock 3/17/97 purchase 1,000.00 10.922871 91.5510 91.5510
3/17/98 annual fee (1.35) 14.721789 91.5510 (0.0917) 91.4593
12/31/98 annual fee (1.15) 12.583415 91.4593 (0.0914) 91.3679
12/31/98 surrender fee (70.00) 12.583415 91.3679 (5.5629) 85.8050
JPM Large Cap Stock 3/11/97 purchase 1,000.00 12.396556 80.6676 80.6676
3/11/98 annual fee (0.89) 11.087639 80.6676 (0.0803) 80.5873
12/31/98 annual fee (1.57) 19.428714 80.5873 (0.0808) 80.5065
12/31/98 surrender fee (70.00) 19.428714 80.5065 (3.6029) 76.9036
JPM Select Equity 3/11/97 purchase 1,000.00 11.761258 85.0249 85.0249
3/11/98 annual fee (1.31) 15.372541 85.0249 (0.0852) 84.9397
12/31/98 annual fee (1.44) 16.987197 84.9397 (0.0848) 84.8549
12/31/98 surrender fee (70.00) 16.987197 84.8549 (4.1208) 80.7341
JPM International Equity 3/11/97 purchase 1,000.00 11.144845 89.7276 89.7276
3/11/98 annual fee (1.12) 12.474291 89.7276 (0.0898) 89.6378
12/31/98 annual fee (1.16) 12.891430 89.6378 (0.0900) 89.5478
12/31/98 surrender fee (70.00) 12.891430 89.5478 (5.4300) 84.1178
</TABLE>
<TABLE>
<CAPTION>
Account Account
Value Value
Before After
Transaction Transaction
<S> <C>
1,000.00
1,149.38 1,148.23
1,148.57 1,147.42
1,147.42 1,077.42
1,000.00
1,000.35 999.35
999.35 929.35
1,000.00
1,085.69 1,084.60
1,084.60 1,014.60
1,000.00
1,080.07 1,078.99
1,078.99 1,008.99
1,000.00
944.63 943.69
943.69 873.69
1,000.00
1,088.03 1,086.94
1,139.37 1,138.23
1,138.23 1,068.23
1,000.00
1,347.79 1,346.44
1,150.87 1,149.72
1,149.72 1,079.72
1,000.00
894.41 893.52
1,565.71 1,564.14
1,564.14 1,494.14
1,000.00
1,307.05 1,305.74
1,442.89 1,441.45
1,441.45 1,371.45
1,000.00
1,119.29 1,118.17
1,155.56 1,154.40
1,154.40 1,084.40
</TABLE>
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One
Standard Inception to Date Returns
As of 12/31/98
Annualized
Total Total Account 12/31/98 Initial
Return Return Value AUV Investment
<S> <C> <C> <C> <C> <C>
LA Bond Debenture 4.68% 7.74% 1,077.42 13.496763 1,000.00
GACC Money Market -7.07% 929.35 11.109941 1,000.00
LA Developing Growth 1.46% 1,014.60 11.068002 1,000.00
LA Large Cap Research 0.90% 1,008.99 11.825475 1,000.00
LA Mid-Cap Value -12.63% 873.69 10.437999 1,000.00
JPM Quality Bond 4.13% 6.82% 1,068.23 11.914486 1,000.00
JPM Small Cap Stock 4.37% 7.97% 1,079.72 12.583415 1,000.00
JPM Large Cap Stock 24.87% 49.41% 1,494.14 19.428714 1,000.00
JPM Select Equity 19.09% 37.15% 1,371.45 16.987197 1,000.00
JPM International Equity 4.58% 8.44% 1,084.40 12.891430 1,000.00
</TABLE>
<TABLE>
<CAPTION>
Inception Days Since
Date Inception
<S> <C> <C>
5/15/97 595
12/28/98 3
11/23/98 38
3/3/98 303
3/4/98 302
5/15/97 595
3/17/97 654
3/11/97 660
3/11/97 660
3/11/97 660
</TABLE>
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One
Non-Standard 1 Year Return Data
As of 12/31/98
Date Transaction Amount Unit Units Transaction Units
Value Before Units After
Transaction Transaction
<S> <C> <C> <C> <C> <C> <C>
LA Bond Debenture 12/31/97 purchase 1,000.00 12.882042 77.6274 77.6274
12/31/98 annual fee 13.496763 77.6274 77.6274
12/31/98 surrender fee 13.496763 77.6274 77.6274
JPM Quality Bond 12/31/97 purchase 1,000.00 11.155130 89.6449 89.6449
12/31/98 annual fee 11.914486 89.6449 89.6449
12/31/98 surrender fee 11.914486 89.6449 89.6449
JPM Small Cap Stock 12/31/97 purchase 1,000.00 13.492111 74.1174 74.1174
12/31/98 annual fee 12.583415 74.1174 74.1174
12/31/98 surrender fee 12.583415 74.1174 74.1174
JPM Large Cap Stock 12/31/97 purchase 1,000.00 14.889594 67.1610 67.1610
12/31/98 annual fee 19.428714 67.1610 67.1610
12/31/98 surrender fee 19.428714 67.1610 67.1610
JPM Select Equity 12/31/97 purchase 1,000.00 14.053502 71.1566 71.1566
12/31/98 annual fee 16.987197 71.1566 71.1566
12/31/98 surrender fee 16.987197 71.1566 71.1566
JPM International Equity 12/31/97 purchase 1,000.00 11.462941 87.2376 87.2376
12/31/98 annual fee 12.891430 87.2376 87.2376
12/31/98 surrender fee 12.891430 87.2376 87.2376
</TABLE>
<TABLE>
<CAPTION>
Account Account
Value Value
Before After
Transaction Transaction
<S> <C>
1,000.00
1,047.72 1,047.72
1,047.72 1,047.72
1,000.00
1,068.07 1,068.07
1,068.07 1,068.07
1,000.00
932.65 932.65
932.65 932.65
1,000.00
1,304.85 1,304.85
1,304.85 1,304.85
1,000.00
1,208.75 1,208.75
1,208.75 1,208.75
1,000.00
1,124.62 1,124.62
1,124.62 1,124.62
</TABLE>
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One
Non-Standard 1 Year Returns
As of 12/31/98
Total Account 12/31/98 Initial
Return Value AUV Investment
<S> <C> <C> <C> <C>
LA Bond Debenture 4.77% 1,047.72 13.496763 1,000.00
GACC Money Market 11.109941 1,000.00
LA Developing Growth 11.068002 1,000.00
LA Large Cap Research 11.825475 1,000.00
LA Mid-Cap Value 10.437999 1,000.00
JPM Quality Bond 6.81% 1,068.07 11.914486 1,000.00
JPM Small Cap Stock -6.74% 932.65 12.583415 1,000.00
JPM Large Cap Stock 30.49% 1,304.85 19.428714 1,000.00
JPM Select Equity 20.88% 1,208.75 16.987197 1,000.00
JPM International Equity 12.46% 1,124.62 12.891430 1,000.00
</TABLE>
<TABLE>
<CAPTION>
Inception Days Since
Date Inception
<S> <C> <C>
5/15/97 595
12/28/98 3
11/23/98 38
3/3/98 303
3/4/98 302
5/15/97 595
3/17/97 654
3/11/97 660
3/11/97 660
3/11/97 660
</TABLE>
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One
Non-Standard Inception to Date Return Data
As of 12/31/98
Date Transaction Amount Unit Units Transaction Units
Value Before Units After
Transaction Transaction
<S> <C> <C> <C> <C> <C> <C>
LA Bond Debenture 5/15/97 purchase 1,000.00 11.739181 85.1848 85.1848
5/15/98 annual fee 13.492811 85.1848 85.1848
12/31/98 annual fee 13.496763 85.1848 85.1848
12/31/98 surrender fee 13.496763 85.1848 85.1848
GACC Money Market 12/28/98 purchase 1,000.00 11.106100 90.0406 90.0406
12/31/98 annual fee 11.109941 90.0406 90.0406
12/31/98 surrender fee 11.109941 90.0406 90.0406
LA Developing Growth 11/23/98 purchase 1,000.00 10.194480 98.0923 98.0923
12/31/98 annual fee 11.068002 98.0923 98.0923
12/31/98 surrender fee 11.068002 98.0923 98.0923
LA Large Cap Research 3/3/98 purchase 1,000.00 10.948763 91.3345 91.3345
12/31/98 annual fee 11.825475 91.3345 91.3345
12/31/98 surrender fee 11.825475 91.3345 91.3345
LA Mid-Cap Value 3/4/98 purchase 1,000.00 11.049791 90.4994 90.4994
12/31/98 annual fee 10.437999 90.4994 90.4994
12/31/98 surrender fee 10.437999 90.4994 90.4994
JPM Quality Bond 5/15/97 purchase 1,000.00 10.446609 95.7248 95.7248
5/15/98 annual fee 11.366225 95.7248 95.7248
12/31/98 annual fee 11.914486 95.7248 95.7248
12/31/98 surrender fee 11.914486 95.7248 95.7248
JPM Small Cap Stock 3/17/97 purchase 1,000.00 10.922871 91.5510 91.5510
3/17/98 annual fee 14.721789 91.5510 91.5510
12/31/98 annual fee 12.583415 91.5510 91.5510
12/31/98 surrender fee 12.583415 91.5510 91.5510
JPM Large Cap Stock 3/11/97 purchase 1,000.00 12.396556 80.6676 80.6676
3/11/98 annual fee 11.087639 80.6676 80.6676
12/31/98 annual fee 19.428714 80.6676 80.6676
12/31/98 surrender fee 19.428714 80.6676 80.6676
JPM Select Equity 3/11/97 purchase 1,000.00 11.761258 85.0249 85.0249
3/11/98 annual fee 15.372541 85.0249 85.0249
12/31/98 annual fee 16.987197 85.0249 85.0249
12/31/98 surrender fee 16.987197 85.0249 85.0249
JPM International Equity 3/11/97 purchase 1,000.00 11.144845 89.7276 89.7276
3/11/98 annual fee 12.474291 89.7276 89.7276
12/31/98 annual fee 12.891430 89.7276 89.7276
12/31/98 surrender fee 12.891430 89.7276 89.7276
</TABLE>
<TABLE>
<CAPTION>
Account Account
Value Value
Before After
Transaction Transaction
<S> <C>
1,000.00
1,149.38 1,149.38
1,149.72 1,149.72
1,149.72 1,149.72
1,000.00
1,000.35 1,000.35
1,000.35 1,000.35
1,000.00
1,085.69 1,085.69
1,085.69 1,085.69
1,000.00
1,080.07 1,080.07
1,080.07 1,080.07
1,000.00
944.63 944.63
944.63 944.63
1,000.00
1,088.03 1,088.03
1,140.51 1,140.51
1,140.51 1,140.51
1,000.00
1,347.79 1,347.79
1,152.02 1,152.02
1,152.02 1,152.02
1,000.00
894.41 894.41
1,567.27 1,567.27
1,567.27 1,567.27
1,000.00
1,307.05 1,307.05
1,444.33 1,444.33
1,444.33 1,444.33
1,000.00
1,119.29 1,119.29
1,156.72 1,156.72
1,156.72 1,156.72
</TABLE>
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One
Non-Standard Inception to Date Returns
As of 12/31/98
Annualized
Total Total Account 12/31/98 Initial
Return Return Value AUV Investment
<S> <C> <C> <C> <C> <C>
LA Bond Debenture 8.94% 14.97% 1,149.72 13.496763 1,000.00
GACC Money Market 0.04% 1,000.35 11.109941 1,000.00
LA Developing Growth 8.57% 1,085.69 11.068002 1,000.00
LA Large Cap Research 8.01% 1,080.07 11.825475 1,000.00
LA Mid-Cap Value -5.54% 944.63 10.437999 1,000.00
JPM Quality Bond 8.40% 14.05% 1,140.51 11.914486 1,000.00
JPM Small Cap Stock 8.22% 15.20% 1,152.02 12.583415 1,000.00
JPM Large Cap Stock 28.21% 56.73% 1,567.27 19.428714 1,000.00
JPM Select Equity 22.55% 44.43% 1,444.33 16.987197 1,000.00
8.38% 15.67% 1,156.72 12.891430 1,000.00
</TABLE>
<TABLE>
<CAPTION>
Inception Days Since
Date Inception
<S> <C> <C>
5/15/97 595
12/28/98 3
11/23/98 38
3/3/98 303
3/4/98 302
5/15/97 595
3/17/97 654
3/11/97 660
3/11/97 660
3/11/97 660
</TABLE>
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One
Pro Forma 1 Year Returns
As of 12/31/98
Less: 1 Year Less:
Portfolio Sub-Account 1 Year M & E / Non- Annual
Incept Incept Portfolio Admin Standard Contract
Date Date Return Fees Return Fee
-------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LA Developing Growth 8/20/97 11/23/98 6.60% 1.40% 5.20% 0.10%
LA Large Cap Research 8/20/97 3/3/98 21.04% 1.40% 19.64% 0.10%
LA Mid-Cap Value 8/20/97 3/4/98 1.11% 1.40% -0.29% 0.10%
GACC Money Market 10/1/87 12/28/98 5.62% 1.40% 4.22% 0.10%
</TABLE>
<TABLE>
<CAPTION>
Less: 1 Year
Withdrawal Standard
Fee Return
- ------------------------
<S> <C>
6.30% -1.20%
6.30% 13.24%
6.30% -6.69%
6.30% -2.18%
</TABLE>
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One
Pro Forma 1 Year Returns
As of 12/31/98
Incept
Incept Less: Annualized Less:
Portfolio Sub-Account Annualized M & E / Non- Annual
Incept Incept Portfolio Admin Standard Contract
Date Date Return Fees Return Fee
-------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GACC Money Market 10/1/87 12/28/98 5.40% 1.40% 4.00% 0.10%
</TABLE>
<TABLE>
<CAPTION>
Incept
Less: Annualized
Withdrawal Standard
Fee Return
- ------------------------
<S> <C>
2.70% 1.20%
</TABLE>
<TABLE>
<CAPTION>
First Cova Variable Annuity Account One
Pro Forma Inception to Date Returns
As of 12/31/98
Incept
Incept Less: Annualized Less:
Portfolio Sub-Account Annualized M & E / Non- Annual
Incept Incept Portfolio Admin Standard Contract
Date Date Return Fees Return Fee
-------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LA Bond Debenture 5/1/96 5/15/97 13.03% 1.40% 11.63% 0.10%
LA Developing Growth 8/20/97 11/23/98 8.99% 1.40% 7.59% 0.10%
LA Large Cap Research 8/20/97 3/3/98 14.37% 1.40% 12.97% 0.10%
LA Mid-Cap Value 8/20/97 3/4/98 4.40% 1.40% 3.00% 0.10%
JPM Quality Bond 5/1/96 5/15/97 8.68% 1.40% 7.28% 0.10%
JPM Small Cap Stock 5/1/96 3/17/97 8.47% 1.40% 7.07% 0.10%
JPM Large Cap Stock 5/1/96 3/11/97 30.02% 1.40% 28.62% 0.10%
JPM Select Equity 5/1/96 3/11/97 23.30% 1.40% 21.90% 0.10%
JPM International Equity 5/1/96 3/11/97 10.66% 1.40% 9.26% 0.10%
GACC Money Market 10/1/87 12/28/98 5.78% 1.40% 4.38% 0.10%
</TABLE>
<TABLE>
<CAPTION>
Incept
Less: Annualized
Withdrawal Standard
Fee Return
- ------------------------
<S> <C>
6.30% 5.23%
6.30% 1.19%
6.30% 6.57%
6.30% -3.40%
6.30% 0.88%
6.30% 0.67%
6.30% 22.22%
6.30% 15.50%
6.30% 2.86%
4.28%
</TABLE>
