Court Opinion

ID: 4332478
Source: CourtListenerOpinion
Date Created: 2018-11-14 00:43:03.92261+00
Date Added: 2024-06-11T14:20:12.329592
License: Public Domain

113 T.C. No. 21

                UNITED STATES TAX COURT

WINN-DIXIE STORES, INC. AND SUBSIDIARIES, Petitioner v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5382-97.              Filed October 19, 1999.

     P entered into a leveraged corporate-owned life
insurance (COLI) program in which it purchased life
insurance on approximately 36,000 of its employees and
systematically borrowed against the cash value of the
policies to fund the premiums. The COLI program was
designed so that annual premiums, fees, and policy loan
interest would exceed the projected annual death
benefits and net cash value of the policies. The
program was designed to generate large amounts of
interest on petitioner's policy loans that petitioner
intended to deduct for income tax purposes. The income
tax savings from the deductions for interest and fees
were projected to be substantially in excess of the
projected net costs of maintaining the COLI program.
In each year of operation, the COLI program projected a
pretax loss and an after-tax gain.
     Held: P's broad-based leveraged COLI program
lacked economic substance and business purpose (other
than tax reduction) and is therefore a sham for tax
purposes. As a result, interest on P's COLI policy
                                - 2 -

     loans is not deductible interest on indebtedness within
     the meaning of sec. 163, I.R.C. The administrative
     fees associated with the COLI program are not
     deductible because they were incurred in furtherance of
     a sham.

     Michael J. Henke, Tegan M. Flynn, Cary D. Pugh, Thomas

Crichton IV, Robert H. Cox, and Thomas P. Marinis, Jr., for

petitioner.

     Nancy B. Herbert, Jeffrey L. Bassin, James D. Hill, and

Michelle A. Missry, for respondent.

     RUWE, Judge:    Respondent determined a deficiency of

$1,599,176 in petitioner's Federal income tax for its tax year

ending June 30, 1993.   After concessions, the issue is whether

deductions petitioner claimed for policy loan interest and

administrative fees associated with certain of petitioner's

corporate-owned life insurance (COLI) policies are deductible.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulations of facts are incorporated herein by this

reference.    At the time the petition was filed, petitioner was a
                               - 3 -

Florida corporation with its principal office in Jacksonville,

Florida.

     Petitioner was founded in the 1920's, and its stock is

publicly traded on the New York Stock Exchange.    Petitioner is a

major food retailer made up of self-service food stores which

sell groceries, meats, seafood, fresh produce, deli/bakery,

pharmaceuticals, and general merchandise items.    As of June 30,

1993, petitioner had 1,165 stores in 14 States and the Bahama

Islands.

     Petitioner is an accrual basis taxpayer, which has adopted a

52-53 week fiscal year ending on the last Wednesday in June.

Petitioner filed a consolidated corporate Federal income tax

return for its fiscal year ending June 30, 1993.

     As of June 30, 1993, petitioner employed approximately

36,000 full-time and 69,000 part-time employees.   Since 1988, all

full-time employees who completed 3 months of continuous service

have been eligible for a flexible benefits program called "Winn-

Flex".   Under Winn-Flex, employees were furnished certain

benefits that they received automatically and certain optional

benefits among which they could choose.   Employees automatically

received life insurance and accident and sickness coverage.    The

optional benefits included a medical plan, dental coverage,

vision coverage, supplemental associate life insurance, long-term

disability and two flexible spending accounts for health care and
                               - 4 -

dependent care.   Petitioner self-insured the medical and life

insurance benefits under Winn-Flex while the remaining benefits

were insured through third parties.

     The life insurance coverage provided by the company under

the core Winn-Flex benefit program was in effect only while a

worker was a full-time employee.   Petitioner provided no

postretirement benefits to its employees under Winn-Flex.     Early

retirees covered by the Winn-Flex plan had the option of

continued coverage under a separate insurance pool not paid for

by petitioner.

     Since 1980, petitioner has also maintained a program to

provide death, disability, and retirement benefits to a limited

number of full-time management level employees.    This program was

known as the "Management Security Program" (MSP).    During the

fiscal year ending in 1993, 615 of petitioner's employees were

covered under the MSP.   In order to provide funds for specific

benefits for each manager, petitioner purchased flexible premium

adjustable life insurance policies on each manager (MSP policies)

from American Heritage Life Insurance Co. (AHL).    The MSP

policies are individual policies and not group contracts.     The

death benefits under the individual MSP policies were tailored to

cover petitioner's costs for preretirement deaths of the covered

individual and to cover costs of postretirement benefits.
                                - 5 -

Petitioner's practice of purchasing MSP policies on the lives of

its managers began long before 1993.

     During 1992 and early 1993, Wiedemann & Johnson (WJ) and The

Coventry Group (Coventry) formed a joint venture (WJ/Coventry)

and approached petitioner with a proposal for the purchase by

petitioner of individual excess interest life insurance policies

on the lives of petitioner's employees.   AIG Life Insurance

Company (AIG) was to be the underwriter for the proposed

policies.    In a letter dated January 12, 1993, Mr. Alan Buerger,

chairman of Coventry, confirmed a meeting on January 14, 1993,

with Mr. Richard D. McCook, petitioner's financial vice

president.    Included with the letter was a memorandum from Mr.

Buerger and Mr. Bruce Hlavacek, chairman and chief executive

officer of WJ, proposing that petitioner purchase a "broad-based

COLI pool".

     The memorandum provided an overview section which generally

described a broad-based COLI pool as consisting of a group of

corporate-owned life insurance (COLI) policies covering a wide

cross-section of a corporation's employees.    Petitioner was the

proposed beneficiary of the COLI policies to be written on the

lives of petitioner's employees.    WJ/Coventry's proposal focused

on two issues raised by petitioner in a prior meeting.    These two

issues were described as "(i) achieving positive earnings in
                              - 6 -

every year; and (ii) providing an exit if the tax laws change or

Winn-Dixie's appetite for interest deductions declines."

     The memorandum summarized the tax aspects of leveraged COLI

with the following captioned diagram:

          Insurance
           Carrier                          IRS
               (1)                            (3)

                                (2)

                          Winn-Dixie

     1 - Winn-Dixie makes deposits and pays loan interest
         to insurance carrier.
     2 - Winn-Dixie receives withdrawals, loans and death
         proceeds from the insurance carrier.
     3 - Winn-Dixie receives a tax deduction for loan interest
         paid.

     The memorandum next explained the difference between the

proposed broad-based COLI pool and petitioner's then existing

leveraged COLI program being used to fund the MSP.   The

memorandum stated:

     Winn-Dixie is familiar with leveraged COLI and
     particularly with the tax arbitrage created when
     deductible policy loan interest is paid to finance non-
     taxable policy gains. Winn-Dixie's existing leveraged
     COLI policies provide this arbitrage and, having been
     purchased before passage of the 1986 Tax Reform Act,
     provide it beyond the $50,000 cap applicable to newer
     policies.
                              - 7 -

     A broad-based COLI Pool applies the same principle in
     ways that are effective under current law. But, where
     each of the existing policies was designed to fund a
     specific executive's benefit under the MSP, the Pool
     that we have illustrated would cover 38,000 employees
     at all levels of Winn-Dixie's workforce.

With respect to obtaining the employees' consent to purchase the

COLI policies on their lives, the memorandum stated:

     We usually recommend that a company adopt or expand
     employee death benefits when installing a COLI Pool.
     This provides an immediate and meaningful benefit for
     employees, and it helps to provide a logic and
     incentive for obtaining employees' consent to being
     insured. The benefit may depend on the size of the
     pool and the amount of the insurance purchased on each
     employee. A death benefit in the range of $5,000 to
     $15,000 is typical for the Pools presented here. After
     an employee leaves the company, the benefit is normally
     reduced or discontinued. With normal rates of
     retirement and attrition, only a small proportion of
     the participants will receive a benefit. As a result,
     the cost of providing the benefit is insignificant.

     The memorandum also expressed an opinion on the tax issues

raised by the proposed COLI pool, the legislative status of

leveraged COLI, and exit strategies available to petitioner in

the event that the tax laws change:

     What tax issues are raised by the COLI Pool?

     Deductibility of Interest. Because the COLI Pool
     involves systematic borrowing of increases in the
     policies' cash value, a deduction for interest to carry
     policy loans is allowed only if at least four of the
     first seven annual premiums are paid in cash. In
     addition, a deduction is allowed for interest on only
     the first $50,000 debt to carry policies on any one
     employee. The COLI Pool proposed here is designed to
     satisfy the 4-out-of-7 rule, and the financial
     illustrations take into account the $50,000 cap on
     loans for which interest deductions are allowed.
                           - 8 -

     *     *     *     *      *     *    *

What is the legislative status of leveraged COLI?

In the past few years, Rep. Barbara Kennelly (D-Conn.)
and Senator David Pryor (D-Ark.) have introduced bills
that would impose new restrictions on the deductibility
of interest paid on loans from COLI policies. No bill
is now pending, but it is possible that one will be
introduced in the future. Kennelly/Pryor, as the last
such bill was generally known, was written with the
participation and support of the National Association
of Life Underwriters, and, if a similar bill does
become law, we do not believe the financial advantages
of Winn-Dixie's COLI Pool would be seriously
compromised.

History suggests that specific changes in the law that
would address leveraged COLI would also allow
grandfathering of existing policies. Past changes, for
example, imposition of the $50,000 loan cap, have
grandfathered existing policies, and the large number
of major corporations that have created COLI pools is a
significant political constituency. Of course,
grandfathering cannot be assumed, and we have,
therefore, kept the consequences of exit very much in
mind in developing strategies for Winn-Dixie.

What exit strategies are available if the tax laws or
Winn-Dixie's tax position changes?

A COLI Pool can become a financial burden if the tax
arbitrage in the program loses its attractiveness.
This can occur, for example, if Winn-Dixie's marginal
tax rate on interest deductions becomes low and remains
low, if Winn-Dixie becomes an alternative minimum
taxpayer, or if the intended premium payment strategy
becomes invalid through regulation. Likewise, Winn-
Dixie's appetite for interest expense may be satisfied
for reasons unrelated to deductibility.

          *     *     *      *     *    *     *

If it becomes necessary or useful to terminate the COLI
Pool, or to discontinue further borrowing, Winn-Dixie
will be able to do so without significant adverse
effect. The policies can be put on a "paid-up" basis,
                               - 9 -

     either with the original carrier or with another
     carrier via a "1035" exchange, without incurring a tax
     liability, a negative effect on earnings, or a
     significant cash payment.

     The memorandum outlined two proposed financial strategies

for structuring the purchase by petitioner of the pool of COLI

policies.   The first strategy was labeled "cash management".   The

second strategy was labeled the "zero-cash strategy" and was

described as follows:

     Under Strategy 2, Winn-Dixie would maximize its tax
     arbitrage by borrowing the first three premiums and
     would minimize its cash investment by withdrawing
     accumulated policy values to pay the next four
     premiums. The policies used in this zero cash strategy
     are specially designed to minimize cash outflows and to
     maximize the rate of return on investment. Thus, loads
     are minimal, the interest rate is high, and the loan
     spread is limited to 40 basis points. Because little
     cash is required, a higher premium can be used. We
     have illustrated an average premium of $3,000 per
     employee.

Petitioner elected strategy 2, the zero-cash strategy.

     On January 25 and 27, 1993, Mr. Buerger sent revised copies1

of the 1993 COLI proposal materials to Mr. McCook and Mr.

Hlavacek.   The revised 1993 COLI proposals outlined two scenarios

for the amount of interest petitioner was to be charged for

policy loans.   Both interest scenarios were based upon the zero-

     1
      The above-quoted sections of the proposal remained
substantially the same in each of the revised copies of the
proposal.
                              - 10 -

cash strategy.2   The two scenarios for the zero-cash strategy

were outlined as follows:

     Scenario 1 - Constant Loan Interest Scenario. In this
     scenario, it is assumed that Winn-Dixie's appetite for
     interest deductions remains large, and policy interest
     is charged at 11.06% throughout the life of the COLI
     Pool. This scenario results in the largest amount of
     earnings possible.

     Scenario 2 - Reducing Loan Interest Scenario. In this
     scenario, Winn-Dixie's appetite for interest deductions
     is assumed to reduce over time. To adjust to the
     change in circumstances, the interest rate under the
     COLI Pool policies is reduced to 8% after the fifteenth
     year. This scenario generates a somewhat smaller tax
     arbitrage, but the resulting earnings are nevertheless
     significant.

Included in the revised proposal memorandum dated January 27,

1993, were projections of petitioner's profit and loss, cash-

flow, and balance sheet balances under scenario 1, the constant

loan interest rate scenario, for the years 1993 through 2052.

The projections were based on the assumption that premiums paid

by petitioner would be financed by policy loans in all years

except years 4 through 7.   In the years 4 through 7, inclusive,

premiums were to be paid using funds from policy withdrawals.

The constant loan interest rate (scenario 1) projections included

in the January 27, 1993, memorandum are attached as appendix A.

     2
      The Jan. 27, 1993, revised proposal assumed a pool covering
38,000 employees with an average premium of $3,000 per employee.
                                  - 11 -

     Under the constant loan interest rate scenario, the

projections assumed that the interest rate paid by petitioner on

policy loans remained constant at 11.06 percent3 for the life of

the pool.   Amounts to be credited to petitioner on borrowed cash

value were set at 40 basis points below the 11.06 percent being

charged to petitioner.4     Thus, the borrowed cash value would be

credited at 10.66 percent.      The remaining cash value was credited

at 4 percent.   The January 27, 1993, memorandum explains that "A

COLI Pool generally works best when the interest rate on policy

loans is highest."5    The projections under the constant loan

interest rate scenario were also based on the following

assumptions:

     Corporate tax bracket                          38%
     Population (number of insured
       employees)                                   38,000
     Premium                                        $3,000 per life
     Mortality assumption                           100% of 1983 GAM1
     Fee                                            $8 per participant
                                                      annually
           1
             The mortality assumption "GAM" was not defined in the proposal.
     Ultimately, petitioner and AIG agreed upon using the 1980 Commissioners
     Standard Ordinary Mortality Table B to estimate mortality.

     3
      The 11.06-percent rate was based on Moody's Baa rate from
November 1992, which was 8.96 percent. Coventry converted it to
an arrears rate and added 1 percent to reach 11.06 percent.
     4
      This is referred to as "loan spread". The Jan. 27, 1993,
memorandum explains: "An effective COLI Pool should have a small
'spread' between the interest rate charged on policy loans and
the amounts credited to borrowed cash values."
     5
      The rate in effect for the MSP policies was 8.41 percent.
                              - 12 -

     Based upon the above assumptions, Coventry projected that

the "pretax earnings effect" of the COLI plan for the first

policy year (1993) would be a loss of $4,605,000,6 before

adjusting for the related reduction in income taxes.   This pretax

loss was based on the following projected figures for the end of

the first policy year:   Cash surrender value (CSV) of the COLI

policies of $119,586,000 increased by death benefits of

$2,016,000 and reduced by annual premiums of $114 million,7

accrued loan interest of $11,902,000,8 and administration fees of

$304,000.9   Similar projections for the years 1994 through 2052

produced pretax losses in each year.

     With respect to the estimated 1993 premiums of $114 million,

the projection indicated that petitioner would, in part, satisfy

the premiums by borrowing $107,684,000 against cash surrender

     6
      See appendix A.
     7
      This amount is arrived at using the assumed premium per
employee of $3,000 times the assumed 38,000 employees for a total
of $114 million.
     8
      This amount is the interest due from petitioner as
calculated by Coventry on a projected first-year policy loan
taken by petitioner in the amount of $107,684,000. Annual
interest of 11.06 percent on $107,684,000 is actually
$11,909,850.
     9
      Using these figures the calculation is: $119,586,000 +
$2,016,000 + ($114,000,000) + ($11,902,000)+ ($304,000) =
($4,604,000). The $1,000 variance between this calculation and
the pretax loss of $4,605,000 in appendix A appears to be
attributable to rounding of the components of the calculation.
                               - 13 -

value.    For 1994, the projection indicated that petitioner would

partially satisfy its premium and interest payment10 obligation

by borrowing $113,929,000 and withdrawing $1,649,000 from the net

cash value of the policy.   For 1995, the projection indicated

that a loan of $110,318,000 and a policy withdrawal of

$14,731,000 would be used to pay a large portion of the premiums

of $113,852,000 and interest payment of $24,486,000.    Except for

the next 4 years, 1996 through 1999, the projection indicated

petitioner would finance a large portion of its premium and

interest payments with policy loans.    For years 1996 through

1999, petitioner would generally finance its premium and interest

payments through policy withdrawals.    The policies' premiums were

to be completely paid by 2007; therefore, no premium payments

were projected for the years 2008 through 2052.    However, for

years 2008 through 2052, policy loans continued to be projected

in amounts that were approximately between 90 percent and 95

percent of the amount of the annual loan interest payments.

     The projection indicated that petitioner would sustain a

negative "pretax earnings effect" on the COLI plan for every year

the plan remained in effect.   Thus, the projection for the years

     10
      The projection indicated that petitioner would actually
pay the estimated $11,902,000 of interest due on the 1993 loan of
$107,684,000 in 1994. Interest accumulated on policy loans was
payable in arrears.
                                  - 14 -

1993 through 2052 indicated petitioner would incur net pretax

out-of-pocket losses as follows:

                Pretax               Pretax                  Pretax
                 Loss                 Loss                    Loss
 Year           Effect     Year       Effect     Year        Effect
 1993        $4,605,000    2013   $16,390,000    2033     $15,238,000
 1994         8,403,000    2014    17,839,000    2034      14,769,000
 1995        11,282,000    2015    18,071,000    2035      14,320,000
 1996        10,399,000    2016    18,285,000    2036      13,828,000
 1997         9,997,000    2017    18,492,000    2037      13,281,000
 1998         9,559,000    2018    18,546,000    2038      12,674,000
 1999         9,381,000    2019    18,446,000    2039      12,013,000
 2000         9,756,000    2020    18,342,000    2040      11,312,000
 2001         9,959,000    2021    18,228,000    2041      10,583,000
 2002        10,310,000    2022    18,103,000    2042       7,675,000
 2003        10,725,000    2023    17,968,000    2043       5,867,000
 2004        11,358,000    2024    17,817,000    2044       8,374,000
 2005        12,215,000    2025    17,645,000    2045       7,782,000
 2006        13,151,000    2026    17,446,000    2046       7,214,000
 2007        14,178,000    2027    17,215,000    2047       6,650,000
 2008        10,134,000    2028    16,946,000    2048       6,110,000
 2009        11,269,000    2029    16,643,000    2049       5,583,000
 2010        12,420,000    2030    16,193,000    2050       5,070,000
 2011        13,653,000    2031    15,086,000    2051       4,586,000
 2012        14,973,000    2032    16,545,000    2052       4,742,000

    Total pretax loss                                      755,644,000

        The projection of profit and loss also included an analysis

of the effect of the COLI plan on petitioner's income tax

liability in each of the years 1993 through 2052.       Assuming a 38-

percent corporate tax bracket,11 the projected $11,902,000 loan

interest accrued and deducted by petitioner in the first policy

        11
      The corporate tax rate on all projections was an estimated
combined Federal and State marginal tax rates.
                                 - 15 -

year (1993) resulted in a projected tax saving of $4,524,000.12

A projected deduction for estimated administration fees of

$304,000 resulted in a projected tax saving in 1993 of

$116,000.13     Thus, the total projected tax benefits from

deductions generated by the proposed COLI plan during the first

policy year was $4,640,000.14     The projection compared the

estimated tax benefit of $4,640,000 to the estimated pretax loss

effect of $4,605,000 resulting in a positive "after-tax earnings

effect" of $35,000.15     The after-tax earnings effect (the excess

of tax savings over net pretax costs) was projected to increase

substantially in subsequent years.        Coventry's projected after-

tax earnings effect was as follows:

     12
      A deduction of $11,902,000 times an assumed tax rate of 38
percent actually results in a tax benefit of $4,522,760. But see
supra note 8.
     13
      For instance, a deduction of $304,000 times an assumed tax
rate of 38 percent results in a tax benefit of $115,520.
     14
          Thus, $4,524,000 + $116,000 = $4,640,000.
     15
      For instance, a reduction in earnings due to amounts paid
of $4,605,000 can be offset by a reduction in taxes of $4,640,000
for an overall after-tax earnings increase of $35,000.
                                    - 16 -

            After-tax                   After-tax              After-tax
            Earnings                    Earnings               Earnings
   Year      Effect          Year        Effect     Year        Effect
   1993       $35,000        2013     $60,796,000   2033     $44,780,000
   1994     1,021,000        2014      59,009,000   2034      43,361,000
   1995     2,770,000        2015      58,409,000   2035      41,789,000
   1996     3,642,000        2016      57,797,000   2036      40,124,000
   1997     4,033,000        2017      57,161,000   2037      38,369,000
   1998     4,458,000        2018      56,647,000   2038      36,529,000
   1999     4,624,000        2019      56,250,000   2039      34,601,000
   2000     9,997,000        2020      55,819,000   2040      32,582,000
   2001    16,143,000        2021      55,353,000   2041      30,479,000
   2002    22,799,000        2022      54,846,000   2042      30,466,000
   2003    30,108,000        2023      54,291,000   2043      29,291,000
   2004    37,980,000        2024      53,683,000   2044      23,772,000
   2005    46,477,000        2025      53,017,000   2045      21,361,000
   2006    55,822,000        2026      52,289,000   2046      18,971,000
   2007    64,479,000        2027      51,492,000   2047      16,655,000
   2008    68,339,000        2028      50,620,000   2048      14,423,000
   2009    66,998,000        2029      49,664,000   2049      12,313,000
   2010    65,616,000        2030      48,730,000   2050      10,347,000
   2011    64,127,000        2031      48,327,000   2051       8,529,000
   2012    62,524,000        2032      45,233,000   2052       6,264,000

      Total after-tax earnings                             2,246,431,000

     The projected total after-tax earnings of more than $2.2

billion were the result of total projected income tax savings of

more than $3 billion less projected pretax net losses.          The

projected tax savings were attributable to the anticipated tax

deductions for policy loan interest and fees.16     The effect on

Winn-Dixie's after-tax earnings and cash-flow was projected to be

positive in each year only because of tax benefits from interest

and fee deductions.     Absent such tax benefits, the effect on

     16
      Projected interest and fees over a 60-year period totaled
$77,476,680,000 and $14,326,000, respectively.
                              - 17 -

Winn-Dixie's earnings and cash-flow would be negative in every

year.17

     In February 1993, Mr. McCook decided to have petitioner

engage in the proposed broad-based COLI plan.   On March 25, 1993,

Mr. Hlavacek sent Mr. McCook another projection under the

constant loan interest rate scenario estimating the effect of the

proposed COLI plan.   The projection estimated, among other

things, the effect over 60 years beginning in 1993 of the

proposed COLI purchase on petitioner's effective tax rate.     The

projection assumed an effective tax rate of 40 percent and

predicted that the proposed COLI purchase would reduce

petitioner's effective tax rate each year, reaching its lowest

point of 26.54 percent in 2007.

     AIG participated in the development of information for

projections regarding petitioner's proposed COLI plan.   A

preliminary census reflecting the ages of the approximately

36,000 employees to be insured was prepared on May 28, 1993.18

Mr. Buerger sent two more sets of revised projections to Mr.

McCook.   The first set of revised projections was sent on May 28,

     17
      Similarly, the proposal memorandum projected the effect of
the COLI purchase on petitioner's after-tax retained earnings
balance on its balance sheet over 60 years. The proposal
predicted that petitioner's retained earnings balance would
increase by $2,241,491,000 over the 60 years.
     18
      Before the preliminary census, the projections were based
on estimates of the number of employees and their ages.
                                - 18 -

1993, and the second was sent on June 4, 1993.      Both projections

were based on issuance of the proposed policies effective as of

March 1993.     The first set of revised projections assumed that

petitioner's taxes were paid at a rate of 40 percent19 for

purposes of predicting the tax effect of the COLI purchase on

petitioner's financial ratios.     The second set of revised

projections used a tax rate of 39 percent20     and assumed just

over 36,000 of petitioner's employees would be insured.      This

projection also assumed that maximum loans would be made in most

years but that cash withdrawals would be made in policy years 4

through 7 and policy years 16 through 21.      The June 4, 1993,

projections are attached as appendix B.

     Using the same basic analysis that had been used in the

January projections, the June 4, 1993, projections again

indicated that petitioner would sustain a pretax loss and a

posttax profit on the COLI policies for every year the plan

remained in effect.     See appendix B.   Thus, for the years 1993

through 2052, the June 4, 1993, projections indicated the broad-

based COLI plan would affect petitioner's profit and loss as

follows:

     19
          See supra note 11.
     20
       See supra note 11.
                                                           - 19 -

                                Pretax       Tax Benefit         Tax Benefit                After-tax
           Policy             Earnings     From Interest      From Admin Fee                 Earnings
           Year1                Effect         Deduction           Deduction                  Effect3

                      2
           1993        ($4,188,000)          $4,368,000             $113,000      =          $292,000
           1994            (7,885,000)        8,988,000              113,000      =         1,217,000
           1995           (10,869,000)       13,887,000              113,000      =         3,130,000
           1996            (9,972,000)       13,856,000              112,000      =         3,996,000
           1997            (9,669,000)       13,823,000              112,000      =         4,266,000
           1998            (9,366,000)       13,788,000              112,000      =         4,533,000
           1999            (9,063,000)       13,750,000              111,000      =         4,799,000
           2000            (9,243,000)       19,159,000              111,000      =        10,027,000
           2001            (9,736,000)        25,088,000             111,000      =        15,462,000
           2002           (10,013,000)        31,595,000             110,000      =        21,692,000
           2003           (10,345,000)        38,733,000             110,000      =        28,498,000
           2004           (10,879,000)        46,551,000             110,000      =        35,782,000
           2005           (11,619,000)        55,104,000             109,000      =        43,595,000
           2006           (12,428,000)        64,456,000             109,000      =        52,136,000
           2007           (13,208,000)        73,436,000             108,000      =        60,336,000
           2008            (9,182,000)        73,039,000             107,000      =        63,965,000
           2009            (9,409,000)        72,612,000             107,000      =        63,310,000
           2010            (9,651,000)        72,153,000             106,000      =        62,608,000
           2011            (9,888,000)        71,661,000             105,000      =        61,878,000
           2012           (10,104,000)        71,134,000             105,000      =        61,134,000
           2013           (10,056,000)        70,569,000             104,000      =        60,616,000
           2014           (11,085,000)        70,497,000             103,000      =        59,515,000
           2015           (11,875,000)        69,905,000             102,000      =        58,132,000
           2016           (12,704,000)        69,181,000             101,000      =        56,579,000
           2017           (13,584,000)        68,405,000             100,000      =        54,921,000
           2018           (14,384,000)        67,581,000              99,000      =        53,296,000
           2019           (15,112,000)        66,710,000              98,000      =        51,696,000
           2020           (15,905,000)        65,789,000              96,000      =        49,980,000
           2021           (16,447,000)        64,818,000              95,000      =        48,467,000
           2022           (16,336,000)        63,797,000              94,000      =        47,554,000
           2023           (16,124,000)        62,724,000              92,000      =        46,692,000
           2024           (15,898,000)        61,599,000              91,000      =        45,791,000
           2025           (15,662,000)        60,421,000              89,000      =        44,848,000
           2026           (15,417,000)        59,191,000              87,000      =        43,862,000
           2027           (15,163,000)        57,908,000              85,000      =        42,831,000
           2028           (14,901,000)        56,573,000              84,000      =        41,756,000
           2029           (14,632,000)        55,187,000              82,000      =        40,637,000
           2030           (14,352,000)        53,750,000              80,000      =        39,478,000
           2031           (14,063,000)        52,264,000              78,000      =        38,279,000
           2032           (13,765,000)        50,732,000              75,000      =        37,043,000
           2033           (13,457,000)        49,155,000              73,000      =        35,771,000
           2034           (13,141,000)        47,535,000              71,000      =        34,465,000
           2035           (12,816,000)        45,873,000              69,000      =        33,126,000
           2036           (12,483,000)        44,172,000              66,000      =        31,755,000
           2037           (12,139,000)        42,435,000              64,000      =        30,360,000
           2038           (11,784,000)        40,665,000              61,000      =        28,942,000
           2039           (11,417,000)        38,865,000              59,000      =        27,507,000
           2040           (11,035,000)        37,040,000              56,000      =        26,060,000
           2041           (10,638,000)        35,194,000              53,000      =        24,609,000
           2042           (10,223,000)        33,332,000              51,000      =        23,160,000
           2043            (9,794,000)        31,460,000              48,000      =        21,714,000
           2044            (9,344,000)        29,583,000              45,000      =        20,284,000
           2045            (8,902,000)        27,707,000              43,000      =        18,847,000
           2046            (8,455,000)        25,840,000              40,000      =        17,425,000
           2047            (8,006,000)        23,990,000              37,000      =        16,022,000
           2048            (7,563,000)        22,167,000              34,000      =        14,638,000
           2049            (7,153,000)        20,378,000              32,000      =        13,256,000
           2050            (6,739,000)        18,630,000              29,000      =        11,921,000
           2051            (6,407,000)        16,932,000              27,000      =        10,552,000
           2052            (6,244,000)       15,292,000              24,000       =         9,072,000
                      (681,922,000)                  ??                  ??       =               ??

       1
         Policy years are from Mar. 1 to the end of February.
       2
         Based on the underlying figures from which this amount was computed, the figure should be $4,189,000.
        3
         In some instances the figures in this column vary from the sum of their components by $1,000. This appears
to be due to rounding off, and any variances appear to be insignificant.
                              - 20 -

     The June 4 projections indicate that without tax savings

from policy loan interest and administration fee deductions, the

earnings effect over 60 years would have been a negative

$681,922,000.   The tax savings over 60 years for interest and fee

deductions were projected to be $2,696,038,000.     After these tax

benefits are taken into consideration, the projection indicated

that petitioner would realize an after-tax profit of

$2,014,115,000.   These after-tax financial benefits were

dependent on the tax savings flowing from the interest and fee

deductions being generated by the broad-based COLI plan.

     Petitioner prepared a list of "Company Expense Reduction

Opportunities" for fiscal year 1993 that listed 23 items of

savings that totaled $329,093,000.     The largest item of expense

reduction on the list is "Proposed Corporate Life Insurance

(COLI)".   The list shows that this item (COLI) was estimated to

be implemented on June 30, 1993, and that petitioner's estimated

savings from COLI was $300 million.    Mr. McCook testified that he

thought this figure was derived from the "After-Tax Earnings

Effect" shown in column J of appendix A.21

     AIG is a major underwriter of COLI policies.    AIG had been

working with WJ/Coventry in preparing the COLI plan.    Mr. Qureshi

     21
      Three hundred million dollars is the approximate total of
the annual "After-Tax Earnings" projected for the policy years
1993 through 2007. The total projected After-Tax Earnings for
the years 1993 through 2052 is $2,246,431,000. See appendix A.
                               - 21 -

of AIG was the actuary who designed and priced the COLI policies

purchased by petitioner.    On June 4, 1993, Mr. Larry Walters of

AIG, sent a Letter of Understanding regarding the COLI policies

to Mr. McCook.    The Letter of Understanding provided that

petitioner would remit, as consideration for the policies, a net

payment of $7,245,000, the difference between a total premium of

$108,573,000 and an estimated first year policy loan of

$101,328,000.    In the Letter of Understanding, AIG agreed to

provide life insurance coverage in accordance with the Policy

Terms Overview.    The Letter of Understanding required that the

following conditions be met:

     1.   * * *[Petitioner] reviews and verifies the
          accuracy of the information contained on the
          Client Master Information Form, attached as
          Exhibit A.[22] * * *

     2.   * * *[Petitioner] completes and certifies the
          information contained on the Certification of
          Employee Census form, attached as Exhibit B,[23]

     22
      Exhibit A, Client Master Information Form, listed
petitioner's name as the name to appear on the policy and as the
owner of the policy. Petitioner's main address was listed as the
billing address, and Mr. McCook was named as the contact. The
policy name was listed as "Excess Interest Life Ins.", and the
effective date was listed as Mar. 1, 1993.
     23
      Exhibit B, Certification of Employee Census, generally
required that petitioner, as part of the application for coverage
under the policies, certify that employee information on the
census was correct. Among other things, petitioner certified
that each individual on the census was a full-time (minimum 30
hours per week) employee, at least 18 years of age, no older than
age 75, not absent from work for more than 10 consecutive
business days within the 90 days preceding the date of
                             - 22 -

          * * *

     3.   * * *[Petitioner] completes at least one
          Individual Life Insurance Application for each
          defined class of covered employees.

     4.   The aggregate number of employees within each
          defined class of covered employees, on the
          effective date of coverage, totals at least 2,000
          lives.

     5.   The minimum annual premium for each covered
          employee is $3,000 and the maximum annual premium
          for each covered employee is $16,667.

     6.   AIG Life determines that each defined class of
          covered employees identified on the attached
          Client Master Information Form and each employee
          identified on the Certification of Employee Census
          are acceptable for underwriting purposes and that
          the amounts of coverage applied for are
          acceptable.

In addition, the Letter of Understanding required that petitioner

acknowledge and agree with the following:

     1.   This Letter of Understanding and attached Exhibits
          A and B contain the entire agreement between the
          parties and supersedes all previous agreements
          entered into between Client and AIG Life, or
          promises made with regard to the subject matter of
          this letter.

     2.   * * * [Petitioner] has reviewed with its own legal
          and tax advisors all present and future
          implications of its ownership of the Policies,
          including, but not limited to, the tax
          consequences of loans and/or withdrawals from the
          Policies and the deductibility thereof, and that
          it has not relied upon any representations of AIG

certification, and that petitioner notify and obtain consent from
each employee on the census that insurance is to be issued on his
or her life.
                              - 23 -

          Life or any employee, broker, or agent of AIG Life
          in that regard.

     3.   The premiums specified in the Policies are
          intended to meet the requirements of Section 7702
          and Section 7702A of the Internal Revenue Code as
          in effect on the date of this letter so that the
          Policies will qualify as life insurance and will
          not be treated as modified endowment contracts.
          AIG Life does not warrant or represent that the
          Policies will not be treated as modified endowment
          contracts.

     4.   The statements contained in the attached Exhibits
          A and B shall be considered as binding
          representations by the * * * [petitioner] and that
          such Exhibits shall be deemed attached to and made
          a part of the Policies.

The Letter of Understanding provided that if, within 90 days of

June 4, 1993, all the above conditions had been met and AIG

received the total first-year premium, then AIG would agree to

issue to petitioner, in the State of Florida, the life insurance

policies effective as of March 1, 1993.

     By invoice dated June 9, 1993, Coventry requested payment of

a balance due on the 1993 COLI policies of $7,245,000 from

petitioner.   The invoice reflected a total premium of

$108,573,000, covering 36,191 total lives at $3,000 of premium

each, less a policy loan of $101,328,000 to arrive at the net

amount due.

     On June 15, 1993, in accordance with the Letter of

Understanding, AIG sent the "Policy Terms Overview" (PTO) to

petitioner.   The PTO provided for an effective date of March 1,
                                - 24 -

1993, and required that AIG and petitioner agree to several

provisions under the insurance policies relating to the

following:    Claim Stabilization Reserve, Cost of Insurance Rates,

Expense Caps, Surrender Fee, Interest Rate on Unborrowed Funds,

and the Loan Interest Spread.

     The PTO generally provided that AIG would establish on

behalf of petitioner a claims stabilization reserve (CSR) for the

policies.    Petitioner could not withdraw or borrow against the

amounts credited to the CSR.    The maximum level of the CSR at the

end of each year was generally determined to be the higher of the

annualized "cost of insurance"24 (COI) charges actually collected

in any one of 3 preceding policy years or the highest amount of

death benefits actually incurred in any one of 3 policy years.

COI charges were deducted from the premium that was paid and used

to fund the CSR.    The CSR was generally held available by AIG to

pay death claims under the COLI policies.

     24
      "Cost of Insurance" was defined in the policy document.
The COI was calculated on each monthly processing date.
Generally, the COI was calculated under the following formula:

COI = (Proceeds - Account Value)    x    (Value from Table of
                1,000                     Maximum Insurance Rates)

     Proceeds were defined as the benefits due to petitioner as
the beneficiary. Account Value on the policy date was defined as
the initial net premium less an annual expense charge.
                               - 25 -

     On each policy anniversary, the PTO required AIG to compute

an "Experience Cost", defined as COI charges collected from

petitioner during the preceding year, less a 2-percent AIG

retention fee, less the net amount for which AIG was at risk for

claims during the preceding policy year.    The negotiated 2-

percent retention fee limited AIG's mortality related profit.        If

the experience cost as of a policy anniversary was positive, it

was added to the CSR's value as of the policy anniversary.      If

the experience cost was negative, it was subtracted from the

CSR's value.    AIG credited interest to the CSR at an annual rate

of 4 percent.   If, on a policy anniversary, the CSR balance

exceeded its maximum permissible level, the excess was credited

to the unrestricted policy account value.    The PTO provided that

the CSR would be held by AIG on behalf of petitioner for as long

as the policies remained in force plus 1 year.    At the end of the

1 year, a final accounting would be made by AIG and the balance

of any remaining reserve would be refunded to petitioner.

     Petitioner was to be charged 11.06 percent interest on

amounts that it borrowed against the cash value of the policies.

Pursuant to the PTO, the portion of the policy account value that

was borrowed would earn interest at a rate not to exceed 40 basis

points25 or four-tenths of 1 percent below the amount charged on

     25
      Each basis point equals one one-hundredth of a percent
(0.01 percent). Thus, 40 basis points is equivalent to 0.40
                               - 26 -

policy loans.    Thus, the interest rate credited on the portion of

the account value that had been borrowed was 10.66 percent.26

The balance of the policy account values would earn interest at a

rate guaranteed to be no less than 4 percent.

     The policies provided for expense charges which would not

exceed 23 percent of the premiums paid.   The expense charges were

comprised of premium expense charges of 17.8 percent and annual

expense charges of 5.2 percent.   The negotiated PTO reduced

maximum expense charges from 23 percent to 8.934 percent of

premiums paid.

     Mr. McCook approved the purchase of the 1993 COLI policies,

and on June 17, 1993, Mr. McCook, on behalf of petitioner,

executed the June 4, 1993, Letter of Understanding.   On the same

day, petitioner remitted the net amount of $7,245,000 to AIG as

payment for the policies.

     The 1993 COLI policy forms were registered and approved in

form and for sale by the insurance commissioner of the State of

Florida.   Initially, the total number of lives included, subject

to eligibility, under the 1993 COLI policies was 36,191 as of

June 17, 1993.

percent.
     26
      The 10.66 percent figure is arrived at by reducing the
loan interest rate of 11.06 percent by 0.40 percent.
                                 - 27 -

     On June 17, 1993, petitioner paid WJ/Coventry $300,000

pursuant to an invoice dated June 11, 1993.     The payment was for

services to be performed in year 1 of an administration agreement

for the 1993 COLI policies.     Also on June 17, 1993, Mr. McCook

signed a Notification Certificate as a condition precedent to the

sale of the COLI policies in which petitioner certified that it

would notify the employees of the purchase of the COLI policies

and give them an opportunity to refuse the coverage.

     On July 19, 1993, Mr. McCook executed the PTO.27     Also on

July 19, 1993, Mr. McCook accepted receipt of the COLI policy

contract documents from AIG and authorized Coventry to retain

possession of the policies on petitioner's behalf.28      The type

of coverage provided was listed as "excess interest life".      The

person whose life was insured under each policy was one of

petitioner's employees.     Petitioner was listed as the owner and

beneficiary of each policy.

     The rights and liabilities of AIG and petitioner were

governed by insurance policy forms (Policy Form), riders to the

policies, the Letter of Understanding, and the PTO.     The Letter

of Understanding and the PTO set forth essential elements of the

     27
          Mr. Walters of AIG signed the PTO on July 15, 1993.
     28
      The contracts were listed on the delivery receipt as being
policy Nos. 5003000001 through 5003035983.
                               - 28 -

agreement between petitioner and AIG and amended and tailored the

COLI policies to petitioner.

     Policy face amounts varied with the age of each insured.

Generally, petitioner's death benefits were governed by policy

Option A, which provided for benefits based on the larger of the

face amount plus the account value on the date of death, or the

account value on the date of death multiplied by a specified

percentage based on the age of the insured.29    The applicable

mortality table was the 1980 Commissioners Standard Ordinary

Mortality Table B, Age Last Birthday, referred to as the CSO-B

table.    Under the terms of the policies, death benefits from a

policy would first be used to reduce any outstanding loan.

     Under the terms of the policies, petitioner could withdraw

part of the cash value of each COLI policy.     However, a

withdrawal could not exceed the "net cash value"30 of the policy.

     The policies also permitted petitioner to borrow an amount

that, with interest to the next policy anniversary, would not

     29
      Some of the death benefits were paid under Option B, which
was calculated to include the account value in the face amount,
and the insurance proceeds were determined to be the larger of
the face amount on the date of death, or the account value on the
date of death multiplied by a specified percentage.
     30
      The net cash value of the policy was defined as the cash
value less any prior withdrawals and any policy debt. The cash
value was defined as the greater of the Guaranteed Cash Value, or
the Account Value less the surrender charge that applies. The
Guaranteed Cash Value was determined by a Table of Guaranteed
Values provided with the policy.
                               - 29 -

exceed the net cash value of the policy.    The policies provided

that at the insured's death, any policy debt will be deducted

from the proceeds of that policy.    The policies were the sole

security for any loans.    Interest on petitioner's loans was due

on each policy anniversary date.    The policies provided for both

a fixed and variable loan interest rate.

     The policies were modified by a Renewable Level Term

Insurance Rider.   The rider provided death benefits equal to the

amount of death benefits lost as a result of a withdrawal from

the account value.   Under the provisions of the rider, petitioner

had the option on any policy anniversary date to elect to change

from the 11.06-percent policy loan interest rate to a fixed rate

of 10 percent in arrears or 9.1 percent in advance which would

apply to both old and new policy loans.    For the 1993 COLI policy

year March 1, 1993 to 1994, petitioner elected the variable loan

interest rate of 11.06 percent.

     The final provisions governing the COLI policies purchased

by petitioner in June 1993 were devised to produce results in

accord with those set forth in the June 4, 1993, projections

contained in appendix B.

     On July 19, 1993, petitioner entered into an Administrative

Services Agreement with Coventry in which petitioner appointed

Coventry as the administrator of the COLI pool.    Under the
                               - 30 -

agreement, petitioner was to pay $300,00031 in each of the first

2 years and $200,000 annually in all subsequent policy years, and

Coventry was to perform the following services in connection with

the COLI policies:

     (a)   On the basis of census information supplied by
           petitioner

           (1)   Identify which of the petitioner's employees
                 may become insured;

           (2)   Calculate the face amounts of the policies
                 and the first year premiums for the covered
                 employees;

           (3)   Determine and process new insureds and process
                 any change in the status of any insured;

           (4)   Make the necessary calculations with respect
                 to premiums, loans, withdrawals, loan interest,
                 death claims and/or any other periodic payments;

     (b)   Provide consolidated invoice and itemization to
           petitioner and AIG;

     (c)   Receive and inspect the insurance policies from AIG
           and forward them to petitioner;

     (d)   Search government databases and other sources for
           covered deceased employees and obtain death
           certificates for deceased insureds;

     (e)   Provide petitioner with ongoing advice with respect
           to financial options and strategies related to 1993
           COLI polices; and

     (f)   Provide petitioner with various reports including
           insurance value reports, year-end summaries,
           accounting reports and custom-designed decision-
           support reports.

     31
      Petitioner deducted $100,000 of the $300,000 on its income
tax return for the fiscal period ending June 30, 1993.
                              - 31 -

     For employees who died while in petitioner's employ,

petitioner filed an Employer's Statement through its plan

administrator, Coventry, who would then present the claim to AIG.

Coventry, as plan administrator, was responsible for ascertaining

employee deaths for those employees that died while no longer in

petitioner's employ.

     Westport Management, an organization that performs

administrative services for life insurance companies, was engaged

by AIG and WJ/Coventry to administer petitioner's COLI policies.

In order to ascertain deaths of former employees, Coventry would

ask Westport to perform "Social Security sweeps", by checking

data base files to determine whether any covered former employee

had died.   After the purchase of the policies and input of the

COLI policy data on its computer system, Westport began its

administrative duties, regularly preparing performance and

accounting reports, which were provided to Coventry and AIG.    On

every policy anniversary, Westport calculated all values on a

monthly basis for all policies for the coming year.   On

petitioner's behalf, Coventry administered the COLI plan, acted

as an intermediary with AIG, and checked reports and other

information provided by AIG and Westport to ensure correctness.

Every month and on request, Coventry received reports from

Westport on past and expected performance of the policies and

policy loans.   From these reports, Coventry generated annual and
                                  - 32 -

periodic policy value and other reports and journal entries

showing aggregate policy activity.         The Coventry reports included

information about the CSR, experience rating, cash value

calculations, claims, refunds and recisions.          The Coventry

reports also included information about the amount of tax savings

the COLI program was generating for petitioner.

     From 1993 through 1996, petitioner kept the employee COLI

policies in force.     AIG billed petitioner for premiums and

interest annually on a net basis, as set forth below:

     June 1993, Policy year beginning March 1, 1993:

     Premium                             $108,573,000
     Loan                                (101,328,000)
                                            1
     Net premium                              7,245,000
           1
            A revised invoice was sent on Sept. 21, 1993, which reflected a
     reduction in insureds from 36,191 to 35,983 due to a recision of 208
     policies. Thus, the calculation was as follows:

        Premium                                $107,949,000.00
        Loan                                   (100,770,140.06)
        Net premium                               7,178,859.94
        Less amount paid                         (7,245,000.00)
        Balance owed petitioner                      66,140.06

     Policy year beginning March 1, 1994:

     Premium                             $107,862,000.00
     Loan                                (108,877,159.95)
     Interest                              11,136,375.63
     Balance due                           10,121,215.68
                                  - 33 -

     Policy year beginning March 1, 1995:

     Premium                             $107,685,000.00
     Loan                                (112,165,202.89)
     Withdrawal                            (4,080,660.74)
     Net premium due                       (8,560,863.63)
     Interest                              23,140,858.57
                                           1
     Balance due                             14,579,994.94
           1
             Policy year beginning Mar. 1, 1995, was revised at least twice.
     The final revision resulted in the following:

        Premium                          $107,685,000.00
        Loan                             (112,112,913.04)
        Withdrawal                         (4,134,020.12)
        Net premium due                    (8,561,933.16)
        Interest                           23,140,858.57
        Balance                            14,578,925.41
        Amount paid                        14,579,994.94
        Net refund due                          1,069.53

     Policy year beginning March 1, 1996:

     Premium                             $107,553,000.00
     Withdrawal                          (129,934,414.41)
     Net premium due                      (22,381,414.41)
     Interest                              35,497,690.97
     Balance due                           13,116,276.56

     COI and policy expense charges (DAC tax, State premium tax,

commission and loading charges) under petitioner's COLI policies

were as follows:

     Policy        Cost of           Expense
      Year        Insurance          Charges           Total
      1993       $3,354,561         $3,412,447      $6,767,008
      1994        4,641,249          4,721,130       9,362,379
      1995        4,890,649          8,516,817      13,407,466
      1996        5,173,414          8,990,642      14,164,056

     The annual amounts of cash paid by petitioner to AIG for the

COLI policies, compared with the total of COI and policy expense

charges for corresponding years, were as follows:
                                 - 34 -

                                           COI Plus
               Policy     Cash Paid By      Expense
                Year       Petitioner       Charges
               1993        $7,178,860     $6,767,008
               1994        10,121,216      9,362,379
               1995        14,578,925     13,407,466
               1996        13,116,277     14,164,056
                  Total    44,995,278     43,700,909

For the first 4 COLI policy years, beginning March 1, 1993, AIG

billed petitioner $431,049,000 in gross premiums and $69,774,925

in interest charges.      Gross premiums and interest charges totaled

$500,823,925.     Of this total amount, petitioner remitted the

above-calculated $44,995,27832 in cash.

     Following the enactment of tax law changes in 1996,

petitioner commenced discussions with AIG, Coventry, and WJ

concerning the phaseout or discontinuance (unwind) of the COLI

policies.     These discussions concerned the approximately 36,000

policies purchased by petitioner in 1993 plus approximately

11,000 and 9,000 COLI policies purchased in 1994 and 1995,

respectively.     On October 22, 1996, Mr. McCook sent a letter to

Mr. Qureshi, vice president of AIG, which stated:

     Winn-Dixie has used AIG policies on three corporate
     owned life insurance (COLI) programs over the last
     several years. Because of the recent tax law changes,
     we have been working with Alan Buerger of the Coventry
     Group and Bruce Hlavacek of Wiedemann and Johnson, to
     try to minimize the financial impact on Winn-Dixie for
     the phase out of COLI.
Mr. Qureshi responded to Mr. McCook's October 22, 1996, letter

     32
          See preceding table for cash total.
                               - 35 -

and acknowledged the recent change in the law with respect to the

COLI policies.    Mr. Qureshi also indicated that AIG would be

pleased to discuss various options available to petitioner.

     Coventry prepared a draft booklet dated October 30, 1996,

which contained, among other things, an overview of the current

status of petitioner's COLI pool, an opinion of the financial

effect of the 1996 tax law change, and explanations of several

exit and unwind strategies.    The draft booklet indicated that

petitioner had three separate enrollments covering approximately

55,740 lives.    The first enrollment "WD1" was in relation to the

policies written in 1993 covering 35,810 employees.    The second

enrollment "WD2" was in relation to the policies written on

November 30, 1994, covering 10,704 employees.    The third

enrollment "WD3" was written on June 30, 1995, and covered 9,226

employees.   With respect to the effect of the 1996 tax law

changes on petitioner's COLI policies, the booklet stated in

pertinent part:

     In August of 1996, Congress amended the Internal
     Revenue Code was [sic] to deny deductions for any
     interest on policy loans on the lives of employees,
     officers, and persons financially interested in a trade
     or business maintained by the taxpayer. The
     disallowance was retroactive to January 1, 1996, except
     that deductions may be continued through 1998 on up to
     20,000 policies. The deduction on those policies,
     however, must be based on an interest rate no higher
     than Moody's average corporate bond rate, and only 90%
                                  - 36 -

     of such interest is deductible in 1997 and 80% thereof
     is deductible in 1998.

            *       *      *        *      *         *   *

     In the aggregate, the three enrollments cover 55,740
     lives with aggregate outstanding loans of about $500
     million at interest rates averaging 11%. At a 39% tax
     bracket, these policies would produce tax deductions
     worth $21,450,000 per year.

     Under the amended law, assuming aggregate indebtedness
     of $195 million on the "best" 20,000 policies and a
     Moody's rate of 8% per annum, the following savings
     will be available:

                  Calendar 1996         $6,084,000
                  Calendar 1997          5,475,600
                  Calendar 1998          4,867,200

     The booklet next identified three basic exit strategies for

petitioner.     The three strategies were listed as the policy

surrender, policy unwind, and aggressive tax strategy.       The

policy surrender strategy generally entailed the cancellation or

surrender of the policy and the receipt by petitioner of the net

cash value of the policy.      The booklet recommended under this

strategy that petitioner maintain the policies on 20,000 lives in

fiscal years 1996 and 1997.

     With respect to the policy unwind strategy, in lieu of

surrendering the policies, petitioner was informed that it could

keep the policies in force and allow the unrealized gains related

to the policies to be paid out eventually as tax-free death

benefits.   The booklet further stated that in order to unwind a

policy, petitioner "would withdraw a portion of the cash value
                              - 37 -

equal to premiums paid (i.e., Winn-Dixie's tax basis) and apply

the withdrawal to repay an equal amount of loan."   The booklet

indicated that the result of such a withdrawal and repayment is a

policy with a greatly reduced cash value, substantially all of it

borrowed.

     The third strategy, the aggressive tax strategy, suggested

that under the revised statute, deductions were disallowed only

with respect to policies on the life of an individual who was an

officer or employee or was financially interested in petitioner's

trade or business.   The booklet further indicated that counsel

for Coventry believed that a strong argument could be made that

the disallowance described by the statute did not apply where the

insured was a former officer or employee or was not financially

interested.   Based on this argument, the booklet gave an example

which assumed an additional $200 million of aggregate

indebtedness could be attributed to petitioner's former employees

upon whom policies were still maintained.   As a result of the

additional $200 million of aggregate indebtedness, the booklet

concluded that the tax savings in each year would be equal to 39

percent of 11 percent of $200 million or $8,580,000, for as long

as the loans remained in force.

     In a letter to Mr. Qureshi dated September 8, 1997, Mr.

McCook indicated that in light of the passage of the legislation

pertaining to leveraged COLI, petitioner was working toward a
                              - 38 -

more complete understanding of the COLI policies it purchased

from AIG.   Finally, in letters dated December 4, 1997, Mr. McCook

notified Mr. Qureshi and Mr. Buerger of petitioner's intent to

cancel all three blocks of leveraged COLI policies.   Mr. McCook

indicated in his notice to Mr. Qureshi that petitioner wished to

surrender COLI blocks I, II, and III as of November 1, October

30, and June 30, 1997, respectively.

                              OPINION

     On its return for the fiscal year ending June 30, 1993,

petitioner claimed a deduction of $3,735,544 for accrued interest

on loans from COLI policies that petitioner purchased in 1993.33

Petitioner also claimed a $100,000 deduction for administrative

fees related to these COLI policies.34   Respondent disallowed the

deductions after determining that the 1993 COLI Plan was tax

motivated, unsupported by any independent business purpose, and

     33
      This was approximately one-third of the total policy loan
interest that would accrue during the first policy year that
began Mar. 1, 1993, and ended Feb. 28, 1994. The $3,735,544 was
interest attributable to the period Mar. 1 through June 30, 1993.
We note that petitioner deducted interest on these "loans" for
the period Mar. 1 through June 30, 1993, even though the COLI
policies and policy loans were not finalized until mid-June 1993.
Respondent argues that interest cannot accrue for a period prior
to the time the loan was actually made. Because of our
disposition, we need not address this issue.
     34
      This was one-third of the $300,000 administrative fee for
the first policy year that began Mar. 1, 1993, and ended Feb. 28,
1994.
                                - 39 -

lacked economic substance.    Respondent argues that the

arrangement was a sham.

      The starting point for determining whether the form of a

particular transaction will be recognized for tax purposes is the

Supreme Court's decision in Gregory v. Helvering, 293 U.S. 465,

469 (1935), wherein the Court stated:

      The legal right of a taxpayer to decrease the amount of
      what otherwise would be his taxes, or altogether avoid
      them, by means which the law permits, cannot be
      doubted. * * * But the question for determination is
      whether what was done, apart from the tax motive, was
      the thing which the statute intended.

In Gregory, the Court denied reorganization treatment with

respect to a stock distribution even though the taxpayers had

followed each step required by the Code for a reorganization.    In

deciding that the distribution was taxable as a dividend, the

Court held that the structure of the transaction was a "mere

device" for the "consummation of a preconceived plan" and not a

reorganization within the intent of the Code as it then existed.

Id.   Because the transaction lacked economic substance, as

opposed to formal reality, it was not "the thing which the

statute intended."   Id.; see Kirchman v. Commissioner, 862 F.2d

1486, 1490-1491 (11th Cir. 1989), affg. Glass v. Commissioner, 87

T.C. 1087 (1986).

      A transaction that lacks substance is not recognized for

Federal tax purposes.     See ACM Partnership v. Commissioner, 157
                              - 40 -

F.3d 231, 247 (3d Cir. 1998), affg. in part and revg. in part

T.C. Memo. 1997-115; United States v. Wexler, 31 F.3d 117, 122

(3d Cir. 1994).   Denial of recognition means that such a

transaction cannot be the basis for a deductible expense.     See

United States v. Wexler, supra at 122.   Citing the Supreme

Court's decision in Gregory, the Court of Appeals for the

Eleventh Circuit in Kirchman v. Commissioner, supra, stated the

doctrine as follows:

          The sham transaction doctrine requires courts and
     the Commissioner to look beyond the form of a
     transaction and to determine whether its substance is
     of such a nature that expenses or losses incurred in
     connection with it are deductible under an applicable
     section of the Internal Revenue Code. If a
     transaction's form complies with the Code's
     requirements for deductibility, but the transaction
     lacks the factual or economic substance that form
     represents, then expenses or losses incurred in
     connection with the transaction are not deductible.
     [Id. at 1490.]

Because the transactional events at issue in this case actually

occurred, we limit our inquiry to the question of whether the

substance of the COLI transaction corresponds with its form.35

     35
      In Kirchman v. Commissioner, 862 F.2d 1486, 1492 (11th
Cir. 1989), affg. Glass v. Commissioner, 87 T.C. 1087 (1986), the
court observed:

          Courts have recognized two basic types of sham
     transactions. Shams in fact are transactions that
     never occur. In such shams, taxpayers claim deductions
     for transactions that have been created on paper but
     which never took place. Shams in substance are
     transactions that actually occurred but which lack the
                              - 41 -

     Section 163(a) provides that "There shall be allowed as a

deduction all interest paid or accrued within the taxable year on

indebtedness."   Court opinions have clearly established that a

lack of economic substance may operate to bar interest deductions

arising under section 163.   See Knetsch v. United States, 364

U.S. 361 (1960);36 United States v. Wexler, supra; Goldstein v.

Commissioner, 364 F.2d 734 (2d Cir. 1966), affg. 44 T.C. 284

(1965).   Interest payments are not deductible if they arise from

transactions "that can not with reason be said to have purpose,

substance, or utility apart from their anticipated tax

consequences."   Goldstein v. Commissioner, supra at 740; see also

Sheldon v. Commissioner, 94 T.C. 738 (1990).   "Such transactions

are said to lack 'economic substance.'"   Lee v. Commissioner, 155

F.3d 584, 586 (2d Cir. 1998) (quoting Jacobson v. Commissioner,

915 F.2d 832, 837 (2d Cir. 1990), affg. in part and revg. in part

T.C. Memo. 1988-341), affg. in part and remanding in part on

another ground T.C. Memo. 1997-172.

     The fact that an enforceable debt exists between the

     substance their form represents. * * *
     36
      In Knetsch v. United States, 364 U.S. 361 (1960), the
Court applied sec. 163(a) of the 1954 Code. The language of sec.
163(a) of the 1954 Code remained unchanged in the 1986 Code. See
sec. 163(a); see also United States v. Wexler, 31 F.3d 117, 123
(3d Cir. 1994).
                               - 42 -

borrower and lender is not dispositive of whether interest

arising from that debt is deductible under section 163.    Rather,

the overall transaction, of which the debt is a part, must have

economic substance before interest can be deducted.    See Lee v.

Commissioner, supra at 587; United States v. Wexler, supra at

125.    If this were not the rule, every tax shelter, no matter how

transparently sham, could qualify for an interest expense

deduction as long as there was a real creditor in the transaction

that demanded repayment.    Such a result would be "contrary to the

longstanding jurisprudence of sham shelters from Knetsch on

down."    Lee v. Commissioner, supra at 587.

       In determining whether a transaction or series of related

transactions constitute a substantive sham, both this Court and a

majority of the Courts of Appeals have utilized a flexible

analysis that focuses on two related factors, economic substance

apart from tax consequences, and business purpose.    See ACM

Partnership v. Commissioner, supra; Karr v. Commissioner, 924

F.2d 1018, 1023 (11th Cir. 1991); accord Casebeer v.

Commissioner, 909 F.2d 1360 (9th Cir. 1990), affg. in part and

revg. in part on another ground Larsen v. Commissioner, 89 T.C.

1229 (1987); James v. Commissioner, 899 F.2d 905, 908-909 (10th

Cir. 1990), affg. 87 T.C. 905 (1986); Shriver v. Commissioner,

899 F.2d 724, 727 (8th Cir. 1990), affg. T.C. Memo. 1987-627;
                               - 43 -

Rose v. Commissioner, 868 F.2d 851, 854 (6th Cir. 1989), affg. 88

T.C. 386 (1987); Kirchman v. Commissioner, supra; United Parcel

Serv. of Am., Inc. v. Commissioner, T.C. Memo. 1999-268.37

     Economic substance, in this context, is determined by

objective evaluation of changes in economic position of the

taxpayer (economic effects) aside from tax benefits.   See

Kirchman v. Commissioner, supra at 1492; accord Knetsch v. United

States, supra at 366 ("nothing of substance to be realized * * *

from this transaction beyond a tax deduction"); ACM Partnership

v. Commissioner, supra at 248; Sheldon v. Commissioner, supra.

The inquiry into whether there was a legitimate business purpose

involves a subjective analysis of the taxpayer's intent.     See ACM

Partnership v. Commissioner, supra at 247; Kirchman v.

Commissioner, supra at 1492.

     We will begin with an examination of the economic substance

of petitioner's 1993 COLI plan.   In doing so, we focus on the

COLI transaction in its entirety rather than any single step.

See Kirchman v. Commissioner, supra at 1493-1494.

     Petitioner's 1993 purchase of COLI on the lives of

approximately 36,000 of its employees was done pursuant to an

     37
      In certain situations courts have held that a transaction
that lacks economic substance, other than the production of a tax
benefit, is a substantive sham regardless of the motive of the
taxpayer. See Knetsch v. United States, supra at 365; Dewees v.
Commissioner, 870 F.2d 21, 35 (1st Cir. 1989); Kirchman v.
Commissioner, supra at 1492.
                              - 44 -

overall plan that projected costs and benefits for each year over

a 60-year period.   See appendixes A and B.   Petitioner also

recognized that circumstances might well change during that

period that would cause it to modify or terminate the plan.       In

fact, the COLI plan was impacted by legislation in 1996, and the

COLI policies were terminated in 1997.     However, for the first 2

years, the COLI plan was followed and it produced results that

were consistent with plan projections.38    We will, therefore,

examine the economic substance of the COLI transactions by

analyzing the projections that reflect the plan.

     Shortly after having been approached by WJ/Coventry

regarding proposals for COLI to be purchased from AIG, petitioner

decided that it was interested in what was described as a "zero-

cash strategy".   This strategy was based on an elaborate plan

involving the purchase of life insurance on the lives of over

36,000 of petitioner's then current employees.    The plan was

complex and depended upon relationships between many factors,

including number of lives insured, premium levels, policy

expenses, rates of interest to be charged and credited, policy

loans, cash surrender values, withdrawals from cash surrender

     38
      The instant case involves deductions for accrued interest
and fees in the first plan year. The first year of the COLI
insurance began on Mar. 1, 1993, and ended on Feb. 28, 1994. The
deductions in issue were based on an allocation of the interest
and fees that had accrued during petitioner's taxable year ended
June 30, 1993.
                               - 45 -

values, and death benefits.    Petitioner was to be the owner and

beneficiary of the policies.   Detailed projections were prepared

to demonstrate the financial impact of the plan.     The projections

assumed a high rate of interest (11.06 percent) would be charged

to petitioner on its policy loans.      This would be countered by a

high rate of interest to be credited to petitioner on the portion

of the gross cash surrender value that petitioner had borrowed

against.   The crediting rate was 40 basis points below the rate

charged to petitioner on its policy loans (10.66 percent).     The

rate to be credited on the unborrowed portion of the gross cash

surrender value was 4 percent.   Policy loans by petitioner would

be used to pay most of the premiums and interest with the result

that petitioner's net equity in the policies would remain

relatively small.   Death benefits would be applied to reduce

outstanding policy loans.

     The profit and loss statements in the projections illustrate

the pretax effect and the after-tax effect that the COLI plan

would have on petitioner.   The difference between pretax and

after-tax effects was based on the income tax savings that would

result from deducting policy loan interest and administrative

fees.   Policy loan interest was clearly the dominant element.

All the various projections prepared before the actual purchase

of the policies in June 1993 show that the pretax effect on
                               - 46 -

petitioner for each policy year was a loss and that the after-tax

effect was a significant profit.

     The projections submitted to petitioner on June 4, 1993,

were prepared just before petitioner's purchase of the COLI

policies in June 1993.    These projections are attached as

appendix B.    We shall use figures from the projections in

appendix B to illustrate the COLI plan's lack of economic

substance.

     The elements of the COLI plan and their projected impact on

petitioner at the completion of the first policy year were as

follows.    Petitioner would make a premium payment of $108,573,000

and simultaneously borrow $101,328,000 against the policy.    This

required petitioner to pay the balance of $7,245,000 to AIG to

satisfy the premium.    At the end of the policy year, interest

accrued on petitioner's policy loans would be $11,191,000, and

petitioner would also have incurred administrative fees of

$290,000.    What benefit was petitioner to get for these costs?

At the end of the first policy year, the COLI policies would have

net cash surrender value of $11,287,000.    In addition, based on

actuarial determinations, petitioner expected death benefits from

the COLI policies in the first year to be $3,250,000.39   Based on

the combination of these first-year costs and benefits, the net

     39
      Under the terms of the policies, death benefits from a
policy would first be used to reduce any outstanding loan.
                                   - 47 -

effect of the COLI plan was a first-year loss40 of $4,188,000

computed as follows:

             Net premium payment                 $7,245,000
             Interest on policy loan             11,191,000
             Administrative fees                    290,000
                                                 18,726,000

     Less:   Net cash surrender value            11,287,000
             Death benefits                       3,250,000
                                                 14,537,000
                                                  1
             Loss                                  4,189,000
           1
             The June 1993 projection shows $4,188,000.   This is apparently
     due to rounding or a math error.

Following the same approach, the June 1993 projections show the

COLI plan producing pretax losses in the next 2 policy years of

$7,885,000 and $10,869,000, respectively.             Thereafter, the pretax

losses over the next 57 years range from $6,244,000 in the last

year to $16,447,000 in year 2021.         The total of pretax losses for

the projected 60 years was $681,922,000.          In each and every year,

the combined yearly pretax benefits from the policies; i.e., the

expected death benefits from the 36,000 policies plus the year-

end net equity value of the policies, were substantially less

than petitioner's cost of maintaining the policies.

     The next part of the June 1993 profit and loss projections

illustrates the "tax effect" of the COLI plan.            The profit and

loss statement contained in the June 1993 projections shows

     40
      The projections refer to the loss as negative pretax
earnings.
                                 - 48 -

first-year income tax savings from the COLI plan of $4,480,000.

This amount is composed of tax savings of $4,368,000 attributable

to a deduction of accrued first-year interest on policy loans of

$11,191,000 and tax savings of $113,000 attributable to a

deduction of first-year administrative fees of $290,000.     Based

on this, the projected "after-tax earnings effect" for the first

policy year was $292,000.41     Similar projections for each of the

following 59 years show that while the "pretax earnings effect"

of the plan resulted in losses, the "after-tax earnings effect"

continued to be positive in each year reaching its peak in the

year 2008 when the "after-tax earnings effect" would be

$63,965,000.     This amount was arrived at by subtracting the

pretax loss of $9,182,000 from projected income tax savings of

$73,146,000.42     The projected income tax savings of $73,146,000

were attributable to tax deductions for interest of $187,279,000

and administrative fees of $276,000.      The June 1993 projections

indicate that had the 1993 COLI plan remained in effect through

the year 2052, petitioner's total pretax loss over 60 years would

have been $681,922,000 but that the total tax saved because of

policy loan interest and fee deductions would have exceeded $3

     41
      The above figures were taken from the June 1993
projections reflected in appendix B. The totals vary by $1,000,
apparently due to rounding off the last three digits.
     42
          See supra note 41.
                                - 49 -

billion, resulting in a total "after-tax earnings effect" of more

than $2 billion.

     The June 1993 projections contain a cash-flow analysis for

each policy year from 1993 to 2052.      The structure of the zero-

cash strategy was intended to produce a positive after-tax cash-

flow for each policy year.     Thus for the first year, the plan was

to produce a positive cash-flow of $196,000 after factoring in

tax savings from deducting policy loan interest and fees.43

Without the savings from these deductions, there would have been

a negative cash-flow of over $4 million.     The projections show

increasing positive after-tax cash-flows for each of the

following 59 years.   Projected after-tax cumulative cash-flow for

the entire 60-year period was more than $2 billion.     Cumulative

net equity at the end of each year varied, rising in some years

and falling in others but, because of the policy loans and

withdrawals, remained relatively small in relationship to the

numbers in the overall plan.    For example, cumulative net equity

     43
      In addition, the plan would result in petitioner’s having
a cumulative net equity in the COLI policies at the end of the
first policy year of $96,000. Cumulative net equity was the
gross surrender value of the policies minus outstanding policy
loans and accrued policy loan interest. Gross cash surrender
value of $112,471,000 minus the sum of the outstanding loan of
$101,184,000 and accrued loan interest of $11,191,000 equals
$96,000. See appendix B, Balance Sheet Summary. The combination
of cumulative net equity and positive cash-flow equals the
projected positive after-tax earnings effect of $292,000.
$96,000 plus $196,000 equals $292,000.
                              - 50 -

after 15 years was projected to be $498,000, whereas cumulative

positive cash-flow was projected to be $289,263,000.   See

appendix B, Cash Flow.   Without the tax savings from tax

deductions for policy loan interest and fees, there would have

been a substantial negative cash-flow in each year, and the costs

of maintaining the COLI plan would have greatly exceeded

benefits.

     We recognize that one of the normal benefits of life

insurance is the death benefit to be received if the insured dies

before the insured's actuarially determined life expectancy.

Thus, the predictable cost of maintaining life insurance might be

greater than predictable death benefits and still be justified by

the financial protection that insurance provides against the

financial consequences of the unexpected death of the insured.

But as we discuss later, petitioner had no such reason or purpose

for engaging in the 1993 COLI program.   Petitioner suggests that

the policies could conceivably produce tax-independent benefits

if some catastrophe were to occur that would produce large,

unexpected death benefits.   We are convinced that this was so

improbable as to be unrealistic and therefore had no economic

significance.   Indeed, petitioner makes no pretense that it

purchased these policies in anticipation of, or to protect itself

against, a catastrophic event.   The policies were on the lives of

36,000 individual employees of various ages who lived in diverse
                                - 51 -

locations.    The insured employees' lives were to remain insured

even after their employment was terminated.     The anticipated

mortality of this large group was actuarially determined, and

both AIG and petitioner engaged in the COLI transactions based on

these actuarial expectations.    While there would obviously be

some variation in the actual mortality of the insured population,

such variations were not expected to significantly affect the

plan.   And as explained later, the function of the claims

stabilization reserve was to ameliorate fluctuations in actual

mortality experience.

     Economic substance depends on whether, from an objective

standpoint, the transaction was likely to produce economic

benefits aside from tax deductions.      See Kirchman v.

Commissioner, 862 F.2d at 1492; Bail Bonds by Marvin Nelson, Inc.

v. Commissioner, 820 F.2d 1543, 1549 (9th Cir. 1987), affg. T.C.

Memo. 1986-23.    Viewing the COLI plan as a whole, we find that

the only function of the plan was to produce tax deductions in

order to reduce petitioner's income tax liabilities.       Without the

tax deductions, the plan as designed would produce a negative

cash-flow and a negative earnings effect for petitioner in each

and every year the plan was in effect.     Consequently, the COLI

transactions lacked economic substance apart from producing tax

deductions.
                              - 52 -

     In determining whether a transaction should be respected for

tax purposes, we also look to whether the taxpayer had a business

purpose for engaging in the transaction other than tax avoidance.

See Frank Lyon Co. v. United States, 435 U.S. 561, 583-584

(1978); Kirchman v. Commissioner, supra at 1492; Bail Bonds by

Marvin Nelson, Inc. v. Commissioner, supra at 1549.   Petitioner

argues that it had an economic objective and valid business

purposes for entering into the COLI transaction other than tax

avoidance.   Petitioner alleges that before entering into the 1993

COLI transaction, it had become concerned with increasing costs

associated with its Winn-Flex program and that it decided to

implement the COLI program as a mechanism for obtaining funds to

pay such costs.

     Before entering into the COLI transaction, there were

numerous versions of profit and loss and cash-flow projections,

which were consistently formatted so that petitioner could

compare the pretax earnings effect to the post-tax earnings

effect.   Petitioner requested multiple versions of the

projections at various estimated combined Federal and State

marginal tax rates in order to see what effect a change in rates

would have on the proposed COLI transaction.   On the other hand,

petitioner produced no contemporaneously prepared documents

indicating that it purchased the 1993 COLI policies in order to

provide a source for funding its Winn-Flex obligations.   Unlike
                              - 53 -

the policies used to fund petitioner's obligations under its

Management Security Program, the individual 1993 COLI policies

were not tailored to fund benefits due the insured employees

under Winn-Flex.   Indeed, the policies were to remain in effect

after the individual employees left petitioner's employ.   In

planning for and setting up the COLI plan, petitioner's financial

vice president and principal financial officer, Mr. McCook, never

told the individuals at WJ/Coventry, who were planing the COLI

transactions, about any purpose or objective to use the COLI plan

to fund benefits under Winn-Flex.

     On brief, petitioner argues that death benefits and policy

loans and withdrawals from the net cash value of COLI policies

could be used to help fund Winn-Flex.   However, the projections,

which embody petitioner's broad-based COLI plan, show that

anticipated death benefits and net cash values were going to be

exhausted in order to satisfy petitioner's premiums and policy

loan interest obligations.   According to petitioner's COLI plan,

there would be no death benefits and cash value left over to

provide the necessary funding for Winn-Flex.   Indeed, the COLI

plan anticipated that after using available death benefits,

policy loan proceeds, and withdrawals, petitioner would still be

required to make annual cash payments in order to satisfy its

annual premium and policy loan interest obligations.   We do not
                               - 54 -

believe that petitioner purchased the COLI policies to fund Winn-

Flex.

     In his testimony, Mr. McCook made it clear that his focus

was on the bottom line, after-tax earnings impact, of the COLI

plan and the resulting positive cash-flow that the tax deductions

were expected to generate.   Referring to the January 27, 1993,

projections of profit and loss prepared by Coventry (appendix A),

Mr. McCook testified that he expected that by the 15th year the

annual financial benefit of the COLI transaction would offset the

annual costs of petitioner's Winn-Flex obligations.   According to

the January 27, 1993, projection of profit and loss (appendix A),

there was a pretax loss in each year of the 60 years in the

projection.   The pretax loss for the 15th year (2007) was

$14,178,000, and the cumulative pretax loss for the first 15

years was $148,483,000.   The January 27, 1993, projection of

profit and loss showed a profit for the year 2007 only after

considering the tax savings from the policy loan interest and fee

deductions.   The projected after-tax profit from the COLI plan

for 2007 was $64,479,000.    When Mr. McCook identified the amount

he believed would be available to fund the annual costs of Winn-

Flex, he referred to the $64,479,000 amount of projected after-

tax earnings from the COLI program for the year 2007.   This

amount was produced by loan interest and fee deductions.     A tax

savings generated by the COLI plan was the only reason the plan
                              - 55 -

produced positive earnings and cash-flow.     Indeed, petitioner's

internal records show that petitioner viewed the 1993 COLI plan

as an "Expense Reduction Opportunity", that would produce

estimated savings of $300 million.44   The only "expense" that was

reduced by the COLI plan was petitioner's income tax liability.

     Even if we were to accept Mr. McCook's testimony that he

intended to use tax savings to fund Winn-Flex, that would not

cause the COLI plan to have economic substance.45    If this were

sufficient to breathe substance into a transaction whose only

purpose was to reduce taxes, every sham tax-shelter device might

succeed.   Petitioner's benefit from the COLI plan was dependent

on the projected interest and fee deductions that would offset

income from petitioner's normal operations.    The possibility that

such tax benefits could have been used as a general source of

funds for petitioner's Winn-Flex obligations (or any other

business purpose) does not alter the fact that the COLI plan

     44
      When Mr. McCook was asked how the $300 million was
derived, he testified that he thought that it was the total of
the "After-tax Savings" figures listed in the Jan. 27, 1993,
projections. These Jan. 27, 1993, projections are contained in
appendix A, Profit and Loss Statement. The after-tax earnings
referred to by Mr. McCook are in column J. The total after-tax
earnings for the policy years 1993 through 2007 are slightly more
than $300 million. The total projected after-tax earnings for
the years 1993 through 2052 are more than $2 billion.
     45
      We note that none of these tax savings were   earmarked for
funding Winn-Flex. They were simply projected to    reduce
petitioner's tax liabilities and thereby increase   petitioner's
after-tax profits by more than $2 billion over 60   years.
                               - 56 -

itself had only one function and that was to generate tax

deductions which were to be used to offset income from its

business and thereby reduce petitioner's income tax liabilities

in each year.

     Petitioner also argues that the purchase of the COLI

policies permitted it to increase group life benefits offered to

Winn-Flex participants.    It is true that petitioner offered an

additional $5,000 in life insurance benefits to employees who

agreed to allow petitioner to purchase COLI policies on their

lives.   However, this was done at the suggestion of Coventry in

order to obtain the employees' consent to have their lives

insured.   There was no relationship between death benefits under

the COLI policies and the relatively small $5,000 employee death

benefit.   All policies bore a $3,000 annual premium, and death

benefits under the policies were based on that premium amount and

the age of the employee.    Also, petitioner had a high turnover

among its employees, and the $5,000 death benefit expired when

the insured's employment with petitioner ended.    As a result,

Coventry advised petitioner that the additional $5,000 in

coverage could be provided at an insignificant cost.    Based on

the record, we do not believe that the purpose of the COLI plan

was to fund employee benefits.

     Petitioner's COLI plan required a relatively small amount of

cash investment by petitioner and charged a high rate of interest
                              - 57 -

on petitioner's policy loans based on the assumption that

petitioner's "appetite for interest deductions remains large".

The projections showed that the COLI plan would generate positive

cash-flows and earnings only because of the tax benefit

associated with the interest and fee deductions.     Tax

considerations permeated the planning stages of petitioner's

COLI.   When the broad-based COLI plan was first explained to him,

Mr. McCook recognized that it was a tax shelter.     Mr. McCook's

primary concern was to achieve a positive cash-flow.       The only

way a positive cash-flow could be achieved was through the

deduction of interest on policy loans.     This is why petitioner

concentrated on its ability to deduct loan interest and the

availability of "exit strategies" in the event new legal

restrictions on deductions were enacted or petitioner's

"appetite" for interest deductions diminished.

     Following the enactment of tax law changes in August 1996,

which greatly restricted employers' deductions for interest on

loans from company-owned life insurance policies on the lives of

employees, petitioner terminated its COLI program.     See Health

Insurance Portability and Accountability Act of 1996, Pub. L.

104-191, sec. 501, 110 Stat. 2090.     The 1996 change in the tax

law caused petitioner's COLI program to become a financial burden

because it specifically prohibited the deduction of policy loan

interest under petitioner's plan.    After the 1996 tax law change,
                                    - 58 -

none of petitioner's purported business purposes affected

petitioner's decision to terminate the COLI program.

        Petitioner cites Campbell v. Cen-Tex, Inc., 377 F.2d 688

(5th Cir. 1967), as controlling precedent in this case.46

Petitioner's reliance on this case is misplaced.        Cen-Tex was a

family-owned corporation that had entered into deferred

compensation arrangements, which obligated it to provide payments

to the surviving spouse or lineal descendants of employee

stockholders and to purchase and redeem stock of deceased

stockholders.       Cen-Tex decided to meet these obligations by

purchasing insurance on the lives of the employee stockholders.

Cen-Tex paid the first annual premium on each policy and prepaid

the next four annual premiums, discounted at 3 percent, and then

borrowed against the value on each of the policies at a 4-percent

rate.        See id. at 689.   The court allowed deductions for interest

on the policy loans.

        Cen-Tex, Inc. is clearly distinguishable from petitioner's

case. The parties in Cen-Tex, Inc. stipulated that the insurance

policies at issue were procured to assist in meeting the

obligations of the taxpayer under its deferred compensation plan

and its obligations under the stock option and redemption

        46
      Petitioner's case is appealable to the Court of Appeals
for the Eleventh Circuit. Decisions of the Court of Appeals for
the Fifth Circuit that were handed down prior to Sept. 30, 1981,
are generally binding as precedent in the Eleventh Circuit.
Bonner v. City of Pritchard, 661 F.2d 1206 (11th Cir. 1981).
                              - 59 -

agreement, as well as for the general objective of having

insurance on its key employees and stockholders.   Based on this

concession, the court found there was a bona fide nontax business

purpose and economic objective to be served by the insurance.

See id.   The court also found that the transaction produced

benefits other than tax benefits.   The court concluded that "The

policies purchased provided for a beneficial interest.   The

transaction was not without economic value, economic

significance, economic substance, or commercial substance."

Campbell v. Cen-Tex, Inc., supra at 692 (fn. refs. omitted).

     In contrast to Campbell v. Cen-Tex, Inc., supra, we have

found that no nontax purpose was served by the COLI transactions.

The projections for the COLI policies contemplated a substantial

pretax loss in each year, even after considering the projected

death benefits and net cash surrender value of the policies.

Only by deducting the policy loan interest and fees and reducing

its income tax could petitioner anticipate any benefit from its

COLI transactions.   Without the tax benefits of the policy loan

interest and fee deductions being generated by the COLI plan,

petitioner's plan would have generated a predictable negative

cash-flow and pretax loss in each of the 60 years projected.

This predictable result precludes any economic value, economic
                              - 60 -

significance, economic substance, or commercial substance other

than the tax benefit.

     Based upon all the aforementioned considerations, we find

that petitioner purchased the COLI policies in 1993 pursuant to a

plan the only function of which was to generate interest and fee

deductions in order to offset income from other sources and

thereby significantly reduce its income tax liability.   We hold

that petitioner's 1993 broad-based COLI program lacked substance

and was a sham.

     Petitioner argues that lack of economic substance does not

warrant disallowing the interest deduction in question because

deductions for interest on life insurance policy loans were

condoned by Congress as indicated by the safe harbor test of

section 264 and its legislative history.   Petitioner argues that

the legislative history shows that Congress clearly accepted the

deductibility of interest on corporate-owned life insurance

products that satisfy the safe harbor tests of section 264.

Petitioner maintains that because its COLI policies were life

insurance contracts within the meaning of section 7702 and its

pattern of borrowing from the policies satisfied the "four-of-

seven test" of section 264(c)(1), its loan interest is deductible

under section 163.   Petitioner also argues that because Congress,

through legislation in 1996, further extended its denial of

deductions associated with interest payments on COLI policy
                                 - 61 -

loans, petitioner was not barred from taking such deductions

prior to 1996.

     Section 264(a)(3) generally provides that no deduction is

allowed for amounts paid or accrued on indebtedness incurred to

purchase a life insurance contract if such debt was incurred

pursuant to a plan of purchase which contemplates the systematic

borrowing of increases in the cash value of the insurance

contract.     Section 264(c)(1) provides an exception to the general

rule under section 264(a)(3).     Section 264(c)(1) provides that if

no part of any four annual premiums due in the first 7-year

period of an insurance contract is financed by means of

indebtedness, then the general rule of section 264(a)(3) will not

apply.47

     47
          In pertinent part, sec. 264(a) provides:

     SEC. 264(a) General Rule.--No deduction shall be
     allowed for--

                 *     *     *     *      *    *     *

                  (3) Except as provided in subsection
             (c), any amount paid or accrued on
             indebtedness incurred or continued to
             purchase or carry a life insurance,
             endowment, or annuity contract (other than a
             single premium contract or a contract treated
             as a single premium contract) pursuant to a
             plan of purchase which contemplates the
             systematic direct or indirect borrowing of
             part or all of the increases in the cash
             value of such contract (either from the
             insurer or otherwise).
                              - 62 -

The parties refer to this exception as the "four-of-seven test".

The parties agree that petitioner's COLI policies meet the

requirements of the four-of-seven test.48   The parties disagree

              *     *     *     *      *     *     *

     (c) Exceptions.--Subsection (a)(3) shall not apply to
     any amount paid or accrued by a person during a taxable
     year on indebtedness incurred or continued as part of a
     plan referred to in subsection (a)(3)--

               (1) if no part of 4 of the annual
          premiums due during the 7-year period
          (beginning with the date the first premium on
          the contract to which such plan relates was
          paid) is paid under such plan by means of
          indebtedness,

                (2) if the total of the amounts paid or
          accrued by such person during such taxable
          year for which (without regard to this
          paragraph) no deduction would be allowable by
          reason of subsection (a)(3) does not exceed
          $100,

               (3) if such amount was paid or accrued
          on indebtedness incurred because of an
          unforeseen substantial loss of income or
          unforeseen substantial increase in his
          financial obligations, or

               (4) if such indebtedness was incurred in
          connection with his trade or business.

     For purposes of applying paragraph (1), if there is a
     substantial increase in the premiums on a contract, a
     new 7-year period described in such paragraph with
     respect to such contract shall commence on the date the
     first such increased premium is paid.
     48
      The parties also agree that petitioner's COLI policies
meet the definition of a life insurance contract for purposes of
                               - 63 -

as to whether satisfaction of the requirements of section 264(a)

and (c) authorizes a deduction of the interest expenses arising

out of a transaction that otherwise is without substance.

     An argument similar to petitioner's was made in Knetsch v.

United States, 364 U.S. 361 (1960).     In Knetsch, the Court found

that the taxpayer's purchase of annuity contracts and

simultaneous loans from an insurance company was a sham that did

not give rise to deductible interest.     Nevertheless, like

petitioner, the taxpayer in Knetsch contended that by enacting

section 264 as part of the 1954 Code, Congress "authorized" the

interest deductions for transactions prior to the effective date

of the 1954 Code.    See id. at 367.    Section 264(a)(2), as enacted

in 1954, denied a deduction for amounts paid on indebtedness

incurred to purchase or carry a single premium annuity contract,

but only as to contracts purchased after March 1, 1954, the date

of enactment.   See id.   From this the taxpayers reasoned that

Congress intended to allow interest deductions for such

transactions occurring prior to March 1, 1954, regardless of

their substance.    The Supreme Court disagreed, concluding that

unless such meaning plainly appeared from the statute and its

legislative history, the Court would not attribute such an intent

to Congress, for "'To hold otherwise would be to exalt artifice

above reality and to deprive the statutory provision in question

sec. 7702.
                               - 64 -

of all serious purpose.'"    Id. (quoting Gregory v. Helvering, 293

U.S. at 470).

     A taxpayer's right to a deduction for interest on an

insurance policy loan is based on section 163, not section 264.

Golsen v. Commissioner, 54 T.C. 742, 755 (1970), affd. 445 F.2d

985 (10th Cir. 1971).   Section 264 does not confer the right to a

deduction but simply denies, disallows, or prohibits deductions

that might otherwise be allowable under some other provision.

See id. at 756.   Thus, while the parties agree that petitioner's

COLI plan meets the "four-of-seven test" of section 264(c)(1) and

would be excepted from the general disallowance rule of section

264(a)(3), section 264 does not confer a right upon petitioner to

take the deduction that would not otherwise be allowable under

section 163.

     Petitioner cites the Senate Finance Committee's report

discussing the scope of section 264 prior to the 1964 amendment.

The report states that "under present law, no interest deductions

are denied where the taxpayer purchases an insurance contract

with the intention of borrowing the maximum amount on the

contract each year".    S. Rept. 830, 88th Cong., 2d Sess. (1964),

1964-1 C.B. (Part 2) 505, 581.   Based on this, petitioner argues

that Congress did not view the Supreme Court's decision in

Knetsch as foreclosing interest deductions based on the type of
                             - 65 -

sham transactions involved in this case.   A similar argument was

advanced in McLane v. Commissioner, 46 T.C. 140 (1966), affd. 377

F.2d 557 (9th Cir. 1967), where the taxpayers had engaged in a

series of transactions similar to those in the instant case.    In

the Revenue Act of 1964, Pub. L. 88-272, sec. 215(a), 78 Stat.

55, Congress added subsection (a)(3) of section 264 to address

problems associated with amounts paid or accrued on indebtedness

incurred with respect to several types of insurance contracts

pursuant to a plan of systematic borrowing.   In McLane v.

Commissioner, supra at 144-145, we considered the same passage

from the Senate Finance Committee report that petitioner cites

and stated:

          Based upon the foregoing, petitioner by a tour de
     force concludes that: (a) The 1958 transaction herein
     is the type of abuse meant to be curbed by subsection
     (a)(3), but only prospectively; (b) the legislative
     history expressly confirms his assertion that the
     deduction flowing from this abuse was allowable under
     prior law; and (c) the 'interest' involved herein is
     therefore deductible.

          We agree with petitioners that the 1958
     transaction in form fell within the class of
     transactions at which subsection (a)(3) was aimed. But
     we do not agree with his assertion that the legislative
     history should be turned into an open-ended license
     applicable without regard to the substance of the
     transaction. Nor do we agree with the assertion that,
     if Knetsch and Pierce, were controlling with respect to
     post-1958 multiple-premium annuities, there would have
     been no need for further legislation in 1964. Knetsch
     and Pierce involved transactions without substance.
     Congress, in enacting section 264(a)(3), struck at
     transactions with substance. It is a reductio ad
     absurdum to reason, as petitioner does, that Congress
     simultaneously struck down a warm body and breathed
                                - 66 -

     life into petitioner's cadaver.     [Fn. ref. omitted.]

     Petitioner attempts to supplement its argument by citing

additional legislative materials related to changes or proposed

changes to section 264 in 1984, 1986, 1987, 1988, 1990, 1991, and

1996.     We need not address each of the changes and proposals

regarding interest deductions on life insurance policy loans.     It

is clear that Congress and the Treasury Department were aware of

the problems associated with interest deductions on life

insurance loans.     However, we are not persuaded that Congress, by

enacting and amending section 264 or other related provisions

that restrict the deductibility of interest, intended to allow

interest deductions under section 163 based on transactions that

lacked either economic substance or business purpose.     In

Knetsch, the Supreme Court noted that nothing in the legislative

history of section 264 suggests that Congress intended to protect

sham transactions.     Similarly, we find nothing in the more recent

legislative history of section 264 suggesting that Congress

intended to allow deductions arising from sham transactions that

lacked economic substance and business purpose.

        The transactions associated with petitioner's COLI program

lacked economic substance and business purpose (other than tax

reduction).     As a result, the interest on petitioner's COLI loans

was not deductible interest on indebtedness within the meaning of
                              - 67 -

section 163.   The same reasoning applies to the administrative

fees associated with the COLI plan.49   They were incurred in

connection with, and were an integral part of, a sham transaction

and, as a result, are not deductible.   See Karr v. Commissioner,

924 F.2d at 1022-1023; Kirchman v. Commissioner, 862 F.2d 1486;

Lee v. Commissioner, 155 F.3d 584 (2d Cir. 1998).     We, therefore,

uphold respondent's disallowance of these deductions.

                                         Decision will be entered

                                    under Rule 155.

     49
      Respondent argues that the administrative fees should be
disallowed pursuant to sec. 265. Because we have held that the
administrative fees must be disallowed as the product of a sham,
we have no need to consider disallowance under sec. 265.
                                                                          - 68 -

                                                                        Appendix A

  Scenario 1 - Constant Loan Interest Rate
  Profit and Loss Statement
  (dollars in thousands except earnings per share)

                                            Pre-Tax Effect                                                        Tax Effect
              (A)           (B)          (C)      (C1)         (D)       (E)            (F)     (G)       (H)      (I)        (J)          (K)
                           Annual      Accrued Deductible                            Pre-Tax   Policy   Admin.
               Net          CSV         Loan      Loan                              Earnings    Loan      Fee       Tax    After-Tax    After-Tax
             Annual      Increase/    Interest Interest       Death     Admin.        Effect    Tax       Tax     Effect    Earnings     Earnings
Year       (Premium)*   (Decrease)   (Payment) (Payment)     Benefits    Fee       A+B+C+D+E   Credit    Credit     G+H      Effect    Per Share**[1]

1993        (114,000)     119,586     (11,902)    (11,902)    2,016     (304)       (4,605)     4,524    116       4,640        35        0.00
1994        (112,280)     126,513     (24,486)    (24,486)    2,155     (304)       (8,403)     9,308    115       9,423     1,021        0.01
1995         (99,121)     122,492     (36,661)    (36,661)    2,312     (304)      (11,282)    13,936    115      14,052     2,770        0.04
1996          23,952          (29)    (36,633)    (36,633)    2,614     (303)      (10,399)    13,926    115      14,041     3,642        0.05
1997          24,182          (30)    (36,602)    (36,602)    2,756     (303)       (9,997)    13,915    115      14,030     4,033        0.05
1998          24,411          (32)    (36,570)    (36,570)    2,934     (303)       (9,559)    13,903    115      14,018     4,458        0.06
1999          24,340          (35)    (36,535)    (36,535)    3,152     (303)       (9,381)    13,890    115      14,005     4,624        0.06
2000        (113,380)     152,293     (51,654)    (51,654)    3,287     (302)       (9,756)    19,639    115      19,753     9,997        0.13
2001        (113,264)     168,363     (68,351)    (68,351)    3,595     (302)       (9,959)    25,988    115      26,103    16,143        0.21
2002        (113,137)     185,941     (86,771)    (86,771)    3,959     (302)      (10,310)    32,994    115      33,108    22,799        0.30
2003        (112,997)     205,253    (107,079)   (107,079)    4,399     (301)      (10,725)    40,718    115      40,833    30,108        0.39
2004        (112,841)     226,309    (129,436)   (129,436)    4,911     (301)      (11,358)    49,224    114      49,338    37,980        0.50
2005        (112,667)     249,264    (154,019)   (154,019)    5,508     (300)      (12,215)    58,578    114      58,692    46,477        O.61
2006        (112,472)     274,461    (181,034)   (181,034)    6,194     (300)      (13,151)    68,860    114      68,974    55,822        0.73
2007        (112,253)     302,091    (210,699)   (206,693)    6,983     (299)      (14,178)    78,543    114      78,657    64,479        0.84
2008            0         213,785    (231,471)   (206,209)    7,851     (299)      (10,134)    78,359    113      78,473    68,339        0.89
2009            0         234,409    (254,176)   (205,666)    8,796     (298)      (11,269)    78,153    113      78,266    66,998        0.87
2010            0         257,067    (278,992)   (205,060)    9,803     (297)      (12,420)    77,923    113      78,036    65,616        0.86
2011            0         281,888    (306,108)   (204,387)   10,864     (296)      (13,653)    77,667    113      77,780    64,127        0.84
2012            0         309,092    (335,731)   (203,644)   11,961     (295)      (14,973)    77,385    112      77,497    62,524        0.82
2013            0         338,897    (368,084)   (202,828)   13,091     (294)      (16,390)    77,075    112      77,186    60,796        0.79
2014            0         371,620    (403,420)   (201,938)   14,253     (293)      (17,839)    76,736    111      76,848    59,009
2015            0         408,917    (442,145)   (200,971)   15,448     (291)      (18,071)    76,369    111      76,480    58,409
2016            0         449,906    (484,575)   (199,926)   16,673     (290)      (18,285)    75,972    110      76,082    57,797
2017            0         494,902    (531,044)   (198,799)   17,938     (288)      (18,492)    75,544    110      75,653    57,161        0.75
2018            0         544,368    (581,916)   (197,588)   19,289     (287)      (18,546)    75,084    109      75,192    56,647        0.74
2019            0         598,625    (637,563)   (196,285)   20,777     (285)      (18,446)    74,588    108      74,696    56,250        0.73
2020            0         657,819    (698,339)   (194,878)   22,461     (283)      (18,342)    74,054    108      74,161    55,819        0.73
2021            0         722,246    (764,590)   (193,354)   24,397     (281)      (18,228)    73,474    107      73,581    55,353        0.72
2022            0         792,208    (836,648)   (191,694)   26,615     (279)      (18,103)    72,844    106      72,950    54,846        0.72

*Total annual premium less annual withdrawal.
**Based on 76.6 million shares outstanding.
All figures are estimates. Actual results will depend upon mortality, interest rates and dividends.

__________________________________
       1
        Blank space indicates that there was no legible figure in underlying exhibit.
                                                                             - 69 -

  Scenario 1 - Constant Loan Interest Rate
  Profit and Loss Statement
  (dollars in thousands except earnings per share)

                                            Pre-Tax Effect                                                           Tax Effect
              (A)           (B)           (C)          (C1)       (D)       (E)            (F)    (G)        (H)      (I)        (J)          (K)
                           Annual       Accrued    Deductible                           Pre-Tax   Policy   Admin.
               Net          CSV          Loan          Loan                            Earnings    Loan      Fee       Tax    After-Tax    After-Tax
             Annual      Increase/     Interest      Interest    Death     Admin.        Effect    Tax       Tax     Effect    Earnings     Earnings
Year       (Premium)*   (Decrease)    (Payment)     (Payment)   Benefits    Fee       A+B+C+D+E   Credit    Credit     G+H      Effect    Per Share**[1]

2023           0          867,928      (914,804)   (189,879)     29,184    (276)      (17,968)    72,154     105     72,259    54,291         0.71
2024           0          949,613      (999,303)   (187,885)     32,146    (273)      (17,817)    71,396     104     71,500    53,683         0.70
2025           0        1,037,393    (1,090,314)   (185,684)     35,546    (270)      (17,645)    70,560     103     70,662    53,017         0.69
2026           0        1,131,328    (1,187,917)   (183,247)     39,410    (267)      (17,446)    69,634     101     69,735    52,289         0.68
2027           0        1,231,384    (1,292,076)   (180,544)     43,740    (263)      (17,215)    68,607     100     68,707    51,492         0.67
2028           0        1,337,543    (1,402,677)   (177,547)     48,446    (259)      (16,946)    67,468      98     67,567    50,620         0.66
2029           0        1,449,715    (1,519,519)   (174,238)     53,415    (255)      (16,643)    66,210      97     66,307    49,664         0.65
2030           0        1,567,742    (1,642,320)   (170,601)     58,634    (250)      (16,193)    64,829      95     64,923    48,730         0.64
2031           0        1,691,227    (1,770,698)   (166,634)     64,628    (244)      (15,086)    63,321      93     63,414    48,327         0.63
2032           0        1,819,004    (1,904,072)   (162,337)     68,762    (238)      (16,545)    61,688      90     61,778    45,233         0.59
2033           0        1,953,020    (2,041,845)   (157,710)     73,819    (232)      (15,238)    59,930      88     60,018    44,780         0.58
2034           0        2,089,112    (2,182,737)   (152,749)     79,081    (225)      (14,769)    58,044      85     58,130    43,361         0.57
2035           0        2,226,401    (2,325,080)   (147,440)     84,576    (217)      (14,320)    56,027      83     56,110    41,789         0.55
2036           0        2,362,737    (2,466,685)   (141,768)     90,329    (209)      (13,828)    53,872      80     53,952    40,124         0.52
2037           0        2,495,443    (2,604,815)   (135,720)     96,292    (201)      (13,281)    51,574      76     51,650    38,369         0.50
2038           0        2,621,661    (2,736,378)   (129,288)    102,236    (192)      (12,674)    49,130      73     49,203    36,529         O.48
2039           0        2,738,347    (2,858,051)   (122,486)    107,873    (182)      (12,013)    46,545      69     46,614    34,601         0.45
2040           0        2,842,259    (2,966,346)   (115,340)    112,947    (172)      (11,312)    43,829      65     43,895    32,582         0.43
2041           0        2,930,135    (3,057,756)   (107,898)    117,200    (162)      (10,583)    41,001      61     41,063    30,479         0.40
2042           0        2,998,802    (3,128,893)   (100,220)    122,567    (151)       (7,675)    38,084      57     38,141    30,466         0.40
2043           0        3,033,490    (3,175,595)    (92,381)    136,378    (139)       (5,867)    35,105      53     35,158    29,291
2044           0        3,035,085    (3,194,629)    (84,469)    151,298    (128)       (8,374)    32,098      49     32,147    23,772
2045           0        3,010,969    (3,184,372)    (76,577)    165,738    (116)       (7,782)    29,099      44     29,143    21,361
2046           0        2,957,486    (3,143,787)    (68,803)    179,192    (105)       (7,214)    26,145      40     26,185    18,971         0.25
2047           0        2,873,589    (3,071,784)    (61,234)    191,639     (94)       (6,650)    23,269      36     23,305    16,655         0.22
2048           0        2,760,378    (2,968,747)    (53,949)    202,343     (83)       (6,110)    20,501      32     20,532    14,423         0.19
2049           0        2,619,159    (2,835,702)    (47,020)    211,032     (73)       (5,583)    17,868      28     17,895    12,313         0.16
2050           0        2,451,775    (2,674,269)    (40,506)    217,487     (63)       (5,070)    15,392      24     15,416    10,347         0.14
2051           0        2,261,733    (2,487,427)    (34,457)    221,162     (54)       (4,586)    13,094      21     13,114     8,529         0.11
2052           0        2,102,864    (2,284,848)    (28,917)    177,288     (46)       (4,742)    10,988      17     11,006     6,264         0.08

*Total annual premium less annual withdrawal.
**Based on 76.6 million shares outstanding.
All figures are estimates. Actual results will depend upon mortality, interest rates and dividends.

_________________________________
       1
        Blank space indicates that there was no legible figure in underlying exhibit.
                                                                       - 70 -

  Scenario 1 - Constant Loan Interest Rate
  Cash Flow Detail
  (dollars in thousands)

           Corporate Cash Outflow                        Corporate Cash Inflow                              Net Cash Flow                  Surplus
             (A)          (B)         (C)          (D)        (E)          (F)           (G)        (H)        (I)           (J)         (K)
                                                                                                                         Cumulative
                                                                                                                            Cash
                                   After-Tax   Policy Loan                              Tax-Free     Net    Cumulative      Flow      Cumulative
                          Loan      Admin.         Tax       Policy       Policy         Death      Cash       Cash       at 4.35%        Net
Year       Premium      Interest      Fee        Savings      Loan      Withdrawal      Benefits    Clow       Flow       Pre-Tax*      Equity[1]

1993       (114,000)       0        (188)        4,524       107,684         0            2,016        35          35          (53)        78
1994       (113,929)    (11,902)    (188)        9,308       113,929        1,649         2,155     1,021       1,056          838        178
1995       (113,852)    (24,486)    (188)       13,936       110,318       14,731         2,312     2,770       3,826        3,485        237
1996       (113,771)    (36,661)    (188)       13,926          0         137,722         2,614     3,642       7,468        7,095        337
1997       (113,681)    (36,633)    (188)       13,915          0         137,864         2,756     4,033      11,501       11,201        331
1998       (113,588)    (36,602)    (188)       13,903          0         137,999         2,934     4,458      15,959       15,854        175
1999       (113,488)    (36,570)    (188)       13,890          0         137,828         3,152     4,624      20,583       20,799        133
2000       (113,380)    (36,535)    (187)       19,639       137,175         0            3,287     9,997      30,580       31,316        242
2001       (113,264)    (51,654)    (187)       25,988       151,666         0            3,595    16,143      46,723       48,339        266
2002       (113,137)    (68,351)    (187)       32,994       167,521         0            3,959    22,799      69,522       72,556        295
2003       (112,997)    (86,771)    (187)       40,718       184,946         0            4,399    30,108      99,630      104,822        327
2004       (112,841)   (107,079)    (187)       49,224       203,952         0            4,911    37,980     137,610      145,922        367
2005       (112,667)   (129,436)    (186)       58,578       224,681         0            5,508    46,477     184,087      196,723        414
2006       (112,472)   (154,019)    (186)       68,860       247,446         0            6,194    55,822     239,910      258,345        466
2007       (112,253)   (181,034)    (186)       78,543       272,425         0            6,983    64,479     304,388      330,377        524
2008           0       (210,699)    (185)       78,359       193,013         0            7,851    68,339     372,728      408,310        519
2009           0       (231,471)    (185)       78,153       211,704         0            8,796    66,998     439,725      486,960        575
2010           0       (254,176)    (184)       77,923       232,250         0            9,803    65,616     505,341      566,303        635
2011           0       (278,992)    (184)       77,667       254,772         0           10,864    64,127     569,468      646,249        700
2012           0       (306,108)    (183)       77,385       279,469         0           11,961    62,524     631,992      726,695        769
2013           0       (335,731)    (182)       77,075       306,543         0           13,091    60,796     692,788      807,528
2014           0       (368,084)    (182)       76,736       336,285         0           14,253    59,009     751,797      888,697
2015           0       (403,420)    (181)       76,369       370,192         0           15,448    58,409     810,205      971,429
2016           0       (442,145)    (180)       75,972       407,477         0           16,673    57,797     868,002    1,055,756        920
2017           0       (484,575)    (179)       75,544       448,433         0           17,938    57,161     925,163    1,141,696        950
2018           0       (531,044)    (178)       75,084       493,496         0           19,289    56,647     981,810    1,229,415        978
2019           0       (581,916)    (177)       74,588       542,978         0           20,777    56,250   1,038,060    1,319,082      1,005
2020           0       (637,563)    (175)       74,054       597,043         0           22,461    55,819   1,093,880    1,410,713      1,035
2021           0       (698,339)    (174)       73,474       655,995         0           24,397    55,353   1,149,233    1,504,320      1,069
2022           0       (764,590)    (173)       72,844       720,151         0           26,615    54,846   1,204,080    1,599,912      1,107

*Assumes deaths occur midyear.
All figures are estimates. Actual results will depend upon mortality, interest rates and dividends.

_______________________________
       1
        Blank space indicates that there was no legible figure in underlying exhibit.
                                                                         - 71 -

  Scenario 1 - Constant Loan Interest Rate
  Cash Flow Detail
  (dollars in thousands)

            Corporate Cash Outflow                       Corporate Cash Inflow                              Net Cash Flow                 Surplus
            (A)          (B)          (C)          (D)         (E)          (F)           (G)       (H)         (I)          (J)         (K)
                                                                                                                         Cumulative
                                                                                                                            Cash
                                   After-Tax   Policy Loan                              Tax-Free     Net    Cumulative      Flow      Cumulative
                         Loan       Admin.         Tax        Policy       Policy         Death     Cash       Cash       at 4.35%        Net
Year       Premium     Interest       Fee        Savings       Loan      Withdrawal     Benefits    Flow       Flow       Pre-Tax*      Equity[1]

2023          0        (836,648)    (171)       72,154         789,772        0          29,184    54,291    1,258,371   1,697,489       1,151
2024          0        (914,804)    (169)       71,396         865,114        0          32,146    53,683    1,312,054   1,797,047       1,201
2025          0        (999,303)    (168)       70,560         946,382        0          35,546    53,017    1,365,071   1,898,574       1,258
2026          0      (1,090,314)    (166)       69,634       1,033,725        0          39,410    52,289    1,417,360   2,002,054       1,322
2027          0      (1,187,917)    (163)       68,607       1,127,225        0          43,740    51,492    1,468,851   2,107,465       1,393
2028          0      (1,292,076)    (161)       67,468       1,226,943        0          48,446    50,620    1,519,472   2,214,778       1,469
2029          0      (1,402,677)    (158)       66,210       1,332,873        0          53,415    49,664    1,569,135   2,323,956       1,548
2030          0      (1,519,519)    (155)       64,829       1,444,941        0          58,634    48,730    1,617,866   2,435,071       1,508
2031          0      (1,642,320)    (151)       63,321       1,562,850        0          64,628    48,327    1,666,193   2,548,711         685
2032          0      (1,770,698)    (148)       61,688       1,685,629        0          68,762    45,233    1,711,426   2,662,208       1,729
2033          0      (1,904,072)    (144)       59,930       1,815,248        0          73,819    44,780    1,756,207   2,778,260       1,858
2034          0      (2,041,845)    (139)       58,044       1,948,220        0          79,081    43,361    1,799,568   2,895,941       1,933
2035          0      (2,182,737)    (135)       56,027       2,084,057        0          84,576    41,789    1,841,357   3,015,138       2,010
2036          0      (2,325,080)    (130)       53,872       2,221,133        0          90,329    40,124    1,881,481   3,135,794       2,089
2037          0      (2,466,685)    (125)       51,574       2,357,313        0          96,292    38,369    1,919,850   3,257,856       2,168
2038          0      (2,604,815)    (119)       49,130       2,490,097        0         102,236    36,529    1,956,379   3,381,277       2,243
2039          0      (2,736,378)    (113)       46,545       2,616,674        0         107,873    34,601    1,990,980   3,506,008       2,309
2040          0      (2,858,051)    (107)       43,829       2,733,964        0         112,947    32,582    2,023,562   3,632,001       2,362
2041          0      (2,966,346)    (100)       41,001       2,838,725        0         117,200    30,479    2,054,041   3,759,218       2,397
2042          0      (3,057,756)     (93)       38,084       2,927,665        0         122,567    30,466    2,084,507   3,889,822         169
2043          0      (3,128,893)     (86)       35,105       2,986,788        0         136,378    29,291    2,113,799   4,022,599
2044          0      (3,175,595)     (79)       32,098       3,016,051        0         151,298    23,772    2,137,571   4,153,131
2045          0      (3,194,629)     (72)       29,099       3,021,226        0         165,738    21,361    2,158,932   4,284,556
2046          0      (3,184,372)     (65)       26,145       2,998,071        0         179,192    18,971    2,177,903   4,416,931      (4,341)
2047          0      (3,143,787)     (58)       23,269       2,945,592        0         191,639    16,655    2,194,558   4,550,372      (4,598)
2048          0      (3,071,784)     (52)       20,501       2,863,415        0         202,343    14,423    2,208,980   4,685,016      (4,796)
2049          0      (2,968,747)     (45)       17,868       2,752,205        0         211,032    12,313    2,221,293   4,821,045      (4,928)
2050          0      (2,835,702)     (39)       15,392       2,613,208        0         217,487    10,347    2,231,639   4,958,675      (4,991)
2051          0      (2,674,269)     (34)       13,094       2,448,575        0         221,162     8,529    2,240,168   5,098,134      (4,975)
2052          0      (2,487,427)     (28)       10,988       2,305,443        0         177,288     6,264    2,246,432   5,239,658      (4,941)

*Assumes deaths occur midyear.
All figures are estimates. Actual results will depend upon mortality, interest rates and dividends.

__________________________________
       1
        Blank space indicates that there was no legible figure in underlying exhibit.
                                                                    - 72 -

Scenario 1 - Constant Loan Interest Rate
Balance Sheet Summary
(dollars in thousands)

            (A)                 (B1)              (B2)                  (B)                (C)              (D)          (E)

                              Gross                                Insurance Net          Accrued         Retained      Annual
            Cash         Cash Surrender        Outstanding        Cash Surrender           Loan           Earnings    Impact on
Year       Amount             Value              (Loan)                Value             Interest       Gain/(Loss)    Earnings

1993           35              119,596           (107,616)              11,980             11,902             113          113
1994        1,056              246,061           (221,396)              24,665             24,486           1,234        1,121
1995        3,826              368,374           (331,476)              36,898             36,661           4,063        2,828
1996        7,468              368,186           (331,216)              36,970             36,633           7,805        3,743
1997       11,501              367,876           (330,943)              36,933             36,602          11,831        4,026
1998       15,959              367,397           (330,652)              36,745             36,570          16,134        4,303
1999       20,583              367,008           (330,339)              36,669             36,535          20,717        4,582
2000       30,580              518,930           (467,034)              51,896             51,654          30,822       10,106
2001       46,723              686,622           (618,005)              68,618             68,351          46,990       16,168
2002       69,522              871,619           (784,552)              87,066             86,771          69,817       22,827
2003       99,630            1,075,569           (968,163)             107,406            107,079          99,957       30,140
2004      137,610            1,300,113         (1,170,310)             129,803            129,436         137,977       38,019
2005      184,087            1,547,013         (1,392,580)             154,433            154,019         184,501       46,524
2006      239,910            1,818,331         (1,636,831)             181,499            181,034         240,375       55,875
2007      304,388            2,116,279         (1,905,056)             211,223            210,699         304,912       64,537
2008      372,728            2,324,858         (2,092,868)             231,990            231,471         373,247       68,334
2009      439,725            2,552,907         (2,298,156)             254,751            254,176         440,300       67,054
2010      505,341            2,802,162         (2,522,535)             279,628            278,992         505,977       65,676
2011      569,468            3,074,513         (2,767,705)             306,808            306,108         570,168       64,192
2012      631,992            3,372,040         (3,035,541)             336,500            335,731         632,761       62,593
2013      692,788            3,696,994         (3,328,067)             368,927            368,084         693,631       60,870
2014      751,797            4,051,835         (3,647,555)             404,280            403,420         752,657       59,026
2015      810,205            4,440,729         (3,997,694)             443,035            442,145         811,096       58,438
2016      868,002            4,866,820         (4,381,326)             485,495            484,575         868,922       57,826
2017      925,163            5,333,474         (4,801,480)             531,993            531,044         926,113       57,191
2018      981,810            5,844,342         (5,261,448)             582,894            581,916         982,788       56,675
2019    1,038,060            6,403,152         (5,764,585)             638,568            637,563       1,039,065       56,277
2020    1,093,880            7,013,474         (6,314,100)             699,374            698,339       1,094,915       55,849
2021    1,149,233            7,678,773         (6,913,114)             765,659            764,590       1,150,302       55,387
2022    1,204,080            8,402,381         (7,564,627)             837,754            836,648       1,205,186       54,885

All figures are estimates.   Actual results will depend upon mortality, interest rates and dividends.
                                                                    - 73 -

Scenario 1 - Constant Loan Interest Rate
Balance Sheet Summary
(dollars in thousands)

            (A)                 (B1)              (B2)                  (B)                (C)             (D)           (E)

                              Gross                                Insurance Net          Accrued         Retained      Annual
            Cash         Cash Surrender        Outstanding        Cash Surrender           Loan           Earnings    Impact on
Year       Amount             Value              (Loan)                Value             Interest       Gain/(Loss)    Earnings

2023     1,258,371            9,187,244        (8,271,289)             915,955            914,804       1,259,522       54,335
2024     1,312,054           10,035,794        (9,035,290)           1,000,504            999,303       1,313,255       53,733
2025     1,365,071           10,949,751        (9,858,179)           1,091,572          1,090,314       1,366,329       53,074
2026     1,417,360           11,929,899       (10,740,660)           1,189,239          1,187,917       1,418,682       52,353
2027     1,468,851           12,975,894       (11,682,425)           1,293,469          1,292,076       1,470,244       51,563
2028     1,519,472           14,086,579       (12,682,433)           1,404,146          1,402,677       1,520,941       50,696
2029     1,569,135           15,259,936       (13,738,869)           1,521,067          1,519,519       1,570,684       49,743
2030     1,617,866           16,493,017       (14,849,189)           1,643,828          1,642,320       1,619,373       48,690
2031     1,666,193           17,781,309       (16,009,926)           1,771,382          1,770,698       1,666,878       47,504
2032     1,711,426           19,121,648       (17,215,847)           1,905,801          1,904,072       1,713,155       46,277
2033     1,756,207           20,505,234       (18,461,532)           2,043,703          2,041,845       1,758 064       44,909
2034     1,799,568           21,920,085       (19,735,415)           2,184,670          2,182,737       1,801,501       43,437
2035     1,841,357           23,349,517       (21,022,427)           2,327,091          2,325,080       1,843,368       41,867
2036     1,881,481           24,771,530       (22,302,756)           2,468,774          2,466,685       1,883,570       40,202
2037     1,919,850           26,158,656       (23,551,673)           2,606,983          2,604,815       1,922,018       38,448
2038     1,956,379           27,479,838       (24,741,217)           2,738,622          2,736,378       1,958,623       36,604
2039     1,990,980           28,701,693       (25,841,333)           2,860,360          2,858,051       1,993,289       34,667
2040     2,023,562           29,789,198       (26,820,490)           2,968,708          2,966,346       2,025,924       32,635
2041     2,054,041           30,707,139       (27,646,985)           3,060,154          3,057,756       2,056,439       30,514
2042     2,084,507           31,419,234       (28,290,172)           3,129,061          3,128,893       2,084,676       28,238
2043     2,113,799           31,884,697       (28,712,437)           3,172,260          3,175,595       2,110,463       25,787
2044     2,137,571           32,075,465       (28,884,537)           3,190,928          3,194,629       2,133,870       23,406
2045     2,158,932           31,972,124       (28,791,793)           3,180,331          3,184,372       2,154,891       21,022
2046     2,177,903           31,564,289       (28,424,843)           3,139,446          3,143,787       2,173,562       18,671
2047     2,194,558           30,841,004       (27,773,818)           3,067,186          3,071,784       2,189,959       16,398
2048     2,208,980           29,806,151       (26,842,200)           2,963,951          2,968,747       2,204,185       14,225
2049     2,221,293           28,470,031       (25,639,258)           2,830,773          2,835,702       2,216,365       12,180
2050     2,231,639           26,848,924       (24,179,646)           2,669,277          2,674,269       2,226,648       10,284
2051     2,240,168           24,972,749       (22,490,297)           2,482,451          2,487,427       2,235,193        8,545
2052     2,246,432           22,930,156       (20,650,250)           2,279,906          2,284,848       2,241,491        6,298

All figures are estimates.   Actual results will depend upon mortality, interest rates and dividends.
                                                                          - 74 -

                                                                        Appendix B

  Scenario 1 - Constant Loan Interest Rate - March Issue
  Profit and Loss Statement
  (dollars in thousands except earnings per share)
                      Pre-Tax Effect                                                                              Tax Effect
              (A)           (B)          (C)      (C1)         (D)       (E)            (F)      (G)      (H)      (I)        (J)         (K)
                           Annual      Accrued Deductible                            Pre-Tax   Policy   Admin.
               Net          CSV         Loan      Loan                              Earnings    Loan      Fee       Tax    After-Tax   After-Tax
             Annual      Increase/    Interest Interest       Death     Admin.        Effect     Tax      Tax     Effect    Earnings    Earnings
Year       (Premium)*   (Decrease)   (Payment) (Payment)     Benefits    Fee       A+B+C+D+E   Credit    Credit     G+H      Effect    Per Share**[1]

1993       (108,573)    112,615       (11,191)    (11,191)    3,250     (290)       (4,188)     4,368     113      4,480       292
1994       (108,411)    119,289       (23,024)    (23,024)    4,551     (289)       (7,885)     8,988     113      9,101     1,217
1995       (106,499)    126,697       (35,570)    (35,570)    4,791     (289)      (10,869)    13,887     113     14,000     3,130        0.04
1996         20,817         (77)      (35,489)    (35,489)    5,064     (288)       (9,972)    13,856     112     13,968     3,996        0.05
1997         20,730         (82)      (35,401)    (35,401)    5,371     (287)       (9,669)    13,823     112     13,935     4,266        0.06
1998         20,601         (87)      (35,308)    (35,308)    5,715     (286)       (9,366)    13,788     112     13,900     4,533        0.06
1999         20,426         (93)      (35,208)    (35,208)    6,097     (286)       (9,063)    13,750     111     13,862     4,799        0.06
2000       (106,826)    140,401       (49,052)    (49,052)    6,519     (285)       (9,243)    19,159     111     19,270    10,027        0.13
2001       (106,493)    154,280       (64,224)    (64,224)    6,985     (284)       (9,736)    25,088     1ll     25,198    15,462        0.20
2002       (106,134)    169,781       (80,873)    (80,973)    7,496     (283)      (10,013)    31,595     110     31,705    21,692        0.28
2003       (105,748)    186,761       (99,131)    (99,131)    8,055     (282)      (10,345)    38,733     110     38,843    28,498        0.37
2004       (105,333)    205,194      (119,124)   (119,124)    8,665     (281)      (10,879)    46,551     110     46,661    35,782        0.47
2005       (104,886)    225,206      (140,990)   (140,990)    9,331     (280)      (11,619)    55,104     109     55,213    43,595        0.57
2006       (104,406)    247,089      (164,889)   (164,889)   10,056     (278)      (12,428)    64,456     109     64,564    52,136        0.68
2007        (76,351)    240,547      (187,967)   (188,297)   10,839     (277)      (13,208)    73,436     108     73,544    60,336        0.79
2008        167,368      (1,027)     (186,925)   (187,279)   11,678     (276)       (9,182)    73,039     107     73,146    63,965        0.84
2009        165,195      (1,104)     (185,806)   (186,185)   12,58O     (274)       (9,409)    72,612     107     72,719    63,310        0.83
2010        159,327        (797)     (184,604)   (185,009)   16,696     (272)       (9,651)    72,153     106     72,260    62,608        0.82
2011        156,940      (1,247)     (183,315)   (183,747)   18,005     (270)       (9,888)    71,661     105     71,767    61,878
2012        154,027      (1,338)     (181,935)   (182,394)   19,409     (268)      (10,104)    71,134     105     71,238    61,134
2013        144,448       5,292      (180,457)   (180,946)   20,927     (266)      (10,056)    70,569     104     70,673    60,616        0.79
2014           0        163,324      (195,835)   (180,762)   21,690     (264)      (11,085)    70,497     103     70,600    59,515        0.78
2015           0        177,742      (211,722)   (179,242)   22,367     (262)      (11,875)    69,905     102     70,007    58,132
2016           0        193,511      (228,882)   (177,388)   22,927     (259)      (12,704)    69,181     101     69,283    56,579
2017           0        210,606      (247,408)   (175,397)   23,475     (256)      (13,584)    68,405     100     68,505    54,921
2018           0        229,051      (267,377)   (173,285)   24,195     (254)      (14,384)    67,581      99     67,680    53,296
2019           0        248,689      (288,854)   (171,050)   25,303     (250)      (15,112)    66,710      98     66,807    51,696        0.67
2020           0        269,099      (311,842)   (168,689)   27,085     (247)      (15,905)    65,789      96     65,885    49,980        0.65
2021           0        290,908      (336,367)   (166,200)   29,257     (244)      (16,447)    64,818      95     64,913    48,467        0.63
2022           0        314,911      (362,586)   (163,581)   31,579     (240)      (16,336)    63,797      94     63,890    47,554        0.62

*Total annual premium less annual withdrawal.
**Based on 76.6 million shares outstanding.
Assumes 39 percent tax bracket.
__________________________________
       1
        Blank space indicates that there was no legible figure in underlying exhibit.

  Scenario 1 - Constant Loan Interest Rate - March Issue
                                                                             - 75 -

  Profit and Loss Statement
  (dollars in thousands except earnings per share)

                                            Pre-Tax Effect                                                           Tax Effect
              (A)           (B)           (C)          (C1)       (D)       (E)            (F)      (G)      (H)      (I)        (J)         (K)
                           Annual       Accrued    Deductible                           Pre-Tax   Policy   Admin.
               Net          CSV          Loan          Loan                            Earnings    Loan      Fee       Tax    After-Tax   After-Tax
             Annual      Increase/     Interest      Interest    Death     Admin.        Effect     Tax      Tax     Effect    Earnings    Earnings
Year       (Premium)*   (Decrease)    (Payment)     (Payment)   Benefits    Fee       A+B+C+D+E   Credit    Credit     G+H      Effect    Per Share**[1]

2023           0          340,631      (390,574)   (160,830)     34,055    (236)      (16,124)    62,724      92     62,816   46,692
2024           0          368,031      (420,387)   (157,945)     36,690    (232)      (15,898)    61,599      91     61,689   45,791
2025           0          397,113      (452,064)   (154,926)     39,518    (228)      (15,662)    60,421      89     60,510   44,848         0.59
2026           0          427,884      (485,639)   (151,772)     42,562    (224)      (15,417)    59,191      87     59,278   43,862         0.57
2027           0          460,325      (521,120)   (148,483)     45,852    (219)      (15,163)    57,908      85     57,994   42,831         0.56
2028           0          494,399      (558,503)   (145,060)     49,417    (214)      (14,901)    56,573      84     56,657   41,756         0.55
2029           0          530,041      (597,761)   (141,505)     53,298    (209)      (14,632)    55,187      82     55,269   40,637         0.53
2030           0          567,297      (638,854)   (137,821)     57,409    (204)      (14,352)    53,750      80     53,830   39,478         0.52
2031           0          606,129      (681,731)   (134,011)     61,738    (199)      (14,063)    52,264      78     52,342   38,279         0.50
2032           0          646,466      (726,305)   (130,083)     66,267    (193)      (13,765)    50,732      75     50,808   37,043         0.48
2033           0          688,252      (772,492)   (126,038)     70,970    (188)      (13,457)    49,155      73     49,228   35,771         0.47
2034           0          731,334      (820,110)   (121,884)     75,817    (182)      (13,141)    47,535      71     47,606   34,465         0.45
2035           0          775,547      (868,971)   (117,624)     80,784    (176)      (12,816)    45,873      69     45,942   33,126         0.43
2036           0          820,751      (918,904)   (113,262)     85,840    (170)      (12,483)    44,172      66     44,238   31,755         0.41
2037           0          866,663      (969,570)   (108,809)     90,931    (163)      (12,139)    42,435      64     42,499   30,360         0.40
2038           0          913,101    (1,020,708)   (104,268)     95,980    (157)      (11,784)    40,665      61     40,726   28,942         0.38
2039           0          959,789    (1,071,984)    (99,653)    100,929    (150)      (11,417)    38,865      59     38,923   27,507         0.36
2040           0        1,006,430    (1,123,011)    (94,973)    105,689    (144)      (11,035)    37,040      56     37,096   26,060         0.34
2041           0        1,052,640    (1,173,299)    (90,240)    110,158    (137)      (10,638)    35,194      53     35,247   24,609
2042           0        1,097,999    (1,222,329)    (85,467)    114,237    (130)      (10,223)    33,332      51     33,383   23,160
2043           0        1,142,143    (1,269,661)    (80,666)    117,847    (123)       (9,794)    31,460      48     31,508   21,714         0.28
2044           0        1,184,472    (1,314,554)    (75,854)    120,853    (116)       (9,344)    29,583      45     29,628   20,284         0.26
2045           0        1,223,920    (1,356,161)    (71,045)    123,447    (109)       (8,902)    27,707      43     27,750   18,847
2046           0        1,259,769    (1,393,716)    (66,257)    125,594    (102)       (8,455)    25,840      40     25,880   17,425
2047           0        1,291,564    (1,426,758)    (61,513)    127,285     (95)       (8,006)    23,990      37     24,027   16,022
2048           0        1,318,398    (1,454,407)    (56,838)    128,534     (88)       (7,563)    22,167      34     22,201   14,638
2049           0        1,339,293    (1,475,845)    (52,250)    129,481     (82)       (7,153)    20,378      32     20,409   13,256         0.17
2050           0        1,353,960    (1,490,508)    (47,770)    129,883     (75)       (6,739)    18,630      29     18,660   11,921         0.16
2051           0        1,361,755    (1,498,003)    (43,417)    129,910     (69)       (6,407)    16,932      27     16,959   10,552         0.14
2052           0        1,361,650    (1,497,588)    (39,210)    129,756     (62)       (6,244)    15,292      24     15,316    9,072         0.12

*Total annual premium less annual withdrawal.
**Based on 76.6 million shares outstanding.
Assumes 39 percent tax bracket.

__________________________________
       1
        Blank space indicates that there was no legible figure in underlying exhibit.
                                                                        - 76 -

  Scenario 1 - Constant Loan Interest Rate - March Issue
  Cash Flow Detail
  (dollars in thousands)

             Corporate Cash Outflow                          Corporate Cash Inflow                           Net Cash Flow                 Surplus
             (A)          (B)         (C)          (D)          (E)        (F)            (G)       (H)         (I)           (J)        (K)
                                                                                                                         Cumulative
                                                                                                                             Cash
                                   After-Tax   Policy Loan                              Tax-Free     Net    Cumulative       Flow     Cumulative
                          Loan      Admin.         Tax         Policy     Policy          Death     Cash       Cash       at 4.35%        Net
Year       Premium      Interest      Fee        Savings        Loan    Withdrawal      Benefits    Clow       Flow        Pre-Tax      Equity[1]

1993       (108,573)       0        (177)        4,368        101,328        0           3,250        196         196           98       96
1994       (108,411)    (11,191)    (176)        8,988        107,413        0           4,551      1,174       1,370        1,122      139
1995       (108,188)    (23,024)    (176)       13,887        114,126       1,689        4,791      3,105       4,475        4,087      164
1996       (107,951)    (35,570)    (176)       13,856           0        128,768        5,064      3,991       8,466        8,040      169
1997       (107,698)    (35,489)    (175)       13,823           0        128,427        5,371      4,260      12,727       12,371      175
1998       (107,427)    (35,401)    (175)       13,788           0        128,028        5,715      4,527      17,254       17,089      181
1999       (107,137)    (35,308)    (174)       13,750           0        127,564        6,097      4,792      22,045       22,202      188
2000       (106,826)    (35,208)    (174)       19,159        126,528        0           6,519      9,999      32,044       32,722      216
2001       (106,493)    (49,052)    (173)       25,088        139,077        0           6,985     15,431      47,475       49,017      247
2002       (106,134)    (64,224)    (173)       31,595        153,098        0           7,496     21,658      69,134       72,052      281
2003       (105,748)    (80,873)    (172)       38,733        168,466        0           8,055     28,460      97,594      102,591      318
2004       (105,333)    (99,131)    (171)       46,551        185,160        0           8,665     35,742     133,336      141,317      359
2005       (104,886)   (119,124)    (171)       55,104        203,297        0           9,331     43,551     176,887      188,984      402
2006       (104,406)   (140,990)    (170)       64,456        223,142        0          10,056     52,088     228,976      246,569      450
2007        (76,351)   (164,889)    (169)       73,436        217,421        0          10,839     60,288     289,263      313,996      498
2008           0       (187,967)    (168)       73,039           0        167,368       11,678     63,950     353,213      387,000      512
2009           0       (186,925)    (167)       72,612           0        165,195       12,580     63,294     416,508      461,294      527
2010           0       (185,806)    (166)       72,153           0        159,327       16,696     62,204     478,712      536,425      932
2011           0       (184,604)    (165)       71,661           0        156,940       18,005     61,837     540,548      613,196      973
2012           0       (183,315)    (164)       71,134           0        154,027       19,409     61,091     601,639      691,263    1,017
2013           0       (181,935)    (162)       70,569           0        144,448       20,927     53,847     655,486      763,984    7,786
2014           0       (180,457)    (161)       70,497        154,593        0          21,690     66,161     721,647      851,306    1,140
2015           0       (195,835)    (160)       69,905        161,737        0          22,367     58,013     779,660      932,617
2016           0       (211,722)    (158)       69,181        176,233        0          22,927     56,461     836,121    1,014,532
2017           0       (228,882)    (156)       68,405        192,048        0          23,475     54,889     891,011    1,097,047
2018           0       (247,408)    (155)       67,581        209,115        0          24,195     53,328     944,339    1,180,188    1,377
2019           0       (267,377)    (153)       66,710        227,389        0          25,303     51,872     996,211    1,264,075    1,200
2020           0       (288,854)    (151)       65,789        246,381        0          27,085     50,250   1,046,461    1,348,549      930
2021           0       (311,842)    (149)       64,818        266,366        0          29,257     48,450   1,094,911    1,433,440      947
2022           0       (336,367)    (146)       63,797        288,659        0          31,579     47,520   1,142,432    1,519,651      980

Assumes 39 percent tax bracket.
All figures are estimates. Actual results will depend upon mortality, interest rates and dividends.

__________________________________
       1
        Blank space indicates that there was no legible figure in underlying exhibit.
                                                                         - 77 -

  Scenario 1 - Constant Loan Interest Rate - March Issue
  Cash Flow Detail
  (dollars in thousands)

             Corporate Cash Outflow                      Corporate Cash Inflow                              Net Cash Flow                 Surplus
             (A)         (B)          (C)          (D)          (E)         (F)           (G)       (H)         (I)           (J)        (K)
                                                                                                                         Cumulative
                                                                                                                             Cash
                                   After-Tax   Policy Loan                              Tax-Free     Net    Cumulative       Flow     Cumulative
                        Loan        Admin.         Tax         Policy      Policy         Death     Cash       Cash       at 4.35%        Net
Year       Premium    Interest        Fee        Savings        Loan     Withdrawal     Benefits    Clow       Flow        Pre-Tax      Equity[1]

2023          0        (362,586)    (144)       62,724         312,610        0          34,055    46,659    1,189,090   1,607,284      1,013
2024          0        (390,574)    (142)       61,599         338,182        0          36,690    45,755    1,234,846   1,696,336      1,049
2025          0        (420,387)    (139)       60,421         365,397        0          39,518    44,809    1,279,655   1,786,798      1,088
2026          0        (452,064)    (136)       59,191         394,268        0          42,562    43,820    1,323,475   1,878,662      1,129
2027          0        (485,639)    (134)       57,908         424,799        0          45,852    42,787    1,366,262   1,971,918      1,174
2028          0        (521,120)    (131)       56,573         456,970        0          49,417    41,709    1,407,972   2,066,555      1,221
2029          0        (558,503)    (128)       55,187         490,734        0          53,298    40,588    1,448,560   2,162,562      1,269
2030          0        (597,761)    (125)       53,750         526,152        0          57,409    39,426    1,487,986   2,259,931      1,322
2031          0        (638,854)    (121)       52,264         563,196        0          61,738    38,223    1,526,209   2,358,655      1,378
2032          0        (681,731)    (118)       50,732         601,833        0          66,267    36,983    1,563,192   2,458,730      1,437
2033          0        (726,305)    (114)       49,155         642,002        0          70,970    35,708    1,598,900   2,560,155      1,500
2034          0        (772,492)    (111)       47,535         683,650        0          75,817    34,398    1,633,298   2,662,930      1,567
2035          0        (820,110)    (107)       45,873         726,616        0          80,784    33,056    1,666,354   2,767,056      1,636
2036          0        (868,971)    (103)       44,172         770,746        0          85,840    31,683    1,698,036   2,872,538      1,709
2037          0        (918,904)    (100)       42,435         815,922        0          90,931    30,284    1,728,320   2,979,385      1,785
2038          0        (969,570)     (96)       40,665         861,884        0          95,980    28,863    1,757,184   3,087,615      1,864
2039          0      (1,020,708)     (92)       38,865         908,432        0         100,929    27,426    1,784,610   3,197,247      1,944
2040          0      (1,071,984)     (88)       37,040         955,322        0         105,689    25,978    1,810,588   3,308,313      2,026
2041          0      (1,123,011)     (83)       35,194       1,002,270        0         110,158    24,527    1,835,115   3,420,851      2,109
2042          0      (1,173,299)     (79)       33,332       1,048,887        0         114,237    23,078    1,858,192   3,534,909      2,191
2043          0      (1,222,329)     (75)       31,460       1,094,731        0         117,847    21,634    1,879,827   3,650,541      2,270
2044          0      (1,269,661)     (71)       29,583       1,139,503        0         120,853    20,208    1,900,034   3,767,815      2,346
2045          0      (1,314,554)     (67)       27,707       1,182,248        0         123,447    18,783    1,918,817   3,886,781      2,411
2046          0      (1,356,161)     (62)       25,840       1,222,163        0         125,594    17,375    1,936,192   4,007,510
2047          0      (1,393,716)     (58)       23,990       1,258,488        0         127,285    15,988    1,952,180   4,130,077
2048          0      (1,426,758)     (54)       22,167       1,290,735        0         128,534    14,623    1,966,803   4,254,559
2049          0      (1,454,407)     (50)       20,378       1,317,860        0         129,481    13,262    1,980,064   4,381,015      2,505
2050          0      (1,475,845)     (46)       18,630       1,339,314        0         129,883    11,937    1,992,002   4,509,544      2,489
2051          0      (1,490,508)     (42)       16,932       1,354,286        0         129,910    10,579    2,002,580   4,640,170      2,462
2052          0      (1,498,003)     (38)       15,292       1,362,102        0         129,756     9,109    2,011,689   4,772,838      2,425

Assumes 39 percent tax bracket.
All figures are estimates. Actual results will depend upon mortality, interest rates and dividends.

__________________________________
       1
        Blank space indicates that there was no legible figure in underlying exhibit.
                                                                     - 78 -

Scenario 1 - Constant Loan Interest Rate - March Issue
Balance Sheet Summary
(dollars in thousands)

            (A)                (B)               (C)                (D)            (E)            (F)           (G)             (H)

                             Gross                            Insurance Net       Accrued                     Retained        Annual
           Cash         Cash Surrender       Outstanding      Cash Surrender        Loan         Asset        Earnings      Impact on
                                                                                                                                     [2]
Year      Amount             Value              (Loan)             Value         Interest      Balance[1]   Gain/(Loss)     Earnings

1993           196             112,471         (101,184)           11,287          11,191        22,478             292
1994         1,370             231,340         (208,177)           23,163          23,024        46,187           1,509
1995         4,475             357,345         (321,611)           35,734          35,570        71,304           4,639         3,130
1996         8,466             356,530         (320,873)           35,658          35,489        71,146           8,635         3,996
1997        12,727             355,660         (320,084)           35,576          35,401        70,977          12,901         4,266
1998        17,254             354,728         (319,239)           35,489          35,308        70,797          17,435         4,533
1999        22,045             353,729         (318,333)           35,396          35,208        70,603          22,233         4,799
2000        32,044             492,780         (443,511)           49,268          49,052        98,321          32,260        10,027
2001        47,475             645,163         (580,691)           64,471          64,224       128,696          47,722        15,462
2002        69,134             812,376         (731,222)           81,154          80,873       162,027          69,415        21,692
2003        97,594             995,749         (896,300)           99,449          99,131       198,580          97,912        28,498
2004       133,336           1,196,556       (1,077,073)          119,483         119,124       238,607         133,695        35,782
2005       176,887           1,416,165       (1,274,773)          141,392         140,990       282,382         177,289        43,595
2006       228,976           1,656,195       (1,490,857)          165,338         164,889       330,227         229,425        52,136
2007       289,263           1,887,983       (1,699,519)          188,464         187,967       376,431         289,761        60,336
2008       353,213           1,877,537       (1,690,100)          187,437         186,925       374,362         353,725        63,965
2009       416,508           1,866,313       (1,679,980)          186,333         185,806       372,139         417,035        63,310
2010       478,712           1,854,651       (1,669,115)          185,536         184,604       370,140         479,643        62,608
2011       540,548           1,841,752       (1,657,463)          184,289         183,315       367,604         541,522
2012       601,639           1,827,931       (1,644,980)          182,951         181,935       364,886         602,656
2013       655,486           1,819,864       (1,631,621)          188,244         180,457       368,701         663,272        60,616
2014       721,647           1,967,636       (1,770,661)          196,975         195,835       392,811         722,787        59,515
2015       779,660           2,127,281       (1,914,300)          212,981         211,722       424,702         780,919
2016       836,121           2,299,721       (2,069,461)          230,259         228,882       459,142         837,498
2017       891,011           2,485,785       (2,236,968)          248,817         247,408       496,225         892,420
2018       944,339           2,686,271       (2,417,518)          268,754         267,377       536,131         945,715        53,296
2019       996,211           2,901,756       (2,611,702)          290,054         288,854       578,907         997,411        51,696
2020     1,046,461           3,132,325       (2,819,553)          312,772         311,842       624,614       1,047,391        49,980
2021     1,094,911           3,378,611       (3,041,297)          337,314         336,367       673,681       1,095,858        48,467
2022     1,142,432           3,641,933       (3,278,367)          363,566         362,586       726,152       1,143,412        47,554

All figures are estimates.    Actual results will depend upon mortality, interest rates and dividends

     1
       Note: The yearly Asset Balances shown above in column F are the sum of the amounts in columns D and E. The proper asset balances should be the
Net Cash Surrender Values shown in column D minus the Accrued Loan Interest shown in column E. For example, for 1993, $11,287 minus $11,191 equals
$96. $96 plus the cash flow of $196 (column A) equals the total gain shown in Column G.
     2
       Blank space indicates that there was no legible figure in underlying exhibit.
                                                                    - 79 -

Scenario 1 - Constant Loan Interest Rate - March Issue
Balance Sheet Summary
(dollars in thousands)

             (A)               (B)               (C)                (D)            (E)           (F)           (G)              (H)

                              Gross                           Insurance Net       Accrued                    Retained         Annual
             Cash        Cash Surrender      Outstanding      Cash Surrender        Loan        Asset        Earnings       Impact on
                                                                                                                                     [2]
Year        Amount            Value             (Loan)             Value         Interest     Balance[1]   Gain/(Loss)      Earnings

2023       1,189,090        3,923,010         (3,531,423)          391,587        390,574       782,161      1,190,104
2024       1,234,846        4,222,408         (3,800,972)          421,436        420,387       841,823      1,235,895
2025       1,279,655        4,540,559         (4,087,407)          453,152        452,064       905,216      1,280,743        44,848
2026       1,323,475        4,877,748         (4,390,980)          486,768        485,639       972,406      1,324,605        43,862
2027       1,366,262        5,234,121         (4,711,827)          522,294        521,120     1,043,414      1,367,436        42,831
2028       1,407,972        5,609,615         (5,049,892)          559,723        558,503     1,118,226      1,409,192        41,756
2029       1,448,560        6,003,965         (5,404,934)          599,030        597,761     1,196,791      1,449,829        40,637
2030       1,487,986        6,416,810         (5,776,634)          640,176        638,854     1,279,029      1,489,307        39,478
2031       1,526,209        6,847,570         (6,164,461)          683,109        681,731     1,364,840      1,527,586        38,279
2032       1,563,192        7,295,469         (6,567,727)          727,742        726,305     1,454,047      1,564,629        37,043
2033       1,598,900        7,759,356         (6,985,364)          773,992        772,492     1,564,484      1,600,400        35,771
2034       1,633,298        8,237,806         (7,416,130)          821,676        820,110     1,641,786      1,634,864        34,465
2035       1,666,354        8,728,882         (7,858,275)          870,608        868,971     1,739,579      1,667,990        33,126
2036       1,698,036        9,230,346         (8,309,732)          920,613        918,904     1,839,517      1,699,745        31,755
2037       1,728,320        9,739,681         (8,768,326)          971,355        969,570     1,940,925      1,730,105        30,360
2038       1,757,184       10,253,679         (9,231,107)        1,022,571      1,020,708     2,043,279      1,759,047        28,942
2039       1,784,610       10,769,072         (9,695,144)        1,073,928      1,071,984     2,145,913      1,786,554        27,507
2040       1,810,588       11,281,885        (10,156,848)        1,125,037      1,123,011     2,248,048      1,812,614        26,060
2041       1,835,115       11,787,573        (10,612,166)        1,175,408      1,173,299     2,348,707      1,837,223
2042       1,858,192       12,281,040        (11,056,521)        1,224,520      1,222,329     2,446,849      1,860,383
2043       1,879,827       12,756,559        (11,484,628)        1,271,931      1,269,661     2,541,592      1,882,097        21,714
2044       1,900,034       13,207,807        (11,890,907)        1,316,900      1,314,554     2,631,454      1,902,381        20,284
2045       1,918,817       13,626,925        (12,268,353)        1,358,572      1,356,161     2,714,733      1,921,228
2046       1,936,192       14,006,378        (12,610,200)        1,396,178      1,393,716     2,789,894      1,938,654
2047       1,952,180       14,338,988        (12,909,734)        1,429,254      1,426,758     2,856,012      1,954,675
2048       1,966,803       14,617,963        (13,161,046)        1,456,917      1,454,407     2,911,324      1,969,313        14,638
2049       1,980,064       14,835,464        (13,357,114)        1,478,350      1,475,845     2,954,194      1,982,570        13,256
2050       1,992,002       14,985,118        (13,492,121)        1,492,997      1,490,508     2,983,505      1,994,490        11,921
2051       2,002,580       15,061,908        (13,561,443)        1,500,465      1,498,003     2,998,469      2,005,043        10,552
2052       2,011,689       15,061,904        (13,561,891)        1,500,014      1,497,588     2,997,602      2,014,114         9,072

All figures are estimates.   Actual results will depend upon mortality, interest rates and dividends.

__________________________________
     1
       Note: The yearly Asset Balances shown above in column F are the sum of the amounts in columns D and E. The proper asset balances should be the
Net Cash Surrender Values shown in column D minus the Accrued Loan Interest shown in column E. For example, for 2023, $391,587 minus $390,574 equals
$1,013. $1,013 plus the cash flow of $1,189,090 (column A) equals the total gain shown in Column G.
       2
        Blank space indicates that there was no legible figure in underlying exhibit.

Scenario 1 - Constant Loan Interest Rate - March Issue
                                                                       - 80 -

  Effect on Financial Ratios
  (dollars in thousands)

                (1)               (2)           (3)          (4)          (5)             (6)         (7)          (8)        (9)          (10)

                                                                       Adjusted
                                                                      Operating
                                Current       Pre-Tax     Adjusted    Expense as                                   COLI
             Projected         Operating        COLI      Operating     a % of          Pre-Tax       Taxes         Tax     Adjusted    Adjusted
Year           Sales            Expense       Expense      Expense       Sales          Earnings   Paid at 39%   Savings   Taxes Paid   Tax Rate[1]

1993        10,800,000          2,160,000      4,188      2,164,188      20.04%       337,500       131,625        4,480    127,145      37.67%
1994        11,232,000          2,246,400      7,885      2,254,285      20.07%       351,000       136,890        9,101    127,789      36.41%
1995        11,681,280          2,336,256     10,869      2,347,125      20.09%       365,040       142,366       14,000    128,366      35.16%
1996        12,148,531          2,429,706      9,972      2,439,678      20.08%       379,642       148,060       13,968    134,092      35.32%
1997        12,634,472          2,526,894      9,669      2,536,564      20.08%       394,827       153,983       13,935    140,047      35.47%
1998        13,139,851          2,627,970      9,366      2,637,337      20.07%       410,620       160,142       13,900    146,242      35.61%
1999        13,665,445          2,733,089      9,063      2,742,152      20.07%       427,045       166,548       13,862    152,686      35.75%
2000        14,212,063          2,842,413      9,243      2,851,656      20.07%       444,127       173,210       19,270    153,939      34.66%
2001        14,780,546          2,956,109      9,736      2,965,845      20.07%       461,892       180,138       25,198    154,939      33.54%
2002        15,371,768          3,074,354     10,013      3,084,366      20.07%       480,368       187,343       31,705    155,638      32.40%
2003        15,986,638          3,197,328     10,345      3,207,673      20.06%       499,582       194,837       38,843    155,995      31.22%
2004        16,626,104          3,325,221     10,879      3,336,099      20.07%       519,566       202,631       46,661    155,970      30.02%
2005        17,291,148          3,458,230     11,619      3,469,848      20.07%       540,348       210,736       55,213    155,522      28.78%
2006        17,982,794          3,596,559     12,428      3,608,987      20.07%       561,962       219,165       64,564    154,601      27.51%
2007        18,702,106          3,740,421     13,208      3,753,629      20.07%       584,441       227,932       73,544    154,388      26.42%
2008        19,450,190          3,890,038      9,182      3,899,220      20.05%       607,818       237,049       73,146    163,903      26.97%
2009        20,228,197          4,045,639      9,409      4,055,049      20.05%       632,131       246,531       72,719    173,812      27.50%
2010        21,037,325          4,207,465      9,651      4,217,116      20.05%       657,416       256,392       72,260    184,133      28.01%
2011        21,878,818          4,375,764      9,888      4,385,652      20.05%       683,713       266,648       71,767    194,881      28.50%
2012        22,753,971          4,550,794     10,104      4,560,899      20.04%       711,062       277,314       71,238    206,076      28.98%
2013        23,664,130          4,732,826     10,056      4,742,882      20.04%       739,504       288,407       70,673    217,734      29.44%
2014        24,610,695          4,922,139     11,085      4,933,224      20.05%       769,084       299,943       70,600    229,343      29.82%
2015        25,595,123          5,119,025     11,875      5,130,899      20.05%       799,848       311,941       70,007    241,934
2016        26,618,928          5,323,786     12,704      5,336,489      20.05%       831,841       324,418       69,283    255,136
2017        27,683,685          5,536,737     13,584      5,550,321      20.05%       865,115       337,395       68,505    268,890
2018        28,791,032          5,758,206     14,384      5,772,591      20.05%       899,720       350,891       67,680    283,211      31.48%
2019        29,942,674          5,988,535     15,112      6,003,647      20.05%       935,709       364,926       66,807    298,119      31.86%
2020        31,140,381          6,228,076     15,905      6,243,981      20.05%       973,137       379,523       65,885    313,638      32.23%
2021        32,385,996          6,477,199     16,447      6,493,646      20.05%     1,012,062       394,704       64,913    329,791      32.59%
2022        33,681,436          6,736,287     16,336      6,752,623      20.05%     1,052,545       410,492       63,890    346,602      32.93%

Assumes 39 percent tax bracket.
All figures are estimates.    Actual results will depend upon mortality, interest rates and dividends.

__________________________________
       1
        Blank space indicates that there was no legible figure in underlying exhibit.

  Scenario 1 - Constant Loan Interest Rate - March Issue
                                                                       - 81 -

  Effect on Financial Ratios
  (dollars in thousands)

                (1)               (2)           (3)          (4)          (5)             (6)          (7)         (8)        (9)          (10)

                                                                       Adjusted
                                                                      Operating
                                Current       Pre-Tax     Adjusted    Expense as                                   COLI
             Projected         Operating        COLI      Operating     a % of          Pre-Tax       Taxes         Tax     Adjusted    Adjusted
Year           Sales            Expense       Expense      Expense       Sales          Earnings   Paid at 39%   Savings   Taxes Paid   Tax Rate[1]

2023        35,028,693          7,005,739     16,124      7,021,863      20.05%     1,094,647        426,912      62,816     364,096     33.26%
2024        36,429,841          7,285,968     15,898      7,301,866      20.04%     1,138,433        443,989      61,689     382,300     33.58%
2025        37,887,034          7,577,407     15,662      7,593,069      20.04%     1,183,970        461,748      60,510     401,238     33.89%
2026        39,402,516          7,880,503     15,417      7,895,920      20.04%     1,231,329        480,218      59,278     420,940     34.19%
2027        40,978,616          8,195,723     15,163      8,210,886      20.04%     1,280,582        499,427      57,994     441,433     34.47%
2028        42,617,761          8,523,552     14,901      8,538,453      20.03%     1,331,805        519,404      56,657     462,747     34.75%
2029        44,322,472          8,864,494     14,632      8,879,126      20.03%     1,385,077        540,180      55,269     484,912     35.01%
2030        46,095,370          9,219,074     14,352      9,233,426      20.03%     1,440,480        561,787      53,830     507,958     35.26%
2031        47,939,185          9,587,837     14,063      9,601,900      20.03%     1,498,100        584,259      52,342     531,917     35.51%
2032        49,856,753          9,971,351     13,765      9,985,115      20.03%     1,558,024        607,629      50,808     556,822     35.74%
2033        51,851,023         10,370,205     13,457     10,383,662      20.03%     1,620,344        631,934      49,228     582,706     35.96%
2034        53,925,064         10,785,013     13,141     10,798,154      20.02%     1,685,158        657,212      47,606     609,606     36.18%
2035        56,082,066         11,216,413     12,816     11,229,229      20.02%     1,752,565        683,500      45,942     637,558     36.38%
2036        58,325,349         11,665,070     12,483     11,677,553      20.02%     1,822,667        710,840      44,238     666,602     36.57%
2037        60,658,363         12,131,673     12,139     12,143,812      20.02%     1,895,574        739,274      42,499     696,775     36.76%
2038        63,084,697         12,616,939     11,784     12,628,723      20.02%     1,971,397        768,845      40,726     728,119     36.93%
2039        65,608,085         13,121,617     11,417     13,133,034      20.02%     2,050,253        799,599      38,923     760,675     37.10%
2040        68,232,409         13,646,482     11,035     13,657,517      20.02%     2,132,263        831,582      37,096     794,487     37.26%
2041        70,961,705         14,192,341     10,638     14,202,979      20.01%     2,217,553        864,846      35,247     829,599     37.41%
2042        73,800,173         14,760,035     10,223     14,770,258      20.01%     2,306,255        899,440      33,383     866,057     37.55%
2043        76,752,180         15,350,436      9,794     15,360,230      20.01%     2,398,506        935,417      31,508     903,910     37.69%
2044        79,822,267         15,964,453      9,344     15,973,798      20.01%     2,494,446        972,834      29,628     943,206     37.81%
2045        83,015,158         16,603,032      8,902     16,611,934      20.01%     2,594,224      1,011,747      27,750     983,997
2046        86,335,764         17,267,153      8,455     17,275,608      20.01%     2,697,993      1,052,217      25,880   1,026,337
2047        89,789,195         17,957,839      8,006     17,965,845      20.01%     2,805,912      1,094,306      24,027   1,070,279     38.14%
2048        93,380,763         18,676,153      7,563     18,683,716      20.01%     2,918,149      1,138,078      22,201   1,115,877     38.24%
2049        97,115,993         19,423,199      7,153     19,430,352      20.01%     3,034,875      1,183,601      20,409   1,163,192     38.33%
2050       101,000,633         20,200,127      6,739     20,206,866      20.01%     3,156,270      1,230,945      18,660   1,212,286     38.41%
2051       105,040,658         21,008,132      6,407     21,014,539      20.01%     3,282,521      1,280,183      16,959   1,263,224     38.48%
2052       109,242,285         21,848,457      6,244     21,854,701      20.01%     3,413,821      1,331,390      15,316   1,316,074     38.55%

Assumes 39 percent tax bracket.
All figures are estimates. Actual results will depend upon mortality, interest rates and dividends.

__________________________________
       1
        Blank space indicates that there was no legible figure in underlying exhibit.