Trans City Life Insurance Company, an Arizona Corporation - Page 29

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          deposit into the Trust securities in the amount approximately               
          equal to the negative EAB.                                                  
               The 1989 Agreement did not extend a carryover period for tax           
          purposes.  It did not eliminate the SRLY taint of a previous net            
          operating loss for petitioner.  It did not change the character             
          of an item of income or deduction for petitioner from ordinary to           
          capital or capital to ordinary.  It did not change the source of            
          an item of income or deduction for petitioner from domestic to              
          foreign or foreign to domestic.  It did not artificially reduce             
          petitioner's equity or result in any deferral of income to                  
          Guardian.                                                                   
               Petitioner’s Federal marginal income tax rate for its 1989             
          taxable year was approximately 16 percent.  Petitioner’s Federal            
          marginal income tax rate for the taxable years 1990 through 1992            
          was approximately 18 percent.  During each of these years,                  
          Guardian was taxed at the full corporate income tax rate,                   
          including a significant equity tax under section 809.                       
               b.  Amendments                                                         
               The 1989 Agreement was amended three times.  The first                 
          amendment, completed on July 17, 1990, to be effective as of                
          June 30, 1989, eliminated the experience refund provision, and              
          increased the risk fee from .25 percent per quarter to .3 percent           
          per quarter of the absolute value of the EAB.  The amount of the            
          risk fee was within the range of risk fees normally payable by              
          reinsurers to retrocessionaires such as petitioner.  The 1989               
          Agreement originally contained an experience refund provision,              
          pursuant to which petitioner agreed to refund to Guardian                   



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