- 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
43In 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.
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