[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.72-7]

[Page 168-175]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.72-7  Adjustment in investment where a contract contains a refund 
feature.

    (a) Definition of a contract containing a refund feature. A contract 
to which section 72 applies, contains a refund feature if:
    (1) The total amount receivable as an annuity under such contract 
depends, in whole or in part, on the continuing life of one or more 
persons,
    (2) The contract provides for payments to be made to a beneficiary 
or the estate of an annuitant on or after the death of the annuitant if 
a specified amount or a stated number of payments has not been paid to 
the annuitant or annuitants prior to death, and
    (3) Such payments are in the nature of a refund of the consideration 
paid. See paragraph (c)(1) of Sec. 1.72-11.
    (b) Adjustment of investment for the refund feature in the case of a 
single life annuity. Where a single life annuity contract to which 
section 72 applies contains a refund feature and the special rule of 
paragraph (d) of this section does not apply, the investment in the 
contract shall be adjusted in the following manner:
    (1) Determine the number of years necessary for the guaranteed 
amount to be fully paid by dividing the maximum amount guaranteed as of 
the annuity starting date by the amount to be received annually under 
the contract to the extent such amount reduces the guaranteed amount. 
The number of years should be stated in terms of the nearest whole year, 
considering for this purpose a fraction of one-half or more as an 
additional whole year.
    (2) Consult Table III or VII (whichever is applicable) of Sec. 
1.72-9 for the appropriate percentage under the whole number of years 
found in subparagraph (1) of this paragraph and the age (as of the 
annuity starting date) and, if applicable, sex of the annuitant.
    (3) Multiply the percentage found in subparagraph (2) of this 
paragraph by whichever of the following is the smaller: (i) The 
investment in the contract found in accordance with Sec. 1.72-6 or (ii) 
the total amount guaranteed as of the annuity starting date.
    (4) Subtract the amount found in subparagraph (3) of this paragraph 
from the investment in the contract found in accordance with Sec. 1.72-
6.

The resulting amount is the investment in the contract adjusted for the 
present value of the refund feature without discount for interest and is 
to be used in determining the exclusion ratio to be applied to the 
payments received as an annuity. The percentage found in Tables III or 
VII shall not be adjusted in a manner described in paragraph (a)(2) of 
Sec. 1.72-5. These principles may be illustrated by the following 
examples:

    Example (1). On January 1, 1954, a husband, age 65, purchased for 
$21,053, an immediate installment refund annuity payable $100 per month 
for life. The contract provided that in the event the husband did not 
live long enough to recover the full purchase price, payments were to be 
made to his wife until the total payments under the contract equaled the 
purchase price. The investment in the contract adjusted for the purpose 
of determining the exclusion ratio is computed in the following manner:

Cost of the annuity contract (investment in the contract,        $21,053
 unadjusted)...............................................
Amount to be received annually.............................       $1,200
Number of years for which payment guaranteed ($21,053               17.5
 divided by $1,200)........................................
Rounded to nearest whole number of years...................           18

[[Page 169]]


Percentage located in Table III for age 65 (age of the                30
 annuitant as of the annuity starting date) and 18 (the
 number of whole years) (percent)..........................
Subtract value of the refund feature to the nearest dollar        $6,316
 (30 percent of $21,053)...................................
                                                            ------------
Investment in the contract adjusted for the present value        $14,737
 of the refund feature without discount for interest.......


    Example (2). Assume the same facts as in example (1), except that 
the total investment in the contract was made after June 30, 1986. The 
investment in the contract adjusted for the purpose of determining the 
exclusion ratio is computed as follows:

Cost of the annuity contract (investment in the contract,        $21,053
 unadjusted)...............................................
Amount to be received annually.............................       $1,200
Number of years for which payment guaranteed ($21,053/              17.5
 $1,200)...................................................
Rounded to nearest whole number of years...................           18
Percentage in Table VII for age 65 and 18 years (percent)..           15
Subtract value of the refund feature to the nearest dollar        $3,158
 (15 percent of $21,053)...................................
                                                            ------------
Investment in the contract adjusted for the present value        $17,895
 of the refund feature without discount for interest.......


    Example (3). Assume the same facts as in example (1), except that 
the pre-July 1986 investment in the contract is $10,000 and the post-
June 1986 investment in the contract is $11,053. If the annuitant makes 
the election described in Sec. 1.72-6(d)(6), separate computations must 
be performed pursuant to Sec. 1.72-6(d) to determine the adjusted 
investment in the contract. The pre-July 1986 investment in the contract 
and the post-June 1986 investment in the contract adjusted for the 
purpose of determining the exclusion ratios are, respectively, $7,000 
and $9,395, determined as follows:

Pre-July 1986 investment in the contract (unadjusted)......      $10,000
Pre-July 1986 portion of the amount to be received annually      $570.00
 ($10,000/$21,053x$1,200)..................................
    Number of years for which payment guaranteed ($10,000/         17.50
     $570).................................................
    Rounded to nearest whole number of years...............           18
    Percentage in Table III for age 65 and 18 years                   30
     (percent).............................................
    Subtract value of the refund feature to the nearest           $3,000
     dollar (30 percent of $10,000)........................
Pre-July 1986 investment in the contract adjusted for the         $7,000
 present value of the refund feature without discount for
 interest..................................................
                                                            ============
Post-June 1986 investment in the contract (unadjusted).....      $11,053
Post-June 1986 portion of the amount to be received                 $630
 annually ($11,053/$21,053x$1,200).........................
Number of years for which payment guaranteed ($11,053/$630)        17.54
Rounded to nearest whole number of years...................           18
Percentage in Table VII for age 65 and 18 years (percent)..           15
Subtract value of the refund feature to the nearest dollar        $1,658
 (15 percent of $11,053)...................................
                                                            ------------
Post-June 1986 investment in the contract adjusted for the        $9,395
 present value of the refund feature without discount for
 interest..................................................



If, in the above examples, the guaranteed amount had exceeded the 
investment in the contract (or applicable portion thereof), the 
percentage found in Table III or VII (whichever is applicable) should 
have been applied to the lesser of these amounts since any excess of the 
guaranteed amount over the investment in the contract (as found under 
Sec. 1.72-6) would not have constituted a refund of premiums or other 
consideration paid. In such a case, however, a different multiple might 
have been obtained from Table III or VII (whichever is applicable) since 
the number of years for which payments were guaranteed would have been 
greater.
    (c) Adjustment of investment for the refund feature in the case of a 
joint and survivor annuity. (1) Except as provided in paragraph (c)(2) 
of this section, if a joint and survivor annuity contract described in 
paragraph (b) (1), (2) or (6) of Sec. 1.72-5 contains a refund feature 
and the special rule of paragraph (d) of this section does not apply, 
the investment in the contract shall be adjusted in the following 
manner:
    (i) Find the percentage determined under the following formula:

[[Page 170]]

[GRAPHIC] [TIFF OMITTED] TC05OC91.042

In which:

V = The percentage, rounded to the nearest whole percent,
x = The age at the nearest birthday of the primary annuitant,
y = The age at the nearest birthday of the survivor annuitant,
N = The guaranteed amount divided by the annual annuity payable to the 
primary annuitant, rounded to the nearest integer,
P = The annual annuity continued to the survivor annuitant divided by 
the annual annuity payable to the primary annuitant,
[GRAPHIC] [TIFF OMITTED] TC05OC91.043

    (ii) Multiply the percentage found in paragraph (c)(1)(i) of this 
section by the lesser of (A) the investment in the contract found in 
accordance with Sec. 1.72-6, or (B) the total amount guaranteed as of 
the annuity starting date.
    (iii) Subtract the amount found in paragraph (c)(1)(ii) of this 
section from the investment in the contract found in accordance with 
Sec. 1.72-6.

In the case of a contract providing for payments to be made to two 
persons in the manner described in paragraph (b)(6) of Sec. 1.72-5, 
this paragraph (c)(1) is applied as though the older person were the 
primary annuitant and the younger person were the survivor annuitant. 
For purposes of this paragraph (c)(1), the number of survivors at 
agex (lx) is determined under the following table:

------------------------------------------------------------------------
                          x                                    lx
------------------------------------------------------------------------
5....................................................    1000000.
6....................................................     999729.
7....................................................     999493.
8....................................................     999284.
9....................................................     999069.
10...................................................     998849.
11...................................................     998620.
12...................................................     998382.
13...................................................     998135.
14...................................................     997876.
15...................................................     997606.
16...................................................     997322.
17...................................................     997025.
18...................................................     996714.
19...................................................     996387.
20...................................................     996044.
21...................................................     995684.
22...................................................     995304.
23...................................................     994905.
24...................................................     994484.
25...................................................     994041.
26...................................................     993573.
27...................................................     993080.
28...................................................     992563.
29...................................................     992024.
30...................................................     991461.
31...................................................     990876.
32...................................................     990269.
33...................................................     989638.
34...................................................     988984.
35...................................................     988303.
36...................................................     987593.
37...................................................     986846.
38...................................................     986055.
39...................................................     985210.
40...................................................     984298.
41...................................................     983310.
42...................................................     982230.
43...................................................     981046.

[[Page 171]]


44...................................................     979742.
45...................................................     978302.
46...................................................     976709.
47...................................................     974945.
48...................................................     972992.
49...................................................     970832.
50...................................................     968447.
51...................................................     966000.
52...................................................     963313.
53...................................................     960375.
54...................................................     957175.
55...................................................     953705.
56...................................................     949954.
57...................................................     945912.
58...................................................     941568.
59...................................................     936908.
60...................................................     931903.
61...................................................     926451.
62...................................................     920540.
63...................................................     914090.
64...................................................     907011.
65...................................................     899221.
66...................................................     890428.
67...................................................     880797.
68...................................................     870298.
69...................................................     858904.
70...................................................     846565.
71...................................................     832316.
72...................................................     816861.
73...................................................     800078.
74...................................................     781837.
75...................................................     762012.
76...................................................     740743.
77...................................................     717689.
78...................................................     692780.
79...................................................     665977.
80...................................................     637260.
81...................................................     607339.
82...................................................     575531.
83...................................................     541919.
84...................................................     506647.
85...................................................     469931.
86...................................................     432459.
87...................................................     394138.
88...................................................     355393.
89...................................................     316712.
90...................................................     278663.
91...................................................     242020.
92...................................................     207150.
93...................................................     174602.
94...................................................     144828.
95...................................................     118151.
96...................................................      94871.7
97...................................................      74863.6
98...................................................      58042.2
99...................................................      44176.1
100..................................................      32956.4
101..................................................      24044.8
102..................................................      17104.1
103..................................................      11815.5
104..................................................       7886.75
105..................................................       5054.94
106..................................................       3086.95
107..................................................       1778.82
108..................................................        955.465
109..................................................        470.955
110..................................................        208.668
111..................................................         80.7899
112..................................................         26.2340
113..................................................          6.69620
114..................................................          1.19385
115..................................................           .111460
------------------------------------------------------------------------

    (2) If the multiples in Tables I through IV of Sec. 1.72-9 are used 
to determine any portion of the expected return under a contract 
described in paragraph (c)(1) of this section, only the post-June 1986 
investment in the contract (if any) shall be adjusted in the manner 
described in paragraph (c)(1) of this section, and the pre-July 1986 
investment in the contract shall, in the case of a contract described in 
paragraph (b) (1) or (6) of Sec. 1.72-5, be adjusted in the following 
manner:
    (i) Determine the number of years necessary for the guaranteed 
amount to be fully paid by dividing the maximum amount guaranteed as of 
the annuity starting date by the amount to be received annually under 
the contract. The number of years should be stated in terms of the 
nearest whole year, considering for this purpose a fraction of one-half 
or more as an additional whole year.
    (ii) Consult Table III of Sec. 1.72-9 for the appropriate 
percentages under the whole number of years found in subdivision (i) of 
this subparagraph and the age (as of the annuity starting date) and sex 
of each annuitant. If the annuitants are not of the same sex, substitute 
for the female annuitant a male annuitant 5 years younger, or for the 
male annuitant a female annuitant 5 years older, so that Table III will 
be entered in both cases with the ages of annuitants of the same sex.
    (iii) Find the sum of the two percentages found in accordance with 
subdivision (ii) of this subparagraph.
    (iv) To the age of the elder of the two annuitants (as determined 
under subdivision (ii) of this subparagraph), add the number of years 
(indicated in the table below) opposite the number of years by which 
such annuitants' ages differ:

------------------------------------------------------------------------
                                                             Addition to
 Number of years difference in age (2 male annuitants or 2    older age
                     female annuitants)                        in years
------------------------------------------------------------------------
0 to 1, inclusive..........................................            9
2 to 3, inclusive..........................................            8
4 to 5, inclusive..........................................            7
6 to 8, inclusive..........................................            6
9 to 11, inclusive.........................................            5
12 to 15, inclusive........................................            4
16 to 20, inclusive........................................            3
21 to 27, inclusive........................................            2
28 to 42, inclusive........................................            1
Over 42....................................................            0
------------------------------------------------------------------------


[[Page 172]]

    (v) Consult Table III for the appropriate percentage under the whole 
number of years found in subdivision (i) of this subparagraph and the 
age and sex of the elder annuitant as adjusted under subdivision (iv) of 
this subparagraph.
    (vi) Subtract the percentage obtained in subdivision (v) of this 
subparagraph from the sum of the percentages found under subdivision 
(iii) of this subparagraph. If the result is less than one, subdivisions 
(vii) and (viii) of this subparagraph shall be disregarded and no 
adjustment made to the investment in the contract.
    (vii) Multiply the percentage found in subdivision (vi) of this 
subparagraph by whichever of the following is the smaller: (A) the 
investment in the contract found in accordance with Sec. 1.72-6 or (B) 
the total amount guaranteed as of the annuity starting date.
    (viii) Subtract the amount found in subdivision (vii) of this 
subparagraph from the investment in the contract found in accordance 
with Sec. 1.72-6.
    (3) The principles of this paragraph (c) may be illustrated by the 
following examples:

    Example (1). Prior to July 1, 1986, Taxpayer A, a 70-year-old male, 
purchases a joint and last survivor annuity for $33,050. The contract 
provides for payments of $100 a month to be paid first to himself for 
life and then to B, his 40-year-old daughter, if she survives him. The 
contract further provides that in the event both die before ten years' 
payments have been made, payments will be continued to C, a beneficiary, 
or to C's estate, until ten years' payments have been made. If there is 
no post-June 1986 investment in the contract, the investment in the 
contract adjusted for the purpose of determining the exclusion ratio is 
computed in the following manner:

Cost of the annuity contract (investment in the contract         $33,050
 unadjusted)...............................................
Guaranteed amount ($1,200x10)..............................      $12,000
                                                            ============
Percentage in Table III for male, age 70 (or female, age              21
 75) for duration of the guarantee (10)....................
Percentage in Table III for female, age 40 (or male, age               2
 35) for duration of the guarantee (10)....................
                                                            ------------
    Sum of percentages obtained............................           23
                                                            ============
Difference in years of age between two males, aged 70 and             35
 35 (or 2 females, aged 75 and 40).........................
Addition, in years, to older age...........................            1
Percentage in Table III for male one year older than A.....           22
Difference between percentages obtained (23 percent less 22            1
 percent)..................................................
Value of the refund feature to the nearest dollar (1                $120
 percent of $12,000).......................................
                                                            ------------
    Investment in the contract adjusted for present value        $32,930
     of the refund feature.................................


    Example (2). The facts are the same as in example (1), except that 
the total investment in the contract was made after June 30, 1986, A is 
73 years of age, and B is A's 70 year old spouse. The percentage 
determined under the formula in paragraph (c)(1)(i) of this section is 
two percent. Thus, the amount determined under paragraph (c)(1)(ii) of 
this section is $240 (2 percent of $12,000), and the investment in the 
contract adjusted for the present value of the refund feature is $32,810 
($33,050--$240).

    (4) If an annuity described in paragraph (b) of Sec. 1.72-5 
contains a refund feature and the manner of determining the adjustment 
to the investment in the contract (or to any part of such investment) is 
not prescribed or requires use of the formula in paragraph (c)(1)(i) of 
this section, the Commissioner will determine the amount of the 
adjustment upon request. The request must contain the date of birth of 
each annuitant, the guaranteed amount, the annual annuity payable to 
each annuitant, and the annuity starting date. Send the request to the 
Commissioner of Internal Revenue, Attention: OP:E:EP:GA, Washington, 
D.C. 20224.
    (d) Adjustment of investment in the contract where paragraph (b)(3) 
of Sec. 1.72-2 applies to payments. (1) If paragraph (b)(3) of Sec. 
1.72-2 applies to payments to be made under a contract and this section 
also applies because of the provision for a refund feature, an 
adjustment shall be made to the investment in the contract in accordance 
with this paragraph before making the computations required by paragraph 
(d)(3) of Sec. 1.72-4 and paragraph (d)(7) of Sec. 1.72-5. In the case 
of the guarantee of a specified amount, the adjustment shall be made by 
applying the appropriate multiple from Table III or VII (whichever

[[Page 173]]

is applicable), as otherwise determined under this section, to the 
investment in the contract or the guranteed amount, whichever is the 
lesser. The guarantee period shall be found by dividing the amount 
guaranteed by the amount determined by placing the payments received 
during the first taxable year (to guaranteed amount) on an annual basis. 
Thus, if monthly payments are first received by a taxpayer on a calendar 
year basis in August, his total payments (to the extent that they reduce 
the guaranteed amount) for the taxable year would be divided by 5 and 
multiplied by 12. The guaranteed amount would then be divided by the 
result of this computation to obtain the guarantee period. If the 
contract merely guarantees that proceeds from a unit or units of a fund 
shall be paid for a fixed number of years or the life (or lives) of an 
annuitant (or annuitants), whichever is the longer, the fixed number of 
years is the guarantee period. The appropriate percentage in Table III 
or VII shall be applied to whichever of the following is the smaller: 
(i) the investment in the contract; or (ii) the product of the payments 
received in the first taxable year, placed on an annual basis, 
multiplied by the number of years for which payment of the proceeds of a 
unit or units is guaranteed.
    (2) The principles of this paragraph may be illustrated by the 
following examples:

    Example (1). Taxpayer A, a 50-year-old male purchases for $25,000 a 
contract which provides for variable monthly payments to be paid to him 
for his life. The contract also provides that if he should die before 
receiving payments for fifteen years, payments shall continue according 
to the original formula to his estate or beneficiary until payments have 
been made for that period. Beginning with the month of September, A 
receives payments which total $450 for the first taxable year of 
receipt. This amount, placed on an annual basis, is $1,350 ($450 divided 
by 4, or $112.50; $112.50 multiplied by 12, or $1,350). If there is no 
post-June 1986 investment in the contract, the guaranteed amount is 
considered to be $20,250 ($1,350x15), and the multiple from Table III 
(found in the same manner as in paragraph (b) of this section), 9 
percent, applied to $20,250 (since this amount is less than the 
investment in the contract), results in a refund adjustment of 
$1,822,50. The latter amount, subtracted from the investment in the 
contract of $25,000, results in an adjusted investment in the contract 
of $23,177.50. If A dies before receiving payments for 15 years and the 
remaining payments are made to B, his beneficiary, B shall exclude the 
entire amount of such payments from his gross income until the amounts 
so received by B, together with the amount received by A and excludable 
from A's gross income, equal or exceed $25,000. Any excess and any 
payments thereafter received by B shall be fully includible in gross 
income.
    Example (2). Assume the same facts as in example (1), except that 
the total investment in the contract was made after June 30, 1986. The 
applicable multiple found in Table VII is 3 percent. When this is 
applied to the guaranteed amount of $20,250, it results in a refund 
adjustment of $607.50. The adjusted investment in the contract in 
$24,392.50 ($25,000--$607.50).

    (e) Adjustment of the investment in the contract where more than one 
annuity element is provided for a single consideration. In the case of 
contracts to which paragraph (b) of Sec. 1.72-6 applies for the purpose 
of allocating the investment in the contract to two or more annuity 
elements which are provided for a single consideration, if one or more 
of such elements involves a refund feature, the portion of the 
investment in the contract properly allocable to each such element shall 
be adjusted for the refund feature before aggregating all the 
investments in order to obtain the exclusion ratio which is to apply to 
the contract as a whole.

    Example (1). If taxpayer A, an insured 70 years of age, upon 
maturity of an endowment policy which cost him a net amount of $86,000, 
elected a dual settlement consisting of (1) monthly payments for his 
life aggregating $4,146 per year with 10 years' payments certain, and 
(2) monthly payments for his 60-year-old brother, B, aggregating $2,820 
per year with 20 years' payments certain, the exclusion ratio to be used 
by both A and B if there is no post-June 1986 investment in the contract 
would be determined in the following manner:

A's expected return (A's payments per year of $4,146          $50,166.60
 multiplied by his life expectancy from Table 1 of
 12.1)...............................................
B's expected return (B's payments per year of $2,820          $51,324.00
 multiplied by his life expectancy from Table 1 of
 18.2)...............................................
                                                      ------------------

[[Page 174]]


    Sum of expected returns to be used in determining        $101,490.60
     exclusion ratio.................................
                                                      ==================
Percentage of total expected return attributable to                 49.4
 A's expectancy of life ($50,166.60/$101,490.60).....
Percentage of total expected return attributable to                 50.6
 B's expectancy of life ($51,324/$101,490.60)........
Portion of investment in the contract allocable to            $42,484.00
 A's annuity (49.4 percent of $86,000)...............
Portion of investment in the contract allocable to            $43,516.00
 B's annuity (50.6 percent of $86,000)...............
Value of the refund feature with respect to A's                $8,707.00
 annuity (percentage from Table III for male, age 70,
 and duration 10, or 21 percent, multiplied by lesser
 of guaranteed amount and allocable portion of
 investment in the contract, $41,460)................
A's allocable portion of the investment in the                $33,777.00
 contract adjusted for refund feature ($42,484 less
 $8,707.00)..........................................
Value of the refund feature with respect to B's               $10,879.00
 annuity (percentage from Table III for male, age 60,
 and duration 20, or 25 percent, multiplied by lesser
 of guaranteed amount and allocable portion of
 investment in the contract, $43,516)................
B's allocable portion of the investment in the                $32,637.00
 contract adjusted for refund feature ($43,516 less
 $10,879.00).........................................
Sum of A's and B's allocable portions of the                  $66,414.00
 investment in the contract after adjustment for the
 refund feature......................................
Exclusion ratio for the contract as a whole (total                  65.4
 adjusted investment in the contract, $66,414,
 divided by the total expected return from above,
 $101,490.60) (percent)..............................


    Example (2). Assume the same facts as in example (1) except that the 
total investment in the contract was made after June 30, 1986. The 
exclusion ratio to be used by both A and B would be 56.9 percent, 
determined as follows:


A's expected return (A's payments per year of $4,146          $66,336.00
 multiplied by his life expectancy from Table V of
 16.0)...............................................
B's expected return (B's payments per year of $2,820          $68,244.00
 multiplied by his life expectancy from Table V of
 24.2)...............................................
                                                      ------------------
Sum of expected returns to be used in determining            $134,580.00
 exclusion ratio.....................................
                                                      ==================
Percentage of total expected return attributable to                 49.3
 A's expectancy of life ($66,336.00/$134,580.00).....
Percentage of total expected return attributable to                 50.7
 B's expectancy of life ($68,244.00/$134,580.00).....
Portion of investment in the contract allocable to            $42,398.00
 A's annuity (49.3 percent of $86,000)...............
Portion of investment in the contract allocable to            $43,602.00
 B's annuity (50.7 percent of $86,000)...............
Value of the refund feature with respect to A's                $4,560.60
 annuity (percentage from Table VII for age 70 and
 duration 10, or 11 percent, multiplied by lesser of
 the guaranteed amount and allocable portion of
 investment in the contract, $41,460)................
A's allocable portion of the investment in the                $37,837.40
 contract adjusted for refund feature ($42,398 less
 $4,560.60)..........................................
Value of the refund feature with respect to B's                $4,796.22
 annuity (percentage from Table VII for age 60 and
 duration 20, or 11 percent, multiplied by lesser of
 guaranteed amount and allocable portion of
 investment in the contract, $43,602)................
B's allocable portion of the investment in the                $38,805.78
 contract adjusted for refund feature ($43,602 less
 $4,796.22)..........................................
                                                      ------------------
Sum of A's and B's allocable portions of the                  $76,643.18
 investment in the contract after adjustment for the
 refund feature......................................

[[Page 175]]


Exclusion ratio for the contract as a whole (total                  56.9
 adjusted investment in the contract, $76,643.18,
 divided by the total expected return from above,
 $134,580.00) (percent)..............................


    (f) Adjustment of investment in the contract with respect to 
contracts subject to Sec. 1.72-6(d). In the case of a contract to which 
Sec. 1.72-6(d) (relating to contracts in which amounts were invested 
both before July 1, 1986, and after June 30, 1986) applies, this section 
is applied in the manner prescribed in Sec. 1.72-6(d) and, in 
particular, Sec. 1.72-6(d)(5)(vi).

[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960, as 
amended by T.D. 8115, 51 FR 45702, Dec. 19, 1986]