purposes and procedures manual of the naic securities

Purposes and Procedures

Manual of the NAIC

Securities Valuation Office

Effective for Statements ending December 31, 2009

July 1, 2009

(volume/issue 08/02)

SVO- PP- 08- 02

Accounting & Reporting

Accountants, members of the insurance industry and

educators will find relevant information about statutory

accounting practices and procedures.

Consumer Information

Consumers, educators and members of the insurance

industry will find important answers to common questions

in guides about auto, home, health and life insurance.

Financial Regulation

Accountants, financial analysts and lawyers will find

handbooks, compliance guides and reports on financial

analysis, state audit requirements and receiverships.

Legal

State laws, regulations and guidelines apply to members

of the legal and insurance industries.

NAIC Activities

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newsletters and reports affecting NAIC members.

Special Studies

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the insurance industry, lawyers and statisticians will find

relevant products on a variety of special topics.

Statistical Reports

Insurance industry data directed at regulators, educators,

financial analysts, insurance industry members, lawyers

and statisticians.

Supplementary Products

Accountants, educators, financial analysts, insurers,

lawyers and statisticians will find guidelines, handbooks,

surveys and NAIC positions on a wide variety of issues.

Securities Valuation Office

Provides insurers with portfolio values and procedures

for complying with NAIC reporting requirements.

White Papers

Accountants, members of the insurance industry and

educators will find relevant information on a variety of

insurance topics.

© 1990-2009 National Association of Insurance Commissioners. All rights reserved.

ISBN: 978-1-59917-262-0

Printed in the United States of America

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Companion Products

How to Comply: SVO Filing Procedures Manual

This manual answers common questions about procedures for insurers to

follow when filing securities with the Securities Valuation Office. This manual

should be read in conjunction with the Purposes and Procedures Manual of

the NAIC Securities Valuation Office. Copyright 2003.

Mutual Fund List and Bank List

These mutual funds and bond mutuals meet conditions in the Purposes and

Procedures Manual of the NAIC, qualifying them for more favorable reserve

treatment. The Bank List meets credit standards specified for a variety of

NAIC-approved purposes. Updated monthly.

SVO Research Newsletter

This newsletter provides financial market reviews, credit market trends,

overviews of noteworthy securities transactions and analysis of new

investment vehicles from the experienced team of seasoned analysts at the

SVO. It includes default trends, market data trends and recent rating agency

actions for insurance companies. This product is only available electronically

through InsPubs. Updated quarterly.

Valuation of Securities on CD-ROM

This publication lists more than 250,000 securities held by insurance

companies with valuations to be used in those companies' annual statement.

It contains listings of government and municipal bonds, plus corporate bonds

and stocks. To ensure that this publication is received in a timely manner, it

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International orders must be prepaid, including shipping charges. Please contact an NAIC Customer Service Representative, Monday - Friday, 8:30 am - 5 pm CST.

© 1990-2009 National Association of Insurance Commissioners July 1. 2009

RECENT/Page1

Date: July 1, 2009 To: Subscribers to the Purposes and Procedures Manual of the NAIC

Securities Valuation Office From: NAIC Insurance Products and Services Division Re: July 1, 2009 Update

RECENT CHANGES TO THE SVO PURPOSES AND PROCEDURES MANUAL Manual:

No amendments to the Manual have been made subsequent to its last publication of December 31, 2008.

Appendix: Section 1 Section 1, the Securities Valuation Office Staff and Responsibilities, has been

revised to reflect staffing assignments as of July 1, 2009. Section 2 Section 2, the NAIC List of Valuation of Securities (E) Task Force Members, has

been updated as of July 1, 2009. Section 8 Section 8, the List of Money Market Funds Filed with the SVO (U.S. Direct

Obligations/Full Faith and Credit Exempt List), has been updated as of July 1, 2009.

Section 9 Section 9, the List of Money Market Funds Filed with the SVO (Class 1 Funds),

has been updated as of July 1, 2009. Section 10 Section 10, the List of Bond Mutual Funds Filed with the SVO (Class 1 Bond

Funds), has been updated as of July 1, 2009. Section 11 Section 11, the List of Capital and Surplus Notes Eligible for Amortized Value

Accounting, has been updated as of July 1, 2009. Section 12 Section 12, the List of Banks, has been updated to reflect banks that qualify for

listing as of July 1, 2009. Section 15 Section 15, the RSAT Index List, has been updated to reflect listing as of July 1,

2009. Section 20 Section 20, the List of Exchange Traded Funds for Reporting as a Schedule D

Bond, has been updated to reflect listing as of July 1, 2009.


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TABLE OF CONTENTS

NOTICE..................................................................................................................................................... 1 RECENT CHANGES TO THE SVO PURPOSES AND PROCEDURES MANUAL ...................... 1 DISCLOSURE STATEMENT ................................................................................................................ 1 Part One: General Definitions ................................................................................................................. 1 Part Two: General .................................................................................................................................... 1

Section 1. The NAIC............................................................................................................................... 1 Section 2. VOS/TF and SVO.................................................................................................................. 1 Section 3. General Directives ................................................................................................................. 1

(a) Ongoing SVO Operations.............................................................................................................. 1 (b) SVO Analytical Functions in Support of Financial Solvency Regulation .................................... 2 (c) Accounting Conventions and the NAIC Financial Conditions Framework.................................. 2 (d) Application of Analytical Instructions .......................................................................................... 3 (e) When Analytical Instructions Are Insufficient or Inadequate....................................................... 3 (f) Emerging Investment Vehicle........................................................................................................ 5 (g) Valuation of Securities Database .................................................................................................. 8 (h) Valuation of Securities Products ................................................................................................... 8 (i) Monitoring of VOS Database......................................................................................................... 8

(i) Monitoring.................................................................................................................................. 8 (A) General Directive ................................................................................................................. 8 (B) Directive Applicable to Filing Exempt Securities................................................................ 8

(ii) Annual Review.......................................................................................................................... 8 (j) Internal Administration .................................................................................................................. 9

(i) General ....................................................................................................................................... 9 (ii) Credit Committee.................................................................................................................... 10 (iii) SVO Departments .................................................................................................................. 10 (iv) Filing Exempt Securities ........................................................................................................ 10

(k) For NAIC Members Only - Official Source................................................................................ 10 (l) This Manual ................................................................................................................................. 11

Section 4. Credit Quality....................................................................................................................... 11 Section 5. Unit Prices of Securities....................................................................................................... 11 Section 6. Classification of Securities .................................................................................................. 12 Section 7. Prohibition On Use of NAIC Designation As Covenant ..................................................... 12 Section 8. Short-Term Investments....................................................................................................... 12 Section 9. Statement of Practice ........................................................................................................... 12 Section 10. Circular Transaction........................................................................................................... 12 Section 11. Amendments and Updates to this Manual ......................................................................... 13

(a) Substantive Amendments to this Manual .................................................................................... 13 (b) Format for Substantive Amendments to this Manual.................................................................. 14 (c) Semi-Annual Updates to this Manual.......................................................................................... 14


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Part Three: Definitions of NAIC Designation Categories, Valuation Indicators and Administrative Symbols ...................................................................................................................................................... 1

Section 1. Definition of NAIC Designation Categories.......................................................................... 1 Section 2. NAIC Designations Related to the Special Reporting Instruction......................................... 2 Section 3. Valuation Indicators............................................................................................................... 2 Section 4. SVO Administrative Symbols................................................................................................ 3 Section 5. Price Field Conventions......................................................................................................... 5

Part Four: Administrative Procedures ................................................................................................... 1

Section 1. General Reporting Framework ............................................................................................. 1 (a) Obligation To Report..................................................................................................................... 1 (b) Authority to Require a Filing with the SVO ................................................................................. 1 (c) Reporting ....................................................................................................................................... 1 (d) Reporting Responsibilities ............................................................................................................ 1 (e) Use of a Filing Agent .................................................................................................................... 2 (f) Security Identification Numbers .................................................................................................... 2

Section 2. Reporting Exemptions ......................................................................................................... 2 (a) Statement of Policy........................................................................................................................ 2 (b) Certain Separate Accounts ............................................................................................................ 2 (c) U.S. Government Securities .......................................................................................................... 2

(i) Filing Exemption for Direct or Full Faith and Credit Obligations of the United States Government..................................................................................................................................... 2 (ii) U.S. Government NAIC ARO Rated Issuer Filing Exemption ................................................ 3 (iii) Discretionary Government Filing Exemption.......................................................................... 4 (iv) Collateralized Mortgage Obligations (CMOs)......................................................................... 4

(A) Agency CMOs...................................................................................................................... 4 (B) CMOs Fully-Backed by Agency Collateral.......................................................................... 5 (C) Participation Certificates (PCs) in Mortgage Pools.............................................................. 5

(d) Filing Exemption for Certain NAIC ARO Rated Securities ......................................................... 5 Section 3. Special Reporting Instruction ................................................................................................ 7

(a) Use of the Administrative Symbol Z in Schedule D ..................................................................... 7 (b) Application of the 5*/6* Rule ....................................................................................................... 7 (c) Exemption from Application of the 5*/6* Rule ............................................................................ 8 (d) Documentation .............................................................................................................................. 8 (e) Use of NAIC 5* Designation ........................................................................................................ 8 (f) Use of NAIC 6* Designation......................................................................................................... 9 (g) Unit Price of NAIC 6* Securities.................................................................................................. 9 (h) Other Permitted Uses of the Principal and Interest Certification Form and the NAIC 5*............ 9 and 6* Designations............................................................................................................................ 9

Section 4. The Mechanics of Reporting With the SVO........................................................................ 10 Section 5. Review of SVO Credit, Classification or Valuation Decisions ........................................... 12

(a) Requests for Clarification of SVO Decisions.............................................................................. 12 (b) Requests for Appeals of SVO Analytical Decisions................................................................... 12

(i) Condition to Filing of an Appeal ............................................................................................. 12 (ii) Procedure for Filing an Appeal............................................................................................... 12 (iii) SVO Review of the Appeal.................................................................................................... 13


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(iv) Status of NAIC Designation during Appeal........................................................................... 14 (c) Review of SVO Decisions by the VOS/TF ................................................................................. 14

(i) Task Force Review for Alleged Violations of Procedures....................................................... 14 (A) Request for Review ............................................................................................................ 14 (B) Condition to Request; Exhaust SVO Remedies ................................................................. 14 (C) Basis of Review by the Task Force .................................................................................... 14

(d) Review Timeline ......................................................................................................................... 15 Section 6. When to Use the Securities Acquisition Report (SAR) ...................................................... 15 Section 7. When to Use SUB 1 or SUB 2 Forms.................................................................................. 15 Section 8. Specialized SVO Forms, Products and Systems.................................................................. 16

(a) Official Forms Only .................................................................................................................... 16 (b) Counterparty Rating Report ........................................................................................................ 16 (c) Bond Lease Based and Credit Lease Based CTL Evaluation Forms .......................................... 16 (d) Project Information Memorandum (PIM) and Power and Pipeline Projects Annual Review Summary ........................................................................................................................................... 17 (e) Mutual Fund Forms ..................................................................................................................... 17 (f) Application Form For Listing on Bank List ................................................................................ 18 (g) Regulatory Treatment Analysis Service Application Form ........................................................ 18 (h) Valuation Information Memorandum ......................................................................................... 18 (i) Treasury Stock and Reciprocal Ownership Elimination Worksheet (Worksheet)....................... 18 (j) Collateral Loan Form ................................................................................................................... 18 (k) The Automated Valuation Service (AVS) Subscription Package............................................... 19 (l) Inquiry Service ............................................................................................................................. 19 (m) Residential Mortgage Quality Information Form ...................................................................... 19 (n) Discount Factor Form.................................................................................................................. 19 (o) Structured Security Questionnaire .............................................................................................. 19

Part Five: Initial and Subsequent Reporting - Reporting Conventions and Required Documents. 1

Section 1. Initial Report ......................................................................................................................... 1 Section 2. Informational Deficiencies.................................................................................................... 1 Section 3. Reporting Conventions and Required Documents................................................................ 1

(a) Corporate Issues ............................................................................................................................ 1 (i) Rated .......................................................................................................................................... 1 (ii) Unrated...................................................................................................................................... 2 (iii) Rated Medium Term Notes...................................................................................................... 2 (iv) Foreign Issuers ......................................................................................................................... 2 (v) Investments in Certified Capital Companies............................................................................. 2

(A) Definition.............................................................................................................................. 2 (B) Statutory Accounting Guidance............................................................................................ 3 (C) Procedure for Reporting and Filing with the SVO............................................................... 3 (D) Required Documentation...................................................................................................... 4 (E) Applicable Methodology ...................................................................................................... 4

(b) Municipal Issues............................................................................................................................ 4 (i) Rated .......................................................................................................................................... 4 (ii) Unrated...................................................................................................................................... 5 (iii) Industrial Development Revenue Bonds and Pollution Control Revenue Bonds.................... 5 (iv) Canadian Municipals................................................................................................................ 5


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(v) Lottery Securities ...................................................................................................................... 5 (c) Structured Issues............................................................................................................................ 6

(i) Rated .......................................................................................................................................... 6 (ii) Unrated...................................................................................................................................... 6

(A) Credit Tenant Loan (CTL) ................................................................................................... 6 (B) Residential Mortgage Backed Securities.............................................................................. 7 (C) Structured Securities Fully Guaranteed by an NAIC ARO Rated Entity............................. 7 (D) Structured Securities Backed by NAIC ARO Rated Financial Assets................................. 8 (E) Structured Securities Fully Backed by Financial Assets Insured by NAIC ARO Rated Insurers........................................................................................................................................ 8 (F) Commercial Mortgage-Backed Securities ............................................................................ 9 (G) Real Estate Investment Trust................................................................................................ 9

(iii) Structured Lottery Securities ................................................................................................... 9 (d) Subsidiaries, Controlled and Affiliated (SCA) Companies .......................................................... 9

(i) Debt Issued by an SCA Company.............................................................................................. 9 (ii) Preferred Stock Issued by an SCA Company ........................................................................... 9 (iii) Common Stock and Preferred Stock Issued by an SCA Company ....................................... 10

(e) U.S. Government Securities ........................................................................................................ 11 (i) U.S. Government Securities required to be filed with the SVO .............................................. 11

(A) General Rule....................................................................................................................... 11 (B) Securities That Are Not Exempt......................................................................................... 11

(ii) SVO Publishing Conventions for U.S. Government Securities Exempt From Filing ............ 12 (A) Direct Treasury Obligations ............................................................................................... 12 (B) Other Exempted U.S Government Securities ..................................................................... 12

(iii) Filing Requirements for U.S. Government Securities ........................................................... 12 (f) Foreign Sovereign Government and Supranational Entities........................................................ 13 (g) Mutual Funds............................................................................................................................... 13 (h) Exchange Traded Funds .............................................................................................................. 14

(i) No Purchase/ No Initial Report ................................................................................................ 14 (ii) Purchase Prior to or Contemporaneously with EIV-Regulatory Treatment Analysis Service Application.................................................................................................................................... 14 (iii) Purchases Subsequent to Listing of ETF on ETF List........................................................... 14

(i) Public Common Stock, Private Common Stock, Warrants, Foreign Common Stock or Preferred Stock ................................................................................................................................................. 14

(i) Public Common Stock.............................................................................................................. 14 (ii) Private Common Stock ........................................................................................................... 15 (iii) Warrants................................................................................................................................. 15 (iv) Foreign Common Stock ......................................................................................................... 15 (v) Preferred Stock........................................................................................................................ 15

(A) Rated................................................................................................................................... 15 (B) Unrated ............................................................................................................................... 16

Section 4. Subsequent Reporting ......................................................................................................... 16 (a) Annual Filing Requirement ......................................................................................................... 16

(i) Filing Exempt Securities .......................................................................................................... 16 (ii) All Other Securities................................................................................................................. 16

(b) Material Credit Events Filing...................................................................................................... 16 (c) Post Default Credit Quality and Valuation of Defaulted Securities............................................ 17

(iii) Procedure for Obtaining a Post-Default Credit Assessment.................................................. 17


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(iv) Issuer Amends or Refinances an Existing Issue as a Non-Troubled Restructuring............... 17 (v) Required Documents for Credit Assessment and Valuation Analysis................................... 18

(d) Analytical Conventions Applicable to Valuation and Credit Assessment of Loans or Securities on a Post-Default Basis .................................................................................................... 19

(i) Issuer Liquidation.................................................................................................................... 19 (ii) Reorganizations under Chapter 11 of the US Bankruptcy Code ............................................ 19 (iii) Work-out or Restructurings Resulting in Modified Terms.................................................... 19

(e) Reporting Conventions and Required Documents ...................................................................... 19 (i) Corporate Issues not Filing Exempt......................................................................................... 19

(A) Rated................................................................................................................................... 19 (B) Unrated ............................................................................................................................... 20

(ii) Municipal Issues not Filing Exempt ....................................................................................... 20 (A) Rated................................................................................................................................... 20 (B) Unrated ............................................................................................................................... 21 (C) Canadian Municipals .......................................................................................................... 21

(iii) Structured Issues .................................................................................................................... 21 (A) Structured Securities Requiring a Subsequent Report ....................................................... 21

(iv) Subsidiary, Affiliated and Controlled Companies ................................................................. 24 (v) U.S. Government Securities .................................................................................................... 24

(A) Subsequent Filing ............................................................................................................... 24 (vi) Mutual Funds ......................................................................................................................... 24 (vii) Exchange Traded Funds........................................................................................................ 25

Part Six: Pricing of Unaffiliated Investments ........................................................................................ 1

Section 1. Regulatory Objectives.......................................................................................................... 1 Section 2. General Valuation Process..................................................................................................... 1

(a) Obligation to Report a Fair Value ................................................................................................. 1 (b) Valuation Procedure...................................................................................................................... 1 (c) Valuation Methodologies and Corresponding Reporting Codes................................................... 2

Section 3. SVO Valuation Methodologies............................................................................................. 2 (a) Instruction and Disclosure............................................................................................................ 2 (b) Use of Publicly Available Prices as Fair Value ............................................................................ 2

(i) Pricing of Shares of Exchange Traded Funds ............................................................................ 3 (c) Analytical Determinations of Fair Value ..................................................................................... 3

(i) Special Instruction for Private Placements ................................................................................ 3 (ii) Bonds ........................................................................................................................................ 3 (iii) Preferred Stock........................................................................................................................ 5 (iv) Limited Life Preferred Shares................................................................................................. 6 (v) Common Stock.......................................................................................................................... 6 (vi) Shares of Mutual Funds .......................................................................................................... 7 (vii) Common Stock of Insurance Companies............................................................................... 7 (viii) Stock Warrants...................................................................................................................... 7 (ix) Common Stock and Preferred Stock Issued Under Investment Letter or Restricted As to Transferability................................................................................................................................. 8

Section 4. When Price Is Not Determinable ........................................................................................... 8 (a) General Procedures....................................................................................................................... 8 (b) Restriction on Use of the Administrative Symbol NR.................................................................. 8


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Part Seven: Procedures For Credit Assessment .................................................................................... 1

Section 1. Preliminary Matters .............................................................................................................. 1 (a) Use of Public Information Sources................................................................................................ 1 (b) Credit Ratings of NAIC AROs...................................................................................................... 1

(i) Purpose for Creation of List ....................................................................................................... 1 (ii) Criteria for Adding a Rating Organization to the NAIC ARO List .......................................... 2 (iii) Filing Requirements................................................................................................................. 2 (iv) Determination.......................................................................................................................... 2 (v) Criteria for Removing a Rating Organization from the NAIC ARO List ................................. 2 (vi) Directive................................................................................................................................... 3 (vii) Non Equivalency..................................................................................................................... 3 (viii) Correlation of Symbols .......................................................................................................... 3 (ix) Presumption of Conversion Eligibility..................................................................................... 3 (x) Condition to Convertibility ....................................................................................................... 4 (xi) Limitations on Use of NAIC ARO Ratings ............................................................................. 4

(A) NAIC Designation Is Capped To Highest NAIC ARO Rating ............................................ 4 (B) Split Ratings ......................................................................................................................... 4 (C) Unrated Transaction of Issuer with NAIC ARO Rated Debt ............................................... 5

(c) Guidelines for Determining Status of New Instruments as Debt, Preferred Equity or Common Equity.................................................................................................................................................. 5

(i) Categorization as Debt or Equity ............................................................................................... 5 (ii) Benchmark for the Guidelines .................................................................................................. 5 (iii) Relevant Principles .................................................................................................................. 6

(A) Comparison of Debt and Preferred Equity ........................................................................... 6 (B) Deeply Subordinated Debt.................................................................................................... 7 (C) Weighting of Guideline Criteria ........................................................................................... 7 (D) Factors or Criteria Not Listed in Guidelines ........................................................................ 7 (E) Status of Security Under Local (Foreign) Law..................................................................... 7 (F) Mandatorily Convertible Securities ...................................................................................... 7 (G) SVO's Exercise of Discretion............................................................................................... 7

(iv) Guidelines Tables and Comments............................................................................................ 7 (A) About the Guideline Tables.................................................................................................. 7 (B) About the Comments ............................................................................................................ 8

Section 2. Corporate Bonds and Preferred Stock.................................................................................... 9 (a) General Assessment Procedure ..................................................................................................... 9

(i) Independent Assessment .......................................................................................................... 10 (ii) Financial Analysis................................................................................................................... 10

(A) Audited Financial Statement Required............................................................................... 10 (B) Unaudited Financial Statement........................................................................................... 10 (C) Calculation of Ratios .......................................................................................................... 10 (D) Foreign Securities............................................................................................................... 11 (E) Parent-Subsidiary Situations............................................................................................... 13

(iii) Qualitative Analysis; Senior Unsecured Credit ..................................................................... 13 (iv) Terms of the Security; Final Designation .............................................................................. 13

(b) General Procedure for Credit Assessment and Classification of Preferred Stock ...................... 13 (i) Preferred Stock Not Rated By an NAIC ARO......................................................................... 14

(A) Determining an NAIC Designation.................................................................................... 14


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(B) Classification of Preferred Stock........................................................................................ 14 (ii) Preferred Stock Rated by an NAIC ARO ............................................................................... 14

(A) Determining an NAIC Designation.................................................................................... 14 (B) Classification of Preferred Stock........................................................................................ 15

Section 3. Corporate Bonds and Preferred Stock - Special Assessment Situations.............................. 15 (a) Eleemosynary Organization Bonds ............................................................................................. 15 (b) Debtor-in-Possession (DIP)......................................................................................................... 15 (c) Credit Enhanced Transactions..................................................................................................... 16 (d) Short Dated Non-Principal Protected Securities ......................................................................... 16 (e) SCA Debt and Preferred Stock.................................................................................................... 16 (f) Investments in Certified Capital Companies ............................................................................... 17

Section 4. Structured Transactions ....................................................................................................... 18 (a) Credit Tenant Loans .................................................................................................................... 18

(i) General ..................................................................................................................................... 18 (A) CTL Categories .................................................................................................................. 18 (B) Intent................................................................................................................................... 18 (C) Presumption of Eligibility .................................................................................................. 19 (D) SVO Procedure................................................................................................................... 19 (E) General CTL Issues ............................................................................................................ 19 (F) Evaluation Form.................................................................................................................. 20

(ii) Bond Lease Based CTL .......................................................................................................... 21 (A) Definition............................................................................................................................ 21 (B) Legal Characteristics of Bond Leases ................................................................................ 21 (C) Structural Characteristics of Bond Lease Based Transactions ........................................... 22

(iii) Credit Lease Based CTL........................................................................................................ 22 (A) Definition............................................................................................................................ 22 (B) Legal Characteristics of Credit Leases ............................................................................... 23 (C) Structural Characteristics of Credit Lease Based Transactions.......................................... 23 (D) Risks and Acceptable Mitigants in Credit Lease Based Transactions ............................... 24

(iv) Acceptable CTL Variants....................................................................................................... 26 (v) Guidelines For Acceptable CTL Variants............................................................................... 26

(A) Acceptable CTL Variants................................................................................................... 26 (vi) Multiple Property Transactions (MPTs) ................................................................................ 29

(A) Definition............................................................................................................................ 29 (B) General Legal Characteristics of MPTs.............................................................................. 29 (C) Legal and Structural Characteristics of Credit Lease Based MPT CTLs ........................... 30 (D) Acceptable CTL Variants Eligible For MPT Treatment .................................................... 30

(vii) Variants Requiring an NAIC ARO Rating ........................................................................... 31 (b) Other Structured Securities ......................................................................................................... 32

(i) Transactions with Confirmed Current NAIC ARO Rating..................................................... 32 (ii) Transactions with No Currently Confirmable NAIC ARO Rating........................................ 32 (iii) Transactions Never Rated By An NAIC ARO ...................................................................... 32

(A) Applicable Transaction Types............................................................................................ 32 (B) Procedures .......................................................................................................................... 32

(c) Catastrophe Linked Securities..................................................................................................... 37 (i) Definition ................................................................................................................................. 37 (ii) Filing Exemption Status.......................................................................................................... 37 (iii) Procedure ............................................................................................................................... 37


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(d) Structured Lottery Securities....................................................................................................... 38 Section 5. Municipal Bonds.................................................................................................................. 38

(a) Computerized Services................................................................................................................ 38 (b) Rated Securities........................................................................................................................... 38 (c) Unrated Securities ....................................................................................................................... 38

(i) General Obligation Bond ......................................................................................................... 38 (ii) Revenue Bond ......................................................................................................................... 39 (iii) Industrial Development Revenue Bonds; Pollution Control Bonds ...................................... 39 (iv) Escrowed And Pre-refunded Bonds ....................................................................................... 39 (v) Credit Enhanced Municipal Transactions ............................................................................... 39 (vi) Special Situations ................................................................................................................... 40

(d) Quantitative Analysis .................................................................................................................. 42 (e) Terms of the Security; Final Designation.................................................................................... 43

Section 6. U.S. Government Securities................................................................................................. 43 Part Eight: Valuation of Subsidiary, Controlled and Affiliated (SCA) Company Common Stock.. 1

Section 1. The SCA Reporting Cycle ..................................................................................................... 1 Section 2. Reporting Framework ............................................................................................................ 1

(a) Value of Common Stock ............................................................................................................... 1 (b) Initial Reporting of SCA Investments........................................................................................... 1 (c) Subsequent Reporting of SCA Investments .................................................................................. 2 (d) Special Instructions ....................................................................................................................... 2 (e) Consistency in Application of Chosen Valuation Method............................................................ 3

Section 3. Valuation Methods................................................................................................................. 3 (a) Market and Equity Valuation Methods ......................................................................................... 3

(i) Market Valuation Method .......................................................................................................... 3 (A) Conditions to Use ................................................................................................................. 3 (B) Calculation of Discount Rate................................................................................................ 4

(ii) Equity Methods ......................................................................................................................... 4 (A) Investments in U.S. Insurance SCA Entities........................................................................ 5 (B) Investments in Non-Insurance SCA Entities Statutory Basis............................................... 5 (C) Investments in Non-Insurance SCA Entities GAAP Basis .................................................. 5 (D) Investments in Foreign Insurance SCA Entities................................................................... 5 (E) Investments in Foreign Non-Insurance SCA Entities........................................................... 6 (F) Investments in the Preferred Stock of an SCA ..................................................................... 6

Section 4. SVO Assessment and Review of SUB 1-Form...................................................................... 6 (a) Extraneous Factors ........................................................................................................................ 6 (b) Appropriateness of Valuation Method .......................................................................................... 6 (c) Assess Transaction ........................................................................................................................ 6 (d) Valuation Method.......................................................................................................................... 7 (e) Enter Not Valued (NV) ................................................................................................................. 7

Section 5. SVO Assessment and Review of SUB 2 Form...................................................................... 8 (a) Monitoring of VOS Database........................................................................................................ 8 (b) Assess and Adjust Reported Values.............................................................................................. 8 (c) Check NAIC Financial Statement Blank; Finalize a Value .......................................................... 8

(i) NAIC Financial Statement Blank............................................................................................... 8 (ii) Finalize Value ........................................................................................................................... 8


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(iii) Written Notification ................................................................................................................. 9 Section 6. Make Adjustments to Reported Value................................................................................... 9

(a) Reduction of Goodwill .................................................................................................................. 9 (b) Non-admitted Asset Value ............................................................................................................ 9 (c) Reciprocal Ownership ................................................................................................................. 10

Part Nine: Counterparty Exposure; Netting Eligibility ........................................................................ 1

Section 1. NAIC Designation ................................................................................................................. 1 Section 2. Netting Eligibility .................................................................................................................. 1

Part Ten: Creation and Maintenance of Bank List ............................................................................... 1

Section 1. List to be Compiled................................................................................................................ 1 Section 2. Eligibility Standards............................................................................................................... 1

(a) Domestic Issuers............................................................................................................................ 1 (b) Foreign Issuers .............................................................................................................................. 1 (c) General .......................................................................................................................................... 1

Section 3. Administration ....................................................................................................................... 2 (a) Reporting ....................................................................................................................................... 2 (b) Monitoring and Updates................................................................................................................ 2 (c) Downgraded Banks ....................................................................................................................... 2

Part Eleven: Mutual Funds and Exchange Traded Funds ................................................................... 1

Section 1. SVO Administration .............................................................................................................. 1 Section 2. Mutual Fund Lists .................................................................................................................. 1

(a) U.S. Direct Obligations/Full Faith and Credit Exempt List .......................................................... 1 (b) Class 1 List .................................................................................................................................... 1 (c) Bond Fund List .............................................................................................................................. 2

Section 3. Approval of Listing................................................................................................................ 3 Section 4. Exchange Traded Funds......................................................................................................... 3

(a) Regulatory Presumption ................................................................................................................ 3 (b) ETFs Eligible for Classification Analysis..................................................................................... 3 (c) Determining whether an Eligible ETF has Debt Characteristics................................................... 4 (d) The ETF List ................................................................................................................................. 4 (e) Relationship between the Regulatory Treatment Analysis Service Application Process and Initial and Subsequent Reporting of ETFs.......................................................................................... 4

Part Twelve: Capital and Surplus Debentures ...................................................................................... 1

Section 1. Reporting To SVO ................................................................................................................. 1

Part Thirteen: Replication (Synthetic Asset) Transactions (RSATs) .................................................. 1

Section 1. General................................................................................................................................... 1

(a) Definitions ..................................................................................................................................... 1 (b) Instruction to Report Replication (Synthetic Asset) Transactions ................................................ 5


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(c) Special Instruction Regarding Identical RSATs............................................................................ 5 (d) Counterparty Risk-Based Capital.................................................................................................. 5

Section 2. Initial Reporting of Replication (Synthetic Asset) Transactions ........................................... 6 (a) Informational Requirements - General.......................................................................................... 6

(i) General Filing Instructions......................................................................................................... 6 (ii) Additional Instructions for RSATs with a Change in Credit Profile ........................................ 6

Section 3. Procedures Applied to Initial Reports of Replication (Synthetic Asset) Transactions......... 6 (a) Effective RSAT ............................................................................................................................. 6 (b) Credit Assessment ......................................................................................................................... 7

Section 4. Subsequent Reporting of Replication (Synthetic Asset) Transactions .................................. 7 (a) Informational Requirements - General.......................................................................................... 7

Section 5. Procedures Applied to Subsequent Reports of Replication (Synthetic Asset) Transactions . 8 (a) Credit Assessment ......................................................................................................................... 8

Section 6. Additional Procedures for RSATs Using Baskets ................................................................. 9 (a) Initial Reporting............................................................................................................................. 9 (b) Subsequent Reporting ................................................................................................................. 10

Section 7. Additional Procedures for RSATs Using Indices ................................................................ 10 (a) Initial Reporting........................................................................................................................... 10 (b) Subsequent Reporting ................................................................................................................. 11 (c) Procedures for Compilation of the RSAT Index List.................................................................. 11

Part Fourteen: Schedule BA Assets with Underlying Characteristics of Bonds or Preferred Stock 1

Section 1. Reporting Certain Schedule BA Assets ................................................................................. 1

(a) Application of Reporting Instruction............................................................................................. 1 (b) Fixed Income and Preferred Stock Like Schedule BA Assets Defined ........................................ 1 (c) Schedule BA Assets to be filed with the SVO .............................................................................. 1

(i) Assets with Underlying Fixed Income Characteristics .............................................................. 1 (ii) Special Instruction – Capital and Surplus Debentures............................................................. 2

(d) Reporting Exemptions for Certain Separate Accounts ................................................................. 3 (e) Directive to the SVO ..................................................................................................................... 3 (f) Reporting on Schedule BA Assets................................................................................................. 4

Section 2. Maintenance and Monitoring of SVO Determinations for Schedule BA Assets................... 4 Section 3. NAIC Designation Categories, Valuation Indicators and Administrative Symbols.............. 5 Section 4. Administrative Symbols......................................................................................................... 6 Section 5. Administrative Procedures; Reporting Conventions; Pricing; Credit Assessment................ 6

Part Fifteen: Creation and Maintenance of List of Brokers-Dealers Eligible to Act as Custodian for Insurance Company Assets ................................................................................................................ 1

Section 1. List to be Compiled................................................................................................................ 1 Section 2. Purposes of the List; Status under State Law; Status of Broker-Dealer on List .................... 1 Section 3. Eligibility Standards: ............................................................................................................. 2 Section 4. Administration ....................................................................................................................... 2

© 1990-2009 National Association of Insurance Commissioners July 1. 2009 NOTICE/Page 1

NOTICE Users of this Manual are advised that the SVO publishes a How to Comply Manual. The How to Comply

Manual details requirements for filing all types of securities with the SVO that may be especially useful

for insurance company personnel charged with filing responsibilities. The How to Comply Manual was

last revised in July 2003. If you wish to obtain a copy of the How to Comply Manual, please call the

NAIC Insurance Products and Services Division in Kansas City at (816) 783-8300.


RECENT/Page 1

RECENT CHANGES TO THE SVO PURPOSES AND PROCEDURES MANUAL Manual:

No amendments to the Manual have been made subsequent to its last publication of December 31, 2008.

Appendix: Section 1 Section 1, the Securities Valuation Office Staff and Responsibilities, has been

revised to reflect staffing assignments as of July 1, 2009. Section 2 Section 2, the NAIC List of Valuation of Securities (E) Task Force Members, has

been updated as of July 1, 2009. Section 8 Section 8, the List of Money Market Funds Filed with the SVO (U.S. Direct

Obligations/Full Faith and Credit Exempt List), has been updated as of July 1, 2009.

Section 9 Section 9, the List of Money Market Funds Filed with the SVO (Class 1 Funds),

has been updated as of July 1, 2009. Section 10 Section 10, the List of Bond Mutual Funds Filed with the SVO (Class 1 Bond

Funds), has been updated as of July 1, 2009. Section 11 Section 11, the List of Capital and Surplus Notes Eligible for Amortized Value

Accounting, has been updated as of July 1, 2009. Section 12 Section 12, the List of Banks, has been updated to reflect banks that qualify for

listing as of July 1, 2009. Section 15 Section 15, the RSAT Index List, has been updated to reflect listing as of July 1,

2009. Section 20 Section 20, the List of Exchange Traded Funds for Reporting as a Schedule D

Bond, has been updated to reflect listing as of July 1, 2009.

© 1990-2009 National Association of Insurance Commissioners July 1. 2009 DISCLOSURE/Page 1

DISCLOSURE STATEMENT An NAIC quality rating (NAIC Designation), the Unit Price of a security (together an NAIC

Designation and the Unite Price are referred to as an Association Value) or a classification of a security

is produced solely for NAIC members who should interpret the quality rating, the Unit Price or the

classification in the context of the NAIC Financial Conditions Framework, a member’s state insurance

laws and regulations, and the regulatory profile of a specific insurance company. While NAIC members

are the officials responsible for state insurance regulation, and while the NAIC as an association works

to express regulatory consensus on issues pertaining to insurance regulation, the NAIC SVO staff has no

statutory or regulatory authority. Because the components of an Association Value or a classification are

not produced to aid the investment decision-making process, they are not deemed to be suitable for use

by anyone but NAIC members. NAIC Designations are not intended to be and should not be used as if

they were the functional equivalent of the ratings of nationally recognized statistical rating organizations

or other rating organizations whose ratings are intended to be used by investors as predictive opinions of

default risk. Similarly, the Unit Price of a security is not intended to be and should not be used as an

indication of the price at which a security could be bought or sold in the market place. The use or

adoption of Association Values by anyone other than NAIC members is improper and not authorized by

the NAIC.


PART ONE/Page 1

Part One: General Definitions The following definitions are intended to have relevance only for this Manual. No suggestion is intended that these definitions have any relevance to any other NAIC publication. Association Value means, collectively, an NAIC Designation and the Unit Price published in the VOS Products for a security.

Audited Financial Statement means, collectively, for any given year, the auditor's Opinion, the issuer's income statement, balance sheet, the Statement of Financial Position, all notes to the financial statements, and any supplementary information thereto, prepared in English by a certified public accountant in conformity with U.S. Generally Accepted Accounting Principles (GAAP) or in conformity with the International Financial Reporting Standards (IFRS), in either case showing financial results for the reported year together with the prior year. For insurance companies, the aforementioned statements will be prepared in accordance with statutory accounting principles. For municipal and U.S. Government securities, the aforementioned statements will be prepared in accordance with generally accepted auditing standards and government auditing standards issued by the Comptroller General of the United States. For municipal securities only, the statements will be accepted if they have been submitted to, reviewed and certified by a state comptroller's office. Additionally, in the case of foreign securities, where the Audited Financial Statements are prepared in accordance with non-U.S. GAAP, the SVO requires an explanation of how the foreign GAAP standards differ from U.S. GAAP except as indicated in Part Five, Section 3 (a) (iv) of this Manual. An Audited Financial Statement prepared in a language other than English shall be submitted with an English translation of such statement. Authorization to File (ATF) means the component of ISIS that permits reporting insurance companies to file a security with the SVO. Automated Valuation Service (AVS) means a subscription service offered by the NAIC permitting access to portions of the VOS Database and showing updated Association Values prior to publication in the VOS Products.

Bond means any Obligation with a stated maturity at the time of issuance longer than one year. CINS stands for CUSIP International Numbering System and refers to a numbering system used to identify foreign securities administered by S&P CUSIP. CUSIP stands for the Committee for Uniform Securities Identification Procedures and, as used herein, refers to a numbering system owned by the American Bankers Association and administered by S&P CUSIP that is used to identify publicly traded U.S. securities. CUSIP Identifier means a security identification number assigned to publicly traded U.S. securities by S&P CUSIP.


PART ONE/Page 2

Executive Headquarters means the NAIC staff function responsible for day-to-day conduct of activity in support of the NAIC members and includes the SVO. FE Datafile means the Filing Exempt Datafile and refers to a file on the NAIC electronic computer system that is used to store the data items of FE securities that insurers: (1) have reported in quarterly or annual statements (NAIC Financial Statement Blank) filed with the NAIC or (2) requested to be included in the Filing Exempt Datafile through the Integrated Securities Information System (ISIS) and in both cases, for which an NAIC ARO rating has been confirmed by the NAIC. Guaranteed or insured means that a guarantor or insurer has made an unconditional and irrevocable promise to perform, insure or purchase the obligation of an obligor upon the default of such obligor. Initial Report means the report and documentation filed with the SVO by a reporting insurance company as discussed in Part Five, Section 1 of this Manual. InfoReq means an information request sent by the SVO to a reporting insurance company detailing informational deficiencies associated with an Initial or a Subsequent Report, as discussed in Part Five, Section 2 of this Manual. Inquiry Service means the reporting insurance company's view of the Work Flow component of ISIS. ISIS stands for Integrated Securities Information System and refers to the SVO's electronic computer system for reporting and tracking securities. NAIC Designation means any one of the specific alphanumeric symbols defined in Part Three, Section 1 of this Manual in use by the SVO to denote a category of credit quality. When applied in the context of a derivatives counterparty transaction, an NAIC Designation measures the counterparty's ability to satisfy contractual obligations under a derivatives agreement with a reporting insurance company and not the risk associated with the underlying derivative transaction. When applied to Bonds and to derivatives counterparties, the NAIC Designation appears without a prefix. The valuation indicator P is placed in front of the NAIC Designation to indicate that the SVO has classified the security as a perpetual preferred stock for the purposes of valuation under SAP. The valuation indicator RP is placed in front of the NAIC Designation to indicate that the SVO has classified the security as a redeemable preferred stock for the purposes of valuation under SAP. NAIC Financial Conditions Framework means the instructions, formulas, regulatory treatment, devices or mechanisms set forth in the Accounting Practices & Procedures Manual, Annual Statement Instructions and Financial Condition Examiners Handbook as adopted by the states. NAIC Financial Statement Blank means the Quarterly and the Annual Statement Blank, as the context may require, in the form then in use by the NAIC that is used by state-regulated insurance companies to report investments to a state insurance department. NAIC Member means the chief insurance regulatory official from any one of the 50 states, the District of Columbia or the four U.S. territories, or their duly authorized representatives. NAIC ARO stands for NAIC Acceptable Rating Organization and refers to those rating organizations who meet the criteria specified in Part Seven, Section 1 (b) of this Manual and are identified in Section 4 (a) of the Appendix to this Manual (the NAIC ARO List).


PART ONE/Page 3

Obligation means bonds, notes, debentures, certificates, including equipment trust certificates, production payments, bank certificates of deposit, bankers' acceptances, credit tenant loans, loans secured by financing net leases and other evidences of indebtedness for the payment of money (or a participation, certificates or other evidences of an interest in any of the foregoing), whether constituting general obligations of the issuer or payable only out of certain revenues or certain funds pledged or otherwise dedicated for payment. Person means an individual, a business entity, a multilateral development bank or a government or quasi-governmental body, such as a political subdivision or a government-sponsored enterprise. Preferred Stock means preferred, preference or guaranteed stock of a corporation, or other business entity authorized to issue such stock, that has a preference in liquidation over the common stock of the corporation or other business entity. PPN stands for Private Placement Number and refers to a security identification number assigned to privately placed U.S. securities by S&P CUSIP. SAP stands for Statutory Accounting Principles. S&P CUSIP means the CUSIP Service Bureau of Standard & Poor's Corporation. SCA (Subsidiary, Controlled or Affiliated) company, as used in Part Eight and other portions of this Manual related to Part Eight, means a company (the SCA company) that is in a relationship with another company ("person") that possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the SCA company, whether through the ownership of voting securities, by contract (other than a commercial contract for goods or non-management services) by common management or otherwise, unless the power is the result of an official position with or corporate office held by the company. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing ten percent (10%) or more of the voting securities of any other person. SIC Code stands for Standard Industrial Code and refers to a 4-digit classification scheme established by the U.S. Department of Commerce for organizing commercial entities by industry specialization. SSAP stands for Statement of Statutory Accounting Principles and refers to one or more individual statements of statutory accounting principles contained in the NAIC Accounting Practices and Procedures Manual. When used in this Manual, the phrase SSAP is followed by a reference to the specific number (i.e., No 1) of the Statement of Statutory Accounting Principles). Subsequent Report means the report and documentation filed with the SVO by a reporting insurance company as discussed in Part Five, Section 4 of this Manual. SVO stands for the Securities Valuation Office of the NAIC and refers to the portion of the Executive Headquarters that serves as the professional staff of the Valuation of Securities Task Force (VOS/TF). Unconfirmed FE refers to a security that is neither in the VOS Database nor in the FE Datafile with a current year NAIC Designation. This includes but is not limited to securities in the VOS Database that have not been reviewed in the current year by the SVO; securities submitted for FE status using ISIS,


PART ONE/Page 4

but an independent check of the NAIC ARO rating status of the security by the NAIC could not verify an NAIC ARO rating for the FE security; and securities with private letter ratings. It is also possible that a classification decision by the SVO would cause the security not to be listed as an NAIC ARO rated security. Unit Price means the value determined for a security by the SVO pursuant to Part Six of this Manual for purposes of valuation under SAP. U.S. Government Security means, an Obligation: the interest and principal of which is to be repaid in whole or in part by the U.S. Treasury, a U.S. government agency or a U.S. government sponsored enterprise, on the basis: (1) that the Obligation is the direct or full faith and credit obligation of the U.S. government, (2) that it is otherwise supported by the U.S. government or (3) that it is backed by pools of assets fully insured, guaranteed or otherwise fully supported by the direct or full faith and credit obligation of the U.S. government. This definition is used solely in connection with the exception from filing with the SVO discussed in Part Four, Section 2 (c), the procedures described in Part Five, Section 3(e) and related sections of this Manual. VOS Database means the Valuation of Securities Database and refers to that component of the SVO's Integrated Securities Information System (ISIS) used to store the names and descriptions of securities owned by state-regulated insurance companies, together with the NAIC Designation categories and/or Unit Price assigned to them. VOS Products refers to the quarterly compilation of information derived from the VOS Database, the FE Datafile, Unit Prices assigned by the SVO and Unconfirmed FE’s. VOS/TF stands for the Valuation of Securities Task Force of the NAIC and refers to the NAIC member group responsible for formulating and implementing NAIC's credit assessment and securities valuation policy. Work Flow means the component of the SVO's Integrated Securities Information System (ISIS) that tracks submission and status of all Initial and Subsequent Reports filed by, or on behalf of, reporting insurance companies.


PART TWO/Page 1

Part Two: General Section 1. The NAIC The National Association of Insurance Commissioners ("NAIC" or "Association") traces its origin to 1871. The NAIC is a not-for-profit corporation whose members are the commissioners, directors, superintendents and other state officials who regulate the insurance business within the 50 states, the District of Columbia and the four U.S. territories. The purpose that the members of the Association seek to advance is the promotion of uniformity in their regulatory efforts. The NAIC is not itself a regulatory entity. The 56 members of the Association are supported by the Executive Headquarters, which maintains offices in Kansas City, Mo., Washington, D.C., and New York, N.Y. Committees composed of NAIC members conduct the work of the Association. Prior to regularly scheduled quarterly meetings, regulatory and administrative issues are assigned to expert groups of NAIC members for consideration and recommendation. Progress on assigned work is reported to the next level of the committee system at the quarterly meetings until the matter is disposed of without action or sent to the plenary session for consideration by the entire membership. If adopted by the Plenary, the recommendation becomes Association policy, reflecting national regulatory consensus and serving as guidance to state insurance departments and state legislatures. Section 2. VOS/TF and SVO The NAIC has determined that credit quality of insurance company investments and the Unit Price for a security provide a sound empirical anchor for certain regulatory functions related to financial solvency regulation. The VOS/TF formulates and implements NAIC's credit assessment, classification and securities valuation policy. The SVO is the professional staff of the VOS/TF responsible for day-to-day credit quality assessment and valuation of securities owned by state-regulated insurance companies. The SVO also performs such other duties as are specified by VOS/TF. Section 3. General Directives

(a) Ongoing SVO Operations

The SVO conducts:

(i) Credit analysis for purposes of assigning an NAIC Designation,

(ii) Valuation analysis to determine a Unit Price,

(iii) A number of classification assignments to determine the most appropriate reporting for a security, and

(iv) Other analytical assignments requested by the VOS/TF or members of the regulatory community;


PART TWO/Page 2

in accordance with the directives, procedures and general methodologies described in this Manual. The result of SVO's analysis, as it pertains to credit risk (hereafter defined), shall be expressed as an opinion of credit quality by assignment of an NAIC Designation. The result of SVO's valuation analysis shall be expressed as a Unit Price. The result of the SVO classification analysis shall be expressed as an opinion of how the insurance company should report the security (i.e., whether as bond like, preferred stock like or common stock like or otherwise) based on the applicable classification criteria.* Reporting insurance companies may report the NAIC Designation and classification published in the latest VOS Products and may calculate fair value by multiplying the Unit Price by the number of units owned.

* Note: Principal classification assignments are specified in Part Seven, Sections 1 (c), 2 (b), 3 (d), 4 (a) and Section 4 (c) and in Parts Eleven and Fourteen.

(b) SVO Analytical Functions in Support of Financial Solvency Regulation

The SVO has responsibility for assisting NAIC members and individual states to assess investment risk in new securities and financial products. The SVO exercises this responsibility:

(i) When requested to do by the VOS/TF, any of its working groups, any other NAIC

task force or working group or any individual state insurance department,

(ii) Through the Emerging Investment Vehicle Regulatory Treatment Analysis Service process discussed in Part Two, Section 3 (f),

(iii) Through ongoing research and analysis activity aimed at identifying both broad

developments in the capital markets and the introduction of specific new classes of securities that insurance companies may purchase,

(iv) By providing bi-annual or more frequent reports to the VOS/TF on innovative

structures filed by insurance companies and the risks they contain , and

(v) By sharing information obtained through interaction with market participants with the VOS/TF.

(c) Accounting Conventions and the NAIC Financial Conditions Framework

Association Values serve as the starting point for a variety of policies detailed in the NAIC Financial Conditions Framework, including accounting policy. The rules that detail the application of these accounting standards are found in the NAIC Accounting Practices and Procedures Manual and the Annual Statement Instructions.


PART TWO/Page 3

(d) Application of Analytical Instructions

(i) Relationship to Policy The directives in Section 3 (a) and (b) of this Part Two evince a policy determination to ensure analytical resources to support financial solvency objectives of state insurance regulators as expressed in the NAIC Financial Regulation Standards and Accreditation Program and or other NAIC developed regulatory guidance embodied in state law.

(ii) Parameters for Use of Instructions and Methodologies

The description of methodologies and the instructions pertaining to the application of those methodologies in this Manual are general and mandatory instructions from the VOS/TF to the SVO. The SVO shall have reasonable professional latitude to interpret how the instructions and methodologies contained in this Manual apply to specific securities, financial products or differing analytical situations. Factors that may affect how the SVO interprets instructions and methodologies include, but are not limited to, the terms of individual securities, unique features or characteristics of securities, legal or regulatory issues associated with structured transactions, the issuer’s industry, the introduction of a new security type or asset class and NAIC regulatory objectives. (iii) Use of Generally Accepted Techniques or Methodologies

The SVO is expressly authorized to employ any analytical technique that is taught in standard undergraduate and graduate business school financial analysis curriculum and any analytical technique otherwise widely or commonly used by lending officers, securities professionals, credit rating analysts, valuation professionals, statisticians or members of other similar professions, despite the lack of an express authorization to use the technique in this Manual.

(iv) Updating Instructions and Methodologies

The SVO shall have ongoing professional responsibility to advise the VOS/TF of developments that may suggest the need for the NAIC to develop regulatory policy for new or existing investments or the need for the NAIC to amend or provide for additional instructions and or methodologies.

(e) When Analytical Instructions Are Insufficient or Inadequate

(i) Notice

The Managing Director shall promptly inform the Chair of the VOS/TF of his or her conclusion that market or other developments, the aspects of a new or existing security, financial instrument or analytical situation requires the NAIC to formulate new financial solvency policy or develop new or additional instructions and or methodologies for the SVO. The Managing Director shall prepare a written report for the VOS/TF explaining the reasoning that lead to the conclusion.


PART TWO/Page 4

(ii) Deliberation

The Chair shall call a meeting of the VOS/TF to consider and discuss the SVO report and the issues it presents and to consider how to proceed. If the VOS/TF determines that the nature of the security and or the issues raised by the SVO requires formulation of new policy or regulatory instructions or the development of new or additional instructions and or methodologies, the VOS/TF shall consider whether to declare the security or financial product to be under regulatory review.

On its own initiative or at the direction of the NAIC Executive Committee, the Financial Conditions (E) Committee may instruct the VOS/TF to place a security under regulatory review. The VOS/TF may, on its own initiative place a security under regulatory review as discussed in this section.

(iii) Hearing and Declaration

If the VOS/TF is instructed or if it determines that a security should be formally declared to be under regulatory review, it shall hold a public hearing to discuss the issue and make a formal declaration of this decision. The staff shall cause notice of the determination to be published to interested persons and to other NAIC groups that have jurisdiction over reporting issues, have relevant expertise or would be affected by the activities of the VOS/TF.

(iv) Reporting Framework for Securities under Regulatory Review

Upon a public declaration that a security is under regulatory review, insurance companies that own the security shall report it on the NAIC Financial Statement Blank with the administrative symbol NR* if the security is under review for an assessment of regulatory policy for the investment or regulatory reporting instructions to implement applicable policy or with the administrative symbol Z* if the security is under regulatory review for development by the VOS/TF of the instructions or methodologies for application by the SVO in its risk assessment.

In September of each year, the VOSTF will publicly identify which classes of securities, if any, are under regulatory review and therefore eligible to take the regulatory treatment prescribed for NR*/Z* in the Annual Statement Instructions for that year's year-end NAIC Financial Statement Blank.

(v) Filing of Securities under Regulatory Review

Unless the VOS/TF shall provide other instructions to insurance companies, securities under regulatory review that are otherwise reportable to the SVO shall continue to be filed with the SVO during the period of regulatory review.


PART TWO/Page 5

(f) Emerging Investment Vehicle

(i) Finding

The Task Force finds that the pace of financial innovation and extent of financial engineering requires close cooperation between regulated insurance companies, investment banks and other financial market participants and the regulators who must assess the solvency implications of financial innovation and engineering. This sub-section establishes the mechanism for an insurance company or another market participant (“Applicant”) to apply to the SVO for the purpose of determining the probable regulatory treatment to be accorded to an Emerging Investment Vehicle ("EIV") before it is sold to an insurance company, or for any other security.

(ii) Definition of Probable Regulatory Treatment

For purposes of this sub-section, probable regulatory treatment means the professional opinion of the SVO as to the credit quality designation; and or asset classification for statutory reporting purposes; and or the valuation that would be accorded to the EIV under this Manual if it were purchased by an insurance company and reported to the SVO.

Probable regulatory treatment includes a statement by the SVO that in its opinion: (1) the existing regulatory framework already captures the risks posed by the security either through the mechanism of credit ratings, valuation policy or classification methodology, (2) that the existing regulatory framework does not capture the risks posed by the security and that it is necessary to apply to the VOS/TF to develop an appropriate regulatory accommodation for the instrument or (3) that the SVO lacks an approved methodology that could be used to access the risks contained in the EIV and that it is necessary to apply to the Task Force to develop an appropriate methodology.

(iii) Definition of EIV

For purposes of this sub-section, an EIV is an investment security or other financial product that is newly offered and that contains characteristics or features not previously reviewed by the Task Force or the SVO for a determination of the probable regulatory treatment to be accorded to the EIV. An EIV may be “newly offered” in the sense that the security or financial product has not previously been known (and hence none of its characteristics or features are known) or in the sense that a security or financial product whose primary characteristics or features are understood has evolved to incorporate substantially different features or to contain significant innovation such that it should be considered as never having been reviewed by the Task Force or the SVO.

(iv) Who May Request an Analysis Under This Section

An EIV may be filed: by an insurance company or by another market participant (without the requirement of insurance company sponsorship); or by a state insurance regulator for any security owned by an insurance company under the authority and for purposes discussed in Part Four, Section 1 (b) of this Manual, subject only to the conditions imposed in this sub-section and in other referenced sections.


PART TWO/Page 6

The SVO is not authorized to require anyone to file a transaction as an EIV. However, nothing in this sub-section limits the obligation or the authority of the SVO to report to the VOS/TF any transaction, whether or not filed with the SVO, that presents issues or contains features that require guidance from the VOS/TF, either pursuant to Section 3 (e) of this Part Two or otherwise.

(v) Submission Procedure

To request an analysis of probable regulatory treatment of an EIV, the Applicant submits an original completed Application for Regulatory Treatment Analysis Service ("Application") to the Managing Director, SVO (the "Managing Director"), or the Managing Director’s designated representative. An Application shall be accompanied by written and substantially finalized documentation showing all material terms with the same specificity and clarity as the SVO requires to complete a purchased transaction. A copy of the prospectus or private placement memorandum will not be required if it is unavailable at the time of the filing of the Application, however, it may be required before a determination on the EIV in question can be made by the SVO. (vi) Requirement of a Substantially Finalized Transaction

Analysis of probable regulatory treatment will be provided only for securities and financial products that have been substantially finalized in all material respects. The SVO is not authorized to assist the Applicant to structure a transaction to attain specific regulatory objectives. The SVO shall have full discretion to determine that the terms of a security or financial product as reflected in the documentation submitted with the Application indicate that the security or financial product is not substantially finalized.

(vii) Expedited Review

An Applicant considering the purchase of an EIV that has previously been submitted to the SVO by the Applicant, another market participant or insurance company or any of their Agents, may request an expedited review of that EIV. To request an expedited review, the insurance company or its Agent must submit the Application and a prospectus or private placement memorandum of the EIV marked to show changes from the prospectus for the EIV previously reviewed by the SVO. The marked prospectus shall be accompanied by a letter, written on the letterhead of the insurance company or its Agent, certifying that the prospectus for the submitted EIV is substantially identical to the prospectus for the EIV previously reviewed by the SVO with the exception of names, dates, dollar amounts and other similar matters highlighted in the enclosed prospectus or private placement memorandum.

(viii) Discretion

The Managing Director shall have full discretion to reject an Application if, in the Managing Director's sole discretion, acceptance of the Application would not meet the objectives of the NAIC Financial Conditions Framework. The Managing Director will communicate any such rejection to the Applicant and will return the Application fee and may communicate such rejection to the VOS/TF for informational purposes.


PART TWO/Page 7

(ix) Communication of Determination

At the conclusion of the processing of the EIV, the SVO will provide a letter to the EIV Applicant setting forth its conclusions with respect to the issue(s) raised by the EIV.

If the SVO concludes that this Manual does not provide sufficient guidance to determine an NAIC Designation, valuation or classification for the EIV, or that in its opinion the NAIC Financial Conditions Framework does not clearly specify standards or criteria for responding to the issue raised by the Applicant, it will so inform the Applicant and the VOS/TF pursuant to Part Two, Section 3 (e).

Information provided as part of the EIV Application shall be treated as confidential by the SVO. The Applicant may communicate the content of the letter to anyone provided the Applicant also communicates that the purpose of the analysis reflected in the letter is regulatory. The Applicant may also provide copies of the SVO letter to anyone provided a complete copy of the SVO letter must be given.

If, after the SVO has communicated its decision to the Applicant, an insurance company purchases the EIV and reports it to the SVO, either on its own initiative or at the direction of an insurance regulator, the SVO may be required to enter its determination into NAIC systems, including systems accessible to the market participants for regulatory purposes. This shall not be considered a breach of the agreement to hold our determination confidential.

The regulatory expectation is that Applicants who advise insurance companies will make full disclosure of the SVO determination to any insurance company that requests such information, even if the conclusion is contrary to the Applicant’s initial expectations.

(x) Standing of EIV Application in the NAIC Financial Condition Framework

The activity authorized by this subsection is intended solely to facilitate the business and regulatory objectives of the NAIC and the financial solvency function of the VOS/TF. The SVO's acceptance of an Application does not convey any regulatory status or recognition to the EIV.

A preliminary NAIC Designation assigned under the procedure specified in this sub-section is only valid for the day issued as such designation reflects the preliminary draft of documents and other information that have been presented to the SVO.

A preliminary NAIC Designation will not be published in the VOS Products and, therefore, cannot be used to report the credit quality of the security to the NAIC or any state insurance department. Only NAIC Designations published in the VOS Products may be used to report an investment to an NAIC member's state insurance department.

If an insurance company subsequently purchases the security, the purchasing company must file an Initial Report or, if the security is filing exempt, report the security in accordance with that procedure. The SVO shall apply its usual procedure for initially reported securities before assigning an NAIC Designation and publishing such NAIC Designation in the VOS Products.


PART TWO/Page 8

(g) Valuation of Securities Database

Upon determination of either component of an Association Value, the NAIC Designation or Unit Price, and of a classification, as the case may be, the SVO shall enter such NAIC Designation, Unit Price and classification in the NAIC's VOS Database. For securities eligible for the filing exemption contained in Part Four, Section 2(d) of this Manual, NAIC Designations shall be assigned and entered into the VOS Database in accordance with the instructions contained in Section 3(j)(iv) of this Part. (h) Valuation of Securities Products

On a quarterly basis, the SVO shall publish a compilation of the information derived from the VOS Database showing reported securities together with the NAIC Designation and/or Unit Price assigned by the SVO as well as filing exempt securities derived from the FE Datafile with their NAIC Designation and/or Unit Price and Unconfirmed FE securities. The compilation so published shall be called the Valuation of Securities Products (VOS Products).

(i) Monitoring of VOS Database

(i) Monitoring

(A) General Directive

The SVO shall monitor improvements and deterioration of credit quality of securities which are not filing exempt, defined in Part Four, Section 2(d), in the VOS Database on an ongoing basis. Whenever reports in the financial press, other reliable media, Subsequent Reports or Material Credit Event Filings submitted by a reporting insurance company indicate that the issuer of a security has experienced a material credit event or a change in financial condition, the SVO shall analyze whether the credit event or other change is of sufficient materiality to require a change in the NAIC Designation, Unit Price or both then assigned to a reported security.

(B) Directive Applicable to Filing Exempt Securities

Any security entered into the VOS Database pursuant to Section 3(j)(iv) of this Part shall be assigned a NAIC Designation and monitored on the basis of information provided by the various NAIC AROs and updated electronically by ISIS without the intervention of an SVO analyst. It shall be the responsibility of the insurer to report the security to the SVO if it ceases to be filing exempt as required by Part Four, Section 2(d) of this Manual.

(ii) Annual Review

On at least an annual basis, the SVO shall review all NAIC Designations and Unit Prices assigned by the SVO to securities in the VOS Database in light of the information presented by each issuer's most recent Audited Financial Statements, or other pertinent information, to verify that the assigned NAIC Designation and/or Unit Price is accurate. As necessary, the SVO shall modify such NAIC Designation and/or Unit Price for the


PART TWO/Page 9

previously reported security as changed circumstances may require or delete any security that has matured or as to which there is a lack of sufficient or timely information.

Bonds assigned the administrative symbol NR shall be deleted from the VOS Database if any information deficiency is not rectified by the end of the first quarter following the previous year-end. Provided, however, the SVO will not delete any Bond assigned the administrative symbol NR from the VOS Database if an ATF annual update filing for the Bond appears in ISIS and the SVO has received the necessary information required to assign an NAIC Designation to the Bond. If a Bond is not deleted in accordance with the foregoing process in reliance on an annual update ATF that does not contain the necessary information to permit the assignment of an NAIC Designation, the SVO shall subsequently delete that security from the database. Preferred stock assigned the administrative symbol UP shall be deleted from the VOS Database if any information deficiency is not rectified by the end of the first quarter following the previous year-end. Provided, however, the SVO will not delete any preferred stock assigned the administrative symbol UP from the VOS Database if an ATF annual update filing for the Bond appears in ISIS and the SVO has received the necessary information required to assign an NAIC Designation to the preferred stock. If a preferred stock is not deleted in accordance with the foregoing process in reliance on an annual update ATF that does not contain the necessary information to permit the assignment of a valuation and /or NAIC Designation, the SVO shall subsequently delete that security from the database.

Common stock assigned the administrative symbol UP shall be deleted from the VOS Database if any information deficiency is not rectified by the end of the first quarter following the previous year-end. Provided, however, the SVO will not delete any common stock assigned the administrative symbol UP from the VOS Database if an ATF annual update filing for the common stock appears in ISIS and the SVO has received the necessary information required to assign an NAIC Designation to the common stock. If a common stock is not deleted in accordance with the foregoing process in reliance on an annual update ATF that does not contain the necessary information to permit the assignment of a valuation, the SVO shall subsequently delete that security from the database.

(j) Internal Administration

(i) General

The staff of the SVO shall be organized in a manner that the NAIC Executive Vice President shall deem to be the most appropriate and efficient for the conduct of day-to-day credit assessment and valuation operations, consistent with the resources provided to the office by the NAIC. The staff shall promulgate such internal administrative procedures, protocols, policies and guidelines, as it shall deem necessary for the proper execution of its delegated functions. Such procedures, protocols, policies and guidelines as are promulgated by the staff shall be open to review and oversight by the VOS/TF.


PART TWO/Page 10

(ii) Credit Committee

The SVO shall establish a credit committee composed of its senior staff, non-senior analytical staff or both, possessing expertise relevant to the issues entrusted to the credit committee. The credit committee shall provide SVO's professional staff with such direction or guidance necessary on analytical or policy issues as may be assigned to it pursuant to procedures promulgated under sub-paragraph (i) above. (iii) SVO Departments

The SVO shall establish such procedures or guidelines as are necessary to delineate analytical and administrative responsibility for specific securities among departmental groups. The SVO also shall establish procedures for sharing administrative and analytical oversight for securities deemed to require application of methodologies from more than one department.

(iv) Filing Exempt Securities

Filing exempt securities are defined in Part Four, Section 2 (d) of this Manual. The NAIC shall maintain computer system capabilities to include filing exempt securities in ISIS. The compilation will be performed in accordance with the eligibility rules set forth in this Manual as applied by the insurer holding the security or by the NAIC in comparing the security with the NAIC ARO rating feeds, except when regulatory policy set by the VOS/TF provides a different regulatory treatment for a filing exempt security than would otherwise apply based on the NAIC ARO assigned credit rating. NAIC Designations assigned to filing exempt securities shall be derived by application of the conversion instructions in Part Four Section 2 (d) (i) (A) and (B) of this Manual and the equivalency relationships disclosed in Section 4 of the Appendix except when regulatory policy set by the VOS/TF under Section 3 (e) of this Part or otherwise provides a different regulatory treatment for a filing exempt security than would otherwise apply based on the NAIC ARO assigned credit rating. ISIS shall show the name of the security, including a security identification number, the NAIC Designation and classification assigned to it and the Unit Price, if available.

(k) For NAIC Members Only - Official Source

Association Values are produced solely for the benefit of NAIC members. NAIC members, acting in their capacity as state officials, may incorporate the research produced by the staff of their Association as official regulatory policy. However, state regulators have statutory duties that may require them to incorporate a variety of factors in addition to or in lieu of the research produced by the staff of their voluntary Association. The VOS Products is designated as the official NAIC source for publication of Association Values assigned by the SVO to the securities reported by insurance companies. To the extent that an NAIC member, acting in its capacity as a state official, instructs an insurance company to incorporate Association Values in the filings made by that company to the state insurance department, the NAIC member is advised that only NAIC Designations and Unit Prices obtained from the most recently published VOS Products should be used by an insurance company to


PART TWO/Page 11

report an NAIC Designation and/or a Unit Price on an NAIC Financial Statement Blank prepared in accordance with SAP.

(l) This Manual This SVO Purposes and Procedures Manual is the official expression of NAIC's credit assessment methodologies and valuation policies and takes precedence over other SVO publications. The policies, procedures, methodologies or language of this Manual shall be changed only through a resolution adopted by the VOS/TF in accordance with the NAIC Constitution and Bylaws. NAIC Designations and Unit Prices are produced solely to provide NAIC members with a reliable, independent and uniform source for credit risk and pricing information. Accordingly, the NAIC member must interpret the significance of an Association Value in a specific context by reference to the NAIC Financial Conditions Framework and applicable state insurance laws, rules and regulations. Association Values are not intended or designed to function as an aid to an investment decision.

Section 4. Credit Quality Collectively, NAIC Designation categories describe a credit quality-risk gradation range from highest quality (least risk) to lowest quality (greatest risk). Subject to Part Two, Section 3(e) of this Manual, the only risk measured by an NAIC Designation is credit risk. Credit risk is defined as the relative financial capability of an obligor to make the payments contractually promised to a lender. Credit assessment is performed solely for the purpose of designating the quality of an investment made by an insurance company to enable the NAIC member's department of insurance to determine regulatory treatment. Credit risk is determined by analyzing the information and documentation provided to the SVO by the reporting insurance company and its advisors. The SVO does not audit the information submitted and assumes the information to be timely, accurate and reliable. The ability of an insurance company to realize payment on a financial obligation can be affected by factors not related to credit risk or by the manner in which the repayment promise has been structured. NAIC Designations do not measure other risks or factors that may affect repayment, such as volatility/interest rate, prepayment, extension or liquidity risk. An NAIC Designation must be interpreted by the NAIC member in context of the NAIC Financial Conditions Framework, other characteristics of the investment, and the specific regulatory status of the insurance company. Section 5. Unit Prices of Securities The SVO does not intend, and its methodology may not be appropriate, to yield an opinion of the price at which a security could or should be bought or sold in the marketplace.


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Section 6. Classification of Securities The SVO has the authority to direct a reporting insurance company to report a security on Schedule BA, Schedule D or on another Schedule of the NAIC Annual Statement Blank consistent with the NAIC Accounting Practices and Procedures Manual and the Annual Statements Instructions. Section 7. Prohibition On Use of NAIC Designation As Covenant The VOS/TF hereby declares that once a security has been issued, the use of an NAIC Designation or a change in such Designation as a trigger for certain events which benefit the owner of the security, such as providing the right to put the security back to the issuer or to obtain an increase in interest payment, yield or any other similar benefit, is improper and contrary to Association purposes. Accordingly, the SVO is prohibited from processing any initial filing for a security that contains such covenants. Section 8. Short-Term Investments A short-term investment is defined as an investment that has one year or less to maturity. Investments that have one year or less to maturity when issued are not reported to the SVO. Investments which when acquired by an insurance company have one year or less to maturity, but which when issued had greater than one year to maturity, need only be reported to the SVO if they do not have an NAIC ARO rating or an NAIC Designation for the issuer. Section 9. Statement of Practice The SVO routinely receives financial information, legal documents and other data from reporting insurance companies so that it may assess the reported investment for the NAIC. While the NAIC is not a guarantor of the confidentiality of information submitted to the SVO, the SVO does not redistribute documents obtained in the course of its work for other than regulatory purposes or as may be required by law. The NAIC does, however, respect copyright and will not reproduce or externally distribute copyrighted documents without permission. Section 10. Circular Transaction For purposes of this paragraph a circular transaction shall be deemed to exist whenever the SVO shall find that the essential financial characteristic of a reported security is that the obligor depends on funds advanced by an insurance company to make debt service payments to the same insurance company and that the interdependency of the entities involved in this or related transactions and the lack of any arm's-length economic dealings renders the application of the credit assessment or valuation techniques provided for in this Manual analytically meaningless and therefore misleading to NAIC members. The SVO is instructed to assign a Unit Price of 0 (zero) and the NAIC 6 Designation to circular transactions and to provide written confirmation of this action to the department of insurance of the reporting insurance company's state of domicile. The department of insurance may appeal the SVO decision to an appropriate working group of the VOS/TF.


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Section 11. Amendments and Updates to this Manual

(a) Substantive Amendments to this Manual

(i) Step 1

Any proposals for substantive amendments to this Manual must be distributed to members of any appropriate working group, NAIC staff and interested parties at least three weeks prior to the next national meeting at which it is intended they be discussed. Proposed amendments must also be distributed to the VOS/TF if it is anticipated that the amendment will be considered for adoption by the VOS/TF at that national meeting. Proposals received in a timely manner will be put on the appropriate agenda and should address the issues covered in subsection (b) of this Section. (ii) Step 2

At the meeting, proposals are discussed by the appropriate working group or VOS/TF and should result in (A) a decision to table the matter for a later date, (B) instructions to NAIC staff or interested parties to conduct further work and report back to the appropriate group or (C) a vote by the working group or VOS/TF approving or rejecting the language in question to be followed by a vote of its parent regulatory body if necessary. Proposed language that is to be included in the Manual should be reviewed prior to a final vote of approval to make sure that it reflects the style, format and existing defined terms of the Manual and that a specific location in the Manual be indicated for placement of the language. If the working group or VOS/TF determines that the proposed change may affect another NAIC forum or publication, the working group or task force should issue a charge to make sure appropriate persons are notified.

(iii) Step 3

Language that is approved by the VOS/TF is included in the next scheduled publication of the Manual. The Manual is currently published twice a year with effective dates of July 1 and December 31 of each year. (iv) Step 4

As indicated in subsection (ii) above, certain NAIC staff and/or interested parties may be charged with additional work with respect to a proposed amendment to the Manual. Any subsequent or revised proposals should be distributed to members of the working group or VOS/TF, NAIC staff and interested parties at least three weeks prior to the next national or interim meeting at which they are to be considered.


PART TWO/Page 14

(b) Format for Substantive Amendments to this Manual

Suggested changes and amendments to the Manual, and reasons therefore, shall be stated in a concise and complete manner. Proposed amendments to the Manual should address the following issues:

(i) Identification of the party suggesting the change as well as any other interested

persons represented by such party;

(ii) A concise statement of the issue to be addressed by the change;

(iii) The suggested resolution of the issue in the form of precise language to be incorporated in the Manual and the suggested section of the Manual where the language should be placed;

(iv) An explanation of why the proposed language will resolve the issue identified, any

background information helpful for understanding the change and how this change might effect other sections of the Manual; and

(v) Identification of any other NAIC forums or publications that may be affected by the

change.

(c) Semi-Annual Updates to this Manual

(i) Step 1

Twice a year, in coordination with the NAIC Summer or the Winter national meeting, as the case may be, the staff shall prepare a printer's proof of the Manual incorporating all changes adopted by the VOS/TF for inclusion in the next publication of the Manual. For the sake of clarity, the staff shall identify all changes to the Manual adopted by the VOS/TF by reference to the official minutes of meetings of the VOS/TF as reflected in the NAIC Proceedings. The printer’s proof containing all adopted changes shall be marked (by underline/strikeout) to clearly show all changes to be made to the Manual.

(ii) Step 2

After the staff has prepared a printer’s proof that incorporates changes adopted by the VOS/TF, the staff shall review the printers proof to ensure that the changes are properly formatted, spelling and grammar is accurate, section references agree and that all similar and appropriate procedures are followed to ensure an accurate publication. (iii) Step 3

Once the staff has finalized the printer’s proof in accordance with the instructions above, it shall coordinate with the NAIC Publications Department to publish the newly revised Manual.


PART THREE/Page 1

Part Three: Definitions of NAIC Designation Categories, Valuation Indicators and Administrative Symbols Section 1. Definition of NAIC Designation Categories NAIC Designations are the specific alphanumeric symbols in use by the NAIC SVO to denote a category of credit quality. When applied to Bonds and to derivative counterparties, the NAIC Designation appears without a prefix. The valuation indicator P is placed in front of the NAIC Designation to indicate that the SVO has classified the security as a perpetual preferred stock. The valuation indicator RP is placed in front of the NAIC Designation to indicate that the SVO has classified the security as a redeemable preferred stock for the purposes of valuation under SAP. NAIC 1 is assigned to obligations exhibiting the highest quality. Credit risk is at its lowest and the issuer's credit profile is stable. This means that interest, principal or both will be paid in accordance with the contractual agreement and that repayment of principal is well protected. An NAIC 1 obligation should be eligible for the most favorable treatment provided under the NAIC Financial Conditions Framework. NAIC 2 is assigned to obligations of high quality. Credit risk is low but may increase in the intermediate future and the issuer's credit profile is reasonably stable. This means that for the present, the obligation's protective elements suggest a high likelihood that interest, principal or both will be paid in accordance with the contractual agreement, but there are suggestions that an adverse change in circumstances or economic, financial or business conditions will affect the degree of protection and lead to a weakened capacity to pay. An NAIC 2 obligation should be eligible for relatively favorable treatment under the NAIC Financial Conditions Framework. NAIC 3 is assigned to obligations of medium quality. Credit risk is intermediate and the issuer's credit profile has elements of instability. These obligations exhibit speculative elements. This means that the likelihood that interest, principal or both will be paid in accordance with the contractual agreement is reasonable for the present, but an exposure to an adverse change in circumstances or economic, financial or business conditions would create an uncertainty about the issuer's capacity to make timely payments. An NAIC 3 obligation should be eligible for less favorable treatment under the NAIC Financial Conditions Framework. NAIC 4 is assigned to obligations of low quality. Credit risk is high and the issuer's credit profile is volatile. These obligations are highly speculative, but currently the issuer has the capacity to meet its obligations. This means that the likelihood that interest, principal or both will be paid in accordance with the contractual agreement is low and that an adverse change in circumstances or business, financial or economic conditions would accelerate credit risk, leading to a significant impairment in the issuer's capacity to make timely payments. An NAIC 4 obligation should be accorded stringent treatment under the NAIC Financial Conditions Framework. NAIC 5 is assigned to obligations of the lowest credit quality, which are not in or near default. Credit risk is at its highest and credit profile is highly volatile, but currently the issuer has the capacity to meet its obligations. This means that the likelihood that interest, principal or both will be paid in accordance with the contractual agreement is significantly impaired given any adverse business, financial or economic conditions. An NAIC 5 Designation suggests a very high probability of default.


PART THREE/Page 2

An NAIC 5 obligation should incur more stringent treatment under the NAIC Financial Conditions Framework. NAIC 6 is assigned to obligations that are in or near default. This means that payment of interest, principal or both is not being made, or will not be made, in accordance with the contractual agreement. An NAIC 6 obligation should incur the most severe treatment under the NAIC Financial Conditions Framework. Section 2. NAIC Designations Related to the Special Reporting Instruction NAIC 5* is assigned by the SVO to certain obligations when an insurer certifies: (1) that documentation necessary to permit a full credit analysis of a security does not exist and (2) the issuer or obligor is current on all contracted interest and principal payments and (3) the insurer has an actual expectation of ultimate repayment of all contracted interest and principal. This use of an NAIC 5* Designation is connected with the Special Reporting Instruction contained in Part Four, Section 3 of this Manual. The NAIC 5* Designation is also assigned to certain securities pursuant to policy decisions adopted by the Valuation of Securities Task Force. Securities with NAIC 5* Designations are deemed to possess the credit characteristics of securities assigned an NAIC 5 Designation. Therefore a security assigned an NAIC 5* Designation should incur the same regulatory treatment associated with an NAIC 5 Designation. The asterisk (*) after the quality indicator 5 distinguishes the NAIC 5* Designation from the NAIC 5 Designation that is only assigned by the SVO after a full credit analysis. NAIC 6* is assigned by an insurer to an obligation in lieu of reporting the obligation with appropriate documentation to the SVO for a full credit analysis or filing the certification required for obtaining an NAIC 5* Designation. This use of an NAIC 6* Designation is connected with the Special Reporting Instruction contained in Part Four, Section 3 of this Manual. An NAIC 6* Designation is also assigned by the SVO to an obligation that was assigned an NAIC 5* Designation in a given year if no Subsequent Report is received by the SVO. Securities with NAIC 6* Designations are deemed to possess the credit characteristics of securities assigned an NAIC 6 Designation. Therefore a security assigned an NAIC 6* Designation should incur the same regulatory treatment associated with an NAIC 6 Designation. The asterisk (*) after the quality indicator 6 distinguishes the NAIC 6* Designation from an NAIC 6 Designation that is only assigned by the SVO after a full credit analysis. Section 3. Valuation Indicators Pursuant to Part Seven, Section 2(b) of this Manual, SVO is required to classify preferred stock as either perpetual or redeemable. Valuation Indicators show the classification decision of the SVO and are to be used by insurers to determine a SAP valuation method for preferred stock. P means perpetual and is a valuation indicator used to classify a preferred stock as perpetual,

pursuant to Part Seven, Section 2(b) of this Manual. The valuation indicator P means that the issuer of the preferred stock is not obligated to redeem the issue, the holder of the preferred stock does not have a right to put the preferred stock to the issuer or that there is no other equivalent right. The P valuation indicator is assigned for the purposes outlined in SSAP No. 32.

RP means redeemable preferred and is a valuation indicator that classifies a preferred stock as a

redeemable preferred stock pursuant to Part Seven, Section 2(b) of this Manual. This means that the issuer of the preferred stock is obligated to redeem the issue, the holder of the preferred stock has a right to put the preferred stock to the issuer or that there is some other equivalent right. The RP valuation indicator is assigned for the purposes outlined in SSAP No. 32.


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Section 4. SVO Administrative Symbols SVO administrative symbols convey information about a security or an administrative procedure instead of an opinion of credit quality or Unit Price. The administrative symbols in use by the SVO and their meanings are described below.

(a) All SVO analytical departments except the SVO SCA Companies Group use the following administrative symbols:

A means that the Unit Price of the share of common or preferred stock has been analytically

determined by the SVO when used in context of an analytical department other than the SCA Companies Group.

V when used to report a Unit Price for common or preferred stock, means the Unit Price reported

was not provided by the SVO or any market or exchange but was derived by the insurance company itself or from some other source, pending a valuation analysis by the SVO.

L indicates that the Unit Price given for a share of common or preferred stock is the price listed on

the New York Stock Exchange, the American Stock Exchange or on the NASDAQ National Market System.

U indicates that the price given for a share of common or preferred stock is the price listed on any

market or exchange, including a foreign exchange, other than the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market System.

NOTE: The Administrative Symbols A, L,U and V which identity the manner or source of a Unit Price assigned by the SVO, are collectively referred to as Market Indicators in the NAIC Annual Statement Instructions. UP means unable to price. This symbol is used with common or preferred stock and indicates that a

current market quotation was not obtainable or was not deemed reliable by the SVO. F means that the NAIC Designation, Unit Price or both shown was determined by the reporting

insurance company and not by the SVO. Unlike the administrative symbol Z, the F symbol is used by insurers which meet the definitional criteria for a "Sub-paragraph D Company" as defined by Part Seven, Section 2(a)(ii)(D)(3) of this Manual, to report ownership of a foreign security for which the company did not have the information necessary to permit the SVO to conduct an assessment or a valuation.

FE means exempt from filing with the SVO and is used by an insurance company to report an NAIC

Designation for an exempt security on the NAIC Financial Statement Blank. When reporting a security on its annual or quarterly financial statements, the administrative symbol FE is used with an NAIC 1 through 6 Designation, and in addition, in the case of preferred stock, in combination with the P and RP Valuation Indicators. FE signifies that the reported security meets the criteria set forth in Part Four, Section 2 (d) of this Manual and that the NAIC Designation was arrived at by the insurer by converting the NAIC ARO rating(s) into a corresponding NAIC Designation in accordance with the conversion instructions set forth in Part Four, Section 2 (d) (i) (A) and (B) and the rating equivalency identified in Section 4 of the


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a indicates that the value claimed by the reporting insurance company in its SUB 2 filing was disapproved, the value entered into the comment field of the VOS Database screen was determined by the SVO SCA Companies Group and the two values differ slightly.

e indicates that the value entered in the comment field of VOS Database screen differs materially

from the value claimed by the reporting insurance company for the SCA investment. This administrative symbol is only used with the status field administrative symbol D discussed above.

i indicate that the value entered in the comment field of the VOS Database was not calculated on

the basis of 12/31 financial statements.

(iii) When entered by an insurance company in its annual financial statement blank: J means, when used in context of SCA Companies Group, that the valuation reported for the SCA

investment was reviewed by the SVO and was deemed to be reasonable, calculated in accordance with an appropriate valuation method under Part Eight of this Manual, and calculated accurately by the insurance company.

K when used to report an SCA investment, means that the valuation reported for the SCA

investment was not assigned or reviewed by the SVO but was derived by the insurance company itself pending a valuation analysis by the SVO, or is an SCA investment described in Part Eight Section 2 (d) (ii) of this Manual, that is not required to be reviewed by the SVO.

Section 5. Price Field Conventions

(a) Unit Price For Bonds and Common and Preferred Stocks

Expressed in decimal form with a maximum of seven significant digits before the decimal point and three digits after the decimal point. For example, 32.375.

(b) -- (Dash)

Indicates any Bond for which a Unit Price is not readily available or cannot be established pursuant to Part Six of this Manual.


PART THREE/Page 4

Appendix to this Manual or by the NAIC in comparing the security with the NAIC ARO rating feeds.

NR means Not Rated. The symbol is used in the VOS Products for bonds and communicates that the

information required to arrive at an NAIC Designation is not available to the SVO or that such information was received too late to be processed and reflected in the most current VOS Products. Bonds assigned an NR symbol will be deleted from the VOS Database if any information deficiency is not rectified by the end of the first quarter following the previous year-end.

Z means that the NAIC Designation reported by the insurance company was not derived by or

obtained from the SVO, but has been determined analytically by a reporting insurance company. A security designated with a Z must be submitted to the SVO for valuation within 120 days of the date the security was acquired. The Z symbol should not be used for securities that are filing exempt from filing with the SVO pursuant to Part Four, Section 2(d) of this Manual.

NR* indicates that the security so designated belongs to a class of securities currently under policy

review by the NAIC. Z* follows an NAIC Designation and means that the class of securities cannot be rated by the SVO

because the valuation procedure is under regulatory review.

(b) The SVO SCA Companies Group uses the following administrative symbols to denote the status of the filing or to comment on the value claimed by the reporting insurance company. The symbols and their meaning are published here solely to facilitate understanding by NAIC members.

(i) When entered in the status field of the VOS Database screen:

NV signifies Not Valued and means that the SVO SCA Companies Group has received and

processed a SUB-1 form filing for the SCA investment shown. See Part Eight for a discussion of the significance of this administrative symbol.

AP indicates that the value claimed by the reporting insurance company for the SCA investment in

its SUB 2 filing was approved by the SVO SCA Companies Group and entered into the status field of the VOS Database screen.

D indicates that the value claimed by the reporting insurance company in its SUB 2 filing was

disapproved, the value entered in the status field of the VOS Database screen was determined by the SCA Companies Group and the two values differ materially.

R indicates that the information submitted in support of a SUB 1 or SUB 2 filing is incomplete and

the SVO SCA Companies Group has issued an InfoReq request for the missing information.

(ii) When entered in the comment field of the VOS Database screen:

© 1990-2009 National Association of Insurance Commissioners July 1. 2009 PART FOUR/Page 1

Part Four: Administrative Procedures

Section 1. General Reporting Framework

(a) Obligation To Report

Insurance companies domiciled in any state of the United States, or any of its territories or possessions, and required by the law of their domiciliary state or territory to report NAIC Association Values for their investments in the NAIC Financial Statement Blank, shall report purchases of securities or any other relevant transaction to the SVO as required by this Manual.

(b) Authority to Require a Filing with the SVO The existence of a filing exemption for a transaction, security, financial asset or investment activity in any Part of this Manual is not intended to, and shall not be read as, prohibiting a state insurance regulator from requiring its domiciled insurance company to file a transaction, security, financial asset or investment activity with the SVO for analysis.

In addition, nothing in this Manual should be read as prohibiting a state insurance regulator from asking for SVO analytical assistance with respect to any investment related activity, and directing an insurance company to file relevant information with the SVO for that purpose.

(c) Reporting

Reporting to the SVO is accomplished by filing the appropriate form or application and providing the initial and continuing information required by this Manual or such additional information as may be requested by SVO staff. (d) Reporting Responsibilities

Reporting is the responsibility of the insurance company that has purchased the investment. There are procedures that reduce multiple reporting on the same securities by different insurance companies. These procedures are discussed below. As a general rule, the reporting of privately placed securities is the responsibility of the insurance company lender with the largest dollar investment in the transaction. Also, only previously unreported investments need be reported to the SVO. To ascertain whether another insurance company has previously reported a security to the SVO, the reporting insurance company should consult the most recent VOS Products, the Automated Valuation Service or Inquiry Service. No reporting is necessary if the security (i) is listed in the VOS Products with a recently assigned NAIC Designation/Unit Price, (ii) is listed in the Automated Valuation Service with a current year review date and a symbol that is other than an NR or UP or (iii) has been logged into Inquiry Service.


(e) Use of a Filing Agent

Insurance companies may designate an agent to perform filings with the SVO by providing the SVO with written notification of the agent's appointment, on the insurance company's letterhead, identifying the agent, detailing the agent's authority, expiration date of the authority and an acknowledgment that the insurance company remains legally obligated to file all necessary information and to pay all appropriate fees.

(f) Security Identification Numbers

No security may be reported to the SVO without a valid CUSIP, PPN or CINS Identifier. Only S&P CUSIP may assign CUSIP Identifiers, PPNs and CINS. To obtain filing and fee information and a CUSIP Identifier, PPN or CINS number, reporting insurance companies must contact S&P CUSIP at: CUSIP Service Bureau, Standard & Poor's Corporation, Attention: Senior Copy Editor, 55 Water Street, 47th Floor, New York, N.Y. 10041, e-mail address is [email protected], Facsimile (212) 438-6572.

Section 2. Reporting Exemptions

(a) Statement of Policy

It is the reporting company’s responsibility to classify filing exempt (FE) securities in accordance with Part Seven, Sections 1 (c), 2 (b), 3 (d), and Part Fourteen of the SVO's Purposes and Procedures Manual.

Insurance companies and their investment advisors are encouraged to consult with the VOS/TF, the SVO, individual state regulators or to use the EIV - Regulatory Treatment Analysis Service process discussed in Part Two, Section 3 (f) of this Manual to gain an understanding of classification, including the probable regulatory treatment for new or previously existing but substantially evolved or modified securities.

(b) Certain Separate Accounts

Insurance companies need not report securities or other relevant transactions to the SVO if such assets are held in a separate account that is not subject to either the Asset Valuation Reserve or Risk-Based Capital charges. All other securities and relevant transactions held in a separate account must be filed with the SVO unless they are filing exempt as set forth in Section 2 (d) below. (c) U.S. Government Securities

(i) Filing Exemption for Direct or Full Faith and Credit Obligations of the United

States Government

This section establishes a filing exemption for those U.S. government securities for which full repayment of interest and principal is either the direct obligation of the U.S. government or the full faith and credit obligation of the United States issued through a U.S. government agency or a U.S. government sponsored enterprise.


Section 16 of the Appendix to this Manual, the Direct or Full Faith and Credit Obligations of the United States Government List, contains a compilation of the securities that are eligible for this exemption and provides a summary description of the security or securities to which the exemption applies. Recommendations to add or delete securities from Appendix Section 16 shall be made in the manner, and in accordance to the procedures, discussed in Part Two, Section 11 of this Manual. Any U.S. government security that is not listed in the Filing Exemption for Direct or Full Faith and Credit Obligations of the United States Government List, the U.S. Government NAIC ARO Rated Issuer Filing Exemption List discussed below in Section 2(c)(ii) of this Part, the Discretionary Government Filing Exemption List, discussed below in Section 2(c)(iii) of this Part or the securities exemptions discussed below in Section 2(c)(iv) of this Part, must be filed with the SVO according to the requirements in Part Five, Section 3(e) of this Manual.

(ii) U.S. Government NAIC ARO Rated Issuer Filing Exemption

This section establishes a filing exemption for securities issued by agencies and government sponsored enterprises that are rated by an NAIC ARO in a rating category equivalent to an NAIC 1 Designation on the basis of the business fundamentals of the entity and the less than full faith and credit support provided by the U.S. government to the entity. This exemption is based on an analytical judgment that the combination of business fundamentals and U.S. government support provides confidence that the issuer will be able to repay its obligation on a full and timely basis at the level of an NAIC 1 quality designation. This exemption applies to all securities directly issued by and all securities fully guaranteed or insured by the NAIC ARO rated agency or government sponsored enterprise. Section 17 of the Appendix to this Manual, the U.S. Government NAIC ARO Rated Issuer Filing Exemption List, contains a compilation of the issuers and securities deemed to be within this exemption and provides a summary description of the security or securities to which the exemption applies. Recommendations to add or delete securities from Appendix Section 17 shall be made in the manner, and in accordance to the procedures discussed in Part Two, Section 11 of this Manual. Any U.S. government security that is not listed in the U.S. Government NAIC ARO Rated Issuer Filing Exemption List, the Filing Exemption for Direct or Full Faith and Credit Obligations of the United States Government List, discussed above in Section 2(c)(i) of this Part, the Discretionary Government Filing Exemption List, discussed below in Section 2(c)(iii) of this Part, or the securities exemptions discussed below in


Section 2 (c) (iv) of this Part, must be filed with the SVO according to the requirements in Part Five, Section 3 (e) of this Manual.

(iii) Discretionary Government Filing Exemption

The VOS/TF retains discretion to grant a filing exemption for a specific security issued by an agency or government sponsored enterprise not otherwise eligible for the exemptions provided for in this Part Four, Section 2(c)(i) or 2(c)(ii). The grant of a filing exemption under this subsection is at the sole discretion of the VOS/TF after a full hearing in which the person proposing the grant of the filing exemption has demonstrated that the security and its issuer should be acknowledged to be of high quality consistent with an NAIC 1 Designation. Section 18 of the Appendix to this Manual, the Discretionary Government Filing Exemption List, contains a compilation of the issuers and securities deemed to be within this exemption and provides a summary description of conditions to the continued viability of the exemption. If any issuer or security contained on Section 18 should subsequently qualify for an exemption pursuant to 2 (c) (i) or 2 (c) (ii) of this Part, the SVO, or any other person, may move to delete the security from Section 18 of the Appendix and to add it to Section 16 or 17, as may be appropriate. Recommendations to add or delete a security to Appendix Section 18 shall be made in the manner and in accordance to the procedures discussed in Part Two, Section 11 of this Manual. In order to guide the appropriate removal of a security from Appendix Section 18, the VOS/TF shall identify any conditions to the continued viability of the exemption. Any U.S. government security that is not listed in the Discretionary Filing Exemption List, the Filing Exemption for Direct or Full Faith and Credit Obligations of the United States Government List, discussed above in Section 2 (c) (i) of this Part, the U.S. Government NAIC ARO Rated Issuer Filing Exemption List, discussed above in Part 2 (c) (ii) of this Part, or the securities exemptions discussed below in Section 2 (c) (iv) of this Part, must be filed with the SVO according to the requirements in Part Five, Section 3 (e) of this Manual.

(iv) Collateralized Mortgage Obligations (CMOs)

(A) Agency CMOs A CMO directly issued through any program administered by the (a) Government National Mortgage Association (GNMA), (b) Federal National Mortgage Association (FNMA), (c) Federal Housing Loan Mortgage Corporation (FHLMC), or (d) the Federal Agricultural Mortgage Corporation (FAMC) is exempt from filing with the SVO.


(B) CMOs Fully-Backed by Agency Collateral

CMOs not issued by an agency on the list in Part Four, Section 2 (c) (iv) (A) above, but where one hundred percent (100%) of the collateral that generates principal and interest to pay the holders of the CMO tranches consists of mortgage pass-through securities issued and or guaranteed by an agency on that list, are exempt from filing with the SVO.

Note: The above stated rules are applicable to all CMOs including CMOs issued in the form of Real Estate Mortgage Investment Conduits.

(C) Participation Certificates (PCs) in Mortgage Pools

(1) Agency PCs

The following are exempt from filing with the SVO: (a) PCs in project loan pools issued and or fully guaranteed by the Federal Housing Administration (FHA), (b) PCs in loan pools issued and or fully guaranteed by the Small Business Administration (SBA), and (c) PCs directly issued through any program administered by GNMA, FNMA, FHLMC and FAMC. (2) PCs Fully-Backed by Agency Collateral

PCs, not issued by an agency on the list in Part Four, Section 2 (c) (iv) (C) (1) above, but where one hundred percent (100%) of the collateral that generates principal and interest to pay the holders of the PCs is mortgage pass-through securities issued and or guaranteed by an agency on that list, are exempt from filing with the SVO.

(d) Filing Exemption for Certain NAIC ARO Rated Securities

NOTE: This Section sets forth filing exemptions for certain securities that are rated by an NAIC ARO in the equivalent of the NAIC 1 through 6 Designation categories. Because these securities will not be filed with the SVO, the SVO will not be able to monitor any innovation or regulatory risk in these securities. The SVO does not have responsibility for determining whether specific securities should be filing exempt. An insurer who is uncertain whether a specific security qualifies for exemption should not contact the SVO for guidance, but should either file the security with the SVO or use the EIV Regulatory Treatment Analysis Service process described in Part Two, Section 3 (d) (iv) of this Manual and obtain an opinion on exemption for that security. Because these filing exemption provisions are set forth without any compliance mechanism, the SVO will not be able to verify whether insurers have filed all securities that are required to be filed with the SVO. State insurance department regulators may wish to create their own compliance mechanisms to protect any interests they may have relative to their domiciliary insurers.


(i) An insurance company must file all securities with the SVO except those securities that meet, and continue to meet, the conditions of either Paragraph (A), (B) or (C) below. Any security that at one time met the conditions of Paragraphs (A), (B) or (C) below, but does not continue to meet such conditions must be filed with the SVO within 120 days of such failure, as if the security had never been filing exempt. These filing exemptions do not apply to investments required to be filed pursuant to Part Eight of this Manual or to catastrophe linked securities discussed in Part Seven, Section 4 (c) of this Manual.

(A) Bonds that are:

Rated and monitored by one NAIC ARO, will be assigned the equivalent NAIC Designation. If rated and monitored by two NAIC AROs, then the lowest rating will be assigned. In case of a security rated and monitored by three or more NAIC AROs, the NAIC ARO’s ratings for a security will be ordered according to their NAIC equivalents and the rating falling second lowest will be selected, even if that rating is equal to that of the first lowest. Bonds with monitored NAIC ARO ratings that addresses the likelihood of payment of both principal due and interest due from the issuer to the holders of the bond are filing exempt. Bonds with monitored NAIC ARO ratings that are qualified as to either payment of principal due or the payment of interest due, or to any portion thereof, are not filing exempt. However, for those bonds that are structured to pay only principal or only interest, the filing exemption shall apply when they have a monitored NAIC ARO rating that addresses the likelihood of payment of either the principal, in the case of bonds structured to pay only principal or the interest, in the case of bonds structured to pay only interest.

(B) Preferred Stock that is:

Rated and monitored by one NAIC ARO will be assigned the equivalent NAIC Designation. If rated and monitored by two NAIC AROs then the lowest rating will be assigned. In the case of a security rated and monitored by three or more NAIC AROs, the NAIC ARO’s rating for a security will be ordered according to their NAIC equivalents and the rating falling second lowest will be selected, even if that rating is equal to that of the first lowest. Preferred stocks with monitored NAIC ARO ratings that addresses the likelihood of payment of both principal due and dividends due from the issuer to the holders of the security are filing exempt. Preferred stocks with monitored NAIC ARO ratings that are qualified as to either payment of principal due or the payment of dividends due, or to any portion thereof, are not filing exempt. However, for those preferred stocks that are structured to pay only principal or only dividends, the filing exemption shall apply when they have a monitored NAIC ARO rating that addresses the likelihood of payment of either the principal, in the case of preferred stocks structured to


pay only principal or the dividends, in the case of preferred stocks structured to pay only dividends. To be eligible for this filing exemption, a preferred stock must contain the issuer's promise to repay principal and pay dividends and have been assigned an NAIC ARO rating that encompasses the likelihood of the repayment of principal and the ultimate payment of dividends due from the issuer.

(C) Public Common Stock that:

(1) Is not restricted as to transferability, and

(2) Is listed on the New York Stock Exchange or the American Stock

Exchange or traded on the NASDAQ National Market System.

(ii) SVO Authority to Require Filing of Filing Exempt Securities The filing exemptions described above do not limit the authority of the SVO to require filings with respect to any security that is otherwise filing exempt at any time for the purpose of reviewing the provisions, terms, covenants or structural features of the security and designating the quality of the security. Upon completion of such review, the SVO is authorized to report its finding and recommendations to the VOS/TF.

Section 3. Special Reporting Instruction

(a) Use of the Administrative Symbol Z in Schedule D

An insurance company may report a security with a "Z" suffix on its Schedule D for up to a year after purchase. For the second year after purchase, and thereafter, the insurance company may not report a security with a "Z" suffix except as noted in Part Four, Section 3 (c). The insurer shall either file the security and appropriate documentation with the SVO to obtain an NAIC Designation, file a Principal and Interest Certification Form to obtain an NAIC 5* Designation or report the security with an NAIC 6* Designation on its Schedule D (collectively, the "5*/6* Rule"). An insurance company that decides to file a Principal and Interest Certification Form for a security, pursuant to the 5*/6* Rule, should do so by October 1.

(b) Application of the 5*/6* Rule

Insurers are required to apply the 5*/6* Rule to all Annual Statements beginning with the 1999 Annual Statement. The 5*/6* Rule applies only to securities owned in the prior year. For example, in the 1999 Annual Statement filing, the 5*/6* Rule would have applied to securities that had been listed with a "Z" as of December 31, 1998.


(c) Exemption from Application of the 5*/6* Rule

The 5*/6* Rule will not be held to apply to a security that has been:

(i) Filed in a timely manner after purchase of such security (that is, within 120 days),

and (ii) For which a complete filing (including any annual filing that would have been

required if the original filing had received an NAIC Designation) is received by the SVO by September 1, if the SVO has not reviewed such security by year-end.

For these securities, a "Z" suffix is reported on Schedule D.

(d) Documentation

Insurance companies are instructed to maintain a record of the purchase and filing dates of the securities they file with the SVO.

(e) Use of NAIC 5* Designation

An insurer may file a Principal and Interest Certification Form with the SVO when it can certify:

(i) That documentation necessary to permit a full credit analysis of a security does not

exist; (ii) The issuer or obligor is current on all required interest and principal payments; and (iii) The insurer has an actual expectation of ultimate repayment of all required interest

and principal.

The SVO may assign the NAIC 5* Designation to corporate, municipal and to structured securities that have never been rated by an NAIC ARO. An NAIC 5* Designation can only be assigned by the SVO. The SVO shall assign an NAIC 5* Designation upon a review of a fully completed and executed Principal and Interest Certification Form. The submission of the Principal and Interest Certification Form does not preclude the SVO from conducting an analytical review of the security. Upon such review, in cases where assigning an NAIC 5* Designation appears inconsistent, the SVO shall apply appropriate analytical procedures to assure an accurate designation. The SVO is not responsible for assessing the truth or accuracy of the Principal and Interest Certification Forms that are filed by insurers or for monitoring any other aspect of this Special Reporting Instruction.


(f) Use of NAIC 6* Designation

An insurer may assign an NAIC 6* Designation to corporate and municipal securities and to structured securities that have never been rated by an NAIC ARO. The insurer shall assign an NAIC 6* Designation to a security when:

(i) The documentation necessary to permit a full credit analysis of a security does not

exist; (ii) The insurer cannot certify that the issuer or obligor is current on all required interest

and principal payments; and (iii) The insurer cannot certify that it expects ultimate payment of all interest and

principal.

The SVO may assign a security an NAIC 6* Designation when the security was assigned an NAIC 5* Designation in a previous year but no Subsequent Report has been received by the SVO.

(g) Unit Price of NAIC 6* Securities

An insurer that intends to report a security on its annual or quarterly financial statement (NAIC Financial Statement Blank) with an NAIC 6* Designation and a Unit Price not greater than zero is not obligated to file a Principal and Interest Certification Form for the security with the SVO. An insurer that intends to report a security on its annual or quarterly financial statement (NAIC Financial Statement Blank) with an NAIC 6* Designation and a Unit Price greater than zero shall file a Principal and Interest Certification Form for the security with the SVO.

(h) Other Permitted Uses of the Principal and Interest Certification Form and the NAIC 5* and 6* Designations

(i) Corporate Bonds and Preferred Stock with Unaudited Financial Statements The Principal and Interest Certification Form and the NAIC 5* Designation may be used in connection with the designation of corporate securities with unaudited financial statements as specified in Part Seven, Section 2(a)(ii)(B) of this Manual.

(ii) Residential Mortgage Backed Security (RMBS) The Principal and Interest Certification Form and the NAIC 5* and 6* Designations may be used in connection with a RMBS that has never been rated by an NAIC ARO as specified in Part Seven, Section 4(b)(iii)(B)(5) of this Manual.


(iii) Commercial Mortgage Backed Securities (CMBS) The Principal and Interest Certification Form and the NAIC 5* and 6* Designations may be used in connection with a CMBS that has never been rated by an NAIC ARO as specified in Part Five, Sections 3(c)(ii)(F) and 4(e)(iii)(A)(3) (e) and Part Seven, Section 4(b)(iii)(B)(6) of this Manual. (iv) Foreign Securities of Issuers Domiciled with No NAIC ARO Sovereign Rating The Principal and Interest Certification Form and the NAIC 5* and 6* Designations may be used in connection with reporting foreign securities issued in countries that have not been assigned a sovereign rating by an NAIC ARO as specified in Part Seven, Section 2(a)(ii)(D)(2) of this Manual. (v) Parent-Subsidiary Situations The Principal and Interest Certification Form and the NAIC 5* and 6* Designations may be used in connection with reporting parent-subsidiary situations as specified in Part Seven, Section 2(a)(ii)(E) of this Manual.

Section 4. The Mechanics of Reporting With the SVO Determining whether a security subject to reporting under Part Four, Section 1(a) has been reported to the SVO is accomplished through a computer link up with SVO's Integrated Securities Information System (ISIS). If the security has not been previously reported to the SVO and is not known to be exempt, ISIS will assign an Authorization To File (ATF) number at the end of the ATF process. The reporting entity receiving an ATF number must then file the completed ATF form and required documentation with the SVO office. The following is a summary description of the steps in the reporting confirmation process.

(a) Link to ISIS (b) Login by presenting appropriate username and password (c) Go to the Authorization to File (ATF) process (d) Enter the valid CUSIP/PPN/CINS identifier of the security to be reported. ISIS will then process

that security based on its identifier:

(i) Already Contained in VOS Database:

(A) If the CUSIP identifier is found in the VOS database with a current year review date, ISIS will deny the reporting entity's request to file an initial or subsequent report and display a message that the CUSIP/PPN/CINS already exists in VOS. If so, this ends the reporting process for that security.

(ii) Previously Reported/ATF Already Issued:

(A) If the CUSIP/PPN/CINS identifier does not exist in the VOS database but is found in Inquiry Service due to reporting by another reporting entity, ISIS will deny the entity's request to file an initial or subsequent report and will display a message that an ATF number has been issued or an ATF filing has been received.


(B) If an ATF number has been issued, Inquiry will display the CUSIP/PPN/CINS

identifier, ATF number, and the date of ATF expiration or the date the SVO received the ATF submission.

(C) If the ATF submission is not received at the SVO by the ATF expiration date,

ISIS will delete the CUSIP/PPN/CINS identifier from Inquiry. If this occurs, it is the responsibility of the reporting entity to re-report the security.

(D) If an ATF submission has been received at the SVO, this ends the reporting

process for that security.

(iii) Already Deemed to be Filing Exempt:

(A) If the CUSIP/PPN/CINS identifier is found in the Filing Exempt data file, ISIS will display a message that informs the entity that the security is Filing Exempt.

(B) The entity is then given the option to continue the ATF process in spite of the

security’s FE status (for instance, if required by a state regulator). If the answer is “No” that ends the reporting process for that security.

(iv) Not Yet Deemed to be Filing Exempt:

(A) If the CUSIP/PPN/CINS identifier is not found in the Filing Exempt data file, the reporting entity may request through ISIS that the security be run through the filing exempt application. This can be done even if the security is found in the VOS database or Inquiry Service.

(B) ISIS will search the NAIC ARO feeds for a match and, if a match is found, the

application will translate the NAIC ARO ratings into the equivalent NAIC designation, which will be available in the subsequent FE data file. The reporting entity will have to access the FE data file contained within AVS on the following day in order to view the equivalent NAIC designation.

(C) The entity is then given the option to continue the ATF process in spite of the

security’s FE status (for instance, if required by a state regulator). If the answer is “No,” that ends the reporting process for that security.

(v) Filing Required:

i) If the CUSIP/PPN/CINS identifier entered by the reporting entity is not Filing

Exempt, in VOS, or in Inquiry Service, ISIS will grant the filer access to a series of menu options designed to permit the entity to bring up the appropriate ATF filing form on its personal computers, fill out necessary information and generate a hard copy form of the ATF for filing with the SVO.

ii) ISIS will permit the reporting entity to access, electronically, all of the forms that

are required to be filed with the SVO, (with the exception of the Application for Regulatory Treatment Analysis Service, which can only be submitted on an


original hard copy form obtained from the SVO). The printed ATF and other applicable forms are then to be forwarded to the SVO with the required documentation for the security within 120 days of the triggering event. The reporting process for this security is complete when the ATF submission and filing has been received by the SVO.

(e) When the ISIS processing of a security is complete (an ATF is either issued or denied), ISIS

will ask the entity if it wishes to enter the CUSIP/PPN/CINS identifier of a new security. If you have a question about filing requirements for a given security, consult the How To Comply Manual, which is available from the NAIC Publications Department. See the notice at the end of the table of contents.

Section 5. Review of SVO Credit, Classification or Valuation Decisions

(a) Requests for Clarification of SVO Decisions

Any insurer that owns a security for which the SVO has provided an NAIC Designation, a classification or a valuation, or which is an SCA investment, may request a clarification of the decision from the SVO. The SVO analyst responsible for the decision may respond informally to informal requests for clarification and, in response to written requests, shall provide as much clarification as possible in writing within 10 days after receipt of the written request. Any reply from the SVO shall be a confidential communication between the SVO and the insurer.

(b) Requests for Appeals of SVO Analytical Decisions

(i) Condition to Filing of an Appeal

Any insurer that owns a security for which the SVO has performed a credit assessment, a classification analysis or a valuation, or which is an SCA investment, may appeal the SVO credit assessment, classification or valuation decision, provided that the appeal must be filed within 120 days of the SVO decision. Any insurer can ascertain the date of the original SVO decision by accessing the ISIS Inquiry Service and noting the Review Date shown therein. The Review Date is the date of the original decision.

An appeal is initiated by filing a completed Appeal ATF with a written correspondence specifically and clearly identifying the analytic basis of the appeal, supported by such documents or financial or other information or data as in the insurer’s opinion supports the claim that the original decision of the SVO should be reviewed.

(ii) Procedure for Filing an Appeal

Filing an appeal with the SVO is accomplished through a computer link up with the ISIS computer system of the SVO. The following is a summary description of the steps in the filing process. See Part Four, Section 4 of this Manual for a more complete description of the filing process.

(A) Link up with ISIS (B) Login by presenting an appropriate username and password (C) Go to the Authorization to File (ATF) process


(D) Enter the valid CUSIP/PPN/CINS identifier of the security to be filed. (E) Select the analytical Department involved in the decision (F) Select an Option for Security Type and the Appeal option under the Filing Type

List (G) Enter the relevant information into the Appeal ATF (H) Finish and submit the Appeal ATF. Include a letter in support of the appeal.

This appeal procedure applies only to situations where the SVO has expressed an analytical conclusion in the exercise of its credit, classification, valuation functions or its analysis of Subsidiary, Controlled and Affiliated (SCA) investments. The stated procedure encompasses initial filings, annual updates and securities not rated by an NAIC ARO. Securities rated by an NAIC ARO may be appealed only if the SVO rates securities differently than the NAIC ARO and the SVO retains responsibility for review of NAIC ARO rated transactions.

(iii) SVO Review of the Appeal

The SVO analyst to whom the Appeal ATF is directed will alert the SVO credit committee that an appeal of an SVO decision has been made and provide it with copies of the correspondence, documents and information presented by the insurer as well as copies of the original analysis that lead to the conclusion appealed from. The credit committee chair will then set a date, not to exceed 45 days from the date the insurer submits a complete file to the SVO, for the credit committee to meet to deliberate the issues presented. Prior to the meeting, the members of the credit committee will review the original decision and the correspondence, documents and information presented by the insurance company. The insurer shall be notified of the date of the meeting, and shall be given the opportunity to present its appeal in person to the credit committee. The credit committee is composed of those senior staff members whose expertise may be necessary or desirable to the discussion of the issues presented, including, whenever possible, persons who did not previously participate in the formulation of the original decision. The original analyst is present during all deliberations of the credit committee and participates in its deliberations by providing information and responding to questions. However, the original analyst does not vote on nor decide the issues presented in the appeal. After evaluation of the correspondence, documents and information presented by the insurance company, the credit committee will render a decision within 10 days of its meeting to consider the appeal. Once the credit committee renders a decision, a representative of the credit committee, which may be the original analyst, is chosen to communicate the decision to the insurance company or companies that filed the appeal. After it has communicated its decision to the insurer, the SVO will entertain such further reasonable discussions with the insurer as it shall deem reasonably necessary to ensure that the credit committee has considered and responded to all of the issues deemed relevant by the insurer.


Not later than 10 days after the verbal communication of its decision, the SVO will provide the insurer with a letter specifying whether the SVO has determined to modify or affirm its previous decision and addressing the issues posed by the insurer. The letter shall be issued directly to the insurer that filed the appeal as a confidential communication between the SVO and that insurer. At the request of any other insurer holding the same security, the SVO shall provide a copy of the letter to such other insurer.

(iv) Status of NAIC Designation during Appeal

Until such time as the SVO credit committee determines that a previous credit assessment, classification analysis or valuation should be amended and the NAIC Designation, classification decision or price is changed, the previous decision of the SVO remains in full force and effect.

(c) Review of SVO Decisions by the VOS/TF

(i) Task Force Review for Alleged Violations of Procedures

(A) Request for Review

Any insurer that has filed a security for an NAIC Designation, a classification or a valuation, or which is an SCA investment, and is concerned that a decision relative to the security was not made in accordance with the procedures in this Manual, may request consideration of this concern by the VOS/TF (hereafter “Task Force”).

(B) Condition to Request; Exhaust SVO Remedies

Before making a request to the Task Force, the insurance company must submit a written statement to the Managing Director of the SVO, or to the person then exercising the executive function of the SVO, whatever the title then used, with a copy to the Chair of the Task Force. The written statement must identify the specific procedure or procedures in this Manual that the insurance company believes have been ignored or improperly applied.

Upon receipt of the written statement, the Managing Director will fully investigate the assertions and communicate its factual findings back to the insurance company with a copy forwarded to the Chair of the Task Force within 30 days. Should the result of the SVO investigation not resolve the factual issues expressed by the insurance company, a request for further consideration can be made to the Chair of the Task Force. The Chair of the Task Force may then choose to review the matter.

(C) Basis of Review by the Task Force

If the Task Force chooses to review the matter further, its focus is on determining whether the SVO decision was made in a manner that is inconsistent with the


applicable provisions of this Manual. If the Task Force finds that the SVO decision was made in a manner that is inconsistent with the applicable provisions of this Manual, it will provide the SVO with interpretive guidance respecting the meaning of the applicable language or procedures in the Manual and instruct the SVO to reformulate a decision.

(d) Review Timeline

The SVO’s goal is to complete all work on an appeal and communicate a decision to the insurer within 90 days of receipt of a complete file for the appeal. The time periods for action by the SVO identified in this section shall not be deemed to restrict the exercise of management discretion by the Managing Director of the SVO as to the proper disposition of SVO resources in the fulfillment of SVO priorities and commitments. Any of the time periods in this section may be extended by mutual agreement of the insurer and the SVO or Task Force, respective to the stage of the appeal.

Section 6. When to Use the Securities Acquisition Report (SAR) A security issued by an entity unaffiliated with the reporting company is reported by creating, completing and submitting the SAR form. The reporting insurance company must submit the SAR to the SVO not later than 120 days after the purchase of the security.

(a) SIC Code

As an internal administrative matter, for all Corporate securities, the SVO will distribute Initial and Subsequent Reports in accordance with the industry specialization of SVO's credit analysts. Therefore, the Industry Code identified on the SAR must be accurate. The reporting insurance company chooses the correct Industry Code from a menu embedded in ISIS. Only the first two digits of the Code itself are necessary for SVO purposes. For example, the SIC Code for a luggage manufacturing company is 3160 but, for SVO purposes, the SIC Code 3100 (Leather and Leather Products) is sufficient. The SVO Help Desk will provide assistance in determining the correct SIC Code.

Section 7. When to Use SUB 1 or SUB 2 Forms An investment in the form of common stock issued by an insurance or non-insurance subsidiary, controlled or affiliated company of the reporting insurance company or an investment in the form of a preferred stock issued by an insurance subsidiary, controlled or affiliated company of the reporting insurance company is reported by filing a SUB 1 form within 30 days of the acquisition or formation of the investment. An insurer makes a SUB 1 filing in order to report the SCA investment to the SVO and to obtain confirmation that the investment is economic and reasonable within the meaning of Part Eight, Section 4(c) of this Manual. In June of the following year, the insurance company that reported the SCA investment on a SUB 1 form in the previous year is required to file a SUB 2 form. SUB 2 filings are made in order to obtain SVO's opinion as to whether the value claimed by the insurer is approved or disapproved as the value to


be reported on its next NAIC Financial Statement Blank. Refer to Part Eight of this Manual for a detailed description of the procedures and criteria applicable to SUB 1 and SUB 2 form filings. To generate the appropriate form, the reporting insurance company highlights the appropriate menu item in ISIS. With either form, a valid securities identifier and an NAIC Company Code for the parent, ultimate parent and/or the subsidiary, controlled or affiliated company that is the subject of the filing is required. No SIC Code is required for an SCA filing. An investment in the form of a bond issued by an insurance or non insurance subsidiary, controlled or affiliated company of the reporting insurance company or, an investment in the form of a preferred stock issued by a non insurance subsidiary, controlled or affiliated company of the reporting insurance company is reported to the SVO Corporate Securities Group by following the procedures described in Part Five, Section 3(d)(i) and (d)(ii), respectively. The SAR form discussed in that section contains an interrogatory that requires the reporting insurance company to identify investments with related parties. Part Seven, Section 3(e) is a description of the analytical methodology to be applied by the SVO Corporate Securities Group. Section 8. Specialized SVO Forms, Products and Systems Certain transactions between the SVO and a reporting insurance company will require submission of a form, an application or a letter in addition to an SAR. This section describes these transactions and the appropriate form to be used. Please note that all of these forms are accessible directly through ISIS, or indirectly through a link to the SVO's page on the NAIC website. Also note that the information on these forms is used to enter these transactions into Work Flow. If the form is not completely and accurately filled out, it will not be processed. Work Flow will record that the submission could not be processed due to informational deficiency.

(a) Official Forms Only

ISIS pre-prints bar codes that link the ATF and other forms submitted to the SVO with Inquiry Service. However, the ATF and other forms must be accompanied by supporting documentation as detailed in other sections of this Manual. ATFs and or/forms that are not completely and accurately filled out will not be processed. Work Flow will record that the submission could not be processed due to informational deficiency.

(b) Counterparty Rating Report

An insurance company that intends to use a Person as a counterparty in a derivatives transaction, or a Person engaged in the business of serving as counterparty in such transactions, will file Form CRR-1 (the Counterparty Rating Report) with the SVO. The reporting insurance company obtains this form directly from ISIS and in the case of this transaction, only this particular form is filed.

(c) Bond Lease Based and Credit Lease Based CTL Evaluation Forms

These Evaluation Forms are used to report Credit Tenant Loans that are defined in Part Seven, Section 4 (a) of this Manual. The reporting insurance company is required to provide a summary of the transaction and other analysis of data and should obtain the Evaluation Forms prior to the time the transaction must be filed with the SVO. A Credit Tenant Loan Form must also be


accompanied by an ISIS generated SAR. Questions regarding substantive aspects of Credit Tenant Loans should be directed to the Structured Securities Group of the SVO.

(d) Project Information Memorandum (PIM) and Power and Pipeline Projects Annual Review Summary

PIM is used to report non-NAIC ARO rated power and pipeline projects. It requires the reporting insurance company to provide a summary of the analysis, as well as detailed attachments of information, and therefore should be obtained prior to the time the transaction actually has to be filed. PIM must be accompanied by an ISIS generated SAR. The Summary is used to make Subsequent Reports for all power and pipeline projects whether rated or not by an NAIC ARO. The Summary must be accompanied by the Audited Financial Statement of the issuer and by an ISIS generated Annual Update ATF. Questions regarding substantive aspects of the transactions should be addressed to the Corporate Securities Group of the SVO.

(e) Mutual Fund Forms

Mutual funds, including money market funds, are typically classified as common stock and reported in Schedule D - Part 2 - Section 2 of the NAIC Financial Statement Blank. The VOS/TF has determined that money market funds that meet the conditions of 17 C.F.R. 270.2a-7 and certain bond mutual funds that are registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), and which also meet the conditions set forth in Part Eleven of this Manual, may be reported on Schedule DA - Part 1 and Schedule D - Part 1, respectively, of the NAIC Financial Statement Blank.

The SVO maintains two lists of money market funds and one list of bond mutual funds. Investments in these funds by reporting insurance companies are eligible for more favorable reserve treatment than funds not so listed, as noted above. These lists are published on a quarterly basis. Money market funds that meet certain criteria for exemption from NAIC reserve requirements may be listed on the U.S. Direct Obligations/Full Faith and Credit Exempt List. Other money market funds that meet certain criteria may be listed on the class 1 list (Class 1 List) and insurance companies that own investments in these funds may reserve for them by using the more favorable bond class one reserve factor. Bond mutual funds that meet certain criteria may be listed on the bond mutual fund list (Bond List) and insurance companies that own these bond mutual funds are permitted to maintain a reserve using the more favorable bond class one reserve factor. The U.S. Direct Obligations/Full Faith and Credit Exempt List Application Form is used to list a money market fund on the U.S. Direct Obligations/Full Faith and Credit Exempt List. The Class 1 Application Form is used to list a money market fund on the Class 1 List. The Class 1 Bond Application Form is used to list a bond mutual fund on the Bond List. Refer to Part Eleven of this Manual for additional information on the process. Any questions regarding the process or its purpose should be addressed to the Corporate Securities Group of the SVO.


(f) Application Form For Listing on Bank List

This Application Form is used by a bank that seeks listing on the Bank List. The Bank List is updated on a quarterly basis. Questions regarding the procedure for being placed on the Bank List should be addressed to the Corporate Securities Group of the SVO.

(g) Regulatory Treatment Analysis Service Application Form

This form is used to request that the SVO conduct an assessment or valuation and/or to request guidance within the NAIC Financial Conditions Framework with respect to an emerging investment vehicle (EIV). As a convenience to the filer, the form is provided in electronic form. However, only an original signed copy of the form will be accepted. Facsimiles and photocopies are not acceptable. The SVO has discretion to refuse an application for Regulatory Treatment Analysis Service. The requesting person is urged to contact the SVO as early in the investment process as is feasible if it contemplates making use of this service. For details about the service and SVO policies related to them, refer to Part Two, Section 3(f) above. Questions regarding the Regulatory Treatment Analysis Service should be addressed to the Corporate Securities Group of the SVO.

(h) Valuation Information Memorandum

The Valuation Information Memorandum (VIM) is used whenever the reporting insurance company is unable to supply a prospectus, private placement memorandum or official statement. The form requires a substantial degree of information as well as summaries, analysis and Audited Financial Statements and, therefore, the form should be obtained prior to the time the transaction actually has to be filed with the SVO. Questions regarding substantive aspects of transactions, or the nature and meaning of the information requested by the memorandum, should be addressed to the Manager of the analytical group responsible for the Initial or Subsequent Report.

(i) Treasury Stock and Reciprocal Ownership Elimination Worksheet (Worksheet)

The Worksheet is used in conjunction with SCA company filings to eliminate the proportional statutory value of an SCA when an issuer owns itself via (i) direct ownership of shares of an upstream intermediate or ultimate parent or (ii) treasury stock, via direct or indirect ownership of a downstream SCA. Questions regarding substantive aspects of the SCA reporting process or the Worksheet should be addressed to the SCA Companies Group of the SVO. (j) Collateral Loan Form

This form accompanies any transaction wholly or partially secured by collateral if the reporting insurance company anticipates that SVO's credit assessment may be substantially affected by the nature and value of such collateral.


(k) The Automated Valuation Service (AVS) Subscription Package

Persons interested in subscribing to the SVO's Automated Valuation Service may obtain appropriate subscription forms from the AVS Administrator in the Database Products Department in the Kansas City NAIC office.

(l) Inquiry Service

This service is provided by the SVO to allow insurance companies to ascertain whether a security has been filed with the SVO.

(m) Residential Mortgage Quality Information Form

This form contains instructions for the completion of a Residential Mortgage Quality Matrix, which must be submitted with a residential mortgage-backed transaction that has never been rated by an NAIC ARO. See Part Seven, Section 4(b)(iii)(B)(l) for a description of the role of the Residential Mortgage Quality Matrix in SVO's analytical procedures. See Part Five, Sections 3(c)(ii)(B) and Section 4(e)(iii)(A)(3)(a) for a description of the informational requirements applicable to residential mortgage-backed securities. Questions regarding analytical procedures or other substantive aspects of residential mortgage-backed securities should be directed to the SVO Structured Securities Group.

(n) Discount Factor Form

This form is used to enable a reporting insurance company to request from the SVO SCA Companies Group the discount factor to be applied to the market value of an SCA investment. For details about the market value valuation option or the SCA investment reporting process, refer to Part Eight of this Manual. (o) Structured Security Questionnaire

This questionnaire provides the SVO with the basic information required for the categorization and analysis of asset-backed and residential mortgage-backed securities. An insurer that submits an application for Regulatory Treatment Analysis Service must also complete and submit the Structured Security Questionnaire. The SVO may also require the questionnaire to be completed and filed for other asset-backed and mortgage-backed securities when the SVO analytical staff determines that a transaction requires more detailed analysis.

© 1990-2009 National Association of Insurance Commissioners July 1. 2009 PART FIVE/Page 1

Part Five: Initial and Subsequent Reporting - Reporting Conventions and Required Documents Section 1. Initial Report An initial filing consists of a completed form(s) and information, documentation and data in quantity and quality sufficient to permit the SVO to conduct an analysis of the creditworthiness of the issuer and the terms of the security to determine an Association Value. It is the obligation of the reporting insurance company to provide the SVO with all necessary information. It is the responsibility of the SVO to determine whether the information provided is sufficient and reliable for its purposes and to communicate informational deficiencies to the reporting insurance company. Section 2. Informational Deficiencies Upon receipt of a submission by a reporting insurance company, the submission is logged into Work Flow by date and time received and assigned to the appropriate staff analyst for credit assessment or unit pricing. If the staff analyst determines that there is an informational deficiency, he or she will complete an InfoReq letter, log the InfoReq into Work Flow and provide a copy to the reporting insurance company. The transaction for which the InfoReq was issued will be held without processing for a period not to exceed 90 days. If, at the completion of the 90 days, the reporting insurance company has failed to provide the information requested, the SVO will discard the filing and all documentation submitted with it and Work Flow will reflect that the filing was discarded due to insufficient information. Thereafter, the reporting insurance company shall be obligated to file the security again if it wishes to obtain an Association Value. If the SVO determines it requires additional information after an InfoReq response has been received, a new InfoReq request will be issued and a new 90-day period will begin. Section 3. Reporting Conventions and Required Documents Specific reporting conventions for initial reports that all reporting insurance companies should follow are described below.

(a) Corporate Issues

(i) Rated In the case of a corporate issue that is rated by an NAIC ARO that must be reported to the SVO for whatever reason despite the availability of the filing exemption provided in Part Four, Section 2 (d) of this Manual, the reporting insurance company shall submit a completed SAR with evidence of the NAIC ARO rating. The evidence can be in the form of a copy (or copies) of the rating letter from the NAIC ARO or a copy of the page from each NAIC AROs rating publication showing the date of the publication. If the issue is rated below "A" or is rated differently by two or more NAIC AROs, a prospectus and a rating rationale memorandum from each NAIC ARO that rated the transaction must accompany the submission. Insurance companies reporting bonds of not-for-profit entities shall follow the same filing conventions applicable to bonds of profit-making entities.


(ii) Unrated

In the case of a corporate issue not rated by an NAIC ARO, the reporting insurance company shall complete an SAR and shall attach the issue's public offering statement or private placement memorandum, as the case may be, the insurance company's internal credit committee memorandum and the Audited Financial Statement of the issuer for the last three consecutive years. If an issue is rated by a rating organization other than an NAIC ARO, submit evidence of such rating. The SVO will contact the reporting insurance company if additional information is required. If none of these documents are available, the reporting insurance company must obtain and complete the SVO's VIM form and submit it with the required documents and attachments. Insurance companies reporting bonds of not-for-profit entities shall follow the same filing conventions applicable to bonds of profit-making entities. (iii) Rated Medium Term Notes In the case of Obligations defined as medium term notes in the offering prospectus or private placement memorandum, where the issuer is rated by an NAIC ARO, that must be reported to the SVO for whatever reason despite the availability of the filing exemption provided in Part Four, Section 2(d), the reporting insurance company must file a completed SAR and evidence of proof of rating or ratings. The evidence can be in the form of a copy of the rating letter from the NAIC ARO or a copy of the page from each NAIC ARO rating publication showing the date of the publication.

(iv) Foreign Issuers For foreign issuers, if SEC Form 20F (the reconciliation between Foreign and U.S. Generally Accepted Accounting Principles (GAAP) Financial Statements) is available, it should be included with the SAR.

No reconciliation of financial statement results need be filed with the SVO when the foreign issuer reports financial results in conformity with IFRS, Canadian GAAP, UK GAAP or Australian GAAP. The financial statement of a foreign issuer that reports in conformity with any other non US GAAP when provided to the SVO must be accompanied by a reconciliation to US GAAP.

(v) Investments in Certified Capital Companies

(A) Definition

A certified capital company (CAPCO) is a state legislated venture capital firm that can be a partnership, corporation, trust or limited liability company, profit or not-for-profit and which may capitalize itself in a variety of ways. Investors who acquire an equity interest or qualified debt instrument from a CAPCO receive state premium or income tax credit.


(B) Statutory Accounting Guidance

Guidance on the accounting for investments in Certified Capital Companies ("CAPCO") is in “INT 06-02: Accounting and Reporting for Investments in a Certified Capital Company (CAPCO)” (INT 06-02) located in Appendix B of the Accounting Practices and Procedures Manual.

Before a CAPCO security can be filed with the SVO, the reporting insurance company must apply INT 06-02 to the facts of the specific security. It is the insurance company's responsibility to apply Statutory Accounting Guidance for CAPCO Transactions.

INT 06-02 requires reporting entities to account and report for investments in CAPCOs consistent with the security or other interest they acquire except for specific guidance on the tax credits. For example, an investor who acquired a bond issued by a CAPCO would follow the accounting guidance for bonds found in SSAP No. 26— Bonds, excluding Loan-backed and Structured Securities and report the details about the transaction on Schedule D in accordance with the NAIC Quarterly and Annual Statement Instructions. Such securities are assessed using the procedures referenced in Part Seven of this Manual. Related guidance is contained in Part Seven, Section 3 (v) of this Manual.

For an investor who acquired a limited liability partnership interest, the interest would be valued in accordance with the guidance for limited liability partnerships contained in SSAP No. 48—Joint Ventures, Partnerships and Limited Liability Companies and reported on Schedule BA in accordance with the NAIC Quarterly and Annual Statement Instructions within the appropriate Joint Venture, Partnership or Limited Liability Company subcategory.

Both of the examples cited immediately above would also follow the specific reporting on tax credits found in INT 06-02.

Note: Nothing in this Manual is intended to modify or interpret INT 06-02: Accounting and Reporting for Investments in a Certified Capital Company (CAPCO) (INT 06-02); SSAP No. 26— Bonds, excluding Loan-backed and Structured Securities or SSAP No. 48—Joint Ventures, Partnerships and Limited Liability Companies.

(C) Procedure for Reporting and Filing with the SVO

The insurance company should first determine the reporting for CAPCOs indicated by the statutory accounting guidance. This is done by establishing the character of the investment and then applying the appropriate accounting and reporting guidance and to the extent necessary the related procedures in this Manual for Schedule D or BA assets. If the CAPCO investment is subject to the SVO filing process and does not meet the filing exempt requirements, it should be filed with the SVO. If the SVO disagrees with the insurance company characterization of the investment, it will so inform the insurance company and


provide rationale why the SVO believes the company has misapplied or misinterpreted the guidance of INT 06-02 and request a re-filing if necessary.

(D) Required Documentation

(1) Rated In the case of a CAPCO issue that is eligible for filing exemption by virtue of its rating by an NAIC ARO but filed with the SVO despite the availability of the filing exemption provided for in Part Four, Section 2 (d) of this Manual the reporting insurance company shall submit a completed SAR with evidence of the NAIC ARO rating. The evidence can be in the form of a copy (or copies) of the rating letter from the NAIC ARO or a copy of the page from each NAIC ARO’s rating publication showing the date of publication. If the issue is rated below "A" or is rated differently by two or more NAIC ARO's, a prospectus and a rating rationale memorandum from each NAIC ARO that rated the transaction must accompany the submission. (2) Unrated In the case of a CAPCO issue that is not rated by an NAIC ARO, the reporting insurance company shall complete an SAR and shall attach the issuer’s public offering statement or private placement memorandum, as the case may be, the insurance company's internal credit committee memorandum and the Audited Financial Statement of the issuer for the last three consecutive years. If an issue is rated by a rating organization other than an NAIC ARO, submit evidence of such rating. If none of these documents are available, the reporting insurance company must obtain and complete the SVO's VIM form and submit it with the required documents and attachments. For CAPCO issues that are not filing exempt follow the procedures in Part Five, Section 4 (e) (i) (Corporate Issues not Filing Exempt) to file a subsequent report with the SVO.

(E) Applicable Methodology

Subject to the directive contained in Part Two, Section 3(e) of this Manual, the SVO shall have discretion to apply any credit assessment methodology or any combination of credit assessment methodologies detailed in this Part Seven to assess the credit quality or asset classification of a CAPCO security.

(b) Municipal Issues (i) Rated

In the case of an NAIC ARO -rated municipal issue, that must be reported to the SVO for whatever reason despite the availability of the filing exemption provided in Part Four, Section 2(d), the reporting insurance company shall file a completed SAR with evidence of each NAIC ARO. Such evidence can be in the form of a printed copy of a computer


screen display showing the rating as reported by Bloomberg Financial Services, Interactive Data Corporation, JJ Kenny Co, Inc. or Muller Data Corporation or may be evidenced by submission of a copy of the official statement if the issue is within one year of the date given for interest payments to begin. (ii) Unrated In the case of an unrated municipal transaction where the bond to be filed is within one year of the date interest payments are to begin accruing; the reporting insurance company shall file a completed SAR together with a copy of the official statement for the issue. If the unrated municipal transaction is more than one year beyond the date interest payments began accruing, the reporting insurance company shall file a completed SAR, together with the issuer's latest available Audited Financial Statements. If the municipal bond issue in question has been escrowed to maturity or pre-refunded, the reporting insurance company must file a completed SAR together with a copy of the escrow agreement or other evidence of the escrow or pre-refunding, such as a letter from the indenture trustee.

(iii) Industrial Development Revenue Bonds and Pollution Control Revenue Bonds In the case of an industrial development revenue bond, a pollution control revenue bond or similar transaction, the reporting insurance company shall submit the Audited Financial Statement of the corporate entity that guarantees or otherwise supports the issue.

(iv) Canadian Municipals This subsection (b) also is applicable to issues of Canadian municipal issuers.

(v) Lottery Securities

Lottery securities are defined in Part Seven, Section 5(c)(vi) (B) of this Manual. The reader is encouraged to refer to that section before filing lottery securities with the SVO. An insurer filing a lottery security must file the following documents:

Direct Transfer

• Documentation of the transfer such as assignment agreement or receivable

purchase agreement, • A certified copy of a court order if one is required, • A written statement of the lottery authority that it has received the court order

and will make payment to the insurer as directed in the court order,


• Evidence, in the form of a letter from the lottery authority, that the

withholding of federal and state income tax attributable to the lottery prize money will be credited to the insurer.

Indirect Transfer

In addition to the documents required above, the insurer shall submit, • A trust agreement, • Legal opinions (refer to Part Seven, Section 5(c)(vi) for a discussion of legal

opinions).

(c) Structured Issues

(i) Rated In the case of transactions that meet the criteria for Credit Tenant Loan-Variants Requiring an NAIC ARO Rating, as defined in Part Seven, Section 4(a)(vii), debt, common or preferred stock issued by a real estate investment trust, commercial mortgage-backed securities, residential mortgage-backed securities, collateralized mortgage obligations, asset backed securities, collateralized bond obligations and collateralized loan obligations, and that must be reported to the SVO for whatever reason despite the availability of the filing exemption provided in Part Four, Section 2(d), the insurance company shall submit a completed SAR, evidence of a current rating from each NAIC ARO and a prospectus or private placement memorandum for the transaction. For purposes of this subsection, a current rating is defined as one issued or reviewed within the past 12 calendar months. Evidence of a current rating may also be submitted in the form of a Bloomberg RCHG screen or other similar screen acceptable to the NAIC from another information vendor. Evidence of a current rating may also take the form of a final prospectus or complete private placement memorandum that contains "condition to issuance language." For purposes of this paragraph, "condition to issuance language" means text within the prospectus or private placement memorandum which unequivocally states that it is a condition to the issuance of the securities named in the prospectus or private placement memorandum that the securities shall have been assigned specific ratings by one or more named NAIC AROs.

(ii) Unrated

(A) Credit Tenant Loan (CTL)

For Bond Lease Based CTLs and Credit Lease Based CTLs, the reporting insurance company shall submit a completed SAR form, a completed Bond Lease Based or Credit Lease Based CTL Evaluation Form, as appropriate (in either case together with the documentation described in the Evaluation Form), and evidence of the lessee's rating or Audited Financial Statement.


In the case of Acceptable CTL Variants (ACVs), the reporting insurance company shall submit a completed SAR, an Audited Financial Statement, Credit Lease Based CTL Evaluation Form (including the documents described in the Evaluation Form) and a separate memorandum identifying and describing the ACV. Any documents that are unique to the transaction by virtue of its being an ACV should be included.

(B) Residential Mortgage Backed Securities

The informational requirements described in this sub-paragraph should be read together with Part Seven, Section 4(b) of this Manual.

For each Residential Mortgage-Backed security (RMBS) filed with the SVO, the reporting insurance company shall submit a prospectus, private placement memorandum or other similar supplemental document, a completed Residential Mortgage Quality Matrix populated with collateral information obtained from the prospectus, private placement memorandum or other supplemental document provided by the issuer and information about the credit support in the transaction. The reporting insurance company shall also file information for an NAIC ARO rated RMBS that is comparable to the reported unrated RMBS. This information shall be in the form of collateral information organized in a Residential Mortgage Quality Matrix and a description of the credit support in the structure. See Part Four, Section 8(m) for instructions on how to obtain the Residential Mortgage Quality Information Form. See Part Seven, Section 4(b)(iii)(B)(1) for a description of the Residential Mortgage Quality Matrix.

(C) Structured Securities Fully Guaranteed by an NAIC ARO Rated Entity

The informational requirements described in this sub-paragraph should be read together with Part Seven, Section 4 (b) of this Manual.

A structured security benefiting from a guarantee issued by an NAIC ARO rated entity is a non-NAIC ARO rated asset-backed and residential mortgage backed security fully, unconditionally and irrevocably guaranteed by an entity with a NAIC ARO rated senior unsecured obligation or claims paying ability. A reporting insurance company may file such a structured security with the SVO and the SVO may assign an NAIC Designation, in reliance on the NAIC ARO rating assigned to the guarantor per the informational requirements described in this Section and the analytical procedure described in Part Seven, Section 4(b)(iii)(B)(2).

A structured security filed under this subsection must be filed with a completed SAR, evidence that the guarantor is rated by an NAIC ARO and a prospectus, private placement memoranda or other similar document describing the pool, the credit and structural components of the transaction and how the guaranty is called upon together with a copy of the final executed guaranty.


(D) Structured Securities Backed by NAIC ARO Rated Financial Assets


A structured security backed by a pool of NAIC ARO rated financial assets is an investment instrument backed by the scheduled payment stream from NAIC ARO rated or NAIC Designated underlying obligations (i) issued by NAIC ARO rated entities, or (ii) 100% unconditionally guaranteed by NAIC ARO rated entities even if none of the assets themselves are rated by an NAIC ARO. A reporting insurance company may file such a structured security with the SVO and the SVO may assign an NAIC Designation, in reliance on the NAIC ARO ratings assigned to the pool obligors per the informational requirements described in this Section and the analytical procedure described in Part Seven, Section 4(b)(iii)(B)(3).

A structured security filed under this subsection must be filed with a completed SAR, evidence of all NAIC ARO ratings assigned to the obligors in the pool and a prospectus, private placement memoranda or other similar document (which must include a detailed list of all of the obligors in the pool), describing the asset types in the pool and the credit and structural components of the transaction.

(E) Structured Securities Fully Backed by Financial Assets Insured by NAIC ARO Rated Insurers


A structured security backed by financial assets insured by an NAIC ARO rated insurer is a investment instrument backed by underlying financial assets that are insured against individual obligor defaults by a pool insurance policy underwritten by an insurer with an NAIC ARO claims paying ability rating. Such a pool insurance policy must have coverage in an amount equal to or greater than the outstanding balance of the pool's assets.

A reporting insurance company may file such a structured security with the SVO and the SVO may assign an NAIC Designation in reliance on the claims paying NAIC ARO rating assigned to the pool insurer per the informational requirements described in this Section and the analytical procedure described in Part Seven, Section 4(b)(iii)(B)(4).

A structured security filed under this subsection must be filed with a completed SAR, evidence that the pool insurer is rated by an NAIC ARO, a prospectus, private placement memoranda or other similar document describing the pool and a copy of the pool insurance policy including the proof of loss and claim form together with a description of the claims processing procedures employed by the pool insurance issuer.


(F) Commercial Mortgage-Backed Securities

A commercial mortgage-backed security (CMBS) transaction not rated by an NAIC ARO may be filed with the SVO but SVO discretion is limited to assignment of the NAIC 5* or 6* Designations.

See Part Seven, Sections 4(b)(i) and 4(b)(iii)(B)(6) respectively, for a description of assessment methodology and informational requirements applicable to NAIC ARO rated, and instructions for unrated, CMBS. (G) Real Estate Investment Trust

In the case of debt or preferred stock of a real estate investment trust (REIT) not

rated by an NAIC ARO, the reporting insurance company shall provide the documentation specified in Part Five, Section 3(a)(ii) of this Manual.

(iii) Structured Lottery Securities If more than one lottery prize is transferred to a trust (or similar entity), the security created thereby is characterized as a structured security. Refer to Part Seven, Section 4(d) and Section 5(c)(vi)(B) of this Manual respectively, for a description of criteria for structured lottery securities and legal issues and criteria relevant to Structured Lottery Securities.

(d) Subsidiaries, Controlled and Affiliated (SCA) Companies

(i) Debt Issued by an SCA Company

Responsibility for analysis and valuation of SCA investments in the form of a bond is assigned to SVO Corporate Securities Group. Part Seven, Section 3(e) of this Manual describes the additional analytical procedures applicable to such filings. To report an SCA bond investment, the reporting insurance company shall file a completed SAR, an Audited Financial Statement for the subsidiary, a copy of the corporate resolution authorizing the issuance of the debt, written evidence that the transaction has been approved by the state of domicile or that no such approval is necessary and, if the subsidiary is an insurance company, the subsidiary's most recent NAIC Financial Statement Blank, together with the reporting insurance company's NAIC Financial Statement Blank, internal investment committee memorandum for the investment and loan documentation appropriate to the transaction.

(ii) Preferred Stock Issued by an SCA Company

Responsibility for analysis and valuation of SCA investments in the form of preferred stock issued by a non-insurer is assigned to the SVO Corporate Securities Group. Part Seven, Section 3(e) of this Manual describes the additional analytical procedures applicable to such filings.


To report an SCA preferred stock issued by a non-insurer, the reporting insurance company shall file an Audited Financial Statement for the issuer of the preferred stock, a copy of the corporate resolution authorizing the issuance of the preferred stock, written evidence that the transaction has been approved by the state of domicile or that no such approval is necessary, together with details of the terms of the preferred stock, as well as the NAIC Financial Statement Blank for the reporting insurance company.

(iii) Common Stock and Preferred Stock Issued by an SCA Company

Responsibility for analysis and valuation of SCA investments in the form of common stock and preferred stock issued by an insurer is assigned to the SVO SCA Companies Group. Common stock of an SCA company may be filed using any of the valuation methods listed under Part Eight, Section 3 of this Manual. The following paragraphs detail the documentation that must accompany SUB form filings for year-end when any one of the valuation methods discussed in Part Eight, Section 3 is chosen. Prior to following these instructions, the reader should be thoroughly familiar with Part Eight of this Manual. Insurance companies without Audited Financial Statements should use the statutory equity method discussed immediately below.

If the statutory equity* method in Part Eight, Section 3(a)(ii)(A) and (B) is chosen, submit:

(A) The most recent NAIC Financial Statement Blank of the direct insurer Parent,

(B) The balance sheet & income statement of the SCA Company (adjusted for non-admitted assets), and

(C) The Treasury Stock Form (required where there is mutual ownership of common stock between the parent and the SCA).

* See, Part Eight, Section 2(d) (ii) for a Special Reporting Instruction applicable to SCA investments involving domestic insurance company subsidiaries.

If the GAAP Equity method in Part Eight, Section 3(a)(ii)(C) is chosen, submit:

(A) The most recent NAIC Financial Statement Blank and Audited Financial

Statement of the Parent, (B) The latest Audited Financial Statement of the SCA Company, (C) The Goodwill Work Sheet (if goodwill is part of the value), and (D) The Treasury Stock Form (required where there is mutual ownership of

common stock between the Parent and the SCA Company).

If the Market Value method in Part Eight, Section 3(a)(i) is chosen, submit:

(A) The most recent NAIC Financial Statement Blank of the Parent, (B) The most recent Audited Financial Statement of the SCA Company, and (C) The Treasury Stock Form (required where there is mutual ownership of

common stock between the Parent and the SCA Company).


SSAP No. 97, paragraph 8a sets forth base discount percentages that are tied to the ownership percentages in an SCA valued at market value. Pursuant to paragraph 7, the SVO may determine a discount rate above the established base discounts. The reporting insurance company may obtain the discount rate to be applied to its common stock from the Manager of the Subsidiaries Group of the SVO. If the Preferred Stock of Insurance Subsidiaries method in Part Eight, Section 3(a)(ii) (F) is chosen, submit:

(A) the most recent NAIC Financial Statement Blank of the Parent, (B) the most recent Audited Financial Statement of the SCA Company if it is

not an insurance company or the most recent NAIC Financial Statement Blank of the SCA company if it is an insurance company, and

(C) a document containing the details and terms of the preferred stock.

If the Foreign Subsidiary method in Part Eight, Section 3(a) (ii) (D) and (E) is chosen, submit:

(A) the most recent NAIC Financial Statement Blank of Parent, and (B) the most recent Audited Financial Statement (in English) of the SCA

Company.

(e) U.S. Government Securities

(i) U.S. Government Securities required to be filed with the SVO

(A) General Rule

Any security that purports to benefit from the guaranty, insurance, or other credit support of the U.S. government, a U.S. government agency or a U.S. government sponsored enterprise, but that is not specifically exempted from filing with the SVO by Part Four, Section 2(c) (i), (ii), (iii) and (iv) above, must be filed with the SVO according to the requirements in subsection (iii), below. (B) Securities That Are Not Exempt

Section 19 of the Appendix to this Manual, the List of U.S. Government Securities Required to be filed with the SVO contains a compilation of specific securities that are required to be filed with the SVO. This reporting status is based on a determination that the issuer cannot bind the credit of the U.S. government directly, is not entitled to claim the full faith and credit of the U.S. government, is not highly rated by an NAIC ARO on the basis of its business fundamentals and implied U.S. government support and has not been exempted from filing by the VOS/TF under its discretionary authority. Recommendations to add or delete securities from Appendix Section 19 shall be made in the manner, and in accordance to the procedures, discussed in Part Two, Section 11 of this Manual.


(ii) SVO Publishing Conventions for U.S. Government Securities Exempt From

Filing

(A) Direct Treasury Obligations

Direct United States Treasury obligations will be added to the VOS Database automatically and will appear in the VOS Products. The NAIC Designation for these securities should be NAIC 1. The use of the administrative symbol “Z” is not required for the aforementioned securities. (B) Other Exempted U.S Government Securities

A single entry will appear in the VOS Products in its normal CUSIP sequence, followed by the description “All Issues” for the specific securities listed in the U.S. Government Securities Filing Exemption List which is Section 16, 17, and 18 of the Appendix to this Manual.

Because filings are not required for the securities enumerated above, CUSIP numbers for specific securities will not be published in the VOS Products. These exempted securities, however, should be listed with the CUSIP number specific to each security in the appropriate section of Schedule D. The NAIC Designation for these securities should be NAIC 1. The use of the administrative symbol “Z” is not required for the aforementioned securities.

(iii) Filing Requirements for U.S. Government Securities

No filing is required for the securities deemed exempt from filing pursuant to Part Four, Section 2(c) (i) through (iv) above unless a state insurance department has specifically requested the SVO to evaluate an exempt security. For U.S. Government Securities required to be filed with the SVO, the reporting insurance company shall submit: (a) a completed SAR, and (b) a prospectus of the security that includes a description of the U.S. government program under which it is issued, and appropriate evidence that the security or other obligation is backed by the U.S. government, an agency of the U.S. government or a U.S. government sponsored enterprise. A variety of documents are acceptable as evidence that the issuer in question has some degree of support from the U.S. government. A copy of the legislation that created the entity or the program is acceptable as evidence of government support. Additionally, a copy of the guaranty or insurance policy for the transaction is also good evidence of government support. Another acceptable form of evidence is evidence of an NAIC ARO rating with a copy of the rating rationale memorandum discussing the role of U.S. government support. Often times, the prospectus for the security describes in sufficient detail the relationship of the entity to the U.S. government, its agency or its government-sponsored enterprise.


It is not enough to merely establish a relationship between the U.S. government and the entity. It is necessary to provide materials that specifically describe all of the financial terms of the obligation and the manner in which the U.S. government will pay the obligation.

(f) Foreign Sovereign Government and Supranational Entities

A reporting insurance company that owns a security issued by a foreign sovereign government, an agency or political subdivision of a foreign sovereign government or a supranational entity (entities with more than one sovereign government as a member), or that is guaranteed directly or indirectly by such an entity, must file such security with the SVO accompanied by a prospectus, investment committee memorandum and proof of rating from an NAIC ARO unless it is filing exempt as defined in Part Four, Section 2(d). Insurance companies shall not file issues with the SVO if the issuer does not have a sovereign rating from an NAIC ARO. If the issuer is not rated by an NAIC ARO, proof of a guarantee from an NAIC ARO-rated foreign sovereign government may be submitted. See Part Seven, Section 2(a)(ii)(B) for instructions for issuers with unaudited financial statements.

(g) Mutual Funds

Any money market fund wishing to establish that it meets the conditions for listing on the U.S. Direct Obligations/Full Faith and Credit Exempt List or the Class 1 List, and any bond mutual fund wishing to establish that it meets the conditions for listing on the Bond List, must submit a completed submission package to the SVO with the following documentation:

(i) The appropriate money market or bond mutual fund application form; (ii) Authorization letter requesting review of the fund for approved list purposes; (iii) Prospectus of the fund; (iv) Statement of Additional Information (SAI); (v) Most recent annual report of the fund, and, if more recent, the latest semi-annual

report; and (vi) Rating letter from an NAIC ARO dated in the year of the filing.

Reporting insurance companies that invest in mutual funds on the U.S. Direct Obligations/Full Faith and Credit Exempt List, Class 1 List or Bond List need not file an SAR with the SVO and are not required to obtain or place a PPN/CUSIP number in Schedule DA or Schedule D of the NAIC Financial Statement Blank. Mutual funds not rated by an NAIC ARO, and/or those that do not meet the above-listed documentation requirements, will not be considered for listing. The reporting insurance company should follow the procedures required for reporting common stock for filing on Schedule D of the NAIC Financial Statement Blank.


(h) Exchange Traded Funds

(i) No Purchase/ No Initial Report

An insurance company must make an Initial Report in connection with shares of an Exchange Traded Fund (ETF) only when it has purchased the shares of an ETF. If the insurance company has not purchased shares of the ETF when it files the application for EIV-Regulatory Treatment Analysis Service, then the insurance company is not obligated to file an Initial Report with the SVO at that time.

(ii) Purchase Prior to or Contemporaneously with EIV-Regulatory Treatment Analysis Service Application

If the insurance company has purchased shares of the ETF when it files the EIV-Regulatory Treatment Analysis Service Application, the insurance company should file an Initial Report with the SVO at the same time as it files the EIV-Regulatory Treatment Analysis Service Application.

An Initial Report of shares of an ETF in these circumstances consists of the Corporate Bond ATF Form and a statement that the insurance company has submitted an EIV-Regulatory Treatment Analysis Service Application to the SVO for the shares of the ETF.

(iii) Purchases Subsequent to Listing of ETF on ETF List

If an insurance company purchases shares of the ETF after the SVO has placed the name of the ETF on Section 20 of the Appendix to this Manual, then the insurance company should ascertain whether another insurance company has reported purchase of the ETF to the SVO. If no other insurance company has previously reported the purchase of shares to the SVO, then the insurance company should file an Initial Report as discussed above in Section 3 (h) of this Part. See Part Four, Section 1 (d) of this Manual for a description of how to determine if another insurance company has already reported the purchase of the shares of the ETF.

(i) Public Common Stock, Private Common Stock, Warrants, Foreign Common Stock or Preferred Stock

(i) Public Common Stock

If the common stock is traded on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market System, refer to the filing exemption in Part Four, Section 2(d)(i)(C). If the common stock is listed on any other domestic or Canadian exchange, the reporting insurance company must submit the most recent Bloomberg Description Screen or other acceptable screen, if available, together with the issuer's Audited Financial Statement. If the public common stock is restricted as to transferability, the issuer's most recent annual report, a copy of the common stock certificate showing the limitations on


transferability (or any other document that details such limitations), the issuer's Audited Financial Statement for the last three years and a written description of the daily price trading range for the past six months must be submitted.

(ii) Private Common Stock

For either restricted or non-restricted private common stock, the reporting insurance company shall submit the issuer's annual report for the most current three years (together with Audited Financial Statements for those years, if these are not a part of the annual report), the stock purchase agreement and the common stock certificate (front and back) or other evidence of restrictions.

(iii) Warrants If the warrant is traded on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market System, the reporting insurance company shall submit the issuer's Bloomberg Description Screen. For a warrant listed on any other domestic or Canadian exchange, the reporting insurance company shall submit the issuer's Bloomberg Description Screen, together with the issuer's Audited Financial Statement. (iv) Foreign Common Stock The reporting insurance company shall submit the issuer's most recent annual report (together with the issuer's Audited Financial Statement if it is not a part of the annual report) and/or the most recent equity/credit research reports by NAIC AROs or other rating organizations, if available. (v) Preferred Stock

(A) Rated

In the case of an NAIC ARO - rated preferred stock that must be reported to the SVO for whatever reason despite the availability of the filing exemption provided in Part Four, Section 2 (d), the reporting insurance company shall submit any stock purchase agreement and the issuer's Certificate or Articles of Incorporation setting forth the terms and characteristics and the rights and preferences of the preferred stock and evidence of each NAIC ARO rating which may be in the form of a copy of the rating letter from the NAIC ARO or a copy of the page from the NAIC AROs rating publication showing the date of the publication. If the issue is rated below "A" or is rated differently by two or more NAIC AROs, a prospectus or private placement memorandum, the most recent issuer's annual report and a rating rationale memorandum from each NAIC ARO which rated the transaction must accompany the submission.


(B) Unrated In the case of a preferred stock not rated by an NAIC ARO, the reporting insurance company shall submit any stock purchase agreement and the issuer's Certificate or Articles of Incorporation setting forth the terms and characteristics and the rights and preferences of the preferred stock, the issue's prospectus or private placement memorandum and the Audited Financial Statement of the issuer for the last three consecutive years.

Section 4. Subsequent Reporting

(a) Annual Filing Requirement

(i) Filing Exempt Securities

No subsequent report is required for filing exempt securities unless they no longer qualify as filing exempt. Instructions for filing exempt securities are detailed in Part Four, Section 2(d) of this Manual.

(ii) All Other Securities

Any insurance company that owns a security listed in the VOS Database, which is not filing exempt as set forth in Part Four, Section 2(d) can satisfy subsequent reporting requirements by filing the additional or annual information described below. For purposes of this Manual, it is assumed that reporting responsibility is borne by the company that has filed the Initial Report. However, the SVO recognizes the possibility that the initial reporting insurance company may have sold its investment. Therefore, any insurance companies with an interest in a security may need to submit the information necessary to enable the SVO to complete its annual review. Annual filings should be reported to the SVO on the Annual ATF.

(b) Material Credit Events Filing

It is the responsibility of the reporting insurance company to file all information that indicates a change in the credit characteristics of the issuer or a material change in the terms of the agreement. What constitutes a material change will vary in accordance with the nature of the transaction. For purposes of this subsection, a material credit event is any occurrence that affects or is substantially likely to affect the issuer's ability to repay the obligation in accordance with its terms. A determination that a bond is impaired for purposes of SSAP No. 26 is a material credit event under this subsection. Accordingly, when an insurer determines that a bond is impaired under SSAP No. 26, it shall file relevant information with the SVO under this subsection. Material events should be reported to the SVO on the Material Change/Additional Information ATF. The SVO assumes that the information filed will be accurate and will reflect all


information relevant to the material event in the possession of the reporting insurance company. The SVO will not audit the information submitted by the insurance company.

(c) Post Default Credit Quality and Valuation of Defaulted Securities

(i) General Instructions

Issuers of defaulted securities often emerge from reorganization or private restructuring and their pre-default liabilities may have been modified but remain viable as modified. When this is the case, and the insurance company can demonstrate that it has accounted for the loss of fair value consistently with SSAP No. 36, the SVO will assign a credit quality designation to the defaulted security to reflect the issuer’s post-default credit risk.

(ii) Procedure for Determining a Post-Default Fair Value for a Loan or a Security Any insurance company than owns a previously defaulted security can file relevant information with the SVO to obtain a fair value for the security or loan, or in the alternative, may calculate a fair value for the loan consistent with SSAP No. 36 and report the fair value obtained and a copy of its work papers and other information about how the fair value was determined, to the SVO.

Where the insurance company has filed information with the SVO and requested that the SVO determine a fair value, the SVO shall calculate a fair value for the security or loan and communicate its determination to the insurance company in writing and enter the fair value in the VOS Database.

Where the insurance company has calculated or wishes to calculate the fair value, it may report its determination to the SVO with an explanation of the methodology used to arrive at the fair value. The SVO will consider the information provided and determine whether in its opinion, the fair value claimed by the insurance company is reasonable or unreasonable. The SVO determination will be entered into the VOS Database and will also be communicated to the insurance company and the domiciliary regulator in writing.

(iii) Procedure for Obtaining a Post-Default Credit Assessment

Contemporaneously with the filing contemplated in Part Five, Section 4 (c) (ii) above, the insurance company shall file current financial and other relevant issuer information so that the SVO can determine the issuer’s financial condition and a current NAIC Designation for the security. The SVO will not assign an NAIC Designation unless the fair value for the loan or security has been calculated consistently with SSAP No. 36.

(iv) Issuer Amends or Refinances an Existing Issue as a Non-Troubled Restructuring

Insurance companies who determine that a restructuring or workout of a transaction is not a troubled restructuring under SSAP No. 36 shall file information about the transaction and its determination to enable the SVO to express an opinion on the matter. The SVO


shall provide its conclusions in writing to the insurance company and the domiciliary insurance department.

(v) Required Documents for Credit Assessment and Valuation Analysis

The general informational requirements applicable to credit assessments are contained in this Part Five. In addition, for purposes of the valuation discussed in Part Four, Section 4 (c) (ii), (iii) and (iv) above, the insurance company should submit the following documentation to the SVO within 120 days of closing:

If a new issue, Sources and Uses of Funds Statement, including:

• Listing of new loan participants and allocations • Listing of previous participants and associated payment disbursements • Breakdown of previous issue repayment (and explanation of any write-off/

realized loss or waiver, by type) of: • Principal balance • Accrued interest • Deferred financing fees and charges • Unamortized premiums or discount • Make-whole provision

If amended, then: • Breakdown and explanation of any write-off, realized loss or waiver of: • Principal balance • Accrued interest • Deferred financing fees and charges • Unamortized premiums or discount • Make-whole provision • Covenants • Breakdown and description of any amendment fees received • Copy of the original, executed Note Agreement and Schedules and all

executed Amendments (including those to Inter-Creditor and Security Agreements) to date

• Pricing rationale, including basis for current credit risk assessment & comps

If secured, Collateral Loan Form, including:

• Most recent Compliance Certificate and financials from the company, including calculations and comparison to covenant levels in effect at period-end.


(d) Analytical Conventions Applicable to Valuation and Credit Assessment of Loans or Securities on a Post-Default Basis

(i) Issuer Liquidation

The SVO will maintain any non-liquidated assets of an issuer in liquidation at NAIC-6 provided that the insurance company may file a request for a reassessment of credit quality of the loan where there is new underlying credit support for the obligation. As a general rule, in an issuer liquidation of a bankruptcy-remote entity, the SVO assumes the liabilities to be permanently impaired, in the absence of evidence to the contrary.

(ii) Reorganizations under Chapter 11 of the US Bankruptcy Code

The SVO will maintain the NAIC Designation of any issuer liability subject to compromise (i.e., any liability of the issuer that has not emerged intact from the reorganization) at NAIC-6. Bankruptcy-remote liabilities may be other than temporarily impaired, but may be upgraded from NAIC-6 to reflect the credit risk of the new obligor, provided the insurance company has recognized a loss as required by SSAP No. 36 in a prior year as discussed in sub-paragraph (c) above. New securities issued in lieu of the compromised liabilities on emergence from bankruptcy will be reevaluated in line with the credit of the post-bankruptcy entity.

(iii) Work-out or Restructurings Resulting in Modified Terms

The guidance in this sub-paragraph applies whether new securities are issued or not. Whenever an insurance company has agreed to discuss a modification of the terms of an existing obligation, SSAP No. 36 is implicated and the event is a material credit event within the meaning of Section 4 (b) of this Part Four. Reporting a work-out situation to the SVO as soon as practicable after the decision to restructure the transaction is taken, will enable the SVO to work with the insurer to estimate the fair value of the loan and the credit quality of the issuer.

(e) Reporting Conventions and Required Documents

Specific reporting conventions that all reporting insurance companies should follow are described below.

(i) Corporate Issues not Filing Exempt

(A) Rated

(1) General Rule

A Subsequent Report is required on corporate securities.

(2) Specific Filing Conventions


a. In the case of a corporate issue rated "A-/A3" or better by an NAIC ARO , that must be reported to the SVO for whatever reason despite the availability of the filing exemption provided in Part Four, Section 2(d), the insurer requesting that the SVO update the NAIC Designation shall file evidence of an NAIC ARO rating. Evidence of a rating may take the form of a printed copy of the complete Bloomberg Description Screen ("DES") display, showing the rating(s) assigned by an NAIC ARO.

b. In the case of a corporate issue rated less than "A-/A3" by an NAIC ARO, or rated differently by two or more NAIC AROs, the reporting insurance company shall file the issuer's Audited Financial Statement and evidence of rating(s) from all NAIC AROs that have rated the security.

(B) Unrated

In the case of a corporate issue not currently rated by an NAIC ARO, the reporting insurance company shall file an annual Audited Financial Statement.

(ii) Municipal Issues not Filing Exempt

(A) Rated

(1) General Rule A Subsequent Report is required on all rated municipal issues. (2) Specific Filing Conventions a. In the case of a municipal issue rated "A-/A3" or better by an NAIC ARO , that must be reported to the SVO for whatever reason despite the availability of the filing exemption provided in Part Four, Section 2(d), the insurer requesting that the SVO update the NAIC designation shall file evidence of an NAIC ARO rating which may take the form of a printed copy of the complete Bloomberg Description Screen ("DES") display, showing the rating(s) assigned by an NAIC ARO or a copy of the rating in an NAIC ARO publication that shows the rating. b. In the case of a municipal issuer rated less than "A-/A3" by an NAIC ARO, or rated differently by two or more NAIC AROs that must be reported to the SVO for whatever reason despite the availability of the filing exemption provided in Part Four, Section 2(d), the reporting insurance company shall file the issuer's Audited Financial Statement and evidence of a rating from all NAIC AROs that have rated the security. Evidence of a rating may take the form of a printed copy of the complete Bloomberg Description Screen ("DES") display, showing the rating(s) assigned by an NAIC ARO or a copy of the rating in an NAIC ARO publication that shows the rating.


(3) Subsequent Reports a. Subsequent Reports are not required for any municipal security that has been escrowed to maturity or pre-refunded if the supporting documentation, as required by the last sentence of Part Five, Section 3(b)(ii), has been filed with the SVO and a designation based on such escrow or pre-refunding has been issued by the SVO.

(B) Unrated

In the case of a municipal issue not currently rated by an NAIC ARO, the reporting insurance company shall annually file with the SVO the issuer's Audited Financial Statement. There is no continuing reporting obligation for bonds that have been escrowed to maturity or pre-refunded, and for which the SVO has received a copy of the escrow agreement or other type of proof as required by this Manual.

In the case of an industrial development revenue bond or a pollution control bond in which a corporate obligor is responsible for repayment, the reporting insurance company shall annually file with the SVO the Audited Financial Statement, showing the appropriate SIC Code for the underlying corporate obligor.

(C) Canadian Municipals

This subsection (ii) also is applicable to issues of Canadian municipal issuers.

(iii) Structured Issues

(A) Structured Securities Requiring a Subsequent Report

(1) Transactions With Confirmed Current NAIC ARO Ratings

In the case of Credit Tenant Loan-Variants Requiring an NAIC ARO Rating, bonds and preferred stock issued by a real estate investment trust, commercial mortgage-backed securities, residential mortgage-backed securities, collateralized mortgage obligations, asset-backed securities, collateralized bond obligations and collateralized loan obligations, the reporting insurance company shall submit evidence of rating surveillance and action by the NAIC ARO that issued the original rating and that continues to monitor that rating. In cases where two or more NAIC AROs have assigned ratings that convert into different NAIC Designations, the reporting insurance company shall submit evidence of rating surveillance by all NAIC AROs that issued original ratings and that continue to monitor those ratings.


(2) Transactions With No Currently Confirmable Rating

For structured securities where the security was previously rated by an NAIC ARO, but the transaction is not being monitored by the NAIC ARO or the insurance company is not able to provide confirmation of a current rating, the insurance company will submit the following core documentation requirements: a copy of a current distribution/trustee report and a description of the structural aspects providing protection from credit related losses, such as credit enhancement, at both the original and current credit enhancement levels. In addition, if after reviewing any transaction, the SVO determines that the core documentation requirements do not provide sufficient information about potential credit related problems, it may require additional information, necessary to evaluate the transaction such as information describing principal amortization of the assets supporting the structured securities, and/or information about the delinquency of such assets along with cumulative loss experience. (3) Transactions Never Rated by an NAIC ARO


a. Residential Mortgage Backed Securities

For residential mortgage backed securities (RMBS) with at least three years of historical performance since original issue, the reporting insurance company shall file the latest monthly trustee/distribution report, a detailed description of the assets supporting the security, a description of all forms of credit support/enhancement protecting the security from loss of principal and a description of how credit enhancement has changed since issuance. If the asset or pool of assets on which the security relies for payment has less than three years of historical performance, the reporting insurance company shall provide the information described under the previous paragraph and a comparison of credit enhancement levels with credit related losses suffered by the pool of assets to date. In either case, if the reporting insurance company cannot demonstrate that the credit support/enhancement structure is comparable to a transaction rated by an NAIC ARO, the reporting insurance company shall also submit the following:

A. If the structure of the transaction does not have an impact on credit enhancement, the reporting insurance company should provide a description of credit loss allocation methodology.


B. If the structure of the transaction does have an impact on credit enhancement, the reporting insurance company should provide a description of credit loss allocation methodology and a table showing how the structural aspects would affect credit enhancement levels with a zero percent default assumption.

b. Structured Securities Fully Guaranteed by an NAIC ARO Rated Entity

The informational requirements described in this sub-paragraph should be read together with Part Seven, Section 4(b) (iii) (A) and (B) (2) of this Manual. A structured security filed under this subsection must be filed together with evidence of the current NAIC ARO rating for the guarantor. c. Structured Securities Backed by NAIC ARO Rated Financial Assets The informational requirements described in this sub-paragraph should be read together with Part Seven, Section 4(b) (iii)(A) and (B)(3) of this Manual. A structured security filed under this subsection must be filed together with evidence of the current NAIC ARO rating assigned to each pool obligor. d. Structured Securities Fully Backed by Financial Assets Insured by NAIC ARO Rated Insurers The informational requirements described in this sub-paragraph should be read together with Part Seven, Section 4(b) (iii) (A) and (B) (4) of this Manual. A structured security filed under this subsection must be filed together with evidence of the current NAIC ARO rating assigned to the pool insurer. e. Commercial Mortgage-Backed Securities The informational requirements described in this sub-paragraph should be read together with Part Seven, Section 4(b) (iii) (A) and (b) (6) of this Manual. A commercial mortgage-backed security filed under this subsection must be filed with a Principal and Interest Certification Form. f. Real Estate Investment Trusts In the case of debt or preferred stock of a real estate investment trust not currently rated by an NAIC ARO , the reporting insurance company shall


provide the documentation specified in Part Five, Section 3(a)(ii) of this Manual. g. Credit Tenant Loans For Bond Lease Based CTLs, Credit Lease based CTLs, Multiple Property Transactions (MPTs) and Acceptable CTL Variants, the reporting insurance company shall submit evidence of a current NAIC ARO rating for the lessee or the lessee's guarantor. For purposes of this subsection, a current rating is defined as one issued or reviewed within the past 12 calendar months. Evidence of a current rating may be submitted in the form of a Bloomberg screen or other similar screens acceptable to the NAIC from another information vendor. In the event the lessee, or lessee's guarantor, is not rated by a NAIC ARO, the reporting insurance company shall file the Audited Financial Statement of the lessee or the lessee's guarantor, as the case may require.

(iv) Subsidiary, Affiliated and Controlled Companies

Subsequent reporting for an SCA company consists of the filing of a SUB 2 form and the documentation required under this Part Five, Section 3(d) above.

(v) U.S. Government Securities

(A) Subsequent Filing

No subsequent report (i.e., an annual update filing) is required for non-exempt U.S. government securities within Part Five, Section 3(e)(iii). However, a material credit events filing, pursuant to Part Five, Section 4(b) of this Manual is required for non-exempt U.S. government securities, if:

(i) The legislation authorizing the program has been rescinded;

(ii) The transaction terms and/or the transaction documents have been waived, amended or modified; or

(iii) If the legal commitment of the U.S. government, U.S. government agency or U.S. government sponsored entity has been allowed to lapse or has been withdrawn.

(vi) Mutual Funds

Subsequent reporting for money market funds on the U.S. Direct Obligations/Full Faith and Credit Exempt List or the Class 1 List, or for bond mutual funds on the Bond List, consists of an annual submission of the following information due prior to April 30 of each year:


(A) The appropriate money market or bond mutual fund application form; (B) Prospectus and Statement of Additional Information of the fund; (C) Most recent annual report of the fund and, if more recent, the latest semi-

annual report; and (D) Rating letter from an NAIC ARO dated in the year of the filing.

Failure to provide the information required may result in removal of the money market fund or bond mutual fund from the list and reclassification of the fund as a common stock reported on Schedule D - Part 2 - Section 2.

(vii) Exchange Traded Funds

Subsequent Reporting is not required for shares of an Exchange Traded Fund (ETF), provided the ETF is then listed on the ETF List. If the ETF is no longer listed on the ETF List, the insurance company shall provide the SVO a copy of the most recent prospectus for the ETF.

© 1990-2009 National Association of Insurance Commissioners July 1. 2009 PART SIX/Page 1

Part Six: Pricing of Unaffiliated Investments Section 1. Regulatory Objectives A life insurance company that owns a bond that has been assigned a NAIC 6 Designation or a preferred stock with a NAIC 4, 5, or 6 Designation, and a property and casualty company that owns a bond or a preferred stock that has been assigned an NAIC Designation of 3, 4, 5 or 6 must carry the security at the lower of cost or amortized book value. In addition, a property and casualty company must carry a perpetual preferred stock that has been assigned a NAIC 1 or 2 Designation at market value. In these cases, fair value determined in accordance with this Part Six is extended to the fair value column and the Book/Adjusted Carrying Value column of the NAIC Financial Statement Blank. In addition, and irrespective of statutory accounting guidance, annual statement instructions require all insurers to report a fair value, irrespective of the credit quality of the security or the nature of its owner’s insurance business. Accordingly, even an insurer entitled to use amortized value in the "Book/Adjusted Carrying Value" column, must use fair value in the "Rate Used to Report Fair Value" column.

See, the NAIC Accounting Practices and Procedures Manual, in particular, Statement of Statutory Accounting Principles, Nos. 26, 30, 32, 43 and 46 and the Annual Statement Instructions of the NAIC Financial Conditions Framework. Section 2. General Valuation Process

(a) Obligation to Report a Fair Value

Any insurance company domiciled in any state of the Unites States, or any of its territories or possessions, and required by the law of their domiciliary state or territory to report NAIC Association Values for their investments in the NAIC Financial Statement Blank, shall follow the procedures described below to obtain a fair value to be used for reporting consistent with Section 1 of this Part.

(b) Valuation Procedure An insurance company shall either report the fair value determined by the SVO for a security or determine a fair value in accordance with one of the valuation methodologies described in paragraph (c) below. When selecting a valuation method, the insurance company shall seek to obtain a fair value that reliably reflects the price at which the security would sell in an arms length transaction between a willing buyer and seller in possession of the same information. Only where a market valuation based fair value is unobtainable, should the insurance company select a valuation method that would yield an analytically determined fair value. The insurance company shall identify the valuation method used to obtain fair price to determine the Rate Per Share Used to Obtain Fair Value in Schedule D.


(c) Valuation Methodologies and Corresponding Reporting Codes The valuation methods permitted to an insurance company and the codes that correspond to the valuation methods are as follows:

a - For securities where the rate is determined by a pricing service. b - For securities where the rate is determined by a stock exchange c - For securities where the rate is determined by a broker or the insurer’s custodian. To

use this method: 1) the broker must be approved by the insurer as a counterparty for buying and selling securities or be an underwriter of the security being valued and 2) the insurer shall obtain and retain the pricing policy of the broker or custodian that provided the quotations.

d - For securities where the rate is determined by the insurer. The insurer is required to

maintain a record of the pricing methodology it used. e - For securities where the rate is determined by the valuation published in the NAIC

Valuation of Securities database. Section 3. SVO Valuation Methodologies

(a) Instruction and Disclosure

The SVO shall apply the methodologies provided in this section to provide fair values for the regulatory purposes discussed in Section 1. The fair value of any specific security produced by the SVO may be determined from application of one of many methodologies, as may be deemed appropriate by the SVO to determine a reliable value for NAIC regulatory purposes. These methodologies may include the use of public prices obtained from acceptable vendors of pricing information, through the NYSE, AMEX, National NASDAQ or from acceptable financial institutions; use of pricing models or matrices; application of book value; and any other method deemed appropriate by the SVO in fulfillment of the regulatory objective. Irrespective of the methodology used to determine a Fair value, nothing in this Part shall be construed as implying that the SVO intends, or that in a specific case the methodology employed to determine a fair value for the purposes described in Section 1 yield an opinion of the price at which a security could or should be bought or sold in the market place.

(b) Use of Publicly Available Prices as Fair Value

The SVO may use any publicly available pricing source that it deems to be reliable to determine a fair value for any publicly traded security owned by an insurance company. Once selected, the SVO shall enter the fair value into the VOS Database and subsequently publish it.


(i) Pricing of Shares of Exchange Traded Funds

The fair value of the shares of an Exchange Traded Fund (“ETF”), discussed in Part Eleven, Section 4 of this Manual, reported by an insurance company on any day in which reporting of a fair value is required, shall be the public price of the ETF shown on the listing exchange for the last trading day.

(c) Analytical Determinations of Fair Value

Where a fair value cannot be obtained from a public source, the SVO shall attempt to determine a fair value analytically in accordance with the procedures discussed below.

(i) Special Instruction for Private Placements

Where a price is not available because the security is a private placement which does not trade in the public market place, the price field of the VOS Database will contain a ( -- ). If a private placement requires an estimated market price for valuation purposes, the SVO staff will analytically determine such value, or the SVO, at its discretion, may accept a value determined by an independent organization approved by the SVO.

(ii) Bonds

(A) General Procedure

In conjunction with its credit assessment of a private placement bond, the SVO shall calculate a fair value for the security using the spread over the equivalent credit curve updated at year end using the interpolated yield curve on a spread basis.

An insurance company who desires to obtain a fair value other than as described above in this paragraph may provide the SVO with the fair value, determined by two price quotes obtained from financial institutions acceptable to the SVO and written on the letterhead of such financial institutions, or another method acceptable to the SVO. The SVO shall use such fair value to determine the unit price for the bond.

If the SVO is satisfied that for whatever reason, it is not possible for the insurance company requesting the fair value to obtain two price quotes from financial institutions acceptable to the SVO, the SVO may apply the comparability analysis described immediately below.

• The SVO may, in the first instance determine a fair value for the security

by assigning the price of a comparable publicly traded bond of the same issuer.

As used in this section, comparability refers to the credit standing and structure of the two bond issues. Two bonds shall be considered to be comparable if they have been assigned equivalent credit rating symbols by


the same NAIC ARO, by two or more NAIC AROs or if they have been assigned the same NAIC Designation by the SVO.

• If a comparable publicly traded bond of the same issuer is not available,

the SVO may apply the price of a comparable publicly traded bond issued by another issuer in the same industry.

• If a comparable publicly traded bond of another issuer in the same

industry is not available, the SVO may apply the price of a publicly traded bond issued by another issuer in a different industry.

• The fair value of the comparable bond shall be used to determine a yield

for the reported bond and that yield, adjusted to the extent the analyst deems appropriate, will be used to determine a price for the reported bond.

• If a fair value cannot be determined in accordance with this procedure, the

SVO may apply whatever other procedures it determines would yield a reasonable estimate of the fair value of the asset.

(B) Pricing Bonds of Companies in Orderly Liquidation

For purposes of this paragraph, a company in orderly liquidation is any business entity for which the owners have agreed to a voluntary cessation of business operations and dissolution of the business entity (liquidating company).

The SVO may determine the fair value for the bond of a Liquidating Company by reference to an appraisal submitted to the SVO by the insurance company, provided that the appraisal has been conducted by a recognized independent appraisal firm acceptable to the SVO.

If such an appraisal is not available, or if the SVO determines that the appraisal is not acceptable, the SVO shall determine the fair value by applying the following procedure. The SVO shall obtain the Liquidating Company's latest Audited Financial Statement for the purpose of determining net realizable value of assets. The analyst shall then identify appropriate criteria to be applied to each asset class shown on the balance sheet. Using this criteria the analyst will determine the value of the company's assets. This amount shall then be adjusted by an amount equal to the liability shown on the balance sheet, and by any other amount that the analyst believes is unrealizable under the circumstances, to arrive at an amount likely to be available to pay claims of creditors. A fair value for the bonds shall be determined by apportioning the amount to the bonds and/or any other security issued by the company in accordance with the bond's priority of claim on the assets of the Liquidating Company.

(C) Restructured Bond Obligations

For purposes of this paragraph, a Restructured Bond is one for which the lender and the borrower have agreed to amend or waive a material credit term due to financial distress of the borrower. As used herein, a material term includes the


interest rate on the loan, the maturity date of the bond or any financial covenant in the agreement. Upon receipt of a Subsequent Report, as defined in Part Five, Section 4 of this Manual, the SVO shall adjust the fair value of a Restructured Bond to reflect the restructured terms. (D) Bonds in Default

For purposes of this paragraph, a Bond in Default is a bond for which the issuer has failed to perform a term or condition required to be performed by the agreement (after all applicable grace periods have expired). The fair value for a Bond in Default shall reflect SVO's estimate of the dollar value of the defaulted bond as of the end of the reporting period, adjusted for the costs of the proceedings necessary to protect bondholder rights and discounted to reflect the time period before payments will actually be made. In estimating a fair value, the SVO may apply any procedure reasonably calculated to provide a useful measure of recovery value and it may consider any factor that it deems relevant, such as the reasons for the issuer's default, the value of the issuer's business operations to a competitor, the likelihood of a liquidation or a successful reorganization and other similar factors. The fair value shall reflect the status of discussions between the issuer and its creditors, in particular whether the bond is newly defaulted, whether subsequent to bond default the issuer has filed for liquidation or for reorganization, whether subsequent to the filing the issuer has proposed a reorganization plan or whether a reorganization has been accepted and approved by a bankruptcy court. In the case of any negotiated or accepted reorganization plan, the SVO may use the estimates of recovery value and payout time set forth in the reorganization plan as a basis to arrive at a fair value.

(iii) Preferred Stock

The fair value of preferred stock not publicly priced for the year in which the preferred stock has been purchased by the reporting insurance company shall be the per share cost of the preferred stock to such reporting insurance company. For any subsequent year, and in conjunction with its credit assessment of a private placement security, the SVO shall calculate a fair value for the security using the spread over the equivalent credit curve updated at year end using the interpolated yield curve on a spread basis.

An insurance company who desires to obtain a fair value other than as described above in this paragraph may provide the SVO with the fair value, determined by two price quotes obtained from financial institutions acceptable to the SVO and written on the letterhead of such financial institutions, or another method acceptable to the SVO. The SVO shall use these price quotes to determine a fair value for the preferred stock.

If the SVO is satisfied that for whatever reason, it is not possible for the insurance

company requesting the fair value to obtain two price quotes from financial institutions acceptable to the SVO, the SVO shall seek to apply the yield of a comparable publicly traded preferred stock of the same issuer to determine a price.


As used in this section, comparability refers to the credit rating standing of the two preferred stock issues. The two preferred stock issues shall be generally considered to be comparable if they have been assigned equivalent credit rating symbols by the same NAIC ARO, by two or more NAIC AROs or if they have been assigned the same NAIC Designation by the SVO.

If a comparable publicly traded preferred stock of the same issuer cannot be

identified, the SVO staff will use the yields from any NAIC ARO index of preferred or convertible preferred stock yields as of the close of the week preceding the end of the quarter and published in the VOS Products.

Fair value shall be derived from the yield either by application of a suitable

pricing model or by reference to the price of a preferred stock of a comparable yield.

In the case of a convertible preferred stock, the fair value may be set by reference

to the price of the issuer's common stock into which the preferred stock may be converted. If the method discussed above is inapplicable for any reason, the SVO may use any other procedure or method reasonably calculated to result in a reasonable fair value.

(iv) Limited Life Preferred Shares

Limited life preferred shares are defined as Medium Term Fixed Rate Preferred Shares, Dutch Auction Rate Preferred Shares (DARTS), Fixed Rate Adjustable Preferred Stock (FRAPS), Stated Term Auction Preferred Shares (STRAPS), Fixed Rate Exchangeable Preferred Stock (FREPS), Marketed Auction Preferred Shares (MAPS), Stated Rate Auction Preferred Shares (STAR) and Share Adjusted Broker Remarketed Shares (SABRES), or other similar preferred securities. The reporting insurance company shall provide the SVO with at least two price quotes for the preferred shares from recognized financial institutions on the letterhead of such institutions.

(v) Common Stock

The fair value of a common stock for the year in which the common stock has been purchased by the insurance company, shall be the per share cost of the common stock to such reporting insurance company.

For any subsequent year, the insurance company reporting ownership of the common stock of a private company shall provide the SVO with two price quotes for the common stock. The price quotes shall be obtained from financial institutions acceptable to the SVO and shall be written on the letterhead of such financial institutions. The SVO shall use these price quotes to determine a fair value for the common stock.

In the absence of two price quotes from financial institutions acceptable to the SVO, the insurer may file a copy of the issuer's Audited Financial Statement with the SVO. The SVO shall use these statements to derive shareholder's equity and issuer's retained earnings (net of the value of any preferred stock) and then use these figures to calculate the price per share.


If the method discussed above is inapplicable for any reason, the SVO may use any other procedure or method reasonably calculated to result in a reasonable fair value.

See Part Seven, Section 2(a)(ii)(D) for instructions for issuers of foreign common stock with unaudited financial statements. (vi) Shares of Mutual Funds

Fair value of mutual funds, including money market fund shares, shall be equivalent to the net asset value of such shares calculated as of the close of business of the reporting period. However, those funds that qualify for favorable reserve treatment for purposes of the Asset Valuation Reserve shall be reported on Schedule DA - Part 1 in the case of money market funds, and on Schedule D - Part 1 in the case of bond mutual funds.

(vii) Common Stock of Insurance Companies

The fair value of a private common stock issued by an insurance company is its book value. Book value shall be calculated by (i) ascertaining capital of the insurance company as reported on the company's latest NAIC Financial Statement Blank or report of examination, (ii) ascertaining the company's surplus (excluding from surplus any reserves required by statute and any portion of surplus properly allocable to policyholders), (iii) subtracting the greater of par or redemption value of the company's preferred stock and the face value of surplus notes (other than 144A note offerings) from the total amount of such capital and surplus and (iv) dividing the remaining amount by the number of shares of the company's common stock outstanding.

(viii) Stock Warrants

The fair value of a warrant convertible into private common stock for the year in which the warrant has been purchased by the reporting insurance company shall be the cost of the warrant to such reporting insurance company. For any subsequent year, the fair value of a warrant convertible into private common stock shall be the difference between the Association Value of the common stock as determined pursuant to either Paragraph (v) or (vii of this section, as applicable, and the exercise price. The result is then discounted for illiquidity. The fair value for a warrant with no public market, exercisable into shares of common stock that do have a public market, shall be the difference between the value of the common stock and the exercise price of the warrant. In the case of a warrant exercisable into restricted common stock, the fair value shall be the difference between the common stock share price determined pursuant to paragraph (ix) below and the exercise price. Warrants for which the first exercise date is subsequent to the date of the NAIC Financial Statement Blank shall have no value unless a publicly available price can be obtained for NAIC Financial Statement Blank purposes.


(ix) Common Stock and Preferred Stock Issued Under Investment Letter or Restricted As to Transferability

The restricted common or preferred stock of an issuer unaffiliated with the reporting insurance company and held by the insurance company for a period of less than three years shall be priced by the insurance company, and the fair value, together with a written justification of the fair value, shall be submitted to the SVO.

The staff shall review the insurance company's analysis and render an opinion as to the reasonableness of the price valuation basis used by the insurance company. Upon a finding that the valuation basis used is reasonable under the circumstances, the staff will provide the results of its conclusion to the state insurance department for the affected insurance company and, upon request, to other insurance companies holding the restricted common or preferred stock.

The SVO shall not publish these opinions or the fair value for these securities in the VOS Products. If the SVO disagrees with the price valuation basis used by the insurance company, the insurance company may either accept the price as determined by the SVO or report its own price with a “Z” suffix on the NAIC Financial Statement Blank.

Section 4. When Price Is Not Determinable

(a) General Procedures

If the SVO determines that there is no sound basis upon which to determine a fair value, or the fair value is not readily available, it shall apply the Administrative Symbol "UP" if the security is a common or preferred stock, the Administrative Symbol "--" if the security is a debt instrument that is rated, or the Administrative Symbol "NR" if the security is a debt instrument that is not rated.

(b) Restriction on Use of the Administrative Symbol NR

Notwithstanding any other instructions contained in this Manual, the SVO shall not apply the administrative symbol NR to any private security that has been assigned an NAIC 6 Designation. If the application of the analytical methods in this Part is insufficient to enable the SVO to determine a fair value for a private security designated NAIC 6, the SVO shall assign that security a fair value of zero (0).


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Part Seven: Procedures For Credit Assessment Section 1. Preliminary Matters

(a) Use of Public Information Sources

The general procedures contained in this Part of the Manual are addressed to the SVO staff. The individual analyst must interpret these instructions in the context of the specific transaction, the standards of his or her profession, existing industry practice and the regulatory needs of the NAIC members. The staff may consider any publicly available credit, pricing, statistical, economic or other information relevant to the matter under consideration and may use such information for the purpose of forming its own conclusions if the staff has determined that the information has an appropriate level of reliability.

(b) Credit Ratings of NAIC AROs

(i) Purpose for Creation of List

The NAIC uses publicly available credit ratings (i.e., opinions of the credit worthiness of issuers or the risk of default associated with a security) as one component of the services it provides to state insurance regulators concerned with financial solvency monitoring of insurance company investments. The sole objective of the NAIC in obtaining and using publicly available ratings is to conserve limited regulatory resources, specifically, the resources of the SVO. The VOS/TF has established the procedure specified in this section solely to ensure that the NAIC can avail itself of publicly available credit rating opinions. In implementing the procedure hereinafter described, the NAIC acts solely as a private consumer of publicly available credit ratings, mindful of the need to match the financial cost of obtaining and integrating public ratings into its own computer systems to its actual needs and intent on supplementing and enhancing the credit assessment function of the SVO. In implementing the procedure hereinafter described, the NAIC does not intend to engage in and is not engaged in, a process of selecting, approving or certifying rating organizations or distinguishing among them for any public purpose whatsoever. The VOS/TF specifically disclaims any authority to regulate rating organizations. The absence of the name of any rating organization from the NAIC ARO List should not be interpreted as signifying a judgment on the part of the NAIC as to the professional expertise or reputation of the rating organization. Nothing in this Manual shall be read for the proposition that the NAIC is endorsing the rating product of any rating organization or distinguishing between rating organizations for any specific public purpose.


PART SEVEN/Page 2

(ii) Criteria for Adding a Rating Organization to the NAIC ARO List A rating organization that meets the criteria set forth in this paragraph may be added to the NAIC ARO List at the direction of the VOS/TF. The VOS/TF may direct the staff to add the name of a rating organization to the

NAIC ARO List on its own initiative, without a requirement for an application from a rating organization, if it determines that the credit ratings of the rating organization are necessary for the administration of any component of state based financial solvency monitoring of insurance company investments.

The VOS/TF may receive, examine and accept an application of a rating

organization to be placed on the NAIC ARO List, provided however, that the rating organization:

• Has been designated a Nationally Recognized Statistical Rating

Organization by the Securities and Exchange Commission of the United States of America; and

• Assigns and monitors ratings to at least ten percent (10%) of the dollar

value of all Schedule D bonds and preferred stock owned by insurance companies; and

• The VOS/TF, in its sole discretion, determines that the credit ratings

issued by the applicant are necessary for the administration of any component of state based financial solvency monitoring of insurance company investments.

(iii) Filing Requirements The applicant NRSRO shall provide the SVO with, written evidence that it has been designated an NRSRO by the SEC and with a compilation of the securities it rates, arranged in such manner and contained on such computer media, as the SVO shall reasonably request. (iv) Determination If the SVO finds that the applicant meets the criteria specified in paragraph (ii) above, it shall so advise the Task Force, and unless otherwise directed, place the name of the rating agency or organization on the NAIC ARO List. If the SVO finds that the applicant does not meet the specified criteria, the SVO shall so advise the Task Force and the applicant NRSRO. (v) Criteria for Removing a Rating Organization from the NAIC ARO List The VOS/TF may direct the staff to remove the name of a rating organization from the NAIC ARO List and to remove its ratings from NAIC systems if it determines that the credit ratings of the rating organization are no longer necessary for the administration of


PART SEVEN/Page 3

any component of state based financial solvency monitoring of insurance company investments.

(vi) Directive

The staff shall add or delete the name of a rating organization to the NAIC ARO List as and when directed to so by the VOS/TF. (vii) Non Equivalency

While NAIC Designations reflect the staff's opinion about credit risk, the staff must address concerns unique to the regulatory community. Therefore, when required or permitted by this Manual to convert a rating issued by an NAIC ARO, the staff may ignore the NAIC ARO rating when assigning an NAIC Designation. Nothing in this Manual should be interpreted as implying that the methodologies by which traditional or special NAIC AROs ratings are produced are identical to the manner in which the SVO considers credit risk for regulatory purposes.

(viii) Correlation of Symbols Upon a determination that an applicant meets the criteria for inclusion on the NAIC ARO List, the SVO shall review the credit rating symbols and definitions used by the NAIC ARO , determine the equivalency between the NAIC ARO’s rating grades and NAIC Designations and, upon being instructed by the VOS/TF to add the NRSRO applicant to the NAIC ARO List, shall thereafter publish a revised NAIC ARO List and a table showing the correlation between the rating symbols used by each NAIC ARO on the NAIC ARO List and the corresponding NAIC Designation.

(ix) Presumption of Conversion Eligibility

Inclusion on the NAIC ARO List shall signify that the: A) issuer-solicited credit ratings assigned by the NAIC ARO 2) by application of its alpha-numeric rating methodology (Alpha-numeric Rating) to 3) public securities shall be entitled to a presumption of convertibility to an equivalent NAIC Designation, subject to the limitations that the presumption of convertibility applies only to: (i) Those rating activities or markets in which the entity has NAIC ARO status, (ii) Securities with monitored NAIC ARO ratings that addresses the likelihood of payment of both principal due and interest/dividends due from the issuer to the holders of the security or those structured to pay only principal or only interest/dividends, if the monitored NAIC ARO rating addresses the likelihood of payment of either the principal, in the case of a security structured to pay only principal or the interest/dividends, in the case of security structured to pay only interest/dividends, and, (iii) Provided that the NAIC has a right to determine that the rated security or investment is of a type that is not eligible to be reported on Schedule D of the NAIC Financial Statement Blank.


PART SEVEN/Page 4

Unless otherwise specifically approved by the VOS/TF, special rating systems of any NAIC ARO, rating agency or rating organization shall not be entitled to any presumption of convertibility, but may be considered by an analyst in accordance with the authority accorded analysts under paragraph (a) above, as one factor in arriving at an NAIC Designation.

(x) Condition to Convertibility

The conversion of an Alpha-numeric Rating into a corresponding NAIC Designation shall be effected only if the analyst concludes that the analytical issues associated with the security and structure are adequately addressed by the NAIC ARO and the SVO has an approved methodology for evaluating such security as set forth in Part Two, Section 3(e) of this Manual. For purposes of the filing exemption authorized in Part Four, Section 2(d), only NAIC ARO ratings that meet the conditions in Section 1 (b)(ix) may be converted to NAIC Designations. Securities with NAIC ARO ratings or ratings of other rating organizations that do not meet the conditions of Section 1(b)(ix) above, shall be filed with the SVO. The qualified rating assigned to such security may be one factor in the SVO analysis of the security.

In all cases where conversion of NAIC ARO ratings into NAIC Designations is otherwise appropriate, the conversion shall be conducted in accordance with the procedures described in Part Two, Section 3(j)(iv) of this Manual.

(xi) Limitations on Use of NAIC ARO Ratings

(A) NAIC Designation Is Capped To Highest NAIC ARO Rating

The SVO shall not assign an NAIC Designation for a rated security that reflects an opinion of credit quality greater than that indicated by the rating assigned by an NAIC ARO, except as provided in Paragraph (B) below and except that the SVO may assign the NAIC Designation it deems appropriate to municipal bonds.

(B) Split Ratings

For filing exempt securities as defined in Part Four, Section 2(d), the rating assigned will be: the equivalent NAIC Designation where the security is rated and monitored by one NAIC ARO; that of the NAIC ARO that rates the security lowest, if the security is rated and monitored by two NAIC AROs and the second lowest if the security is rated and monitored by three or more NAIC AROs. In the case of a security rated and monitored by three or more NAIC AROs, each NAIC ARO ’s rating for a security will be ordered according to its NAIC equivalent and the rating falling second lowest will be selected, even if that rating is equal to that of the first lowest. This rule will also apply to replication transactions as defined in Part Thirteen and other instances where NAIC ARO ratings are used.


PART SEVEN/Page 5

(C) Unrated Transaction of Issuer with NAIC ARO Rated Debt

When presented with an unrated security of an issuer that has another issue rated by an NAIC ARO, the staff may consider the rated issue and its position in the capital structure of the issuer to arrive at an NAIC Designation for the unrated security, provided that the staff shall first consult with the rating agency and independently consider the terms of the unrated security and its impact on payment risk.

(c) Guidelines for Determining Status of New Instruments as Debt, Preferred Equity or Common Equity

(i) Categorization as Debt or Equity

The NAIC Financial Conditions Network requires different reserve and risk-based capital factors depending on whether an investment is categorized as a debt instrument, preferred equity or common equity. Increasingly, securities contain hybrid features that blur the distinctions suggested by these three classes of securities; for example, a security may be characterized as debt although the legal significance or likely economic result of certain of its provisions are more closely associated with preferred or common equity. The VOS/TF acknowledges a need to provide guidelines to assist the SVO to categorize filed securities appropriately and in as consistent a manner as possible.

The SVO shall apply the guidelines contained in this section to new instruments:

Routinely, for any security or financial product filed with the office,

As part of the analysis of a security or financial product submitted to the SVO under the Emerging Investment Vehicle process discussed in Part Two, Section 3 (f) of this Manual,

When requested to do so by any state insurance regulator acting pursuant to Part

Four, Section 1 (b) of this Manual and

When requested by the Task Force, including in support of the IAWG or

In support of any other NAIC group engaged in the analysis of investment risks in new securities.

(ii) Benchmark for the Guidelines

The guidelines provided under this section assign instruments to one of three categories; debt, preferred equity or common equity based on the difference in investor expectation and the rights exhibited by the security under review.


PART SEVEN/Page 6

This three-tiered capitalization model reflects the U.S. legal and business convention and is the result of the unique accounting, regulatory, tax and corporate securities environment found in the U.S. Because these environments may differ dramatically in other countries, both from the U.S. model and from one another, the concept of what constitutes debt, preferred equity and common equity in other countries will likely also differ from the U.S. conception of these securities classes. The guidelines below provide the SVO with three specific profiles for investor expectations and rights based on the U.S. capitalization model. The SVO is required to use these profiles to determine whether the characteristics of a filed security are more consistent with one profile than with another. Each of the three securities profiles focuses on the following fundamental expectations and rights:

The de-facto status accorded the holder of the instrument as creditor or as the

holder of a residual interest,

The existence or non existence of the right to influence issuer management that is associated with the security,

The deferability and the cumulative/non-cumulative nature of the promise to

make periodic payments,

The agreed upon basis for establishing an expectation as to maturity or redemption of the claim, and

The nature of a claim in an involuntary redemption such as bankruptcy,

liquidation or re-organization as either a debt claim or a residual interest. Each of the three profiles provides an end result to each of these fundamental expectations and rights, thus defining the primary characteristic of the security class. The final categorization decision made by the SVO will be influenced by the degree to which the security characteristics of any one profile predominate, subject always to the synergistic effect of different provisions or characteristics within a security, the regulatory objectives of the NAIC and the SVO's exercise of analytical discretion.

(iii) Relevant Principles

The following statements encapsulate important principles applicable to interpretation of the guidelines.

(A) Comparison of Debt and Preferred Equity

The expectations and rights of preferred equity securities are, generally speaking, more debt like than common equity like in that both debt and preferred equity contemplate a par like claim and a series of periodic payments to be realized in the future. Debt instruments provide higher certainty about receipt of those payments and strong legal rights to protect the payment claim.


PART SEVEN/Page 7

(B) Deeply Subordinated Debt

The SVO may consider that the degree of subordination is relevant to the categorization of an instrument as debt or equity.

(C) Weighting of Guideline Criteria

No single guideline is to be considered paramount and no single criteria predominates in the SVO's decision-making process.

(D) Factors or Criteria Not Listed in Guidelines

The SVO may incorporate factors or criteria not listed in the published guidelines in its analysis, although such factors are generally considered subsidiary to the published guidelines.

(E) Status of Security Under Local (Foreign) Law

The status of the security under foreign, i.e. non-U.S. law governing the issuer especially as to insolvency, the rights granted the investor and the powers granted to any non-U.S. regulator is usually analytically instructive on the categorization issue. (F) Mandatorily Convertible Securities

Where a security incorporates a device with the economic characteristic of a forward purchase of a security (e.g., a mandatorily convertible security), the SVO will focus its analysis on the terms of the security subject to the forward purchase. (G) SVO's Exercise of Discretion

These guidelines cannot anticipate or predict all variations of future innovations in the structuring of securities. SVO is charged with analytical responsibility for categorizing securities and may exercise its discretion to attain the purpose of these guidelines, subject to Part Two, Sections 3(e). Insurers may utilize the EIV- Regulatory Treatment Analysis Service process described in Part Two, Section 3(f) to obtain guidance on the issues discussed in these guidelines.

(iv) Guidelines Tables and Comments

(A) About the Guideline Tables

The following guidelines are intended solely to facilitate credit assessment and valuation for purposes of categorizing securities within the NAIC Financial Conditions Framework. In particular, the guidelines are not intended as guidance for structuring or creating securities.


PART SEVEN/Page 8

There can be no assurance that a security structured in reliance on the profiles suggested below will be accorded the treatment intended by a filer. SVO analysts are prohibited from assisting in the structuring of securities. There is no particular relevance to the order in which the characteristics appear and no such relevance should be inferred. (B) About the Comments

The comments to the categorization characteristics are presented as illustrations of important analytical issues or benchmarks that are associated with the profile characteristic under discussion. The comments are also intended to provide greater transparency to the filer by disclosing SVO positions on issues that reoccur in the categorization process.

I. Contractual Promise Debt Preferred Equity

Creditor status Preferential status

Residual status

Comments: -An important component of creditor status is the right of acceleration upon missed payments. -To be categorized as a debt instrument in the NAIC Financial Conditions Framework, the instruments must always have priority in all distributions over preferred and common equity.

-An instrument described as subordinate to all dated debt would warrant scrutiny for preferred treatment. -To be categorized as a preferred instrument in the NAIC Financial Conditions Framework, the instrument must always have priority in all distributions over common equity.

II. Rights Debt Preferred Equity

No voting

Contingent voting rights Voting rights

No profit participation

No profit participation Profit participation

Cumulative payments Cumulative or non-cumulative

Non-cumulative

III. Periodic Payment Debt Preferred Equity

Payments Scheduled

Scheduled with potential for deferral, or as declared - with the expectation that they are viewed as a fixed payment obligation by management.

As declared

Deferral A deferral is typically viewed as a default.

Deferral is not an event of default. Allowed if no common dividend paid.

N/A

Obligation

Missed payment is an event of default and permits acceleration.

Obligation may or may not be cumulative.

Missed payments are not cumulative.

Comments: -Deferral does not preclude debt treatment. -Issuer's discretion of deferral is limited – either to a specific period of time – or by specific triggers.

-Deferral or non-payment allowed as long as dividends have not been paid on common equity. -Issuer's discretion is limited only by the requirement to pay dividends if dividend

Complete discretion


PART SEVEN/Page 9

Such triggers are generally limited to events that could give debt holders decision-making ability under covenants in a debt contract.

is paid on junior capital.

IV. Maturity/Redemption Debt Preferred Equity

Contractually established date May or may not have stated maturity, but anticipation of a future redemption with a potentially high degree of uncertainty.

No maturity and no redemption anticipated.

Comments: -A debt instrument may also have a maturity date which allows for some uncertainty as to when redemption will occur, for example: optional redemption tied to a step up in coupon, Dutch auctions, conversion at the option of the holder, or structures where redemption is driven from cash flows of a pool of assets. -A perpetual security is not precluded from being categorized as debt. -Redemption does not have to be in cash if it is at the option of the holder and if the redemption formula assures a minimum par.

-Any possible redemption must convey rights for the entire par or liquidation preference amount at the time of redemption.

V. Involuntary Redemption (Bankruptcy/Liquidation/ Re-organization)

Debt Preferred Equity

Claim Debt claim for full par value, subject to availability of funds.

Claim preferred to all claims on common equity for full par value, subject to availability of funds after payment of all debt.

Purely residual interest with no minimum or maximum amount.

Principal Protection/ Loss Absorption

Full protection except for credit risk.

May contain loss absorption, but should maintain claim for liquidation preference.

No principal protection

Comments: -Mechanism providing for loss absorption may be allowed where terms of the mechanism do not create expectations different from those that predominate in an involuntary redemption scenario. -Issuer’s discretion will be significantly limited in loss absorption scenarios. -In all circumstances voluntary redemption by the issuer is not allowed at less than par.

-Securities constructed to absorb losses in advance of debt securities will warrant scrutiny for preferred treatment.

Section 2. Corporate Bonds and Preferred Stock

(a) General Assessment Procedure

Corporate bonds defined as the Obligations of domestic and foreign corporations, and preferred stock shall be distinguished on the basis of the categories discussed below. The creditworthiness of the issuer of any particular category of Obligation shall be assessed by reference to the general, and any special, rating methodology discussed in this Part, unless the context of the analysis requires a different approach.


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(i) Independent Assessment

If the security under consideration is unrated, or if an analyst has conducted an independent analysis of the NAIC ARO rated security, the analyst shall make an independent assessment of the issuer, the security or both.

(ii) Financial Analysis

(A) Audited Financial Statement Required

As a first step in the independent assessment, the analyst shall conduct an independent financial analysis of the issuer. The analyst shall review the Audited Financial Statement and conduct an analysis based on at least three years of historical audited financial information and a minimum of one year of projected financial information, if available. Where three years of financial information is not available, the analyst will review such information as is available, but will proceed to assign an NAIC Designation only if the analyst concludes that the time period for which information is available is sufficient to produce a professionally sound opinion.

(B) Unaudited Financial Statement

Assuming the presence of information sufficient to form a credit opinion, filings accompanied by unaudited financial statements, or those not accompanied by any financial statements, may be analyzed by the SVO, but the SVO's discretion shall be limited to assigning the transaction the NAIC Designation NAIC 5*, and such Designation shall only be assigned if the SVO has received a signed statement by a qualified officer of the reporting insurance company certifying that the issuer is current on its contracted interest and principal payments. If the SVO has issued an InfoReq letter for the transaction, but the reporting insurance company has not submitted information responsive to the InfoReq in time for the SVO to conclude its analysis, a Designation will not appear in the VOS Products. This will obligate the insurance company to report the security in its annual statement with a "Z" suffix for that reporting year. Additionally, the reporting insurance company should correct the deficiency with the SVO as soon as possible. If the transaction is assigned an NAIC Designation, the reporting insurance company shall annually file with the SVO either Audited Financial Statements or an annual certification in the form discussed above. In the absence of such certification, the transaction shall be deleted from the VOS Database. This paragraph shall not apply to foreign securities held by a "Sub-paragraph D Company," as defined below.

(C) Calculation of Ratios

Financial analysis shall culminate in the calculation of such financial ratios as the analyst feels highlight appropriate aspects of the financial performance of the issuer that bear on its ability to meet the obligation owed to the insurance company.


PART SEVEN/Page 11

(D) Foreign Securities

(1) Where a reporting insurance company has filed a foreign security accompanied by an Audited Financial Statement, in English, the SVO will assess the security in accordance with the applicable corporate methodology, but the NAIC Designation it may assign shall be limited by the sovereign rating of the issuer's country of origin. This section should not be read as prohibiting the presentation of transactions structured to eliminate foreign sovereign risk.

(2) For a security issued by a company domiciled in a country with no NAIC ARO sovereign rating, the SVO shall be limited to assigning the security an NAIC 5* Designation and such Designation shall only be assigned if the following conditions are met:

a. the SVO has received a signed statement by a qualified officer of the reporting insurance company certifying that the issuer is current on its contracted principal and interest payments and

b. for securities neither issued by nor guaranteed by a foreign sovereign government, the SVO has received: (i) a copy of the most recent covenant compliance certificate detailing the issuer's compliance with various financial coverage ratios and other terms of the transaction, (ii) a signed statement from a qualified officer of the reporting insurance company with regard to the insurer's expectation as to the issuer's ability to meet the established financial covenants during the next twelve months and (iii) a statement of the insurer or other acceptable evidence, that the governmental entity charged with monetary policy has not and is unlikely to adopt, legislation, rules, regulations or foreign exchange controls that would prohibit the issuer from remitting funds to the insurer to meet the obligations represented by the reported security.

If the insurance company is unable to provide the SVO with the information set forth above, the security should be reported with an NAIC 6* Designation.

(3) The insurance company must file all foreign securities for which the information required by this Manual is available. For those foreign securities held by a "Sub-paragraph D Company" as defined below, where the required information is not available for the SVO to value the security, the NAIC Designation may be determined by the reporting insurance company. This determination shall carry an F suffix. In no case shall the NAIC Designation exceed the sovereign rating of the issuer's country of origin. The company shall provide its domestic regulator with a description of the procedure it used to evaluate and assign ratings to these foreign securities. In addition, the company


PART SEVEN/Page 12

shall retain the documentation supporting each designation assigned by it until the next domestic insurance department examination.

(4) "Sub-paragraph D Company" is defined as a domestic insurer which is holding foreign securities in support of its foreign liabilities and where the U.S. gross premiums of the company are no more than 20 % of its gross worldwide premiums or the amount of the company's gross reserves and other liabilities under contracts of insurance (for life insurers gross reserves and other liabilities shall be actuarial reserves and policyholder liabilities currently reported on page 3, lines 1 - 11 of the NAIC Financial Statement Blank, grossed up for reinsurance ceded; for property and casualty insurers gross reserves and other liabilities shall be loss reserves, loss adjustment expense reserves and unearned premium reserves reported on page 3, lines 1, 2 and 9 of the NAIC Financial Statement Blank, grossed up for reinsurance ceded) on lives or risks resident or located in the U.S. are no more than 20 % of its total gross reserves and other liabilities under contracts of insurance as reported on the company's last NAIC Financial Statement Blank. The insurer must also maintain a trust fund in a qualified U.S. financial institution for the payment of the valid claims of its U.S. policyholders, their assigns and successors in interest. The trust shall consist of a trusteed account representing 103% of the company's gross reserves and other liabilities under contracts of insurance on lives or risks resident or located in the U.S. The assets of the trust shall maintain an NAIC Designation as assigned by the SVO and be valued at admitted values carried in the insurer's NAIC Financial Statement Blank. Such trust shall be established in a form approved by the insurer's domestic commissioner of insurance. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the U.S. and shall allow the right of substitution without diminution. The trust shall be subject to examination as determined by the insurer's domestic commissioner and the assets of the trust shall be reported in the insurer's NAIC Financial Statement Blank special deposit schedule. The trust shall remain in effect for as long as the insurer shall qualify as a "Sub-paragraph D Company" and have outstanding obligations under contracts of insurance on lives or risks resident or located in the U.S.

If a Company which previously qualified as a "Sub-paragraph D Company" no longer qualifies, any foreign securities held by such company which are not assigned an NAIC Designation by the SVO shall be assigned an NAIC Designation in accordance with the procedure set forth in sub-paragraph (B) above, Unaudited Financial Statements. These securities shall be reported by the company with a "Z" suffix for the reporting year and shall comply with the provisions of sub-paragraph (B) for subsequent reporting years.


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(E) Parent-Subsidiary Situations

In the case of transactions involving a parent holding company with an Audited Financial Statement and an issuing subsidiary without a separate Audited Financial Statement, the SVO may use the financial statements of the parent holding company as if they were prepared for the issuing subsidiary when the consolidating work papers relating to the issuing subsidiary are provided or when the operations of the parent (i) are limited solely to owning the issuing subsidiary and (ii) the issuing subsidiary constitutes at least 97% of the parent's pre-tax income and assets on a consolidated basis. In cases where neither of these conditions are met, the SVO may assess the transaction, but the SVO's rating discretion shall be limited to assigning the transaction the NAIC 5* Designation, and such Designation shall only be assigned if the SVO has received a signed statement by a qualified officer of the reporting insurance company certifying that the issuer is current on its contracted principal and interest payments. Exceptions must be approved by the SVO Credit Committee.

(iii) Qualitative Analysis; Senior Unsecured Credit

Interpretation of the financial ratios obtained in the preceding section will be conducted in the context of the particular facts of the issuer and its industry. Issuer and industry analysis shall reflect issuer and industry response to competitive and general economic developments, including industry and issuer growth trends, issuer market position, competitive environment, pricing flexibility, issuer's labor and supply sources, regulatory considerations, quality of management, relevance of special accounting practices applicable to the industry and any other factor that may bear on an assessment of the level of risk associated with the issuer's ability to meet its obligation to the reporting insurance company. This review shall culminate in a preliminary determination of the issuer's senior unsecured credit quality.

(iv) Terms of the Security; Final Designation

Before determining a final NAIC Designation, the analyst shall consider (i) the position of the security in the issuer's capital structure (the NAIC Designation may be scaled up or down based on the security's relationship to the issuer's senior unsecured debt in the capital structure), (ii) the sufficiency of the legal documentation and (iii) the terms of the security such as:

(A) Covenants; (B) Structure; (C) Collateral; (D) Third party financial support, or other credit enhancements; or (E) Any other credit-related factor specific to the security under review.

(b) General Procedure for Credit Assessment and Classification of Preferred Stock

The following provisions apply to all preferred stock and to all securities classified as preferred stock by the SVO pursuant to the guidelines set out in Section 1(c) of this Part.


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(i) Preferred Stock Not Rated By an NAIC ARO

(A) Determining an NAIC Designation

The analyst shall first ascertain the senior unsecured debt rating of the issuer by applying the credit assessment procedure for bonds specified in Section 2(a) of this Part. Once the issuer's senior unsecured NAIC Designation has been established, the analyst will adjust the associated NAIC Designation to reflect:

(1) The position of the preferred stock in the capital structure of the issuer; (2) A determination that the debt level in the issuer's capital structure would, or would not impede the ability of the issuer to pay interest or dividends to the preferred stock holder, and whether earnings are likely to be sufficient to pay such interest or dividends (whether or not the issuer is contractually obligated to make such payments); and (3) Whether all preferred dividends have been paid or sinking fund requirements have been met for the last three years. If not, the analyst shall not assign an NAIC 1, 2 or 3 Designation to the preferred stock. Once these adjustments have been considered, the analyst shall then determine and assign the most appropriate NAIC Designation to the preferred stock.

(B) Classification of Preferred Stock

The analyst shall review the terms and underlying characteristics of the security. If the issuer is required to redeem the security or the holder has an irrevocable put or the terms of the security contain another provision to the same effect, the security shall be eligible for an RP valuation indicator. If the security does not contain a mandatory redemption, an irrevocable put or another provision to the same effect, the security shall be eligible for a P valuation indicator. The final classification decision made by the SVO shall be influenced by the degree of synergy between different provisions or characteristics of a security, the regulatory objectives of the NAIC and the SVO's exercise of analytical discretion. The RP and P valuation indicators are assigned for the purposes outlined in SSAP No. 32.

(ii) Preferred Stock Rated by an NAIC ARO

(A) Determining an NAIC Designation

(1) Rated Preferred Issue

If the preferred stock is rated by an NAIC ARO, the SVO shall note the equivalent NAIC Designation for the issue and then apply the instructions outlined in Section 2(b)(i)(A)(2) and (3) above. If necessary, the analyst shall adjust the NAIC Designation equivalent to the NAIC ARO rating as


PART SEVEN/Page 15

is appropriate. If no adjustment is deemed necessary to the NAIC Designation equivalent to the NAIC ARO rating, the analyst shall assign the NAIC Designation equivalent to the NAIC ARO rating to the preferred stock as provided for in Section 1(b) (ix) and (x) of this Part.

(2) Issuer Rated, Preferred Issue Not Rated

The analyst may determine the issuer's senior unsecured designation by converting the rating assigned by the NAIC ARO to the issuer's outstanding debt into an equivalent NAIC Designation. Once the senior unsecured designation level has been established, the analyst may adjust the NAIC Designation associated with the issuer's senior unsecured designation level by applying the instructions outlined discussed in Section 2(b)(i)(A)(2) and (3) above, to the unrated preferred stock. The analyst shall then determine the most appropriate NAIC Designation and apply the NAIC Designation to the preferred stock. (3) Issuer Rated, With Other Preferred Stock Rated

The analyst may determine an NAIC Designation for an unrated preferred by comparing the unrated preferred stock with the outstanding rated preferred stock. The analyst will make such adjustments as are necessary to account for dissimilar features in the two securities and shall also apply the instructions discussed in Section 2(b)(i)(A)(2) and (3) above, to the unrated preferred stock. The analyst shall then determine the most appropriate NAIC Designation and apply the NAIC Designation to the preferred stock.

(B) Classification of Preferred Stock

The analyst shall apply the procedure discussed in Section 2(b)(i)(B) to classify the preferred stock with either an RP or P valuation indicator.

Section 3. Corporate Bonds and Preferred Stock - Special Assessment Situations Bonds and preferred stock that fit the description set out below shall be subject to the general procedures specified above as well as the specific or special procedures identified below.

(a) Eleemosynary Organization Bonds

The bonds of any eleemosynary organization shall be subject to the general corporate methodology for assigning an NAIC Designation to bonds.

(b) Debtor-in-Possession (DIP)

DIP financings are post-petition loans made to a company that has filed for protection under Chapter 11 of the United States Bankruptcy Code (Code). A copy of the court order approving such financing must accompany loans made pursuant to Sections 364(b), (c) or (d) of the Code


PART SEVEN/Page 16

that are submitted to the SVO. The submission should also include a complete set of documentation pertaining to the loan and, if so requested by the SVO staff, a legal opinion or analysis of the DIP lender's status with regard to the debtor's pre-petition creditors.

(c) Credit Enhanced Transactions

A credit enhanced transaction is one in which the application for an NAIC Designation is based on the substitution of the credit rating of another party for that of a lesser rated obligor. The credit substitution is effected through the use of contractual arrangements that bind the other party to make full and timely payment directly or indirectly to noteholders, to make such payments upon obligor default or to purchase the obligation. The promise of the obligor to make the required payments shall be represented by a guarantee, a revolving credit agreement, financial insurance policy or other credit enhancement device. The staff shall focus on the extent to which the legal documents ensure that the credit strength of the support entity flows through unimpeded to the security holder. The SVO shall examine the degree to which the payment obligation of the other party assures full and timely payment of all amounts due to security holders. Factors relevant to this analysis include: irrevocability of the supporting party's obligation to pay, the effect of debtor insolvency on payments made by the debtor and/or the other party to the insurance company lender and the other party's credit rating. The analyst may review corporate resolutions of the issuer, the guarantee or other agreements binding the other party to pay for the debt of the debtor, the indenture or other similar document governing the remedies, opinions of counsel regarding enforceability of the obligation of the other party, the payment stream under applicable insolvency laws or other regulatory regime, or any other documentation that may be considered necessary.

(d) Short Dated Non-Principal Protected Securities

Regardless of the length of maturity, investments that are not principal protected at maturity are to be treated as equity investments by the SVO.

(e) SCA Debt and Preferred Stock

Part Eight of this Manual governs valuation of Subsidiary, Controlled and Affiliated (SCA) investments in the form of common stock and in the form of preferred stock issued by an insurance company. This section applies to credit assessment of any SCA investment in the form of a debt instrument purchased (or otherwise acquired) from an insurance or non-insurance entity ("SCA debt") and preferred stock issued by a non-insurer entity ("SCA preferred stock").

(i) Procedure

Prior to applying the procedures required by Part Seven, Section 2 of this Manual, the SVO shall:

(A) Confirm that the SCA relationship has been reported to the SVO per Part Eight of this Manual and that the SVO has conducted the analysis required by Part Eight, Section 4(c) and found the SCA common stock transaction to be reasonable within the meaning of that section. If the SCA common stock transaction has not been reported, the SVO shall issue an InfoReq for documentation pertinent to the


PART SEVEN/Page 17

SCA common stock transaction and conduct the analysis required by Part Eight, Section 4(c) before processing the SCA debt or SCA preferred stock. If the SCA common stock transaction was reported but was not deemed to be reasonable, the SVO shall not process the SCA debt or SCA preferred stock transaction and shall inform the reporting insurance company and the state of domicile in writing of this decision.

(B) If the SCA common stock transaction was reported and found to be reasonable, the SVO shall:

(1) Inform the state insurance department of the reporting insurance company's state of domicile that the SCA debt or SCA preferred stock has been filed with the SVO. (2) Review the holding company system of which the reporting insurance company is a part, including the impact that the SCA transaction may have on SVO's ability to assign an NAIC Designation to the SCA debt or SCA preferred stock transaction. (3) Evaluate whether the SCA debt or SCA preferred stock is an arms-length and an economic transaction. In making this determination, the Corporate Securities Group shall consider the same elements discussed in Part Eight, Section 4(c) of this Manual and may consider other appropriate criteria as well. (4) Evaluate whether the SCA debt or SCA preferred stock transaction is circular within the meaning of Part Two, Section 10 of this Manual. (5) In the case of SCA preferred stock, determine the SCA preferred stock issuer's senior unsecured debt designation and obtain the appropriate designation level for the preferred stock by applying the methodology specified in Part Seven, Section 2(b) of this Manual.

(f) Investments in Certified Capital Companies

An investment in a CAPCO can be filed with the SVO in accordance with the procedures in Part Seven. Please refer to Part Five, Section 3 (a) (v) for guidance about CAPCO securities and detailed instructions related to filing CAPCO securities with the SVO.


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Section 4. Structured Transactions

The following types of securities shall be identified as structured securities for purposes of SVO analysis. Analysis of these securities shall focus on the specific factors discussed below.

(a) Credit Tenant Loans

(i) General

(A) CTL Categories

Mortgage loans that are made primarily in reliance on the credit standing of a major tenant, structured with an assignment of the rental payments to the lender with real property pledged as collateral in the form of a first lien, are referred to as a Credit Tenant Loan. Four categories of CTLs are recognized as eligible for reporting on Schedule D: Bond Lease Based CTLs, Credit Lease Based CTLs, Acceptable CTL Variants (ACVs) and Multiple Property Transactions (MPTs). (B) Intent

The categories segregate CTL transactions in accordance with two principles: (i) the degree to which the credit tenant is obligated to the lender for payments and real estate related risks and (ii) the degree of complexity in the legal or structural components of the transaction. The Bond Lease Based CTL category is intended to capture those transactions that reflect the criteria discussed below and contains no legal or structural variation from one transaction to another. The Credit Lease Based CTL category is intended to capture those transactions that differ from Bond Lease Based transactions primarily because the lessor is to perform specified obligations, requiring analysis of how lessor risk is mitigated. The ACV category is intended to reflect substantially all of the standards described for the Bond Lease Based or Credit Lease Based CTL categories. Transactions in the ACV category are those that do not perfectly reflect all of such required characteristics, but which contain the deviations highlighted in the ACV list; provided such deviations do not in number or otherwise alter the character of the transaction as a Bond Lease Based or Credit Lease Based CTL. The ACV category will be interpreted so as to maintain the regulatory expectation that all submitted transactions meet the criteria set out for the Bond Leased Based or Credit Lease Based CTL, with only slight deviations from criteria permitted. The MPT category is intended to facilitate the SVO's analysis of Bond Lease Based or Credit Lease Based CTL Transactions where more than one site or property exists in the transaction structure. The MPT category provides an economy and efficiency of transaction cost and resources. It allows for the use of essentially uniform documentation for the transaction for one credit tenant or one credit tenant group.


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(C) Presumption of Eligibility

Transactions that meet the definition and legal and structural characteristics for one of the four CTL categories shall be submitted to the SVO for evaluation on the appropriate CTL Evaluation Form. From the perspective of an insurance company lender, a transaction that on its face meets the criteria of a particular CTL category is entitled to a presumption of Schedule D eligibility, subject to a determination by the SVO that the transaction is not appropriate for Schedule D reporting.

(D) SVO Procedure

Upon receipt of an Evaluation Form, the SVO analyst shall first review the Evaluation Form and other documents submitted by an insurer to verify that the transaction reflects appropriate CTL criteria. If the information provided on the Evaluation Form suggests that the transaction is likely to reflect all appropriate CTL criteria, the analyst shall proceed to determine either that (i) the transaction reflects risk consistent with the definition and other criteria for the category or (ii) that the transaction contains risks different from those normally associated with Schedule D transactions.

Where, in the opinion of the analyst and where otherwise appropriate, the risk presented by the transaction is inconsistent with the definition and other criteria for the CTL category but is consistent with Schedule D reporting, the analyst may reflect the additional risk by adjusting the Designation for the transaction downward and away from the credit rating category assigned to the lessee. If the analyst concludes that the transaction contains risks different from those normally associated with Schedule D, the transaction shall be rejected as ineligible for Schedule D reporting.

(E) General CTL Issues

The following are the types of general issues that may be relevant to SVO's CTL analysis. The list is not intended to be all-inclusive and not all statements may be relevant to each CTL category. Where appropriate, analysts shall consider:

(1) The extent to which the transaction appears well insulated from the credit risk of the lessor.

(2) If a Phase I report or the nature and prior use of the land indicates a substantial likelihood of preexisting environmental contamination, the extent to which the risk is mitigated may be evidenced by a Phase I or II report, an assumption of that cost by the lessee or other acceptable solution. (3) If the lessee's NAIC Designation is less than NAIC 2, insolvency risks associated with the lessee may be increased, and all other aspects of the transaction may play an important role in the SVO's analysis.


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(4) A previously unrated lessee or guarantor is eligible for CTL consideration if it presents the information requested in the Evaluation Form. (5) While the number of lenders is not limited, there must be equivalency in protection for all lenders. (6) While lessor's ownership structure is not limited (i.e., special purpose entity is not required), the SVO may require additional information to assess whether the risks associated with the lessor's ownership structure are mitigated.

(7) While the transaction may involve a leasehold interest created by a between the owner of the fee interest, the ground lessee, the ground lessor and the remainderman, if any (specifically whether or not the ground lease or estate for years is terminated pursuant to a foreclosure of the note(s) or whether all of the ground lease obligations materially match all of the lessee's obligations under the lease). (8) Where casualty insurance for full replacement value is required, it shall be provided by an insurer having a claims paying rating ability at least equivalent to an NAIC 2 Designation, or if the lessee shall be rated at least the equivalent of an NAIC 2 Designation and lessee's GAAP net worth is at least $100 million at the time of origination, by self-insurance. If the credit rating of a lessee self-insuring falls below an NAIC 2 Designation equivalent, then the lessee shall obtain adequate casualty insurance from an insurer having a claims paying ability rating at least equivalent to an NAIC 2 Designation. Within 90 days of a rating downgrade, insurer shall provide evidence to the SVO that the required insurance coverage has been obtained.

(9) If the lessee is not assigned an NAIC 2 Designation or better, and the SVO shall consider it necessary to conclude its analysis, the insurer shall collect and send such additional information explaining the strategic importance of the premises to the lessee's business operations (whatever the nature of the leased premises, e.g., retail, office, warehouse, manufacturing plant).

(F) Evaluation Form

The CTL Evaluation Form shall be deemed to be a part of the documentation submitted by the insurer subject to all pertinent rules of the NAIC and of state insurance departments regarding truthfulness, accuracy and completeness. However, the Evaluation Form is not intended to be a statement of criteria to assist structuring of CTLs. Acceptance of an Evaluation Form by the SVO does not imply that the transaction will be accorded Schedule D treatment. The SVO shall have discretion to vary the terms of the Evaluation Form as experience and prudent analytical judgment may suggest.


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(ii) Bond Lease Based CTL

(A) Definition

A Bond Lease Based CTL is a transaction structured around the terms of a Bond Lease. A Bond Lease is a lease between a lessor and a lessee for a specified period of time with specified rent payments that are at least sufficient to repay the related note(s). The Bond Lease requires the lessee to perform all the obligations related to the leased premises. The investment community has historically defined a Bond Lease as a "hell or high water lease," the general concept being that regardless of what occurs as to the leased premises, the lessee is obligated to continue to pay its rent. Therefore, the focus is on the credit of the lessee (or of the guarantor of lessee's obligations) under the Bond Lease, not the real property characteristics related to the premises.

(B) Legal Characteristics of Bond Leases

A Bond Lease reflects the following legal characteristics:

(1) The lessee is responsible for every obligation related to the leased premises, such as payment of all taxes and utilities, the performance of maintenance, environmental and ground lease obligations (if any) and the obligation that the lessee must indemnify the lessor against losses and claims relating to the leased premises. The lessor's only obligation may be to provide quiet enjoyment of the premises by the lessee.

(2) The lessor makes no representations or warranties regarding the condition of the leased premises and the lessee accepts the premises "as is." (3) The lessee has no right to offset or abate rent or to terminate the Bond Lease upon the occurrence of obsolescence, condemnation, casualty or for any other reasons, except that the lessee may terminate the Bond Lease (i) at any time, if the termination coincides with the lessee's purchase of the leased premises, for an amount at least sufficient to pay the outstanding principal balance and accrued interest or (ii) during a period no longer than the last three years of the lease term without such purchase, in the event of a condemnation and casualty, if the insurance proceeds (or self insurance proceeds) and condemnation awards are payable to the lender/trustee and are in amounts sufficient to pay the loan in full. (4) The lessee is not required to occupy the leased premises if the occupant is a subsidiary or affiliate of the credit tenant. In these cases, the SVO may require additional information regarding the strategic importance of the leased premises.

(5) The lessee may assign and sublease if the lessee remains unconditionally liable for the performance of all lessee obligations.


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(6) The Bond Lease cannot be amended without the lender's consent. (7) The Bond Lease or other relevant document(s) must specifically prohibit a merger of estates.

(C) Structural Characteristics of Bond Lease Based Transactions

A Bond Lease and related documentation reflect the following structural characteristics:

(1) Payments under the note, including a balloon payment, correspond to a lease payment due from the lessee pursuant to the Bond Lease that is equal or greater than the note payment. The term "balloon" in the definition is intended to imply only a payment larger than previous payments and does not contemplate permitting transactions with refinance risk.

(2) Neither the lease payments nor the debt payments need be level.

(3) The lessee is required to pay for all expense items.

(4) The lessee leases 100% of the real property securing the note.

(5) There is a valid first lien on the real property or the leasehold estate in favor of the lender/trustee.

(6) There must be in effect a fully executed irrevocable and perfected assignment of lease payments in favor of the lender/trustee and the lender/trustee must be directly collecting lease payments sufficient to fully pay each and every installment of debt service.

(7) To the extent the credit to be relied upon is that of a guarantor, the guarantee of the lessee's obligations must be irrevocable and unconditional, and must guarantee performance of all obligations of the lessee under the Bond Lease. The term "guarantor" excludes third party guarantees for purposes of credit enhancement but is intended to include support arrangements, which in the opinion of the SVO, are entered into as a regular part of the business of the lessee or the group of entities of which the lessee is a part.

(8) Loan to value is not relevant and therefore not limited.

(iii) Credit Lease Based CTL

(A) Definition

A Credit Lease Based CTL transaction is one structured around a Credit Lease. A Credit Lease is a lease between a lessor and a lessee for a specified period of time with specified rent payments at least sufficient to repay the related note(s).


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The Credit Lease requires the lessee to perform most of the obligations related to the leased premises. A Credit Lease transaction is a corporate bond/commercial mortgage transaction whose primary risk/return characteristics are derived from the creditworthiness of the lessee rather than from the traits of the mortgaged property. The principal difference between a Bond Lease and a Credit Lease is the small set of landlord obligations or real estate risks that must be explicitly addressed through well-recognized mitigation methods discussed in paragraph D below.

(B) Legal Characteristics of Credit Leases

A Credit Lease reflects the following legal characteristics:

(1) The lessee is responsible for most of the obligations related to the leased premises, such as the payment of taxes and utilities, the performance of maintenance, environmental matters caused by its occupancy and ground lease obligations (if any) and must indemnify the lessor against most losses and claims relating to the leased premises. Any exceptions or other obligations must be addressed through insurance, adjusted debt service coverage ratios or other acceptable mitigants. (2) The lessee accepts the leased premises, as evidenced by an estoppel certificate. (3) The lessee has limited rights to offset or abate rent related to casualty or condemnation or the failure to perform roof, structural or parking obligations. (4) The lessee is not required to occupy the leased premises if the occupant is a subsidiary or affiliate of the credit tenant. In these cases, the SVO may require additional information regarding the strategic importance of the leased premises. (5) The lessee may assign and sublease if the lessee remains unconditionally liable for the performance of all lessee obligations. (6) The Credit Lease cannot be amended without the lender's consent. (7) The Credit Lease or other relevant document(s) must specifically prohibit a merger of estates.

(C) Structural Characteristics of Credit Lease Based Transactions

A Credit Lease Based transaction reflects the following structural characteristics:

(1) Payments under the note, including a balloon payment, correspond to a lease payment due from the lessee pursuant to the credit lease, except that the loan term may exceed the lease term by not more than six months, and the outstanding principal balance at the end of the lease term shall not exceed 5% of the original loan balance.


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(2) Neither the rent payments nor the debt payments need be level. (3) The lessee is required to either directly pay or to reimburse the lessor for primary expense items (e.g., taxes, utilities, maintenance and other operating expenses). (4) The lessee leases 100 percent of the real property securing the note. (5) There is a valid first lien on the real property or the leasehold estate in favor of the lender/trustee. (6) There must be in effect a fully executed irrevocable and perfected assignment of lease payments in favor of the lender/trustee and the lender/trustee must be directly collecting lease payments sufficient to pay the debt service fully. (7) To the extent the credit to be relied upon is that of a guarantor, the guarantee of the lessee's obligations must be irrevocable and unconditional, and must guarantee performance of all obligations of the lessee under the Credit Lease. The term guarantor excludes third party guarantees for purposes of credit enhancement, but is intended to include support arrangements that in the opinion of the SVO are entered into as a regular part of the business of the lessee or the group of entities of which the lessee is a part. (8) Loan balance shall not exceed initial appraised value of the property. An appraisal must be done in accordance with Member of the Appraisal Institute (MAI) standards. The value reported in the appraisal report must proceed from a comparison of each of the (i) cost, (ii) comparative and (iii) income approaches.

(D) Risks and Acceptable Mitigants in Credit Lease Based Transactions

The following are acceptable forms of mitigation against landlord-retained obligations: Situation/ Mitigant:

(1) Roof, structural and parking expenses not explicitly covered by Credit

Lease: a. Deduct all appropriate costs in calculating an adjusted debt service

coverage (DSC) ratio of at least 1.05x; and b. Provide that funds shall be escrowed in amounts estimated to be

accumulated, on a substantially level basis, to a level sufficient to allow for payment of the named costs at the time they are expected to occur.


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(2) Loan term exceeds initial lease term: a. Difference shall not exceed six months; and b. Remaining principal shall not exceed 5% of original loan balance.

(3) Casualty: a. Rent loss insurance (or an obligation to pay rent regardless of a

casualty) is required from an insurer having a claims paying ability rating equivalent to an NAIC 2 Designation, or self insurance by a tenant having a credit rating equivalent to an NAIC 2 Designation, and whose GAAP net worth is at least $100 million, at the time of the origination;

b. If the casualty does not result in termination of the Credit Lease,

proceeds must be used to repair and restore premises; and c. If the casualty results in the termination of the Credit Lease, awards go

to the lender to the extent of the outstanding principal and interest. Termination is only allowed in the last three years of the lease term, unless the lessee is required to make a termination payment at least equal to the outstanding principal and accrued interest.

(4) Ground lease obligations not explicitly addressed in credit lease:

a. Credit Lease payments must be sufficient to pay ground rent, with

DSC adjusted accordingly; and b. Attornment (non-disturbance) or other agreement between fee owner

and lender is required, obligating ground lessor to notify lender of any default by ground lessee and permitting lender an opportunity to cure the default.

(5) Condemnation:

a. Where condemnation results in the termination of the Credit Lease, all

awards go to the lender to the extent of the outstanding principal and interest; and

b. Where condemnation does not result in the termination of the Credit

Lease, the premises must be repaired and restored.

(6) Environmental:

Phase I environmental report showing no environmental problems or, if the Phase I report shows a problem or the nature and prior use of the land indicates a substantial likelihood of preexisting environmental


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contamination, a Phase II report and an assumption of that cost by the lessee or other acceptable solution.

(iv) Acceptable CTL Variants

An ACV CTL is a transaction that meets substantially all of the standards for a Bond Lease Based or Credit Lease Based CTL but that contains one or more of the variants described in the Guidelines for Acceptable CTL Variants as set forth in subsection (v) of this Part below. An insurance company may report an ACV to the SVO by submitting the Bond Lease Based or Credit Lease Based Evaluation Form, whichever is appropriate, specifically identifying the items in the Bond Lease Based or Credit Lease Based CTL standards not present in the submitted transaction, explaining the differing language, device or mitigant put in place to substitute for the missing criteria and providing documentation to substantiate the different approach employed in the transaction.

(v) Guidelines For Acceptable CTL Variants

(A) Acceptable CTL Variants

Transactions that exhibit the following variations from the definitions of Bond Lease or Credit Lease Based CTL contained above will nevertheless be eligible for Schedule D treatment in accordance with these guidelines and the definitions if the following standards are met:

(1) Transactions where lease payments are insufficient to cover required debt service. The shortfall would be covered fully by credit enhancement, cash escrow or excess rent set-asides. (2) Transactions with balloon payments in excess of 5% for Credit Lease Based CTLs if lease payments or credit enhancement fund the balloon. The SVO will assess the extent to which the payment stream, whether provided by the lease or credit enhancement, covers the balloon payment. (3) Transactions where loan term exceeds lease by more than 6 months. The lessee is obligated either to renew the lease, purchase the property or terminate the lease and pay an amount equal to the outstanding debt. If the tenant renews the lease, the renewal term would have to be for the balance of the loan term. If the tenant purchased the property, the sale and settlement of the landlord's loan obligation must occur not later than the date prior to which lease payments would cease and there must be a simultaneous payment to the lender. (4) Transactions that have been purchased by the reporting insurance company from another institution via an assignment. If Bond Lease or Credit Lease criteria are met, the fact that the transaction was acquired through an assignment does not jeopardize CTL treatment.


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(5) Transactions in which the tenant occupies less than 100% of the premises. The reporting insurance company shall identify the credit tenant and the credit tenant's lease payments shall be sufficient to cover the necessary escrow, common area maintenance and other relevant costs. (6) Transactions where the user of the property is not affiliated with credit tenant or guarantor. If (i) the credit tenant or a guarantor is liable for and agrees to make the required lease payments and (ii) despite lack of affiliation between the parties, there is a substantial community of interests between the parties, for example the relationship that might exist between an auto manufacturer and an auto supplier. (7) Transactions where the tenant may terminate the lease despite the fact that the amount due under the lease is greater than 5% of the original loan amount. The tenant shall not terminate the lease without first paying off the loan or extending the term of the lease to a term sufficient to amortize the remaining balance of debt. (8) Transactions in which the landlord has obligations other than those specified in the definition for Credit Lease Based CTLs. The SVO shall have sole discretion to determine whether the level of risk associated with the retained landlord obligation is consistent with the mitigant used. The SVO anticipates that the reporting insurance company will provide a structure that protects the cash flow. Devices like cash escrow or excess rent set asides may be appropriate mitigants. (9) Transactions in which the landlord retains obligations but where the lease requires the tenant to continue to make payments regardless of landlord's breach of these obligations, with tenant's only remedy to pursue legal remedies for damages against the landlord. These transactions would be treated as Credit Lease Based CTLs, irrespective of the fact that the stated variation may be the only difference between the submitted transaction and a Bond Lease Based CTL. (10) Transactions that permit lease termination for casualty to all or substantially all of the property prior to the final three years of the lease term. The reporting insurance company must demonstrate that insurance by a third party acceptable to the SVO is in place and fully covers principal and interest in the event of lease termination. A key consideration in this variation is that it be clear that the insurance company lender would always "walk away whole." (11) Transactions that permit the lease to be canceled if the property is not restored within a specified time period after a casualty. The transaction shall incorporate a mechanism to assure that the casualty could be repaired within the term of the insurance policy then in force and the mortgagee would have to permit application of insurance proceeds to pay off the debt.


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(12) Transactions in which the tenant has a right to abate rent during a casualty, condemnation, repair or restoration event. The reporting insurance company shall provide (i) evidence of rent insurance of a duration of at least 1 year from a company rated the equivalent of an NAIC 1 and (ii) evidence that the tenant is obligated to resume paying rent after the end of the insurance policy payments, regardless of the status of the casualty, condemnation, repair or restoration event.

(13) Transactions that provide a right to terminate the lease and substitute property on substantial casualty or condemnation. The tenant shall substitute equivalent leased property. (14) Transactions where tenant has a right to condemnation award for value of leasehold estate or tenant improvements. If the tenant has a leasehold interest in the premises because it has advanced funds for improvements, CTL eligibility is not affected because the agreement would permit the tenant to receive proceeds of the condemnation award, provided the tenant continues to be obligated to make the payments called for under the lease and those payments are sufficient to pay the loan in full, or the loan is repaid. (15) Transactions with an unsatisfactory Phase I or II report. Section 4(a)(i)(E)(2) of this Part is intended to provide the industry with a device through which it can communicate environmental issues to the SVO. Generally, the SVO anticipates that all CTL transactions will have a Phase I report. If the Phase I report sets forth an unfavorable matter, a Phase II report shall provide more detailed study of the issue. If the reporting insurance company wants to pursue the transaction it may present the Phase II and other material information to the SVO, detailing the manner in which it would mitigate the risk. The SVO would then determine whether the proposed solution serves as an adequate mitigant for the risk. (16) Transactions with a stale environmental audit. These transactions may be permitted if the tenant has been in the property since the date of the initial audit, the initial audit is available and acceptable to the SVO and the tenant's use of property is not environmentally sensitive. The documents shall include reliance on a strong net lease paragraph to establish that all environmental obligations are tenant obligations and not landlord obligations. (17) Transactions with appraisals submitting only one appraisal method. A transaction may be submitted with an appraisal that lacks all three-valuation methods (cost, comparative and income approaches) if the appraisal is in accordance with MAI standards and makes clear that the other two methods were not applicable and this is stated in the MAI opinion. (18) Transactions with second mortgages. Rent must exceed aggregate debt service on all debt up to required Credit Lease Based coverage standards and the second mortgagee could not put lender into default.


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(19) Transactions where the lender is the second mortgagee. Rent must exceed aggregate debt service on all debt up to required Credit Lease Based coverage standards and the lender shall have a right to cure first mortgage defaults. (20) Transactions with minor lessor representations, warranties or covenants. Staff shall have sole discretion to assess the nature of the landlord obligation and the extent to which the mitigant is appropriate. However, these transactions may be permitted if the tenant is estopped from asserting these lessor obligations to abate or cease payment of rent, or if there is credit enhancement or other collateral available to protect against tenant non-payment. (21) Use of collateral trustee and issuance of trust certificates. The use of a collateral trustee, or trust certificates, has no impact on eligibility for CTL treatment. Staff will, of course, review appropriate documentation associated with the arrangement. (22) Transactions involving a "Dark Store." The SVO will raise no objection to CTL eligibility for a transaction in which the original lessee "darkens" the leased premises if the lessee remains unconditionally liable for the performance of all lessee obligations.

(vi) Multiple Property Transactions (MPTs)

(A) Definition

An MPT transaction is a series of single property Bond Lease Based CTLs or Credit Lease Based CTLs (but not both) combined in one transaction. The MPT category does not alter the fundamental structure or principles of either the Bond Lease Based or the Credit Lease Based CTL. To qualify as an MPT CTL, each site or property must satisfy the existing Bond Lease Based or Credit Lease Based CTL definition, on a stand-alone basis. (B) General Legal Characteristics of MPTs

An MPT transaction reflects the following legal characteristics:

(1) Each property or site qualifies as (i) a Bond Lease Based CTL or (ii) a Credit Leased Based MPT CTL, as defined below. (2) Either (a) a single credit tenant or (b) "affiliated" credit tenants with a guarantee by the parent. (3) Differences in the documents are identified and limited to dollar amount of rent or debt and state/local law differences.


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(4) Local counsel opinion(s) and a special counsel opinion regarding enforceability of documents, perfection of security interests in the collateral and consequently, the recordation of security documents, are provided to the SVO. (5) For Credit Lease Based MPT CTLs, each property has a satisfactory Phase I environmental report and an Appraisal indicating the appraised value of the property and containing the appraiser's name and certifications done in accordance with MAI standards. (6) Existing cross default and/or cross collateralization provisions are identified. (7) Any variance must be consistent among all the properties or sites in the transaction.

(C) Legal and Structural Characteristics of Credit Lease Based MPT CTLs

The legal and structural characteristics of a Credit Lease Based MPT CTL shall be the same as the existing Credit Lease Based CTL definition, with the following modifications:

(1) There must be a single lessor. (2) Either a single credit tenant or affiliated credit tenants with a guarantee by the parent; however, in all cases the lessee must occupy the leased premises. (3) Any guarantee of a lessee's obligation must be with respect to all properties in the transaction. (4) All risks and acceptable mitigants, as currently described in the existing Credit Lease Based CTL definition, must be uniform for each property.

(D) Acceptable CTL Variants Eligible For MPT Treatment

The following Acceptable CTL Variants will be acceptable for Credit Lease Based MPT CTLs:

(1) Transactions that have been purchased by the reporting insurance company from another institution via an assignment. If Bond Lease or Credit Lease criteria are met, the fact that the transaction was acquired through an assignment does not jeopardize CTL treatment. (2) Transactions where the tenant may terminate the lease, despite the fact that the amount due under the lease is greater than 5% of the original loan amount. The tenant may not terminate the lease without first paying off the loan or extending the term of the lease to a term sufficient to amortize the remaining balance of debt.


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(3) Transactions that permit lease termination for casualty to all or substantially all of the property prior to the final three years of the lease term. The reporting insurance company must demonstrate that insurance by a third party acceptable to the SVO is in place and fully covers principal and interest in the event of lease termination. A key consideration in this variation is that it be clear that the insurance company lender would always "walk away whole." (4) Transactions that provide a right to terminate the lease and substitute property on substantial casualty, economic obsolescence or condemnation. The tenant would have to substitute equivalent leased property.

(5) Transactions with appraisals utilizing only one appraisal method (provided that the appraisal method is uniform for all properties). A transaction may be submitted with an appraisal that lacks all three valuation methods (cost, comparative and income approaches), provided the appraisal is in accordance with MAI standards and makes clear that the other two methods were not applicable and this is stated in the MAI opinion.

(vii) Variants Requiring an NAIC ARO Rating

An NAIC ARO rating is required for CTL transactions:

(1) With two credit tenants in the transaction. (2) If lease payments do not commence until completion of construction, but cash escrow or credit enhancement is available during construction sufficient to negate risks. (3) If additional credit enhancement would upgrade the rating of the transaction above the credit rating of the tenant.

(4) Where self-insured tenants with a Designation below NAIC-2 are required to maintain a specified minimum net worth or to immediately obtain insurance. (5) Where environmental issues are not addressed, but there is a strong net lease paragraph, indemnification, compliance with laws or maintenance covenants. (6) With unaddressed and preexisting environmental issues, if there is credit enhancement or other collateral to support the risk. (7) Where there is no appraisal or MAI equivalent. (8) Where landlord makes construction warranties or credit tenant has limited rights to offset rent for construction, if estopped agreements are in place or there is agreement from credit tenant that set-offs are non-binding against lender because the risk is fully mitigated.


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(b) Other Structured Securities

(i) Transactions with Confirmed Current NAIC ARO Rating

In the case of a commercial mortgage-backed security, residential mortgage-backed security, collateralized mortgage obligation, asset-backed security, collateralized bond obligation and collateralized loan obligation, the SVO shall apply the general procedures discussed in this Part Seven, Section 1(b) (ix) and (x) to convert the rating of an NAIC ARO, if one is available. The rating must be monitored by the NAIC ARO in order to facilitate the annual review and update of the designation for the security by the SVO.

(ii) Transactions with No Currently Confirmable NAIC ARO Rating

In cases where a residential mortgage-backed security, collateralized mortgage obligation, asset backed security, collateralized bond obligation or collateralized loan obligation was rated by an NAIC ARO, but where the insurance company does not provide confirmation of a current NAIC ARO rating, the SVO will review the core required documents. In any transaction, if the SVO determines that the core required documentation does not provide sufficient information about potential credit related problems, it may require supplemental information or any other information it may deem necessary to analyze the transaction.

Insurance companies may not report commercial mortgage-backed securities (CMBS) for review under this section. See Part Five, Section 3(c)(ii)(F) and Section 4(e)(iii)(A)(3) (e) for reporting conventions and Part Seven, Section 4(b)(iii)(B)(6) below for analytical instructions pertaining to CMBS securities.

(iii) Transactions Never Rated By An NAIC ARO

(A) Applicable Transaction Types

The SVO shall apply the procedures outlined in sub-paragraph (B) below for the following transaction types if the transaction has never been rated by an NAIC ARO:

(i) residential mortgage backed securities (RMBS), (ii) structured securities fully guaranteed by an NAIC ARO rated entity, (iii) structured securities fully backed by NAIC ARO rated financial assets or (iv) structured securities fully backed by financial assets insured by an NAIC ARO rated insurer.

(B) Procedures

(1) Residential Mortgage Backed Securities Table 1 below lists the collateral characteristics for residential mortgage backed securities (RMBS) that have to be reported through the Residential Mortgage Quality Matrix. The SVO shall use the information provided by the reporting insurance company in the Residential Mortgage Quality


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Matrix to directly compare the quality of the collateral supporting the reported non-NAIC ARO rated transaction with the quality of the collateral supporting the NAIC ARO rated RMBS submitted by the reporting insurance company for purposes of comparison. The SVO will also compare the credit support structure for the two transactions. See Part Four, Section 8(m) for information on how to obtain the Residential Mortgage Quality Information Form. The Residential Mortgage Quality Information Form provides instructions for completing the Residential Mortgage Quality Matrix.

The SVO will make appropriate analytical adjustments based on the differences in the quality of collateral for the reported security compared to the quality of collateral for the NAIC ARO rated security to arrive at a judgment of the amount of credit support required for the reported RMBS for a given NAIC ARO rating. The indicated NAIC ARO rating shall then be converted into an appropriate NAIC Designation.

Table 1.

Section One A. Loan to Value 1. Weighted average of pool 2. Highest LTV in pool 3. Loans with LTV greater than 80% 4. Loans with LTV greater than 80% without mortgage insurance B. Geographic 1. Any state except California 2. California 3. Zip Code concentration C. Documentation Type 1. Full or alternative D. Loan Purpose E. Property Type 1. Single family detached/de minimus PUD F. Occupancy Type 1. Primary residence G. Loan Size 1. Average 2. Loans > $ 750,000 3. Loans > = $1,000,000


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Section Two A. Residential Asset Type 1. "Standard" residential 2. Home equity loan/second lien 3. Home improvement 4. Manufactured housing B. Borrower Quality 1. A 2. A-/alternative A 3. B&C 4. Less than C C. Loan Type 1. Coupon type - fixed Coupon type-adjustable 2. Term - 30 years Term - 15 years 3. Amortization type-fully amortizing Amortization type-balloon

(2) Structured Securities Fully Guaranteed by an NAIC ARO Rated Entity The analytical procedures in this sub-paragraph apply to non-NAIC ARO rated asset-backed and residential mortgage backed securities fully, unconditionally and irrevocably guaranteed by an entity with an NAIC ARO rated senior unsecured obligation or claims paying ability. This procedure shall only apply when the reporting insurance company intends that the NAIC Designation assigned to the security will depend solely on the rating assigned by an NAIC ARO to the guarantor. As used in this sub-paragraph, an NAIC ARO rated guaranty means an unconditional promise to pay all amounts due to the investor on a full and timely basis, which is effective for the life of the security, ranks as the guarantor's direct, unsubordinated, general obligation and is issued by an entity rated and monitored by an NAIC ARO. The guaranty may be in the form of a guaranty, financial guaranty insurance policy, letter of credit, or other similar credit enhancement instrument. The SVO shall assess any reported structured securities benefiting from NAIC ARO rated financial guarantee by applying the procedure described below. The SVO shall first confirm that the guaranty meets the definition set forth above. The SVO shall then review the terms of the reported security to determine whether any aspect of the credit and structural characteristics of the security compromises the benefit of the guaranty to the investor.


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If the SVO is satisfied that the guarantor is fully obligated to pay the amounts due to investors, and that the structural characteristics of the security do not compromise the benefit of the guaranty to the investor, the SVO shall assign an NAIC Designation not higher than the NAIC Designation that corresponds to the NAIC ARO rating assigned to the guarantor. (3) Structured Securities Backed by NAIC ARO Rated Financial Assets This sub-paragraph applies to investment instruments backed by the scheduled payment stream from NAIC ARO rated or NAIC Designated underlying obligations (i) issued by NAIC ARO rated entities, or (ii) 100 percent unconditionally guaranteed by NAIC ARO rated entities even if none of the assets themselves are rated by an NAIC ARO. As used in this sub-paragraph, an underlying obligation is any obligation of an NAIC ARO rated entity that gives the holder of the security a contractual right to receive benefits in the form of cash whether disbursed at a time certain or in scheduled payments of interest and principal. To be eligible for reporting under this subsection, the sum of the total cash obligations evidenced by the financial asset pool must be equal to or greater than the outstanding balance on the reported security. The SVO shall assess any reported structured securities backed by NAIC ARO rated underlying obligations by applying the procedure described below. The SVO shall confirm that the pool meets the criteria identified above. The SVO shall then assess the reported security to determine whether the credit and structural characteristics of the security compromise the expectation of predictable cash flows from the rated pool obligors. If the SVO is satisfied that the reported security meets the conditions of this sub-paragraph, and that the structural characteristics of the security do not compromise the expectation of predictable cash flow from the underlying obligations, the SVO shall assign an NAIC Designation not higher than the NAIC Designation corresponding to the NAIC ARO rating for senior unsecured debt assigned to the lowest rated obligor in the pool. (4) Structured Securities Fully Backed by Financial Assets Insured by NAIC ARO Rated Insurers This sub-paragraph applies to investment instruments backed by underlying financial assets that are insured against individual obligor defaults by a pool insurance policy underwritten by an insurer with an NAIC ARO claims paying ability rating. Such a pool insurance policy must have coverage in an amount equal to or greater than the outstanding balance of the pool's assets.


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This procedure shall only apply when the reporting insurance company intends that the NAIC Designation assigned to the security will be depend solely on the claims paying ability rating assigned to the issuer of the pool insurance policy by an NAIC ARO . As used in this sub-paragraph, NAIC ARO rated pool insurance means an insurance policy that provides protection against individual obligor defaults, underwritten by an insurer rated and monitored by an NAIC ARO for claims paying ability. The insurance policy must: be in effect for the life of the security, provide for full and timely payment of all amounts due to the issuer and rank as the direct, unsubordinated general obligation of the rated insurer. The SVO will review the reported security to determine whether the reporting insurance company has provided evidence that there are no factors that might compromise the contractual or financial ability or willingness of the pool insurer to honor claims promptly. The SVO will then review the pool insurance policy to ascertain the terms of the policy and verify the information provided by the reporting insurance company. If the SVO is satisfied that the pool insurer is fully obligated to pay amounts equal to obligor defaults and that such amounts will enable the issuer to meet its payment obligation to the investors, and that there are no factors which might compromise the contractual or financial ability or willingness of the insurer to honor claims promptly, the SVO shall assign an NAIC Designation not higher than the NAIC Designation corresponding to the NAIC ARO rating assigned to the pool insurer.

(5) Residential Mortgage Backed Securities Residential mortgage backed securities that have been purchased by an insurer and reported to the SVO, and that have never been rated by an NAIC ARO , are subject in the first instance to the procedure discussed in Part Seven, Section 4(b)(iii)(B)(l). In lieu of that procedure, an insurer may request the SVO to assign an NAIC 5* or 6* Designation on the basis of the criteria described in Part Four, Section 3 of this Manual.

(6) Commercial Mortgage Backed Securities Commercial mortgage backed securities purchased by an insurer and reported to the SVO may be assigned the NAIC 5* or 6* Designation on the basis of the criteria described in Part Four, Section 3 of this Manual.


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(c) Catastrophe Linked Securities

(i) Definition

For the purposes of this Manual, catastrophe linked securities are financial instruments that:

(A) Are specifically designed to transfer underwriting risk associated with the occurrence of a natural catastrophic event, such as a hurricane, an earthquake or a flood (a "Catastrophe Event"), from an originating insurer to the reporting insurance company investor and other security holders, and (B) Are structured so that payment of interest or principal to the reporting insurance company depends on the occurrence of a Catastrophe Event of a defined magnitude or, that causes an aggregate insurance loss in excess of a stipulated amount, and (C) Are structured so that either all or a portion of the principal invested by the reporting insurance company is at risk.

(ii) Filing Exemption Status

Catastrophe linked securities are not eligible for the filing exemption in Part Four, Section 2 (d) of this Manual, but are required to be filed with the SVO for a determination in accordance with the procedure specified in paragraph (iii) immediately below. (iii) Procedure

Whenever a reporting insurance company shall have filed a catastrophe linked security with the SVO, the SVO shall:

(A) Verify (1) that the transaction has been rated by an NAIC ARO (2) that the NAIC ARO rating will be continuously monitored and (3) that the NAIC ARO s rating, results from application of a methodology that incorporates historical information as well as stochastic probability models and computer simulations, assesses the potential for loss of interest and/or principal from underwriting risk, and correlates the probability of the occurrence of the Catastrophe Event and the loss associated with the damage caused by such event to the statistical probability of bond default and its severity reflected by the NAIC ARO s alpha-numeric ratings. (B) If the SVO verifies that all the characteristics described in Part Seven, Section 4 (c) (iii)(A) above exist, it shall process the catastrophic linked security as a debt security and assign the NAIC Designation which corresponds to the NAIC ARO rating per Section 4 of the Appendix of this Manual. If the SVO verifies that any of the characteristics described in Part Seven, Section 4 (c) (iii)(A) above are not present, the SVO shall not have authority to process the filed catastrophe linked security and the security may not be reported on Schedule D of the NAIC


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Financial Statement Blank but shall be reported on Schedule BA as an "equity" investment and reserved accordingly.

(d) Structured Lottery Securities Part Seven, Section 5(c)(vi)(B) of this Manual defines lottery securities and describes legal issues associated with transactions that involve the transfer of a single lottery prize. The issues and criteria described in Part Seven, Section 5(c)(vi)(B) of this Manual are equally applicable to Structured Lottery Securities. A structured lottery security is defined as a transaction that involves the transfer of more than one lottery prize. Please call the SVO Structured Security Department if you have a question regarding such securities.

Section 5. Municipal Bonds Municipal bonds are debt instruments of states, counties, special districts, cities, towns and school districts, whether issued as general obligations, revenue bonds, annual appropriation bonds, assessment district bonds or obligations that combine aspects of general and revenue bonds issued by United States and Canadian obligors. For purposes of this Manual, credit risk associated with municipal securities shall be assessed on the basis of the nature of the bond as a general obligation bond, revenue bond or a bond combining characteristics of both, and on whether the transaction has been rated by an NAIC ARO.

(a) Computerized Services

The SVO shall independently obtain such computerized or other informational services on municipal securities as are necessary to obtain publicly available rating, pricing, statistical or financial information on municipal issuers and their outstanding securities.

(b) Rated Securities In accordance with Section 1 (b) (ix) and (x) of this Part Seven, the SVO may convert an NAIC ARO rating of a municipal bond into its equivalent NAIC Designation.

(c) Unrated Securities If the security is not rated, or if an analyst shall have exercised his or her discretion to conduct an independent evaluation of the security despite an NAIC ARO rating, the analyst shall proceed to an independent credit assessment.

(i) General Obligation Bond In the case of a general obligation bond, the SVO shall determine whether the issuer has taxing authority and the precise limitations on that authority, arrive at a determination of all current indebtedness that relies on the issuer's taxing authority and assess the taxpayer's ability to support the existing and proposed levels of debt. In the conduct of this analysis, the SVO shall consider all factors relevant to general obligation bond analysis, such as issuer's debt obligation for unfunded pension liabilities and other similar obligations. In assessing the taxpayer's ability to support the level of debt, the SVO shall assess the trend of the issuer's economy, employment distribution and composition,


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population growth, real estate property valuation, personal income trends and other local economic traits that are relevant to its assessment. (ii) Revenue Bond In the case of a new issue revenue bond, the reporting insurance company shall provide the SVO with a feasibility study of the project in order to assess the level of demand and all probable alternatives to the services or project. In all other cases, the SVO may request the submission of the feasibility study. The SVO shall assess sources of revenue, revenue assumptions, project costs and expenses and other relevant factors. The analyst may consider any aspect of the project that may be relevant to determining an appropriate NAIC Designation. (iii) Industrial Development Revenue Bonds; Pollution Control Bonds In the case of an industrial development revenue bond or a pollution control bond, the methodology applied by the SVO to assess credit risk may derive from any appropriate corporate methodology or from a municipal methodology, whether associated with the revenue or the general obligation approach. (iv) Escrowed And Pre-refunded Bonds The SVO may make its credit assessment on the basis of an executed Letter of Defeasance, an Escrow Agreement or a Pre-refunding Agreement. (v) Credit Enhanced Municipal Transactions

A credit enhanced municipal transaction is one in which the application for an NAIC Designation is to be based either (i) on the credit rating of a nationally recognized municipal bond insurer that has issued a financial guarantee or otherwise insured the bond, (ii) on a financial guarantee issued by an insurance company, (iii) on a Letter of Credit issued by a bank, or (iv) on another acceptable form of credit enhancement. In determining an NAIC Designation for the transaction, the SVO shall ascertain the extent to which the legal documents ensure that the credit strength of the insurer or bank flows through unimpeded to the security holder. The SVO shall examine whether the payment obligation of the insurer or bank assures full and timely payment of all amounts due to the reporting insurance company. Factors relevant to this analysis include, irrevocability of the insurer's or bank's obligation to pay the effect of debtor insolvency on payments made by the debtor and/or the third party to the insurance company lender and the third party's credit rating. The analyst may review corporate resolutions of the issuer, the guarantee or other agreements binding the third party to pay for the debt of the debtor, the indenture or other similar document governing the remedies, opinions of counsel regarding enforceability of the obligation of the third party, the payment stream under applicable insolvency laws or other regulatory regime or any other documentation that may be considered necessary.


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(vi) Special Situations

(A) The reporting insurance company shall contact the SVO on a case-by-case basis in order that the SVO may determine what information is necessary to conduct an analysis of Annual Appropriation Bonds, Special Assessment Bonds and Municipal Bonds Supported by the U.S. Government. (B) Lottery Securities

(1) Definition

Lottery Securities are financial arrangements in which an insurer purchases the right to receive lottery prize money owed by a state lottery authority to the winner of a lottery or a subsequent assignee. The transfer may be expressed as the purchase of a receivable, the execution of an assignment of rights or in some other legally effective manner. A significant component of SVO's analysis of lottery securities focuses on the enforceability of the rights obtained by the reporting insurance company. The issue raised is whether state law requires the observation of a special procedure before a transfer of lottery prize money may be effected.

(2) No Court Order Required If the state lottery law governing the transfer does not require a court order, the reporting insurance company shall submit an opinion of counsel acceptable to the SVO, certifying that no approval, consent or authorization of a governmental or administrative authority is required in connection with the transfer. (3) Court Order Required

a. Direct Transfer

A direct transfer structure is a lottery security arrangement in which the reporting insurance company purchases or otherwise acquires the right to the lottery prize money directly from the winner of a lottery or from a subsequent assignee. The reporting insurance company shall submit the following documents:

1. A certified copy of the court order that authorizes the transfer of the lottery prize money to the insurer, and 2. A written acknowledgement by the state lottery authority that it has received a copy of the court order and that it will cause the lottery prize money to be paid (and, if applicable, that it will instruct and require the issuer of the annuity responsible for making the lottery prize money payments to pay and deliver


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the lottery prize money) directly to the insurer, in accordance with the court order.

b. Indirect Transfer

An indirect transfer structure is a lottery security in which the reporting insurance company has obtained the right to the lottery prize money by acquiring the beneficial interest in a trust, or through some other similar manner. If more than one lottery prize is transferred to a trust (or similar entity), the security created thereby is characterized not as a Municipal Bond but as a Structured Security for purposes of assigning an NAIC Designation. Although the criteria set forth in this Section are equally relevant to Structured Securities for the issues addresses herein, the reader should refer to Part Seven, Section 4(d) of this Manual for instructions related to, and a fuller description of criteria for Structured Lottery Securities. Lottery securities involving an indirect transfer raise the issue of whether the indirect transfer would be considered a transfer of the lottery prize money that must be ordered by a court. To address this issue, the insurer shall submit the documents required by one of the following options.

1. A certified copy of the court order that authorizes the transfer of the lottery prize money from the trust to the insurer, and a written acknowledgement by the state lottery authority that it has received a copy of the court order and that it will cause the lottery prize money to be paid (and, if applicable, that it will instruct and require the issuer of the annuity responsible for making the lottery prize money payments to pay and deliver the lottery prize money) directly to the trust, in accordance with the court order; or 2. An unqualified opinion of counsel to the effect that although state lottery law requires a court order to effect a transfer of the right to receive lottery prize money, the transfer of a beneficial interest in a trust is not the transfer of the lottery prize money under state lottery law and thus no approval, consent or authorization of a governmental or administrative authority is required in connection with the transfer of the beneficial interest in the trust; or 3. (a) An opinion of counsel expressing a qualified opinion that the transfer of the beneficial interest in a trust should not be construed as a transfer of lottery prize money requiring a court order which may be qualified with respect to the lack of case law or legislative history to support this view or by the observation that counsel is unaware that the state lottery authority would concur with this reasoning; and


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(b) A written acknowledgement by the state lottery authority to the effect that the indirect transfer (for example, via a transfer of the beneficial interest in a trust) is not the transfer of the lottery prize and does not require a court order; or 4. A copy of the state lottery authority's policy statement that it will irrevocably cause the lottery prize money to be paid (and, if applicable, that it will instruct and require the issuer of the annuity responsible for making the lottery prize money payments to pay and deliver the lottery prize money) to the trust despite the lack of court order.

c. Limited Discretion for Certain Indirect Transfers An insurer reporting an indirect transfer lottery security arrangement that cannot obtain the documents set forth in (b)(1), (2), (3) or (4), may submit the transaction to the SVO with a qualified opinion of counsel, as set forth in (b)(3)(a) above. In that case, the SVO may process the transaction but it shall be limited in its discretion to assigning an NAIC Designation one category lower than the Designation the transaction would have received based on the credit strength of the state or of the lottery authority.

(d) Quantitative Analysis

The analyst shall make an independent financial analysis of the issuer. Wherever possible, the analysis shall be based on historical and projected tax or revenue data. It shall be the responsibility of the insurance company investor reporting the investment to obtain and provide this information to the SVO. The analysis shall incorporate the Audited Financial Statement, as well as additional information the analyst may deem necessary. Upon receipt of this information, an analyst shall perform financial analysis necessary or appropriate for the transaction under consideration. Interpretation of the financial information and data obtained will be conducted in the context of the particular facts of the issuer and the project to be financed. The analysis shall reflect the issuer's political and economic circumstances and other criteria unique to municipal bond issuance.

(i) Use of Unaudited Financial Statements For general obligation bonds not rated by an NAIC ARO, the SVO will assess the transaction one grade lower than would otherwise be justified by the issuer's credit rating, if the reporting insurance company cannot provide the SVO with a copy of the Audited Financial Statement. However, the SVO shall accept the unaudited financial statement of an issuer without grade reduction, if such unaudited financial statement has been submitted to and is certified by the appropriate state controller's office. Revenue Bonds will be subject to the same rules applicable to corporate debt.


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(e) Terms of the Security; Final Designation Before determining a final NAIC Designation, the analyst shall consider (i) the sufficiency of the legal documentation and (ii) the terms of the security such as:

(1) Collateral; (2) Legality of the exercise of taxing authority in general bond obligations, or legal validity

and enforceability of the pledge of cash flow; (3) Economic feasibility, including demand for the services for which the issuance is made or

project is being built; (4) Project risks and risk mitigation; and (5) Priority and legal position of the lender’s right to payment of the issuer’s general fund

(for general obligations bonds) or reserve or trust fund accounts (for revenue bonds). Section 6. U.S. Government Securities

(a) Credit Assessment Methodology

U.S. government securities that are not exempt under the provisions of Part Four, Section 2 (c) (i) through (iv), or those required to be filed by the specific instruction of a state insurance department, shall be reviewed by the SVO to determine if they have an enforceable claim to the direct, full faith and credit or other support of the U.S. government. In conducting this analysis, the SVO shall apply any methodology mentioned in this Part but with special emphasis on the credit substitution concepts contained in Section 3(c) of this Part. The SVO shall verify that legislation authorizing the program by which the U.S. government, U.S. government agency or U.S. government sponsored entity has committed to provide credit support is in full force and effect and has not been rescinded or amended in any material way. It shall also verify the legal commitment of the U.S. government, U.S. government agency or U.S. government sponsored entity to support the obligation of the borrower or other obligor, is in full force and effect and has not lapsed, been amended or changed in any way which would permit the government support to be withdrawn.


PART EIGHT/Page 1

Part Eight: Valuation of Subsidiary, Controlled and Affiliated (SCA) Company Common Stock Section 1. The SCA Reporting Cycle An SCA investment, as defined in Part One of this Manual, purchased during any one calendar year will be reported to the SVO on a SUB 1-form within 30 days of the acquisition or formation of the investment. The SVO will process that filing in the same year but will not at that time approve or disapprove a value for the SCA investment. By June of the following year, the insurance company will submit a SUB 2 filing for the previously purchased SCA investment reported on a SUB 1-form and later that year, the SVO SCA Companies Group will approve a value for the transaction. The value approved by the SVO at the conclusion of the SUB 2-form filing is reported by the insurance company on its NAIC Financial Statement Blank. If the insurance company has reported a value for the SCA investment on its NAIC Financial Statement Blank that differs from the value approved by the SVO, the insurer is required to adjust the reported value in its next quarterly NAIC Financial Statement Blank unless otherwise directed by the insurer's state of domicile. Section 2. Reporting Framework

(a) Value of Common Stock

Insurance companies described in Part Four, Section 1(a) of this Manual, shall use one of the valuation methods described in Section 3 below to calculate the value of their common stock investments in insurance and non-insurance SCA companies. Not later than June 1 for existing SCA investments, and within 30 days of the acquisition or formation of a new SCA investment, an insurance company shall calculate the value of its common stock investments in foreign insurance and all non-insurance company SCA entities and report the value to the SVO. Please refer to Section 2 (d) (ii) of this Part. (b) Initial Reporting of SCA Investments

(i) Reporting Method

Reporting the acquisition or formation of a new investment is accomplished by submitting a completed SUB 1-form for each investment, disclosing (i) the valuation reported or to be reported by the insurance company on its latest or next quarterly NAIC Financial Statement Blank, (ii) which method of those described in Section 3 below was used to arrive at the valuation, (iii) the factual context of the transaction and (iv) economic and business motivations for the transaction. The submission will be processed by the SVO only if the SVO determines it has been provided with all material information with respect to all SCA companies of the reporting insurance company that require valuation. (ii) Purpose of SUB 1-Form Filing

The purpose of a SUB 1 filing is to determine whether the reported SCA investment provides economic value to the insurance company and whether the value claimed is reasonable in view of the totality of the transaction and the specifics of the insurance


PART EIGHT/Page 2

company. If the SVO SCA Companies Group determines that the reported transaction meets the tests specified in this Part, it enters the administrative symbol NV in the status field of the VOS Database screen. If the SVO SCA Companies Group determines that the transaction does not meet the tests specified in this Part, it shall not enter the transaction into the VOS Database and instead notifies the reporting insurance company and the state of domicile in writing of its determination.

(c) Subsequent Reporting of SCA Investments

(i) Reporting Method

By June of the year following the acquisition or formation, and reporting of an SCA investment on the SUB 1-form, the insurance company shall submit a SUB 2- form filing for the same SCA investment. (ii) Compliance and Administration

Each year the SVO SCA Companies Group shall compile a list of all SCA investments reported as SUB 1- form filings for which a SUB 2- form filing has not yet been received. For these transactions, the SVO SCA Companies Group will notify the responsible reporting insurance company and its state of domicile that it has not received a SUB 2 filing for the SCA investment. By June of each year, any insurance company that has made a SUB 2-form filing in a previous year must update the information by filing an updated SUB 2-form filing. All SCA investments from the same ultimate Holding Company must be submitted together. (iii) Purpose of SUB 2-Form Filing As more specifically described below, the purpose of the SUB 2 filing is to determine whether the value calculated by the reporting insurance company for the SCA investment is appropriate and to approve that or some other value for reporting on the insurer's NAIC Financial Statement Blank.

(d) Special Instructions

(i) SCA Investments Completed at or Near Year-End

An insurance company that concludes an SCA transaction at year-end may be unable to file a SUB 1 form prior to the time it would be required to file a SUB 2-form. Where this is the case, the SVO SCA Companies Group is authorized to accept a SUB 1 filing from such an insurance company and to process such SUB 1 filing as a combined SUB 1 and SUB 2 filing.

(ii) Special Instruction - Book Value of U.S. Insurer's Common Stock

No filing of an investment in the common stock of a domestic SCA insurance company valued pursuant to Part Eight, Section 3(a)(ii)(A) of this Manual shall be made with the


PART EIGHT/Page 3

SVO after January 1, 1999. Insurers who select the Section 3(a)(ii)(A) valuation method to value an investment of common stock of a U.S. insurance SCA company after January 1, 1999 shall continue to apply the methodology and rules of this valuation method. The calculations made in support of such valuations and the rationale employed to address other relevant issues under Section 3(a)(ii)(A) of this Manual shall be retained for the benefit of state insurance examiners.

(e) Consistency in Application of Chosen Valuation Method

Nothing in this Part shall be read as requiring an insurance company to value all of its SCA company common stock pursuant to the same method. However, the valuation method used for a specific SCA company shall be applied consistently from year to year. An insurer that has previously selected any valuation method and that now wishes to change to another valuation method may only do so with the approval of the domiciliary Commissioner. Once the approval of the domiciliary Commissioner has been obtained, the reporting insurance company shall provide the SVO with evidence of that approval as part of the SUB 1 or SUB 2 filing.

Section 3. Valuation Methods Statutory accounting guidance for investments in SCA entities is contained in:

SSAP No.97—Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88,

SSAP No. 68—Business Combinations and Goodwill, SSAP No. 41—Surplus Notes, and SSAP No. 32—Investments in Preferred Stock, (including investments in preferred stock of

subsidiary, controlled and affiliated entities). The reader should refer to the NAIC Accounting Practices and Procedures Manual for detailed accounting guidance.

(a) Market and Equity Valuation Methods

Insurance companies may use the Market Valuation Method described in paragraph (i) below or one of the equity methods described in paragraph (ii) below. For investments in SCAs described in Section 3 (a)(ii) A, B, C, D, E and F, the reporting insurance company shall compute its shares of earnings or losses after deducting the investee’s preferred dividends on outstanding cumulative preferred stock, whether or not such dividends are declared.

(i) Market Valuation Method

(A) Conditions to Use

A reporting insurance company may use the Market Valuation Method for any subsidiary whose common stock trades on the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Exchange, or the Tokyo Stock Exchange provided ownership in the


PART EIGHT/Page 4

subsidiary is between 10% and 85%. Once the reporting insurance company uses the Market Valuation Method for a particular subsidiary, it must obtain the approval of the domiciliary commissioner before changing the valuation method to an equity method. The SCA must have at least 2 million shares outstanding with a total market value of at least $50 million in the public’s control.

(B) Calculation of Discount Rate

(1) Upon receipt of subsidiary information, the SVO shall calculate the subsidiary's market value by reference to the market value of the stock, discounted for size and depth of the market and, in the case of restricted common stock, for legal restrictions on transferability.

(2) The resulting discount rate may be greater depending on the ownership percentages (measured at the holding company level) detailed below.

• If an investment in a SCA results in an ownership percentage between

10% and 50%, a base discount percentage between 0% and 20% on a sliding scale basis is required;

• If an investment in a SCA results in an ownership percentage greater

than 50% up to and including 80%, a base discount percentage between 20% and 30% on a sliding scale basis is required;

• If an investment in a SCA results in an ownership percentage greater

than 80% up to and including 85%, a minimum base discount percentage of 30% is required. Further, the SCA must have at least two million shares outstanding, with a total market value of at least $50 million in the public's control; and

• Any ownership percentages exceeding 85% will result in the SCA

being recorded on an equity method.

(3) The reporting insurance company that selects this method shall obtain the discount rate to be applied to its common stock from the SVO. The discounts listed above are minimum discounts. The SVO calculation may result in discounts in market value higher than the illustrations set forth above.

(ii) Equity Methods

If a SCA investment does not meet the requirements for the market valuation approach in Section 3 (a) (i) of this Part, or if the requirements are met, but a reporting entity elects not to use the market valuation approach, the reporting entity’s proportionate share of its investments in SCAs shall be recorded as follows:


PART EIGHT/Page 5

(A) Investments in U.S. Insurance SCA Entities Investments in U.S. insurance SCA entities shall be recorded based on the underlying audited statutory equity (where equity is defined as net of preferred stock and surplus notes of the investee) of the respective entity’s financial statements, adjusted for any unamortized goodwill as provided for in SSAP No. 68.

(B) Investments in Non-Insurance SCA Entities Statutory Basis Investments in non-insurance SCA entities engaged in the activities described in SSAP No. 97, paragraph 8b.ii. shall be adjusted to an audited statutory basis of accounting, if 20% or more of the SCA’s revenue is generated from the reporting entities and its affiliates. For purposes of this section, revenue means GAAP revenue reported in the audited GAAP financial statements, excluding realized and unrealized capital gains and losses. Statutory basis of accounting shall be based on the underlying audited U.S. GAAP equity of the respective entity with the adjustments required by paragraph 9 of SSAP No. 97. If the reporting entity also holds an investment in preferred stock and or surplus notes refer to paragraphs 23 through 27 of SSAP No. 97. For guidance on investments in downstream holding companies refer to paragraphs 17-19 of SSAP No. 97.

(C) Investments in Non-Insurance SCA Entities GAAP Basis Investments in non-insurance SCA entities that do not qualify under the preceding subparagraph (B) shall be recorded based on the audited GAAP equity of the investee.

(D) Investments in Foreign Insurance SCA Entities Investments in foreign insurance SCA entities shall be recorded based on the underlying audited U.S. GAAP equity of the respective entity adjusted to a statutory basis of accounting, for reserves of the foreign insurance SCA with respect to the business it assumes directly and indirectly from an US insurer using the statutory accounting principles promulgated in the NAIC Accounting Practices and Procedures Manual and for any audit adjustments resulting from the annual GAAP audit. Statutory basis of accounting shall be based on the underlying U.S. GAAP equity of the respective entity with the adjustments required by paragraph 9 of SSAP No. 97. GAAP is defined as those pronouncements included in the United States GAAP Hierarchy as described in AICPA Statement of Auditing Standard No. 69, The Meaning of Present Fairly in Conformity With GAAP. Foreign SCA entities are defined as those entities incorporated or otherwise legally formed under the laws of a foreign country. Foreign insurance SCA entities are defined as alien insurers formed according to the legal requirements of a foreign country.


PART EIGHT/Page 6

(E) Investments in Foreign Non-Insurance SCA Entities Investments in foreign non-insurance SCA entities shall follow the guidance in this Part Eight, Section 3(a)(ii)(B) or (C) based on the revenue and activity criteria noted above, which requires that accounting be based on the underlying adjusted audited U.S. GAAP equity of the respective entity. Statutory basis of accounting shall be based on the underlying audited U.S. GAAP equity of the respective entity with the adjustments required by paragraph 9 of SSAP No. 97.

(F) Investments in the Preferred Stock of an SCA

Investments in the preferred stock of an SCA shall be accounted for in accordance with the provisions of SSAP No. 32. If in addition to preferred stock the reporting entity also holds an investment in common stock and/or surplus notes refer to paragraphs 23 through 27 of SSAP No. 97 and paragraph 10 of SSAP No. 41.

Section 4. SVO Assessment and Review of SUB 1-Form Upon receipt of the reporting insurance company's SUB 1 filing, the SVO SCA Companies Group shall conduct an assessment in the following manner:

(a) Extraneous Factors

If the SVO SCA Companies Group is aware of any broad regulatory concerns or issues affecting the reporting insurance company or the reported SCA investment, it shall determine whether such concerns or issues are relevant to valuation of the SCA investment. If so, the SVO SCA Companies Group shall take such action as seems appropriate under the circumstances. If no concerns or issues relevant to valuation exist, the SVO SCA Companies Group shall proceed to the step described in (b) below.

(b) Appropriateness of Valuation Method

The SVO SCA Companies Group shall ensure that the value reported by the insurance company on a SUB 1-form has been arrived at by application of one of the permitted valuation methods described in Section 3 above. If a reporting insurance company submits a SUB 1-form filing that reports a value calculated under an inappropriate method, the SVO SCA Companies Group shall contact the insurer to resolve the discrepancy or it shall recalculate the value of the SCA investment under the most appropriate valuation method and notify the reporting insurance company of such action. Upon completion of this review process, the SVO SCA Companies Group shall proceed to the step described in (c) below.

(c) Assess Transaction

The SVO SCA Companies Group shall review the factual, business and economic context of the transaction to determine whether (i) the SCA investment appears to be an arms-length business arrangement with a reasonable economic value to the reporting insurance company, (ii) the valuation method chosen is reasonable in view of the factual, business and economic context of


PART EIGHT/Page 7

the transaction, (iii) the transaction is reasonable in the context of all the known facts surrounding the insurance company and its operations and (iv) the value reported appropriately reflects economic value to the insurance company. The SVO SCA Companies Group may consider other factors that appear relevant from the context of the transaction including:

(i) The specific tax, accounting or other regulatory treatment sought;

(ii) Whether the transaction effects a legally effective, binding and permanent transfer

of the risks and rewards of ownership; (iii) The effect of the SCA valuation on the solvency of the insurer; (iv) The degree of affiliation between the insurer and the party from whom such

company was acquired, the form of the consideration (cash, property or the exchange of stock), evidence of ability to recover cost and whether the acquisition price represented the result of arms-length dealing between economic equals;

(v) The right to dividends or other payments from the SCA and any limitations

thereto; (vi) The nature, extent and demonstrable financial value of the business operations of

the SCA; and

(vii) The value of the assets owned by the SCA.

If the SVO SCA Companies Group determines that the transaction does not seem to present economic value to the insurance company, or that the transaction tends to obscure issues that might be relevant to an NAIC member or that the information provided is insufficient or unreliable as a basis upon which to make a determination, then the SVO SCA Companies Group shall notify the reporting insurance company and the NAIC member of the reporting insurance company's state of domicile and request guidance. (d) Valuation Method

If the SVO SCA Companies Group determines that the SCA investment raises no issues under subsection (c) above, the SVO SCA Companies Group shall proceed to review whether the reporting insurance company has correctly applied the procedure described in Section 3 for the chosen valuation method and made the adjustments called for in Section 6 below. (e) Enter Not Valued (NV) If the SCA investment reported on the SUB 1-form filing is deemed to meet the assessment and reviews described in sub subsections (a) through (d) above, the SVO SCA Companies Group shall enter the administrative symbol NV in the status field of the VOS Database. The administrative symbol NV will be applied to every SUB 1 filing where the reported SCA investment meets the tests described above, with the exception of those filings described under Section 2(d) above. The NV symbol will be revised to a value if and when the filer submits a


PART EIGHT/Page 8

SUB 2-form on the same transaction and the SCA Companies Group approves a final value based on the information provided. Assignment of the administrative symbol NV to an SCA investment does not mean and shall not be interpreted to mean that the SVO is expressing an opinion as to the value claimed by the reporting insurance company for the reported SCA investment. The NV administrative symbol implies only that based on the information provided the SVO SCA Companies Group has determined that the SCA investment meets the tests described in this Section 4.

Section 5. SVO Assessment and Review of SUB 2 Form

(a) Monitoring of VOS Database

By June 1 of each year, the SVO SCA Companies Group shall initiate a review of all SCA investments for which new SUB 2-form filings have been received as well as an annual update review of SUB 2 SCA investments already logged in the VOS Database. The SVO SCA Companies Group's review shall encompass a review of the parent insurance company's Schedule Y (to ascertain the identity of the members of the holding company system and to ensure that information for all SCA companies has been submitted), a review of the parent's NAIC Financial Statement Blank to ascertain the materiality of SCA investments and a review of the VOS Database to determine whether SCA debt and SCA preferred securities have been assigned NAIC Designations. As part of its analysis, the SVO shall review the portion of the bond investments carried by the parent or a subsidiary insurer with a Z notation. If the SVO determines that the portion of the Z bonds shown on the documentation is significant, the SVO shall not process the SUB 2 filing until the insurance company reports the bonds to permit removal of the Z notation. (b) Assess and Adjust Reported Values

Upon completion of the procedures described above, the SVO SCA Companies Group will determine whether the value reported by the insurance company was calculated in accordance with the instructions for the valuation method chosen and verify that the claimed value reflects the adjustments required by Section 6 below. (c) Check NAIC Financial Statement Blank; Finalize a Value

(i) NAIC Financial Statement Blank

Prior to finalizing a value for the reported SCA investment, the SVO SCA Companies Group will verify that the value reported to the SVO and the value reported on the NAIC Financial Statement Blank are the same. If the values are not the same, the SVO SCA Companies Group will approve the lower value.

(ii) Finalize Value

The SVO SCA Companies Group will remove the administrative symbol NV and enter the approved value in the status field of the VOS Database, except in the case of filings


PART EIGHT/Page 9

made under Section 2(c) of this Part in which case the SCA Companies Group shall assign the final value, if any. (iii) Written Notification

The SVO SCA Companies Group shall report its determination to the insurance company. If a significant discrepancy exists between the value claimed by the reporting insurance company and the value approved by the SVO, the SVO SCA Companies Group shall enter the administrative symbol D in the status field of the VOS Database and provide written notification to the reporting insurance company and the company's state of domicile of this action.

Section 6. Make Adjustments to Reported Value The SVO SCA Companies Group shall adjust the value reported by the insurance company on a SUB 1 or SUB 2 filing in accordance with the following procedures:

(a) Reduction of Goodwill The capital and surplus of a reporting insurance company, reported on the statutory balance sheet filed with the domiciliary state commissioner, may not include an amount greater than 10%, in the aggregate, of goodwill from all sources, including life, accident and health, and deposit-type assumption reinsurance. See also, SSAP No. 68 for definitions of and accounting guidance for goodwill.

(b) Non-admitted Asset Value

(i) For non-insurance SCA entities that meet the revenue and activity criteria of paragraph 8bii of SSAP No. 97 and foreign insurance SCAs described in 8biv, that use a method other than market value, the value of the reporting company's SCA investment is calculated by reducing GAAP equity by the value of any asset that does not conform to the criteria for an admitted asset as outlined in paragraph 9a. of SSAP No. 97.

(ii) Costs that are capitalized in accordance with GAAP but expensed pursuant to statutory accounting as promulgated in the NAIC Accounting Practices and Procedures Manual (e.g., deferred policy acquisition costs) should be expensed.

(iii) Capital and surplus shall be adjusted pursuant to the procedure described in paragraph 9c. of SSAP No. 97.

(iv) Pursuant to paragraph 9d. of SSAP No. 97 in the case of non-insurance and foreign insurance SCA entities, the reporting insurance company shall non-admit the amount of goodwill of the SCA in excess of 10% of the audited GAAP equity of the SCA’s last audited financial statement. (v) Non-admit the amount of net deferred tax assets (DTAs) of the SCA in excess of 10% of the audited GAAP equity of the SCA’s last audited financial statements.


PART EIGHT/Page 10

(vi) Adjust the GAAP annuity account value reserves of a foreign insurance SCA, with respect to the business it wrote directly, using the Commissioners Annuity Reserve Valuation Method (CARVM) as described in paragraphs 12 and 13 of Appendix A-820 (including the reserving provisions in the various actuarial guidelines which support CARVM). The valuation interest rate and mortality tables to be used in applying CARVM should be those prescribed by the foreign insurance SCA’s country of domicile. If the foreign SCA’s country of domicile does not prescribe the necessary tables and or rates, no reserve adjustment shall be made.

(c) Reciprocal Ownership

(i) Reciprocal Ownership Relationships A reporting entity that has direct ownership of shares of an upstream intermediate or ultimate parent owns an interest in itself and is required to eliminate the value of those shares from the value of the reporting entity. This is referred to as elimination of reciprocal ownership.

If the shares of the parent are owned indirectly by a reporting entity, for example, because the reporting entity owns a downstream SCA entity that directly owns shares in the parent, the entity that owns the parent’s shares must reduce its value by the value of the shares in the parent. This is referred to as elimination of the reciprocal ownership.

Any parent reporting entity that owns an interest in itself via either direct or indirect ownership of a down-stream affiliate, which in turn owns shares of the parent reporting entity, shall eliminate its proportionate interest in these shares from the valuation of such affiliate.

(ii) Investments in Downstream Holding Companies The reader should refer to paragraph 17 of SSAP No. 97 for details regarding the valuation of a downstream holding company. In lieu of separate GAAP audits of SCA entities of the downstream holding company, the insurer can choose to have a GAAP audit performed at the holding company level with a consolidating balance sheet showing GAAP equity of all the SCA entities. The consolidating balance sheet shall then be adjusted for GAAP to SAP differences of the insurance entities as described in SSAP No. 97. This adjusted amount would then be the reported value of the investment in downstream holding company at the higher-level insurance company.

(iii) Investments in Surplus Notes of a Subsidiary, Controlled and Affiliated Entity

Investments in the surplus notes of an SCA shall be accounted for in accordance with the provisions of SSAP No. 41. If the reporting entity also holds an investment in preferred stock or surplus notes refer to paragraphs 23 through 27 of SSAP No. 97.

© 1990-2009 National Association of Insurance Commissioners July 1. 2009PART NINE/Page 1

Part Nine: Counterparty Exposure; Netting Eligibility Section 1. NAIC Designation The SVO will convert the counterparty's or the guarantor's financial strength ratings as assigned by an NAIC ARO (e.g., S&P Financial Programs Ratings, Moody's Counterparty's Ratings or Fitch Counterparty Risk Ratings) into an equivalent NAIC Designation. In the absence of an NAIC ARO counterparty financial strength rating, the SVO may convert the counterparty's senior unsecured rating, as assigned by an NAIC ARO, into the equivalent NAIC Designation. In the absence of an NAIC ARO counterparty financial strength or senior unsecured rating, the SVO will conduct a review of the counterparty's financial statements to assign an NAIC Designation. For purposes of the application of this Section, all U.S. domiciled exchanges are assigned an NAIC 1 Designation. Section 2. Netting Eligibility The VOS/TF has determined that there is adequate legal certainty to permit netting of exposures for counterparties domiciled within the United States. Netting of exposures for a foreign (non-U.S.) counterparty will be permitted if its domiciliary jurisdiction has been approved for listing in the List of Jurisdictions Eligible For Netting. Other jurisdictions may be added to the List of Jurisdictions Eligible For Netting if, in the opinion of the SVO, after consultation with the VOS/TF, legal opinions or analyses provide adequate legal certainty that upon default of the counterparty, close-out netting would be enforceable.


PART TEN/Page 1

Part Ten: Creation and Maintenance of Bank List Section 1. List to be Compiled The staff is instructed to compile and maintain a list of banks that meet the credit standards identified in Section 2 below (Bank List). The Bank List may be used by state insurance departments for any purpose consistent with the NAIC Financial Conditions Framework, including, but not limited to, evaluation of the reinsurance credits claimed by ceding insurers and the determination of eligibility to serve as trustee for a nonadmitted insurer for purposes of the NAIC's International Insurers Department Plan of Operation and the NAIC's standard trust agreement. Inclusion on the Bank List does not imply an opinion of the suitability or unsuitability of those entities on the list to serve as providers of credit enhancement of securities. Section 2. Eligibility Standards

(a) Domestic Issuers

Issuing or confirming banks may be placed on the Bank List if they meet the following requirements: the bank is authorized to issue or confirm bank letters of credit, is capable of performing the duties of a Trustee or both, and either (i) has an NAIC ARO rating of "Baa/BBB " or better for long-term debt or a "P2/A2" or better for short-term debt, or (ii) has the equivalent rating from a specialized securities rating company or service that is not an NAIC ARO. (b) Foreign Issuers U.S. branches or agencies of foreign Letter of Credit issuers may be placed on the Bank List if they (i) issue letters of credit for reinsurance, (ii) are a part of a foreign institution that (a) have attained an NAIC ARO rating of "Aa/AA" or better for long-term debt or a "P1/A1" or better for short-term debt or (b) the equivalent rating from a securities rating company or service specializing in banks that is not an NAIC ARO , and (iii) is domiciled in a country with a sovereign debt rating of (a) "Aaa/AAA" for long-term debt and/or "P1/A1" for short-term debt by an NAIC ARO or (b) the equivalent rating by a securities rating company or service specializing in banks that is not an NAIC ARO.

(c) General All standby letters of credit must be clean, irrevocable and unconditional. Additionally, these letters of credit must be issued or confirmed by, and must be presentable and payable at, an office of the qualifying bank located in the United States. Standby letters of credit issued by a foreign (non-U.S.) office of a qualifying U.S. institution must be confirmed by a United States office of the qualifying bank. The SVO does not review individual letters of credit and a bank's presence on the Bank List does not in any way imply that the requirements of this Section 2(c) have been met.


PART TEN/Page 2

Section 3. Administration

(a) Reporting

A party interested in having a bank listed on the Bank List should first determine whether the bank meets the minimum qualifications discussed above. If the bank meets the minimum qualifications discussed above, it should submit to the SVO:

(i) An ATF Initial Filing Form; and (ii) A copy of its most recent Audited Financial Statement or call report; and (iii) Proof of current long and/or short-term rating from all NAIC ARO s that have rated

the bank, which may consist of:

(1) A copy of the rating letter from the NAIC ARO; or (2) A copy of the page from the NAIC ARO s rating publication showing the

rating and the date of the publication; or (3) A copy of the Bloomberg display screen.

Upon receipt of the above documents and the filing fee, the SVO shall perform a financial review of the bank. Upon completion of that review, the applicant bank shall be informed in writing that it has been approved or disapproved for listing on the Bank List. Insurance companies that apply for reinsurance credit shall report the name of the issuer of the Letter of Credit to the SVO only if the issuer is not on the Bank List. (b) Monitoring and Updates Annually, the SVO shall contact by mail the banks then listed on the Bank List, inviting each bank to renew its listing by submitting the then applicable renewal fee and copies of the most recent Audited Financial Statements. The Bank List will be updated by the staff and disseminated as necessary to administer the intent of this Part. A bank on the Bank List that fails to provide the required documents and renewal fee or any bank whose credit quality has deteriorated to a level below the minimum standards identified above shall be deleted from the Bank List without notice.

(c) Downgraded Banks Letters of credit issued by banks that have been removed from the Bank List after they have issued a Letter of Credit in support of a reinsurance contract shall be rated as if they were still on the Bank List until the initial expiration date of the letter of credit. The extension, renewal, modification or amendment of the letter of credit will only be recognized if the bank is re-listed on the Bank List. Restoration of a bank to the List will occur only after the bank has met the standards described above for five consecutive quarters.

© 1990-2009 National Association of Insurance Commissioners July 1. 2009 PART ELEVEN/Page 1

Part Eleven: Mutual Funds and Exchange Traded Funds Section 1. SVO Administration As set forth in Part Four, Section 8(e) of this Manual, the SVO is charged with verifying whether a money market fund is eligible to be listed on the U.S. Direct Obligations/Full Faith and Credit Exempt List or the Class 1 List, and whether a bond mutual fund is eligible to be listed on the Bond List. Eligibility requirements for the aforementioned lists are described below and apply notwithstanding the definition of the term "short-term investment" set forth elsewhere in this Manual. Section 2. Mutual Fund Lists

(a) U.S. Direct Obligations/Full Faith and Credit Exempt List

A money market fund is eligible for listing on the U.S. Direct Obligations/Full Faith and Credit Exempt List if the fund meets the following conditions:

(i) The fund maintains a money market fund rating of AAA from Standard & Poor's

or Aaa from Moody's Investor Services or an equivalent money market fund rating from any NAIC ARO;

(ii) The fund maintains a constant net asset value per share of $1.00; (iii) The fund allows a maximum of seven-day redemption of proceeds; and (iv) The fund invests 100% of its total assets in securities that are direct obligations of

the United States Government and/or in securities that are backed by the full faith and credit of the United States Government or collateralized repurchase agreements comprised of such obligations at all times. Refer to Section 14 of the Appendix to this Manual for a list of securities considered to be direct obligations of the United States Government and entities that are entitled to the full faith and credit of the Unites States Government.

(b) Class 1 List

A money market fund is eligible for listing on the Class 1 List if the fund meets the following conditions:

(i) The fund maintains a rating of Am or better from Standard and Poor's or a rating

of A or better from Moody's Investor's Services or an equivalent or better rating from another NAIC ARO;

(ii) The fund maintains a constant net asset value of $1.00 at all times; (iii) The fund allows a maximum of seven-day redemption of proceeds; and


(iv) The fund invests at least ninety-five percent (95%) of its total assets in any combination of: the U.S. Government securities listed in Section 14 of the Appendix, securities rated in the highest short term rating category by an NAIC ARO, unrated securities determined by the fund's Board to be of comparable quality, securities of money market funds that are registered investment companies and collateralized repurchase agreements comprised of such obligations at all times. The remaining five percent (5%) may be invested in Second Tier Securities as that phrase is defined by Rule 2a-7 of the Investment Company Act of 1940 (17 CFR 270.2a-7).

(c) Bond Fund List

A bond mutual fund is eligible for listing on the Bond List if the fund meets the following conditions:

(i) The fund shall maintain the highest credit quality rating given by an NAIC ARO ; (ii) The fund shall maintain at least the highest market risk rating given by an NAIC

ARO to a fund that invests in class 1 bonds that are issued or guaranteed as to payment of principal and interest by agencies and instrumentalities of the U.S. Government, including loan-backed bonds and collateralized mortgage obligations, and collateralized repurchase agreements comprised of those obligations:

(iii) The fund shall allow a maximum of seven-day redemption of proceeds; (iv) The fund shall invest 100% of its total assets in the U.S. Government securities

listed in Section 14 of the Appendix, class 1 bonds that are issued or guaranteed as to payment of principal and interest by agencies and instrumentalities of the U.S. Government, including loan-backed bonds and collateralized mortgage obligations, and collateralized repurchase agreements comprised of those obligations at all times;

(v) The fund shall declare a dividend of its net investment income each day prior to

calculating its net asset value per share; (vi) The fund shall not invest in any derivative instruments, as that term is defined in

the NAIC Accounting Practices and Procedures Manual; (vii) The fund shall not invest in any bonds that receive some or all of the interest

portion of the underlying collateral and little or no principal, or in any bonds with coupons which reset periodically based on an index and which vary inversely with changes in the index; and

(viii) The fund shall not invest in the following types of securities: (a) leveraged or

deleveraged notes that pay a multiple or fraction of an index or indices, (b) notes that pay principal or interest linked to foreign currencies, non-U.S. dollar interest


rates, equity or commodities indices or any other index that is not composed of U.S. dollar denominated fixed-income instruments, or (c) notes that pay principal or interest linked to more than one index.

Section 3. Approval of Listing If the SVO determines that a money market fund has met the eligibility requirements for the U.S. Direct Obligations/Full Faith and Credit Exempt List or the Class 1 List, or that a bond mutual fund has met the eligibility requirements for the Bond List, the SVO will confirm such eligibility to the person who applied for the confirmation, in writing. Section 4. Exchange Traded Funds

(a) Regulatory Presumption Exchange Traded Funds (“ETFs” or “ETF”) are similar to mutual funds but they also differ from mutual funds in important ways. This section creates a presumption that shares of an ETF owned by an insurance company are to be reported as common stock. The presumption may be overcome if the ETF meets the conditions specified in Section 4 (b) of this Part. (b) ETFs Eligible for Classification Analysis An ETF is eligible for classification analysis under the procedure specified in Part Seven, Section 1 (c) of this Manual, if it operates pursuant to the terms of an exemptive order granted by the SEC (the “SEC Order”) that requires the:

(i) ETF not advertise or market itself as an open-end fund or as a mutual fund, (ii) ETF sponsor not register a future ETF with the SEC (that would rely on the requested relief) unless the sponsors have requested and received with respect to such future ETF either an SEC Order from the Commission or a no-action letter from the Division of Investment Management of the Commission that contains the condition stated in paragraph (i) above, and (iii) ETF be listed on a national securities exchange for as long as it operates in reliance on the SEC Order, provided, however, that:

(A) Any request submitted to the SVO for classification analysis of an ETF that is believed to meet these conditions, shall be submitted through the Regulatory Treatment Analysis Service Application process (the “Application”) described collectively in Part Two, Section 3 (f), and Part Four, Section 8 (g) of this Manual, and

(B) The insurance company shall submit copies of the prospectus or other document describing the ETF, the application of the fund sponsor requesting regulatory exemptions and identifying the agreed upon conditions (the “SEC Application”) and the corresponding final SEC Order, to the SVO, and


(C) The SVO shall have verified that the SEC Application and SEC Order include the conditions stated above.

(c) Determining whether an Eligible ETF has Debt Characteristics Subject to the right of the SVO to reject an EIV-Regulatory Treatment Analysis Service Application, , the SVO is authorized to conduct classification analysis of any ETF that meets the conditions specified in Section 4(b) of this Part. In its analysis, the SVO shall determine whether the component securities held in the ETF portfolio have the characteristics of debt instruments and whether the ETF structure permits a “look-through” analysis of its portfolio securities on a daily basis. If the SVO concludes that the ETF should be classified as a debt instrument, it shall place the name of the ETF on the List of Exchange Traded Funds Eligible for Reporting as a Schedule D Bond (the ETF List) in Section 20 of the Appendix to this Manual.

(d) The ETF List

Any ETF on the ETF List may be reported as a bond on Schedule D without the need for an insurer to file a further EIV-Regulatory Treatment Analysis Service Application. Any insurance company interested in an ETF that is not currently listed on the ETF List may follow the procedure discussed above to determine if the ETF is eligible for listing on the ETF List.

(e) Relationship between the Regulatory Treatment Analysis Service Application Process and Initial and Subsequent Reporting of ETFs

The EIV-Regulatory Treatment Analysis Service Application process is used solely to determine whether the ETF is eligible to be reported as a debt instrument. Accordingly, the Regulatory Treatment Analysis Service Application process is not a substitute for the procedures that govern the initial or subsequent filing of insurer owned securities with the SVO. An Initial Report of the purchase of shares of an ETF is made in accordance with the instructions contained in Part Five, Section 3 (h) of this Manual. A Subsequent Report of the purchase of shares of an ETF is made in accordance with the instructions contained in Part Five, Section 4 (e) (vii) of this Manual.

© 1990-2009 National Association of Insurance Commissioners July 1. 2009 PART TWELVE/Page1

Part Twelve: Capital and Surplus Debentures Section 1. Reporting To SVO All capital and surplus debentures must be filed with the SVO. A reporting insurance company that owns a capital or surplus debenture rated by an NRSRO at the equivalent of an NAIC 1 Designation, may amortize that debenture pursuant to paragraph 10 a. i. and ii. of SSAP No. 41 provided that the procedure specified in this Part has been followed and the name of the capital or surplus debenture appears on the List in Section 11 of the Appendix. A reporting insurance company that owns a capital or surplus debenture eligible for amortization treatment because it has been rated by an NAIC ARO at an NAIC 1 equivalent must file a copy of the most recent rating letter issued by the NAIC ARO with the SVO on or before June 1 and December 1 of each year. If there is a change in the NAIC ARO rating, the reporting insurance company must notify the SVO immediately. Capital and surplus debentures rated by an NAIC ARO at the NAIC 1 Designation equivalent will not be listed in the VOS Database but the list that appears in Section 11 of the Appendix to this Manual will also be published in the VOS Products – this reflects that these capital and surplus debentures are reported in the NAIC Financial Statement Blank in Schedule BA. Capital and surplus debentures that are rated by an NAIC ARO at an NAIC Designation equivalent of NAIC 2 through 6 and those not rated by an NAIC ARO are subject to the valuation method specified in paragraph 10 b. of SSAP No. 41. Please refer to Part Fourteen of this Manual for instructions relating to SVO valuation of capital and surplus debentures rated by an NAIC ARO at an NAIC Designation equivalent of NAIC 2 through 6 and those not rated by an NAIC ARO.

© 1990-2009 National Association of Insurance Commissioners July 1. 2009 PART THIRTEEN/Page 1

Part Thirteen: Replication (Synthetic Asset) Transactions (RSATs) Section 1. General

(a) Definitions

The following terms shall have the meaning ascribed in this section. The definitions of derivative instruments set forth in Section 6(a)(ii) of the Appendix to this Manual are incorporated by reference to this Part Thirteen.

(i) Approved RSAT means any transaction that meets either of the following conditions.

(A) Safe Harbor - Defined RSATs Any transaction structured according to the following defined transaction types shall be presumed to be an Approved RSAT and should be submitted to the SVO pursuant to this paragraph (A). Transactions that are structured to contain elements of risk other than those normally associated with the Defined RSAT descriptions below, and transactions involving assets that would not normally qualify for an NAIC Designation, are not eligible for safe harbor treatment and must be submitted to the SVO pursuant to paragraph (B) below. If the SVO receives a transaction that does not qualify for an NAIC Designation but would otherwise qualify as an Approved RSAT, the SVO will bring the transaction to the attention of the VOS/TF and await instructions on how to proceed with it.

(1) Bond with Interest Rate Swap In this RSAT, the insurer enters into a swap agreement to exchange a floating interest rate for a fixed interest rate, or vice versa.

(2) Bond with Credit Default Risk Swap In this RSAT, the insurer enters into a credit default swap to exchange the credit default risk of a bond for that of another bond. (3) Bond with Total Return Swap In this RSAT, the insurer enters into a total return swap to exchange the return of one Basket or Index of bonds for the return of another Basket or Index of bonds. (4) Bond with Foreign Currency Swap In this RSAT, the insurer enters into a currency swap to exchange the right to receive principal and/or interest in the currency of one country for that of another. A foreign currency swap can be structured on a fixed or floating rate bond. The swap can involve any currency. (5) Bond with Equity Option In this RSAT, the insurer holds a bond and enters into a call option to purchase common stock or a call on an equity index


(6) Convertible Bond with Sale of Equity Option In this RSAT, the insurer holds a convertible bond and enters into an agreement to sell the equity conversion rights connected with the bond to another party. (7) Bond with Index Amortizing Interest Rate Swap In this RSAT, the insurer enters into an agreement to exchange fixed interest rate payments for floating interest rate payments or vice versa. The notional amount of the swap, and therefore the size of the interest rate swap, amortizes by reference to an index, usually also tied to interest rates.

(8) Bond with Interest Rate Swap and Swaption Agreement In this RSAT, the insurer enters into two agreements. The first agreement is to exchange a fixed interest rate for a floating interest rate or vice versa. In the second agreement, the insurer enters into a swaption agreement by which it allows itself the option of transferring its obligations under the swap agreement. (9) Bond with Interest Rate Swap and Interest Rate Cap/Floor In this RSAT, the insurer enters into two agreements. The first agreement is to exchange a fixed interest rate for a floating interest rate or vice versa. In the second agreement, the insurer limits its exposure above or below a certain interest rate level by entering into a cap or floor agreement.

(B) Transactions Subject to RSAT Approval Review Transactions that are not structured according to one of the transaction types defined above must be submitted to the SVO for a determination of whether or not the transaction is an Approved RSAT. This determination shall be made through a review of the submitted documents that describe the characteristics of the derivative and cash components of the transaction. The description submitted shall include the following:

(1) An identification of the cash flows in the transaction; both from the insurer to other parties and from other parties to the insurer. (2) An identification of the resulting synthetic asset. (3) A demonstration of how the cash flows serve to produce the synthetic asset. The documentation should demonstrate that the combined cash flows will achieve the economic performance sought to be produced by the insurer and, therefore, qualify the transaction as an Approved RSAT. If the SVO receives a transaction that does not qualify for an NAIC Designation but would otherwise qualify as an Approved RSAT, the SVO will bring the transaction to the attention of the VOS/TF and await instructions on how to proceed with it.


(ii) Basket means a composite of specific financial instruments that are determined by agreement between two parties to be used as a statistical benchmark.

(iii) Cash Component means the instrument or portfolio of instruments owned by the insurance company that is identified by the insurer as the cash instrument component of the RSAT. In an RSAT, the credit quality of the Cash Component may differ from the credit quality of the reference securities.

(iv) Change in Credit Profile means an RSAT where the credit risk, as defined pursuant to Part Two, Section 4 of this Manual and denoted by NAIC Designation and/or NAIC ARO rating, of the Cash Component is different from the credit risk of the replicated (synthetic) asset. Examples of transactions that constitute a change in credit profile may include:

(A) A Bond with Credit Default Risk Swap where the risk of loss of principal results from the potential of default by an obligor different from the Cash Component obligor. This RSAT can also be structured to use the same obligor for the Cash Component and the replicated (synthetic) asset, but where the replicated (synthetic) asset is in a different position in the capital structure of the obligor. For example, the swap may result in a change from senior creditor's status to one of a subordinated debt holder.

(B) A Bond with Total Return Swap where the obligors in the Cash Component portfolio are different from those in the derivative instrument component.

Examples of transactions that do not, on their own, constitute a change in credit profile include:

(C) A Bond with Interest Rate Swap.

(D) A Bond with Foreign Currency Swap.

(v) Effective RSAT means a reported transaction that meets the following conditions:

(A) The transaction is determined to be an Approved RSAT and;

(B) The replicated (synthetic) asset is an otherwise permissible investment and;

(C) At the time the RSAT is entered into, the insurer's investment in the cash and derivative components have a market value that is not materially different from the market value ascribed to the RSAT and;

(D) The insurer's maximum potential loss in the Replicated (Synthetic) Asset does not exceed the sum of the book/adjusted carrying value of the Cash Component, and the derivative component and;


(E) The RSAT consists of a fixed income Cash Component and a derivative component and the term of the derivative component does not exceed the term to maturity of the Cash Component and;

(F) At no time is there exposure to a derivative transaction without a corresponding Cash Component assigned exclusively to the Replicated (Synthetic) Asset.

(vi) Identical RSAT means an RSAT entered into by multiple, yet legally separate and distinct, insurance companies of the same insurance company group through separate derivative contracts, but utilizing the same type of derivative transaction, Cash Component, counterparty, transaction effective date, scheduled termination date and assigned a single CUSIP Identifier.

(vii) Index means a composite of financial instruments whose composition is determined by application of objective, pre-defined rules to be used as a statistical benchmark. Financial instruments may be added to or deleted from the index universe.

(viii) Reference Security means a financial instrument or instruments whose creditworthiness is referenced in a derivative agreement (typically, a credit default risk swap) and that serves as the instrument by which a credit event is determined or triggered.

(ix) RSAT stands for Replication (Synthetic Asset) Transaction and means a derivative transaction entered into in conjunction with other investments in order to reproduce the investment characteristics of otherwise permissible investments. Notwithstanding the rule set forth in Part Two, Section 8 of this Manual pertaining to short-term investments, the term RSAT includes long term transactions (i.e., those with a when issued maturity of a year or more) and short term transactions (i.e., those with a when issued maturity of a year or less). Although transactions structured with a futures or forward equity contract may not exactly reproduce a specific asset, these transactions are permitted to the extent such RSATs are permissible investments according to the insurer's state of domicile. A derivative transaction entered into by an insurer as a hedging or income generation transaction shall not be considered to be a replication (synthetic asset) transaction. The insurer shall be responsible for determining that a derivative transaction is considered to be either a hedging, income generation or replication (synthetic asset) transaction prior to filing the transaction with the SVO. For a definition of hedging and income generation, see SSAP No. 31.

(x) RSAT Form refers to the Replication (Synthetic Asset) Transaction Form used to report the RSATs discussed and defined in this Part Thirteen.

(xi) RSAT-CCA Form refers to the Replication (Synthetic Asset) Transaction - Credit Change Annex Form used to report transactions where the RSAT results in a Change in Credit Profile from that of the Cash Component.

(xii) RSAT Basket Form refers to the Replication (Synthetic Asset) Transaction Form used to Report RSATs using Baskets discussed and defined in this Part Thirteen.


(xiii) RSAT Fixed Income Index Form refers to the Replication (Synthetic Asset) Transaction Form used to report RSATs using Indices discussed and defined in this Part Thirteen.

(xiv) RSAT Index List Application refers to the form used to apply for inclusion on the NAIC Approved RSAT Index List as discussed in this Part Thirteen.

(b) Instruction to Report Replication (Synthetic Asset) Transactions

Insurance companies shall report all RSAT transactions, including RSAT transactions of duration less than 365 days, to the SVO and the SVO shall apply the instructions contained in this Part Thirteen to all reported RSATs including Baskets and Indices.

(c) Special Instruction Regarding Identical RSATs

Only one insurance company that is a member of an insurance company group that has engaged in an Identical RSAT is required to file the RSAT with the SVO. All of the rules and procedures specified in this Part Thirteen shall be applicable to that filing. Notwithstanding this special instruction, all of the members of the insurance company group that have entered into an Identical RSAT shall nevertheless fully report their holdings as required by annual statement instructions for Schedule DB Part F. Any state insurance regulator who questions whether the RSAT entered into by members of an insurance company group meets the definition of an Identical RSAT may require the members of the group to file relevant information with the SVO so that the SVO may verify whether transactions claimed to be identical are identical within the meaning of the definition and/or whether the insurance companies have otherwise appropriately reported the RSAT transaction. The SVO shall have authority to make inquiries of insurance companies and to request insurance companies to file relevant information with it so it may verify whether transactions claimed to be identical are identical within the meaning of the definition and/or whether the insurance companies have otherwise appropriately reported the RSAT transaction.

(d) Counterparty Risk-Based Capital

The NAIC Designation assigned to a RSAT does not capture any counterparty risk associated with any derivative component of the RSAT. The credit risk of any particular counterparty is captured in the risk-based capital charge of the counterparty reported in Schedule DB - Part E - Section 1.


Section 2. Initial Reporting of Replication (Synthetic Asset) Transactions

(a) Informational Requirements - General

Each reporting insurance company is required to file the information listed under subsection (i) below for every RSAT filing. Additionally, for those RSATs exhibiting a Change in Credit Profile, the reporting insurance company shall be required to file the information listed under subsection (ii) below.

(i) General Filing Instructions

(A) RSAT Form

(B) If any Cash Component is required to be filed with the SVO and is not on the VOS Database with a current year Designation, the reporting insurance company is required to follow the reporting conventions and file the required documents set forth in Part Five, Section 3 of this Manual. (C) The reporting insurance company is required to file the prospectus, offering circular, detailed term sheet, trade confirmation, swap agreement, call option agreement, foreign currency agreement or other agreement or document, as appropriate to the transaction, corresponding to each derivative component of the reported Approved RSAT. (D) If the derivative component of the Approved RSAT relies on a counterparty that is not on the List of Counterparties Designated by the SVO (see Section 6(b)(ii) of the Appendix), refer to Part Nine, Section 1 of this Manual for a description of analytical procedures and Part Four, Section 9(b) of this Manual for a description of informational requirements.

(ii) Additional Instructions for RSATs with a Change in Credit Profile

(A) RSAT-CCA Form.

(B) If the transaction is one that involves securities, including Reference Securities that require an NAIC Designation, the reporting insurance company is required to follow the reporting conventions and file the required documents for such securities as set forth in Part Five, Section 3 of this Manual.

Section 3. Procedures Applied to Initial Reports of Replication (Synthetic Asset) Transactions

(a) Effective RSAT

The SVO shall verify that the reported RSAT meets those standards of effectiveness set forth in subsections (A), (D), (E), and (F) of Section 1(a)(v) of this Part. The reporting insurance company shall have responsibility for ensuring that the standards of effectiveness set forth in subsections (B) and (C) of Section 1(a)(v) of this Part have been met.


(b) Credit Assessment The SVO shall apply the procedures listed under subsection (i) below for every filing. Additionally, for those RSATs exhibiting a Change in Credit Profile, the SVO shall apply the procedures set forth in subsection (ii) below.

(i) General Procedures

(A) If the Cash Component is of a type that is required to be filed with the SVO and is not on the VOS Database with a current year designation, the SVO shall apply the procedures set forth in Part Seven of this Manual.

(B) If any counterparty involved in the RSAT is not currently listed on the SVO's List of Counterparties Designated by the SVO, the SVO shall apply the procedures set forth in Part Nine, Section 1 of this Manual. (C) The SVO shall review the documents corresponding to each derivative component of the reported Approved RSAT to verify that the relationships and identities of the parties to the agreement(s) are as reported on the RSAT Form. (D) If the SVO determines that the documentation provided comports with the reported RSAT, then the analyst shall assign the NAIC Designation of the Cash Component to the RSAT.

(ii) Additional Procedures for RSATs with a Change in Credit Profile

(A) If the transaction involves securities, including Reference Securities, which are on the VOS Database with a current year designation, the SVO shall assign that Designation associated with the Reference Securities to the RSAT.

(B) If the transaction involves securities, including Reference Securities, that are not on the VOS Database with a current year designation, the SVO shall apply the procedures set forth in Part Seven of this Manual to the securities. Upon determination of an NAIC Designation for such securities, the SVO shall apply that Designation associated with the Reference Securities to the RSAT.

Section 4. Subsequent Reporting of Replication (Synthetic Asset) Transactions

(a) Informational Requirements - General

Each reporting insurance company is required to file the information listed under subsection (i) below for every RSAT filing. Additionally, for those RSATs exhibiting a Change in Credit Profile, the reporting insurance company shall be required to file the information listed under subsection (ii) below.


(i) General Filing Instructions

(A) For the Cash Component, file the documentation required by Part Five, Section 4 of this Manual.

(B) There are no additional subsequent reporting requirements if there are no changes in any of the components of the RSAT. Any sale, termination or modification of the component pieces of an Approved RSAT must be reported to the SVO within 30 days. This can be done by submitting to the SVO either a Material Change ATF Form or a Renumbering Request for the affected RSAT. Any such sale, termination or modification that results in the RSAT ceasing to be effective pursuant to Section 1(a)(v) of this Part will immediately terminate the replication (synthetic asset) transaction.

(ii) Additional Instructions for RSATs with a Change in Credit Profile File the documentation required by Part Five, Section 4 of this Manual for securities, including Reference Securities, on the VOS Database. If a security is no longer listed on the VOS Database, file the documentation required by Part Five, Section 3 of this Manual.

Section 5. Procedures Applied to Subsequent Reports of Replication (Synthetic Asset) Transactions

(a) Credit Assessment

The SVO shall apply the procedures listed under subsection (i) below for every filing. Additionally, for those RSATs exhibiting a Change in Credit Profile, the SVO shall apply the procedures set forth in subsection (ii) below.

(i) General Procedure

(A) The SVO shall monitor the NAIC Designation assigned to the Cash Component pursuant to Part Two, Section 3(i)(ii) of this Manual.

(B) The SVO shall monitor the NAIC Designation assigned to the counterparties to the derivative component of the RSAT pursuant to Part Two, Section 3(i)(ii) and Part Nine, Section 1 of this Manual.

The reporting insurance company must report a change in the documentation relating to any derivative component to the SVO. The SVO shall assess the significance of such change.

(ii) Additional Procedures for RSATs with a Change in Credit Profile

The SVO shall monitor the NAIC Designation assigned to any security, including Reference Securities, involved in the RSAT pursuant to Part Two, Section 3(i)(ii) of this Manual.


Section 6. Additional Procedures for RSATs Using Baskets

(a) Initial Reporting

(i) Informational Requirements

Reporting insurance companies are required to file the information listed below for each replication they enter into using a Basket.

(A) RSAT Basket Form

(B) If any of the component instruments in a Basket are not on the VOS Database with a current year Designation, the reporting insurance company is required to follow the reporting conventions and file the required documents set forth in Part Five, Section 3 of this Manual for each of those instruments.

(C) If the derivative component of the RSAT relies on a counterparty that is not on the List of Counterparties Designated by the SVO (see Section 6(b)(ii) of the Appendix), refer to Part Four, Section 8 (b) of this Manual for a description of informational requirements.

(ii) Procedures Applied to Initial Reports of Baskets

(A) Effectiveness Testing

The SVO shall verify that the reported RSAT meets those standards of effectiveness set forth in subsections (A), (D), (E),and (F) of Section 1(a)(v) of this Part. The reporting insurance company shall have responsibility for ensuring that the standards of effectiveness set forth in subsections (B) and (C) of Section 1(a)(v) of this Part have been met.

(B) Credit Assessment If any component instrument of a Basket is not on the VOS Database with a current year Designation, the SVO shall apply the procedures set forth in Part Seven of this Manual. (C) Counterparty If any counterparty named in the RSAT is not currently listed on the SVO's List of Counterparties Designated by the SVO, the SVO shall apply the procedures set forth in Part Nine, Section 1 of this Manual.


(b) Subsequent Reporting

(i) Informational Requirements Reporting insurance companies are required to file the information listed below for each replication they enter into using a Basket on an annual basis.

(A) If there are additions or deletions to the component instruments in a Basket, the SVO should be notified within 30 days. If any new component instrument in a basket is not on the VOS Database, the reporting insurance company is required to follow the reporting conventions and file the required documents set forth in Part Five, Section 3 of this Manual for each of those instruments.

(B) If any of the existing or new component instruments in a Basket are on the VOS Database, but do not have a current year Designation, the reporting insurance company is required to follow the reporting conventions and file the required documents set forth in Part Five, Section 4 of this Manual for each of those instruments.

(ii) Procedures Applied to Subsequent Reports of Baskets

(A) The SVO shall monitor the NAIC Designation of those Basket components with NAIC Designations pursuant to Part Two, Section 3(i)(ii) of this Manual.

(B) The SVO shall monitor the NAIC Designation assigned to the counterparty to the derivative component of the RSAT pursuant to Part Two, Section 3(i)(ii) and Part Nine, Section 1 of this Manual.

Section 7. Additional Procedures for RSATs Using Indices

(a) Initial Reporting


Reporting insurance companies are required to file an RSAT Fixed Income Index Form with the SVO for each replication they enter into using an equity or fixed income Index. An insurance company may only enter into an RSAT using a fixed income Index if the Index is listed on the SVO's RSAT Index List Equity Indices are not required to be on the SVO's RSAT Index List as no credit quality evaluation is performed on equity investments.


(ii) Procedures Applied to Initial Reports of Indices

(A) Effectiveness Testing

The SVO shall verify that the reported RSAT meets those standards of effectiveness set forth in subsections (A), (D), (E), and (F) of Section 1(a)(v) of this Part. The reporting insurance company shall have responsibility for ensuring that the standards of effectiveness set forth in subsections (B) and (C) of Section 1(a)(v) of this Part have been met.

(B) Counterparty If any counterparty named in the RSAT Form is not currently listed on the SVO's List of Counterparties Designated by the SVO, the SVO shall apply the procedures set forth in Part Nine, Section 1 of this Manual.

(C) Verification The SVO will verify that any fixed income Index named in the RSAT Form is on the SVO's current RSAT Index List.

(b) Subsequent Reporting


(A) Reporting insurance companies are not required to file any annual information with the SVO for RSATs using an Index as long as the Index, if it is a fixed income Index, remains on the SVO's RSAT Index List. If a fixed Income index is removed from the list, any RSAT utilizing such Index will no longer qualify as an Approved RSAT. (B) The SVO shall monitor the NAIC Designation assigned to the counterparty to the derivative component of the RSAT pursuant to Part Two, Section 3(i)(ii) and Part Nine, Section 1 of this Manual.

(c) Procedures for Compilation of the RSAT Index List

(i) Compilation of List The staff is instructed to compile and maintain a list of fixed income Indices that meet the standards identified in subsection (ii) below (RSAT Index List). The RSAT Index List may be used by reporting insurance companies when filing fixed income Index RSATs with the SVO. If the SVO determines that an Index does not meet the eligibility requirements set forth below, the Index will not be included on the list. Publication of an Index on the RSAT Index List does not imply an opinion of the quality of such Index or of the Index vendor.


(ii) Eligibility Requirements. A fixed income Index may be eligible for listing on the RSAT Index List if the Index meets the following requirements:

(A) Rule Based

The Index is composed and valued based on the application of objective, pre-defined criteria. Additions to or deletions from the list must be made based on the application of such criteria.

(B) Information Available

Rating information about the components is, or can be made available, to the SVO. (C) Components Rated All, or substantially all, of the Index components are rated, or have obligors that are rated, by an NAIC ARO or have received a current year NAIC Designation from the SVO. In the event that not all of the Index components are NAIC ARO rated or have a current year NAIC Designation, the reporting insurance company may either (1) file the component with the SVO to obtain a Designation pursuant to Part Five, Section 3 of this Manual, or (2) assign an NAIC 5* Designation to the unrated instrument, as long as it is current on principal and interest or an NAIC 6* Designation if it is not or if the status is not determinable. Instruments assigned an NAIC 5* Designation or NAIC 6* Designation, on a combined basis, can represent no more than 5% of the Index's total value. (D) Independent

The Index is predominantly composed of instruments whose issuers are unaffiliated with the Index vendor.

(iii) Initial Reporting

In order to apply for listing of a fixed income Index on the RSAT Index List, a reporting insurance company should submit the following to the SVO:

(A) A listing of all Index components;

(B) The ratings of all NAIC ARO -rated Index components from all NAIC AROs that have rated the component; and (C) The actual NAIC Designation for each Index component with an NAIC Designation or an equivalent NAIC Designation for each component rated by an NAIC ARO using the conversion instructions set forth in Part Four Section 2 (d)


(i) (A) and (B) and the rating equivalents set forth in Section 4 of the Appendix to this Manual, if rated and monitored by one NAIC ARO, the equivalent NAIC Designation; if rated and monitored by two NAIC AROs, then the lowest rating and if rated and monitored by three or more NAIC AROs, then the second lowest rating. In the case of a security rated and monitored by three or more NAIC AROs, the NAIC ARO ratings for a security are ordered according to their NAIC Designation equivalents and the rating that is second lowest will be selected, even if that rating is equal to that of the first lowest; and

(D) A demonstration and certification by the insurance company, as evidenced by an executed certificate by an officer of the insurance company, that the eligibility requirements set forth in subsection (c)(ii) above have been met.

(iv) Subsequent Reporting

The reporting insurance company shall annually submit to the SVO the items listed in subsection (c)(iii) above for each fixed income Index it desires to maintain on the RSAT Index List. Any Index on the RSAT Index List for which the required documents are not submitted, or any Index that no longer meets the eligibility requirements set forth in section (c)(ii) above, shall be deleted from the RSAT Index List.

(v) Publication

The SVO shall publish the RSAT Index List quarterly in Section 15 of the Appendix to this Manual.

© 1990-2009 National Association of Insurance Commissioners July 1. 2009 PART FOURTEEN/Page 1

Part Fourteen: Schedule BA Assets with Underlying Characteristics of Bonds or Preferred Stock Section 1. Reporting Certain Schedule BA Assets

(a) Application of Reporting Instruction

This Part Fourteen applies to any life insurance company, fraternal benefit society or other entity, domiciled in any state of the United States, its territories or possessions and required by applicable law to use an NAIC Designation to calculate an asset valuation reserve (AVR) and a risk-based capital (RBC) charge for a Schedule BA asset (hereafter a “reporting entity.”)

(b) Fixed Income and Preferred Stock Like Schedule BA Assets Defined

The NAIC Financial Statement Blank provides that long-term invested assets that are not clearly or normally includable in any other invested asset schedule are to be reported on Schedule BA of the NAIC Financial Statement Blank. Pursuant to applicable Annual Statement Instructions, a reporting entity determines if a Schedule BA fixed or variable interest rate asset has the underlying characteristic of a bond or other fixed income instrument or that a joint venture, partnership or limited liability company interest has the underlying characteristic of a fixed income instrument. The Annual Statement Instructions provide, that a Schedule BA asset with the underlying characteristics of a bond or other fixed income instrument not filed with the SVO, must be designated as class six for purposes of calculating an AVR and RBC. In furtherance of the regulatory objectives embodied in the Annual Statement Instructions, this Part provides a procedure through which a reporting entity shall file a Schedule BA asset with the SVO to obtain an NAIC Designation other than NAIC 6 in order to obtain a more favorable AVR. The SVO is hereby charged with responsibility for assigning an NAIC Designation in the circumstances described above, in accordance with Section 1 (e) of this Part.

(c) Schedule BA Assets to be filed with the SVO

(i) Assets with Underlying Fixed Income Characteristics

Whenever a reporting entity shall determine that a long-term investment properly reported in Schedule BA has the underlying characteristic of a bond or other fixed income instrument and wishes to obtain a more favorable NAIC Designation for the investment for AVR purposes, it shall, file relevant documents describing the investment with the SVO for the purpose of obtaining an NAIC Designation. For purposes of this subsection, relevant documents shall mean the reporting entity’s investment committee memorandum, the obligor’s Audited Financial Statement, the loan agreement, a description of the investment, its structure, the economic activity that will generate the cash flow to repay the obligation, and such other documents as are necessary for the SVO to conduct a credit analysis. In the cover letter transmitting the documents, the reporting entity shall state its opinion and explain and delineate the rationale that supports the reporting entity’s opinion that the asset has the underlying characteristic of a bond or of another fixed income instrument.


(ii) Special Instruction – Capital and Surplus Debentures

(A) Application

This special instruction applies only to capital and surplus debentures that are rated by an NAIC ARO at an NAIC Designation equivalent of NAIC 2 through 6 and those not rated by an NAIC ARO which are subject to paragraph 10 b. of SSAP No. 41. For reporting guidance applicable to capital and surplus debenture rated by an NAIC ARO at the equivalent of an NAIC 1 Designation, which may be amortized pursuant to paragraph 10 a. i. and ii. of SSAP No. 41, see Part Twelve and Section 11 of the Appendix of this Manual.

(B) Where to Report Capital and Surplus Debentures

Capital and surplus debentures rated by an NAIC ARO at the equivalent of an NAIC 2 through 6 and those not rated by an NAIC ARO are reported on the surplus notes line of Schedule BA, not on Schedule D.

(C) Clarification on Filing Exemption

Capital and surplus debentures rated by an NAIC ARO at the equivalent of an NAIC 2 through 6 and those not rated by an NAIC ARO are not eligible for the filing exemption discussed in Part Four, Section 2 (d) of this Manual and should not be reported with an FE administrative symbol as permitted in Section 4 below.

Capital and surplus debentures rated by an NAIC ARO at the equivalent of an NAIC 1 are also not eligible for the filing exemption discussed in Part Four, Section 2 (d) of this Manual, but are filed with the SVO in accordance with the procedure specified in Part Twelve of this Manual and Section 11 of the Appendix to this Manual.

(D) Valuation of Capital and Surplus Debentures

1. Valuation Methodology - Capital or surplus debentures that are rated by an NAIC ARO at the equivalent of an NAIC 2 through 6 Designation and capital or surplus debentures not rated by an NAIC ARO are valued in accordance with the procedure specified in SSAP No. 41. For the population of capital and surplus debentures identified in the preceding sentence, SSAP No. 41 requires the reporting entity to report the lesser of amortized cost (a value that may be unique to the specific reporting entity) or, either: outstanding face value or outstanding face value times a statement factor, provided that any negative amount generated using the statement factor will result in a zero balance (not a negative asset balance) and subject to the other considerations that may apply to the reporting entity as specified in SSAP No. 41.


2. Requirement for Filing Information with the SVO - A reporting entity that owns a capital or surplus debenture rated by an NAIC ARO at the equivalent of an NAIC 2 through 6 Designation and/or a capital or surplus debentures not rated by an NAIC ARO, shall report to the SVO the name of the issuer of the debenture, the NAIC company number of the issuer, the description of the debenture (for example, the “7 % Surplus Note of the ABC Company”) and its CUSIP number on the appropriate ATF Form.

3. Directive to the SVO - Upon receipt of the information provided by the reporting entity pursuant to paragraph 2 above, the SVO shall obtain the most recently filed statutory financial statement of the issuer of the capital or surplus debenture and determine whether an insurance company holder of the surplus note should use the outstanding face value valuation method or the product of face value and statement factor method. If the SVO determines that the latter method should be used, it shall also calculate the applicable statement factor. The SVO shall then publish its determinations in the VOS Database and subsequently in the VOS Products under a heading that combines the NAIC issuer and the CUSIP number for the debenture. Any insurance company that does not see an SVO determination of the valuation method to be used for a capital or surplus debenture it owns, should follow the procedure described in this Part to request that determination from the SVO.

4. Credit Ratings Inapplicable - Because capital and surplus debentures rated by an NAIC ARO at the equivalent of an NAIC 2 through 6 Designation and/or a capital or surplus debentures not rated by an NAIC ARO do not rely on credit ratings for valuation calculations, information for capital and surplus debentures is reported to the SVO solely for purposes of the valuation calculations indicated in this paragraph (D) and not for a request for classification as an asset with underlying characteristics of a fixed income investment or with a request for a credit quality designation.

(d) Reporting Exemptions for Certain Separate Accounts

Reporting entities need not report Schedule BA assets to the SVO otherwise reportable under this section if such assets are held in a separate account that is not subject to either the AVR or risk-based capital (RBC) charges. (e) Directive to the SVO

Upon receipt of the reporting entity’s submission of a Schedule BA asset with underlying characteristic of a bond or other fixed income instrument, the SVO is hereby directed to conduct a credit assessment, assess the reporting entity’s asset classification decision and conduct a valuation analysis of the asset. Upon conclusion of its analysis, the SVO shall provide the reporting entity with a written letter, in a form to be developed by the SVO, setting forth its determination as to the NAIC Designation, asset classification and the Unit Price assigned to the asset. Upon receipt of the aforementioned letter, the reporting entity shall report the aforementioned analytical values obtained from the SVO for the asset, on the NAIC Financial Statement Blank.


(f) Reporting on Schedule BA Assets

Notwithstanding the ability for life insurance companies to obtain NAIC Designations from the SVO for asset classification decisions and valuations for Schedule BA assets with the underlying characteristic of a bond or other fixed income instrument, the reporting entity shall report the investment on Schedule BA and not on Schedule D of the NAIC Financial Statement Blank.

Section 2. Maintenance and Monitoring of SVO Determinations for Schedule BA Assets

(a) Maintaining and Publishing SVO Determinations

SVO determinations relative to Schedule BA assets that have the underlying characteristic of a bond or other fixed income instrument shall be compiled in a separate database within the NAIC’s VOS Database. Subsequently, the SVO determinations for Schedule BA assets shall be published as a part of the compilation of securities and investments in the Valuation of Securities publication under a separate heading to facilitate the work of the members of the NAIC and their regulatory staff.

(b) Monitoring of Credit Quality

The SVO shall monitor improvement or deterioration of credit quality for Schedule BA assets entered into the VOS Database. Whenever newly disclosed information suggests that the likelihood of payment associated with a Schedule BA asset has changed, the SVO shall analyze whether the NAIC Designation or Unit Price then assigned to the investment should be adjusted. The reporting entity is responsible for providing the SVO with information relative to a change in the financial capability of the obligor. By way of illustration of the type of events that should be reported, and not by way of limitation, the reporting entity should report any of the following or similar events: a reorganization of the issuer or the obligation; any amendment of the payment terms in the contract; any request for an extension of time for payment beyond contractual grace periods, or any other event which indicates that the financial performance of the issuer or the investment has materially changed.

(c) Annual Review Requirement

On at least an annual basis, reporting entities that have made an Initial Filing of a Schedule BA asset shall file a Subsequent Report with the SVO (Initial Filing and Subsequent Filing is defined in Part Five of this Manual.)

On at least an annual basis, the SVO shall conduct a review of the credit quality and value of the Schedule BA assets in the VOS Database to determine whether the NAIC Designation and Unit Price assigned to the Schedule BA asset should be adjusted to reflect the most recent information about the issuer’s performance. Upon the conclusion of its annual review, the SVO shall make any necessary adjustment to the NAIC Designation and/or the Unit Price then assigned to Schedule BA assets.


(d) Deletion of Schedule BA Assets from the VOS Database

(i) Maintenance of Database

The SVO will delete any Schedule BA asset from the VOS Database on evidence that the investment has matured or that it is no longer owned by an insurance company.

(ii) Failure to File Annual Review Information

The SVO will delete a Schedule BA asset from the VOS Database if a reporting entity has failed to provide sufficient or timely information that would permit the SVO to conduct the annual review assessment required by Section 2 (c) of this Part. Schedule BA assets that have the underlying characteristic of a bond or other fixed income instrument assigned the administrative symbol NR shall be deleted from the VOS Database if any information deficiency is not rectified by the end of the first quarter following the previous year-end. However, the SVO will not delete a Schedule BA asset that has the underlying characteristic of a bond or other fixed income instrument that has been assigned the administrative symbol NR if an ATF annual update filing has been filed and the SVO has received the information required to assign an NAIC Designation to the Schedule BA asset.

Section 3. NAIC Designation Categories, Valuation Indicators and Administrative Symbols

(a) NAIC Designations

NAIC Designations assigned to Schedule BA assets that have the underlying characteristics of a bond are assigned without a prefix. NAIC Designations assigned to fixed income instruments deemed to most resemble a preferred stock are assigned with the Valuation Indicator P or RP as a prefix, as further discussed in Section 3 (b) of this Part.

(b) Valuation Indicators

Valuation Indicators are fully applicable to those fixed income instruments that most resemble a preferred stock. If the Valuation Indicator P is placed in front of the NAIC Designation, the SVO has concluded that the Schedule BA fixed income instrument is like a perpetual preferred stock for the purposes of valuation under SAP. If the valuation indicator RP is placed in front of the NAIC Designation, the SVO has concluded that the Schedule BA fixed income instrument is like a redeemable preferred stock for the purposes of valuation under SAP.

(c) NAIC Designations Related to Special Reporting Instructions

The NAIC 5* and 6* Designations Related to the Special Reporting Instruction as discussed in Part Three and Part Four, Section 3 of this Manual and the instruction regarding Unit Price of NAIC 6* securities discussed in Part Four, Section 3 (g) of this Manual, are fully applicable to Schedule BA assets with the underlying characteristics of a bond or preferred stock.


Section 4. Administrative Symbols Administrative symbols applicable to bonds and preferred stock are also applicable to Schedule BA assets with the underlying characteristic of a bond or other fixed income instrument, respectively. Section 5. Administrative Procedures; Reporting Conventions; Pricing; Credit Assessment

(a) Administrative Procedure and Reporting Conventions

The general administrative and reporting instructions applicable to bonds and preferred stock that are contained in Part Four and Part Five of this Manual apply, respectively, to Schedule BA assets that have the underlying characteristic of a bond or other fixed income instrument. However, because Schedule BA assets with the underlying characteristic of a bond or other fixed income instrument may be unique transactions, and because their structure may differ from that of bonds or preferred stock, it is not possible for the SVO to provide lists of required documentation that would be useful to the reporting entity in all instances. To avoid a delay in assessing the credit quality, asset classification or valuation of the Schedule BA asset submission, the reporting entity should take care to provide financial and other information for the investment that would enable the SVO to assess the financial strength of the obligor or the reliability of the process by which cash flow for repayment of the obligation is to be generated. (b) Pricing Methodologies

The pricing methodologies contained in Part Six of this Manual are applicable to the valuation of Schedule BA assets that have the underlying characteristic of a bond or other fixed income instrument. Nevertheless, the SVO has discretion to use whatever other methodology would produce a reasonable valuation for a Schedule BA asset reported to the SVO if the methodologies in Part Six are not appropriate to value a given Schedule BA asset.

(c) Credit Assessment Procedures Applicable to Schedule BA Assets

Subject to the directive contained in Part Two, Section 3(e) of this Manual, the SVO shall have discretion to apply any credit assessment methodology or any combination of credit assessment methodologies detailed in Part Seven of this Manual to assess the credit quality or asset classification of a Schedule BA asset that has the underlying characteristic of a bond or other fixed income instrument.

© 1990-2009 National Association of Insurance Commissioners July 1. 2009 PART FIFTEEN/Page 1

Part Fifteen: Creation and Maintenance of List of Brokers-Dealers Eligible to Act as Custodian for Insurance Company Assets Section 1. List to be Compiled The staff shall create and maintain a list of broker-dealers eligible to serve as custodian of insurance company assets. To this end, the name of those broker-dealers who apply for listing and who meet the minimum requirements identified in Section 2 below, shall be placed on the List of Brokers-Dealers Eligible to Act as Custodian for Insurance Company Assets established as Section 21 of the Appendix to this Manual (the “List”).

Section 2. Purposes of the List; Status under State Law; Status of Broker-Dealer on List

a) Purposes of List

The List may be used by state insurance departments to monitor whether a broker-dealer holding assets of an insurance company meets the minimum criteria identified in the NAIC Model Act on Custodial Agreements and The Use of Clearing Corporations and the Model Regulation on Custodial Agreements and the Use of Clearing Corporations and set forth in Section 2 below.

b) Status of the List under State Law

No inference should be drawn from anything in this Part Fifteen, that the List is approved for use in any state. Individual states may have guidance (as statutory law, by regulation, procedures, bulletins, practices or otherwise) for the custody of insurance company assets. If an individual state permits the use of a broker-dealer as a custodian nothing stated herein shall be interpreted to suggest that the List created hereby is an approved list in any state or has any official status under the guidance adopted by a state. It is recommended that the user of this list contact the domiciliary state regulator to ascertain whether any broker-dealer on the list is an approved custodian for a particular insurance company. c) Status of Broker-Dealers on the List

This Part Fifteen contemplates a voluntary process whereby a broker-dealer may apply to have its name placed on the List. The rationale that would guide any specific broker-dealer to apply to place its name on the List or to refrain from doing so is entirely an internal business decision of the broker-dealer. Broker-dealers who meet the requirements for placement on the List may choose not to apply to have their names placed on the List and those who have previously applied to have their name placed on the List may choose to withdraw their names from the List. Accordingly, no inference should be drawn from the fact that the name of any specific broker-dealer does not appear on the List. And no inference should be drawn from the fact that the name of a broker-dealer formerly placed on the List no longer appears therein.


Section 3. Eligibility Standards: Before being added to the List, the staff shall verify that the broker-dealer:

a) Is registered with and subject to the jurisdiction of the United States Securities and Exchange Commission (SEC);

b) Is a current member of the National Association of Securities Dealers or other self-

regulatory organization;

c) Has current membership in Securities Investors Protection Corporation (SIPC);

d) Maintains insurance protection for each insurance company’s custodied assets in excess of that provided by SIPC in an amount equal to or greater than the market value of each respective insurance company’s custodied assets;

e) Participates in a clearing corporation; and

f) Has Tangible Net Worth of at least $250,000,000 (where tangible net worth is defined as

shareholders equity, less intangible assets, as reported in the broker/dealer’s most recent Annual or Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (S.E.C. Form 10-K) filed with the SEC.)

For purposes of paragraph 3 (e) above, clearing corporation means a corporation as defined in Uniform Commercial Code Section 8-102 (a)(5), that is organized for the purpose of effecting transactions in securities by computerized book-entry, except that with respect to securities issued by institutions organized or existing under the laws of a foreign country or securities used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing business therein, “clearing corporation” may include a corporation that is organized or existing under the laws of a foreign country and which is legally qualified under those laws to effect transactions in securities by computerized book-entry. Clearing corporation also includes the “Treasury/Reserve Automated Debt Entry Securities System” and “Treasury Direct” book-entry securities systems established pursuant to 31 U.S.C. Section 3100 et seq., 12 U.S.C. pt. 391 and 5 U.S.C. pt. 301.

Section 4. Administration

a) A broker-dealer who meets the minimum requirements identified in Section 3 above may submit an ATF Initial Filing Form, a copy of its most recent Annual or Transition Report (pursuant to Section 13 or 15(d) of the Securities

Act of 1934 (SEC Form 10K) and such other evidence as demonstrates that the broker-dealer meets the Eligibility Standards stated in Section 3 above, to the SVO.

b) Upon receipt of the required documentation and the filing fee, the SVO shall verify

whether the broker-dealer meets the stated requirements and if so, the SVO shall place


the name of the broker-dealer on the List. If the broker-dealer does not meet the stated requirements or has not paid the filing fee, then the SVO shall send a letter stating the deficiencies.

c) On an annual basis, the broker-dealer may renew its listing by submitting the then

applicable renewal fee and copies of the most recent Annual or Transition Report and other relevant documentation.

d) A broker-dealer on the List that fails to provide the required documents and renewal fee

or who no longer meets the minimum eligibility standards identified in Section 3 above may be deleted from the broker-dealer list without notice.

Appendix to

Purposes and Procedures Manual of the NAIC

Securities Valuation Office Effective for Statements ending December 31, 2009

July 1, 2009

July 1. 2009 © 1990-2009 National Association of Insurance Commissioners A-1

TABLE OF CONTENTS

APPENDIX

Page A-

Section 1: Securities Valuation Office Staff and Responsibilities ....................................................... 1

Section 2. NAIC Valuation of Securities (E) Task Force Members .................................................... 6

Section 3. List of Fees for Services and Publications............................................................................ 7

Section 4. List of NAIC Acceptable Rating Organizations and the Rating Equivalent of Their Systems to

NAIC Designations.................................................................................................................................. 12

Section 5. Standard Industrial Classification (SIC) Codes ................................................................. 16

Section 6. List of Counterparties Rated by the SVO for Schedule DB—Part E—Section 1 .......... 20

Section 7. List of Foreign (non-U.S.) Jurisdictions Eligible for Netting for Purposes of Determining

Exposures to Counterparties for Schedule DB - Part E - Section 1 ................................................... 26

Section 8. List of Money Market Funds Filed with the SVO (U.S. Direct Obligations/Full Faith and Credit

Exempt List) ............................................................................................................................................ 27

Section 9. List of Money Market Funds Filed with the SVO (Class 1 Funds).................................. 33

Section 10. List of Bond Mutual Funds Filed with the SVO (Bond Funds) ..................................... 39

Section 11. List of Capital and Surplus Notes Eligible for Amortized Value Accounting .............. 40

Section 12. List of Banks ....................................................................................................................... 41

Section 13. Asset Valuation Reserve and Interest Maintenance Reserve ......................................... 45

Section 14. List of Securities that are Backed by the Full Faith and Credit of the United States

Government ............................................................................................................................................. 46

Section 15: RSAT Index List................................................................................................................. 48

Section 16. Filing Exemption List for Direct or Full Faith and Credit Obligations of the United States

Government ............................................................................................................................................. 50

Section 17. U.S. Government NAIC ARO Rated Issuer Filing Exemption List .............................. 52

Section 18. Discretionary Government Filing Exemption List.......................................................... 53

Section 19. List of U.S. Government Securities Required to be Filed with the SVO........................ 54

Section 20. List of Exchange Traded Funds Eligible for Reporting as a Schedule D Bond............. 56

Section 21. List of Brokers-Dealers Eligible to Act as Custodian for Insurance Company Assets . 57

July 1. 2009 © 1990-2009 National Association of Insurance Commissioners

A-1

Section 1: Securities Valuation Office Staff and Responsibilities

SVO MANAGING DIRECTOR: CHRIS EVANGEL

Derline Morris Senior Administrative Assistant

SENIOR SVO COUNSEL: ROBERT CARCANO

MANAGER, BUSINESS OPERATIONS: STEPHEN MALUK

Rodney Cornish SVO Business Systems Analyst Aida Guzman Supervisor, Records

Sophia Gilbert Administrative Assistant Ronald Stuart Operations Specialist Brenda Watson Operations Clerk

MANAGER, INVESTMENT RESEARCH UNIT: JOSEPH PRAKASH

Gary Mescher Senior Advisor Christopher Fahey Analyst Frank Meyers Analyst Wayne Cotter Financial Editor/State & Internal Trainer

Tom Dunn Analyst

Azar Abramov Associate Research Analyst

MANAGER, FINANCIAL & INSURANCE MARKET RESEARCH UNIT: WESLEY BEAL

Shanique Hall Analyst Dimitris Karapiperis Analyst John Hopman Analyst


A-2

MANAGER, CREDIT & REGULATORY ANALYSIS

TEAM I: SHARAD GUPTA

ANALYST SIC INDUSTRY DESCRIPTION

Pradip Vyas - Senior Advisor 6500-6513 Real Estate - Operators 6530-6553 Real Estate - Agents, Managers, Dealers, & Developers 6798 Real Estate Investment Trusts ("REITS") Jeffrey Baskin - Analyst 1300-1389 Oil & Gas Extraction 2900-2999 Petroleum Refining & Related Industries 4600-4619 Pipelines, Except Natural Gas 4910-4911 Electric Services 4920 Gas Production & Distribution 4922-4924 Natural Gas Transmission & Distribution 4925 Mixed, Manufactured, or Liquefied Petroleum Gas Production 4930-4932 Electric, Gas & Other Services Combined 4939 Combination Utilities, Not Elsewhere Classified 4952 Sewerage Systems 4953 Refuse Systems 4955 Hazardous Waste Management 4959 Sanitary Services 4961 Steam & Air-Conditioning Supply 4971 Irrigation Systems 4991 Cogeneration Services & Small Power Producers Debra Kelly - Analyst 2800-2899 Chemicals & Allied Products 8000-8099 Health Services 8800-8822 Private Households Robert Nelson - Analyst 4000-4013 Railroad Transportation 4100-4173 Transit & Passenger Transportation 4200-4231 Motor Freight Transportation & Warehousing 4300-4311 United States Postal Service 4400-4499 Water Transportation 4500-4581 Transportation by Air 4700-4789 Transportation Services 7500-7549 Automotive Repair, Service & Parking 7600-7699 Miscellaneous Repair Services 8600-3699 Membership Organizations & Related Services Hankook Lee - Analyst 1000-1099 Metal Mining 1200-1241 Coal Mining 1400-1499 Mining & Quarrying of Nonmetal Minerals Except Fuels 3200-3299 Stone, Clay, Glass, & Concrete Products 3300-3399 Primary Metal Business 3900-3999 Miscellaneous Manufacturing Industries Karen Stefancic – Analyst 2700-2796 Printing, Publishing & Allied Industries 4800-4899 Communications 7800-7841 Motion Pictures Rosemarie Kalinowski – Analyst 4900 Electric, Gas, And Sanitary Services Martin Kounitz -Analyst 3400-3499 Fabricated Metal, Except Machinery & Transportation Equipment 3700-3799 Transportation Equipment 4940-4941 Water Supply


A-3


TEAM II: HARRY OLSEN


Richard Newman - Senior Advisor Subsidiary Valuations

Kevin Driscoll - Analyst Asset / Mortgage-Backed Securities Credit Tenant Loans (CTLs) Equity-Linked Securities Exchange Traded Funds (ETFs) Replication (Synthetic Asset) Transaction (RSATs) Structured Notes Thomas Hickey - Analyst 0900-0971 Fishing, Hunting, & Trapping 2400-2499 Lumber & Wood Products, Except Furniture 5800-5813 Eating and Drinking Places 7000-7041 Hotels, Other Lodging Places 7200-7299 Personal Services 7900-7999 Amusement & Recreation Services 8100-8111 Legal Services 8200-8299 Educational Services 8300-8399 Social Services 8900-8999 Miscellaneous Services 9900-9999 Non-Classifiable Establishments Elizabeth Muroski - Analyst 2200-2299 Textile Mill Products 2300-2399 Apparel & Other Finished Products 3100-3199 Leather & Leather Products 5200-5271 Building Materials, Hardware, Garden - Retail 5300-5399 General Merchandise Stores 5400-5499 Food Stores 5500-5599 Automotive Dealers & Gasoline Service Stations 5600-5699 Apparel & Accessory Stores 5700-5799 Home Furniture & Equipment Stores 5900-5999 Miscellaneous Retail John Quinn - Senior Analyst 3500-3599 Industrial & Commercial Machinery & Computer Equipment Edward Sabatine – Associate Analyst 3600-3699 Electrical & Other Electrical Equipment & Components, Except Computers Kathleen Uckert – Analyst 0800-0851 Forestry 2600-2679 Paper & Allied Products 3000-3089 Rubber & Miscellaneous Plastic Products Norman Schindler - Analyst 3800-3873 Technical Instruments, Photo Goods, Watches 5000-5099 Wholesale, Durable Goods 5100-5199 Wholesale, Non-Durable Goods John Yazzo - Analyst 0100-0191 Agriculture Production - Crops 0200-0291 Agriculture Production - Livestock, Animal Specialties 0700-0783 Agricultural Services 1500-1542 Building Construction - General Contractors, Operative Builders 1600-1629 Heavy Construction - Not Building Construction 1700-1799 Construction - Special Trade Contractors 2000-2099 Food & Kindred Products 2100-2141 Tobacco Products 2500-2599 Furniture & Fixtures


A-4


TEAM III: HILARY RENZ


Jeffrey Evans - Analyst Schedule BA Assets

Gail Benintendi - Senior Analyst 6200-6289 Security & Commodity Brokers

6300-6399 Insurance Carriers

6400-6411 Insurance Agents, Brokers and Services

Michael Graves - Analyst 6000 Depository Institutions

Angela DeMarco – Senior Associate Analyst 6020 Commercial Banks

6021 National Commercial Banks

6022 State Commercial Banks

6029 Commercial Banks, NEC

6030 Savings Institutions

6035 Savings Institutions, Fed Charter

6036 Savings Institutions, Not Fed Charter

6080 Foreign Banks, Branches, Agencies

6081 Branches, Agencies-Foreign Banks

6082 Foreign Trade & Int’l Banking

6091 Non-deposit Credit Institutions

6099 Functions Related to Deposit NEC Banking, NEC

6100-6199 Non-depository Credit Institutions

6700-6795 Holding and Other Investment Offices

6799 Investors, Not Elsewhere Classified Max Rosefort - Analyst 7300-7389 Business Services

8400-8422 Museums, Art Galleries, & Botanical & Zoological Gardens

8700-8748 Engineering, Accounting, Research, Management & Related Services James Mitchell - Analyst 9100 Government, Except Finance

9200 Justice, Public Order, & Safety

9300-9350 Municipal - Public Finance, Taxation, & Monetary Policy

9500 Administration of Environmental Quality, Housing Programs

9600 Administration of Economic programs

9700 National Security & International Affairs

9730 Foreign Governments

9800 Supra-Nationals


A-5

SECURITIES VALUATION OFFICE STAFF EMAIL AND TELEPHONE NUMBERS Telephone: 212-398-9000 Facsimiles (212) 382-4206 or (212) 382-4207

(212) 386-1923 [email protected] Baskin, Jeffrey Analyst (212) 386-1978 [email protected] Beal, Wesley Manager, Financial & Insurance Market Research Unit (212) 386-1932 [email protected] Benintendi, Gail Analyst (212) 386-1945 [email protected] Carcano, Robert Senior SVO Counsel (212) 386-1933 [email protected] Cornish, Rodney SVO Business Systems Analyst (212) 386-1984 [email protected] Cotter, Wayne Financial Editor/State & Internal Trainer (212) 386-1965 [email protected] DeMarco, Angela Sr. Associate Analyst (212) 386-1940 [email protected] Driscoll, Kevin Analyst (212) 386-1957 [email protected] Dunn, Tom Analyst (212) 386-1920 [email protected] Evangel, Chris SVO Managing Director (212) 386-1977 [email protected] Evans, Jeffrey Analyst (212) 386-1967 [email protected] Fahey Christopher Analyst (212) 386-1959 [email protected] Gilbert, Sophia Administrative Assistant II (212) 386-1976 [email protected] Graves, Michael Analyst (212) 386-1960 [email protected] Gupta, Sharad Manager, Credit & Regulatory Unit (212) 386-1975 [email protected] Guzman, Aida Supervisor, Records (212) 386-1930 [email protected] Hall, Shanique Analyst, Financial & Insurance Market Research Unit (212) 386-1947 [email protected] Hankook, Lee Analyst (212) 386-1922 [email protected] Hickey, Thomas Analyst (212) 386-1926 [email protected] Hopman, John Analyst (212) 386-1970 [email protected] Kalinowski, Rosemarie Analyst (212) 386-1949 [email protected] Karapiperis, Dimitris Analyst, Financial & Insurance Market Research unit (212) 386-1983 [email protected] Kelly, Debra Analyst (212) 386-1964 [email protected] Kounitz Martin Analyst (212) 386-1980 [email protected] Maluk, Stephen Manager, Business Operations (212) 386-1966 [email protected] Mescher, Gary Sr. Advisor, Investment Research Unit (212) 386-1981 [email protected] Meyers, Frank Analyst (212) 386-1936 [email protected] Mitchell, James Analyst (212) 386-1924 [email protected] Morris, Derline Sr. Administrative Assistant (212) 386-1941 [email protected] Muroski, Elizabeth Analyst (212) 386-1935 [email protected] Nelson, Robert Analyst, Investment Research Unit (212) 386-1942 [email protected] Newman, Richard Sr. Advisor, Credit & Regulatory Unit (212) 386-1925 [email protected] Olsen, Harry Manager, Credit & Regulatory Unit (212) 386-1961 [email protected] Prakash, Joseph Manager, Investment Research Unit (212) 386-1953 [email protected] Quinn, John Analyst (212) 386-1963 [email protected] Renz, Hilary Manager, Credit & Regulatory Unit (212) 386-1937 [email protected] Rosefort, Max Analyst (212) 386-1952 [email protected] Sabatine Edward Associate Analyst (212) 386-1954 [email protected] Schindler, Norman Analyst (212) 386-1968 [email protected] Stefancic, Karen Analyst (212) 386-1929 [email protected] Stuart, Ronald Operations Specialist (212) 386-1973 [email protected] Uckert, Kathleen Analyst (212) 386-1950 [email protected] Vyas, Pradip Sr. Advisor, Credit & Regulatory Unit (212) 386-1939 [email protected] Watson, Brenda Operations Clerk (212) 386-1962 [email protected] Yazzo, John Analyst

OTHER SERVICES/SVO QUESTIONS Regulatory Treatment Analysis Service (RTAS) Harry Olsen (212) 386-1925 ATF Filing Assistance Rodney Cornish (212) 386-1933 Bank Letter of Credit Angela DeMarco (212) 386-1965 Derivatives, Counterparty Designations Kevin Driscoll (212) 386-1940 Foreign Governments (sic 9730A) Gary Mescher (212) 386-1966 Mutual Funds Angela DeMarco (212) 386-1965 Super National Organizations (sic 9800) James Mitchell (212) 386-1936 Surplus Note Listing Richard Newman (212) 386-1942 SVO Help Desk (212) 386-1905

NON-SVO QUESTIONS Approved Mutual Fund List Publications (816) 783-8300 Automated Valuation Service (AVS) Hotline (816) 783-8300 AVR/IMR/RBC Dan Swanson (816) 783-8412 Bank Letter of Credit List Publications (816) 783-8300 Financial Reporting - Annual & Quarterly Statement Preparation Hotline (816) 783-8400 Insurance Accounting Robin Marcotte (816) 783-8124 Publications/CD-ROM Orders Publications (816) 783-8300


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Section 2. NAIC Valuation of Securities (E) Task Force Members

Eric Dinallo, Chair New York Thomas R. Sullivan, Vice Chair Connecticut Steve Poizner California Karen Weldin –Stewart Kevin McCarty

Delaware Florida

Michael McRaith Illinois Susan Voss Iowa Sandy Praeger Kansas James J. Donelon Louisiana Ralph S. Tyler, III Maryland Glenn Wilson Minnesota Ann Frohman Nebraska Roger A. Sevigny New Hampshire Kim Holland Oklahoma Joel Ario Pennsylvania Alfred W. Gross Mike Kreider

Virginia Washington

Sean Dilweg Wisconsin Staff Support: Chris Evangel/Richard P. Newman

Invested Asset (E) Working Group

Kevin Fry, Chair Illinois Matti Peltonen, Vice Chair New York Tomoko Stock California Elaine Wieche Connecticut Al Franz Delaware Jim Armstrong Iowa Alex Hart Maryland Blaine Shepherd Minnesota Van Tompkins Virginia Staff Support: Richard P. Newman


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Section 3. List of Fees for Services and Publications NOTE: FEES APPLY TO THOSE SECURITIES THAT ARE STILL REQUIRED TO BE FILED WITH THE SVO UNDER THE NEW PROVISIONAL FILING EXEMPTION RULES. APPLICABLE FEES ARE CHARGED TO THE FIRST FILER.

Services Available From the Securities Valuation Office 1. Initial SAR filing, valuation and listing in Valuation of Securities publication where

the issue is currently rated by an NAIC ARO: Corporate and Municipal.................................................................................................... $125 Structured Securities........................................................................................................... $250

2. Initial SAR filing, valuation and listing in Valuation of Securities publication where the

issue is not rated by an NAIC ARO but where another issue of that issuer has been rated by an NAIC ARO or assigned a Designation by the SVO............................................... $1,100

3. Initial SAR filing, valuation and listing in Valuation of Securities publication where

the issue is not rated by an NAIC ARO and where no other issues of that issuer have been rated by an NAIC ARO or assigned a Designation by the SVO. This includes issues, which may enjoy some form of credit support from another credit that has been rated by an NAIC ARO: Corporate and Municipal Securities................................................................................ $2,600

4. Initial SAR filing, valuation and listing in Valuation of Securities publication where the

issue is not rated by an NAIC ARO. Structured Securities…………………………………………………………………

$1,100 5. Credit Tenant Loans as defined in Part Seven, Section 4(a) of this Manual:

Bond Type Lease............................................................................................................. $1,100 Credit Type Lease, and Acceptable CTL Variants (ACVs)........................................... $2,000 Highly Structured Real Estate Transactions (maximum fee)......................................... $5,000

6. Residential Mortgage-Backed Securities as defined in Part Seven,

Section 4(b)(iii)(B)(1) of the Manual: ....................................................................................$1,100 Structured Securities fully guaranteed by an NAIC ARO rated entity as

defined in Part Seven, Section 4(b)(iii)(B)(2)................................................................$125 Structured Securities fully backed by an NAIC ARO Rated Financial Assets

as defined in Part Seven, Section 4(b)(iii)(3).................................................................$125 Structured Securities fully backed by financial assets fully insured by NAIC

ARO Rated Issuers as defined in Part Seven, Section 4(b)(iii)(b)(4) ...........................$125 Transactions never rated by an NAIC ARO as defined in Part Five, Section

4(e)(iii)(A)(3) (a) ...........................................................................................................$500 Transactions never rated by an NAIC ARO as defined in Part Five, Section

4(e)(iii)(A)(3)(b)(c)(d) ...................................................................................................$125


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7. Initial SAR filing, valuation and listing in Valuation of Securities publication of a Replication (Synthetic Asset) Transaction.................................................................................. $1,100

8. Initial SAR filing, valuation and listing in Valuation of Securities publication of common

stock…………………………………………………………………………………………. $125 9. Annual update filing, valuation and listing in Valuation of Securities publication where

the issue is currently rated by an NAIC ARO ............................................................................. $125* * An analysis of an issuer's NAIC ARO status and financial status is only

performed once and charged once.

*A fee for subsequent, different issues of the same NAIC ARO rated issuer, will only be charged if the issuer's financial condition changes rapidly within a year, or

* If an issue requires the annual review of a matter other than of the

issuer's most recent financial status. 10. Annual update filing, valuation and listing in the Valuation of Securities publication where

the issue is not rated by an NAIC ARO.

NAIC Designation……………………………………………………………………………$850*

* An analysis of an issuer's NAIC ARO status and financial status is only performed once and charged once.

*A fee for subsequent, different issues of the same NAIC ARO rated issuer, will be charged if the issuer’s financial condition changes rapidly within a year, or

* If an issue requires the annual review of a matter other than of the issuer's most recent financial status.

11. Annual update filing, valuation and listing in the Valuation of Securities publication

where the issue is not rated by an NAIC ARO. Structured Securities.…………………………………………………………………...$850

12. Annual update filing, valuation and listing in Valuation of Securities publication of a

Replication (Synthetic Asset) Transaction..................................................................................... $125

13. Annual update filing, valuation and listing in Valuations of Securities publication of common stock…………………………………………………………………... ....................... $125

14. Regulatory Treatment Analysis Service: Assessment (includes credit, valuation and classification analysis of a single

security: When the Applicant is an insurer …………………………………………………..$10,000


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When the Applicant is not an insurer………………………………………………..$15,000 Additional securities in same issuance ……………………………………….............$1,500 Expedited EIV Review Service ……………………………………………………...$2,500

15. Special Valuation Requests—Charged at the daily rate for Supervising Insurance

Examiners as specified in the NAIC Examiners Handbook plus any expenses. 16. SUB-1 Filing for Subsidiary Controlled and Affiliated Company valuations.............................. $500 17. SUB-2 Filing for Subsidiary Controlled and Affiliated Company valuations.............................. $500 18. Bank Issuers of Letters of Credit:

New listing request .......................................................................................................... $1,500 Annual Maintenance Fee for existing banks that insurers wish to retain on the

list...................................................................................................................................$500 19. Mutual Fund Listing:

New listing requests ........................................................................................................... $500 Annual Maintenance Fee for mutual funds currently on the list that insurers

wish to have remain on the list ......................................................................................$250 20. Counterparty Ratings:

Original Filing ................................................................................................................. $1,500 Annual Rating Maintenance Fee........................................................................................ $500

21. Broker-Dealer Listing:

New listing requests ........................................................................................................ $1,500 Annual Maintenance Fee for existing broker-dealers that insurers wish to retain

on the list............................................................................................................................. $500 THE ANNUAL FEE ASSESSMENT 1. Why is an assessment necessary? The Valuation of Securities Task Force adopted two proposals that together exempt from filing with the SVO any security that is rated by a Nationally Recognized Statistical Rating Organization (NAIC ARO). The two proposals were effective on January 1, 2004. As a result of the implementation of the filing exemptions the SVO will experience a reduction in revenue. In order to preserve revenue neutrality, the Internal Administration (EX1) Subcommittee adopted the SVO Revenue Proposal, which includes a blend of a fee-for-service model as well as an annual assessment to recover lost revenues, to be effective January 1, 2004. (See EX1 September 13, 2003 minutes.) 2. What companies will it apply to? The assessment will be levied proportionately among all insurance companies based upon each company's holdings of non-U.S. government bonds and preferred stocks, provided these holdings exceed $1 billion. A company’s holdings for the year 2007 will be determined from the 2007 Annual Statement. Go to Column 1 of the Schedule D Summary by Country, then take Line 26 (bonds) - Line 1(US government bonds) + Line 40 (preferred stock). If the result is less than $1 billion then no aggregate fee assessment is required. Based upon projections used in developing the revised funding proposal, 357 companies should expect to be subject to the 2008 assessment.


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3. How will the assessment be calculated? The aggregate assessment will be the difference between the 2008-budgeted revenue amount and the 2008 actual revenues from then non-NRSRO Securities filing fees (see above for these fees). When that difference is determined, companies with non-U.S. government bonds and preferred stocks in excess of $1 billion will be billed based upon their proportional representation of the non-U.S. government bonds and preferred stocks for the qualifying pool of insurance companies. Thus, a factor will be derived by taking the difference needed to get to the 2008 budgeted amount divided by the total holdings of non-U.S. government bonds and preferred stocks for the qualifying pool of insurance companies. That factor will then be applied to the individual company’s non-U.S. government bonds & preferred stock (per the Annual Statement references above) and the company will be billed that amount. Based upon projections used in developing the revised funding proposal, the factor has been estimated at .0000585834. This factor could be adjusted at year-end 2008 and in the future to assure that the aggregate fee assessment produces the amount needed to achieve budgeted revenue. This calculation is done on an individual company basis, not a group basis. The NAIC will determine the exact pro rata factor based upon year-end 2007 holdings of non-U.S. government bonds and preferred stocks and the difference between budgeted and actual 2008 revenues. This exact factor will be used to invoice the assessable companies 50% of amounts due in June 2008 and the balance after year-end 2008, as well as semi-annually in a similar fashion thereafter. SVO Service Available From the NAIC Office in Kansas City (816) 842-3600 Automated Valuation Service (AVS). The SVO makes available to subscribers of the Valuations of Securities a computer-based AVS designed to provide customized NAIC year-end valuation information approximately two days after the last business day of the year. This is approximately two weeks earlier than the normal mailing date for the Valuations of Securities. Call (816) 783-8702 for an information package and a list of fees.

Publications Available from the NAIC Publications Department (816) 783-8300

1. Valuations of Securities CD-ROM List of more than 240,000 securities held by insurance companies with valuations to be used in those companies’ annual statement, including government and municipal bonds plus corporate bonds and stocks: Distributed quarterly With subscription to AVS service (see Item 1 above)

2. SVO Purposes and Procedures Manual, updated each January and July:

Annual subscription Annual subscription plus quarterly updates of Bank List and Mutual Funds List

3. Bank List/Mutual Fund List:

Annual subscription, updated monthly (both lists) Annual subscription, updated quarterly (both lists) plus subscription to Purposes &

Procedures Manual (see Item 2 above)


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4. How to Comply with the Procedures of the Securities Valuation Office:

Answers common questions about procedures for insurers to follow when filing with the Securities Valuation Office


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Section 4. List of NAIC Acceptable Rating Organizations and the Rating Equivalent of Their Systems to NAIC Designations (a) Rating Organizations on the NAIC ARO List Pursuant to Part Seven, Section 1(b) of the Purposes and Procedures Manual of the NAIC Securities Valuation Office, (the “Purposes and Procedures Manual”) the names of the rating organizations used by the NAIC and that have met the requirements for listing on the NAIC's ARO List are: Moody's Investor's Service, Standard and Poor's, Fitch Ratings and Dominion Bond Rating Service (DBRS) and A.M. Best Company (A.M. Best). (b) NAIC ARO Ratings Eligible for Conversion to an Equivalent NAIC Designation Part Seven, Section 1 (b) of the Purposes and Procedures Manual describes the ratings of NAIC AROs that may be converted into NAIC Designations. An NAIC ARO rating may be converted into an NAIC Designation if it is an issuer solicited, alphanumeric, monitored NAIC ARO rating assigned to a public security where the NAIC ARO rating addresses the likelihood of payment of both principal due and interest due (or in the case of preferred stock, the /dividends due) from the issuer to the holders of the security. Issuer solicited, alphanumeric ratings of an NAIC ARO assigned to a public security structured to pay only principal or only interest/dividends, may be converted to an NAIC Designation if the monitored NAIC ARO rating addresses the likelihood of payment of either the principal, in the case of a security structured to pay only principal or the interest/dividends, in the case of security structured to pay only interest/dividends. Ratings issued by an NAIC ARO or other rating organizations that do not meet this requirement must be filed with the SVO. The NAIC ARO ratings assigned to such securities may be submitted to the SVO pursuant to Part Seven, Section 1 (a) of the Purposes and Procedures Manual. (c) Conversion of Filing Exempt Securities For purposes of the filing exemption provided in Part Four, Section 2 (d) (i) (A) and (B) of this Manual, the insurer is required to select an appropriate NAIC ARO rating and then convert that rating into its NAIC Designation equivalent by using the equivalents identified in this Appendix Section 4 (c) below. Part Four Section 2 (d) (i) (A) and (B) requires that a security rated and monitored by one NAIC ARO will be assigned the equivalent NAIC Designation; a security rated and monitored by two NAIC AROs, will be assigned the lowest of the two ratings and a security rated and monitored by three or more NAIC AROs, will be assigned the second lowest of the ratings. In order to select the appropriate rating when a security is rated and monitored by three or more NAIC AROs, the NAIC ARO ratings for a security are ordered according to their NAIC equivalents and the rating falling second lowest is selected, even if the rating is equal to that of the first lowest. (d) Statement of Policy Regarding NAIC ARO Private Debt Rating Methodologies The SVO makes a distinction between the NAIC ARO alpha numeric rating methodologies and private debt rating methods used by NAIC ARO’s which may include factors such as the effectiveness of covenants or the effect of collateral on ultimate recovery. Both methodologies may be submitted to the


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SVO to obtain an NAIC designation. Alphanumeric methodologies are usually granted automatic translation into NAIC designations by the SVO. However, even when alphanumeric methodologies are employed to produce the credit rating, the SVO reserves the right to downgrade any translation when deemed necessary. Private debt rating methodologies will be subjected to a full review of those factors which would not be included in the NAIC ARO’s traditional ratings. The SVO also uses the ratings of non-NAIC ARO rating organizations. These receive the same treatment as private debt ratings of an NAIC ARO. (e) NAIC ARO Rating Equivalent to SVO Designations Please note that the existence of a rating does not eliminate the requirement to file on SAR on any insurer owned security not currently listed in the VOS manual unless exempted from filing as detailed in Part Four, Section 2 (d) of this Manual. (i) Moody’s

Corporate, Government Counterparty and Municipal Ratings SVO Aaa; Aa 1, 2, 3; A 1, 2, 3, 1 Baa 1, 2, 3, 2 Ba 1, 2, 3, 3 B 1, 2, 3, 4 Caa, 1, 2, 3 5

Ca, C 6

Commercial Paper and Short Term Counterparty Ratings

P-1 1 P-2 2 P-3 3 N-P (Not prime) 6

Preferred Stock Aaa; Aa 1, 2, 3; A 1, 2, 3, 1 Baa 1, 2, 3, 2 Ba 1, 2, 3, 3 B 1, 2, 3, 4 Caa 5 Ca, C (ii) Standard and Poor’s Corporate Counterparty and Municipal Ratings -- Public Bonds AAA, AA+, AA, AA-, A+, A, A- 1 BBB+, BBB, BBB- 2 BB+, BB, BB- 3 B+, B, B- 4 CCC+, CCC, CCC- 5 CC, C, D 6


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Commercial Paper A, A-1 1 A-2 2 A-3 2 B 4

C 5 D 6

Preferred Stock AAA, AA+, AA, AA-, A+, A, A- 1 BBB+, BBB, BBB- 2 BB+, BB, BB- 3 B+, B, B- 4 CCC 5 CC, C, D 6

(iii) Fitch Fixed Income and Counterparty Ratings

AAApre 1* AAA, AA+, AA, AA-, A+, A, A- 1 BBB+, BBB, BBB- 2 BB+, BB, BB- 3 B+, B, B- 4 CCC, 5 CC, C, DDD, DD, D 6 * This rating is assigned to pre-refunded municipal debt Commercial Paper F-1+, F-1 1 F-2 2 F-3 2 B 4 C 5 D 6

Preferred Stock AAA, AA+, AA, AA-, A+, A, A- 1 BBB+, BBB, BBB- 2 BB+, BB, BB- 3 B+, B, B- 4 CCC 5 CC, C 6


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(iv) DBRS Bond and Long Term Debt AAA, AA (high), AA, AA (low), A (high), A, A (low) 1 BBB (high), BBB, BBB (low) 2 BB (high), BB, BB (low) 3 B (high), B, B (low) 4 CCC (high 5 CC, C (low), D 6

Preferred Stock Pfd-1 (high), Pfd-1, Pfd 1 (low) 1

Pfd-2 (high), Pfd-2, Pfd-2 (low) 2 Pfd-3 (high), Pfd-3, Pfd-3 (low) 3 Pfd-4 (high), Pfd-4, Pfd-4 (low) 4

Pfd-5 (high), 5 Pfd-5, Pfd-5 (low), D 6

Commercial Paper and Short Term Debt R-1 (high), R-1 (middle), R-1 (low) 1 R-2 (high), R-2 (middle), R-2 (low) 2 R-3 3 R-4 5 R-5, D 6 (v) A.M. Best Company Bond, Long Term Debt and Preferred

aaa, aa+, aa, aa-, a+, a, a- 1 bbb+, bbb, bbb- 2 bb+, bb, bb- 3 b+, b, b- 4 ccc+, ccc, ccc- 5 cc, c, d 6

Commercial Paper and Short Term Debt

AMB-1+, AMB-1 1 AMB-2 2 AMB-3 3 AMB –4 6


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Section 5. Standard Industrial Classification (SIC) Codes (a) General The SVO will not publish SIC Codes in the VOS publication. The general rule for applying these codes is to ascertain the business of the primary payer of interest, principal, lease or guarantee on the relevant cash flows. In those instances where more than one SIC Code has been assigned to establishments within the organizational structure of the entity issuing the investment the SIC Codes listed should be the SIC Codes which best describe the primary activity, principal product, group of products, or services rendered of the issuing entity or; if the issuer’s security is guaranteed or contractually supported by another entity, with a superior rating, the code assigned should be that of the underlying guarantor or supporting creditor of the security. Insurers may complete the last two digits of the code if they have such information. SIC Codes: Numerical Order

0100 Agriculture Production, Crops Cash Grains, Field & Berry Crops, Fruits & Tree Nuts, General Farms, Horticultural Specialties

0200 Agricultural Production, Livestock, Animal Species Poultry and Eggs, Chickens and Turkeys, Dairy Farms

0700 Agricultural Services Animal & Veterinary Services, Crops & Soil Preparation Services, Farm Management Services

0800 Forestry 0900 Fishing, Hunting and Trapping 1000 Mining - Metals and Ores 1200 Coal Mining 1300 Oil and Gas Extraction

Crude Petroleum, Natural Gas, Drilling Oil, Gas Wells, Natural Gas Liquids, Oil and Gas Field Services

1400 Mining - Quarry, Stone, Nonmetal Minerals Clay, Ceramic, Crushed & Broken Stone, Sand and Gravel

1500 Building Construction, General Contractors, Operative Builders 1600 Non-Building Construction--Heavy Construction 1700 Construction - Specialized Trades

Concrete, Carpentry and Floor work, Electrical, Excavation, Glass & Glazing, Masonry, Stonework, Tile, Plaster, Water Well Drilling, Painting and Paper Hanging, Plumbing, Heat, Air-Conditioning, Roof, Siding, Sheet Metal Work, Structural Steel Erection, Wrecking and Demolition Work

2000 Food and Kindred Products 2100 Tobacco Products 2200 Textile Mill Products

Broadwoven & Coated Fabric, Carpets & Rugs, Hosiery, Knitting Mills, Miscellaneous Textile Goods

2300 Apparel and Other Finished Products 2400 Lumber and Wood Products, Except Furniture

Logging, Millwork, Wood Kitchen Cabinets 2500 Furniture and Fixtures


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2600 Paper and Allied Products 2700 Printing, Publishing & Allied

Books, Commercial Printing, Newspapers, Periodicals, Typesetting, Service Industries For Print Trade

2800 Chemicals & Allied Products Drugs, Inorganic & Organic Chemicals, Paints, Varnishes, Lacquers, Plastic, Soap, Detergent , Agricultural Chemicals

2900 Petroleum Refining & Related Industries 3000 Rubber and Miscellaneous Plastic Products 3100 Leather Products 3200 Stone, Clay, Glass, Concrete Products 3300 Primary Metal Industries

Aluminum, Steel 3400 Fabricated Metal, Except Machinery and Transportation Equipment 3500 Industrial, Commercial Machinery, Computer Equipment

Office Equipment, Engines and Turbines, Farm & Garden Machinery, Oil & Gas Field Machinery, Metalworking Machinery, Industrial Trucks, Tractors, Trailers

3600 Electrical Equipment, Except Computers Radio, TV Broadcast and Communication Equipment, Telephone & Telegraph Apparatus

3700 Transportation Equipment Equipment for Cars, Trucks, Aircraft, Ships, Railroad, Motorcycle, Trailers and Tanks

3800 Measuring Instruments, Photo Goods, Watches 3900 Miscellaneous Manufacturing

Musical Instruments, Costume Jewelry, Buttons, Notions, Toys, Jewelry, Silverware, Plated Ware, Pens, Pencils

4000 Railroad Transportation 4100 Transit and Passenger Transportation 4200 Motor Freight Transportation, Warehouses

Trucking, Courier Services, Public Warehousing & Storage, Terminal Facility-Motor Freight

4300 U.S. Postal Services 4400 Water Transportation 4500 Air Transportation

Air Courier Services, Airports & Terminal Services 4600 Pipe Line, Except Natural Gas 4700 Transportation Services

Travel Agencies, Packing and Crating 4800 Communications--Phone, Television, Radio, Cable 4900 Electric, Gas, Water, Cogeneration, Sanitary Services

5000

Durable Goods—Wholesale Electrical Goods, Furniture & Home Furnishings, Toys, Metals, Minerals, Hardware, Plumbing, Heating Equipment, Motor Vehicle Parts, Lumber and Construction Metal


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5100 Non-Durable Goods-- Wholesale

Apparel, Piece Goods, Beer, Wine, Alcoholic Beverages, Drugs and Proprietary Goods, Chemicals & Allied Products, Paper & Paper Products, Farm-Product Raw Material, Groceries & Related Products

5200 Building Materials, Hardware, Garden- Retail 5300 General Merchandise Stores

Department Stores 5400 Food Stores

Bakers-Retail, Convenience Stores, Grocery Stores, Fruit and Vegetable Markets

5500 Auto Dealers, Gas Stations Gasoline Services Stations, Auto & Home Supply Stores

5600 Apparel and Accessory Stores 5700 Home Furniture and Equipment Stores

Home Furniture, Furnishings Stores, Radio, Music & TV Stores, Household Appliance Stores, Computer and Software Stores

5800 Eating and Drinking Places 5900 Miscellaneous Retail

Liquor, Drug & Proprietary Stores, Book Stores, Miscellaneous. Shopping Goods Stores, Catalog, Mail-Order, Fuel Dealers

6000 Depository Institutions Commercial Banks, Central Reserve Deposit Institutions, Credit Unions, Federal Reserve Banks, Savings Institutions, Foreign Banks, Branches, Agencies, Non-deposit Trust Facilities

6100 Non-Depository Credit Institutions Finance Lessors, Business Credit Institutions, Finance Services, Federal Credit Agencies, Loan Brokers, Mortgage Bankers and Brokers, Personal Credit Institutions

6200 Security and Commodity Brokers Investment Advice, Commodity Exchanges, Brokers and Dealers, Security, Security Brokers & Dealers

6300 Insurance Carriers Life, Accident, Health Insurance, Medical Plans, Surety Insurance, Fire Marine Casualty Insurance, Title Insurance, Pension, Health and Welfare Funds

6400 Insurance Agents, Brokers and Services 6500 Real Estate Operators, Agents, Managers

6700 Holding and Investment Companies Investments in Money Market Funds (not the Money Market Fund itself)

6730 Trusts, Except Equipment Trusts and REITs 7000 Hotels, Other Lodging Places 7200 Personal Services

Laundry, Dry Cleaning, Funeral Services, Tax Preparation Services 7300 Business Services

Advertising, Computer Maintenance and Repair, Employment Agencies, Computer Programming, Data Processing, Equipment & Computer Rental & Leasing, Prepackaged Software, Credit Reporting Agencies, Security Systems Services, Information Retrieval Services


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7500 Auto Repair Services and Parking Car Washes, Auto Rent & Lease, Automobile Parking & Repair Shops

7600 Miscellaneous Repair Services 7800 Motion Pictures

Video Tape Rentals 7900 Amusement and Recreation Services

Amusement Parks, Dance Studios, Schools, Halls, Bowling Centers, Physical Fitness Facilities, Commercial Sports, Public Golf Courses

8000 Health Services 8100 Legal Services 8200 Educational Services

Libraries, Colleges, Universities, Vocational Schools, Elementary and Secondary Schools

8300 Social Services Child Day Care Services, Individual and Family Social Services, Residential Care, Job Training, Vocational Rehabilitation Services

8400 Museums, Parks, Galleries 8600 Membership Organizations

Business, Union, Religious, and Political Organizations 8700 Engineering Services, Accounting, Management

Management, Engineering, Architectural, Survey, Accounting, Auditing and Bookkeeping Services

8800 Private Households 8900 Services, Miscellaneous 9100 Direct US Government Obligations

Treasuries, GNMA (Non- CMO) 9700 Indirect US Obligations--National Security & International Affairs

FNMA, FHLMC, SBA (Non- CMO) 9730 Foreign Governments 9800 Supranational Organizations 9900 Invalid (Do not use)


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Section 6. List of Counterparties Rated by the SVO for Schedule DB—Part E—Section 1 NOTE: PLEASE REFER TO PART NINE, SECTION 1 OF THE PURPOSES AND PROCEDURES MANUAL. (a) General (i) Association Values Association values for derivative instruments, where such derivative instruments are permitted by

law or regulation of an insurer’s state of domicile, shall be equal to the Statement Value reported in Schedule DB, Parts A (Options, Caps and Floors Owned), B (Options, Caps and Floors Written), C (Collars, Swaps and Forwards) and D (Futures) that is calculated according to the procedures found in the NAIC Accounting Practices and Procedures Manuals for Life and Health, Fraternal, and Property & Casualty companies.

(ii) Accounting and Documentation Guidance The NAIC Accounting Practices and Procedures manuals contain general accounting guidance, documentation guidance, and specific accounting procedures for derivative instruments.

(b) Procedures for Determining NAIC Designations and Netting Eligibility for Derivative

Instrument Counterparties (i) Purpose

(A) NAIC Designations: The purpose of assigning NAIC Designations or quality ratings is to assign counterparties into SVO Rating Categories for Schedule DB--Part E--Section 1.

(ii) Counterparties Rated by the SVO for Purposes of Assignment into SVO Rating

Categories for Schedule DB--Part E--Section 1 Below are counterparties rated by the SVO as of the publication date of this Manual. For an

updated list prior to the next publication date of this Manual, see the AVS Bulletin Board. (A) Administration

(1) Listing a Counterparty -- An insurance company that wants to have a counterparty listed on the List of Counterparties Rated by the SVO for Schedule DB--Part E--Section 1 shall submit to the SVO:

A Counterparty Rating ATF Initial Filing Form; Form CRR-1, as discussed in Part 4, Section 8 (b) of this Manual.; and Evidence of an NAIC ARO counterparty rating, an NAIC ARO senior unsecured

rating or a copy of the most recent Audited Financial Statement for the counterparty, or the counterparty’s guarantor, so that the SVO can assess credit quality and assign an NAIC Designation.


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Upon receipt of the above documents, the SVO shall convert the NAIC ARO rating into its equivalent NAIC Designation, in accordance with the procedure discussed in Section 4 of this Appendix, or perform a financial analysis of the counterparty, or the counterparty’s guarantor, in order to assign an NAIC Designation.

(2) Annual Update of Counterparties on the List In order to maintain a counterparty on the List, an insurance company must file the following information:

A Counterparty Rating ATF Annual Update Filing Form;

Evidence of an NAIC ARO counterparty rating, an NAIC ARO senior unsecured rating or a copy of the most recent Audited Financial Statement for the counterparty, or the counterparty’s guarantor.

If an insurance company doesn’t file an annual update by June 1, XXXX, the counterparty will be deleted from the List effective with the July 1, XXXX Purposes and Procedures Manual and CD-ROM. If deleted, the insurance company will have to submit an initial filing in order for the counterparty to be placed on the List.

NAIC Counterparty Name Designation

Exchange Traded Derivative Counterparties

All United States Registered Exchanges .......................................................................................................... 1

Over the Counter Derivative Counterparties ABN Amro Bank N.V. – Chicago Branch ....................................................................................................... 1 Chicago, IL

AIG Financial Products Corporation ...........................................................................................................1 Westport, CT

Australia and New Zealand Banking Group Ltd. Melbourne, Australia .......................................................................................................................1 Bank of America, N.A. ................................................................................................................................1 San Francisco, CA

Bank of Montreal. ........................................................................................................................................1 Montreal, Canada

Bank of New York New York, NY.................................................................................................................................1 Bank of Tokyo Mitsubishi, Ltd. – New York Branch .................................................................................1 New York, NY


A-22

Bank One, N.A.……………………………………………………………………...…………………….1 Chicago, IL

Banque AIG S.A. – London Branch ............................................................................................................1 London, UK

Barclays Bank, PLC.....................................................................................................................................1 London, UK

BNP Paribas. ................................................................................................................................................1 Paris, France Canadian Imperial Bank of Commerce........................................................................................................1 Toronto, Canada Calyon ..........................................................................................................................................................1 New York, NY Calyon New York Branch............................................................................................................................1 New York, NY Citibank, N.A. ..............................................................................................................................................1 New York, NY

Citigroup Global Markets, Inc ....................................................................................................................1 New York, NY Citigroup Global Markets, Ltd. ...................................................................................................................1 London, UK Commerzbank, AG .....................................................................................................................................1

Frankfurt, Germany Commonwealth Bank of Australia...............................................................................................................1

Sydney, Australia Credit Agricole Indosuez, ............................................................................................................................1 New York, NY

Credit Lyonnais, New York Branch ............................................................................................................1 New York, NY

Credit Suisse First Boston Capital LLC.......................................................................................................1 New York, NY

Credit Suisse First Boston International ......................................................................................................1 London, UK

Deutsche Bank, A.G. - New York Branch...................................................................................................1 New York, NY

Dresdner Bank, A.G.....................................................................................................................................1 Frankfurt, Germany


A-23

Dresdner Bank, A.G. - New York Branch ...................................................................................................1 New York, NY

General Re Financial Products Corporation ................................................................................................1 Stamford, CT

Goldman, Sachs & Company.......................................................................................................................1 New York, NY

Goldman Sachs Capital Markets, L.P. .........................................................................................................1 New York, NY

Goldman Sachs International ......................................................................................................................1 London, UK

Goldman Sachs Mitsui Marine Derivative Products, L.P............................................................................1 New York, NY

Greenwich Capital Derivatives, Inc. ...........................................................................................................1 Greenwich, Connecticut

GS Financial Products International, L.P. ...................................................................................................1 Grand Cayman, BWI

GS Financial Products United States, L.P. ..................................................................................................1 Grand Cayman, BWI

HSBC Bank USA.........................................................................................................................................1 New York, New York

IXIS Financial Products, Inc........................................................................................................................1 New York, NY

J.P. Morgan Chase& Co...............................................................................................................................1 New York, New York KBC Financial Products Ltd .......................................................................................................................1 Grand Cayman, BWI Lehman Brothers Derivative Products Inc...................................................................................................6 New York, NY

Lehman Brothers Finance S.A.....................................................................................................................6 Geneva, Switzerland

Lehman Brothers Financial Products...........................................................................................................6 New York, NY

Lehman Brothers International (Europe) ....................................................................................................6 London, UK Lehman Brothers OTC Derivatives, Inc. .....................................................................................................6 New York, NY


A-24

Lehman Brothers Special Financing, Inc.....................................................................................................6

New York, NY

Mellon Bank, N.A........................................................................................................................................1 Pittsburgh, PA

Merrill Lynch Capital Services, Inc.............................................................................................................1 New York, NY

Merrill Lynch Derivatives Products, Inc .....................................................................................................1 New York, NY

Merrill Lynch International..........................................................................................................................1 London, UK Morgan Stanley Capital Services, Inc..........................................................................................................1 New York, NY

Morgan Stanley Derivative Products, Inc....................................................................................................1 New York, NY Morgan Stanley Market Products, Inc. .......................................................................................................1 New York, New York

Morgan Stanley & Company International Ltd. ..........................................................................................1 London, UK National Australia Bank Ltd…. ...................................................................................................................1 Melbourne, Australia

National Westminster Bank, PLC - New York Branch ...............................................................................1 New York, NY

Nomura Global Financial Products..............................................................................................................1 New York, New York

Northern Trust Company, The.....................................................................................................................1 Chicago, IL

Primus Financial Products LLC ..................................................................................................................1 New York, New York

Prudential Global Funding...........................................................................................................................1 Newark, NJ

Prudential Securities, Inc. ............................................................................................................................1 New York, NY

Rabobank Nederland – New York Branch ..................................................................................................1 New York, NY


A-25

Royal Bank of Canada .................................................................................................................................1 Montreal, Canada

Royal Bank of Scotland ...............................................................................................................................1 Edinburgh, UK

SBCM Derivative Products Ltd. ..................................................................................................................1 London, UK

Salomon Swapco, Inc...................................................................................................................................1 New York, NY

Societe Generale - New York Branch..........................................................................................................1 New York, NY

Standard Chartered Bank .............................................................................................................................1 London, UK

State Street Corp. .........................................................................................................................................1 London, UK

Sun Trust Bank. ...........................................................................................................................................1 Atlanta, GA

Swiss Re Financial Products Corporation....................................................................................................1 New York, NY Toronto-Dominion Bank Ltd., The..............................................................................................................1 Toronto, Canada UBS Securities (Swaps), Inc........................................................................................................................1 New York, NY

Union Bank of Switzerland..........................................................................................................................1 London, UK

Wachovia Bank, N.A. .................................................................................................................................1 Charlotte, NC ZCM Matched Funding Corporation. ..........................................................................................................1 Ireland, Dublin

Zurich Capital Markets Company................................................................................................................1 Dublin, Ireland

Zurich Capital Markets, Inc. ........................................................................................................................1 New York, NY


A-26

Section 7. List of Foreign (non-U.S.) Jurisdictions Eligible for Netting for Purposes of Determining Exposures to Counterparties for Schedule DB - Part E - Section 1 NOTE: PLEASE REFER TO PART NINE, SECTION 2 OF THE PURPOSES AND PROCEDURES MANUAL. (a) Procedures for Determining NAIC Designations and Netting Eligibility for Derivative

Instrument Counterparties (i) Purpose (A) Netting Eligibility: The purpose of identifying jurisdictions eligible for netting is to

permit the calculation of credit risk exposures to counterparties in Schedule DB--Part E--Section 1. The netting of offsetting liabilities with a counterparty will only be permitted in this Schedule if there exists a master agreement that provides for such netting and if there is adequate legal certainty that closeout netting would be enforced upon default of the counterparty.

(B) Legal Certainty For Netting Eligibility: There is adequate legal certainty to permit netting of exposures for counterparties domiciled within the United States. Netting of exposures in Schedule DB--Part E--Section 1 will be permitted for a foreign (non-U.S.) counterparty if its domiciliary jurisdiction appears on the list in this Section 7. Jurisdictions will appear on the list if, in the opinion of the SVO, legal opinions and/or analyses provide adequate legal certainty that upon default of the counterparty, closeout netting would be enforced.

Jurisdiction:

Australia Canada England France Germany Ireland Japan Singapore Switzerland Cayman Island Belgium Scotland


A-27

Section 8. List of Money Market Funds Filed with the SVO (U.S. Direct Obligations/Full Faith and Credit Exempt List) NOTE: PLEASE REFER TO PART ELEVEN SECTION 2 (a) OF THE PURPOSES AND PROCEDURES MANUAL. Alliance Bernstein Government STIF Portfolio 018616755 Barclays Global Investors Funds Government Money Market – Institutional Shares 066922691

Government Money Market – Premium Shares 066922683 Government Money Market – Select Shares 066922675 Government Money Market – Trust Shares 066922667 Treasury Money Market – Institutional Shares 066922659 Treasury Money Market – Premium Shares 066922634 Treasury Money Market – Select Shares 066922634 Treasury Money Market – Trust Shares 066922626

BB&T Mutual Funds Group U.S. Treasury Money Market Fund 05527P875 BlackRock Liquidity Funds Fed Fund – Institutional Shares 09248U700

T-Fund - Institutional Shares 09248U718 Treasury Trust Fund - Institutional Shares 09248U551

Cavanal Hill Funds US Treasury Fund – Administrative Shares 14956P802 US Treasury Fund – Institutional Shares 14956P703 US Treasury Fund – Service Shares 14956P885 Citizens Select Treasury Money Market Fund – Class A 177366507

Select Treasury Money Market Fund – Class B 177366606 Select Treasury Money Market Fund – Class C 177366705 Select Treasury Money Market Fund – Class D 177366804

Columbia Management Advisors LLC Government Plus Reserves – Capital 19765M700

Government Plus Reserves – Institutional 19765M601 Government Plus Reserves – Liquidity 19765M502 Government Plus Reserves – Trust 19765M643 Government Reserves – Adviser Class 19765K787 Government Reserves –Capital Class 19765K779 Government Reserves – Daily Class 19765K761 Government Reserves – Institutional Class 19765K753 Government Reserves – Investors 19765K837 Government Reserves – Liquidity 19765K746 Government Reserves – Trust 19765K712 Treasury Reserves – Adviser 19765K290 Treasury Reserves – Capital 19765K258 Treasury Reserves – Daily 19765K282 Treasury Reserves – Institutional 19765K316

Treasury Reserves – Investors 19765K274 Treasury Reserves – Liquidity 19765K266

Deutsche Asset Management CAT – DWS Government Cash Institutional Shares 147539670 Deutsche Asset Management CAT – DWS Government Cash Managed Shares 147539662

ICT – Treasury Portfolio – Institutional Shares 461473886


A-28

Dreyfus Government Cash Management – Administrative Shares 262006406 Government Cash Management – Agency Shares 262006869 Government Cash Management – Institutional Shares 262006208 Government Cash Management – Investor Shares 262006307 Government Cash Management – Participant Shares 262006505 Government Prime Cash Management – Administrative Share 262006802 Government Prime Cash Management – Agency Shares 262006851 Government Prime Cash Management – Institutional Shares 262006885 Government Prime Cash Management – Investor Shares 262006703 Government Prime Cash Management – Participant Shares 262006604

Treasury & Agency Cash Mgmt Fund – Admin Shares 261908305 Treasury & Agency Cash Mgmt Fund – Agency Shares 261908800 Treasury & Agency Cash Mgmt Fund – Investor Shares 261908206 Treasury & Agency Cash Mgmt Fund – Premier Shares 261908701 Treasury & Agency Cash Mgmt Fund – Participant Shares 261908404 Treasury & Agency Cash Mgmt Fund – Select Shares 261908602 Treasury & Agency Cash Mgmt Fund – Service Shares 261908503 Treasury Cash & Agency Management Fund – Institutional 2621908107 Treasury Prime Cash Mgmt Fund – Administrative Shares 261941306 Treasury Prime Cash Mgmt Fund – Agency Shares 261941504 Treasury Prime Cash Mgmt t Fund – Institutional Share 261941108 Treasury Prime Cash Mgmt Fund – Investor Shares 261941207

Dreyfus Institutional Reserves Funds Treasury Fund – Agency Shares 26200X852

Treasury Fund – Classic Shares 26200X837 Treasury Fund – Hamilton Shares 26200X860 Treasury Fund – Institutional Shares 26200X878 Treasury Fund – Premier 26200X845 Treasury Prime Fund – Agency Shares 26200X795 Treasury Prime Fund – Hamilton Shares 26200X811 Treasury Prime Fund – Institutional Shares 26200X829 Treasury Prime Fund – Premier Shares 26200X787

Evergreen Investments Institutional Treasury MM Fund – AD 299920447 Institutional Treasury MM Fund – I 300250701 Institutional Treasury MM Fund – IN 299920439 Institutional Treasury MM Fund – IS 300250503 Institutional Treasury MM Fund – P 299920421 Institutional US Government MM Fund – IS 30023R654 Institutional US Government MM Fund – P 299920363 Institutional US Government MM Fund – I 30023R647 Treasury MM Fund – A 300237450 Treasury MM Fund – I 300237443 Treasury MM Fund – S 300237138

Evergreen Money Market Trust US Government MM Fund 300250776 Federated Investors US Treasury Cash Reserves 60934N682

Automated Government Money Trust 60934N815 Government Obligations Fund 60934N104 Government Obligations Tax Managed Fund 60934N856

Federated Investors Treasury Cash Series 147551402

Treasury Cash Series II 147552301 Treasury Obligations Fund 60934N500 Trust for US Treasury Obligations 60934N799


A-29

Fidelity Investments Cash Management Funds - Treasury Fund - Daily Money Cl 233809201 Institutional Government Portfolio - Class I 316175108 Institutional Government Portfolio – Class II 316175850 Institutional Government Portfolio -Class III 316175603 Institutional Government Portfolio –Select Class 192826303 Institutional Treasury Only Portfolio - Class I 233809300

Institutional Treasury Only Portfolio – Class II 233809805 Institutional Treasury Only Portfolio – Class III 233809888 Institutional Treasury Only Portfolio – Select Class 192826105

Institutional Treasury Portfolio - Class I 316175504 Institutional Treasury Portfolio – Class II 316175835

Institutional Treasury Portfolio - Class III 316175884 Institutional Treasury Portfolio - Select Class 192826204 First American Funds Government Obligations – Class D 31846V401

Government Obligations – Class Y 31846V203 Government Obligations – Class Z 31846V567 Treasury Obligations – Class A 31846V880 Treasury Obligations – Class Y 31846V807 Treasury Obligations – Class Z 31846V542 Treasury Obligations – Reserve Shares 31846V716

Funds for Institutions Series FFI Government Fund 30249C101 Goldman Sachs Trust Financial Square Federal Fund – Administrative Class 38142B872

Financial Square Federal Fund – First Cap Shares 381423H605 Financial Square Federal Fund –Institutional Shares 38142B880 Financial Square Federal Fund – Preferred Shares 38142B856 Financial Square Federal Fund – Select Shares 38142Y690 Financial Square Federal Fund – Service Class 38142B864 Financial Square Government Fund – Administrative Shares 38141W265 Financial Square Government Fund – First Capital Shares 38143H506 Financial Square Government Fund – Institutional Shares 38141W273 Financial Square Government Fund – Preferred Shares 38141W240 Financial Square Government Fund – Select Shares 38142Y716 Financial Square Government Fund – Service Shares 38141W257 Financial Square Treasury Instruments Fund – Admin. Shares 38142B609 Financial Square Treasury Instruments Fund – First Cap. Sh. 38143H407 Financial Square Treasury Instruments Fund - Institutional 38142B500 Financial Square Treasury Instruments Fund – Pref. Sh. 38142B807 Financial Square Treasury Instruments Fund – Select Sh. 38142Y724 Financial Square Treasury Instruments Fund – Service Cl. 38142B708 Financial Square Treasury Obligations Fund – Admin. Class 38141W315 Financial Square Treasury Obligations Fund – First Cap. Sh. 38143H308 Financial Square Treasury Obligations Fund - Institutional Sh 38141W323 Financial Square Treasury Obligations Fund – Pref. Sh. 38141W281 Financial Square Treasury Obligations Fund – Select Sh. 38141Y732 Financial Square Treasury Obligations Fund – Service Cl. 38141W299

Goldman Sachs Trust Institutional Liquid Assets Federal Portfolio – Admin. Sh. 38142B682 Institutional Liquid Assets Federal Portfolio – Institutional Sh 38142B690 Institutional Liquid Assets Federal Portfolio – Cash Mgt. Sh. 38142B674 Institutional Liquid Assets Federal Portfolio – Service Sh. 38142B674 Institutional Liquid Assets Treasury Instruments Portfolio 38142B591 Inst. Liquid Assets Treasury Instruments Portfolio –Admin 38142B583 Inst. Liquid Assets Treasury Instruments Portfolio – Cash 38142Y559 Inst. Liquid Assets Treasury Instruments Portfolio – Service 38142B575


A-30

Inst. Liquid Assets Treasury Obligations Portfolio 38142B591 Inst. Liquid Assets Treasury Obligations Portfolio – Admin. 38142B757

HighMark Funds Treasury Plus Money Market Fund 431123108 HSBC Investor US Government Money Market Fund – Class I 40428X107 Investor US Government Money Market Fund – Class Y 404281222 Investor Prime Money Market Fund – Class Y 404281842

Investor US Treasury Money Market Fund – Class D 404281297 Investor US Treasury Money Market Fund – Class I 40428X206 Investor US Treasury Money Market Fund – Class Y 404281289

Invesco Aim Advisors Inc. Government & Agency Portfolio – Cash Management 825252802 Government & Agency Portfolio – Corporate 825252539 Government & Agency Portfolio – Institutional Class 825252885 Government & Agency Portfolio – Personal Investment Class 825252844 Government & Agency Portfolio – Private Investment 825252877 Government & Agency Portfolio – Reserve Class 825252851 Government & Agency Portfolio – Resource Class 825252869 Premier US Government Money Portfolio – Institutional 00142W843 Treasury Portfolio – Cash Management 825252307 Treasury Portfolio – Corporate 825252570 Treasury Portfolio - Institutional 825252406 Treasury Portfolio – Personal Investment 825252208 Treasury Portfolio – Private Investment 825252109 Treasury Portfolio – Resource 825252703

JPMorgan Funds 100% U.S. Treasury Securities Money Market – Agency Sh. 4812A2843 100% U.S. Treasury Securities Money Market – Cap. Class 4812A0375 100% U.S. Treasury Securities Money Market – Inst. 4812A2835 100% U.S. Treasury Securities Money Market – Morgan Sh. 4812A2827 100% U.S. Treasury Securities Money Market – Prem Sh. 4812A2819 100% U.S. Treasury Securities Money Market – Reserve Sh. 4812A0383 Federal Money Market – Agency Shares 4812A2793 Federal Money Market – Institutional Shares 4812A2785 Federal Money Market – Morgan Shares 4812A2769 Federal Money Market – Premier Shares 4812A2777

Federal Money Market – Reserve Shares 4812A0318 U.S. Government Money Market – Agency Shares 4812C0662 U.S. Government Money Market – Capital Shares 4812C0670 U.S. Government Money Market – Institutional Shares 4812C2684 U.S. Government Money Market – Morgan Shares 4812C2676 U.S. Government Money Market – Premier Shares 4812C0688 U.S. Government Money Market – Reserve Shares 4812C2692 U.S. Treasury Plus Money Market – Agency Shares 4812C2742 U.S. Treasury Plus Money Market – Institutional Shares 4812C2734 U.S. Treasury Plus Money Market – Investor Shares 4812C0720 U.S. Treasury Plus Money Market – Morgan Shares 4812C2726 U.S. Treasury Plus Money Market – Premier Shares 4812C2718 U.S. Treasury Plus Money Market – Reserve Shares 4812C0696

Legg Mason Partners Western Asset/Citi Inst. US Treasury Reserves – Class A 52470G841 Western Asset/Citi Inst. US Treasury Reserves – Class N 52470R805 Western Asset/Citi PremiumUS Treasury Reserves 172957201 Western Asset Institutional Government Money Market Fund 52470G791


A-31

Marshall Funds Inc. Government Money Market Fund – Class Y 572353662 Milestone Funds Treasury Obligations Portfolio 599352406 Morgan Stanley Ins’l Liquidity Funds Government Portfolio – Admin 61747C509

Government Portfolio – Advisory 61747C608 Government Portfolio – Institutional 61747C707 Government Portfolio – Investor 61747C806 Government Portfolio – Participant 61747C889 Government Portfolio – Service 61747C871 Government Securities – Admin 61747C863 Government Securities – Advisory 61747C855 Government Securities – Institutional 61747C848 Government Securities- Investor 61747C830 Government Securities – Participant 61747C822 Government Securities – Service 61747C814 Prime Portfolio – Service 61747C673 Treasury Portfolio – Admin 61747C590 Treasury Portfolio –Cash 61747C434 Treasury Portfolio – Institutional 61747C582 Treasury Portfolio – Investor 61747C574 Treasury Portfolio –Participant 61747C566 Treasury Portfolio – Service 61747C558 Treasury Securities Portfolio – Admin 61747C541 Treasury Securities Portfolio –Advisory 61747C533 Treasury Securities Portfolio – Institutional 61747C525 Treasury Securities Portfolio- Investor 61747C483 Treasury Securities Portfolio – Participant 61747C517 Treasury Securities Portfolio – Service 61747C491

MTB Group of Funds Treasury Money Market Fund – Institutional I Shares 55376V846 Treasury Money Market Fund – Institutional II Shares 55376V838 US Government Money Market – Institutional I Shares 55376V887 US Government Money Market – Institutional II Shares 55376V879 Northern Institutional Funds Institutional Gov’t Money Market Portfolio 665278404

Institutional Government Money Market Portfolio – Premier 665275602 Institutional Government Money Market Portfolio – Service 665278503 Inst. Government Select Money Market Portfolio – Prem 665278883 Inst Government Select Money Market Portfolio – Service 665278800 Inst. Government Select Money Market Portfolio – Shares 665278701

PFM Funds Government Series 693373508

PIMCO Funds Government Money Market Fund – Class M 72201P860 SEI Daily Income Trust Government Fund – Class A 783965593

Treasury Fund – Class A 783965726

SSGA US Treasury Money Market Fund 784924847 784924300 US Treasury Money Market Fund 784924847 State Street Global Advisors Treasury Fund – Institutional Class 857492888 Treasury Plus Fund – Institutional Class 857492862 US Government Money Market Fund – Institutional Class 857492706


A-32

TDAM Asset Management USA Funds Inc. Institutional Treasury Obligations MMKT – Comm. Class 87237U741 Institutional Treasury Obligations MMKT – Inst. Service Cl. 87237U758 Wells Fargo Advantage Funds 100% Treasury Money Market – Class A 94975H288 Government Money Market Fund – Class A 94975H262 Government Money Market Fund – Administrator Class 94975J466 Government Money Market Fund – Institutional Class 94975P405 Government Money Market Fund – Service Class 94975H254 Treasury Plus Money Market Fund – Class A 94975H320 Treasury Plus Money Market Fund – Administrator Class 949921563 Treasury Plus Money Market Fund – Institutional Class 94975H296 Treasury Plus Money Market Fund – Service Class 94975H312

Section 9. List of Money Market Funds Filed with the SVO (Class 1 Funds) NOTE: PLEASE REFER TO PART ELEVEN, SECTION 2(b) OF THE PURPOSES AND PROCEDURES MANUAL. AARP Funds Money Market Fund 00037M405

Allegiant Government Money Market Fund –Class A 01784V866

Government Money Market Fund – Class I 01478V858 Institutional Money Market – Advisor Class 01748V544 Institutional Money Market – Institutional Class 01748V551 Money Market Fund – Class A 01748V841 Money Market Fund – Class I 01748V817 Treasury Money Market Fund – Class A 01748V791 Treasury Money Market Fund – Class I 01748V783

Alpine Funds Municipal Money Market Fund 020828109 American Beacon Funds Money Market Select Fund 02368W101 US Government Money Market Select Fund 02368W200 Aquila Group of Funds Pacific Cap. Cash Assets Trust – Original Shares 14754H101

Pacific Cap. US Gov. Securities Cash Assets 14754H200

Barclays Global Investors Funds Prime Money Market Fund- Institutional Shares 066922766 Prime Money Market Fund –Premium Shares 066922758 Prime Money Market Fund – Select Shares 066922733 Prime Money Market Fund – Trust Shares 066922725

BlackRock Liquidity Funds Federal Trust Fund – Institutional Shares 09248U874 Muni Fund – Institutional Shares 09248U817

TempCash 09248U643 TempFund 09248U619

Brown Brothers Harriman Money Market Fund – Institutional Shares 05528C832 Money Market Fund – Regular Shares 05528C105 Cavanal Hill Funds Cash Management – Administrative Shares 14956P836 Cash Management – Institutional Shares 14956P844 Cash Management – Service Shares 14956P828 Tax-Free Money Market – Administrative Shares 14956P786 Tax-Free Money Market – Institutional Shares 14956P794 Tax-Free Money Market – Select Shares 14956P760 Tax-Free Money Market – Service Shares 14956P778 Citizens Select Prime Money Market Fund- Class A 177366101

Select Prime Money Market Fund- Class B 144366200 Select Prime Money Market Fund- Class C 177366309 Select Prime Money Market Fund- Class D 177366408

Columbia Management Money Market Reserves – Adviser Class 19765K696 Money Market Reserves – Capital Class 19765K688 Money Market Reserves – Institutional Class 19765K662

Money Market Reserves –Investors Class 19765K654 Money Market Reserves – Liquidity Class 19765K621 Money Market Reserves– Trust Class 19765K589

Deutsche Asset Management Cash Management Institutional 23339C834

Cash Reserve Fund – Prime Institutional Shares 014470405 Cash Reserve Institutional 23339C826 CAT DWS Tax-Exempt – Institutional Shares 147539886 CAT DWS Tax-Exempt – Managed Shares 147539878 DWS Money Market Series - Institutional Shares 23337T201 DWS Money Market Series – Managed Shares 23337T102

Dreyfus Cash Management –Administrative Shares 26188J404

Cash Management – Agency Shares 26188J606 Cash Management – Institutional Shares 26188J206 Cash Management – Investor Shares 26188J305 Cash Management – Participant Shares 26188J503 Institutional Cash Advantage – Administrative 26200V203 Institutional Cash Advantage – Inst. Shares 26200V104 Institutional Cash Advantage – Investor Shares 26200V302 Institutional Cash Advantage – Participant Shares 26200V401 Institutional Preferred Money Market – Prime Share 26200T109 Institutional Preferred Money Market – Reserve 26200T406 Tax Exempt Cash Management – Administrative 26202K403 Tax Exempt Cash Management – Agency 26202K866 Tax Exempt Cash Management – Inst. Shares 26202K205 Tax Exempt Cash Management –Investor Shares 26202K304 Tax Exempt Cash Management – Participant 26202K502

Dreyfus Institutional Reserves Fund Money Market Fund – Agency 26200X308

Money Market Fund –Classic 26200X506 Money Market Fund – Hamilton 26200X209 Money Market Fund – Premier 26200X407

Evergreen Investments Adjustable Rate Fund – A 299913301

Adjustable Rate Fund – B 299913400 Adjustable Rate Fund – C 299913509 Adjustable Rate Fund – I 299913202 Adjustable Rate Fund – IS 299913103 Institutional Money Market Fund – AD 299920553 Institutional Money Market Fund – I 300250602 Institutional Money Market Fund – IN 299920546 Institutional Money Market Fund – IS 300250404 Institutional Money Market Fund – P 299920538 Institutional Muni Money Market Fund – AD 299920496 Institutional Muni Money Market Fund – I 299920306

Evergreen Investments Institutional Muni Money Market Fund – IN 299920488

Institutional Muni Money Market Fund – IS 299920405 Institutional Muni Money Market Fund – P 299920470 Prime Cash Management – AD 299920264 Prime Cash Management – I 299920330 Prime Cash Management – IN 299920272 Prime Cash Management – IS 299920280 Prime Cash Management – P 299920298

Federated Investors Inc. Federated Fund for US Government Securities 31420C704

Municipal Obligations Fund 60934N658 Prime Cash Obligations Fund 60934N625 Prime Obligations Fund 60934N203 Tax-Free Obligations Fund 60934N401 US Government Securities Fund: 1-3 Years 31428M100

Fidelity Investments Cash Management Funds: Prime Fund – Daily Money Class 233809102

Inst. Money Market Portfolio – Money Market Portfolio Cl. 316175207 Inst. Money Market Portfolio – Class II 316175843 Inst. Money Market Portfolio – Class III 316175702 Inst. Money Market Portfolio – Institutional Class 31607A109 Inst. Money Market Portfolio – Select Class 192826501

Inst. Prime Money Market Portfolio – Class I 316175405 Inst. Prime Money Market Portfolio – Class II 316175868 Inst. Prime Money Market Portfolio Class III 316175876 Inst. Prime Money Market Portfolio – Institutional Class 31607A208 Inst. Prime Money Market Portfolio – Select Class 192826402 Institutional Tax Exempt Portfolio - Class II 316176106 Institutional Tax Exempt Portfolio - Class III 316176304 Institutional Tax Exempt Portfolio - Select Class 192826600

First American Funds Government Obligations – Class A 31846V849

Government Obligations – Institutional Investor 31846V443 Prime Obligations – Class A 31846V500 Prime Obligations – Class D 31846V708 Prime Obligations – Class I 31846V732 Prime Obligations – Class Y 31846V104 Prime Obligations – Class Z 31846V625 Prime Obligations – Institutional Investor 31846V435 Tax-Free Obligations – Class A 31846V872 Tax-Free Obligations – Class D 31846V856 Tax-Free Obligations – Class Y 31846V864 Tax-Free Obligations - Class Z 31846V559 Tax-Free Obligations – Institutional Investor 31846V427 Treasury Obligations – Class D 31846V302 Treasury Obligations – Institutional Investor Class 31846V419 US Treasury – Class A 31846V476 US Treasury – Class D 31846V468 US Treasury – Institutional Investor 31846V393 US Treasury – Class Y 31846V534 US Treasury – Class Z 31845V450

Funds for Institutions Series FFI Institutional Fund 36085P205 FFI Select Institutional Fund 36085P304 FFI Treasury Fund 36085P106 GE Funds Money Market Fund 36158B562 GE Institutional Funds Institutional Money Market Fund 36158T761 Goldman Sachs Trust Financial Square Money Market Fund – Admin 38141W224

Financial Square Money Market Fund –First Capital 38143H209 Financial Square Money Market Fund – Institutional 38141W323 Financial Square Money Market Fund – Preferred 38141W190 Financial Square Money Market Fund – Select 38142Y740 Financial Square Money Market Fund – Service 38141W216 Financial Square Prime Obligations Fund –Admin 38141W356 Financial Square Prime Obligations Fund – Capital 38143H100 Financial Square Prime Obligations Fund – Institutional 38141W364 Financial Square Prime Obligations Fund – Preferred 38141W331 Financial Square Prime Obligations Fund – Select 38142Y757 Financial Square Prime Obligations Fund – Service 38141W349 Financial Square Tax-Free Money Market Fund – Admin 38141W174 Financial Square Tax-Free Money Market Fund – Capital 38143H704 Financial Square Tax-Free Money Market Fund – Inst. 38141W182 Financial Square Tax-Free Money Market Fund – Preferred 38141W158 Financial Square Tax-Free Money Market Fund – Select 38141Y682

Financial Square Tax-Free Money Market Fund – Service 38141W166 HighMark Funds US Government Money Market Fund 431114701 HSBC Investor Funds Investor Prime Money Market Fund - Class A 404281834

Investor Money Market Fund - Class I 404281172

ING Investment Management Institutional Prime Money Market Fund 45683V647 Invesco Aim Advisors Inc. Liquid Assets Portfolio- Cash Management Class 825252737

Liquid Assets Portfolio – Corporate Class 825252554 Liquid Assets Portfolio – Institutional Class 825252729 Liquid Assets Portfolio - Personal Investment Class 825252711 Liquid Assets Portfolio - Private Investment Class 825252695 Liquid Assets Portfolio – Reserve Class 825252687 Liquid Assets Portfolio – Resource Class 825252679 Premier Tax-Exempt Portfolio – Institutional 00142W850 Premier Portfolio – Investor Class 00142W108 Premier Tax-Exempt Portfolio – Institutional 00142W850 Premier Tax-Exempt Portfolio - Investor 00142W207 STIC Prime Portfolio – Cash Management 825252653 STIC Prime Portfolio – Corporate 825252562 STIC Prime Portfolio – Institutional 825252646 STIC Prime Portfolio – Personal Investment 825252638 STIC Prime Portfolio – Private Investment 825252620 STIC Prime Portfolio – Reserve 825252612 STIC Prime Portfolio – Resource 825252596 Tax-Free Cash Reserve Portfolio – Cash Management 825252521 Tax-Free Cash Reserve Portfolio –Corporate 825252497 Tax-Free Cash Reserve Portfolio – Personal Investment 825252463 Tax-Free Cash Reserve Portfolio – Private Investment 825252471 Tax-Free Cash Reserve Portfolio – Resource 825252455 Tax-Free Cash Reserve Portfolio – Reserve 825252513

JPMorgan Funds Prime Money Market – Agency Shares 4812A2504

Prime Money Market – Capital Shares 4812A0367 Prime Money Market – Cash Management Shares 4812A2850 Prime Money Market – Institutional Shares 4812A2603 Prime Money Market – Morgan Shares 4812A2702 Prime Money Market – Premier Shares 4812A2801 Prime Money Market – Reserve Shares 4812A2884 Tax Free Money Market – Agency Shares 4812A2751 Tax Free Money Market – Institutional Shares 4812A2744 Tax Free Money Market – Morgan Shares 4812A2728 Tax Free Money Market – Premier Shares 4812A2736 Tax Free Money Market – Reserve Shares 4812A0326

Legg Mason Partners Western Asset/Citi Inst. Tax-Free Reserves – Class A 52470G858

Western Asset/Citi Institutional Cash Reserves – Class L 52470G205 Western Asset/Citi Institutional Cash Reserves – Class O 52470G304

Marshall Funds, Inc. Government Money Market Fund – Class I 572353670 Money Market Fund – Class I 572353696 Money Market Fund – Class Y 572353100

Morgan Stanley Inst. Liquidity Funds Prime Portfolio – Administrative 61747C731

Prime Portfolio – Advisory Class 61747C723 Prime Portfolio – Institutional Class 61747C715 Prime Portfolio – Investor Class 61747C699

Prime Portfolio – Participant Class 61747C681 Tax-Exempt Portfolio – Administrative Class 61747C665 Tax-Exempt Portfolio – Advisory Class 61747C657 Tax-Exempt Portfolio –Investor Class 61747C475 Tax-Exempt Portfolio – Participant Class 61747C632 Tax-Exempt Portfolio – Institutional Class 61747C640 Tax-Exempt Portfolio – Service Class 61747C624

Morgan Stanley Investment Advisors Inc. Active Assets Institutional Money Trust 00505K105 MTB Group of Funds Money Market Fund – Institutional I Shares 55376T429 Money Market Fund – Institutional II Shares 55376T841 Prime Money Market Fund – Corporate Shares 55376T841 Northern Institutional Funds Institutional Diversified Assets Portfolio 665278107

Institutional Diversified Assets Portfolio – Premier 665278305 Institutional Diversified Assets Portfolio – Service 665278206 Institutional Prime Obligations Portfolio 665279402 Institutional Prime Obligations Portfolio – Service 665279303

Oppenheimer Funds Institutional Money Market Fund – Class L 68383G207 Pacific Capital US Government Short Fixed Income Fund – Class Y 694048554 Performance Funds US Treasury Money Market Fund – Institutional Shares 713756658 PFM Funds Prime Series – Institutional Class 693373201 Plan Investment Fund Government REPO Portfolio 72702*126

Money Market Portfolio 72702*118 PNC Funds Inc. Government Money Market Fund- Class I 69350U575

Prime Money Market Fund – Class I 69350U617 Tax-Exempt Money Market Fund 69350U542

Prudential Mutual Fund Core Investment Fund Taxable Money Market Series 74432D104 Cash Accumulation Trust – Liquid Asset Fund 147541502 Institutional Liquidity Portfolio- Institutional Money Market 744350109

RBC US Money Market Funds Prime Money Market Fund 87505V314 US Government Money Market Fund 87505V298 Ridgeworth Funds Institutional Cash Management Money Market Fund 76628T264 Institutional Municipal Cash Reserve Money Market Fund 76628T256 Institutional US Government Securities Money Market Fund 76628T249 Institutional US Treasury Securities MMKT Fund – Corp Sh. 76628T223 Institutional US Treasury Securities MMKT Fund – Instl. Sh. 76628T231 Prime Quality Money Market Fund – A Shares 76628T371 Prime Quality Money Market Fund – C Shares 76628T363 Prime Quality Money Market Fund – I Shares 76628T389 US Government Securities Money Market Fund – A Shares 76628T298 US Government Securities Money Market Fund – I Shares 76628T298 US Treasury Money Market Fund – A Shares 76628T298 US Treasury Money Market Fund – I Shares 76628T314 SEI Daily Income Trust Money Market Fund 783965205 Prime Obligation Fund 783965403 SSGA Funds Market Fund – Class A 784924748

Prime Money Market Fund 784924797 Tax-Free Money Market Fund –Class A 784924730 State Street Global Advisors Institutional Liquid Reserves Fund – Institutional Class 85749P101 Institutional Tax-Free Money Market Fund – Institutional Cl. 857492508 TCW Funds Inc. Money Market Fund 87234N864 TD Asset Management USA Funds Inc. Institutional Money Market Fund – Inst Class 87237U865

Institutional Money Market Fund – Inst. Service Class 87237U857 Institutional US Government Fund – Inst. Class 87237U840 Institutional US Government Fund – Inst. Serv. Class 87237U832

The Wilmington Funds U.S. Government Fund – Institutional Shares 92934R660 Thrivent Financial for Lutherans Financial Securities Lending Trust 88588#101 Virtus Investment Partners Insight Money Market Fund 92828T566 Wells Fargo Advantage Funds Heritage Money Market Fund – Administrator Class 949917389 Heritage Money Market Fund – Institutional Class 949917397 Heritage Money Market Fund – Select Class 94984B793 Wells Fargo Advantage Funds National Tax-Free Money Market Fund – A 94975H379 National Tax-Free Money Market Fund – Administrator Cl. 949917421


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Section 10. List of Bond Mutual Funds Filed with the SVO (Bond Funds) NOTE: PLEASE REFER TO PART ELEVEN, SECTION 2(c) OF THE PURPOSES AND PROCEDURES MANUAL. Federated Investors, Inc. Government Ultrashort Fund 31420B201


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Section 11. List of Capital and Surplus Notes Eligible for Amortized Value Accounting NOTE: PLEASE REFER TO PART TWELVE OF THE PURPOSES AND PROCEDURES MANUAL FOR AN EXPLANATION OF THE ROLE OF THE SVO IN THE VALUATION OF SURPLUS DEBENTURES. (a) List of Issuers If the SVO determines that a capital or surplus debenture has been rated by an NAIC ARO and has an NAIC Designation equivalent of NAIC 1, the name of the issuer will be listed below. American United Life Anthem Insurance Company Blue Cross Blue Shield of Florida Equitable Life General American Life Indianapolis Life Insurance Company Jackson National Life John Hancock Mutual Life Insurance Company Massachusetts Mutual Life Insurance Company Metropolitan Life Insurance Company Minnesota Life Insurance Company Nationwide Mutual Insurance Company New England Mutual Life Insurance Company New York Life Insurance Company Ohio National Life Insurance Company Pacific Mutual Life Insurance Company Penn Mutual Life Principal Mutual Life Insurance Company Prudential Insurance Company of America Union Central Life Insurance


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Section 12. List of Banks

EXPLANATORY NOTE: STATE INSURANCE REGULATORS AND INSURANCE COMPANIES MAY USE THIS LIST FOR ANY PURPOSE OF THE PURPOSES DISCUSSED IN PART TEN OF THE PURPOSES AND PROCEDURES MANUAL (CREATION AND MAINTENANCE OF BANK LIST). A specific banking entity must apply to be listed only once. This means that an insurance company may do business with: (i) a listed domestic parent bank entity, and any of its unlisted domestic branches; (ii) a listed domestic branch of a domestic parent bank entity, the unlisted domestic parent bank entity and any other unlisted domestic branches of the same domestic parent bank entity; and (iii) a listed U.S. branch of a foreign bank entity and any other unlisted U.S. branches of the same foreign parent bank entity.* Notwithstanding the above, any entity related to a domestic listed entity (i.e. parent or branch) may apply to be listed independently. Any domestic parent bank entity, its domestic branches and U.S. branches of a foreign parent bank entity with no related entity on the list that wants to be listed must apply to the SVO. The procedure for being placed on this list is described in Part Ten, Section 3 of this Manual. *This policy only applies to banks that share the same legal identity. Banking entities that share the same or similar names but that are separately chartered, and bank subsidiaries, that want to be listed, must apply individually. BANK NAME CITY/STATE SOVEREIGN ABN Amro Bank N.V. Chicago, IL Netherlands ANZ Banking Group, Ltd. New York, NY Australia AgStar Financial Services, ACA Mankato, MN USA Allied Irish Bank New York, NY Ireland Allstate Bank Vernon Hills, IL USA Amegy Bank National Association Houston, TX USA American Bank and Trust Company Tulsa, OK USA American Business Bank Los Angeles, CA USA Arthur State Bank Union, SC USA BNP Paribas New York, NY France BancFirst Oklahoma City, OK USA Banco Bilbao Vizcaya Argentaria New York, NY Spain Bank of Agriculture & Commerce Stockton, CA USA Bank of Albuquerque,N.A. Albuquerque, NM USA Bank of America, N.A. Los Angeles, CA USA Bank of Arizona, N.A. Phoenix, AZ USA Bank of Arkansas, N.A. Fayetteville, AR USA Bank of Hawaii Honolulu, HI USA Bank of Ireland Stamford, CT – Rep Office Ireland Bank of Kansas City, N.A. Tulsa, OK USA Bank of Montreal Chicago, IL Canada Bank of Oklahoma, N.A. Tulsa, OK USA Bank of Springfield Wabash, IL USA Bank of Texas, N.A. Dallas, TX USA Bank of Tokyo-Mitsubishi UFJ Trust Company New York, NY Japan Bank of the West Los Angeles, CA USA Bankers Trust Company, NA Cedar Rapids, IA USA


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Bayerische Hypo-und Vereinsbank, A.G. New York, NY Germany Bayerische Landesbank New York, NY Germany Boone County National Bank Columbia, MO USA Broadway Federal Bank Los Angeles, CA USA Brown Brothers Harriman & Company New York, NY USA Cathay Bank Los Angeles, CA USA California Bank & Trust Los Angeles, CA USA Calyon New York, NY France California First Bank Greenville, SC USA Chester National Bank Chester, IL USA Chittenden Trust Company Burlington, VT USA Christiana Bank & Trust Company Wilmington, DE USA Citizens Bank of Pennsylvania Philadelphia, PA USA Citizens Business Bank Ontario, CA USA City National Bank Beverly Hills, CA USA CoBank, ACB Greenwood Village, CO USA CoBiz Bank, NA Denver, CO USA Colorado State Bank & Trust, N.A. Denver, CO USA Comercia Bank Detroit, MI USA Commerce Bank, NA. Kansas City, MO USA Commerzbank, A.G. New York, Germany Commonwealth Bank and Trust Louisville, KY USA Commonwealth Bank of Australia New York, NY Australia Credit Industriel et Commercial New York, NY France Credit Suisse New York Branch Switzerland Crossroads Bank Wabash, IN USA DZ Bank AG New York, NY Germany Danversbank Danvers, MA USA Deutsche Bank Trust Company Americas Jersey City, NJ USA DnB Nor Bank ASA New York, NY Norway Dresdner Bank, A.G. New York, NY Germany Eastern Bank Boston, MA USA Federal Home Loan Bank Des Moines, IA USA Federal Home Loan Bank of Indianapolis Indianapolis, IN USA Fifth Third Bank Cincinatti, OH USA First Commercial Bank Jackson, MS USA First Hawaiian Bank Honolulu, HI USA First Midwest Bank Itasca, IL USA First National Bank Alaska Anchorage, AK USA First Tennessee Bank, N.A. Memphis, TN USA Fortis Bank, SA/NV New York, NY USA Fulton Bank Lancaster, PA USA Goldman Sachs Bank, USA New York, NY USA Hilltop National Bank Casper, WY USA HSBC Bank USA, N.A. Buffalo, NY USA HSH Nordbank AG New York, NY Germany Hancock Bank of Louisiana Franklinton, LA USA Harris N.A. Chicago, IL USA Huntington National Bank Columbus, OH USA Intesa Sanpaolo S.p.A. New York, NY Italy Intrust Bank, N.A. Wichita, KS USA JPMorgan Chase Bank New York, NY USA Jefferson State Bank San Antonio, TX USA


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KBC Bank, N.V. New York, NY Belgium KeyBank National Association Cleveland, OH USA Landesbank Baden-Wuerttemberg Cleveland, OH Germany Landesbank Hessen-Thuringen Girozentrale New York, NY Germany Libertyville Bank & Trust Company Libertyville, IL USA Lloyds TSB Bank Plc New York, NY United Kingdom M&I Marshall & Iisley Bank Milwaukee, WI USA MB Financial Inc. Chicago, IL USA Manufacturers and Traders Trust Co. Buffalo, NY USA Mercantile Bank Orlando, FL USA Merrill Lynch Bank USA Salt Lake City, UT USA Mizuho Corporate Bank USA New York, NY Japan Mizuho Corporate Bank, Ltd. New York, NY Japan Morgan Stanley Bank West Valley City, UT USA National Australia Bank Ltd. New York, NY Australia National Penn Bank Boyertown, PA USA Natixis New York, NY France Norddeutsche Landesbank Girozentrale New York, NY Germany Nordea Bank Finland Plc. New York, NY Finland PNC Bank, National Association Pittsburgh, PA USA Pacific Capital Bank, N.A. Santa Barbara, CA USA Pacific Continental Bank Eugene, OR USA Pacific Premier Bank Costa Mesa, CA USA Paragon Commercial Bank Raleigh, NC USA People’s United Bank Burlington, VT USA PlainsCapital Bank Forth Worth, TX USA Premier Bank Lenexa, KS USA RBC Bank (USA) Charlotte, NC Canada RBS Citizens, National Association Providence, RI USA Rabobank International New York, NY Netherlands Regions Bank Montgomery, AL USA River City Bank Sacramento, CA USA Royal Bank of Canada New York, NY Canada Royal Bank of Scotland Plc. New York, NY United Kingdom Royal Bank of Scotland plc. Greenwich, CT USA S&T Bank Indiana, PA USA Signature Bank New York, NY USA Silicon Valley Bank Santa Clara, CA USA Societe Generale New York, NY France Sovereign Bank, FSB Boston, MA USA Standard Chartered Bank New York, NY United Kingdom State Street Bank and Trust Company Boston, MA USA Sterling Bank Houston, TX USA Sumitomo Mitsui Banking Corp. New York, NY Japan SunTrust Banks, Inc. Atlanta, GA USA Susquehanna Bank Hagerstown, MD USA Svenska Handelsbanken AB New York, NY Sweden TD Bank, N.A. Mt. Laurel, NJ USA Texas Capital Bank, NA Dallas, TX USA The Bank of New York Mellon New York, NY USA The Bank of Nova Scotia New York, NY Canada The Bank of Tokyo-Mitsubishi UFJ, Ltd. New York, NY Japan The F&M Bank & Trust Company Tulsa, OK USA


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The First National Bank & Trust Co. of Iron Mountain Iron Mountain, MI USA The Frost National Bank San Antonio, TX USA The Mechanics Bank Walnut Creek, CA USA The Northern Trust Company Chicago, IL USA The PrivateBank and Trust Company Chicago, IL USA The Shizuoka Bank New York Agency Japan The Toronto Dominion Bank New York, NY Canada Transportation Alliance Bank Ogden, UT USA Trustmark National Bank Jackson, MS USA U.S. Bank National Association Saint Paul, MN USA UBS AG Stamford, CT Switzerland UMB Bank N.A. Kansas City, MO USA Umpqua Bank Portland, OR USA Union Bank of California, N.A. San Francisco, CA USA United Commercial Bank San Francisco, CA USA Univest National Bank and Trust Co. Souderton, PA USA Webster Bank, N.A. Hartford, CT USA Wells Fargo Bank San Francisco, CA USA Wells Fargo Bank Alaska Anchorage, AK USA West Suburban Bank Lombard, IL USA WestLB AG New York, NY Germany Westamerica Bank Suisun City, CA USA Westfield Bank Westfield, MA USA Westpac Banking Corporation New York, NY Australia Whitney National Bank New Orleans, LA USA Wilmington Trust Company Wilmington, DE USA Zions First National Bank Salt Lake City, UT USA *Banks which were previously on the list but which have not paid the required $500.00 annual maintenance fee have been removed from the list. **Due to timing differences in the production of the Purposes and Procedures Manual please consult the monthly Bank List publication to further confirm changes to the bank list that may include additions and/or de-listings.


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Section 13. Asset Valuation Reserve and Interest Maintenance Reserve Instructions for the Asset Valuation Reserve and the Interest Maintenance Reserve (AVR/IMR) are included in the NAIC Life, Accident and Health Annual Statement Instructions. It includes the IMR Grouped Amortization Table which is updated annually (June) by the NAIC. The average industry mortgage experience adjustment factor (AvIEF) is updated quarterly. It is available on the NAIC website (www.naic.org). Contact Dan Swanson of the NAIC by phone at (816) 783-8412 or by e-mail at [email protected] with any questions concerning the AvIEF and general questions regarding AVR/IMR.


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Section 14. List of Securities that are Backed by the Full Faith and Credit of the United States Government PLEASE NOTE: EFFECTIVE (MARCH 10, 2003) THE FRAMEWORK GOVERNING THE FILING OF U.S. GOVERNMENT SECURITIES HAS BEEN REWRITTEN. SECTION 14 CONTINUES TO GOVERN THE ELIGIBLE INVESTMENTS FOR EXEMPT MONEY MARKET MUTUAL FUNDS AND BOND FUNDS PURSUANT TO PART ELEVEN OF THE PURPOSES AND PROCEDURES MANUAL. HOWEVER, REFER TO SECTIONS 16, 17 AND 18 OF THIS APPENDIX AND PART FOUR SECTION 2(B) AND PART FIVE, SECTION 3(E) OF THE PURPOSES AND PROCEDURES MANUAL FOR THE FILING RULES APPLICABLE TO WHOLLY OWNED U.S. GOVERNMENT SECURITIES. For certain defined regulatory purposes, the following securities are considered to be (1) direct obligations of the United States Government, (2) securities that are backed by the full faith and credit of the United States Government, (3) securities that are highly rated, and/or (4) securities deemed exempt pursuant to the determination of the Valuation of Securities Task Force. As such, these securities are considered to be in the “exempt” category for purposes of determining Asset Valuation Reserve and the risk-based capital calculation. (a) United States Treasury Bills (b) United States Treasury Notes (c) United States Treasury Bonds (d) United States Treasury Separate Trading of Registered Interest and Principal of Securities

(STRIPS) (e) United States Treasury Receipts (TRs), predecessors of STRIPS (f) Unites States Mortgage Guaranty Insurance Company Tax and Loss Bonds (g) Government National Mortgage Association (GNMA) Mortgage Pass Through Participation

Certificates (h) Veterans Administration U.S. Government Guaranteed Mortgage-Related Securities (i) Housing and Urban Development (HUD) United States Government Guaranteed Notes (j) Federal Housing Administration (FHA) Debenture Obligations and participation certificates

issued and or fully guaranteed by the FHA (k) Maritime Administration Guaranteed Title XI Financing (l) Washington Metropolitan Area Transit Authority Guaranteed Transit Bonds (m) Agency for International Development (AID) U.S. Government Guaranteed Notes (n) Small Business Administration (SBA) Section 7(a) Loans (o) Small Business Investment Company (SBIC) Program Participation Certificates, guaranteed by

the Small Business Administration (SBA) (p) Development Company Funding Corporation (DCFC) Participation Certificates, guaranteed by

the Small Business Administration (SBA) (q) Farm Credit System Financial Assistance Corporation Obligations (r) Farmers Home Administration Certificates of Beneficial Ownership (CBOs) (s) Geothermal Energy Coordination and Management Project-Designated Agency Guaranteed

Loans (t) Health and Human Services (HHS) Guaranteed Loans to Health Maintenance Organizations


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(u) Resolution Trust Corporation (RTC) Obligations, if the principal amount and term to maturity or date of maturity are stated in the Obligations

(v) Private Export Funding Corporation (PEFCO) Guaranteed Loans, PEFCO’s long, medium and short-term notes, and PEFCO Finance Corps collateralized notes.

(w) United States Postal Service Debt Obligations (if the Postal Service so requests the Secretary of the Treasury to designate the securities and the Secretary so designates such obligations)

(x) Federal Financing Bank (FFB) Obligations (y) Bonds, notes, debentures, and participation certificates directly issued by the Federal National

Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), and the Federal Agricultural Mortgage Corporation (Farmer Mac).1

(z) The consolidated obligations of Federal Home Loan Banks (FHL Banks).1 (aa) USDA loans issued or one hundred percent guaranteed directly by the Farm Service Agency,

Rural Utilities Service, Rural Electrification Administration, Rural Telephone Bank, and Rural Business Cooperative Services

(bb) All loans guaranteed by the Export-Import Bank of the United States. (cc) Participation certificates issued and or fully guaranteed by the General Services Administration

(GSA) and all mortgage notes issued by the GSA in connection with the Public Buildings Program.

(dd) Loans backed by the Overseas Private Investment Corp (OPIC) and certificates of participation issued directly by OPIC.

(ee) Obligations directly issued by the Resolution Funding Corporation (ff) Consolidated system wide bonds and notes, which benefit from the joint and several guarantee of

the Federal Farm Credit System Banks (gg) Financing Corporation (FICO) long term bonds (hh) Student Loan Marketing Association long and short-term notes (ii) Tennessee Valley authority power bonds

1The loan-backed securities of such agencies are not to be considered exempt. Structured securities, as defined in the NAIC Annual Statement Instructions for Schedule D-Part 1A-Section 2, regardless of issuer, are not to be considered exempt.


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Section 15: RSAT Index List NOTE: PLEASE REFER TO PART THIRTEEN OF THE PURPOSES AND PROCEDURES MANUAL FOR INSTRUCTIONS ON THE APPROPRIATE USE OF THIS LIST.

Index Name ABX.HE.AAA Index ABX.HE.AA Index ABX.HE.A Index ABX.HE.BBB Index ABX.HE.BBB- Index Banc of America CMBS AAA 10 Year Index Banc of America CMBS AA Index Banc of America CMBS A Index Banc of America CMBS BBB Index Banc of America CMBS Investment Grade 10 Year Index Dow Jones CDX Emerging Markets CDS Index Dow Jones CDX North American Investment Grade CDS Index Dow Jones CDX North American Investment Grade High Volatility CDS Index Dow Jones CDX North American High Yield 100 CDS Index Dow Jones CDX North American High Yield BB CDS Index Dow Jones CDX North American High Yield B CDS Index Lehman Brothers CMBS ERISA Index Lehman Brothers CMBS Investment Grade Index Lehman Brothers CMBS High Yield Index Lehman Brothers U.S. Floating Rate Home Equity Loan Index Lehman Brothers U.S. Floating Rate Credit Card Index


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Lehman Brothers U.S. Floating Rate Auto Loan Index Lehman Brothers U.S. Floating Rate Student Loan Index Select Aggregate Market Index (SAMI) (Secured) TRAC-X North America Series 2 March 2009 Index iTraxx Europe CDS Index


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Section 16. Filing Exemption List for Direct or Full Faith and Credit Obligations of the United States Government NOTE: THE SECURITIES IN THIS LIST ARE DEEMED TO BE EXEMPT FROM FILING WITH THE SVO BECAUSE THEY MEET THE TERMS OF THE FILING EXEMPTION PROVIDED FOR IN PART FOUR, SECTION 2 (c) (i) OF THE PURPOSES AND PROCEDURES MANUAL. THE SECURITIES MATCHING THE CRITERIA LISTED BELOW ARE EXEMPT. IF YOU ARE CONCERNED WITH A SECURITY THAT IS NOT LISTED BELOW, CHECK TO SEE IF THE SECURITY QUALIFIES FOR EXEMPTION UNDER PART FOUR, SECTION 2 (c) (ii), (iii), AND (iv) OF THE PURPOSES AND PROCEDURES MANUAL (SEE SECTIONS 17 AND 18 OF THIS APPENDIX). IF THE SECURITY MUST BE FILED WITH THE SVO, PER PART FIVE, SECTION 3 (e) (i) (B) OF THE PURPOSES AND PROCEDURES MANUAL, SEE SECTION 19 OF THIS APPENDIX. a) Agency for International Development (AID)*

The filing exemption applies to loans guaranteed by AID b) Department of Veterans Affairs (VA)*

The filing exemption applies to all loans guaranteed by the VA. c) Export –Import Bank of the United States (Exim)*

The exemption applies to all loans guaranteed by Exim. d) Farmers Home Administration (FmHA)

This exemption applies to certificates of beneficial ownership issued directly by FmHA. e) Federal Financing Bank (FFB)

The filing exemption applies to all obligations issued directly by the FFB. f) Federal Housing Administration (FHA)

The filing exemption applies to debentures issued by the FHA (in lieu of payment of the insurance claims) and participation certificates in pass-through mortgage pools issued and or fully guaranteed by the FHA.

g) General Services Administration (GSA)

The filing exemption applies to participation certificates issued and or fully guaranteed by the GSA and all mortgage notes issued by the GSA in connection with the Public Buildings Program.

h) Geothermal Energy Coordination and Management Agency*

The filing exemption applies to all loans guaranteed by the Geothermal Energy Coordination and Management Agency.

i) Government National Mortgage Association (GNMA or Ginnie Mae)

The filing exemption applies to participation certificates in pass-through mortgage pools and CMOs issued and or fully guaranteed by GNMA in connection with the Mortgage Backed Securities Program.


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j) Health and Human Services (HHS)* The exemption applies to all loans to Health Maintenance Organizations guaranteed by HHS.

k) Housing and Urban Development (HUD)*

The exemption applies to all loans guaranteed by HUD. l) Maritime Administration (MARAD) *

The exemption applies to all loans backed by MARAD under the Title XI Ship Financing Program. m) Overseas Private Investment Corp (OPIC)*

The filing exemption applies to loans backed by OPIC and certificates of participation issued directly by OPIC.

n) Private Export Funding Corporation (PEFCO) *

The filing exemption applies to all loans guaranteed by PEFCO. o) Resolution Trust Corporation (RTC)

The filing exemption applies to all obligations issued directly by the RTC. p) Small Business Administration (SBA)*

The filing exemption applies to loans backed by the SBA and to participation certificates in pass-through mortgage pools issued and or fully guaranteed by the SBA.

q) United States Department of Agriculture (USDA)*

The filing exemption applies to all loans issued or one hundred percent guaranteed directly by the following USDA programs: Farm Service Agency, Rural Housing Service, Rural Utilities Service, Rural Telephone Bank, Rural Electrification Administration and Rural Business Cooperative Services.

r) U.S. Postal Service

The filing exemption applies to U.S. Postal Service guaranteed bonds that, at the request of the Postal Service, have been guaranteed by the U.S. Treasury.

s) United States Treasury The filing exemption applies to all direct obligations of the U.S. Treasury including bills, bonds, notes, treasury receipts, Separate Trading of Interest and Principal Securities (STRIPS), and Unites States Mortgage Guaranty Insurance Company Tax and Loss Bonds. This exemption also applies to private label zero-coupon STRIP products composed entirely of U.S. Treasury bonds.

t) Washington Metropolitan Area Transit Authority

The filing exemption applies to all US government guaranteed transit bonds. * The guaranteed loans issued by this government entity are entitled to the full faith and credit of the United States government but at a level of support that may be less than one hundred percent (100%) of the interest and principal due on the obligation. If this government entity or a private issuer use the guaranteed loans of this entity as collateral for another security so that the interest and principal on the new security is backed 100% by the full faith and credit of the U.S as a result of the collateral, then the resulting security is exempt from filing with the SVO.


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Section 17. U.S. Government NAIC ARO Rated Issuer Filing Exemption List NOTE: THE SECURITIES IN THIS LIST ARE DEEMED TO BE EXEMPT FROM FILING WITH THE SVO BECAUSE THEY MEET THE TERMS OF THE FILING EXEMPTION PROVIDED FOR IN PART FOUR, SECTION 2 (c) (ii) OF THE PURPOSES AND PROCEDURES MANUAL. THE SECURITIES MATCHING THE CRITERIA LISTED BELOW ARE EXEMPT. IF YOU ARE CONCERNED WITH A SECURITY THAT IS NOT LISTED BELOW, CHECK TO SEE IF THE SECURITY QUALIFIES FOR EXEMPTION UNDER PART FOUR, SECTION 2 (c) (i), (iii) AND (iv) OF THE PURPOSES AND PROCEDURES MANUAL (SEE SECTION 16 AND 18 OF THIS APPENDIX). IF THE SECURITY MUST BE FILED WITH THE SVO PER IN PART FIVE, SECTION 3 (e) (i), (B) OF THE PURPOSES AND PROCEDURES MANUAL, SEE SECTION 19 OF THIS APPENDIX. a) Farm Credit System Financial Assistance Corporation (FCSFAC)

The filing exemption applies to all obligations of FCSFAC. b) Federal Farm Credit Banks (FFCB)

The filing exemption applies to consolidated system wide bonds and notes, which benefit from the joint and several guarantee of the Federal Farm Credit System Banks.

c) Federal Home Loan Banks (FHLB)

The filing exemption applies to consolidated system wide bonds and notes, which benefit from the joint and several guarantee of the Federal Home Loan Bank System.

d) Federal Home Loan Mortgage Corporation (Freddie Mac)

The filing exemption applies to senior and subordinated bonds, notes and debentures issued directly by Freddie Mac and to participation certificates and CMOs issued and or fully guaranteed by Freddie Mac.

e) Federal National Mortgage Association (Fannie Mae)

The filing exemption applies to senior and subordinated bonds, notes and debentures issued directly by Fannie Mae and to participation certificates and CMOs issued and or fully guaranteed by Fannie Mae.

f) Financing Corporation (FICO)

The filing exemption applies to FICO long term bonds g) Private Export Funding Corporation (PEFCO)

The filing exemption applies to PEFCO long, medium, and short-term notes, and to PEFCO Finance Corp. collateralized notes.

h) Resolution Funding Corporation (REFCorp)

The filing exemption applies to all REFCorp long-term bonds. i) Tennessee Valley Authority (TVA)

The filing exemption applies to TVA power bonds.


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Section 18. Discretionary Government Filing Exemption List NOTE: THE SECURITIES IN THIS LIST ARE DEEMED TO BE EXEMPT FROM FILING WITH THE SVO PURSUANT TO A DETERMINATION OF THE VALUATION OF SECURITIES TASK FORCE PURSUANT TO PART FOUR, SECTION 2 (c) (iii) OF THE PURPOSES AND PROCEDURES MANUAL. PLEASE NOTE, UNLESS OTHERWISE INDICATED ONLY THE SPECIFIC COMBINATION OF ISSUER AND SECURITY (SECURITIES) THAT IS LISTED ARE EXEMPT. a. Federal Agricultural Mortgage Corporation (FAMC)

The filing exemption applies to bonds, notes and debentures issued directly by FAMC and to participation certificates and CMOs issued and or fully guaranteed by FAMC.


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Section 19. List of U.S. Government Securities Required to be Filed with the SVO NOTE: THE SECURITIES MATCHING THE CRITERIA IN THIS LIST ARE NOT EXEMPT FROM FILING PURSUANT TO PART FOUR, SECTION 2 (c) (i), (ii) OR (iii) OF THE PURPOSES AND PROCEDURES MANUAL. IF YOU HAVE A QUESTION AS TO THE FILING EXEMPTION STATUS OF U.S. GOVERNMENT SECURITY, REVIEW SECTION 16, 17 AND 18 OF THIS APPENDIX ABOVE, AND THIS LIST. IF YOUR SECURITY IS NOT ON ANY OF THESE LISTS, THE SECURITY IS NOT EXEMPT FROM FILING AND MUST BE REPORTED TO THE SVO IN ACCORDANCE WITH THE CRITERIA IN PART FIVE, SECTION 3 (e) (iii) OF THE PURPOSES AND PROCEDURES MANUAL. a) Agency for International Development (AID)

All insurance obligations of AID must be filed with the SVO. b) Amtrak

All securities of Amtrak must be filed with the SVO. c) Army and Air Force Exchange Service (AAFES)

All securities of AAFES must be filed with the SVO. d) Bonneville Power Administration (BPA)

All securities of BPA must be filed with the SVO. e) College Construction Loan Insurance Corporation (Connie Lee)

All securities of Connie Lee must be filed with the SVO. f) Commodity Credit Corporation (CCC)

All securities of CCC must be filed with the SVO. g) Communications Satellite Corporation

All securities of Communications Satellite Corporation must be filed with the SVO. h) Corporation for Public Broadcasting

All securities of the Corporation for Public Broadcasting must be filed with the SVO. i) Department of Defense

Securities that are to be repaid from cash flow on capital leases of the Department of Defense must be filed with the SVO.

j) Export-Import Bank of the United States (Exim Bank)

All insurance obligations of the Exim Bank must be filed with the SVO. k) Federal Crop Insurance Corporation

All securities of the Federal Crop Insurance Corporation must be filed with the SVO. l) Federal Deposit Insurance Corporation (FDIC)

All securities of the FDIC must be filed with the SVO.


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m) Federal Prison Industries, Inc. (Unicorp) All securities issued by Unicorp must be filed with the SVO. n) Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund

All securities issued by the FSLIC Resolution Trust must be filed with the SVO. o) General Services Administration (GSA)

All capital leases issued by the GSA must be filed with the SVO. p) Legal Services Corporation

All securities of the Legal Services Corporation must be filed with the SVO. q) National Consumer Cooperative Bank (NCB)

All bonds that are the direct obligation of NCB must be filed with the SVO. r) National Credit Union Central Liquidity Facility (CLF)

All securities of the CLF must be filed with the SVO. s) National Credit Union Share Insurance Fund (NCUSIF)

All securities of NCUSIF must be filed with the SVO. t) Navy Exchange

All securities of the Navy Exchange must be filed with the SVO. u) Neighborhood Reinvestment Corporation

All securities of the Neighborhood Reinvestment Corporation must be filed with the SVO. v) Non-Nuclear Energy Research and Development

All securities backed by the loan guarantees of the Non-Nuclear Energy Research and Development must be filed with the SVO.

w) Overseas Private Investment Corporation (OPIC)

All OPIC insurance obligations must be filed with the SVO. x) Pension Benefit Guarantee Corporation (PBGC)

All securities of the PBGC must be filed with the SVO. y) Rural Telephone Bank (RTB), (USDA)

All direct loans of the RTB must be filed with the SVO. z) Saint Lawrence Seaway Development Corporation (SLSDC)

All securities of the SLSDC must be filed with the SVO. aa) Securities Investor Protection Corporation (SIPC)

All securities of SIPC must be filed with the SVO. bb) U.S. Postal Service

All non-guaranteed bonds of the U.S. Postal Service must be filed with the SVO.


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Section 20. List of Exchange Traded Funds Eligible for Reporting as a Schedule D Bond

NOTE: AN INVESTMENT IN SHARES OF A BOND MUTUAL FUND MUST BE REPORTED AS COMMON STOCK, UNLESS THE BOND FUND MEETS THE CRITERIA IN PART ELEVEN, SECTION 2 (c) OF THE PURPOSES AND PROCEDURES MANUAL AND IS LISTED IN SECTION 10 OF THIS APPENDIX. HOWEVER, EXCHANGE-TRADED FUNDS (“ETFS”) THAT MEET DEFINED CONDITIONS ARE ELIGIBLE TO BE REPORTED AS SCHEDULE D BONDS. PLEASE SEE PART ELEVEN, SECTION 4 OF THE PURPOSES AND PROCEDURES MANUAL. ETFS ON THIS LIST SHOULD BE REPORTED AS SCHEDULE D BONDS.

1. iShares Government/Credit Index Fund 2. iShares GS $ InvesTop Corporate Bond Fund 3. iShares High-Yield Bond Fund 4. iShares Barclays 1-3 Year Treasury Bond Fund 5. iShares Barclays 1-3 Year U.S. Credit Bond Fund 6. iShares Barclays 20+ Year Treasury Bond Fund 7. iShares Barclays 7-10 Year Treasury Bond Fund 8. iShares Barclays Aggregate Bond Fund 9. iShares Barclays Intermediate U.S. Government/Credit Bond Fund 10. iShares Barclays Mortgage-Backed Securities Fund 11. iShares Barclays Short U.S. Treasury Bond Fund 12. iShares Barclays TIPS Bond Fund 13. Vanguard Intermediate-Term Bond Index Fund 14. Vanguard Long-Term Bond Index Fund 15. Vanguard Short-Term Bond Index Fund 16. Vanguard Total Bond Market Index Fund


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Section 21. List of Brokers-Dealers Eligible to Act as Custodian for Insurance Company Assets NOTE: THIS LIST IS ESTABLISHED PURSUANT TO PART FIFTEEN OF THE PURPOSES AND PROCEDURES MANUAL AND IS INTENDED TO PERMIT STATE INSURANCE REGULATORS TO VERIFY THAT A BROKER-DEALER SERVING AS A CUSTODIAN OF INSURANCE COMPANY ASSETS MEETS THE CRITERIA SET FORTH IN THE NAIC MODEL ACT ON CUSTODIAL AGREEMENTS AND THE USE OF CLEARING CORPORATIONS AND THE NAIC MODEL REGULATION ON CUSTODIAL AGREEMENTS AND THE USE OF CLEARING CORPORATIONS. ANYONE USING THIS LIST SHOULD FAMILIARIZE THEMSELVES WITH PART FIFTEEN OF THE PURPOSES AND PROCEDURES MANUAL, INCLUDING, SECTION 2, WHICH PROVIDES IMPORTANT DISCLOSURES WITH RESPECT TO THE STATUS OF THIS LIST UNDER STATE LAW AND THE RELATIONSHIP OF BROKER-DEALERS TO THE PROCESS ENVISIONED BY THE LIST.

NO BROKER-DEALERS HAVE APPLIED FOR LISTING AS OF THIS PUBLICATION DATE

G

eneral Definitions

General

N

AIC

Categories/Sym

bols

Adm

inistrative

Procedures

R

eporting

Pricing of

Unaffiliated Investm

ents

Credit A

ssessment

Valuation of

SC

A Investm

ents

Counterparty

Exposure

B

ank List

M

utual Funds

Surplus Debentures

R

SAT Index List

Scheduled BA

B

roker Dealers

A

ppendix