The following table sets forth selected financial data for the Company. The selected financial data as of December 31, 2001 and 2000 and for each of the years in the three-year period ended December 31, 2001 has been derived from audited financial statements herein. The selected financial data as of December 31, 1999, 1998 and 1997 and for each of the years ended December 31, 1998 and 1997 has been derived from audited financial statements not included herein. The Selected Consolidated Financial Information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company’s Consolidated Financial Statements and the notes thereto and the other financial information included elsewhere herein.
On January 1, 2001, the Company adopted the provisions of the American Institute of Certified Public Accountants Statement of Position 00-3, “Accounting by Insurance Enterprises for Demutualizations and Formations of Mutual Insurance Holding Companies for Certain Long-Duration Participating Contracts” (“SOP 00-3”). SOP 00-3 provides guidance with respect to accounting for demutualizations and requires, among other things, that (i) Closed Block assets, liabilities, revenues and expenses should be displayed in financial statements combined with all other assets, liabilities, revenues and expenses outside the Closed Block, and (ii) demutualization expenses be classified as a single line item within income from continuing operations. In accordance with SOP 00-3, the Consolidated Financial Statements for years prior to 2001 have been restated as necessary to conform to the requirements of SOP 00-3.
The Company’s results of operations for the year ended December 31, 2001, include reorganization and other charges aggregating $146.1 million before taxes. For details of such charges and the line items they are reflected in. See Note 22 to the Consolidated Financial Statements.
The following discussion addresses the financial condition and results of operations of the Company for the periods indicated. The discussion and analysis of the Company’s financial condition and results of operations presented below should be read in conjunction with the “Selected Financial Data”, the Consolidated Financial Statements and related footnotes and other financial information included elsewhere.
Preparation of the Company’s financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”) requires the application of accounting policies that often involve a significant use of judgment. Differences between estimated and actual results and changes in facts and circumstances that cause management to revise its estimates may materially affect the Company’s results of operations and financial position.
The following is a discussion of the critical accounting policies that, in the Company’s view, require significant use of judgment. See Note 3 of the Consolidated Financial Statements for a complete description of the Company’s significant accounting policies
The Company carries goodwill and intangible assets, which is primarily related to its 2001 acquisition of Advest. In accordance with FASB 142, the Company must reevaluate the valuation of the goodwill and intangible assets at least annually by comparing the fair value and carrying value of the reporting unit to which the goodwill and intangible assets relate. If the carrying value of the reporting unit exceeds its fair value, the Company must recognize an impairment loss for the excess of carrying value over fair value. The estimate of a reporting unit’s fair value requires the use of assumptions and estimates regarding the reporting unit’s future cash flows and discount rates. Changes in the business supporting the goodwill and intangible assets may affect management’s assessment of the recoverability of goodwill and intangible assets.
Accounting for litigation, contingencies and restructuring charges requires the Company to estimate the expected costs of events which have already occurred but which the Company has not completely resolved. As discussed in Note 16 to the Consolidated Financial Statements, the Company is party to various legal actions and proceedings in connection with its business. The Company records liabilities related to these matters to the extent the losses are probable and reasonably estimable, in accordance with the provisions of FASB 5 and FASB Interpretation 14. Judgements exceeding established loss reserves or changes in the circumstances of the matter requiring management to update its loss estimate may materially affect the Company’s financial position and operating results.
operating costs. Although management does not expect significant changes to its reorganization plan, the actual costs related to this plan may differ from management’s estimates.
The following table indicates the line items in the Company’s consolidated and segmented income statements for the year ended December 31, 2001 in which the Other Charges are reflected. In addition, all of the Reorganization Charges are reflected in reconciling in the table as discussed above.
The terrorist events of September 11th had no material affect on the Company’s financial position at December 31, 2001 or its results of operations for the year then ended. The net effect of life insurance claims relating these events (after reinsurance and the release of related policy reserves) aggregated approximately $3.9 million pre-tax. In addition, the Company incurred damages from property losses and business interruption. These damages principally consist of: (i) lost revenues at Advest, MSC, and Enterprise resulting from the close of the New York securities markets, (ii) physical damage to Advest’s Rector Street offices in lower Manhattan and associated recovery and relocation costs, (iii) the temporary closing of the Company’s New York corporate offices, (iv) delays associated with outsourcing Advest’s clearing operation, and (v) lost revenues resulting from the volatility of the securities markets and consumer uncertainty with respect to equity based products in the aftermath of September 11th. To date, no determination has been made with respect to the Company’s ability to recover the aforementioned damages under its insurance coverages.
The following tables present the Company’s consolidated and segment results of operations for the years ended December 31, 2001, 2000 and 1999. The financial information herein is presented in accordance with GAAP unless otherwise noted.
Amounts reported as “reconciling” in 2001 primarily relate to: (i) contracts issued by MONY Life relating to its employee benefit plans, (ii) revenues and expenses of the MONY Group and (iii) charges totalling $56.8 million pre-tax relating to the Company’s reorganization. (See “Reorganization and Other Charges”).
Universal life and investment-type product policy fees were $207.2 million for 2001, an increase of $1.4 million, or 0.7%, from $205.8 million reported for 2000. The increase was primarily a result of higher fees in the Protection Products segment of $16.8 million, partially offset by lower fees in the Accumulation Products segment of $15.3 million. The increase in the Protection Products segment was primarily attributable to higher fees earned on Corporate Sponsored Variable Universal Life (“CSVUL”) and VUL business of $5.5 million and $11.3 million, respectively, consistent with growth in the in force blocks of such business. The decrease in the Accumulation Products segment was primarily due to lower mortality and expense charges of $7.5 million and a $6.9 million decrease in surrender charges in the Company’s FPVA product. The decrease in FPVA mortality and expense charges is due to lower fund balances resulting from stock market declines. The decrease in surrender charges reflects the positive effects of the efforts of the Company’s conservation unit and other measures designed to improve persistency.
Net investment income was $692.1 million for the year ended December 31, 2001, a decrease $286.0 million, or 29.2%, from $978.1 million reported in 2000. The decrease in net investment income is primarily due to a decrease of $271.7 million in income reported from the Company’s investments in venture capital partnerships, which includes valuation related adjustments recorded in the fourth quarter. The remainder of the decrease was principally caused by lower interest rates and invested assets in 2001. The annualized yield on the Company’s average invested assets, including its investments in venture capital partnerships, before and after realized gains on investments was 6.2% and 6.1%, respectively, for 2001, as compared to 8.8% and 9.1%, respectively, for 2000. See “- Investments - Results by Asset Category.” The 2001 results also include $32.7 million in “Other Charges” relating primarily to writedowns of the venture capital portfolio. See Note 22 to the Consolidated Financial Statements.
The following table sets forth the components of net realized gains (losses) by investment category for 2001 and 2000.
For a description of the Group Pension Transaction, the Group Pension Profits and certain summary financial information relating thereto, refer to Note 11 of the Consolidated Financial Statements. Management believes that Group Pension Profits will decline in future periods consistent with the continuing run-off of the underlying business until they terminate as of December 31, 2002.
In connection with the Group Pension Transaction, the Company expects to record income in the fourth quarter of 2002 of approximately $55.0 million relating to the Final Value Payment, as defined in the agreement. See Note 11 to the Consolidated Financial Statements.
Retail Brokerage and Investment Banking revenues were $343.5 million for 2001, an increase of $283.8 million compared to $59.7 million reported for 2000. The increase is primarily attributable to the Company’s acquisitions of Advest and Matrix in 2001. See Note 1 to the Consolidated Financial Statements. Revenues recorded in 2001 for Advest, Matrix, and MSC, which together comprise the Retail Brokerage and Investment Banking segment, were $296.8 million (excluding approximately $7.8 million, which is reflected in investment income), $3.1 million, and $43.6 million, respectively. Retail Brokerage and Investment Banking revenues in 2000 only consisted of $59.7 million of revenues derived from the operations of MSC. All expenses related to the operations of Advest, Matrix and MSC are recorded in “Other operating costs and expenses” in the Company’s consolidated statement of income and comprehensive income.
Interest credited to policyholders’ account balances was $110.5 million for 2001, a decrease of $0.1 million from $110.6 million reported for 2000. The decrease was the result of lower interest crediting of $5.7 million in the Company’s Accumulation Product segment offset by higher amounts credited in the Company’s Protection Product segment of $6.2 million, which was primarily due to the Company’s increasing in force block of CSVUL business. The decrease in the Accumulation Product is due primarily to decreases of $3.1 million and $2.1 million in Single Premium Deferred Annuity (“SPDA”) and Certificate of Annuity (“COA”) products respectively.
Amortization of deferred policy acquisition costs (“DAC”) was $158.8 million for 2001, an increase of $19.7 million, from $139.1 million reported for 2000. The increase is primarily due to higher amortization of $21.9 million in the Company’s Protection Product segment of which $ 17.0 million was in connection with reorganization and other charges recorded during the fourth quarter of 2001. See Note 22 to the Consolidated Financial Statements. Of this amount, approximately $13.0 million represented a write-off of DAC in the Company’s international insurance subsidiary to reflect reduced expectations of future profitability due primarily to revised business strategies, which included the decision to exit certain markets, and approximately $4.0 million represented a write-off of DAC on the Company’s GUL business to reflect a de-emphasis on this line of business and resultant reduced future profitability expectations. In addition, VUL amortization increased by $9.4 million as a result of the increased size of the in force block. CSVUL amortization increased by $3.5 million due to lower death claims and the increasing size of the in force block. Offsetting this were decreases in the amortization of yearly renewable term business of $4.8 million due to the declining in force business and a $2.2 million decrease in the Accumulation Product segment as a result of poor equity market performance.
Dividends to policyholders were $236.6 million for 2001, an increase of $1.1 million, or 0.5%, from $235.5 million reported for 2000. The increase, substantially all of which occurred in the Protection Products segment, resulted primarily from the accrual of an additional dividend liability in the Closed Block of approximately $18.7 million reflecting results that were more favorable than assumed in the funding of the Closed Block. Offsetting this was a $13.0 million decrease in the accrual for dividends payable to policyholders in the following year due to a reduction in the dividend scale. As further discussed in Note 2 to the Consolidated Financial Statements included herein, all the assets in the Closed Block inure solely to the benefit of the Closed Block policyholders, and to the extent that the results of the Closed Block are more favorable than assumed in establishing the Closed Block, total dividends paid to Closed Block policyholders will be increased and are, accordingly, accrued as an additional dividend liability.
Other operating costs and expenses were $876.4 million for 2001, an increase of $363.1 million, or 70.8%, from $513.2 million for 2000. The increase consisted primarily of: (i) $65.1 million of reorganization and other charges recorded during the fourth quarter of 2001, (ii) $301.2 million of costs directly attributable to the Retail Brokerage and Investment Banking segment resulting from the acquisition of Advest, and (iii) $24.5 million of higher interest expense reported as a reconciling item. Details of the reorganization and other charges recorded in the fourth quarter as well as the segments to which they have been allocated are included in Note 22 to the Consolidated Financial Statements. The $24.5 million increase in interest expense relates to the MONY Group’s debt issuances in March and December of 2000. See Note 14 to the Consolidated Financial Statements. These increases were partially offset in 2001 by lower compensation costs of approximately $25.3 million, of which $20.3 million, $3.8 million, and $1.3 million are reflected in the Protection Products, Accumulation Products, and Other Products segments, respectively.
Net realized capital gains were $37.5 million for 2000, a decrease of $87.6 million, from gains of $125.1 million for the comparable prior year period. The following table sets forth the components of net realized gains (losses) by investment category for 2000 and 1999.
Other income (which consists primarily of fees earned by the Company’s mutual fund management, and insurance brokerage operations, as well as revenues from interest on deposits held under financial reinsurance arrangements, certain other asset management fees, and other miscellaneous revenues) was $163.6 million for 2000, an increase of $29.8 million, or 22.2%, from $133.8 million reported in 1999. The increase was primarily due to higher income of $4.0 million and $25.1 million in the Protection Products and Accumulation Products segments, respectively. The increase in income recorded in the Accumulation
Interest credited to policyholders’ account balances was $110.6 million for 2000, a decrease of $4.9 million, or 4.2%, from $115.5 million reported for 1999. The decrease consisted primarily of lower interest crediting of approximately $8.3 million in the Accumulation Products segment relating to the Company’s declining lines of business, primarily the single premium deferred annuities (“SPDA”) business. During 2000, SPD Account values decreased approximately $76.8 million to $302.6 million, as compared to $379.4 million at the end of 1999. The decrease in account value in 2000 was primarily due to continuing withdrawals, which management believes partially reflects consumer preferences for separate account products as well as the aging of the in-force block of business. This was offset by higher interest crediting of $5.6 million in the Protection Products segment resulting primarily from a $3.6 million increase in interest credited on COLI products due to the increase in general account fund values.
New life insurance premiums (first-year and single premiums) from the career agency system were $97.2 million for the year compared with $101.2 million in 1999. The variance in annual sales is due to an unusually large life insurance sale in the first half of 1999.
Sales of proprietary retail mutual funds offered by the Enterprise Group of Funds increased by $221 million, or 12%, to $2,053 million at December 31, 2000, as compared to $1,834 million at December 31, 1999. Proprietary mutual fund sales through the Company’s career agency system decreased approximately $19 million, or 1%, to $615 million for 2000, as compared to $636 million for 1999. Proprietary mutual fund sales through third-party broker-dealers increased $240 million, or 20%, to $1,438 million for 2000, as compared to approximately $1,198 million for 1999. The increase in sales primarily resulted from the opening of new wholesale distribution channels as well as an increase in production at existing channels.
MSC a registered securities broker-dealer for MONY’s career network, posted revenues of $43.5 million for the year ended December 31, 2001, compared with $59.7 million during the comparable prior year period.
MONY Life’s cash inflows are provided mainly from life insurance premiums, annuity considerations and deposit funds, investment income and maturities and sales of invested assets. Cash outflows primarily relate to the liabilities associated with its various life insurance and annuity products, dividends to policyholders, operating expenses, income taxes and principal and interest on its outstanding debt obligations. The life insurance and annuity liabilities relate to the Company’s obligation to make benefit payments under its insurance and annuity contracts, as well as the need to make payments in connection with policy surrenders, withdrawals and loans. The Company develops an annual cash flow projection which shows expected asset and liability cash flows on a monthly basis. At the end of each quarter actual cash flows are compared to projections, projections for the balance of the year are adjusted in light of the actual results, if appropriate, and investment strategies are also changed, if appropriate. The quarterly cash flow reports contain relevant information on all the following: new product sales and deposits versus projections, existing liability cash flow versus projections and asset portfolio cash flow versus projections. An interest rate projection is a part of the internal cash flow projections for both assets and liabilities. Actual changes in interest rates during the year and, to a lesser extent, changes in rate expectations will impact the changes in projected asset and liability cash flows during the course of the year. When the Company is formulating its cash flow projections, it considers, among other things, its expectations about sales of the Company’s products, its expectations concerning customer behavior in light of current and expected economic conditions, its expectations concerning competitors and the general outlook for the economy and interest rates. See “- Investments - General.”
Includes $19.7 million in 1999 of surrenders in the Closed Block, the proceeds from which remained with the Company to fund premiums on newly issued traditional life policies outside the Closed Block.
Excludes approximately $208 million and $998 million in 2001 and 2000 respectively relating to surrenders associated with an exchange program offered by the Company wherein contract holders surrendered old FPVA contracts and reinvested the proceeds in a new enhanced FPVA product offered by the Company.
Includes reclassification of $121.3 million for Separate Account Deposit Type contract withdrawals.
See Note 14 and Note 16 to the Consolidated Financial Statements for additional information related to the Company’s bank credit facility, liquidity and capital resources. Also, see “- Investments” for information on the Company’s investment portfolio.
Separate account assets, for which the Company does not generally bear investment risk, are managed in accordance with the prescribed investment strategy that applies to the specific separate account. Separate accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent that the value of such assets exceeds the separate account liabilities. Investments held in separate accounts and liabilities of the separate accounts are reported separately as assets and liabilities. Separate account assets are reported at estimated fair value. Investment income and gains or losses on the investments of separate accounts accrue directly to contract holders and, accordingly, are not reflected in the Company’s consolidated statements of income and cash flows. Fees charged to the separate accounts by the Company (including mortality charges, policy administration fees and surrender charges) are reflected in the Company’s revenues.
The yield on general account invested assets (including net realized gains and losses on investments) was 6.1%, 9.1% and 9.4% for the years ended December 31, 2001, 2000 and 1999, respectively.
Fixed maturities consist of publicly traded and privately placed debt securities, and redeemable preferred stock which represented 62.8% and 59.6% of total invested assets excluding trading securities at December 31, 2001 and 2000, respectively.
The following table presents the Company’s fixed maturities by NAIC Designation and the equivalent ratings of the Nationally Recognized Securities Rating Organizations as of December 31, 2001 and 2000, as well as the percentage, based on fair value, that each designation comprises.
At December 31, 2001, the percentage, based on estimated fair value, of total public fixed maturities that were investment grade (NAIC Designation 1 or 2) was 94.4% compared to 95.6% for December 31, 2000. At December 31, 2001, the percentage, based on estimated fair value, of total private placement fixed maturities that were investment grade (NAIC Designation 1 or 2) was 87.7% compared to 88.2% for December 31, 2000.
The Company has a well-diversified portfolio of fixed maturities. The portfolio at December 31, 2001 included 17.6% in consumer goods and services, 15.6% in asset and mortgage backed securities, 10.6% in public utilities, and the remaining 56.2% in other sectors none of which exceeded 10.0% of the total fixed maturities portfolio. At December 31, 2000, the portfolio included 15.6% in consumer goods and services, 16.5% in asset and mortgage backed securities, 11.4% in public utilities, 10.1% in other manufacturing, and the remaining 46.4% in other sectors none of which exceeded 10.0% of the total fixed maturities portfolio.
The following table presents the amortized cost and estimated fair value of fixed maturities by contractual maturity dates, as of December 31, 2001 and 2000. Periodic payments have been included in the year of final maturity.
The Company held approximately $1,088.0 million and $1,103.9 million of mortgage-backed and asset-backed securities as of December 31, 2001 and 2000, respectively. Of such amounts, $294.9 million and $338.9 million or 27.1% and 30.7%, respectively, represented agency-issued pass-through and collateralized mortgage obligations (“CMOs”) secured by the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Government National Mortgage Association and Canadian Housing Authority collateral. The balance of such amounts was comprised of other types of mortgage-backed and asset-backed securities. The Company believes that its active monitoring of its portfolio of mortgage-backed securities and the limited extent of its holdings of more volatile types of mortgage-backed securities mitigate the Company’s exposure to losses from prepayment risk associated with interest rate fluctuations for this portfolio. At December 31, 2001 and 2000, 87.0%, and 84.5%, respectively, of the Company’s mortgage-backed and asset-backed securities were assigned an NAIC Designation 1. In addition, the Company believes that it holds a relatively low percentage of CMOs compared to other life insurance companies.
CMOs are purchased to diversify the portfolio risk characteristics from primarily corporate credit risk to a mix of credit and cash flow risk. The majority of the CMOs in the Company’s investment portfolio have relatively low cash flow variability. In addition, approximately 61.4% of the CMOs in the portfolio have minimal credit risk because the underlying collateral is backed by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. These CMOs offer greater liquidity and higher yields than corporate debt securities of similar credit quality and expected average lives.
Asset-backed securities (“ABS”) are purchased both to diversify the overall credit risks of the fixed maturity portfolio and to provide attractive returns. The ABS portfolio is diversified both by type of asset and by issuer. The largest asset class exposure in the ABS portfolio is to credit card receivables, representing 23.8% and 27.8% of the total at December 31, 2001 and 2000, respectively. These are comprised of pools of both general purpose credit card receivables such as Visa and MasterCard and private label credit card receivable pools. Other significant asset class exposures in the ABS portfolio as of December 31, 2001 and 2000 included automobile receivables (4.0% and 10.1%, respectively), manufactured housing (10.9% and 4.1% respectively) and collateralized obligations (11.1% and 12.6% respectively). No other asset class exposures exceeded 10.0% of total ABS as at December 31, 2001 and 2000. Excluding the exposures to home equity loans (which represented 8.2% and 1.7% of the ABS portfolio as of December 31, 2001 and 2000, respectively), the ABS portfolio is in general insensitive to changes in interest rates.
Mortgage loans, consisting of commercial, agricultural and residential loans, comprised 16.3% and 15.6% of total invested assets at December 31, 2001 and 2000, respectively. As of December 31, 2001 and 2000, commercial mortgage loans comprised $1,507.8 million and $1,443.3 million or 83.3% and 82.2% of total mortgage loan investments, respectively. Agricultural loans comprised $301.1 million and $310.3 million or 16.6% and 17.7% of total mortgage loans, and residential mortgages comprised $0.8 million and $1.1 million or 0.1% and 0.1% of total mortgage loan investments at the dates indicated.
Below is a summary of the changes in the commercial mortgage portfolio for the years ended December 31, 2001, 2000, and 1999, respectively.
The largest amount loaned on any single property at December 31, 2001 and 2000 aggregated $52.2 million and $46.0 million, respectively, and represented less than 0.5% and 0.4% of general account invested assets, respectively. At such dates, amounts loaned on twenty properties were $20 million or greater, representing in the aggregate 37.6% and 38.4% respectively, of the total carrying value of the commercial mortgage loan portfolio at such dates. Total mortgage loans to the five largest borrowers accounted in the aggregate for approximately 17.8% and 21.8% of the total carrying value of the commercial mortgage loan portfolio at December 31, 2001 and 2000, respectively, and less than 2.5% and 2.8%, respectively, of total invested assets at such dates. All such loans were performing. The Company’s commercial mortgage loan portfolio is managed by a group of experienced real estate professionals. These professionals monitor the performance of the loan collateral, physically inspect properties, collect financial information from borrowers and keep in close contact with borrowers and the local broker communities to assess the market conditions and evaluate the impact of such conditions on property cash flows. The Company’s real estate professionals identify problem and potential problem mortgage assets and develop workout strategies to deal with borrowers’ financial weakness, whether by foreclosing on properties to prevent a deterioration in collateral value, or by restructuring mortgages with temporary cash flow difficulties.
As of December 31, the carrying value of problem loans aggregated $16.3 million net of $4.6 million in valuation allowances, potential problem securities aggregated $64.5 million net of $8.4 million in valuation allowance and restructured loans aggregated $57.9 million net of $4.7 million in valuation allowances.
In addition to valuation allowances and impairment writedowns recorded on specific commercial mortgage loans classified as problem, potential problem, and restructured mortgage loans, the Company records a non-specific estimate of expected losses on all other such mortgage loans based on its historical loss experience for such investments. As of December 31, 2001 and 2000, such reserves were $18.3 million and $17.7 million, respectively.
Gross interest income on restructured commercial mortgage loan balances that would have been recorded in accordance with the loans’ original terms was approximately $6.4 million, $9.1 million and $16.1 million at December 31, 2001, 2000 and 1999, respectively. As a result of the restructuring, the gross interest income recognized in net income at December 31, 2001, 2000 and 1999, respectively, was $3.6 million, $6.3 million and $10.8 million.
At December 31, 2001 and 2000, respectively, the underlying properties supporting potential problem commercial mortgages consisted of 85.4% and 85.5% in office properties and 14.6% and 14.5% in apartment and retail properties. At December 31, 2001 and 2000, respectively, the underlying properties supporting restructured commercial mortgage loans consisted of 100.0% and 74.2% in office buildings, and 0.0% and 25.8% in retail and industrial buildings. The potential problem and restructured commercial mortgages at December 31, 2001 and 2000 were primarily concentrated in the District of Columbia and New York.
Other invested assets as of December 31, 2001 and 2000 are as follows:
The Company’s investments in common stocks are classified as available-for-sale and are reported at estimated fair value. Unrealized gains and losses on the Company’s common stocks are reported as a separate component of other comprehensive income, net of deferred income taxes and an adjustment for the effect on deferred policy acquisition costs that would have occurred if such gains and losses had been realized. Substantially all the common stocks owned by the Company are publicly traded on national securities exchanges. The Company’s investments in common stocks represented $69.5 million or 0.6% and $50.6 million or 0.5% of invested assets at December 31, 2001 and 2000, respectively. Proceeds on the sale of equity securities totaled $31.0 million, $499.2 million and $302.7 million which resulted in net realized gains/(losses) of ($6.4) million, $23.4 million, and $77.6 million for the years ended December 31, 2001, 2000 and 1999, respectively.
The limited partnerships in which the Company has invested are investment partnerships which invest in the equity of private companies (generally in the form of common stock). These partnerships will generally hold such equity until the underlying company issues its securities to the public through an initial public offering. At that time or thereafter, at the general partners’ discretion, the partnership will generally distribute the underlying common stock to its partners. Upon distribution, the Company will record the common stock received at fair value, reverse the carrying value of the corresponding limited partnership investment, and record as investment income any excess of the fair value of the common stock distributed over the carrying value of the limited partnership investment. Accordingly, certain of the common stocks owned by the Company at December 31, 2001 and 2000 were acquired through distributions from the Company’s investments in limited partnership interests. However, it has been the Company’s practice to sell such positions shortly after such distributions.
The following table sets forth the carrying value of the Company’s investments in limited partnership interests sorted by the basis upon which the Company accounts for such investments, as well as the amount of such investments attributable to the partnerships’ ownership of public and private common stock at December 31, 2001 and 2000:
At December 31, 2001 and 2000, the Company had investments in approximately 54 and 53 different limited partnerships which represented 2.1% and 2.5%, respectively, of the Company’s general account invested assets. Investment results for the portfolio are dependent upon, among other things, general market conditions for initial and secondary offerings of common stock. For the years ended December 31, 2001, 2000, and 1999, investment income from investments in limited partnership interests (which is comprised primarily of the Company’s pro rata share of income reported by partnerships accounted for under the equity method and income recognized upon distribution for partnership investments accounted for under the cost method) was approximately $(35.4) million, $236.3 million and $188.9 million, respectively, representing (5.5)%, 24.9%, and 20.9%, respectively, of the net investment income for such periods. For the same periods, the Company achieved total returns on its investments in limited partnership interests of (16.2)%, 82.8%, and 81.9%, respectively. There can be no assurance that the recent level of investment returns achieved on limited partnership investments can be sustained in the future, and the failure to do so could have a material adverse effect on the Company’s financial position and results of operations.
Includes $5.9 million and $22.5 million at December 31, 2001, and 2000, respectively, relating to impairments taken upon foreclosure of mortgage loans.