The assets and liabilities allocated to the closed block are 	reported separately in our balance sheet under the captions 	“Closed Block assets” and “Closed Block 	liabilities,” respectively.
To assist interested parties in analyzing our consolidated 	financial results, the consolidated income statement information 	for the years ended December 31, 2000, 1999 and 1998 	present the individual components of the Closed Block activity 	for such periods, combined on a line by line basis, with such 	activity outside the Closed Block. This consolidated combined 	basis income statement is provided to facilitate comparisons of 	current period results with that of the other periods presented.
For a description of the Group Pension Transaction, the Group 	Pension Profits and certain summary financial information 	relating thereto, refer to Note 10 of the Consolidated 	Financial Statements included herein. 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.
Prior to November 16, 1998, MONY Life, as a mutual life 	insurance company, was subject to the surplus tax imposed on 	mutual life insurance companies under Section 809 of the 	Code. Section 809 requires (and the surplus tax results 	from) the disallowance of a portion of a mutual life insurance 	company’s policyholder dividends as a deduction from 	taxable income. The income tax expense amounts include $0.0 	million, $0.0 million, $0.0 million, $5.8 million, and $12.8 	million of surplus tax for the years ended December 31, 	2000, 1999, 1998, 1997, and 1996, respectively.
Includes assets transferred in the Group Pension Transaction of 	$4,927.7 million, $5,109.8 million, $5,751.8 million, $5,714.9 	million, and $5,627.6 million at December 31, 2000, 1999, 	1998, 1997, and 1996, respectively. See Note 10 to the 	Consolidated Financial Statements.
Includes liabilities transferred in the Group Pension 	Transaction of $4,897.2 million, $5,099.1 million, $5,678.5 	million, $5,638.7 million, and $5,544.1 million at 	December 31, 2000, 1999, 1998, 1997, and 1996, 	respectively. See Note 10 to the Consolidated Financial 	Statements.
Includes Closed Block liabilities of $7,315.8 million, $7,303.3 	million and $7,290.7 million at December 31, 2000, 1999 and 	1998, respectively. See “Management’s Discussion 	and Analysis of Financial Condition and Results of 	Operations” and Note 3 and Note 20 to the 	Consolidated Financial Statements.
The comparability of the Company’s results of operations 	for the years ended December 31, 2000 and 1999 with prior 	years is affected by the sale of the Company’s disability 	income business in December 1997.
Includes short-term debt of $52.3 million, $53.4 million, $0.0 	million, $0.0 million, and $0.0 million as of December 31, 	2000, 1999, 1998, 1997, and 1996, respectively.
The following discussion addresses the financial condition and results of operations of the Company for the periods indicated. The discussion of the Company’s financial results of operations is based on the results of the Closed Block for the year ended December 31, 2000 and December 31, 1999 combined on a line by line basis with the results of operations outside the Closed Block, for such respective periods as further discussed below. The discussion and analysis of the Company’s financial condition and results of operations presented below should be read in conjunction with the “Selected Consolidated Financial Information” and the Consolidated Financial Statements and related footnotes and other financial information included elsewhere herein.
the actual results of the Closed Block’s operations are 	reflected as a single line item in the Company’s statements 	of income, entitled “Contribution from the Closed 	Block”, whereas, prior to the establishment of the Closed 	Block the results of its operations were reported in various 	line items in the Company’s income statement, including 	premiums, net investment income, net realized gains, benefits, 	amortization of deferred policy acquisition costs, etc.
The pre-tax Contribution from the Closed Block for the years ended December 31, 2000 and 1999 were $42.8 million and $44.8 million respectively. The pre-Tax Contribution from the Closed Block for the period from November 16, 1998 (the date of MONY’s reorganization) through December 31, 1998, has $5.7 million. The pro-forma basis pre-tax Contribution from the Closed Block for the year ended December 31, 1998, assuming the Closed Block had been established January 1, 1998 is $52.2 million. The Closed Block includes only those revenues, benefit payments, dividends and premium taxes considered in funding the Closed Block and excludes many costs and expenses associated with operating the Closed Block and administering the policies included therein. Since many expenses related to the Closed Block were excluded from the calculation of the Closed Block contribution, the contribution from the Closed Block does not represent the actual profitability of the business in the Closed Block. As a result, operating costs and expenses outside the Closed Block are disproportionate to the business outside the Closed Block.
For management and reporting purposes, the Company’s business is organized in two principal operating segments, the “Protection Products” segment and the “Accumulation Products” segment. Substantially all of the Company’s other business activities are combined and reported in the “Other Products” segment. See the Notes to the Consolidated Financial Statements for more detail with respect to the Company’s segments.
The Company derives its revenues principally from: (i) premiums on individual life insurance, (ii) insurance, administrative and surrender charges on universal life and annuity products, (iii) asset management fees from separate account and mutual fund products, (iv) net investment income on general account assets, (v) the Group Pension Profits, See “The Group Pension Transaction” and (vi) commissions from securities and insurance brokerage operations. The Company’s expenses consist of insurance benefits provided to policyholders, interest credited on policyholders’ account balances, dividends to policyholders, the cost of selling and servicing the various products sold by the Company, including commissions to sales representatives (net of any deferrals), and general business expenses.
In 2001, the Company expects to invest approximately $29.0 million in capital expenditures related to information technology initiatives aimed at increasing operating efficiencies.
Amounts reported as “reconciling” primarily relate to: (i) contracts issued by MONY Life relating to its employee benefit plans, (ii) revenues and expenses of the MONY Group (iii) a one-time restructuring charge in 1999 of $59.7 million pretax relating to the Company’s early retirement program, and (iv) demutualization expenses in 1999 and 1998.
Universal life and investment-type product policy fees were $205.8 million for 2000, an increase of $9.5 million, or 4.8%, from $196.3 million reported for 1999. The increase consisted primarily of higher Protection Products segment fees of $12.5 million. The increase in fees in the Protection Products segment was primarily due to higher fees from the Company’s VUL business of approximately $14.9 million, and an increase of $2.2 million related to increased sales of corporate owned life insurance, offset by higher ceded reinsurance of $4.0 million across the Protection Products segment. For the year ended December 31, 2000, the Company reported total fees from its VUL business of $48.6 million, as compared to $33.7 million reported for 1999. The increase in fees resulted primarily from new sales of such business and the growing in-force block. This was offset by a decrease in the accumulation product segment of $3.3 primarily million due to lower fees from the Company’s FPVA products as a result of lower policy counts and lower fund balances.
Net investment income was $978.1 million for the year ended December 31, 2000, an increase of $75.8 million, or 8.4%, from $902.3 million reported in 1999. The increase in net investment income is primarily related to an increase in income recorded by the Company from its investments in limited partnership interests. Such partnerships provide venture capital funding to companies through the purchase of, or investment in equity securities issued by such companies. For 2000, the Company earned $236.3 million relating to such partnership investments, an increase of $47.4 million from $188.9 million recorded for 1999. The balance of the increase in investment income resulted from other invested asset categories collectively and is primarily attributable to higher yields and an increase in average invested assets. As of December 31, 2000, invested assets were $11,222.5 million (including cumulative unrealized losses of $9.8 million on fixed maturity securities) compared to $10,831.8 million (including cumulative unrealized losses of $206.4 million on fixed maturity securities) at December 31, 1999. At December 31, 2000, fixed maturity securities, mortgage loans and real estate represented approximately 59.6%, 15.6% and 1.9%, respectively, of total invested assets, as compared to 60.4%, 15.8% and 3.4%, respectively, at December 31, 1999. The annualized yield on the Company’s invested assets, including limited partnership interests, before and after realized gains/(losses) on investments was 8.8% and 9.1%, respectively, for 2000, as compared to 8.3% and 9.4%, respectively, for 1999. See “Investments - Results by Asset Category.”
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 compared to 1999.
As of December 31, 2000, the Company had approximately $45.0 million of additional pretax gains related to its venture capital limited partnership investments that may be realized in the future subject to market fluctuations.
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 single premium deferred annuities (“SPDA”) business. During 2000, SPDA account value 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 the a $3.6 million increase in interest credited on COLI products due to the increase in general account fund values.
Amortization of deferred policy acquisition costs (“DAC”) was $139.1 million for 2000, an increase of $1.3 million, from $137.8 million reported for 1999. The increase primarily resulted from higher amortization in the Protection Products segment of approximately $3.7 million. The increase in DAC amortization in the Protection Products segment resulted primarily from a $2.6 million increase in USFL, $3.9 million of higher amortization related to the Company’s VUL business as a result of better mortality and rapid growth in this product, offset by lower amortization in traditional and UL products of $2.8 million. This was offset in part by lower DAC amortization of $2.4 million in the Accumulation Products segment which was primarily due to the growing levels of exchange activity to the new variable annuity product where better persistency is anticipated.
Other operating costs and expenses were $513.2 million for 2000, a decrease of $34.1 million, or 6.2%, from $547.3 million reported for the comparable prior year period. The decrease consisted of $35.4 million attributable to reconciling items not allocated to the Company’s operating segments, and $25.2 million attributable to the Protection Product segment. The decrease in reconciling items was primarily attributable to a one time restructuring charge of $59.7 million in connection to the early retirement program during the third quarter of 1999, offset by a $21.8 million increase in interest expense on Senior Notes issued by the MONY Group in 2000. The decrease in the Protection Products segment was primarily due to a decrease in interest expense resulting from the repurchase of high coupon debt. This was offset by higher expenses of $14.4 million, and $12.3 million of cost directly attributable to the Accumulation Product and Other Product Segments, respectively. To the extent that costs are not directly identifiable with an operating segment, such costs are allocated to the Company’s operating segments based on cost allocations utilizing time studies, and cost estimates included in the Company’s product pricing (see “Segments”).
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Premium revenue was $717.1 million for 1999, a decrease of $4.7 million, or 0.7%, from $721.8 million reported for 1998. The decrease resulted primarily from $1.7 million of lower sales of immediate annuities in the Accumulation Products segment and $3.5 million of lower premiums relating primarily to group pension business recorded in the Other Products segment. The increase in premiums of $0.5 million in the Protection Products segment was primarily due to $20.6 million of premiums from USFL, which was acquired at December 31, 1998, offset by (i) lower renewal premiums of approximately $18.8 million, and (ii) lower single premiums of approximately $1.8 million.
Universal life and investment-type product policy fees were $196.3 million for 1999, an increase of $44.7 million, or 29.5%, from $151.6 million reported for 1998. The increase in fees during 1999, as compared to 1998, consisted of higher Protection Products segment fees of $36.1 million and higher Accumulation Product segment fees of $9.2 million. The increase in fees in the Protection Products segment was primarily due to higher fees from the Company’s VUL and CSVUL business of approximately $13.9 million and $3.3 million, respectively. For 1999, the Company reported total fees from its VUL business of $33.7 million, as compared to $19.8 million reported for 1998. The increase in VUL fees is primarily due to higher charges for the cost of insurance, loading, administration, and surrender charges. The increase in fees in the Accumulation Products segment was primarily due to an increase in surrender charges of $7.8 million on the Company’s FPVA business. Surrenders were $872.6 million, as compared to $537.8 million in 1998. The insurance in surrenders were primarily due to the aging of the block of business and consequent decrease in surrender charges and increases competition. During 1999, FPVA accounts values increased by approximately $114.3 million. For 1999, the Company reported total fees from its FPVA business of $72.8 million, as compared to $63.4 million reported for 1998. See “New Business Information.”
were $10,831.8 million (including cumulative unrealized losses of $206.4 million for fixed maturity securities) compared to $10,991.2 million (including cumulative unrealized gains of $252.5 million for fixed maturity securities) at December 31, 1998. At December 31, 1999, fixed maturity securities, mortgage loans and real estate represented approximately 60.4%, 15.8% and 3.4%, respectively, of total invested assets, as compared to 61.0%, 12.9% and 5.7%, respectively, at December 31, 1998. The annualized yield on the Company’s invested assets before and after realized gains/(losses) on investments was 8.3% and 9.4%, respectively, for the year ended December 31, 1999, as compared to 7.0% and 8.6%, respectively, for the year ended December 31, 1998.
Net realized capital gains were $125.1 million for 1999, a decrease of $46.0 million, or 26.9%, from $171.1 million for the comparable prior year period. The decrease is due to lower sales gains on real estate and real estate partnerships of $89.2 million, lower gains on prepayments and sales of fixed maturities securities of $25.5 million, higher valuation allowances on mortgages of $6.1 million, higher valuation allowances for real estate added to the held for sale category of $0.4 million, offset by higher sales gains on equity securities of $70.1 million and lower losses for other than temporary impairment on fixed maturities securities of $8.4 million. Gains on the sale of real estate and real estate partnerships were $68.2 million for 1999, compared to $157.4 million for the prior year period. Prepayment/sales losses for fixed maturities were $1.9 million for 1999, compared to gains of $23.6 million for the prior year period. Additional allowances for mortgages were $3.1 million for 1999, compared to gains of $3.0 million for the prior year period. Additional provisions for valuation allowances on real estate held for sale were $12.1 million for 1999, compared to $11.7 million for the prior year period. Gains on sales of equity securities were $77.6 for 1999, compared to $7.5 million for the prior year period. Losses on other than temporary impairments on fixed maturity securities we $6.7 million for 1999, compared to $15.1 million for the prior year period.
Net investment income and net realized gains on investments are allocated to the Company’s segments based on the assets allocated to such segments to support the associated liabilities of each segment and to maintain a targeted regulatory risk-based capital level for each segment. See “Segments.”
Group Pension Profits were $63.0 million for 1999, an increase of $6.2 million, or 10.9%, from $56.8 million in 1998. Group Pension Profits in 1999 consisted of $35.7 million of Group Pension Payments and $27.3 million relating to adjustments required to reflect the earnings from such payments in accordance with GAAP. Such adjustments primarily relate to changes in the valuation allowances established to recognize impairment of assets supporting the business transferred in the Group Pension Transaction. In 1998, Group Pension Profits consisted of $49.8 million of Group Pension Payments and a $7.0 million reduction in the valuation allowances established to recognize impairment of assets supporting the business transferred in the Group Pension Transaction. The increase in Group Pension Profits is primarily due to a release of valuation allowances on real estate sold during 1999, offset by decreases in the Group Pension Payments, which is consistent with the continuing run-off of the Existing Deposits.
Other income (which consists primarily of fees earned by the Company’s mutual fund management, broker-dealer, 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 $197.2 million for 1999, an increase of $34.0 million, or 20.8%, from $163.2 million reported for 1998. The increase was primarily due to higher income of $22.3 million and $19.6 million in the Accumulation Products and Other Products segments, respectively, offset in part by lower income of $7.0 million in the Protection Products segment. The increase in income recorded in the Accumulation Products segment was primarily attributable to higher fees earned by the Company’s mutual fund management operations. The Company’s mutual fund management operations reported $84.9 million in fees from advisory, underwriting and distribution services in 1999, as compared to $61.8 million reported in 1998, as assets under management increased to approximately $8.8 billion at December 31, 1999 from $6.9 billion at December 31, 1998. The increase in income recorded in the Other Products segment was primarily due to higher commissions earned by the Company’s broker-dealer operations of $19.9 million. During 1999, the Company’s broker-dealer operations reported commission earnings of $63.4 million, as compared to $43.5 million reported in 1998. The decrease in other income recorded in the Protection Products segment of $7.0 million was primarily due to reinsurance allowances of $5.9 million.
$3.4 million incurred by the Company’s benefit plans (which are reflected as a reconciling item), offset in part by, (iii) higher benefits of $9.9 million in the Protection Products segment. The decrease of $0.6 million in the Accumulation Products segment was primarily due to lower reserves on immediate annuities resulting from lower sales offset by an increase in the issuance of supplementary contracts during 1999. The decrease of $8.6 million in the Other Products segment was primarily due to lower benefits of $4.3 million relating to the Company’s retained group pension business and lower aviation losses of $2.0 million resulting from the Company’s reduced participation in an aviation pool. The increase in the Protection Products segment of $9.9 million was primarily due to; (i) $26.7 million of benefits related to USFL and, (ii) a $60.6 million increase in surrenders on traditional business to $383.0 million for 1999, as compared to $322.4 million for 1998, offset in part by, (iii) a decrease in reserves on traditional business of approximately $74.1 million at December 31, 1999, as compared to $165.6 million at December 31, 1998.
The Company distributes its products primarily through its career agency sales force and various complementary distribution channels which include: (i) sales of proprietary retail mutual funds through third party broker-dealers, (ii) sales of Protection Products by the Company’s USFL subsidiary through brokerage general agencies, (iii) sales of COLI products by the Company’s corporate marketing team, and (iv) sales of a variety of financial products and services through the Company’s Trusted Advisors subsidiary. The table below and discussion which follows present certain information with respect to the Company’s sales of protection and accumulation products during the years ended December 31, 2000, 1999 and 1998 by source of distribution. Management uses this information to measure the Company’s sales production from period to period by source of distribution. The amounts presented with respect to life insurance sales represent annualized statutory-basis premiums. Annualized premiums in the Protection Products segment represent the total premium scheduled to be collected on a policy or contract over a twelve-month period. Pursuant to the terms of certain of the policies and contracts issued by the Company, premiums and deposits may be paid or deposited on a monthly, quarterly, or semi-annual basis. Annualized premium does not apply to single premium paying business. All premiums received on COLI business and single premium paying policies during the periods presented are included. Statutory basis premiums are used in lieu of GAAP basis premiums because, in accordance with statutory accounting practices, revenues from all classes of long-duration contracts are measured on the same basis, whereas GAAP provides different revenue recognition rules for different classes of long-duration contracts as defined by the requirements of SFAS No. 60, Accounting and Reporting by Insurance Enterprises, SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long Duration Contracts and for Realized Gains and Losses from the Sale of Investments, and SOP 95-1, Accounting for Certain Insurance Activities of Mutual Life Insurance Enterprises. The amounts presented with respect to annuity and mutual funds sales represent deposits made by customers during the periods presented.
Excludes annualized premiums in 2000 and 1999 associated with an 	exchange program offered by the Company wherein contractholders 	surrendered old FPVA contracts and reinvested the proceeds 	therefrom in a new enhanced FPVA product offered by the Company.
USFL’s products, sold through its brokerage general agency distribution channel, increased 58% for the year to $42.0 million from $26.5 million in 1999.
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 and for the comparable period in 1999. The variance in annual sales is due to an unusually large life insurance sale in the first half of 1999.
Total new annualized and single life insurance premiums for the year ended December 31, 1999 increased $23.5 million, or 13.8 %, to $194.3 million from $170.8 million in 1998. This increase was primarily due to new life insurance premiums produced by the Company’s career agency system and international sales force. Such new life insurance premiums increased $14.8 million, or 17.1%, to $101.2 million in 1999 from $86.4 million in 1998. The number of agents comprising the Company’s career agency system and international field force totaled 2,417 at December 31, 1999, compared to 2,447 at December 31, 1998. The decrease in the number of agents from period to period was primarily due to actions taken by the Company to terminate unproductive agents in response to new agent productivity. The number agents based in the U.S. decreased in 1999, as compared to 1998, while the Company’s international sales force increased. USFL, which was acquired on December 31, 1998 and which markets its protection products primarily through brokerage general agents, contributed $26.5 million of annualized premium in 1999. Offsetting the aforementioned increases was a decrease in sales of COLI.
New sales of variable annuities during 2000 were $421 million, a decrease of $2 million, or 0.5%, from $423 million reported for 1999. The Company’s exchange program continues to be well received. The exchange program is a commission-free program that enables customers to exchange their old variable policy for a new policy series. Customers exchanged approximately $1 billion of assets from to the new product series during 2000.
Sales of proprietary retail mutual funds offered by the Company’s Enterprise Group of Funds subsidiary increased by $221 million, or 12%, to $2,053 billion 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.
New sales of variable annuities during 1999 were $423 million, a decrease of $189 million, or 14%, from $612 million reported for 1998. The decline in annuity sales was primarily due to; (i) increased competition in the marketplace, (ii) the introduction by some companies of bonus annuities, which the Company elected not to offer, and (iii) delays in obtaining approval of the Company’s new annuity products in certain key states, primarily New York and New Jersey. During 1999, the Company took actions to reverse this trend, including changes in agent compensation plans, product improvements (including the addition of new fund options offered through the Company’s annuities), and increased education and training of the Company’s career agency sales force to emphasize the value of our annuity line compared to the competition. The Company recently received approval to market its new annuity products in the state of New York and New Jersey. Management expects an improvement in annuity sales in 2000 as a result of the aforementioned approval and a broader selection of fund choices introduced in 1999, as further discussed below.
Sales of proprietary retail mutual funds offered by the Company’s Enterprise Group of Funds subsidiary increased by $537 million, or 41%, to $1.8 billion at December 31, 1999, as compared to $1.3 billion at December 31, 1998. Proprietary mutual fund sales through the Company’s career agency system increased approximately $87 million, or 16% to $634 million for 1999, as compared to $546 million for 1998. Proprietary mutual fund sales through third-party broker-dealers increased approximately $450 million, or 60%, to $1,198 million for 1999, as compared to approximately $749 million for 1998. The increase in sales primarily resulted from the expansion of third-party distribution arrangements and the introduction of a new internet fund and a multi cap fund which the Company began offering on July 1, 1999. Management expects to increase sales through third-party distribution in 2000 as a result of a distribution agreement entered into during the 4th quarter of 1999 with a major broker-dealer.
MONY Group’s cash flow consists of investment income from its invested assets (including interest from the Inter-company Surplus Notes, as hereafter defined) and dividends from MONY Life, if declared and paid, offset by expenses incurred in connection with the administration of MONY Group’s affairs and interest expense on its outstanding indebtedness. As a holding company, MONY Group’s ability to meet its cash requirements, pay interest expense on its outstanding indebtedness, and pay dividends on its Common Stock substantially depend upon payments from MONY Life, Advest and Matrix, including the receipt of; (i) dividends, (ii) interest income on the Inter-company Surplus Notes, and (iii) other payments. The payment of dividends by MONY Life to MONY Group is regulated under state insurance law. See “Item 1 - Business of the MONY Group Inc. - Shareholder Dividend Restrictions.” In addition, payments of principal and interest on the Inter-company Surplus Notes can only be made with the prior approval of the New York Superintendent “whenever, in his judgment, the financial condition of such insurer warrants.” Such payments further may be made only out of surplus funds, which are available for such payments under the New York Insurance Law. There can be no assurance that MONY Life will have statutory earnings to support the payment of dividends to the MONY Group or that the New York Superintendent will approve interest payments to MONY Group on the Inter-company Surplus Notes. Accordingly, there can be no assurance that MONY Group will have sufficient funds to meet its cash requirements and pay cash dividends to shareholders. In addition, state insurance laws contain similar restrictions on the ability of the life insurance subsidiaries to pay dividends to MONY Life. There can be no assurance that state insurance laws will in the future permit the payment of dividends by the life insurance subsidiaries to MONY Life in an amount sufficient to support the ability of MONY Life to pay dividends to the MONY Group.
On January 12, 2000, the Holding Company filed a registration statement on Form S-3 with the Securities and Exchange Commission (the “SEC”) to register certain securities. This registration, known as a “Shelf Registration”, provides the Company with the ability to offer various securities to the public, when it deems appropriate, to raise proceeds up to an amount not to exceed $1.0 billion in the aggregate for all issuances of securities thereunder. In 2000, the Company issued $300 million face amount of 8.35% Senior Notes and $275 million face amount of 7.45% Senior Notes. See the Notes to the Consolidated Financial Statements for further discussion of the Senior Notes and the use of proceeds from such issuances.
The Company’s total capitalization, excluding accumulated comprehensive income and short-term debt, increased $496.7 million, or 23.6%, to $2,597.0 million at December 31, 2000, as compared to $2,100.3 million at December 31, 1999. The increase was primarily the result of net income of $224.6 million, an increase in total debt of $324.6 million, offset by dividend payments of $20.9 million, and the repurchase of treasury stock of $33.0 million. The Company’s debt to equity (excluding accumulated comprehensive income) and debt to total capitalization ratios decreased to 30.8% and 23.5% at December 31, 2000, respectively, from 16.1% and 13.9% at December 31, 1999, respectively. Included in total debt used in the above calculations are $52.3 million and $58.8 million of non-recourse indebtedness as of December 31, 2000 and 1999, respectively.
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 of 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 initial annual 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 $1,005 million and $727 	million in 2000 and 1999 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.
Annuity surrenders have increased for the year ended December 31, 2000 and 1999 as compared to December 31, 1998 primarily due to the aging of the block of business and consequent decrease in surrender charge rates and due to an increase in competition. The exchange program, which allows policyholders to exchange to a more competitive product, was enthusiastically received and policy exchanges were higher by approximately $278 million in 2000. In past years the Company began to experience a trend of increasing surrenders and, in July 1999, the Company responded to this trend by enhancing its variable annuity products by offering new investment fund choices. In addition the Company has established a special conservation unit and offers policy holders the opportunity to exchange their contracts for a new product series. The positive effects of these conservation efforts are reflected in the decrease in surrenders activity in 2000 as compared to 1999. “New Business Information.”
The Company’s principal sources of liquidity to meet cash outflows are its portfolio of liquid assets and its net operating cash flow. During 2000, the Company reported net cash outflows from operations of $90.8 million, as compared to cash outflow of $30.0 million in 1999. In 2000 and 1999 cash flow from operations excluded $103.1 million and $175.7 million, respectively of cash in flow relating to the Closed Block. Total combined cash flow from operations for 2000 and 1999, including the Closed Block was $12.3 million and $145.7 million, respectively, a decrease of $133.4 million. The
In 2000, the Company announced a plan to repurchase up to 5% or approximately 2.4 million shares, of the outstanding common shares of the Company. Under the repurchase plan, the Company may repurchase common shares from time to time, as market conditions and other factors warrant. The repurchase program may be discontinued at any time. During 2000, the Company repurchased 1.1 million shares for an aggregate amount of $33.0 million.
See Note 16 and Note 18 to Consolidated Financial Statements for additional information related to “Liquidity and Capital Resource” and “- Investments” section for information on the Company’s investment portfolio.
The following table sets forth certain data concerning the Company’s real estate sales during the periods indicated.
Excludes sales of unconsolidated real estate joint venture 	interests. Real estate joint venture interests are reported in 	Other Invested Assets. Gains from the sales of such interests in 	2000, 1999 and 1998 were $0.0 million, $0.0 million and $19.6 	million, respectively. See Note 4 to the Consolidated 	Financial Statements.
Most of the proceeds from real estate sales have been invested in fixed maturity securities. This has served to make the overall asset portfolio somewhat more sensitive to changes in interest rates. It has also served to reduce exposure to an illiquid asset class, real estate, and increase exposure to a more liquid asset class, fixed maturity securities.
On the effective date of the Plan, the Company’s invested assets were allocated between the Closed Block and operations outside the Closed Block. In view of the similar asset quality characteristics of the major asset categories in the two portfolios, the invested assets in the Closed Block have been combined with the Company’s invested assets outside the Closed Block for purposes of the following discussion and analysis. In addition, the following discussion excludes invested assets transferred in the Group Pension Transaction. Accordingly, this discussion should be read in conjunction with the summary financial information regarding assets transferred in the Group Pension Transaction presented in Note 10 to the Consolidated Financial Statements.
The Company’s investment operations are managed by its investment area, which reports directly to the Chief Investment Officer of the Company. The investment area, in consultation with the product actuaries, is responsible for determining, within specified risk tolerances and investment guidelines, the general asset allocation, duration and other characteristics of the Company’s investment portfolio.
The Company had total consolidated assets at December 31, 2000 of approximately $24.6 billion. Of the Company’s total consolidated assets at such date, approximately $13.8 billion represented assets held in the Company’s general account (which includes $6.3 billion of assets in the Closed Block), approximately $4.9 billion represented assets transferred pursuant to the Group Pension Transaction (see Note 10 to the Consolidated Financial Statements), and approximately $5.9 billion were held in the Company’s separate accounts, for which the Company does not generally bear investment risk.
The Securities Valuation Office of the NAIC evaluates the bond investments of insurers for regulatory reporting purposes and assigns securities to one of six investment categories called “NAIC Designations.” The NAIC Designations closely mirror the Nationally Recognized Securities Rating Organizations’ credit ratings for marketable bonds. NAIC Designations 1 and 2 include bonds considered investment grade (“Baa” or higher by Moody’s, or “BBB” or higher by S&P) by such rating organizations. NAIC Designations 3 through 6 are referred to as below investment grade (“Ba” or lower by Moody’s, or “BB” or lower by S&P).
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, 2000 and 1999, as well as the percentage, based on fair value, that each designation comprises.
At December 31, 2000, the percentage, based on estimated fair value, of total public fixed maturities that were investment grade (NAIC Designation 1 or 2) was 95.6% compared to 94.9% for December 31, 1999. At December 31,
The Company reviews all fixed maturity securities at least once each quarter and identifies investments that management concludes require additional monitoring. Among the criteria are: (i) violation of financial covenants, (ii) public securities trading at a substantial discount as a result of specific credit concerns and (iii) other subjective factors relating to the issuer.
The Company defines potential problem securities in the fixed maturity category as securities that are deemed to be experiencing significant operating problems or difficult industry conditions. Typically these securities are experiencing or anticipating liquidity constraints, having difficulty meeting projections/budgets and would most likely be considered a below investment grade risk. The fair value of potential problem fixed maturities was $6.6 million and $32.8 million at December 31, 2000 and 1999, respectively.
The Company defines restructured securities in the fixed maturity category as securities where a concession has been granted to the borrower related to the borrower’s financial difficulties that the Company would not have otherwise considered. The Company restructures certain securities in instances where a determination was made that greater economic value will be realized under the new terms than through liquidation or other disposition. The terms of the restructure generally involve some or all of the following characteristics: a reduction in the interest rate, an extension of the maturity date and a partial forgiveness of principal and/or interest. The fair value of restructured fixed maturities was $0.0 million and $0.0 million at December 31, 2000 and 1999, respectively.
The Company believes that its long-term fixed maturities portfolio is well diversified among industry types. The following tables set forth the fair value of the Company’s fixed maturities by industry category, as well as the percentage of the total portfolio that each industry category comprises as of December 31, 2000 and 1999, respectively. The tables also show by industry category the relative amounts of publicly traded and privately placed securities.
Mortgage-Backed - Government & Agency industry are 	bonds collateralized by mortgages backed by the Federal National 	Mortgage Association, Government National Mortgage Association, 	Federal Home Loan Mortgage Corp., or Canadian Housing Authority.
The Company held approximately $1,103.9 million and $1,138.5 million of mortgage-backed and asset-backed securities as of December 31, 2000 and 1999, respectively. Of such amounts, $338.9 million and $391.5 million or 30.7% and 34.4%, 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, 2000 and 1999, 84.5%, and 85.7%, 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 63% 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.
The principal risks inherent in holding CMOs (as well as pass-through securities) are prepayment and extension risks arising from changes in market interest rates. In declining interest rate environments, the mortgages underlying the
The following table presents the types of ABS held by the Company as of the dates indicated.
Mortgage loans comprised 15.6% and 15.8% of total invested assets at December 31, 2000 and 1999, respectively. Mortgage loans consist of commercial, agricultural and residential loans. As of December 31, 2000 and 1999, commercial mortgage loans comprised $1,443.3 million and $1,141.4 million or 82.2% and 66.6% of total mortgage loan investments, respectively. Agricultural loans comprised $310.8 million and $570.7 million or 17.7 % and 33.3% of total mortgage loans, and residential mortgages comprised $1.1 million and $1.3 million or 0.1% and 0.1% of total mortgage loan investments at the dates indicated.
New commercial mortgage loan originations and purchases aggregated $431.1 million, $396.1 million, and $279.3 million for the years ended December 31, 2000, 1999 and 1998, respectively.
The following table presents the disposition of maturities for the years ended December 31, 2000, 1999 and 1998.
Problem, Potential Problem and Restructured Commercial Mortgages. Commercial mortgage loans are stated at their unpaid principal balances, net of valuation allowances and writedowns for impairment. The Company provides valuation allowances for commercial mortgage loans considered to be impaired. Mortgage loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When the Company determines that a loan is impaired, a valuation allowance for loss is established for the excess of the carrying value of the mortgage loan over its estimated fair value. Estimated fair value is based on either the present value of expected future cash flows discounted at the loan’s original effective interest rate, the loan’s observable market price or the fair value of the collateral. The provision for loss is reported as a realized loss on investment.
Gross interest income on restructured commercial mortgage loan balances that would have been recorded in accordance with the loans’ original terms was approximately $9.1 million, $16.1 million and $17.8 million at December 31, 2000, 1999 and 1998, respectively. As a result of the restructurings, the gross interest income recognized in net income at December 31, 2000, 1999 and 1998, respectively, was $6.3 million, $10.8 million and $12.6 million.
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, 2000 and 1999, such reserves were $17.7 million and $15.9 million, respectively.
The following tables present the distribution of potential problem and restructured commercial mortgages by property type and by state as of December 31, 2000 and 1999.
The Company holds real estate as part of its general account investment portfolio. The Company has adopted a policy of not investing new funds in equity real estate except to safeguard values in existing investments or to honor outstanding commitments. As of December 31, 2000 and 1999 the carrying value of the Company’s equity real estate investments was $212.0 million and $369.1 million, respectively, or 1.9% and 3.4%, respectively, of general account invested assets. The Company owns real estate, interests in real estate joint ventures (both majority owned and minority owned), and real estate acquired upon foreclosure of commercial and agricultural mortgage loans. The following table presents the carrying value of the Company’s equity real estate investments by such classifications as of the dates indicated.
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 0.5% and 2.6% of invested assets at December 31, 2000 and 1999, respectively. Proceeds on the sale of common stocks totaled $499.2 million, $302.7 million and $165.0 million which resulted in net realized gains of $23.4 million, $77.6 million, and $7.2 million for the years ended December 31, 2000, 1999 and 1998, respectively.
In accordance with GAAP, investment partnerships report their investments at fair value and changes in the fair value of such investments are reflected in the income of such partnerships. Accordingly, a significant portion of the income reported by the Company from partnerships accounted for under the equity method results from unrealized appreciation in the investments of the partnerships. See discussion regarding “Equity Price Risk.”
The following table presents investments in equity limited partnership interests by sector:
Includes $22.5 million and $48.0 million at December 31, 	2000, and 1999, respectively, relating to impairments taken upon 	foreclosure of mortgage loans.
At December 31, 2000 and 1999, 12.9% ($1,443.3 million) and 10.5% ($1,141.4 million), respectively, of the Company’s general account invested assets consisted of commercial mortgage loans. Commercial mortgage loans are stated at their unpaid principal balances, net of valuation allowances for impairment. The Company provides valuation allowances for commercial mortgage loans when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Increases in such valuation allowances are recorded as realized investment losses and reflected in the Company’s result of operations. For the years ended December 31, 2000, 1999 and 1998, increases (decreases) in valuation allowances related to commercial mortgage loans aggregated $(20.3) million, $2.7 million and $11.7 million, respectively. The carrying value of commercial mortgage loans at December 31, 2000 was $1,443.3 million, which amount is net of $40.1 million representing management’s best estimate of cumulative impairment losses at such date. However, there can be no assurance that additional provisions for impairment adjustments with respect to the real estate held for investment will not need to be made. Any such adjustments may have a material adverse effect on the Company’s financial position and results of operations.
The carrying value of real estate held for investment is generally adjusted for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Such impairment adjustments are recorded as realized investment losses and, accordingly, are reflected in the Company’s results of operations. For the years ended December 31, 2000, 1999 and 1998, such impairment adjustments aggregated $0.0 million, $0.0 million, and $5.9 million, respectively. At December 31, 2000 and 1999, the carrying value of real estate held for investment was $40.7 million and $46.2 million, or 0.4% and 0.4% of invested assets at such dates, respectively. The aforementioned carrying values are net of cumulative impairments of $10.8 million and $10.8 million, respectively, and net of accumulated depreciation of $22.2 million and $22.8 million, respectively. However, there can be no assurance that additional provisions for impairment adjustments with respect to real estate held for investment will not need to be made.
The carrying value of real estate to be disposed of at December 31, 2000 and 1999 was $171.3 million and $322.9 million, net of impairment adjustments of $20.2 million and $62.3 million, valuation allowances of $4.5 million and $22.0 million and accumulated depreciation of $63.8 million and $116.1 million, respectively. Once management identifies a real estate property to be sold and commences a plan for marketing the property, the property is classified as to be disposed of and a valuation allowance is established and periodically revised, if necessary, to adjust the carrying value of the property to reflect the lower of its current carrying value or the fair value, less associated selling costs (See Note 4 to the Consolidated Financial Statements). Increases in such valuation allowances are recorded as realized investment losses and, accordingly, are reflected in the Company’s results of operations. For the years ended December 31, 2000, 1999 and 1998, such increases in valuation allowances aggregated $0.7 million, $12.1 million and $6.8 million, respectively. See “- Equity Real Estate - Real Estate Sales.”