(1) The supplemental operating information presented above allows for a more complete analysis of results of operations. The net effects of gains and losses have been excluded due to its volatility between periods and because such data is often excluded when evaluating the overall financial performance of insurers. Operating income should not be considered as a substitute for any generally accepted accounting principle ("GAAP") measure of performance. The method of calculating operating income presented above may be different from the method used by other companies and therefore comparability may be limited.
The active management of market risk is integral to the Company's results of operations. The Company may use the following approaches to manage its exposure to market risk within defined tolerance ranges: 1) rebalance its existing asset or liability portfolios, 2) change the character of future investments purchased, or 3) use derivative instruments to modify the market risk characteristics of existing assets and liabilities or assets expected to be purchased. The derivative financial instruments section in Note 5 to the financial statements provides a more detailed discussion of these instruments.
The Company seeks to invest premiums and deposits to create future cash flows that will fund future claims, benefits and expenses, and earn stable margins across a wide variety of interest rate and economic scenarios. In order to achieve this objective and limit its exposure to interest rate risk, the Company adheres to a philosophy of managing the duration of assets and related liabilities. The Company uses financial futures to hedge the interest rate risk related to anticipatory purchases and sales of investments and product sales to customers.
Equity price risk is the risk that the Company will incur economic losses due to adverse changes in a particular stock, stock fund or stock index. At December 31, 2000, the Company had Separate Accounts assets with account values totaling $560.1 million. This is an increase over the $443.7 million of Separate Accounts assets at December 31, 1999. The Company earns mortality and expense fees as a percentage of account value. In the event of an immediate decline of 10% in the account values due to equity market declines, the Company would earn approximately $700 thousand less in annualized fee income. This is a slight increase over the $555 thousand amount determined at December 31, 1999 in the Separate Accounts assets. The contractholder of a variable annuity product may elect to purchase a minimum death benefit guarantee, generally at the time of purchase. This guarantee may subject the Company to additional equity price risk, as the beneficiary may receive his benefit for an amount greater than the fund balance under contractually defined circumstances and terms. The Company recorded actuarially determined reserves as of December 31, 2000 for this exposure. In addition, for certain exposures the Company purchases third party reinsurance. The Company expects growth in its variable annuity products in the future, stemming from both new sales as well as market value appreciation, which will increase its exposure to equity price risk.
The composition of the investment portfolio at December 31, 2000 is presented in the table below (see Notes 2 and 4 to the financial statements for investment accounting policies and additional information).