fits) was twenty per cent higher than in the first three months of 1935, S1,538,000.00(1 as compared with $1,281,000.000. Thus there is still ample justification for the traditional confidence with which the Mutual Benefit, for man years. has regarded farm investments.
Let us look for a moment at our bond list. Most of the bonds are amortized, that is. they are valued on successive valuation dates at the yield rate at which they were purchased. But they can be amortized only if they are well secured and not
in default. It sometimes happens that bonds are not well secured though not in default, and that group
has been defined by the New York Insurance Department. in a ruling to the effect that bonds in the first five groups, namely. AAA. AA, A. BAA and BA, of the series of nine classifications established by Moody for the rating of all bonds, might be amortized. None of our bonds in good standing fell outside of that group at December 31 last and 82.5 per cent of them were in the A groups.
Another item which merits attention is found among the Von-Ledger Assets, namely due and accrued in-
terest on mortgages. Up to 1931 inclusive, it was the custom of the Company to take credit for all such
unpaid and accrued interest in accordance with a practice which was quite general at that time. It is true that with respect to bonds which are in default, the Convention Blank requires that interest in default should be excluded from the Non-Ledger Assets. but in case of mortgages, a more lenient attitude has been taken, possibly because of the fact that with the more personal relation between mortgagor and mortgagee some delay in the payment of interest may be condoned, whereas such an attitude would be impossible in reference to an issue of corporation bonds. At any rate, the practice which prevailed until 1931 or 1932 of entering all unpaid and accrued interest on mortgages as a Non-Ledger Asset produced no unfavorable implications or results. Since that time the life insurance companies have followed a great variety of courses. From year to year the Mutual Benefit has taken a progressively conservative view of the asset value of due and accrued interest on mortgages in default, and as a result our net and gross interest rates earned have shown an artificially rapid rate of decrease during the last five Nears. In the years 1931 to 1935 inclusive, the gross interest rates earned have
orl o~
been 5.27';, .6o,c, 1.50 /c, 4.17',;
,
and 3.98', respectively. If we had followed the custom of taking credit for all due and accrued interest on mortgages, regardless of how long the obligations were in default, the gross rates earned in these five years would halve been 5.27',%, 5.10V(, 1.85'; , 4.37'; and 4.22 o respective-IN. If time permitted, further data could be presented, but the trend of gross earnings illustrates the point. It is sufficient to say also that we do not capitalize interest, for we do not treat interest as paid which is not paid. Nor do we treat, as a \on-Ledger Asset, due and accrued interest which we regard as uncertain of collection.
Let us now look at the liability section of our Annual Statement. At the top we find the "Net Reserve" which includes the greater part of our contract liabilities. If there is
VICE PRESIDENT THOMPSON
"We adhere to ... conservatism and frankness .. .
FOR JUNE, 1936 23
