The market risk inherent in the Company’s market risk sensitive instruments and positions is the potential change arising from increases or decreases in the prices of marketable equity securities, foreign currency exchange rates, and interest rates as discussed below. Generally, the Company’s market risk sensitive instruments and positions are characterized as “other than trading.” The Company’s exposure to market risk as discussed below includes forward-looking statements and represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in equity markets, foreign currency exchange rates or interest rates. The Company’s views on market risk are not necessarily indicative of actual results that may occur and do not represent the maximum possible gains and losses that may occur, since actual gains and losses will differ from those estimated, based on actual fluctuations in equity markets, foreign currency exchange rates, interest rates and the timing of transactions.

Marketable Equity Securities
As of October 31, 2000 and 1999, the Company’s marketable equity securities subject to market risk consist principally of investments held by its prearranged funeral, merchandise and perpetual care trust and escrow accounts and had fair values of $463.3 million and $447.9 million, respectively, determined using final sale prices quoted on stock exchanges. Each 10 percent change in the average market prices of the equity securities held in such accounts would result in a change of approximately $46.3 million and $44.8 million, respectively, in the fair value of such accounts.

The Company’s prearranged funeral, merchandise and perpetual care trust funds and escrow accounts are detailed in Notes 5 and 6 to the Company’s consolidated financial statements included in Item 8. Generally, the Company’s wholly-owned subsidiary, Investors Trust, Inc., serves as investment adviser on these trust and escrow accounts. ITI manages the mix of equities and fixed-income securities in accordance with an investment policy established by the Investment Committee of the Company’s Board of Directors with the assistance of third-party professional financial consultants. The policy emphasizes conservation, diversification and preservation of principal, while seeking appropriate levels of current income and capital appreciation. ITI is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Foreign Currency
The Company’s foreign subsidiaries receive revenues and pay expenses in a number of foreign currencies. For the fiscal years ended October 31, 2000 and 1999, each 10 percent change in the average exchange rate between such currencies and the U.S. dollar would result in changes of approximately $2.8 million and $3.1 million, respectively, in the Company’s pre-tax earnings.

The Company does not currently hedge its investments in foreign subsidiaries; however, the Company continually monitors the exchange rates of its foreign currencies to determine whether hedging transactions would be appropriate.

Interest
The Company has entered into various fixed—and variable—rate debt obligations, which are detailed in Note 11 to the Company’s consolidated financial statements.

As of October 31, 2000 and 1999, the carrying values of the Company’s long-term fixed-rate debt, including accrued interest and the unamortized portion of the ROARS option premium, were approximately $433.9 million and $435.0 million, respectively, compared to fair values of $305.0 million and $372.6 million, respectively. Fair values were determined using quoted market prices, where applicable, or future cash flows discounted at market rates for similar types of borrowing arrangements. Each approximate 10 percent change in the average interest rates applicable to such debt, 265 and 125 basis points for 2000 and 1999, respectively, would result in changes of approximately $13.3 million and $12.0 million, respectively, in the fair values of these instruments. If these instruments are held to maturity, no change in fair value will be realized.

In order to hedge a portion of the interest rate risk associated with its variable-rate debt, during the first quarter of 1999, the Company entered into a three-year interest rate swap agreement involving a notional amount of $200 million. This agreement, which became effective March 4, 1999, effectively converted $200 million of variable-rate debt bearing interest based on three-month LIBOR to a fixed rate based on the swap rate of 4.915 percent. The estimated fair value of the interest rate swap based on quoted market prices was $4.7 million and $6.1 million as of October 31, 2000 and 1999, respectively. A hypothetical 100 basis point increase in the average interest rates applicable to such debt would result in a change of approximately $2.8 million and $4.7 million in the fair value of this instrument as of October 31, 2000 and 1999, respectively.

As of October 31, 2000 and 1999, the carrying values of the Company’s borrowings outstanding under its revolving credit facility, including accrued interest, were $529.0 million and $533.1 million, respectively, compared to fair values of $512.2 million and $524.9 million, respectively. Fair value was determined using future cash flows discounted at market rates for similar types of borrowing arrangements. Of the borrowings outstanding under the revolving credit facility, $329.0 million as of October 31, 2000 and 1999 was not hedged by the interest rate swap and was subject to short-term variable interest rates. Each approximate 10 percent, or 75 basis point, change in the average interest rate applicable to this debt would result in a change of approximately $1.0 million and $1.2 million, respectively, in the Company’s pre-tax earnings as of October 31, 2000 and 1999, respectively. Any refinancing of the Company’s revolving credit facility is likely to be at interest rates substantially higher than those currently in effect, although the effect of the rate increases may be moderated if the Company is able to substantially reduce its total debt prior to or in connection with such refinancing.

The Company monitors its mix of fixed—and variable—rate debt obligations in light of changing market conditions and from time to time may alter that mix by, for example, refinancing balances outstanding under its variable-rate revolving credit facility with fixed-rate debt or by entering into interest rate swaps.

As of October 31, 2000 and 1999, the Company’s fixed-income securities subject to market risk consisted principally of investments in its prearranged funeral, merchandise and perpetual care trust and escrow accounts and had aggregate quoted market values of $275.2 million and $254.9 million, respectively. Each 10 percent change in interest rates on these fixed-income securities would result in changes of approximately $9.0 million and $8.6 million, respectively, in the fair values of such securities based on discounted expected future cash flows. If these securities are held to maturity, no change in fair value will be realized.

As of October 31, 2000 and 1999, the Company’s money market and other short-term investments subject to market risk had fair values of $351.0 million and $359.4 million, respectively. The Company’s prearranged funeral trust funds contained $232.0 million and $250.2 million of these money market and other short-term investments as of October 31, 2000 and 1999, respectively. Under the Company’s current accounting methods adopted in fiscal year 1999 as described in Note 3 to the Company’s consolidated financial statements, a change in the average interest rate earned by the Company’s prearranged funeral trust funds would not result in a change in the Company’s current pre-tax earnings. As such, as of October 31, 2000 and 1999, only $119.0 million and $109.2 million of these short-term investments were subject to changes in interest rates. Each 10 percent change in average interest rates applicable to such investments, 70 and 50 basis points for 2000 and 1999, respectively, would result in changes of approximately $800,000 and $500,000 in the Company’s pre-tax earnings.

The fixed-income securities, money market and other short-term investments owned by the Company are principally invested in its prearranged funeral, merchandise and perpetual care trust and escrow accounts which are managed by ITI. ITI operates pursuant to a formal investment policy as discussed above.