7. MERCHANDISE TRUSTS

At June 30, 2016 and December 31, 2015, the Partnership’s merchandise trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly as well as through mutual and investment funds. Certain assets acquired in connection with the Partnership’s 2015 and 2016 acquisitions (see Note 3) are based upon preliminary estimated values assigned to the assets by the Partnership at the date of acquisition, and will be adjusted when additional information is received.

All of these investments are classified as Available for Sale and accordingly, all of the assets are carried at fair value. All of the investments subject to the fair value hierarchy (see Note 1) are considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in Note 15. There were no Level 3 assets.

The merchandise trusts are variable interest entities (VIE) for which the Partnership is the primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise and provide the services to which they relate. If the value of these assets falls below the cost of purchasing such merchandise and providing such services, the Partnership may be required to fund this shortfall.

The Partnership included $8.3 million and $8.2 million of investments held in trust by the West Virginia Funeral Directors Association at June 30, 2016 and December 31, 2015, respectively, in its merchandise trust assets. As required by law, the Partnership deposits a portion of certain funeral merchandise sales in West Virginia into a trust that is held by the West Virginia Funeral Directors Association. These trusts are recognized at their account value, which approximates fair value.

A reconciliation of the Partnership’s merchandise trust activities for the six months ended June 30, 2016 and 2015 is presented below (in thousands):


	Six months ended June 30,
	2016			2015
Balance, beginning of period	$	464,676		$	484,820
Contributions		30,259			31,667
Distributions		(29,645	)		(21,231	)
Interest and dividends		11,686			8,391
Capital gain distributions		263			(741	)
Realized gains and losses		2,337			14,453
Taxes		(1,694	)		(3,026	)
Fees		(1,048	)		(1,632	)
Unrealized change in fair value		17,762			(33,774	)

Balance, end of period	$	494,596		$	478,927

During the six months ended June 30, 2016, purchases of available for sale securities were $47.1 million, while sales, maturities and paydowns of available for sale securities were $28.1 million.

The cost and market value associated with the assets held in the merchandise trusts as of June 30, 2016 and December 31, 2015 were as follows (in thousands):


					Gross		Gross
	Fair Value				Unrealized		Unrealized			Fair
June 30, 2016	Hierarchy Level		Cost		Gains		Losses			Value
Short-term investments		1	$	28,567	$	—	$	—		$	28,567
Fixed maturities:
U.S. governmental securities		2		96		9		—			105
Corporate debt securities		2		8,854		169		(493	)		8,530
Other debt securities		2		160		—		—			160

Total fixed maturities				9,110		178		(493	)		8,795

Mutual funds - debt securities		1		245,134		3,267		(6,829	)		241,572
Mutual funds - equity securities		1		137,408		5,502		(8,085	)		134,825
Other investment funds (1)				27,458		183		—			27,641
Equity securities		1		40,616		2,386		(3,346	)		39,656
Other invested assets		2		1,630		314		—			1,944

Total managed investments			$	489,923	$	11,830	$	(18,753	)	$	483,000

Assets acquired via acquisition				3,264		—		—			3,264
West Virginia Trust Receivable				8,332		—		—			8,332

Total			$	501,519	$	11,830	$	(18,753	)	$	494,596

(1)

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds which have redemption periods ranging from 30 to 90 days.


December 31, 2015	Fair Value Hierarchy Level		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments		1	$	35,150	$	—	$	—		$	35,150
Fixed maturities:
U.S. governmental securities		2		98		6		(3	)		101
Corporate debt securities		2		11,922		8		(546	)		11,384
Other debt securities		2		7,150		11		(7	)		7,154

Total fixed maturities				19,170		25		(556	)		18,639

Mutual funds - debt securities		1		232,096		86		(10,713	)		221,469
Mutual funds - equity securities		1		139,341		69		(12,249	)		127,161
Equity securities		1		49,563		1,127		(2,474	)		48,216
Other invested assets		2		1,681		—		—			1,681

Total managed investments			$	477,001	$	1,307	$	(25,992	)	$	452,316

Assets acquired via acquisition				4,185		—		—			4,185
West Virginia Trust Receivable				8,175		—		—			8,175

Total			$	489,361	$	1,307	$	(25,992	)	$	464,676

The contractual maturities of debt securities as of June 30, 2016 were as follows below:


	Less than		1 year through		6 years through		More than
	1 year		5 years		10 years		10 years
U.S. governmental securities	$	11	$	12	$	82	$	—
Corporate debt securities		—		7,202		1,328		—
Other debt securities		160		—		—		—

Total fixed maturities	$	171	$	7,214	$	1,410	$	—

Temporary Declines in Fair Value

The Partnership evaluates declines in fair value below cost for each asset held in the merchandise trusts on a quarterly basis.

An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the merchandise trusts as of June 30, 2016 and December 31, 2015 is presented below (in thousands):


	Less than 12 months				12 Months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
June 30, 2016	Value		Losses		Value		Losses		Value		Losses
Fixed maturities:
Corporate debt securities	$	4,385	$	314	$	2,116	$	179	$	6,501	$	493

Total fixed maturities		4,385		314		2,116		179		6,501		493

Mutual funds - debt securities		16,342		463		138,981		6,366		155,323		6,829
Mutual funds - equity securities		11,037		899		55,539		7,186		66,576		8,085
Equity securities		14,913		1,846		7,104		1,500		22,017		3,346

Total	$	46,677	$	3,522	$	203,740	$	15,231	$	250,417	$	18,753


	Less than 12 months				12 Months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2015	Value		Losses		Value		Losses		Value		Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	33	$	3	$	33	$	3
Corporate debt securities		7,247		411		1,513		135		8,760		546
Other debt securities		2,883		7		—		—		2,883		7

Total fixed maturities		10,130		418		1,546		138		11,676		556

Mutual funds - debt securities		121,777		6,938		36,682		3,775		158,459		10,713
Mutual funds - equity securities		58,467		10,994		5,465		1,255		63,932		12,249
Equity securities		21,480		2,275		649		199		22,129		2,474

Total	$	211,854	$	20,625	$	44,342	$	5,367	$	256,196	$	25,992

For all securities in an unrealized loss position, the Partnership evaluated the severity of the impairment and length of time that a security has been in a loss position and concluded the decline in fair value below the asset’s cost was temporary in nature. In addition, the Partnership is not aware of any circumstances that would prevent the future market value recovery for these securities.

Other-Than-Temporary Impairment of Trust Assets

The Partnership assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the three and six months ended June 30, 2016, the Partnership determined that there were no other than temporary impairments to the investment portfolio in the merchandise trusts. During the three months ended June 30, 2015, the Company determined that there were no other than temporary impairments to the investment portfolio in the merchandise trusts. During the six months ended June 30, 2015, the Company determined that there were two securities with an aggregate cost basis of approximately $0.6 million and an aggregate fair value of approximately $0.4 million, resulting in an impairment of $0.2 million, wherein such impairment was considered to be other-than-temporary. Accordingly, the Partnership adjusted the cost basis of these assets to their current value and offset this change against deferred revenues. This reduction in deferred revenues is reflected in earnings in periods after the impairment date as the underlying merchandise is delivered or the underlying services are performed.