NOTE 2 - Investments
Investments classified as Held to Maturity and Available-for-Sale at December 31 are distributed by type and maturity as presented below:
The table below includes purchases, sales and maturities of investments classified as Held to Maturity and Available-for-Sale for the years ended December 31:
Investments classified as Held to Maturity were sold during 1999 and 1998 due to credit deterioration. Gross realized gains and losses on sales were negligible.
Gross realized gains and (losses) on sales of securities classified as Available-for-Sale, using the specific identification method, were $64 million and ($23 million), $130 million and ($42 million) and $67 million and ($10 million) for the years ended December 31, 1999, 1998 and 1997, respectively.
The increase in net unrealized gains on Trading securities, which is included in income, was $30 million, $3 million and $24 million for the years ended December 31, 1999, 1998 and 1997, respectively.
In connection with the spin-off of Lehman Brothers Holdings Inc. (Lehman) in 1994, the company acquired 928 shares and Nippon Life Insurance company (Nippon Life) acquired 72 shares of Lehman’s redeemable voting preferred stock for a nominal dollar amount. This security entitles its holders to receive an aggregate annual dividend of 50 percent of Lehman’s net income in excess of $400 million for each of eight years ending in May 2002, with a maximum dividend of $50 million in any one year. In both 1999 and 1998 the company received a dividend of $46 million on these shares; in 1997, this dividend was $7 million. In
addition, the company and Nippon Life were entitled to receive 92.8 percent and 7.2 percent, respectively, of an earnings-related payout from Travelers Inc. (Travelers), which was assigned by Lehman to the company and Nippon Life in connection with the spin-off transaction. The earnings-related payout, which was 10 percent of after-tax profits of Smith Barney, a subsidiary of Travelers, in excess of $250 million per year, was for five years and ended in 1998. The amounts recognized in relation to this payout were approximately $70 million in both 1998 and 1997.
The change in net unrealized securities gains recognized in Other Comprehensive Income includes two components: (1) unrealized gains (losses) that arose during the period from changes in market value of securities that were held during the period (Holding gains (losses)), and (2) gains or losses that were previously unrealized, but have been recognized in current period Net Income due to sales of Available-for-Sale securities (Reclassification for realized gains). This reclassification has no effect on total Comprehensive Income or Shareholders’ Equity.
The following table presents these components of other comprehensive income, net of tax:
