In Omaha, there is Farnam Street. ?Among value investors, it is well-known, because the small main office of Berkshire Hathaway [BRK] is located there. ?Less well known is Harney Street, but from an insurance standpoint it is important, because Berkshire Hathaway’s largest insurance subsidiary, National Indemnity, is located there. ?One of the major assets of National Indemnity is the Harney Investment Trust, of which National Indemnity is the sole beneficiary.

Before I go further, I want to say there is a lot I don’t know about what I am going to write. ?Let me tell you what sources I have looked at:

• SEC filings of companies where the Harney Investment Trust was a greater than 5% shareholder.
• Legal documents from Bankruptcies and other corporate legal events where Harney Investment Trust was a party.
• All of the statutory filings for Berkshire Hathaway’s primary insurance companies in 2012.
• All of National Indemnity’s statutory filings on assets 2002-2013.
• All of National Indemity’s statutory audits, 2002-2012.

Now, if you read through BRK’s filings to the SEC, you won’t find many mentions of the Harney Investment Trust. ?You have to read the insurance regulatory documents to find it, and even if you do that, you will still be puzzled. ?Why?

• Over the last 12 years, the National Association of Insurance Commissioners does not require “Other Assets” on Schedule BA to provide enough data so that an external user can make the change in book value or market value make sense. ?It has gotten better over time, but it is still not enough. ?You want to have enough data such that it explains the change in market and book value to the nearest thousand dollars.
• There are a few errors that are obvious. ?Some easy calculations don’t add. ?Current year starting values are not the same as last year’s ending values.
• A few numbers between the statutory filings and audits don’t agree.

Now, some of that is due to bad regulation. ?The data reported for schedule BA assets could be streamlined such that it reports the change in the balance sheet for each asset on a book and fair market value basis.

But more of it is due to BRK’s lack of willingness to discuss/mention the Harney Investment Trust. ?I did a lot of digging on this, and found ?little that was definitive. ?One seemingly intelligent opinion I found here. ?I will quote the most relevant portion from “globalfinancepartners”:

Regarding the large surplus at Berkshire – it is largely because many subsidiaries are owned inside the insurance companies – especially within National Indemnity.? 100% of the stock of BNSF, for example, valued at BRK’s cost of $34 Billion – is owned by National Indemnity and counts towards the statutory surplus.? Also, National Indemnity owns 100% of the shares of GEICO.? Then in addition there are the securities, of course.

GEICO, in turn, owns 100% of the shares of Clayton, McLane, TTI, as well the marketable securities.

I’ll attach an NAIC filing if you really want to geek out.? But unfortunately, the mystery stock Buffett has been accumulating and receiving confidential status on through the SEC is hidden like always inside the “Harney Investment Trust” – Buffett’s go-to vehicle for keeping stock trading hidden from regulatory filings.? (Harney Street is in Omaha)

He gets it, mostly, and concludes that Buffett uses the Harney Investment Trust to hide his buying and selling of positions. ?Assets inside the Trust do not get reported one-by-one on the insurance Schedule D.

Now, before I close, I want to share the data that I have harvested from the Statutory statements, and make a few more comments.

Year	2001	2002	2003	2004	2005
Cost		?? 8,063,249,239	?? 6,098,184,425	??? 4,345,049,427	????? 7,566,419,887
Addl Investment					????? 4,314,851,219
Fair Value					?? 10,532,124,694
Book	?? 9,814,864,000	?? 9,325,481,908	?? 8,326,636,998	??? 5,326,049,532	????? 9,524,818,329
Change		???? (220,350,768)	?????? 859,931,290	? (1,141,017,994)	????? 1,958,398,441
Accretion
OTTI
FX Change
Inv Income					????????? 455,078,969
Book Sold		?? 5,405,086,442	?? 4,640,112,416	??? 2,934,268,712	????? 1,121,718,176
Change					?????????? (40,084,139)
Consideration		?? 6,156,977,208	?? 5,492,507,843	?? ?3,827,449,032	????? 1,561,718,363
Gain		?????? 751,890,766	?????? 852,395,427	???????? 893,180,320	????????? 399,916,048
income
% Assets		25.77%	18.33%	10.45%	15.36%
Am Cost	?? 8,355,067,000	?? 8,063,249,000	?? 6,098,184,000	??? 4,345,049,000	????? 7,566,420,000
URGC	?? 1,459,797,000	?? 1,711,427,000	?? 3,810,157,000	??? 2,316,272,000	????? 2,965,705,000
URCL	????????????????????????????????? –	?????? 144,894,000	????????????????????????????????? –	?????????????????????????????????? –	???????????????????????????????????? –
Fair Value	?? 9,814,864,000	?? 9,629,782,000	?? 9,908,341,000	??? 6,661,321,000	?? 10,532,125,000
Comments		Disagreeing figs

 

Year	2006	2007	2008	2009
Cost	????? 6,964,633,697	?? 20,139,079,483	????? 5,921,482,114	????? 5,786,018,179
Addl Investment	????????? 982,768,239	?? 15,783,905,450	????? 9,781,668,840	?? 10,865,269,974
Fair Value	?? 12,117,706,779	?? 21,921,621,265	????? 4,923,093,676	????? 6,769,046,868
Book	?? 11,123,440,646	?? 21,921,621,265	????? 4,801,843,191	????? 5,800,502,260
Change	????? 3,098,256,653	????? 1,751,436,622	??? (2,840,908,667)	????? 1,108,867,879
Accretion			????????? 119,595,243	????????? 197,707,597
OTTI			????????? 288,188,143	????? 2,590,146,282
FX Change			?????????? (57,873,620)	???????????? 36,966,246
Inv Income	????? 1,261,755,231	????????? 663,463,512	????????? 987,469,687	????????? 826,207,723
Book Sold	?? ???1,746,959,239	????? 2,653,395,647	?? 24,830,673,311	????? 8,645,957,509
Change	??????? (100,447,051)		????????????? (3,398,147)	???????????? 37,662,286
Consideration	????? 1,999,993,027	????? 6,522,527,452	?? 24,010,303,351	????? 9,017,341,154
Gain	????????? 353,480,839	????? 3,869,131,805	????????? 179,640,040	????????? 371,383,645
income			??????????????? 3,658,670	???????????? 62,505,008
% Assets	16.56%	29.56%	7.78%	7.39%
Am Cost	????? 6,964,634,000	?? 20,139,079,000	????? 5,921,482,000	????? 5,786,018,000
URGC	????? 5,153,073,000	????? 1,782,542,000	???????????????????????????????????? –	????????? 983,029,000
URCL	????????????????????????? ???????????-	???????????????????????????????????? –	????????? 998,388,000	???????????????????????????????????? –
Fair Value	?? 12,117,707,000	?? 21,921,621,000	????? 4,923,094,000	????? 6,769,047,000
Comments		Bought out other trusts	Cleaned House

Year	2010	2011	2012	2013
Cost	????? 9,457,498,340	????? 7,464,877,852	?? 7,064,639,865	?? 5,004,510,446
Addl Investment	????? 7,068,414,613	?? 12,784,563,299	?? 4,186,877,510	?? 3,254,233,606
Fair Value	?? 11,700,226,848	????? 7,807,366,099	?? 9,066,610,408	?? 7,675,070,719
Book	?? 10,720,330,531	????? 7,450,894,712	?? 8,417,129,742	?? 7,511,081,043
Change	????? 1,271,863,576	??? (1,276,652,476)	?? 1,332,026,027	?? 1,163,420,948
Accretion	???????????? 17,914,824	?????????? (25,309,149)	???????????? 2,759,586	???????????? 2,810,400
OTTI	????????? 476,659,635	????????? 190,142,457	?? ????115,680,863
FX Change	????????????? (5,766,223)	?????????????????? (911,734)	???????????? 1,296,067	????????????????? 659,774
Inv Income	????????? 554,369,500	????????? 719,996,080	?????? 389,469,312	?????? 403,093,171
Book Sold	????? 2,944,738,747	?? 14,566,437,847	?? 4,479,185,215	?? 5,214,644,823
Change	??????????????? 7,728,019	??????????????? 4,705,665	???????????? 4,970,996	???? (102,528,623)
Consideration	????? 3,576,396,272	? ?14,738,706,689	?? 4,833,798,698	?? 5,785,003,373
Gain	????????? 631,657,525	????????? 141,268,842	?????? 354,613,478	?????? 570,358,551
income	???????????? 76,920,680	???????????? 25,137,655	????????? 11,091,687	?????? 118,147,838
% Assets	9.60%	6.45%	6.59%
Am Cost	????? 9,457,498,000	????? 7,464,878,000	?? 7,064,640,000
URGC	????? 2,343,171,000	????????? 866,984,000	?? 2,083,717,000
URCL	????????? 100,442,000	????????? 524,226,000	????????? 81,747,000
Fair Value	?? 11,700,227,000	????? 7,807,636,000	?? 9,066,610,000

Notes: OTTI: other than temporary impairments. ?URCG: Unrealized Capital Gains. URCL: Unrealized Capital Losses. ?Other categories are hard to define, though I am sure the NAIC has definitions, though they don’t give complete changes in balance sheets.

Another thing that I could not make to match from the statutory statements was the securities that went in and out of the trust. ?Aside from some Treasury bonds ?in 2002, here are all of the reported transactions where securities moved from National Indemnity to the Trust, and vice-versa.

Year	Action	Ticker	Shares	Value	Consideration	Capital Gain (loss)
2003	In	MTB	???????? 927,760	????????????? 3,655,241
2003	In	WFC	???? 6,138,800	???????? 127,795,056
2003	In	AXP	???? 5,308,500	???????? 101,902,002
2003	In	MCO	?? 16,140,300	???????? 340,631,841
2003	Poof	LVLT	?? 32,691,065	???????? 100,000,000
2004	In	TMK	???????? 872,200	?????????? 20,268,837
2004	In	HRB	?? 14,350,600	???????? 222,546,836
2004	In	CDO	???? 1,195,274	????????????????????????????? 1
2004	In	COST	???? 5,254,000	???????? 146,595,428
2004	In	GCI	???? 3,447,600	?????????? 81,873,173
2004	In	MLI	???? 1,361,900	?????????? 30,408,193
2004	In	SEE	???? 1,113,300	?????????? 32,102,292
2004	In	USG	???? 6,500,000	?????????? 37,180,000
2005	Out	TMK	???????? 872,200	?????????? 20,268,837	???????? 49,826,080	?????????????? 29,557,243
2005	Out	HRB	?? 14,350,600	???????? 222,546,836	?????? 703,179,400	???????????? 480,632,564
2005	Out	CDO	???? 1,195,274	????????????????????????????? 1	???????? 26,666,563	?????????????? 26,666,562
2005	Out	COST	???? 5,254,000	???????? 146,595,428	?????? 254,346,140	???????????? 107,750,712
2005	Out	GCI	???? 3,447,600	?????????? 81,873,173	?????? 281,668,800	???????????? 199,795,627
2005	Out	MLI	???? 1,361,900	?????????? 30,408,193	???????? 43,853,180	?????????????? 13,444,987
2005	Out	SEE	???? 1,113,300	?????????? 32,102,292	???????? 59,305,491	?????????????? 27,203,199
2005	Out	USG	???? 6,500,000	?????????? 37,180,000	?????? 261,755,000	???????????? 224,575,000
2008	In	USB	?? 20,768,728	???????? 657,202,698
2008	In	WFC	?? 52,372,788	???? 1,819,017,267
2008	In	COP	?? 71,896,273	?? ??5,878,643,401
2008	In	COST	???? 5,264,000	???????? 146,595,428
2008	In	KFT	?? 89,222,400	???? 2,957,096,963
2008	In	PG	?? 17,200,318	???? 1,026,726,674
2008	In	USG	?? 10,102,918	??????? ?202,419,056
2008	In	WMT	?? 18,998,300	???????? 901,731,797
2008	Out	PG	?? 20,000,000	???? 1,193,846,154	?? 1,468,400,000	?????????? (274,553,846)
2009	In	COP	?? 29,711,330	???? 1,163,495,683
2009	In	MTB	???????????? 6,300	???????????????? 447,467
2009	In	PG	?? 14,328,093	???????? 855,276,936
2009	In	TMK	???? 1,656,900	?????????? 60,572,017
2009	In	WMT	?? 14,892,842	???????? 746,046,432
2009	In	WFC	?? 21,030,680	???????? 473,941,080
2009	In	GSK	???? 1,510,500	?????????? 78,918,016
2009	In	PKX	???? 1,087,000	?????????? 44,260,228
2009	In	SNY	???? 2,896,133	???????? 119,233,280
2009	Out	COP	?? 71,896,273	???? 5,690,321,498	?? 3,724,226,941	???????? 1,966,094,557
2009	Out	MCO	?? 15,000,000	???????? 163,880,137	?????? 284,850,000	?????????? (120,969,863)
2009	Out	PG	? ?26,000,000	???? 1,552,000,000	?? 1,607,320,000	???????????? (55,320,000)
2010	In	JNJ	?? 13,274,736	???????? 851,173,066
2010	Out	COP	?? 25,227,450	???????? 987,906,942	?? 1,288,365,871	?????????? (300,458,929)
2010	Out	KFT	?? 57,684,645	???? 1,885,271,843	?? 1,567,868,651	???????????? 317,403,192
2010	Out	MTB	???? 4,680,322	?????????? 36,930,716	?????? 216,105,603	???????????? 179,174,887
2010	Out	PG	?? 15,000,000	???????? 895,384,615	?????? 909,450,000	?????????????? 14,065,385
2011	In	COP	?? 21,109,637	???????? 826,653,385
2011	In	GCI	???? 1,740,231	?????????? 13,921,848
2011	In	IBM	?? 63,905,931	?? 10,856,339,550
2011	In	MTB	???? 4,671,245	?????????? 38,003,193
2011	In	PG	?? 12,669,252	???????? 756,256,889
2011	In	WFC	?? 28,446,437	???????? 718,140,133
2011	Out	JNJ	?? 12,951,761	??? ?????829,897,088	?????? 801,466,418	?????????????? 28,830,670
2012	In	WFC	?? 32,872,641	???? 1,090,916,624
2012	Out	PG	?? 29,754,036	???? 1,776,087,072	?? 1,984,891,742	???????????? 208,804,670

In means assets came into National Indemnity, and out means the reverse. ?Poof means something came into National Indemnity, and left in the same calendar year.

Notably, in 2008, Buffett had most of the assets exit the trust into National Indemnity, when they were in a position of unrealized capital loss. ?I don’t fully understand the tax and capital effects here, but it seems that Buffett found it to his advantage to move assets out of the trust, and into National Indemnity once the assets were unrealized capital losses.

I think the guy I quoted is correct. ?Buffett uses the Harney Investment Trust to hide his acquisitions and dispositions of stock. ?The NAIC should end this, and make Schedule BA assets that are easily separable appear on Schedule D, where they belong. ?Schedule BA should be for assets that are not publicly traded. ?Partnerships with assets that would fit on Schedule D should ?be on Schedule D.

Summary

Buffett tries to take an ethical stance in investing, and makes many statements about the way investing ought to be done. ?Using a trust to avoid disclosure of holdings and transactions is not in the spirit of GAAP or statutory accounting/disclosures. ? This practice should be ended. ?Warren, step up your game before you have to and end the Harney Investment Trust. ?I write this as a fan who owns BRK/B shares.

And, to my dedicated readers, if you have more data, or a better means of analysis of the data I have gathered, by all means offer your help. ?Thanks, David

Full disclosure: long BRK/B for clients and me