May 10, 1996
TO: ACCOUNTING/TREASURERS COMMITTEE No. 17-96
RE: FASB NO. 119 DISCLOSURE EXAMPLES
______________________________________________________________________________
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 119 - Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments
requires financial statement footnote disclosure about the amounts, nature, and terms of
derivative financial instruments. In an effort to assist investment companies in their efforts to
comply with FASB No. 119, the Institutes Accounting Policy Subcommittee ("APS") has
reviewed selected mutual fund annual reports and prepared the attached compendium of
financial statement footnote disclosures relating to derivative financial instruments.
The attached guidance contains disclosures from 17 separate funds representing 13
investment company complexes. The guidance contains sample disclosures on futures,
forwards, options and swaps. The guidance contains sample disclosures for derivatives held
for purposes other than trading as well as disclosures for derivatives held for trading purposes, as
those terms are used within FASB No. 119.
The attached is intended to be the first in a series of documents to be issued from time to
time by the APS providing guidance to the investment company industry on selected financial
accounting issues. The format will document how individual funds are addressing selected
accounting and disclosure issues. The Institute would like to acknowledge the following
persons who were responsible for the development of the attached guidance:
Rich Thomas, Federated Investors, Inc.
Joe Grainger, Ernst & Young LLP
Mark Michel, Ernst & Young LLP
The APS has tentatively determined to develop similar guidance on the presentation of
restricted securities and investments in affiliates (e.g. the fund owns 5% or more of the voting
shares) in the schedule of investments and the financial statement footnotes. In addition, the
APS intends to develop guidance on the gross up of expenses in connection with directed
brokerage and compensating balance arrangements in response to the recent amendments to
Rule 6-07 of Regulation S-X. Accordingly, please forward fund annual reports which contain
these types of disclosures to the undersigned no later than May 31 so that the APS can initiate
these projects.
Gregory M. Smith
Director - Operations/
Compliance & Fund Accounting