November 15, 1996
TO: ACCOUNTING/TREASURERS MEMBERS No. 39-96
INDEPENDENT ACCOUNTANTS ADVISORY COMMITTEE No. 12-96
RE: ICI WHITE PAPER ON STRIPPED MORTGAGE BACKED SECURITIES
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The attached paper describes the accounting, financial reporting, tax, SEC yield, and operational
issues related to stripped mortgage backed securities (“SMBS”). The paper was developed by the
Accounting Policy Subcommittee of the InstituteGs Accounting/Treasurers Committee (“A/TC”) and
was unanimously approved for dissemination to the ICI membership by the A/TC and the Independent
Accountants Advisory Group.
The paper is intended to provide technical guidance to ICI members on SMBS, which are
frequently referred to as interest only and principal only securities (“IOs and POs”). SMBSs result when
a conventional mortgage backed security is “stripped” into two distinct classes, one of which receives
principal cash flows and one which receives interest cash flows.
The Institute would like to recognize the contributions of the paperGs principal authors:
Kenneth V. Domingues, Franklin Resources, Inc.
Robert Giambrone, Dean Witter InterCapital Inc.
Timothy J. Jacoby, Colonial Management Associates, Inc.
Teresa S. Westbrook, Merrill Lynch Asset Management, L.P.
Please feel free to contact the undersigned or those named above with any questions on the
paper.
Gregory M. Smith
Director - Operations/
Compliance & Fund Accounting
Attachment