{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/205/946/#50-disclosure","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"205","topic_title":"Presentation of Financial Statements","subtopic":"205-946","subtopic_title":"Financial Services—Investment Companies","section":{"number":"50","label":"50 Disclosure","anchor":"50-disclosure","is_sec":false,"groups":[{"block":null,"heading":"Financial Highlights","paragraphs":[{"citation":"205-946-50-1","para":"50-1","html":" Financial highlights shall be presented either as a separate schedule or within the notes to financial statements for each class of common shares outstanding.
Investment companies with multiple classes of shares may present financial highlights only for those classes of shares that are included in reports to such shareholders. In such cases, the investment company shall include appropriate disclosures related to all classes so as to ensure that the financial statements are complete (for example, detail of capital share activity in the statement of changes in net assets or notes to financial statements).
Nonregistered investment partnerships shall disclose per-share data for all common classes in general-purpose financial statements. However, it is permissible for financial highlights to be presented only for those classes of shares that are included in reports to those classes. Only the classes related to the nonmanaging investors (that is, classes of investors that do not consist exclusively of managing investor interests) are considered to be the common interests requiring financial highlight disclosure. If a fund is not unitized, only investment returns (either total return or internal rate of return) and net investment income and expense ratios shall be disclosed as indicated in paragraphs . The remainder of this guidance is organized according to the nature the item included in the financial highlights as follows:
- a
Per-share information
- b
Ratios
- c
Total return
- d
Capital commitments.
Per-share amounts presented are based on a share outstanding throughout each period presented. The caption descriptions in the per-share data shall be the same captions used in the statement of operations and statement of changes in net assets to allow the reader to determine which components of operations are included in or excluded from various per-share data. All of the following per-share information shall be presented for registered investment companies and for investment companies that compute unitized net asset value: - a
Net asset value at the beginning of the period.
- b
Per-share net investment income or loss. Other methods, such as dividing net investment income by the average or weighted average number of shares outstanding during the period, are acceptable.
- c
Realized and unrealized gains and losses per share, which are balancing amounts necessary to reconcile the change in net asset value per share with the other per-share information presented. The amount shown in this caption might not agree with the change in aggregate gains and losses for the period. If such is the case, the reasons shall be disclosed. - d
Total from investment operations, which represents the sum of net investment income or loss and realized and unrealized gain or loss.
- e
Distributions to shareholders shall be disclosed as a single line item except that tax return of capital distributions shall be disclosed separately. Details of distributions shall conform to those shown in the statement of changes in net assets. - f
Purchase premiums, redemption fees, or other capital items.
- g
Payments by affiliates (see paragraphs ). - h
Net asset value at the end of the period.
The information required in (b) through (g) is not required for separate accounts that represent an ownership interest in the underlying separate account portfolios or mutual funds. Nonregistered investment partnerships that compute unitized net asset value shall disclose information for each reporting share class related to nonmanaging investors. The information shall be disclosed for each major category affecting net asset value per share (as shown in the statement of operations and statement of changes in net assets of the fund).
Paragraph 946-210-45-16 provides guidance on the net asset amount that shall be used for purposes of preparing the per-share disclosures required by this Section as the beginning and ending balance in the statement of changes in net assets of the fund. Ratios of expenses and net investment income to average net assets are generally annualized for periods less than a year.
The ratio of expenses to average net assets should be increased by brokerage service and expense offset arrangements (see paragraphs 946-20-45-3 and 946-20-45-5). When determining expense and net investment income ratios, nonregistered investment partnerships shall calculate average net assets by using the fund's (or class's) weighted-average net assets as measured at each accounting period or periodic valuation (for example, daily, weekly, monthly, quarterly), adjusting for capital contributions or withdrawals from the fund occurring between accounting periods or valuations. (This paragraph is not intended to require any additional interim accounting period or periodic valuation date beyond that which may be provided in offering or organizational documents of the partnership.)
The expense and net investment income ratios shall be calculated by nonregistered investment partnerships based on the expenses allocated to each common or investor class (for example, the limited partner class) before the effects of any incentive allocation. Adequate disclosure shall be made to indicate that the net investment income ratio does not reflect the effects of any incentive allocation. Expenses directly related to the total return of the fund, such as incentive fees, and nonrecurring expenses, such as organizational costs, shall not be annualized when determining the expense ratio. Disclosure shall be made of the expenses that have not been annualized.
Generally, the determination of expenses for computing those ratios shall follow the presentation of expenses in the fund's statement of operations. Accordingly, if the manager's or general partner's incentive is structured as a fee rather than an allocation of profits, the incentive fee would be factored into the computation of an expense ratio. Because an incentive allocation of profits is not presented as an expense, it shall not be considered part of the expense ratio. However, to avoid potentially significant inconsistencies in ratio presentations based solely on the structuring of incentives as fees or allocations, all incentives shall be reflected in the disclosure of financial highlights.
Additionally, for the expense ratio, disclosure shall be made of the effect of any agreement to waive or reimburse fees and expenses to each reporting class as a whole, as described in paragraph 946-20-50-7, and of expense offsets, as described in paragraphs 946-20-45-3 and 946-20-45-5. Agreements to waive a portion or all of certain fees to a specific investor, which do not relate to the share class as a whole, do not require disclosure in the financial highlights. However, as ratios are calculated for each common class taken as a whole, the financial statements shall disclose that an individual investor's ratio may vary from those ratios. Funds-of-funds shall compute the expense and net investment income ratios using the expenses presented in the fund's statement of operations. Therefore, funds-of-funds typically shall compute these ratios based on the net investment income and expense items at the fund-of-funds level only. Adequate disclosure shall be made so that it is clear to users that the ratios do not reflect the funds-of-funds' proportionate share of income and expenses of the underlying investee funds.
In a master-feeder structure, the feeder shall include its proportionate share of the income and expenses of the master when computing the ratios at the feeder level. If, in a master-feeder structure, an incentive is levied as an allocation at the master level, the feeder shall present its share of the incentive allocation as a separate line item in the statement of operations.
Total return shall be presented for all investment companies (for interim periods, the disclosure shall include whether or not total return is annualized).
For nonregistered investment companies organized in a manner using unitized net asset value, total return shall be computed based on the change in the net asset value per share during the period, and assuming that all dividends are reinvested.
For investment companies not using unitized net asset value, including investment partnerships, total return shall be computed based on the change in value during the period of a theoretical investment made at the beginning of the period. The change in value of a theoretical investment is measured by comparing the aggregate ending value of each class of investor with the aggregate beginning value of each such class, adjusted for cash flows related to capital contributions or withdrawals during the period. If capital cash flows occur during the reporting period, returns are geometrically linked based on capital cash flow dates. In general, geometrically linking requires the computation of performance for each discrete period within a year in which invested capital is constant (that is, for each period between investor cash flow dates), then multiplying those performance computations together to obtain the total return for a constant investment outstanding for the entire year.
Because incentive allocations or fees may vary among investors within a class, total return for reporting classes subject to an incentive allocation or fee should report total return before and after the incentive allocation or fee for each reporting class taken as a whole. The effect of incentive allocations on total return is computed on a weighted-average aggregate capital basis. That results in an incentive computation less than the maximum if, for example, certain partners had loss carryovers at the beginning of the period.
An investment company shall disclose the internal rate of return since inception of the investment company's cash flows and ending net assets at the end of the period (residual values) as presented in the financial statements, net of all incentive allocations or fees, to each investor class, as of the beginning and end of the period, if, by the terms of their offering documents, they meet all of the following criteria: - a
Have limited lives
- b
Do not continuously raise capital and are not required to redeem their interests upon investor request (obtaining initial capital commitments from investors at time of organization and subsequently drawing on those commitments to make investments is not considered continuous for this purpose)
- c
Have as a predominant operating strategy the return of the proceeds from disposition of investments to investors
- d
Have limited opportunities, if any, for investors to withdraw before termination of the entity
- e
Do not routinely acquire (directly or indirectly) as part of their investment strategy market-traded securities and derivative instruments.
A footnote to the financial highlights shall disclose that the internal rate of return since inception of the investment is net of all incentives. The internal rate of return since inception shall be based on a consistent assumption, no less frequently than quarterly, as to the timing of cash inflows and outflows (for example, on actual cash flow dates or cash inflows at the beginning of each month or quarter and cash outflows at the end of each month or quarter). All significant assumptions with respect to the internal rate of return since inception shall be disclosed in the footnotes to the financial highlights.
Investment companies that obtain capital commitments from investors and periodically call capital under those commitments to make investments (principally limited-life, nonregistered investment partnerships) shall disclose in the financial highlights or in a note to financial statements the total committed capital of the partnership (including general partner), the year of formation of the entity, and the ratio of total contributed capital to total committed capital.
Management investment companies that have multiple classes of shares or master-feeder structures shall apply the following guidance in preparing financial highlights.
Financial highlights, including total return, shall be presented by class except for portfolio turnover, which is calculated at the fund level. The financial highlights for any class for which the shareholders are precluded from investing in may be omitted.
The feeder fund's ratios of expenses and net investment income to average net assets shall include the expenses of both the feeder and the master fund. Balance credits earned by the master fund shall be reflected in the feeder fund ratios as if they had been earned by the feeder fund directly. Feeder funds need not disclose a portfolio turnover rate because feeders invest all their assets in the master fund.
The financial highlights section of the master fund organized as a partnership is substantially modified, because per share information is not applicable. The master fund financial highlights section shall include the total return, ratios of expenses and net investment income to average net assets, and portfolio turnover rate. The financial highlights section of master funds not organized as a partnership shall report the normal per-share data.
The financial highlights for the reporting fund in a fund-of-funds structure are usually similar to a standalone feeder fund in a master-feeder structure. Net investment income and expense ratios shall be computed based on the amounts reported in the statement of operations, and portfolio turnover shall be measured based on the turnover of investments made by the reporting fund in the investee funds, not looking through the investee funds to their portfolio activity.
Separate accounts with more than two levels of contract charges or net unit values per subaccount may elect to present the required financial highlights for contract expense levels that had units issued or outstanding during the reporting period (including number of units, unit fair value, net assets, expense ratio, investment income ratio, and total return), for either of the following: - a
Each contract expense level that results in a distinct net unit value and for which units were issued or outstanding during each reporting period
- b
The range of the lowest and highest level of expense ratio and the related total return and unit fair values during each reporting period.
The calculation of the ranges for the total return ratio and unit fair values should correspond to the groupings that produced the lowest and highest expense ratios. The financial highlights table in the separate account's financial statements shall state clearly that the expense ratio considers only the expenses borne directly by the separate account and excludes expenses incurred directly by the underlying funds or charged through the redemption of units.
If the ranges of expense ratios, total returns, and unit fair values are presented, the entity should disclose instances in which individual contract values do not fall within the ranges presented (for example, if a new product is introduced late in a reporting period and the total return does not fall within the range).
The expense disclosure shall also include ranges of all fees that are charged by the separate account and a description of those fees, including whether they are assessed as direct reductions in unit values or through the redemption of units for all policies contained within the separate account.