Section 17CFR229.305

[Code of Federal Regulations]
[Title 17, Volume 2]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 17CFR229.305]

[Page 388-397]

TITLE 17--COMMODITY AND SECURITIES EXCHANGES

CHAPTER II--SECURITIES AND EXCHANGE COMMISSION

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND CONSERVATION ACT OF 1975--
REGULATION S-K--Table of Contents

Subpart 229.300--Financial Information

Sec. 229.305 (Item 305) Quantitative and qualitative disclosures about market risk.

(a) Quantitative information about market risk. (1) Registrants
shall provide, in their reporting currency, quantitative information
about market risk as of the end of the latest fiscal year, in accordance
with one of the following three disclosure alternatives. In preparing
this quantitative information, registrants shall categorize market risk
sensitive instruments into instruments entered into for trading purposes
and instruments entered into for purposes other than trading purposes.
Within both the trading and other than trading portfolios, separate
quantitative information shall be presented, to the extent material, for
each market risk exposure category (i.e., interest rate risk, foreign
currency exchange rate risk, commodity price risk, and other relevant
market risks, such as equity price risk). A registrant may use one of
the three alternatives set forth in this section for all of the required
quantitative disclosures about market risk. A registrant also may
choose, from among the three alternatives, one disclosure alternative
for market risk sensitive instruments entered into for trading purposes
and another disclosure alternative for market risk sensitive instruments
entered into for other than trading purposes. Alternatively, a
registrant may choose any disclosure alternative, from among the three
alternatives, for each risk exposure category within the trading and
other than trading portfolios. The three disclosure alternatives are:
(i)(A)(1) Tabular presentation of information related to market risk
sensitive instruments; such information shall include fair values of the
market risk sensitive instruments and contract terms sufficient to
determine future cash flows from those instruments, categorized by
expected maturity dates.
(2) Tabular information relating to contract terms shall allow
readers of the table to determine expected cash flows from the market
risk sensitive instruments for each of the next five years. Comparable
tabular information for any remaining years shall be displayed as an
aggregate amount.
(3) Within each risk exposure category, the market risk sensitive
instruments shall be grouped based on common characteristics. Within the
foreign currency exchange rate risk category, the market risk sensitive
instruments shall be grouped by functional currency and within the
commodity price risk category, the market risk sensitive instruments
shall be grouped by type of commodity.
(4) See the Appendix to this Item for a suggested format for
presentation of this information; and
(B) Registrants shall provide a description of the contents of the
table and any related assumptions necessary to understand the
disclosures required under paragraph (a)(1)(i)(A) of this Item 305; or
(ii)(A) Sensitivity analysis disclosures that express the potential
loss in future earnings, fair values, or cash flows of market risk
sensitive instruments resulting from one or more selected hypothetical
changes in interest rates, foreign currency exchange rates, commodity
prices, and other relevant market rates or prices over a selected period
of time. The magnitude of selected hypothetical changes in rates or
prices may differ among and within market risk exposure categories; and
(B) Registrants shall provide a description of the model,
assumptions, and parameters, which are necessary to understand the
disclosures required under paragraph (a)(1)(ii)(A) of this Item 305; or
(iii)(A) Value at risk disclosures that express the potential loss
in future earnings, fair values, or cash flows of market risk sensitive
instruments over a selected period of time, with a selected likelihood
of occurrence, from changes in interest rates, foreign currency exchange
rates, commodity prices, and other relevant market rates or prices;

[[Page 389]]

(B)(1) For each category for which value at risk disclosures are
required under paragraph (a)(1)(iii)(A) of this Item 305, provide
either:
(i) The average, high and low amounts, or the distribution of the
value at risk amounts for the reporting period; or
(ii) The average, high and low amounts, or the distribution of
actual changes in fair values, earnings, or cash flows from the market
risk sensitive instruments occurring during the reporting period; or
(iii) The percentage or number of times the actual changes in fair
values, earnings, or cash flows from the market risk sensitive
instruments exceeded the value at risk amounts during the reporting
period;
(2) Information required under paragraph (a)(1)(iii)(B)(1) of this
Item 305 is not required for the first fiscal year end in which a
registrant must present Item 305 information; and
(C) Registrants shall provide a description of the model,
assumptions, and parameters, which are necessary to understand the
disclosures required under paragraphs (a)(1)(iii)(A) and (B) of this
Item 305.
(2) Registrants shall discuss material limitations that cause the
information required under paragraph (a)(1) of this Item 305 not to
reflect fully the net market risk exposures of the entity. This
discussion shall include summarized descriptions of instruments,
positions, and transactions omitted from the quantitative market risk
disclosure information or the features of instruments, positions, and
transactions that are included, but not reflected fully in the
quantitative market risk disclosure information.
(3) Registrants shall present summarized market risk information for
the preceding fiscal year. In addition, registrants shall discuss the
reasons for material quantitative changes in market risk exposures
between the current and preceding fiscal years. Information required by
this paragraph (a)(3), however, is not required if disclosure is not
required under paragraph (a)(1) of this Item 305 for the current fiscal
year. Information required by this paragraph (a)(3) is not required for
the first fiscal year end in which a registrant must present Item 305
information.
(4) If registrants change disclosure alternatives or key model
characteristics, assumptions, and parameters used in providing
quantitative information about market risk (e.g., changing from tabular
presentation to value at risk, changing the scope of instruments
included in the model, or changing the definition of loss from fair
values to earnings), and if the effects of any such change is material,
the registrant shall:
(i) Explain the reasons for the change; and
(ii) Either provide summarized comparable information, under the new
disclosure method, for the year preceding the current year or, in
addition to providing disclosure for the current year under the new
method, provide disclosures for the current year and preceding fiscal
year under the method used in the preceding year.

Instructions to Paragraph 305(a): 1. Under paragraph 305(a)(1):
A. For each market risk exposure category within the trading and
other than trading portfolios, registrants may report the average, high,
and low sensitivity analysis or value at risk amounts for the reporting
period, as an alternative to reporting year-end amounts.
B. In determining the average, high, and low amounts for the fiscal
year under instruction 1.A. of the Instructions to Paragraph 305(a),
registrants should use sensitivity analysis or value at risk amounts
relating to at least four equal time periods throughout the reporting
period (e.g., four quarter-end amounts, 12 month-end amounts, or 52
week-end amounts).
C. Functional currency means functional currency as defined by
generally accepted accounting principles (see, e.g., FASB, Statement of
Financial Accounting Standards No. 52, ``Foreign Currency Translation'',
(``FAS 52'') paragraph 20 (December 1981)).
D. Registrants using the sensitivity analysis and value at risk
disclosure alternatives are encouraged, but not required, to provide
quantitative amounts that reflect the aggregate market risk inherent in
the trading and other than trading portfolios.
2. Under paragraph 305(a)(1)(i):
A. Examples of contract terms sufficient to determine future cash
flows from market risk sensitive instruments include, but are not
limited to:
i. Debt instruments--principal amounts and weighted average
effective interest rates;

[[Page 390]]

ii. Forwards and futures--contract amounts and weighted average
settlement prices;
iii. Options--contract amounts and weighted average strike prices;
iv. Swaps--notional amounts, weighted average pay rates or prices,
and weighted average receive rates or prices; and
v. Complex instruments--likely to be a combination of the contract
terms presented in 2.A.i. through iv. of this Instruction;
B. When grouping based on common characteristics, instruments should
be categorized, at a minimum, by the following characteristics, when
material:
i. Fixed rate or variable rate assets or liabilities;
ii. Long or short forwards and futures;
iii. Written or purchased put or call options with similar strike
prices;
iv. Receive fixed and pay variable swaps, receive variable and pay
fixed swaps, and receive variable and pay variable swaps;
v. The currency in which the instruments' cash flows are
denominated;
vi. Financial instruments for which foreign currency transaction
gains and losses are reported in the same manner as translation
adjustments under generally accepted accounting principles (see, e.g.,
FAS 52 paragraph 20 (December 1981)); and
vii. Derivatives used to manage risks inherent in anticipated
transactions;
C. Registrants may aggregate information regarding functional
currencies that are economically related, managed together for internal
risk management purposes, and have statistical correlations of greater
than 75% over each of the past three years;
D. Market risk sensitive instruments that are exposed to rate or
price changes in more than one market risk exposure category should be
presented within the tabular information for each of the risk exposure
categories to which those instruments are exposed;
E. If a currency swap (see, e.g., FAS 52 Appendix E for a definition
of currency swap) eliminates all foreign currency exposures in the cash
flows of a foreign currency denominated debt instrument, neither the
currency swap nor the foreign currency denominated debt instrument are
required to be disclosed in the foreign currency risk exposure category.
However, both the currency swap and the foreign currency denominated
debt instrument should be disclosed in the interest rate risk exposure
category; and
F. The contents of the table and related assumptions that should be
described include, but are not limited to:
i. The different amounts reported in the table for various
categories of the market risk sensitive instruments (e.g., principal
amounts for debt, notional amounts for swaps, and contract amounts for
options and futures);
ii. The different types of reported market rates or prices (e.g.,
contractual rates or prices, spot rates or prices, forward rates or
prices); and
iii. Key prepayment or reinvestment assumptions relating to the
timing of reported amounts.
3. Under paragraph 305(a)(1)(ii):
A. Registrants should select hypothetical changes in market rates or
prices that are expected to reflect reasonably possible near-term
changes in those rates and prices. In this regard, absent economic
justification for the selection of a different amount, registrants
should use changes that are not less than 10 percent of end of period
market rates or prices;
B. For purposes of instruction 3.A. of the Instructions to Paragraph
305(a), the term reasonably possible has the same meaning as defined by
generally accepted accounting principles (see, e.g., FASB, Statement of
Financial Accounting Standards No. 5, ``Accounting for Contingencies,''
(``FAS 5'') paragraph 3 (March 1975));
C. For purposes of instruction 3.A. of the Instructions to Paragraph
305(a), the term near term means a period of time going forward up to
one year from the date of the financial statements (see generally AICPA,
Statement of Position 94-6, ``Disclosure of Certain Significant Risks
and Uncertainties,'' (``SOP 94-6'') at paragraph 7 (December 30, 1994));
D. Market risk sensitive instruments that are exposed to rate or
price changes in more than one market risk exposure category should be
included in the sensitivity analysis disclosures for each market risk
category to which those instruments are exposed;
E. Registrants with multiple foreign currency exchange rate
exposures should prepare foreign currency sensitivity analysis
disclosures that measure the aggregate sensitivity to changes in all
foreign currency exchange rate exposures, including the effects of
changes in both transactional currency/functional currency exchange rate
exposures and functional currency/reporting currency exchange rate
exposures. For example, assume a French division of a registrant
presenting its financial statements in U.S. dollars ($US) invests in a
deutschmark(DM)-denominated debt security. In these circumstances, the
$US is the reporting currency and the DM is the transactional currency.
In addition, assume this division determines that the French franc (FF)
is its functional currency according to FAS 52. In preparing the foreign
currency sensitivity analysis disclosures, this registrant should report
the aggregate potential loss from hypothetical changes in both the DM/FF
exchange rate exposure and the FF/$US exchange rate exposure; and
F. Model, assumptions, and parameters that should be described
include, but are not

[[Page 391]]

limited to, how loss is defined by the model (e.g., loss in earnings,
fair values, or cash flows), a general description of the modeling
technique (e.g., duration modeling, modeling that measures the change in
net present values arising from selected hypothetical changes in market
rates or prices, and a description as to how optionality is addressed by
the model), the types of instruments covered by the model (e.g.,
derivative financial instruments, other financial instruments,
derivative commodity instruments, and whether other instruments are
included voluntarily, such as certain commodity instruments and
positions, cash flows from anticipated transactions, and certain
financial instruments excluded under instruction 3.C.ii. of the General
Instructions to Paragraphs 305(a) and 305(b)), and other relevant
information about the model's assumptions and parameters, (e.g., the
magnitude and timing of selected hypothetical changes in market rates or
prices used, the method by which discount rates are determined, and key
prepayment or reinvestment assumptions).
4. Under paragraph 305(a)(1)(iii):
A. The confidence intervals selected should reflect reasonably
possible near-term changes in market rates and prices. In this regard,
absent economic justification for the selection of different confidence
intervals, registrants should use intervals that are 95 percent or
higher;
B. For purposes of instruction 4.A. of the Instructions to Paragraph
305(a), the term reasonably possible has the same meaning as defined by
generally accepted accounting principles (see, e.g., FAS 5, paragraph 3
(March 1975));
C. For purposes of instruction 4.A. of the Instructions to
Paragraphs 305(a), the term near term means a period of time going
forward up to one year from the date of the financial statements (see
generally SOP 94-6, at paragraph 7 (December 30, 1994));
D. Registrants with multiple foreign currency exchange rate
exposures should prepare foreign currency value at risk analysis
disclosures that measure the aggregate sensitivity to changes in all
foreign currency exchange rate exposures, including the aggregate
effects of changes in both transactional currency/functional currency
exchange rate exposures and functional currency/reporting currency
exchange rate exposures. For example, assume a French division of a
registrant presenting its financial statements in U.S. dollars ($US)
invests in a deutschmark(DM)-denominated debt security. In these
circumstances, the $US is the reporting currency and the DM is the
transactional currency. In addition, assume this division determines
that the French franc (FF) is its functional currency according to FAS
52. In preparing the foreign currency value at risk disclosures, this
registrant should report the aggregate potential loss from hypothetical
changes in both the DM/FF exchange rate exposure and the FF/$US exchange
rate exposure; and
E. Model, assumptions, and parameters that should be described
include, but are not limited to, how loss is defined by the model (e.g.,
loss in earnings, fair values, or cash flows), the type of model used
(e.g., variance/covariance, historical simulation, or Monte Carlo
simulation and a description as to how optionality is addressed by the
model), the types of instruments covered by the model (e.g., derivative
financial instruments, other financial instruments, derivative commodity
instruments, and whether other instruments are included voluntarily,
such as certain commodity instruments and positions, cash flows from
anticipated transactions, and certain financial instruments excluded
under instruction 3.C.ii. of the General Instructions to Paragraphs
305(a) and 305(b)), and other relevant information about the model's
assumptions and parameters, (e.g., holding periods, confidence
intervals, and, when appropriate, the methods used for aggregating value
at risk amounts across market risk exposure categories, such as by
assuming perfect positive correlation, independence, or actual observed
correlation).
5. Under paragraph 305(a)(2), limitations that should be considered
include, but are not limited to:
A. The exclusion of certain market risk sensitive instruments,
positions, and transactions from the disclosures required under
paragraph 305(a)(1) (e.g., derivative commodity instruments not
permitted by contract or business custom to be settled in cash or with
another financial instrument, commodity positions, cash flows from
anticipated transactions, and certain financial instruments excluded
under instruction 3.C.ii. of the General Instructions to Paragraphs
305(a) and 305(b)). Failure to include such instruments, positions, and
transactions in preparing the disclosures under paragraph 305(a)(1) may
be a limitation because the resulting disclosures may not fully reflect
the net market risk of a registrant; and
B. The ability of disclosures required under paragraph 305(a)(1) to
reflect fully the market risk that may be inherent in instruments with
leverage, option, or prepayment features (e.g., options, including
written options, structured notes, collateralized mortgage obligations,
leveraged swaps, and options embedded in swaps).

(b) Qualitative information about market risk. (1) To the extent
material, describe:
(i) The registrant's primary market risk exposures;
(ii) How those exposures are managed. Such descriptions shall
include, but not be limited to, a discussion of

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the objectives, general strategies, and instruments, if any, used to
manage those exposures; and
(iii) Changes in either the registrant's primary market risk
exposures or how those exposures are managed, when compared to what was
in effect during the most recently completed fiscal year and what is
known or expected to be in effect in future reporting periods.
(2) Qualitative information about market risk shall be presented
separately for market risk sensitive instruments entered into for
trading purposes and those entered into for purposes other than trading.

Instructions to Paragraph 305(b): 1. For purposes of disclosure under
paragraph 305(b), primary market risk exposures means:
A. The following categories of market risk: interest rate risk,
foreign currency exchange rate risk, commodity price risk, and other
relevant market rate or price risks (e.g., equity price risk); and
B. Within each of these categories, the particular markets that
present the primary risk of loss to the registrant. For example, if a
registrant has a material exposure to foreign currency exchange rate
risk and, within this category of market risk, is most vulnerable to
changes in dollar/yen, dollar/pound, and dollar/peso exchange rates, the
registrant should disclose those exposures. Similarly, if a registrant
has a material exposure to interest rate risk and, within this category
of market risk, is most vulnerable to changes in short-term U.S. prime
interest rates, it should disclose the existence of that exposure.
2. For purposes of disclosure under paragraph 305(b), registrants
should describe primary market risk exposures that exist as of the end
of the latest fiscal year, and how those exposures are managed.

General Instructions to Paragraphs 305(a) and 305(b): 1. The
disclosures called for by paragraphs 305(a) and 305(b) are intended to
clarify the registrant's exposures to market risk associated with
activities in derivative financial instruments, other financial
instruments, and derivative commodity instruments.
2. In preparing the disclosures under paragraphs 305(a) and 305(b),
registrants are required to include derivative financial instruments,
other financial instruments, and derivative commodity instruments.
3. For purposes of paragraphs 305(a) and 305(b), derivative
financial instruments, other financial instruments, and derivative
commodity instruments (collectively referred to as ``market risk
sensitive instruments'') are defined as follows:
A. Derivative financial instruments has the same meaning as defined
by generally accepted accounting principles (see, e.g., FASB, Statement
of Financial Accounting Standards No. 119, ``Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments,'' (``FAS
119'') paragraphs 5-7 (October 1994)), and includes futures, forwards,
swaps, options, and other financial instruments with similar
characteristics;
B. Other financial instruments means all financial instruments as
defined by generally accepted accounting principles for which fair value
disclosures are required (see, e.g., FASB, Statement of Financial
Accounting Standards No. 107, ``Disclosures about Fair Value of
Financial Instruments,'' (``FAS 107'') paragraphs 3 and 8 (December
1991)), except for derivative financial instruments, as defined above;
C.i. Other financial instruments include, but are not limited to,
trade accounts receivable, investments, loans, structured notes,
mortgage-backed securities, trade accounts payable, indexed debt
instruments, interest-only and principal-only obligations, deposits, and
other debt obligations;
ii. Other financial instruments exclude employers' and plans'
obligations for pension and other post-retirement benefits,
substantively extinguished debt, insurance contracts, lease contracts,
warranty obligations and rights, unconditional purchase obligations,
investments accounted for under the equity method, minority interests in
consolidated enterprises, and equity instruments issued by the
registrant and classified in stockholders' equity in the statement of
financial position (see, e.g., FAS 107, paragraph 8 (December 1991)).
For purposes of this item, trade accounts receivable and trade accounts
payable need not be considered other financial instruments when their
carrying amounts approximate fair value; and

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D. Derivative commodity instruments include, to the extent such
instruments are not derivative financial instruments, commodity futures,
commodity forwards, commodity swaps, commodity options, and other
commodity instruments with similar characteristics that are permitted by
contract or business custom to be settled in cash or with another
financial instrument. For purposes of this paragraph, settlement in cash
includes settlement in cash of the net change in value of the derivative
commodity instrument (e.g., net cash settlement based on changes in the
price of the underlying commodity).
4.A. In addition to providing required disclosures for the market
risk sensitive instruments defined in instruction 2. of the General
Instructions to Paragraphs 305(a) and 305(b), registrants are encouraged
to include other market risk sensitive instruments, positions, and
transactions within the disclosures required under paragraphs 305(a) and
305(b). Such instruments, positions, and transactions might include
commodity positions, derivative commodity instruments that are not
permitted by contract or business custom to be settled in cash or with
another financial instrument, cash flows from anticipated transactions,
and certain financial instruments excluded under instruction 3.C.ii. of
the General Instructions to Paragraphs 305(a) and 305(b).
B. Registrants that voluntarily include other market risk sensitive
instruments, positions and transactions within their quantitative
disclosures about market risk under the sensitivity analysis or value at
risk disclosure alternatives are not required to provide separate market
risk disclosures for any voluntarily selected instruments, positions, or
transactions. Instead, registrants selecting the sensitivity analysis
and value at risk disclosure alternatives are permitted to present
comprehensive market risk disclosures, which reflect the combined market
risk exposures inherent in both the required and any voluntarily
selected instruments, position, or transactions. Registrants that choose
the tabular presentation disclosure alternative should present
voluntarily selected instruments, positions, or transactions in a manner
consistent with the requirements in Item 305(a) for market risk
sensitive instruments.
C. If a registrant elects to include voluntarily a particular type
of instrument, position, or transaction in their quantitative
disclosures about market risk, that registrant should include all,
rather than some, of those instruments, positions, or transactions
within those disclosures. For example, if a registrant holds in
inventory a particular type of commodity position and elects to include
that commodity position within their market risk disclosures, the
registrant should include the entire commodity position, rather than
only a portion thereof, in their quantitative disclosures about market
risk.
5.A. Under paragraphs 305(a) and 305(b), a materiality assessment
should be made for each market risk exposure category within the trading
and other than trading portfolios.
B. For purposes of making the materiality assessment under
instruction 5.A. of the General Instructions to Paragraphs 305(a) and
305(b), registrants should evaluate both:
i. The materiality of the fair values of derivative financial
instruments, other financial instruments, and derivative commodity
instruments outstanding as of the end of the latest fiscal year; and
ii. The materiality of potential, near-term losses in future
earnings, fair values, and/or cash flows from reasonably possible near-
term changes in market rates or prices.
iii. If either paragraphs B.i. or B.ii. in this instruction of the
General Instructions to Paragraphs 305(a) and 305(b) are material, the
registrant should disclose quantitative and qualitative information
about market risk, if such market risk for the particular market risk
exposure category is material.
C. For purposes of instruction 5.B.i. of the General Instructions to
Paragraphs 305(a) and 305(b), registrants generally should not net fair
values, except to the extent allowed under generally accepted accounting
principles (see, e.g., FASB Interpretation No. 39, ``Offsetting of
Amounts Related to Certain Contracts'' (March 1992)). For example, under
this instruction, the fair value of

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assets generally should not be netted with the fair value of
liabilities.
D. For purposes of instruction 5.B.ii. of the General Instructions
to Paragraphs 305(a) and 305(b), registrants should consider, among
other things, the magnitude of:
i. Past market movements;
ii. Reasonably possible, near-term market movements; and
iii. Potential losses that may arise from leverage, option, and
multiplier features.
E. For purposes of instructions 5.B.ii and 5.D.ii of the General
Instructions to Paragraphs 305(a) and 305(b), the term near term means a
period of time going forward up to one year from the date of the
financial statements (see generally SOP 94-6, at paragraph 7 (December
30, 1994)).
F. For the purpose of instructions 5.B.ii. and 5.D.ii. of the
General Instructions to Paragraphs 305(a) and 305(b), the term
reasonably possible has the same meaning as defined by generally
accepted accounting principles (see, e.g., FAS 5, paragraph 3 (March
1975)).
6. For purposes of paragraphs 305(a) and 305(b), registrants should
present the information outside of, and not incorporate the information
into, the financial statements (including the footnotes to the financial
statements). In addition, registrants are encouraged to provide the
required information in one location. However, alternative presentation,
such as inclusion of all or part of the information in Management's
Discussion and Analysis, may be used at the discretion of the
registrant. If information is disclosed in more than one location,
registrants should provide cross-references to the locations of the
related disclosures.
7. For purposes of the instructions to paragraphs 305(a) and 305(b),
trading purposes has the same meaning as defined by generally accepted
accounting principles (see, e.g., FAS 119, paragraph 9a (October 1994)).
In addition, anticipated transactions means transactions (other than
transactions involving existing assets or liabilities or transactions
necessitated by existing firm commitments) an enterprise expects, but is
not obligated, to carry out in the normal course of business (see, e.g.,
FASB, Statement of Financial Accounting Standards No. 80, ``Accounting
for Futures Contracts,'' paragraph 9, (August 1984)).

(c) Interim periods. If interim period financial statements are
included or are required to be included by Article 3 of Regulation S-X
(17 CFR 210), discussion and analysis shall be provided so as to enable
the reader to assess the sources and effects of material changes in
information that would be provided under Item 305 of Regulation S-K from
the end of the preceding fiscal year to the date of the most recent
interim balance sheet.

Instructions to Paragraph 305(c): 1. Information required under
paragraph (c) of this Item 305 is not required until after the first
fiscal year end in which this Item 305 is applicable.

(d) Safe Harbor. (1) The safe harbor provided in Section 27A of the
Securities Act of 1933 (15 U.S.C. 77z-2) and Section 21E of the
Securities Exchange Act of 1934 (15 U.S.C. 78u-5) (``statutory safe
harbors'') shall apply, with respect to all types of issuers and
transactions, to information provided pursuant to paragraphs (a), (b),
and (c) of this Item 305, provided that the disclosure is made by: an
issuer; a person acting on behalf of the issuer; an outside reviewer
retained by the issuer making a statement on behalf of the issuer; or an
underwriter, with respect to information provided by the issuer or
information derived from information provided by the issuer.
(2) For purposes of paragraph (d) of this Item 305 only:
(i) All information required by paragraphs (a), (b)(1)(i),
(b)(1)(iii), and (c) of this Item 305 is considered forward looking
statements for purposes of the statutory safe harbors, except for
historical facts such as the terms of particular contracts and the
number of market risk sensitive instruments held during or at the end of
the reporting period; and
(ii) With respect to paragraph (a) of this Item 305, the meaningful
cautionary statements prong of the statutory safe harbors will be
satisfied if a registrant satisfies all requirements of that same
paragraph (a) of this Item 305.

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(e) Small business issuers. Small business issuers, as defined in
Sec. 230.405 of this chapter and Sec. 230.12b-2 of this chapter, need
not provide the information required by this Item 305, whether or not
they file on forms specially designated as small business issuer forms.

General Instructions to Paragraphs 305(a), 305(b), 305(c), 305(d), and
305(e): 1. Bank registrants, thrift registrants, and non-bank and non-
thrift registrants with market capitalizations on January 28, 1997 in
excess of $2.5 billion should provide Item 305 disclosures in filings
with the Commission that include annual financial statements for fiscal
years ending after June 15, 1997. Non-bank and non-thrift registrants
with market capitalizations on January 28, 1997 of $2.5 billion or less
should provide Item 305 disclosures in filings with the Commission that
include financial statements for fiscal years ending after June 15,
1998.
2.A. For purposes of instruction 1. of the General Instructions to
Paragraphs 305(a), 305(b), 305(c), 305(d), and 305(e), bank registrants
and thrift registrants include any registrant which has control over a
depository institution.
B. For purposes of instruction 2.A. of the General Instructions to
Paragraphs 305(a), 305(b), 305(c), 305(d), and 305(e), a registrant has
control over a depository institution if:
i. The registrant directly or indirectly or acting through one or
more other persons owns, controls, or has power to vote 25% or more of
any class of voting securities of the depository institution;
ii. The registrant controls in any manner the election of a majority
of the directors or trustees of the depository institution; or
iii. The Federal Reserve Board or Office of Thrift Supervision
determines, after notice and opportunity for hearing, that the
registrant directly or indirectly exercises a controlling influence over
the management or policies of the depository institution.
C. For purposes of instruction 2.B. of the General Instructions to
Paragraphs 305(a), 305(b), 305(c), 305(d), and 305(e), a depository
institution means any of the following:
i. An insured depository institution as defined in section 3(c)(2)
of the Federal Deposit Insurance Act (12 U.S.C.A. Sec. 1813 (c));
ii. An institution organized under the laws of the United States,
any State of the United States, the District of Columbia, any territory
of the United States, Puerto Rico, Guam, American Somoa, or the Virgin
Islands, which both accepts demand deposits or deposits that the
depositor may withdraw by check or similar means for payment to third
parties or others and is engaged in the business of making commercial
loans.
D. For purposes of instruction 1. of the General Instructions to
Paragraphs 305(a), 305(b), 305(c), 305(d) and 305(e), market
capitalization is the aggregate market value of common equity as set
forth in General Instruction I.B.1. of Form S-3; provided however, that
common equity held by affiliates is included in the calculation of
market capitalization; and provided further that instead of using the 60
day period prior to filing referenced in General Instruction I.B.1. of
Form S-3, the measurement date is January 28, 1997.

Appendix to Item 305--Tabular Disclosures

The tables set forth below are illustrative of the format that might
be used when a registrant elects to present the information required by
paragraph (a)(1)(i)(A) of Item 305 regarding terms and information about
derivative financial instruments, other financial instruments, and
derivative commodity instruments. These examples are for illustrative
purposes only. Registrants are not required to display the information
in the specific format illustrated below. Alternative methods of display
are permissible as long as the disclosure requirements of the section
are satisfied. Furthermore, these examples were designed primarily to
illustrate possible formats for presentation of the information required
by the disclosure item and do not purport to illustrate the broad range
of derivative financial instruments, other financial instruments, and
derivative commodity instruments utilized by registrants.

Interest Rate Sensitivity

The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive
to changes in interest rates, including interest rate swaps and debt
obligations. For debt obligations, the table presents principal cash
flows and related weighted average interest rates by expected maturity
dates. For interest rate swaps, the table presents notional amounts and
weighted average interest rates by expected (contractual) maturity
dates. Notional amounts are used to calculate the contractual payments
to be exchanged under the contract. Weighted average variable rates are
based on implied forward rates in the yield curve at the reporting date.
The information is presented in U.S. dollar equivalents, which is the
Company's reporting currency. The instrument's actual cash flows are
denominated in both U.S. dollars ($US) and German deutschmarks (DM), as
indicated in parentheses.

[[Page 396]]

December 31, 19X1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expected maturity date
----------------------------------------------------------------------------------------
Fair
19X2 19X3 19X4 19X5 19X6 Thereafter Total value
--------------------------------------------------------------------------------------------------------------------------------------------------------
Liabilities (US$ Equivalent in millions)
----------------------------------------------------------------------------------------
Long-term Debt:
Fixed Rate ($US)........................................... $XXX $XXX $XXX $XXX $XXX $XXX $XXX $XXX
Average interest rate.................................. X.X% X.X% X.X% X.X% X.X% X.X% X.X%
Fixed Rate (DM)............................................ XXX XXX XXX XXX XXX XXX XXX XXX
Average interest rate.................................. X.X% X.X% X.X% X.X% X.X% X.X% X.X%
Variable Rate ($US)........................................ XXX XXX XXX XXX XXX XXX XXX XXX
Average interest rate.................................. X.X% X.X% X.X% X.X% X.X% X.X% X.X%
----------------------------------------------------------------------------------------
Interest Rate Derivatives (In millions)
----------------------------------------------------------------------------------------
Interest Rate Swaps:
Variable to Fixed ($US).................................... $XXX $XXX $XXX $XXX $XXX $XXX $XXX $XXX
Average pay rate....................................... X.X% X.X% X.X% X.X% X.X% X.X% X.X%
Average receive rate................................... X.X% X.X% X.X% X.X% X.X% X.X% X.X%
Fixed to Variable ($US).................................... XXX XXX XXX XXX XXX XXX XXX XXX
Average pay rate....................................... X.X% X.X% X.X% X.X% X.X% X.X% X.X%
Average receive rate................................... X.X% X.X% X.X% X.X% X.X% X.X% X.X%
--------------------------------------------------------------------------------------------------------------------------------------------------------

Exchange Rate Sensitivity

The table below provides information about the Company's derivative
financial instruments, other financial instruments, and firmly committed
sales transactions by functional currency and presents such information
in U.S. dollar equivalents.\1\ The table summarizes information on
instruments and transactions that are sensitive to foreign currency
exchange rates, including foreign currency forward exchange agreements,
deutschmark (DM)-denominated debt obligations, and firmly committed DM
sales transactions. For debt obligations, the table presents principal
cash flows and related weighted average interest rates by expected
maturity dates. For firmly committed DM-sales transactions, sales
amounts are presented by the expected transaction date, which are not
expected to exceed two years. For foreign currency forward exchange
agreements, the table presents the notional amounts and weighted average
exchange rates by expected (contractual) maturity dates. These notional
amounts generally are used to calculate the contractual payments to be
exchanged under the contract.
---------------------------------------------------------------------------

\1\ The information is presented in U.S. dollars because that is the
registrant's reporting currency.

[[Page 397]]

Anticipated Transactions and Related Derivatives ³ (US$ Equivalent in millions)
----------------------------------------------------------------------------------------
$US Functional Currency:
Firmly committed Sales Contracts (DM)...................... $XXX $XXX ......... ......... ......... .......... $XXX $XXX
Forward Exchange Agreements
(Receive $US/Pay DM):..................................
Contract Amount.................................... XXX XXX ......... ......... ......... .......... XXX XXX
Average Contractual Exchange Rate.................. X.X X.X ......... ......... ......... .......... X.X .........
--------------------------------------------------------------------------------------------------------------------------------------------------------
² Similar tabular information would be provided for other functional currencies.
³ Pursuant to General Instruction 4. to Items 305(a) and 305(b) of Regulation S-K, registrants may include cash flows from anticipated transactions and
operating cash flows resulting from non-financial and non-commodity instruments.

Commodity Price Sensitivity

The table below provides information about the Company's corn
inventory and futures contracts that are sensitive to changes in
commodity prices, specifically corn prices. For inventory, the table
presents the carrying amount and fair value at December 31, 19x1. For
the futures contracts the table presents the notional amounts in
bushels, the weighted average contract prices, and the total dollar
contract amount by expected maturity dates, the latest of which occurs
one year from the reporting date. Contract amounts are used to calculate
the contractual payments and quantity of corn to be exchanged under the
futures contracts.

December 31, 19X1
------------------------------------------------------------------------
Carrying
amount Fair value
------------------------------------------------------------------------
(In millions)
On Balance Sheet Commodity Position and
Related Derivatives
Corn Inventory ⁴.......................... $XXX $XXX
------------------------------------------------------------------------
Expected
maturity Fair
1992 value
------------------------------------------------------------------------
Related Derivatives
Futures Contracts (Short):
Contract Volumes (100,000 bushels)........ XXX ...........
Weighted Average Price (Per 100,000 $X.XX ...........
bushels).................................
Contract Amount ($US in millions)......... $XXX $XXX
------------------------------------------------------------------------
⁴ Pursuant to General Instruction 4. to Items 305(a) and 305(b) of
Regulation S-K, registrants may include information on commodity
positions, such as corn inventory.

[62 FR 6064, Feb. 10, 1997]