{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/220/946/","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.","number":"220-946","topic":"220","title":"Financial Services—Investment Companies","area":"Presentation","paragraphs":34,"summary":"This subtopic governs the form and content of the statement of operations (income statement) for investment companies. The statement must show investment income less expenses to arrive at net investment income, then net realized gains/losses and the change in unrealized appreciation/depreciation on investments and foreign currency, summing to the net increase or decrease in net assets resulting from operations. Special presentation rules apply to multiple-class funds, master-feeder structures, and funds of funds.","concepts":["statement of operations","net investment income","realized and unrealized gains and losses","net increase in net assets resulting from operations","master-feeder structure","multiple class funds","fund of funds","foreign currency transactions"],"categories":["Presentation","Disclosure","Industry-specific","Financial statement presentation"],"level":"intermediate","topic_title":"Income Statement—Reporting Comprehensive Income","sections":[{"number":"00","label":"00 Status","anchor":"00-status","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"220-946-00-1","para":"00-1","html":"The following table identifies the changes made to this Subtopic.
This Subtopic addresses income statements, or statements of operations, for investment companies.
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section
946-10-15.
The objective of the statement of operations is to present the increase or decrease in net assets resulting from all of the company's investment activities, by reporting investment income from dividends, interest, and other income less expenses, the amounts of realized gains or losses from investment and foreign currency transactions, and changes in unrealized appreciation or depreciation of investments and foreign-currency-denominated assets and liabilities for the period. That format helps the user understand the contribution of each aspect of investment activity to the company's overall operations.
This following provides guidance on presentation of all of the following captioned items in an investment company's statement of operations:
- a
Expenses
- b
Taxes
- c
Net investment income
- d
Gain or loss from investments and foreign currency transactions
- e
Net increase or decrease in net assets from operations.
All of the following expenses are commonly reported separately: - a
Investment advisory (management) fees (or compensation)
- b
Administration fees payable to an affiliate (if accrued under a separate agreement)
- c
Shareholder service costs, including fees and expenses for the transfer agent and dividend disbursing agent
- d
Distribution (12b-1) expenses - e
Custodian fees
- f
Cost of reports to shareholders
- g
Federal and state income taxes (these expenses shall be shown separately after the income category to which they apply, such as investment income and realized or unrealized gains)
- h
Other taxes (foreign withholding taxes shall be deducted from the relevant income item and presented parenthetically or shown as a separate contra item in the income section)
- i
Interest (including interest on debt, bank borrowings, and reverse repurchase agreements)
- j
Dividends on securities sold short
- k
Professional fees
- l
Directors' or trustees' fees
- m
Registration fees and expenses.
Income tax expense shall be presented by investment companies under the separate income categories (such as investment income or realized and unrealized gains) to which it applies. Taxes in certain foreign jurisdictions may be based on the net investment income and realized gains of the fund within that jurisdiction; the guidance in Topic 740 is applicable to such taxes. The excess of investment income over total expenses shall be shown as net investment income (or loss).
The following amounts related to gain or loss from investments and foreign currency transactions shall be presented as follows:
- a
Net realized gain or loss from investments and foreign currency transactions.
- 1
Investments. Net realized gains or losses resulting from sales or other disposals of investments shall be reported net of brokerage commissions. The net realized gains or losses from investments and net realized gains or losses from foreign currency transactions may be reported separately or may be combined.
- 2
Foreign currency transactions. Net gains or losses from assets or liabilities denominated in foreign currencies during the period shall be reported separately. If separate reporting of foreign currency effects on realized gains or losses from investments is elected, those effects shall be included in this caption.
- b
Net increase (decrease) in unrealized appreciation or depreciation on investments and translation of assets and liabilities in foreign currencies, which comprises both of the following:
- 1
Investments. Changes in net unrealized appreciation or depreciation during the period shall be presented in the statement of operations. The major components of unrealized appreciation or depreciation shall be presented in a manner that is consistent with the guidance provided in (a). Either combining the net unrealized gains or losses from investments with net unrealized gains or losses from foreign currency transactions or reporting them separately is permissible. Any provision for deferred taxes shall be reported separately.
- 2
Translation of assets and liabilities in foreign currencies. The net change during the period from translating assets and liabilities denominated in foreign currencies shall be reported under the caption \"Net Increase (Decrease) in Unrealized Appreciation or Depreciation on Translation of Assets and Liabilities in Foreign Currencies.\"
- c
Net realized and unrealized gain or loss from investments and foreign currency. The sum of the net realized gain or loss and change in unrealized gain or loss on investments and foreign-currency-denominated assets and liabilities shall be presented in the statement of operations as a net gain or loss on investments and foreign currency.
The sum of net investment income or loss and net realized and unrealized gain or loss on investments and foreign currency shall be shown as a net increase or decrease in net assets resulting from operations.
Management investment companies that have multiple classes of shares or master-feeder structures shall apply the following guidance when preparing a statement of operations.
Class-specific expenses shall be reported for each class of fund in the statement of operations or disclosed in the notes to financial statements. Reporting the amount of fund-level expenses allocated to each class is not required but disclosure of fund-level expenses by class in the statement of operations or in notes to financial statements is permitted. (See paragraph 946-220-50-3.) For master funds, the standard reporting format for investment companies with simple capital structures shall be used.
The statement of operations shall report details of the feeder fund's allocated share of net investment income from the master fund (that is, present allocated interest, dividends, and expenses separately).
The statement also shall report separately the feeder's allocated share of the master fund's realized and unrealized gains and losses. The total of all feeders' income, expense, and realized and unrealized gain or loss components shall agree to the corresponding totals of the master fund. Feeder funds shall present their fund-specific expenses, such as transfer agent, distribution, legal and audit expenses, and registration and directors' fees. Additionally, any fee waivers or reimbursements at the feeder-fund level shall be reported.
Income reflected on the statement of operations shall represent the net earnings received from investee funds. For example, if the investee funds are all registered investment companies the income would represent the dividends received from such investee funds.
The investor fund shall not reflect any operating expenses if the investee funds have agreed to assume certain of the investor fund expenses. To the extent the investor fund has such agreements, they shall be disclosed in the notes to financial statements. (See paragraph 946-220-50-4.) When investing in registered investment companies, distributions received from long-term capital gains shall be reported as realized gains together with gains realized on disposition of shares of investee entities.
Expenses are those incurred only at the reporting fund level. Expenses of the investee funds are embedded in the net earnings from such funds.
Investment partnerships shall present their statements of operations in conformity with the requirements for statements of operations of management investment companies provided beginning in paragraph 946-220-45-8. Any income tax provision relating to net investment income shall be disclosed separately.
The statement of operations shall disclose net realized gains or losses. Gains or losses arising from in-kind redemptions shall be disclosed. Notes to financial statements shall state an entity's practice of either including or excluding that portion of realized and unrealized gains and losses from investments that result from foreign currency changes with or from other foreign currency gains and losses.
Class-specific expenses shall be reported for each class of fund in the statement of operations or disclosed in the notes to financial statements. Reporting the amount of fund-level expenses allocated to each class is not required but disclosure of fund-level expenses by class in the statement of operations or in notes to financial statements is permitted. (See paragraph 946-220-45-9.) In accordance with paragraph 946-220-45-14, the investor fund shall not reflect any operating expenses if the investee funds have agreed to assume certain of the investor fund expenses. To the extent the investor fund has such agreements, they shall be disclosed in the notes to financial statements. The following table identifies the changes made to this Subtopic.
See paragraph 946-220-S99-1, Regulation S-X Rule 6-07, for the required income statement presentation for registered investment companies. See paragraph 946-220-S99-2, Regulation S-X Rule 6-08, for the required income statement presentation for issuers of face-amount certificates. See paragraph 946-220-S99-3, Regulation S-X Rule 6-09, for the required statement of changes in net assets format. See paragraph 946-220-S99-1, Regulation S-X Rule 6-07.2, for the required disclosures pertaining to expenses. See paragraph 946-220-S99-2, Regulation S-X Rule 6-08.2, for the required disclosures pertaining to expenses of issuers of face-amount certificates. See paragraph 946-220-S99-1, Regulation S-X Rule 6-07.7(c), for the required disclosures pertaining to realized and unrealized gains (losses) on investments—net. The following is the text of Regulation S-X Rule 6-07, Statements of Operations (17 CFR 210.6-07).
Statements of operations, or statements of comprehensive income, where applicable, filed by registered investment companies, other than issuers of face-amount certificates, subject to the special provisions of § 210.6-08 and business development companies, shall comply with the following provisions:
STATEMENTS OF OPERATIONS
1. Investment income. State separately income from:
(a) Dividends;
(b) interest on securities; and
(c) other income.
Any other category of income which exceeds five percent of the total shown under this caption (e.g. income from non-cash dividends, income from payment-in-kind interest) shall be stated separately. If income from investments in or indebtedness of affiliates is included hereunder, such income shall be segregated under an appropriate caption subdivided to show separately income from: (1) Controlled companies; and (2) other affiliates. If income from non-cash dividends or payment-in-kind interest are included in income, the bases of recognition and measurement used in respect to such amounts shall be disclosed.
2. Expenses.
(a) State separately the total amount of investment advisory, management and service fees, and expenses in connection with research, selection, supervision, and custody of investments. Amounts of expenses incurred from transactions with affiliated persons shall be disclosed together with the identity of and related amount applicable to each such person accounting for five percent or more of the total expenses shown under this caption together with a description of the nature of the affiliation. Expenses incurred within the person's own organization in connection with research, selection and supervision of investments shall be stated separately. Reductions or reimbursements of management or service fees shall be shown as a negative amount or as a reduction of total expenses shown under this caption.
(b) State separately any other expense item the amount of which exceeds five percent of the total expenses shown under this caption.
(c) A note to the financial statements shall include information concerning management and service fees, the rate of fee, and the base and method of computation. State separately the amount and a description of any fee reductions or reimbursements representing: (1) Expense limitation agreements or commitments; and (2) offsets received from broker-dealers showing separately for each amount received or due from (i) unaffiliated persons; and (ii) affiliated persons. If no management or service fees were incurred for a period, state the reason therefor.
(d) If any expenses were paid otherwise than in cash, state the details in a note.
(e) State in a note to the financial statements the amount of brokerage commissions (including dealer markups) paid to affiliated broker-dealers in connection with purchase and sale of investment securities. Open-end management companies shall state in a note the net amounts of sales charges deducted from the proceeds of sale of capital shares which were retained by any affiliated principal underwriter or other affiliated broker-dealer.
(f) State separately all amounts paid in accordance with a plan adopted under 17 CFR 270.12b-1 of this chapter. Reimbursement to the fund of expenses incurred under such plan (12b-1 expense reimbursement) shall be shown as a negative amount and deducted from current 12b-1 expenses. If 12b-1 expense reimbursements exceed current 12b-1 costs, such excess shall be shown as a negative amount used in the calculation of total expenses under this caption.
(g)(1) Brokerage/Service Arrangements. If a broker-dealer or an affiliate of the broker-dealer has, in connection with directing the person's brokerage transactions to the broker-dealer, provided, agreed to provide, paid for, or agreed to pay for, in whole or in part, services provided to the person (other than brokerage and research services as those terms are used in section 28(e) of the Securities Exchange Act of 1934 [15 U.S.C. 78bb(e)]), include in the expense items set forth under this caption the amount that would have been incurred by the person for the services had it paid for the services directly in an arms-length transaction.
(2) Expense Offset Arrangements. If the person has entered into an agreement with any other person pursuant to which such other person reduces, or pays a third party which reduces, by a specified or reasonably ascertainable amount, its fees for services provided to the person in exchange for use of the person's assets, include in the expense items set forth under this caption the amount of fees that would have been incurred by the person if the person had not entered into the agreement.
(3) Financial Statement Presentation. Show the total amount by which expenses are increased pursuant to paragraphs (1) and (2) of this paragraph 2(g) as a corresponding reduction in total expenses under this caption. In a note to the financial statements, state separately the total amounts by which expenses are increased pursuant to paragraphs (1) and (2) of this paragraph 2(g), and list each category of expense that is increased by an amount equal to at least 5 percent of total expenses. If applicable, the note should state that the person could have employed the assets used by another person to produce income if it had not entered into an arrangement described in paragraph 2(g)(2) of this section.
3. Interest and amortization of debt discount and expense. Provide in the body of the statements or in the footnotes, the average dollar amount of borrowings and the average interest rate.
4. Investment income before income tax expense.
5. Income tax expense. Include under this caption only taxes based on income.
6. Investment income-net.
7. Realized and unrealized gain (loss) on investments-net.
(a) State separately the net realized gain or loss from:
(1) Transactions in investment securities of unaffiliated issuers,
(2) transactions in investment securities of affiliated issuers,
(3) expiration or closing of option contracts written,
(4) closed short positions in securities,
(5) expiration or closing of futures contracts,
(6) settlement of forward foreign currency contracts,
(7) expiration or closing of swap contracts, and
(8) transactions in other investments held during the period.
(b) Distributions of realized gains by other investment companies shall be shown separately under this caption.
(c) State separately the amount of the net increase or decrease during the period in the unrealized appreciation or depreciation in the value of:
(1) Investment securities of unaffiliated issuers,
(2) investment securities of affiliated issuers,
(3) option contracts written,
(4) short positions in securities,
(5) futures contracts,
(6) forward foreign currency contracts,
(7) swap contracts, and
(8) other investments held at the end of the period.
(d) State separately any: (1) Federal income taxes and (2) other income taxes applicable to realized and unrealized gain (loss) on investments, distinguishing taxes payable currently from deferred income taxes.
8. Net gain (loss) on investments.
9. Net increase (decrease) in net assets resulting from operations.
[81 FR 82012, Nov. 18, 2016; 83 FR 50202, Oct. 4, 2018]
The following is the text of Regulation S-X Rule 6-08, Special Provisions Applicable to the Statements of Operations of Issuers of Face-Amount Certificates (17 CFR 210.6-08).
Statements of operations filed by issuers of face-amount certificates shall comply with the following provisions:
STATEMENTS OF OPERATIONS
1. Investment income. State separately income from:
(a) Interest on mortgages;
(b) interest on securities;
(c) dividends;
(d) rental income; and
(e) other investment income.
If income from investments in or indebtedness of affiliates is included hereunder, such income shall be segregated under an appropriate caption subdivided to show separately income from: (1) Controlled companies; and (2) other affiliates. If non-cash dividends are included in income, the bases of recognition and measurement used in respect to such amounts shall be disclosed. Any other category of income which exceeds five percent of the total shown under this caption shall be stated separately.
2. Investment expenses.
(a) State separately the total amount of investment advisory, management and service fees, and expenses in connection with research, selection, supervision, and custody of investments. Amounts of expenses incurred from transactions with affiliated persons shall be disclosed together with the identity of and related amount applicable to each such person accounting for five percent or more of the total expenses shown under this caption together with a description of the nature of the affiliation. Expenses incurred within the person's own organization in connection with research, selection and supervision of investments shall be stated separately. Reductions or reimbursements of management or service fees shall be shown as a negative amount or as a reduction of total expenses shown under this caption.
(b) State separately any other expense item the amount of which exceeds five percent of the total expenses shown under this caption.
(c) A note to the financial statements shall include information concerning management and service fees, the rate of fee, and the base and method of computation. State separately the amount and a description of any fee reductions or reimbursements representing: (1) Expense limitation agreements or commitments; and (2) offsets received from broker-dealers showing separately for each amount received or due from: (i) Unaffiliated persons; and (ii) affiliated persons. If no management or service fees were incurred for a period, state the reason therefor.
(d) If any expenses were paid otherwise than in cash, state the details in a note.
(e) State in a note to the financial statements the amount of brokerage commissions (including dealer markups) paid to affiliated broker-dealers in connection with purchase and sale of investment securities.
3. Interest and amortization of debt discount and expense.
4. Provision for certificate reserves. State separately any provision for additional credits, or dividends, or interests, in addition to the minimum maturity or face amount specified in the certificates. State also in an appropriate manner reserve recoveries from surrenders or other causes.
5. Investment income before income tax expense.
6. Income tax expense. Include under this caption only taxes based on income.
7. Investment income-net.
8. Realized gain (loss) on investments-net.
(a) State separately the net realized gain or loss on transactions in:
(1) Investment securities of unaffiliated issuers,
(2) investment securities of affiliated issuers, and
(3) other investments.
(b) Distributions of capital gains by other investment companies shall be shown separately under this caption.
(c) State separately any: (1) Federal income taxes and (2) other income taxes applicable to realized gain (loss) on investments, distinguishing taxes payable currently from deferred income taxes.
9. Net income or loss.
The following is the text of Regulation S-X Rule 6-09, Statements of Changes in Net Assets (17 CFR 210.6-09).
Statements of changes in net assets filed for persons to whom this article is applicable shall comply with the following provisions:
STATEMENTS OF CHANGES IN NET ASSETS
1. Operations. State separately:
(a) Investment income-net as shown by § 210.6-07.6;
(b) realized gain (loss) on investments-net of any Federal or other income taxes applicable to such amounts;
(c) increase (decrease) in unrealized appreciation or depreciation-net of any Federal or other income taxes applicable to such amounts; and
(d) net increase (decrease) in net assets resulting from operations as shown by § 210.6-07.9.
2. Net equalization charges and credits. State the net amount of accrued undivided earnings separately identified in the price of capital shares issued and repurchased.
3. Distributions to shareholders. State total distributions to shareholders which generally come from:
(a) Investment income-net;
(b) realized gain from investment transactions-net; and
(c) other sources, except tax return of capital distributions, which shall be disclosed separately.
4. Capital share transactions.
(a) State the increase or decrease in net assets derived from the net change in the number of outstanding shares or units.
(b) Disclose in the body of the statements or in the notes, for each class of the person's shares, the number and value of shares issued in reinvestment of dividends as well as the number and dollar amounts received for shares sold and paid for shares redeemed.
5. Total increase (decrease).
6. Net assets at the beginning of the period.
7. Net assets at the end of the period.
[47 FR 56838, Dec. 21, 1982, as amended at 83 FR 50202, Oct. 4, 2018]