Securities Lawyer's Deskbook                          published by The University of Cincinnati College of Law

Rule 6-07 -- Statements of Operations

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1. Investment income State separately income from



(a) dividends;


(b) interest on securities; and


(c) other 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. 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 the 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 rule 12b-1 of the Investment Company Act of 1940. 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-l 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), 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 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 on transactions in



(1) investment securities of unaffiliated issuers,


(2) investment securities of affiliated issuers, and


(3) investments other than securities.



(b) Distributions of realized gains by other investment companies shall be shown separately under this caption.


(c) State separately



(1) the gain or loss from expiration or closing of option contracts written,


(2) the gain or loss on closed short positions in securities, and


(3) other realized gain or loss.

Disclose in a note to the financial statements the number and associated dollar amounts as to option contracts written:



(a) at the beginning of the period;


(b) during the period;


(c) expired during the period;


(d) closed during the period;


(e) exercised during the period;


(f) balance at end of the period.



(d) State separately the amount of the net increase or decrease during the period in the unrealized appreciation or depreciation in the value of investment securities and other investments held at the end of the period.


(e) 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.

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