Create NII Distribution Rules

In the Create/Update NII Distribution Rule panel, you can add or update a net investment income (NII) rule. The NII rule establishes which general ledger accounts are included in the calculation of net investment income.

A fund that invests primarily in assets that produce tax exempt income can pay tax exempt income distributions to its shareholders. However, not all of the income in these funds may be tax exempt. You can identify specific income and expense accounts as tax exempt or taxable. The net investment income process uses the fiscal year to date tax exempt income and expenses for both distribution postings and mil rate calculations.

To create or update an NII distribution rule:

1. In Accounting Center, in the left navigation pane, click Setup > Fund Accounting > Net Investment Income Distributions > Create/Update NII Distribution Rule.
   You see the Create/Update NII Distribution Rule panel.
2. In the Add or Update NII Rule field, click Add or Update to indicate whether you are adding or updating an NII Rule.
3. In the Chart of Account Name field, specify the name of the chart of account specified on the master fund entity.
4. In the NII Rule ID field, specify the net investment income rule identifier for the rule you are adding or updating.
   After you identify the rule you are adding or updating, you can enter one or more rule criteria.
5. In the Accounting Basis field, select the accounting basis.
6. In the From General Ledger Account field, specify the starting general ledger account to include in the rule.
7. In the To General Ledger Account field, specify the ending general ledger account to include in the rule.
8. In the NII Account Category field, select the net investment income category for the general ledger account range that you are setting up. If you do not specify a category, the net investment income process includes all accounts in the rule when calculating the net distributable income. This enables you to set up the fund for tax exempt/taxable income segregation, but still include all income and expenses in the rule for distribution.
   Options include:
   –  Taxable Income. These account types, together with tax exempt income, calculate a taxable income percentage for the taxable expense delta. This is not used when summing up the tax exempt net distributable income delta.
   –  Tax Exempt Income. These income account types calculate tax exempt net distributable income.
   –  Mixed Expense. These account types use the taxable income percentage and calculate the fiscal year to date taxable expense balance, as well as the taxable expense delta. These account types are included in the calculation of tax exempt net distributable income minus the taxable expense delta.
   –  Tax Exempt Expense. These expense account types are included in the calculation of tax exempt net distributable income.
   –  Tax Exempt Expense Allocation. This single account type derives the actual fiscal year to date taxable expense balance and subtracts the existing balance to calculate the taxable expense delta.
9. You can define multiple criteria for an NII rule. If you want to add rows to define additional rule criteria:
   –  Right-click the grid at the bottom of the panel, and then select Add Rows.
   –  Enter the number of rows you want to add.
   –  Click OK.
   –  Complete the fields on each row you added.
10. Click Submit.

After you create an NII distribution rule, you can assign it to one or more master funds as its Net Investment Income Rule. For more information, see Set Up a Master Fund for Distribution Processing.