You are absolutely correct!
No, investment earnings should be classified in the Investing Activities section.
The statement of cash flows is not intended to be a cash basis operating statement, but rather a complement to the accrual-basis statements. Cash flows are classified to provide functional information about investing and financing activities. Therefore, investment earnings should be shown as investing activities on the statement of cash flows.
GASB Statement 9 does not establish guidance on classifying an entity's operating statement. Therefore an entity can classify cash transactions differently between the operating statement and statement of cash flows. If an entity decides to do this, the related cash flows should be shown as a deduction from operating income in the reconciliation section of the cash flow statement.