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CSC 2 > 18 - Mutual Fund Struct/Reg > Flashcards

18 - Mutual Fund Struct/Reg Flashcards

1
Q

What is a mutual fund’s offering price?

A

Net Asset Value Per Share (NAVPS)

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2
Q

What are the advantages of Mutual Funds?

A
  1. Low-cost pro mgmt
  2. Diversification
  3. Variety of types & Transferability
  4. Var of purchase & redemption plans
  5. Liquidity
  6. Ease of estate planning
  7. Loan collateral & margin availability
  8. Various special options
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3
Q

Where can you obtain reports about a mutual fund’s financial statements, annual report, etc?

A

SEDAR (System for Electronic Document Analysis and Retrieval)

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4
Q

What are 4 disadvantages of Mutual Funds?

A
  1. Costs
  2. Unsuitable for short-term / emergency reserve
  3. Pro mgmt is not perfect
  4. Tax complications
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5
Q

What document covers a fund’s objectives, investment policy, restrictions, the manager, etc?

A

Trust deed

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6
Q

What is the most common mutual fund structure?

A

Unincorporated open-end trust

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7
Q

What three rules govern a mutual fund corporation structure?

A
  1. holdings must be diversified portfolio of securities
  2. Income must be from interest, dividends and cap gains
  3. Investors receive shares in the fund instead of units (like with M.F. Trusts)
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8
Q

What are four roles in a mutual fund corp?

A
  1. Directors & trustees
  2. Fund manager
  3. Distributors
  4. Custodian
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9
Q

What is the formula for NAVPS?

A

(Total Assets - Total Liabilities) / Total # shares or units outstanding

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10
Q

According to National Instrument 81-102 how often must new funds calculate NAVPS? Pre-existing funds? Real estate funds?

A

New: 1x / week
Old: 1x / month
Real Estate: 1x / year (although most do quarterly)

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11
Q

What is the formula to calculate the price including a front-end load?

A

NAVPS / (100% - Sales Charge)

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12
Q

What are two ways to calculate the back-end load?

A

Based on orig NAVPS purchase amount or based on NAVPS at redemption.

Curr NAVPS - (NAVPS x sales %)

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13
Q

What is a trailer fee?

A

Fee that m.f. Manager pays to the distributor that sold the fund (annually as long as client holds the fund)

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14
Q

What is the MER and formula for it?

A

Management expense ratio

= all fees & expenses paid during year / avg net asset value during year x100

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15
Q

What is an F-class fund?

A

Same Fund but with a lower MER to reduce double charge in fee-based accounts.

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16
Q

What range of tax credits can an LSVCC or LSIF provide?

A

15-30% (based on type and province) up to max of $5k invested in one year

17
Q

What are disadvantages of LSVCCs?

A
  1. High risk
  2. Mandatory (8y) holding period to keep tax credit
  3. Higher mgmt fees
18
Q

Who regulates the sales/distribution side of the Mutual Fund industry?

A

Mutual Fund Dealers Association

19
Q

Who regulates Mutual Funds?

A

Provincial securities commissions

20
Q

What do NI 81-101 and NI 81-102 cover?

A 
101 = MF Prospectus disclosure
102 = distribution and advertising of MFs
21
Q

What 4 disclosure documents are part of the simplified prospectus system?

A
  1. Simplified prospectus
  2. Annual Info Form (AIF)
  3. Financial statements (annual audited or interim unaudited)
  4. Other info req’d by province
22
Q

What two sections does the simplified prospectus contain?

A

Part A - intro to the fund, general info about funds and other info about the company
Part B - specific info about the fund (fees, risks, method of distribution, etc)

23
Q

What are some restrictions on mutual fund management practices?

A
  • can’t purchase > 10% of a stock
  • can’t buy shares in own company
  • can’t buy other MF company shares
  • no borrowing for leverage
  • no margin buy or short sell
24
Q

What 7 sales practices are illegal for mutual funds?

A
  1. Quoting a future price
  2. Promising a future price
  3. Offer to repurchase
  4. Sell w/o license
  5. Advertising registration
  6. Inter-province selling
  7. Sale of unqualified securities
25
Q

How often must MF sales registration be renewed and when does the reg end?

A

Renewed annually.
Suspended as soon as rep stops working for a registered dealer (will lapse if not hired elsewhere within 30 days to 6 months depending on prov)

26
Q

Who is a front-end load on a mutual fund purchase payable to?

A

The distributor

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