18 - Mutual Fund Struct/Reg Flashcards
What is a mutual fund’s offering price?
Net Asset Value Per Share (NAVPS)
What are the advantages of Mutual Funds?
- Low-cost pro mgmt
- Diversification
- Variety of types & Transferability
- Var of purchase & redemption plans
- Liquidity
- Ease of estate planning
- Loan collateral & margin availability
- Various special options
Where can you obtain reports about a mutual fund’s financial statements, annual report, etc?
SEDAR (System for Electronic Document Analysis and Retrieval)
What are 4 disadvantages of Mutual Funds?
- Costs
- Unsuitable for short-term / emergency reserve
- Pro mgmt is not perfect
- Tax complications
What document covers a fund’s objectives, investment policy, restrictions, the manager, etc?
Trust deed
What is the most common mutual fund structure?
Unincorporated open-end trust
What three rules govern a mutual fund corporation structure?
- holdings must be diversified portfolio of securities
- Income must be from interest, dividends and cap gains
- Investors receive shares in the fund instead of units (like with M.F. Trusts)
What are four roles in a mutual fund corp?
- Directors & trustees
- Fund manager
- Distributors
- Custodian
What is the formula for NAVPS?
(Total Assets - Total Liabilities) / Total # shares or units outstanding
According to National Instrument 81-102 how often must new funds calculate NAVPS? Pre-existing funds? Real estate funds?
New: 1x / week
Old: 1x / month
Real Estate: 1x / year (although most do quarterly)
What is the formula to calculate the price including a front-end load?
NAVPS / (100% - Sales Charge)
What are two ways to calculate the back-end load?
Based on orig NAVPS purchase amount or based on NAVPS at redemption.
Curr NAVPS - (NAVPS x sales %)
What is a trailer fee?
Fee that m.f. Manager pays to the distributor that sold the fund (annually as long as client holds the fund)
What is the MER and formula for it?
Management expense ratio
= all fees & expenses paid during year / avg net asset value during year x100
What is an F-class fund?
Same Fund but with a lower MER to reduce double charge in fee-based accounts.
What range of tax credits can an LSVCC or LSIF provide?
15-30% (based on type and province) up to max of $5k invested in one year
What are disadvantages of LSVCCs?
- High risk
- Mandatory (8y) holding period to keep tax credit
- Higher mgmt fees
Who regulates the sales/distribution side of the Mutual Fund industry?
Mutual Fund Dealers Association
Who regulates Mutual Funds?
Provincial securities commissions
What do NI 81-101 and NI 81-102 cover?
101 = MF Prospectus disclosure 102 = distribution and advertising of MFs
What 4 disclosure documents are part of the simplified prospectus system?
- Simplified prospectus
- Annual Info Form (AIF)
- Financial statements (annual audited or interim unaudited)
- Other info req’d by province
What two sections does the simplified prospectus contain?
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)
What are some restrictions on mutual fund management practices?
- 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
What 7 sales practices are illegal for mutual funds?
- Quoting a future price
- Promising a future price
- Offer to repurchase
- Sell w/o license
- Advertising registration
- Inter-province selling
- Sale of unqualified securities
