18 - Mutual Fund Struct/Reg

Question 1

What is a mutual fund’s offering price?

Answer 1

Net Asset Value Per Share (NAVPS)

Question 2

What are the advantages of Mutual Funds?

Answer 2

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

Question 3

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

Answer 3

SEDAR (System for Electronic Document Analysis and Retrieval)

Question 4

What are 4 disadvantages of Mutual Funds?

Answer 4

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

Question 5

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

Answer 5

Trust deed

Question 6

What is the most common mutual fund structure?

Answer 6

Unincorporated open-end trust

Question 7

What three rules govern a mutual fund corporation structure?

Answer 7

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)

Question 8

What are four roles in a mutual fund corp?

Answer 8

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

Question 9

What is the formula for NAVPS?

Answer 9

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

Question 10

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

Answer 10

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

Question 11

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

Answer 11

NAVPS / (100% - Sales Charge)

Question 12

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

Answer 12

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

Curr NAVPS - (NAVPS x sales %)

Question 13

What is a trailer fee?

Answer 13

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

Question 14

What is the MER and formula for it?

Answer 14

Management expense ratio

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

Question 15

What is an F-class fund?

Answer 15

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

Question 16

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

Answer 16

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

Question 17

What are disadvantages of LSVCCs?

Answer 17

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

Question 18

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

Answer 18

Mutual Fund Dealers Association

Question 19

Who regulates Mutual Funds?

Answer 19

Provincial securities commissions

Question 20

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

Answer 20

101 = MF Prospectus disclosure
102 = distribution and advertising of MFs

Question 21

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

Answer 21

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

Question 22

What two sections does the simplified prospectus contain?

Answer 22

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)

Question 23

What are some restrictions on mutual fund management practices?

Answer 23

• 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

Question 24

What 7 sales practices are illegal for mutual funds?

Answer 24

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

Question 25

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

Answer 25

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)

Question 26

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

Answer 26

The distributor