Unit Trust Specifics

Question 1

What is the role of a Unit Trust Trustee

Answer 1

1. Ensure the investors’ interests are protected by:
2. checking managers actions are in line with regs, trust deed and scheme particulars
3. ensure manager invests inline with objectives of fund
4. Holding or controlling holding of the assets

Question 2

What are the responsibilities of a Unit Trust Trustee

Answer 2

1. Arranging audit of Trust and issuing FS
2. monitoring calc. of unit prices
3. arranging meetings of unit holders
4. setting up register of unit holders + issuing certificates
5. distributing income

Question 3

What are the duties of a Unit Trust Manager

Answer 3

1. be authorised person
2. have adequate financial resources
3. manage the assets in accordance with regs, trust deed and scheme particulars
4. supply info to Trustee when needed
5. maintain record of units
6. notify Trustee/FCA if breached rules

Question 4

How often do Unit trusts issue reports

Answer 4

1. Yearly and half yearly
2. Can be short form if full accounts available on request

Question 5

Who are unit holder rights protected by ?

Answer 5

1. Trustees
2. regulatory organisations setup under FSMA (Financial Services and Markets Act 2000)
3. by the complaints and arbitration procedures - ombudsman

Question 6

How are Unit Trusts Taxed?

Answer 6

1. Interest and Dividends - 20%
2. Distributed interest deducted as expense before tax
3. Mgmt Charges deducted as expense
4. No CGT in fund

Question 7

Explain Equalisation Payments

Answer 7

1. When purchase unit, the price includes income accrued up to that point.
2. Equalisation payment pays that income to the holder - return of part of the purchase price paid.

Question 8

When are dividends and when is interest paid from a Unit Trust

Answer 8

1. Dividends paid if 60% assets in equities
2. Interest paid if 60% assets in FI

Question 9

Explain Tax Treatment of Investor

Answer 9

1. Dividends - Normal Dividend rates after div allowance
2. Interest - Normal Income rate after allowances (PSA)
3. Both still taxed even if reinvested

Question 10

Explain bed and breakfasting rules

Answer 10

1. If sold and repurchased units within 30 days
2. Sale treated as if it never happened

Question 11

Explain what a Tax Elected Fund (TEF) is

Answer 11

1. An authorised investment Fund that receives savings and dividend income
2. elects to divide income into 2 parts
3. Both parts taxed in normal ways for investor
4. Must be approved by HMRC

Question 12

explain what Ex-Dividend (xd) period is

Answer 12

1. The period after the accounting date (up to 4 months)
2. The price of units drops to show income paid out
3. Purchases of units in xd period don’t receive the income, the previous holder does

Question 13

Via what methods can you buy and Sell unit trusts

Answer 13

1. Phone
2. Online
3. Application form
4. Authorised financial adviser

Question 14

What happens on sale

Answer 14

1. Contract note issued by manager
2. IF certificated - Seller signs renunciation form on back
3. If non-certificated - Separate form
4. Manager pays withing 4 business days after receipt

Question 15

Explain what a share exchange is

Answer 15

1. Exchange share in public companies for holding of units

Question 16

Explain what Dual-priced features are

Answer 16

1. The FCA formula determines:
   -Highest price units can be sold TO investors (Bid Price)
   
   • Lowest price manager can repurchase units FROM investors (Offer Price)

Question 17

Explain what Single Pricing Features are

Answer 17

1. Use mid market prices
2. Incoming and outgoing investors deal at the same price

Question 18

How to calc buying price

Answer 18

1. Price of buying securities
2. Plus dealing costs
3. Plus all other property of trust
4. Divide by number of units issued
5. Pluss any initial charge

Question 19

How to calc sale price

Answer 19

1. Value of underlying securities
2. Less dealing costs
3. add uninvested cash
4. Plus accrued income
5. divide by number units in issue

Question 20

Describe what ‘the box’ is

Answer 20

1. The stock control mechanism
2. a pool of newly issued units
3. or repurchased units

Question 21

What basis can units be priced on + explain

Answer 21

1. Forward Pricing - price to be calc’d at next valuation point - exact units purchased unknown - has to be used if trust value changed more than 2%
2. Historic Pricing - price clac’d on last valuation - units created at valuation point and sold till next one - known quantities

Question 22

Types of charges for unit trusts

Answer 22

1. initial charge
2. annual mgmt fee
3. performance fees
4. Exit charges
5. other e.g legal/audit