investment company outline

transfer agent

·        Work as bookkeeper

·        Clerks

·        Issue shares/certificates to show individuals own part of investment company

·        Maintain shareholder accounts-transactions, IRS, etc.

·        Send out dividend checks, capital gains distributions unless auto re-invest

·        Cancel redeemed shares

·        Send redemption checks to shareholders

Operating expenses

·        Salary/expenses for board of directors

·        Highest: management fees

·        Custodian fees

·        Service fees

·        Brokerage fees-to buy and sell in portfolio

·        Pay auditors for auditing

·        Legal fees

·        Printing and distribution costs to shareholders

Expense ratio

·        Expense ratio=operating expenses this year/total net asset value

Which of the following expenses are considered part of the costs of operation of a mutual fund?

·        Service fees

·        Brokerage fees

·        Management fees

·        Audit fees

·        Legal fees

·        YET printing prospectuses paid by sales charge

Securities Act of 1933

·        Mutual funds subject to 1933 rules

·        Advertising-oral/written/visual means to promote purchase

·        Prospectus before-or-with-ad

·        Ad can not have written application or tell customers to send fund

·        Ad must be given to FINRA within 10 days of use

·        Prospectus-must give to customer when you suggest they buy

No prospectus needed

·        Tombstone ad

·        Generic ad

Investment Company Act of 1940 says mutual funds can NOT have

·        Real estate

·        Commodities

·        Other mutual funds unless objectives met

·        Securities bought with margin

·        Securities if individual within investment company owns .5% (half of one percent) of issuer’s stock

Underwriting Outline

General Obligation Bond

• municipality issue
• backing is municipality's taxing power
• competitive bid process to select underwriter
• Bond Buyer, advertisement to underwriters
• notice of sale, municipality asks underwriters to bid to work on issue
• small issue-municipality will use a local paper and local bank can underwrite issue

Notice of sale

• maturity dates of bonds
• range of acceptable interest rates
• call features
• call calculation-net interest cost method or true interest cost method?
• issuer outlines good faith deposit 

Competitive bid process

• potential issuers submit bids 
• how much $ issuer will get paid for bonds
• interest cost/year
• total interest cost issuer pays-either net interest cost or true interest cost
• new issue worksheet, bid sheet in Bond Buyer, outlines bid steps
• bids must be delivered on a certain date-often arrive right before deadline
• issuer opens bids, chooses based on lowest interest cost and highest amount $ to issuer
• issuer may expect underwriter to sell a minimum amount of bonds

The City of San Francisco has issued an advertisement stating that it is accepting bids for a $40 million general obligation bond with maturities from 2001 through 2020. The advertisement is called

• a notice of sale
• advertisement- issuer wants to to find an underwriter
• tombstone, ad by underwriting syndicate, announcement 

Determining the bid

• issuer give 2%-3% range underwriters have to keep interest
• underwriters bid on scale, interest rate + price helps decide investor yield 
• Bond Buyer has  interest rates of long term bonds 

underwriting outline

underwriting syndicate

• different investment banks compete to be underwriter
• competitive or negotiated method
• syndicate, underwriting group
• selling syndicate, underwriting group
• lead underwriter, manages underwriter
• syndicate manager, lead underwriter-manages books, deals with issuer and syndicate

tombstone ad,

• advertise securities
• can only provide basic information
• list of underwriting firms names
• lists lead underwriter next to other broker/dealer firms

selling syndicate

• one or more broker/dealers who will commit large sums to bringing issue to market
• help with pricing of issue
• decide how to price issue
• syndicate buys shares/bonds from issuer
• lead underwriter, responsible for selling big part of issue
• other syndicate members responsible for selling small part of issue

syndicate letter a.k.a agreement among underwriters a.k.a. account letter a.k.a syndicate agreement

• terms of account management
• amount of issue per member
• amount of money paid per member
• basis-how issue will be sold if oversold?
• syndicate member obligations
• participation-east or western account?
• corporate-sold night before or morning of sale, last opportunity for syndicate members to give up their commitment
• municipal-signed 2 weeks before bond issue
• after issue sold, members receive sales charges
• syndicate settlement letter, issue has been sold, how much syndicate members receive for selling their parts of the issue

Selling group

• no financial commitment to sell # of shares
• can sell parts of issue
• gets the most small profit of all vs manager, underwriter

Which of the following is part of an underwriting syndicate that has a financial responsibility to the underwriting but has no other commitments other than pricing and selling?

• syndicate member
• financial commit and sells
• manager, underwriter-other work
• selling group sells, no financial commitment