Note: Descriptions are shown in the official language in which they were submitted.
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DATA PROCE8~ING BYB~'EM AND MET~OD FOR
~UB AND 8PORE FINANCI~L BERVICES CONFIGURATION
BACKGROUND O~ THE INVENTION
Investment vehicles such as mutual funds have
certain operating costs. To name just a few expenses, every
fund, including institutional funds (whose investors are
financial institutions), pays an investment advisory fee to
an investment adviser who invests the fund's assets,
custodian fees to a custodian for the safekeeping of the
fund's assets, portfolio accounting fees for the
determination of the fund's asset value and income,
shareholder servicing fees to various entities which provide
investors with information and services regarding the fund,
an audit fee to the fund's independent accountants who review
the fund's financial statements, and a legal fee for counsel
to represent the fund and each of its independent trustees.
A retail fund (one whose investors are largely individuals)
incurs the same kinds of expenses as an institutional fund,
although certain expenses, such as shareholder servicing fees
and distribution (12b-1) fees, will be larger for a retail
fund, since individual investors need more services than do
sophisticated institutional investors.
Having a large amount of assets results in various
economies of scale in fund operating costs. Since many of a
fund's expenses are independent of the fund's asset base, a
larger fund asset base produces a ;ower operating expense
ratio (expenses to assets), which increases the net
investment performance of the fund. Also, since larger funds
purch2se securities in larger denominations, they are able to
bargain for higher yields (on bonds and other debt
securities) or pay lower brokerage commissions (on equity
securities) than a smaller fund can.
One way to achieve a large asset base is to combine
assets of two or more mutual funds or other collective
investment vehicles (hereafter referred to as funds).
Current laws, however, place several restrictions on
commingling the assets. A newly developed financial services
configuration, called "Hub and Spoke" (a service mark of
Signature Financial Group, Inc.), does allow for commingling
the assets of two or more mutual funds. This financial
services configuration involves an entity that is treated as
a partnership for federal income tax purposes and that holds
the investment portfolio (hereafter referred to as the
partnership portfolio) and funds that invest as partners in
the partnership portfolio.
Under the partnership portfolio and partner fund
configuration, each of several funds, called "Spokes" (a
service mark of Signature Financial Group, Inc.), can be a
mutual fund registered under the Investment Company Act of
1940 (the "1940 Act") and the Securities Act of 1933 (the
"1933 Act"). In addition to mutual funds, a "Spoke" (a
service mark of Signature Financial Group, Inc.) may also be
a pension fund (subject to ERISA), a common trust fund
(regulated by various banking regulators), an insurance
company separate account, or a non-U.S. domiciled investment
fund. In addition, a partnership portfolio, called the "Hub"
(a service mark of Signature Financial Group, Inc.), is
established, and each fund is an investor in the partnership
portfolio. The partnership portfolio is registered under the
1940 Act (since it is an investment company), but its shares
are not registered under the 1933 Act. Individuals cannot
invest directly in the partnership portfolio. Its only
investors are the funds, each of which invests 100% of its
assets in the portfolio.
Although the portfolio may legally be a trust or
other entity, it is considered to be a partnership for tax
purposes. As a partnership, it receives "flow-through" tax
treatment and, so, the portfolio does not pay taxes, but
rather all economic gain or loss flows through to the
portfolio investors. Mutual funds must rely on qualifying
for "regulated investment company" ("RIC") status under the
~. 7.~
Internal Revenue Code (the "Code") to avoid taxation. The
RIC provisions of the Code generally prevent mutual funds
from investing in other types of funds and impede the
division of a single mutual funcl into multiple mutual funds.
These RIC provisions also lead t:o economic distortions and
inequities among shareholders which will be discussed below.
With the assets of two or more funds combined in
the portfolio, the economies of scale described above can be
more fully realized. The assets of different types of
investment vehicles may now be commingled, resulting in more
efficient and effective investment management. While all
funds can benefit from Hub and Spoke services, a fund with a
small amount of assets, which ordinarily would not be a
viable fund because it would have a prohibitively high
operating expense ratio, can now be established on a cost-
effective basis by investing its assets in a portfolio.
Investing in a portfolio also provides the new fund with an
investment history, which makes the fund more attractive to
investors. Therefore, a mutual fund sponsor can more
efficiently organize a new mutual fund to be offered to
customer markets which previously could not be economically
accessed by that sponsor.
Because the portfolio is not a mutual fund, it is
not subject to certain economic distortions and inequities
that are inherent to normal mutual fund investing. Consider
a first fund which invests in a second mutual fund just
before the second fund distributes its capital gains. The
first fund realizes capital gains from this distribution, as
does every shareholder of the second fund. The first fund,
however, has not actually realized any gain in the value of
the second fund, and so the second fund is merely returning a
portion of the first fund's original investment. The first
fund is required to pay tax on part of its original
investment or, if it is a mutual fund, pass such tax on to
its shareholders. Thus a returm of investment becomes
subject to tax.
Unlike a mutual fund, the portfolio makes daily
allocations of income, capital gains, and expenses or
investment losses, rather than actual distributions. These
daily allocations, which are determined and managed by the
data processing system and method disclosed herein, are based
on an "allocation ratio" which is further described below.
Such daily allocations avoid economic distortions and
inequities by directly allocating the appropriate economic
benefit and loss to each shareholder on that day. Mutual
funds merely distribute income, and gain or loss, to whatever
shareholders happen to exist on an arbitrary date when a
distribution is made. While such gain or loss is taken into
account in between such distributions through the
determination of the net asset value of the mutual fund's
shares, it is the distribution of the gain or loss which
creates a taxable gain or loss for a shareholder. The Hub
and Spoke financial services configuration thus avoids this
disadvantage by more accurately matching economic and taxable
income.
The partnership portfolio and partner fund
configuration presents great administrative challenges.
Because each of the partners in the portfolio is some type of
fund, the assets of which change daily as customers make
further investments or withdrawals, the partnership interest
of each fund varies daily. For example, consider a portfolio
made up of Funds A and B. Assume that at the start of the
30 day Fund A has $750,000 invested in the portfolio and Fund B
has $250,000 invested. ~The portfolio has $1,000,000 in
assets with Fund A having a 75% share and Fund B having a 25%
share. Next, assume that by the end of the day the portfolio
has not changed in value due to market fluctuations, but that
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additional purchases by fund shareholders have given Fund A
$800,000 in assets and Fund B $275,000 in assets. The
portfolio has grown to $1,075,000 in assets, with Fund A
having a 74.4% share and Fund B having a 25.6% share.
Further complexities arise as the value of the
portfolio assets rise and fall or as additional funds invest
in the portfolio (or as existing funds withdraw their
investments entirely). Additionally, as in any mutual fund
complex, many Hub and Spoke structures may be administered
simultaneously. A new and unique data processing system and
method is necessary to enable accurate daily allocations to
be made among each of the funds in a portfolio. Also, each
such daily allocation is comprised of various economic
components--income, gain, loss, expenses. These various
components must be isolated and aggregated, on a continual
basis, for both non-tax accounting purposes and, again (in
separate accounts), for tax purposes.
Economic inaccuracies would appear over time if
daily allocations were not made. Such inaccuracies will
arise since typically a mutual fund will not actually
allocate or pay out on a daily basis the economic components
of the fund's economic experience for that day. Depending on
a particular fund's prospectus, actual cash distributions can
be made monthly, quarterly, or as otherwise so determined.
Were the partnership portfolio structured as a
mutual fund, which makes distributions on a periodic basis,
income earned on a given day, if not allocated on that day
would result in an increase in capital value of the fund as a
whole, rather than in income received by a particular
investor; similarly, expenses incurred, if not allocated on
that day, would result in a decrease in capital value of the
fund as a whole, rather than as a decrease in income for a
particular investor. The data processing system and method
2~ ~?,.~
of the present invention will allow each fund to recognize on
its balance sheet its fair share of economic benefit or loss
experienced by the portfolio on that day.
A u~ique method has been developed to calculate
accurately the fund allocation ratios. Each fund has a book
capital account, which represents each fund's total
investment in the portfolio including all earned, but
undistributed, economic benefit. This book capital account
for each fund includes the previous day's fund shareholder
purchases and redemptions, the fund's proportional share of
daily portfolio income and expenses, and the fund's share of
daily portfolio realized and unrealized gain or loss.
On each fund's first day as a portfolio investor,
or on the beginning of each fiscal year that a fund continues
to participate in a Hub and Spoke configuration, its
respective share ownership in the portfolio is determined by
its relative percentage of the total dollar amount of
investments in the portfolio. Thereafter, the fund's
allocation percentage is adjusted through proper adjustments
to the book capital account balances of the participating
funds (which a data processing system according to the
present invention determines daily). The respective fund
book capital accounts, which change every day, continually
indicate the accurate relative ownership of the portfolio by
each fund. Each fund's book capital account will be either
increased or decreased daily depending upon the following:
(a) increased by any capital contributions
(purehases by fund shareholders) made by the fund to the
portfolio:
(b) decreased by any distributions (including
portfolio expenses and redemptions by fund shareholders) made
to the fund by the portfolio;
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(c) increased by any increase in net
unrealized gains or decrease in net unrealized losses
allocated to the fund;
(d) decreased by any decrease in net
unrealized gains or increase in net unrealized losses
allocated to the fund; and
(e) increased or decreased by the amount of
profit (portfolio income) or loss (portfolio expenses),
respectively, allocated to the fund.
A data processing system and method according
to the present invention successfully determines each of
these ever changing, and interrelated, accounts. By
calculating the daily adjusted total investments for each
fund according to the concept of a book capital account, the
allocation ratios may be calculated accurately. The data
processing system also determines, each day and over time,
data necessary for calculating aggregate year-end income,
expenses, and capital gain or loss for tax and accounting
purposes.
SUMMARY OF THE INVENTION
The present invention provides a data processing
system and method for monitoring and recording the
information flow and data, and making all calculations,
necessary for maintaining a partnership portfolio and partner
fund (Hub and Spoke) financial services configuration. In
particular, the data processing system provides means for a
daily allocation of assets of two or more funds (Spokes) that
are invested in a portfolio (Hub). The data processing
system determines the percentage share (allocation ratio)
that each fund has in the portfolio, while taking into
consideration daily changes both in the value of the
portfolio's investment securities (as determined by market
prices) and in the amount of each fund's assets (as
~7?~
determined by daily shareholder purchases and redemptions).
The system also allocates to each fund the portfolio's daily
income, expenses, and net realized and unrealized gain or
loss, calculating each fund's total investments based on the
concept of a book capital account, thus enabling
determination of a true asset value of each fund and accurate
calculation of allocation ratios between the funds. The data
processing system also tracks all the relevant data,
determined on a daily basis for the portfolio and each fund,
so that aggregate year-end income, expenses, and capital gain
or loss can be determined for accounting and for tax purposes
for the portfolio and for each fund.
BRIEF DESCRIPTION OF THE DRAWINGS
FIG. l is a block diagram representation of a
partnership portfolio and partner fund (Hub and Spoke)
financial services configuration.
FIG. 2 is an example of the operating expenses in
maintaining a traditional two-fund configuration.
FIG. 3 is an example of the operating expenses in
maintaining the two funds of FIG. 2 in a Hub and Spoke
configuration.
FIG. 4 depicts an overview of the flow of
information in the management of a Hub and Spoke
configuration using a data processing system according to the
present invention.
FIG. 5 depicts the flow of information through
modules of software used in a data processing system
according to the present invention.
FIG. 6 is a flowchart of a software routine for a
main menu used in a data processing system according to the
present invention.
FIG. 7 is a flowchart of a software routine for
initializing a data disk used ir, a data processinq system
according to the present invention.
FIG. 8 is a flowchart of a software routine for
daily allocation of assets between a portfolio and its funds
used in a data processing system according to the present
invention.
FIG. 9 is a flowchart of a software routine for
allocation of daily incremental activity used in a data
processing system according to the present invention.
FIG. lO is a flowchart of a software routine for
allocation of daily unrealized gain or loss used in a data
processing system according to the present invention.
FIG. ll is a flowchart of a software routine for
calculating and processing year-end capital gain and loss
data used in a data processing system according to the
present invention.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT
The present invention is directed to a data
processing system and method for use in managing a
partnership portfolio and partner fund (Hub and Spoke)
financial services configuration. Such a data processing
system is used once the Hub and Spoke configuration has been
established, in which the assets of two or more funds are
invested in a portfolio. FIG. l depicts an example of a Hub
and Spoke configuration involving four different mutual
funds. A portfolio (Hub) 2, which is set up as a partnership
as described above, has as its partners and only investors
funds (Spokes) 4, 6, 8, and l0. In the example shown, fund 4
is a load fund, fund 6 is a low-load fund, fund 8 is a no-
load fund, and fund l0 is a common trust fund. Each of funds
-- 10 --
~7~
4, 6, ~, and 10 have shareholders 5, 7, 9, and 11,
respectively, with fund 10 havinq trusts as its
shareholders 11.
One advantage of the ~ub and Spoke configuration
structure may be seen by comparing the example of a
traditional two-fund configuration depicted in FIG. 2 with
the two-fund Hub and Spoke configuration of FIG. 3.
FIG. 2 presents the expense profiles for
institutional fund 20, with assets of $150 million, and
retail fund 22, with assets of ~100 million, when maintained
in a traditional structure. Each has the following expenses:
investment advisory fees, administrative fees, custody fees,
custody transaction fees, portfolio accounting fees, legal
fees, audit fees, trustees fees and expenses, shareholder
servicing fees, 12b-1 expenses, organization expenses, and
miscellaneous fees. The total cost is 57 basis points for
institutional fund 20 and 103 basis points for retail
fund 22.
An example of the same two funds in a Hub and Spoke
structure is depicted in FIG. 3, which shows the expense
profiles of the portfolio and each fund. Specifically,
portfolio (Hub) 24 has the following expenses: investment
advisory fees, administrative fees, custody fees, custody
transaction fees, portfolio accounting fees, legal fees,
audit fees, trustees fees and expenses, and miscellaneous
fees. The investors in portfolio 24 are an institutional
fund (Spoke A) 26 and a retail fund (Spoke B) 28. As with
funds 20 and 22 in FIG. 2, institutional fund 26 has assets
of $150 million and retail fund 28 has $100 million in
assets.
Funds 26 and 28 pay the expenses of portfolio 24 in
proportion to the percentage share (as determined by the book
capital accounts) each holds in the portfolio, as shown on
the line item "ALLOCATION OF HUB EXPENSES" for funds 26 and
~ 7 ~
28. In addition, each fund has the following expenses of its
own: administrative fees, legal fees, audit fees, trustees
fees and expenses, printing fees, shareholder servicing fees,
12b-1 expenses, organization expenses, and miscellaneous
fees.
As FIG. 3 shows, in the Hub and Spoke financial
services configuration such expenses as investment advisory
fees, custody fees, custody transaction fees, and portfolio
accounting fees are paid only at the Hub level (i.e., by the
portfolio). Thus, expenses are lower under the Hub and Spoke
configuration: institutional fund 26 shows total expenses of
55 basis points as compared with the 57 basis points for
traditionally structured institutional fund 20, and retail
fund 28 shows expenses of 95 basis points as compared with
the 103 basis points for traditionally structured
institutional fund 22.
FIG. 4 presents an overview of the information flow
that occurs in the management of a Hub and Spoke financial
services configuration. A shareholder 40 requests purchases
or redemptions of shares in a fund from a transfer agent 42.
Transfer agent 42 is responsible for tracking the shareholder
activity for each fund, which is accomplished with the aid of
a personal computer 44 capable of producing printed
output 46. Information on shareholder purchases and
redemptions for each fund is passed to a portfolio/fund
accountant 48.
Portfolio/fund accountant 48 is responsible for the
portion of managing the Hub and Spoke configuration that
involves allocation of portfolio assets among each of its
funds, taking into account market value fluctuations in the
portfolio's investments of its assets as well as shareholder
purchases and redemptions in each fund. The portfolio/fund
accountant makes use of a personal computer 44 programmed
with software 50. One example of software 50 is the "HandS"
- 12 - ~; 7~
(a service mark of Signature Financial Group, Inc.) computer
program. The personal computer 44 used by portfolio/fund
accountant 48 is capable of producing printed output 46 and
storing data on data disk 52, which preferably is a floppy
disk, although other types of storage media may be used.
Portfolio/fund accountant 48 receives information from and
provides information to a general ledger 54 and a portfolio
accounting system 56, both of which are computer programs of
a type commonly used in accounting and which may be combined
in a single software application. An integrated software
package may combine software 50 with either or both of
general ledger 54 and portfolio accounting system 56.
Information from printed output 46 may be entered into
general ledger 54 and portfolio accounting system 56 and then
passed along to transfer agent 42. Portfolio/fund accountant
48 also provides information to and receives information from
an investment advisor 58, who is responsible for investment
decisions regarding the portfolio's assets.
Information on data disk 52 is transferred to a
portfolio administrator 60. The Hub and Spoke management
responsibilities of portfolio administrator 60 include
issuing and maintaining software 50, periodically reviewing
for errors in data subm~itted by portfolio/fund accountant 48,
and calculating and processing data to obtain the year-end
data for the portfolio and funds for tax and accounting
purposes. Portfolio administrator 60 uses personal
computer 44 running software 50 and capable of producing
printed output 46. Typically, portfolio administrator 60
manages several separate Hub and Spoke configurations.
The information flow depicted in FIG. 4 may be
accomplished in whole or in part by physical transfer of
printed or computer-readable media, or over communication
lines.
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FIG. 5 depicts the information flow through modules
of software 50, with the starting point of software 50
represented by block 70. When necessary, a user, typically
portfolio administrator 60, initializes data disk 52, as
shown in block 72. Specifically, data disk 52 is initialized
the first day a ~ub and Spoke configuration is administered,
when a new Spoke is added to the Hub, when an existing Spoke
is dropped from the Hub, or when a new fiscal year for a Hub
and Spoke structure begins.
On a daily basis (i.e., once for every business
day), a user, typically portfolio/fund accountant 48,
proceeds from the starting point at block 70 to the following
software modules: Hub and Spoke allocation, at block 74;
daily incremental activity, at block 80, and unrealized
gain/loss, at block 84. At each of those modules, data may
be output, as shown at blocks 76, or stored in a file on data
disk 52, as shown at blocks 78. The modules at blocks 74,
80, and 84 may send information to and receive information
from transfer agent 42, general ledger 54, and portfolio
accounting system 56. Following execution of the unrealized
gain/loss module, at block 84, software 50 returns to the
starting point, at block 70, so that execution of the modules
at blocks 74, 80, 82, and 84 may be repeated for the next
day.
In addition, following completion of the daily
incremental activity module (block 80), data developed in
that module and from the Hub and Spoke allocation module
(block 74) is automatically passed to a pre-pricing net asset
value calculations module, at block 82, and the data
developed in that module may be passed to general ledger 54.
Once a year, a user, typically fund administrator 60, will
have software 50 proceed to a calculate year-end tax data
module, shown at block 86. Again, the system can produce
output, at block 76, and store data, at block 78.
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FIG. 6 is a flowchart depicting ~ main menu routi~e
for software 50 to be used in a data processing system
according to the preferred embodiment of the present
invention. The system starts at block 100 and proceeds to
block 104, where a main menu is displayed, for example, on
the CRT of a personal compu~er. Entry point M as shown in
block 102 is provided ~o allow other routines to return to
the main menu routine.
The system next proceeds to block 106, where the
user enters a one-letter menu choice. At block 108, the
system determines whether a valid menu choice was entered.
If not, the system returns to block 106 for the user to enter
a menu choice: if so, the system proceeds to block 110.
There, the system determines whether a Hub and Spoke
allocation routine was selected by the user from the main
menu. If so, the system proceeds to that routine via entry
point A, shown in block 112: if not, the system proceeds to
block 114. At block 114, the system determines whether a
daily incremental activity routine was selected by the user.
If so, the system proceeds to that routine via entry point B,
shown in block 116 if not, the system proceeds to block 118.
Here, the system determines whether an unrealized gain or
loss activity routine was selected by the user. If so, the
system proceeds to that routine via entry point C, shown in
25 block 120; if not, the system proceeds to block 122. At that
block, the system determines whether an initiate data disk
routine was selected. If so, the system proceeds to that
routine via entry point D, shown in block 124; if not, the
system proceeds to block 126. At block 126, the system
determines whether a year-end tax routine was selected. If
so, the system proceeds to that routine via entry point E,
shown in block 128; if not, then the user selected the choice
to exit from the main menu, and the system ends operation, as
shown in block 130.
FIG. 7 depicts a flowchart for an initialize data
disk routine. The purpose of t~lis routine, which implements
the module at block 72 of FIG. 5, is to initialize data
disk 52. Block 124 shows that the system proceeds via entry
point D to block 140, where the user is asked to enter a
password. As shown at block 142, the system then determines
whether the entered password is correct, preferably by
comparing the password entered by the user to a password in
the code of software 50 as sent to portfolio/fund
accountant 48 by portfolio administrator 60. If the password
entered is not correct, the system returns to the main menu
routine via entry point M as shown in block 102; if the
password entered is correct, the system proceeds to
block 144, the next step in the initialize data disk routine.
As shown in block 144, the system asks the user to
enter the pricing date. The pricing date is the date to
which all data entered into the system applies. The system
then displays the pricing date entered, as shown in block
146, and then, at block 148, asks the user whether the
displayed pricing date is correct. If the user indicates
that the displayed pricing date is not correct, the system
returns to block 144 to allow the user to enter the pricing
date again; if the user indicates that the displayed pricing
date is correct, then the system proceeds to the next step.
The system continues by creating a date file on
data disk 52 and storing the pricing date to the date file,
as block 150 shows. The system then proceeds to block 152,
prompting the user to enter the Spoke assets for each fund
that will invest in the portfolio (Hub). Data regarding the
Spoke assets is typically provided from general ledger 54,
and may be entered into the system manually by the user or
automatically via an interface between the system and the
- 16 -
general ledger that will be apparent to those of skill in the
art. General ledger 54 may also be integrated with the
system as part of software 50.
Next, at block 154, the system displays the entries
for the Spoke assets, and then prompts the user to indicate
whether the entries are correct, as block 156 shows. If the
user indicates that the entries are not correct, the system
returns to block 152 to allow the user to enter the Spoke
assets data again; if the entries are correct, the system
proceeds to block 158. As shown there, the system creates
four files on the data disk: (1) a prior day file, which
stores data for the prior day's total investments for the
portfolio and each fund; (2) a current day file, which stores
data for the adjusted total investments for the Hub and each
Spoke and the allocation ratios ~percentage each of the
Spokes holds in the Hub, as determined by the book capital
accounts); (3) a daily incremental activity file, which
stores data for the income, expenses, and net realized gain
or loss for the Hub; and (4) a tax file, which stores all
daily activity data for computing aggregate year-end income
expenses, and capital gain or loss for the Hub and each
Spoke. The data stored for each day in the tax file includes
the adjusted total investments for the Hub and Spokes; the
daily incremental income, expenses, and net realized gain or
loss for the Hub; the daily net unrealized gain or loss for
the Hub and the Spokes; and the allocation ratios for each
Spoke.
The system next goes to block 160, where a disk
check file is created on the data disk and a disk check value
that identifies the Hub and its Spokes is stored. The disk
check value is preferably a part of the code of software 50
provided by fund administrator 60 and, as further described
below, serves to prevent a user from using the wrong data
disk for a particular Hub and Spoke configuration. The
~5
~ 7,~
system next proceeds to block 162; there a breakage
accumulator file is created on the data disk for storing data
regarding fractional discrepancies that may arise during
operation of the system. The system then returns to the main
menu routine via entry point M, as shown at block 102.
FIG. 8 is a flowchart for a ~ub and Spoke
allocation routine. The purpose of this routine, which
implements the module at block 74 of FIG. 5, is to calculate
the daily allocation ratios for the Spokes (i.e., the
percentage share that each fund has in the portfolio), taking
into consideration the previous day's purchases and
redemptions in each fund. Starting at entry point A, shown
in block 112, the system proceeds to block 172, where a
submenu is displayed. The system next proceeds to block 174,
where the user enters a one-letter submenu choice. At
block 176, the system determines whether a valid submenu
choice was entered. If not, the system returns to block 174
for the user to enter a submenu choice; if so, the system
proceeds to block 178. There the system determines whether
the user selected the submenu choice to exit. If so, the
system returns to the main menu routine via entry point M, as
shown in block 102; if not the system proceeds to the next
step.
At block 180, the system retrieves the disk check
value from the disk check file. At block 182, the system
determines whether the data disk is correct--i.e., whether
the proper data disk 52 is being used for one particular Hub
and Spoke configuration as opposed to another Hub and Spoke
configuration that may be administered by a portfolio/fund
accountant 48. This is preferably done by comparing the
check disk value retrieved from the check disk file with a
check disk value in the code of software 50. If the two
values do not match, the data disk is not correct, and the
system proceeds to block 184, where an error message is
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2 ~ ~ r ~
displayed, and then returns to t:he main menu routine via
entry point M, at block 102. Ii-- the two values do match, the
data disk is correct, and the system proceeds to block 186.
At block 186, the system retrieves the pricing date
from the date file. Next, the system goes to block 188,
where the system queries the user to determine whether the
pricing date is correct. IE so, the system proceeds to block
194; if not, the system goes to block 190 to allow the user
to enter the pricing date, then to block 192, in order to
update the date file, and then to block 194.
As shown at block 194, the system allows the user
to enter the stock activity (purchases and redemptions) that
each Spoke experienced the previous day. This information is
received from transfer agent 42, and may be entered manually
or by means of a computer in a way that will be apparent to
those of skill in the art. The system next displays the
entries, at block 196, and asks the user whether the entries
are correct. If not, the system returns to block 194; if so,
the system proceeds to block 200.
At block 200, the system retrieves the prior day's
total investments from the prior day file. At block 202, the
system uses the prior day total investments and the stock
activity entries to calculate the adjusted total investments
and the new allocation ratios for the Spokes based on the
book capital account for each fund. The results are
displayed at block 204, and the system asks the user, at
block 206, whether to print the results. If so, the results
are printed at block 208 and the system proceeds to
block 210: if not, the system proceeds directly to block 210.
There, the system stores the adjusted total investments and
the new allocation ratios in the current day file. The
system then returns to the main menu routine via entry
point M, as shown at block 102.
FIG. 9 is a flowchart for a daily incremental
activity routine. The purpose of this routine, which
implements the modules at blocks 80 and 82 of FIG. 5, is to
allocate daily incremental income, expenses, and net realized
gain or loss for the portfolio among each of the Spokes.
Starting at entry poin~ B, shown in block 116, the system
proceeds to block 222, where a submenu is displayed. The
system next proceeds to block 224, where the user enters a
one-letter submenu choice. At block 226, the system
determines whether a valid submenu choice was entered. If
not, the system returns to block 224 for the user to enter a
submenu choice; if so, the system proceeds to block 228.
There the system determines whether the user selected the
submenu choice to exit. If so, the system returns to the
main menu routine via entry point M, as shown in block 102;
if not the system proceeds to the next step.
At block 230, the system retrieves the disk check
value from the disk check file. At block 232, the system
determines whether the data disk is correct. If not, the
system proceeds to block 234, where an error message is
displayed, and then returns to the main menu routine via
entry point M, at block 102. If the data disk is correct,
the system proceeds to block 236.
At block 236, the system retrieves the pricing date
from the date file. Next, the system goes to block 238,
where the system queries the user to determine whether the
pricing date is correct. If so, the system proceeds to block
244; if not, the system goes to block 240 to allow the user
to enter the pricing date, then to block 242, in order to
update the date file, and then to block 244.
As block 244 shows, the system asks whether the
user would like to retrieve prior daily incremental activity
entries. It may be, for example, that the user previously
ran the daily incremental activity routine to enter the
- 20 -
incremental income and expenses, but not the incremental net
realized gain or loss. If the user has made no prior entries
and thus does not wish to retrieve any data, the system
proceeds to block 252. If the user does wish to retrieve
data, the system proceeds to block 246, where daily
incremental activity en~ered prior to the current pass
through this routine is retrieved from the daily incremental
activity file. The system then displays the prior entries,
at block ~98, and then asks whether the user wishes to modify
any of the entries (which would include entering any of them
for the first time), as shown at block 250. If not, the
system proceeds to block 258; if so, the system goes to block
252.
At block 252, the user may enter data for the daily
incremental income, expenses, and net realized gain or loss
for the portfolio. (It should be noted here that expenses
incurred solely by the funds are accounted for in general
ledger 54 or portfolio accounting system 56. These
operations are separate from those of software 50 and are not
a part of the present invention.) The system then displays
the entries, at block 254, and then asks whether the entries
are correct, at block 256. If not, the system returns to
block 252, if so, the system goes to block 258.
As shown at block 258, the system stores entries
for daily incremental income, expense, and net realized gain
or loss in the daily incremental activity file. The system
then, at block 260, retrieves the adjusted total investments
and allocation ratios from the current day file. At
block 262, the system then computes the Hub and Spoke pre-
pricing assets, displays the results (at block 264), and asksthe user whether to print the results, at block 266. If not,
the system goes to block 270; if so, the system prints the
results (at block 268) and then goes to block 270. There,
the system asks whether the user wishes to enter the
~ r~
unrealized gain or loss. If so, the system proceeds to the
unrealized gain or loss routine via entry point C, shown in
block 120; if not, the system re!turns to the main menu
routine via entry point M, shown in block 102.
FIG. 10 is a flowchart for a daily unrealized gain
or loss routine. The purpose of this routine, which
implements the module at block ~4 of FIG. 5, is to allocate
daily net unrealized gain or loss of the portfolio among each
of the funds. Starting at entry point C, shown in block 120,
the system proceeds to block 282, where a submenu is
displayed. The system next proceeds to block 284, where the
user enters a one-letter submenu choice. At block 286, the
system determines whether a valid submenu choice was entered.
If not, the system returns to block 284 for the user to enter
a submenu choice; if so, the system proceeds to block 288.
There the system determines whether the user selected the
submenu choice to exit. If so, the system returns to the
main menu routine via entry point M, as shown in block 102;
if not the system proceeds to the next step.
At block 290, the system retrieves the disk check
value from the disk check file. At block 300, the system
determines whether the data disk is correct. If not, the
system proceeds to block 302, where an error message is
displayed, and then returns to the main menu routine via
entry point M, at block 102. If the data disk is correct,
the system proceeds to block 304.
At block 304, the system retrieves the pricing date
from the date file. Next, the system goes to block 306,
where the system queries the user to determine whether the
pricing date is correct. If so, the system proceeds to block
312; if not, the system goes to block 308 to allow the user
to enter the pricing date, then to block 310, in order to
update the date file, and then to block 312.
~ 22 ~
~r~?~ ~L
As block 312 shows, t:he system prompts the user to
enter the net unrealized gain or loss for the portfolio, and
the user's estimate of the end of day Hub assets. This
information is typically provicled from portfolio accounting
system 56 and may be entered into the system manually or
automatically as described above ~or general ledger 54. The
user's estimate of the end of day portfolio assets serves as
an error checking device. The system next displays the
entries, at block 314, and then asks the user, at block 316,
whether the entries are correct. If so, the system proceeds
to block 318; if not, the system returns to block 312.
At block 318, the system retrieves the adjusted
total investments and allocation ratios from the current day
file. Next, at block 320, the system retrieves the daily
incremental income, expenses, and realized gain or loss from
the daily incremental file, and then retrieves the breakage
accumulation file, at block 322. The system then goes to
block 324, where it calculates the end of day Hub and Spoke
assets and the variance with the user's estimate of the Hub
assets. The end of day Hub and Spoke assets become the new
values for the adjusted total investments for the portfolio
and funds. A worksheet containing the results is displayed,
at block 326, and the system then determines whether the
printer is operating, at block 328. If not, the system
proceeds to block 334; if so, the worksheet is printed (block
330) and the user is asked, at block 332, whether the data in
the worksheet is correct. If it is not, the system returns
to the main menu routine via entry point M, at block 102, so
that the user may correct any of the entered data; if the
data is correct, the system goes to block 334.
At block 334, the system stores the end of day Hub
and Spoke assets by overwriting the prior day's total
investments data in the prior day file with the adjusted
total investments data in the current day file. At
- 23 ~ ;? ~ ~
block 336, the system updates the breakage accumulation file
with data regarding any fractional discrepancies -that may
have arisen. Next, at block 33~, the system updates the
year-end tax file, which involves storing in the tax file the
adjusted total investments for the portfolio and each of the
funds; the daily incremental income, expenses, and net
realized gain or loss for the portfolio; the daily net
unrealized gain or loss for the portfolio and funds; and the
allocation ratios for each of the funds. The system then
returns to the main menu routine via entry point M, as block
102 shows. Data may also be transferred to general ledger
54, either manually or automatically.
FIG. 11 is a flowchart for a year-end tax routine.
The purpose of this routine, which implements module 86 of
FIG. 5, is to process and calculate aggregate year-end data
for the Hub and its Spokes for tax and accounting purposes.
Starting at entry point E, shown in block 128, the system
proceeds to block 342, where a submenu is displayed. The
system next proceeds to block 344, where the user enters a
one-letter submenu choice. At block 346, the system
determines whether a valid submenu choice was entered. If
not, the system returns to block 344 for the user to enter a
submenu choice; if so, the system proceeds to block 348.
There the system determines whether the user selected the
submenu choice to exit. If so, the system returns to the
main menu routine via entry point M, as shown in block 102;
if not the system proceeds to the next step.
At block 350, the system retrieves the disk check
value from the disk check file. At block 352, the system
determines whether the data disk is correct. If not, the
system proceeds to block 354, where an error message is
displayed, and then returns to the main menu routine via
entry point M, at block 102. If the data disk is correct,
the system proceeds to block 356.
. .
2'l
3~
At block 356, the system retrieves the year-end tax
data that the system has been storing in the tax file each
day. The system then asks, at block 358, if the user wishes
to print the tax data. If not, the system goes to block 36~;
if so, the system prints the tax data, at block 360, and then
proceeds to block 362. There, the system asks whether the
user wishes to modify any of the tax data. If not, the
system proceeds to block 368; if so, the system goes to
block 364, where the user enters changes to the tax data,
then to block 366, to update the year-end tax file, and then
to block 368.
As block 368 shows, the system calculates and
processes the year-end tax data to determine aggregate year-
end income, expenses, and capital gain or loss for the Hub
and each Spoke. The results are then stored, at block 370,
the results are displayed, at block 372, and printed, at
block 374. The printout may be in the form of Internal
Revenue Service form K-1. The system then returns to the
main menu routine, as shown at block 102.
