Constitution

Part

CIS Collective Investment Schemes

Chapter

Constitution

Printed on: 14/11/2024

Rulebook at: 01/01/2007

CIS 2

Constitution

CIS 2.1

Introduction

01/12/2004

Application

CIS 2.1.1

This chapter applies in relation to ICVCs and AUTs.

01/12/2004

CIS 2.1.2

(1) The persons to whom each respective rule and guidance in this chapter applies, are stated either at the beginning of the rule or guidance or at the beginning of the section that contains the rule or guidance.

(2) However, to assist the understanding of this chapter, CIS 2.1.5 G indicates which provisions in this chapter are relevant for ICVCs and which are relevant for AUTs.

01/12/2004

CIS 2.1.3

This chapter assists in achieving the regulatory objective of protecting consumers (as envisaged by section 2 and 5 of the Act). In particular, this chapter:

(1) lays down some requirements about provisions which must be included in the instrument of incorporation of each ICVC and in the trust deed of every AUT resulting in a similar degree of protection for all investors in an ICVC or in an AUT;

(2) lays down the types to only one of which each authorised fund must belong (see CIS 2.1.4 R);

(3) provides rules which deal with the classes of shares (in ICVCs) and units (in AUTs) which may be issued and sold to investors; those rules will ensure that investors in each class are treated equally and fairly;

(4) provides rules and guidance on the inclusion of the word "guaranteed" or anything implying a degree of capital security in the name of an authorised fund.

01/11/2002

Types of authorised fund

CIS 2.1.4

An authorised fund must belong to only one of the following types:

(1) a UCITS scheme which complies with CIS 5;

(2) a securities scheme;

(3) a money market scheme;

(4) a futures and options scheme;

(5) a geared futures and options scheme;

(6) a property scheme;

(7) a warrant scheme;

(8) a feeder fund;

(9) a fund of funds scheme;

(10) an umbrella scheme

01/11/2002

Types of authorised fund - explanation.

CIS 2.1.4A

(1) Schemes within CIS 2.1.4 R (1) are UCITS schemes complying with CIS 5 which sets out the extended investment powers available under UCITS Amending Directive 2001/108/EC.

(2) Schemes within CIS 2.1.4 R(2), (7), and umbrella schemes consisting of sub-funds equivalent to CIS 2.1.4 R(2), (7) type schemes are also UCITS schemes but they must comply with the investment rules in CIS 5A. Such schemes may convert to the CIS 2.1.4 R (1) type at any time, however, they must so convert within the timescales set out in transitional provision 14.

(3) Schemes within CIS 2.1.4 R(3) - (6), (8), (9) and type (10) where it is a non-UCITS compliant scheme are non-UCITS schemes. The investment rules in CIS 5A apply and transitional provision 14 has no application to them.

01/11/2002

CIS 2.1.5

Table of application

This table belongs to CIS 2.1.2 G

Handbook provision:

Relevance for: ICVCs

AUTs

2.1.1R - 2.1.4AR, 2.2.1R

2.2.2R - 2.2.4R

2.2.5R - 2.2.8R

2.3.1R - 2.3.4G

2.4.1R - 2.4.6R

2.5.1R - 2.5.4R

2.6.1R - 2.6.4R

2.7.1R - 2.8.2R

Note: "X" means "applies".

01/11/2002

CIS 2.2

The instrument constituting the scheme

01/12/2004

Application

CIS 2.2.1

(1) CIS 2.2.2 R CIS 2.2.4 R apply to the directors of an ICVC.

(2) CIS 2.2.5 R CIS 2.2.8 R apply to managers and trustees of an AUT.

01/12/2004

The instrument of incorporation for ICVCs: matters which must be included in the instrument of incorporation

CIS 2.2.2

(1) The instrument of incorporation must not include any provision which is unfairly prejudicial to the interests of shareholders generally or to the holders of any class of shares, except to the extent that (2) applies.

(2) If, subject to compliance with a condition imposed by law or regulation of any part of the United Kingdom, any income property of the ICVC may be allocated or paid to a shareholder without deduction of United Kingdom tax, the instrument of incorporation must provide:

(a) that, if the condition is never, or ceases to be, fulfilled, the relevant shares of that shareholder must be:

(i) redeemed or cancelled; or

(ii) converted into or exchanged for shares where the income allocated or paid is subject to deduction of UK tax; and

(b) the procedure for that redemption or cancellation, conversion or exchange.

(3) The instrument of incorporation must provide that the person designated for the purposes of paragraph (4) of schedule 4 (Share transfers) to the OEIC regulations must be the person who, for the time being, is the ACD of the ICVC.

(4) The instrument of incorporation must provide that the ICVC may (without prejudice to the requirements of regulation 21 of the OEIC regulations (Alterations)), by a resolution passed by a simple majority of the votes validly cast for and against the resolution at a general meeting of shareholders, remove a director before his period of office expires, despite anything else in the ICVC's instrument of incorporation or in any agreement between the ICVC and the director.

(5) Nothing in (4):

(a) deprives a person of any compensation or damages payable to him for terminating his appointment as director or of any appointment which terminates with it; or

(b) restricts the effect of any provision in the instrument of incorporation relating to a notice to be given to the ICVC or to the shareholders of the intention to move a resolution to remove a director or relating to the director's rights to make representations.

(6) The instrument of incorporation must contain a statement that, subject to any restrictions in the rules in this sourcebook or in the instrument of incorporation, the ICVC has the power to invest in any securities market or deal on any derivatives market:

(a) which is an eligible securities or derivatives market for that ICVC under CIS 5 or CIS 5A (Investment and borrowing powers); or

(b) to the extent that power to do so is conferred by CIS 5 or CIS 5A (Investment and borrowing powers), irrespective of any issue of eligibility.

(7) The instrument of incorporation must not contain a provision preventing its shares being marketed in the United Kingdom.

13/02/2004

The instrument of incorporation for ICVCs: matters which may be included in the instrument of incorporation

CIS 2.2.3

The instrument of incorporation may provide that, if the holding of any shares by a shareholder is (or is reasonably considered by the directors to be) an infringement of any law or governmental regulation, the shares so held must be redeemed or cancelled; if the instrument of incorporation contains such a provision, it should also provide the procedure for that redemption or cancellation.

01/12/2004

Relationship between instrument of incorporation and the rules in this chapter

CIS 2.2.4

Any power conferred on any ICVC by these rules is subject to any express restriction contained in the ICVC's instrument of incorporation.

01/12/2004

The trust deed for AUTs

CIS 2.2.5

An AUT must be constituted by a trust deed made between the manager and the trustee.

01/12/2004

Matters that must be included in the trust deed

CIS 2.2.6

The trust deed of an AUT must contain at least:

(1) Name of AUT: a statement of the name of the AUT which must not be inconsistent with the AUT's authorised status under (2) and any restricted economic or geographic objectives;

(2) Authorised status

(a) a statement:

(i) in all cases, of the type to which the AUT belongs under CIS 2.1.4 R (Types of authorised fund);

(ii) for a feeder fund, of the name and authorised status of the regulated collective investment scheme (or a sub-fund of such a scheme) or the eligible investment trust into which the feeder fund is to invest;

(iii) for a fund of funds scheme, identifying the types of scheme in which the fund of funds scheme may invest; and

(iv) for an AUT that is an umbrella scheme, identifying the type to which each sub-fund would belong if the sub-fund were itself the subject of a separate authorisation order;

(3) Governing law: a statement that the trust deed is made under and governed by the law of England and Wales, or the law of Scotland or the law of Northern Ireland;

(4) Trust deed to be binding and authoritative: a statement that the trust deed:

(a) is binding on each unitholder as if he had been a party to it and that he is bound by its provisions; and

(b) authorises and requires the trustee and the manager to do the things required or permitted of them by its terms;

(5) Base currency: a statement of the base currency of the AUT;

(6) Investment powers in eligible markets: except in the case of a feeder fund, a statement that, subject to any restriction in the rules in this sourcebook or the trust deed, the AUT has the power to invest in any securities market or deal on any derivatives market:

(a) which is an eligible securities or derivatives market for that AUT under CIS 5 or CIS 5A (Investment and borrowing powers); or

(b) to the extent that power to do so is conferred by CIS 5 or CIS 5A (Investment and borrowing powers), irrespective of any issue of eligibility;

(7) Declaration of trust: a declaration that, subject to the provisions of the trust deed and all rules made under section 247 of the Act and for the time being in force:

(a) the scheme property (other than sums standing to the credit of the distribution account) is held by the trustee on trust for the unit holders according to the number of units held by each unit holder or, in the case where income units and accumulation units are both in issue, according to the number of undivided shares in the scheme property represented by the units held by each unit holder; and

(b) the sums standing to the credit of the distribution account are held by the trustee on trust to distribute or apply them in accordance with CIS 9 (Income);

(8) Unit holder's liability to pay a provision that a unit holder is not liable to make any further payment after he has paid the price of his units (or, in the case of a dual-priced AUT, purchase price) and that no further liability can be imposed on him in respect of the units which he holds; and

(9) Single-priced AUTs : for a single-priced AUT:

(a) a provision that there must be only a single price for any unit, determined by reference to any particular valuation point;

(b) provisions additional to, but subject to the requirements of, CIS 4.8 (Valuation) stating how the value of the scheme property of the AUT is to be determined; and

(c) if provisions in (a) and (b) do not take effect when the trust deed or (where appropriate) supplemental trust deed takes effect, a statement of the time from which those provisions are to take effect or how it will be determined.

(10) The trust deed must not contain a provision preventing its units being marketed in the United Kingdom.

13/02/2004

Provisions that may be included in the trust deed

CIS 2.2.7

(1) There are a number of provisions in this sourcebook that only apply to the extent that they are provided for in the trust deed. Sub-paragraphs (a) to (n) include some provisions that may be contained in the trust deed for this purpose.

(a) Duration of the AUT: if the AUT is to terminate after a particular period expires, a statement to that effect;
(b) Manager's preliminary charge: a statement

(i) authorising the manager to make a preliminary charge; and
(ii) specifying a maximum to that charge, expressed either as a fixed amount in the base currency or as a percentage of the price (or in the case of a dual-priced AUT, the issue price of a unit);

(c) Manager's periodic charge: a statement authorising the manager to make a periodic charge payable out of the scheme property; any statement under this paragraph should:

(i) provide for the charge to be expressed as an annual percentage (to be specified in the prospectus and taken in accordance with the rules in CIS 8 (Charges and expenses)) of the value of the scheme property (and the statement may provide for the addition to the charge of value added tax, if any, payable on it);
(ii) specify the accrual intervals and how the charge is to be paid; and
(iii) specify a maximum to that charge, expressed as an annual percentage of the scheme property value;

(d) Manager's charge on an exchange of units: for an AUT that is an umbrella scheme, a statement authorising the manager to make a percentage charge or a charge of a fixed amount on the exchange of units in one sub-fund for units in another (other than the first such exchange by a unitholder in any one annual accounting period) and specifying what the maximum of that percentage or amount may be;
(e) Manager's charge on redemption: a statement authorising the manager to deduct a redemption charge out of the proceeds of redemption;
(f) Trustee's remuneration: a statement authorising any payments to the trustee by way of remuneration for its services to be paid (in whole or in part) out of the scheme property and specifying the basis on which that remuneration is to be determined and how it should accrue and be paid;
(g) Constituents of property, permitted transactions and borrowing powers: a statement of any of:

(i) the description of assets which the capital property may consist of;
(ii) the proportion of the capital property which may consist of an asset of any description;
(iii) the descriptions of transactions which may be effected on behalf of the AUT;
(iv) the borrowing powers exercisable in relation to the AUT;

where they are narrower than those permitted for the type of authorised fund to which the AUT belongs under CIS 5 or CIS 5A (Investment and borrowing powers);
(h) Restricted economic or geographic objectives: a statement of any restrictions on the geographic areas or economic sectors in which the capital property of the AUT may be invested;

(i) Classes of units: a statement specifying which of the following classes of unit may be issued:
(i) income units;
(ii) accumulation units;
(iii) limited issue units that are also income units;
(iv) limited issue units that are also accumulation units.

(j) Limited categories of unitholder: a provision that holders of units in the AUT apart from the manager must be persons who hold units such that any gain accruing upon the disposal of the units at any time will be wholly exempt from capital gains tax and corporation tax in the United Kingdom other than by reason of residence;
(k) Certificates

(i) a provision authorising the issue of bearer certificates, accompanied by a statement of how the holders of bearer certificates are to identify themselves;
(ii) a provision authorising the trustee to charge a fee for issuing any document recording, or for amending, an entry on the register, other than on the issue or sale of units;

(l) Income equalisation: a provision for income equalisation including a statement of how income equalisation is to be calculated, paid and accounted for;
(m) Relevant pension schemes: for a scheme formed with the intention of it being a relevant pension scheme, additional provisions included with a view to the scheme's satisfying the requirements of HM Revenue and Customs (Pension Schemes Office and National Insurance Contributions Office), or those of any agency which may regulate a relevant pension scheme from time to time;
(n) Relevant charitable schemes: for an AUT formed with the intention of it being a relevant charitable scheme, additional provisions included with a view to the AUT qualifying as a relevant charitable scheme and to the maintenance of its tax status after it has qualified.

(2) The trust deed of an AUT may also include any provision:

(a) dealing with a matter not referred to in CIS 2.2.6 R (Matters that must be included in the trust deed) or this guidance (CIS 2.2.7 G) the inclusion of which serves to enable the AUT, the manager or the trustee to obtain any privilege or power conferred by the rules in this sourcebook; or
(b) which is expressly contemplated in this sourcebook.

21/04/2005

Relationship between trust deed and rules in this sourcebook

CIS 2.2.8

(1) A trust deed must not contain any provision that conflicts with any rule in this sourcebook.

(2) Any power conferred, by the rules in this sourcebook, on the manager, on the trustee, or on them together is subject to any express prohibition contained in the trust deed.

(3) CIS 5 or CIS 5A (Investment and borrowing powers) has effect in relation to any AUT which is subject to any restriction imposed by the trust deed.

01/11/2002

CIS 2.3

UCITS obligations

01/12/2004

Application

CIS 2.3.1

This section (CIS 2.3) applies to ICVCs and to managers of AUTs.

01/12/2004

UCITS schemes

CIS 2.3.2

(1) A UCITS scheme may exercise the investment powers in CIS 5, which reflect those available under the UCITS Amending Directive 2001/108/EC.

(2) Transitional provision 14 permits a UCITS scheme to exercise the narrower range of investments and investment powers in CIS 5A for a specified duration.

(3) A securities scheme or a warrant scheme or an umbrella scheme consisting of sub-funds which if separately authorised would be a securities scheme or a warrant scheme will be a UCITS scheme. Transitional provision 14 specifies the period after which such schemes must comply with certain rules including those in CIS 5.

01/11/2002

Requirements

CIS 2.3.3

(1) The instrument constituting a UCITS scheme may not be amended in such a way that it ceases to be a UCITS scheme.

(2) If an ICVC that is a UCITS scheme, or the manager of an AUT that is a UCITS scheme, proposes to market units in any EEA State other than the United Kingdom, the ICVC or the manager must notify the FSA of its proposal, specifying the EEA State concerned. The ICVC or the manager must do this at the same time as, or before, notifying the authorities in that EEA State of that proposal.

01/12/2004

Outward passporting of UCITS schemes

CIS 2.3.4

(1) Section VII of the UCITS directive provides the framework by which a UCITS scheme may undertake marketing in another EEA State. Article 44 has the effect of requiring the UCITS scheme to comply with the marketing and advertising rules in the relevant Host State. Article 45 requires the UCITS scheme to maintain certain facilities in the Host State and paragraph 25 of CIS 3.5.2 R(contents of the prospectus) requires these to be set out in the scheme's prospectus.

(2) Article 46 sets out the documentation requirements that need to be provided to the competent authority in the relevant EEA State. The documents have to be provided in a compliant manner at the same time as notification of the proposal to market there. The UCITS scheme may begin marketing two months following notification.

(3) Article 47 requires the relevant information and documents distributed in the Host State to be the same as those that the UCITS scheme provides in its Home State. The documents must be published in at least one of the official languages of the Host State. CIS 3 (prospectus) and CIS 10 (report and accounts) will be applicable in this case.

(4) If the UCITS scheme is being marketed in another EEA State, Article 34 requires the publication of prices in the Host State. CIS 4.4.8 R (4) and CIS 15.4.14 R (4) will be applicable in this case.

01/12/2004

CIS 2.4

Share classes

01/12/2004

Application

CIS 2.4.1

This section (CIS 2.4) applies to ICVCs and their ACDs.

01/12/2004

Classes of shares in an ICVC

CIS 2.4.2

(1) The OEIC regulations (schedule 2, paragraph (4)(1)(e)) require the instrument of incorporation of an ICVC to state what classes of shares may be issued, and, in the case of an ICVC that is an umbrella scheme, require the instrument of incorporation to state the classes that may be issued in respect of each sub-fund.

(2) Classes of shares may include:

(a) income shares;

(b) net accumulation shares;

(d) currency class income shares, which are currency class shares in respect of which income is allocated periodically to shareholders under CIS 9.2.5 R (Annual distribution to holders of income shares or income units);

(e) currency class net accumulation shares, which are currency class shares in respect of which income (net of any tax deducted or accounted for by the ICVC) is credited periodically to capital under CIS 9.2.4 R (Annual distribution to accumulation shares or accumulation units);

(f) currency class gross accumulation shares, which are currency class shares in respect of which income is credited periodically to capital under CIS 9.2.4 R, but, in accordance with relevant tax law, without deduction by the ICVC of any income tax; and

(g) limited issue shares which will also be shares of another class.

01/11/2002

Classes of shares other than those listed in CIS 2.4.2 G

CIS 2.4.3

(1) An instrument of incorporation may provide for classes of shares different from those listed in CIS 2.4.2 G(2). The guidance in this paragraph relates only to those classes of shares (and in this paragraph they are referred to as "new share classes").

(2) Subject to this guidance (CIS 2.4.3 G) and the restriction in CIS 2.4.6 R(2) (Rights of share classes), no special conditions are laid down in this chapter as to the nature or operational features of new share classes.

(3) CIS 2.2.2 R(1) does not permit a provision in an instrument of incorporation which is unfairly prejudicial to the interests of shareholders generally or to the holders of any class of shares. In order to be satisfied that CIS 2.2.2 R(1) is complied with, the FSA will take into account the principles in (a) to (c) when considering any proposals for new share classes. Those principles, which are not in any particular order of importance, are:

(a) the new share class should not provide advantages for that class if that would result in prejudice to shareholders of any other class;

(b) the nature, operation and effect of the new share class should be capable of being explained clearly to prospective investors in the prospectus; and

(4) The FSA would encourage firms with proposals for new share classes to raise them informally with it so it can determine whether the following steps are necessary:

(a) submitting the proposal to the FSA, in draft, considerably in advance of any application for authorisation of an ICVC or proposal to change the instrument of incorporation; and

(b) accompanying the proposal in (a) with a detailed explanation of the purpose of the new share class and its intended operation and effect. In particular, the FSA would wish to receive:

(i) the provisions for inclusion in the instrument of incorporation for that new share class, which should describe clearly the nature of that new share class and deal comprehensively with the rights of shareholders of that new share class;

(ii) a separate and detailed explanation of how the new share class will operate in practice, which should describe the circumstances in which the rights and obligations of shareholders of that new share class depart from the rights and obligations of other shareholders;

(iii) an explanation of the operational features of administrative and accounting systems supporting the new share class.

01/12/2004

What are currency class shares?

CIS 2.4.4

A currency class share differs from other shares mainly in that its price, having been calculated initially in the base currency, will be quoted, and normally paid for, in the currency of the designation of the class. Income distributions will also be paid in the currency of designation of the class.

01/12/2004

Currency class shares: requirements

CIS 2.4.5

In the case of currency class shares:

(1) the currency of the class concerned must not be the base currency (or, in the case of a sub-fund which, in accordance with a statement in the prospectus, is to be valued in some other currency, the currency of the class may be in the base currency, but must not be in that other currency);

(2) the price must be expressed in the currency of the class concerned;

(3) any distribution must be paid in the currency of the class concerned; and

(4) statements of amounts of money or values included in statements and in certificates prepared under CIS 9.2.8 R (Tax certificates) must be given in the currency of the class concerned (whether or not also given in the base currency).

01/12/2004

What are limited issue shares?

CIS 2.4.5A

(1) Limited issue shares are a class of share that may only be issued if permitted by the instrument of incorporation. Sales by the ACD will also need to be restricted by the instrument of incorporation, although there need be no restriction on the ACD's sale of shares held in its "box" (see CIS 4.1.4 G (3)) as a result of a previous redemption or an issue to the ACD when shares were available for issue. The issue and sale of limited issue shares may be confined to the occasion or occasions or up to the amount or value provided for by the prospectus.

(2) ICVCs that are umbrella schemes are reminded of the requirements under section 235(4) of the Act when setting up sub-funds with limited issue shares. Accordingly, when an umbrella scheme is considering setting up one or more sub-funds to issue limited issue shares then it will also need to have in addition two or more sub-funds issuing shares which are not limited issue shares to enable holders to exchange rights between the latter sub-funds. It is, therefore, not possible for an umbrella scheme to consist of only two sub-funds in circumstances where, one or more of those sub-funds issues limited issue shares. However, it is possible for an umbrella scheme, but only for the limited period specified in CIS 12.5.5 R (An ICVC with only one sub-fund), to consist of one sub-fund and for this sole sub-fund to issue limited issue shares. These requirements should be provided for in the instrument of incorporation of the ICVC.

01/11/2002

Limited issue shares: requirements

CIS 2.4.5B

(1) The ACD must ensure that limited issue shares are not in issue at the same time as any shares in the same ICVC or (in the case of an ICVC that is an umbrella scheme) sub-fund that are not limited issue shares.

(2) After any initial offer of a class of limited issue shares or, if there is no initial offer, the time at which shares of that class are first issued, a subsequent issue of shares of that class must not be made unless:

(a) the ACD is satisfied on reasonable grounds that the proceeds of that subsequent issue can be invested without compromising the ICVC's or sub-fund's investment objective or adversely affecting its future investment performance; and

(b) that subsequent issue will not materially prejudice the existing holders of that class of shares.

(3) The restrictions relating to any class of limited issue shares in a sub-fund must not prevent the holder of shares in that, or holders of shares in any other, sub-fund from exchanging those shares for shares in at least one other sub-fund of the umbrella scheme.

01/11/2002

Rights of share classes

CIS 2.4.6

(1) If any class of shares in the ICVC has different rights from any other class of shares in the ICVC, the instrument of incorporation must provide how the proportion of the value of the scheme property and the proportion of income available for allocation attributable to each such class must be calculated.

(2)

(a) For an ICVC which is not an umbrella scheme, the instrument of incorporation must not provide for any class of shares in respect of which:

(i) the extent of the rights to participate in the capital property, income property or distribution account would be determined differently from the extent of the corresponding rights for any other class of shares; or

(ii) payments or accumulation of income or capital would differ in source or form from those of any other class of shares;

(b) For an ICVC which is an umbrella scheme, the provisions in (a) apply to classes of shares in respect of each sub-fund as if each sub-fund were a separate ICVC; and

(c) Paragraphs (a) and (b) do not prohibit a difference between the rights attached to one class of shares and to another class of shares that relates solely to:

(i) the accumulation of income by way of periodical credit to capital rather than distribution;

(ii) charges and expenses that may be taken out of the scheme property or payable by the shareholder; and

(iii) the currency in which prices or values are expressed or payments made.

01/12/2004

CIS 2.5

Denomination of shares and their sub-division and consolidation

01/12/2004

Application

CIS 2.5.1

(1) CIS 2.5.2 G and CIS 2.5.3 R apply to an ACD.

(2) CIS 2.5.4 R applies only to directors of an ICVC.

01/12/2004

Characteristics of larger and smaller denomination shares

CIS 2.5.2

Although fractions of a share are not possible, regulation 45 of the OEIC regulations (Shares) provides that the rights attached to a share of any class may be expressed in two denominations, in which case the "smaller" denomination must be such proportion of the "larger" denomination (that is, a standard share) as is fixed by the ICVC's instrument of incorporation. This will enable holdings to consist of more or less than a complete number of larger denomination shares. If an ICVC wishes to take advantage of this provision, the relevant proportion must be stated in its instrument of incorporation. A single document of title, tax certificate or cheque may cover a single holding of both larger denomination shares and smaller denomination shares of any class.

01/12/2004

Requirement

CIS 2.5.3

(1) This rule (CIS 2.5.3 R) applies whenever the instrument of incorporation provides, in relation to any class, for smaller denomination shares and larger denomination shares.

(2) Whenever a registered holding includes a number of smaller denomination shares that can be consolidated into a larger denomination share of the same class, the ACD must consolidate the relevant number of those smaller denomination shares into a larger denomination share.

(3) The ACD may at any time, for the purpose of effecting a transaction in shares, substitute for a larger denomination share the relevant number of smaller denomination shares. If it does this, (2) does not apply to the resulting smaller denomination shareholding or holdings until immediately after the completion of the transaction.

(4) For the purpose of (2) and (3) the relevant number must be calculated by reference to the proportion, stated in the instrument of incorporation, of a larger denomination share represented by a smaller denomination share.

01/12/2004

Sub-division and consolidation of shares

CIS 2.5.4

(1) The directors of an ICVC may, unless expressly forbidden to do so by its instrument of incorporation, determine:

(a) that each share of any class is to be subdivided into two or more shares (whereupon each such share will stand subdivided accordingly); or

(b) that two or more shares of any class are to be consolidated (whereupon those shares will stand consolidated).

(2) The ICVC must (unless it has done so before the sub-division or consolidation became effective) immediately give notice to each shareholder (or the first named of joint holders) of any subdivision or consolidation under (2).

01/12/2004

CIS 2.6

Units and classes of units in AUTs

01/12/2004

CIS 2.6.1

This section (CIS 2.6) applies to the classes of units, which may exist within an AUT.

01/11/2002

CIS 2.6.2

(1) The interests of the unitholders in an AUT consist of units (including fractions of a unit), each representing one undivided share in the AUT's scheme property.

(2) This system of single undivided shares is modified where both income units and accumulation units are in existence, because:

(a) when income is accumulated and capitalised under CIS 9.2.4 R (Annual allocation to accumulation shares or accumulation units), that accumulation is achieved by increasing the number of undivided shares (including fractions) which together constitute the accumulation units then in existence; and

(b) any accumulation units issued subsequently must represent when issued the same number (including fractions) of undivided shares in the capital property of the AUT as each other accumulation unit then in existence.

(3) Every unit must be either:

(a) an income unit; or

(b) an accumulation unit; or

(d) a limited issue unit that is also an accumulation unit.

(4) The AUT will consist of income units only unless the trust deed provides, or the manager decides, under a power contained in the trust deed, that the AUT will consist of another class, or other classes, of unit.

01/11/2002

What are limited issue units?

CIS 2.6.3

(1) Limited issue units are a class of unit that is permitted in an AUT. Limited issue units may only be issued if permitted by the trust deed. Sales by the manager will also need to be restricted by the trust deed, although there need be no restriction on the manager's sale of units held in its "box" (see CIS 4.1.4 G (3)) as a result of a previous redemption or an issue to the manager when units were available for issue. The issue and sale of limited issue units may be confined to the occasion or occasions or up to the amount or value provided for by the prospectus.

(2) AUTs that are umbrella schemes are reminded of the requirements under section 235(4) of the Act when setting up sub-funds with limited issue units. Accordingly, when an umbrella scheme is considering setting up one or more sub-funds to issue limited issue units then it will also need to have in addition two or more sub-funds issuing units which are not limited issue units to enable holders to exchange rights between the latter sub-funds. It is, therefore, not possible for an umbrella scheme to consist of only two sub-funds in circumstances where, one or more of those sub-funds issues limited issue units. These requirements should be provided for in the trust deed of the AUT.

01/11/2002

Limited issue units: requirements

CIS 2.6.4

(1) The manager must ensure that limited issue units are not in issue at the same time as any units in the same AUT or (if the AUT is an umbrella scheme) sub-fund that are not limited issue units.

(2) After any initial offer of a class of limited issue units or, if there is no initial offer, the time at which units of that class are first issued, a subsequent issue of units of that class must not be made unless:

(a) the manager is satisfied on reasonable grounds that the proceeds of that subsequent issue can be invested without compromising the AUT's or sub-fund's investment objective or adversely affecting its future investment performance; and

(b) that subsequent issue will not materially prejudice the existing holders of that class of units.

(3) The restrictions relating to any class of limited issue units in a sub-fund must not prevent the holder of units in that or holders of units in any other sub-fund from exchanging those units for units in at least one other sub-fund of the umbrella scheme.

01/11/2002

CIS 2.7

Undesirable and misleading names

01/12/2004

CIS 2.7.1

This section (CIS 2.7) applies to authorised fund managers.

01/11/2002

CIS 2.7.2

(1) Under section 243 of the Act and regulation 15 of the OEIC Regulations:

(a) the name of an authorised fund must not be undesirable or misleading; and

(b) in the case of an ICVC, its aims must be reasonably capable of being achieved and, in the case of an AUT, its purpose must be reasonably capable of being successfully carried into effect.

(2) In order to be satisfied that section 243 of the Act and regulation 15 of the OEIC Regulations are complied with, the FSA will, when considering an application for authorisation of an ICVC or AUT, or considering an alteration to an authorised fund under section 251 of the Act or Regulation 21 of the OEIC Regulations, take into account the principles in (3) and (4).

(3) The name of an authorised fund should not include the word "guaranteed" unless:

(a) the guarantee is given by an authorised person or a person authorised by a Home State regulator or a person subject to prudential supervision by a regulatory body in accordance with provisions equivalent to the Capital Adequacy Directive or the Insurance Directives other than the authorised fund manager or the depositary;

(b) the authorised fund manager can demonstrate that the guarantor has the authority and resources to honour the terms of the guarantee;

(c) the guarantee covers all holders within the authorised fund and the guarantee is legally enforceable by each holder who is intended to benefit from it or by a person acting on that holder's behalf;

(d) the guarantee relates to the total amount paid for a unit which for these purposes includes any preliminary charge or redemption charge or any other costs of buying or selling units in the authorised fund;

(e) the guarantee provides for payment at a specified date or dates and is unconditional although reasonable commercial exclusions such as force majeure may be included; and

(f) where the guarantee applies to different classes of unit, the guarantee is identical in its application to all classes except for the differences attributable to income already received or charges already suffered by the different classes of unit.

(4) The name of an authorised fund may indicate a guaranteed capital return or income return or both but only if the total amount paid for a unit is guaranteed in accordance with (3).

(5) The name of an authorised fund should not include words implying a degree of capital security (such as "capital protected" or anything with a similar meaning) unless the degree of capital security is apparent from the name and clearly stated in the prospectus and (a) or (b) below is satisfied:

(a) the principles in (3) are satisfied except that for the purposes of (3)(d) the guarantee may relate to an amount not materially less than the total amount paid for a unit; or

(b) the investment objective and investment policy for the authorised fund are such as to show a clear intention to provide a material degree of security in respect of the total amount paid for a unit.

(6) When determining whether (5) is complied with, the FSA will take into account whether the degree of capital security implied by the name fairly reflect the nature of the arrangements for providing that security. This assessment will take place on a case by case basis.

01/11/2002

CIS 2.7.3

The authorised fund manager must ensure that the name of a sub-fund or of a class of share is not undesirable or misleading.

01/11/2002

CIS 2.7.4

When deciding whether CIS 2.7.3 R is complied with the FSA will take into account the principles in CIS 2.7.2 G(3), (4) and (5) as if they related to the name of a sub-fund or share class as well as to the name of an authorised fund. However, it should be noted that CIS 2.7.3 R applies generally and not just to the names that include the words "guaranteed" or "capital protected".

01/11/2002

CIS 2.8

Guarantees and Capital Protection

01/12/2004

Application

CIS 2.8.1

This section (CIS 2.8) applies to authorised fund managers and depositaries.

01/11/2002

Conflicts of interest

CIS 2.8.2

If there is any arrangement intended to result in a particular capital or income return from a holding of units in an authorised fund, or any investment objective of giving protection to the capital value of, or income return from, such a holding, that arrangement or protection must not be such as to cause the possibility of a conflict of interests as between:

(1) holders and the authorised fund manager or depositary; or

(2) holders intended to benefit from the arrangement and holders not intended to benefit from the arrangement.

01/11/2002