Charges and Expenses

Part

CIS Collective Investment Schemes

Chapter

Charges and Expenses

Printed on: 07/11/2024

Rulebook at: 01/03/2006

CIS 8

Charges and Expenses

CIS 8.1

Introduction

01/12/2004

Application

CIS 8.1.1

(1) The rules and guidance in this chapter apply in accordance with CIS 8.1.3 R (Table of application).
(2) The rules relating to preliminary charge, increase of preliminary charge, redemption charge, control over maximum charges on issue and redemption and to exchange of units in umbrella schemes are, for dual-priced AUTs, in CIS 15.

01/12/2004

Purpose

CIS 8.1.2

(1) This chapter assists in meeting the regulatory objective of protecting consumers by laying down conditions governing charges imposed on investors when buying or selling units and governing payments out of scheme property.

(2) The conditions are intended to provide clarity as to the nature of permitted charges and payments and clear disclosure for existing investors of any increases in charges and payments to the authorised fund manager.

(3) The instrument of incorporation of an ICVC will, in accordance with the OEIC regulations, provide that the charges or expenses of the ICVC may be taken out of the scheme property. This chapter:

(a) prohibits, or provides conditions applying to, the payment out of the scheme property of certain types of charges and expenses;

(b) makes certain payments conditional on disclosure in the prospectus; and

(4) For an AUT, this chapter provides what types of charge may be made on investors when they buy or sell units and what types of expenses may be met out of the scheme property. Provisions governing the allocation of payments between capital and income are also contained in this chapter.

01/12/2004

CIS 8.1.3

Table of application

This table belongs to CIS 8.1.1 R

Paragraph or section number

ICVC

ACD

Depositary of an ICVC

Manager

Trustee

8.1

8.2.1R

X(s)

8.2.2R

X(s)

8.2.3R

8.2.4R

8.2.5R

X(s)

8.2.6R

X(s)

8.2.7R

8.2.8R(1) and (2)

8.2.8R(3)

X(s)

8.3.1R - 8.3.2R

8.3.3R

8.3.4R

8.3.5R(1)-(3)

8.3.5R(4)

8.4.1R

8.4.2R

8.5.1R

8.5.2R(1) to (6)

X(s)

8.5.2R(7)

X(s)

8.5.2R(8)

X(s)

8.5.3R

X(s)

8.5.4R

8.5.5R to 8.5.7R

Note: "X" means "applies". "X(s)" means "applies to the manager or trustee of a single-priced AUT".

01/11/2002

CIS 8.2

Application

01/12/2004

CIS 8.2.1

This section (CIS 8.2) relates to some of the charges that may be made by authorised fund managers and to increases in them. In CIS 8.5 there are additional rules relating to charges which apply only in relation to AUTs or single-priced AUTs.

01/12/2004

Preliminary charge: ICVCs and single-priced AUTs

CIS 8.2.2

(1) In the case of an ICVC or a single-priced AUT, the authorised fund manager must not make any charge or levy in connection with the issue or sale of units except a preliminary charge under this rule (CIS 8.2.2 R) and a dilution levy and SDRT provision under CIS 4.6.3 R.

(2) In the case of a single-priced AUT, a preliminary charge must not be made unless:

(a) it is permitted by the trust deed; and

(b) it is expressed either as a fixed amount or calculated as a percentage of the price.

(3) The preliminary charge must not exceed the amount or rate stated in the current prospectus in respect of a unit of any class.

01/12/2004

Payments by an ICVC to an ACD

CIS 8.2.3

No payment may be made or benefit given to the ACD (in any capacity) out of the scheme property, whether by way of remuneration for its services, reimbursement of expenses or otherwise, unless the prospectus specifies each type of payment or benefit that may be made or given, each type of expense that may be so reimbursed and, in the case of each category of remuneration (or remuneration related to a class of share), specifies:

(1) how it will be calculated and accrue and when it will be paid; and

(2) the maximum and current rates or amount of such remuneration.

01/12/2004

Increases in remuneration of an ACD

CIS 8.2.4

In the case of an ICVC, the ACD must not introduce a new category of remuneration for its services or make any increase in the current rate or amount of its remuneration payable out of the scheme property up to or towards any maximum stated in the prospectus, unless it has complied with CIS 8.2.6 R (Notice of an increase - ICVCs and single-priced AUTs).

01/12/2004

Increase in preliminary charge of an authorised fund manager: ICVCs and single-priced AUTs

CIS 8.2.5

In the case of an ICVC or a single-priced AUT, the authorised fund manager must not introduce a preliminary charge, or increase within any maximum stated (in the case of an ICVC) in the prospectus or (in the case of a single-priced AUT) in the trust deed, the current amount or rate of preliminary charge, unless it has complied with CIS 8.2.6 R (Notice of an increase: ICVCs single-priced AUTs).

01/12/2004

Notice of an increase: ICVCs and single-priced AUTs

CIS 8.2.6

In the case of an ICVC or a single-priced AUT, not less than 90 days before the introduction or increase of any payment under CIS 8.2.4 R or CIS 8.2.5 R, or of any remuneration under CIS 3.5.2 R(13)(2),(3) (within the maximum level stated in the prospectus), the authorised fund manager must:

(1) give written notice of that introduction or increase and of the date of its commencement:

(a) to all the persons who ought reasonably to be known to it to have made an arrangement for the purchase of units at regular intervals; and

(b) (in the case of remuneration of the ACD or the depositary or any third party or any affected person payable out of the scheme property) to all shareholders; and

(2) revise the prospectus to reflect the introduction or new current rate or amount of remuneration or preliminary charge (or, in the case of an ICVC, other remuneration) and the date of its commencement, and make the revised prospectus available.

01/11/2002

Redemption charge: ICVCs

CIS 8.2.7

(1) The ACD must not make a redemption charge, except in accordance with (2), (3) and (4)

(2) A redemption charge must not exceed the amount or rate of redemption charge stated in the prospectus current at the date when the relevant shares were sold by the ACD or issued through the ACD under CIS 4.5.3 R (Issues and cancellations through the authorised fund manager) and, if there was no such statement, the redemption or cancellation of such shares must not be subject to any redemption charge.

(3) The ACD must not introduce a redemption charge or change the rate or method of calculation of a current redemption charge which is adverse to shareholders unless, not less than 90 days before the introduction or change, the ACD has:

(a) given written notice of that introduction or change and of the date of its commencement to all the persons who ought reasonably to be known to the ACD to have made an arrangement for the purchase of shares at regular intervals; and

(b) revised the prospectus to reflect the introduction or change and the date of its commencement and made the revised prospectus available.

(4) If a prospectus contains a statement relating to the amount, or the calculation of the amount, of a redemption charge, it must also contain a statement as to the determination of the order in which shares, which have been acquired at different times by a shareholder, are to be taken to be redeemed or cancelled for the purpose of the imposition of the redemption charge.

01/12/2004

Charges for an exchange of units in an umbrella scheme: ICVCs and single-priced AUTs

CIS 8.2.8

(1) In the case of an umbrella scheme which is an ICVC, the ACD may make a charge on an exchange of shares in one sub-fund for shares in another sub-fund, but the charge must not exceed the aggregate of:

(a) any excess of the current preliminary charge payable on the shares being acquired over the preliminary charge actually paid on the original acquisition of the shares being redeemed; and

(b) the amount of any fee payable on switching stated in the prospectus.

(2) The ACD must not make a charge in excess of the fee referred to in (1)(b), unless the prospectus contains a statement as to the determination of the order in which shares which have been acquired at different times by a shareholder are to be taken to be redeemed or cancelled in so far as necessary for calculating the maximum charge for an exchange of shares in one sub-fund for shares in another sub-fund.

(3) For an umbrella scheme which is a single-priced AUT, the manager must not make any charge on an exchange of units:

(a) if the exchange is the first to be made by the unitholder during any annual accounting period;

(b) in the case of a second or subsequent exchange, unless:

(i) such a charge is authorised by the trust deed; and

(ii) the amount of the charge is within the maximum for charging on such an exchange stated in the most recently published prospectus.

01/12/2004

CIS 8.3

Restrictions and other requirements relating to payments: ICVCs

01/12/2004

Promotional payments

CIS 8.3.1

No payment or benefit, other than a payment or benefit to the ACD not prohibited by any other of the rules in this sourcebook, may be made out of or given at the expense of the scheme property to any person in consideration of that person acquiring (whether directly, indirectly, absolutely or conditionally) or promoting the sale of, or agreeing so to acquire or to promote the sale of, shares in the ICVC.

01/12/2004

Performance fees

CIS 8.3.2

No payment may be made out of the scheme property of an ICVC and no redemption charge may be made if the amount or frequency of the payment or the amount of the redemption charge is intended to depend upon fluctuations in:

(1) the value of the scheme property; or

(2) the income attributable to it; or

(3) the price of a share of any class,

as compared with fluctuations in the value or price of property of any description or in an index or other factor designated for the purpose.

01/12/2004

Movable and immovable property

CIS 8.3.3

An ICVC (other than a property scheme) must not incur any expense for the use by it of any movable or immovable property except to the extent that such property is necessary for the direct pursuit of its business.

01/12/2004

Set up costs

CIS 8.3.4

(1) When (2) applies, costs of the authorisation and incorporation of an ICVC and of its initial offer or issue of shares (or initial offer or issue of shares in respect of a sub-fund) may, subject to CIS 8.3.1 R (Promotional payments), be amortised over a period not exceeding five years.

(2) Amortisation under (1) is only permitted if, on or before 30 November 2000, it had commenced and been disclosed in the prospectus.

01/12/2004

Allocation of payments to capital or income

CIS 8.3.5

(1) Any broker's commission, fiscal charges and other disbursements, which are necessary to be incurred in effecting transactions for the ICVC, and normally shown in contract notes, confirmation notes or difference accounts, may be charged to the capital account.

(2) Any:

(a) interest on borrowings and charges incurred in effecting, terminating, negotiating or varying the terms of borrowings;

(b) taxation and duties payable in respect of scheme property; and

may be paid from capital property or income property as the ICVC considers appropriate.

(3) All other payments out of the scheme property must be made from income property in the first instance, but a transfer of the debit item from the income account to the capital account may be made if the expense is considered to be capital in nature.

(4) The ACD and the depositary may agree that all or any part so agreed of:

(a) any payments permitted by CIS 8.2.3 R (Payments by an ICVC to the ACD); and

(b) any other charges and expenses of the ICVC;

may be treated as a capital expense and, if met from the income account in the first instance, a transfer of the relevant debit made from the income account to the capital account.

01/12/2004

CIS 8.4

Other liabilities: ICVCs and AUTs

01/12/2004

Payment of liabilities on transfer of assets

CIS 8.4.1

(1) Where the property of a body corporate or of another collective investment scheme is transferred to an authorised fund (or to the depositary for the account of the authorised fund) in consideration of the issue of units in the authorised fund to shareholders in that body corporate or to holders in that other scheme, (2) applies.

(2) The ICVC (or its depositary) or the trustee of the AUT as the successor in title to the property transferred, may pay out of the scheme property any liability arising after the transfer which, had it arisen before the transfer, could properly have been paid out of the property transferred, but only if:

(a) there is nothing in the instrument constituting the scheme of the authorised fund expressly forbidding the payment; and

(b) the directors of the ICVC, or the manager of the AUT, are, or is, of the opinion that proper provision was made for meeting such liabilities as were known or could reasonably have been anticipated at the time of the transfer.

01/12/2004

Tax

CIS 8.4.2

The restrictions contained in this chapter do not affect any liability for any value added or similar tax related to a charge or expense, but any notice given in accordance with this chapter and any statement in a prospectus relating to any charge or expense payable out of the scheme property or by any shareholder or potential shareholder must, if the person liable for the charge or expense may also be liable for such tax, contain a statement to this effect.

01/12/2004

CIS 8.5

Charges and other payments: AUTs

01/12/2004

Managers periodic charges

CIS 8.5.1

(1) The only payment which may be made to the manager out of the scheme property by way of remuneration for the manager's services is a periodic charge (and value added tax on it if any) arrived at and accruing under this rule (CIS 8.5.1 R).
(2) A periodic charge is payable only where its payment is authorised by the trust deed.
(3) The amount of periodic charge is calculated by the manager as follows:

(a) take the scheme property at the valuation point coinciding with or immediately before the start of the relevant accrual interval;
(b) take the value (or for a dual-priced AUT take the average of the issue and cancellation valuations) of the scheme property as at the point at (a);
(c) multiply that value (or in the case of a dual-priced AUT multiply the average at (b)) by a fraction (or "rate") not exceeding the maximum percentage (for example, 1/100) arrived at under (4);
(d) divide the resulting figure by 365 (366 in a leap year); and
(e) multiply the result of the division at (d) by the number of days (including fractions of a day) in the accrual interval.

(4) The maximum percentage in (3)(c) is:

(a) if the accrual interval is the first since inception, the annual percentage stated in the original prospectus as the rate of the manager's periodic charge;
(b) if it is not the first accrual interval since inception, either:

(i) the rate actually used at (3)(c) for the previous accrual interval; or
(ii) a higher rate (still however not exceeding the maximum to the rate of the manager's periodic charge stated in the trust deed) which the manager is permitted to use if it complies with (5).

(5) The manager may not rely on any increase in the maximum percentage unless not less than 90 days before implementing the increase:

(a) it has given notice in writing to the trustee and to the unitholders of its intention to increase the amount currently charged by way of periodic charge; and
(b) it has revised the prospectus to reflect the proposed increase in that amount.

01/12/2004

Redemption charge: single-priced AUTs

CIS 8.5.2

(1) In the case of a single-priced AUT the manager may, if the trust deed permits, make a redemption charge for its own benefit.

(2)

(a) A redemption charge must not exceed the amount or rate of redemption charge stated in the prospectus current at the date when the relevant units were issued, other than to the manager, or sold; and

(b) the amount or rate referred to in (a) may be expressed as diminishing over the time during which the unitholder has held the units, but may not be expressed as liable to vary in any other respect.

(3) In (2) and (7), "issued" or "sold" in the case of units in a scheme which has absorbed the whole or part of the property of another scheme, is (when relevant) a reference to the issue or sale of units in that other scheme so far as it is practicable for the manager to ascertain the timing of that issue or sale as opposed to the issue of other units held by that holder.

(4) The manager must not introduce a redemption charge, or change the rate or method of calculation of a current redemption charge, in a manner which is adverse to unitholders, unless at least 90 days before the introduction or change, the manager:

(a) gave notice in writing of that introduction or change and of the date of its commencement, to the trustee and to all the persons who ought reasonably to be known to the manager to have made an arrangement for the purchase of units at regular intervals; and

(b) has revised the prospectus to reflect the introduction or change and the date of its commencement and has made the revised prospectus available.

(5) A modification of the rate or method which is adverse to redeeming unitholders (or unitholders selling under CIS 4.5.3 R) must be limited so as to apply only to units which have been issued (whether at the request of the current unitholder or otherwise) after the date on which the modification takes effect.

(6) Where the trust deed, whenever executed, is modified so as to authorise a redemption charge, the modification must be expressed so as to apply only to units issued after the date on which the modification takes effect.

(7) In deciding whether and to what extent a charge is deductible for the purposes of this rule, units held by a unitholder are to be taken to be redeemed in the order in which they were issued (other than to the manager) or sold (whether or not to their current unitholder), unless:

(a) the manager has the unitholder's instructions to the contrary; or

(b) the manager selects as the units first to be redeemed units which are not subject to the deduction; or

(c) the manager and the trustee have agreed on another way of deciding the order in which units are redeemed which appears to them unlikely materially to prejudice the holder concerned.

(8) A manager must not make a redemption charge which might reasonably be regarded as restricting the right of redemption.

01/12/2004

Control over maximum charges on issue, sale and redemptions: single-priced AUTs

CIS 8.5.3

(1) In the case of a single-priced AUT and in the circumstance envisaged by (2), an introduction of, or change to, either of the charges permitted by CIS 8.2.2 R (Preliminary charge : ICVCs and single-priced AUTs) or CIS 8.5.2 R (Redemption charge : single-priced AUTs) must not take effect unless:

(a) the trust deed is modified under CIS 11.4.2 R (Amendment to the trust deed: with meeting); or

(b) the prospectus is amended following approval of the introduction or change by an extraordinary resolution at a meeting of the holders called for the purpose.

(2) The circumstance mentioned in (1) is that (for any individual unit notionally issued and redeemed on the same day) the maximum amount or percentage of any preliminary charge and of any redemption charge would in aggregate exceed the maximum amount or percentage for the preliminary charge alone which is stated in the trust deed.

01/12/2004

Remuneration and reimbursement expenses

CIS 8.5.4

(1) No payment may be made to the trustee out of the scheme property, whether by way of reimbursement of expenses or otherwise, except:

(a) remuneration for the trustee in respect of its services and in respect of which the following have been stated in the prospectus:

(i) the actual amount or rate of the remuneration together with the current maximum (or how these are determined);
(ii) the periods in respect of which the remuneration is to be paid;
(iii) how the remuneration is to accrue; and
(iv) when the remuneration is to be paid;

(b) value added tax on the remuneration specified in (a); and
(c) reimbursement of expenses properly incurred by the trustee in performing or arranging for the performance of the functions conferred on the trustee by the rules in this sourcebook.

(2) Payment under (1)(a) must not be made unless authorised by the trust deed.
(3) In the case of a dual-priced AUT the actual amount or rate of the trustee's or any third party's or any affected person's remuneration maybe raised up to any maximum stated in the prospectus by the authorised fund manager using the procedure in CIS 8.2.6 R (1).

01/11/2002

Payments out of the scheme property

CIS 8.5.5

(1) No payments may be made out of the scheme property of an AUT other than payments permitted by the rules in this sourcebook, and:

(a) broker's commission, fiscal charges and other disbursements which are:

(i) necessary to be incurred in effecting transactions for the scheme; and

(ii) normally shown in contract notes, confirmation notes and difference accounts as appropriate;

(b) interest on permitted borrowings under the AUT and charges incurred in effecting or terminating such borrowings or in negotiating or varying the terms of such borrowings;

(c) taxation and duties payable in respect of the scheme property, the trust deed or the issue of units and any stamp duty reserve tax charged in accordance with Schedule 19 of the Finance Act 1999 (or any statutory modification or re-enactment of it);

(d) payments properly required, in the case of a property scheme, for the maintenance, repair, refurbishment, management, preservation, protection, development or redevelopment of an immovable owned or leased by the property scheme;

(e) any costs incurred in modifying the trust deed, including costs incurred in respect of meetings of unitholders convened for purposes which include the purpose of modifying the trust deed, where the modification is:

(i) necessary to implement, or necessary as a direct consequence of, any change in the law (including changes in the rules in this sourcebook); or

(ii) expedient having regard to any change in the law made by or under any fiscal enactment and which the manager and the trustee agree is in the interest of unitholders; or

(iii) to remove from the trust deed obsolete provisions;

(f) any costs incurred in respect of meetings of unitholders convened on a requisition by unitholders not including the manager or an associate of the manager;

(g) the audit fee properly payable to the auditor and any proper expenses of the auditor;

(h) the fees and expenses properly payable to the standing independent valuer of a property scheme;

(i) the fees of the FSA under Schedule 1, Part III of the Act or the corresponding periodic fees of any regulatory authority in a country or territory outside the United Kingdom in which units in the AUT are or may be marketed;

(j) any payment permitted by CIS 8.4.1 R (Payment of liabilities on transfer of assets);

(k) value added tax payable in connection with any of (a) to (j); and

(l) any costs incurred in connection with obtaining a guarantee for the scheme's capital value.

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Exemptions from liability to account for profits

CIS 8.5.6

(1) The manager is not liable to account to the trustee or the unitholders for the amount of any charge properly taken in accordance with the rules in this sourcebook.

(2) The trustee is not liable to account to the manager or the unitholders for the amount of any remuneration (or expenses) properly paid to the trustee in accordance with this chapter.

(3) The manager, or another specified affected person, is not required to account to the trustee, or the unitholders, for any profit made on the issue, sale, redemption or cancellation of units where prominent disclosure of the non-accountability has been made in the prospectus.

(4) A person who is an affected person is not liable to account either to another affected person or to the unitholders for any benefits or profits made or derived from or in connection with:

(a) his acting as agent for either or both of the trustee and the manager in the sale or purchase of property to or from the trustee for the account of the AUT; or

(b) his part in any transaction or the supply of services permitted by CIS 7.10.6 R (Conflict of interests); or

01/12/2004

Allocation of payments to capital or income

CIS 8.5.7

(1) In the case of an AUT, any payments permitted by this chapter (except under CIS 8.5.5 R (1)(a), (b) or (c) (Payments out of the scheme property)) must be made from the income account in the first instance.

(2) Any payment under CIS 8.5.5 R (1)(a) must be made from the capital account; and any payment under CIS 8.5.5 R (1)(b)or (c) must be made from the capital account or the income account as the trustee having taken reasonable care determines is appropriate in accordance with the governing law of trusts.

(3) Following a payment made from the income account under (1) or (2), a transfer of the debit item from the income account to the capital account may be made:

(a) if the manager and the trustee agree that the payment is for an item of expense which is capital in nature; and

(b) if the governing law of trusts allows.

(4) The manager and the trustee may agree that all or any agreed part of:

(a) any charge permitted by CIS 8.5.1 R (Manager's periodic charge); and

(b) any payments permitted to be made out of the scheme property by CIS 8.5.4 R (Remuneration of the trustee and reimbursement of trustee expenses) or CIS 8.5.5 R (Payments out of the scheme property);

may be treated as a capital expense and, if met from the income account in the first instance, a transfer of the relevant debit made from the income account to the capital account.

(5) Where the trustee considers that there are insufficient funds to cover any payments made, or to be made, from the income account under (1) or (2), a transfer of credit to the income account from the capital account may be made to meet these payments. The credit must be re-transferred as soon as sufficient funds are available in the income account in respect of the same annual accounting period.

(6) Where, in respect of any annual accounting period, taken as a whole, the amount of income received or receivable is less than the net amount of payments made from the income account, the shortfall must, as from the end of that period, be charged to the capital account and must not subsequently be transferred to the income account.

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