CIS Collective Investment Schemes

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CIS 1

Introduction - Collective investment
schemes sourcebook

CIS 1.1

Application

01/12/2004

CIS 1.1.1

This sourcebook applies to investment companies with variable capital (ICVCs), directors and depositaries of ICVCs and managers and trustees of authorised unit trusts (AUTs), except for CIS 16 which includes provisions that also apply to operators of collective investment schemes and CIS 17 which applies only to operators of collective investment schemes which are recognised schemes. CIS 10 also applies to auditors of ICVCs and AUTs.

01/12/2004

Right to elect to comply with COLL

CIS 1.1.1A

(1) CIS does not apply to any relevant party in relation to an authorised fund if the authorised fund manager of such fund with the consent of each of the other relevant parties has elected on behalf of the fund to comply with the rules in COLL instead of CIS, provided the authorised fund manager notifies the FSA in writing of such election and of the date from which such election is to take effect.

(2) For the purposes of (1) a relevant party in relation to:

(a) any AUT, is its manager and trustee; and

(b) any ICVC, is:

(i) the ICVC;

(ii) its ACD;

(iii) any other directors of the ICVC; and

(iv) its depositary.

01/04/2004

Operators of recognised schemes

CIS 1.1.1B

CIS 16 (Application and notification) and CIS 17 (Recognised schemes) do not have any effect in relation to an operator of a recognised scheme or to any person seeking recognition in the United Kingdom for such a scheme after 1 April 2004.

01/04/2004

Purpose

CIS 1.1.2

The general purpose of this sourcebook is to contribute to the FSA meeting its regulatory objective of the protection of consumers (see section 2 and 5 of the Act) by providing a regime of product regulation for ICVCs and AUTs. This regime is intended to ensure a high and uniform standard of protection for investors in those products by specifying a number of features of those products and how they are to be operated. More specific purpose statements covering how the requirements meet the FSA's regulatory objective of the protection of consumers are, where appropriate, given in subsequent chapters.

01/12/2004

The products covered

CIS 1.1.3

Under section 238 of the Act only certain collective investment schemes may be promoted to the public. These are:

(1) ICVCs and AUTs: these are constituted in the United Kingdom and are described in more detail in CIS 1.1.4 G to CIS 1.1.6 G; and

(2) collective investment schemes constituted outside the United Kingdom and recognised by the FSA under:

(a) section 264 of the Act (Schemes constituted in other EEA States): these are schemes that qualify under the UCITS directive;

(b) section 270 of the Act (Schemes authorised in designated countries or territories); and

01/12/2004

ICVCs

CIS 1.1.4

Section 262 of the Act empowers the Government to make provisions relating to open-ended investment companies (as defined by section 236 of the Act) and they have made the OEIC regulations to permit establishment of ICVCs in Great Britain. Schedule 5.1(3) of the Act states that authorised open-ended investment companies are authorised persons, hence an ICVC is an authorised person.

01/12/2004

CIS 1.1.5

The ICVC is constituted by an instrument of incorporation, drawn up by its directors. At least one director must be an authorised corporate director ('ACD'). A depositary is also required which is responsible for the safekeeping of the scheme property. In order to comply with section 19 of the Act, the ACD and the depositary must each be authorised persons. The FSA has the power under regulation 14 of the OEIC regulations to authorise the ICVC by making an authorisation order. CIS 16 provides additional guidance on the process of applying to the FSA for authorisation of an ICVC.

01/12/2004

AUTs

CIS 1.1.6

Under section 237 of the Act, an AUT is a collective investment scheme under which the property is held on trust for the participants by the trustee and which is authorised by an authorisation order (made by the FSA) in force under section 243 of the Act. The AUT will be constituted by a trust deed, entered into by the manager and trustee, both of whom must, under section 243(7) of the Act, be authorised persons and have permission to act in their respective capacities. CIS 16 provides more detail on the process of applying to the FSA for the authorisation of an AUT.

01/12/2004

Recognised schemes

CIS 1.1.7

For collective investment schemes constituted outside the United Kingdom and referred to in CIS 1.1.3 G (2), this sourcebook brings together the material relating to the admission to marketing in the United Kingdom of such schemes, complementing material in Chapter V of Part XVII of the Act (Recognised overseas schemes).

01/12/2004

Functions of the CIS sourcebook

CIS 1.1.8

The sourcebook performs three main functions in respect of ICVCs and AUTs, by providing material:

(1) relating to their constitution and management (including rules and guidance on pricing arrangements, investment powers and on certain information to be provided to investors);

(2) relating to the process of authorising them; and

(3) which satisfies the requirements of the UCITS directive (which sets minimum standards for schemes on a basis agreed by all EEA States) thereby enabling ICVCs and AUTs which meet those standards to market elsewhere in the EEA.

01/12/2004

CIS 1.1.9

Together, the material in Chapters 2 to 15 forms a major part of the product regulation regime for ICVCs and AUTs, complementing material in the OEIC regulations and Chapter III of Part XVII of the Act (for Authorised unit trust schemes).

01/12/2004

CIS 1.2

Arrangement of this sourcebook and definitions

01/12/2004

CIS 1.2.1

Some of this sourcebook relates only to ICVCs and some only to AUTs. However, parts of this sourcebook cover both ICVCs and AUTs (in particular in CIS 3, CIS 4, CIS 5 and CIS 9). Accordingly, some of the defined terms included relate equally to both ICVCs and AUTs (together called "authorised funds"). Other key examples of these terms are:

(1) "authorised fund manager": covers both the ACD of an ICVC and the manager of an AUT. (The term "ACD" is used only in relation to an ICVC and the term "manager" is used only in relation to an AUT);

(2) "depositary": where used in relation to an authorised fund, covers both the depositary of an ICVC and the trustee of an AUT;

(3) "holder": covers both a "shareholder" of an ICVC and a "unitholder" of an "AUT";

(4) "unit": according to the context, can cover both a "share" in an "ICVC", a "unit" in an AUT and the rights or interests of participants in other types of collective investment scheme;

(5) "prospectus": covers the prospectus of an ICVC and the "scheme particulars" of an AUT, but there is no objection to the use of the latter term as an alternative to "prospectus".

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Outline of the content of this sourcebook

CIS 1.2.2

CIS 2 (Constitution) sets out provisions on the contents of the documents required to form authorised funds, and other matters relating to their constitutional features, such as classes of shares (in ICVCs) and units (in AUTs) and the types of authorised fund (for example, UCITS schemes) that may be established.

01/04/2004

CIS 1.2.3

CIS 3 (Prospectus) includes requirements on the preparation, content, availability of, and changes to, an authorised fund's prospectus.

01/12/2004

CIS 1.2.4

CIS 4 (Single-pricing and dealing) covers the valuation and pricing of authorised funds that are single-priced. In addition, it includes rules on the sale and redemption of units in such funds. CIS 7 Annex 1 G and Appendix CIS G are also relevant to this chapter.

01/12/2004

CIS 1.2.5

CIS 5 and CIS 5A (Investment and borrowing powers) require authorised funds to comply with the rules on investments to ensure funds operate under the principles of risk spreading. The chapter is split in two because of the implementation of the UCITS Amending Directive relating to investment powers and the transitional provisions that Directive allows. Transitional provision 14 provides precise details on the operation but generally speaking:

(1) UCITS qualifying schemes existing on or before 13 February 2002 and which now qualify as UCITS schemes may operate under the rules in CIS 5A and may switch to operate under CIS 5 at any time before 13 February 2007, at which time they must operate under CIS 5; and

(2) UCITS qualifying schemes authorised after 13 February 2002 but before 13 February 2004 may operate under the rules in CIS 5A or CIS 5 but must operate under the rules in CIS 5 by 13 February 2004.

01/11/2002

CIS 1.2.6

CIS 6 (Title, transfer and plan registers) includes requirements relating to the register of unitholders in an AUT. (Provisions concerning the register of an ICVC are in the OEIC regulations.) It also deals with plan registers of ICVCs and AUTs.

01/12/2004

CIS 1.2.7

CIS 7 (Powers and duties) apportions responsibilities between the directors (including the ACD) and depositary of an ICVC and the manager and trustee of an AUT, to the extent that these are not covered in other chapters.

01/12/2004

CIS 1.2.8

CIS 8 (Charges and expenses) lays down conditions concerning charges when investors buy or sell units and payments that can be made out of the scheme property.

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CIS 1.2.9

CIS 9 (Income) deals with the calculation and distribution of income.

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CIS 1.2.10

CIS 10 (Reports and accounts) concerns the content and publication of annual and half-yearly reports and accounts of authorised funds.

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CIS 1.2.11

CIS 11 (Meetings of holders, amendments to the scheme and service of notices) deals with a variety of matters relating to meetings of holders and includes requirements concerning the conditions under which the instrument constituting the scheme may be changed and how the scheme property of an authorised fund may become the property of another scheme (a scheme of arrangement). It also provides for the use of electronic media in respect of any notice, document or information that is required by CIS to be sent to any person.

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CIS 1.2.12

CIS 12 (Special provisions for certain categories of scheme) provides some special rules for certain categories of authorised fund, in particular for umbrella schemes.

01/12/2004

CIS 1.2.13

CIS 13 (Suspension and resumption of dealings) includes requirements for the suspension of dealings in the units of authorised funds.

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CIS 1.2.14

CIS 14 (Termination of schemes) includes requirements relating to the winding-up of authorised funds and the termination of a sub-fund of an ICVC.

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CIS 1.2.15

CIS 15 (Dual-pricing and dealing) sets out rules and guidance on the valuation and pricing of units in a dual-priced AUT. CIS 7 Annex 1 G and Appendix CIS G are also relevant to this chapter.

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CIS 1.2.16

CIS 16 (Application and notification) outlines the application and notification procedures for authorised funds and schemes from other countries or territories which may be recognised by the FSA for marketing in the United Kingdom.

01/12/2004

CIS 1.2.17

CIS 17 (Recognised schemes) sets out the information that the FSA requires so as to consider whether schemes under sections 264, 270 and 272 of the Act should be permitted to market in the United Kingdom.

17/01/2002

CIS 1.2.18

CIS 18 (Fees) sets out the application and periodic fees payable for the authorisation or recognition of regulated schemes.

17/01/2002
Future version of CIS 1.2.18 after 01/01/2006

Related sourcebooks

CIS 1.2.19

There are a number of other parts of the FSA's Handbook that are relevant to those having a responsibility in relation to authorised funds. These include:

(1) PRIN (The Principles for Businesses);

(2) SYSC (Senior management arrangements, systems and controls);

(3) APER (The Statements of principle and Code of Practice for approved persons) ;

(4) COB (The Conduct of Business sourcebook);

(5) SUP (The Supervision manual);

(6) DEC (the Decision making manual); and

(7) CASS (The Client Assets sourcebook).

01/01/2004

CIS 1.2.20

ENF 16 sets out the FSA's policies and procedures concerning the use of its enforcement powers in relation to ICVCs, AUTs and recognised schemes.

01/12/2004

CIS 1.2.21

ML is also relevant in particular when considering CIS 4.4.3 R, CIS 7.10 and CIS 15.4.3 R.

01/12/2004

CIS 1.2.22

Due regard should be given to compliance with the Joint Money Laundering Steering Group Guidance Notes for the Financial Sector in determining compliance with the Money Laundering Regulations.

01/12/2004

CIS 1.2.23

Establishing, operating or winding up a collective investment scheme is a regulated activity. No person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is an authorised person (or an exempt person). This prohibition is also known as the general prohibition. Guidance for persons considering carrying on regulated activities in the United Kingdom can be found in AUTH. AUTH 3 (Applications for Part IV permission) gives guidance on how to apply to the FSA for a Part IV permission. This authorisation is different to the authorisation of a scheme under Part XVII of the Act, guidance on which is provided in this sourcebook.

01/11/2002

Export chapter as

Legal Instruments that change this Chapter Introduction - Collective investment schemes sourcebook

CIS 2

Constitution

CIS 2.1

Introduction

01/12/2004

Application

CIS 2.1.1

This chapter applies in relation to ICVCs and AUTs.

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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.

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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
Past version of CIS 2.2.7 before 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

Export chapter as

Legal Instruments that change this Chapter Constitution

CIS 3

Prospectus

CIS 3.1

Introduction

01/12/2004

Application

CIS 3.1.1

The rules and guidance in this chapter apply in accordance with CIS 3.1.2 R (Table of application).

01/12/2004

CIS 3.1.2

Table of application

This table belongs to CIS 3.1.1 R

Paragraph or section number

ICVC

ACD

Any other directors of an ICVC

Manager of an AUT

3.2

3.3

3.4

3.5

Note: "X" means applies.

01/12/2004

Purpose

CIS 3.1.3

(1) The purpose of this chapter is to assist in achieving the regulatory objective of protecting consumers as envisaged by sections 2 and 5 of the Act by enabling consumers to have access to up to date detailed information about an AUT or ICVC before units are sold to them. The rules in this chapter also take account of Principle 7 (Communication with clients) that a firm must pay due regard to the information needs of its customers.

(2) In addition, this chapter sets out responsibility for a prospectus and the requirements relating to changes to it.

(3) This chapter contains "scheme particulars rules" as provided for by section 248 of the Act and referred to in regulation 6(1) of the OEIC regulations. The rules in this chapter also satisfy the requirements of the UCITS directive, relating to the minimum information to be included in a prospectus.

(4) Although the term prospectus is used in regulation 6(2) of the OEIC regulations and in this sourcebook, the document that contains the requisite information may be entitled "scheme particulars".

(5) In addition COB 6 (Product disclosure) contains rules and guidance relating to information about authorised funds which must be provided or made available at the point of sale.

13/02/2004

CIS 3.2

Drawing up and availability of prospectus

01/12/2004

Drawing up of prospectus

CIS 3.2.1

(1) A prospectus must contain the matters specified in CIS 3.5 (Information to be contained in the prospectus) and it must be drawn in English and published as a document up by the authorised fund manager and, in the case of an ICVC, approved by the directors.

(2) A prospectus must not contain any other matter unless the inclusion of it is expressly contemplated in the rules in this sourcebook.

(3) A revised prospectus is subject to this rule as if it were a new prospectus whether or not the revisions were required under CIS 3.4 (Revision of and changes to prospectus).

13/02/2004

Availability of prospectus

CIS 3.2.2

(1) An ICVC or the manager of an AUT must supply a copy of the prospectus drawn up in accordance with CIS 3.2.1 R (Drawing up of prospectus) free of charge:

(a) to any person on request; and

(b) to the FSA.

(2) An ICVC which is a UCITS scheme, or the manager of an AUT which is a UCITS scheme:

(a) must not market units in the territory of another EEA State unless a prospectus has been drawn up in an official language of that EEA State and, in the case of an ICVC, approved by the directors; and

(b) must supply the prospectus to any purchaser of units free of charge on request.

(3) An authorised fund manager must, upon the request of a holder in a UCITS scheme, provide information supplementary to the prospectus of that scheme relating to:

(a) the quantitative limits applying in the risk management of that scheme;

(b) the methods used in relation to (a); and

13/02/2004

CIS 3.3

False or misleading prospectus

01/12/2004

Requirement

CIS 3.3.1

(1) The authorised fund manager, subject to (3), (4) and (5):

(a) must ensure that the prospectus does not contain any untrue or misleading statement or omit any matter required by the rules in this sourcebook to be included in it; and

(b) is liable to pay compensation to any person who has acquired any units in the authorised fund and suffered loss in respect of them as a result of any such statement or omission. This is in addition to any liability incurred apart from this rule (CIS 3.3.1 R).

(2) The authorised fund manager is not in breach of (1)(a) and is not liable to pay compensation under (1)(b) if at the time when the prospectus was made available to the public it had taken reasonable care to determine that the statement was true and not misleading, or that the omission was proper, and that:

(a) it continued to take such reasonable care until the time of the relevant acquisition of units in the scheme;

(b) the acquisition took place before it was reasonably practicable to bring a correction to the attention of potential purchasers;

(c) it had already taken all reasonable steps to secure that a correction was brought to the attention of potential purchasers;

(d) the person who acquired the units was not materially influenced or affected by that statement or omission in making his decision.

(3) The authorised fund manager is also not in breach of (1)(a) and is not liable to pay compensation under (1)(b) if:

(a) before the acquisition a correction had been published in a manner calculated to bring it to the attention of persons likely to acquire the units in question; or

(b) it took all reasonable steps to secure such publication and had reasonable grounds to conclude that it had taken place before the units were acquired.

(4) The authorised fund manager is not liable to pay compensation under (1)(b) if the person who acquired the units knew at the time of his acquisition that the statement was untrue or misleading or knew of the omission.

(5) For the purposes of this rule (CIS 3.3.1 R) a revised prospectus will be treated as a different prospectus from the prospectus to which the revision was made.

(6) References in this rule (CIS 3.3.1 R) to the acquisition of units include references to contracting to acquire them.

01/12/2004

CIS 3.4

Revision of and changes to prospectus

01/12/2004

Revision of prospectus

CIS 3.4.1

(1) A prospectus must be:

(a) revised immediately upon:

(i) the occurrence of any materially significant change in the matters stated in it; or

(ii) the occurrence of any materially significant new matter which ought to be referred to in it in advance of an annual review so far as is necessary to take account of that change or matter;

(b) reviewed at least once in every 12 months and revised to take account of any change or any new matter, other than one which reasonably appears to the manager of the AUT or the directors of the ICVC to be insignificant.

(2) A revision of a prospectus may take the form of a complete substitution for the previous prospectus or of a supplement to the prospectus but, whichever it is, the date as at which the revision was made must be prominently displayed.

01/12/2004

Changes to prospectus

CIS 3.4.2

(1) Any change to, or introduction of, any of the provisions of the prospectus listed in (2) (other than a reduction in (c) to (e)) requires the prior approval of a resolution of the holders or, (for an ICVC) in the case of a change that affects only the holders of the units of a particular class (or classes), a resolution (or resolutions) of a class meeting (or meetings) of those holders.

(2) The provisions referred to in (1) are those required to be included in the prospectus as a consequence of:

(a) CIS 3.5.2 R(3) (Investment objectives and policy);

(b) CIS 3.5.2 R(12)(1) (Payments to the authorised fund manager), but only so far as it relates to an increase in the maximum rate or amount of the authorised fund manager's remuneration;

(c) CIS 3.5.2 R(12)(2) (Payments to the authorised fund manager) and CIS 3.5.2 R(12)(4) except if it is a change that is of minimal significance;

(d) CIS 3.5.2 R(13) (Other payments out of the scheme property) but excluding:

(i) any current remuneration under CIS 3.5.2 R(13)(2),(3) increased under the provisions of CIS 8.2.6 R or CIS 8.5.4 R; and

(ii) charges and expenses under CIS 3.5.2 R(13)(1) and CIS 3.5.2 R(13)(4).

(e) CIS 3.5.2 R(18) (Dilution); and

(f) CIS 3.5.2 R(24)(1) (Umbrella scheme) in so far as it applies any of (a) to (e) to a sub-fund.

(3) For an AUT, the resolution required under (1) must be an extraordinary resolution, and, in the case of an ICVC, must be an extraordinary resolution if it is to approve a change to, or introduction of, any of the provisions mentioned in (2)(a) or (b), (2)(c), in so far as it relates to CIS 3.5.2 R(12)(4), and (2)(d), in so far as it relates to CIS 3.5.2 R(13)(6).

(4) Paragraph (1) does not apply to a change to a prospectus which is required:

(a) solely to fulfil a requirement (other than a requirement of CIS 6.5 (Plan registers)) resulting from a change in the law (including the OEIC regulations) or a change to the rules in this sourcebook;

(b) to comply with CIS 3.5.2 R(3)(4) (Investment objectives and policy-eligible markets) if the change is, in the context of the investment policy applicable to the authorised fund or sub-fund concerned, of minimal significance only, and the authorised fund manager and the depositary have so agreed in writing, or the authorised fund manager has, not less than 90 days before the intended change:

(i) given written notice of the intended change to the depositary and to the holders; and

(ii) revised the prospectus to reflect the intended change and the date of its commencement;

(i) made either in accordance with CIS 11.4.4 R (Amendments to the instrument constituting the scheme: without meeting) or by a resolution passed at a meeting or, where appropriate, class meeting, of holders and which is not a change to any of the provisions of the prospectus included to comply with CIS 3.5.2 R(3) (Investment objectives and policy) or CIS 3.5.2 R(12)(1) (Payments to the authorised fund managers); or

(ii) of one of the types described in CIS 11.4.2 R (1) (a) or (b) (Amendment to the instrument constituting the scheme: with meeting);

(d) to comply with CIS 3.5.2 R(12)(4) (Payments to the authorised fund manager) or CIS 3.5.2 R(13)(6) (Other payments out of the scheme property) if:

(i) the authorised fund already has clear investment objectives indicating: (1) a greater preference for the generation of income than for capital growth; or (2) capital emphasis on the generation of income and capital growth; and 90 days have elapsed since the holders were notified in writing by the authorised fund manager of the change to the prospectus and of the date when it is to come into effect; or

(ii) in accordance with CIS 8.3.5 R (4) (Allocation of payments to capital or income (for ICVCs)) or CIS 8.5.7 R (4) (Allocation of payments to capital or income (for AUTs)) all of the remuneration of the authorised fund manager was immediately prior to the change in the prospectus, treated as a capital charge and the authorised fund manager and depositary have agreed that the change to the prospectus is of minimal significance; or

(iii) the change is only to reflect a reduction in the types or amounts of the payments which may be treated as a capital expense; or

(e) to comply with CIS 3.5.2 R18 (Dilution), if the authorised fund manager has not less than 90 days before the intended change:

(i) given written notice of the intended change to the depositary and to the holders; and

(ii) revised the prospectus to reflect the intended change and the date of its commencement.

(5) Paragraph (2) does not apply to a change to a prospectus of an ICVC which is required:

(a) solely to reflect action taken for the purpose of compliance with CIS 12.5.5 R (An ICVC with only one sub-fund); or

(b) to comply with CIS 6.5 (Plan register) if the ICVC was incorporated on or before 31 January 1999 and for the year to 5 April 1999 (or, if shorter, the period from the initial issue of its shares to 5 April 1999) was managed with the intention that its shares should be qualifying investments for the purposes of the Personal Equity Plan Regulations 1989.

(6) No significant departure may be made in the management of the scheme property of an authorised fund from the statements in its prospectus current at the relevant time in fulfilment of the requirements of CIS 3.5.2 R(3) (Investment objectives and policy).

01/08/2002

CIS 3.5

Information to be contained in the prospectus

01/12/2004

Matters to be included in the prospectus

CIS 3.5.1

The statements required by CIS 3.5.2 R must be included in the prospectus of an authorised fund.

01/12/2004

CIS 3.5.2

Contents of the prospectus

This table belongs to CIS 3.5.2 R

A prominent statement that this document is the prospectus or scheme particulars, of the authorised fund valid as at (and dated).

Description of the authorised fund
Information detailing:

(1)

the name of the authorised fund;

(2)

that the authorised fund is either an ICVC or an AUT;

(3)

the relevant category of authorised fund;

(4)

that the shareholders of an ICVC are not liable for the debts of the authorised fund;

(5)

the registered number of the ICVC;

(6)

the address of the ICVC's head office;

(7)

the effective date of the authorisation order made by the FSA;

(8)

if the duration of the authorised fund is not unlimited, when it will or may terminate;

(9)

the address of the place in the United Kingdom for service on the ICVC of notices or other documents required or authorised to be served on it;

(10)

the base currency for the authorised fund;

(11)

the maximum and minimum sizes of the ICVC's capital; and

(12)

the circumstances in which the authorised fund may be wound up under the rules in this sourcebook and a summary of the procedure for, and the rights of holders under, such a winding up.

Investment objectives and policy

(1)

Sufficient information to enable a holder to ascertain:

(a)

the investment objectives of the authorised fund or of each sub-fund of an umbrella scheme;

(b)

the authorised fund's investment policy for achieving those investment objectives, including the general nature of the portfolio and any intended specialisation; and

(c)

the extent (if any) to which that policy does not envisage remaining fully invested at all times.

(2)

Where, in accordance with CIS 8.3.5 R (Allocation of payments to capital or income - for ICVCs) or CIS 8.5.7 R (Allocation of payments to capital or income - for AUTs), all or any part of any payments permitted by CIS 8.2.3 R (Payments by an ICVC to an ACD) or CIS 8.5.1 R (Managers periodic charge) and any other charges or expenses of the authorised fund are is to be treated as a capital expense, a statement that this may constrain capital growth.

(3)

A description of any restrictions in the assets in which investment may be made, including restrictions in the extent to which the authorised fund may invest in any category of asset, indicating (where appropriate) where the restrictions are tighter than those imposed by CIS 5 or CIS 5A (Investment and borrowing powers), whichever is relevant to the scheme.

(4)

A list of any individual eligiblesecurities and derivatives markets through which the authorised fund may invest or deal in accordance with CIS 5.2.12 R or CIS 5A.3.3 R (Eligible markets: requirements), whichever is relevant to that scheme. Any securities or derivatives market in a EEA State which is eligible in accordance with CIS 5.2.12 R (1) or CIS 5A.3.3 R (1) (whichever is relevant to that scheme) may be included in the list or referred to in general terms.

(5)

For an authorised fund that is not a property scheme, state whether it is intended that the scheme will have an interest in any immovable property or tangible movable property.

(6)

The names of the States, local authorities or public international bodies in whose securities the authorised fund may invest more than 35% of its assets.

(7)

The policy in relation to the exercise of borrowing powers by the authorised fund and to transactions for the purpose of efficient portfolio management.

(8)

In the case of an authorised fund which may invest in other collective investment schemes, the extent to which the scheme property may be invested in the units of collective investment schemes which are managed by the authorised fund manager or by an associate of the authorised fund manager.

(9)

In the case of a property scheme:

(a)

the maximum extent to which the scheme property may be invested in:

(i)

immovables;

(ii)

property related assets;

(b)

where the directors of an ICVC or the manager of an AUT expect that the scheme property will be invested (during the period when that version of the prospectus may be in circulation) in government and public securities:

(i)

the fact that the scheme property may be so invested; and

(ii)

the maximum limit for such investment;

(c)

the countries or territories of situation of land or buildings in which the authorised fund may invest;

(d)

the policy of the authorised fund manager in relation to insurance of immovables forming part of the scheme property; and

(e)

in a prospectus available during the period of the initial offer, the consequences of failure to obtain £5 million (or the equivalent in base currency) as set out in CIS 12.3.4 R (Failure to obtain minimum subscriptions).

(10)

Where the net asset value of a UCITS scheme is likely to have high volatility owing to its portfolio composition or the portfolio management techniques used, a prominent statement to that effect.

(11)

Where a UCITS scheme invests principally in collective investment scheme units, deposits, or derivatives or replicates an index in accordance with CIS 5.2.32 R (Schemes replicating an index) a prominent statement regarding this investment policy.

(12)

Where derivatives transactions may be used in a UCITS scheme, a prominent statement as to whether these transactions are for the purposes of hedging or meeting the investment objectives or both and the possible outcome of the use of derivatives on the risk profile of the scheme.

(13)

In the case of a UCITS scheme which invests a substantial proportion of its assets in other collective investment schemes, a statement of the maximum level of management fees that may be charged to that UCITS scheme and to the collective investment schemes in which it invests.

(14)

In the case of a UCITS scheme, a statement that the investor may obtain on request the types of information (which must be listed) referred to in CIS 3.2.2 R (3).

(15)

In the case of a UCITS scheme, information concerning the historical performance of the scheme presented in accordance with COB 3.8.11 R (specific non real time financial promotions: past performance).

(16)

In the case of a UCITS scheme, the profile of the typical investor for whom the scheme is designed.

Distributions
Information as to:

(1)

the date on which the authorised fund's annual accounting period is to end in each year;

(2)

if there are interim accounting periods, what they are, and the policy in relation to interim distributions (for example, whether interim distributions will be made and, if so, the policy on smoothing of income distributions within an annual accounting period);

(3)

the date or dates in each year on or before which payment or accumulation of income is to be made or take place and, if there are holders of bearer certificates, how they are to identify themselves for the purposes of receiving payment of income;

(4)

if applicable, the policy on payment of income equalisation;

(5)

how distributable income is determined and paid; and

(6)

if applicable, that unclaimed distributions may be forfeited and a statement how such unclaimed distributions will be dealt with.

The characteristics of units in the authorised fund
Give information as to:

(1)

where there is more than one class of unit in issue or available for issue, the name of each such class and the rights attached to each class in so far as they vary from the rights attached to other classes;

(2)

where the instrument constituting the scheme provides for the issue of bearer certificates, that fact and, in the case of an ICVC, in what multiples bearer certificates may be issued;

(3)

how holders may exercise their voting rights and what these are;

(4)

where a mandatory redemption, cancellation or conversion of units from one class to another may be required (for instance, if an investor does not satisfy the residence condition for income to be paid or accumulated without tax being deducted), in what circumstances it may be required;

(5)

in the case of an AUT, the fact that the nature of the right represented by units is that of a beneficial interest under a trust; and

(6)

in the case of a class of limited issue shares or limited issue units, the restrictions on the issue and sale of those shares or units.

The authorised fund manager
The following particulars of the authorised fund manager:

(1)

its name;

(2)

the nature of its corporate form;

(3)

the country or territory of its incorporation;

(4)

the date of its incorporation;

(5)

if it is a subsidiary, the name of its ultimate holding company and the country or territory in which that holding company is incorporated;

(6)

the address of its registered office;

(7)

the address of its head office if that is different from the address of its registered office;

(8)

if neither its registered office nor its head office is in the United Kingdom, the address of its principal place of business in the United Kingdom;

(9)

if the duration of its corporate status is limited, when that status will or may cease;

(10)

the amount of its issued share capital and how much of it is paid up;

(11)

in what capacity, if any, it acts in relation to any other regulated collective investment schemes and the name of such schemes;

(12)

in the case of an ICVC, a summary of the material provisions of the contract between the ICVC and the authorised fund manager which may be relevant to shareholders including provisions (if any) relating to termination, compensation on termination and indemnity; and

(13)

in the case of an AUT, the names of the directors of the manager and, in each case, any significant business activities of the director not connected with the business of the manager.

(14)

In the case of a UCITS scheme, which functions the authorised fund manager may delegate.

Directors of an ICVC, other than the ACD
Other than for the ACD:

(1)

the names and positions in the ICVC of the directors;

(2)

the main business activities of each of the directors (other than those connected with the business of the ICVC) where these are significant to the ICVC's business;

(3)

the manner, amount and calculation of the remuneration of directors;

(4)

the main terms of each contract of service between the ICVC and a director in summary form; and

(5)

if the director is a body corporate in a group of which any other corporate director of the ICVC is a member, a statement of that fact.

The depositary
The following particulars of the depositary:

(1)

its name;

(2)

the nature of its corporate form;

(3)

the country or territory of its incorporation;

(4)

if it is a subsidiary, the name of its ultimate holding company and the country or territory in which that holding company is incorporated;

(5)

the address of its registered office;

(6)

the address of its head office if that is different from the address of its registered office;

(7)

if neither its registered office nor its head office is in the United Kingdom, the address of its principal place of business in the United Kingdom;

(8)

a description of its principal business activity; and

(9)

a summary of the material provisions of the contract between the ICVC or the manager of the AUT and the depositary which may be relevant to unitholders, including provisions relating to the remuneration of the depositary.

The investment adviser
If an investment adviser is retained in connection with the business of the authorised fund:

(1)

its name;

(2)

whether or not it is authorised by the FSA;

(3)

if it is a body corporate in a group of which any director of the ICVC or the manager of the AUT is a member;

(4)

where its principal activity is not providing services to the authorised fund as an investment adviser, what the principal activity is;

(5)

a summary of the material provisions of any contract between the authorised fund manager or the ICVC and any investment adviser which may be relevant to holders and, if the investment adviser has the authority of the authorised fund manager or the ICVC to make decisions on behalf of the authorised fund manager or the ICVC, that fact and a description of the matters in relation to which it has that authority.

The auditor
Details of the name and address of the auditor of the authorised fund.

The register of holders
Details of:

(1)

the address in the United Kingdom where the register of holders is kept and can be inspected by holders and the address where the plan register can be inspected; and

(2)

in the case of an AUT, (unless the depositary is the registrar), the registrar's name and address.

Payments to the authorised fund manager
The payments that may be made to the authorised fund manager (whether as such or in any other capacity) out of the scheme property whether by way of remuneration for its services, or reimbursement of expenses. For each category of remuneration, specify:

(1)

the maximum and current rates or amounts of such remuneration;

(2)

how it will be calculated and accrue and when it will be paid;

(3)

if notice has been given to holders of the authorised fund manager's intention to introduce a new category of remuneration for its services or to increase any rate or amount currently charged, particulars of that introduction or increase and when it will take place;

(4)

if, in accordance with CIS 8.3.5 R (Allocation of payments to capital or to income (for ICVCs)) or CIS 8.5.7 R (Allocation of payments to capital or to income (for AUTs)), all or part of the remuneration is to be treated as a capital charge:

(a)

that fact; and

(b)

the actual or maximum amount of the charge which may be so treated; and

(5)

if notice has been given to holders of an intention to propose an increase in the maximum amount of that charge at a meeting of holders, particulars of that proposal.

Other payments out of the scheme property
Provide details of:

(1)

any payment to be made out of the scheme property to reimburse costs incurred by the depositary, any of the directors of an ICVC or any third party;

(2)

any remuneration (including a statement of the maximum level currently permitted) payable out of the scheme property to the depositary or any third party;

(3)

any remuneration (including a statement of the maximum level currently permitted) to which (2) does not apply, payable out of the scheme property for services provided by an affected person;

(4)

the types of any other charges and expenses that may be taken out of the scheme property; and

(5)

if, in accordance with CIS 8.3.5 R (4) (Allocation of payments to capital or income (for ICVCs)) or CIS 8.5.7 R (4) (Allocation of payments to capital or income (for AUTs)), the authorised fund manager and the depositary have agreed that all or part of any payments permitted (excluding any stated under CIS 3.5.2 R(12)(4) (Payments to the authorised fund manager)) and any other charges or expenses of the authorised fund may be treated as a capital expense:

(a)

that fact; and

(b)

the policy for the amount of the payments which may be so treated.

Movable and immovable property (ICVC only)
Give an estimate of any expenses likely to be incurred by the ICVC in respect of movable and immovable property in which the ICVC has an interest.

Amortisation (ICVC only)
As at the date of the prospectus:

(1)

the amount of any set-up costs (including any of the type described in CIS 8.3.4 R (Set-up costs) remaining to be reimbursed out of the scheme property whether to the ACD or any other person, and

(2)

the amount of any costs remaining to be amortised under CIS 8.3.4 R and the method of amortisation.

Sale and redemption of units
Details as to:

(1)

the dealing days and times in the dealing day on which the authorised fund manager will be available to receive requests for the sale and redemption of units;

(2)

the procedures for effecting the sale and redemption of units and the settlement of transactions;

(3)

whether certificates will be issued in respect of registered units;

(4)

the steps required to be taken by a holder in redeeming units before he can receive the proceeds;

(5)

the circumstances in which the redemption of units may be suspended;

(6)

the days and times in the day on which recalculation of the price will commence;

(7)

the amounts of the following minima (if they apply) for each class of unit in the authorised fund:

(a)

the minimum number or value of units which any one person may hold; and

(b)

the minimum number or value of units which may be the subject of any one transaction of sale or redemption;

(8)

the circumstances in which the authorised fund manager may arrange for, and the procedure for, a cancellation of units in specie;

(9)

where and at what frequency the most recent prices will be published;

(10)

the investment exchanges (if any) on which units in the scheme are listed or dealt; and

(11)

for a dual-priced scheme or a scheme being valued on an historic price basis, the amount which constitutes a large deal in units.

Valuation of scheme property
Details as to:

(1)

how frequently and at what time or times of the day the scheme property will be regularly valued for the purpose of determining the price at which units in the scheme may be purchased from or redeemed by the authorised fund manager and a description of any circumstance in which the scheme property may be specially valued;

(2)

in relation to each purpose for which the scheme property must be valued, the basis on which it will be valued; and

(3)

(in the case of an ICVC) how the price of units of each class will be determined.

Dilution
In the case of an ICVC or a single-priced AUT:

(1)

what is meant by: (a) dilution, (b) dilution levy or dilution adjustment (as the case may be) and (c) for the purposes of (4)(a), large deals;

(2)

a statement that it is not possible to predict accurately whether dilution would occur at any point in time;

(3)

a statement of which one of the following policies the authorised fund manager is adopting:
(a) it may require a dilution levy; or
(b) it may make a dilution adjustment; or
(c) it will not require a dilution levy or make a dilution adjustment;
together with an explanation of how this policy may affect the future growth of the authorised scheme; and

(4)

if the authorised fund manager may require a dilution levy or make a dilution adjustment:
(a) a statement of the authorised fund manager's policy in deciding when to require dilution levy, including the authorised fund manager's policy on large deals, or to make a dilution adjustment;
(b) a statement, based either on historical data or future projections, of the estimated rate or amount of any dilution levy or dilution adjustment; and
(c) a statement as to the likelihood that the authorised fund manager may require a dilution levy or make a dilution adjustment and the basis (that is, historical or projected) on which the statement is made.

SDRT provision
Details as to:

(1)

what is meant by stamp duty reserve tax, SDRT provision and, for the purposes of (2), by large deal; and

(2)

the authorised fund manager's policy on imposing an SDRT provision including its policy on large deals, and the occasions, and the likely frequency of the occasions, in which an SDRT provision may be imposed and the maximum rate of it; a usual rate may also be stated.

Forward and historic pricing
The authorised fund manager's normal basis of dealing (whether at a forward price, or at an historic price, or on the basis of a switch from the latter to the former in every dealing period).

Preliminary charge
If the authorised fund manager makes a preliminary charge:

(1)

the maximum amount of that charge, expressed either as a fixed amount or as a percentage of the issue price;

(2)

the current rate or amount of preliminary charge, if different from the maximum amount or rate; and

(3)

if notice has been given to unitholders of the authorised fund manager's intention to introduce a preliminary charge or to increase the rate or amount currently charged, particulars of that introduction or increase and when it will take effect.

Redemption charge
If the authorised fund manager may make a redemption charge:

(1)

the amount of that charge or, if it is variable, the rate or method of arriving at it;

(2)

if the amount or rate or method has been changed, that details of any previous amount or rate or method may be obtained from the authorised fund manager on request;

(3)

if notice has been given of an intention to introduce a redemption charge or to propose a change in the amount or rate or method which is adverse to holders, particulars of that proposal; and

(4)

how the order in which units acquired at different times by a unitholder is to be determined so far as necessary for the purposes of the imposition of the redemption charge.

General information
Details as to:

(1)

when annual and half-yearly reports will be published and, if the directors of the ICVC or the manager of the AUT have determined that the accounts contained in the report should be short form accounts, a statement that a report containing the full accounts is available on request;

(1A)

if the authorised fund manager determined that short form reports are to be prepared for the purposes of CIS 10.5.2R (2A)(2), a statement when the short report will be sent to the unitholders.

(2)

the address at which copies of the instrument constituting the scheme, any amending instrument and the most recent annual and half-yearly reports may be inspected and from which copies may be obtained;

(3)

(in the case of dual-priced AUTs only) that the cancellation price last notified to the trustee is available on request;

(4)

how the ICVC or the manager of an AUT will publish, for the benefit of holders of bearer certificates, notice:

(a)

of the fact that annual and half-yearly reports are available for inspection and how copies may be obtained;

(b)

when a distribution of income will become payable and how it may be collected;

(c)

of the calling of meetings;

(d)

of the winding up of the authorised fund (or the termination of a sub-fund of an umbrella scheme) or the revocation of its authorisation;

(e)

that amendments have been made to the instrument constituting the scheme;

(f)

that a significant alteration has been made to the prospectus; and

(g)

of any sub-division or consolidation of units (other than a consolidation of smaller denomination shares into larger denomination shares); and

(5)

the extent to which and the circumstances in which:

(a)

the scheme is liable to pay or suffer tax on any appreciation in the value of the scheme property or on the income derived from the scheme property; and

(b)

deductions by way of withholding tax may be made from distributions of income to holders and payments made to holders on the redemption of units.

(6)

In the case of a UCITS scheme, any possible fees or expenses not described in paragraphs 12-22, distinguishing between those to be paid by a holder and those to be paid out of scheme property.

Umbrella scheme

(1)

In the case of an umbrella scheme:

(a)

that a holder is entitled to exchange units in one sub-fund for units in any other sub-fund (other than limited issue units or limited issue shares);

(b)

that an exchange of units in one sub-fund for units in any other sub-fund is treated as a redemption and sale and will, for persons subject to United Kingdom taxation, be a realisation for the purposes of capital gains taxation;

(c)

that in no circumstances will a holder who exchanges units in one sub-fund for units in any other sub-fund be given a right by law to withdraw from or cancel the transaction;

(d)

what charges, if any, may be made on exchanging units in one sub-fund for units in any other sub-fund;

(e)

the policy for allocating between sub-funds any assets of, or costs, charges and expenses payable out of, the scheme property which are not attributable to any particular sub-fund;

(f)

(for ICVCs only) how the method of amortisation of any costs to be amortised under CIS 8.3.4 R (Set-up costs), or any reimbursement of set-up costs may be affected by the introduction or termination of a sub-fund;

(g)

(for ICVCs only) in respect of each sub-fund, the currency in which the scheme property allocated to it will be valued and the price of units calculated and payments made, if this currency is not the base currency of the umbrella scheme; and

(h)

if there are units for less than two sub-funds in issue, the effect of CIS 12.5.5 R (An ICVC with only one sub-fund).

(2)

In the application of these rules to an umbrella scheme, information required:

(a)

must be stated in relation to each sub-fund where the information for any sub-fund differs from that for any other;

(b)

must be stated for the umbrella scheme as a whole, but only where the information is relevant to the umbrella scheme as a whole; and

(c)

must, in the case of an ICVC, contain a statement to the effect that the sub-funds of an umbrella scheme are not "ring fenced" and in the event of an umbrella scheme being unable to meet liabilities attributable to any particular sub-fund out of the assets attributable to that sub-fund, the remaining liabilities may have to be met out of the assets attributable to other sub-funds.

Marketing in another EEA State
A prospectus of a UCITS scheme which is prepared for the purpose of marketing units in a EEA State other than the United Kingdom must give details as to:

(1)

what special arrangements have been made:

(a)

for paying in that EEA State amounts distributable to holders resident in that EEA State;

(b)

for redeeming in that EEA State the units of holders resident in that EEA State;

(c)

for inspecting and obtaining copies in that EEA State of the instrument constituting the scheme and amendments to it, of the prospectus and of the annual and half-yearly reports; and

(d)

for making public the price or prices of units of each class;

(2)

how the ICVC or the manager of an AUT will publish in that EEA State notice:

(a)

that annual and half-yearly reports are available for inspection;

(b)

that a distribution has been declared;

(c)

of the calling of a meeting of holders; and

(d)

of the termination of the authorised fund or the revocation of its authorisation.

Additional information
Any other material information which is within the knowledge of the directors of an ICVC or the manager of an AUT, or which the directors or manager would have obtained by the making of reasonable enquiries:

(1)

which investors and their professional advisers would reasonably require, and reasonably expect to find in the prospectus, for the purpose of making an informed judgement about the merits of investing in the authorised fund and the extent and characteristics of the risks accepted by so participating;

(2)

including a statement of any risks which investment in the authorised fund may reasonably be regarded as presenting for reasonably prudent investors of moderate means; and

(3)

including, if there is any arrangement intended to result in a particular capital or income return from a holding of units in the authorised fund, or any investment objective of giving protection to the capital value of, or income return from, such a holding:

(a)

details of that arrangement or protection;

(b)

for any related guarantee, sufficient details about the guarantor and the guarantee to enable a fair assessment of the value of the guarantee;

(c)

a description of the risks that could affect achievement of that return or protection; and

(d)

details of the arrangements by which the authorised fund manager will notify holders of any action required by the holders to obtain the benefit of the guarantee, if appropriate; these arrangements must provide for notice to be given a reasonable amount of time before the action is required.

01/04/2005
Past version of CIS 3.5.2 before 01/04/2005

Export chapter as

Legal Instruments that change this Chapter Prospectus

CIS 4

Single-pricing and dealing

CIS 4.1

Introduction

01/12/2004

Application

CIS 4.1.1

(1) This chapter applies in relation to ICVCs and single-priced AUTs. Accordingly, in this chapter:

(a) references to "authorised funds" and to "units" relate only to ICVCs and single-priced AUTs and to shares or units in them;

(b) references to "authorised fund manager" or to "depositary" relate only to the ACD or depositary of an ICVC or to the manager or trustee of a single-priced AUT; and

(2) This section (CIS 4.1) applies to ICVCs, their directors (including the ACD) and depositaries, and to the managers and trustees of single-priced AUTs.

(3)

(a) If, and to the extent that, the authorised fund manager and the depositary so agree, income units and accumulation units are to be treated, for the purposes in (b) as belonging to the same class of units.

(b) The purposes to which (a) can apply are:

(i) ascertaining the number of units to be issued or cancelled for the authorised fund manager to comply with CIS 4.3.9 R (2) (Issue of units to meet authorised fund manager's obligation to sell) and CIS 4.3.10 R (2)(Cancellation and payment for cancelled units); or

(ii) compliance with requirements of this chapter relating to information to be given by the authorised fund manager to the depositary.

(c) Paragraphs (a) and (b) do not apply to the income units and accumulation units of an ICVC unless the rights attached to those classes provide for their prices to be calculated by reference to undivided shares (whatever called) in a manner similar to that resulting from CIS 2.6.1 R (Units and classes of units in AUTS).

01/11/2002

Persons to whom the provisions apply

CIS 4.1.2

The persons to whom each 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 containing the rule or guidance.

01/12/2004

Purpose

CIS 4.1.3

(1) This chapter helps in achieving the regulatory objective of protecting consumers (consumer's interests) as envisaged by sections 2 and 5 of the Act. In accordance with Principle 6, this chapter is intended to ensure the authorised fund manager pays due regard to its customers' interests and treats them fairly.

(2) An authorised fund manager is responsible for valuing the scheme property of the authorised fund it manages and for calculating the price of units in the authorised fund. As well as arranging for the issue and the cancellation of units for the account of the authorised fund, the authorised fund manager is permitted to sell and redeem units for its own account. The rules in this chapter are intended to ensure that the price of units is properly related to the net value of the authorised fund and, in accordance with Principle 6, that the authorised fund manager treats customers fairly with investors when they purchase or sell units. This chapter provides common standards for these purposes.

01/08/2002

Explanation of this chapter

CIS 4.1.4

(1) The rules in this chapter make apparent the extent to which any of them, or any paragraph in any of them, applies only to a single-priced AUT or to an ICVC. In particular, CIS 4.3.3 R (Issue and cancellation of shares by an ICVC) applies only to an ICVC and the following rules apply only to a single-priced AUT: CIS 4.3.4 R (Issue and cancellation of units in an AUT); CIS 4.3.5 R (Trustee's refusal to issue or cancel units); CIS 4.3.6 R (Instructions or notifications between managers and trustees).

(2) Shares in an ICVC are issued or cancelled when the ACD records the issue or cancellation. Units of an AUT are issued or cancelled by the trustee on the manager's instructions. In the case of an issue, payment in cash of the price of the units or a transfer of assets of an equivalent value must be made to the depositary for the account of the authorised fund concerned. Payment by the depositary for cancelled shares is normally to be made by the close of the fourth business day after the cancellation.

(3) An authorised fund manager may hold units for its own account (in its 'box'): so a purchaser of units from the authorised fund manager may receive units which have been issued to the authorised fund manager or that have been redeemed (that is repurchased) by the authorised fund manager from a previous holder. In addition to selling and redeeming units for its own account, the authorised fund manager may arrange for the trustee or the ICVC to issue units direct to an investor or to cancel a holder's units.

(4) The authorised fund manager must be prepared to redeem units of a holder who wishes to realise the value of them. The authorised fund manager can then retain the units in its box or it can cancel them.

(5) The special provision about initial issues and sales at the start of an authorised fund's life are in CIS 4.2, separately from the rules about issues and sales in an ongoing authorised fund.

(6) Under this chapter, the price at which a unit is issued, sold, redeemed or cancelled will be a single price. Although certain additions to, or deductions from, the price are provided for and affect payments, they do not affect the single price. Except for the initial issues and sales, the single price will be determined in accordance with CIS 4.3.11 R (Price of a unit) and, in broad outline, will be calculated by valuing the scheme property attributable to the class of units in question and dividing that value by the number of those units in issue. The valuation of the scheme property must be in accordance with CIS 4.8 and with the relevant provisions of the instrument constituting the scheme.

(7) CIS 4.6 (Dilution and SDRT provision) enables the authorised fund manager to choose whether or not:

(a) to require for the benefit of the authorised fund, as an addition to, or deduction from, the single price (but not part of it), a provision (SDRT provision) against certain stamp duty reserve tax that is payable out of the scheme property; and

(b) for the purpose of reducing dilution (see CIS 4.6.2 G (1) (Purpose)) either:

(i) to require, for the benefit of the authorised fund, a dilution levy as an addition to, or deduction from, the single price (but not part of it); or

(ii) to make a dilution adjustment in the calculation of the single price.

(8) The requirements in this chapter are to be applied separately to each sub-fund of an umbrella scheme.

01/08/2002

CIS 4.2

Initial offers

01/12/2004

Application

CIS 4.2.1

This section (CIS 4.2) applies to authorised fund managers and CIS 4.2.4 R (1) (Issue of units : initial offer) also applies to any directors of an ICVC additional to the ACD.

01/12/2004

Purpose

CIS 4.2.2

This section (CIS 4.2) helps to protect investors by rules intended to ensure the authorised fund receives subscriptions for units and that neither the authorised fund nor the investor will suffer any material loss, as a result of fluctuations in the value of the scheme property, for so long as units are available at the fixed price.

01/12/2004

Period of initial offer

CIS 4.2.3

(1) The period of the initial offer must not exceed 21 days and an initial offer must, subject to CIS 4.2.5 R (Compulsory termination of initial offer), be kept open for the period of the initial offer.

(2) Where an initial offer is of units in a sub-fund, CIS 4.2.4 R and CIS 4.2.5 R apply as if references in those rules to a unit were to a unit in that sub-fund.

01/12/2004

Issue of units: initial offer

CIS 4.2.4

(1) The price to be paid for a unit of any class issued during the period of the initial offer must be the initial price of a unit of that class, as determined by the directors of the ICVC or the manager of the AUT. The price must be notified in writing to the depositary before the start of the period of the initial offer.

(2) For the purpose of (1), a unit is treated as issued during the period of the initial offer if the authorised fund manager had agreed to its sale or received an order for it to be sold before the close of the period, and it was issued only afterwards.

(3) The authorised fund manager must, by the close of business on the fourth business day after receiving the price from the purchaser, pay the depositary the price of any unit it agreed to sell during the period of the initial offer, unless payment by the authorised fund manager is due earlier under CIS 4.3.7 R (Payments for units issued). The authorised fund manager may retain for its own account any preliminary charge it makes under CIS 8.2.2 R (Preliminary charge: ICVCs and single-priced AUTs).

(4) During the period of the initial offer, the authorised fund manager must not agree to cause units to be issued under CIS 4.5 (Issues and cancellations through the authorised fund manager and in specie cancellations) at a price other than the initial price.

(5) The initial price of a unit must, subject to CIS 12.5.2 R (Base currency), be expressed in the base currency of the authorised fund (or, for a currency class share, in the currency of designation of that class). However, during the period of the initial offer, the authorised fund manager may agree to sell units, or cause units to be issued under CIS 4.5.3 R (Issues and cancellations through the authorised fund manager) in any other currency.

(6) Nothing in this rule affects the powers of the authorised fund manager to require a payment of SDRT provision under CIS 4.6.3 R (Dilution levy and SDRT provision).

(7) Where the initial offer is made in a country outside the United Kingdom, an amount may be added to the initial price of units offered in that country which is sufficient to cover additional duty or taxation leviable in that country and the cost of remitting money to the United Kingdom.

01/12/2004

Compulsory termination of initial offer

CIS 4.2.5

(1) The period of the initial offer comes to an end immediately if:

(a) the authorised fund manager does not carry out a valuation immediately, but after having taken reasonable care, it ascertains that, if the current price of a unit were to be calculated by reference to an immediate valuation, it would be likely to vary from the unit's initial price by 2% or more of the initial price; or

(b) the authorised fund manager carries out a valuation immediately after it has ascertained the circumstances mentioned in (a) and the valuation shows there is a variation of 2% or more.

(2) If the period of the initial offer comes to an end under (1), the authorised fund manager must immediately refrain from:

(a) agreeing to sell units at the initial price; and

(i) in the case of an ICVC, arranging for the ICVC to issue shares at the initial price, except to fulfil an existing obligation of the ACD to sell shares at the initial price or to fulfil an order for shares at the initial price which the ACD received before the initial offer came to an end; or

(ii) in the case of an AUT, instructing the trustee to issue units at the initial price, unless to fulfil an existing obligation of the manager to sell units at the initial price or to fulfil an order for units at the initial price which the manager received before the initial offer came to an end.

(3) The current price of a unit for the purpose of (1):

(a) must be calculated on the basis that the number of units of each relevant class in existence immediately before the valuation is the number for which the initial price has been paid, or for which assets have been transferred to the depositary in exchange (or treated for the purpose of the valuation as having been paid or exchanged), before the valuation; and

(b) must not include any dilution adjustment.

01/08/2002

CIS 4.3

Issue and cancellation

01/12/2004

Application

CIS 4.3.1

This section (CIS 4.3) applies in relation to the issue, cancellation and pricing of units of an authorised fund after the close of any initial offer of units at a fixed price. However, the rules in CIS 4.3.3 R to CIS 4.3.7 R and CIS 4.3.12 R also apply to the initial issue of units under CIS 4.2.4 R.

01/12/2004

Purpose

CIS 4.3.2

This section (CIS 4.3) protects investors by means of rules intended to ensure the authorised fund receives or pays out the right amounts when units are issued or cancelled. Accordingly, it lays down certain basic procedures for the issue and cancellation of units and sets out how, except for an initial offer, the prices of those units are to be calculated, and paid.

01/12/2004

Issue and cancellation of shares by an ICVC

CIS 4.3.3

(1) This rule (CIS 4.3.3 R) applies to ICVCs and to ACDs and depositaries of ICVCs.

(2) Shares in an ICVC are issued or cancelled by the ACD making a record for the ICVC of the issue or cancellation and of the number of the shares of each class concerned. Shares must not be issued or cancelled in any other manner.

(3) The time of the issue or cancellation under (2) is the time when the record is made.

(4) References in these rules to arrangements for the ICVC to issue or cancel shares means arrangements for making a record of the issue or cancellation.

(5) The ACD may arrange for the ICVC to issue shares in exchange for assets other than money if the depositary has taken reasonable care to determine that acquiring the assets in exchange for the issue of shares is not likely to result in any material prejudice to the interests of shareholders or potential shareholders. For this purpose the depositary must take account of any payment that would have been required under CIS 4.6.3 R (Dilution levy and SDRT provision) had the shares been issued for cash.

(6) An issue under (5) must not be made in breach of CIS 11.5.2 R (Schemes of arrangement: requirements).

01/12/2004

Issue and cancellation of units in an AUT

CIS 4.3.4

(1) This rule (CIS 4.3.4 R) applies to managers and trustees.

(2) Where the manager wishes new units to be issued or wishes units to be cancelled and, in either case, complies with CIS 4.3.11 R (4) and CIS 4.3.11 R (5) (Price of a unit), it may instruct the trustee to issue or cancel units. Any instructions given by the manager must state, for each class of unit to be issued or cancelled, the number to be issued or cancelled, expressed either as a number of units or as an amount in value (or as a combination of the two).

(3) The trustee must issue or cancel units on receipt of, and in accordance with, instructions given by the manager under (2) and must not issue or cancel units otherwise, but this is subject to (4) and CIS 4.3.5 R (2).

(4) The trustee may issue units in exchange for assets other than money, but its obligation to comply with an instruction to issue units in such a case arises only:

(a) if it has taken reasonable care to determine that (taking account of any payment that would have been required under CIS 4.6.3 R (Dilution levy and SDRT provision) if the units had been issued for cash) the acquisition of the assets in exchange for the number of units to be issued is not likely to result in any material prejudice to the interests of unitholders or potential unitholders;

(b) in a case governed by CIS 11.5.2 R (5) (Schemes of arrangement: requirements) if the resolution concerned in relation to the AUT of which it is the trustee has been duly carried or is not required.

(5) The manager may, at any time during the period of an initial offer, instruct the trustee to issue units. Furthermore, as soon as the period of the initial offer has come to an end, the manager must instruct the trustee to issue any units which were sold, or treated as sold, during that period and which it has not already instructed the trustee to issue.

01/12/2004

Trustee's refusal to issue or cancel units

CIS 4.3.5

(1) This rule (CIS 4.3.5 R) applies to managers and trustees of AUTs.

(2) If, on receiving instructions to issue or cancel units, the trustee is of the opinion that (in the case of an issue) the issue would be in breach of a restriction on issue relating to a class of limited issue shares or limited issue units or that it is not in the interests of unitholders that:

(a) units should be issued; or

(b) units should be cancelled; or

the trustee must give notice to the manager that it refuses to issue or, as the case may be, cancel, all, or a specified number of, the units.

(3) On giving such a notice, the trustee is relieved of the obligation to issue or cancel the number of units to which the notice relates.

01/11/2002

Instructions or notifications between the manager and trustee

CIS 4.3.6

(1) This rule (CIS 4.3.6 R) applies to managers and trustees of AUTs.

(2) Any instruction or notification given (or report supplied) under this chapter by the manager to the trustee:

(a) must be in writing or in such other form as enables the recipient to know or record the time of receipt and to preserve a legible copy of it; and

(b) must be recorded by the manager at the time when it is given or supplied.

(3) Instructions or notifications are given within any period under this chapter if they are received by the trustee within that period, and instructions or notifications received by the trustee after the expiry of any period are treated as given after that expiry.

(4) This rule also applies, with the substitution of "manager" for "trustee" and "trustee" for "manager", to any instruction or notification given by the trustee to the manager.

01/12/2004

Payment for units issued

CIS 4.3.7

(1) This rule (CIS 4.3.7 R) applies to authorised fund managers.

(2) This rule applies to a unit issued during the period of the initial offer (and for this purpose the time of issue is not governed by CIS 4.2.4 R(2) (Issue of units: initial offer)).

(3) The authorised fund manager must, by the close of business on the fourth business day following the issue of any units:

(a) pay to the depositary, in cash or cleared funds, the price of the units and any payment required under CIS 4.6.3 R (Dilution levy and SDRT provision) to the extent that either remains unpaid; or

(b) for an exchange under CIS 4.3.3 R (5) or CIS 4.3.4 R (4), ensure transfer to the depositary of the assets to be taken in exchange.

(4) For an exchange under CIS 4.3.3 R (5) or CIS 4.3.4 R (4), the authorised fund manager must ensure the beneficial interest in the assets is transferred to the ICVC or to the trustee with effect from the issue of the units, even if the legal ownership is not then transferred.

01/12/2004

Box management errors

CIS 4.3.8

(1) This guidance (CIS 4.3.8 G) applies to authorised fund managers.

(2) An authorised fund manager is not permitted to sell or cancel units that it does not own. To do so would be in breach of CIS 4.3.9 R (2) (Issue of units to meet authorised fund manager's obligation to sell) or CIS 4.3.10 R (2) (Cancellation and payment for cancelled units). Errors relating to the number of units issued or cancelled can be corrected to the extent permitted by CIS 4.3.12 R (Modification to number of units issued or cancelled).

(3) An authorised fund manager's holding of units for its own account is commonly known as its 'box' of units. Appendix CIS G (Correction of box management errors) contains further guidance on:

(a) controls relating to the management of the authorised fund manager's box of units;

(b) recording and reporting errors in calculating the number of units in the box;

(d) the payment of compensation in relation to particular categories of error.

01/12/2004

Issue of units to meet authorised fund manager's obligation to sell

CIS 4.3.9

(1) This rule (CIS 4.3.9 R) applies to authorised fund managers.

(2) If, at any valuation point, the authorised fund manager has any outstanding obligation to sell units of any class, it must arrange for the ICVC or instruct the trustee before the earlier of:

(a) the expiry of two hours since the valuation point; or

(b) the next valuation point;

to issue units of that class in such number (expressed either as a number of units or as an amount in value (or as a combination of the two)) as will at least enable the authorised fund manager to fulfil the obligation immediately whether from the units so issued or from other units of that class which it owned immediately before the valuation point (or notified point if there is one).

(3) If the authorised fund manager wishes regularly to have a notified point, it may notify the depositary of its intention, indicating the period of time not exceeding two hours after the valuation point at which it wishes the notified point to occur. Any change in the period is ineffective unless agreed by the depositary.

01/12/2004

Cancellation and payment for cancelled units

CIS 4.3.10

(1) Paragraphs (2) and (3) and (7) to (9) apply to authorised fund managers; (4) applies only to ICVCs and their depositaries and ACDs; (5) and (6) apply only to managers and trustees of AUTs.

(2) The authorised fund manager must not arrange for the ICVC, or instruct the trustee, to cancel units of any class if, or to the extent that, by so doing the authorised fund manager would be prevented from immediately fulfilling any outstanding obligation to issue units which had been assumed before the relevant valuation point (or notified point if there is one).

(3) For the purpose of (2), the authorised fund manager must take account of all units sold or redeemed by reference to the relevant valuation point (or notified point if there is one).

(4) On cancelling shares the ACD must, within the period specified in (7), require the depositary to pay the price of the shares (less any deduction required under CIS 4.6.3 R (Dilution levy and SDRT provision)) to, or to the order of, the shareholder or the ACD (as the case may be).

(5) Where instructions are given to cancel units in an AUT at a time which is less than two hours after the last valuation point and the trustee has received but not yet executed instructions previously given, the later instructions must enable the trustee to execute both or all sets of instructions simultaneously.

(6) On cancelling units in an AUT, the trustee must within the period specified in (7) pay the price of the units (less any deduction required under CIS 4.6.3 R (Dilution levy and SDRT provision):

(a) (except where (b) applies) to, or to the order of, the unitholder or the manager (as the case may be); or

(b) in the case of a relevant pension scheme, in accordance with the relevant provisions of the trust deed.

(7) The period for payment expires at the close of business on the fourth business day following the cancellation of the units or, if later, as soon as practicable after delivery to the trustee or the ICVC of such evidence of title to the units as it may reasonably require.

(8) If the authorised fund manager has not ensured that the scheme property includes or will include sufficient cash in the appropriate currency (or a sufficient facility to borrow without infringing any applicable restriction in CIS 5A.15.3 R (General power to borrow) or CIS 5A.15.4 R (Borrowing limits) or CIS 5.5 within the period in (7)), that period is extended, for any relevant currency, until the shortage is rectified.

(9) Paragraphs (4) and (6) do not apply where units are cancelled following a cancellation for property transferred or sold under CIS 4.5.4 R (In specie redemption).

01/11/2002

Price of a unit

CIS 4.3.11

(1) Paragraphs (2) to (3) apply to authorised fund managers; (4) and (5) apply only to ICVCs and their depositaries and ACDs; (6) and (7) apply only to managers and trustees.

(2) The price of a unit of any class must, subject to (3), be calculated as follows:

(a) take the proportion, attributable to the units of the class in question, of the value of the scheme property (excluding, in the case of an ICVC, the distribution account and the unclaimed payments account), by reference to the most recent valuation of the scheme property;

(b) compute the number of units of the relevant class in issue immediately before the valuation in (a);

(d) if the authorised fund manager makes a determination under CIS 4.6.4 R (Dilution adjustment), increase or decrease the resulting amount by an adjustment (the "dilution adjustment") made for the purpose of reducing dilution; and

(e) Except for smaller denomination shares, express the price in a form that is accurate to at least four significant figures.

(3) If a method of calculation other than that at (2) is used, the authorised fund manager must be sure it is bound to produce the same result.

(4) Where an issue or cancellation of shares is made at a time which is less than two hours after the last valuation point and before the next valuation point, it must be made by reference to the price of the relevant class of shares calculated (or being calculated) for the last valuation point.

(5) Any issue or cancellation of shares to be made more than two hours after the last valuation point must be made by reference to the price of the relevant class of shares next to be calculated and made only after the next valuation point has been reached.

(6) Where the manager gives instructions to the trustee to create or cancel units and those instructions are given less than two hours after the last valuation point and before the next valuation point, the instructions must be given by reference to the price of the relevant class of units calculated (or being calculated) for the last valuation point.

(7) Where the manager gives instructions to the trustee to create or cancel units and those instructions are given more than two hours after the last valuation point:

(a) the instructions must be given by reference to the price of the relevant class of units next to be calculated, and

(b) the trustee must not issue or cancel the units before the next valuation point has been reached.

01/08/2002

Modification to number of units issued or cancelled

CIS 4.3.12

(1) This rule applies to authorised fund managers and depositaries.

(2) The number of units issued or cancelled may be modified by the authorised fund manager (in the case of shares) making a record for the ICVC of the modification or (in the case of units in an AUT) changing an instruction to issue or cancel units which has been complied with, provided that:

(a) the authorised fund manager ensures that any appropriate consequential payment between the authorised fund manager and the depositary is made; and

(b) the requirements of (3) are satisfied.

(3) The authorised fund manager may only make a modification under (2) with the agreement of the depositary and the depositary may not agree unless it has taken reasonable care to determine:

(a) that the purpose of the modification is to rectify the consequences of an error relating to the number of units held by the authorised fund manager, or issued or cancelled in connection with the sale or redemption of units by the authorised fund manager; and

(b) that in view of the quality of the authorised fund manager's control systems the circumstance that resulted in the error in question is an isolated one which is unlikely to recur.

(4) A modification under (2) is of no effect unless the corrected number of units is calculated by the end of the business day next following the valuation point for the issue or cancellation in question or, if the depositary agrees, within the payment period applicable to that issue or cancellation under CIS 4.3.7 R (3) (Payment for units issued) or CIS 4.3.10 R (7) (Cancellation and payment for cancelled units).

01/12/2004

CIS 4.4

Sale and redemption

01/12/2004

Application

CIS 4.4.1

(1) This section (CIS 4.4) applies to authorised fund managers. CIS 4.4.5 R (4) (Payment on redemption) also applies to ICVCs and depositaries.

(2) This section (CIS 4.4) applies to the sale and redemption of units after the close of any initial offer. However, the following rules also apply to the sale of a unit during an initial offer:

(a) CIS 4.4.3 R (1), (2) and (3) (other than the provision in (2)(a) relating to a sale at a forward price); and

(b) CIS 4.4.8 R (but as if CIS 4.4.8 R (2) related to the initial price).

01/12/2004

Purpose

CIS 4.4.2

(1) This section (CIS 4.4) protects investors by means of rules intended to ensure the authorised fund manager deals fairly with investors when they purchase or redeem units. Accordingly, this section lays down the basic procedures for the sale and redemption of units in an authorised fund and sets out how the resulting payments should be calculated and by when they should be made.

(2) Sales and redemptions of units in futures and options schemes or geared futures and options schemes are, in addition, subject to the special rules in CIS 12.2.1 R (Special rules for sales and redemptions).

01/12/2004

Authorised fund manager's obligation to sell

CIS 4.4.3

(1) The authorised fund manager must, at all times during the dealing day, be willing to sell units in the authorised fund and, subject to (2), must, at the request in writing of any person, agree to sell to that person units of at least one class or, in the case of an umbrella scheme, one class for each of its sub-funds.

(2) The authorised fund manager's obligation to sell units under (1) does not apply:

(a) if it has not received payment for the units of an amount complying with (4) or (if the sale was at a forward price of a stated number of shares) if it has not received payment of an amount it estimated to be required; or

(b) if the number or value of the units sought to be purchased is less than any number or value stated in the prospectus as the minimum number or value of units, or units of the class concerned, that may be purchased or held; or

(c) for a property scheme if the authorised fund manager, having taken reasonable care, determines that the number or value of units sought to be purchased would lead to any one person (or any one person and any other person who appears to the authorised fund to be acting in concert with that person) holding more than any number or value stated in the prospectus as the maximum number or value to be purchased or held; or

(d) if it has reasonable grounds for refusing to sell units to the person concerned; and

(e) for an AUT, if the sale would be in breach of a provision in the trust deed of any of the types described in paragraphs (j) (Limited categories of unitholder), (m) (Relevant pension schemes) or (n) (Relevant charitable schemes) of CIS 2.2.7 G (Provisions that may be included in the trust deed).

(3) Paragraph (1) does not apply to units of any class:

(a) if no units of that class are in issue; or

(b) if the sale of units of that class:

(i) is prohibited by the rules in CIS 13 (Suspension and resumption of dealings); or

(ii) would breach a restriction on sale applicable to a class of limited issue shares or limited issue units.

(4) The authorised fund manager must not sell a unit for more than the price of a unit of the relevant class notified, or to be notified, to the depositary for the last valuation point (or, for a sale at a forward price, to be notified for the next valuation point) to which may be added any preliminary charge permitted under CIS 8.2.2 R (Preliminary charge: ICVCs and single-priced AUTs) and any payment required under CIS 4.6.3 R (Dilution levy and SDRT provision).

(5) Units must be sold in the base currency, or, for a currency class share, in the currency of designation of that class, unless the person concerned requests and the authorised fund manager agrees that the units should be sold in another currency.

01/04/2004

Authorised fund manager's obligation to redeem

CIS 4.4.4

(1) The authorised fund manager must at all times during the dealing day be willing to redeem units in the authorised fund; and, accordingly, must at the request in writing of any holder agree to redeem units owned by that holder for the amount to be paid under CIS 4.4.6 R (Proceeds of redemption).

(2) Paragraph (1) does not apply:

(a) if the number or value of the units sought to be redeemed is:

(i) less than the entirety of the holder's holding of units of the class concerned, and

(ii) less than any number or value stated in the prospectus as the minimum number or value of units, or units of the class concerned, that may be redeemed;

(b) if the number or value of the units sought to be redeemed would result in the holder holding less than any number or value stated in the prospectus as the minimum number of units, or units of the class concerned, that may be held;

(c) if the ICVC or the manager ensures that the holder is able to sell his units on an investment exchange at a price not significantly different from the price at which they would have been redeemed;

(d) where units are redeemed in return for property transferred or sold under CIS 4.5.4 R (In specie redemption);

(e) during the period of the initial offer; or

(f) if redemption of the units of the class concerned is prohibited by the rules in CIS 13 (Suspension and termination).

01/12/2004

Payment on redemption

CIS 4.4.5

(1) On agreeing to redeem units, the authorised fund manager must, within the period specified in (2):

(a) (except where (b) applies) pay the holder the appropriate proceeds of redemption under CIS 4.4.6 R (less, where applicable, the cost of remitting the sum abroad); or

(b) if a manager of a relevant pension scheme, pay or arrange for the payment of the proceeds of redemption in compliance with the trust deed (including, where applicable, any time limit in it for payment which is shorter than the period specified in (2)).

(2) The period expires at the close of business on the fourth business day following the later of:

(a) the valuation point immediately after the authorised fund manager received the request to redeem; or

(b) the time when the authorised fund manager has all duly executed instruments and authorisations to effect (or enable the authorised fund manager to effect) transfer of title to the units.

(3) Neither this rule nor CIS 4.4.6 R (Proceeds of redemption) applies where the authorised fund manager is not redeeming units in accordance with this chapter but is buying them as principal on an investment exchange (in the case of an AUT, in accordance with a power in the trust deed) and settlement will be in accordance with the rules of that exchange.

(4) Nothing in this rule or CIS 4.3.10 R(5) and (6) (Cancellation and payment for cancelled units) requires an ICVC, a depositary or an authorised fund manager to part with money for a cancellation or redemption of units where any money due on the earlier issue or sale of those units has not been received by the person entitled to it under this chapter.

01/12/2004

Proceeds of redemption

CIS 4.4.6

The amount to be paid by the authorised fund manager as the proceeds of redemption of a unit must not be less than the price of a unit of the relevant class notified or to be notified to the depositary at the last valuation point (or, for a redemption at a forward price, to be notified in respect of the next valuation point) less any redemption charge permitted under CIS 8.2.7 R (Redemption charge: ICVCs) or CIS 8.5.2 R (Redemption charge: single-priced AUTs) and any deduction required under CIS 4.6.3 R (Dilution levy and SDRT provision).

01/12/2004

Notification of price to the depositary

CIS 4.4.7

(1) Immediately after completing a valuation under CIS 4.8 (Valuation) (whether regular or otherwise) the authorised fund manager must notify the depositary of:

(a) the price, in the base currency (or, in the case of a currency class share, the currency of designation) of a unit of each class in issue as determined for the relevant valuation point; and

(b)

(i) the amount or rate of any dilution levy which applies to any issue or cancellation of units made by reference to that valuation; or

(ii) the amount or rate of any dilution adjustment taken into account in calculating that price and whether it was an addition or deduction.

(2) Each notification under (1) must include a statement of the number of units of each class in issue owned by the authorised fund manager at the valuation point (or notified point if there is one).

(3) As soon as practicable after each notification under (1), the authorised fund manager must notify the depositary of the transactions, or types of transaction, for which an SDRT provision is applied and the amounts or rates of those SDRT provisions.

01/08/2002

Publication of prices

CIS 4.4.8

(1) Where the authorised fund manager holds itself out as willing:

(a) to sell or redeem units of any class; or

(b) to issue or cancel units of any class under CIS 4.5.3 R (Issues and cancellations through the authorised fund manager);

it must make public the prices of units of each of those classesin an appropriate manner.

(2) The prices made public under (1) are to be the price or prices last notified to the depositary under CIS 4.4.7 R or, in the case of publication in a newspaper, last notified before the relevant newspaper ceased to accept material for publication in the relevant edition.

(3) [deleted]

(4) Where the authorised fund manager holds itself out as willing to sell and redeem units (or, as the case may be, to issue or cancel units under CIS 4.5.3 R) in any other EEA State, it must also comply with (1) in the manner provided for by the law of that EEA State.

(5) Paragraphs (1) to (4) do not apply to units in relation to which the authorised fund manager is excused from dealing with the public.

01/04/2005
Past version of CIS 4.4.8 before 01/04/2005

Manner of price publication

CIS 4.4.9

(1) In determining the appropriate manner of making prices public under CIS 4.4.8 R (1), the authorised fund manager should ensure that:

(a) a unitholder or potential unitholder can obtain the prices at a reasonable cost;

(b) prices are available at reasonable times;

(d) the manner of publication is disclosed in the prospectus; and

(e) prices are published in a consistent manner.

(2) Examples of what might be deemed appropriate include:

(a) publication in a national newspaper;

(b) supply through an advertised local rate or freephone telephone number;

(d) inclusion in a database of prices which is publicly available; or

(e) communication to all existing unitholders.

(3) The authorised fund manager should make previous prices available to any unitholder or potential unitholder.

01/04/2005

CIS 4.5

Issues and cancellations through the authorised fund manager and in specie cancellations

01/12/2004

Application

CIS 4.5.1

This section (CIS 4.5) applies to authorised fund managers. CIS 4.5.3 R (6) and CIS 4.5.4 R (4) also apply to ICVCs and depositaries.

01/12/2004

Purpose

CIS 4.5.2

(1) CIS 4.5.3 R ensures investors are able, in certain circumstances, to require direct issues or cancellations of units by an ICVC, or by the trustee of an AUT, as an alternative to buying units from, or redeeming them with, the authorised fund manager.

(2) CIS 4.5.4 R protects investors in the authorised fund by enabling an authorised fund manager, subject to the conditions in that rule, to require a holder who wishes to redeem or cancel his units to take, instead of the usual proceeds of redemption or cancellation, a transfer of assets of the authorised fund or, if the holder requires, to take the net proceeds of the sale of those assets.

01/12/2004

Issues and cancellations through the authorised fund manager

CIS 4.5.3

(1) At the request of any person, the authorised fund manager is obliged to arrange for the ICVC, or instruct the trustee, to issue units to that person where the authorised fund manager would otherwise be obliged to sell them under CIS 4.4.3 R (Authorised fund manager's obligation to sell).

(2) At the request of any holder, the authorised fund manager is obliged to arrange for the ICVC, or instruct the trustee, to cancel units held by that holder where the authorised fund manager would otherwise be obliged to redeem them under CIS 4.4.4 R (Authorised fund manager's obligation to redeem).

(3) The price of a unit issued or cancelled under this rule (CIS 4.5.3 R) must be the price of a unit of the relevant class notified to the depositary at the next valuation point after the request referred to in (1) or (2), except for an issue to which CIS 4.2.4 R (Issue of units: initial offer) applies, when it must be the initial price.

(4)

(a) In the case of an issue, the authorised fund manager may require to be paid, in addition to the price under (3):

(i) for the account of the authorised fund manager, any preliminary charge permitted under CIS 8.2.2 R (Preliminary charge: ICVCs and single-priced AUTs);

(ii) for the account of the authorised fund, any payment required under CIS 4.6.3 R (Dilution levy and SDRT provision).

(b) In the case of a cancellation, the authorised fund manager may require to be deducted from the proceeds:

(i) for the account of the authorised fund manager, any redemption charge permitted under CIS 8.2.7 R (Redemption charge: ICVCs) or CIS 8.5.2 R (Redemption charge: single-priced AUTs);

(ii) for the account of the authorised fund, any deduction required under CIS 4.6.3 R (Dilution levy and SDRT provision).

(5) The authorised fund manager must pay the depositary in accordance with CIS 4.3.7 R (Payments for units issued) the price of any units issued under this rule (CIS 4.5.3 R) and any payment required under (4)(a)(ii) whether or not the authorised fund manager has received payment from the investor. However, the authorised fund manager may defer arranging for the ICVC, or instructing the trustee, to issue the units until full payment for them has been received.

(6) Nothing in this rule (CIS 4.5.3 R) requires an ICVC, a depositary or an authorised fund manager to part with money for a cancellation of units in the circumstances described in CIS 4.4.5 R(4) (Payment on redemption).

(7) Paragraph (1) does not apply if the issue would breach a restriction on issue applicable to a class of limited issue shares or limited issue units.

01/11/2002

In specie redemption

CIS 4.5.4

(1) Whenever a holder requests the redemption or cancellation of units, the authorised fund manager may arrange for the cancellation of those units and that, instead of payment in cash to the holder of the price for the units, scheme property selected in accordance with (c) and (d) is transferred to the holder, or, if required by the holder, the net proceeds of the sale of that property is paid to him, provided that:

(a) the prospectus contains a statement describing the circumstances in which the authorised fund manager is permitted to arrange for, and describing the procedures for, a cancellation of units in the manner described above;

(b) the authorised fund manager gives the holder written notice before the proceeds of the redemption or cancellation would otherwise become payable in cash, that instead of such payment the depositary will transfer scheme property (or the net proceeds of the sale of the relevant scheme property) to the holder;

(c) the scheme property to be transferred (or sold) is selected by the authorised fund manager in consultation with the depositary and the selection is made with a view to achieving no more advantage or disadvantage to the holder requesting cancellation of his units than to the continuing holders; and

(d) the scheme property to be transferred, or the proceeds of the sale of the relevant scheme property, is subject to the retention by the depositary of scheme property (including cash) of a value or amount equivalent to any deductions permitted by CIS 4.5.3 R (4)(b) (Issues and cancellations through the authorised fund manager) and the depositary accounts for any such deduction in the manner provided by that rule.

(2) This rule (CIS 4.5.4 R) does not enable the authorised fund manager, when acting as a principal, to cancel units other than for payment in cash.

(3) This rule does not enable units in a relevant pension scheme to be redeemed other than in accordance with that scheme.

(4) Nothing in this rule requires an ICVC, a depositary or an authorised fund manager to transfer scheme property, or the proceeds of the sale of scheme property, in respect of the cancellation of units in the circumstances described in CIS 4.4.5 R (4) (Payment on redemption).

01/12/2004

CIS 4.6

Dilution and SDRT provision

01/12/2004

Application

CIS 4.6.1

This section (CIS 4.6) applies to authorised fund managers.

01/12/2004

Purpose

CIS 4.6.2

(1)

(a) An ICVC or an AUT may suffer dilution (reduction) in the value of the scheme property as a result of the costs incurred in dealing in the underlying investments and of any spread between the buying and selling prices of those investments. In order to enable the authorised fund manager to decide what, if any, response to make to issues about dilution, an authorised fund manager is permitted to:

(i) require the payment of a dilution levy, as an addition to (but not part of) the price of units when they are issued by the ICVC or the trustee or sold by the authorised fund manager, and as a deduction when they are cancelled by the ICVC or the trustee or redeemed by the authorised fund manager; or

(ii) make a dilution adjustment in accordance with CIS 4.3.11 R (2)(d) (Price of a unit) so that the price of a unit is above or below that which would have resulted from a mid-market valuation; or

(iii) decide not to require the payment of a dilution levy or make a dilution adjustment.

(b) An authorised fund manager is not obliged by CIS to make any dilution levies or dilution adjustments.

(c) The choice between (1)(a)(i), (ii) or (iii) will be governed by a statement in the prospectus, but only one can apply at any time.

(2) Certain transactions in units can result in stamp duty reserve tax being paid out of the scheme property of an authorised fund. However, with a view to protecting investors from a resulting diminution in the value of their units, an authorised fund manager is permitted to require the payment of an SDRT provision as an addition to (but not as part of) the price of units when they are issued or sold, and as a deduction when they are cancelled (other than certain in specie cancellations) or redeemed.

(3) Any dilution levy or SDRT provision paid or received by deduction is for the account of the authorised fund. However, there are provisions to prevent a dilution levy or SDRT provision being imposed twice on both the issue and subsequent sale of a unit, or on the redemption and subsequent cancellation of a unit.

(4) For the purposes of (1) to (3) it does not matter whether the issue or cancellation is under CIS 4.3 (Issue and cancellations) or under CIS 4.5 (Issues and cancellations through the authorised fund manager and in specie redemptions).

(5) CIS 4.6.3 R (3) (Dilution levy and SDRT provision) requires a dilution levy or SDRT provision to be imposed only in a manner that, so far as practicable, is fair to all holders and potential holders. However there are exceptions to this in respect of large deals. In addition, certain transactions (such as transactions in units within an individual pension account) are specifically excluded from a charge to stamp duty reserve tax.

(6) Where there is more than one class of unit of an authorised fund, or in the case of an umbrella scheme, a sub-fund, the price of a unit of each class must be calculated separately under CIS 4.3.11 R (Price of a unit). Notwithstanding this, the FSA envisages that any dilution adjustment should in percentage terms affect the price of a unit of each class identically even if there were net issues of units of one class and net cancellations of the other.

(7) It should be noted that, in determining the rate of any dilution levy or dilution adjustment, an authorised fund manager may, in order to reduce volatility in the rate, take account of:

(a) the trend of the authorised fund or sub fund in question to expand or contract; and

(b) the transactions in units at a particular valuation point.

01/08/2002

Dilution levy and SDRT provision

CIS 4.6.3

(1) The authorised fund manager may, in accordance with the prospectus, have the power to require any one or more of:

(a) the payment of a dilution levy in respect of the issue or sale of units or any class of units;

(b) the deduction of a dilution levy in respect of the redemption or the cancellation of units or any class of units;

(d) the deduction of an SDRT provision in respect of the redemption or cancellation of units or of any class of units, other than a cancellation of units under CIS 4.5.4 R (In specie redemptions) resulting in a transfer of such part of each description of asset in the scheme property as is proportionate to, or as nearly as practicable proportionate to, the holder's share in the scheme property of the AUT or (as the case may be) share in the ICVC.

(2) Any such payment or deduction becomes due at the same time as payment or transfer of property becomes due in respect of the issue, sale, redemption or cancellation.

(3) A dilution levy or SDRT provision may be imposed only in a manner that is, so far as practicable, fair to all holders and potential holders. However:

(a) the imposition of a dilution levy (or a higher dilution levy) or SDRT provision (or a higher SDRT provision) in respect of large deals in a manner described in the prospectus current at the time of the deal; or

(b) the exclusion from an SDRT provision of any transaction in units where the units are so held that their redemption or cancellation is specifically excluded from a charge to stamp duty reserve tax;

is not unfair.

(4) If the authorised fund manager receives a dilution levy or SDRT provision in respect of any unit sold or to be sold by it, it must, immediately upon receipt of that dilution levy or SDRT provision, pay it to the depositary to become part of the scheme property, except to the extent that it has already been, or will be, paid by the authorised fund to the depositary on the issue of that unit.

(5) If the authorised fund manager deducts a dilution levy or SDRT provision from the proceeds of a unit it redeemed, it must immediately pay it to the depositary to become part of the scheme property, except to the extent that it has already been, or will be, deducted from the depositary's payment to the authorised fund manager on cancellation of that unit.

01/08/2002

Dilution adjustment

CIS 4.6.4

(1) The authorised fund manager may, in accordance with the prospectus, have the power to make a dilution adjustment but may only exercise this power:

(a) for the purpose of reducing dilution in the fund; or

(b) to recover any amount which it has already paid or reasonably expects to pay in the future in relation to the issue or cancellation of units (see CIS 4.6.2 G (7) (Purpose)).

(2) Where the authorised fund manager decides not to make an adjustment, this decision must not be made for the purpose of creating a profit or avoiding a loss for the account of the authorised fund manager.

(3) When by reference to any valuation point:

(a) the aggregate value of the units of all classes of the authorised fund or sub-fund issued exceeds the aggregate value of units of all classes cancelled:

(i) any adjustment must be upwards; and

(ii) the dilution adjustment must not exceed the authorised fund manager's reasonable estimate of the difference between what the price would have been had the dilution adjustment not been taken into account and what the price would have been if the scheme property had been valued on the best available market offer basis plus dealing costs; or

(b) the aggregate value of the units of all classes of the authorised fund or sub-fund cancelled exceeds the aggregate value of units of all classes issued:

(i) any adjustment must be downwards; and

01/08/2002

Dilution adjustment guidance

CIS 4.6.5

The effect of CIS 4.6.4 R (1) (Dilution adjustment) is to prohibit authorised fund managers from making a dilution adjustment for reasons or purposes other than set out in CIS 4.6.4 R (1)(a) or CIS 4.6.4 R (1)(b), for example, in order to create a profit or to avoid a loss for the account of the authorised fund manager.

01/08/2002

CIS 4.7

Forward and historic pricing

01/12/2004

Application

CIS 4.7.1

This section (CIS 4.7) applies to authorised fund managers.

01/12/2004

Purpose

CIS 4.7.2

This section (CIS 4.7) protects investors by means of rules intended to prevent the sale and redemption of units at an historic price where this is liable to be unfair.

01/12/2004

Explanation

CIS 4.7.3

(1) There are two ways in which an authorised fund manager may sell or redeem units; these are at forward and historic prices. A forward price is one which will be fixed at the next valuation point, while a historic price is one fixed on the basis of the last valuation.

(2) The two pricing systems have different characteristics. The investor knows that a forward deal will be priced at the next valuation point, but if he is investing a specified sum, he does not know until then how many units he will receive (or, if he is seeking to redeem, how much he will receive in cash). The investor knows, by contrast, that an historic deal may well represent a price which is outdated (though not by more than 2%), but is able to know, at the time of the deal, how much he must pay (or will receive) or the time of the valuation which will be relevant to that price.

(3) The rules generally express a preference for forward pricing in that there are numerous occasions when a price must be forward, whether or not the authorised fund manager chooses to deal in that way. Issues or cancellations by the authorised fund manager under CIS 4.5.3 R (Issues and cancellations through the authorised fund manager) are always at a forward price.

(4) The diagram in CIS 4.7.6 indicates the valuation point relevant for issues and cancellations and for sales and redemptions in the period between one valuation point and the next. In doing so, it takes account of CIS 4.7.5, and also of earlier provisions in this chapter, including CIS 4.3.11 R(4) to (7) (Price of a unit).

01/12/2004

Forward and historic pricing

CIS 4.7.4

(1) For the sale and redemption of units, the authorised fund manager must, subject to this rule (CIS 4.7.4 R), operate on the basis of forward or historic prices, but its power to choose, or its duty to operate on one basis only, is governed by CIS 4.7.5.

(2) If the prices for the sale and redemption of units in any sub-fund of an umbrella scheme are on a forward basis, the prices for the sale and redemption of units related to all sub-funds of that umbrella scheme must be on a forward basis; but this paragraph (2) does not apply merely because of a requirement to price on a forward basis temporarily under Part 2 or Part 3 of CIS 4.7.5.

(3) Prices are to be on a forward basis only for the issue and redemption of units in an authorised fund which is a geared futures and options scheme, a property scheme, a warrant scheme or an umbrella scheme that includes a sub-fund which, if it were the subject of a separate authorisation order, would be an authorised fund of one of those categories.

(4) CIS 4.7.5 does not apply during the period of initial offer at a fixed price. In CIS 4.7.5:

(a) "F Only" means that any price agreed on must be a forward price;

(b) "H" means that any price agreed on must be an historic price unless the authorised fund manager is required by the table to deal at a forward price; and

(c) "General dealing" means in relation to all sales and redemptions agreed on during the remainder of the relevant dealing period (except those that are agreed upon individual deviations); and an "individual deviation" is a decision, in relation to a particular transaction, covered by Part 3 of CIS 4.7.5.

01/12/2004

CIS 4.7.5

Forward or historic pricing

This table belongs to CIS 4.7.4 R

Forward or historic pricing

Part 1: General Dealing

Authorised fund manager's choice. The prospectus must state the authorised fund manager's choice for H or else for F Only.

If the authorised fund manager's current choice under 1. is F Only, all its deals must be at a forward price.

An authorised fund manager must not choose H if its normal arrangements for valuation envisage valuations more than one business day apart.

The remainder of this table applies to an authorised fund manager with a current choice of H.

It may at any time elect for F Only in respect of the rest of the then current dealing period.

If the authorised fund manager binds itself to switch from H to F only at a certain point in each dealing period this must be stated in the prospectus

An election for (or switch to) F Only will last until the end of the dealing period and will then lapse.

For general dealing purposes, redemptions must be on the same basis as sales.

Part 2: General Dealing - Duty to adopt forward pricing

Market movement. F Only applies once the authorised fund manager knows or has reason to believe that there would be a difference of 2% or more between the current value of the scheme property, if immediately valued, and its last calculated value (taking that as 100% for this purpose), but decides not to carry out an additional valuation under CIS 4.8.6 R (Additional valuation points).

10.

Valuation taking over 2 hours. F Only applies if a new price for units of each class has not been notified to the depositary after 2 hours (or such longer period as the depositary may agree with the authorised fund manager generally or in any specific case) from the valuation point.

11.

F Only under 9 and 10 will start when the relevant moment arrives, will last until the end of the dealing period and will then lapse.

Part 3: Individual Deviations

12.

Paragraphs 13 to 16 apply to an individual transaction without affecting the general position arrived at under Parts 1 and 2.

13.

Request. F only applies if the applicant for sale or redemption so requests.

14.

Large deals: F only applies, if the authorised fund manager so decides, for a large deal.

15.

Postal deals: F only applies if the order or offer reaches the authorised fund manager through the post or by any similar form of one-way communication.

16.

Issue or cancellation through the authorised fund manager F Only applies in the case of an issue or cancellation under CIS 4.5.3 R (Issues and cancellations through the authorised fund manager).

Part 4: Notification to Depositary

17.

The authorised fund manager must notify the depositary of the fact and time of any adoption of F only under 5 or Part 2.

01/12/2001

CIS 4.8

Valuation

01/12/2004

Application

CIS 4.8.1

This section (CIS 4.8) applies to authorised fund managers.

01/12/2004

Purpose

CIS 4.8.2

This section (CIS 4.8) protects investors by stating some basic requirements which apply to the valuation of the scheme property of an AUT or an ICVC for the purposes of determining the price of a unit in it. CIS 4.8.5 R and CIS 4.8.6 R provide for the frequency of valuation and when there are to be valuation points. A valuation which refers to a time that is not a valuation point will not cause that time to become a valuation point.

01/12/2004

Valuation: requirements

CIS 4.8.3

(1) An investment included in the scheme property for which different prices are quoted according to whether it is being bought or sold must be valued at its mid-market price.

(2) Any part of the scheme property of an authorised fund that is not an investment must be valued at a fair value, but, for property schemes, this is subject to CIS 12.3.2 R (Functions of the standing independent valuer) and CIS 12.3.3 R (Special rules for pricing).

(3) For the purposes of (1) and (2), any fiscal charges, commissions, professional fees or other charges that were paid, or would be payable, on acquiring or disposing of the investment or other part of the scheme property, must be excluded from the value of an investment or other part of the scheme property.

(4) The value of the scheme property of an authorised fund must be determined in accordance with the relevant provisions of the instrument constituting the scheme, except to the extent that this rule (CIS 4.8.3 R) or CIS 5.2.5 R (Valuation) or CIS 5A.2.5 R CIS 12.3 (Property schemes) applies.

(5) To determine the price at which units of any class in an authorised fund may be issued, cancelled, sold or redeemed, the authorised fund manager must carry out a valuation of the scheme property or of the scheme property attributable to a sub-fund at each valuation point for the authorised fund or the sub-fund (as the case may be).

01/04/2004

Valuation: method

CIS 4.8.4

(1) CIS 4.8.3 R(4) requires that, subject to the exceptions in it, the value of the scheme property of an authorised fund must be determined in accordance with the instrument constituting the scheme. Accordingly, the method of valuing scheme property should be set out in this instrument.

(2) In accordance with CIS 4.8.3 R(1), where different buying and selling prices are quoted for an investment, it should be valued at its mid-market price. The instrument constituting the scheme should set out the valuation method that will apply where a single price for buying and selling a security is quoted and where separate buying and selling prices are quoted.

(3) In the context of SETS, The London Stock Exchange publishes an "official mid-market price" for each security, calculated as the average of the best bid and best offer price, unweighted by deal size. Either the official mid-market price or the last trade price should provide an appropriate basis of valuation. The authorised fund manager should, however, document the choice of methodology and ensure the procedures are applied consistently and fairly. The basis on which the scheme property is to be valued must also be set out in an authorised fund's prospectus as required by CIS 3.5.2 R(17)(2).

(4) Where the authorised fund manager has reasonable grounds to believe that:

(a) no reliable price exists for a security at a valuation point; or

(b) the most recent price available does not reflect the authorised fund manager's best estimate of the value of a security at the valuation point;

he should value the investment at a price which, in his opinion, reflects a fair and reasonable price for that investment (the fair value price).

(5) The circumstances which may give rise to a fair value price being used include:

(a) no recent trade in the security concerned; or

(b) the occurrence of a significant event since the most recent closure of the market where the price of the security is taken.

In (b), a significant event is one that means the most recent price of a security or a basket of securities is materially different to the price that it is reasonably believed would exist at the valuation point had the relevant market been open.

(6) In determining whether to use such a fair value price, the authorised fund manager should include in his consideration:

(a) the type of authorised fund concerned;

(b) the securities involved;

(d) the authorised fund manager's policy on the valuation of scheme property as disclosed in the prospectus.

(7) The authorised fund manager should document the basis of valuation (including any fair value pricing policy) and, where appropriate, the basis of any methodology and ensure that the procedures are applied consistently and fairly.

(8) Where a unit price is determined using properly applied fair value prices in accordance with policies in (7), subsequent information that indicates the price should have been different from that calculated will not normally give rise to an instance of incorrect pricing.

01/12/2004

Regular valuation points

CIS 4.8.5

(1) There must be at least two valuation points in each calendar month and if there are only two valuation points in any calendar month they must be two weeks or more apart.

(2) Paragraph (1) does not apply to geared futures and options schemes or to warrant schemes or to a sub-fund which is permitted to invest entirely in warrants and there must be at least one valuation point for them on each business day.

(3) The frequency of regular valuation points must be specified in the prospectus.

(4) Despite (1) and (2), no valuation points are required during the period of any initial offer.

01/12/2004

Additional valuation points

CIS 4.8.6

The authorised fund manager must inform the depositary if the authorised fund manager determines to have an additional valuation point for the authorised fund or any sub-fund, but this does not prevent the authorised fund manager carrying out a valuation at a time that is not a valuation point.

01/12/2004

Market movement

CIS 4.8.7

(1) This rule (CIS 4.8.7 R) applies when an authorised fund manager is operating on the basis of historic prices and decides to carry out an additional valuation for the purpose of paragraph (9) (Market movement) of CIS 4.7.5 (Forward or historic pricing).

(2) When the rule applies:

(a) the valuation must be at an additional valuation point and the authorised fund manager must inform the depositary of that valuation point;

(b) the valuation may be made by reference to fluctuations in an index of property whose composition is reflected by the scheme property, if the authorised fund manager having taken reasonable care determines, and the depositary agrees, that an adequate valuation may be obtained in that way.

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Single-pricing and dealing

CIS 5

Investment and borrowing powers

CIS 5.1

Introduction

01/12/2004

Application

CIS 5.1.1

(1) This chapter applies in relation to ICVCs and AUTs which are not within transitional provision 14 and which:

(a) were UCITS schemes when their authorisation order was made; or

(b) were UCITS schemes immediately after any alteration to the scheme approved under section 251 of the Act or regulation 21 of the OEIC Regulations became effective.

(2) This section (CIS 5.1) applies to authorised fund managers and depositaries of schemes within (1).

01/11/2002

Application guidance

CIS 5.1.2

(1) A scheme may convert to, or be authorised to operate as, a UCITS scheme under the rules in CIS 5 at any time but may not convert back to operate under the rules in CIS 5A. Transitional provision 14 allows certain schemes to continue to operate under the rules in CIS 5A for a specific duration after which they must have converted to operate under CIS 5.

(2) A UCITS scheme authorised on or before 13 February 2002 may operate within the rules in CIS 5A under transitional provision 14(1) It may at any time switch to operate under CIS 5. However, by 13 February 2007 it must have switched to operate under the rules in CIS 5.

(3) A UCITS scheme authorised after 13 February 2002 may operate within the rules in CIS 5A under transitional provision 14(2). However, by 13 February 2004 it must have switched to operate under the rules in CIS 5.

01/11/2002

Purpose

CIS 5.1.3

This chapter helps in achieving the regulatory objective of protecting consumers by laying down minimum standards for the investments that may be held by an authorised fund. In particular:

(1) the proportion of transferable securities and derivatives that may be held by an authorised fund is restricted if those securities and derivatives are not listed on an eligible market; the intention of this is to restrict investment in transferable securities or derivatives that cannot be accurately valued and readily disposed of; and

(2) authorised funds are required to comply with a number of investment rules that require the spreading of risk.

01/11/2002

Explanation of this chapter

CIS 5.1.4

(1) The rules in this chapter set out the investment powers for UCITS schemes operating under the provision of the widened investment powers in UCITS Amending Directive 2001/108/EC. Therefore, this chapter does not apply to UCITS schemes operating under the narrower range of investment powers in the unamended UCITS Directive (85/611/EEC) and which are within transitional provision 14 and authorised under the investment powers contained in CIS 5A (see CIS 5A.1.4 G explanation). This chapter also does not apply to non-UCITS types of schemes (geared futures and option schemes, futures and options schemes, fund of fund schemes, feeder funds and non-UCITS umbrella schemes), which are authorised under the investment powers contained in CIS 5A.

01/11/2002

Distinct meaning of certain terms

CIS 5.1.5

Terms used in this sourcebook should be interpreted and applied as they are defined. However, because of the distinct nature of investments in which an authorised fund is permitted to invest, some of these terms are not always used in a way that corresponds with their usage in certain markets. For example, the term warrants. In this sourcebook warrants has a slightly wider meaning than is usually attributed to it in warrant markets. The definition of warrants reflects this distinction.

01/11/2002

CIS 5.1.6

Indicative overview of investment and borrowing powers

This table belongs to CIS 5.1.4 G.

UCITS Scheme Investments and investment techniques

Limits

Approved securities

Yes

Transferable but not approved securities

10%

Government and public securities

Yes

Units

Yes

Warrants

Yes

Investment trusts

Yes

Deposits

Yes

Derivatives

Yes

Immovables

Gold

Hedging

Yes

Stocklending

Yes

Underwriting

Yes

Borrowing

10%

Cash and near cash

Yes

Note

Meaning of terms used

"Yes"

Can be invested in without specific upper limit (though there may be limits of other kinds).

"No"

Not available for investment.

A percentage

An upper limit (though there may be limits of other kinds).

01/11/2002

CIS 5.2

General investment powers and limits for UCITS schemes

01/12/2004

Application

CIS 5.2.1

This section (CIS 5.2) applies to authorised fund managers, in respect of UCITS schemes, except:

(1) CIS 5.2.12 R (2)(c) (Eligible markets: requirements) which applies to depositaries of UCITS schemes only;

(2) CIS 5.2.24 R (Requirement to cover sales) which applies to ICVCs which are UCITS schemes and the managers and trustees of AUTs which are UCITS schemes only;

(3) CIS 5.2.25 R (3) (OTC transactions in derivatives) which also applies to depositaries of UCITS schemes;

(4) CIS 5.2.29 R (Significant influence for ICVCs), which applies to ICVCs which are UCITS schemes only;

(5) CIS 5.2.30 R (Significant influence for managers of AUTs), which applies to managers of AUTs which are UCITS schemes only; and

(6) CIS 5.2.31 R (Concentration), which also applies to ICVCs, only which are UCITS schemes.

01/11/2002

Explanation of CIS 5.2

CIS 5.2.2

This section outlines general investment rules, with which authorised funds must comply, in order to ensure that they qualify as UCITS schemes. The scheme property of an authorised fund may, subject to the rules in this chapter, comprise any assets or investments to which it is dedicated. For ICVCs, the scheme property may also include movable or immovable property that is necessary for the direct pursuit of the ICVC's business of investing in those assets or investments.

01/11/2002

Prudent spread of risk

CIS 5.2.3

An authorised fund manager must ensure that, taking account of the investment objectives and policy of the authorised fund as stated in the most recently published prospectus of the authorised fund, the scheme property of the authorised fund aims to provide a prudent spread of risk.

01/11/2002

Investment powers: general

CIS 5.2.4

The scheme property of each authorised fund must be invested only in accordance with the relevant provisions in this chapter that are applicable to that authorised fund and within any upper limit in this chapter. However, the instrument constituting the scheme may further restrict:

(1) the kind of property in which the scheme property may be invested;

(2) the proportion of the capital property of the authorised fund to be invested in assets of any description;

(3) the descriptions of transactions permitted; and

(4) the borrowing powers of the authorised fund.

01/11/2002

Valuation

CIS 5.2.5

(1) In this chapter, the value of the scheme property of an authorised fund means the net value of the scheme property determined in accordance with CIS 4.8 (Valuation) (for ICVCs and single-priced AUTs) or CIS 15.8 (Valuation) (for dual-priced AUTs), after deducting any outstanding borrowings, whether immediately due to be repaid or not.
(2) When valuing the scheme property for this chapter:

(a) the time as at which the valuation is being carried out ("the relevant time") is treated as if it were a valuation point, but the valuation and the relevant time do not count as a valuation or a valuation point for the purposes of CIS 4 (for ICVCs and single-priced AUTs) and CIS 15 (for dual-priced AUTs);
(b) initial outlay is regarded as remaining part of the scheme property;
(c) if the authorised fund manager, having taken reasonable care, determines that the authorised fund will become entitled to any unrealised profit which has been made on account of a transaction in derivatives, that prospective entitlement is regarded as part of the scheme property; and
(d) for a dual-priced AUTs, when applying CIS 15.8.4 R (Valuation):

(i) the cancellation basis only is required; and
(ii) paragraphs 1 to 8, 11 and 23 are not applicable.

01/11/2002

Valuation

CIS 5.2.6

It should be noted that for the purpose of CIS 5.2.5 R, CIS 4.8 or CIS 15.8 may be affected by specific provisions in this chapter such as, for example, CIS 5.4.6 R (Stock lending: treatment of collateral) or CIS 12 (Special provisions for certain types of scheme).

01/11/2002

Chapter to be construed as a whole

CIS 5.2.7

(1) Where a rule in this chapter allows a transaction to be entered into or an investment to be retained only if possible obligations arising out of the investment transactions or out of the retention would not cause any breach of any limits in this chapter, it must be assumed that the maximum possible liability of the authorised fund under any other of those rules has also to be provided for.

(2) Where a rule in this chapter permits an investment transaction to be entered into or an investment to be retained only if that investment transaction, or the retention, or other similar transactions, are covered:

(a) it must be assumed that in applying any of those rules, the authorised fund must also simultaneously satisfy any other obligation relating to cover; and

(b) no element of cover must be used more than once.

01/11/2002

Examples

CIS 5.2.8

Examples of the "provisions" referred to in CIS 5.2.7 R are: CIS 5.2.19 R (Investment in warrants and nil and partly paid securities) and CIS 5.5.7 R (General power to accept or underwrite placings).

01/11/2002

Transferable securities

CIS 5.2.9

(1) Subject to this rule (CIS 5.2.9 R), a transferable security is an investment falling within article 76 (Shares etc), article 77 (Instruments creating or acknowledging indebtedness), article 78 (Government and public securities), article 79 (Instruments giving entitlement to investments) and article 80 (Certificates representing certain securities) of the Regulated Activities Order.

(2) An investment is not a transferable security if the title to it cannot be transferred, or can be transferred only with the consent of a third party.

(3) In applying (2) to an investment which is issued by a body corporate, and which is an investment falling within articles 76 (Shares, etc) or 77 (Instruments creating or acknowledging indebtedness) of the Regulated Activities Order, the need for any consent on the part of the body corporate or any members or debenture holders of it may be ignored.

(4) An investment is not a transferable security unless the liability of the holder of it to contribute to the debts of the issuer is limited to any amount for the time being unpaid by the holder of it in respect of the investment.

01/11/2002

UCITS schemes: general

CIS 5.2.10

(1) The scheme property of a UCITS scheme must, except where otherwise provided in the rules in this chapter, only consist of any or all of:

(a) transferable securities;

(b) money market instruments permitted under CIS 5.2.20 R (Investment in money market instruments);

(c) derivatives and forward transactions permitted under CIS 5.2.22 R (Permitted transactions (derivatives and forwards));

(d) deposits permitted under CIS 5.2.28 R (Investment in deposits); and

(e) units in collective investment schemes permitted under CIS 5.2.15 R (Investment in collective investment schemes).

(2) Transferable securities and money market instruments held within a scheme must (subject to (3) and (4)) be:

(a) admitted to or dealt on an eligible market within CIS 5.2.12 R (1)(a) (Eligible markets: requirements); or

(b) dealt on an eligible market within CIS 5.2.12 R (1)(b) ; or

(d) in the case of a money-market instrument not within (a) to (c) above, within CIS 5.2.20 R (2) .

(3) Not more than 10% in value of the scheme property of a UCITS scheme is to consist of transferable securities, which are not approved securities.

(4) Not more than 10% in value of the scheme property is to consist of money market instruments, which do not fall within CIS 5.2.20 R (Investment in money market instruments).

(5) CIS 5.2.13 R (Spread: general) and CIS 5.2.14 R (Spread: government and public securities) do not apply until the expiry of a period of six months after the date of effect of the authorisation order in respect of the authorised fund (or on which the initial offer commenced if later) provided that CIS 5.2.3 R (Prudent spread of risk) is complied with.

(6) The following sections also apply to UCITS schemes:

(a) CIS 5.3 (Derivatives exposure)

(b) CIS 5.4 (Stock lending); and

01/11/2002

Eligible markets regime: purpose

CIS 5.2.11

(1) To protect investors, this sourcebook provides that markets on which investments of authorised funds are dealt in or traded on should be of an adequate quality ("eligible") at the time of acquisition of the investment and until it is sold. This section specifies criteria based on those in the UCITS Directive, as to the nature of the markets in which the property of an authorised fund may be invested.

(2) Where a market ceases to be eligible, investments on that market cease to be approved securities. The 10% restriction in CIS 5.2.10 R (3), (4) (UCITS schemes: general) applies and exceeding this limit because a market ceases to be eligible will generally be regarded as an inadvertent breach.

01/11/2002

Eligible markets regime

CIS 5.2.12

(1) A market is eligible for the purposes of the rules in this sourcebook if it is:

(a) a regulated market; or
(b) a market in an EEA State which is regulated, operates regularly and is open to the public.

(2) A market not falling within (1) is eligible for the purposes of the rules in this sourcebook if:

(a) the authorised fund manager, after consultation and notification with the depositary (and in the case of an ICVC, any other directors), decides that market is appropriate for investment of, or dealing in, the scheme property;
(b) the market is included in a list in the prospectus; and
(c) the depositary has taken reasonable care to determine that:

(i) adequate custody arrangements can be provided for the investment dealt in on that market; and
(ii) all reasonable steps have been taken by the authorised fund manager in deciding whether that market is eligible.

(3) In (2), a market must not be considered appropriate unless it:

(a) is regulated;
(b) operates regularly;
(c) is recognised;
(d) is open to the public;
(e) is adequately liquid; and
(f) has adequate arrangements for unimpeded transmission of income and capital to or to the order of investors.

01/11/2002

Spread: general

CIS 5.2.13

(1) This rule (CIS 5.2.13 R) does not apply to government and public securities.

(2) For the purposes of this rule CIS 5.2.13 R) companies included in the same group for the purposes of consolidated accounts as defined in accordance with Directive 83/349/EEC or in the same group in accordance with international accounting standards are regarded as a single body.

(3) Not more than 20% in value of the scheme property is to consist of deposits with a single body.

(4) Not more than 5% in value of the scheme property is to consist of transferable securities or money market instruments issued by any single body.

(5) The limit of 5% in (4) is raised to 10% in respect of up to 40% in value of the scheme property.

(6) In applying (4) and (5) certificates representing certain securities are treated as equivalent to the underlying security.

(7) The exposure to any one counterparty in an OTC derivative transaction must not exceed 5% in value of the scheme property. This limit is raised to 10% where the counterparty is an approved bank.

(8) Not more than 20% in value of the scheme is to consist of transferable securities and money market instruments issued by the same group (as referred to in (2)).

(9) Not more than 20% in value of the scheme is to consist of the units of any one collective investment scheme.

(10) In applying the limits in (3),(4),(5), (6) and (7), not more than 20% in value of the scheme property is to consist of any combination of two or more of the following:

(a) transferable securities or money market instruments issued by; or

(b) deposits made with; or

a single body.

(11) [deleted]

(12) For the purpose of calculating the limits in (7) and (10), the exposure in respect of an OTC derivative may be reduced to the extent that collateral is held in respect of it if the collateral meets each of the conditions specified in (13).

(13) The conditions referred to in (12) are that the collateral:

(a) is marked-to-market on a daily basis and exceeds the value of the amount at risk;

(b) is exposed only to negligible risks (e.g. government bonds of first credit rating or cash) and is liquid;

(c) is held by a third party custodian not related to the provider or is legally secured from the consequences of a failure of a related party; and

(d) can be fully enforced by the UCITS scheme at any time.

(14) For the purpose of calculating the limits in CIS 5.2.13 R (7) and CIS 5.2.13 R (10), OTC derivative positions with the same counterparty may be netted provided that the netting procedures:

(a) comply with the conditions set out in Section 3 (Contractual netting (Contracts for novation and other netting agreements)) of Annex III to the Banking Consolidation Directive; and

(b) are based on legally binding agreements.

(15) In applying this rule, all derivatives transactions are deemed to be free of counterparty risk if they are performed on an exchange where the clearing house meets each of the following conditions:

(a) it is backed by an appropriate performance guarantee; and

(b) it is characterised by a daily mark-to-market valuation of the derivative positions and an at least daily margining.

01/03/2005
Past version of CIS 5.2.13 before 01/03/2005

Guidance on spread: general

CIS 5.2.13A

(1) CIS 5.2.13 R (12) to CIS 5.2.13 R (15) reflect the provisions of Article 5 of the Commission Recommendation 2004/383/EC of 27 April 2004 on the use of financial derivative instruments for undertakings for collective investment in transferable securities (in this Section referred to as "the Commission Recommendation on the use of financial derivative instruments"). This Recommendation may be accessed via http://www.europa.eu.int/eur-lex/pri/en/oj/dat/2004/l_199/l_19920040607en00240029.pdf.

(2) The attention of authorised fund managers is specifically drawn to condition (d) in CIS 5.2.13 R (13) under which the collateral has to be legally enforceable at any time. It is the FSA's view that it is advisable for an authorised fund manager to undertake a legal due diligence exercise before entering into any financial collateral arrangement. This is particularly important where the collateral arrangements in question have a cross-border dimension. Depositaries will also need to exercise reasonable care to review the collateral arrangements in accordance with its duties under CIS 7.5.3 R (2) (Duties of the ACD and depositary: investment and borrowing powers) or CIS 7.10.3 R (2) (Duties of the manager and trustee: investment and borrowing powers), as appropriate.

01/03/2005

Spread: government and public securities

CIS 5.2.14

(1) This rule (CIS 5.2.14 R) applies to government and public securities ("such securities").

(2) Where no more than 35% in value of the scheme property is invested in such securities issued by any one body, there is no limit on the amount which may be invested in such securities or in any one issue.

(3) An authorised fund may invest more than 35% in value of the scheme property in such securities issued by any one body provided that:

(a) the authorised fund manager has before any such investment is made consulted with the depositary and as a result considers that the issuer of such securities is one which is appropriate in accordance with the investment objectives of the authorised fund;

(b) no more than 30% in value of the scheme property consists of such securities of any one issue;

(d) the disclosures in (4) have been made.

(4) Where it is intended that (3) may apply, the instrument constituting the scheme, and the most recently published prospectus, must clearly state:

(a) the fact that more than 35% of the scheme property is or may be invested in such securities issued by one issuer;

(b) the names of the States, the local authorities or public international bodies issuing such securities in which the authorised fund may invest over 35% of its assets.

(5) In this rule CIS 5.2.14 R) in relation to such securities:

(a) issue, issued and issuer include guarantee, guaranteed and guarantor; and

(b) an issue differs from another if there is a difference as to repayment date, rate of interest, guarantor or other material terms of the issue.

01/04/2004

Investment in collective investment schemes

CIS 5.2.15

A scheme may invest in units in a collective investment scheme provided that no more than 30% of the value of that investing scheme is in collective investment schemes which are not schemes which comply with the conditions necessary in order to enjoy the rights conferred by the UCITS Directive and only if the second scheme is permitted under (1) - (4):

(1) it is a scheme which:

(a) Complies with the conditions necessary for it to enjoy the rights conferred by the UCITS Directive; or

(b) is recognised under the provisions of section 270 of the Act (Schemes authorised in designated countries or territories); or

(c) is authorised as a non-UCITS retail scheme (provided the requirements of article 19(1)(e) of the UCITS Directive are met); or

(d) is authorised in another EEA State (provided the requirements of article 19(1)(e) of the UCITS Directive are met);

(2) the second scheme must comply where relevant with CIS 5.2.18 R (Investment in other group schemes);

(3) the second scheme must have terms which prohibit more than 10% in value of the scheme property consisting of units in collective investment schemes; and

(4) for the purposes of this rule (CIS 5.2.15 R) and CIS 5.2.13 R (Spread: general) each sub-fund of an umbrella scheme is to be treated as if it were a separate scheme but no sub-fund of an umbrella scheme may invest in another sub-fund of that umbrella scheme.

01/04/2004

Qualifying non-UCITS collective investment schemes

CIS 5.2.16

(1) CIS 17.3 gives further detail as to the recognition of a scheme under section 270 of the Act.

(2) Article 19 of the UCITS Directive sets out the general investment limits. So, a non-UCITS retail scheme, or its equivalent EEA scheme which has the power to invest in gold or immovables would not meet the criteria set in CIS 5.2.15 R(1) (c) and (d).

01/04/2004

Investment in associated collective investment schemes

CIS 5.2.17

Units in a collective investment scheme do not fall within CIS 5.2.15 R (Investment in collective investment schemes) if that collective investment scheme is managed or operated by (or, if it is an ICVC, has as its ACD) the authorised fund manager of the investing authorised fund or an associate of that authorised fund manager, unless:

(1) the prospectus of the investing authorised fund clearly states that the property of that investing fund may include such units; and

(2) CIS 5.2.18 R (Investment in other group schemes) is complied with.

01/12/2004

Investment in other group schemes

CIS 5.2.18

An authorised fund must not invest in or dispose of units in another collective investment scheme (the second scheme), which is managed or operated by (or in the case of an ICVC, whose ACD is), the authorised fund manager of such authorised fund, or an associate of that authorised fund manager, unless;

(1) the authorised fund manager of the authorised fund is under a duty to pay to the authorised fund by the close of business on the fourth business day next after the agreement to buy or to sell the amount referred to in (3) and (4);

(2) there is no charge in respect of the investment in or the disposal of units in the second scheme;

(3) on investment, either:

(a) any amount by which the consideration paid by the authorised fund for the units in the second scheme exceeds the price that would have been paid for the benefit of the second scheme had the units been newly issued or sold by it; or

(b) if such price cannot be ascertained by the authorised fund manager of the authorised fund, the maximum amount of any charge permitted to be made by the seller of units in the second scheme;

(4) on disposal, the amount of any charge made for the account of the authorised fund manager or operator of the second scheme or an associate of any of them in respect of the disposal; and

(5) In (1), (2), (3) and (4):

(a) any addition to or deduction from the consideration paid on the acquisition or disposal of units in the second scheme, which is applied for the benefit of the second scheme and is, or is like, a dilution levy made in accordance with CIS 4.6.3 R (for ICVCs and single-priced AUTs) or SDRT provision made in accordance with CIS 4.6.3 R (for ICVCs and single-priced AUTs) or CIS 15.6.3 R (for dual-priced AUTs) is to be treated as part of the price of the units and not as part of any charge; and

(b) any charge made in respect of an exchange of units in one sub-fund or separate part of the second scheme for units in another sub-fund or separate part of that scheme is to be included as part of the consideration paid for the units.

01/11/2002

Investment in warrants and nil and partly paid securities

CIS 5.2.19

(1) Where a UCITS scheme invests in a warrant, the exposure created by the exercise of the right conferred by the warrant must not exceed the limits in CIS 5.2.13 R (Spread: general) and CIS 5.2.14 R (Spread: government and public securities).

(2) A transferable security on which any sum is unpaid falls within a power of investment only if it is reasonably foreseeable that the amount of any existing and potential call for any sum unpaid could be paid by the authorised fund, at the time when payment is required, without contravening the rules in this chapter.

(3) [deleted]

01/04/2004

Investment in money market instruments

CIS 5.2.20

A UCITS scheme may invest in money market instruments which are dealt in on the money market, are liquid and whose value can be accurately determined at any time, provided:

(1) the money market instrument is within CIS 5.2.10 R (2)(a) -(c); or

(2) the money market instrument is:

(a) issued or guaranteed by a central, regional or local authority, a central bank of an EEA State, the European Central Bank, the European Union or the European Investment Bank, a non-EEA State or, in the case of a Federal State, by one of the members making up the federation, or by a public international body to which one or more EEA States belong; or

(b) issued by a body, any securities of which are dealt in on an eligible market; or

(c) issued or guaranteed by an establishment subject to prudential supervision in accordance with criteria defined by Community law or by an establishment which is subject to and complies with prudential rules considered by the FSA to be at least as stringent as those laid down by Community law.

01/04/2004

Derivatives: general

CIS 5.2.21

(1) A transaction in derivatives or a forward transaction must not be effected for a scheme unless:

(a) the transaction is of a kind specified in CIS 5.2.22 R (Permitted transactions (derivatives and forwards)); and

(b) the transaction is covered, as required by CIS 5.3.3 R (Cover for transactions in derivatives and forward transactions).

(2) Where a scheme invests in derivatives, the exposure to the underlying assets must not exceed the limits in CIS 5.2.13 R (Spread: general) and CIS 5.2.14 R (Spread: government and public securities) save as provided in (4).

(3) Where a transferable security or money market instrument embeds a derivative, this must be taken into account for the purposes of complying with this section (CIS 5.2).

(4) Where a scheme invests in an index based derivative, provided the relevant index falls within CIS 5.2.34 R (Relevant indices) the underlying constituents of the index do not have to be taken into account for the purposes of CIS 5.2.13 R (Spread: general) and CIS 5.2.14 R (Spread: government and public securities).

(5) The relaxation in (4) is subject to the authorised fund manager taking account of CIS 5.2.3 R (Prudent spread of risk).

01/11/2002

Permitted transactions (derivatives and forwards)

CIS 5.2.22

(1) A transaction in a derivative must

(a) (a) be in an approved derivative; or

(b) be one which complies with CIS 5.2.25 R (OTC transactions in derivatives).

(2) A transaction in a derivative must have the underlying consisting of any or all of the following to which the scheme is dedicated:

(a) transferable securities;

(b) money market instruments permitted under CIS 5.2.20 R (Investment in money market instruments);

(d) derivatives permitted under this rule (CIS 5.2.22 R);

(e) collective investment scheme units permitted under CIS 5.2.15 R (Investment in collective investment schemes);

(f) financial indices;

(g) interest rates

(h) foreign exchange rates; and

(i) currencies.

(3) A transaction in an approved derivative must be effected on or under the rules of an eligible derivatives market.

(4) A transaction in a derivative must not cause a scheme to diverge from its investment objectives as stated in the instrument constituting the scheme and the most recently published prospectus.

(5) A transaction in a derivative must not be entered into if the intended effect is to create the potential for an uncovered sale of one or more, transferable securities, money market instruments, units in collective investment schemes, or derivatives provided that a sale is not to be considered as uncovered if the conditions in CIS 5.2.24 R (3) (Requirement to cover sales) are satisfied.

(6) Any forward transaction must be with an approved counterparty under CIS 5.2.25 R (2) (OTC transactions in derivatives).

01/04/2004

Transactions for the purchase of property

CIS 5.2.23

A derivative or forward transaction (which is a permitted transaction under CIS 5.2.22 R (Permitted transactions (derivatives and forwards)) which will or could lead to the delivery of property for the account of the ICVC or to the trustee for the account of the AUT may be entered into only if:

(1) that property can be held for the account of the ICVC or can be held by the AUT; and

(2) the authorised fund manager having taken reasonable care determines that delivery of the property under the transaction will not occur or will not lead to a breach of the rules in this sourcebook

01/11/2002

Requirement to cover sales

CIS 5.2.24

(1) No agreement by or on behalf of an ICVC or on behalf of an AUT to dispose of property or rights may be made:

(a) unless the obligation to make the disposal and any other similar obligation could immediately be honoured by the authorised fund by delivery of property or the assignment (or, in Scotland, assignation) of rights; and

(b) the property and rights at (a) are owned by the authorised fund at the time of the agreement.

(2) Paragraph (1) does not apply to a deposit.

(3) Paragraph (1) does not apply where:

(a) the risks of the underlying financial instrument of a derivative can be appropriately represented by another financial instrument and the underlying financial instrument is highly liquid; or

(b) the authorised fund manager or the depositary has the right to settle the derivative in cash, and cover exists within the scheme property which falls within one of the following asset classes:

(i) cash;

(ii) liquid debt instruments (e.g. government bonds of first credit rating) with appropriate safeguards (in particular, haircuts); or

(iii) other highly liquid assets having regard to their correlation with the underlying of the financial derivative instruments, subject to appropriate safeguards (e.g. haircuts where relevant).

(4) In the asset classes referred to in (3), an asset may be considered as liquid where the instrument can be converted into cash in no more than seven business days at a price closely corresponding to the current valuation of the financial instrument on its own market.

01/11/2002

Guidance on requirement to cover sales

CIS 5.2.24A

CIS 5.2.24 R (3) to CIS 5.2.24 R (4) reflect the provisions of Article 7 of the Commission Recommendation on the use of financial derivative instruments.

01/03/2005

OTC transactions in derivatives

CIS 5.2.25

Any transaction in an OTC derivative under CIS 5.2.22 R (1)(b) must be:

(1) in a future or an option or a contract for differences;
(2) with an approved counterparty; a counterparty to a transaction in derivatives is approved only if the counterparty is:

(a) an eligible institution or an approved bank; or
(b) a person whose permission (including any requirements or limitations), as published in the FSA Register or whose Home State authorisation, permits it to enter into the transaction as principal off-exchange;

(3) on approved terms; the terms of the transaction in derivatives are approved only if, before the transaction is entered into, the depositary is satisfied that the counterparty has agreed with the ICVC or the manager:

(a) to provide a reliable and verifiable valuation in respect of that transaction (which, for dual-priced AUTs should be on a buying and selling basis) at least daily and at any other time at the request of the ICVC or manager; and
(b) that it will, at the request of the ICVC or manager, enter into a further transaction to close out that transaction at any time, at a fair value arrived at under the pricing model or other reliable basis agreed under (4); and

(4) capable of valuation; a transaction in derivatives is capable of valuation only if the authorised fund manager having taken reasonable care determines that, throughout the life of the derivative (if the transaction is entered into), it will be able to value the investment concerned with reasonable accuracy:

(a) on the basis of the pricing model which has been agreed between the authorised fund manager and the depositary; or
(b) on some other reliable basis reflecting an up-to-date market value which has been so agreed.

01/11/2002

Risk management: derivatives

CIS 5.2.26

(1) An authorised fund manager must use a risk management process enabling it to monitor and measure as frequently as appropriate the risk of a scheme's derivatives and forwards positions and their contribution to the overall risk profile of the scheme.

(2) The following details of the risk management process must be notified by the authorised fund manager to the FSA in advance of the use of the process as required by (1) along with advance notification of any material alteration to such details:

(a) the methods for estimating risks in derivative and forward transactions; and

(b) the types of derivatives and forwards to be used within the scheme together with their underlying risks and any relevant quantitative limits.

01/04/2004

Risk management process

CIS 5.2.27

(1) The risk management process should take account of the investment objectives and policy of the scheme as stated in the most recent prospectus.

(2) The depositary should take reasonable care to review the appropriateness of the risk management process in line with its duties under CIS 7.5.3 R (Duties of the ACD and depositary: investment and borrowing powers) or CIS 7.10.5 G (Duties of the manager and trustee: investment and borrowing powers), as appropriate.

(3) An authorised fund manager is expected to demonstrate more sophistication in its risk management process for a scheme with a complex risk profile than for one with a simple risk profile. In particular the risk management process should take account of any characteristic of non-linear dependence in the value of a position to its underlying.

(4) An authorised fund manager should take reasonable care to establish and maintain such systems and controls as are appropriate to its business as required by SYSC 3.1 (Systems and controls).

(5) The risk management process should enable the analysis required by CIS 5.2.26 R to be undertaken at least daily or at each valuation point whichever is the more frequent.

(6) Firms carrying out the risk management process should note the methodologies set out in Article 3 (Appropriately calibrated standards to measure market risk) of the Commission Recommendation on the use of financial derivative instruments.

(7) In assessing the risk of OTC derivatives, firms should note the methodologies set out in Article 5.3 (Invitation to use the standards laid down in Directive 2000/12/EC as a first reference) of the Commission Recommendation on the use of financial derivative instruments.

01/03/2005
Past version of CIS 5.2.27 before 01/03/2005

Investment in deposits

CIS 5.2.28

A UCITS scheme may invest in deposits only with an approved bank and which are repayable on demand or have the right to be withdrawn, and maturing in no more than 12 months.

01/11/2002

Significant influence for ICVCs

CIS 5.2.29

(1) An ICVC must not acquire transferable securities issued by a body corporate and carrying rights to vote (whether or not on substantially all matters) at a general meeting of that body corporate if:

(a) immediately before the acquisition, the aggregate of any such securities held by the ICVC gives the ICVC power significantly to influence the conduct of business of that body corporate; or

(b) the acquisition gives the ICVC that power.

(2) For the purpose of (1), an ICVC is to be taken to have power significantly to influence the conduct of business of a body corporate if it can, because of the transferable securities held by it, exercise or control the exercise of 20% or more of the voting rights in that body corporate (disregarding for this purpose any temporary suspension of voting rights in respect of the transferable securities of that body corporate).

01/11/2002

Significant influence for managers of AUTs

CIS 5.2.30

(1) A manager must not acquire, or cause to be acquired for an AUT of which it is the manager, transferable securities issued by a body corporate and carrying rights to vote (whether or not on substantially all matters) at a general meeting of the body corporate if:

(a) immediately before the acquisition, the aggregate of any such securities held for that AUT, taken together with any such securities already held for other AUTs of which it is also the manager, gives the manager power significantly to influence the conduct of business of that body corporate; or

(b) the acquisition gives the manager that power.

(2) In (1), a manager is to be taken to have power significantly to influence the conduct of business of a body corporate if it can, because of the transferable securities held for all the AUTs of which it is the manager, exercise or control the exercise of 20% or more of the voting rights in that body corporate (disregarding for this purpose any temporary suspension of voting rights in respect of the transferable securities of that body corporate).

01/11/2002

Concentration

CIS 5.2.31

A UCITS scheme:

(1) must not acquire transferable securities (other than debt securities) which:

(a) do not carry a right to vote on any matter at a general meeting of the body corporate that issued them; and

(b) represent more than 10% of those securities issued by that body corporate;

(2) must not acquire more than 10% of the debt securities issued by any single body;

(3) must not acquire more than 25% of the units in a collective investment scheme;

(4) must not acquire more than 10% of the money market instruments issued by any single body; and

(5) need not comply with the limits in (2), (3) and (4) if, at the time of acquisition, the net amount in issue of the relevant investment cannot be calculated.

01/11/2002

Schemes replicating an index

CIS 5.2.32

(1) A UCITS scheme may invest up to 20% in value of the scheme property in shares and debentures which are issued by the same body where the investment policy of that scheme as stated in the most recently published prospectus is to replicate the composition of a relevant index as defined in CIS 5.2.34 R (Relevant indices).

(2) The limit in (1) can be raised for a particular UCITS scheme up to 35% in value of the scheme property, but only in respect of one body and where justified by exceptional market conditions.

01/11/2002

Index replication

CIS 5.2.33

In the case of a scheme replicating an index under CIS 5.2.32 R (Schemes replicating an index) the scheme property need not consist of the exact composition and weighting of the underlying in the relevant index where deviation from this is expedient for reasons of poor liquidity or excessive cost to the scheme in trading in an underlying investment.

01/11/2002

Relevant indices

CIS 5.2.34

The indices referred to in CIS 5.2.32 R (Schemes replicating an index) are those which satisfy the following criteria:

(1) the composition is sufficiently diversified;

(2) the index is a representative benchmark for the market to which it refers; and

(3) the index is published in an appropriate manner.

01/11/2002

CIS 5.3

Derivative exposure

01/12/2004

Application

CIS 5.3.1

This section (CIS 5.3) applies to authorised fund managers of UCITS schemes except CIS 5.3.4 R, which applies to:

(1) ICVCs which are UCITS schemes; and

(2) to trustees of AUTs in respect of UCITS schemes.

01/11/2002

Introduction

CIS 5.3.2

(1) A scheme may invest in derivatives and forward transactions as long as the exposure to which the scheme is committed by that transaction itself is suitably covered from within its scheme property. Exposure will include any initial outlay in respect of that transaction.

(2) Cover ensures that a scheme is not exposed to the risk of loss of property, including money, to an extent greater than the net value of the scheme property. Therefore, a scheme must hold scheme property sufficient in value or amount to match the exposure arising from a derivative obligation to which the scheme is committed. CIS 5.3.3 R (Cover for transactions in derivatives and forward transactions) sets out detailed requirements for cover of a scheme.

(3) In applying this section (CIS 5.3), it may help to regard a future as an obligation to which the scheme is committed (in that, unless closed out, the future will require something to be delivered, or accepted and paid for); a written option as an obligation to which the scheme is committed (in that it gives the right of potential exercise to another thereby creating exposure); and a bought option as a right (in that the purchaser can, but need not, exercise the right to require the writer to deliver and accept and pay for something).

(4) In accordance with CIS 5.2.7 R (2)(b) (Chapter to be construed as a whole), cover used in respect of one transaction in derivatives or forward transaction must not be used for cover in respect of another transaction in derivatives or a forward transaction.

(5) CIS 5.3.3 R - CIS 5.3.5 R sets out requirements for "cover" of a UCITS scheme in respect of derivative transactions.

01/11/2002

Cover for transactions in derivatives and forward transactions

CIS 5.3.3

(1) A transaction in derivatives or forward transaction is to be entered into only if the maximum exposure, in terms of the principal or notional principal created by the transaction to which the scheme is or may be committed by another person is covered globally under (2).

(2) Exposure is covered globally if adequate cover from within the scheme property is available to meet the scheme's total exposure, taking into account the value of the underlying assets, any reasonably foreseeable market movement, counterparty risk, and the time available to liquidate any positions.

(3) Cash not yet received into the scheme property but due to be received within one month is available as cover for the purposes of (2).

(4) Property the subject of a transaction under CIS 5.4 (Stock lending) is only available for cover if the authorised fund manager has taken reasonable care to determine that it is obtainable (by return or re-acquisition) in time to meet the obligation for which cover is required.

(5) The global exposure relating to derivatives held in a UCITS scheme may not exceed the net value of the scheme property(Article 2(1) of the Commission Recommendation 2004/383/EC).

01/03/2005
Past version of CIS 5.3.3 before 01/03/2005

Borrowing

CIS 5.3.4

(1) Cash obtained from borrowing, and borrowing which the authorised fund manager reasonably regards as an eligible institution or an approved bank to be committed to provide, are not available for cover under CIS 5.3.3 R (Cover for transactions in derivatives and forward transactions), save in compliance with (2).

(2) Where, for the purposes of this section (CIS 5.3), the ICVC or the trustee for the account of the AUT on the instructions of the manager:

(a) borrows an amount of currency from an eligible institution or an approved bank; and

(b) keeps an amount in another currency, at least equal to the borrowing for the time being in (a), on deposit with the lender (or his agent or nominee);

this section applies as if the borrowed currency, and not the deposited currency, were part of the scheme property.

01/09/2003

Continuing nature of limits and requirements

CIS 5.3.5

An authorised fund manager must (as frequently as necessary), re-calculate the amount of cover required in respect of derivatives and forward positions already in existence under this section (CIS 5.3). Derivatives and rights under forward transactions under this section may be retained in the scheme property only so long as they remain covered globally under CIS 5.3.3 R (Cover for transactions in derivatives and forward transactions).

01/11/2002

CIS 5.4

Stock lending

01/12/2004

Application

CIS 5.4.1

This section (CIS 5.4) applies to depositaries of authorised funds which are UCITS schemes, except:

(1) CIS 5.4.3 R (Stock lending: general), which applies to ICVCs which are UCITS schemes, or to managers of AUTs which are UCITS schemes; and

(2) in the case of ICVCs, CIS 5.4.4 R (Permitted stock lending) which applies to ICVCs which are UCITS schemes if the ICVC enters into the stock lending agreement.

01/11/2002

Stock lending permitted under this section (CIS 5.4)

CIS 5.4.2

(1) This section (CIS 5.4) permits the generation of additional income for the benefit of the authorised fund, and hence for its investors, by entry into stock lending transactions for the account of the authorised fund.

(2) The specific method of stock lending permitted in this section is in fact not a transaction which is a loan in the normal sense. Rather it is an arrangement of the kind described in section 263B of the Taxation of Chargeable Gains Act 1992, under which the lender transfers securities to the borrower otherwise than by way of sale and the borrower is to transfer those securities, or securities of the same type and amount, back to the lender at a later date. In accordance with good market practice, a separate transaction by way of transfer of assets is also involved for the purpose of providing collateral to the ?lender" to cover him against the risk that the future transfer back of the securities may not be satisfactorily completed.

01/11/2002

Stock lending: general

CIS 5.4.3

The stock lending permitted by this section (CIS 5.4) may be exercised by an authorised fund when it reasonably appears to the ICVC or to the manager to be appropriate to do so with a view to generating additional income for the authorised fund with an acceptable degree of risk.

01/11/2002

Permitted stock lending

CIS 5.4.4

(1) An ICVC, or the depositary at the request of the ICVC, or a the trustee at the request of the manager, may enter into a stock lending arrangement of the kind described in section 263B of the Taxation of Chargeable Gains Act 1992 (without extension by section 263C), but only if:

(a) all the terms of the agreement under which securities are to be reacquired by the depositary for the account of the ICVC or by the trustee, are in a form which is acceptable to the depositary or to the trustee and are in accordance with good market practice;

(b) the counterparty is an authorised person or a person authorised by a Home State regulator; and

(c) collateral is obtained to secure the obligation of the counterparty under the terms referred to in (a) and the collateral is:

(i) acceptable to the depositary;

(ii) adequate within CIS 5.4.6 R(1); and

(iii) sufficiently immediate within CIS 5.4.6 R(2).

(2) The counterparty for the purpose of (1) is the person who is obliged under the agreement referred to in (1)(a) to transfer to the depositary the securities transferred by the depositary under the stock lending arrangement or securities of the same kind.

01/04/2004

Stock lending: treatment of collateral

CIS 5.4.5

Where a stock lending arrangement is entered into, the scheme property remains unchanged in terms of value: the securities transferred cease to be part of the scheme property, but there is obtained in return an obligation on the part of the counterparty to transfer back equivalent securities. The depositary will also receive collateral to set against the risk of default in transfer, and that collateral is equally irrelevant to the valuation of the scheme property (because it is transferred against an obligation of equivalent value by way of re-transfer). (CIS 5.4.6 R accordingly makes provision for the treatment of the collateral in that context.

01/04/2004

Treatment of collateral

CIS 5.4.6

(1) Collateral is adequate for the purposes of this section (CIS 5.4) only if it:

(a) is transferred to the depositary or its agent;

(b) is at least equal in value, at the time of the transfer to the depositary, to the value of the securities transferred by the depositary; and

(i) cash; or

(ii) government and public securities; or

(iii) a certificate of deposit; or

(iv) a letter of credit; or

(v) securities transferred in CREST.

(2) Collateral is sufficiently immediate for the purposes of this section (CIS 5.4) if:

(a) it is transferred before or at the time of the transfer of the securities by the depositary; or

(b) the depositary takes reasonable care to determine at that time that it will be transferred at the latest by the close of business on the day of the transfer.

(3) The depositary must ensure that the value of the collateral at all times is at least equal to the value of the securities transferred by the depositary

(4) The duty in (3) may be regarded as satisfied in respect of collateral the validity of which is about to expire or has expired where the depositary takes reasonable care to determine that sufficient collateral will again be transferred at the latest by the close of business on the day of expiry.

(5) Any agreement for transfer at a future date of securities or of collateral (or of the equivalent of either) under this section (CIS 5.4) may be regarded, for the purposes of valuation under CIS 4 (Single-pricing and dealing), CIS 15 (Dual-pricing and dealing) or this chapter, as an unconditional agreement for the sale or transfer of property, whether or not the property is part of the property of the authorised fund.

(6) Collateral transferred to the depositary is part of the scheme property for the purposes of the rules in this sourcebook, except in the following respects:

(a) it does not fall to be included in any valuation for the purposes of CIS 4 (Single-pricing and dealing), or CIS 15 (Dual-pricing and dealing) or this chapter, because it is offset under (5) by an obligation to transfer; and

(b) it does not count as scheme property for any purpose of this chapter other than this section (CIS 5.4).

(7) Paragraph (5) and (6)(a) do not apply to any valuation of collateral itself for the purposes of this section (CIS 5.4).

01/11/2002

Limitation by value

CIS 5.4.7

There is no limit on the value of the scheme property which may be the subject of stock lending transactions within this section (CIS 5.4).

01/11/2002

CIS 5.5

Cash, borrowing, lending and other provisions

01/12/2004

Application

CIS 5.5.1

(1) CIS 5.5.2 R (1) and (2) (Cash and near cash) apply to authorised fund managers.

(2) CIS 5.5.3 R (General power to borrow) applies to ICVCs and trustees of AUTs, except CIS 5.5.3 R (3) and (4), which apply to authorised fund managers.

(3) CIS 5.5.4 R (Borrowing limits) applies to authorised fund managers.

(4) CIS 5.5.5 R (Restrictions on lending of money) applies to ICVCs or to managers and trustees, except for CIS 5.5.5 R (3), which applies to ICVCs.

(5) CIS 5.5.6 R (Restrictions on lending of property other than money) applies to ICVCs or managers and trustees, except for CIS 5.5.6 R (4)which applies to ICVCs or to depositaries of ICVCs.

(6) CIS 5.5.7 R (General power to accept or underwrite placings) applies to ICVCs or to managers.

(7) CIS 5.5.8 R (Guarantees and indemnities) applies to ICVCs or depositaries

01/11/2002

Cash and near cash

CIS 5.5.2

(1) Cash and near cash must not be retained in the scheme property except to the extent that, where this may reasonably be regarded as necessary in order to enable:

(a) the pursuit of the scheme's investment objectives; or

(b) redemption of units; or

(d) other purposes which may reasonably be regarded as ancillary to the investment objectives of the authorised fund.

(2) During the period of the initial offer the scheme property may consist of cash and near cash without limitation.

01/11/2002

General power to borrow

CIS 5.5.3

(1) The ICVC or trustee (on the instructions of the manager) may, in accordance with this rule (CIS 5.5.3 R) and CIS 5.5.4 R, borrow money for the use of the authorised fund on terms that the borrowing is to be repayable out of the scheme property. This power to borrow is subject to the obligation of the authorised fund to comply with any restriction in the instrument constituting the scheme.

(2) The ICVC or trustee may borrow under (1) only from an eligible institution or an approved bank.

(3) The authorised fund manager must ensure that any borrowing is on a temporary basis and that borrowings are not persistent, and for this purpose the authorised fund manager must have regard in particular to:

(a) the duration of any period of borrowing; and

(b) the number of occasions on which resort is had to borrowing in any period.

(4) In addition to complying with (3), the authorised fund manager must ensure that no period of borrowing exceeds three months, whether in respect of any specific sum or at all, without the prior consent of the depositary; the depositary's consent may be given only on such conditions as appear to the depositary appropriate to ensure that the borrowing does not cease to be on a temporary basis only.

(5) This rule (CIS 5.5.3 R) does not apply to "back to back" borrowing under CIS 5.3.4 R (2) (Borrowing).

(6) An ICVC must not issue any debenture unless it acknowledges or creates a borrowing that complies with (1) to (4).

01/11/2002

Borrowing limits

CIS 5.5.4

(1) The authorised fund manager must ensure that the authorised fund's borrowing does not, on any business day, exceed 10% of the value of the scheme property.

(2) This rule (CIS 5.5.4 R) does not apply to "back to back" borrowing under CIS 5.3.4 R (2).

(3) In this rule (CIS 5.5.4 R), "borrowing" includes, as well as borrowing in a conventional manner, any other arrangement (including a combination of derivatives) designed to achieve a temporary injection of money into the scheme property in the expectation that the sum will be repaid.

(4) [deleted]For an ICVC, borrowing does not include any arrangement for the ICVC to pay to a third party (including the ACD) any costs which the ICVC is entitled to amortise under CIS 8.3.4 R(Set up costs) and which were paid on behalf of the ICVC by the third party.

01/11/2002
Future version of CIS 5.5.4 after 06/04/2006

CIS 5.5.5

(1) None of the money in the scheme property of an authorised fund may be lent and, for the purposes of this prohibition, money is lent by an authorised fund if it is paid to a person ("the payee") on the basis that it should be repaid, whether or not by the payee.

(2) Acquiring a debenture is not lending for the purposes of (1); nor is the placing of money on deposit or in a current account.

(3) Paragraph (1) does not prevent an ICVC from providing an officer of the ICVC with funds to meet expenditure to be incurred by him for the purposes of the ICVC (or for the purposes of enabling him properly to perform his duties as an officer of the ICVC) or from doing anything to enable an officer to avoid incurring such expenditure.

01/11/2002

Restrictions on lending of property other than money

CIS 5.5.6

(1) The scheme property of an authorised fund other than money must not be lent by way of deposit or otherwise.

(2) Transactions permitted by CIS 5.4 (Stock lending) are not lending for the purposes of (1).

(3) The scheme property of a UCITS scheme must not be mortgaged.

(4) Nothing in this rule (CIS 5.5.6 R) prevents the ICVC or the depositary at the request of the ICVC, or the trustee at the request of the manager, from lending, depositing, pledging or charging scheme property for margin requirements where transactions in derivatives or forward transactions are used for the account of the authorised fund in accordance with any other of the rules in this chapter.

01/11/2002

General power to accept or underwrite placings

CIS 5.5.7

(1) Any power in this chapter to invest in transferable securities may be used for the purpose of entering into transactions to which this rule (CIS 5.5.7 R) applies, subject to compliance with any restriction in the instrument constituting the scheme.

(2) This rule (CIS 5.5.7 R) applies, subject to (3), to any agreement or understanding:

(a) which is an underwriting or sub-underwriting agreement; or

(b) which contemplates that securities will or may be issued or subscribed for or acquired for the account of the authorised fund.

(3) Paragraph (2) does not apply to:

(a) an option; or

(b) a purchase of a transferable security which confers a right:

(i) to subscribe for or acquire a transferable security; or

(ii) to convert one transferable security into another.

(4) The exposure of an authorised fund to agreements and understandings within (2) must, on any business day:

(a) be covered under CIS 5.3.3 R (Cover for transactions in derivatives and forward transactions); and

(b) be such that, if all possible obligations arising under them had immediately to be met in full, there would be no breach of any limit in this chapter.

01/11/2002

Guarantees and indemnities

CIS 5.5.8

(1) An ICVC or a depositary for the account of an authorised fund must not provide any guarantee or indemnity in respect of the obligation of any person.

(2) None of the scheme property of an authorised fund may be used to discharge any obligation arising under a guarantee or indemnity with respect to the obligation of any person.

(3) Paragraphs (1) and (2) do not apply to:

(a) any indemnity or guarantee given for margin requirements where the derivatives or forward transactions are being used in accordance with the rules in this chapter;

(b) for an ICVC:

(i) an indemnity falling within the provisions of regulation 62(3) (Exemptions from liability to be void) of the OEIC Regulations;

(ii) an indemnity (other than any provision in it which is void under regulation 62 of the OEIC regulations) given to the depositary against any liability incurred by it as a consequence of the safekeeping of any of the scheme property by it or by anyone retained by it to assist it to perform its function of the safekeeping of the scheme property; and

(iii) an indemnity given to a person winding up a scheme if the indemnity is given for the purposes of arrangements by which the whole or part of the property of that scheme becomes the first property of the ICVC and the holders of units in that scheme become the first shareholders in the ICVC; and

(c) for an AUT, an indemnity given to a person winding up a body corporate or other scheme in circumstances to which CIS 15.2.7 R (Creation of units) applies.

01/11/2002

Guidance on restricting payments

CIS 5.5.9

CIS 8.4.1 R (Payment of liabilities on transfer of assets) and CIS 8.5.5 R (Other payments out of scheme property) contain provisions restricting payments out of scheme property.

01/11/2002

Export chapter as

Legal Instruments that change this Chapter Investment and borrowing powers

CIS 5A

Investment and borrowing powers

CIS 5A.1

Introduction

01/12/2004

Application

CIS 5A.1.1

(1) This chapter applies in relation to ICVCs and AUTs which:

(a) are not UCITS schemes; or

(b) were UCITS schemes when their authorisation order was made and operate under Transitional provision 14.

(2) This section (CIS 5A.1) applies to authorised fund managers and depositaries of schemes within (1).

01/11/2002

Application guidance

CIS 5A.1.2

This chapter applies to non UCITS schemes which are geared futures and options schemes, property schemes, money market schemes, futures and options schemes, fund of funds schemes, umbrella schemes which do not comply with the requirements of the UCITS Directive and feeder fund schemes. This chapter also applies to UCITS schemes within transitional provision 14 (securities schemes, warrant schemes, or an umbrella scheme consisting of sub-funds which would, if separately authorised be a securities scheme or a warrant scheme). Therefore, only the sections relevant to these fund types and the cross references contained within are of application. Cross references to other rules in the relevant section for each fund type should be applied in respect only of that relevant fund type.

01/11/2002

Purpose

CIS 5A.1.3

This chapter helps in achieving the regulatory objective of protecting consumers by laying down minimum standards for the investments that may be held by an authorised fund. In particular:

(2) authorised funds are required to comply with a number of investment rules that require the spreading of risk.

01/12/2004

Explanation of this chapter

CIS 5A.1.4

(1) Product Distinctiveness - CIS 2.1.4 R (Types of authorised fund) sets out the types of scheme. Each of these authorised fund types has distinct characteristics and can therefore only hold certain types of investments. The rules in this chapter outline the permitted investments for non UCITS schemes which are of the geared futures and options, property, money market, futures and options, fund of funds, non-UCITS compliant umbrella and feeder fund scheme type and for UCITS schemes within transitional provision 14. This ensures that the distinct character of each authorised fund is maintained.

(2) Investment and borrowing powers. This chapter sets out investment and borrowing rules with which the following types of authorised fund must comply:

(a) geared futures and options schemes;

(b) property schemes;

(d) futures and options schemes;

(e) fund of funds schemes;

(f) feeder funds;

(g) umbrella schemes which do not comply with the UCITS Directive; and

(h) UCITS schemes under transitional provision 14.

(3) Transitional provision 14 specifies the periods allowed under UCITS Amending Directive 2001/108/EC for UCITS schemes to continue under the narrower range of UCITS investment powers and more restricted disclosures and thus applies to:

(a) UCITS schemes authorised on or before the entry into force (13 February 2002) of UCITS Amending Directive 2001/108/EC for a period of 5 years from that entry into force; or

(b) UCITS schemes authorised after the entry into force of UCITS Amending Directive 2001/108/EC but before the entry into force of the rules in CIS 5A, for a period of two years from entry into force of the UCITS Amending Directive 2001/108/EC; or

(c) UCITS schemes authorised under the rules in CIS 5A until 2 years from the entry into force of UCITS Amending Directive 2001/108/EC.

01/11/2002

Distinct meaning of certain terms

CIS 5A.1.5

Terms used in this sourcebook should be interpreted and applied as they are defined. However, because of the distinct nature of investments in which an authorised fund is permitted to invest, some of these terms are not always used in a way that corresponds with their usage in certain markets, for example, the term "warrants". In the CIS sourcebook "warrants" has a slightly wider meaning than is usually attributed to it in warrant markets. The definition of warrants reflects this distinction (see also CIS 5A.9.2 G(2))

01/11/2002

CIS 5A.2

General investment powers and limits for authorised funds

01/12/2004

Application

CIS 5A.2.1

This section (CIS 5A.2) applies to authorised fund managers, except :

(1) CIS 5A.2.13 R (Significant influence for ICVCs), which applies only to ICVCs;

(2) CIS 5A.2.14 R (Significant influence for managers of AUTs), which applies only to managers of AUTs; and

(3) CIS 5A.2.15 R (Concentration), which also applies to ICVCs.

01/12/2004

Explanation of CIS 5A.2

CIS 5A.2.2

This section outlines some general investment rules, with which all authorised funds must comply, in order to ensure that they adhere to the same common standards. In line with requirements of the UCITS directive, this section also contains rules which would prevent an ICVC and a manager of an AUT from exercising influence over a body corporate.

01/12/2004

Prudent spread of risk

CIS 5A.2.3

01/12/2004

Investment powers: general

CIS 5A.2.4

(1) The scheme property of an authorised fund may, subject to the rules in this chapter, comprise any assets or investments to which it is dedicated. For ICVCs, the scheme property may also include movable or immovable property that is necessary for the direct pursuit of the ICVC's business of investing in those assets or investments.

(2) The scheme property of each authorised fund must be invested only in accordance with the relevant provisions in this chapter that are applicable to that authorised fund and within any upper limit in this chapter. However, the instrument constituting the scheme may further restrict:

(a) the kind of property in which the scheme property may be invested;

(b) the proportion of the capital property of the authorised fund to be invested in assets of any description;

(d) the borrowing powers of the authorised fund.

01/12/2004

Valuation

CIS 5A.2.5

(1) In this chapter, the value of the scheme property of an authorised fund means the net value of the scheme property determined in accordance with CIS 4.8 (Valuation) (for ICVCs and single-priced AUTs) or CIS 15.8 (Valuation) (for dual-priced AUTs), after deducting any outstanding borrowings (including, in the case of a property scheme, any capital outstanding on a mortgage of an immovable), whether immediately due to be repaid or not.
(2) When valuing the scheme property for this chapter:

(a) the time as at which the valuation is being carried out ("the relevant time") is treated as if it were a valuation point, but the valuation and the relevant time do not count as a valuation or a valuation point for the purposes of CIS 4 (for ICVCs and single-priced AUTs) and CIS 15 (for dual-priced AUTs);
(b) initial outlay is regarded as remaining part of the scheme property;
(c) if the authorised fund manager having taken reasonable care determines that the authorised fund will become entitled to any unrealised profit which has been made on account of a transaction in derivatives, that prospective entitlement is regarded as part of the scheme property; and
(d) for a dual-priced AUT, CIS 15.8.4 R (Valuation) applies to any valuation of the scheme property for the purposes of this chapter, and in applying CIS 15.8.4 R (Valuation):

(i) the cancellation basis only is required; and
(ii) paragraphs 1 to 8, 11 and 23 are not applicable.

01/12/2004

Valuation

CIS 5A.2.6

It should be noted that for the purpose of CIS 5A.2.5 R, CIS 4.8 or CIS 15.8 may be affected by specific provisions in this chapter such as, for example, CIS 5A.14.6 R (Stock lending: treatment of collateral) or CIS 12 (Special provisions for certain categories of scheme).

01/12/2004

Chapter to be construed as a whole

CIS 5A.2.7

(1) Where a rule in this chapter allows a transaction to be entered into or an investment to be retained only if possible obligations arising out of the investment transactions or out of the retention would not cause any breach of any limits in this chapter:

(a) it must be assumed that the maximum possible liability of the authorised fund under any other of those rules has also to be provided for; and
(b) the scheme property must be valued in accordance with CIS 4.8 (Valuation) (for ICVCs and single-priced AUTs) or CIS 15.8 (Valuation) (for dual-priced AUT).

(2) Where a rule in this chapter permits an investment transaction to be entered into or an investment to be retained only if that investment transaction, or the retention, or other similar transactions, are covered:

(a) it must be assumed that in applying any of those rules, the authorised fund must also simultaneously satisfy any other obligation relating to cover; and
(b) no element of cover must be used more than once.

01/12/2004

Examples

CIS 5A.2.8

Examples of the "provisions" referred to in CIS 5A.2.7 R(1) are: CIS 5A.4.6 R (Investment in warrants and nil and partly paid securities) and CIS 5A.15.7 R (General power to accept or underwrite placings).

01/12/2004

Transferable securities

CIS 5A.2.9

(1) An investment is not a transferable security if the title to it cannot be transferred, or can be transferred only with the consent of a third party.

(2) In applying (1) to an investment which is issued by a body corporate, and which is an investment falling within articles 76 (Shares, etc) or 77 (Instruments creating or acknowledging indebtedness) of the Regulated Activities Order, the need for any consent on the part of the body corporate or any members or debenture holders of it may be ignored.

(3) An investment is not a transferable security unless the liability of the holder of it to contribute to the debts of the issuer is limited to any amount for the time being unpaid by the holder of it in respect of the investment.

01/12/2004

Investment in associated collective investment schemes

CIS 5A.2.10

Units in a collective investment scheme do not fall within CIS 5A.4.5 R (Securities Schemes : Investment in collective investment schemes), CIS 5A.5.3 R (2)(e) (Money market schemes: general), CIS 5A.6.7 R (Investment in collective investment schemes) (for futures and options schemes), CIS 5A.7.8 R (for geared futures and options schemes) or CIS 5A.8.7 R (for property schemes) if that collective investment scheme is managed or operated by (or, if it is an ICVC, has as its ACD) the authorised fund manager of the investing authorised fund or an associate of that authorised fund manager, unless:

(1) the instrument constituting the scheme in which the authorised fund is investing states that investment by that scheme will be restricted or specialised in terms of a particular geographic area or economic sector;

(2) the instrument constituting the scheme of the investing authorised fund and its prospectus clearly state that the property of the investing authorised fund may include such units; and

(3) CIS 5A.2.11 R (Investment in other group schemes) is complied with.

01/12/2004

Investment in other group schemes

CIS 5A.2.11

(1) An authorised fund must not invest in or dispose of units in another collective investment scheme (the second scheme), which is managed or operated by (or in the case of an ICVC, whose ACD is):

(a) the authorised fund manager of such authorised fund; or
(b) an associate of that authorised fund manager;

unless the authorised fund manager of the authorised fund is under a duty to pay to the authorised fund by the close of business on the fourth business day next after the agreement to buy or to sell the amount referred to in (2) and (3).
(2) On investment, either:

(a) any amount by which the consideration paid by the authorised fund for the units in the second scheme exceeds the price that would have been paid for the benefit of the second scheme had the units been newly issued or sold by it; or
(b) if such price cannot be ascertained by the authorised fund manager of the authorised fund, the maximum amount of any charge permitted to be made by the seller of units in the second scheme.

(3) On disposal, the amount of any charge made for the account of the authorised fund manager or operator of the second scheme or an associate of any of them in respect of the disposal.
(4) In (1), (2) and (3):

(a) any addition to or deduction from the consideration paid on the acquisition or disposal of units in the second scheme, which is applied for the benefit of the second scheme and is, or is like, a dilution levy made in accordance with CIS 4.6.3 R (for ICVCs and single-priced AUTs) or SDRT provision made in accordance with CIS 4.6.3 R (for ICVCs and single-priced AUTs) or CIS 15.6.3 R (for dual-priced AUTs) is to be treated as part of the price of the units and not as part of any charge; and
(b) any charge made in respect of an exchange of units in one sub-fund or separate part of the second scheme for units in another sub-fund or separate part of that scheme is to be included as part of the consideration paid for the units.

01/12/2004

Investment in other collective investment schemes: interpretation

CIS 5A.2.12

Where a reference to an authorised fund of a particular type is made in CIS 5A.5.3 R (2)(e) (Money market schemes: general), CIS 5A.6.7 R (Investment in collective investment schemes) (for futures and options schemes), CIS 5A.7.8 R (for geared futures and options schemes) or CIS 5A.8.7 R (for property schemes), that reference is to be treated as a reference also to:

(1) a sub-fund which would, if it were the subject of a separate authorisation order be an authorised fund of that particular type; and

(2) a separate part of a recognised scheme that is equivalent to a sub-fund within (1).

01/11/2002

Significant influence for ICVCs

CIS 5A.2.13

(a) immediately before the acquisition, the aggregate of any such securities held by the ICVC gives the ICVC power significantly to influence the conduct of business of that body corporate; or

(b) the acquisition gives the ICVC that power.

(3) This rule (CIS 5A.2.13 R) does not apply to investment by a property scheme in property related assets.

01/12/2004

Significant influence for managers of AUTs

CIS 5A.2.14

(b) the acquisition gives the manager that power.

(3) This rule (CIS 5A.2.14 R) does not apply to investment by a property scheme in property related assets.

01/12/2004

Concentration

CIS 5A.2.15

An authorised fund must not hold:

(1) transferable securities (other than debt securities) which:

(a) do not carry a right to vote on any matter at a general meeting of the body corporate that issued them; and

(b) represent more than 10% of those securities issued by that body corporate;

(2) more than 10% of the debt securities issued by any single issuing body; and

(3) except in the case of a fund of funds scheme and a feeder fund, more than 10% of the units in a collective investment scheme.

01/12/2004

CIS 5A.2.16

In accordance with CIS 12.5.7 R (Investment and borrowing powers), CIS 5A.2.13 R, CIS 5A.2.14 R and CIS 5A.2.15 R will apply only at the level of the umbrella scheme.

01/12/2004

CIS 5A.3

Eligible markets regime

01/12/2004

Application

CIS 5A.3.1

This section (CIS 5A.3) applies to authorised fund managers, except CIS 5A.3.3 R (2)(d), which applies to depositaries.

01/12/2004

Purpose

CIS 5A.3.2

In order to protect investors, this sourcebook tries to ensure that markets on which investments of authorised funds are dealt in or traded on are of an adequate quality. To that effect, the eligible markets regime lays down a number of requirements relating to the nature of the markets in which the property of an authorised fund may be dealt in or traded. This regime is based on criteria in the UCITS directive.

01/12/2004

Eligible markets: requirements

CIS 5A.3.3

(1) A securities market is eligible for the purposes of the rules in this sourcebook if it is a market established in an EEA State on which transferable securities admitted to official listing in the EEA State are dealt in or traded.
(2) A securities market not falling within (1) or a derivatives market is, at any time, eligible for the purposes of the rules in this sourcebook if:

(a) the authorised fund manager, after consultation with the depositary (and in the case of an ICVC, any directors in addition to the ACD), has decided to choose that market as one which is appropriate for the purpose of investment of, or dealing in, the scheme property beyond, where appropriate, any limit which under the rules in this chapter would otherwise apply;
(b) the decision is notified in writing to the depositary and has not been revoked;
(c) the market is included in a list in the prospectus; and
(d) the depositary has taken reasonable care to determine that:

(i) adequate custody arrangements can be provided for the investments dealt in on the market in question; and
(ii) all reasonable steps have been taken by the authorised fund manager in deciding whether the market in question is eligible.

(3) In (2), a market must not be considered appropriate unless it:

(a) is regulated (CIS 5A.3.5 G);
(b) operates regularly (CIS 5A.3.6 G);
(c) is recognised (CIS 5A.3.7 G); and
(d) is open to the public (CIS 5A.3.8 G).

(4) In exercising the choice in (2), the authorised fund manager must have regard to:

(a) whether the market is adequately liquid (CIS 5A.3.9 G); and
(b) the arrangements relevant to the market for unimpeded transmission of income and capital to or to the order of investors.

01/12/2004
Future version of CIS 5A.3.3 after 01/07/2005

Guidance on eligible markets: introduction

CIS 5A.3.4

(1) CIS 5A.3.3 R (Eligible markets: requirement) will involve authorised fund managers exercising integrity and competence in making a judgement as to what constitutes an eligible market.
(2) The guidance paragraphs in this section (CIS 5A.3) are indicative of the matters that authorised fund managers will need to take into account, using such information as is available to them, making inquiries as necessary, and taking advice as appropriate, in order to have taken reasonable care to determine that a market is eligible.
(3) The items listed in the guidance paragraphs are not necessarily exhaustive, nor are they in any particular order of relative importance. An overall view will need to be taken on each market.

01/12/2004

Regulated

CIS 5A.3.5

(1) In considering whether a market is regulated, the authorised fund manager should assess whether the market is subject to supervision by an authority which is a statutory body, an agency of a national or State government, a department of a national government or another body designated for the purpose by one of these.
(2) In addition, the authorised fund manager should take account of any of (a) to (i):

(a) the degree to which persons who are bound by rules of the market are subject to formal supervision by the market or another body, and in particular whether that supervision includes level of capital;
(b) the powers of the market, or the supervising body, or both, to intervene in the business of persons who are bound by the rules of the market in the event of misconduct, financial difficulties or otherwise, including the power to reject applicants, terminate membership and de-list a security;
(c) the initial listing standards and ongoing supervision of securities traded on the market including the publication of prospectuses and audited annual financial statements;
(d) the everyday availability of current information about securities, derivatives, quotations, transactions, prices and spreads;
(e) requirements for the issue of contract notes (or their equivalents);
(f) whether there is a requirement for trade reporting to the market or other supervisory body of the securities or derivatives the authorised fund manager is intending to buy;
(g) whether the clearance and settlements arrangements normally used for transactions on the market are prompt and secure;
(h) the risk of loss in the event of insolvency of a person who is bound by the rules of the market; and
(i) how the market investigates and deals with complaints.

01/12/2004

Operating regularly

CIS 5A.3.6

(1) In considering whether a market is operating regularly, the authorised fund manager should assess whether the market has regular trading hours during which the investments listed or admitted to dealing may be dealt in.
(2) In addition, the authorised fund manager should take account of:

(a) the availability and timing of price and volume information and the way it is distributed; and
(b) in respect of securities, the degree to which, and the speed at which, companies listed on the market must release price-sensitive information, and the medium through which that information is distributed.

01/12/2004

Recognised

CIS 5A.3.7

In considering whether a market or exchange is recognised, the authorised fund manager should assess whether the market is recognised or registered as a market or exchange or as a self-regulating organisation (or as both) by an authority which is a statutory body, or an agency of a national or State government or department of a national government or another body designated for the purpose by one of these.

01/12/2004

Open to the public

CIS 5A.3.8

(1) In considering whether a market is open to the public, the authorised fund manager should assess whether investments listed or admitted to dealing on the market are freely available for trading by the public directly, or through members of the market, during normal trading hours.
(2) In addition, the authorised fund manager should take account of the extent to which overseas investors are permitted to hold securities listed on the market.

01/12/2004

Liquidity and repatriation of funds

CIS 5A.3.9

In considering whether a market is adequately liquid, the authorised fund manager should assess:

(1) the overall liquidity of the market or exchange; whether securities or derivatives or both can be bought and sold in a reasonable time, at best execution and in adequate amounts; and
(2) the procedures and restrictions (if they exist) on the repatriation of funds to the United Kingdom, bearing in mind in particular the open-ended nature of a collective investment scheme and the requirement that the authorised fund manager must at all times during the dealing day be willing to redeem units, including large redemptions, at a price arrived at in accordance with CIS 4 (Single-pricing and dealing) or CIS 15 (Dual-pricing and dealing).

01/12/2004

Responsibility of authorised fund manager

CIS 5A.3.10

(1) The authorised fund manager should, after consultation with the depositary about safe custody:

(a) for any particular market, consider all the characteristics mentioned in CIS 5A.3.3 R(3) and CIS 5A.3.3 R(4) of that market or the lack of them, and any other characteristics which are relevant, in order to reach a view on whether that market or exchange should be an eligible market, for approved securities and approved derivative investment purposes; and
(b) continue to take reasonable care to ensure that the market continues to exhibit the characteristics which led to it being considered eligible and that there are no events or characteristics which undermine that eligibility.

(2) Where a market ceases to be eligible, investments on that market will cease to be approved securities. The 10% restriction in CIS 5A.4.2 R(2) (Securities schemes: general) applies and, if necessary, the level of investment on that market must be reduced to ensure that this 10% limit is not exceeded. Exceeding the 10% limit because a market ceases to be eligible will generally be regarded as an inadvertent breach under CIS 7.5.3 R (Duties of the ACD and depositary: investment and borrowing powers) (in the case of an ICVC) and CIS 7.10.3 R (Duties of the manager and trustee: investment and borrowing powers). In addition, no new derivatives exposures on the investments that cease to be approved securities should be created.

01/12/2004

CIS 5A.4

Securities schemes

01/12/2004

Application

CIS 5A.4.1

This section (CIS 5A.4) applies to authorised fund managers of securities schemes.

01/12/2004

Securities schemes: general

CIS 5A.4.2

(1) The scheme property of a securities scheme must, except where otherwise provided in the rules in this chapter, only consist of transferable securities.
(2) Not more than 10% in value of the scheme property of a securities scheme is to consist of transferable securities which are not approved securities, but there is no limit on the value of the scheme property which is to consist of approved securities.
(3) Not more than 5% in value of the scheme property is to consist of transferable securities which are units in collective investment schemes, and those units must fall within CIS 5A.4.5 R (Securities Schemes : Investment in collective investment schemes).
(4) Investment under (3) counts towards the limit in (2) (except where the units are approved securities).
(5) CIS 5A.4.3 R (Spread: general) and CIS 5A.4.4 R (Spread: government and public securities) do not apply until the earlier of:

(a) the expiry of a period of six months after the date of effect of the authorisation order in respect of the authorised fund (or on which the initial offer commenced if later); or
(b) the date when the value of the scheme property of the securities scheme first exceeds £2 million (or the equivalent in the base currency of the securities scheme).
(6) The following sections also apply to securities schemes:
(a) CIS 5A.2 (General investment powers and limits for authorised funds);
(b) CIS 5A.13 (Efficient portfolio management);
(c) CIS 5A.14 (Stock lending);
(d) CIS 5A.15 (Cash, borrowing, lending and other provisions); and
(e) CIS 5A.16 (Cover for sales).

01/12/2004

Spread: general

CIS 5A.4.3

(1) This rule (CIS 5A.4.3 R) does not apply to government and public securities.
(2) Not more than 5% in value of the scheme property is to consist of transferable securities issued by any one issuer.
(3) In applying (2), certificates representing certain securities are treated as equivalent to the underlying security.
(4) The figure of 5% in (2) may be increased to 10% in respect of up to 40% of the value of the scheme property.

01/12/2004

Spread: government and public securities

CIS 5A.4.4

(1) This rule (CIS 5A.4.4 R) applies to government and public securities ("such securities") only.
(2) As long as no more than 35% of the value of the scheme property of an authorised fund is invested in such securities issued by any one issuer, there is no limit on the amount which may be invested in such securities or such securities issued by any one issuer or of any one issue.
(3) No more than 35% in value is to be invested in such securities issued by any one issuer unless the authorised fund manager, after consultation with the depositary, considers the issuer of such securities as one which is appropriate in accordance with the investment objectives of the authorised fund.
(4) Where more than 35% in value of the scheme property is invested in such securities issued by any one issuer:

(a) up to 30% in value of the scheme property may consist of such securities of any one issue;
(b) the scheme property must include such securities issued by that or another issuer, of at least six different issues; and
(c) the disclosures in (5) must have been duly made.

(5) Where it is intended that (3) and (4) may apply, the instrument constituting the scheme, and the most recently published prospectus, must clearly state:

(a) the fact that more than 35% in value of the scheme property is or may be invested in government and public securities issued by one issuer; and
(b) the names of the States, and of the local authorities or public international bodies or both in whose government and public securities the authorised fund may invest over 35% of its assets.

(6) In (2), (3), (4) and (5), in relation to government and public securities:

(a) issue, issued and issuer include guarantee, guaranteed and guarantor; and
(b) an issue differs from another if there is a difference as to repayment date, rate of interest, guarantor or other material terms of the issue.

01/12/2004

Securities schemes: investment in collective investment schemes

CIS 5A.4.5

A securities scheme may invest in units in a collective investment scheme only if the second scheme is a collective investment scheme that complies with the conditions necessary for it to enjoy the rights conferred by the UCITS directive or is a collective investment scheme that:

(1) complies with section 243(10) of the Act (Authorisation orders: entitlement to have units redeemed) or is treated as complying with it by section 243(11) of the Act;
(2) is either:

(a) a recognised scheme; or
(b) a collective investment scheme constituted outside the United Kingdom in which the investments of the scheme consist of units which are approved securities;

(3) is dedicated to investing funds raised from the public in transferable securities;
(4) operates on the principle of risk spreading; and
(5) has terms which prohibit more than 5% in value of the property of the scheme consisting of units in collective investment schemes.

01/12/2004

Investment in warrants and nil and partly paid securities

CIS 5A.4.6

(1) A warrant ("the proposed warrant") falls within any power of investment only if, on the assumptions that:

(a) there is no change to the scheme property between the acquisition of the proposed warrant and its exercise; and
(b) the rights conferred by the proposed warrant and all other warrants forming part of the scheme property at the time of the acquisition of the proposed warrant will be exercised (whether or not it is intended that they will be);

it is reasonably foreseeable that the right conferred by the proposed warrant could be exercised by the authorised fund without contravening the rules in this chapter.
(2) A transferable security on which any sum is unpaid falls within a power of investment only if it is reasonably foreseeable that the amount of any existing and potential call for any sum unpaid could be paid by the authorised fund, at the time when payment is required, without contravening the rules in this chapter.
(3) Not more than 5% in value of the scheme property is to consist of warrants.
(4) A warrant which is an investment falling within article 80 of the Regulated Activities Order (Certificates representing certain securities) and which is akin to an investment falling within article 79 (Instruments giving entitlement to investments) of the Regulated Activities Order may not be included in the scheme property unless it is listed on an eligible securities market.

01/12/2004

CIS 5A.5

Money market schemes

01/12/2004

Application

CIS 5A.5.1

This section (CIS 5A.5) applies to authorised fund managers of money market schemes.

01/12/2004

Introduction

CIS 5A.5.2

(1) This section (CIS 5A.5) sets out specific rules for money market schemes. Money market schemes are authorised funds investing in cash and near cash and, subject to specified restrictions (as to which see CIS 5A.5.3 R (Money market schemes: general)) in bills of exchange and in debentures and other instruments creating or acknowledging indebtedness.
(2) The rules in this section governing the investment limits of money market schemes are intended to ensure that money market schemes maintain a high level of liquidity.

01/12/2004

Money market schemes: general

CIS 5A.5.3

(1) The scheme property of a money market scheme must, except where otherwise provided in the rules in this chapter, consist of "money market scheme assets".
(2) For this purpose, "money market scheme assets" means any of:

(a) cash and near cash;
(b) bills of exchange accepted by an eligible institution or an approved bank, if repayable within 12 months;
(c) instruments creating or acknowledging indebtedness which are:

(i) repayable within 12 months;
(ii) not subordinated; and
(iii) either approved securities or investments which are issued by an eligible institution or an approved bank otherwise than in return for a deposit in (a);

(d) a deposit which would be within (a) (near cash) except that it is repayable within six months (instead of immediately) and without payment of a penalty exceeding seven days' interest calculated at ordinary commercial rates; and
(e) units in one or more regulated collective investment schemes, each of which is either a money market scheme or a scheme of a category that is equivalent to a money market scheme.

(3) The following also apply to money market schemes:

(a) CIS 5A.2 (General investment powers and limits for authorised funds);
(b) CIS 5A.4.6 R (2) (Investment in warrants and nil or partly paid securities);
(c) CIS 5A.13 (Efficient portfolio management);
(d) CIS 5A.14 (Stock lending);
(e) CIS 5A.15 (Cash, borrowing, lending and other provisions); and
(f) CIS 5A.16 (Cover for sales).

01/11/2002

Investment limits

CIS 5A.5.4

(1) At least 50% in value of the scheme property of a money market scheme must consist of instruments or deposits which are permitted under CIS 5A.5.3 R (Money market schemes: general) and which are:

(a) redeemable or repayable within two weeks; or
(b) in the case of instruments, capable of being transferred without the consent of a third party (and for this purpose the issuer of the instrument must be regarded as a third party).

(2) Not more than 80% in value of the scheme property is to consist of transferable securities, in accordance with CIS 5A.4 (Securities schemes) (but excluding investment in units in collective investment schemes under CIS 5A.4.5 R).

01/12/2004

Spread

CIS 5A.5.5

(1) This rule (CIS 5A.5.5 R) does not apply to a money market scheme until the date on which the value of its scheme property first exceeds £1 million (or the equivalent in the base currency of the money market scheme).
(2) Not more than 5% in value of the scheme property of a money market scheme is to consist of instruments issued by any one issuer; but this limit does not apply to instruments which are government and public securities.
(3) Not more than 30% in value of the scheme property is to consist of government and public securities of the same issue.
(4) Where more than 35% in value of the scheme property is invested in government and public securities, it must include such securities of at least six different issues.
(5) Not more than 5% in value of the scheme property is to consist of units within CIS 5A.5.3 R (2)(e) (Money market schemes: general).
(6) Whenever the total value of the scheme property of a money market scheme which is held on deposit is more than £1 million:

(a) not more than 10% in value is to be kept on deposit with any one person;
(b) for the purposes of (a):

(i) the depositary and its associates are regarded as one person;
(ii) the manager and its associates are regarded as one person; and
(iii) each director of an ICVC including the ACD and his or its associates are regarded as one person; and

(i) the person is an eligible institution and is not one of the persons referred to in (b); and
(ii) the amount of the deposit does not exceed 10% in value of that eligible institution's issued capital and reserves as shown in its most recently published annual accounts.

01/12/2004

CIS 5A.6

Futures and options schemes

01/12/2004

Application

CIS 5A.6.1

This section (CIS 5A.6) applies to authorised fund managers of futures and options schemes except:

(1) CIS 5A.6.6 R (3), which also applies to depositaries of futures and options schemes; and
(2) CIS 5A.6.14 R, which applies to ICVCs that are futures and options schemes and to trustees of AUTs that are futures and options schemes.

01/12/2004

Introduction

CIS 5A.6.2

(1) This section (CIS 5A.6) sets out specific rules for futures and options schemes. Futures and options schemes are authorised funds dedicated to investment in approved derivatives and other derivatives (whether with or without transferable securities), where most or all of the transactions are fully covered. The next section (CIS 5A.7) deals with geared futures and options schemes. While the types of scheme property are almost the same for both of these categories, there are important differences between them in the degree to which exposure is permitted and in the manner in which exposure is measured.
(2) The futures and options scheme must be "covered", in the sense that it is permitted to invest in derivatives and forward transactions only as long as the exposure itself is suitably covered from within its scheme property, including permitted borrowing. Some limited form of investment without cover is permitted, in the form of purchased options.
(3) The geared futures and options scheme, on the other hand, is permitted to devote 20% of its scheme property to initial outlay, and this may therefore lead in volatile markets to a greater exposure to profit or loss than in the case of a futures and options scheme.

01/12/2004

Futures and options schemes: general

CIS 5A.6.3

(1) The scheme property of a futures and options scheme must, except where otherwise provided in the rules in this chapter, consist only of any or all of:

(a) transferable securities available to a securities scheme, in accordance with CIS 5A.4 (Securities schemes) (but excluding investment in units in collective investment schemes under CIS 5A.4.5 R);
(b) derivatives permitted under this rule (CIS 5A.6.3 R) and CIS 5A.6.4 R - CIS 5A.6.6 R;
(c) forward transactions in currencies or gold permitted under this rule (CIS 5A.6.3 R), CIS 5A.6.4 R and CIS 5A.6.5 R;
(d) cash or near cash;
(e) units in collective investment schemes under CIS 5A.6.7 R (Investment in collective investment schemes); and
(f) gold.

(2) For investment within (1)(a), CIS 5A.4 (Securities schemes) applies as if the futures and options scheme were a securities scheme, but subject to any specific modification in this section (CIS 5A.6).
(3) For investment within (1)(b) or (1)(c), a transaction in derivatives or a forward transaction must not be effected unless:

(a) the transaction is of the kind specified in CIS 5A.6.4 R (Permitted transactions); and
(b) the transaction is:

(i) fully covered, as required by CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions); or
(ii) the subject of deposit arrangements, as required by CIS 5A.6.13 R (Deposit arrangements (for purchased options)).

(4) Not more than 10% in value of the scheme property is to be used for transactions in derivatives in the form of uncovered purchased options (taking the current market value of the option as its value for this purpose), but there must be deducted from that figure of 10% any percentage of the value of the scheme property invested in transferable securities in the form of warrants.
(5) Not more than 10% in value is to be held in the form of gold.
(6) Whenever the total value held on deposit of the scheme property of a futures and options scheme is more than £1 million:

(a) not more than 10% in value is to be kept as cash on deposit with any one person;
(b) in (a):

(i) the depositary and its associates are regarded as one person;
(ii) the manager and its associates are regarded as one person; and
(iii) each director of an ICVC including the ACD and his or its associates are regarded as one person; and

(i) the person is an eligible institution or an approved bank and is not one of the persons referred to in (b); and
(ii) the amount of the deposit does not exceed 10% in value of that eligible institution's or an approved bank's issued capital and reserves as shown in its most recently published annual accounts.

(7) The following also apply to futures and options schemes:

(a) CIS 5A.2 (General investment powers and limits for authorised funds);
(b) CIS 5A.13 (Efficient portfolio management);
(c) CIS 5A.14 (Stock lending);
(d) CIS 5A.15 (Cash, borrowing, lending and other provisions); and
(e) CIS 5A.16 (Cover for sales).

01/12/2004

Permitted transactions (derivatives and forwards)

CIS 5A.6.4

(1) A transaction in derivatives under this section (CIS 5A.6) must be:

(a) in an approved derivative; or
(b) one which complies with CIS 5A.6.6 R (OTC transactions in derivatives); or
(c) a synthetic future.

(2) Any transaction in an approved derivative must be effected on or under the rules of an eligible derivatives market.
(3) Any forward transaction must be with an approved counterparty under CIS 5A.6.6 R (2)(OTC transactions in derivatives).
(4) Not more than 5% in value of the scheme property is to be directed to initial outlay in respect of over the counter transactions with any one counterparty.

01/12/2004

Transactions for the purchase of property

CIS 5A.6.5

A derivatives or forward transaction (which is a permitted transaction under CIS 5A.6.4 R (Permitted transactions (derivatives and forwards)) which will or could lead to delivery of property for the account of the ICVC or to the trustee for the account of the AUT may be entered into only if:

(1) that property can be held for the account of the ICVC or can be held by the AUT (or else the transaction is a bought future or bought call option); and
(2) the authorised fund manager having taken reasonable care determines that delivery of the property under the transaction will not occur or will not lead to a breach of the rules in this sourcebook.

01/12/2004

OTC transactions in derivatives

CIS 5A.6.6

Any transaction in derivatives under CIS 5A.6.4 R (1)(b) must be:

(1) a future or an option or a contract for differences resembling an option;
(2) with an approved counterparty; a counterparty to a transaction in derivatives is approved only if the counterparty is:

(a) an eligible institution or an approved bank; or
(b) a firm whose permission (including any requirements or limitations), as published in the FSA record, permits it to enter into the transaction as principal off-exchange;

(3) on approved terms; the terms of a transaction in derivatives are approved only if, before the transaction is entered into, the depositary is satisfied that the counterparty has agreed with the ICVC or with the manager:

(a) to provide a valuation in respect of that transaction (which, for dual-priced AUTs should be on a buying and selling basis) at least once a week and at any other time at the request of the ICVC or manager; and
(b) that it will, at the request of the ICVC or manager, enter into a further transaction to close out that transaction, at a reasonable price arrived at under the pricing model or other reliable basis agreed under (4); and

(4) capable of valuation; a transaction in derivatives is capable of valuation only if the authorised fund manager having taken reasonable care determines that, throughout the life of the derivative (if the transaction is entered into), it will be able to value the investment concerned with reasonable accuracy:

(a) on the basis of a pricing model which has been agreed between the authorised fund manager and the depositary; or
(b) on some other reliable basis reflecting an up-to-date market value which has been so agreed.

01/11/2002

Investment in collective investment schemes

CIS 5A.6.7

(1) Investments in units of a collective investment scheme must not be made unless that scheme:

(a) is a regulated collective investment scheme which is either a futures and options scheme or a money market scheme or a scheme of a category that is equivalent to the category of one of such schemes; or
(b) (after taking account of CIS 5A.2.10 R) (Investment in associated collective investment schemes):

(i) is within CIS 5A.4.5 R (Securities schemes: investment in collective investment schemes); or
(ii) would be within CIS 5A.4.5 R (Securities schemes: investment in collective investment schemes) if paragraph (3) of that rule read: "is dedicated to investing funds raised from the public in approved and other derivatives (where most or all of the transactions in derivatives are fully covered by cash, securities or other derivatives) whether with or without transferable securities or covered forward transactions in currency or gold."

(2) Not more than 5% in value of the scheme property of a futures and options scheme is to consist of units in collective investment schemes.

01/12/2004

What is cover and what is the purpose of cover?

CIS 5A.6.8

(1) A futures and options scheme should be covered. This means that a futures and options scheme is permitted to invest in derivatives and forward transactions as long as the exposure itself is suitably covered from within its scheme property (including permitted borrowing).
(2) A purpose of cover is to ensure that a futures and options scheme is not, and cannot become, exposed to the risk of loss of property, including money, to an extent greater than the value of the futures and options scheme, together with permitted borrowing of 10%. At any time, therefore, the futures and options scheme must hold scheme property which is of the right kind and sufficient in value or amount to match the exposure which exists as a result of the derivative. CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions) sets out detailed requirements for cover of a futures and options scheme.
(3) In accordance with CIS 5A.2.7 R (2)(b), cover used in respect of one transaction in derivatives or forward transaction must not be used for cover in respect of another transaction in derivatives or a forward transaction.
(4) However, some limited form of investment without cover is permitted, in the form of purchased options. Since purchased options result in no exposure except that of loss of the premium paid, they can be held on an uncovered basis, but with a cash "set aside" to ensure that holdings of such derivatives do not unbalance the futures and options scheme.
(5) CIS 5A.6.9 R to CIS 5A.6.13 R set out detailed requirements for "cover" of a futures and options scheme.
(6) CIS 5A.6.16 G sets out, in diagrammatic form, the various stages in defining the cover requirements in CIS 5A.6.9 R.

01/12/2004

Cover for transactions in derivatives and forward transactions

CIS 5A.6.9

(1) Except where CIS 5A.6.13 R (1) (Deposit arrangements (purchased options)) applies, a transaction in derivatives or forward transaction is to be entered into under this section (CIS 5A.6) only if the maximum potential exposure created by the transaction, in terms of the principal or notional principal of the derivative contract or forward contract, is:

(a) covered individually under (2) or (3); and
(b) covered globally under (4).

(2) Exposure is covered individually if there is, in the scheme property:

(a) (in the case of an exposure in terms of property) a transferable security or other property which is of the right kind, and sufficient in amount, to match the exposure; and
(b) (in the case of an exposure in terms of money), cash or near cash (or borrowing under CIS 5A.6.14 R (Borrowing)) or transferable securities which is or are, or, on being turned into money in the right currency, will be, sufficient in amount to match the exposure.

(3) However, exposure to an index or basket of securities or other assets is covered individually for the purposes of (2) if the futures and options scheme holds transferable securities or other property which (taking into account the closeness of the relation between fluctuations in the price of the two) can reasonably be regarded as appropriate to provide cover for the exposure; they may be so regarded even if there is not complete congruence between the cover and the exposure.
(4) Exposure is covered globally if, after taking account of all the cover required under (2) or (3) for other positions already in existence, adequate cover from within the scheme property is available to enable the fresh transaction to be entered into.
(5) Whether or not a derivative or forward transaction is available under CIS 5A.6.12 R (Derivatives covering derivatives : requirements) to provide cover for another derivative or forward transaction under this section (CIS 5A.6):

(a) the two transactions involved in a synthetic future are to be treated as if they were a single derivative, and the net exposure from the combination is to be covered on the basis of the higher of the cover requirements of the options which make up the synthetic future; and
(b) synthetic cash is available to provide cover for a transaction as if it were cash.

(6) Cash not yet received into the scheme property but due to be received within one month is available as cover for the purposes of (2)(b) and (3).
(7) Property is not available for cover if it is the subject of a transaction under CIS 5A.14 (Stock lending), unless the authorised fund manager having taken reasonable care determines that it is obtainable (by return or re-acquisition) in time to meet the obligation for which cover is required.

01/12/2004

Examples of cover requirements

CIS 5A.6.10

Examples of the cover requirements:

(1) A bought put option (or a written call option) on 1000 ordinary £1 shares (fully paid) of ABC plc is covered by an existing holding in the futures and options scheme of 1000 ordinary £1 shares (fully paid) of ABC plc (CIS 5A.6.9 R (2)(a)).
(2) A bought call option (or written put option) on 1000 ordinary £1 shares (fully paid) of ABC plc is covered by cover (in the form of cash or an allowable substitute for cash or transferable securities) which is sufficient in amount to meet the purchase of the shares on exercise of the option ( CIS 5A.2.7 R (2)(b)).
(3) A sold contract for differences on short-dated sterling is covered by cash or near cash or transferable securities, the values of which together at least match the notional principal of the contract (for example a LIFFE short sterling contract, or a succession of such contracts, is covered by £500,000) (CIS 5A.6.9 R (2)(b) and CIS 5A.2.7 R (2)(b)).
(4) A sold future on the FT-SE 100 Index is covered by holdings of equities (or a combination of cash (or near cash) and call options on that future) which satisfy the test of appropriateness for cover in CIS 5A.6.9 R(3) in relation to that future, and the values of which together at least match the current mark to market valuation of the future (for example, if the multiplier per full index point is £10, and if the eventual obligation under the future is currently at 2800, the valuation of the futures position is 2800 x £10 = £28,000) (CIS 5A.6.9 R(3) and CIS 5A.6.12 R).
(5) Where an ICVC or the manager of an AUT has holdings in blue chip UK shares, wishes to provide more exposure to the US market, and decides to sell a FT-SE index future to the value of those shares (this transaction satisfying the test of appropriateness for cover in CIS 5A.6.9 R(3)), then the sterling synthetic cash position created is used as cover for a S&P 500 index future provided that the authorised fund ensures that the cover remains sufficient (for example by reference to the sterling/US dollar exchange rate) (CIS 5A.6.9 R(3) and CIS 5A.6.9 R(5)(b)).
(6) For guidance on congruence see CIS 5A.13.10 G(1) (The use of index derivatives : congruence).

01/12/2004

Derivatives covering derivatives: explanation of the use of derivatives for cover

CIS 5A.6.11

(1) The general requirements about cover in CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions) are modified in some respects where it is sought to use two derivatives on the same underlying asset or security as cover for each other. CIS 5A.6.12 R (Derivatives covering derivatives: requirements) provides the basis for such mutual cover.
(2) The main features are that:

(a) only a countervailing exposure can provide adequate cover;
(b) written options may be used as cover for futures only where the option is in the money to the purchaser: if the option is out of the money to him, the option and the future each have to be covered in the ordinary way, though the premium acquired for writing the option will count as cash for that purpose; and
(c) contracts for differences, such as index contracts, are included in the cover arrangements so far as they resemble futures or options.

(3) The general effect of CIS 5A.6.12 R(1) and (2) is explained in CIS 5A.6.12 R(3).
(4) In applying CIS 5A.6.12 R, it may help to regard a future as an obligation (in that, unless closed out, the future will require something to be delivered, or accepted and paid for); a bought option as a right (in that the purchaser can, but need not, exercise the right to require the writer to deliver and accept and pay for something); and a written option as a potential obligation (in that it both creates exposure and gives the right of exercise to another).
(5) CIS 5A.6.17 G sets out in diagrammatic form the various cover requirement in CIS 5A.6.12 R

01/12/2004

Derivatives covering derivatives: requirements

CIS 5A.6.12

(1) Where an authorised fund manager proposes to use a position resulting from a transaction in derivatives as cover (whether in whole or in part) for the exposure of another transaction in derivatives, CIS 5A.6.9 R (Cover for derivatives and forward transactions) has effect as modified by this rule CIS 5A.6.12 R).
(2) On the basis that the requirements of CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions) about the amount and right kind of assets as cover are satisfied, (3) contains the requirements for the purposes of (1).
(3)

(a) In this rule (CIS 5A.6.12 R) "countervailing" means that one of the two derivatives has an exposure which, in terms of risk, is equal and opposite to the exposure of the other, and "offset" means that there is an equal and opposite coverage in terms of risk.
(b) A derivative of one type provides cover for a countervailing derivative of the same type.
(c) A derivative of one type provides cover for a countervailing derivative of a different type if, but only if:

(i) the right under one offsets and is offset by the obligation under the other; or
(ii) Paragraph (g) applies.

(d) In applying (b) and (c), differences between the derivatives in terms of price, maturity and exercise price may be ignored, except where (b) is disapplied by (e).
(e) Paragraph (b) does not apply if an opportunity to exercise the right under the one derivative will become available to the futures and options scheme only after the first date on which the potential obligation under the other may become an actual obligation.
(f) Where, under (b), an authorised fund manager decides that a written option and a bought option should provide mutual cover, the authorised fund manager must arrange for the depositary to deposit and set aside with an eligible institution or an approved bank the whole amount of the difference between the exercise value of the two options (that is the amount which would be payable by or to the futures and options scheme on exercise of the options) inclusive of any margin requirements of the exchange. That amount must not be used for the purposes of providing cover, other than under this paragraph (f), under the rules of this chapter.
(g) A written option provides cover for, and is covered by, a countervailing future only if the option is in the money to the purchaser of the option. If the written option is out of the money to the purchaser, then both it and the future must each be separately covered under CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions).
(h) A contract for differences may be included in this rule (CIS 5A.6.12 R) if and to the extent that it has the characteristics of a future or an option.

01/11/2002

Deposit arrangements (for purchased options)

CIS 5A.6.13

(1) Where the purchase of an uncovered option is proposed in reliance on CIS 5A.6.3 R (4) (Futures and options schemes: general), the authorised fund manager must arrange for the depositary to deposit and set aside with an eligible institution or an approved bank any amount by which 5% of the exercise value of the option (that is the amount which would be payable by the futures and options scheme on exercise of the option) exceeds the amount paid by way of premium. That excess (if any) must not be used for the purposes of providing cover under the rules in this chapter.
(2) The amount to be deposited and set aside may be in cash or in government and public securities (which are to be valued for this purpose at the current mark to market valuation).

01/11/2002

Borrowing

CIS 5A.6.14

(1) Cash obtained by borrowing, and borrowings which the authorised fund manager reasonably regards an eligible institution or an approved bank to be committed to provide, are available for cover under CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions) as long as the normal limits on borrowing (as to which see CIS 5A.15.3 R (General power to borrow) and CIS 5A.15.4 R (Borrowing limits)) are observed.
(2) Where, for the purposes of this section (CIS 5A.6), the ICVC or the trustee for the account of the AUT on the instructions of the manager:

(a) borrows an amount of currency from an eligible institution or an approved bank; and
(b) keeps an amount in another currency, at least equal to the borrowing for the time being in (a), on deposit with the lender (or his agent or nominee);

then this section (CIS 5A.6) applies as if the borrowed currency, and not the deposited currency, were part of the scheme property, and the normal limits on borrowing under CIS 5A.15.3 R and CIS 5A.15.4 R do not apply to that borrowing.

01/12/2004
Past version of CIS 5A.6.14 before 01/12/2004

Continuing nature of limits and requirements

CIS 5A.6.15

(1) An authorised fund manager must, at each valuation point (and more frequently if necessary), re-calculate the amount of cover required in respect of derivatives and forward positions already in existence under this section (CIS 5A.6). Derivatives and rights under forward transactions under this section may be retained in the scheme property only so long as they remain covered both individually and globally under CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions) (or, where relevant, the deposit requirements in CIS 5A.6.13 R (Deposit arrangements (for purchased options)) are complied with).
(2) If at any time:

(a) any fact or matter relating to the futures and options scheme or its economic environment; or
(b) the aggregate of all outstanding derivatives or forward positions under this section;

is such that at least one of the relevant transactions (assuming it did not exist) could not properly have been effected, either in that size or at all, the authorised fund manager must immediately on becoming aware of that fact or matter take the necessary steps to rectify the situation, whether by closing out or providing additional cover or otherwise.

01/12/2004

CIS 5A.6.16

Stages in defining cover

This table belongs to CIS 5A.6.8 G

100%

Take the scheme property

Transferable Securities (TS)

Cash (and Near Cash)

Gold

Rights obtained through derivatives

Stock Lent

ADD borrowing facilities to make a maximum of 110%

10%

100%

SUBTRACT property not eligible to provide cover to reach total of Y%

Cash

Gold

Rights

Stock Lent

(used as cover) Note 1

(used as cover or as deposit)

(used as cover)

(unless obtainable in time)

Find the total available: T = 110% - Y%

Take T and subdivide

110% - Y%

AVAILABLE SCHEME PROPERTY (T)

Property

Rights to property

Cash

Allowable substitutes for cash

cover for

EXPOSURE TO BE COVERED

exposure in terms of property

exposure in terms of money

Note 1: TS, Cash, Gold or Rights are not eligible if they are being used as cover under this section (CIS 5A.6) or under section CIS 5A.13 (Efficient portfolio management).

01/12/2004

CIS 5A.6.17

Mutual cover as between derivatives

This table belongs to CIS 5A.6.12 R

DERIVATIVE A (covers/is covered by)

DERIVATIVE B

(i)

(ii)

(iii)

Bought Future

Sold Future

Bought Put Option

Written Call Option (if in the money)

Sold Future

Bought Future

Bought Call Option

Written Put Option (if in the money)

Bought Call Option

Written Call Option

Bought Put Option

Written Put Option

Note Column B(i) shows the effect of CIS 5A.6.12 R (3)(b); Column B(ii) shows the effect of CIS 5A.6.12 R (3)(c)(i); and Column B(iii) shows the effect of CIS 5A.6.12 R (3)(c)(ii) and CIS 5A.6.12 R (3)(g).

01/12/2004

CIS 5A.7

Geared futures and options schemes

01/12/2004

Application

CIS 5A.7.1

This section (CIS 5A.7) applies to authorised fund managers of geared futures and options schemes.

01/12/2004

Introduction

CIS 5A.7.2

(1) This section (CIS 5A.7) sets out specific rules for geared futures and options schemes. Geared futures and options schemes are authorised funds dedicated to investment in derivatives (whether with or without transferable securities) where the extent of that investment is limited by the amount of property available to be put up as initial outlay or used as cover.

(2) A geared futures and options scheme is permitted to take on exposure to the extent of putting 20% of its scheme property into initial outlay on derivatives. The property for this purpose is not to be increased by borrowing, since a geared futures and options scheme cannot borrow (see CIS 5A.15.3 R (General power to borrow)). There is no limit on the amount of cash that can be held by the geared futures and options scheme.

01/12/2004

Geared futures and options scheme: general

CIS 5A.7.3

(1) The scheme property of a geared futures and options scheme must, except where otherwise provided in the rules in this chapter, consist only of any or all of :

(a) transferable securities available to a securities scheme in accordance with CIS 5A.4 (Securities schemes), (but excluding investments in units in collective investment schemes under CIS 5A.4.5 R);

(b) transactions in derivatives or forward transactions which are covered on the basis available to a futures and options scheme (see CIS 5A.6.9 R - CIS 5A.6.12 R for requirements for cover);

(d) forward transactions in currencies or gold permitted under the rules in this section (CIS 5A.7);

(e) cash or near cash;

(f) units in collective investment schemes under CIS 5A.7.8 R (Investment in collective investment schemes);

(g) gold.

(2) In respect of investment within (1)(a), CIS 5A.4 (Securities schemes) applies as if the geared futures and options scheme were a securities scheme, but subject to any special modifications in this section (CIS 5A.7).

(3) In respect of transactions in derivatives and forward transactions under (1)(b), CIS 5A.6 (Futures and options schemes), except CIS 5A.6.7 R (Investment in collective investment schemes), applies as if the geared futures and options scheme were a futures and options scheme, but subject to any special modifications in this section (CIS 5A.7).

(4) In respect of derivatives within (1)(c):

(a) any transaction in derivatives must be in an approved derivative, or in one which complies with CIS 5A.6.6 R (OTC transactions in derivatives); and

(b) any transaction in an approved derivative must be effected on or under the rules of an eligible derivatives market.

(5) In respect of transactions within (1)(d), this section (CIS 5A.7), except (4) and CIS 5A.7.4 R (7) (Limit on investment in initial outlay), applies as if any forward transaction were a transaction in derivatives; and the transaction must be with a counterparty which is approved for the purposes of CIS 5A.6.6 R (2).

(6) Not more than 10% in value of the scheme property is to be held in the form of gold.

(7) The following also apply to geared futures and options schemes:

(a) CIS 5A.2 (General investment powers and limits for authorised funds);

(b) CIS 5A.13 (Efficient portfolio management);

(d) CIS 5A.15 (Cash, borrowing, lending and other provisions); and

(e) CIS 5A.16 (Cover for sales).

(8) Despite the rules referred to in (7), an ICVC that is a geared futures and options scheme or the trustee of an AUT that is a geared futures and options scheme does not have power to borrow, whether under this section (CIS 5A.7) or CIS 5A.13 (Efficient portfolio management) or otherwise.

01/12/2004

Limits on investment in initial outlay

CIS 5A.7.4

(1) At any time, not more than 20% in value of the scheme property of a geared futures and options scheme is, subject to (3), to be devoted to initial outlay in any transactions in derivatives which are outstanding.

(2) For the purposes of initial outlay:

(a) regard must be had to the rules of any relevant eligible derivatives market;

(b) any increase in margin or initial margin, if required by such a market, is regarded as initial outlay from then on;

(d) variation margin (that is, an additional sum required to be paid to retain the rights following a movement in prices or other movements) is not initial outlay;

(e) premium which may become payable in the future under the transaction in respect of an option is regarded as initial outlay from the outset;

(f) in the case of a purchased option, the amount mentioned in (6) is to be regarded as initial outlay;

(g) in the case of a written option, the amount mentioned in (7) is to be regarded as initial outlay;

(h) in the case of an over the counter future, the amount mentioned in (8) is to be regarded as initial outlay; and

(i) in the case of a forward transaction, the amount mentioned in (9) is to be regarded as initial outlay.

(3) Not more than 10% in value of the scheme property is to be used for initial outlay on transactions in derivatives in the form of purchased options without counting this towards the 20% in (1). The figure of 10% must be reduced by any percentage of the value of the scheme property invested in transferable securities in the form of warrants.

(4) The authorised fund manager must arrange for the depositary to deposit and set aside with an eligible institution or an approved bank the amounts for the time being required by (6), (7), (8) and (9), and these amounts must not be used for the purpose of providing cover under the rules in this chapter.

(5) The amounts to be deposited and set aside may be in cash or in government and public securities (which are to be valued for this purpose at the current mark to market valuation).

(6) Where an option is purchased for the account of the ICVC or of the AUT, the authorised fund manager must ascertain the amount, if any, by which 5% of the exercise value of the option (that is the amount which would be payable or receivable by the geared futures and options scheme on exercise of the option) exceeds the amount paid by way of premium.

(7) Where an option is written for the account of the ICVC or of the AUT, the authorised fund manager must ascertain at the outset and at each valuation the amount which is the sum of:

(a) 5% of the exercise value of the option (that is the amount which would be payable or receivable by the purchaser of the option, on exercise of the option); and

(b) the amount, if any, by which the option is in the money to the purchaser of the option.

(8) Where a transaction in an over the counter future is entered into for the account of the ICVC or of the AUT, the authorised fund manager must ascertain at the outset and at each valuation the amount which is the sum of:

(a) 5% of the value of the amount of property to be bought or sold under the contract; and

(b) the amount, if any, by which the future would cause a loss to the geared futures and options scheme if it were to be closed out.

(9) Where a forward transaction is entered into for the account of the ICVC or of the AUT, the authorised fund manager must ascertain at the outset and at each valuation the amount which is 5% of the value of the forward contract (that is the amount of currency or of gold to be purchased or sold by the transaction at the current valuation in the currency or one of the currencies relevant for the purposes of the transaction) for each period of three months (or part of them) between the date of the latest valuation and the date of maturity.

01/11/2002

Stages in using limit on initial outlay

CIS 5A.7.5

CIS 5A.7.6 G sets out the various stages in using initial outlay

01/12/2004

CIS 5A.7.6

Stages in using limit on initial outlay

This table belongs to CIS 5A.7.5 G

Calculating maximum limit on initial outlay

Example 1 - Start point

Take the value of the scheme property (£10 million)

Divide by 20% to find limit (£10m) 20% = £2million.

Note:

(1)

In general, potential exposure of the geared futures and options scheme will increase with any increase in initial outlay.

(2)

If the value of the scheme property changes on a subsequent valuation, the maximum permitted initial outlay will also change as shown in Example 2 and Example 3.

Example 2 - Successful scheme

The scheme is subsequently valued at £12 million. Corresponding value of initial outlay becomes: -

20% of £12 million = £2.4 million.

Example 3 - Unsuccessful scheme

The scheme is subsequently valued at £8 million. Corresponding value of initial outlay becomes:-

20% of £8 million = £1.6 million.

01/12/2004

Spread

CIS 5A.7.7

(1) There are no limits, other than those resulting from the requirement in CIS 5A.7.4 R (Limit on investment in initial outlay), on the value of the scheme property of a geared futures and options scheme which may be devoted to initial outlay in respect of derivatives on or related to any one category of underlying security, commodity or other factor.

(2) Not more than 5% in value of the scheme property of a geared futures and options scheme is to be devoted to initial outlay in respect of over the counter transactions with any one counterparty.

(3) Wherever the total value held on deposit of the scheme property of a geared futures and options scheme is more than £1 million:

(a) not more than 10% in value is to be kept as cash on deposit with any one person;

(b) for the purposes of (a):

(i) the depositary and its associates are regarded as the same person;

(ii) the manager and its associates are regarded as one person; and

(iii) each director of an ICVC including the ACD and his or its associates are regarded as one person; and

(i) the person is an eligible institution or an approved bank and is not one of the persons referred to in (b); and

(ii) the amount of the deposit does not exceed 10% of that eligible institution's or an approved bank's issued capital and reserves as shown in its most recently published annual accounts.

01/11/2002

Investment in collective investment schemes

CIS 5A.7.8

(1) Investments in units of a collective investment scheme must not be made unless that scheme:

(a) is a regulated collective investment scheme which is either a futures and options scheme or a geared futures and options scheme or a money market scheme or a scheme of a category that is equivalent to the category of one of such authorised funds; or

(b) (after taking account of CIS 5A.2.10 R (Investment in associated collective investment schemes)):

(i) is within CIS 5A.4.5 R (Securities scheme: investment in collective investment schemes); or

(ii) would be within CIS 5A.4.5 R if CIS 5A.4.5 R (3)read: "is dedicated to investing funds raised from the public:

(a) in approved and other derivatives (where most or all of the transactions in derivatives are fully covered by cash, securities and other derivatives), whether with or without transferable securities or covered forward transactions in currency or gold; or(b) in approved and other derivatives (where the extent of investment is limited by the amount of scheme property available to be put up as initial outlay), whether with or without transferable securities and whether with or without investment within (a)".

(2) Not more than 5% in value of the scheme property of a geared futures and options scheme is to consist of units in collective investment schemes.

01/12/2004

Delivery of property under a transaction in derivatives

CIS 5A.7.9

(1) When entering into any transaction in derivatives as a result of which any investment or asset may become part of the scheme property of the geared futures and options scheme, the authorised fund manager must take reasonable care to determine:

(a) (where the investment or asset is one of which the scheme property could in some measure consist) that the transaction will not result in any breach of any other rule in this chapter:

(i) because it can be readily closed out; or

(ii) because the investment or asset concerned will at the expected time be included within the scheme property in a manner which conforms with the rules in this chapter; or

(b) (in any other case) that the transaction can readily be closed out.

(2) Where, in the event, the determination in (1)(a) or (1)(b) proves unjustified, and the authorised fund manager decides with the consent of the depositary, in accordance with CIS 7.5.3 R (Duties of the ACD and depositary: investment and borrowing powers) (in the case of an ICVC) or CIS 7.10.3 R (Duties of the manager and trustee: investment and borrowing powers) (in the case of an AUT) that it is in the interests of the holders that the property should be temporarily acquired, then the property concerned may, despite any other rule in this chapter, form part of the scheme property until the position can be rectified.

01/12/2004

CIS 5A.8

Property schemes

01/12/2004

Application

CIS 5A.8.1

This section (CIS 5A.8) applies to authorised fund managers of property schemes, except CIS 5A.8.11 R (1) (Initial periods), which also applies to the trustee of an AUT that is a property scheme.

01/12/2004

Introduction

CIS 5A.8.2

(1) This section (CIS 5A.8) sets out specific rules for property schemes, which can invest in property, whether in the United Kingdom or abroad.

(2) Property schemes are authorised funds which may invest in approved immovables and property, related assets with or without other transferable securities. Under this section (CIS 5A.8) a property scheme may not invest in immovables until £5 million has been subscribed or agreed to be subscribed. Under CIS 12.3.4 R (Failure to obtain minimum subscriptions) if this amount is not subscribed for during the period of the initial offer (or during the first 21 days after the date on which persons are first invited to become holders in the property scheme, where there is no initial offer) the authorised fund manager must use its best endeavours to enable the property scheme to be wound up. Provided the property scheme obtains £5 million or more, it may then be invested within a band of 20%-80% in approved immovables as described in CIS 5A.8.4 R (Permitted immovables) and CIS 5A.8.5 R (Approved immovables).

(3) For property schemes below £15 million in size there is, for up to two years, some transitional relief from some of the limits: in the early period a property scheme of small size may not be able to achieve the spread between different properties and other investments, appropriate for ongoing property schemes (see CIS 5A.8.11 R(3) (Initial period)).

(4) The remainder of the scheme property (also 20% - 80%) must be either invested in so-called property related assets (typically shares in a property investment company which must themselves be approved securities or else within one of the other special limits in this section) or in government and public securities, but subject to a maximum of 35% for such securities. In addition, 5% may be invested in property related collective investment schemes.

(5) To help illuminate this section, CIS 5A.8.13 G (Construction of property schemes) gives two examples of how a property scheme may be constructed, and outlines how the spread rules will apply to those property schemes. Property schemes A and B are each invested at opposite ends of the 20%-80% band.

01/12/2004

Property schemes: general

CIS 5A.8.3

(1) The scheme property of a property scheme must, except where otherwise provided in the rules in this chapter, only consist of any or all of:

(a) approved immovables;

(b) property related assets;

(d) units in collective investment schemes, under (5).

(2) Not more than 80% in value of the scheme property is to consist of approved immovables, but this limit is subject to (6).

(3) Not more than 80% in value is to consist of transferable securities, but the transferable securities must be property-related assets which are approved securities or else separately permitted under (4), (5) or (6).

(4) Not more than 35% in value is to consist of government and public securities.

(5) Not more than 5% in value is to consist of units in collective investment schemes under CIS 5A.8.7 R (Investment in collective investment schemes).

(6) Not more than 10% in value is to consist of shares which are property-related assets but are not approved securities. Any shares included under this paragraph must be included in the 80% limit in (2), which may therefore on occasion produce a limit of 70% for approved immovables.

(7) Not more than 5% in value is to consist of transferable securities within (3) which are warrants. These warrants must be property related assets which are approved securities.

(8) The following also apply to property schemes:

(a) CIS 5A.2 (General investment powers and limits for authorised funds);

(b) CIS 5A.4.6 R (Investment in warrants and nil and partly paid securities);

(d) CIS 5A.14 (Stock lending);

(e) CIS 5A.15 (Cash, borrowing, lending and other provisions); and

(f) CIS 5A.16 (Cover for sales).

01/12/2004

Permitted immovables

CIS 5A.8.4

An interest in land or a building is a permitted immovable if:

(1) the land or building is situated in a country or territory identified in the prospectus for the purpose of this rule (CIS 5A.8.4 R);

(2) the land or building is situated in England and Wales or in Northern Ireland, and the interest is a freehold or leasehold interest; or if the land or building is situated in Scotland and the interest is any interest or estate in or over land or heritable right including a long lease; or if the land or building is situated elsewhere and the interest is equivalent to any of the interests mentioned in this paragraph; and

(3) where the interest is leasehold (or its equivalent) and it has an unexpired term of 20 years or more;

and furniture, fittings or other contents of any building may for this purpose be regarded as part of it.

01/12/2004

Approved immovables

CIS 5A.8.5

(1) In this sourcebook, an approved immovable is a permitted immovable which satisfies all of the conditions in (3) to (6) and either (2)(a) or (2)(b).

(2)

(a) Unless (b) is satisfied, the immovable must be transferable; an immovable is not regarded as transferable unless the manager or the ICVC has received a report from an appropriate valuer that:

(i) contains a valuation of the immovable (with and without any relevant subsisting mortgage); and

(ii) states that, in the appropriate valuer's opinion, the immovable would, if acquired for the property scheme, be capable of being disposed of reasonably expeditiously at that valuation.

(b) Unless (a) is satisfied, the approved immovable must have marriage value; an immovable is not regarded as having marriage value unless the manager or the ICVC has received a report from an appropriate valuer valuing the immovable and stating that:

(i) the immovable is adjacent to or contiguous with another immovable included in the scheme property; and

(ii) in the opinion of the appropriate valuer, the total value of the immovable, if acquired for the property scheme, and of the other immovable, would at least equal the sum of the price payable for the immovable and the existing value of the other immovable.

(3) The immovable must be accessible; an immovable is not regarded as accessible unless the authorised fund manager has taken reasonable care to determine that reasonable access to it is assured.

(4) The immovable must have a good root of title; an immovable is not regarded as having a good root of title unless the authorised fund manager has taken reasonable care to determine that the title to the immovable is a good marketable title.

(5) The immovable must be unencumbered or adequately unencumbered; an immovable is not regarded:

(a) as unencumbered, unless there is no subsisting mortgage over or on it; and

(b) as adequately unencumbered, unless the only mortgages over or on it are one or more approved mortgages within CIS 5A.8.9 R (Mortgaged property), which secures, or together secure, on the immovable repayment of a sum or sums not exceeding 50% of the value at (2)(a) (that is, that part of the value which is valued on the assumption that the immovable is not mortgaged).

(6) The immovable must be or have been or is to be bought promptly and at a reasonable price; an immovable is not regarded as bought promptly and at a reasonable price unless:

(a) it is bought or agreed by enforceable contract to be bought within six months after receipt of the report of the appropriate valuer referred to in (2)(a) or (2)(b);

(b) at the time of the purchase or agreement it would not have been apparent to the authorised fund manager that the report could no longer reasonably be relied upon; and

(7) A person is an appropriate valuer if:

(a) he has knowledge of and experience in the valuation of immovables of the relevant kind in the relevant area;

(b) he is or is qualified to be the standing independent valuer of a property scheme or is reasonably considered by the property scheme's standing independent valuer to hold equivalent qualifications;

(c) he is independent of the ICVC, the depositary and each of the directors of the ICVC or of the manager and the trustee of the AUT in the sense required for a standing independent valuer under CIS 12.3.1 R (2)(Standing independent valuer); and

(d) neither he nor any of his partners (if any) nor a fellow director of a corporate appropriate valuer (if any) have been engaged, whether as principal or as agent, in relation to the finding of the immovable for the property scheme or the finding of the property scheme for the immovable.

01/12/2004

Property-related assets

CIS 5A.8.6

(1) Property-related assets qualify for investment purposes (under CIS 5A.8.3 R (6)) only if:

(a) they are transferable securities; and

(b) they are shares in a body corporate at least 75% of whose total assets (before deduction of liabilities and as shown in the most recently published accounts) consist of permitted immovables.

(2) Not more than 5% in the value of the scheme property of a property scheme is to consist of investments of the type referred to in (1) issued by any one issuer. The figure of 5% may be increased to 10% if:

(a) the property scheme owns at least 90% of the rights to vote which are exercisable in all circumstances at general meetings of the body corporate;

(b) the shares are or were bought within six months after receipt by the authorised fund manager of:

(i) a report by an appropriate valuer relating to permitted immovables owned by the body corporate, indicating that they are transferable (as in CIS 5A.8.5 R (2)(a)) or have marriage value (as in CIS 5A.8.5 R (2)(b)); and

(ii) a report, on the value of any assets other than permitted immovables, from a person then qualified to be an auditor of a company under the relevant legislation in any part of the United Kingdom;

(c) at the time of the purchase it would not have been reasonably apparent to the authorised fund manager that the report at (b)(i) or (ii) could no longer reasonably be relied on; and

(d) the shares were bought at no more than 105% of the total of the values in the reports at (b)(i) and (ii).

01/12/2004

Investment in a collective investment scheme

CIS 5A.8.7

Investments in units of a collective investment scheme must not be made unless that scheme:

(1) is a regulated collective investment scheme which:

(a) complies with section 243(10) of the Act (Authorisation orders: entitlement to have units redeemed) or is treated as complying with it by section 243(11) of the Act; and

(b) is dedicated to approved immovables, with or without transferable securities which are property related assets or government and public securities; or

(2) is a regulated collective investment scheme which is a money market scheme or a scheme of a category that is equivalent to a money market scheme.

01/12/2004

Property related limits

CIS 5A.8.8

(1) Not more than 10% in value of the scheme property of a property scheme is to consist of approved immovables which are leasehold interests (or the equivalent: see CIS 5A.8.4 R (2)) having an unexpired term of less than 60 years.

(2) Not more than 25% in value is to consist of approved immovables which are unoccupied and non-income producing or in course of substantial development, redevelopment or refurbishment.

01/12/2004

Mortgaged property

CIS 5A.8.9

(1) Not more than 15% in value of that part of the scheme property of a property scheme which for the time being consists of immovables is to consist of mortgaged immovables.

(2) An immovable subject to one or more mortgages may be retained by the property scheme only so long as the mortgage or each of the mortgages is an approved mortgage, the total sums outstanding under which do not exceed 50% of the value of the immovable (assuming for this purpose that the immovable is not mortgaged).

01/12/2004

Spread

CIS 5A.8.10

(1) Not more than 15% in value of the scheme property of a property scheme is to consist of any one immovable.

(2) In (1), immovables which would be regarded as having marriage value under CIS 5A.8.5 R (2)(b) must be regarded as one immovable.

(3) The figure of 15% in (1) may be increased to 25% once the immovable has been included in the scheme property of a property scheme in compliance with (1).

(4) Not more than 5% in value is to consist of property related assets issued (or conferring rights to investments issued) by any one issuer.

(5) The figure of 5% in (4) may be increased to 10% in respect of up to 40% of the value of the scheme property of a property scheme.

(6) Not more than 20% of the income receivable in any accounting period is to derive from members of any one group; but there is no restriction on the income receivable from any issuer of government and public securities.

01/12/2004

Initial periods

CIS 5A.8.11

(1) During the period of the initial offer, no immovable may be:

(a) bought or leased; or

(b) agreed, by enforceable contract, to be bought or leased;

unless it appears to the ACD or to the manager and trustee that more than £5 million (or the equivalent amount in the base currency of the property scheme) has been paid or agreed to be paid for units to be issued or sold.

(2) During the first two years starting with the date on which the property scheme is authorised or on which the units are first issued (if later) and subject to (3) and (4):

(a) CIS 5A.8.8 R (1) (Property related limits) and CIS 5A.8.10 R (Spread) do not apply; and

(b) the obligation, derived from CIS 5A.8.3 R (Property schemes: general), that at least 20% in value of the scheme property must consist of approved immovables does not apply.

(3) Paragraph (2) ceases to apply if, at any time during the two year period, six months have elapsed from the first date on which the scheme property exceeds £15 million in value (or the equivalent amount in the base currency of the property scheme).

(4) Paragraph (2) postpones the application of CIS 5A.8.10 R (4) (Spread - (of property related assets)) for a maximum of only six months from the date on which the property scheme is authorised or on which the units are first issued (if later), and not of two years.

01/12/2004

Grant of options and mortgages

CIS 5A.8.12

(1) No option may be granted to buy any immovable comprised in the scheme property, whether under CIS 5A.13 (Efficient portfolio management) or otherwise.

(2) No mortgage other than an approved mortgage may be created on or over any such immovable.

01/12/2004

CIS 5A.8.13

Construction of property schemes

This table belongs to CIS 5A.8.2 G

Property Scheme A (fully invested in immovables)

Limits for Property scheme A

Type of Asset

Limits for Property Scheme B

Property scheme B (fully invested in transferable securities)

up to 10%

Leases 20-60 years

up to 10%

up to 25%

Vacant, repairs,...

up to 20%

80%

Immovables

up to 12%

Mortgaged immovables

up to 3%

Immovables

20%

up to 15%

any one immovable

up to 15%

up to 20%

rent from any one group

up to 20%

transferable securities which are property related assets (if approved)

up to 80%

(if non approved)

up to 10%

20%

Transferable securities

up to 20%

Government and public securities

up to 35%

Transferable securities

80%

up to 5%

collective investment schemes

up to 5%

Any one issue of securities

up to 5%

Note 1:

This table does not include all the detail in this section (CIS 5A.8)

Note 2:

Property scheme A is invested in immovables to the maximum extent permitted, while Property scheme B is invested in immovables to the minimum extent permitted. Both property schemes are assumed to be fully invested in immovables and transferable securities, although in practice both would be likely to hold some cash as permitted by section CIS 5A.15 (Cash borrowing, lending and other provisions) and the cash held could therefore drive down to some lower figure the 20% minimum. The same effect would be produced if the property scheme were taking advantage of section CIS 5A.13 (Efficient portfolio management).

01/12/2004

CIS 5A.9

Warrant schemes

01/12/2004

Application

CIS 5A.9.1

This section (CIS 5A.9) applies to authorised fund managers of warrant schemes.

01/12/2004

Introduction

CIS 5A.9.2

(1) This section (CIS 5A.9) sets out specific rules for warrant schemes. Warrant schemes are authorised funds which are akin in all respects to securities schemes (as to which see CIS 5A.4 (Securities schemes)), except that they have an unlimited power to invest in warrants.

(2) In this sourcebook, Investment and borrowing powers "warrant" has a wider meaning than normally attributed to it in warrant markets. In this sourcebook, warrants are not only instruments giving entitlement to investments (as defined in article 79 of the Regulated Activities Order) but also include any other transferable security (not being a nil or partly paid security) which is listed on an eligible securities market, and which is akin to a warrant in that it involves a down payment and a right to surrender the instrument and pay more in due course in order to obtain a transferable security.

01/12/2004

Warrant schemes

CIS 5A.9.3

(1) The scheme property of a warrant scheme must, except where otherwise provided in the rules in this chapter, only consist of property which could be the scheme property of a securities scheme, except that up to 100% in value of the scheme property may consist of warrants.

(2) Accordingly, CIS 5A.4 (Securities schemes) (except CIS 5A.4.6 R (Investment in warrants and nil and partly paid securities)) applies to a warrant scheme as it applies to a securities scheme.

(3) The following also apply to warrant schemes:

(a) CIS 5A.2 (General investment powers and limits for authorised funds);

(b) CIS 5A.13 (Efficient portfolio management);

(d) CIS 5A.15 (Cash, borrowing, lending and other provisions); and

(e) CIS 5A.16 (Cover for sales).

01/12/2004

CIS 5A.10

Feeder funds

01/12/2004

Application

CIS 5A.10.1

This section (CIS 5A.10) applies to managers of feeder funds, except CIS 5A.10.4 R (2) which applies to trustees of feeder funds.

01/12/2004

Introduction

CIS 5A.10.2

(1) This section (CIS 5A.10) sets out specific rules for feeder funds. Feeder funds are AUTs which are relevant pension schemes. Under this section (CIS 5A.10), a feeder fund must be invested in either a single regulated collective investment scheme or a single eligible investment trust.

(2) The feeder fund investing in eligible investment trust shares is structured under the rules in this section (CIS 5A.10). The rules in this section set out the conditions that must be satisfied before a feeder fund can invest in an eligible investment trust.

01/12/2004

Feeder funds: general

CIS 5A.10.3

(1) The scheme property of a feeder fund must, except where otherwise provided in the rules in this chapter, only consist of:

(a) units in a single regulated collective investment scheme; or

(b) shares in or debentures of a single eligible investment trust (as to which see CIS 5A.10.4 R (Feeder funds investing in a single eligible investment trust)).

(2) An AUT may be a feeder fund only if it is a relevant pension scheme.

(3) A feeder fund under (1)(a) must not invest in:

(a) a geared futures and options scheme;

(b) a property scheme;

(d) a feeder fund;

(e) a fund of funds scheme, unless the fund of funds scheme is prevented by the instrument constituting the scheme from investing in any authorised fund within (a), (b) or (c);

(f) any sub-fund of a regulated collective investment scheme which is invested as if it were an authorised fund within (a) to (e); and

(g) a recognised scheme which would, if authorised, fall within any of (a) to (f).

(4) A sub-fund of an AUT that is an umbrella scheme, which (if it were itself the subject of a separate authorisation order) would be a feeder fund, is to be treated as a feeder fund for the purposes of this rule (CIS 5A.10.3 R) and rule CIS 5A.10.4 R (Feeder funds investing in a single eligible investment trust); but an AUT that is an umbrella scheme must not contain such a sub-fund unless that AUT is a relevant pension scheme.

(5) The following also apply to feeder funds:

(a) CIS 5A.2 (General investment powers and limits for authorised funds);

(b) CIS 5A.15 (Cash, borrowing, lending and other provisions); and

01/12/2004

Feeder funds investing in a single eligible investment trust

CIS 5A.10.4

An investment trust is an eligible investment trust for the purposes of CIS 5A.10.3 R (1)(b) only if:

(1) at the date of the authorisation of the feeder fund, the property of the investment trust included net assets worth at least £25 million (or, if the base currency of the feeder fund is not sterling, the equivalent in that base currency); and

(2) at any time in the last six months, the trustee of the feeder fund having taken reasonable care has determined that:

(a) at least 70% of the income of the investment trust received during either or both of:

(i) the last completed accounting period; and

(ii) the first half of the current accounting period;

consisted of income from approved securities;

(b) (apart from transactions for hedging purposes) the property of the investment trust either:

(i) cannot be invested in derivatives; or

(ii) can be invested in derivatives only on the footing of cover to at least the extent required of a futures and options scheme under CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions);

(d) not more than 5% of the property of the investment trust consists of transferable securities issued by any one issuer, except that the figure of 5% may be increased to 15% in respect of up to 30% in value of the investment trust;

(e) the feeder fund owns not more than 20% of the shares (or of any class of shares) in or of the debentures (or of any class of debentures) of the investment trust;

(f) the borrowing of the investment trust does not exceed 50% of the market value of the shares of the investment trust at the mid-value share price for the time being;

(g) the shares in (or debentures of) the investment trust are regularly offered for purchase and sale by at least three market makers who are recognised or registered as members of an eligible securities market; and

(h) the investment trust has no limit on its duration.

01/12/2004

CIS 5A.11

Fund of funds schemes

01/12/2004

Application

CIS 5A.11.1

This section (CIS 5A.11) applies to authorised fund managers of fund of funds schemes.

01/12/2004

Introduction

CIS 5A.11.2

(1) This section (CIS 5A.11) sets out specific rules for fund of funds schemes. Fund of funds schemes are authorised funds designed to invest in a combination of at least five regulated collective investment schemes. A fund of funds scheme may combine investment in money market schemes or recognised schemes equivalent to a money market scheme, with investment in any one other permitted category of scheme. Alternatively, a fund of funds scheme may invest only in money market schemes or in recognised schemes equivalent to a money market scheme or only in regulated collective investment schemes from any one other permitted category of scheme.

(2) The requirements in this section preserve product distinctiveness in the case of fund of funds schemes.

(3) For the purpose of this section, each sub-fund of an umbrella scheme and of an equivalent recognised scheme is to be treated as if it were a separate authorised fund or separate scheme.

01/12/2004

Fund of funds schemes: general

CIS 5A.11.3

(1) The scheme property of a fund of funds scheme must, except where otherwise provided in the rules in this chapter, only consist of units in regulated collective investment schemes.

(2) A fund of funds scheme may not invest in:

(a) a fund of funds scheme;

(b) a feeder fund;

(d) any recognised scheme which is dedicated to investment in a single regulated collective investment scheme or in a single eligible investment trust; and

(e) any sub-fund of an umbrella scheme or sub-fund of any other recognised scheme which is equivalent to a scheme within (a) to (d).

(3) Not more than 20% in value of the scheme property is to consist of units in any one regulated collective investment scheme.

(4) The following also apply to fund of funds schemes:

(a) CIS 5A.2 (General investment powers and limits for authorised funds);

(b) CIS 5A.13 (Efficient portfolio management);

(d) CIS 5A.16 (Cover for sales).

01/12/2004

Eligible combinations of scheme

CIS 5A.11.4

(1) A fund of funds scheme may invest in units in any five or more authorised funds within:

(a) any one of:

(i) UCITS Schemes;

(ii) CIS 5A.4 (Securities schemes);

(iii) CIS 5A.5 (Money market schemes);

(iv) CIS 5A.6 (Futures and options schemes);

(v) CIS 5A.7 (Geared futures and options schemes);

(vi) CIS 5A.8 (Property schemes); or

(vii) CIS 5A.9 (Warrant schemes); or

(b) any combination of:

(i) UCITS schemes;

(ii) CIS 5A.4 (Securities schemes); and

(iii) CIS 5A.5 (Money market schemes).

(2) A fund of funds scheme may invest in units in one or more money market schemes (within CIS 5A.5 (Money market schemes)) and in units in any one or more authorised funds within any one scheme type in (1)(a) or any combination permitted by (1)(b).

(3) Each sub-fund of an umbrella scheme and each sub-fund of any recognised scheme that is equivalent to an umbrella scheme is to be treated for the purposes of (CIS 5A.11.4 R) and CIS 5A.11.3 R (3) as if it were a separate scheme.

(4) A recognised scheme may be treated for the purpose of this rule (CIS 5A.11.4 R) as if it were a scheme falling within the section which would be the relevant section if the recognised scheme were an authorised fund.

01/06/2004

CIS 5A.12

Umbrella schemes

01/12/2004

Application

CIS 5A.12.1

This section (CIS 5A.12) applies to authorised fund managers of umbrella schemes.

01/12/2004

Introduction

CIS 5A.12.2

This section (CIS 5A.12) sets out specific rules for umbrella schemes. Umbrella schemes are single authorised funds which have at least two sub-funds and provide the opportunity for holders to switch all or part of their investment from one sub-fund to another. CIS 12 (Special provisions for certain categories of scheme) and other provisions of the rules in this sourcebook enable the umbrella scheme to be treated as a single authorised fund or as a collection of separate sub-funds as appropriate. CIS 12 sets out specific other provisions that apply to umbrella schemes.

01/12/2004

Umbrella schemes: general

CIS 5A.12.3

A sub-fund of an umbrella scheme must, subject to CIS 5A.12.4 R, only be invested as if it were a single authorised fund within one of CIS 5A.4 (Securities schemes) to CIS 5A.11 (Fund of fund schemes).

01/12/2004

Restriction on investment

CIS 5A.12.4

No sub-fund of an umbrella scheme may invest in units in another sub-fund of the same umbrella scheme.

01/12/2004

CIS 5A.13

Efficient portfolio management

01/12/2004

Application

CIS 5A.13.1

This section (CIS 5A.13) applies to authorised fund managers, other than managers of feeder funds, except:

(1) CIS 5A.13.3 R which applies to ICVCs and to managers of AUTs other than feeder funds;

(2) CIS 5A.13.3 R (2)(c) which does not apply to ICVCs that are fund of funds schemes or to managers of AUTs that are fund of funds schemes or feeder funds;

(3) CIS 5A.13.4 R (2)(b), which does not apply to authorised fund managers of fund of funds schemes and managers of feeder funds; and

(4) CIS 5A.13.12 R, which applies to ICVCs and to trustees of AUTs, other than feeder funds.

01/12/2004

Explanation: requirements of efficient portfolio management

CIS 5A.13.2

(1) This section (CIS 5A.13) gives an ICVC or a manager of an AUT the ability to reduce the risks or costs associated with making investments. For that purpose, this section provides machinery to enable the property of an authorised fund to be used for efficient portfolio management.

(2) There are three broadly based requirements:

(a) the transactions must be economically appropriate;

(b) the exposure must be fully covered; and

(3) On (2)(a), this section (CIS 5A.13) requires that the transaction must be economically appropriate for the purposes of efficient portfolio management.

(4) On (2)(b), this section (CIS 5A.13) requires that the exposure must be fully covered by cash or other scheme property sufficient to meet any obligation to pay or deliver that could arise.

(5) On (2)(c), this section (CIS 5A.13) sets out (in CIS 5A.13.3 R(2)) what these three aims are:

(a) the reduction of risk;

(b) the reduction of cost; and

(6) The first two aims, together or separately, allow for tactical asset allocation. Tactical asset allocation is a switch in exposure through the use of derivatives rather than through the sale and purchase of underlying property. The limits on this are set out in CIS 5A.13.4 R(1) and (2)(a).

(7) There is also a specific requirement for UCITS schemes which is derived from the UCITS directive. Authorised funds subject to that directive must be invested in transferable securities, and it therefore follows that an alternative exposure obtained through derivatives in the portfolio should not remain there indefinitely; the authorised fund must revert to transferable securities of some kind, within a reasonable time. Therefore, the rules in this section provide that any tactical asset allocation of a UCITS scheme must be temporary.

(8) The first aim of reduction of risk allows for the use of derivatives with a view to switching the currency exposure of all or part of the scheme property away from a currency which is considered to be at risk.

(9) The third aim, of taking a low-risk gain, is further defined in CIS 5A.13.5 R. The gains are to be derived from arbitrage and from writing covered options. Gains from stock lending are covered in CIS 5A.14.

01/12/2004

Appropriate transactions

CIS 5A.13.3

(1) This section enables the ICVC, or manager for the account of the AUT, to enter into transactions of the kind specified in CIS 5A.13.6 R (Permitted transactions) for the purpose of efficient portfolio management, but only when each of the following two conditions is satisfied:

(a) the transaction is economically appropriate to that purpose, as required by CIS 5A.13.4 R (Economic appropriateness); and

(b) the transaction is fully covered, as required by CIS 5A.13.8 R (Cover for transactions in derivatives and forward transactions)).

(2) A transaction under (1) must only be entered into if it is to achieve one or more of the following in respect of the authorised fund:

(a) the reduction of risk;

(b) the reduction of cost; and

(3) The purpose in (2) must relate to:

(a) the scheme property of the authorised fund;

(b) property (whether precisely identified or not) which is to be or is proposed to be acquired for the authorised fund; and

(c) anticipated cash receipts of the authorised fund, if due to be received at some time and likely to be received within one month.

01/12/2004

Economic appropriateness

CIS 5A.13.4

(1) Any transaction under this section must be one which (alone or in combination with one or more others) is ascertained with reasonable care by the authorised fund manager to be economically appropriate to the efficient portfolio management of the authorised fund.

(2) In consequence, the authorised fund manager must take reasonable care to determine that:

(a) for transactions undertaken to reduce risk or cost (or both), the transaction (alone or in combination) will diminish a risk or cost of a kind or level which it is sensible to reduce; and

(b) for transactions undertaken to generate additional capital or income, the authorised fund is certain (or certain barring events which are not reasonably foreseeable) to derive a benefit from the transaction.

(3) A transaction may not be entered into under this section (CIS 5A.13) if its purpose could reasonably be regarded as speculative.

(4) Where the transaction is for the account of a UCITS scheme and relates to the actual or potential acquisition of transferable securities, then the authorised fund manager must intend that the authorised fund should invest in transferable securities within a reasonable time; and it must thereafter ensure that, unless the position has itself been closed out, that intention is realised within that reasonable time.

01/12/2004

Generation of additional capital or income

CIS 5A.13.5

(1) There is an acceptably low level of risk for the purposes of CIS 5A.13.3 R (2)(c), in any case where the authorised fund manager has taken reasonable care to determine that the authorised fund is certain (or certain barring events which are not reasonably foreseeable) to derive a benefit:

(a) on a basis set out in (2) or (3); or

(b) from stock lending under section CIS 5A.14.

(2) The first basis is to take advantage of pricing imperfections in relation to the acquisition and disposal (or disposal and acquisition) of rights in relation to property the same as, or equivalent to, property which the authorised fund holds or may properly hold.

(3) The second basis is to receive a premium for the writing of a covered call option or a covered put option, even if that benefit is obtained at the expense of surrendering the chance of yet greater benefit.

01/12/2004

Permitted transactions

CIS 5A.13.6

(1) A transaction under this section must be:

(a) a transaction in derivatives; or

(b) a forward transaction in a currency (or where the scheme property may include gold, in gold).

(2) A transaction in derivatives under (1)(a) must be:

(a) in an approved derivative ; or

(b) one which complies with CIS 5A.6.6 R (OTC transactions in derivatives); or

(3) Any transaction in an approved derivative must be effected on or under the rules of an eligible derivatives market.

(4) Any forward transaction must be with an approved counterparty within the meaning of CIS 5A.6.6 R (2) (OTC transactions in derivatives).

(5) Not more than 5% of the value of the scheme property is to be directed to initial outlay in respect of over the counter transactions with any one counterparty.

(6) A transaction in derivatives or forward transaction which would or could lead to delivery of property to the depositary (or to the ICVC) may be entered into only if:

(a) the property can be held by the authorised fund; and

(b) the authorised fund manager has taken reasonable care to determine that delivery of the property by the transaction will not lead to a breach of the rules in this chapter.

01/12/2004

Cover for transactions in derivatives and forward transactions

CIS 5A.13.7

(1) Like futures and options schemes, transactions in derivatives and forward transactions entered into for the purpose of efficient portfolio management should be fully covered.

(2) Cover is fully explained in CIS 5A.13.8 R. There is a general requirement for individual cover of the right kind (stock for stock, or cash sum for cash sum) and CIS 5A.13.9 G provides examples of how the cover is to be found. There is also a global cover requirement, to prevent or limit gearing.

(3) In accordance with CIS 5A.2.7 R(2)(b) (Chapter to be construed as a whole) cover used in respect of one transaction in derivatives or forward transaction may not be used for cover in respect of another transaction in derivatives or forwards.

(4) There must be sufficient available cover for all transactions concerned.

01/12/2004

Cover for transactions in derivatives and forward transactions

CIS 5A.13.8

(1) No transaction may be entered into under this section (CIS 5A.13) unless the maximum potential exposure created by the transaction, in terms of the principal or notional principal of the derivative or forward contract, is:

(a) covered individually under (2) or (3); and

(b) covered globally under (4).

(2) Exposure is covered individually if there is, in the scheme property:

(a) (in the case of an exposure in terms of property) a transferable security or other property which is of the right kind, and sufficient in amount, to match the exposure; and

(b) (in the case of an exposure in terms of money), cash or near cash (or borrowing under CIS 5A.13.12 R (Borrowing in the context of efficient portfolio management)) or transferable securities which is or are, or, on being turned into money in the right currency, will be, sufficient in amount to match the exposure.

(3) However, exposure to an index or basket of securities or other assets is covered individually for the purposes of (2) if the authorised fund holds securities or other property which (taking into account the closeness of the relationship between fluctuations in the price of the two) can reasonably be regarded as appropriate to provide cover for the exposure; they may be so regarded even if there is not complete congruence between the cover and the exposure.

(4) Exposure is covered globally for the purposes of this section if, after taking account of all the cover required under (2) or (3) for other positions already in existence, adequate cover from within the scheme property is available to enable the fresh transaction to be entered into.

(5) A transaction in derivatives or forward transaction is not available to provide cover for another derivative or forward transaction under this section, but:

(a) the two transactions involved in a synthetic future are to be treated as if they were a single derivative, and the net exposure from the combination is to be covered on the basis of the higher of the cover requirements of the options which make up the synthetic future;

(b) synthetic cash is available to provide cover for a transaction as if it were cash; and

(6) Cash not yet received into the scheme property but due to be received within one month is available as cover for the purposes of (2)(b) and (3).

(7) Property anticipated under a derivative transaction does not count as property under (2)(a).

(8) Property is not available for cover if it is the subject of a transaction under CIS 5A.14 (Stock lending), unless the authorised fund manager has taken reasonable care to determine that it is obtainable (by return or re-acquisition) in time to meet the obligation for which cover is required.

01/12/2004

Examples of cover requirements

CIS 5A.13.9

Examples of the cover requirements:

(1) A bought put option (or a written call option) on 1000 ordinary £1 shares (fully paid) of ABC plc is covered by an existing holding in the authorised fund of 1000 ordinary A1 shares (fully paid) of ABC plc (CIS 5A.13.8 R(2)(a)).

(2) A bought call option (or written put option) on 1000 ordinary £1 shares (fully paid) of ABC plc is covered by cover (in the form of cash or an allowable substitute for cash or transferable securities) which is sufficient in amount to meet the purchase price of the shares on exercise of the option (CIS 5A.13.8 R(2)(b)).

(3) A sold contract for differences on short-dated sterling is covered by cash or near cash or transferable securities, the values of which together at least match the notional principal of the contract (for example, a LIFFE short sterling contract, or a succession of such contracts, is covered by £500,000) (CIS 5A.13.8 R(2)(b) and CIS 5A.2.7 R(2)(b)).

(4) A sold future on the FT-SE 100 Index is covered by holdings of equities, which satisfy the test of appropriateness for cover in CIS 5A.13.8 R(3) in relation to that future, and the values of which together at least match the current mark to market valuation of the future (for example, if the multiplier per full index point is £10, and if the eventual obligation under the future is currently at 2800, the valuation of the futures position is 2800 x £10 = £28,000) (CIS 5A.13.8 R(3)).

(5) Where an authorised fund has holdings in blue chip UK shares and the authorised fund manager wishes to provide more exposure to the US market and decides to sell a FT-SE index future to the value of those shares (this transaction satisfying the test of appropriateness for cover in CIS 5A.13.8 R(3)), then the sterling synthetic cash position created is used as cover for a Standard and Poors 500 index future provided that the authorised fund ensures that the cover remains sufficient (for example, by reference to the sterling/US dollar exchange rate) (CIS 5A.13.8 R(3) and CIS 5A.13.8 R(5)(b)).

01/12/2004

The use of index derivatives: congruence

CIS 5A.13.10

(1) CIS 5A.13.6 R (Permitted transactions) permits the use of index derivatives for efficient portfolio management ("EPM"). CIS 5A.13.8 R sets out the cover requirements for derivatives (including for index derivatives). Where index derivatives are used, cover may be provided by securities even if there is not complete congruence between the components of the index and the securities, provided that it is reasonable to use one as appropriate to cover for the other, taking into account the closeness of the relationship between fluctuations in their prices (see CIS 5A.13.8 R(3)). In considering the appropriateness of the instrument, authorised fund managers will need to take reasonable care that it is economic, suitable and reasonably congruent. This guidance deals with the matter of congruence.

(2) It is not possible for the FSA to reach a view, in the abstract, on any particular level of congruence. The level of congruence necessary to satisfy the requirement that it is reasonable to regard the index derivative as appropriate, should be determined only in light of the individual circumstances of the case concerning a particular authorised fund.

(3) Clearly, the higher the level of congruence, the less likely the authorised fund manager would be open to any challenge that the index derivative chosen is not appropriate. Whilst it does not necessary follow that a low level of congruence means that the index derivative chosen will be inappropriate, the derivative used in those circumstances is likely to require much further justification. In certain types of authorised fund it may be that no index derivative is appropriate.

(4) It should be noted that it is not the intention of CIS 5A.13.8 R to preclude the use of an appropriate index derivative that has a relationship with part of the scheme property. That is particularly so where the EPM technique is to be adopted in respect of part only of the scheme property, as will normally be the case.

(5) The following steps can be taken by an authorised fund manager when using index derivatives and when determining whether or not an index derivative is "reasonably congruent" to an underlying portfolio of investments. Consideration of these steps needs to reflect the respective responsibilities of the authorised fund managers and depositaries under CIS 7 (Powers and duties).

(a) In determining the extent and manner in which index derivatives are used for EPM, the authorised fund manager should set out why it considers the transaction to be appropriate. In-house rules should be prepared which identify, on a scheme by scheme basis, the instruments the authorised fund manager is likely to use and the extent of this use.

(b) Authorised fund managers should show these in-house rules to, and discuss them with, the depositary. Depositaries need not endorse the rules, although they may wish to give a view on whether they consider them as being reasonable in principle.

(c) If the matter is not covered by the in-house rules and the authorised fund manager is in doubt whether a particular transaction is appropriate, it should discuss this with the depositary before taking any action.

(d) Any remaining doubt should be discussed with the FSA.

(e) Procedures should be established between the authorised fund manager and depositary that enable the depositary to monitor the investment in derivatives in accordance with its duty under CIS 7. These procedures will cover the details of any transactions in index derivatives entered into and the authorised fund manager's justification that the transaction complies with the rules in this chapter.

(6) Other approaches to those outlined in (5) may be appropriate in the light of the authorised fund manager's own circumstances. Whatever approach is taken, authorised fund managers will need to review, as and when circumstances dictate, and in the light of developments on indices, the instruments they regard as appropriate for use in their authorised funds.

01/12/2004

Borrowing in the context of efficient portfolio management

CIS 5A.13.11

(1) CIS 5A.13.12 R sets out requirements for borrowing in the context of efficient portfolio management. That rule deals with two aspects of such borrowing.

(2) First, borrowed cash and cash committed for borrowing goes to swell the scheme property for the purpose of providing cover in the form of cash. Effectively, an additional 10% of cover can be found in this way.

(3) Second, a back to back currency loan can be regarded as switching the borrowed currency into the scheme property, and switching the deposited currency out. The lending transaction does not require cover, as it is a loan rather than a forward or future. But it enables the authorised fund by borrowing to have cash in another currency to use as cover.

(4) Although CIS 5A.13.8 R(2)(b) does not require cash cover to be in a currency matching the exposure, the authorised fund manager needs to monitor currency rates in order to ensure that cover remains sufficient. Borrowing in the right currency may thus make the cover simpler to operate.

01/12/2004

Borrowing in the context of efficient portfolio management

CIS 5A.13.12

(1) Cash obtained by borrowing, and borrowings which the authorised fund manager reasonably regards an eligible institution or an approved bank to be committed to provide, are available for cover under CIS 5A.13.8 R as long as the normal limits on borrowing (as to which see CIS 5A.15.3 R (General power to borrow) and CIS 5A.15.4 R (Borrowing limits)) are observed.

(2) Where, for the purposes of this section (CIS 5A.13), the ICVC or the trustee for the account of the AUT with the instructions of the manager:

(a) borrows an amount of currency from an eligible institution or an approved bank; and

(b) keeps an amount in another currency, at least equal to the borrowing for the time being in (a), on deposit with the lender (or his agent or nominee);

then this section (CIS 5A.13) applies as if the borrowed currency, and not the deposited currency, were part of the scheme property, and the normal limits on borrowing under CIS 5A.15.3 R and CIS 5A.15.4 R do not apply to that borrowing.

01/11/2002

The continuing nature of requirements and limits

CIS 5A.13.13

(1) The authorised fund manager must, at each valuation point (and more frequently if necessary), re-calculate the amount of cover required in respect of positions already in existence under this section (CIS 5A.13). Derivatives and rights under forward transactions under this section (CIS 5A.13) may be retained in the scheme property only so long as they remain covered both individually and globally under CIS 5A.13.8 R.

(2) If at any time:

(a) any fact or matter relating to the authorised fund or its economic environment; or

(b) the aggregate of all outstanding positions under this section (CIS 5A.13);

is such that at least one of the relevant transactions (assuming it did not exist) could not properly be effected, either in that size or at all, the authorised fund manager must immediately on becoming aware of that fact take the necessary steps to rectify the situation, whether by closing out or by providing additional cover or otherwise.

01/12/2004

CIS 5A.14

Stock lending

01/12/2004

Application

CIS 5A.14.1

This section (CIS 5A.14) applies to depositaries of authorised funds which are not fund of funds schemes or feeder funds, except:

(1) CIS 5A.14.3 R, which applies to ICVCs other than fund of funds schemes, or to managers of AUTs other than fund of funds schemes and feeder funds; and

(2) in the case of ICVCs, CIS 5A.14.4 R which applies to ICVCs other than fund of funds schemes if the ICVC enters into the stock lending agreement.

01/12/2004

Stock lending permitted under this section (CIS 5A.14)

CIS 5A.14.2

(1) This section (CIS 5A.14) should be regarded as an extension of section CIS 5A.13 (Efficient portfolio management). It permits the generation of additional income for the benefit of the authorised fund, and hence for its investors, by entry into stock lending transactions for the account of the authorised fund.

(2) The specific method of stock lending permitted in this section is in fact not a transaction which is a loan in the normal sense. Rather it is an arrangement of the kind described in section 263B of the Taxation of Chargeable Gains Act 1992, under which the lender transfers securities to the borrower otherwise than by way of sale and the borrower is to transfer those securities, or securities of the same type and amount, back to the lender at a later date. In accordance with good market practice, a separate transaction by way of transfer of assets is also involved for the purpose of providing collateral to the "lender" to cover him against the risk that the future transfer back of the securities may not be satisfactorily completed.

(3) Other forms of stock lending, whether combined with stock borrowing or by way of loan or transfer of a beneficial interest in stock, are not envisaged in this section, and, indeed, are prohibited by CIS 5A.15.6 R (Restrictions on lending of property other than money).

01/12/2004

Stock lending: general

CIS 5A.14.3

The stock lending permitted by this section (CIS 5A.14) may be exercised by an authorised fund for the purpose of efficient portfolio management, that is, when it reasonably appears to the ICVC or to the manager to be economically appropriate to do so with a view to generating additional income for the authorised fund with an acceptable degree of risk.

01/12/2004

Permitted stock lending

CIS 5A.14.4

(1) The ICVC, or the depositary at the request of the ICVC, or the trustee at the request of the manager, may enter into a stock lending arrangement of the kind described in section 263B of the Taxation of Chargeable Gains Act 1992 (without extension by section 263C), but only if:

(b) the counterparty is an authorised person; and

(c) collateral is obtained to secure the obligation of the counterparty under the terms referred to in (a) and the collateral is:

(i) acceptable to the depositary;

(ii) adequate within CIS 5A.14.6 R (1); and

(iii) sufficiently immediate within CIS 5A.14.6 R (2) .

01/12/2004

Stock lending: treatment of collateral

CIS 5A.14.5

Where a stock lending arrangement is entered into, the scheme property remains unchanged in terms of value: the securities transferred cease to be part of the scheme property, but there is obtained in return an obligation on the part of the counterparty to transfer back equivalent securities. The depositary will also receive collateral to set against the risk of default in transfer, and that collateral is equally irrelevant to the valuation of the scheme property (because it is transferred against an obligation of equivalent value by way of re-transfer). CIS 5A.14.6 R accordingly makes provision for the treatment of the collateral in that context.

01/12/2004

Treatment of collateral

CIS 5A.14.6

(1) Collateral is adequate for the purposes of this section (CIS 5A.14) only if it:

(a) is transferred to the depositary or its agent;

(b) is at least equal in value, at the time of the transfer to the depositary, to the value of the securities transferred by the depositary; and

(i) cash;

(ii) near cash;

(iii) government and public securities;

(iv) a certificate of deposit;

(v) a letter of credit; and

(vi) securities transferred in CREST.

(2) Collateral is sufficiently immediate for the purposes of this section (CIS 5A.14) if :

(a) it is transferred before or at the time of the transfer of the securities by the depositary; or

(b) the depositary takes reasonable care to determine at that time that it will be transferred at the latest by the close of business on the day of the transfer.

(3) The depositary must ensure that the value of the collateral at all times is at least equal to the value of the securities transferred by the depositary.

(5) Any agreement for transfer at a future date of securities or of collateral (or of the equivalent of either) under this section (CIS 5A.14) may be regarded, for the purposes of valuation under CIS 4 (Single-pricing and dealing), CIS 15 (Dual-pricing and dealing) or this chapter, as an unconditional agreement for the sale or transfer of property, whether or not the property is part of the property of the authorised fund.

(6) Collateral transferred to the depositary is part of the scheme property for the purposes of the rules in this sourcebook, except in the following respects:

(b) it does not count as scheme property for any purpose of this chapter other than this section (CIS 5A.14).

(7) Paragraph (5) and (6)(a) do not apply to any valuation of collateral itself for the purposes of this section (CIS 5A.14).

01/12/2004

Limitation by value

CIS 5A.14.7

There is no limit on the value of the scheme property which may be the subject of stock lending transactions within this section (CIS 5A.14).

01/12/2004

CIS 5A.15

Cash, borrowing, lending and other provisions

01/12/2004

Application

CIS 5A.15.1

(1) CIS 5A.15.1 R applies to authorised fund managers and depositaries.

(2) CIS 5A.15.2 R (1)(Cash and near cash) applies to authorised fund managers, other than authorised fund managers of money market schemes, futures and options schemes and geared futures and options schemes.

(3) CIS 5A.15.3 R (General power to borrow) applies (other than for geared futures and options schemes) to ICVCs and trustees of AUTs, except CIS 5A.15.3 R (3)and (4), which apply to authorised fund managers of authorised funds other than geared futures and options schemes and futures and options schemes.

(4) CIS 5A.15.4 R (Borrowing limits) applies to authorised fund managers of authorised funds other than geared futures and options schemes.

(5) CIS 5A.15.5 R (Restrictions on lending of money) applies to ICVCs or to managers and trustees, except for CIS 5A.15.5 R(3) which applies to ICVCs.

(6) CIS 5A.15.6 R (Restrictions on lending of property other than money) applies to ICVCs or managers and trustees, except for CIS 5.15.6R (4) which applies to ICVCs or to depositaries of ICVCs.

(7) CIS 5A.15.7 R (General power to accept or underwrite placings) applies to ICVCs or to managers.

(8) CIS 5A.15.8 R (Guarantees and indemnities) applies to ICVCs or depositaries.

01/12/2004

Cash and near cash

CIS 5A.15.2

(1) Cash and near cash must not be retained in the scheme property except to the extent that, where this may reasonably be regarded as necessary in order to enable:

(a) redemption of units; or

(b) efficient management of the authorised fund in accordance with its investment objectives; or

(2) The scheme property of a money market scheme, a futures and options scheme and a geared futures and options scheme may consist of cash and near cash without limitation.

(3) Paragraph (2) does not apply during the period of the initial offer, during which the scheme property may consist of cash and near cash without limitation.

01/12/2004

General power to borrow

CIS 5A.15.3

(1) The ICVC or trustee (on the instructions of the manager) may, in accordance with this rule (CIS 5A.15.3 R) and CIS 5A.15.4 R, borrow money for the use of the authorised fund on terms that the borrowing is to be repayable out of the scheme property. This power to borrow is subject to the obligation of the authorised fund to comply with any restriction in the instrument constituting the scheme.

(2) The ICVC or trustee may borrow under (1) only from an eligible institution or an approved bank.

(a) the duration of any period of borrowing; and

(b) the number of occasions on which resort is had to borrowing in any period.

(5) This rule (CIS 5A.15.3 R) does not apply to "back to back" borrowing under CIS 5A.13.12 R(2) (Borrowing in the context of efficient portfolio management).

(6) An ICVC must not issue any debenture unless it acknowledges or creates a borrowing that complies with (1) to (4).

01/11/2002

Borrowing limits

CIS 5A.15.4

(1) The authorised fund manager must ensure that the authorised fund's borrowing does not, on any business day, exceed 10% of the value of the scheme property.

(2) For a property scheme, the authorised fund manager must ensure that the borrowing does not, on any business day, exceed 10% of the value of that part of the scheme property which for the time being does not consist of immovables.

(3) For a property scheme, an approved mortgage under CIS 5A.8.9 R (Mortgaged property) or CIS 5A.8.12 R (Grant of options, mortgages) does not count as borrowing for the purposes of (2).

(4) This rule (CIS 5A.15.4 R) does not apply to "back to back" borrowing under CIS 5.13.12R(2).

(5) In this rule (CIS 5A.15.4 R), "borrowing" includes, as well as borrowing in a conventional manner, any other arrangement (including a combination of derivatives) designed to achieve a temporary injection of money into the scheme property in the expectation that the sum will be repaid.

(6) For an ICVC, borrowing does not include any arrangement for the ICVC to pay to a third party (including the ACD) any costs which the ICVC is entitled to amortise under CIS 8.3.4 R(Set up costs) and which were paid on behalf of the ICVC by the third party.

01/12/2004
Future version of CIS 5A.15.4 after 06/04/2006

Restrictions on lending of money

CIS 5A.15.5

(2) Acquiring a debenture is not lending for the purposes of (1); nor is the placing of money on deposit or in a current account.

01/12/2004

Restrictions on lending of property other than money

CIS 5A.15.6

(1) The scheme property of an authorised fund other than money must not be lent by way of deposit or otherwise.

(2) Transactions falling within CIS 5A.14 (Stock lending) are not lending for the purposes of (1).

(3) The scheme property of an authorised fund must not be mortgaged except under CIS 5A.8 (Property schemes).

(4) Nothing in this rule (CIS 5A.15.6 R) prevents the ICVC or the depositary at the request of the ICVC, or the trustee at the request of the manager, from lending, depositing, pledging or charging scheme property for margin requirements where transactions in derivatives or forward transactions are used for the account of the authorised fund in accordance with any other of the rules in this chapter.

01/12/2004

General power to accept or underwrite placings

CIS 5A.15.7

(1) Any power in this chapter to invest in transferable securities may be used for the purpose of entering into transactions to which this rule (CIS 5A.15.7 R) applies, subject to compliance with any restriction in the instrument constituting the scheme.

(2) This rule (CIS 5A.15.7 R) applies, subject to (3), to any agreement or understanding:

(a) which is an underwriting or sub-underwriting agreement; or

(b) which contemplates that securities will or may be issued or subscribed for or acquired for the account of the authorised fund.

(3) Paragraph (2) does not apply to:

(a) an option; or

(b) a purchase of a transferable security which confers a right :

(i) to subscribe for or acquire a transferable security; or

(ii) to convert one transferable security into another.

(4) No agreement or understanding to which this rule (CIS 5A.15.7 R) applies may be entered into if it relates to units in a collective investment scheme.

(5) The exposure of an authorised fund to agreements and understandings within (2) must, on any business day:

(a) be covered under CIS 5A.13.8 R (Cover for transactions for efficient portfolio management) as if the exposure had been incurred in the context of CIS 5A.13 (Efficient portfolio management) by means of transactions in approved derivatives; and

(b) be such that, if all possible obligations arising under them had immediately to be met in full, there would be no breach of any limit in this chapter.

01/12/2004

Guarantees and indemnities

CIS 5A.15.8

(1) An ICVC or a depositary for the account of an authorised fund must not provide any guarantee or indemnity in respect of the obligation of any person.

(2) None of the scheme property of an authorised fund may be used to discharge any obligation arising under a guarantee or indemnity with respect to the obligation of any person.

(3) Paragraphs (1) and (2) do not apply to:

(a) any indemnity or guarantee given for margin requirements where the derivatives or forward transactions are being used in accordance with the rules in this chapter;

(b) for an ICVC:

(i) an indemnity falling within the provisions of regulation 62(3) of the OEIC regulations (Exemptions from liability to be void);

(c) for an AUT, an indemnity given to a person winding up a body corporate or other scheme in circumstances to which CIS 15.2.7 R (Creation of units) applies.

01/12/2004

CIS 5A.15.9

CIS 8.4.1 R (Payment of liabilities on transfer of assets) and CIS 8.5.5 R (Other payments out of scheme property) contain provisions restricting payments out of scheme property.

01/12/2004

CIS 5A.16

Cover for sales

01/12/2004

Application

CIS 5A.16.1

This section (CIS 5A.16) applies to ICVCs other than futures and options schemes and geared futures and options schemes and to managers and trustees of AUTs other than futures and options schemes or geared futures and options schemes.

01/12/2004

Requirement to cover sales

CIS 5A.16.2

(1) No agreement by or on behalf of an ICVC or on behalf of an AUT to dispose of property or rights may be made:

(b) the property and rights at (a) are owned by the authorised fund at the time of the agreement.

(2) Paragraph (1) does not apply to a transaction in derivatives or a forward transaction under CIS 5A.13 (Efficient portfolio management).

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Investment and borrowing powers

CIS 6

Title, transfer and plan registers

CIS 6.1

Introduction

01/12/2004

Application

CIS 6.1.1

This chapter applies in relation to ICVCs and AUTs

01/12/2004

CIS 6.1.2

This section (CIS 6.1) applies to authorised fund managers and depositaries.

01/12/2004

Purpose

CIS 6.1.3

In line with the regulatory objective of the protection of consumers, this chapter sets out requirements for a register of unitholders in an AUT and for plan registers of both ICVCs and AUTs. These requirements are intended to ensure that there is a proper record of the ownership of units, whether held directly or through a savings plan, ISA or PEP.

01/12/2004

Explanation of this chapter

CIS 6.1.4

(1) CIS 6.2 deals with a number of matters concerning the register of unitholders, such as its establishment, maintenance and rights of those who wish to inspect it, and the issue of certificates either of registration of ownership in that register or in bearer form.

(2) CIS 6.3 deals with the transferability of units, whether by act of parties (for example sales or gifts) or by operation of law (death or bankruptcy).

(3) CIS 6.4 deals with changes of name and address of unitholders and sets out requirements for subdivision, consolidation and conversion of classes of units and default by unitholders.

(4) CIS 6.5 deals with plan registers of both ICVCs and AUTs.

01/12/2004

CIS 6.2

The register of unitholders

01/12/2004

Basic requirement

CIS 6.2.1

(1) This rule (CIS 6.2.1 R) applies to trustees, except (5) which applies to managers and trustees and (6) which applies to the manager only.

(2) The trustee must establish and maintain a register of unitholders (the register) in accordance with this rule.

(3) The register must be maintained in a readable form or in a manner capable of being reproduced in a readable form.

(4) The register must contain:

(a) the name and address of each unitholder (other than one whose units are represented by bearer certificates);

(b) the number of units (including fractions of a unit) of each class held by each unitholder (other than units that are represented by bearer certificates);

(d) the number of units (including fractions of a unit) of each class currently in issue and represented by bearer certificates and the numbers of those certificates;

but the trustee need not register more than four persons as the joint holders of any units.

(5) The manager and the trustee must:

(a) take all reasonable steps; and

(b) exercise all due diligence;

to ensure that the information contained in the register is at all times complete and up to date.

(6) The manager, for the purpose of (5), must in particular:

(a) take any necessary steps to obtain and supply information from or concerning any new unitholder of units to enable the entry in the register to be made; and

(b) immediately notify the trustee of any information which the manager receives relating to the accuracy of or any change to any entry in the register.

01/12/2004

The register as evidence of title

CIS 6.2.2

(1) This rule (CIS 6.2.2 R) applies to managers and trustees.

(2) The register is conclusive evidence as to the persons respectively entitled to the units entered in it. This does not prevent the trustee making any deletion or alteration allowed by CIS 6.4.4 R (Default by the unitholder).

(3) No notice of any trust, express, implied, or constructive, which may be entered in the register for any unit is binding on the manager or the trustee. But this does not affect the obligations of the manager and the trustee under CIS 6.5 (Plan registers).

01/12/2004

Inspection of the register and copies of entries

CIS 6.2.3

(1) This rule (CIS 6.2.3 R) applies to trustees.

(2) The trustee must make the register available for inspection, by or on behalf of the unitholders or the manager, in the United Kingdom free of charge at all times during ordinary office hours. But the register may be closed at times and periods (not exceeding 30 days in any one year) as determined by the trustee.

(3) The trustee must supply to the manager at its request a copy of the register or any part of it on payment, if the trustee so decides, of a reasonable fee.

(4) The trustee must supply to a unitholder or his authorised representative at his request and free of charge a copy in print of the entries on the register relating to that unitholder.

01/12/2004

The manager as unitholder

CIS 6.2.4

(1) This rule (CIS 6.2.4 R) applies to managers and trustees.

(2) The manager may, unless expressly forbidden to do so by the trust deed, be a unitholder.

(3) The manager must be treated as the holder of each unit which is in issue (other than a unit which is represented by a bearer certificate) if no person is entered in the register as the holder of that unit.

(4) Where a unitholder transfers units to the manager, they need not be cancelled, nor need the name of the manager be entered on the register as the new unitholder.

01/12/2004

Certificates

CIS 6.2.5

(1) This rule (CIS 6.2.5 R) applies to managers and trustees.

(2) On or following the issue of units or, subject to CIS 6.3.1 R (Transfer of units by act of parties), at any other time, a certificate or other document recording title to the units may be issued to the unitholder if, and in such form as, the manager and the trustee agree.

(3) The manager and the trustee must agree on the procedures to be followed in redeeming units.

(4) Where the procedures agreed under (3) require the investor to surrender any document (or provide any information) as a prior condition to obtaining the proceeds of redemption, they must also oblige the trustee to issue the document or provide any relevant information relating to an entry on the register in a timely manner once it is in a position to do so under those procedures.

(5) Where the trust deed enables bearer certificates to be issued, the manager and trustee must agree on their form, and on the procedures to be followed for them.

(6) The steps required to be taken by a unitholder in relation to the issue and redemption of units must be specified in the prospectus.

01/12/2004

CIS 6.3

Transferability of units

01/12/2004

Transfer of units by act of parties

CIS 6.3.1

(1) This rule (CIS 6.3.1 R) applies to trustees.

(2) Every unitholder is entitled, subject to (3), to transfer units held by him for which he is entered in the register by an instrument of transfer in any form the trustee may approve.

(3) The trustee is not under any duty to accept a transfer:

(a) if the number or value of the units sought to be transferred would result in the unitholder, or the transferee, holding less than any number or value stated in the prospectus as the minimum number to be held; or

(b) if the AUT is a relevant pension scheme and the transfer is not one permitted by the trust deed; or

(d) if the trust deed contains a limitation upon the categories of persons who may be unitholders and the transferee is not within one of those categories; or

(e) unless the transfer is excluded by Schedule 19 of the Finance Act 1999 (or any statutory modification or re-enactment of it) from a charge to stamp duty reserve tax, or there has been paid to the trustee, for the account of the AUT, an amount agreed between the trustee and the manager not exceeding the amount that would be derived by applying the rate of stamp duty reserve tax to the market value of the units being transferred.

(4) Every instrument of transfer of units must be signed by or on behalf of the unitholder transferring the units (or, in the case of a body corporate, sealed by that body corporate or signed by one of its officers (or in Scotland, two of its officers)) authorised to sign it and, unless the transferee is the manager, the transferor must be treated as the unitholder until the name of the transferee has been entered in the register.

(5) Every instrument of transfer, duly stamped if it is required to be stamped, must be left with the trustee for registration accompanied by:

(a) any necessary declarations or other documents that may be required in consequence of any legislation in force at the time; and

(b) such other evidence as the trustee may require to prove the right of the transferor to transfer the units or in the case of a body corporate the authority of the signatory on its behalf.

(6) All instruments of transfer which are registered must be retained by the trustee in original, copy or non-documentary form for a period of six years from the date of registration.

(7) Upon registration of an instrument of transfer, a reference must be made on the register enabling the name of the transferor and the transferee and the date of transfer to be identified.

01/12/2004

Transfer of units by operation of law

CIS 6.3.2

(1) This rule (CIS 6.3.2 R) applies to managers and trustees.

(2) On the death of any one of joint unitholders, the surviving unitholder or unitholders must be the only persons recognised by the trustee and the manager as having any title to or any interest in the units held by those joint unitholders.

(3) The executors or administrators of a deceased unitholder (who was not one of two or more joint unitholders) must be the only persons recognised by the trustee and the manager as having title to the units held by the deceased unitholder.

(4) Where any person becomes entitled to a unit in consequence of the death or bankruptcy of any sole unitholder or of the survivor of joint unitholders:

(a) he may, subject to (b), upon producing evidence of his title required by the trustee, either be registered himself as unitholder (upon giving written notice to the trustee) or transfer the unit to some other person;

(b) CIS 6.3.1 R (Transferability of units by act of parties) applies to any such notice or transfer as if the death or bankruptcy had not occurred and as if the notice or transfer were a transfer signed by the unitholder;

(c) the new owner may, subject to (d), give a discharge for all monies payable for the unit, but will not, until registered as a unitholder, be entitled to receive notices or attend or vote at any meeting of unitholders; and

(d) the trustee may, at its discretion, retain any monies payable for the unit until the new owner is registered as the unitholder or transfers the unit.

01/12/2004

CIS 6.4

Permitted alterations to the register of unitholders

01/12/2004

Change of name and address of unitholder

CIS 6.4.1

(1) This rule (CIS 6.4.1 R) applies to trustees.

(2) The trustee must:

(a) on receiving written notice of a change of name or change of address of any unitholder;

(b) on having taken reasonable care; and

alter the register accordingly.

(3) Where a certificate has been issued and remains valid and the name of the unitholder is altered in the register, the trustee must either issue a new certificate to the unitholder or make an appropriate endorsement on the unitholder's existing certificate.

01/12/2004

Conversion of units

CIS 6.4.2

(1) This rule (CIS 6.4.2 R) applies to managers, except (5), which applies to managers and trustees.

(2) This rule applies to any AUT in which there are units of more than one class (that is, income units and accumulation units), and governs the conditions of conversion of units of one class into units of another.

(3) Conversion is possible under this rule only if both classes of unit are in existence and are offered for issue or sale at the time of the request for conversion.

(4) If a unitholder requests the manager to convert units, the manager must make a written request to the trustee for the conversion; but the manager need not do so, nor need the trustee comply with the manager's request, if the conversion would result in the unitholder holding less than any number or value of units of either class stated in the prospectus as the minimum number to be held.

(5) If the manager makes a request under (4), the trustee must, unless excused by (4), convert the units into the appropriate number of units of the other class. That number must be determined by the manager, after consulting the trustee, on terms that are fair to the unitholder requesting conversion and to other unitholders.

(6) CIS 4 (Single-pricing and dealing), CIS 8 (Charges and expenses) and CIS 15 (Dual-pricing and dealing) do not apply to a conversion of units in accordance with this rule.

01/12/2004

Subdivision and consolidation of units

CIS 6.4.3

(1) This rule (CIS 6.4.3 R) applies to managers and trustees.

(2) The manager may, unless expressly forbidden to do so by the trust deed, at any time when no bearer certificates are in issue, with the approval of the trustee determine:

(a) that each unit is to be subdivided into two or more units (after which each unit is to stand subdivided); or

(b) that two or more units are to be consolidated (after which those units are to stand consolidated).

(3) Upon a subdivision or consolidation of units the trustee must (unless it has done so before the subdivision or consolidation became effective) immediately give to each unitholder (or to the first named of joint holders) whose name is entered in the register, notice of the subdivision or consolidation.

01/12/2004

Default by the unitholder

CIS 6.4.4

(1) This rule (CIS 6.4.4 R) applies to managers and trustees.

(2) Where:

(a) the unitholder of any units defaults in making any payment in money or transfer of property due to the manager or the trustee under the rules in this sourcebook, or the trust deed, for the issue or sale of units to that unitholder; and

(b) the trustee is satisfied that there has been a default;

the trustee may make any deletion or alteration in the register that is necessary to compensate for that default, after which the manager becomes entitled to those units for which the defaulting unitholder's name has been removed from the register until those units are either cancelled or re-sold and paid for.

01/12/2004

CIS 6.5

Plan registers

01/12/2004

Application

CIS 6.5.1

(1) This rule (CIS 6.5.1 R) and CIS 6.5.3 G apply to ICVCs and their directors and to managers and trustees.

(2) The sub-paragraphs of CIS 6.5.4 R apply in accordance with CIS 6.5.2 R (Table of application)

01/12/2004

CIS 6.5.2

Table of application

This table belongs to CIS 6.5.1 R.

Sub-paragraph number

ICVC

ACD

Any other director of an ICVC

Manager

Trustee

(1)

(2)

(3)

(4) - (7)

(8)

(9)

(10) - (11)

(12)

(13)

(14) - (15)

(16) - (17)

(18)

(19)

01/12/2004

Explanation

CIS 6.5.3

This section (CIS 6.5) permits the directors of an ICVC or the trustee of an AUT to establish a plan register. This section deals with a number of matters concerning its establishment and maintenance and ensures that the holders entered in the plan register have similar rights in respect of notices and disclosure as holders in the main register of holders.

01/12/2004

Requirement

CIS 6.5.4

(1) For an ICVC, the directors must not arrange for the ICVC to establish a plan register unless the conditions in (4) have been satisfied.

(2) For an AUT, the trustee, at the request of the manager, may, subject to (3), establish and maintain a plan register provided that the conditions in (4) have been satisfied.

(3) The trustee must not establish a plan register without the prior sanction of an extraordinary resolution of the unitholders unless:

(a) paragraph (4)(b) applies; or

(b) for the year to 5 April 1999 (or, if shorter, for the period from the initial issue of units in the AUT to 5 April 1999) the AUT was managed with the intention that units in the AUT should be qualifying investments for the purposes of the Personal Equity Plan Regulations 1989.

(4) The conditions referred to in (1) and (2) are that:

(a) not less than 90 days before the establishment of the plan register:

(i) notice in writing has been given by the authorised fund manager to holders of the proposal to establish it; and

(ii) a revised prospectus reflecting that proposal has become available; or

(b) the original prospectus of the authorised fund referred, in accordance with CIS 3.5.2 R(12) or CIS 3.5.2 R(13), to the payments that may be paid out of the scheme property for the establishment and maintenance of the plan register.

(5) Paragraphs (6) to (19) apply for so long as a plan register is maintained.

(6) The plan register must be maintained in a readable form or in a manner capable of being reproduced in a readable form.

(7) The plan register must contain:

(a) the name and address of each plan investor for whom units in the authorised fund are held by a plan manager or a nominee under a group plan;

(b) the number of those units of each class so held for each such person;

(c) the date on which the plan investor was registered in the plan register in respect of those units or any earlier date on which the plan investor was registered as a subscriber to a group plan in respect of those units on a register or other record from which the plan register was extracted; and

(d) sufficient information to identify the group plan under which the units are held and the plan investor entered on the register of holders as their holder.

(8) The ACD or, in the case of an AUT, the manager and the trustee, must:

(a) take all reasonable steps; and

(b) exercise all due diligence;

to ensure that the information contained in the plan register is at all times complete and up to date.

(9) In particular, for the purpose of (8) the authorised fund manager must ensure that:

(a) any necessary steps are taken to obtain and supply information from or concerning any new plan investor to enable the entry in the plan register to be made; and

(b) in the case of a plan register of an AUT, the trustee is immediately notified of any information which the manager or the plan manager or a nominee of the plan manager receives relating to the accuracy of, or any change to, any entry in the plan register.

(10) The ACD or the trustee must make the plan register available for inspection in the United Kingdom by or on behalf of:

(a) a plan investor, for the entries relating to him; and

(b) a plan manager, for the entries relating to a group plan managed by it; and

free of charge at all times during ordinary office hours, except that the plan register may be closed when the register is closed.

(11) The ACD or the trustee must supply to the plan manager, and (in the case of a plan register of an AUT) to the manager, on request, a copy of the plan register or any part of it on payment, if the trustee or the ACD so decides, of a reasonable fee.

(12) In the following rules a reference to a shareholder, unitholder or holder must be treated as including a plan investor in respect of group plan units held for that plan investor:

(a) CIS 3.4.2 R (4) (b), (d) and (e) (Notice of certain changes to a prospectus);

(b) CIS 8.2.6 R (Notice of an increase: ICVCs and single-priced AUTs);

(d) CIS 10.3.6 R (1) (Short form accounts in reports); and

(e) CIS 10.5.2 R (3) (Publication of reports (umbrella schemes)).

(13) In CIS 10.5.2 R (2) (Publication of reports) the reference to each holder (or the first named of joint holders) entered or entitled to be entered in the register must be considered to include each plan investor (or the first named of joint plan investors) entered in or entitled to be entered in the plan register.

(14) In CIS 11.2.3 R (Notice of meetings - for ICVCs) and CIS 11.3.6 R (Notice of meetings - for AUTs) the references to holders must be considered to include the persons who were plan investors:

(a) on the date seven days before the notices under these rules are sent out; or

(b) if the plan investors'plan units are participating securities, at the close of business on a day to be determined by the authorised fund manager in accordance with CIS 11.2.2 R (2)(a) (Special meaning of shareholder) and CIS 11.3.2 R (2)(a) (Special meaning of unitholder).

(15) Where in this CIS sourcebook there is a reference to persons who ought reasonably to be known to an authorised fund manager to have made arrangements for the purchase of units at regular intervals, the reference is treated as including all plan investors with similar arrangements for plan units.

(16)

(a) The authorised fund manager must ensure that at no cost to the plan investor or the scheme property:

(i) each notice of a meeting of holders given to a plan investor includes, or is accompanied by, a statement that the plan investor may require the plan manager to arrange for the plan investor to be able to attend that meeting or to vote on any resolution put to that meeting or both; and

(ii) the notice is accompanied by an appropriate form of instruction to the plan manager for use by the plan investor.

(b) The authorised fund manager must procure that the plan manager, at no cost to the plan investor or the scheme property, acts in accordance with any duly completed form of instruction received by it at least four business days (excluding the day of receipt and the day of the meeting) before the day of the meeting or at such later time as the plan manager may agree.

(17) The authorised fund manager must give notice to the plan investor of any adjourned meeting of holders at the same time as notice of that meeting is given to holders.

(18) Any notice or document required to be served upon a plan investor will be treated as duly given if it is sent by post to or left at his address as appearing in the plan register, and the provisions of CIS 11.6 (Service of notices and other documents) apply.

(19) For a plan register of an ICVC, information received by the ICVC for the purpose of the establishment or maintenance of the plan register under this rule does not amount to notice to the ICVC of any trust, whether express, implied or constructive.

01/08/2002

Export chapter as

Legal Instruments that change this Chapter Title, transfer and plan registers

CIS 7

Powers & Duties

CIS 7.1

Introduction

01/12/2004

Application

CIS 7.1.1

The rules and guidance in this chapter apply in accordance with CIS 7.1.5 R (Table of application).

01/12/2004

Purpose

CIS 7.1.2

This chapter assists in achieving the regulatory objective of protecting consumers as envisaged by section 2 and 5 of the Act, and supports, in their application to ICVCs and AUTs, Principles 3, 8 and 10, namely that a firm must:

(1) take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems;

(2) manage conflicts of interest fairly; and

(3) arrange adequate protection of clients' assets when it is responsible for them.

01/12/2004

Content of CIS 7

CIS 7.1.3

(1) This chapter includes rules:

(a) to apportion responsibilities between the ACD, any other directors and the depositary of an ICVC;

(b) to apportion responsibilities between the manager and trustee of an AUT;

(c) to require the depositary of an ICVC to check that the ACD is carrying out certain of its functions in accordance with the rules in this sourcebook applicable to it;

(d) to require the trustee of an AUT to check that the manager is carrying out certain of its functions in accordance with those rules;

(e) relating to the depositary's duties in respect of the safe custody of the scheme property of an authorised fund;

(f) to avoid conflicts of interest that could prejudice investors; and

(g) to provide safeguards when the directors or depositary of an ICVC, or the manager or trustee of an AUT, have certain of their functions carried out by a third party.

(2) CIS 7.1.4 G to CIS 7.6.3 R concern the powers, duties and responsibilities of the directors, including the ACD, and the depositary of an ICVC. CIS 7.7 to CIS 7.11 and CIS 7 Annex 1 G concern the powers and duties of the manager and of the trustee of an AUT.

01/12/2004

ICVCs

CIS 7.1.4

(1) The OEIC regulations require:

(a) an ICVC to have at least one director; and

(b) that if an ICVC has only one director, that director must be a body corporate which is an authorised person and has permission to act as a director of an ICVC;

(c) the business of an ICVC to be managed, where an ICVC has one director, by that director, or, where an ICVC has more than one director, by the directors, subject to the rules in this sourcebook as to the allocation between the directors of responsibilities for the management of the ICVC.

(2) This chapter includes the main rules that deal with the allocation mentioned in (1)(c), although other rules in this sourcebook also allocate responsibilities between directors. This chapter includes provisions concerning the appointment and termination of the appointment of an ACD.

(3) Each ICVC must have an ACD (or equivalent). Where an ICVC is formed with a sole director, that director will have to satisfy the requirements mentioned in (1)(b) and will be the ACD. In these circumstances the provisions that allocate responsibilities between directors do not apply. However, because under the OEIC regulations the ACD will then be responsible for the management of the ICVC, the disapplication will not result in a reduction in the ACD's responsibilities.

(4) Where there is more than one director, unless there is a vacancy in the position of ACD, no director other than the ACD is responsible for the exercise of any functions which, under this chapter, are to be exercised exclusively by the ACD. However, the board of directors is responsible for oversight of the ACD in the manner provided for in this chapter.

(5) The depositary is responsible for the safekeeping of scheme property entrusted to it. It has a number of other responsibilities and powers under this chapter and these responsibilities include ensuring that the ICVC is managed in accordance with the rules referred to in CIS 7.4.1 R (General duties of the depositary).

(6) It should be noted that the depositary and the directors are not only required to comply with the OEIC regulations and the rules in this sourcebook relevant to them, but, in accordance with paragraph 6(1) of schedule 2 to the OEIC regulations, they are also bound by the provisions of the ICVC's instrument of incorporation.

(7) The directors (including the ACD in its role as such) and the depositary may each, to the extent permitted by this chapter, retain the services of others to assist them to perform their respective functions. Where there is a vacancy in the position of an ACD, the directors must appoint one or more authorised persons to assist them in performing the functions that it would otherwise be the duty of the ACD to perform. Where there are no directors, the depositary's powers are extended, temporarily, to enable it to manage the scheme property.

(8) CIS 7.6.3 R (Conflicts of interest) also contains requirements relating to transactions entered into between the ICVC and certain persons directly or indirectly connected with it. A transaction which complies with that rule remains subject to regulation 44 of the OEIC regulations, under which certain transactions between an ICVC and a director of it, or an associate of any such director, may be voidable.

13/02/2004

CIS 7.1.5

Table of application

This table belongs to CIS 7.1.1 R

Paragraph or section number

ICVC

ACD

Any other directors of an ICVC

Depositary of an ICVC

Manager

Trustee

7.1.1G-7.1.3G

7.1.4G

7.2.1R

7.2.2R-7.2.3R

7.3.1R-7.3.2G

7.3.3R-7.3.4R

7.4

7.5.1R

7.5.2R

7.5.3R

7.6

7.7

7.8

7.9

7.10

7.11

Note: "x" means "applies".

01/12/2004

CIS 7.2

Directors

01/12/2004

The directors

CIS 7.2.1

(1) If there is only one director of the type described in CIS 7.1.4 G (1)(b), it must be an ACD or an EEA UCITS management company, but if there is more than one director that is a body corporate, the directors must appoint one of the directors that is a body corporate to be the ACD.

(1A) If an EEA UCITS management company is the sole director, that company must carry out the functions of the ACD as set out in CIS 7.3.1 R (Functions of the ACD).

(2) At any time when the ACD is not the sole director and (5) does not apply, no director other than the ACD:

(a) is responsible for any of the functions for which the ACD is made responsible by CIS 7.3.1 R (The ACD), but the other directors must exercise reasonable care to ensure that the ACD undertakes those functions in a competent manner and the ACD must give those directors the information and explanations they consider necessary for this purpose; and

(b) has any power to undertake the management of the ICVC to the extent that the management is to be undertaken by the ACD in accordance with CIS 7.3.1 R.

(3) In the event of:

(a) any person becoming or ceasing to be a director;

(b) the appointment of an ACD being terminated;

(d) a corporate director (including the ACD) becoming aware of any change of its controller;

the FSA must, immediately after the event, be notified in writing of that event; in the case of (a), by the ACD; in the case of (b), by the ACD whose appointment is being terminated; in the case of (c), by the new ACD; and in the case of (d), by the corporate director concerned.

(4) A director must not appoint an alternate director.

(5) At any time when there is no person acting as ACD, the directors have the responsibilities and duties that an ACD would have had under CIS 7.3.1 R (Functions of the ACD), but this does not affect the powers of the directors under CIS 7.6.1 R (Committees and appointments).

(6) At any time that (5) applies, the directors must retain the services of one or more authorised persons to assist them in performing the functions referred to in CIS 7.3.1 R(2) and (3) (Functions of the ACD).

(7) Where a document is to be executed by the ICVC in accordance with regulation 57 of the OEIC regulations, unless (5) applies, it must be executed by the ACD and may also be signed (or executed) by one or more of any other directors.

(8) At any time when the ACD is the sole director it must, to the extent that such action is not already required by the OEIC regulations or by rules in this sourcebook, be responsible for and have the duty to take the action envisaged by CIS 7.3.1 R(3)(d).

(9) At any time when the ACD is sole director this rule (CIS 7.2.1 R) does not exclude the ACD's functions under CIS 7.3.1 R(2) and (3) which are then necessary under the requirements of the OEIC regulations.

13/02/2004

Appointment of ACD

CIS 7.2.2

(1) Before, or on, the termination of the appointment of an ACD, the directors (or director) of the ICVC must take all practicable steps to appoint as the new ACD another person who is qualified to act as ACD and whose appointment must, if made before that termination, take effect immediately on that termination.

(2) If the ICVC ceases to have any director, the depositary has power to appoint a body corporate as a director and the ACD of the ICVC (provided the body corporate is an authorised person and is not prohibited from acting as the ACD of an ICVC by or under any rule).

(3) The appointment of an ACD (other than the first ACD), whether under (1) or (2), must terminate at the close of the annual general meeting next following the date of the appointment or (if later) upon the expiration of 12 months from the date the appointment takes effect, unless the appointment has been approved by a resolution of the shareholders before the close of that annual general meeting or expiration (as the case may be).

(4) An ACD must not voluntarily terminate its appointment as ACD unless the termination is at the same time as the commencement of the appointment of a successor ACD.

01/12/2004
Future version of CIS 7.2.2 after 06/04/2006

Termination of appointment of ACD

CIS 7.2.3

(1) The appointment of an ACD as ACD terminates immediately upon it ceasing to be a director.

(2) The appointment of an ACD as ACD terminates if a notice of termination of that appointment, the terms of which have been approved by a resolution of the board of directors, is given to the ACD.

(3) If there is no director other than the ACD, the appointment of an ACD as ACD terminates if a notice of termination of that appointment is given by the depositary to the ACD and to the ICVC, following any of the following events:

(a) the ACD goes into liquidation (except a voluntary liquidation for the purpose of a scheme of arrangement upon terms previously approved in writing by the depositary); or

(b) a receiver is appointed in relation to the ACD or any part of it; or

(4) Any termination under (2) or (3) takes effect when the notice is given, or on any subsequent time for its effect stated in the notice, or, if later, the time at which the termination is permitted to take effect under regulation 21 of the OEIC regulations (the Authority's approval for certain changes in respect of a company).

(5) Unless the termination of the appointment of an ACD takes effect at the same time as the appointment of a successor ACD, the depositary must ensure that the termination is published in a manner that the depositary considers appropriate.

(6) The depositary is entitled to be reimbursed out of the scheme property for its out of pocket expenses in complying with (5).

01/12/2004

CIS 7.3

Functions of the ACD

01/12/2004

CIS 7.3.1

(1) This rule (CIS 7.3.1 R) does not apply at any time when the ACD is the sole director of the ICVC.

(2) The ACD must carry out such functions as are necessary in order to ensure compliance with the rules in this sourcebook that impose obligations upon the ICVC or the ACD. The ACD's duties under this paragraph are not restricted by (3).

(3) The functions to be carried out by the ACD include:

(a) making decisions as to the constituents of the scheme property of the ICVC in accordance with the investment objectives and policy of the ICVC;

(b) instructing the depositary from time to time in writing how rights attaching to the ownership of the scheme property are to be exercised, but not in any case where, under CIS 7.4.5 R (Exercise of rights in respect of the scheme property), the depositary has the right to exercise (or not exercise) voting rights after consultation with the directors;

(c) taking all reasonable steps, and exercising due diligence, to ensure that the shares in the ICVC are priced in accordance with CIS 4 (Single-pricing and dealing);

(d) taking action immediately to rectify any breach of CIS 4 and, where the breach relates to the incorrect pricing of shares or to the late payment in respect of the issue of shares, rectification must, unless the depositary otherwise directs, extend to the reimbursement or payment, or arranging the reimbursement or payment, of money:

(i) by the ACD to shareholders and former shareholders;

(ii) by the ACD to the ICVC; or

(iii) by the ICVC to the ACD;

but rectification need not, unless the depositary otherwise directs, extend to any such reimbursement or payment where it appears to the depositary that the incorrect pricing, or late payment in respect of issue, is of minimal significance; and

(e) ensuring that the ICVC complies with the obligations imposed by, and, when appropriate, exercises the powers provided by, the following provisions of the OEIC regulations:

(i) 21 : (The Authority's approval for certain changes in respect of ICVC);

(ii) 36 : (Inspection of directors' service contracts);

(iii) 46 : (Share certificates), subject to regulation 47 (exceptions from regulation 46);

(iv) 48 : (Bearer shares);

(v) 50 : (Power to close register);

(vi) 54(1) : (Name to appear in correspondence etc);

(vii) 55 : (Particulars to appear in correspondence etc);

(viii) Schedule 3 : (Register of shareholders) excluding paragraph 12 of Schedule 4; and

(ix) Schedule 4: (Share transfers).

01/12/2004

Valuation and pricing : for ICVCs

CIS 7.3.2

For the purposes of CIS 7.3.1 R (3)(c)and (d), CIS 7 Annex 1 G contains guidance on the valuation and pricing of authorised funds, including:

(1) pricing controls and the valuation of the scheme property;

(2) recording and reporting of incorrect pricing; and

(3) procedures to be adopted following incorrect prices, including action that should be taken to rectify any breach.

01/12/2004

Maintenance of records

CIS 7.3.3

(1) The ACD must make and retain such accounting and other records for the ICVC as are necessary:

(a) to enable the ICVC to comply with the OEIC regulations and the rules in this sourcebook; and

(b) to demonstrate at any time that such compliance has been achieved.

(2) The ACD must make and retain for a period of six years from the date each record is made a daily record of the shares in the ICVC held, acquired or disposed of by the ACD, including the classes of such shares, and of the balance of any acquisitions and disposals.

(3) Unless the policy of the ACD stated in the prospectus is neither to require a dilution levy nor to make a dilution adjustment, it must make and retain for a period of six years from the date each record is made a daily record of:

(a) how it calculates and estimates dilution; and

(b) its policy and method for determining the amount of any dilution levy or dilution adjustment.

01/08/2002

Maintenance of capital

CIS 7.3.4

If, at any time after the size of the ICVC's capital (as provided for the purposes of sub-paragraph 4(1)(c) of Schedule 2 to the OEIC regulations in paragraph 4(2) of that Schedule) has reached the minimum size provided in its instrument of incorporation, the size of that capital either falls below that minimum or exceeds the maximum size provided in the instrument of incorporation, the ACD must immediately notify the FSA of that fact.

01/12/2004

CIS 7.4

The depositary

01/12/2004

General duties of the depositary

CIS 7.4.1

(1) The depositary must take reasonable care to ensure that:

(a) the ICVC is managed in accordance with:

(i) CIS 4 (Single-pricing and dealing);

(ii) CIS 9 (Income); and

(iii) in relation to umbrella schemes, CIS 12.5.4 R (Income) and CIS 12.5.7 R (Investment and borrowing powers);

(b) the ICVC is managed without infringement of any provision of the instrument of incorporation that relates to:

(i) the initial offer or issue or cancellation or sale or redemption or pricing of shares;

(ii) the dilution levy, dilution adjustment or SDRT provision;

(iii) the valuation of the scheme property;

(iv) accounting periods (including half-yearly accounting periods);

(v) the calculation of income available for allocation;

(vi) the allocation, payment or retention of income; and

(vii) unclaimed distributions; and

(c) decisions about the constituents of the scheme property do not cause an infringement of CIS 5 or CIS 5A (Investment and borrowing powers).

(2) The depositary must, in so far as not required under (1)(a)(i), take reasonable care to ensure on a continuing basis that:

(a) the ACD is adopting procedures and methods which are appropriate to ensure that the price of a share is calculated for each valuation point in accordance with CIS 4 (Single-pricing and dealing); and

(b) the ACD has maintained sufficient records to show compliance with CIS 4 (Single-pricing and dealing).

(3) The depositary, when acting in its capacity as depositary, must act solely in the interests of the shareholders.

(4) The depositary:

(a) must take reasonable care to ensure that;

(i) the ACD considers whether or not to exercise the power provided by CIS 4.6.3 R (1)(c) and (d) (Dilution levy and SDRT provision) and the amount or rate of any SDRT provision that is imposed; and

(ii) in that consideration the ACD has, so far as the depositary is aware, taken account of all factors that are material and relevant to the ACD's decision; and

(b) subject to (a), has no duty in respect of the ACD's exercise of discretion referred to in (a).

(5) The depositary:

(a) must also take reasonable care to ensure that;

(i) the ACD considers whether or not to exercise the power provided by CIS 4.6.3 R (1)(a) or (b) (Dilution levy and SDRT provision) or CIS 4.6.4 R (Dilution adjustment) (as the case may be) and, if applicable, the rate or amount of any dilution levy or dilution adjustment that is imposed;

(ii) in that consideration the ACD has, so far as the depositary is aware, taken account of all factors that are material and relevant to the ACD's decision; and

(iii) when the ACD considers whether or not to exercise the power under CIS 4.6.4 R (Dilution adjustment), the ACD has, so far as the depositary is aware, acted in accordance with the restrictions imposed by that rule; and

(b) subject to (a), has no duty in respect of the ACD's exercise of discretion referred to in (a).

01/11/2002

Valuation and pricing

CIS 7.4.2

For the purposes of CIS 7.4.1 R(1)(a)(i) and CIS 7.4.1 R(2), CIS 7 Annex 1 G contains guidance on the valuation and pricing of authorised funds, including:

(1) pricing controls and the valuation of the scheme property;

(2) depositary's review of the ACD's controls and systems;

(3) the recording and reporting of incorrect pricing; and

(4) procedures to be adopted following incorrect prices, including action that should be taken to rectify a breach.

01/12/2004

Duty to inform the FSA : for ICVCs

CIS 7.4.3

(1) The depositary must inform the FSA immediately upon becoming aware of any circumstance where there is no longer certainty that:

(a) the ICVC is managed in accordance with CIS 7.4.1R(a)(i), (ii) and (iii) (General duties of the depositary); and

(b) decisions about the constituents of the scheme property do not cause an infringement of CIS 5 (Investment and borrowing powers);

unless the depositary has taken reasonable care to determine that the circumstance in question is not, and is not likely to become, materially significant.

(2) If the depositary becomes aware of a circumstance which it needs to investigate in order to ascertain whether its duty to inform the FSA under (1) arises, then:

(a) the depositary must inform the FSA of that circumstance immediately after it determines, having taken reasonable care that the circumstance is, or is likely to become, materially significant, or if no such determination is made within 90 days of so becoming aware, then the depositary must inform the FSA immediately; or

(b) the FSA need not be notified where the depositary determines the circumstance is not, or is not likely to become, materially significant.

(3) The depositary must not retire voluntarily unless, before its retirement, it has ensured that the new depositary has been informed of any circumstance of which the retiring depositary has informed the FSA in accordance with (1) or (2), or which is being investigated for the purpose of (2).

01/12/2004

Control by the depositary over the scheme property

CIS 7.4.4

(1) The depositary is responsible for the safekeeping of all of the scheme property of the ICVC (other than tangible movable property) entrusted to it. The depositary's duties under this paragraph are not restricted by (2).

(2) The depositary must:

(a) take all steps and execute all documents to ensure that transactions properly entered into for the account of the ICVC in accordance with CIS 7.2.1 R (5) and (6) (The directors) or CIS 7.3.1 R (3)(a) (The ACD) are completed;

(b) ensure that any of that scheme property in registered form is, as soon as practicable, registered in the name of the depositary, its nominee or a person retained by it under CIS 7.6.1 R (Committees and appointments);

(c) take into its custody or under its control all of the deeds and other documents relating to title to the scheme property other than in respect of transactions in derivatives or forward transactions; and

(d) ensure that any transaction in derivatives or forward transaction is entered into in such a manner as to ensure that any resulting benefit is received by the depositary.

(3) The depositary is responsible for the collection of any income due to be paid for the account of the ICVC and must hold and deal with any income so collected in accordance with CIS 9 (Income).

(4) The depositary must keep such records as are necessary:

(a) to enable it to comply with the rules in this sourcebook; and

(b) to demonstrate that it has achieved such compliance.

01/12/2004

Exercise of rights in respect of the scheme property

CIS 7.4.5

(1) The depositary must, subject to (2), take all steps and execute all such documents as are necessary to secure that instructions properly given to it by the ACD as to the exercise of rights (including voting rights) attaching to the ownership of scheme property are carried out.

(2) The depositary may exercise (or not exercise) any right of voting conferred by any of the scheme property of the ICVC which consists of units in any other collective investment scheme managed or otherwise operated by any director of the ICVC or by an associate of any such director, but only after consultation with the directors of the ICVC.

01/12/2004

CIS 7.5

The ICVC, its directors and the depositary

01/12/2004

Dealings in scheme property

CIS 7.5.1

(1) The ACD may give instructions as to the acquisition or disposal of property for the account of the ICVC. The authority of the depositary to give those instructions is not required, except in the case of the acquisition or disposal of immovable property.

(2) Where the depositary is of the opinion that a particular acquisition or disposal of property for the account of the ICVC exceeds the powers conferred on the ICVC by the rules in this sourcebook (and in particular CIS 5 or CIS 5A (Investment and borrowing powers)), the depositary may require the ACD to cancel the transaction or make a corresponding disposal or acquisition to secure restoration of the previous situation and to meet any resulting loss or expense.

(3) Where the depositary is of the opinion that:

(a) an acquisition of property for the account of the ICVC necessarily involves documents evidencing title being kept in the custody of a person other than the depositary; and

(b) the depositary cannot reasonably be expected to accept the responsibility which would otherwise be placed upon it if it were to permit custody by that other person;

the ACD must (for the account of the ICVC), if the depositary so requests, either cancel the transaction or make a corresponding disposal.

01/11/2002

ICVC without a Director

CIS 7.5.2

(1) If the ICVC ceases to have any directors, the depositary has the power:

(a) to retain the services of an authorised person to carry out the functions referred to in CIS 7.3.1 R (3)(a)and(b) (The ACD); or

(b) provided it is not prohibited from doing so by any law or any rule, to manage the scheme property itself on behalf of the ICVC;

until in either case; a director is appointed; or a winding up of the ICVC is commenced.

01/12/2004

Duties of the ACD and depositary: investment and borrowing powers

CIS 7.5.3

(1) The ACD must take all reasonable steps and exercise due diligence to avoid the scheme property being used or invested contrary to any provision in CIS 5 or CIS 5A (Investment and borrowing powers), except to the extent permitted by (6)(c).

(2) The depositary must take all reasonable steps and exercise due diligence to monitor the management of the scheme property sufficiently to ensure that the ACD complies with (1).

(3) The ACD must, immediately upon becoming aware of any breach of any provision in CIS 5 or CIS 5A , take action, at its own expense, to rectify that breach, unless the breach occurred as the result of a circumstance of one of the types described in (5) and (6).

(4) When this paragraph (4) applies as a result of (5) or (6), the ACD must take the steps necessary to ensure a restoration of compliance with CIS 5 or CIS 5A as soon as is reasonably practicable having regard to the interests of the shareholders and, in any event, within the period specified in (8) or, when applicable, (9).

(5) Paragraph (4) applies:

(a) where the scheme property is used or invested at any time contrary to any provision of CIS 5 or CIS 5A (other than a provision excusing a failure to comply on a temporary basis); and

(b) the reason for the contravention is beyond the control of both the ACD and the depositary.

(6)

(a) Paragraph (4) applies to a transaction ("subsequent transaction") deriving from a right (such as the right to convert stock or subscribe to a rights issue) attributable to an investment ("original investment") of the ICVC if:

(i) the subsequent transaction, but for this rule (CIS 7.5.3 R) would constitute a breach of CIS 5 or CIS 5A; and

(ii) at the time of the acquisition of the original investment, it was reasonable for the ACD, on the assumption that any right attached to the original investment when it was acquired would be exercised, to expect that a breach would not be caused by the subsequent transaction.

(b) In this paragraph (6) reference to the exercise of a right includes the taking effect of a right without any action by or on behalf of the depositary or the ICVC.

(c) Nothing in CIS 5 or CIS 5A prevents the ICVC from entering into a transaction of the type described in (a) provided that the ACD obtains the prior written consent of the depositary.

(7) Immediately upon the depositary becoming aware of any circumstance described in (5) or any breach resulting from the exercise of, or receipt of a benefit from, a right in the circumstance described in (6), it must take the steps necessary to ensure that the ACD complies with (4).

(8) The maximum period for restoration of compliance under (4) starts at the date of discovery of the relevant circumstance and lasts, subject to any extension under (9):

(a) except where (b), (c) or (d) applies, for six months;

(b) where the transaction in question was a transaction in derivatives or a forward transaction under CIS 5.2.22 R (Permitted transactions (derivatives and forwards)) or CIS 5A.6 (Futures and options schemes) or CIS 5.7A (Geared futures and options schemes), until the close of business five business days later;

(c) where the transaction in question was entered into for hedging purposes under CIS 5.2.22 R (Permitted transactions (derivatives and forwards)) or under CIS 5A.13 (Efficient portfolio management), until the close of business five business days later; and

(d) where the ICVC is a property scheme and the property in question is an immovable, for two years.

(9) The period specified at (8)(b) and (c) (five business days) is extended:

(a) if the transaction involved a delivery of a commodity, from five to twenty business days;

(b) if the reason for the contravention in (5) is the inability of the ACD to close out a transaction because of a limit in the number or value of transactions imposed by an eligible derivatives market, until five business days after:

(i) the inability resulting for any such limit is removed; or

(ii) it becomes, to the knowledge of the ACD, reasonably practicable and reasonably prudent for the transaction to be closed out in some other way.

01/11/2002

CIS 7.6

Committee, appointments and conflicts of interest

01/12/2004

Committees and appointments

CIS 7.6.1

(1) The directors have the power to delegate to any director, or any committee consisting of one or more directors, any of the directors' powers or duties, but the directors remain responsible for the acts or omissions of any such director or committee as if they were acts or omissions of the directors. This paragraph (1) is subject to CIS 7.2.1 R (3) (The directors).

(2) The ACD or the directors have the power to retain the services of anyone, including the depositary, to assist the ACD or the directors (as the case may be) to perform their respective functions, provided that:

(a) a mandate in relation to managing investments of the scheme property is not given to:

(i) the depositary;

(ii) any other person whose interests may conflict with those of the ACD or the holders; or

(iii) any other person who is not authorised or registered for managing of investments and is not subject to prudential supervision (unless there is agreement in place between the FSA and the overseas regulator of the delegate ensuring adequate co-operation);

(b) the ACD ensures that at all times it may monitor effectively the relevant activities of any person so retained; and

(i) give further instructions to the person so retained; and

(ii) withdraw the mandate with immediate effect when this is in the interests of the holders.

(d) the mandate does not prevent effective supervision of the ACD and it must not prevent the ACD from acting, or the scheme from being managed, in the best interests of the holders.

(3) The depositary has the power to retain the services of anyone, including a director of the ICVC, to assist the depositary to perform its functions, but must not retain the services of:

(a) the ICVC or any director of the ICVC to assist the depositary to perform:

(i) any function of oversight in respect of the ICVC, its directors or any of them; or

(ii) any function of custody or control of the scheme property of the ICVC;

(b) an associate of the ICVC or of any of the directors of the ICVC to assist the depositary to perform any function in (a)(i);

(c) a nominee company or anyone else to assist it to perform the function of being a custodian of documents evidencing title to scheme property of the ICVC unless the arrangements with the custodian prohibit the custodian from releasing the documents into the possession of a third party without the consent of the depositary.

(4) Subject to the provisions of the OEIC Regulations and to (1) where services are retained under (2) the responsibility which the ACD had in respect of such services prior to that retention of services will remain unaffected.

(5) Where a depositary retains services under (3):

(a) if it retains the services of a director of the ICVC, or an associate of such a director or its own associate to assist in the performance of its functions, then its liability in respect of those services shall remain unaffected, and

(b) in any other case it will not be held responsible by virtue of the rules in CIS for any act or omission of the person so retained if it can show:

(i) that it was reasonable for it to obtain assistance to perform the function in question;

(ii) that the person retained was and remained competent to provide assistance in the performance of the function in question; and

(iii) that it had taken reasonable care to ensure that the assistance in question was provided by the person retained in a competent manner.

(6) At any time when CIS 7.2.1 R (5)(The directors) applies, the directors have, in respect of the functions conferred on the ACD in accordance with CIS 7.3.1 R (The ACD), the same rights and responsibilities as for an ACD under this rule.

13/02/2004

Appointments and responsibility for regulatory obligations

CIS 7.6.2

(1) SYSC 3.2 contains guidance relating to delegation, including external delegation. SYSC 3.2.4 G(1) states that a firm cannot contract out of its regulatory obligations, but this does not affect CIS 7.6.1 R(5).

(2) SUP 15.8.6 R requires an ACD of a UCITS scheme to inform the FSA where any of its duties is delegated to another person.

13/02/2004

Conflict of interests

CIS 7.6.3

(1) The ACD, any other director and the depositary, must respectively take all reasonable steps to ensure that a transaction within any of (a) to (f) is not entered into:

(a) the placing of cash forming part of the scheme property in any current, deposit or loan account with an affected person unless the affected person is an eligible institution or an approved bank and the arm's length requirement in (2) is satisfied;

(b) the lending of money by an affected person to, or for the account of, the ICVC, unless the affected person is an eligible institution or an approved bank, and the arm's length requirement in (2) is satisfied;

(c) the sale of, or dealing in, property by an affected person, to, or with, the ICVC (or the depositary for the account of the ICVC), unless (3) applies; and for the purpose of this paragraph (c), a sale includes any lease or other transaction under which movable or immovable property is made available by the ICVC;

(d) the vesting of property (other than cash) by an affected person in the ICVC or the depositary for the account of the ICVC against the issue of shares in the ICVC, unless:

(i) paragraph (3) applies; or

(ii) it is vested for the purpose of arrangements by which the whole or part of the property of a body corporate or a collective investment scheme becomes the first property of the ICVC and the holders of shares or units in the body corporate or collective investment scheme become the first shareholders in the ICVC;

(e) the purchase of scheme property by an affected person from the ICVC (or the depositary acting for the account of the ICVC), unless CIS 4.5.4 R (In specie cancellation) applies, or unless (3) applies. For the purpose of this paragraph (e), a purchase includes any lease or other transaction under which scheme property that is movable or immovable property is made available by the ICVC.

(f) transactions within CIS 5.4 (Stock lending) or CIS 5A.14 (Stock lending) by an affected person with, or in relation to, the ICVC unless the arm's length requirement in (2) is satisfied.

(2) The arm's length requirement is that the arrangements are at least as favourable to the ICVC as would be any comparable arrangement effected on normal commercial terms negotiated at arm's length between the affected person and an independent party.

(3) There is no breach of (1)(c), (d) or (e) if (4) (best execution on-exchange) or (5) (independent valuation) or (6) (arm's length transaction) applies.

(4) There is best execution on-exchange for the purposes of (3) if:

(a) the property is an approved security or an approved derivative;

(b) the transaction is effected under the rules of the relevant exchange with or through a person who is bound by those rules;

(d) the ACD has taken all reasonable steps to effect the transaction or to ensure that it is effected on the terms which are the best available for the ICVC.

(5) There is independent valuation for the purposes of (3) if:

(a) the value of the property is certified in writing for the purpose of the transaction by a person selected or approved by the depositary as:

(i) independent of any affected person; and

(ii) qualified to value property of the relevant kind; and

(b) the depositary is of the opinion that the terms of the transaction are not likely to result in any material prejudice to shareholders.

(6) There is an arm's length transaction for the purposes of (3) if:

(a) paragraph (4)(a) is not satisfied; and

(b) it is not reasonably practicable to obtain an independent valuation under (5); and

(c) the depositary has reliable evidence that the transaction is or will be on terms which satisfy the arm's length requirement in (2).

(7) Paragraphs (1)(a) to (f) are subject to any provision in the instrument of incorporation forbidding the taking of advantage of all or any of them.

01/11/2002

CIS 7.7

AUTs: powers and duties

01/12/2004

Introduction

CIS 7.7.1

(1) The guidance in CIS 7.8.2 G (Valuation and pricing) and the rest of CIS 7 relate to the powers and duties of the manager and the trustee. In addition, both the manager and the trustee have fiduciary duties under the general law relating to trusts, and powers and duties under other chapters of this sourcebook and the trust deed.

(2) Generally, the manager is responsible for managing the AUT: in particular for managing the investments, valuing the scheme property and pricing, selling and redeeming units.

(3) The trustee has duties of oversight and is responsible for the title to investments.

(4) This chapter also contains provisions relating to:

(a) the appointment of the manager or the trustee;

(b) the appointment of an auditor;

(c) transactions where there may be a conflict of interests between the AUT and the manager or the trustee or certain other persons;

(d) the delegation of functions by the manager or the trustee.

01/12/2004

CIS 7.8

The manager

01/12/2004

Management duties

CIS 7.8.1

(1) The manager must manage the AUT in accordance with:

(a) the trust deed;
(b) the rules in this sourcebook; and
(c) the most recently published prospectus.

(2) It is the manager's right and duty, subject to (1), to make decisions as to the constituents of the scheme property in accordance with the investment objectives and policy stated in the prospectus.
(3) The manager must instruct the trustee from time to time in writing how rights attaching to the ownership of the scheme property are to be exercised; but not in any case where, under CIS 7.9.5 R (2) (Exercise of the rights in respect of the scheme property), the trustee has the right to exercise (or not exercise) voting rights after consultation with the manager.
(4) The duty at (1) extends to taking all reasonable steps, and exercising due diligence, to ensure that the units in the AUT are priced in accordance with CIS 4 (for a single-priced AUT) or CIS 15 (for a dual-priced AUT).
(5) The duty at (1) extends to taking action immediately to rectify any breach of CIS 4 or CIS 15 and, where the breach relates to the incorrect pricing of units, or to the late payment in respect of the issue of units, rectification must, unless the trustee otherwise directs, extend to the reimbursement or payment of money:

(a) by the manager to unitholders or to former unitholders;
(b) by the manager to the trustee; or
(c) by the trustee (for the account of the AUT) to the manager;

but rectification need not, unless the trustee otherwise directs, extend to any such reimbursement or payment where it appears to the trustee that the incorrect pricing, or late payment in respect of issue, is of minimal significance.

01/12/2004

Valuation and pricing

CIS 7.8.2

For the purposes of CIS 7.8.1 R(4) and (5), CIS 7 Annex 1 G contains guidance on the valuation and pricing of authorised funds, including:

(1) pricing controls and the valuation of the scheme property;

(2) recording and reporting of incorrect pricing; and

(3) procedures to be adopted following incorrect prices, including action that should be taken to rectify any breach.

01/12/2004

Maintenance of records

CIS 7.8.3

(1) The manager must make and retain accounting and other records that are necessary:

(a) to enable it to comply with the rules in this sourcebook; and

(b) to demonstrate at any time that such compliance has been achieved.

(2) The manager must make and retain for a period of six years a daily record of the units held, acquired or disposed of, by it, including the classes of such units, and of the balance of any acquisitions and disposals.

(3) The manager must make the daily record available for inspection in the United Kingdom by the trustee free of charge at all times during ordinary office hours and must supply the trustee with a copy of the record or any part of it on request free of charge.

(4) Except when the policy of the manager stated in the prospectus is neither to require a dilution levy nor to make a dilution adjustment, it must make and retain for a period of six years from the date each record is made a daily record of:

(a) how it calculates and estimates dilution;

(b) its policy and method for determining the amount of any dilution levy or dilution adjustment.

01/08/2002

Manager to supply information to trustee

CIS 7.8.4

The manager must on the request of the trustee immediately supply it with such information concerning the management and administration of the AUT as the trustee may reasonably require.

01/12/2004

Auditor

CIS 7.8.5

(1) The manager must, at the outset and upon any vacancy, with the approval of the trustee appoint as an auditor for the AUT any person qualified for appointment as auditor of an authorised person.

(2) The audit fees of the auditor are determined by the manager with the approval of the trustee.

(3) The manager may, with the approval of the trustee, at any time, remove an auditor; this power exists notwithstanding anything in any agreement between the persons concerned.

01/12/2004

Tax returns

CIS 7.8.6

The manager must from time to time prepare and supply to the trustee the returns relating to the scheme property required to be submitted by the trustee to HM Revenue and Customs.

21/04/2005
Past version of CIS 7.8.6 before 21/04/2005

CIS 7.9

The trustee

01/12/2004

Oversight by the trustee of the manager

CIS 7.9.1

(1) The trustee must take reasonable care to ensure:

(a) except in relation to CIS 5 or CIS 5A (Investment and borrowing powers), and subject to (4) and (5), that the AUT is managed by the manager in accordance with CIS 7.8.1 R (Management duties); and
(b) in relation to CIS 5 or CIS 5A (Investment and borrowing powers), that decisions about the constituents of the scheme property do not cause an infringement of CIS 5 or CIS 5A as appropriate.

(2) The trustee must take reasonable care to ensure on a continuing basis that:

(a) the manager is adopting procedures and methods which are appropriate to ensure that:

(i) the price of a unit of a single-priced AUT is calculated for each valuation point in accordance with CIS 4; and
(ii) the prices at which units of a dual-priced AUT are sold and redeemed are within the limits for the time being prescribed by CIS 15.4.4 R (Sale price parameters) and CIS 15.4.9 R (Redemption price parameters); and

(b) the manager makes and retains sufficient records to show compliance with CIS 4 or CIS 15 as the case may be.

(3) If the trustee taking reasonable care is at any time not certain of any matter specified in (2), it must inform the FSA.
(4) The trustee:

(a) must take reasonable care to ensure that:

(i) the manager considers whether or not to exercise the power provided by CIS 4.6.3 R (1)(c) and (d) (Dilution levy and SDRT provision) or, for dual-priced AUTs, CIS 15.6.3 R (1)(SDRT provision) and the amount or rate of any SDRT provision that is imposed; and
(ii) in that consideration the manager has, so far as the trustee is aware, taken account of all factors that are material and relevant to the manager's decision; and

(b) subject to (a), has no duty in respect of the manager's exercise of discretion referred to in (a).

(5) The trustee of a single-priced AUT:

(a) must also take reasonable care to ensure that:

(i) the manager considers whether or not to exercise the power provided by CIS 4.6.3 R (1)(a) or (b) (Dilution levy and SDRT provision) or CIS 4.6.4 R (Dilution adjustment) (as the case may be) and, if applicable, the amount or rate of any dilution levy or dilution adjustment that is imposed; and
(ii) in that consideration the manager has, so far as the trustee is aware, taken account of all factors that are material and relevant to the manager's decision; and
(iii) when the manager considers whether or not to exercise the power under CIS 4.6.4 R (Dilution adjustment), the manager has, so far as the trustee is aware, acted in accordance with the restrictions imposed by that rule; and

(b) subject to (a), has no duty in respect of the manager's exercise of discretion referred to in (a).

01/11/2002

Valuation and pricing : for AUTs

CIS 7.9.2

For the purposes of CIS 7.9.1 R(1)(a) and CIS 7.9.1 R(2), CIS 7 Annex 1 G contains guidance on the valuation and pricing of authorised funds, including:

(1) pricing controls and the valuation of the scheme property;

(2) a trustee's review of the manager's controls and systems;

(3) the recording and reporting of incorrect pricing; and

(4) procedures to be adopted following incorrect prices, including action that should be taken to rectify any breach.

01/12/2004

Duty to inform the FSA : for AUTs

CIS 7.9.3

(1) The trustee must inform the FSA immediately upon becoming aware of any circumstance as a result of which there is no longer certainty that:

(a) except in relation to CIS 5 or CIS 5A (Investment and borrowing powers), the AUT is managed by the manager in accordance with CIS 7.8.1 R (1) (Management duties); and

(b) decisions about the constituents of the scheme property do not cause an infringement of CIS 5 or CIS 5A;

unless the trustee has taken reasonable care to determine that the circumstance in question is not, and is not likely to become, materially significant.

(2) If the trustee becomes aware of a circumstance which it needs to investigate in order to ascertain whether its duty to inform under (1) arises, then:

(a) the trustee must inform the FSA of that circumstance immediately after it determines the circumstance is, or is likely to become, materially significant, or if no such determination is made within 90 days of so becoming aware, then the depositary must inform the FSA immediately after the end of the 90 days; or

(b) the FSA need not be notified where the trustee determines the circumstance is not, or is not likely to become, materially significant.

(3) The trustee must not retire voluntarily unless, before its retirement, it has ensured that the new trustee has been informed of any circumstance of which the retiring trustee has informed the FSA in accordance with (1) or (2) or which is being investigated for the purpose of (2).

01/11/2002

Control by the trustee over the scheme property

CIS 7.9.4

(1) The trustee must take all steps and complete all documents which are necessary to secure that transactions for the account of the AUT properly entered into by the manager in accordance with its powers under the rules in this sourcebook are completed.

(2) The trustee must take into its custody or under its control all the capital property of the AUT and hold it in trust for the unitholders in accordance with the rules in this sourcebook and the trust deed.

(3) The trustee is responsible for the collection of any income due to be paid for the account of the AUT and for claiming any repayment of tax, and must hold any income received in trust for the unitholders in accordance with the rules in this sourcebook and the trust deed.

(4) The trustee must make and retain such records as are necessary:

(a) to enable it to comply with the rules in this sourcebook; and

(b) to demonstrate that such compliance by it has been achieved.

01/12/2004

Exercise of the rights in respect of the scheme property

CIS 7.9.5

(1) The trustee must take all steps and execute all such documents as are necessary to secure that instructions properly given to it by the manager as to the exercise of rights (including voting rights) attaching to the ownership of scheme property are carried out.

(2) The trustee may exercise (or not exercise) any right of voting conferred by any of the scheme property which is:

(a) units in any other collective investment scheme managed or otherwise operated by the manager or by an associate of the manager; or

(b) shares in an approved investment trust which form part of the scheme property of a feeder fund managed or otherwise operated by the manager or by an associate of the manager;

but in either case, only after consultation with the manager.

(3) The trustee must, upon the written request of the manager, from time to time execute and deliver or cause to be executed or delivered to the manager or its nominees such powers of attorney or proxies as the manager may reasonably require, in such name or names as the manager may request, authorising such attorneys and proxies to vote, consent or otherwise act in respect of all or any part of the scheme property not included in (2).

(4) The trustee must, without undue delay, forward to the manager all notices of meetings, reports, circulars, proxy solicitations and other documents of a like nature received by it as registered holder of any investment.

(5) In this rule (CIS 7.9.5 R):

(a) "voting" includes giving any consent to or approval of any arrangement, scheme or resolution or any alteration in or abandonment of any rights attaching to any part of the scheme property; and

(b) "right" includes a requisition or joining in a requisition to convene any meeting or a right to give notice of any resolution or to circulate any statement or to consent to any short notice of any meeting.

01/12/2004

CIS 7.10

The manager and the trustee

01/12/2004

Duties of the manager and trustee under the general law

CIS 7.10.1

(1) The duties of the manager and the trustee imposed on them by the rules in this sourcebook and by the trust deed are in addition to, and not in derogation from, the duties which are otherwise imposed on them by law.

(2) The manager and the trustee are required to fulfil those other duties by this rule (CIS 7.10.1 R) as well as by the general law.

(3) The manager and the trustee have, as a result of this rule (CIS 7.10.1 R), all the powers conferred on them by the general law.

(4) Paragraphs (1), (2) and (3) apply only in so far as the duties imposed or powers conferred by the general law are not qualified or restricted by the rules in this sourcebook and by the trust deed.

01/12/2004

Dealings in scheme property

CIS 7.10.2

(1) The manager may give instructions as to the acquisition or disposal of property for the account of the AUT. The authority of the trustee to give those instructions is not required except in the case of the acquisition or disposal of immovable property.

(2) Where the trustee is of the opinion that a particular acquisition or disposal of property for the account of the AUT by the manager exceeds the powers conferred on the manager by the rules in this sourcebook (and in particular CIS 5 or CIS 5A), the trustee may require the manager to cancel the transaction or make a corresponding acquisition or disposal to secure restoration of the previous situation and to meet any resulting loss or expense.

(3) Where the trustee is of the opinion that:

(a) an acquisition of property by the manager necessarily involves documents evidencing title being kept in the custody of a person other than the trustee; and

(b) the trustee cannot reasonably be expected to accept the responsibility which would otherwise be placed upon it if it were to permit custody by such a person;

the manager must (for the account of the AUT) cancel the transaction or make a corresponding disposal if the trustee so requests.

01/11/2002

Duties of the manager and trustee: investment and borrowing powers

CIS 7.10.3

(1) The manager must take all reasonable steps and exercise all due diligence to avoid the scheme property being used or invested contrary to any provision in CIS 5 or CIS 5A (Investment and borrowing powers), except to the extent permitted by (6)(c).

(2) The trustee must take all reasonable steps and exercise due diligence to monitor the management of the scheme property sufficiently to ensure that the manager complies with (1).

(3) The manager must, immediately upon becoming aware of any breach of any provision in CIS 5 or CIS 5A, take action, at its own expense, to rectify that breach, unless the breach occurred as a result of a circumstance of one of the types described in (5) and (6).

(4) When this paragraph (4) applies, as a result of (5) or (6), the manager must take the steps necessary to ensure a restoration of compliance with CIS 5 or CIS 5A as soon as is reasonably practicable having regard to the interests of the unitholders and, in any event, within the period specified in (8) or, when applicable, (9).

(5) Paragraph (4) applies:

(a) where the scheme property is used or invested at any time contrary to any provision of CIS 5 or CIS 5A (other than a provision excusing a failure to comply on a temporary basis); and

(b) the reason for the contravention is beyond the control of both the manager and trustee.

(6)

(i) the subsequent transaction, but for this rule CIS 7.10.3 R, would constitute a breach of CIS 5 or CIS 5A; and

(ii) at the time of the acquisition of the original investment, it was reasonable for the manager, on the assumption that any right attached to the original investment when it was acquired would be exercised, to expect that a breach would not be caused by the subsequent transaction.

(b) In this paragraph (6) reference to the exercise of a right includes the taking effect of a right without any action by or on behalf of the trustee or the manager.

(c) Nothing in CIS 5 or CIS 5A prevents the manager from entering into a transaction of the type described in (a) provided that it has obtained the prior written consent of the trustee.

(7) Immediately upon the trustee becoming aware of any circumstance described in (5) or any breach resulting from the exercise of, or receipt of a benefit from, a right in the circumstance described in (6), it must take the steps necessary to ensure that the manager complies with (4).

(8) The maximum period for restoration of compliance under (4) starts at the date of discovery of the relevant circumstance and lasts, subject to any extension under (9):

(a) except where (b), (c) or (d) applies, for six months;

(b) where the transaction in question was a transaction in derivatives or a forward transaction under CIS 5A.6 (Futures and options schemes) or CIS 5A.7 (Geared futures and options schemes) or CIS 5, until the close of business five business days later;

(c) where the transaction in question was entered into under CIS 5A.13 (Efficient portfolio management), until the close of business five business days later; and

(d) where the AUT is a property scheme and the property in question is an immovable, for two years.

(9) The period specified at (8)(b) and (c) (five business days) is extended:

(a) if the transaction involved a delivery of a commodity, from five to 20 business days;

(b) if the reason for the contravention in (5) is the inability of the manager to close out a transaction because of a limit in the number or value of transactions imposed by an eligible derivatives market, until five business days after:

(i) the inability resulting from any such limit is removed; or

(ii) it becomes, to the knowledge of the manager, reasonably practicable and reasonably prudent for the transaction to be closed out in some other way.

01/11/2002

Delegation

CIS 7.10.4

(1) The manager may delegate any function to any person, including the trustee, provided that:

(a) a mandate in relation to managing investments of the scheme property is not given to:

(i) the trustee;

(ii) any other person whose interests may conflict with those of the manager or the holders; or

(iii) any other person who is not authorised or registered for managing investments and is not subject to prudential supervision (unless there is agreement in place between the FSA and the overseas regulator of the delegate ensuring adequate co-operation);

(b) the manager ensures that at all times it may monitor effectively the relevant activities of any person so retained; and

(i) give further instructions to the person so retained;

(ii) withdraw the mandate with immediate effect when this is in the interests of the holders;

(d) the mandate does not prevent effective supervision of the manager and must not prevent the manager from acting, or the scheme from being managed, in the best interest of the holders.

(2) The trustee must not delegate:

(a) to the manager:

(i) any function of oversight in respect of the manager; or

(ii) any function of custody or control of the scheme property; or

(b) to an associate of the manager, any function in (a)(i).

(3) The trustee must not delegate to anyone the function of being a custodian of documents evidencing title to scheme property unless the arrangements with the custodian prevent the custodian from releasing the documents into the possession of a third party without the consent of the trustee.

(4) Subject to (2) and (3), the trustee may delegate any function to any person including the manager.

(5) Where delegation occurs under (1) the responsibility which the manager had in respect of such delegated services prior to that delegation will remain unaffected.

(6) Where delegation occurs under (4):

(a) if the trustee delegates any function to the manager or to an associate of its own or of the manager, the trustee's liability in respect of the function remains unaffected; and

(b) in any other case the trustee will not be held responsible by virtue of the rules in CIS for any act or omission of the delegate if it can show:

(i) that it was reasonable for a delegate to be employed for the function in question;

(ii) that the delegate was and remained competent to undertake the function in question; and

(iii) that it had taken reasonable care to ensure that the function in question was undertaken by the agent in a competent manner.

13/02/2004

Delegation and responsibility for regulatory obligations

CIS 7.10.5

(1) SYSC 3.2 contains guidance relating to delegation, including external delegation, and SYSC 3.2.4 G (1) states that a firm cannot contract out of its regulatory obligations, but this does not affect CIS 7.10.4 R(6).

(2) SUP 15.8.6 R requires an ACD of a UCITS scheme to inform the FSA where one of its duties is delegated to another person.

13/02/2004

Conflict of interests

CIS 7.10.6

(1) The manager and the trustee must respectively take all reasonable steps to ensure that a transaction within any of (a) to (f) is not entered into:

(a) the placing of cash forming part of the scheme property or standing to the credit of the distribution account in any current, deposit or loan account with an affected person unless the affected person is an eligible institution or an approved bank and the arms length requirement in (2) is satisfied;

(b) the lending of money by an affected person to, or for the account of, the AUT unless the affected person is an eligible institution or an approved bank, and the arm's length requirement in (2) is satisfied;

(c) the sale of, or dealing in, property to, or with, the trustee for the account of the AUT unless (3) applies and, for the purpose of this paragraph (c), a sale includes any lease or other transaction under which movable or immovable scheme property is made available by the trustee;

(d) the vesting of property (other than cash) by an affected person in the trustee against the issue of units in the AUT, unless upon a unitisation or unless (3) applies;

(e) the purchase of scheme property by an affected person from the trustee, acting for the account of the AUT, unless either CIS 4.5.4 R or CIS 15.5.4 R (In specie cancellation) or (3) applies. For the purpose of this paragraph (6), a purchase includes any lease or other transaction under which movable or immovable scheme property is made available by the AUT.

(f) transactions within CIS 5A.14 (Stock lending) or CIS 5.4 in relation to the AUT unless the arm's length requirement in (2) is satisfied.

(2) The arm's length requirement is that the arrangements are at least as favourable to the AUT as would be those of any comparable arrangement effected on normal commercial terms negotiated at arm's length between the affected person and an independent party.

(3) There is no breach of (1)(c), (d) or (e) if (4) (Best execution on exchange) or (5) (Independent valuation) or (6) (Arm's length transaction) applies.

(4) There is best execution on-exchange for the purposes of (3) if:

(a) the property is an approved security or an approved derivative;

(b) the transaction is effected under the rules of the relevant exchange with or through a user who is bound by those rules;

(d) the manager has taken all reasonable steps to effect the transaction or to ensure that it is effected on the terms which are the best available for the AUT.

(5) There is independent valuation for the purposes of (3) if:

(a) the value of the property is certified in writing for the purpose of the transaction by a person selected or approved by the trustee as:

(i) independent of any affected person; and

(ii) qualified to value property of the relevant kind; and

(b) the trustee is of the opinion that the terms of the transaction are not likely to result in any material prejudice to unitholders.

(6) There is an arm's length transaction for the purposes of (3) if:

(a) paragraph (4)(a) is not satisfied; and

(b) it is not reasonably practicable to obtain an independent valuation under (5); and

(c) the trustee has reliable evidence that the transaction is or will be on terms which satisfy the arm's length requirement in (2).

(7) Paragraphs (1)(a) to (f) are subject to any provision in the trust deed forbidding the taking of advantage of all or any of them.

01/11/2002

CIS 7.11

New managers and trustees

01/12/2004

Replacement of a manager

CIS 7.11.1

(1) The manager for the time being is subject to removal by written notice given by the trustee to the manager upon any of the following events:

(a) the manager goes into liquidation (except voluntary liquidation for the purpose of reconstruction or amalgamation upon terms previously approved in writing by the trustee);

(b) a receiver is appointed of the undertaking or any part of it;

(d) for good and sufficient reason the trustee is of the opinion and so states in writing that a change of manager is desirable in the interest of the unitholders;

(e) an extraordinary resolution is passed removing the manager (or to determine that it be removed as soon as this is permitted by law);

(f) unitholders of three quarters in value of the units in existence (excluding units held or treated as held by the manager or by any associate of the manager) make a request in writing to the trustee that the manager should be removed.

(2) On receipt of a notice by the trustee under (1), the manager ceases to be the manager; and the trustee must by deed appoint another person eligible under the Act to be the manager of the AUT upon and subject to that other's entering into such deed or deeds as the trustee may require.

(3) If the name of the AUT contains a reference to the name of the former manager, the former manager is entitled to require the new manager and the trustee immediately on receipt of a notice under (2) to propose a change in the name of the AUT.

01/12/2004

Retirement of a manager

CIS 7.11.2

(1) The manager has the right to retire in favour of another person eligible under the Act and approved in writing by the trustee upon:

(a) the retiring manager appointing that person by deed as manager of the AUT in its place and assigning to that person all its rights and duties as such a manager; and

(b) the new manager entering into such deed or deeds as the trustee reasonably considers necessary or desirable to be entered into by that person in order to secure the due performance of its duties as a manager.

(2) Upon retirement, the retiring manager:

(a) is released from all further obligations under the rules in this sourcebook and under the trust deed. However, this does not affect the rights of the trustee or of any unitholder or any other person in respect of any act or omission on the part of the retiring manager before his retirement; and

(b) may retain any consideration paid to it in connection with the change without having to account for it to any or all of the unitholders.

(3) Upon the retirement of the retiring manager the new manager may exercise all the powers and enjoy all the rights and becomes subject to all the duties and obligations of the manager under the rules in this sourcebook and under the trust deed as if the new manager had originally been a party to the trust deed.

01/12/2004

Consequences of retirement

CIS 7.11.3

(1) Upon the removal or retirement of the manager, the removed or retiring manager:

(a) remains entitled to all units held or treated as held by it;

(b) is to be registered in the register in respect of those units; and

(2) Paragraph (1) is subject to any restriction in the trust deed deriving from CIS 2.2.4 (1)(j) (Limited categories of holder).

01/12/2004

Retirement of the trustee

CIS 7.11.4

(1) The trustee may not retire voluntarily except upon the appointment of a new trustee.

(2) When the trustee wishes to retire or ceases to be an authorised person, the manager may, subject to section 251 of the Act (Alteration of schemes and changes of manager or trustee), by a supplemental trust deed, appoint another person eligible under section 243 of the Act (Authorisation orders) to be the trustee in its place.

01/12/2004

CIS 7 Annex 1

G Valuation and Pricing of authorised funds

01/12/2004

G Valuation and Pricing of authorised funds

This table belongs to CIS 7G

Introduction

Application

(1)

(a)

This Section 1. applies to authorised fund managers and depositaries;

(b)

Section 2. applies to authorised fund managers;

(c)

Section 3. applies to depositaries; and

(d)

Sections 4. and 5. apply to authorised fund managers and depositaries, as indicated.

Explanation

(2)

(a)

This annex provides details of the types of checks and standards of control which an authorised fund manager and the depositary of authorised funds should have in place for the valuation of the scheme property and pricing of units.

(b)

This annex then sets out conditions under which the FSA would not consider it necessary for a pricing error of below a certain amount to result in compensation being payable to an investor.

(c)

This annex relates to CIS 7.3.2 G, CIS 7.4.2 G, CIS 7.8.2 G and CIS 7.9.2 G.

Pricing controls by authorised fund managers

Introduction

(1)

This section details the type of control regime the FSA considers that an authorised fund manager should employ to satisfy its obligations under CIS 7.3.1 R (3)(c) and CIS 7.8.1 R (4).

(2)

Evidence of persistent or repetitive errors, or errors consistently in an authorised fund manager's favour, is likely to make it more difficult for an authorised fund manager to demonstrate it meets the standards in this section.

Method for valuing scheme property

(3)

An authorised fund manager should determine its method for valuing the scheme property and apply it on a consistent basis.

Source of share prices and currency rates

(4)

(a)

Share prices and currency rates used should be up to date and from a reputable source.

(b)

The mere use of a source for prices and rates does not amount to delegation under CIS 7.10.4 R (Delegation) and obtaining assistance under CIS 7.6.1 R (Committees and appointments).

(c)

Although it should not be necessary to carry out significant substantive checking, the reliability of the source of prices and rates should be kept under regular review and doubtful prices or rates should be followed up.

Valuation agents

(5)

(a)

The use of a third party to carry out the valuation function amounts to delegation, in accordance with CIS 7.10.4 R (Delegation) and obtaining assistance under CIS 7.6.1 R (Committees and appointments).

(b)

Where the pricing function is delegated under CIS 7.10.4 R or when assistance is obtained under CIS 7.6.1 R, the authorised fund manager should satisfy itself that the valuation agent's system is robust and will produce accurate results.

(c)

An authorised fund manager should keep the valuation agent's controls and procedures under review. That review should ensure that changes to controls and procedures, including a series of minor changes, do not have a significant adverse effect on the accuracy of the system.

(d)

An authorised fund manager should review the outputs from the system regularly, and on any significant system change.

(e)

In addition, if the valuation agent is also responsible for calculating dealing prices of units, an authorised fund manager should regularly review this system.

Reconciliation

(6)

(a)

Unless the valuation and record keeping systems are integrated, the valuation output should be agreed with an authorised fund manager's records of the authorised fund at each valuation point.

(b)

In addition, an authorised fund manager's records, including debtors and creditors, should be agreed with the depositary's records of stocks and both capital and income cash on a frequency agreed between the authorised fund manager and depositary. Reconciling items need to be followed up promptly, and debtors reviewed for recoverability.

Inclusion of investment transactions in valuations

(7)

(a)

Systems should be in place by which all investment transactions are confirmed as quickly as possible in writing or by electronic means to an authorised fund manager or to a valuation agent.

(b)

It is desirable that all deals to which the authorised fund is committed, which have been notified not less than one hour before a valuation, are included in that valuation, at estimated prices if necessary.

(c)

Unless, however, there is likely to be significant movement in the price of a unit, it is more important that an accurate cut-off procedure is in place to ensure that omissions or duplications do not take place, than it is to ensure that estimates are included in a valuation.

Prices obtained otherwise than from the main pricing source

(8)

(a)

Where prices are obtained otherwise than from the main pricing source (for example unquoted, suspended, or illiquid stocks), an authorised fund manager should maintain a record of the source and basis for the value placed on the investment.

(b)

The methodology, procedure and controls for the valuation of those stocks should be regularly reviewed to ensure that the valuations are fair and reasonable in the circumstances.

Investment and borrowing powers/compliance

(9)

Procedures should be in place to monitor the applicable rules in CIS 5 or CIS 5A and, if breaches occur, to ensure they are rectified in accordance with CIS 7.5.3 R or CIS 7.10.3 R.

Unapproved securities

(10)

To assist with the identification of the level of investment in securities that are not approved securities, the authorised fund manager should notify the depositary of any trade in unapproved securities as soon as reasonably practicable.

Dividends, interest and expenses

(11)

(a)

A system should be in place to ensure that dividends are accounted for as soon as stocks are quoted ex-dividend, unless, as with some foreign stocks, it is prudent to account for them only on receipt.

(b)

Fixed interest dividends and interest should be accrued at each valuation point unless the level of materiality makes a longer interval appropriate.

(c)

Similar considerations apply to the expenses of an authorised fund.

Tax positions relevant to the authorised fund

(12)

(a)

The full tax position should be reviewed regularly, including the basis for the current tax charge, the assumptions being used, and the tax rate applicable.

(b)

Adjustments should be made for substantive changes (for example alterations to the tax profile or likely tax charge) when they occur.

Dual-priced AUTs

(13)

In the case of dual-priced AUTs, the justification for figures included for dealing expenses and commissions included in the price of a unit should be reviewed regularly, separately for different markets of different sectors. Adjustment should be made for substantive changes (for example changes in the rate or basis of stamp duty) as and when they occur.

Valuation limits

(14)

(a)

An authorised fund manager should fix a percentage or absolute limit for certain key elements of the valuation, so that any movement outside these limits is investigated. The investigation and its outcome should be evidenced and retained by the authorised fund manager.

(b)

These key elements could, where relevant, include:

(i)

the movement of the prices and values of individual stocks;

(ii)

changes in currency rates; and

(iii)

accrual figures for income, expenses, and tax.

Prices which appear not to have changed after a fixed period of time should be investigated, since this may be the result of a price movement having been missed.

Cash

(15)

Cash should be reconciled to the bank account regularly, with outstanding items promptly followed up, and a full reconciliation should be sent to the depositary at a frequency agreed with the depositary.

Recording of units in issue

(16)

Controls should be in place to ensure that the correct number of units in issue is recorded at each valuation point. This should be reconciled with the register of unitholders or shareholders at a frequency agreed with the depositary.

Verification by the fund manager of the assets of the authorised fund

(17)

A copy of the valuation used to produce the price of the units should be sent to the fund manager at least weekly, which he should check. When the authorised fund's valuation point is less frequent than weekly, a copy of the valuation used should be sent to the fund manager as soon as practicable after the valuation point.

Pricing checks by depositaries

Introduction

(1)

This section provides details of the types of checks a depositary should carry out to be satisfied that the authorised fund manager adopts controls and systems which are appropriate to ensure that prices of units are calculated in accordance with CIS 4 or CIS 15, and to ensure that the likelihood of incorrect prices will be minimised. These checks also apply where a manager has delegated all or some of its pricing functions to a third party or where an ACD has obtained the assistance of a third party to carry out all or some of its pricing functions.

Review by the depositary of authorised fund manager's controls and systems

(2)

A depositary should thoroughly review an authorised fund manager's controls and systems to confirm that they are satisfactory.

(3)

This review should be carried out:

(a)

at the start of a depositary's appointment, taking into account (where relevant) any relevant report made by the retiring depositary in accordance with CIS 7.4.3 R (3) (Duty to inform the FSA : for ICVCs) and CIS 7.9.3 R (3) (Duty to inform the FSA : for AUTs); and

(b)

thereafter, on a frequency dependent on the risk profile of the authorised fund;

(c)

when major changes are made by an authorised fund manager to its systems; and

(d)

when necessary, to ensure that a series of minor changes do not have a significant adverse effect on the integrity of the systems.

(4)

A review should be carried out more frequently where a depositary knows or suspects that an authorised fund manager's controls and systems are weak or are otherwise unsatisfactory. In particular, the prices of unapproved securities and (where unquoted) the basis for their calculation should be subjected to frequent verification, and an examination of the sources of the prices of those security should be carried out.

(5)

Additionally, a depositary should from time to time review other aspects of the valuation of the scheme property of each authorised fund for which it is responsible, verifying, on a sample basis, if necessary, the assets, liabilities, accruals, units in issue, security prices and any other relevant matters, for example an accumulation factor or a currency conversion factor.

(6)

The depositary's review should include an analysis of the controls in place to determine the extent to which reliance can be placed in them.

(7)

A depositary should ensure that any issues, which are identified in any such review, are properly followed up and resolved.

(8)

Where an authorised fund manager's systems are manual, or have been installed or amended recently and are therefore unproven, the level of checking will need to be increased accordingly. This will also be necessary where a number of instances of incorrect pricing have previously been identified.

Recording and reporting of instances of incorrect pricing

Recording and reporting by the authorised fund manager

(1)

An authorised fund manager should record each instance where the fourth significant figure of a price of a unit is incorrect, and, as soon as the error is discovered, report the fact to the depositary together with details of the action taken, or to be taken, to avoid repetition.

Reporting by the depositary

(2)

In accordance with CIS 7.4.3 R and CIS 7.9.3 R (Duty to inform the FSA), the depositary should report any breach or potential breach of the rules in CIS 4 or CIS 15 immediately to the FSA. This would extend to instances of incorrect pricing of units or late payment. However, notification should relate to instances which the depositary considers material only. Materiality should be determined by taking into account a number of factors, including:

(a)

whether an authorised fund manager has followed the pricing controls set out in Section 2;

(b)

the significance of any breakdown in management controls or other checking procedures;

(c)

the significance of any failure of systems, including situations where inadequate back-up arrangements exist;

(d)

the duration of an error (the longer an error persists, the more likely that it will have a material effect on a price);

(e)

the level of compensation to be paid to holders in an authorised fund; and

(f)

an authorised fund manager's ability (or otherwise) to meet the need for compensation in full.

Factor (a) would tend to decrease materiality whereas the other factors mentioned will tend to increase it.

(3)

A depositary should also report to the FSA immediately any instance of incorrect pricing where the error is greater than 0.5% of the price of a unit, where a depositary believes that reimbursement or payment is inappropriate and should not be paid by an authorised fund manager.

(4)

In accordance with SUP 16.6.13R, a depositary should also make a return to the FSA on a quarterly basis which summarises, by authorised fund manager, the number of instances of incorrect pricing during a particular period. This should include:

(5)

(a)

the number of errors which were greater than 0.5% of the price of a unit; and

(b)

the number of errors which were less than 0.5% of the price of a unit where a depositary did not consider an authorised fund manager's controls and systems to be adequate.

Incorrect pricing of units and reimbursement or payment

Introduction

(1)

(a)

CIS 7.3.1 R (3)(d) and CIS 7.8.1 R (5) place a duty on the authorised fund manager to take action to reimburse affected holders, former holders, and the scheme itself, for certain instances of incorrect pricing or late payment. Paragraph (8) and CIS 7 Annex 1, 2 sets out how money could be paid or reimbursed. This annex does not overrule any legal right to claim compensation.

(b)

However, reimbursement or payment may not be required, if it appears to the depositary that the incorrect pricing is of minimal significance. Paragraphs (4) to (6) outline the conditions which the depositary should take into account in considering whether an instance of incorrect pricing is of minimal significance.

(2)

The word "normally" is used throughout this Section 5 to denote "unless the depositary directs otherwise".

(3)

If a depositary deems it appropriate, it may, in spite of the circumstances outlined in (4), agree to a payment from the authorised fund manager or from the authorised fund to the holders, former holders, the authorised fund or the authorised fund manager (where appropriate), following an instance of incorrect pricing.

Instances where incorrect pricing is normally of minimal significance

(4)

A depositary may consider that the instance of incorrect pricing or late payment is of minimal significance if:

(a)

the authorised fund manager and depositary meet the standards of control set out in Section 2 and Section 3 of this Annex; and

(b)

in the case of incorrect pricing, the error in pricing of a unit is less than 0.5% of the correct price.

Instances where incorrect pricing is not normally of minimal significance

(5)

Any instances of incorrect pricing not covered by (4) will not normally be of minimal significance.

(6)

Where either a single factor or more than one factor causes an incorrect price over a period of time, the incorrect price is normally not of minimal significance:

(a)

if the standards in Sections 2 and 3 are not met, for all days on which there is an incorrect price; or

(b)

otherwise, only on those days where as a result the price is incorrect by 0.5% or more of the price of a unit.

(7)

If a depositary considers that reimbursement or payment is inappropriate, it should report the matter to the FSA, together with its recommendation and justification. The depositary should take into account the need to avoid prejudice to the rights of holders, or the rights of holders in a class of units.

(8)

The summary table sets out the effect of this annex on some circumstances in which incorrect pricing can occur, and how holders, former holders, the authorised fund or the authorised fund manager can be reimbursed or paid.

(9)

It may not be practicable, or even, in some cases, legally permissible for the authorised fund manager to obtain reimbursement from holders, where the holders have benefited from the incorrect price.

(10)

In all cases where reimbursement or payment is normally required, amounts due to be reimbursed to holders for individual sums under £10 will not, normally, need to be paid, although an authorised fund manager may pay such a sum, or may wish to make up smaller amounts to a higher figure (such as the £10 minimum).

Summary table (This table forms part of Section 5, paragraph (8) of this Annex).

GAINS LOSSES

Authorised fund

Authorised fund manager

Incoming holder

Outgoing holder

Authorised fund

Authorised fund manager

Incoming holder

Outgoing holder

DEALINGS BETWEEN AN AUTHORISED FUND AND AUTHORISED FUND MANAGER (WHETHER OR NOT UNITS ARE SOLD OR REDEEMED FROM HOLDERS )

The authorised fund gains in relation to the authorised fund manager
(issue at too high or cancellation at too low a price). If:

(1)

incorrect price by less than 0.5%: normally no action;

(2)

incorrect price by 0.5% or more: the depositary will normally compensate the authorised fund manager from the authorised fund.

The authorised fund loses vis-à-vis the authorised fund manager
(issue at too low or cancellation at too high a price). If:

(1)

incorrect price by less than 0.5%: normally no action;

(2)

incorrect price by 0.5% or more: the depositary will normally direct the authorised fund manager to compensate the authorised fund.

DEALINGS BETWEEN HOLDERS AND THE AUTHORISED FUND MANAGER (WHETHER OR NOT THERE IS AN ISSUE OR CANCELLATION OF UNITS

Incoming holders gain in relation to the authorised fund manager
(New holders buy units at too low a price). If:

(1)

incorrect price by less than 0.5%: no action;

(2)

incorrect price by 0.5% or more: see paragraph (9) of this Section 5.

Incoming holders lose vis-à-vis the authorised fund manager
(New holders buy units at too high a price). If:

(1)

incorrect price by less than 0.5%: normally no action;

(2)

incorrect price by 0.5% or more: the authorised fund manager will normally compensate incoming holders

Outgoing holders gain in relation to an authorised fund manager
(Outgoing holders sell at too high a price). If:

(1)

incorrect price by less than 0.5%: no action;

(2)

incorrect price by 0.5% or more: see paragraph (9) of this Section 5.

Outgoing holders lose in relation to the authorised fund manager
(Outgoing holders sell at too low a price). If:

(1)

Incorrect price by less than 0.5%: normally no action;

(2)

Incorrect price by 0.5% or more: the authorised fund manager will normally compensate outgoing holders.

01/11/2002

Export chapter as

Legal Instruments that change this Chapter Powers

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
Future version of CIS 8.3.4 after 06/04/2006

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.

01/11/2002

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.

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Charges and Expenses

CIS 9

Income

CIS 9.1

Introduction

01/12/2004

Application

CIS 9.1.1

The rules and guidance in this chapter apply in accordance with CIS 9.1.3 R (Table of application).

01/12/2004

Purpose

CIS 9.1.2

This chapter assists in achieving the regulatory objective of protecting consumers, in particular by providing common standards relating to the periodic distribution of income (or, in the case of accumulation shares or accumulation units, the credit of the income to capital), and the calculation of the amount of that income.

01/12/2004

CIS 9.1.3

Table of application

This table belongs to CIS 9.1.1 R

Paragraph or section number

ICVC

ACD

Any other directors of the ICVC

Depositary of the ICVC

Manager

Trustee

9.1

9.2.1R-9.2.2R

9.2.3R(1)-(2)

9.2.3R(3)

9.2.3R(4)-(6)

9.2.4R

9.2.5R(1)

9.2.5R(2)

9.2.5R(3)

9.2.6R

9.2.7G

9.2.8R

9.2.9R(1)

9.2.9R(2)

9.2.10R

9.2.11R

Note: "X" means "applies".

01/12/2004

CIS 9.2

Requirements

01/12/2004

Accounting period

CIS 9.2.1

(1) An authorised fund must have an annual accounting period and a half-yearly accounting period, in accordance with (3) to (7).

(2) An authorised fund must also have an accounting reference date.

(3) The first annual accounting period must begin:

(a) where the authorised fund makes an initial offer, on the first day of the period of the initial offer; or

(b) in any other case, on the date on which an authorisation order for the authorised fund comes into effect;

and each subsequent period must begin immediately after the end of the one before.

(4) Each annual accounting period must end either at the end of the day determined under (5) or, if the authorised fund manager so decides, at the valuation point last preceding the end of that day.

(5) The day for the end of the annual accounting period referred to in (4) is:

(a) the next accounting reference date after the beginning of the period in question; or

(b) the next but one accounting reference date if:

(i) that period is the first period, or a period in the course of which a change in the accounting reference date takes place;

(ii) the next accounting reference date is less than six months after the beginning of the period; and

(iii) the authorised fund manager so determines after consulting the auditor.

(6) A half-yearly accounting period is a period beginning with the first day of an annual accounting period and ending on the day which is:

(a) six months before the next accounting reference date; or

(b) if the next accounting reference date is less than six months after that first day, six months before the next accounting reference date but one after that first day.

(7) If the authorised fund manager notifies the depositary that a particular annual accounting period or half-yearly accounting period is to end on a specified day, which is not more than seven days after, and not more than seven days before, the day on which the period would otherwise end under (4), (5) and (6), that notice is to have effect provided it was given before the day on which the period would otherwise end.

01/12/2004

Annual income allocation date

CIS 9.2.2

(1) An authorised fund must have an annual income allocation date, which is the date in any year stated in the most recently published prospectus as the date on or before which, in respect of each annual accounting period, an allocation of income is to be made.

(2) The annual income allocation date must be a date within four calendar months after the relevant accounting reference date.

01/12/2004

Annual allocation of income

CIS 9.2.3

(1) As at the end of each annual accounting period:

(a) in the case of an ICVC, the directors must arrange for the depositary to transfer;

(b) in the case of an AUT the trustee must transfer;

the income property of the authorised fund to the distribution account.

(2) In the case of an ICVC, the directors, and in the case of an AUT, the trustee (after consulting the manager), need not comply with (1) if it appears to them, or it, that the average of the allocations of income to the holders (disregarding holders of bearer certificates and holders who are the authorised fund manager or the depositary or associates of either of them) would be less than £10 (or the equivalent amount in the base currency).

(3) Any income that, under (2), is not transferred to the distribution account must either:

(a) be carried forward to the next accounting period and be regarded as received at the start of that period; or

(b) be credited to capital, as determined by, in the case of an ICVC, its directors, or, in the case of an AUT, the manager.

(4) On or before each annual income allocation date the authorised fund manager must calculate the amount available for income allocation for the immediately preceding annual accounting period and must inform the depositary of that amount.

(5) The amount available for income allocations is calculated by:

(a) taking the aggregate of the income property received or receivable for the account of the authorised fund in respect of the period;

(b) for an ICVC:

(i) deducting the charges and expenses of the ICVC paid or payable out of income property in respect of the period; and

(ii) adding the ACD's best estimate of any relief from tax on those charges and expenses;

(i) deducting the aggregate of the manager's and trustee's remuneration and other payments properly paid or payable out of the income account in accordance with CIS 8.5.7 R (Allocation of payments to capital or income - for AUTs) in respect of the period; and

(ii) adding the manager's best estimate of any relief from tax on that remuneration and those other payments;

(d) making such other adjustments as the authorised fund manager considers appropriate (in the case of (i) and (ii) below, after consulting the auditors) in relation to:

(i) taxation;

(ii) the proportion of the prices received or paid for units that is related to income (taking account of any provisions in the instrument constituting the scheme relating to income equalisation);

(iii) potential income which is unlikely to be received until 12 months after the income allocation date;

(iv) income which should not be accounted for on an accrual basis because of lack of information about how it accrues;

(v) any transfer between income and capital account under CIS 8.3.5 R (Allocation payments to capital or income - for ICVCs) or CIS 8.5.7 R (Allocation of payments to capital or to income - for AUTs); and

(e) making any other adjustments (including, in the case of an ICVC, for amortisation under CIS 8.3.4 R (Set-up costs) or any reimbursement of set-up costs that the authorised fund manager considers appropriate after consulting the auditors.

(6) On or before the annual income allocation date, the authorised fund manager must allocate the available income to the units of each class in issue taking account of the provisions of CIS 9.2.4 R and CIS 9.2.5 R, and:

(a) for an ICVC, the provisions of its instrument of incorporation relating to the proportion of available income attributable to each class;

(b) for an AUT with both income and accumulation units in issue, the number of undivided shares represented by units of each class in accordance with CIS 2.6.1 R (Units and classes of units in AUTs).

01/12/2004

Annual allocation to accumulation shares or accumulation units

CIS 9.2.4

(1) The amount of income allocated to accumulation shares or accumulation units, with effect from the end of the annual accounting period, becomes part of the capital property and, if shares or units of any other class were in issue during that period, the interests of the holders of accumulation shares or accumulation units in that amount must be satisfied by an adjustment, as at the end of the period:

(a) for an ICVC, in the proportion of the value of the scheme property to which the price of an accumulation share of the relevant class is related;
(b) for an AUT, in the number of undivided shares in the scheme property which an accumulation unit represents.

(2) The adjustment under (1) must be such as will ensure that the price (for a dual-priced AUT, the issue price) of an accumulation share or accumulation unit (in the case of an ICVC, of the relevant class) remains unchanged despite the transfer of income to the capital property.

01/12/2004

Annual distribution to holders of income shares or income units

CIS 9.2.5

(1) Where the shares in issue in an ICVC are, or include, income shares, on or before each annual income allocation date, the ACD must give the depositary timely instructions sufficient to enable the depositary to distribute the income allocated to income shares among their holders and the ACD in proportion to the number of such shares held, or treated as held, by them respectively at the end of the relevant annual accounting period. The depositary must pay the distribution in accordance with the instructions.

(2) Where the units in issue of an AUT are, or include, income units, on or before each annual income allocation date, the trustee must distribute the income allocated to income units amongst their holders and the manager in proportion to the numbers of such units held, or treated as held, by them respectively at the end of the relevant annual accounting period.

(3) In calculating the amount to be distributed under (1) or (2), the ACD under (1), or the trustee under (2), must:

(a) deduct any amounts previously allocated by way of interim allocation of income for that annual accounting period; and

(b) deduct and carry forward in the income account such amount as is necessary to adjust that allocation of income to the nearest one-hundredth of a penny (or the equivalent amount in the base currency) per income share or income unit, or such lesser fraction as the directors of the ICVC, or the manager of the AUT, may determine.

01/12/2004

Interim allocations of income

CIS 9.2.6

(1) This rule (CIS 9.2.6 R) applies if at any time the most recently published prospectus:

(a) states that an allocation of income will be made before the annual income allocation date in any year in respect of an interim accounting period within the annual accounting period; and

(b) specifies a date as the interim income allocation date in relation to that interim accounting period.

(2) When (1) applies, CIS 9.2.3 R to CIS 9.2.5 R apply so as to secure the making of an interim allocation of income as if:

(a) the interim accounting period in question and all previous interim accounting periods in the same annual accounting period, taken together, were the annual accounting period;

(b) the interim income allocation date were the annual income allocation date; and

(c) in the case of an ICVC, the directors, and in the case of an AUT, the manager, were to treat as the available amount of income for the interim allocation a sum which may be less than, but does not exceed, the amount which, in the opinion of the ACD or the manager, would be available for allocation of income if the interim accounting period and all previous interim accounting periods in the same annual accounting period, taken together, were an annual accounting period.

01/12/2004

Income equalisation

CIS 9.2.7

The instrument constituting the scheme may provide that an allocation of income (whether annual or interim) be made in respect of each unit issued or sold during the accounting period in respect of which that income allocation is made, and may include income equalisation. An allocation of income should not include income equalisation except in accordance with any such provision.

01/12/2004

Tax certificates

CIS 9.2.8

The authorised fund manager must ensure that tax certificates for the income available for allocation are sent or given in accordance with the requirements for the time being of HM Revenue and Customs, but in any event not less than once for every annual accounting period.

21/04/2005
Past version of CIS 9.2.8 before 21/04/2005

Unclaimed distributions

CIS 9.2.9

Any distribution payment that remains unclaimed must:

(1) for an ICVC, not be forfeited and revert to the ICVC, except in accordance with a provision of the instrument of incorporation for forfeiture and reversion to the ICVC of a distribution unclaimed during the period of six years (or such longer period as may be stated in the provision) after the distribution became due for payment; or

(2) for an AUT, after a period of six years from the date of payment, be transferred to and become part of the capital property and thenceforth neither the payee nor the holder nor any successor in title to it will have any right except as part of the capital property.

01/12/2004

Payment of distributions to joint holders (AUTs only)

CIS 9.2.10

Distributions made to the first named joint holder on the register will be as effective a discharge to the trustee and manager as if the first named joint holder had been a sole holder.

01/12/2004

Income derived from stock lending (AUTs only)

CIS 9.2.11

(1) Where the scheme property of an AUT is used in stock lending transactions under CIS 5.4 or CIS 5A.14, any income derived from the transaction must form part of the scheme property, after deduction of:

(a) any income payable, immediately or otherwise, to the counterparty or for his account according to the transaction; and

(b) any reasonable expenses of the trustee or manager (or reasonable charges of any custodian) associated with the transaction.

01/11/2002

Export chapter as

Legal Instruments that change this Chapter Income

CIS 10

Report and Accounts

CIS 10.1

Introduction

01/12/2004

Application

CIS 10.1.1

This section applies to authorised fund managers, depositaries, directors of an ICVC and auditors.

01/12/2004

Application : guidance

CIS 10.1.2

The persons to whom each 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.

01/12/2004

Purpose

CIS 10.1.3

In line with Principle 7 (Communication with clients), this chapter requires directors of ICVCs and managers of AUTs to prepare annual and half-yearly reports to holders and prospective holders, containing up-to-date and good quality information on the progress of the authorised fund's investments, their costs, expenses and other related financial information.

01/12/2004

Contents of this chapter

CIS 10.1.4

(1) This chapter covers the contents of reports on authorised funds, including the annual reports of the depositary and of the auditor, and builds upon the requirements in CIS 9 (Income), which provides how the annual accounting periods and half-yearly accounting periods are to be determined.

(2) This chapter requires the accounts contained in the annual and half-yearly reports to comply with the IMA SORP.

(3) Finally, this chapter permits, in specified circumstances, the accounts contained in an annual or half-yearly report to be in a short form. However, this does not discharge the directors of an ICVC or the manager from preparing reports with full accounts.

01/02/2004

CIS 10.2

Preparation of annual and half-yearly reports

01/12/2004

Preparation by the manager of an AUT of annual and half-yearly reports

CIS 10.2.1

(1) This rule (CIS 10.2.1 R) applies to a manager of an AUT.

(2) The manager must, in relation to each annual accounting period and half-yearly accounting period, prepare a report in respect of the period concerned.

(3) Where an AUT's first annual accounting period is a period of less than 12 months, a half-yearly report need not be prepared for any part of that period.

01/12/2004

Preparation by the directors of an ICVC of annual and half-yearly reports

CIS 10.2.2

(1) This guidance (CIS 10.2.2 G) applies to the directors of an ICVC.

(2) Requirements for the preparation of annual and half-yearly reports are contained in the OEIC regulations. Those regulations make the directors of an ICVC responsible for the preparation of annual and half-yearly reports on the ICVC (see regulation 66 (Reports: preparation)). A half-yearly report need not be prepared where an ICVC's first annual accounting period is less than 12 months.

(3) The OEIC regulations (regulation 66 Reports: preparation), regulation 67 (Reports: accounts) and regulation 68 (Reports: voluntary revision) also contain a number of other requirements relating to reports and accounts of an ICVC. These include, for example, requirements that:

(a) the directors must lay copies of the annual report before the ICVC in general meeting; and

(b) every annual report is to contain accounts of the ICVC and a report by the auditor to the ICVC's shareholders.

01/12/2004

CIS 10.3

Contents of annual and half-yearly reports

01/12/2004

Application

CIS 10.3.1

This section (CIS 10.3) applies to the directors of an ICVC (for a report on an ICVC) and to the manager (for a report on an AUT), except CIS 10.3.7 R (Duty of the ACD), which applies only to the ACD.

01/12/2004

Explanation

CIS 10.3.2

This section sets out the contents of each annual and half-yearly report. It sets the scene for CIS 10.4 (Information to be included in annual and half-yearly reports). That section outlines some more detailed information, which must be included in reports on authorised funds. In particular, it distinguishes between requirements to be included in reports on umbrella schemes and reports on other types of authorised funds.

01/11/2002

Annual reports

CIS 10.3.3

(1) An annual report on an authorised fund other than an umbrella scheme must contain:

(a) full accounts for the annual accounting period which must, subject to the rules in this chapter, include all the matters required to be included in them by the IMA SORP. Accordingly, references to those accounts (and to short form accounts mentioned in CIS 10.3.6 R) are not to be construed to relate only to the balance sheet and the statement of total return;

(b) the information required to comply with CIS 10.4.2 R and CIS 10.4.5 R (Comparative table);

(c) (for an annual report on an ICVC) the report of the depositary referred to in CIS 10.4.6 R (Report of the depositary of an ICVC) or (for an annual report on an AUT) the report of the trustee referred to in CIS 10.4.7 R (Report of the trustee of an AUT); and

(d) the report of the auditor referred to in CIS 10.4.8 R (Report of the auditor).

(2) An annual report on an umbrella scheme must contain:

(a) reports relating to each of its sub-funds which must, so far as practicable, contain the accounts and the information that would be required by (1)(a) and (1)(b) if each sub-fund were a separate authorised fund;

(b) an aggregation of the accounts required by (a); and

(i) the information referred to in (1)(b);

(ii) (for an annual report on an ICVC) the report of the depositary referred to in CIS 10.4.6 R (Report of the depositary of an ICVC) or (for an annual report on an AUT) the report of the trustee referred to in CIS 10.4.7 R (Report of the trustee of an AUT); and

(iii) the report of the auditor referred to in CIS 10.4.8 R (Report of the auditor).

(3) An annual report relating to a sub-fund which is not part of a report under (2) must contain:

(a) so far as practicable, the accounts and the information that would be required by (1)(a) and (1)(b) if the sub-fund were a separate authorised fund;

(b) the copy report relating to the umbrella scheme referred to in (2)(c)(ii); and

(4) The directors of an ICVC or the manager of an AUT must ensure that the accounts referred to in (1)(a), (2)(a) and (3)(a) give a true and fair view of the net income and the net gains or losses on the scheme property of the authorised fund or, in the case of (2)(a) and (3)(a), sub-fund, for the annual accounting period in question and the financial position of the authorised fund or sub-fund as at the end of that period.

01/02/2004

Half-yearly reports

CIS 10.3.4

(1) A half yearly report on an authorised fund, other than an umbrella scheme must contain:

(a) full accounts for the half-yearly accounting period which must, subject to the rules in this chapter, consist of the matters required by the IMA SORP; and

(b) the information required to comply with CIS 10.4.2 R;

(2) A half yearly report on an umbrella scheme must contain:

(a) reports relating to each of its sub-funds which must, so far as practicable, contain the accounts and information that would be required by (1) if each sub-fund were a separate authorised fund; and

(b) an aggregation of the accounts required by (a) and, except as contained in a report relating to a sub-fund in accordance with (a), the information required to comply with CIS 10.4.2 R.

(3) A half-yearly report relating to a sub-fund which is not part of a report under (2) must contain so far as practicable the accounts and information that would be required by (1) if the sub-fund were a separate authorised fund.

01/02/2004

Signing of reports

CIS 10.3.5

(1) Each report on an ICVC (other than a report prepared under CIS 10.3.3 R (2)(a) and CIS 10.3.4 R (2)(a)) must be signed by the ACD, or, if there is more than one director of the ICVC, must, following approval of the report by the board of directors, be signed on behalf of the board of directors of the ICVC by the ACD and at least one other director.

(2) Each report on an AUT (other than a report prepared in accordance with CIS 10.3.3 R (2)(a) or CIS 10.3.4 R (2)(a)) must be signed by two directors of the manager or, if the manager has only one director, by that director.

01/12/2004

Short form accounts in reports

CIS 10.3.6

(1) If the directors of an ICVC or the manager of an AUT so determine, the accounts contained in a report sent or supplied to each holder in accordance with CIS 10.5.2 R (2)and (3) may be short form accounts except to the extent that, in respect of any particular accounting period, a holder (or for joint holders, the first named) has requested that a report containing the full accounts of the authorised fund or umbrella scheme be sent or supplied to him.

(2) An annual report that contains short form accounts in accordance with (1) must contain:

(a) the statement and any report required under CIS 10.4.4 R (Report of the directors or report of the manager: short form accounts); and

(b) the auditor's statement required under CIS 10.4.9 R instead of the report of the auditor referred to in CIS 10.4.8 R, unless the latter is qualified, in which case the annual report must contain both.

(3) Short-form accounts must comply with the relevant requirements of the IMA SORP.

(4) Accounts to be included in a report to be published or offered in accordance with CIS 10.5.2 R (Publication of reports), CIS 10.5.3 R (Reports to be offered to purchasers of units) or CIS 10.5.4 R (Publication of availability of reports and prospectus) may only be short form accounts to the extent permitted by (1), (2) and (3).

01/02/2004

Duty of the ACD

CIS 10.3.7

The ACD must ensure that each annual and half-yearly report (including any accounts to be contained in it) complies with CIS 10.3.3 R (Annual reports), CIS 10.3.4 R (Half yearly reports), CIS 10.3.5 R (Signing of reports) and (where applicable) with CIS 10.3.6 R (Short form accounts in reports).

01/12/2004

CIS 10.4

Information to be included in annual and half-yearly reports

01/12/2004

Application

CIS 10.4.1

This section (CIS 10.4) applies to the directors of an ICVC (for a report on an ICVC) or to the manager (for report on an AUT), except:

(1) CIS 10.4.6 R (Report of the depositary of an ICVC) which applies only to the depositary of an ICVC;

(2) CIS 10.4.7 R (Report of the trustee of an AUT) which applies only to the trustee of an AUT; and

(3) CIS 10.4.8 R (Report of the auditor) and CIS 10.4.9 R (Auditor's statement relating to short form accounts) which apply to the auditors of the authorised fund, appointed in accordance with paragraph (4) of Schedule 5 of the OEIC regulations (for an ICVC) or appointed under CIS 7.8.5 R (for an AUT).

01/12/2004

Report of the directors of an ICVC or report of the manager of an AUT

CIS 10.4.2

The matters set out in (1) - (16) must be included in each report of the directors (for a report on an ICVC) and in each report of the manager (for a report on an AUT), except where otherwise indicated:

(1) the names and addresses of :

(a) the authorised fund manager;

(b) the depositary;

(d) any investment adviser;

(e) the auditor; and

(f) for a property scheme, the standing independent valuer;

(2) (for a report of the directors), the names of any directors other than the ACD;

(3) a statement that :

(a) (for a report of the manager) the AUT is an authorised unit trust scheme under section 243 of the Act (Authorisation orders); or

(b) (for a report of the directors) the ICVC is an investment company with variable capital under regulation 12 (Authorisation) of the OEIC regulations;

(4) (for a report of the directors) a statement that the shareholders of the ICVC are not liable for the debts of the ICVC;

(5) a statement as to which of the types of authorised fund in CIS 2.1.4 R (Constitution) the authorised fund belongs;

(6) the investment objectives of the authorised fund;

(7) the ICVC's (for a report of the directors) or manager's (for a report of the manager) policy for achieving those objectives;

(8) a review of the ICVC's (for a report of the directors) or manager's (for a report of the manager) investment activities during the period to which the report relates;

(9) where the directors of an ICVC or the manager of an AUT have determined that the accounts contained in the report should be short form accounts, a statement that a report containing the full accounts is available on request;

(10) particulars of any significant change in the prospectus made since the date of the last report;

(11) particulars of any significant change in the instrument constituting the scheme made since the date of the last report;

(12) a statement of any sub-division or consolidation of units which has been effected during the period to which the report relates (but, for an ICVC, other than any as between smaller and larger denomination shares effected under CIS 2.5.2 G (Characteristics of larger and smaller denomination shares));

(13) any other significant information which would enable holders to make an informed judgement on the development of the activities of the authorised fund during this period and the results of those activities as at the end of that period;

(14) for a report of the directors included in a report on an umbrella scheme (prepared in accordance with CIS 10.3.3 R (2) or CIS 10.3.4 R (2)), a statement to the effect that, as a sub-fund is not a legal entity, if the assets attributable to any sub-fund were insufficient to meet the liabilities attributable to it, the shortfall might have to be met out of the assets attributable to one or more other sub-funds of the ICVC; and

(15) for a report on a sub-fund, prepared in accordance with CIS 10.3.3 R (3) or CIS 10.3.4 R (3), which is not part of a report on the umbrella scheme of which the sub-fund is part:

(a) a statement whether the auditor's report on the annual accounts of the umbrella scheme for the period in question was unqualified or qualified and, if it was qualified, that report in full together with any further material needed to understand the qualification;

(b) a statement that a report relating to the umbrella scheme as a whole is available from the authorised fund manager on request; and

(c) a statement equivalent to that required by (14) making it clear that the shortfall, or part of it, might have to be met out of the sub-fund to which the report relates.

(16) In the case of a UCITS scheme which invests a substantial proportion of its assets in other collective investment schemes, a statement as to the maximum proportion of management fees charged to the scheme itself and to other collective investment schemes in which that scheme invests.

01/11/2002

Report of the directors or report of the manager: umbrella schemes

CIS 10.4.3

For a report on an umbrella scheme prepared in accordance with CIS 10.3.3 R (2) or CIS 10.3.4 R (2):

(1) the information required by CIS 10.4.2 R (1) to CIS 10.4.2 R (13) must be given in respect of each sub-fund if it would vary from that given in respect of the umbrella scheme as a whole; and

(2) CIS 10.4.2 R (5) applies as if it required a statement in respect of each sub-fund that it has investment powers equivalent to those of an authorised fund of a stated type under CIS 2.1.4 R (Constitution).

01/11/2002

Report of the directors or report of the manager: short form accounts

CIS 10.4.4

A report of the directors of an ICVC or a report of the manager of an AUT containing short form accounts for any annual accounting period must:

(1) state whether the report of the auditor on the full accounts was unqualified or qualified and, if it was qualified, contain a copy of that report in full together with any further material needed to understand the qualification; and

(2) state whether the report of the auditor contained a statement under (3), (4) or (5) of CIS 10.4.8 R and, if so, set out the statement or statements in full.

01/12/2004

Comparative table

CIS 10.4.5

Each report of the directors of an ICVC or each report of the manager of an AUT must contain a comparative table which must set out:

(1) a performance record over the last five calendar years, or if the authorised fund has not been in existence during the whole of that period, over the whole period in which it has been in existence, showing:

(a) the highest and the lowest price (or, for dual-priced AUTs, the highest sale price and lowest redemption price) of a unit of each class in issue during each of those years; and
(b) the net income distributed (or, for accumulation units, allocated) for a unit of each class in issue during each of those years, taking account of any sub-division or consolidation of units that occurred during that period;

(2) as at the end of each of the last three annual accounting periods (or all of the authorised fund's annual accounting periods, if less than three):

(a) the total net asset value of the scheme property at the end of each of those years;
(b) the net asset value per unit of each class; and
(c)

(i) (for a report of the directors) the number of units of each class in issue; or
(ii) (for a report of the manager) the number of units of each class in existence or treated as in existence;

(3) if, in the period covered by the table:

(a) the authorised fund has been the subject of any event (such as a scheme of arrangement) having a material effect on the size of the authorised fund, but excluding any issue or cancellation of units for cash; or
(b) there have been changes in the investment objectives of the authorised fund;

an indication, related in the body of the table to the relevant year in the table, of the date of the event or change in the investment objectives and a brief description of its nature; and
(4) for an umbrella scheme, the information required by (1) to (3) for each sub-fund of the umbrella scheme, instead of the information for the umbrella scheme as a whole.

01/12/2004

Report of the depositary of an ICVC

CIS 10.4.6

(1) The depositary must make an annual report to shareholders which must be delivered to the directors in good time to enable its inclusion in the annual report.

(2) That report must contain:

(a) a description, which may be in summary form, of the duties of the depositary under CIS 7.4.1 R (General duties of the depositary) and in respect of the safekeeping of the scheme property;

(b) a statement whether, in any material respect,:

(i) the issue, sale, redemption and cancellation, and calculation of the price of the ICVC's shares and the application of the ICVC's income, have not been carried out in accordance with the rules in this sourcebook and, where applicable, the OEIC regulations and the instrument of incorporation of the ICVC;

(ii) the investment and borrowing powers and restrictions applicable to the ICVC have been exceeded.

01/12/2004

Report of the trustee of an AUT

CIS 10.4.7

(1) The trustee must enquire into the conduct of the manager in the management of the AUT in each annual accounting period and must report on that conduct to the unitholders. That report must be delivered to the manager in good time to enable its inclusion in the annual report.

(2) The report of the trustee must state whether in the trustee's opinion the manager has managed the AUT in that period:

(a) in accordance with the investment and borrowing powers and restrictions applicable to the AUT; and

(b) otherwise in accordance with the provisions of the trust deed and the rules in this sourcebook.

(3) If the manager has not done so, the trustee's report must describe any material failures and the steps which the trustee has taken as a result of those failures.

01/12/2004

Report of the auditor

CIS 10.4.8

The report of the auditor to the holders on the accounts of the authorised fund, or on the aggregated accounts of the umbrella scheme (or for a report prepared for the purposes of CIS 10.3.3 R (3), on the accounts of the sub-fund) must state:

(1) whether, in the auditor's opinion, the accounts have been properly prepared in accordance with the IMA SORP, the rules in this sourcebook, and the instrument constituting the scheme;

(2) whether, in the auditor's opinion the accounts give a true and fair view of the net income and the net gains or losses on the scheme property of the authorised fund (or, as the case may be the scheme property attributable to the sub-fund) for the annual accounting period in question and the financial position of the authorised fund or sub-fund as at the end of that period;

(3) if the auditor is of the opinion that proper accounting records for the authorised fund (or, as the case may be, sub-fund) have not been kept or that the accounts are not in agreement with those records, that fact;

(4) if the auditor has not been given all the information and explanations which, to the best of his knowledge and belief, are necessary for the purposes of his audit, that fact; and

(5) if the auditor is of the opinion that the information given in the report of the directors or in the report of the manager for that period is inconsistent with the accounts, that fact.

01/02/2004

Auditor's statement relating to short form accounts

CIS 10.4.9

In relation to short form accounts for any annual accounting period, the auditor must state whether, in the auditor's opinion, the short-form accounts are:

(1) consistent with the full accounts;

(2) prepared in accordance with:

(a) the IMA SORP so far as it relates to short-form accounts; and

(b) the rules in this sourcebook and the instrument constituting the scheme.

01/12/2004
Past version of CIS 10.4.9 before 01/12/2004

CIS 10.5

Publication and availability of annual and half-yearly reports

01/12/2004

Application

CIS 10.5.1

(1) CIS 10.5.2 R (1), (2), (4) - (6) and CIS 10.5.3 R - CIS 10.5.4 R apply to an authorised fund manager; and

(2) CIS 10.5.2 R (3) applies to the directors of an ICVC (for an ICVC) or to the manager (for an AUT).

01/12/2004

Publication of reports

CIS 10.5.2

(1) The authorised fund manager must, within four months after the end of each annual accounting period and within two months after the end of each half-yearly accounting period respectively, publish the annual report and half-yearly report in accordance with (2) and (4).

(2)

(a) The authorised fund manager must, subject to (2A) and (3) provide free of charge:

(i) a copy of each annual report and each half-yearly report to each holder (or to the first named of joint holders) entered in or entitled to be entered in the register at the close of business on the last day of the relevant accounting period or half-yearly accounting period; and

(ii) a copy of the report to each holder of bearer units at his request.

(b) A report relating to an umbrella scheme to be provided under (a)(i) or (ii) need not contain an aggregation of the accounts relating to each sub-fund, but such information must be sent, free of charge, to any holder who requests it.

(2)A

(a) Notwithstanding (2), the authorised fund manager may comply with COLL 4.5.13 (Provision of short report) instead of (2), provided that any short report prepared by the authorised fund manager for this purpose;

(i) meets the requirements of COLL 4.5.3 (1) and (2) (Preparation of long and short reports); and

(ii) contains the information required by COLL 4.5.5 (Contents of a short report).

(b) In preparing a short report for the purposes of (1), the authorised fund manager should construe references to a long report in COLL 4.5.5 (1)(f) and (5) and in COLL 4.5.13 (3) as the annual report referred to in CIS 10.3.3 R (Annual reports) or, as the case may be, the half-yearly report in CIS 10.3.4 R (Half-yearly reports).

(3) For an umbrella scheme, if the directors of the ICVC or manager so determine for any accounting period, the reports provided to holders in accordance with (2) may be the reports complying with CIS 10.3.3 R (3) or CIS 10.3.4 R (3) (as the case may be) relating to the respective sub-fund to which their unitholdings relate. However, if requested to do so by any holder in respect of any particular accounting period, the authorised fund manager must provide to that holder (or, for joint holders, the first named), a report complying with CIS 10.3.3 R (2) or CIS 10.3.4 R (2) (as the case may be).

(4) The authorised fund manager must make available the most recent annual report (and, if more recent, the most recent half-yearly report) on the authorised fund in English prepared under CIS 10.3.3 R (Annual reports) and CIS 10.3.4 R (Half-yearly reports) for inspection by the public free of charge during ordinary office hours at a place specified for the purpose in the most recently published prospectus.

(5) The authorised fund manager must also make the reports referred to in (4) available for the same purpose at a place designated by it in each EEA State other than the United Kingdom in which it markets units in the authorised fund, in English and in at least one of that other EEA State's official languages.

(6) The authorised fund manager must provide a copy of each annual report and half-yearly report, any report sent or supplied in accordance with (3) and any report containing short form accounts on publication to the FSA.

01/04/2004

CIS 10.5.2A

COLL 4.5.6 G which provides guidance on sufficient and significant information which should be contained in short reports, applies in relation to short reports prepared for the purposes of CIS 10.5.2 R(2A). References in that guidance to a fundamental change should be regarded as a change requiring unitholder approval by meeting during the period. Similarly, references to a significant change should be regarded as a change in respect of which prior written notice of the change should be given to unitholders by the authorised fund manager.

01/04/2004

Reports to be made available

CIS 10.5.3

A copy of the most recent annual report of the authorised fund and (if more recent) the most recent half-yearly report on the authorised fund must be sent to any person, free of charge, on request.

13/02/2004

Publication of availability of reports and prospectus

CIS 10.5.4

(1) The authorised fund manager must, with every publication of prices in a UK newspaper under CIS 4.4.8 R (Publications of prices) or CIS 15.4.14 R (Publications of prices), publish a statement that a copy of the most recent annual report or half-yearly report and prospectus is available free of charge to anyone who requests the ICVC or the authorised fund manager for it.

(2) It will be sufficient compliance with (1) if one of the pages in which the authorised fund manager publishes prices in the newspaper carries the statement there required in relation to all, or any relevant category of, the collective investment schemes referred to in those pages.

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Report and Accounts

CIS 11

Meetings of holders, amendments to the scheme and service of notices

CIS 11.1

Introduction

01/12/2004

CIS 11.1.1

The rules and guidance in this chapter apply in accordance with CIS 11.1.4 R (Table of application).

01/12/2004

Purpose

CIS 11.1.2

This chapter helps in achieving the regulatory objective of protecting consumers as envisaged by section 2 and 5 of the Act, by:

(1) setting out specific conditions for meetings of holders, in particular about convening of meetings, attendance, voting rights and quorums;

(2) giving holders a right to convene a meeting in certain circumstances; and

(3) providing conditions which must be satisfied if the instrument constituting the scheme is to be amended.

01/12/2004

Explanation of this chapter

CIS 11.1.3

This chapter deals mainly with four subjects.

(1) Requirements relating to meetings of holders (see CIS 11.2 and CIS 11.3). These rules are more detailed for a meeting of unitholders of an AUT (CIS 11.3) than for a meeting of shareholders of an ICVC (CIS 11.2), where detailed procedures are left to be covered by the instrument of incorporation of the ICVC;

(2) Requirements relating to the amendment of an instrument of incorporation of an ICVC or a trust deed of an AUT (see CIS 11.4). Changes to the prospectus that require approval of holders are covered by CIS 3.4.2 R (Changes to prospectus);

(3) Requirements relating to amalgamations, reconstructions and other schemes of arrangement that may affect an authorised fund (see CIS 11.5). The conversion of an AUT to an ICVC comes within the meaning of a scheme of arrangement.

(4) Requirements for the service of notices and other documents (see CIS 11.6). The Financial Services and Markets Act 2000 (Services of Notices) Regulations 2001 (SI 2001/1420) contain provisions relating to the service of documents. These do not apply to the service of documents under the rules in CIS owing to the specific rules in this chapter.

01/12/2004

CIS 11.1.4

Table of application

This table belongs to CIS 11.1.1 R

Paragraph or section number

ICVC

ACD

Any other directors of an ICVC

Depositary of an ICVC

Manager

Trustee

11.1

11.2

11.3

11.4.1G - 11.4.2R

11.4.3R

11.4.4R

11.4.5G

11.5

11.6

Note: "X" means "applies".

01/12/2004

CIS 11.2

Meetings of shareholders

01/12/2004

General meetings

CIS 11.2.1

(1) The directors may convene a general meeting of shareholders at any time.

(2) On receipt of a requisition that complies with (3), the directors must immediately proceed to convene a general meeting of the ICVC for a date no later than eight weeks after receipt of the requisition.

(3) A requisition must:

(a) state the objects of the meeting;

(b) be dated;

(c) be signed by shareholders who, at that date, are registered as the shareholders of shares representing not less than one-tenth in value of all of the shares in the ICVC then in issue; and

(d) be deposited at the head office of the ICVC.

(4) A requisition may consist of several documents deposited with the ICVC at the same time, which must each be in similar form and signed by one or more shareholders.

01/12/2004

Special meaning of shareholder

CIS 11.2.2

(1) Unless any share in the ICVC is a participating security, in CIS 11.2.3 R to CIS 11.2.8 R (excluding CIS 11.2.4 R (3)(a)) "shareholders" means:

(a) in the case of a registered share, shareholders on the date seven days before the notices of the relevant meeting are sent out, but excluding any persons who are known to the ACD not to be shareholders at the time of the meeting; or

(b) in the case of bearer shares, shareholders of bearer shares which were in issue on the date seven days before the notices of the relevant meeting are sent out.

(2) If any share in the ICVC is a participating security:

(a) a registered shareholder is entitled to receive a notice of meeting under CIS 11.2.3 R, or a notice of adjourned meeting, if entered on the register at the close of business on a day to be determined by the ACD, which must not be more than 21 days before the notices of the meeting are sent out; and

(b) in CIS 11.2.4 R (1) and CIS 11.2.5 R to CIS 11.2.8 R "shareholders" means:

(i) the persons entered on the register at a time to be determined by the ACD and stated in the notice of the meeting, which must not be more than 48 hours before the time fixed for the meeting; or

(ii) in the case of bearer shares, shareholders of bearer shares which were in issue at the time applicable under (i).

01/12/2004

Notice of meetings

CIS 11.2.3

(1) Shareholders must be given at least 14 days written notice of a general meeting, inclusive of the date on which the notice is first served and the day of the meeting.

(2) Paragraph (1) does not apply to notice of an adjourned meeting.

(3) The accidental omission to give notice to, or the non-receipt of notice by, any of the shareholders does not invalidate the proceedings at any meeting.

01/12/2004

Quorum

CIS 11.2.4

(1) The quorum at a meeting of shareholders is two shareholders, present in person or by proxy or, in the case of a body corporate, by a duly authorised representative.

(2) Business must not be transacted at any meeting unless the requisite quorum is present at the commencement of business.

(3) If within half an hour from the time appointed for the meeting, a quorum is not present, the meeting:

(a) if convened on the requisition of shareholders, must be dissolved; and

(b) in any other case, must stand adjourned to:

(i) a day and time which is seven or more days after the day and time of the meeting; and

(ii) a place to be appointed by the chairman (if a chairman has been appointed in accordance with the instrument of incorporation) or otherwise by the directors.

(4) If, at an adjourned meeting under (3)(b), a quorum is not present within 15 minutes from the time appointed for the meeting, one person entitled to be counted in a quorum present at the meeting is a quorum.

(5) Notice of any adjourned meeting of shareholders must be given to shareholders. That notice must state that one or more shareholders present at the adjourned meeting (whatever their number and whatever the number of shares held by that shareholder or shareholders) will form a quorum.

01/12/2004

Resolutions

CIS 11.2.5

(1) Except where an extraordinary resolution is specifically required or permitted by the rules in this sourcebook, any resolution of shareholders required under the rules in this sourcebook or under the OEIC regulations is passed by a simple majority of the votes validly cast for and against the resolution at a general meeting of shareholders. This rule (CIS 11.2.5 R) is subject to CIS 11.2.10 R (2) (Variation of class rights).

(2) In the case of an equality of votes cast (whether on a show of hands or on a poll) in respect of a resolution put to a general meeting, any chairman appointed in accordance with the instrument of incorporation is entitled to a casting vote in addition to any other vote the chairman may have.

01/12/2004
Future version of CIS 11.2.5 after 06/04/2006

Voting rights

CIS 11.2.6

(1) On a show of hands every shareholder who:

(a) (if an individual), is present in person; or

(b) (if a body corporate), is present by its representative duly authorised in that regard;

has one vote.

(2) On a poll:

(a) votes may be given either personally or by proxy or in any other manner permitted by the instrument of incorporation;

(b) the voting rights attached to each share must be the proportion of the voting rights attached to all of the shares in issue that the price of the share bears to the aggregate price or prices of all of the shares in issue:

(i) if any share in the ICVC is a participating security, at the time determined under CIS 11.2.2 R (2) (Special meaning of shareholder);

(ii) otherwise at the date specified in CIS 11.2.2 R (1); and

(c) a shareholder entitled to more than one vote need not, if he votes, use all his votes or cast all his votes in the same way.

(3) For joint shareholders of a share, the vote of the senior who votes, whether in person or by proxy, must be accepted to the exclusion of the votes of the other joint shareholders. For this purpose, seniority must be determined by the order in which the names stand in the register of shareholders.

(4)

(a) No director of the ICVC is entitled to be counted in the quorum of, and no director nor any associate of the director is entitled to vote at, any meeting of the ICVC.

(b) The prohibition in (a) does not apply to any shares which the director or its associate holds on behalf of, or jointly with, a person who, if himself the registered shareholder, would be entitled to vote and from whom the director or its associate (as the case may be) has received voting instructions.

(c) Therefore, for the purpose of CIS 11.2.4 R (Quorum) and CIS 11.2.7 R (Right to demand a poll), shares held, or treated as held, by any director, must not, except as mentioned in (b), be regarded as being in issue.

01/12/2004

Right to demand a poll

CIS 11.2.7

A resolution put to the vote of a general meeting must be determined on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded:

(1) by the chairman; or

(2) by at least two shareholders (present in person or by proxy or, in the case of a body corporate, by a duly authorised representative); or

(3) by the depositary; or

(4) without affecting (1), (2) or (3), in accordance with any relevant provisions contained in the instrument of incorporation.

01/12/2004

Proxies

CIS 11.2.8

(1) A shareholder entitled to attend and vote at a meeting of the ICVC is entitled to appoint another person to attend and vote in his place (whether a shareholder or not).

(2) Except in so far as the instrument of incorporation otherwise provides, a shareholder is entitled to appoint more than one proxy to attend on the same occasion but a proxy is entitled to vote only on a poll.

(3) Every notice calling a meeting of the ICVC must contain a reasonably prominent statement that a shareholder entitled to attend and vote is entitled to appoint a proxy to attend and vote instead of the shareholder.

(4) An instrument appointing a proxy, or any other document necessary to show the validity of, or otherwise relating to, the appointment of a proxy, must not be required to be received by the ICVC or any other person more than 48 hours before the meeting or adjourned meeting for the appointment to be effective.

01/12/2004

Class meetings

CIS 11.2.9

This chapter applies, unless the context otherwise requires, to class meetings as it applies to general meetings of shareholders, but by reference to the shares of the class concerned and the shareholders and prices of such shares.

01/12/2004

Variation of class rights

CIS 11.2.10

(1) The rights attached to a class of shares must not be varied except with the sanction of a resolution passed at a class meeting of the shareholders of the class.

(2) The instrument of incorporation may require such a resolution to be passed by more than a simple majority of the votes validly cast for and against it.

01/12/2004

CIS 11.3

Meetings of unitholders

01/12/2004

Convening and attendance at meetings of unitholders

CIS 11.3.1

(1) The trustee or the manager may, at any time, convene a meeting of unitholders.

(2) The trustee must, on request in writing of unitholders registered as holding not less than one-tenth (or any proportion below one-tenth specified for this purpose in the trust deed) in value of the units in issue, convene a meeting of unitholders.

(3) Any meeting of unitholders must be held at such time and place as the trustee, after consulting the manager, thinks fit.

(4) The manager and trustee are each entitled to receive notice of and to attend every meeting of unitholders.

01/12/2004

Special meaning of unitholder

CIS 11.3.2

(1) Unless any unit in the AUT is a participating security, in CIS 11.3.3 R to CIS 11.3.12 R, "unitholders" means:

(a) in the case of registered units, unitholders on the date seven days before the notices of the relevant meeting are sent out, but excluding any persons who are known to the manager not to be unitholders at the time of the meeting; or

(b) in the case of bearer units, unitholders of bearer units which were in issue on the date seven days before the notices of the relevant meeting are sent out.

(2) If any unit in the AUT is a participating security:

(a) a registered unitholder is entitled to receive a notice of meeting under CIS 11.3.6 R, or a notice of adjourned meeting, if entered on the register at the close of business on a day to be determined by the manager, which must not be more than 21 days before the notices of the meeting are sent out; and

(b) in CIS 11.3.3 R to CIS 11.3.12 R (excluding CIS 11.3.6 R), "unitholders" means:

(i) the persons entered on the register at a time to be determined by the manager and stated in the notice of meeting, which must not be more than 48 hours before the time fixed for the meeting; or

(ii) in the case of bearer units, unitholders of bearer units which were in issue at the time applicable under (i).

01/12/2004

Power of a meeting of unitholders

CIS 11.3.3

A meeting of unitholders duly convened and held in accordance with this chapter is competent by extraordinary resolution to require, authorise or approve any act, matter or document in respect of which any such resolution is required or expressly contemplated by the rules in this sourcebook, but will not have any other powers.

01/12/2004

The chairman

CIS 11.3.4

(1) A meeting of unitholders must be presided over by a chairman, (who need not be a unitholder), nominated in writing by the trustee.

(2) If no such person referred to in (1) is nominated or if at any meeting the person nominated is not present within 15 minutes after the time appointed for holding the meeting, the unitholders present must choose one of their number to be chairman.

01/12/2004

Adjournment

CIS 11.3.5

(1) The chairman:

(a) may, with the consent of any meeting of unitholders at which a quorum is present; and

(b) must, if so directed by the meeting;

adjourn the meeting from time to time and from place to place.

(2) Business must not be transacted at any adjourned meeting, except business which might lawfully have been transacted at the meeting from which the adjournment took place.

01/12/2004

Notice of meetings

CIS 11.3.6

(1) Unitholders must be given at least 14 days written notice (or any longer period of notice specified for the purpose in the trust deed), inclusive of the date on which the notice is first served and the day of the meeting.

(2) The notice must specify the place, day and hour of meeting and the terms of the resolutions to be proposed.

(3) Unless the trustee has convened the meeting, a copy of the notice must be sent to the trustee.

(4) The accidental omission to give notice to, or the non-receipt of notice by, any of the unitholders does not invalidate the proceedings at any meeting.

(5) Notice of any adjourned meeting of unitholders must be given to unitholders. That notice must state that one or more unitholders present at the adjourned meeting, whatever their number, and whatever the number of units held by them, will form a quorum.

01/12/2004

Quorum

CIS 11.3.7

(1) The quorum at a meeting of unitholders is the unitholders present in person or by proxy or, in the case of a body corporate, by a duly authorised representative, of one-tenth in value (or any proportion more than one-tenth in value specified for this purpose in the trust deed) of all the units in issue:

(a) if any unit in the AUT is a participating security, at the time determined under CIS 11.3.2 R (2) (Special meaning of unitholders);

(b) otherwise at the date specified in CIS 11.3.2 R (1);

excluding from the calculation any units known to have been redeemed before the time of the meeting.

(2) No business is to be transacted at any meeting unless the requisite quorum is present at the commencement of business.

(3) If within half an hour from the time appointed for the meeting a quorum is not present, the meeting must stand adjourned to:

(a) a day and time which is 14 or more days after the day and time of the meeting; and

(b) a place to be appointed by the chairman.

(4) If, at an adjourned meeting under (3), a quorum is not present within 15 minutes from the time appointed for the meeting, one person entitled to be counted in a quorum present at the meeting is a quorum.

01/12/2004

Restrictions on the posing of composite resolutions to meetings of unitholders

CIS 11.3.8

(1) The amendments to the trust deed set out in (2) must not be taken to have been authorised by an extraordinary resolution at a meeting of unitholders, unless each such modification has been the subject of a separate motion for its approval which has been separately approved by an extraordinary resolution at that meeting.

(2) The amendments to the trust deed referred to in (1) are:

(a) an increase in the maximum of any periodic charge stated in the trust deed;

(b) an increase in the maximum of any preliminary charge stated in the trust deed; and

(i) the kind of property in which the scheme property may be invested; or

(ii) the proportion of property to be invested in assets of any description; or

(iii) the description of transactions permitted; or

(iv) the borrowing powers of the AUT.

01/12/2004

Voting rights

CIS 11.3.9

(1) On a show of hands every unitholder who:

(a) (if an individual) is present in person; or

(b) (if a body corporate) is present by its representative duly authorised in that regard;

has one vote.

(2)

(a) On a poll, every unitholder who is present in person or by proxy or, in the case of a body corporate, by a duly authorised representative has one vote for every complete undivided share in the scheme property and a further part of one vote proportionate to any fraction of such an undivided share of which he is the unitholder.

(b) A unitholder entitled to more than one vote need not, if he votes, use all his votes or cast all the votes he uses in the same way.

(3) A body corporate being a unitholder may authorise such person as it thinks fit to act as its representative at any meeting of unitholders and the person so authorised is entitled to exercise the same powers on behalf of the body corporate which he represents as the body corporate could exercise if it were an individual unitholder.

(4) For joint unitholders, the vote of the senior who votes, whether in person or by proxy must be accepted to the exclusion of the votes of the other joint unitholders. For this purpose seniority must be determined by the order in which the names stand in the register of unitholders.

(5) On a poll votes may be given either personally or by proxy or in any other manner permitted by the trust deed.

(6)

(a) No manager is entitled to be counted in the quorum of, and no manager nor any associate of the manager is entitled to vote at, any meeting of unitholders.

(b) The prohibition in (a) does not apply to any units which the manager or its associate holds on behalf of, or jointly with a person who, if himself the registered unitholder, would be entitled to vote and from whom the manager or its associate (as the case may be) has received voting instructions.

(c) Therefore, for the purpose of this rule (CIS 11.3.9 R) and the other rules in this section (CIS 11.3), the units held treated as held by the manager must not, except as mentioned in (b), be regarded as being in issue.

01/12/2004
Future version of CIS 11.3.9 after 06/04/2006

Right to demand a poll

CIS 11.3.10

(1) An extraordinary resolution put to the vote of a meeting of unitholders must be determined on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded:

(a) by the chairman; or

(b) by the trustee; or

(c) by one or more unitholders present in person or by proxy or, in the case of a body corporate by a duly authorised representative, and holding or representing one-twentieth (or any proportion less than one-twentieth specified for this purpose in the trust deed) in value of all the units in issue:

(i) if any unit in the AUT is a participating security, at the time determined under CIS 11.3.2 R (2) (Special meaning of unitholder: participating securities);

(ii) otherwise at the date specified in CIS 11.3.2 R (1) (Special meaning of unitholder);

excluding from that calculation any units known to have been redeemed before the time of the meeting.

(2) Unless a poll is demanded in accordance with (1), a declaration by the chairman that a resolution has been carried or carried unanimously or by a particular majority or lost is conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against such resolution.

(3) If a poll is duly demanded, it must be taken in the manner which the chairman directs. The result of a poll is deemed to be the resolution of the meeting at which the poll was demanded.

(4) A poll demanded on the election of a chairman or on a question of adjournment must be taken immediately; a poll demanded on any other question must be taken at the time and place which the chairman directs.

(5) The demand for a poll must not prevent the continuance of a meeting for the transaction of any business other than the question on which the poll has been demanded.

01/12/2004

Proxies

CIS 11.3.11

(1) The instrument appointing a proxy must be signed by the appointor or of his attorney duly authorised in writing or, if the appointor is a body corporate, either under the common seal or by an officer or attorney so authorised.

(2) The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority must be deposited at the place which the trustee, or the manager with the approval of the trustee, may in the notice convening the meeting direct (or if no such place is appointed then at the registered office of the manager).

(3) The instrument must be deposited not less than 48 hours before the time appointed for holding the meeting or adjourned meeting (or in the case of a poll before the time appointed for the taking of the poll) at which the person named in the instrument proposes to vote, and in default the instrument of proxy is not to be treated as valid.

(4) No instrument appointing a proxy is valid after the expiration of 12 months from the date stated in it as the date of its execution.

(5) A person appointed to act as proxy need not be a unitholder.

(6) An instrument of proxy may be in the usual common form or in any other form which the trustee approves.

(7)

(a) A vote given in accordance with the terms of an instrument of proxy is valid in spite of:

(i) the previous death or incapacity of the principal; or

(ii) revocation of the proxy or of the authority under which the proxy was executed; or

(iii) the transfer of the units in respect of which the proxy is given;

provided that no intimation in writing of that death, incapacity, revocation or transfer has been received.

(b) Any such intimation must have been received at the place appointed for the deposit of proxies or, if no such place is appointed, at the registered office of the manager before the commencement of the meeting or adjourned meeting at which the proxy is used.

01/12/2004

Minutes

CIS 11.3.12

(1) Minutes of all resolutions and proceedings at every meeting of unitholders must be made and duly entered in books to be from time to time provided for the purpose by, and at the expense of, the manager.

(2) Any minute referred to in (1) purporting to be signed by the chairman of the meeting of unitholders is conclusive evidence of the matters stated in it.

(3) Until the contrary is proved, every such meeting in respect of the proceedings of which minutes have been made are treated as duly held and convened and all resolutions passed at it to have been duly passed.

01/12/2004

Class meetings

CIS 11.3.13

(1) If the trustee is of the opinion that any extraordinary resolution to be proposed is one in relation to which there is or might be a conflict of interest between:

(a) the unitholders of accumulation units and the unitholders of income units; or

(b) in the case of an AUT that is an umbrella scheme, between the unitholders in one sub-fund and the unitholders in another;

that resolution is not to be treated as duly passed, unless instead of being passed at a single meeting of all unitholders, it is duly passed at separate meetings respectively of the unitholders of accumulation units and income units or of the unitholders in the one sub-fund and unitholders in the other (as the case may be).

(2) This chapter applies to each separate meeting held under (1) as it applies to other meetings.

01/12/2004

CIS 11.4

Amendments to the instrument constituting the scheme

01/12/2004

Explanation

CIS 11.4.1

(1) This section (CIS 11.4) outlines how amendments to the instrument constituting the scheme may be made.

(2) For an ICVC, paragraph 5 of Schedule 2 (Instrument of incorporation) to the OEIC regulations:

(a) Prohibits any amendment to the statements in the instrument of incorporation which are required by Schedule 2, paragraph 2 of the OEIC regulations;

(b) Prohibits any amendment to a provision contained in the instrument of incorporation in accordance with Schedule 2, paragraph 3 of the OEIC regulations, unless it has been approved by a resolution of the shareholders; and

(3) CIS 11.4.2 R and sub-paragraphs (1), (4) and (5) of CIS 11.4.4 R contain the rules referred to in (2)(c). The rules relating to amendments of a trust deed are contained in CIS 11.4.3 R and sub-paragraphs (2) to (4) and (6) to (8) of CIS 11.4.4 R.

01/12/2004

Amendment to instrument of incorporation: with meeting

CIS 11.4.2

(1) An amendment of a provision of the instrument of incorporation of an ICVC required to comply with paragraphs (3)(1) or (4)(1)(b) or (4)(1)(d) of Schedule 2 (Instrument of incorporation) to the OEIC regulations, must not be made except by an extraordinary resolution, unless:

(a) the amendment is to the category of the ICVC and is made for the purpose of CIS 12.5.5 R (An ICVC with only one sub-fund); or

(b) the amendment is to a provision required to comply with paragraph (4)(1)(d) of Schedule 2 of the OEIC regulations and is made solely to reflect the introduction of a new sub-fund.

(2) Any other amendment of the instrument of incorporation must not be made except by a resolution of the shareholders, but this is subject to (3) and to CIS 11.4.4 R (Amendment to the instrument constituting the scheme: without meeting).

(3) An amendment to the instrument of incorporation that:

(a) relates to a particular class of shares or particular classes (and does not relate to a provision required to comply with paragraph 3(1) of Schedule 2 to the OEIC regulations); and

(b) does not prejudice the shareholders of any other class;

may be made by a resolution passed at a class meeting or class meetings. That resolution must be an extraordinary resolution if the amendment is of a type within (1) and to which (1)(a) or (1)(b) does not apply.

01/12/2004

Amendment to the trust deed: with meeting

CIS 11.4.3

(1) An amendment must not be made to the trust deed except by a deed, expressed to be supplemental to the trust deed, entered into by the manager and the trustee following:

(a) the calling of a meeting of unitholders by notice (if required under (2)); and

(b) the approval of a meeting of unitholders (if required under (3)).

(2) The calling of a meeting is necessary unless the manager and trustee have agreed that the amendment is one which may, in accordance with CIS 11.4.4 R, be made without the approval of a resolution.

(3) The approval of the unitholders (signified by the passing at the meeting of an extraordinary resolution authorising the amendment) is required in any case where a meeting of unitholders has to be called.

01/12/2004

Amendment to the instrument constituting the scheme: without meeting

CIS 11.4.4

(1) An amendment to the instrument of incorporation of an ICVC may be made by a resolution of the directors in any of the cases to which (4) applies, unless CIS 11.4.2 R (1) (Amendment to the instrument of incorporation: with meeting) applies.

(2) An amendment to the trust deed may be made without the approval of a resolution of unitholders, in any of the cases to which (4), (6) or (7) applies. This is subject to:

(a) any restriction on the powers to amend the trust deed which may be contained in the trust deed; and

(b) paragraph (3).

(3) An amendment to the trust deed is not within (2) if it:

(a) would affect any express restriction imposed by the trust deed on the powers which the manager and trustee or either of them would otherwise be able to exercise within the rules in this sourcebook; or

(b) would increase the maximum of any preliminary charge or periodic charge authorised by the trust deed to be made by the manager; or

(c) would relate to the authority for payments to be made out of the scheme property to the trustee by way of remuneration for the trustee's services.

(4) This sub-paragraph (4) applies in respect of an authorised fund, subject to sub-paragraph (5) in the case of an ICVC, if the amendment is required solely:

(a) to implement any change in the law, including a change brought about by an amendment of the OEIC regulations or of the Act or of the rules in this sourcebook; or

(b) as a direct consequence of any such change; or

(d) to remove from the instrument constituting the scheme obsolete provisions; or

(e) in the case of an umbrella scheme, to remove references to a sub-fund, following the approval of the FSA to a proposal to alter the umbrella scheme by removing that sub-fund;

(f) to introduce limited issue shares or limited issue units unless the directors (for an ICVC) or the manager and trustee (for an AUT) consider to do so would involve any holder or potential holder in any material prejudice; or

(g) to make any other change to the instrument constituting the scheme which the directors (for an ICVC) or the manager and trustee (for an AUT) consider does not involve any holder or potential holder in any material prejudice.

(5) For an ICVC, (4) does not apply unless:

(a) the instrument of incorporation provides for the amendment to be made by a resolution of the directors; and

(b) the amendment would not introduce or affect any provision relating to the kind of property in which the scheme property may be invested unless the amendment is required solely to reflect the introduction of a new sub-fund.

(6) This sub-paragraph (6) applies to an AUT, if the amendment is required solely:

(a) for a relevant pension scheme or a relevant charitable scheme, to preserve its status as such a scheme; or

(b) for a relevant pension scheme, to specify as the scheme or the investment trust in which the AUT is to invest, a regulated collective investment scheme or eligible investment trust which has replaced the previous scheme or investment trust as a result of a scheme of arrangement; or

(c) to include a provision to enable the manager to deduct a redemption charge, where the circumstance envisaged by CIS 8.5.3 R (Control over maximum charges on issue and redemption: single-priced AUTs) and CIS 15.4.11 R (Control over maximum charges on issue and redemption: for dual-priced AUTs) does not apply; or

(d) to replace the manager or the trustee where it has been removed or wishes to retire or has retired; or

(e) to include or change a provision relating to the remuneration of the trustee for its services in connection with the establishment and maintenance of a plan register.

(7) This sub-paragraph (7) applies to an AUT, if the amendment is:

(a)

(i) solely for the purpose of applying to the AUT the rules applicable to single-priced AUTs; or

(ii) an amendment which is necessary as a result of an amendment within (i); and

(b) made not less than six weeks after:

(i) the manager has given notice in writing to the unitholders and plan investors of the proposed amendment and the date on which it is intended to take effect or how that date will be determined; and

(ii) the manager has revised the prospectus to include a statement about the proposed change from dual to single-pricing.

(8) The notice referred to in (7)(b)(i) must include or be accompanied by suitable information on the nature and implications of the proposed change.

01/11/2002

Matters to be included in notices sent to unitholders when a manager proposes a change from dual to single pricing

CIS 11.4.5

(1) CIS 11.4.4 R(8) requires any notice given to unitholders or plan investors when a manager proposes a change from dual to single pricing to include or be accompanied by suitable information on the nature and implications of the proposed change. Paragraph (3) of this guidance (CIS 11.4.5 G) lists some matters which could assist managers in their consideration of what constitutes suitable information.

(2)

(a) The matters listed in (3) are not intended to be exhaustive, nor are they in any particular order of importance.

(b) In considering whether information is suitable, managers are expected to take into account the amount of information, its relevance and the manner of its presentation.

(c) The FSA has no objection to detailed issues being covered by reference to the prospectus, key features or simplified prospectus for the AUT and other documents, where these documents accompany the notice sent to unitholders or plan investors.

(3)

(a) The manager's reason for the change: The manager's reason for the proposed change should be stated.

(b) Time: The notice should state when the proposed change is intended to take effect.

(d) Differences between dual and single-pricing: The notice should outline the main differences between dual and single-pricing.

(e) Dilution: The notice should cover dilution:

(i) what it is;

(ii) how it will affect investors; and

(iii) the manager's policy on either imposing a dilution levy or making a dilution adjustment or doing neither.

(f) Impact on the investor: The notice should indicate what the implications of a change from dual to single-pricing are for investors, taking into account the particular circumstances of the AUT concerned.

(g) Valuation of the scheme property: The notice should state the major differences in the valuation of the scheme property.

(h) Any other material facts: The notice should state any other material facts that a unitholder or plan investor should be aware of in order to understand the implications of the intended transition.

01/08/2002

CIS 11.5

Schemes of arrangement

01/12/2004

Schemes of arrangement: explanation

CIS 11.5.1

(1) Under section 251 of the Act (Alteration of schemes and changes of manager or trustee) or regulation 21 of the OEIC regulations (The Authority's approval for certain changes in respect of a company), written notice of certain types of proposed change must be given to the FSA. Effect cannot be given to such a change except in accordance with that section or regulation.

(2) One of the types of proposal that is subject to section 251 or regulation 21 is a proposal that an ICVC or AUT should be involved in a scheme of arrangement.

(3) The issue of units in exchange for assets is subject to:

(a) CIS 4.3.3 R (Issue and cancellation of shares by an ICVC);

(b) CIS 4.3.4 R (Issue and cancellation of units in an AUT);

(d) CIS 15.3.5 R (Issue by trustee).

01/12/2004

Schemes of arrangement: requirements

CIS 11.5.2

(1) A scheme of arrangement must not result in holders of units in an authorised fund becoming holders of units in any body other than a regulated collective investment scheme.

(2) For a UCITS scheme or a sub-fund of a UCITS scheme, (1) applies as if the reference to a regulated collective investment scheme excluded any recognised scheme other than a scheme recognised under section 264 of the Act (Schemes constituted in other EEA States).

(3) Where, for the purpose of a scheme of arrangement, it is proposed that scheme property of an authorised fund should become the property of another regulated collective investment scheme or sub-fund of a regulated collective investment scheme, the proposal must not be implemented without the sanction of an extraordinary resolution of the holders of units in the authorised fund, unless (4) applies.

(4) Where, for the purposes of a scheme of arrangement, it is proposed that scheme property attributable to a sub-fund of an umbrella scheme should become the property of another regulated collective investment scheme or of another sub-fund of a regulated collective investment scheme (whether or not of that umbrella scheme), the proposal must not be implemented without the sanction of:

(a) an extraordinary resolution of the holders of units in the sub-fund of that umbrella scheme; and

(b) (unless implementation of the scheme of arrangement is not likely to result in any material prejudice to the interests of the holders of units in any other sub-fund of that umbrella scheme) an extraordinary resolution of the holders of units in that umbrella scheme.

(5) If it is proposed that an authorised fund or sub-fund of an umbrella scheme should receive property (other than its first property) as a result of a scheme of arrangement (or an arrangement equivalent to a scheme of arrangement) which is entered into by some other collective investment scheme or sub-fund, or by a body corporate, the proposal must not be implemented without the sanction of an extraordinary resolution of the holders of units in the authorised fund or (as the case may be) of the class or classes of units related to the sub-fund unless (6) applies.

(6) This paragraph (6) applies if the directors of the ICVC or the manager and trustee of the AUT agree that the receipt of the property concerned for the account of the ICVC or AUT:

(a) is not likely to result in any material prejudice to the interests of the holders of units in the authorised fund; and

(b) is consistent with the objectives of the authorised fund or sub-fund; and

01/12/2004

CIS 11.6

Service of notices and other documents

01/12/2004

Notices to holders

CIS 11.6.1

(1) Where this sourcebook requires any notice or document to be served upon a holder, it is duly served :

(a) for units held by a registered holder, if it is:

(i) sent by post to or left at the registered holder's address as appearing in the register; or

(ii) delivered by using an electronic medium in accordance with CIS 11.6.2 R (Other notices); or

(b) for units for the time being represented by bearer certificates, if it is given in the manner provided for in the most recently published prospectus.

(2) Any notice or document served by post is deemed to have been served on the second day following the day on which the letter containing the notice or document is posted, and in proving such service it is sufficient to prove that that letter was properly addressed, stamped and posted. Any notice or document left at a registered address or delivered other than by post is deemed to have been served on the day it was so left or delivered.

(3) Service of a notice or document on any one of joint holders is effective service on the other joint holders.

01/12/2004

Other notices

CIS 11.6.2

(1) Where this sourcebook requires any notice or document to be served or information to be given to any person, including the FSA, this must be:

(a) in hard copy; or

(b) in any other legible form, provided:

(i) this is consistent with the ICVC's, the director's, the authorised fund manager's or depositary's knowledge of how the recipient of the notice or document wishes or expects to receive the notice or document;

(ii) the ICVC, the director, the authorised fund manager or depositary is able to produce the item in hard copy;

(iii) the recipient is able to know or record the time of receipt; and

(iv) the context does not require otherwise.

(2) In this sourcebook, any requirement that a document be signed may be satisfied by an electronic signature or electronic evidence of assent.

(3) This rule (CIS 11.6.2 R) is subject to CIS 4.3.6 R (Instructions or notifications between manager and trustee: for single-priced AUTs) or CIS 15.3.10 R (Instructions or notifications between manager and trustee: for dual-priced AUTs).

01/12/2004

Form of document or notice

CIS 11.6.3

In this sourcebook:

(1) CIS 11.6.2 R does not affect any other legal requirement which may apply in relation to the form or manner of executing a document or agreement; and

(2) references to written form include hard copy and electronically displayed or recorded information.

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Meetings of holders, amendments to the scheme and service of notices

CIS 12

Special Provisions for Certain Types of Scheme

CIS 12.1

Introduction

01/12/2004

Application

CIS 12.1.1

The rules and guidance in this chapter apply in accordance with CIS 12.1.3 R (Table of application).

01/12/2004

Purpose

CIS 12.1.2

This chapter provides additional rules for certain categories of scheme so as to recognise some of their special characteristics and to further the regulatory objective relating to the protection of consumers by providing detailed procedures for such specialist funds. In some cases these special rules adapt rules elsewhere in this sourcebook.

01/12/2004

CIS 12.1.3

Table of application

This table belongs to CIS 12.1.1 R

Paragraph or section number

ICVC

ACD

Any other directors of an ICVC

Depositary of an ICVC

Manager

Trustee

12.2

12.3.1R

12.3.2R

12.3.3R

12.3.4R

12.4

12.5.1R

12.5.2R

12.5.3R

12.5.4R

12.5.5R

12.5.6

12.5.7

12.5.8

Note: "X" means applies.

01/12/2004

CIS 12.2

Futures and options schemes and geared futures and options schemes

01/12/2004

Special rules for sales and redemptions

CIS 12.2.1

(1) In the case of a futures and options scheme and a geared futures and options scheme, CIS 4.4.3 R (Authorised fund manager's obligation to sell) and CIS 4.4.4 R (Authorised fund manager's obligation to redeem) do not apply:

(a) in the 15 minutes immediately before a regular valuation point, or, if the regular valuation points are less than one hour apart, in the last quarter of the interval between them; and
(b) if the authorised fund manager has stated in the prospectus that it is not obliged to sell or redeem in the 15 minutes (or lesser period) immediately before a regular valuation point.

(2) In the case of a futures and options scheme and a geared futures and options scheme that is a dual-priced AUT, CIS 15.4.3 R (Manager's obligation to sell) and CIS 15.4.7 R (Manager's obligation to redeem) are disapplied under the same conditions as in (1)(a) and (b).

01/12/2004

CIS 12.3

Property schemes

01/12/2004

Standing independent valuer

CIS 12.3.1

(1) An authorised fund manager of a property scheme must ensure that any immovables in the scheme property are valued by an appropriate valuer (standing independent valuer) appointed by the authorised fund manager. The appointment must be made with the approval of the trustee or depositary at the outset and upon any vacancy.

(2) The valuer in (1) must be:

(a) for an AUT, independent of the manager and trustee; and

(b) for an ICVC, independent of the ICVC, the directors and the depositary.

01/12/2004

Functions of the standing independent valuer

CIS 12.3.2

(1) The authorised fund manager must ensure that the standing independent valuer appointed under CIS 12.3.1 R values all the immovables held within the scheme property, on the basis of a full valuation with physical inspection (including, where the immovable is or includes a building, internal inspection) at least once a year.

(2) The authorised fund manager must ensure that the standing independent valuer values the immovables, on the basis of a review of the last full valuation, at least once a month.

(3) If either the authorised fund manager or the depositary become aware of any matter appear likely to:

(a) affect the outcome of a valuation of an immovable; or

(b) cause the valuer to decide to value under (1) instead of under (2),

the one of them becoming aware must immediately inform the standing independent valuer of that matter.

(4) The authorised fund manager must use its best endeavours to ensure that any affected person reports to the standing independent valuer immediately upon that person becoming aware of any matter within (3).

(5) Any valuation by the standing independent valuer must be on the basis of an "Open Market value" as defined in Practice Statement 4 in the Royal Institute of Chartered Surveyors' Appraisal and Valuation Manual (first edition published September 1995) but subject to CIS 4.8.3 R (3)(Valuation: requirements).

01/12/2004

Special rules for pricing

CIS 12.3.3

(1) Any valuation under CIS 12.3.2 R has effect, until the next valuation under that rule, for the purposes of the value of immovables under CIS 4 and CIS 15.

(2) An agreement to transfer an immovable or an interest in an immovable is to be disregarded for the purpose of the valuation of the scheme property unless it appears to the authorised fund manager to be legally enforceable.

(3) The rules in CIS 12.3.5 R do not apply to property schemes.

01/12/2004

Failure to obtain minimum subscriptions

CIS 12.3.4

(1) Where it appears to the authorised fund manager that the aggregate of monies paid or agreed to be paid for units to be issued or sold is less than £5m (or the equivalent in the base currency), the authorised fund manager must use its best endeavours to enable the scheme to be wound up under CIS 14 or by the court.

(2) Paragraph (1) must be complied with either:

(a) immediately upon the expiry of any initial offer; or

(b) where there is no initial offer, within 21 days after the date on which persons are first invited to become holders in the scheme.

(3) In so far as is practicable, the authorised fund manager must pay back to a holder any preliminary or other charge by way of remuneration which it received in respect of units issued up to the end of the period in (2)(a) or (b).

01/12/2004

CIS 12.3.5

Rules which do not apply to property schemes

This table belongs to CIS 12.3.3 R

Single-priced ICVC or AUT

Dual-priced AUT

4.2.5R

15.2.4(3)R

15.2.4(4)(a)R

15.2.6R

Item 10 Table 15.8R para 10 - Valuation

Note: Item 10 is disapplied in relation to immovables.

01/12/2004

CIS 12.4

Feeder funds and Funds of Funds

01/12/2004

Special rules for pricing

CIS 12.4.1

(1) So far as is practicable, the authorised fund manager of a feeder fund must deal on the same basis (forward or historic) as the regulated collective investment scheme into which the feeder fund invests.

(2) The normal valuation point for a feeder fund must be within two hours after each normal valuation point for the scheme, or sub-fund, into which the feeder fund feeds.

(3) (1) and (2) do not apply to a feeder fund dedicated to a single eligible investment trust.

01/12/2004

Fund of funds schemes

CIS 12.4.2

(1) A fund of funds scheme must be valued no less frequently than if it were the relevant type of scheme by type of investment under CIS 5A.11.4 R (Eligible combinations of scheme) and the authorised fund manager of a fund of funds scheme must deal on the basis of forward prices if that is required for the relevant type of scheme under CIS 5A.11.4 R.

(2) Where a fund of funds scheme invests in money market schemes (within CIS 5A.5 (Money market schemes)), (1) applies only if the scheme does not invest in any other type of scheme.

01/11/2002

CIS 12.5

Umbrella schemes

01/12/2004

Qualification for authorisation

CIS 12.5.1

(1) A proposed ICVC umbrella scheme does not qualify for an authorisation order unless each constituent sub-fund would, if it were the subject of a separate application for an authorisation order, qualify for such an authorisation order.

(2) A proposed ICVC that is intended to be an umbrella scheme which is to have a sub-fund which would, if it were a separate ICVC, be a geared futures and options scheme or a property scheme does not qualify for an authorisation order unless each of its proposed sub-funds would, if it were a separate ICVC, be an ICVC of the same category as each of the other sub-funds of the proposed ICVC.

(3) A unit trust scheme does not qualify to be authorised as an umbrella scheme unless each constituent part would, if it were the subject of a separate application for an authorisation order, qualify for separate authorisation by such an order.

01/12/2004

Base currency

CIS 12.5.2

Any reference in these CIS rules to "base currency" that relates to:

(1) a valuation of a sub-fund; or

(2) the price of a unit in respect of a sub-fund; or

(3) a payment for a unit;

is to be treated as if the reference were to the currency stated in the prospectus as being the currency to be used for the purpose in question in relation to that sub-fund.

01/12/2004

Allocation of scheme property

CIS 12.5.3

In so far as any of the scheme property of an ICVC or an AUT that is an umbrella scheme, or any assets to be received as part of the scheme property, or any costs, charges or expenses to be paid out of the scheme property, are not attributable to one sub-fund only, the scheme property, assets, costs, charges or expenses must be allocated between the sub-funds in a manner which is fair to the holders of the umbrella scheme generally.

01/12/2004

Income

CIS 12.5.4

Except in the case of CIS 9.2.1 R (Accounting period) and CIS 9.2.2 R (Annual income allocation date), CIS 9 applies as if each sub-fund were a separate ICVC or AUT (whichever is appropriate).

01/12/2004

An ICVC with only one sub-fund

CIS 12.5.5

(1) If for a period of 24 consecutive months starting at any time after the first issue of a share of an ICVC which is an umbrella scheme, shares of less than two sub-funds are in issue, the directors must take such action as is necessary to change the category of the ICVC or to cause shares of more than one sub-fund to be in issue.

(2) If (1) becomes, or is reasonably expected by the directors to become, applicable, the ACD must, before or immediately upon the expiration of the 24 month period, notify the shareholders and the FSA of any action proposed in order to comply with (1).

(3) Paragraph (1) does not apply if, on or before the expiration of the 24 month period, winding up of the ICVC has commenced.

01/12/2004

Other sourcebook provisions relating to umbrella schemes

CIS 12.5.6

Rules and some of the guidance elsewhere in this sourcebook relate specifically to umbrella schemes. For ease of understanding the main provisions are referred to in CIS 12.5.8 G.

01/12/2004

Investment and borrowing powers

CIS 12.5.7

(1) In relation to an authorised fund which is an umbrella scheme under the rules in CIS 5A, the provisions in CIS 5A apply to each sub-fund as they would for an authorised fund except the following rules which will apply only at the level of the umbrella scheme:

(a) CIS 5A.2.13 R (Significant influence for ICVCs);

(b) CIS 5A.2.14 R (Significant influence for managers of AUTs); and

(c) CIS 5A.2.15 R (Concentration), but sub-funds in an umbrella scheme which are equivalent to a fund of funds scheme or a feeder fund are to be disregarded in this calculation.

(2) In relation to an authorised fund which is an umbrella scheme under the rules in CIS 5, the provisions in CIS 5 apply to each sub-fund as they would for an authorised fund, except the following rules which will apply at the level of the umbrella scheme:

(a) CIS 5.2.29 R (Significant influence for ICVCs);

(b) CIS 5.2.30 R (Significant influence for managers of AUTs); and

01/11/2002

CIS 12.5.8

Main provisions relating specifically to umbrella schemes.

This table belongs to CIS 12.5.6 G.

Rule / Guidance (CIS)

Subject matter

2.4.5A G(2)

What are limited issue shares?

2.4.5B R(3)

Limited issue shares: requirements

2.4.6R(2)

Rights of share classes

2.6.3G(2)

What are limited issue units?

2.6.4R(3)

Limited issue units: requirements

3.5.2R(24)

Information to be contained in the prospectus (umbrella schemes)

4.4.3R(1)

Authorised fund manager's obligation to sell

4.7.4R(2)

Forward and historic pricing (single-pricing)

5.1.4(3)G

Investment in collective investment schemes

Table 5.1.6G Note 2

Investment powers

5A.2.12R

Investment in other Collective Investment Schemes

5A.2.16G

Significant influence and concentration

5A.12R

General investment powers and restrictions

8.2.8R

Fee payable on switching

10.3.3(2) and (3)R; 10.3.4(2) & (3)R;

Annual and half-yearly reports

10.4.2(15) and (16)R and 10.4.3R

Report of the directors/manager

10.4.8R

Report of the auditor

10.5.2R(3)

Publication of reports

11.5.2R

Schemes of arrangement

13.1.3R(9)

Suspension and resumption of dealings

14.3R

Termination of a sub-fund

15.4.3R

Manager's obligation to sell

15.7.4R

Forward and historic pricing (dual-pricing)

01/12/2004
Past version of CIS 12.5.8 before 01/12/2004

Export chapter as

Legal Instruments that change this Chapter Special Provisions for Certain Types of Scheme

CIS 13

Suspension and resumption of dealings

CIS 13.1

Application

01/12/2004

CIS 13.1.1

This chapter applies to authorised funds and their authorised fund managers and depositaries, except for CIS 13.1.3 R (10) which applies only to ICVCs and their ACDs and depositaries.

01/12/2004

Purpose

CIS 13.1.2

This chapter helps in achieving the regulatory objective of protecting investors by ensuring they do not buy or redeem units at a price that cannot be calculated accurately. For instance, due to unforeseen circumstances, it may be impossible to value, or to dispose of and obtain payment for, all or some of the scheme property of an authorised fund. CIS 13.1.3 R(2) sets out the circumstances in which an authorised fund manager must or may suspend dealings in units and the manner in which a suspension is to be carried into effect.

01/12/2004

Requirement

CIS 13.1.3

(1) Where (2) applies, the authorised fund manager may, with the prior agreement of the depositary, and must without delay, if the depositary so requires, suspend the issue, cancellation, sale and redemption of units (referred to in this chapter as "dealings in units").

(2) This paragraph (2) applies if the authorised fund manager (or the depositary in the case of any requirement by the depositary) is of the opinion that due to exceptional circumstances there is good and sufficient reason in the interests of holders or potential holders.

(3) For the purpose of (2), the authorised fund manager or the depositary (as the case may be) must have regard to the interests of all of the holders in the authorised fund and not just to the interests of the holders of units of the class or classes in which dealings are proposed to be suspended.

(4) At the time of suspension under (1), the authorised fund manager, or the depositary if it has required the authorised fund manager to suspend dealings in authorised fund units, must:

(a) inform the FSA of the suspension, stating the reason for its action; and

(b) immediately give written confirmation of the suspension and the reasons for it to:

(i) the FSA; and

(ii) the authorities who are responsible for the authorisation of collective investment schemes in each EEA State in which the authorised fund manager holds itself out as willing to sell or redeem units of the authorised fund concerned, stating the reason for its actions.

(5) During the period of a suspension, none of the obligations in CIS 4 (Single-pricing and dealing) and CIS 15 (Dual-pricing and dealing) relating to the issue, cancellation, sale or redemption of units or to the valuation of scheme property apply.

(6) The suspension of dealings in units must cease as soon as practicable after the authorised fund manager, or the depositary, in the case of a requirement by it, is no longer of the opinion referred to in (2), and, in any event, within 28 days of the commencement of the suspension.

(7) Before the suspension of dealings in units ceases, the authorised fund manager must inform the FSA of the proposed resumption and immediately after the resumption must confirm the resumption by giving notice in writing to the FSA and the authorities mentioned in (4)(b)(ii).

(8) Nothing in this chapter prevents the authorised fund manager from agreeing, during the period of the suspension, to sell or to redeem units or to arrange for the authorised fund to issue or cancel them at a price calculated by reference to the first valuation point after resumption of dealings in units.

(9) This rule (CIS 13.1.3 R) applies to a sub-fund of an umbrella scheme as it applies to an authorised fund, but by reference to the units of the class or classes related to the sub-fund and to the scheme property attributable to the sub-fund.

(10) This rule (CIS 13.1.3 R) may be applied to one or more classes of share of an ICVC without being applied to other classes, but this does not affect (3).

01/12/2004

Suspension beyond 28 days

CIS 13.1.4

The FSA will wish to consider the case for any suspension beyond 28 days. It will, if it considers it appropriate, use its powers to extend that period.

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Suspension and resumption of dealings

CIS 14

Termination of Authorised funds

CIS 14.1

Introduction

01/12/2004

Application

CIS 14.1.1

The rules and guidance in this chapter apply in accordance with CIS 14.1.4 R (Table of application)

01/12/2004

Purpose

CIS 14.1.2

This chapter helps with the regulatory objective of protecting consumers, by providing a cost effective and fair means of winding-up authorised funds and terminating sub-funds of ICVCs. ENF 17 deals with the FSA's powers to revoke the authorisation of authorised funds otherwise than by consent.

01/12/2004

Explanation of this chapter

CIS 14.1.3

CIS 14.2 deals with the winding-up of a solvent ICVC, which under regulation 21 of the OEIC regulations requires written notice to and consent from the FSA . CIS 14.3 deals with the termination of a solvent sub-fund of an ICVC, again under regulation 21. CIS 14.4 deals with the winding-up of an AUT. CIS 14.5 provides guidance on the information to be supplied to the FSA, in certain circumstances, when an authorised fund manager or depositary seek the FSA's consent to terminate an authorised fund.

01/12/2004

CIS 14.1.4

Table of application: This table belongs to CIS 14.1.1 R

Paragraph of Section No

ICVC

ACD

Any other directors of an ICVC

Depositary of an ICVC

Manager

Trustee

14.1

14.2.1-14.2.3

14.2.4

14.2.5

14.2.6

14.2.7

14.2.8

14.2.9

14.2.10

14.2.11

14.2.12(1)

14.2.12(2)

14.3.1-2

14.3.3

14.3.4

14.3.5

14.3.6

14.3.7

14.3.8

14.3.9

14.3.10

14.4.1-2

14.4.3

14.4.4

14.5

Note: "X" means "applies"

01/12/2004

CIS 14.2

Winding up a solvent ICVC

01/12/2004

Explanation of CIS 14.2

CIS 14.2.1

An ICVC may be wound up by the court, but, provided the ICVC is solvent and the steps required by the OEIC regulations and the conditions contained in this chapter are fulfilled, the winding up may instead be carried out under this chapter. Under regulation 21 of the OEIC regulations the ICVC must give written notice to the FSA of a proposal to wind up the ICVC. This section lays down procedures to be followed and the obligations of the ACD and any other directors. A winding up may not be carried out under these rules if there is a vacancy in the position of ACD.

01/12/2004

CIS 14.2.2

This table belongs to CIS 14.2.2 G

Summary of the main steps in winding up a solvent ICVC under FSA regulations, assuming FSA approval

Step number

Explanation

When

Rule

Commence preparation of solvency statement

By N

14.2.4(2)

Send audited solvency statement to the FSA with copy to depositary

By N + 21 days

14.2.4(4) and (5)

Receive the FSA approval

N + one month

Regulation 21 of ICVC regulations

Normal business ceases; publish notices

14.2.5

Realise proceeds, wind-up, instruct depositary accordingly

ASAP after E

14.2.6

Inform the FSA of W/U completion

ASAP after W/U complete

14.2.6(8)

Prepare final account + have audited

On completion of W/U

14.2.7

Send final account and auditor's report to the FSA + shareholders

Within 2 months of FAP

14.2.7(6)

Notes: N = Notice to be given to the FSA under regulation 21 of OEIC regulations
E = Effective time (CIS 14.2.5 R (1))
W/U = winding-up
FAP = Final accounting period (CIS 14.2.7 R (4))

01/12/2004

When an ICVC is to be wound up

CIS 14.2.3

(1) An ICVC must not be wound up except under this chapter or as an unregistered company under Part V of the Insolvency Act 1986.

(2) An ICVC must not be wound up under this chapter:

(a)

(i) unless and until effect may be given, under regulation 21 of the OEIC regulations, to a proposal to wind up the affairs of the ICVC otherwise than by the court; and

(ii) unless a statement has been prepared and sent or delivered to the FSA under CIS 14.2.4 R (Solvency statement) and received by the FSA prior to satisfaction of the condition in (a)(i); or

(b) if there is a vacancy in the position of ACD at the effective time; or

(3) Subject to (2) and the subsequent provisions of this section (CIS 14.2), the appropriate steps to wind up an ICVC under this section must be taken:

(a) if an extraordinary resolution to that effect is passed; or

(b) when the period (if any) fixed for the duration of the ICVC by its instrument of incorporation expires or any event occurs, for which its instrument of incorporation provides that the ICVC is to be wound up; or

(c) on the date stated in any agreement by the FSA in response to a request from the directors for the revocation of the authorisation order in respect of the ICVC, even if that agreement is subject to there being no material change in any relevant factor before the date of the revocation.

01/12/2004

Solvency statement

CIS 14.2.4

(1) Before a notice being given to the FSA under regulation 21 of the OEIC regulations of the proposal referred to in CIS 14.2.3 R (2)(a), the directors must make a full enquiry into the ICVC's affairs so as to ascertain whether the ICVC will be able to meet its liabilities (including contingent and prospective liabilities).

(2) On or before the giving of that notice, the ACD must prepare a statement, reflecting the results of the enquiry in (1), and either:

(a) confirming that the ICVC will be able to meet all its liabilities within twelve months of the date of that statement; or

(b) stating that such confirmation cannot be given.

(3) The statement referred to in (2) must:

(a) relate to the ICVC's affairs at a date which must not be more than 28 days before the date on which that notice is given to the FSA; and

(b) if there is more than one director, be approved by the board of directors and be signed on their behalf by the ACD and, if it contains the confirmation under (2)(a), by at least one other director if there is one or, if there is no director other than the ACD, the ACD.

(4) A statement which contains the confirmation under (2)(a) must annex a statement signed by the auditor appointed under Schedule 5 to the OEIC regulations to the effect that, in his opinion, the enquiry required by (1) has been properly made and is fairly reflected by the confirmation.

(5) The statement referred to in (2) must be sent or delivered to the FSA and a copy sent to the depositary either before, or on, or within the 21 days following, the date on which notice is given to the FSA in accordance with regulation 21 of the OEIC regulations.

01/12/2004

Consequences of commencement of winding up

CIS 14.2.5

(1) In this chapter the "effective time" means the time at which the conditions referred to in CIS 14.2.3 R (2)(a) are satisfied or, if later, the time, determined in accordance with CIS 14.2.3 R (3), at which the ICVC must be wound up.

(2) Immediately following the effective time:

(a) CIS 4 (Single-pricing and dealing) and CIS 5 (Investment and borrowing powers) cease to apply to the ICVC;

(b) the ICVC must cease to issue and cancel shares;

(d) no transfer of a share may be registered and no other change to the register of shareholders may be made without the sanction of the directors; and

(e) the ICVC must cease to carry on its business, except so far as may be required for its beneficial winding up; however, the corporate status and corporate powers of the ICVC and (subject to the preceding provisions of this rule (CIS 14.2.5 R)) the powers of the directors continue until the ICVC is dissolved.

(3) The ACD must as soon as practicable after the effective time:

(a) publish notice of the commencement of the winding up (if the head office of the ICVC is situated in England and Wales or Wales) in the London Gazette, or (if the head office of the ICVC is situated in Scotland) in the Edinburgh Gazette; and

(b) if the ACD has not previously notified shareholders of the proposal to wind up, give written notice of the commencement of the winding up to the shareholders.

01/09/2003
Future version of CIS 14.2.5 after 06/04/2006

Manner of winding up

CIS 14.2.6

(1) The ACD must, as soon as practicable after the effective time, cause the scheme property to be realised and the liabilities of the ICVC to be met out of the proceeds.

(2) The ACD must give instructions to the depositary how such proceeds (until utilised to meet liabilities or make distributions to shareholders) must be held and those instructions must be with a view to the prudent protection of creditors and shareholders against loss.

(3) Provided there are sufficient liquid funds available after making adequate provision for the expenses of the winding up and the discharge of the ICVC's remaining liabilities, the ACD may arrange for the depositary to make one or more interim distributions out of those funds. Those distributions are to be to the shareholders proportionately to the right of their respective shares to participate in scheme property as at the effective time.

(4) When the ACD has caused all the scheme property to be realised and all of the liabilities of the ICVC known to the ACD to be met, the ACD must arrange for the depositary to make a final distribution. That distribution is to be on or before the date on which the final account is sent to shareholders in accordance with CIS 14.2.7 R (6) (Final account), and to be of the balance remaining (net of a provision for any further expenses of the ICVC) to the shareholders in the same proportions as provided by (3).

(5) Paragraphs (1) to (4) are subject to the terms of any scheme of arrangement sanctioned by an extraordinary resolution of the ICVC passed on or before the effective time.

(6) Where the ICVC and one or more shareholders (other than the ACD) agree, the requirement in (1) to realise the scheme property does not apply to that part of the scheme property which is proportionate to the right to participate in scheme property of that or those shareholders.

(7) In the case of (6), the ACD must cause the ICVC to distribute that part of the scheme property in specie to that or those shareholders in proportion to their respective rights to participate. The distribution is to be effected after making adjustments and retaining such provision as appears to the ACD appropriate to ensure that those shareholders bear the proportion of the liabilities of the ICVC and the expenses of the distribution attributable to their shares.

(8) As soon as is reasonably practicable after the winding up of the ICVC (including compliance with CIS 14.2.7 R (Final account)) is complete, the ACD must notify the FSA of that fact.

(9) Where any sum of money stands to the account of the ICVC at the date of its dissolution, the ACD must arrange for the depositary to pay or lodge that sum within one month after that date in accordance with regulation 33(4) or 33(5) of the OEIC regulations.

01/12/2004

Final account

CIS 14.2.7

(1) As soon as the ICVC's affairs are fully wound up (including distribution or provision for distribution in accordance with CIS 14.2.6 R (4)), the ACD must prepare an account of the winding up showing:

(a) how it has been conducted; and

(b) how the scheme property has been disposed of.

(2) The account in (1) must:

(a) if there is more than one director, be approved by the board of directors and be signed on their behalf by the ACD and at least one other director; or

(b) if there is no director other than the ACD, be signed by the ACD.

(3) Once signed, this account is the "final account" for the purposes of this chapter.

(4) The final account must state the date on which the ICVC's affairs were fully wound up and the date stated must be regarded as the final day of the accounting period of the ICVC then running ('final accounting period').

(5) The ACD must ensure that the ICVC's auditor makes a report in respect of the final account, which states the auditor's opinion whether the final account has been properly prepared for the purpose of (1).

(6) Within two months of the end of the final accounting period, the ACD must send a copy of the final account and the auditor's report on it to the FSA and to each person who was a shareholder (or the first named of joint holders) immediately before its end.

01/12/2004

Duty to ascertain liabilities

CIS 14.2.8

(1) The ACD must use all reasonable endeavours to ensure that all the liabilities of the ICVC are discharged before the completion of the winding up.

(2) The duty in (1) relates to all liabilities of the ICVC of which:

(a) the ACD is, or becomes, aware before the completion of the winding up; or

(b) the ACD would have become aware before the completion of the winding up had it used all reasonable endeavours to ascertain the liabilities of the ICVC.

(3) If the ACD rejects any claim against the ICVC in whole or part, the ACD must immediately send to the claimant written notice of its reasons for doing so.

01/12/2004

Reports and accounts

CIS 14.2.9

(1) While an ICVC is being wound up, the following continues to apply:

(a) the annual and half-yearly accounting periods (required by CIS 9.2.1 R);

(b) the rules in CIS 9 about annual and interim allocation of income; and

(2) The ACD need not (as would be required under CIS 10.5.2 R (2) (Publication of reports)) send to each shareholder a copy of any report relating to an annual accounting period or half-yearly accounting period which began after the effective time, if the directors of the ICVC, after consulting the FSA, have taken reasonable care to determine that the interests of shareholders are not such as to require the report to be sent to shareholders. However, a copy of the report must be supplied free of charge to any shareholder requesting one.

01/12/2004

Liabilities of the ACD

CIS 14.2.10

(1) The ACD is personally liable to meet any liability of an ICVC wound up under this chapter (whether or not the ICVC has been dissolved) that was not discharged before the completion of the winding up, except to the extent that the ACD can show that it has complied with CIS 14.2.8 R (Duty to ascertain liabilities).

(2) If the proceeds of the realisation of the assets attributable, or allocated in accordance with CIS 12.5.3 R (Allocation of scheme property), to a particular sub-fund of an umbrella ICVC are insufficient to meet the liabilities attributable or allocated to that sub-fund, the ACD must pay to the ICVC for the account of that sub-fund the amount of the deficit. This is subject to and to the extent that the ACD can show that the deficit did not arise as a result of any failure by the ACD to comply with the rules in CIS.

(3) The liabilities of the ACD under this rule (CIS 14.2.10 R) create a debt (in England and Wales in the nature of a specialty) accruing due from it on the completion of the winding up and payable upon the demand of the creditor in question (including the ICVC in the circumstances described in (2)).

(4) The obligations of the ACD under this rule (CIS 14.2.10 R) do not affect any other obligation of the ACD under these rules or the general law.

01/12/2004

Additional provisions applicable to umbrella companies

CIS 14.2.11

(1) Liabilities of an umbrella ICVC attributable, or allocated in accordance with CIS 12.5.3 R (Allocation of scheme property), to a particular sub-fund must be met first out of the scheme property attributable or allocated to such a sub-fund.

(2) If the liabilities to be met out of a particular sub-fund of an umbrella ICVC are greater than the proceeds of the realisation of the scheme attributable or allocated to that sub-fund, the deficit must be met out of the scheme property attributable or allocated to the solvent sub-funds of that umbrella ICVC in which the proceeds of realisation exceed liabilities and divided between those sub-funds in a manner that is fair to the shareholders in those solvent sub-funds.

(3) Paragraph (2) applies in respect of any deficit arising as a result of additional liabilities accruing to a sub-fund through the operation of (2).

(4) In calculating the amount of liabilities for the purpose of (2), account must be taken of any payments received or to be received from the ACD under CIS 14.2.10 R (Liabilities of the ACD).

01/12/2004

Miscellaneous

CIS 14.2.12

(1) If:

(a) during the course, or as a result, of the enquiry referred to in CIS 14.2.4 R (1) (Solvency statement), the directors become of the opinion that it will not be possible to provide the confirmation referred to in (2)(a) of that rule; or

(b) after the effective time, the ACD becomes of the opinion that the ICVC will be unable to meet all its liabilities within twelve months of the date of the statement provided under (a) of CIS 14.2.4 R (2);

the directors must immediately present a petition or cause the ICVC to present a petition for the winding up of the ICVC as an unregistered ICVC under Part V of the Insolvency Act 1986.

(2) If, after the commencement of a winding up under this chapter and before notice of completion of the winding up has been sent to the registrar of companies, there is a vacancy in the position of ACD, the directors must immediately present or cause the ICVC to present or, if there are no directors, the depositary must immediately present, a petition for the winding up of the ICVC as an unregistered ICVC under Part V of the Insolvency Act 1986.

01/12/2004

CIS 14.3

Termination of a sub-fund of an umbrella ICVC

01/12/2004

Explanation of CIS 14.3

CIS 14.3.1

(1) A termination of a sub-fund in accordance with this chapter will require alterations to the ICVC's instrument of incorporation and prospectus. The proposed alterations must be notified to the FSA and permitted to take effect in accordance with regulation 21 of the OEIC regulations before the termination can commence. On termination, the assets of the sub-fund will normally be realised, and the shareholders in the sub-fund will receive their respective shares of the proceeds net of liabilities and the expenses of the termination. A sub-fund may also be terminated in connection with a scheme of arrangement. In this case, shareholders in the sub-fund will become entitled to receive units in another regulated collective investment scheme in exchange for their shares in the sub-fund.

(2) The steps involved in the termination of a sub-fund are similar to those for the termination of an ICVC, so readers may find the guidance at CIS 14.2.2 G helpful.

01/12/2004

Special meanings for CIS 14.3

CIS 14.3.2

(1) In this section (CIS 14.3) references to:

(2) shares are references to shares of the class or classes related to the sub-fund to be terminated;

(3) shareholders are references to holders of such shares;

(4) a resolution or extraordinary resolution are references to such a resolution passed at a meeting of holders of shares of the class or classes referred to in (2);

(5) scheme property are references to the scheme property allocated or attributable to the sub-fund to be terminated; and

(6) liabilities are references to liabilities of the ICVC allocated or attributable to the sub-fund to be terminated.

01/12/2004

When a sub-fund is to be terminated

CIS 14.3.3

(1) A sub-fund must not be terminated:

(a) unless and until effect may be given under regulation 21 of the OEIC regulations to proposals to make the alterations to the ICVC's instrument of incorporation and prospectus that will be required if the sub-fund is terminated; and

(b) unless a statement has been prepared and sent or delivered to the FSA under CIS 14.3.4 R (Solvency statement) and received by the FSA before satisfaction of the condition in (a).

(2) Subject to (1) and the subsequent provisions of this section (CIS 14.3), a sub-fund must be terminated under this chapter:

(a) if an extraordinary resolution to that effect is passed; or

(b) when the period (if any) fixed for the duration of the sub-fund by the instrument of incorporation of the ICVC expires, or any event occurs on the occurrence of which the instrument of incorporation provides that the sub-fund is to be terminated; or

(c) on the date stated in any agreement by the FSA to a request from the directors of the ICVC for the termination of the sub-fund.

01/12/2004

Solvency statement

CIS 14.3.4

(1) Before a notice is given to the FSA under regulation 21 of the OEIC regulations of the proposal referred to in CIS 14.3.3 R (1)(a), the directors must make a full enquiry into the ICVC's affairs to the extent that they relate to the sub-fund so as to ascertain whether the ICVC will be able to meet its liabilities (including contingent and prospective liabilities).

(2) On or before that notice is given, the ACD must prepare a statement, reflecting the results of the enquiry in (1), and either:

(a) confirming that the ICVC will be able to meet all liabilities within twelve months of the date of the statement; or

(b) stating that the confirmation cannot be given.

(3) The statement referred to in (2) must:

(a) relate to the ICVC's affairs at a date which must not be more than 28 days before the date on which that notice is given to the FSA; and

(6) Termination of a sub-fund commences at the time at which the conditions referred to in CIS 14.3.3 R (1)(a) and CIS 14.3.3 R (1)(b) are both satisfied or, if later, the time determined under CIS 14.3.3 R (2) at which the sub-fund must be terminated.

01/12/2004

Consequences of commencement of termination of a sub-fund

CIS 14.3.5

(1) Immediately following the commencement of the termination of a sub-fund:

(a) CIS 4 (Single-pricing and dealing) and CIS 5 (Investment and borrowing powers) cease to apply to the shares and to the scheme property;

(b) the ICVC must cease to issue and cancel shares;

(d) no transfer of a share must be registered and no other change to the register of shareholders must be made without the sanction of the directors.

(2) If the ACD has not previously notified shareholders of the proposal to terminate the sub-fund, the ACD must, as soon as practicable after the commencement of the termination, give written notice of the commencement to the shareholders.

01/12/2004

Manner of termination

CIS 14.3.6

(1) The ACD must, as soon as practicable after the termination of the sub-fund has commenced, cause the scheme property to be realised and the liabilities to be met out of the proceeds.

(2) The ACD must give instructions to the depositary how those proceeds (until utilised to meet liabilities or pay distributions to shareholders) must be held. Those instructions must be with a view to the prudent protection of creditors and shareholders against loss.

(3) Provided there are sufficient liquid funds in the scheme property available after making adequate provision for the expenses of the termination and the discharge of the liabilities remaining to be discharged, the ACD may arrange for the depositary to make one or more interim distributions out of the funds to the shareholders proportionately to the right to participate in scheme property attached to their respective shares as at the date of the commencement of the termination.

(4) When the ACD has caused all the scheme property to be realised and all of the liabilities known to the ACD to be met, the ACD must arrange for the depositary to make a final distribution, on or before the date on which the termination account is sent to shareholders in accordance with CIS 14.3.7 R (5) (Termination account), of the balance remaining (net of a provision for any further expenses of the termination) to the shareholders in the same proportions as provided by (3).

(5) Paragraphs (1) to (4) are subject to the terms of any scheme of arrangement sanctioned by an extraordinary resolution passed on or before the commencement of the termination.

(7) In the case of (6) the ACD must cause the ICVC to distribute that part of the scheme property in specie to that or those shareholders in proportion to their respective rights to participate, after making such adjustments or retaining such provision as appears to the ACD appropriate for ensuring that that or those shareholders bear the proportion of the liabilities and the expenses of the distribution attributable to his or their shares.

(8) Where any sums (including unclaimed distributions) remain standing to the account of the scheme property following tender of payment (whether to a creditor or a shareholder) the ACD must instruct the depositary to retain the sums ("tendered sums") in an account ("unclaimed payments account") separate from any other part of the scheme property.

(9) The depositary must, if and when so instructed by the ACD, make a payment out of the unclaimed payments account for the purpose of settling a claim for a tendered sum.

(10) Any costs and reasonable expenses of the ACD for investigating a claim and any costs and expenses incurred by the depositary in making a payment out of the unclaimed payments account may be deducted from the payment and retained for its own benefit by the ACD or the depositary or both (as the case may be).

(11) The person entitled to any tendered sum is not entitled to any interest in respect of the unclaimed payments account and any interest arising in respect of the unclaimed payments account must be allocated between the continuing sub-funds of the ICVC in accordance with CIS 12.5.3 R (Allocation of scheme property).

(12) Amounts standing to the credit of an unclaimed payments account must be excluded from the value of the scheme property and must not be subject to any distribution under the provisions of CIS 14.2.6 R (Manner of winding up), but upon a dissolution of the ICVC under regulation 33 of the OEIC regulations, the depositary must cease to hold those amounts as part of that account and they will become subject to the provisions of CIS 14.2.6 R (9).

01/12/2004

Termination account

CIS 14.3.7

(1) As soon as the termination of the sub-fund (including distribution or provision for distribution in accordance with CIS 14.3.6 R (4)) has been completed, the ACD must prepare an account of the termination showing:

(a) how it has been conducted; and

(b) how the scheme property has been disposed of.

(2) The account in (1) must:

(a) if there is more than one director, following its approval by the board of directors, be signed on their behalf by the ACD and at least one other director; or

(b) if there is no director other than the ACD, be signed by the ACD.

(3) Once signed, this account is the "termination account" for the purposes of this chapter.

(4) The ACD must ensure that the ICVC's auditor makes a report to the shareholders in respect of the termination account which states the auditor's opinion whether the termination account has been properly prepared for the purpose of (1).

(5) Within two months of the termination of the sub-fund being completed, a copy of the termination account and the auditor's report on it must be sent to the FSA and to each person who was a shareholder (or the first named of joint holders) immediately before such completion.

01/12/2004

Duty to ascertain liabilities

CIS 14.3.8

(1) The ACD must use all reasonable endeavours to ensure that all the liabilities are discharged before the completion of the termination.

(2) The duty in (1) relates to all liabilities of which:

(a) the ACD is, or becomes, aware before the completion of the termination; or

(b) the ACD would have become aware before the completion of the termination had it used all reasonable endeavours to ascertain the liabilities.

(3) If the ACD rejects any claim against the ICVC in respect of a liability in whole or in part, the ACD must immediately send to the claimant written notice of its reasons for doing so.

01/12/2004

Reports and accounts

CIS 14.3.9

The obligations under CIS 9 (Income) and CIS 10 (Reports and accounts) continue in respect of a sub-fund being terminated until the completion of the termination.

01/12/2004

Liabilities of the ACD

CIS 14.3.10

(1) The ACD must keep the ICVC indemnified against any liability allocated or attributable to a sub-fund that has been terminated under these rules that was not discharged before the completion of the termination, except to the extent that the ACD can show that it has complied with CIS 14.3.8 R (Duty to ascertain liabilities).

(2) The liabilities of the ACD under (1) create a debt (in England and Wales in the nature of a specialty) accruing due from it on the completion of the termination and payable upon the demand of the ICVC.

01/12/2004

CIS 14.4

Winding up an AUT

01/12/2004

Explanation of CIS 14.4

CIS 14.4.1

This section (CIS 14.4) deals with the circumstances in which an AUT falls to be wound up and the manner of winding up. Under section 256 of the Act, the manager or trustee of an AUT may request the FSA to revoke the authorisation order in respect of that AUT. Section 257 of the Act gives the FSA the power to make any necessary directions.

01/12/2004

When an AUT is to be wound up

CIS 14.4.2

(1) Upon the happening of any of the events specified in paragraph (2) and not otherwise:

(a) CIS 4 (Single-pricing and dealing) or CIS 15 (Dual-pricing and dealing), whichever is applicable and CIS 5 or CIS 5A (Investment and borrowing powers) cease to apply to the AUT;

(b) the trustee must cease to issue and cancel units in the AUT;

(d) the manager must cease to arrange the issue or cancellation of units under CIS 4.5.3 R (Issues and cancellations through the authorised fund manager) or CIS 15.5.3 R (Issues and cancellations through the manager); and

(e) the trustee must proceed to wind up the AUT in accordance with CIS 14.4.3 R.

(2) The events referred to in (1) are:

(a) the authorisation order is revoked; or

(b) in response to a request to the FSA by the manager or the trustee for the revocation of the authorisation order, the FSA has agreed, albeit subject to there being no material change in any relevant factor, that, on the conclusion of the winding up of the AUT, the FSA will accede to that request; or

(c) the expiration of any period specified in the trust deed as the period at the end of which the AUT is to terminate; or

(d) the effective date of a duly approved scheme of arrangement, which is to result in the AUT that is subject to the scheme of arrangement being left with no property; and

(e) The date on which a relevant pension scheme is notified in writing by the Occupational Pensions Schemes Regulatory Authority that the scheme is no longer registered under the Welfare and Pensions Reform Act 1999 as a stakeholder pension scheme.

(3) This rule (CIS 14.4.2 R) is without prejudice to CIS 13.1.3 R (Suspension and resumption of dealing: requirement) and to any order or direction made under section 257 or 258 of the Act.

01/11/2002

Manner of winding up

CIS 14.4.3

(1) In a case falling within CIS 14.4.2 R (2)(d), the trustee must wind up the AUT in accordance with the approved scheme of arrangement.

(2) In any other case falling within CIS 14.4.2 R:

(a) the trustee must, as soon as practicable after the AUT falls to be wound up, realise the scheme property;

(b) after paying therefrom or retaining adequate provision for all liabilities properly so payable and for the costs of the winding up, the trustee must distribute the proceeds of that realisation to the unitholders and the manager (upon production by them of such evidence as the trustee may reasonably require as to their entitlement thereto) proportionately to their respective interests in the AUT as at the date of the relevant event referred to in CIS 14.4.2 R; and

(c) any unclaimed net proceeds or other cash (including unclaimed distribution payments) held by the trustee after the expiration of twelve months from the date on which they became payable must be paid by the trustee into court (or, in Scotland, as the court may direct), subject to the trustee having a right to retain any expenses incurred by him relating to that payment.

(3) In the case of an AUT which is a relevant pension scheme, payments must not be made to unitholders in the AUT. The realisation proceeds must be paid by the trustee in accordance with the destinations specified in the trust deed.

(4) Where the trustee and one or more unitholders agree, the requirement in (2) to realise the scheme property does not apply to that part of the property proportionate to the entitlement of that or those unitholders. The trustee may distribute that part in the form of property, after making adjustments or retaining provisions as appears to the trustee appropriate for ensuring that, that or those unitholders bear a proportional share of the liabilities and costs.

(5) On completion of the winding up in respect of the events referred to in CIS 14.4.2 R (2)(b), (c) or (d), the trustee must notify the FSA in writing of that fact and at the same time the manager or trustee must request the FSA to revoke the relevant authorisation order.

01/12/2004

Accounting and reports during winding up

CIS 14.4.4

(1) Subject to any order of the court, and to paragraphs (2) and (3), while an AUT is being wound up, whether under CIS 14.4.3 R or otherwise:

(a) the annual and half-yearly accounting periods continue to run;

(b) the provisions about annual and interim allocation of income (in CIS 9) continue to apply; and

(2) Where, for any annual or half-yearly accounting period, the trustee (after consulting the manager (if appropriate) and the FSA) has taken reasonable care to determine that timely production of an annual or half-yearly report is not required in the interests of the unitholders or the FSA, it may direct that immediate production of the report may be dispensed with.

(3) The period in question in (2) must be reported on together with the following period in the next report prepared for the purposes of (1) or (4).

(4) At the conclusion of the winding up, the accounting period then running is regarded as the final annual accounting period.

(5) Within two calendar months after the end of the final accounting period, the annual reports of the manager and trustee must be published and sent to each person who was a unitholder immediately before the end of the final accounting period.

01/12/2004

CIS 14.5

Schemes that are not commercially viable

01/12/2004

Explanation of this section

CIS 14.5.1

(1) The FSA expects that the majority of requests it will receive for the winding up of an ICVC (under regulation 21(1) of the OEIC regulations) or an AUT (under section 256 of the Act) will be from authorised fund managers and depositaries who consider that the AUT or ICVC in question is no longer commercially viable.

(2) It is in consumers' interests to minimise, as far as possible, the period between which the FSA receives such requests and responds to them. To assist the FSA in arriving at a quick decision, based on all the relevant factors, it would be helpful for the FSA to receive the information listed at CIS 14.5.2 G. Further information, however, may be requested by the FSA after receipt of the information, depending on the individual circumstances of the case.

01/12/2004

Information to be provided to the FSA

CIS 14.5.2

The information referred to in CIS 14.5.1 G is listed below:

(1) name of the authorised fund;

(2) size of the authorised fund;

(3) number of holders;

(4) whether dealing in units has been suspended;

(5) why the request is being made;

(6) what consideration has been given to the authorised fund entering into a scheme of arrangement with another authorised fund or recognised scheme and the reasons why a scheme of arrangement is not possible;

(7)

(a) whether holders have been informed of the intention to seek winding up or revocation;

(b) if not, when they will be informed;

(8) details of any proposed preferential switching rights offered or to be offered to holders;

(9) details of any proposed rebate of charges to be made to holders who recently purchased units;

(10) where the costs of winding-up will fall;

(11) the depositary's:

(a) statement whether having taken reasonable care it is certain that a scheme of arrangement is not practical and explain what steps have been considered that would result in the authorised fund not needing to wind up (for example appointing a replacement authorised fund manager);

(b) confirmation that:

(i) for an ICVC, it expects to report in the next report and accounts that the issue, sale and redemption prices, the cancellation of the ICVC's shares and the application of the ICVC's income has been carried out in accordance with the rules in CIS, and, where applicable, the OEIC regulations and the ICVC's instrument of incorporation, and that the investment and borrowing powers applicable to the ICVC have not been exceeded; or

(ii) for an AUT, it expects to report in the next report and accounts that the manager has managed the AUT in accordance with the rules in CIS, or (for a report and accounts that is unqualified) that there are no unresolved problems concerning the authorised fund that ought to be brought to the FSA's attention in connection with the possible exercise of powers under section 256 of the Act;

(12) the preferred date for the FSA's determination to revoke authorisation or date for the winding up; and

(13) any additional information or material considered to be relevant to the FSA's decision under section 256 of the Act or regulation 21 of the OEIC regulations (as appropriate).

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Termination of Authorised funds

CIS 15

Dual-pricing and dealing

CIS 15.1

Introduction

01/12/2004

Application

CIS 15.1.1

(1) This chapter applies in relation to dual-priced AUTs. Accordingly, in this chapter:

(a) references to "AUTs" and to "units" relate only to dual-priced AUTs and to units in them; and
(b) references to "manager" or "trustee" relate only to the manager or trustee of a dual-priced AUT.

(2) This section (CIS 15.1) applies to managers and trustees.
(3)

(a) If, and to the extent that, the authorised fund manager and the depositary so agree, income units and accumulation units are to be treated, for the purposes in (b) as belonging to the same class of units.
(b) The only purposes to which (a) can apply are:

(i) ascertaining the number of units respectively to be issued or cancelled in order for the authorised fund manager to comply with CIS 15.3.4 R (3) (Issue of units to meet authorised fund managers obligation to sell) and CIS 15.3.7 R (3) (Cancellation and payment for cancelled units); and
(ii) Compliance with requirements of this chapter relating to information to be given by the authorised fund manager to the depositary.

(c) Paragraphs (a) and (b) do not apply to the income units and accumulation units of an AUT unless the rights attached to those classes provide for their prices to be calculated by reference to undivided shares (howsoever called) in a manner similar to that resulting from CIS 2.6.1 R (Units and classes of units in AUTS).

01/12/2004

CIS 15.1.2

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 containing the rule or guidance.

01/12/2004

Purpose

CIS 15.1.3

(1) This chapter helps in achieving the regulatory objective of protecting consumers as envisaged by sections 2 and 5 of the Act. In accordance with Principle 6 (customers' interests), this chapter is intended to ensure the manager pays due regard to its customers' interests and treats them fairly.

(2) A manager is responsible for valuing the scheme property of the AUT it manages and for calculating the prices of units in the AUT. As well as arranging for the issue and the cancellation of units for the account of the AUT, the manager is permitted to sell and redeem units for its own account. The rules in this chapter are intended to ensure that the prices of units are properly related to the net value of the AUT and, in accordance with Principle 6 that the manager deals fairly with investors when they purchase or sell units. This chapter provides common standards for these purposes.

01/08/2002

Explanation

CIS 15.1.4

(1) Units of an AUT are issued or cancelled by the trustee on the manager's instructions. In the case of an issue, payment in cash of the issue price of the units or a transfer of assets of an equivalent value must be made to the trustee for the account of the manager concerned. Payment by the trustee for cancelled units is normally to be made in accordance with CIS 15.3.7 R (Cancellation of units).

(2) A manager may hold units for its own account (in its box): so a purchaser of units from the manager may receive units which have been issued to the manager or that have been redeemed (that is repurchased) by the manager from a previous unitholder. In addition to selling and redeeming units for its own account, the manager may arrange for the trustee to issue units direct to an investor or to cancel a unitholder's units.

(3) The manager must be prepared to redeem units of a unitholder who wishes to realise the value of them. The manager can then retain the units in its box or it can cancel them.

(4) The special provision about initial issues and sales, at the start of an AUT's life, are in CIS 15.2 separately from the rules about issues and sales in an ongoing AUT.

(5) Under this chapter the prices at which units may subsequently be issued or cancelled will be determined in accordance with CIS 15.3.6 R (Issue price) and CIS 15.3.8 R (Cancellation price) respectively and, in broad outline, will be calculated by valuing the scheme property attributable to the class of units in question on an issue basis or a cancellation basis (as appropriate) and dividing that value by the number of those units in issue. The valuation of the scheme property must be in accordance with CIS 15.8 (Valuation).

(6) The prices at which units may be sold or redeemed must be in the price bracket derived from CIS 15.4.4 R (Sale price parameters) and CIS 15.4.9 R (Redemption price parameters).

(7) CIS 15.6.3 R (SDRT provision) provides the manager with the power to require, for the benefit of the AUT, the payment or deduction of a provision for stamp duty reserve tax as an addition to or deduction from (but not part of) the price of the units.

(8) This CIS 15 is to be applied separately to each sub-fund of an umbrella scheme.

01/12/2004

CIS 15.2

Initial offers and unitisations

01/12/2004

Application

CIS 15.2.1

This section applies to managers, except CIS 15.2.7 R (Creation of units: unitisation) which applies to trustees.

01/12/2004

Purpose

CIS 15.2.2

This section helps to protect investors by rules intended to ensure the authorised fund receives the appropriate amounts for units issued as a result of an initial offer and that neither the authorised fund nor the investor will suffer any material loss as a result of fluctuations in the value of the scheme property for so long as units are available at the fixed price.

01/12/2004

Period of initial offer

CIS 15.2.3

(1) The period of the initial offer must not exceed 21 days and an initial offer must, subject to CIS 15.2.6 R (Compulsory termination of initial offer), be kept open for the period of the initial offer.

(2) Where an initial offer is of units of a sub-fund, CIS 15.2.4 R, CIS 15.2.5 R and CIS 15.2.6 R apply as if references in those rules to a unit were to a unit in that sub-fund.

01/12/2004

Issue of units: initial offer

CIS 15.2.4

(1) If units are issued by the trustee during the period of the initial offer, the units must be issued by the trustee under (2) or (4).

(2) If units are to be issued under this paragraph, the manager must instruct the trustee to issue units at the beginning of the first business day in the period.

(3) If units are to be issued under (4), at or before the beginning of the first business day in the period the manager must irrevocably choose, in respect of that initial offer, to proceed either under (4)(a) ("up and running") or under (4)(b) ("pay over and wait") and must notify its choice to the trustee.

(4) Where on any business day during the period the manager assumes any obligation to sell units, it must, depending on its choice under (3), either:

(a) instruct the trustee, at the beginning of the next business day, to issue units in such number at least as will enable the manager immediately to fulfil that obligation, whether from the units so issued or from other units; or

(b) proceed as follows:

(i) pay to the trustee (in any case where the purchaser has sent a remittance) on the day of receipt of the remittance or on the next business day, the total amount (or the total amount less the total of the manager's preliminary charge, if any, in respect of those units); and

(ii) as soon as the period of the initial offer has come to an end, instruct the trustee to issue units in the AUT in such number at least as will enable the manager to fulfil its obligations to sell units whether from the units so issued or from other units.

(5) The instructions given by the manager must state, in relation to each class of unit to be issued, the number to be issued, expressed either as a number of units or as an amount in value (or as a combination of the two).

(6) The trustee must, subject to CIS 15.3.9 R (Trustee's refusal to issue or cancel units), issue units on receipt of instructions by the manager given under this rule, and must not, during an initial offer, issue units otherwise.

01/12/2004

Initial price

CIS 15.2.5

(1) The initial price of a unit must be such amount as is agreed between the manager and the trustee to be the maximum amount (inclusive of any preliminary charge) which may be paid by a potential unitholder to the manager for units on an initial offer.

(2) The price for each unit issued during the period of the initial offer payable by the manager to the trustee must be the initial price of that unit less the amount of any preliminary charge made in respect of that unit.

(3) The amount which may be retained by the manager by way of preliminary charge must not exceed the amount stated in the original prospectus as the current charge.

(4) For the purpose of (2), a unit is treated as issued during the period of the initial offer if the manager had agreed to the sale of it or received an order for it to be sold before the close of the offer, and it was issued only afterwards.

(5) During the period of the initial offer, the manager must not cause units to be issued under CIS 15.5.3 R (Issues and cancellations through the manager) at a price which is greater than the initial price.

(6) The initial price of units must, subject to CIS 12.5.2 R (Base currency), be expressed in the base currency of the AUT: but, during the period of the initial offer, the manager may agree to sell units or cause units to be issued under CIS 15.5.3 R in any other currency.

(7) Nothing in this rule affects the power of the manager to require a payment of SDRT provision under CIS 15.6.3 R (SDRT provision).

(8) Where the initial offer is made in a country outside the United Kingdom, there may be added to the initial price of units offered in that country an amount sufficient to cover additional duty or taxation leviable in that country and the cost of the remittance of money to the United Kingdom.

01/12/2004

Compulsory termination of initial offer

CIS 15.2.6

(1) The period of the initial offer comes to an end immediately if:

(a) the manager does not carry out a valuation immediately if after having exercised reasonable care it determines that, if the current issue price of a unit were to be calculated by reference to an immediate valuation under CIS 15.8.4 R (Valuation), it would be likely to vary from the unit's initial price (excluding any preliminary charge by 2% or more of the initial price (excluding any preliminary charge); or

(b) the manager carries out a valuation immediately after it determines as mentioned in (a) that the valuation shows a variation of 2% or more.

(2) If the period of the initial offer comes to an end under (1), the manager must immediately refrain from:

(a) agreeing to sell units at the initial price; and

(b) instructing the trustee to issue units at the initial price, unless either to fulfil an existing obligation of the manager to sell units at the initial price or to fulfil an order for units at the initial price which the manager received before the initial offer came to an end.

(3) The current issue price of a unit for the purpose of (1) must be calculated on the basis that the number of units of each class in existence immediately before the valuation is the number for which the initial price has been paid, or for which assets have been transferred to the trustee in exchange (or treated for the purpose of the valuation as having been paid or exchanged), to the trustee before the valuation.

01/12/2004

Creation of units: unitisation

CIS 15.2.7

(1) The trustee has the power, not dependent on an instruction by the manager, to issue units, having regard to the terms of any unitisation to which it is a party. For this purpose, the trustee may issue any number of units in exchange for assets other than money but only if it has taken reasonable care to determine that to do so is not likely to result in any material prejudice to the interests of unitholders or potential unitholders.

(2) In exercise of the power, the trustee must only create units in favour of the persons entitled under the unitisation.

01/12/2004

CIS 15.3

Issues and cancellations

01/12/2004

Application

CIS 15.3.1

This section applies in relation to the issue and cancellation of units after the close of any initial offer of units at a fixed price. However, the following rules in this section also apply in relation to initial offers:

(1) CIS 15.3.5 R (3) , (4) and (5) (Issue by trustee), except to the extent that CIS 15.2.4 R (4)(b) applies;

(2) CIS 15.3.9 R (Trustee's refusal to issue or cancel units);

(3) CIS 15.3.10 R (Instructions or notifications between manager and trustee); and

(4) CIS 15.3.12 R (Modification to number of units issued or cancelled)

01/12/2004

Purpose

CIS 15.3.2

This section protects investors by means of rules intended to ensure the trustee receives or pays out the right amount when units are issued or cancelled. Accordingly, it lays down certain procedures for the issue and cancellation of units and sets out how, except for an initial offer, the prices of those units are to be calculated and paid.

01/12/2004

Box management errors

CIS 15.3.3

(1) This guidance (CIS 15.3.3 G) applies to managers.

(2) A manager is not permitted to sell or cancel units that it does not own. To do so would be in breach of CIS 15.3.4 R(3) (Issue of units: manager's instructions) or CIS 15.3.7 R(3) (Cancellation of units). Errors relating to the number of units issued or cancelled can be corrected to the extent permitted by CIS 15.3.12 R (Modification to number of units issued or cancelled).

(3) A manager's holding of units for its own account is commonly known as its "box" of units. Appendix CIS G (Correction of box management errors) contains further guidance on:

(a) controls relating to the management of the authorised fund manager's box of units.

(b) recording and reporting errors in calculating the number of units of each class in the box;

(d) the payment of compensation in relation to particular categories of error.

01/12/2004

Issue of units: manager's instructions

CIS 15.3.4

(1) This rule (CIS 15.3.4 R) applies to managers.

(2) Where the manager wishes new units to be issued, and complies with CIS 15.3.11 R (Timing of instructions to issue or cancel units), it may instruct the trustee to issue them. Any instructions given by the manager must state, in relation to each class of unit to be issued, the number to be issued, expressed either as a number of units or as an amount in value (or as a combination of the two).

(3) If, at any valuation point, the manager has any outstanding obligation to sell units of any class, then it must instruct the trustee, before the earlier of:

(a) the expiry of two hours since the valuation point; or

(b) the next valuation point;

to issue units of the class in such number as will at least enable the manager to fulfil that obligation immediately, (whether from the units so issued or from other units of that class which it owned immediately before the valuation point (or notified point if there is one)).

(4) If the manager wishes regularly to have a notified point, it may notify the trustee of its intention, indicating the period of time not exceeding two hours after the valuation point at which it wishes the notified point to occur; and any change in the period is ineffective unless agreed by the manager and the trustee.

01/11/2002

Issue by trustee

CIS 15.3.5

(1) This rule (CIS 15.3.5 R) applies to managers and trustees.

(2) The trustee must issue units on receipt of and in accordance with instructions given by the manager under CIS 15.3.4 R (Issue of units: managers instructions), and must not, after an initial offer, issue units otherwise, but this is subject to (3) and to CIS 15.3.9 R (Trustee's refusal to create or cancel units).

(3) The trustee may issue units in exchange for assets other than money, but its obligation to comply with an instruction to issue units in such a case arises only:

(a) if it has taken reasonable care to determine that (taking account of any payment that would have been required under CIS 15.6.3 R (SDRT provision) if the units had been issued for cash) the acquisition of the assets in exchange for the number of units to be issued is not likely to result in any material prejudice to the interests of unitholders or potential unitholders;

(b) in a case governed by CIS 11.5.2 R (5) (Schemes of arrangement: requirements) that the resolution concerned in relation to the AUT of which it is the trustee has been duly carried or is not required.

(4) On the issue of units, the manager must, by the close of business on the fourth business day, following the relevant instructions that were given by the manager:

(a) pay to the trustee in cash or in cleared funds the issue price of the units and any payment required under CIS 15.6.3 R (SDRT provision) to the extent that either remains unpaid; or

(b) for an exchange under (3), ensure transfer to the trustee of the assets to be taken in exchange.

(5) For an exchange under (3), the manager must ensure that the beneficial interest in the assets is transferred to the trustee with effect from the issue of the units, even if the legal ownership is not then transferred.

01/12/2004

Issue price

CIS 15.3.6

(1) This rule (CIS 15.3.6 R) applies to managers.

(2) The issue price of a unit is, subject to (3), calculated as follows:

(a) take the proportion, attributable to the units of the class in question, of the value on the issue basis of the scheme property by reference to the most recent valuation of the scheme property;

(b) compute the number of units of the relevant class in issue immediately before the valuation in (a);

(d) express the price in a form that is accurate to at least four significant figures.

(3) If a method of calculation other than that at (2) is used the manager must be sure that it is bound to produce the same result.

01/12/2004

Cancellation of units

CIS 15.3.7

(1) This rule (CIS 15.3.7 R) applies to managers and trustees.

(2) Where the manager wishes units to be cancelled, and complies with CIS 15.3.11 R (Timing of instructions to issue or cancel units), it may instruct the trustee to cancel them. Any instructions given by the manager must state, for each class of unit to be cancelled, the number to be cancelled, expressed either as a number of units or as an amount in value (or as a combination of the two).

(3) Where, at any moment of instruction, the manager has any outstanding obligation to sell units of a class, it may not instruct the trustee to cancel units of that class if or to the extent that its so doing would prevent it immediately from fulfilling any such obligation which had been assumed before the valuation point (or notified point if there is one).

(4) The trustee must (subject to CIS 15.3.9 R (Trustee's refusal to issue or cancel units)) cancel units on receipt of instructions given by the manager, and the trustee may not cancel units otherwise.

(5) Where instructions are given at a time which is less than two hours after the last valuation point, and the trustee has received but not yet executed instructions previously given under (4), the later instructions must enable the trustee to execute both or all sets of instructions simultaneously.

(6) On the cancellation of units and on delivery to the trustee of such evidence of the title to those units as it may reasonably require, the trustee must, within the period specified in (7), pay the cancellation price of the units less any deduction required under CIS 15.6.3 R (SDRT provision):

(a) (except where (b) applies), to, or to the order of, the unitholder or the manager as the case may be; or

(b) In the case of a relevant pension scheme, in accordance with the relevant provisions of the trust deed.

(7) The period expires at the close of business on the fourth business day following the cancellation of the units; but, where the manager has not ensured that the scheme property includes or will include sufficient cash in the appropriate currency (or a sufficient facility to borrow without infringing any restriction in CIS 5.15.3R (General power to borrow) or CIS 5.15.4R (Borrowing limits) within that period, the period is extended, for any relevant currency, until the shortage is rectified by the manager.

(8) Paragraph (6) does not apply where units are cancelled following a cancellation for property transferred or sold under CIS 15.5.4 R (In specie cancellation).

01/12/2004

Cancellation price

CIS 15.3.8

(1) This rule (CIS 15.3.8 R) applies to managers and trustees.

(2) The cancellation price payable for each unit by the trustee under CIS 15.3.7 R (Cancellation of units) is calculated by:

(a) Following steps (a) to (d) set out in CIS 15.3.6 R (2)(Issue price) or else following CIS 15.3.6 R (3); but

(b) for the purposes of CIS 15.3.6 R (2)(a), taking the value of the scheme property on the cancellation basis, not the issue basis.

01/12/2004

Trustee's refusal to issue or cancel units

CIS 15.3.9

(1) This rule (CIS 15.3.9 R) applies to trustees.

(2) If, on receiving instructions to issue or cancel units, the trustee is of the opinion that (in the case of an issue) the issue would be in breach of a restriction on issue relating to a class of limited issue units or that it is not in the interests of unitholders that:

(a) units should be issued; or

(b) units should be cancelled; or

the trustee must give notice to the manager that it refuses to issue or, as the case may be, cancel, all, or a specified number of, the units.

(3) On the giving of such a notice the trustee is relieved of the obligation to issue or cancel the number of units to which the notice relates.

01/11/2002

Instructions or notifications between manager and trustee

CIS 15.3.10

(1) This rule (CIS 15.3.10 R) applies to managers and trustees.

(2) Any instruction or notification given (or report supplied) under this chapter by the manager to the trustee:

(a) must be in writing or in such other form as enables the recipient to know or record the time of receipt and to preserve a legible copy of it;

(b) must be recorded by the manager, at the time when it is given or supplied.

(3) Instructions are given within any period under this chapter if they are received by the trustee within that period, and instructions received by the trustee after the expiry of any period are treated as given after that expiry.

(4) This rule also applies, with the necessary modifications, to any instruction or notification given by the trustee to the manager.

01/12/2004

Timing of instructions to issue or cancel units

CIS 15.3.11

(1) This rule (CIS 15.3.11 R) applies to managers and trustees.

(2) A manager may at any time give instructions to the trustee to issue or to cancel units.

(3) Where instructions are given at a time which is less than two hours after the last valuation point and before the next valuation point, the instructions must be given by reference to the price of the relevant class of units calculated (or being calculated) for the last valuation point.

(4) Where instructions are given at a time which is more than two hours after the last valuation point:

(a) the instructions must be given by reference to the price of the relevant class of units next to be calculated; and

(b) the trustee must issue or cancel the units only after the next valuation point has been reached.

01/12/2004

Modification to number of units issued or cancelled

CIS 15.3.12

(1) This rule (CIS 15.3.12 R) applies to managers and trustees.

(2) The number of units issued or cancelled may be modified by the manager changing an instruction to issue or cancel units which has been complied with provided that:

(a) the manager ensures that any appropriate consequential payment between the manager and the trustee is made; and

(b) the trustee agreed to the modification.

(3) The trustee must not agree to a modification under (2) unless it has taken reasonable care to determine:

(a) that the purpose of the modification is to rectify the consequences of an error in the instruction relating to the number of units held by the manager, or issued or cancelled in connection with the sale or redemption of units to or by, the manager; and

(b) that in view of the quality of the manager's control systems the circumstance that resulted in the error in question is an isolated one which is unlikely to recur.

(4) A modification under (2) is of no effect unless the corrected number of units is calculated by the end of the business day next following the valuation point for the issue or cancellation in question, or, if the trustee agrees, within the payment period applicable to that issue or cancellation under CIS 15.3.5 R (Issue by trustee) or CIS 15.3.7 R (Cancellation of units).

01/12/2004

CIS 15.4

Sale and redemption

01/12/2004

Application

CIS 15.4.1

(1) This section applies to managers. CIS 15.4.8 R (6) (Payment on redemption) and CIS 15.4.10 R (7)(c) (Redemption charge) also apply to trustees.

(2) This section applies to the sale and redemption of units after the close of any initial offer. However, CIS 15.4.3 R (Manager's obligation to sell) also applies to initial offers.

01/12/2004

Purpose

CIS 15.4.2

This section protects investors by means of rules intended to ensure the manager deals fairly with investors when they purchase or redeem units. Accordingly, this section (CIS 15.4) lays down the basic procedures for the sale and redemption of units and sets out how the resulting payments should be calculated and paid.

01/12/2004

Manager's obligation to sell

CIS 15.4.3

(1) The manager must at all times during the dealing day be willing to sell units and, subject to (2), must, at the request in writing of any person, agree to sell to that person units of at least one class or, in the case of an umbrella scheme, one class in respect of each of its sub-funds.

(2) The manager's obligation to sell units under (1) does not apply:

(a) if it has not received payment for the units of an amount complying with CIS 15.4.4 R (Sale price parameters) or, if the sale was at a forward price of a stated number of units, if it has not received payment of an amount estimated by it to be required; or

(c) (for a property scheme) if the manager believes, on reasonable grounds, that the number or value of units sought to be purchased would lead to any one person (or any one person and any other person who appears to the manager to be acting in concert with that person) holding more than any number or value stated in the prospectus as the maximum number or value to be purchased or held; or

(d) if it has reasonable grounds for refusing to sell units to the person concerned; or

(e) if the sale would be in breach of a provision in the trust deed of any of the types described in paragraphs (j) (Limited categories of unitholders), (m) (Relevant pension schemes) or (n) (Relevant charitable schemes) of CIS 2.2.7 G (Provisions that may be included in the trust deed).

(3) Paragraph (1) does not apply to units of any class:

(a) if no units of that class are in issue; or

(b) if the sale of units of that class:

(i) is prohibited by the rules in CIS 13 (Suspension and resumption of dealings); or

(ii) would breach a restriction on sale applicable to a class of limited issue units.

(4) Units must be sold in the base currency, unless the person concerned requests, and the manager agrees, that the units should be sold in another currency.

01/04/2004

Sale price parameters

CIS 15.4.4

(1) Except in the case of a large deal, the manager's price for the sale of units must not exceed the maximum sale price of the relevant class; that is a price fixed by the manager and notified or to be notified to the trustee in respect of the last valuation point (or, for a sale at a forward price, to be notified in respect of the next valuation point) and that maximum sale price itself must not exceed the total (expressed to at least four significant figures) of:

(a) the issue price; and

(b) the current preliminary charge.

(2) In the case of an initial offer, the manager's price for sale of units must not exceed the initial price.

(3) In the case of a large deal, the manager's price for sale may exceed the maximum sale price, but must not exceed the limit above which the maximum sale price could not have been fixed.

(4) The manager's price for sale must not be less than the minimum redemption price under CIS 15.4.9 R (Redemption price parameters).

01/12/2004

Preliminary charge

CIS 15.4.5

(1) The sale price must not include a preliminary charge unless the trust deed so permits.

(2) The preliminary charge must be expressed as a fixed amount or as a percentage of the issue price and must not exceed an amount or rate calculated in accordance with a statement in the prospectus as to the current charge.

(3) The manager must not make any charge or levy in connection with the sale of units except a preliminary charge in accordance with (1) and (2), but this does not restrict any requirement for a payment under CIS 15.6.3 R (SDRT provision).

(4) Paragraph (1) does not apply on an exchange of units within an umbrella scheme, but nothing in this rule prevents the manager from making a charge on such an exchange in accordance with CIS 15.4.12 R (Exchange of units in umbrella schemes)

01/12/2004

Increase in preliminary charge

CIS 15.4.6

The manager must not introduce a preliminary charge or increase (within the maximum stated in the trust deed) the current amount or rate of a preliminary charge payable under CIS 15.4.5 R unless:

(1) the new preliminary charge is within the maximum stated in the trust deed;

(2) the introduction or increase would not cause an infringement of CIS 15.4.11 R (Control over maximum charges on issue and redemption);

(3) not less than 90 days before the introduction or increase:

(a) the manager gave notice in writing of that introduction or increase 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) the manager has revised the prospectus to reflect the introduction or new current amount or rate of preliminary charge and the date of its commencement and has made the revised prospectus available.

01/12/2004

Manager's obligation to redeem

CIS 15.4.7

(1) The manager must at all times during the dealing day be willing to redeem units; and, accordingly, must at the request in writing of any unitholder agree to redeem units owned by that unitholder for the amount to be paid under CIS 15.4.8 R (Payment on redemption).

(2) Paragraph (1) does not apply:

(a) if the number or value of the units sought to be redeemed is:

(i) less than the entirety of the unitholders holding of units of the class concerned; and

(ii) less than any number or value stated in the prospectus as the minimum number or value that may be redeemed of units, or units of the class concerned; or

(b) if the number or value of the units sought to be redeemed would result in the unitholder holding less than any number or value stated in the prospectus as the minimum number of units, or units of the class concerned, that may be held; or

(c) if the manager ensures that the unitholder is able to sell his units on an investment exchange at a price not significantly different from the price at which they would have been redeemed; or

(d) where units are redeemed in return for property transferred or sold under CIS 15.5.4 R (In specie cancellation); or

(e) during the period of the initial offer; or

(f) if redemption of the units of the class concerned is prohibited by CIS 13 (Suspension and termination).

01/12/2004

Payment on redemption

CIS 15.4.8

(1) On agreeing to redeem units, the manager must, within the period specified in (3):

(a) (except where (b) applies) pay the unitholder the proceeds of redemption under (3) (less any deduction under (4) and, where applicable, the cost of remitting the sum abroad); or

(b) if a manager of a relevant pension scheme pay or arrange for the payment of the appropriate proceeds of redemption in compliance with the trust deed including, where applicable, any time limit therein for payment which is shorter than the period specified in (2).

(2) The proceeds of redemption paid under (1) must not be less than the manager's price for redemption of units under CIS 15.4.9 R (Redemption price parameters).

(3) The period expires at the close of business on the fourth business day following the later of:

(a) the valuation point immediately after the manager receives the request to redeem; or

(b) the time when the manager has all duly executed instruments and authorisations to effect (or enable the manager to effect) transfer of title to the units.

(4) There may be deducted from the proceeds of redemption to be paid under (1) any redemption charge permitted under CIS 15.4.10 R (Redemption charge) and any payment required under CIS 15.6.3 R (SDRT provision).

(5) Neither this rule CIS 15.4.8 R nor CIS 15.4.9 R (Redemption price parameters) applies where the manager is not redeeming units in accordance with this chapter, but is buying them as principal on an investment exchange in accordance with a power in the trust deed, which envisages that settlement will be in accordance with the rules of that exchange.

(6) Nothing in this rule require a manager or trustee to part with money for a cancellation or redemption of units where any money due on the earlier issue or sale of those has not been received by the person entitled to it under this chapter.

01/12/2004

Redemption price parameters

CIS 15.4.9

(1) Except in the case of a large deal, the manager's price for any redemption of units must not be less than the relevant minimum redemption price of a unit of the relevant class notified, or to be notified to the trustee, in respect of the last valuation point (or, for a redemption at a forward price, next to be notified in respect of the next valuation point).

(2) The minimum redemption price must not be less than the relevant cancellation price.

(3) In the case of a large deal, the manager's price for redemption may be less than the minimum redemption price, but must not be less than the relevant cancellation price.

(4) Subject to CIS 15.4.12 R (Exchange of units in umbrella schemes), in the case of an umbrella scheme, the maximum price at which units in one sub-fund may be acquired in exchange for units in another sub-fund must not exceed the relevant maximum sale price (less any preliminary charge) of the new units; and the minimum price at which the old units may be taken in exchange must not be less than the equivalent minimum redemption price.

(5) The manager's price for redemption of units must not exceed the relevant issue price under CIS 15.3.6 R (Issue price).

01/12/2004

Redemption charge

CIS 15.4.10

(1) If the trust deed so permits, the proceeds of redemption may in accordance with CIS 15.4.8 R (Payment on redemption) be arrived at after deduction of a redemption charge for the benefit of the manager.

(2)

(3) In (2) and (7), "issued" or "sold" in the case of units in an AUT 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.

(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 cancelling units under CIS 15.5.3 R (Issues and cancellations through the manager)) 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.

(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 unitholder 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 and redemption

CIS 15.4.11

(1) In the circumstance envisaged by (2), an introduction of, or change to, either of the charges permitted by CIS 15.4.5 R (Preliminary charge) or CIS 15.4.9 R (Redemption charge) must not take effect unless:

(a) the trust deed is modified under CIS 11.4.3 R (Amendment to trust deed: with meeting); or

(b) as the case may be, the prospectus is amended following approval of the introduction or change by an extraordinary resolution at a meeting of the unitholders called for the purpose.

01/12/2004

Exchange of units in umbrella schemes

CIS 15.4.12

For an umbrella scheme, the manager must not make any charge on an exchange of units:

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

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

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

(b) 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

Notification of prices to the trustee

CIS 15.4.13

(1) Immediately after completing a valuation under CIS 15.8, (whether regular or otherwise) the manager must notify the trustee of:

(a) the issue price;

(b) the cancellation price;

(d) the minimum redemption price; and

(e) (in the case of an umbrella scheme) the maximum sale price for units in any sub-fund on an exchange of units.

(2) The prices to be notified under (1) must:

(a) relate to units of each class in issue;

(b) be those relevant to deals based on prices determined at the valuation point; and

(3) Each notification under (1) must include a statement of the number of units of each class owned by the manager at the valuation point (or notified point if there is one).

(4) As soon as practicable after each notification under (1), the manager must notify the trustee of the transactions, or types of transaction, for which an SDRT provision is applied and the amounts or rates of those SDRT provisions.

01/12/2004

Publication of prices

CIS 15.4.14

(1) Where the manager holds itself out as willing:

(a) to sell or redeem units of any class; or

(b) to issue or cancel units of any class under CIS 15.5.3 R (Issues and cancellations through the manager);

it must make public the maximum sale and minimum redemption prices of those units and the current preliminary charge (if there is one) in an appropriate manner.

(2) The prices made public under (1) are to be the price or prices last notified to the trustee under CIS 15.4.13 R or, in the case of publication in a newspaper, last notified before the relevant newspaper ceased to accept material for publication in the relevant edition.

(3) [deleted]

(4) Where the manager holds itself out as willing to sell and redeem units (or, as the case may be, to issue or cancel units under CIS 15.5.3 R (Issues and cancellations through the manager) in any other EEA State, it must also comply with (1) in the manner provided for by the law of that EEA State.

(5) Paragraphs (1) to (4) do not apply to units in relation to which the manager is excused from dealing with the public.

(6) The manager must disclose the cancellation price, orally or in writing, to any person who requests it, whether in person at, or by any communication addressed to, the manager's principal place of business in the United Kingdom, and the manager must have arrangements to enable it accordingly to disclose, free of charge, at all times during the dealing day, the cancellation price last notified to the trustee.

01/04/2005
Past version of CIS 15.4.14 before 01/04/2005

Manner of price publication

CIS 15.4.15

(1) In determining the appropriate manner of making sale and redemption prices and the current preliminary charge (if there is one) (in this provision referred to together as "prices") public under CIS 15.4.14 R (1), the manager should ensure that:

(a) a unitholder or potential unitholder can obtain the prices at a reasonable cost;

(b) prices are available at reasonable times;

(d) the manner of publication is disclosed in the prospectus; and

(e) prices are published in a consistent manner.

(2) Examples of what might be deemed appropriate include:

(a) publication in a national newspaper;

(b) supply through an advertised local rate or freephone telephone number;

(d) inclusion in a database of prices which is publicly available; or

(e) communication to all existing unitholders.

(3) The manager should make previous prices available to any unitholder or potential unitholder.

01/04/2005

CIS 15.5

Issues and cancellations through the manager and in specie cancellations

01/12/2004

Application

CIS 15.5.1

This section applies to managers and trustees.

01/12/2004

Purpose

CIS 15.5.2

(1) CIS 15.5.3 R ensures that investors are able, in certain circumstances, to require direct issues or cancellations of units by the trustee as an alternative to buying units from, or redeeming them with, the manager.

(2) CIS 15.5.4 R protects investors in an AUT by enabling the manager, subject to the conditions in that rule, to require a unitholder who wishes to redeem his units to take, instead of the usual proceeds of redemption, a transfer of assets of the AUT, or if the unitholder requires, to take the net proceeds of the sale of the assets.

01/12/2004

Issues and cancellations through the manager

CIS 15.5.3

(1) At the request of any person, the manager is obliged to instruct the trustee to issue units to that person where the manager would otherwise be obliged to sell them under CIS 15.4.3 R (Manager's obligation to sell).

(2) At the request of any unitholder, the manager is obliged to instruct the trustee to cancel units held by that unitholder where the manager would otherwise be obliged to redeem them under CIS 15.4.7 R (Manager's obligation to redeem).

(3) The price of a unit issued or cancelled under this rule must be the issue or cancellation price of a unit of the relevant class notified to the trustee at the next valuation point after the request referred to in (1) or (2), except for an issue to which CIS 15.2.5 R (Initial price) applies, when it must be the initial price.

(4)

(a) In the case of an issue, the manager may require to be paid in addition to the price under (3):

(i) For the account of the manager, any preliminary charge permitted under CIS 15.4.5 R;

(ii) For the account of the AUT, any SDRT provision required under CIS 15.6.3 R (SDRT provision).

(b) In the case of a cancellation, the manager may require to be deducted from the proceeds:

(i) For the account of the manager, any redemption charge permitted under CIS 15.4.10 R (Redemption charge);

(ii) for the account of the AUT any deduction required under CIS 15.6.3 R.

(5) The manager must pay the trustee in accordance with CIS 15.3.5 R (Issue by trustee), the issue price of any units issued under this rule CIS 15.5.3 R and any payment required under (4)(a)(ii), whether or not the manager has received payment from the investor. However, the manager may defer instructing the trustee to issue the units until full payment for them has been received.

(6) Nothing in this rule requires the trustee or the manager to part with money for a cancellation of units in the circumstances described in CIS 15.4.8 R (6) (Payment on redemption).

(7) Paragraph (1) does not apply if the issue would breach a restriction on issue applicable to a class of limited issue units.

01/11/2002

In specie cancellation

CIS 15.5.4

(1) This applies where a unitholder:

(a) requests redemption, or requests cancellation under CIS 15.5.3 R (Issues and cancellations through the manager), of units representing in value not less than 5% (or any lower percentage stated in the trust deed) of the value of the scheme property of the AUT; and

(b) the transfer to him of scheme property, instead of a payment under CIS 15.4.8 R (Payment on redemption) or CIS 15.5.3 R, is either:

(i) chosen by the manager by a notice of election on the unitholder; or

(ii) requested by the unitholder (in a case where he is permitted to do so under the trust deed) at the same time as his request at (a).

(2) A notice of election under paragraph (1)(b)(i) is invalid if served later than the close of business on the second business day following the day of receipt of the request in paragraph (1)(a);

(3) Where a notice of election is served under paragraph 1b(i), the unitholder may by a notice served on the manager require the manager, instead of arranging for a transfer of property, to arrange:

(a) for a sale of the property; and

(b) for payment to the unitholder of the net proceeds of sale.

(4) A manager must comply with the requirement of a valid notice served on it under (3). A notice under (3) is not valid if served later than the close of business on the fourth business day following the day of receipt of the notice under (1)(b)(i).

(5) Where there is to be transfer of property, whether by election or by request:

(a) the manager must forthwith notify the trustee that redemption (or cancellation under CIS 15.5.3 R) of the units is to be effected by transfer of property; and

(b) the trustee must, on receipt of such evidence of title as he may require:

(i) cancel the units; and

(ii) transfer to the unitholder his proportionate share of the due property.

(6) In (5) in this rule, "proportionate share" means:

(a) such part of each description of asset in the scheme property as is proportionate to or as nearly as practicable proportionate to the unitholder's share; or

(b) such selection from the scheme property as the trustee, after consultation with the manager, decides is reasonable;

having regard to the need to be fair both to the unitholder and to continuing unitholders.

(7) Where there is to be a sale of property under (3):

(a) the manager must immediately notify the trustee of that fact, and must arrange for a sale of the assets that would otherwise have been transferred under (5) (other than any assets which are in cash in the relevant currency for the purposes of the redemption); and

(b) the trustee must, on receipt of such evidence of title as it may require:

(i) cancel the units; and

(ii) pay to the unitholder the net proceeds of the sale and any relevant amount in cash.

(8) The scheme property to be transferred under (6), or the proceeds of sale to be paid under (7), are subject to the retention of scheme property (including cash) of a value or amount equivalent to any deductions permitted by CIS 15.5.3 R (Issues and cancellations through the manager) and which shall be accounted for in the manner provided by that rule. However, those deductions must not be taken into account in the value of units used for the purpose of (1)(a).

(9) This rule does not enable units in a relevant pension scheme other than in accordance with that scheme to be redeemed.

01/12/2004

CIS 15.6

SDRT provision

01/12/2004

Application

CIS 15.6.1

This section applies to managers.

01/12/2004

Purpose

CIS 15.6.2

(1) Certain transactions in units can result in stamp duty reserve tax being paid out of the scheme property of the AUT. Accordingly, with a view to protecting investors from a resulting diminution in the value of their units, and in accordance with Principle 6 (customers' interests) that a firm must pay due regard to the interests of its customers and treat them fairly, a manager is permitted to require the payment of an SDRT provision as an addition to the price of units when they are issued or sold, and as a deduction when they are cancelled (other than certain in specie cancellations) or redeemed.

(2) Any SDRT provision paid or received by deduction is for the account of the AUT. However, there are provisions to prevent an SDRT provision being imposed twice, both on the issue and subsequent sale of a unit, or on the redemption and subsequent cancellation of a unit.

(3) For the purpose of (1) and (2) it does not matter whether the cancellation is under CIS 15.3 (Issues and cancellations) or under CIS 15.5 (Issues and cancellations through the manager and in specie cancellations).

(4) CIS 15.6.3 R(3) (SDRT provision) requires an SDRT provision to be imposed only in a manner that, so far as practicable, is fair to all holders and potential holders. However there are exceptions to this in respect of large deals. In addition, certain transactions (such as transactions in units within an individual pension account) are specifically excluded from a charge to stamp duty reserve tax.

01/08/2002

SDRT provision

CIS 15.6.3

(1) The manager has the power to require either or both of:

(a) the payment of an SDRT provision in respect of the issue or the sale of units; and

(b) the deduction of an SDRT provision in respect of the redemption, or cancellation of units, other than a cancellation of units under CIS 15.5.4 R (In specie cancellation) resulting in a transfer of property that is such part of each description of asset in the scheme property as is proportionate to, or as nearly as practicable proportionate to, the unitholder's share in the scheme property.

(2) Any such payment or deduction becomes due at the same time as payment or transfer of property becomes due in respect of the issue, sale, redemption or cancellation.

(3) An SDRT provision may be imposed only in a manner that is, so far as practicable, fair to all unitholders and potential unitholders. However:

(a) the imposition of an SDRT provision (or a higher SDRT provision) in respect of large deals, in a manner described in the prospectus current at the time of the deal, or

(b) The exclusion from an SDRT provision of any transaction in units where the units are so held that their redemption or cancellation is specifically excluded from a charge to stamp duty reserve tax,

is not unfair

(4) If the manager receives an SDRT provision in respect of any unit sold or to be sold by it, it must immediately upon receipt of that SDRT provision pay it to the trustee to become part of the scheme property of the AUT, except to the extent that it has already been, or will be, paid by the manager to the trustee on the issue of that unit.

(5) If the manager deducts an SDRT provision from the proceeds of a unit it redeemed, it must immediately pay it to the trustee to become part of the scheme property except to the extent that it already has been, or will be, deducted from the payment by the trustee to the manager on cancellation of that unit.

01/12/2004

CIS 15.7

Forward and historic pricing

01/12/2004

Application

CIS 15.7.1

This section applies to managers.

01/12/2004

Purpose

CIS 15.7.2

This section protects investors by means of rules intended to prevent the sale and redemption of units at an historic price where this is liable to be unfair.

01/12/2004

CIS 15.7.3

(1) There are two ways in which a manager may sell or redeem units; these are at forward and historic prices. A forward price is one to be fixed at the next valuation point, while a historic price is one fixed on the basis of the last valuation.

(2) The two pricing systems have different characteristics. The investor knows that a forward deal will be priced at the next valuation point, but if he is investing a specified sum, he does not know until then how many units he will receive (or, if he is seeking to redeem, how much he will receive in cash). The investor knows, by contrast, that a historic deal may well represent a price which is outdated (though not by more than 2%), but is able to know, at the time of the deal, how much he must pay (or will receive) or the time of the valuation which will be relevant to that price.

(3) The rules generally express a preference for forward pricing in that there are numerous occasions when a price must be forward, whether or not the manager chooses to deal in that way. Issues or cancellations through the manager under CIS 15.5.3 R (Issues and cancellations through the manager) are always at a forward price.

(4) The diagram in CIS 15.7.6 G indicates the valuation point relevant for issues and cancellations and for sales and redemptions in the period between one valuation point and the next. In doing so, it takes account of CIS 15.7.5 R and of earlier rules in this chapter, including CIS 15.3.11 R (Timing of instructions to issue or cancel units).

01/12/2004

Forward and historic pricing

CIS 15.7.4

(1) For the sale and redemption of units, the manager may, subject to this rule (CIS 15.7.4 R), operate on the basis of forward or historic prices, but its power to choose, or its duty to operate on one basis only, is governed by CIS 15.7.5 R.

(2) If the prices for the sale and redemption of units related to any sub-fund of an umbrella scheme are on a forward basis, the prices for the sale and redemption of units related to each other sub-fund of that umbrella fund must also be on a forward basis; but this paragraph does not apply merely because of a requirement to price on a forward basis temporarily under Part 2 or Part 3 of CIS 15.7.5 R.

(3) Prices are to be on a forward basis only for the sale and redemption of units in an AUT which is a geared futures and options scheme, a property scheme, a warrant scheme or an umbrella scheme that includes a sub-fund which, if it were the subject of a separate authorisation order, would be an AUT of one of those categories.

(4) CIS 15.7.5 R does not apply during the period of initial offer at a fixed price. In CIS 15.7.5 R:

(a) "F Only" means that any price agreed on must be a forward price;

(b) "H" means that any price agreed on must be an historic price unless the manager is required by the table to deal at a forward price; and

(c) "General dealing" means "in relation to all sales and redemptions agreed on during the remainder of the relevant dealing period (except those that are agreed upon individual deviations)"; and an "individual deviation" is a decision, in relation to a particular transaction, covered by Part 3 of the Table.

01/12/2004

CIS 15.7.5

Explanatory table: Forward or historic pricing. This table belongs to CIS 15.7.4 R.

FORWARD OR HISTORIC PRICING

Part 1: General Dealing

Manager's choice. The prospectus must state the manager's choice for H or else for F Only.

If the manager's current choice under 1 is F Only, all its deals must be at a forward price.

A manager must not choose H if its normal arrangements for valuation envisage valuations more than one business day apart.

The remainder of this table applies to a manager with a current choice of H.

It may at any time elect for F Only in respect of the rest of the then current dealing period.

If the manager binds itself to switch from H to F Only at a certain point in each dealing period, this must be stated in the prospectus.

An election for (or switch to) F Only will last until the end of the dealing period and will then lapse.

For general dealing purposes, redemptions must be on the same basis as sales.

Part 2: General Dealing - Duty To Adopt Forward Pricing

Market movement: F Only applies once the manager having taken reasonable care decides that there would be a difference of 2% or more between the current value of the scheme property, if immediately valued, and its last calculated value (taking that as 100% for this purpose), but decides not to carry out an additional valuation under CIS 15.8.3 R (Valuation of scheme property).

10.

Valuation taking over 2 hours: F Only applies if a new price for units of each class has not been notified to the trustee after 2 hours.

11.

Paragraph (10) does not apply, if within two hours of the valuation point, the manager has notified the trustee of the basis (issue or cancellation) on which the next prices will be fixed, and of the spread (reckoned in percentage or money terms) between the maximum sale price and the minimum redemption price.

12.

F Only under (9) and (10) will start when the relevant moment arrives, will last until the end of the dealing period and will then lapse.

Part 3: Individual Deviations

13.

Paragraphs (14) to (17) apply to an individual transaction without affecting the general position arrived at under Parts 1 and 2.

14.

Request: F Only applies if the applicant for sale or redemption so requests.

15.

Large deals: F Only applies, if the manager so decides, for a large deal.

16.

Postal deals: F Only applies if the order or offer reaches the manager through the post or by any similar form of one-way communication.

17.

Issue or cancellation through the manager: F Only applies in the case of an issue or cancellation under CIS 15.5.3 R (Issues and cancellations through the manager).

Part 4: Notification to Trustee

18.

The manager must notify the trustee of the fact and time of any adoption of F only under (5) or Part 2.

01/12/2004

CIS 15.7.6

Explanatory diagram: Price at and after valuation point (This a diagram referred to in (CIS 15.7.3 G (4)))

01/12/2004

CIS 15.8

Valuation

01/12/2004

Application

CIS 15.8.1

This section applies to managers.

01/12/2004

Purpose

CIS 15.8.2

(1) This section protects investors by providing how the issue, cancellation, sale and redemption prices of units should be calculated. It also deals with the time and method of valuation of the scheme property, with the property that is to be included in a valuation and with the various tax and other adjustments that are either added to or deducted from such a valuation.
(2) CIS 15.8.4 R contains the detailed rules for valuation of the scheme property by the manager. The Table is subject to other rules (see CIS 5.2.5 R (Valuation) or CIS 5A.2.5 R (Valuation) and CIS 12.3 (Property schemes)).

01/11/2002

Frequency of valuation

CIS 15.8.3

(1) Regular valuation: for the purposes of determining in accordance with these rules the prices at which units of either class may be issued, cancelled, sold or redeemed, the manager must regularly carry out a valuation of the scheme property, which must be conducted in accordance with CIS 15.8.4 R.
(2) Additional valuation: the manager must inform the trustee if the manager determines to have an additional valuation point in respect of the AUT or any sub-fund, but this does not prevent the manager carrying out a valuation for another purpose that is not against the interests of the unitholders at a time that is not to be a valuation point.
(3) An additional valuation must be conducted in accordance with CIS 15.8.4 R.
(4) An additional valuation for the purposes of paragraph (9) (market movement) of CIS 15.7.5 R (forward and historic pricing) must be conducted:

(a) in accordance with CIS 15.8.4 R; but
(b) if it is impracticable to conduct a valuation in accordance with that table, the manager determines having taken reasonable care, and the trustee agrees, that an adequate valuation may be obtained in that way, may be conducted by reference to fluctuations in an index of property reflecting in the composition the scheme property the additional valuations may be conducted in that way.

01/12/2004

CIS 15.8.4

Table 15.8R Valuation

This table belongs to CIS 15.8.3 R

Section 1: When?

The manager must carry out valuations under CIS 15.8.3 R (1) (Regular valuations) regularly.

The frequency of regular valuation must be specified in the prospectus.

The frequency specified must be at least twice a calendar month.

If the frequency specified is the minimum frequency, the regular valuations must be two weeks or more apart.

Paragraphs 3. and 4. do not apply to warrant schemes or to a sub-fund which is permitted to invest entirely in warrants and there must be at least one valuation point for them on each business day.

Additional valuations under CIS 15.8.3 R (2) can take place at any time during a dealing day.

There is no need to value during the period of an initial offer (but see CIS 15.2.6 R (Compulsory termination of initial offer)).

Section 2: How?

The valuation takes place as at a valuation point fixed by the manager under Section 1.

The valuation is in base currency.

10.

Prices must be the most recent prices that can reasonably be obtained after the valuation point with a view to giving an accurate valuation as at that point.

11.

A valuation is in two parts, one on an issue basis and one on a cancellation basis.

12.

To convert to base currency the value of property which would otherwise be valued in another currency the manager must either:

(a)

Select a rate of exchange which represents the average of the highest and lowest rates quoted at the relevant time for conversion of that currency into base currency on the market on which the manager would normally deal if it wished to make such a conversion; or

(b)

Invite the trustee to agree that it is in the interests of unitholders to select a different rate, and, if the trustee so agrees, use that other rate.

Section 3: What?

13.

All scheme property is included, subject to adjustments arising from this section, and section 4, and this section is to be applied as at the valuation point.

14.

If the trustee has been instructed to issue or cancel units, assume (unless the contrary is shown) that:

(a)

it has done so;

(b)

it has paid or been paid for them; and

(c)

all consequential action required by these rules or by the trust deed has been taken.

15.

If the trustee has issued or cancelled units but consequential action as at 14(c) is outstanding, assume that it has been taken.

16.

If agreements for the unconditional sale or purchase of property are in existence but uncompleted, assume:

(a)

completion; and

(b)

that all consequential action required by their terms has been taken.

17.

Do not include in 16. any agreement which is:

(a)

A future or contract for differences which is not yet due to be performed; or

(b)

An unexpired option written or purchased for the AUT which has not yet been exercised.

18.

Include in 16 any agreement the existence of which is, or could reasonably be expected to be, known to the person valuing the property, assuming that all other persons in the manager's employment take all reasonable steps to inform it immediately of the making of any agreement.

Section 4: Tax and other adjustments

19.

Deduct an estimated amount for anticipated tax liabilities:

(a)

On unrealised capital gains where the liabilities have accrued and are payable out of the scheme property;

(b)

On realised capital gains in respect of previously completed and current accounting periods;

(c)

On income where the liabilities have accrued;

(d)

Including stamp duty reserve tax and any other fiscal charge not covered under this deduction.

20.

Deduct:

(a)

an estimated amount for any liabilities payable out of the scheme property and any tax on it (treating any periodic items as accruing from day to day);

(b)

the principal amount of any outstanding borrowings whenever payable;

(c)

any accrued but unpaid interest on borrowings;

(d)

the value of any option written (if the premium for writing the option has become part of the scheme property); and

(e)

in the case of a margined contract, any amount reasonably anticipated to be paid by way of variation margin (that is the difference in price between the last settlement price, whether or not variation margin was then payable, and the price of the contract at the valuation point).

21.

Add an estimated amount for accrued claims for repayment of taxation levied:

(a)

on capital (including capital gains); or

(b)

on income.

22.

Add:

(a)

any other credit due to be paid into the scheme property;

(b)

in the case of a margined contract, any amount reasonably anticipated to be received by way of variation margin (that is the difference in price between the last settlement price, whether or not variation margin was then receivable, and the price of the contract at the valuation point);

(c)

any SDRT provision anticipated to be received.

Section 5: Issue Basis

23.

The valuation of property for that part of the valuation which is on a creation basis is as follows:

Property

To be valued at

(a)

Cash

nominal value

(b)

Amounts held in current and deposit accounts

nominal value

(c)

Property which is not within (a), (b) or (d):

(i)

if units in an AUT to which CIS 15 (Dual-pricing and dealing) applies

except where Note 1 applies, the most recent maximum sale price less any expected discount (plus dealing costs) [Note 2]

(ii)

if shares in an ICVC or units of an AUT to which CIS 4 (Single-pricing and dealing) applies

the most recent price (plus dealing costs) [Notes 2 and 3]

(iii)

if any other investment

best available market dealing offer price on the most appropriate market in a standard size (plus dealing costs) [Note 2]

(iv)

if other property, or no price exists under (i), (ii) or (iii).

manager's reasonable estimate of a buyer's price (plus dealing costs) [Notes 2 and 4]

(d)

Property which is a derivative under the terms of which there may be liability to make, for the account of the AUT, further payments (other than charges, and whether or not secured by margin) when the transaction in the derivative falls to be completed or upon its closing out.

(i)

if a written option under rule 20(d)

to be deducted (see 20(d)) at a net valuation of premium. [Notes 5 and 8]

(ii)

if an off-exchange future

net value on closing out [Notes 6 and 8]

(iii)

if any other such property

net value of margin of closing out (whether as a positive or negative figure) [Notes 7 and 8]

Notes

1. The issue price is taken, instead of the maximum sale price if the manager of the AUT whose scheme property is being valued is also the manager, or an associate of the manager, of the AUT whose units form part of that property.

2. In this Section and in Section 6, "dealing costs" means any fiscal charges, commission or other charges payable in the event of the AUT carrying out the transaction in question, assuming that the commission and charges (other than fiscal charges) which would be payable by the AUT are the least that could reasonably be expected to be paid in order to carry out the transaction. On the issue basis, dealing costs exclude any preliminary charge on sale of units in an AUT.

3. Dealing costs under note 2. Include any dilution levy or SDRT provision which would be added in the event of a purchase by the AUT of the units in question but, if the manager of the AUT being valued, or an associate of the manager, is also the manager of the AUT or the ACD of the ICVC whose units are held by the AUT, must not include a preliminary charge which would be payable in the event of a purchase by the AUT of those units.

4 The buyer's price is the consideration which would be paid by a buyer for an immediate transfer or assignment (or, in Scotland, assignation) to him at arm's length.

5. Estimate the premium on writing an option of the same series on the best terms then available on the most appropriate market on which such options are traded; but deduct dealing costs.

6. Estimate the amount of profit or loss receivable or incurable by the AUT on closing out the contract. Deduct minimum dealing costs in the case of profit and add them in the case of loss.

7. Estimate the amount of margin (whether receivable or payable by the AUT on closing out the contract) on the best terms then available on the most appropriate market on which such contracts are traded. If that amount is receivable (for example, the contract is "in the money") deduct minimum dealing costs. If, however, that amount is payable (for example, the contract is "out of the money") then add minimum dealing costs to the margin and the value is that figure as a negative sum.

8. If the property is an OTC transaction in derivatives, use the relevant valuation referred to in CIS 5.2.25 R (OTC transactions in derivatives) or CIS 5A.6.6 R (OTC transactions in derivatives).

Section 6: Cancellation basis

24.

The valuation of property for that part of the valuation which is on a cancellation basis is as follows:

Property

To be valued at

(a)

Cash

nominal value

(b)

Amounts held in current deposit and loan accounts

nominal value

(c)

Property which is not within (a), (b) or (d):

(i)

if units in and AUT to which CIS 15 (Dual-pricing and dealing) applies

except where Note 1 applies, the most recent minimum redemption price (less dealing costs) [Note 2]

(ii)

if shares in an ICVC or units in an AUT to which CIS 4 (Single-pricing and dealing) applies

the most recent price (less dealing costs) [Notes 2 and 3]

(iii)

if any other investment

best available market dealing bid price on the most appropriate market in a standard size (less dealing costs) [Note 2]

(iv)

if other property, or no price exists under (i) or (ii)

manager's reasonable estimate of a seller's price (less dealing costs) [Notes 2 and 4]

(d)

Property of the type described in 23.:

(i)

if a written option under 20.(d)

to be deducted (see 20(d)) at a net valuation of premium [Notes 5 and 8]

(ii)

if an off-exchange future

net value of closing out [Note 8]

(iii)

if any other such property

net value of margin on closing out (whether as a positive or negative figure) [Notes 6 and 8]

Notes

1. The cancellation price is taken instead of the minimum redemption price if the property, if sold in one transaction, would amount to a large deal.

2. For dealing costs see note 2. In 23.. Dealing costs include any charge payable on redemption of units in an AUT (taking account of any expected discount), except where the manager of the AUT whose property is being valued is also the manager, or an associate of the manager, of the AUT whose units form part of that property.

3. Dealing costs under note 2. include any dilution levy or SDRT provision which would be deducted in the event of a sale by the AUT of the units in question and, except when the manager of the AUT being valued, or an associate of the manager, is also the manager of the AUT or the ACD of the ICVC whose units are held by the AUT, include any charge payable on the redemption of those units (taking account of any expected discount).

4. The seller's price is the consideration which would be received by a seller for an immediate transfer or assignment (or, in Scotland, assignation) from him at arm's length, less dealing costs.

5. Estimate the premium on writing an option of the same series on the best terms then available on the most appropriate market on which such options are traded, and add dealing costs.

6. For off-exchange futures, see note 6 in 23.

7. For net value of margin see note 7 in 23.

8. For over the counter transactions in derivatives, see note 8 in 23.

01/11/2002

Valuation under SETS

CIS 15.8.5

(1) CIS 15.8.4 R requires certain property to be valued at the best available market dealing offer or bid price (depending on whether the property is being valued on an issue or cancellation basis) for a deal of standard size on the most appropriate market, after taking account of dealing costs. If no price exists, the manager is required to use a reasonable estimate of a buying or selling price.
(2) Under the Stock Exchange Automated Quotation (SEAQ) System, the best market dealing offer or bid price in a particular security is generally understood to be the "touch" price. Under SETS, the London Stock Exchange publishes an "official best price" for each security, derived from the best prices displayed on the order book. It also publishes a "last trade price". The best bid price is the price of the highest buy order on the order book at any given time, and the best offer price is the price of the lowest sell order on the book. The last trade price for securities traded on SETS is published throughout the day. The "official closing price" is based on the last automatically executed trade taken from the order book.
(3) A manager may wish to use the last trade price as the basis for valuing SETS securities held as part of the scheme property. The last trade price will be a precise figure, not an estimate, and there will be complete certainty that the security in question has traded at that price. Alternatively, a manager may use the best bid and offer price displayed on the order book as the basis of valuation. Either method is acceptable, provided that the manager documents the choice of method and ensures that the procedures are applied consistently and fairly. The basis on which the scheme property is to be valued must be set out in the AUT's prospectus, as required by CIS 3.5.2 R(17) (Valuation of scheme property).
(4) Circumstances may arise where the chosen method may not provide a reliable basis for valuation. Guidance on such instances is provided at CIS 4.8.4 G(4) - (8). Additionally, where the manager imputes a 'spread' in order to arrive at an estimated buying or selling price - for example, in circumstances where there are no buy or sell orders on the order book, it should be able to justify any assumptions made.

01/04/2004

Export chapter as

Legal Instruments that change this Chapter Dual-pricing and dealing

CIS 16

Application and notification

CIS 16.1

Introduction

01/12/2004

Application

CIS 16.1.1

This chapter covers the processes of applying for authorisation and recognition of a collective investment scheme, and the notification to the FSA of the intention to market an overseas collective investment scheme in the United Kingdom. This chapter also includes guidance on the independence of depositaries of ICVCs and managers and trustees of AUTs and rules on notifying the FSA in its role as registrar of ICVCs. This chapter also implements Article 6 of the UCITS Directive.

(1) CIS 16.1.1 G, CIS 16.1.2 G and CIS 16.1.3 G apply to directors and proposed directors of an ICVC, depositaries and proposed depositaries of an ICVC, ICVCs and proposed ICVCs, managers and proposed managers of an AUT, trustees and proposed trustees of an AUT and operators of collective investment schemes seeking or applying for recognition under section 264, 270 or 272 of the Act.

(2) CIS 16.1.4 G and CIS 16.1.5 G apply to the proposed directors and proposed depositary of a new ICVC.

(3) CIS 16.1.6 G and CIS 16.1.7 G apply to the proposed manager and proposed trustee of a new AUT.

(4) CIS 16.1.8 G applies to the operator of a collective investment scheme seeking recognition under section 264 of the Act.

(5) CIS 16.1.9 G applies to the operator of a collective investment scheme seeking recognition under section 270 of the Act.

(6) CIS 16.1.10 G applies to the operator of a collective investment scheme applying for recognition under section 272 of the Act.

(7) CIS 16.1.11 G applies to the ICVC itself, when changes to the scheme are proposed.

(8) CIS 16.1.12 G applies to the manager and trustee of an AUT, when changes to the scheme are proposed.

(9) CIS 16.2.1 G to CIS 16.2.4 G apply to the depositary, or proposed depositary, of an ICVC, to the ICVC, or proposed ICVC, and to any corporate director, or proposed corporate director, of an ICVC.

(10) CIS 16.3.1 G to CIS 16.3.2 G apply to the trustee, or proposed trustee, and to the manager, or proposed manager, of an AUT.

(11) CIS 16.4.1 R applies to the directors of an ICVC.

(12) CIS 16.5 applies to the manager of an AUT which is a UCITS scheme

01/12/2004

Purpose

CIS 16.1.2

This chapter helps in achieving the regulatory objective of protecting consumers by ensuring that only regulated schemes, vetted and approved in accordance with the relevant law and rules, can be promoted to the general public. Guidance is provided on the various application and notification procedures for regulated collective investment schemes as set out in the Act and the OEIC regulations.

01/12/2004

Contacting the Individuals, CIS and Mutuals Department

CIS 16.1.3

The CIS Team in the Collective Investment Schemes and Mutuals Department may be contacted:

(1) by telephoning on 020 7066 4540; or

(2) by writing to: The Individuals, CIS and Mutuals Department, The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS; or

(3) by e-mailing the FSA at cis@fsa.gov.uk

01/12/2004

Application for authorisation of an ICVC

CIS 16.1.4

(1) Regulation 12 of the OEIC regulations provides that any application for an authorisation order in respect of an ICVC must:

(a) be made in such manner as the FSA directs;

(b) include relevant details of all proposed directors of the ICVC (in accordance with regulation 13 of the OEIC regulations);

(d) contain or be accompanied by such other information as the FSA reasonably requires.

01/12/2004

CIS 16.1.5

(1) Application forms and a separate guidance note, containing help on how to complete the form and describing the documents the FSA requires as part of the application, are available free of charge from the Collective Investment Schemes and Product Regulation Department of the FSA. An application fee will also be required.

(2) Under regulation 14 of the OEIC regulations, an application for a new ICVC must be determined by the FSA within six months of receipt. But within this statutory time frame, the FSA has set a higher service level standard. Except in exceptional circumstances, applicants can expect applications under regulation 12 to be resolved within six weeks of receipt by the FSA of all the relevant material.

01/12/2004

CIS 16.1.5A

An application for an authorisation order in respect of an ICVC must include details of:

(1) any arrangement intended to result in a particular capital or income return from a holding of units in the ICVC; and

(2) any investment objective of giving protection to the capital value of, or income return from, such a holding of units in the ICVC.

01/11/2002

Application for authorisation of a unit trust scheme

CIS 16.1.6

(1) Section 242 of the Act provides that any application for an authorisation order in respect of an AUT must:

(a) be made by the manager and trustee or the proposed manager and trustee of the AUT;

(b) be made in such manner as the FSA directs; and

01/12/2004

CIS 16.1.7

(1) As with ICVCs, application forms and a guidance note on how to apply are available free of charge from the FSA.

(2) Under section 244 of the Act, an application should be determined by the FSA within six months of receipt. As with ICVC applications, the FSA has set itself a higher service level standard. Except in exceptional circumstances, applicants can expect applications under section 242 to be resolved within six weeks of receipt of all relevant application material.

01/12/2004

CIS 16.1.7A

An application for an authorisation order in respect of an AUT must include details of:

(1) any arrangement intended to result in a particular capital or income return from a holding of units in the AUT; and

(2) any investment objective of giving protection to the capital value of, or income return from, such a holding of units in the AUT.

01/11/2002

Notification in respect of a scheme constituted in another EEA State

CIS 16.1.8

(1) Section 264 of the Act provides that a scheme which is constituted in another EEA State as a scheme meeting the requirements of the UCITS directive will become a recognised scheme two months after the operator notifies the FSA of its intention to market the scheme in the United Kingdom.

(2) The notification is required to include certain information, details of which are set out in CIS 17.2. As with the applications described above, a notification form and guidance note are available free from the FSA.

(3) Recognition is automatic, unless, within the two month period, the FSA notifies the operator that the manner in which it intends to market the scheme in the United Kingdom does not comply with United Kingdom law. However, the Act does not give the FSA any leeway to shorten the two month waiting period following notification before the scheme becomes recognised. Marketing activity in the United Kingdom can commence only once the scheme is recognised.

01/12/2004

Notification in respect of a scheme constituted in a designated country or territory

CIS 16.1.9

(1) Section 270 of the Act provides that a scheme authorised in another country or territory which has been designated by an order made by the Treasury can become a recognised scheme, subject to certain specified conditions. The scheme is required to be of a class specified in the designation order and the notification must include certain information, details of which are set out in CIS 17.3. As with EEA schemes, a notification form and guidance note are available free from the FSA.

(2) The scheme becomes recognised either when the FSA gives its written approval, or, in the absence of a notice from the FSA objecting to recognition, two months after notification by the operator. In practice, the FSA will normally contact the operator with its decision within the two month period.

01/12/2004

Application in respect of other overseas collective investment schemes

CIS 16.1.10

(1) Section 272 of the Act provides that the operator of any other overseas collective investment scheme may apply for recognition, as long as certain criteria are met. These criteria are:

(a) that the scheme is managed in a country or territory outside the United Kingdom;

(b) that it does not satisfy the criteria to be recognised under section 264 of the Act (Schemes constituted in another EEA State);

(c) that it does not satisfy the criteria to be recognised under section 270 of the Act (Schemes authorised in a designated countries or territories);

(d) that adequate protection is afforded to participants in the scheme;

(e) that there are adequate arrangements for the constitution and management of the scheme; and

(f) that the powers and duties of the operator and, where there is one, the trustee or depositary, are adequate.

(2) The notification is required to include certain information, details of which are set out in CIS 17.3. Application forms and a guidance note are available free from the FSA.

(3) Under section 275 of the Act, the FSA is required to determine an application under section 272 within a period of six months from receipt of the completed application. Because of the wide variety of potential applications under this section of the Act, the FSA does not set a higher service level standard for completion of the application review.

(4) Under section 277 of the Act, the operator of a scheme which has been recognised under section 272 must give written notice to the FSA of any proposal to alter the scheme. Any proposal to replace the operator, trustee or depositary should be notified to the FSA by either the operator, trustee or depositary, or by its proposed replacement. As with proposed changes to AUTs and ICVCs, the FSA has one month to consider the proposal. If it does not respond within that time, the proposal automatically becomes effective. In practice, the FSA will always aim to respond within the one month period.

01/12/2004

Notification of proposed changes to ICVCs

CIS 16.1.11

(1) Regulation 21 of the OEIC regulations provides that the ICVC must give written notice to the FSA of certain proposed changes to the ICVC (in practice the FSA would expect to receive any notification from the ACD). Any proposal involving a change to the instrument of incorporation must be accompanied by a signed solicitor's certificate.

(2) The FSA has one month to consider such proposals. In practice, the FSA will always aim to respond within the one month period.

01/12/2004

Notification of proposed changes to AUTs

CIS 16.1.12

(1) Section 251 of the Act provides that the manager of an AUT must give written notice to the FSA of any proposal to alter the scheme or replace the trustee. The FSA takes the view that only significant alterations need to be notified, but any alteration involving a change to the trust deed is considered significant. Alterations involving a change to the deed must be accompanied by a certificate signed by a solicitor, stating that the change will not affect the compliance of the deed with the rules in this sourcebook. Under the same section, the trustee of an AUT must give written notice of any proposal to replace the manager.

(2) The FSA has one month in which to consider the proposal. If it does not respond to the manager or trustee within that time, the proposal becomes effective. In practice, the FSA will always aim to respond within the one month period.

01/12/2004

Revocation of authorisation or recognition

CIS 16.1.13

Revocation of authorisation or recognition is dealt with in separate chapters of this sourcebook. Revocation of authorisation of AUTs and voluntary winding up of ICVCs are dealt with in CIS 14 (Termination). Cessation of recognition is dealt with in CIS 17 (Recognised schemes).

01/12/2004

Warning notices

CIS 16.1.14

(1) If the FSA proposes to refuse any application or object to a notification described in any of paragraphs CIS 16.1.4 G to CIS 16.1.7 G and CIS 16.1.9 G to CIS 16.1.12 G, it must give a warning notice. Where the FSA proposes to object to a notification under Section 264 of the Act (Schemes constituted in other EEA States); the FSA's notice will be similar to a warning notice.

(2) The Act provides that the warning notice must contain, amongst other matters, the FSA's reasons for proposing to refuse an application or object to a notification.

(3) Following receipt of the warning notice, the applicant will be given a specified period of not less than 28 days to make representations to the FSA.

(4) Further information on the procedure can be found in DEC 2.2 (Warning notice procedure).

01/12/2004

Decision notices

CIS 16.1.15

(1) In certain circumstances, after having considered any written and oral representations made by the applicant, the FSA may decide to refuse the application or notification. If this happens, the FSA is required to give a decision notice.

(2) The Act provides that the decision notice must contain, amongst other matters, the FSA's reasons for its decision and the procedures for making a reference to the Financial Services and Markets Tribunal.

(3) Further information on the procedure can be found in DEC 2.3 (Decision notice procedure)

01/12/2004

CIS 16.2

Independence of depositaries of ICVCs

01/12/2004

Introduction

CIS 16.2.1

(1) Regulation 15(8)(f) of the OEIC regulations provides that the depositary of an ICVC must be independent of the ICVC and of the persons appointed as directors.

(2) References in this section (CIS 16.2) to a depositary or to a corporate director include any associate of the depositary or corporate director.

01/12/2004

Independence: depositary, ICVC and corporate director of an ICVC

CIS 16.2.2

(1) In addition to the ACD, there is the possibility of other directors of the ICVC being corporations.

(2) There are at least three possible kinds of link between a depositary and an ICVC, or a corporate director of an ICVC:

(a) directors in common;

(b) cross-shareholdings;

(3) If any of these links exists between a depositary and an ICVC or any corporate director of the ICVC, the FSA will expect the following tests to be satisfied before it could accept that independence is established.

(4) Influence by directors: independence would be lost if by means of executive power either the depositary could control the action of the ICVC or any corporate director of it, or the ICVC and its directors or both could control the actions of the depositary.

(5) Nor should there be any means by which one board could obtain effective, as opposed to legal, control of the other. The FSA would not approve any arrangement, such as quorum provisions or reservation of decision-making capacity to certain directors, which could result (even in exceptional circumstances) in loss of effective independence of one company's board from the other.

(6) Influence by shareholding: independence would be lost if either the depositary or the ICVC could control the actions of the other by means of shareholders' votes, or the depositary or a corporate director of the ICVC could control the actions of the other by means of shareholders' votes. Accordingly, there should not at any time be any shareholding in the depositary by the ICVC and its directors and their respective associates (taken together) which exceeds 15% of the depositary's share capital carrying voting rights whether or not that share capital comprises a single class or several classes of shares. Furthermore there should not be any such shareholding by a depositary and its associates in the ICVC or any of the directors of the ICVC.

01/12/2004

Independence: depositary and individual directors of an ICVC

CIS 16.2.3

The FSA will not consider a depositary to be independent of any individual who is a director of an ICVC in any of the following circumstances:

(1) the ICVC director or any associate of the director is a director and an employee or both of the depositary; or

(2) the ICVC director has a direct or indirect shareholding in the depositary which might give rise to a potential conflict of interest for the director, for this purpose a holding by the director, for investment purposes, of shares in the depositary that are listed and carry less than 0.5 per cent of the votes at a general meeting or a meeting of the holders of the class of shares concerned will not be considered to give rise to a potential conflict of interests; or

(3) the ICVC director has any other relationship (contractual or otherwise) with the depositary which might reasonably be expected to give rise to a potential conflict of interest for the director.

01/12/2004

Other matters affecting independence

CIS 16.2.4

(1) Independence: The FSA considers that independence will need to be specifically appraised in the event of a proposal by the depositary to enter into any arrangement with the ICVC or any corporate director of it by which the depositary might agree to act on an exclusive (or near exclusive) basis, or for a director to enter into a similar arrangement with the depositary.

(2) If such a relationship should be contemplated, then arrangements may need to be put into place to satisfy the FSA that the necessary independence is preserved. The FSA would therefore expect to be consulted in advance about any such proposal.

(3) Other commitments: the FSA expects to be consulted in advance about its view on the consequences for independence of any other intended commitment or relationship which could affect independence, whether directly or indirectly.

30/06/2004

CIS 16.3

Independence of Trustees and Managers of AUTs

01/12/2004

Introduction

CIS 16.3.1

Section 243(4) of the Act states that "The manager and the trustee must be persons who are independent of each other." As managers and trustees may have or develop corporate links, the FSA has given its view of the criteria against which independence, in the sense of this section of the Act, should be tested.

01/12/2004

Independence: trustee, manager

CIS 16.3.2

(1) There are at least three possible kinds of link between managers and trustees:

(a) directors in common between the manager and the trustee;

(b) cross-shareholdings;

(2) If any of these links exist between a manager and a trustee, the FSA expects the following tests to be satisfied in order to ensure that independence is maintained.

(3) Influence by directors: independence would be lost if either company can control the action of the other by means of executive power. Accordingly, there should not be a majority of directors on the board of the trustee who simultaneously hold directorships on the board of the manager, or vice versa.

(4) Nor should there be any means by which one board could obtain effective, as opposed to legal, control of the other. So, for example, the FSA would not approve any arrangement, whether by means of quorum or of reservation of decision-making capacity to certain directors which could result (even in exceptional circumstances) in loss of effective independence of one company's board of the other.

(5) In determining whether common directorships were curtailing independence, the FSA would interpret the concept of "common director" to include any directors of associates of the trustee who are simultaneously directors of the manager, and any directors of associates of the manager who are simultaneously directors of the trustee.

(6) Influence by shareholding: independence would be lost if either company can control the actions of the other by means of shareholders' votes. Accordingly, there should not be any shareholding in the trustee by the manager (or vice versa) which exceeds 15% of the other's share capital carrying voting rights - whether or not that share capital comprises a single or several classes of shares, however described. The FSA would be willing, however, to look at cases where cross-shareholding exceeds 15% on a case by case basis to see whether there were exceptional grounds for concluding that independence is nevertheless safeguarded by other means.

(7) In determining whether the 15% test was met, any shareholding held by an associate of the manager in the trustee, or by an associate of the trustee in the manager, would in each case be aggregated with shareholdings held directly by the manager or the trustee in the other.

(8) Independence: The FSA considers that independence will need to be specifically appraised in the event of a proposal by the trustee or manager (or any of either's associates) to enter into any arrangement with the other by which either party might agree to act on an exclusive (or near exclusive) basis in relation to the marketing of packaged products.

(9) If such a relationship should be contemplated, then arrangements may need to be put into place to satisfy the FSA that the necessary independence is preserved. The FSA would therefore expect to be consulted in advance about any such proposal.

(10) Other commitments: the FSA also expects to be consulted in advance about its view on the consequences for independence of any other intended commitment or relationship which could affect independence, whether directly or indirectly.

30/06/2004

CIS 16.4

Notification to the FSA in its role as registrar of ICVCs

01/12/2004

CIS 16.4.1

An ICVC shall not later than 14 days after the occurrence of the change in question notify the FSA of:

(1) any amendment to the instrument of incorporation of the ICVC;

(2) any change in the address of the head office of the ICVC;

(3) any change in the directors of the ICVC;

(4) any change in the depositary of the ICVC;

(5) in respect of any director or depositary, any change in the information mentioned in regulation 12(1)(b) or (c) of the OEIC regulations (Applications for authorisation);

(6) any change in the auditor of the ICVC;

(7) any order in respect of the ICVC made by virtue of regulation 70 of the OEIC regulations (Mergers and Divisions).

01/12/2004

CIS 16.5

Restrictions of business for UCITS management companies

01/12/2004

CIS 16.5.1

A UCITS management company must not engage in any activities other than:

(1) acting as:

(a) authorised fund manager of an authorised fund; or

(b) an operator of any other collective investment scheme for which the firm is subject to prudential supervision;

(2) activities for the purposes of or in connection with those in (1);

(3) collective portfolio management, including without limitation:

(a) investment management;

(b) administration:

(i) legal and fund management accounting services;

(ii) customer enquiries;

(iii) valuation and pricing (including tax returns);

(iv) regulatory compliance monitoring;

(v) maintenance of unitholder register;

(vi) distribution of income;

(vii) unit issues and redemptions;

(viii) contract settlements (including certificate dispatch); and

(ix) record keeping; and

(4) managing investments where the relevant portfolio includes one or more ISD instruments;

(5) advising on investments where:

(a) the firm has a permission for the activity in (4); and

(b) each of the instruments is an ISD instrument; and

(6) safekeeping and administration of collective investment scheme units where the firm has a permission for the activity in (4).

01/04/2004

CIS 16.5.2

(1) Examples of the connected activities referred to in CIS 16.5.1 R(2) include management of group plans, as long as they are dedicated to investments in unit trusts and OEICS for which the firm acts as manager or ACD.

(2) The restrictions of business imposed by CIS 16.5.1 R reflect the position under Article 5 of the UCITS Directive. In accordance with recital (7) of the amending UCITS Management Directive (2001/107/EC) the activities referred to at CIS 16.5.1 R (3)(a) to (c) may be performed on behalf of EEA UCITS management companies.

13/02/2004

Export chapter as

Legal Instruments that change this Chapter Application and notification

CIS 17

Recognised schemes

CIS 17.1

Application and purpose

01/12/2004

Application

CIS 17.1.1

(1) The rules and guidance in this chapter apply in relation to recognised schemes and overseas collective investment schemes seeking recognition in the United Kingdom.

(2) CIS 17.1, CIS 17.2, CIS 17.4 (excluding CIS 17.4.9 G) apply to the operators of schemes recognised or seeking recognition under section 264 of the Act (Schemes constituted in other EEA States).

(3) CIS 17.1, CIS 17.2, CIS 17.3 (excluding CIS 17.3.3 R and CIS 17.3.6 G) and CIS 17.4 (excluding CIS 17.4.8 G) apply to the operators of schemes recognised or seeking recognition under section 270 of the Act (Schemes authorised in designated countries or territories).

(4) CIS 17.1, CIS 17.2, CIS 17.3 (excluding CIS 17.3.5 G) and CIS 17.4 (excluding CIS 17.4.8 G) apply to the operators of schemes recognised or seeking recognition under section 272 of the Act (Individually recognised overseas schemes).

01/12/2004

Purpose

CIS 17.1.2

(1) This chapter enables operators of schemes established overseas to know what information and documents the FSA wish to review so as to enable it to consider whether to recognise their schemes, under the Act, for marketing in the United Kingdom. This information will enable the FSA to make an informed decision whether or not schemes established overseas should be recognised under the Act.

(2) This chapter sets out responsibility for the preparation and maintenance of a prospectus (in the case of schemes recognised under section 270 and section 272) and requirements relating to it.

(3) In addition, this chapter sets out the rules for operators of recognised schemes to maintain certain facilities in the United Kingdom under section 283 of the Act. It also provides guidance on revocation of recognition in relation to recognised schemes.

01/12/2004

Guidance on passportable activities

CIS 17.1.3

CIS 16.1.8 G provides guidance on notifications of schemes constituted in other EEA States. The manager of such a scheme will be a UCITS qualifier, and so be an authorised person under Schedule 5 to the Act, if it carries out scheme management activity and activity in connection with the operation of the scheme only. If the manager of such a scheme wishes to undertake the passportable activities of managing investments (other than of collective investment schemes ), investment advice or safekeeping and administration of investments, as provided by article 5(3) of the UCITS Directive, as well as scheme management, it will need to do so in accordance with an authorisation conferred by Schedule 3 to the Act and should refer to the procedures in SUP 13A and SUP 14 accordingly.

13/02/2004
Future version of CIS 17.1.3 after 01/02/2006

CIS 17.2

Information and documents which should be supplied with a notification under section 264 of the Act

01/12/2004

CIS 17.2.1

(1) If the operator of a scheme constituted in a EEA State gives notice to the FSA under section 264 of the Act, as described in that notice is required to contain or be accompanied by certain information as described in CIS 17.2.1 G (2)to (4) (see the [Financial Services Markets Act 2000 (Collective Investment Schemes Constituted in Other EEA States) Regulations 2001 (SI 2001/2383)).

(2) The documents must be in English, or accompanied by a translation in English.

(3) The documents must be certified by the operator to be true copies of the original.

(4) The following information and documentation must be provided:

(a) name of scheme;

(b) legal form of scheme;

(d) the address of the place in the United Kingdom for the service on the operator of notices or other documents;

(e) the name and address of any supervisory authority or authorities to which the operator is subject in the EEA State in which it is established;

(f) whether the operator intends to market the scheme in the United Kingdom in a manner which will involve it carrying on a regulated activity in the United Kingdom;

(g) name and address of depositary;

(h) the address in the United Kingdom where the scheme facilities (see CIS 17.4) will be maintained;

(i) details of the arrangements for the marketing of units in the United Kingdom, namely:

(i) the proposed commencement date;

(ii) whether the units or shares will be sold by or through: any employed sales force; authorised persons; or unsolicited calls;

(j) any order or certificate from the authorities of the EEA State in which the scheme is authorised which demonstrates that the scheme complies with the UCITS directive;

(k) a copy of the instrument constituting the scheme;

(l) a copy of the prospectus and simplified prospectus of the scheme; and

(m) a copy of the latest annual report and any subsequent half-yearly report.

13/02/2004

Subsequent notification in respect of schemes recognised under section 264 of the Act.

CIS 17.2.2

Whenever a change occurs in the information supplied or in a document supplied under CIS 17.2.1 G, the FSA wishes to be notified of these changes.

01/12/2004

CIS 17.3

Notification to the FSA under section 270 and applications under section 272

01/12/2004

Information and documents to be supplied with notifications under sections 270 (designated territories) and applications under section 272 (individually recognised overseas schemes) of the Act

CIS 17.3.1

(1) If the operator of a scheme gives notice to the FSA under section 270 or makes an application under section 272 of the Act, the notice or application must contain (or be accompanied by) the information in CIS 17.3.1 D(2) to (4).

(2) The documents must be in English or accompanied by a translation in English.

(3) The documents must be certified by the operator to be true copies of the original.

(4) The following list is the information and documentation which is referred to in CIS 17.3.1 D(1) and which must be provided with a notification under section 270 or application under section 272 of the Act.

(a) name of scheme;

(b) legal form of scheme;

(d) the address of the place in the United Kingdom for service on the operator of notices or other documents;

(e) whether the operator intends to market the scheme in the United Kingdom in a manner which will involve it carrying on a regulated activity in the United Kingdom;

(f) name and address of any person to whom the property subject to the scheme is entrusted for safekeeping;

(g) the address of the place in the United Kingdom where scheme facilities (see CIS 17.4) will be maintained;

(h) details of the arrangements for the marketing of units in the United Kingdom, namely:

(i) the proposed commencement date;

(ii) whether the units or shares will be sold by or through: any employed sales force (including any appointed representative); persons authorised under the Act; or unsolicited calls;

(i) a copy of the instrument constituting the scheme;

(j) a copy of the prospectus or any similar document giving details of the scheme;

(k) a copy of the latest annual report and any subsequent half-yearly report;

(l) a copy of any other document affecting the rights of participants in the scheme; and

(m) for notifications under section 270 only, a copy of the authorisation document issued by the authority in the designated territory confirming that the scheme is of a class covered by the designation order.

01/12/2004

Subsequent notification in respect of schemes recognised under sections 270 and 272 of the Act

CIS 17.3.2

Wherever a change occurs in the information supplied or in a document supplied under CIS 17.3.1 D, the FSA wishes to be notified of these changes.

01/12/2004

Additional information required in the prospectus for notifications under section 272

CIS 17.3.3

(1) The prospectus must contain the following statement: "Complaints about the operation of the scheme may be made to the FSA."

(2) The prospectus must state whether or not investors in the scheme would be covered by the Compensation Scheme. If investors in the scheme are covered by the Compensation Scheme the prospectus must state how they are covered and who they would need to contact for further information.

01/12/2004

Preparation and maintenance of prospectus

CIS 17.3.4

(1) An operator of a scheme which is a recognised scheme by virtue of section 270 or 272 of the Act must comply, subject to paragraph (2) below, with the requirements set out in CIS 3 in respect of the preparation, publication and inspection of a prospectus.

(2) Where a scheme recognised under section 270 of the Act is managed and authorised in the Bailiwick of Guernsey or the Bailiwick of Jersey or the Isle of Man, the prospectus need not comply with the requirements of CIS 3, providing it contains corresponding matter required under the law in their territory.

(3) An operator of a collective investment scheme which is recognised under section 270 or 272 of the Act must comply with the requirements in CIS 3.3 (False or misleading prospectus) and CIS 3.4 (Revision of and changes to prospectus).

01/12/2004

Refusal of approval: schemes recognised under section 270 of the Act

CIS 17.3.5

The FSA's power to refuse recognition and the procedures for this are set out in section 271 of the Act and described in CIS 16.1.

01/12/2004

Refusal of approval: schemes recognised under section 272 of the Act

CIS 17.3.6

The FSA's power to refuse recognition and the procedures for this are set out in section 276 of the Act and described in CIS 16.1.

01/12/2004

CIS 17.4

Facilities in the United Kingdom and revocation of recognition

01/12/2004

General

CIS 17.4.1

The operator of a recognised scheme under section 264, section 270 and section 272 of the Act must maintain facilities in order to satisfy the requirements of CIS 17.4.2 R to CIS 17.4.7 R. CIS 17.4.8 G applies to revocation of a recognised scheme under section 264 of the Act and CIS 17.4.9 G applies to cessation or revocation of recognition under section 279 of the Act.

01/12/2004

Documents

CIS 17.4.2

(1) The operator of a recognised scheme must maintain facilities for inspection (free of charge) and for the obtaining (free of charge, in the case of the documents at (c) and (d), and otherwise at no more than a reasonable charge) of copies in English of:

(a) the instrument constituting the scheme;

(b) any instrument amending the instrument constituting the scheme;

(d) the annual and half-yearly reports relating to the scheme most recently prepared and published by the operator.

(2) An operator to which paragraph (1) applies must, before conclusion of a sale of units in the scheme to any person in the United Kingdom, offer that person free of charge a copy of the documents mentioned at paragraphs (1)(c) and (d).

01/12/2004

Price and redemption

CIS 17.4.3

(1) The operator must, subject to (2), maintain facilities:

(a) where information in English can be obtained about the operator's most recently published sale and purchase prices of units in the scheme;

(b) where a participant in the scheme may redeem units in the scheme and from which payment of the price on redemption may be obtained.

(2) Paragraph (1) does not apply if the operator having taken reasonable care determines that participants in the scheme are able to sell their units on an investment exchange at a price related to the net asset value of the property to which the units relate or at a price not significantly different from such a price: in that case it must maintain facilities for informing participants of the investment exchange concerned (and of its members or of how a list of its members can be obtained).

01/12/2004

Bearer certificates and characteristics of units in the scheme

CIS 17.4.4

(1) The operator must maintain facilities at which the holder of a bearer certificate may obtain free of charge:

(a) payment of dividends due to him;

(b) copies in English of the most recent annual and half-yearly reports of the scheme; and

(2) The operator must state the nature of the right represented by the units in the scheme.

(3) The operator must state whether persons other than holders can vote at meetings of holders and who those persons are.

01/12/2004

Complaints

CIS 17.4.5

The operator must maintain facilities at which any person who has a complaint to make about the operation of the scheme can submit his complaint for transmission to the operator.

01/12/2004

Place of facilities

CIS 17.4.6

(1) Each of the facilities referred to in CIS 17.4 must be maintained at an address in the United Kingdom.

(2) That address must be stated in the prospectus.

(3) That address must be the address of the operator's principal place of business in the United Kingdom, or, if there is no such address, the alternative address in paragraph (4).

(4) The alternative address is such convenient address as the operator determines, except that, in the case of a scheme recognised under section 272 of the Act where the operator is not an authorised person, the alternative address is to be the principal place of business in the United Kingdom of the authorised person who is the representative of the operator under section 272 of the Act.

01/12/2004

Service of notice and other documents

CIS 17.4.7

In relation to notices and documents sent by operators and depositaries to and from the United Kingdom, CIS 11.6 (Service of notices and other documents) applies.

01/12/2004

Revocation of recognition: schemes recognised under section 264 of the Act

CIS 17.4.8

If the operator of a scheme recognised under section 264 of the Act gives written notice to the FSA under section 264(6) that it desires the scheme to no longer be recognised, the scheme ceases to be recognised.

01/12/2004

Revocation of recognition: schemes recognised under sections 270 and 272 of the Act

CIS 17.4.9

The FSA may, in accordance with section 279 of the Act, direct that a scheme is to cease to be recognised under section 270 of the Act or revoke a recognition order under section 272 of the Act. For further details, see ENF 16 (Collective Investment Schemes).

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Recognised schemes

CIS 18

Fees

CIS 18.1

Introduction

01/12/2004
Future version of CIS 18.1 after 01/01/2006

Application

CIS 18.1.1

This chapter applies to:

(1) every person seeking an authorisation order for, or recognition of, a collective investment scheme;

(2) every manager of an authorised unit trust;

(3) every ACD of an ICVC; and

(4) every person who, under the constitution or founding arrangements of a recognised scheme, is responsible for the management of the property held for or within the scheme;

17/01/2002

Purpose

CIS 18.1.2

The purpose of this chapter is to set out the requirements for the payment of fees relating to collective investment schemes.

17/01/2002

Background

CIS 18.1.3

GEN 3 (FSA Fees ? General Provisions) applies to fees required by this chapter and explains how the FSA sets fees.

17/01/2002

CIS 18.1.4

Most of the detail of the fees payable in relation to a collective investment scheme is set out in CIS 18 Annex 1 R. The provisions of the Annex may vary from one financial year to another. Accordingly a fresh CIS 18 Annex 1 R will come into force, following consultation, for each financial year.

17/01/2002

CIS 18.1.5

The fees for collective investment schemes reflect the estimated costs to the FSA of assessing applications and notifications, considering proposals to change regulated collective investment schemes, maintaining up to date records about them, and related policy work.

17/01/2002

CIS 18.1.6

The level of fees payable in respect of an application or a notification will vary depending upon the provision of the Act under which it is made. This fee is adjusted when the scheme concerned is an umbrella scheme.

17/01/2002

CIS 18.2

Obligation to pay periodic fees

01/12/2004
Future version of CIS 18.2 after 01/01/2006

General

CIS 18.2.1

A person identified in CIS 18 Annex 1 R as the relevant fee payer for a regulated collective investment scheme must pay each periodic fee applicable to it in full and without deduction.

01/06/2004

CIS 18.2.2

A relevant fee payer will be required to pay a periodic fee for every year during which a regulated collective investment scheme has that status. If that person is the relevant fee payer for more than one regulated collective investment scheme, he will be required to pay a fee in relation to each.

17/01/2002

Due date

CIS 18.2.3

The relevant fee payer must pay the amount due on or before 30 April.

17/01/2002

Method of payment

CIS 18.2.4

A periodic fee must be paid using one of the payment methods specified in SUP 20.2.7A R.

01/04/2004

Modifications for newly authorised or recognised schemes

CIS 18.2.5

If an authorisation order is made in relation to a scheme, or a scheme becomes a recognised collective investment scheme during the course of a financial year to which a CIS 18 Annex 1 R applies:

(1) the periodic fee required under CIS 18.4 is modified in accordance with Table CIS 18.2.6 R; and

(2) the due date for payment is 30 days after:

(a) the making of the authorisation order for the scheme; or

(b) the scheme becomes recognised.

17/01/2002

CIS 18.2.6

Modified fees for newly authorised or recognised schemes

This table belongs to CIS 18.2.5 R

Period in which authorisation or recognition is granted

a) Proportion of periodic fee payable

1 April to 30 June inclusive

100%

1 July to 30 September inclusive

75%

1 October to 31 December inclusive

50%

1 January to 31 March inclusive

25%

17/01/2002

CIS 18.3

Obligation to pay notification and application fees

01/12/2004
Future version of CIS 18.3 after 01/01/2006

General

CIS 18.3.1

The person identified in CIS 18 Annex 2 R as the relevant fee payer must pay each fee applicable to any application or notification as specified in CIS 18 Annex 2 R.

01/04/2004

Due date

CIS 18.3.2

The relevant fee payer must pay a fee identified in CIS 18 Annex 2 R on or before the date on which the relevant application or notification is made.

01/04/2004

CIS 18.3.3

Any application or notification, for which a fee is payable under this section, will be treated as incomplete until that fee is paid.

17/01/2002

Method of payment

CIS 18.3.4

A fee identified in CIS 18 Annex 2 R must be paid by bankers draft, cheque or other payable order.

01/04/2004

CIS 18 Annex 1

Periodic fees payable for the period 1 April 2004 to 31 March 2005 Fees payable in relation to the period from 1 April 2005 to 31 March 2006The provisions relating to collective investment scheme fees are set out in FEES 1, 2, 3 and 4

01/12/2004
Future version of CIS 18 Annex 1 after 01/06/2005

Nature and purpose of fee

Payable by

Amount of fee

Umbrella scheme factor (note 1)

Periodic fee for an ICVC

The authorised corporate director

£1,100

Periodic fee for an AUT

The manager

£1,100

Periodic fee for a scheme recognised under section 264 of the Act

The operator

£1,100

Periodic fee for a scheme recognised under section 270 of the Act

The operator

£1,100

Periodic fee for a scheme recognised under section 272 of the Act

The operator

£6,400

For an umbrella scheme the fee is multiplied by the factor shown in the final column of the table.

Part 1 - Periodic fees payable

Scheme type

Basic fee (£)

Total funds/sub-funds aggregate

Fund factor

2005/06 fee (£)

ICVC

AUT

Section 264 of the Act

Section 270 of the Act

610

1-2

3-6

7-15

16-50

>50

1

2.5

5

11

22

610

1,525

3,050

6,710

13,420

Section 272 of the Act

2,500

1-2

3-6

7-15

16-50

>50

1

2.5

5

11

22

2,500

6,250

12,500

27,500

55,000

Fees are charged according to the number of funds or sub-funds operated by a firm as at 31 March 2005. Where more than one fund or sub-fund is operated the number of funds (not including the umbrella or parent fund) produces a 'fund factor' in accordance with the table above which is then applied to a basic fee to produce one total fee per operator. Fund factors are applied per operator rather than per scheme so that the fees relate to the number of funds rather than the number of schemes. This means that, for example, an authorised fund manager of three schemes pays the same as an operator or authorised fund manager of one scheme with three sub-funds (as only the sub-funds are counted).

01/06/2004
Future version of Fees after 01/06/2005

CIS 18 Annex 2

Application and notification fees payable The provisions relating to collective investment scheme fees are set out in FEES 1, 2, 3 and 4

01/12/2004
Future version of CIS 18 Annex 2 after 01/01/2006

Legislative provision

Nature and purpose of fee

Payable by

Amount of fee

Umbrella scheme factor (note 1)

Regulation 12 of the OEIC Regulations

On application for an order declaring a scheme to be an ICVC

An applicant (note 2)

£1,200

Section 242 of the Act

On application for an order declaring a scheme to be an AUT

An applicant (note 2)

£1,200

Section 264 of the Act

On giving notice under section 264 of the Act

The operator (note 3)

£600

Section 270 of the Act

On giving notice under section 270 of the Act

The operator (note 3)

£600

Section 272 of the Act

On application for an order declaring a scheme to be an individually recognised overseas scheme

An applicant (note 2)

£14,000

Notes:

For an umbrella scheme the fee is multiplied by the factor shown in the final column of the table.

The fee must accompany the application.

The fee must accompany the notice.

01/04/2004

Export chapter as

Legal Instruments that change this Chapter Fees

CIS App 1

Correction of box management errors

CIS App 1.1

Appendix

01/12/2004

CIS App 1.1.1

Correction of box management errors

Introduction

Application

(1)

This appendix applies to authorised fund managers and to depositaries.

(2)

This appendix is the appendix referred to in CIS 4.3.8 G (Box management errors) and CIS 15.3.3 G (Box management errors).

Controls by authorised fund managers and depositaries

Controls by authorised fund managers

(1)

An authorised fund manager needs to be able to demonstrate that it has effective controls over:

(a)

its calculations of what units are owned by it (its "box"); and

(b)

compliance with the rules preventing a negative box (CIS 4.3.9 R (2), CIS 4.3.10 R (2), CIS 15.3.4 R (3), CIS 15.3.7 R (3), CIS 4.3.12 R and CIS 15.3.12 R).

(2)

Evidence of persistent or repetitive errors in relation to these matters, and in particular any evidence of a pattern of errors working in an authorised fund manager's favour, will make demonstrating effective controls more difficult.

Controls by depositaries

(3)

A depositary has a duty under CIS 7.4.1 R (General duties of the depositary) and CIS 7.9.1 R (Oversight by the trustee of the manager) to ensure (for an AUT) that the manager of an AUT is operating the AUT in accordance with the rules in this sourcebook, including CIS 4 or CIS 15, and to ensure (for an ICVC) that the ICVC is managed in accordance with CIS 4.

(4)

A depositary should therefore make a regular assessment of the authorised fund manager's box management procedures (including supporting systems) and controls. This should include reviewing the authorised fund manager's controls and procedures when the depositary assumes office, on any significant change and on a regular basis, to ensure that a series of minor changes do not have a significant effect on the accuracy of the controls and procedures.

Recording and reporting of box management errors

(1)

An authorised fund manager should record all errors which are made in the calculation of an authorised fund manager's box which result in a breach of:

(a)

CIS 4.3.9 R (2) (Issue of units to meet authorised fund manager's obligation to sell);

(b)

CIS 4.3.10 R (2) (Cancellation and payment for cancelled units);

(c)

CIS 15.3.4 R (3) (Issue of units: manager's instructions); and

(d)

application

and as soon as an error is discovered, the authorised fund manager should report the fact to the depositary, together with details of the action taken, or to be taken, to avoid repetition of the error.

(2)

The authorised fund manager should also report to the depositary immediately any box management errors that do not result in a breach, but would be material under (3).

(3)

A depositary should report material box management errors to the FSA immediately. Materiality should be determined by taking into account a number of factors including:

(a)

the existence of sufficient controls put into place by the authorised fund manager;

(b)

the significance of any breakdown in management controls or other checking procedures;

(c)

the significance of any failure of systems. This may include situations where inadequate back-up arrangements exist;

(d)

the duration of an error; and

(e)

the level of compensation due to holders, and an authorised fund manager's ability (or otherwise) to meet claims for compensation in full.

(4)

A depositary should also make a return to the FSA (in the manner prescribed by SUP 16.6.13R) on a quarterly basis summarising, by authorised fund manager amongst other things, the number of box management errors during a particular period where a depositary does not consider the breach to have been an isolated error, whether or not the error results in a negative box.

Correction of box management errors where no compensation is required

(1)

Correction of errors in calculating an authorised fund manager's box, may only be made, without an obligation to compensate holders, when:

(a)

the error is an isolated error, and is unlikely to recur;

(b)

the authorised fund manager can demonstrate that it has effective controls in place over box management, including all the areas which affect the figures which are included in the box management calculations; and

(c)

the requirements of CIS 4.3.12 R (Modification to number of units issued or cancelled) for single-priced AUTs and ICVCs, or CIS 15.3.12 R (Modification to number of units issued or cancelled) for dual-priced AUTs, are complied with.

(2)

In addition, no compensation is required if an error resulted in a larger positive box, because this would not have caused a breach of the rules.

Correction of box management errors where compensation to the authorised fund may be required

Paragraph 4(1) may not apply (for example, because there have been persistent errors, or an individual error has been discovered too late, or the depositary is not satisfied about the effectiveness of the authorised fund manager's systems). In these circumstances, not only should all errors be corrected as soon as possible, but compensation is required to the extent that (a) to (e):

(A)

error results from an under-issue

Where a negative box results from an under-issue of units - units sufficient to correct the negative box must immediately be issued, unless this requirement has already been satisfied by subsequent issues or by redemptions subsequent to the under-issue. If the price (or, for a dual-priced AUT, the issue price has risen, no compensation is required. If the price (or, for a dual-priced AUT, the issue price) has fallen, the authorised fund manager must compensate the authorised fund for the difference in price (or, for a dual-priced AUT, the issue price) between the valuation point at which the issue should have been made and the valuation point when the under-issued position was extinguished.

(B)

error results from an over-cancellation and the price or (for a dual-priced AUT the cancellation price) has risen

Where an error results from an over-cancellation, and the price (or, for a dual-priced AUT, the cancellation price) has risen, the error will be automatically corrected with no further penalty, since, when the error is discovered, an authorised fund manager must either undertake an issue of units, or cancel a lower number of units, or cover the error by redemptions, all at a higher price (or, for a dual-priced AUT, the cancellation price).

(C)

error results from an over-cancellation and the price or (for a dual-priced AUT cancellation price) has fallen

Where the price (or, for a dual-priced AUT, the cancellation price) has fallen, an authorised fund manager is required to rectify the breach immediately by arranging an issue of units, if it has not already been rectified by a subsequent issue, or covered by subsequent redemptions. An authorised fund manager should compensate the authorised fund for the difference between the price (or, for a dual-priced AUT, the cancellation price when the over-cancellation was made and the price (or, for a dual-priced AUT, the cancellation price) when it was rectified, irrespective of whether corrected by issue, lower subsequent cancellation, or redemptions.

(D)

diagram

Diagram 1G sets out the action required under (b) when the price (or, in the case of a dual-priced AUT, cancellation price) has moved higher and under (c) when the price (or, in the case of a dual-priced AUT, cancellation price) has moved lower.

(E)

de minimis provision for late issue settlement of AUTs

Where interest due on an isolated instance of a late issue settlement amounts to a figure which is lower than £25, this may be waived if, in the depositary's opinion, there will be no material effect on the authorised fund, and the depositary is satisfied with the authorised fund manager's system of controls.

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Correction of box management errors

Transitional Provisions and Schedules

CIS TP 1

Transitional Provisions

CIS Sch 1.1

Transitional Provisions

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies

Transitional provision

Transitional provision: dates in force

Handbook provision: coming into force

CIS

Expired

CIS 2

Expired

CIS

Expired

CIS 2

Expired

CIS 11.4.4 R

No revision of an instrument constituting the scheme required solely as a result, or as a direct consequence, of the application of the rules in CIS requires any resolution of the holders.

Commencement

CIS 2.2.2 R (6)

Expired

CIS 5.2.10 R (2)

Expired

CIS 5.4.4R (5)

Expired

CIS 9.2.7 G

Expired

CIS 10.3 and CIS 10.4

Expired

CIS

Expired

CIS 3.5.2 R(18)

Expired

CIS 7.3.3 R (2)

CIS 7.3.3 R (3)

CIS 7.8.3 R (4)

The retention period of 6 years does not apply to records that, as at 1 August 2002, had not been retained.

From 1 August 2002 until 31 July 2008

1 August 2002

13A

CIS 3.5.2 R(19)

Expired

CIS 3.2.2 R (3) and CIS 3.5.2 R (10-14) and CIS 5 and CIS 10.4.2 R (16)

(1) A UCITS scheme for which there was an authorisation order in force on or prior to 13 February 2002 may continue to operate under the rules in CIS generally (excepting those to which this provision applies) until 12 February 2007. After that date it must have revised its structure and relevant prospectus and report and accounts in accordance with the rules to which this provision applies and disregard the rules in CIS 5A . All the other rules in CIS will then apply.

from 1/11/02 until 12/02/07

1/11/02

(2) Expired

A UCITS scheme may convert at any time within the limits in Transitional provision 14 (1) and 14 (2) as appropriate to operate under the investment rules in CIS 5 , but having done so it may not revert to operating under the rules in CIS 5A . On conversion all the rules in CIS save CIS 5A will then apply to a converted scheme

from 1/11/02 until 12/02/07

1/11/02

CIS 2.2.6 R (2)(a)(i) , CIS 2.2.6 R (2)(a)(ii) , CIS 2.2.6 R (2)(a)(iii) , CIS 2.2.6 R (2)(a)(iv) and CIS 3.5.2 R (2)(3)

In relation to an authorised fund (which is a securities scheme , warrant scheme , money market scheme , futures and options scheme , fund of funds scheme or an umbrella scheme) in existence the day before 1 November 2002 where this scheme will fall within the newUCITS scheme type within CIS 5 the category of the scheme as stated in the instrument constituting the scheme will be deemed amended to the newscheme type until any subsequent revision of such documentation.

from 1/11/02 until date of revision

1/11/02

CIS 2.2.2 R

CIS 2.2.6 R

CIS 2.2.7 G

A scheme which has an authorisation order in force before 12 February 2004, which is to switch from operating under CIS 5A to CIS 5 and whose instrument constituting the scheme refers to the efficient portfolio management rule in CIS 5A.13 (either generally or specifically), may deem the rules in CIS 5A.13 to continue to apply until the instrument constituting the scheme is amended for any other reason.

from 1/11/02 until date of revision

1/11/02

CIS 5A.13

An authorised fund manager may use efficient portfolio management techniques in relation to a scheme provided that this use of derivatives is disclosed in the most recently published prospectus.

from 1/11/02 until revoked by the FSA.

CIS 3.4.2 R (2)(d) and CIS 3.5.2 R (13)(2), (3)

The requirement to state maximum remuneration in the prospectus does not apply until the prospectus is first amended following 1 November 2002. The insertion of this maximum level of remuneration in the prospectus for the first time will not require a resolution of holders.

1/11/02

CIS 16.5.1 R (4) to CIS 16.5.1 R (6)

A UCITS management company may not carry on any of the activities specified in CIS 16.5.1 R (4) to CIS 16.5.1 R (6) unless it is a UCITS investment firm:

(a) whose permission to carry on any such activity was given before 13 February 2004; or

(b) which complies with Chapter 7 of IPRU(INV).

From 13 February 2004 to 12 February 2007

13 February 2004

CIS 16.5.1 R (4) to CIS 16.5.1 R (6)

A UK firm will not be able to act as such and exercise an EEA right under the UCITS Directive unless it complies with Chapter 7 of IPRU(INV).

CIS 7.6.1 R (2) , CIS 7.6.1 R (4) and CIS 7.6.1 R (5)

CIS 7.10.4 R (1) , CIS 7.10.4 R (5) and CIS 7.10.4 R (6)

(1) Subject to (2), in relation to a UCITS management company which became authorised before 13 February 2004, CIS 7.6.1 R (2) , CIS 7.6.1 R (4) and CIS 7.6.1 R (5) and CIS 7.10.4 R (1) , CIS 7.10.4 R (5) and CIS 7.10.4 R (6) have effect as they applied before 12 February 2004.

(2) Paragraph (1) does not apply in relation to any UK firm which exercises an EEA right under the UCITS Directive

From 13 February 2004 to 12 February 2007

13 February 2004

CIS 10.1.4 G (2) , CIS 10.3.3 R (1)(a) , CIS 10.3.4 R (1)(a) , CIS 10.3.6 R (3), CIS 10.4.8 R (1), and CIS 10.4.9 R (2)(a)

Expired

CIS Sch 1

Record keeping requirements

01/12/2004

CIS Sch 2.1

Handbook reference

Subject of record

Contents of record

When record must be made

Retention period

CIS 6.3.1 R

Instruments of Transfer

Full Details

From registration

6 years

CIS 7.3.3 R (1) and CIS 7.3.3 R (2)

General record-keeping obligations (ACD)

Such as to demonstrate compliance with the rules in CIS

As implicit from the rules in CIS

CIS 7.3.3 R (3)

Dilution record-keeping obligations (ACD)

How the ACD calculates and estimates dilution and its policy and method for determining the amount of any dilution levy or dilution adjustment.

As implicit from the rules in CIS

6 years

CIS 7.8.3 R (1), CIS 7.8.3 R (2) and CIS 7.8.3 R (3)

General record-keeping obligations (manager)

Such as to demonstrate compliance with the rules in CIS

As implicit from the rules in CIS

As implicit from the rules in CIS.

6 years for units.

CIS 7.8.3 R (4)

Dilution record-keeping obligations (manager)

How the manager calculates and estimates dilution and its policy and method for determining the amount of any dilution levy or dilution adjustment.

As implicit from the rules in CIS

6 years

01/08/2002

CIS Sch 2

Notification requirements

01/12/2004

CIS Sch 2.1

This schedule sets out the notification requirements detailed in CIS in respect only of notifications to be provided to the FSA.

01/04/2004

CIS Sch 2.2

Handbook reference

Matter to be notified

Contents of notification

Trigger event

Time allowed

CIS 1.1.1A R

Election to comply with COLL

Details and date of occurrence

When election takes effect

Before election takes effect

CIS 3.2.2 R

Prospectus

Copy provided

Marketing scheme

Before marketing begins

CIS 5.2.26 R (2)

Risk management process and any material alteration to it

Methods of estimating risk, types of derivative their underlying risk and any quantitative limits

Application for authorisation as a scheme complying with CIS 5 or any subsequent proposed material alteration to the risk management process

Up until authorisation to comply with CIS 5 or introduction of the alteration to the process, as appropriate

CIS 7.2.1 R (3)

Change to directors details or controller of ACD

Details

Immediately after the event

Immediate

CIS 7.3.4 R

Capital of ICVC

Details if capital falls below minimum or greater than maximum

Occurrence

Immediate

CIS 7.4.3 R (1)

Mismanagement of ICVC

Details

Occurrence

Immediate

CIS 7.4.3.R (4)

Perceived mismanagement of ICVC

Details

Where an investigation by the depositary takes over 90 days

Immediate

CIS 7.9.3 R (1)

Mismanagement of unit trust

Details

Occurrence

Immediate

CIS 7.9.3 R (2)

Perceived mismanagement of unit trust

Details

Where an investigation by the trustee takes over 90 days

Immediate

CIS 10.5.2 R (6)

Annual and Half yearly reports

Copies

End of annual or half-yearly accounting period

Publication

CIS 11.5.1 G

Scheme of Arrangement

Details

Proposal that the scheme will be involved in a scheme of arrangement

One month before proposed change.

CIS 12.5.5 R

ICVC with only one sub-fund

Action to rectify situation

Umbrella has only one sub-fund

24 months

CIS 13.1.3 R

Suspension of dealing

Details including reason for suspension

Occurrence

Immediate

CIS 14.2.4 R (5)

Winding up a solvent ICVC

Solvency statement

Winding up a solvent ICVC

Within 21 days of notice given under regulation 20 of OEIC regulations

CIS 14.2.6 R (8)

Winding up a solvent ICVC

Completion of winding up

Winding up a solvent ICVC

As soon as reasonably practical after winding up completed.

CIS 14.2.7 R (6)

Winding up a solvent ICVC

Final accounts

End of final accounting period

Two months

CIS 14.3.4 R (5)

Winding up a solvent ICVC sub-fund

Solvency statement

Winding up a solvent ICVC sub-fund

Within 21 days of notice given under regulation 20 of OEIC regulations

CIS 14.3.7 R (5)

Winding up a solvent ICVC sub-fund

Termination account and auditor's report

Termination of sub-fund

Two months

CIS 14.4.3 R (5)

Winding up of an AUT

Completion of winding up

Winding up of an AUT

Immediate

CIS 16.1.4 G

Application for authorisation of an ICVC

Details

Intention to operate an ICVC

Six months before launch (service standard 6 weeks)

CIS 16.1.6 G

Application for authorisation of a unit trust

Details

Intention to manage a unit trust

Six months before launch (service standards 6 weeks)

CIS 16.1.8 G

Notification of scheme constituted in an EEA State to market in the UK

Details

Wish to market scheme in UK

May market two months after appropriate notification

CIS 16.1.9 G

Notification of a scheme constituted in a designated territory

Details

Intention to market scheme in UK

On approval or no later than two months following notification

CIS 16.1.10 G

Notification of a scheme

Details

Intention to market scheme in the UK

On approval which may take 6 months.

CIS 16.1.11 G

Change to ICVC

Details

Intention to change scheme

One month before change

CIS 16.1.12 G

Change to AUT

Details

Intention to change scheme

One month before change

CIS 16.4.1 R

Change to ICVC

Details

Change to scheme

14 days

App CIS G 3 (2) - (4)

Box management Errors

Details

Errors in box management

Immediate

01/04/2004

CIS Sch 3

Fees and other required payments

01/12/2004

CIS Sch 3.1

The aim of the guidance in the following table is to give the reader a quick overall view of the relevant requirements for paying fees.

It is not a complete statement of those requirements and should not be relied on as if it were.

03/09/2001
Future version of CIS Sch 3.1 after 01/01/2006

CIS Sch 3.2

Type of fee

Trigger event

Date/Time for payment

Amount/rate

Handbook reference

Periodic fee

On or before 30 April in each year, or 30 days after the scheme is recognised or the scheme's authorisation order is made

See CIS 18 Annex 1, Part B

CIS 18.2

Application/notification fee

See CIS 18 Annex 1, Part A

On or before making the relevant application or notification

See CIS 18 Annex 1, Part A

CIS 18.3

03/09/2001
Future version of CIS Sch 3.2 after 01/01/2006

CIS Sch 4

Powers Exercised

01/12/2004

CIS Sch 4.1

The following powers and related provisions in or under the Act have been exercised by the FSA to make the rules in CIS:

Section 138 (General rule-making power)

Section 140 (Restriction on managers of authorised unit trust schemes)

Section 156 (General supplementary powers)

Section 247 (trust scheme rules)

Section 248 (Scheme particulars rules)

Section 278 (Rules as to scheme particulars)

Section 283 (Facilities and information in UK)

Section 340 (appointment)

Paragraph 17(1) of Schedule 1 (fees)

10.

Regulation 6 (FSA rules) of the OEIC regulations

The Following powers in the Act have been exercised by the FSA to give the guidance in CIS

11.

Section 157(1) (Guidance)

The Following powers in the Act have been exercised by the FSA in CIS to specify and direct:

12.

Section 270(6)(b)

13.

Section 274(2), (4) and (5)

03/09/2001

CIS Sch 5

Rights of action for damages

01/12/2004

CIS Sch 5.1

The table below sets out the rules in CIS contravention of which by an authorised person may be actionable under section 150 of the Act (Actions for damages) by a person who suffers loss as a result of the contravention.

01/12/2004

CIS Sch 5.2

If a "Yes" appears in the column headed "For private person?", the rule may be actionable by a "private person" under section 150 unless a "Yes" appears in the column headed "Removed?". A "Yes" in the column headed "Removed?" indicates that the FSA has removed the right of action under section 150(2) of the Act. If so, a reference to the rule in which it is removed is also given.

01/12/2004

CIS Sch 5.3

In accordance with The Financial Services and MarketsAct 2000 (Rights of Action) Regulations 2001 (SI 2001/2256), a "private person" is:

(1)

any individual, except when acting in the course of carrying on a regulated activity; and

(2)

any person who is not an individual, except when acting in the course of carrying on business of any kind;

01/12/2004

CIS Sch 5.4

but does not include a government, a local authority or an international organisation.

01/12/2004

CIS Sch 5.5

The column headed "For other person?" indicates whether the rule is actionable by a person other than a private person, in accordance with those Regulations. If so, an indication of the type of person by whom the rule is actionable is given.

01/12/2004

CIS Sch 5.6

Right of action under section 150

Chapter/Appendix

Section/Annex

Paragraph

For private person?

Removed?

For other person?

All rules in CIS

Yes

01/12/2004

CIS Sch 6

Rules that can be waived

01/12/2004

CIS Sch 6.1

The FSA may waive any rule in CIS in relation to AUTs under section 250 of the Act (Modification or waiver of rules), except CIS 2.3.3 R and CIS 16.5.1 R.

The FSA may waive any rule in CIS in relation to ICVCs under section 250 of the Act (Modification or waiver of rules), except CIS 2.3.3 R.

Although the FSA has the formal power of waiver under the Act in relation to these rules, much of CIS is designed to ensure that relevant authorised funds comply with the conditions in the UCITS Directive. Accordingly, it is most unlikely that in practice UCITS Directive derived rules in CIS would be waived.

No rules in CIS 18 can be waived by FSA.

03/09/2001
Future version of CIS Sch 6.1 after 01/01/2006

Export chapter as

Legal Instruments that change this Chapter Transitional Provisions and Schedules

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CIS Collective Investment Schemes

Used in

Export part as

Introduction - Collective investmentschemes sourcebook

Application

Right to elect to comply with COLL

Operators of recognised schemes

Purpose

The products covered

ICVCs

AUTs

Recognised schemes

Functions of the CIS sourcebook

Arrangement of this sourcebook and definitions

Outline of the content of this sourcebook

Related sourcebooks

Constitution

Introduction

Application

Types of authorised fund

Types of authorised fund - explanation.

Table of application

This table belongs to CIS 2.1.2 G

The instrument constituting the scheme

Application

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

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

Relationship between instrument of incorporation and the rules in this chapter

The trust deed for AUTs

Matters that must be included in the trust deed

Provisions that may be included in the trust deed

Relationship between trust deed and rules in this sourcebook

UCITS obligations

Application

UCITS schemes

Requirements

Outward passporting of UCITS schemes

Share classes

Application

Classes of shares in an ICVC

Classes of shares other than those listed in CIS 2.4.2 G

What are currency class shares?

Currency class shares: requirements

What are limited issue shares?

Limited issue shares: requirements

Rights of share classes

Denomination of shares and their sub-division and consolidation

Application

Characteristics of larger and smaller denomination shares

Requirement

Sub-division and consolidation of shares

Units and classes of units in AUTs

What are limited issue units?

Limited issue units: requirements

Undesirable and misleading names

Guarantees and Capital Protection

Application

Conflicts of interest

Prospectus

Introduction

Application

Table of application

This table belongs to CIS 3.1.1 R

Purpose

Drawing up and availability of prospectus

Drawing up of prospectus

Availability of prospectus

False or misleading prospectus

Requirement

Revision of and changes to prospectus

Revision of prospectus

Changes to prospectus

Information to be contained in the prospectus

Matters to be included in the prospectus

Contents of the prospectus

This table belongs to CIS 3.5.2 R

Single-pricing and dealing

Introduction

Application

Introduction - Collective investment
schemes sourcebook