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CIS 2.2 The instrument constituting the scheme

Application

CIS 2.2.1R
  1. (1)

    CIS 2.2.2 RCIS 2.2.4 R apply to the directors of an ICVC.

  2. (2)

    CIS 2.2.5 RCIS 2.2.8 R apply to managers and trustees of an AUT.

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

CIS 2.2.2R
  1. (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.1

  2. (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:

    1. (a)

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

      1. (i)

        redeemed or cancelled; or

      2. (ii)

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

    2. (b)

      the procedure for that redemption or cancellation, conversion or exchange.

  3. (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. (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. (5)

    Nothing in (4):

    1. (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

    2. (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. (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:

    1. (a)

      which is an eligible securities or derivatives market for that ICVC under CIS 5 or CIS 5A (Investment and borrowing powers); or1

    2. (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.1

  7. (7)

    The instrument of incorporation must not contain a provision preventing its shares being marketed in the United Kingdom.2

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

CIS 2.2.3G

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.

Relationship between instrument of incorporation and the rules in this chapter

CIS 2.2.4R

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

The trust deed for AUTs

CIS 2.2.5R

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

Matters that must be included in the trust deed

CIS 2.2.6R

The trust deed of an AUT must contain at least:

  1. (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. (2)

    Authorised status

    1. (a)

      a statement:

      1. (i)

        in all cases, of the type to which the AUT belongs under CIS 2.1.4 R (Types of authorised fund);1

      2. (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;

      3. (iii)

        for a fund of funds scheme, identifying the types of scheme in which the fund of funds scheme may invest; and1

      4. (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; 1

  3. (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. (4)

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

    1. (a)

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

    2. (b)

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

  5. (5)

    Base currency: a statement of the base currency of the AUT;

  6. (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:

    1. (a)

      which is an eligible securities or derivatives market for that AUT under CIS 5 or CIS 5A (Investment and borrowing powers); or1

    2. (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; 1

  7. (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:

    1. (a)

      the scheme property (other than sums standing to the credit of the distribution account) is held by the trustee on trust for the Unitholders according to the number of units held by each Unitholder 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 Unitholder; and

    2. (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. (8)

    Unitholder's liability to pay a provision that a Unitholder 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. (9)

    Single-priced AUTs : for a single-priced AUT:

    1. (a)

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

    2. (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

    3. (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. (10)

    The trust deed must not contain a provision preventing its units being marketed in the United Kingdom.2

Provisions that may be included in the trust deed

CIS 2.2.7G
  1. (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.

    1. (a)

      Duration of the AUT: if the AUT is to terminate after a particular period expires, a statement to that effect;

    2. (b)

      Manager's preliminary charge: a statement

      1. (i)

        authorising the manager to make a preliminary charge; and

      2. (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);

    3. (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:

      1. (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);

      2. (ii)

        specify the accrual intervals and how the charge is to be paid; and

      3. (iii)

        specify a maximum to that charge, expressed as an annual percentage of the scheme property value;

    4. (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;

    5. (e)

      Manager's charge on redemption: a statement authorising the manager to deduct a redemption charge out of the proceeds of redemption;

    6. (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;

    7. (g)

      Constituents of property, permitted transactions and borrowing powers: a statement of any of:

      1. (i)

        the description of assets which the capital property may consist of;

      2. (ii)

        the proportion of the capital property which may consist of an asset of any description;

      3. (iii)

        the descriptions of transactions which may be effected on behalf of the AUT;

      4. (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);1

    8. (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;

    9. (i)

      Classes of units: a statement specifying which of the following classes of unit may be issued:

      1. (i)

        income units;

      2. (ii)

        accumulation units;

      3. (iii)

        limited issue units that are also income units;

      4. (iv)

        limited issue units that are also accumulation units.1

    10. (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;

    11. (k)

      Certificates

      1. (i)

        a provision authorising the issue of bearer certificates, accompanied by a statement of how the holders of bearer certificates are to identify themselves;

      2. (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;

    12. (l)

      Income equalisation: a provision for income equalisation including a statement of how income equalisation is to be calculated, paid and accounted for;

    13. (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 3(Pension Schemes Office and National Insurance Contributions Office), or those of any agency which may regulate a relevant pension scheme from time to time;

      3
    14. (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. (2)

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

    1. (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

    2. (b)

      which is expressly contemplated in this sourcebook.

Relationship between trust deed and rules in this sourcebook

CIS 2.2.8R
  1. (1)

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

  2. (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. (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.1