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CIS 2.4 Share classes

Application

CIS 2.4.1R

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

Classes of shares in an ICVC

CIS 2.4.2G
  1. (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. (2)

    Classes of shares may include:

    1. (a)

      income shares;

    2. (b)

      net accumulation shares;

    3. (c)

      gross accumulation shares;

    4. (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);

    5. (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); 1

    6. (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; and1

    7. (g)

      limited issue shares which will also be shares of another class.1

Classes of shares other than those listed in CIS 2.4.2 G

CIS 2.4.3G
  1. (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. (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. (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:

    1. (a)

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

    2. (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

    3. (c)

      the effect of the new share class should not appear to be contrary to the purpose of any part of this sourcebook.

  4. (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:

    1. (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

    2. (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:

      1. (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;

      2. (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;

      3. (iii)

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

What are currency class shares?

CIS 2.4.4G

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.

Currency class shares: requirements

CIS 2.4.5R

In the case of currency class shares:

  1. (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. (2)

    the price must be expressed in the currency of the class concerned;

  3. (3)

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

  4. (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).

What are limited issue shares?

CIS 2.4.5AG
  1. (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. (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.1

Limited issue shares: requirements

CIS 2.4.5BR
  1. (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. (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:

    1. (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

    2. (b)

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

  3. (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.1

Rights of share classes

CIS 2.4.6R
  1. (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. (2)
    1. (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:

      1. (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

      2. (ii)

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

    2. (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

    3. (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:

      1. (i)

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

      2. (ii)

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

      3. (iii)

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