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CIS 5A.10 Feeder funds

Application

CIS 5A.10.1R

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.

Introduction

CIS 5A.10.2G
  1. (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. (2)

    The feeder fund investing in eligible investment trustshares 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.

Feeder funds: general

CIS 5A.10.3R
  1. (1)

    The scheme property of a feeder fund must, except where otherwise provided in the rules in this chapter, only consist of:

    1. (a)

      units in a single regulated collective investment scheme; or

    2. (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. (2)

    An AUT may be a feeder fund only if it is a relevant pension scheme.

  3. (3)

    A feeder fund under (1)(a) must not invest in:

    1. (a)

      a geared futures and options scheme;

    2. (b)

      a property scheme;

    3. (c)

      a warrant scheme;

    4. (d)

      a feeder fund;

    5. (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);

    6. (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

    7. (g)

      a recognised scheme which would, if authorised, fall within any of (a) to (f).

  4. (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 ruleCIS 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. (5)

    The following also apply to feeder funds:

    1. (a)

      CIS 5A.2 (General investment powers and limits for authorised funds);

    2. (b)

      CIS 5A.15 (Cash, borrowing, lending and other provisions); and

    3. (c)

      CIS 5A.16 (Cover for sales).

Feeder funds investing in a single eligible investment trust

CIS 5A.10.4R

An investment trust is an eligible investment trust for the purposes of CIS 5A.10.3 R (1)(b) only if:

  1. (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. (2)

    at any time in the last six months, the trustee of the feeder fund having taken reasonable care has determined that:

    1. (a)

      at least 70% of the income of the investment trust received during either or both of:

      1. (i)

        the last completed accounting period; and

      2. (ii)

        the first half of the current accounting period;

      consisted of income from approved securities;

    2. (b)

      (apart from transactions for hedging purposes) the property of the investment trust either:

      1. (i)

        cannot be invested in derivatives; or

      2. (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);

    3. (c)

      not more than 5% of the property of the investment trust consists of warrants;

    4. (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;

    5. (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;

    6. (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;

    7. (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 eligiblesecurities market; and

    8. (h)

      the investment trust has no limit on its duration.