CIS 2.4 Share classes

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

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.

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.

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