CIS 4.6 Dilution and SDRT provision

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

1. (1)

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

   1. (a)

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

   2. (b)

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

   3. (c)

      the payment of an SDRT provision in respect of the issue or sale of units or any class of units;

   4. (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. (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. (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:

   1. (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

   2. (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. (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. (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.1

1. (1)

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

   1. (a)

      for the purpose of reducing dilution in the fund; or

   2. (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. (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. (3)

   When by reference to any valuation point:

   1. (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:

      1. (i)

         any adjustment must be upwards; and

      2. (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

   2. (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:

      1. (i)

         any adjustment must be downwards; and

      2. (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 bid basis less dealing costs.