COLL 15.8 Valuation, pricing, dealing and income

1This section applies to:

1. (1)

   an authorised fund manager of an AUT, ACS or an ICVC;

2. (2)

   any other director of an ICVC;

3. (3)

   the depositary of an AUT, ACS or an ICVC; and

4. (4)

   an ICVC,

   which is a long-term asset fund.

1. (1)

   1The value of the scheme property is the net value of the scheme property after deducting any outstanding borrowings (including any capital outstanding on a mortgage of an immovable).

2. (2)

   Any part of the scheme property which is not an investment (save an immovable) must be valued at fair value.

3. (3)

   For the purposes of (2), any charges that were paid, or would be payable, on acquiring or disposing of the asset must be excluded from the value of that asset.

4. (4)

   The value of the scheme property of an authorised fund must, save as otherwise provided in this section, be determined in accordance with the provisions of the instrument constituting the fund and the prospectus, as appropriate.

5. (5)

   The scheme must have a valuation point on each dealing day and there must be at least one valuation point every month.

6. (6)

   The authorised fund manager must prepare a valuation in accordance with (4) for each relevant type of unit at each relevant valuation point.

7. (7)

   The price of a unit must be calculated on the basis of the valuation in (6) in a manner that is fair and reasonable as between unitholders.

8. (8)

   In respect of each valuation point under (5), the authorised fund manager must publish in an appropriate manner the price of any type of unit based on the valuation carried out in accordance with (6).

9. (9)

   The authorised fund manager must also provide on request to any unitholder at any time an estimated price for any type of unit in the scheme.

10. (10)

    The period of any initial offer and how it should end must be set out in the prospectus and must not be of unreasonable length.

1. (1)

   1Where an authorised fund manager:

   1. (a)

      accepts instructions to sell and redeem units as principal; and

   2. (b)

      is able to execute a sale instruction by selling units it has redeemed at the same valuation point, without placing its own capital at risk,

      subject to (2), the AFM must not retain for its own account, or the account of any of its associates, the difference between the price at which a unit was redeemed (before deduction of any redemption charge) and the price at which the same unit was sold (after deduction of any preliminary charge). Any such difference must be allocated in a way that is fair to unitholders.

2. (2)

   In calculating the profit arising under (1), the AFM may offset any loss it incurs at the same valuation point, calculated in accordance with (3), when dealing as principal in relation to:

   1. (a)

      a unit issued at that valuation point to fulfil a sale instruction that cannot be matched against any redeemed unit or any other unit of that class held by the manager as principal; and

   2. (b)

      a unit redeemed and cancelled at that valuation point.

3. (3)

   The amount of the loss referred to in (2) is:

   1. (a)

      for units issued in accordance with (2)(a), the difference between the issue price of a unit and the sale price of that unit, less any preliminary charge;

   2. (b)

      for units cancelled in accordance with (2)(b), the difference between the cancellation price of a unit and the redemption price of that unit, before any redemption charge is applied.

4. (4)

   Where any loss arising under (2) is greater than any profit arising under (1), that loss cannot be offset against any profit arising at a subsequent valuation point.

5. (5)

   This rule applies to the redemption and sale of units of different classes at the same valuation point, if those classes are treated as one for the purpose of COLL 15.8.6R (Issue and cancellation of units in multiple classes).

1. (1)

   1The authorised fund manager must:

   1. (a)

      ensure that at each valuation point there are at least as many units in issue of any class as there are units registered to unitholders of that class; and

   2. (b)

      not do or omit anything that would, or might, confer on itself a benefit or advantage at the expense of a unitholder or potential unitholder.

2. (2)

   For the purposes of (1) the authorised fund manager may take into account sales and redemptions after the valuation point, provided it has systems and controls to ensure compliance with (1).

3. (3)

   The authorised fund manager must arrange for the issue and cancellation of units and pay money or assets to or from the depositary for the account of the scheme as required by the prospectus.

4. (4)

   The authorised fund manager must keep a record of issues and cancellations made under this rule.

5. (5)

   The authorised fund manager may arrange for the ICVC, or instruct the depositary of the AUT or ACS, to issue or cancelunits where the authorised fund manager would otherwise be obliged to sell or redeem the units in the manner set out in the prospectus.

6. (6)

   Where the authorised fund manager has not complied with (1), it must correct the error as soon as possible and must reimburse the scheme any costs it may have incurred in correcting the position, subject to any reasonable minimum level for such reimbursement as set out in the prospectus.

1If a long-term asset fund has two or more classes of unit in issue, the authorised fund manager may treat any or all of those classes as one for the purpose of determining the number of units to be issued or cancelled by reference to a particular valuation point, if:

1. (1)

   the depositary gives its prior agreement; and

2. (2)

   the relevant classes:

   1. (a)

      have the same entitlement to participate in, and the same liability for charges, expenses and other payments that may be recovered from, the scheme property; or

   2. (b)

      differ only as to whether income is distributed or accumulated by periodic credit to capital, provided the price of the units in each class is calculated by reference to undivided shares in the scheme property.

1. (1)

   1Where transfer of units in an ACS is allowed by its contractual scheme deed and prospectus in accordance with the conditions specified by FCA rules, the authorised contractual scheme manager of the ACS must take reasonable care to ensure that units are only transferred if the conditions specified by the FCA under (2) are met.

2. (2)

   The FCA specifies that for the purposes of (1), and for the purposes of COLL 15.3.6R(3)(9)(a)(vii)(B) (Table: contents of the instrument constituting the fund) and COLL 15.4.5R(18)(2) (Table: contents of long-term asset fund prospectus), units in the ACS may only be transferred to a person:

   1. (a)

      who is a:

      1. (i)

         professional ACS investor; or

      2. (ii)

         large ACS investor; or

      3. (iii)

         person who already holds units in the scheme; and

   2. (b)

      to whom units in a long-term asset fund may be promoted without contravening the rules in COBS 4.12A (Promotion of restricted mass market investments)3.

      2

1. (1)

   1The authorised contractual scheme manager of an authorised contractual scheme which is a long-term asset fund must take reasonable care to ensure that rights or interests in units in the scheme are not acquired by any person from or through an intermediate unitholder in a long-term asset fund, unless:

   1. (a)

      that person is a:

      1. (i)

         professional ACS investor; or

      2. (ii)

         large ACS investor; or

      3. (iii)

         person who already holds units in the scheme; and

   2. (b)

      units in a long-term asset fund may be promoted to that person without contravening the rules in COBS 4.12A (Promotion of restricted mass market investments)3.

      2
2. (2)

   The authorised contractual scheme manager will be regarded as complying with (1) to the extent that it can show that it was reasonable for it to rely on relevant information provided by another person.

1The authorised contractual scheme manager of a long-term asset fund which is an ACS must redeemunits in the scheme as soon as practicable after becoming aware that those units are vested in anyone (whether as a result of subscription or transfer of units) other than a person meeting the criteria in COLL 15 Annex 1R(1) and (2) (ACS Long-Term Asset Funds: eligible investors).

1The authorised fund manager must, at all times during the dealing day, be willing to effect the sale of units to any eligible investor (subject to any conditions in the instrument constituting the fund and the prospectus, which must be fair and reasonable as between all unitholders and potential unitholders) for whom the authorised fund manager does not have reasonable grounds to refuse such sale.

1. (1)

   1In this rule, a ‘redemption determination’ is a determination by the authorised fund manager of the long-term asset fund to:

   1. (a)

      accept a request by a unitholder to redeem units in the scheme;

   2. (b)

      refuse a redemption request (see paragraph (2)(c)); or

   3. (c)

      make such other determination in relation to the redemption request as may be provided for in the instrument constituting the fund and the prospectus (see paragraph (6) below, and COLL 15.8.13G(6) and (7)).

2. (2)

   The redemption arrangements for a long-term asset fund must ensure the following:

   1. (a)

      A unitholder must be able to submit a request to redeem units before the next date on which the authorised fund manager makes a redemption determination, subject to any cut-off point which may be specified in the prospectus for this purpose.

   2. (b)

      The authorised fund manager must not make redemption determinations more frequently than the dealing frequency of the scheme and, in any event, not more than once a month.

   3. (c)

      The authorised fund manager must accept a unitholder’s request to redeemunits in the scheme in accordance with any conditions in the instrument constituting the fund and the prospectus unless the authorised fund manager has reasonable grounds to refuse the redemption request.

   4. (d)

      The authorised fund manager must inform the unitholder of the outcome of the redemption determination.

   5. (e)

      If the authorised fund manager accepts the unitholder’s request to redeem units in the scheme:

      1. (i)

         the redemption request is deemed to be irrevocable;

      2. (ii)

         the authorised fund manager must undertake to effect the redemption at the applicable time, in accordance with any conditions in the instrument constituting the fund and the prospectus; and

      3. (iii)

         the authorised fund manager must confirm to the unitholder:

         1. (A)

            that the redemption request has been accepted and cannot be revoked; and

         2. (B)

            having regard to the period specified for the purposes of (f), the dates on which it is expected that the redemption will be effected and the appropriate proceeds paid.

   6. (f)

      The authorised fund manager must determine the price for the units being redeemed pursuant to the unitholder’s redemption request at the first valuation point following the end of the notice period specified in the instrument constituting the fund and the prospectus (the ‘notice period’).

   7. (g)

      The notice period must be at least 90 days after the day on which the request to redeem units in the scheme was accepted.

   8. (h)

      The authorised fund manager must redeem the units at the price determined in accordance with (f) and pay the unitholder the appropriate proceeds of redemption in accordance with paragraphs (4) and (5).

3. (3)

   Subject to COBS 2.1.4R (AIFMs’ best interests rule) and COLL 15.3.2R (Classes of unit), where the long-term asset fund has more than one class of unit, the arrangements for the redemption of units may differ between classes provided the arrangements for all classes of unit ensure the matters specified in (2).

4. (4)

   After having effected a redemption request, the authorised fund manager must pay the full proceeds of the redemption to the unitholder within any reasonable period specified in the prospectus, unless it has reasonable grounds for withholding payment.

5. (5)

   Payment of proceeds on redemption must be made by the authorised fund manager in any manner provided for in the prospectus which must be fair and reasonable as between redeeming unitholders and continuing unitholders.

6. (6)

   If the instrument constituting the fund and the prospectus of a long-term asset fund permit the authorised fund manager to defer or limit a requested redemption, those arrangements must not result in:

   1. (a)

      the authorised fund manager making redemption determinations more frequently than once a month (see paragraph (2)(b)); or

   2. (b)

      the notice period being shorter than 90 days (see paragraph (2)(g)).

1. (1)

   The authorised fund manager of a long-term asset fund that is also a property authorised investment fund must take reasonable steps to ensure that no body corporate holds more than 10% of the net asset value of that scheme (the “maximum allowable”).

2. (2)

   For the purposes of (1), a body corporate shall not be treated as holding more than the maximum allowable to the extent that:

   1. (a)

      the body corporate holds units in a unit trust scheme which holds shares in the property authorised investment fund; and

   2. (b)

      in their capacity as trustees of the unit trust scheme, the trustees are chargeable in the United Kingdom either to income tax or to corporation tax.

3. (3)

   1Where the authorised fund manager of a property authorised investment fund becomes aware that a body corporate holds more than the maximum allowable, the authorised fund manager must:

   1. (a)

      notify the body corporate of that event;

   2. (b)

      not pay any income distribution to the body corporate; and

   3. (c)

      redeem or cancel units forming the body corporate’s holding down to the maximum allowable within a reasonable timeframe.

4. (4)

   For the purpose of (3)(c), a reasonable timeframe means the timeframe which the authorised fund manager reasonably considers to be appropriate having regard to the interests of the unitholders as a whole.

1. (1)

   3The only payments which may be recovered from the scheme property of a long-term asset fund are those in respect of:

   1. (a)

      remunerating the parties operating the authorised fund;

   2. (b)

      the administration of the authorised fund;

   3. (c)

      the investment or safekeeping of the scheme property; and4

   4. (d)

      4subject to (1A), donations to one or more registered charities for Sharia compliance purposes (in this rule, ‘purification’), as set out in and authorised by the prospectus of the scheme.

2. (1A)

   4Payments relating to (1)(d) may only be made from the income property of the scheme where they represent the required percentage of the income property recognised for purification as advised by a person with appropriate knowledge of finance and Islamic law.

3. (2)

   No payment under this rule can be made from scheme property if it is unfair to (or materially prejudices the interests of) any class of unitholders or potential unitholders.

4. (3)

   Paragraphs (1) and (2) do not apply to any payments in relation to any taxation payable by the authorised fund.

5. (4)

   Paragraphs (1) and (2) do not permit payments to third parties for the safekeeping or administration of units on behalf of unitholders rather than on behalf of the authorised fund.

3Any performance fee specified in the prospectus must be calculated on the basis of the scheme’s performance after deduction of all other payments out of scheme property.

1. (1)

   3No person other than the authorised fund manager may impose charges on unitholders or potential unitholders when they buy or sell units.

2. (2)

   An authorised fund manager must not make any charge or levy in connection with:

   1. (a)

      the issue or sale of units except where a preliminary charge is made in accordance with the prospectus of the scheme which must be:

      1. (i)

         a fixed amount; or

      2. (ii)

         calculated as a percentage of the price of a unit; or

      3. (iii)

         calculated as a percentage of the amount being subscribed; or

   2. (b)

      the redemption or cancellation of units, except a redemption charge made in accordance with the prospectus current at the time the relevant units were purchased by the unitholder.

3For a scheme which is an umbrella, an authorised fund manager must not make a charge on an exchange of units in one sub-fund for units in another sub-fund unless the amount of the charge is not more than the amount stated in the current prospectus.

1. (1)

   3The authorised fund manager must determine whether a payment is to be made from the income property or capital property of an authorised fund, and in doing so the authorised fund manager must:

   1. (a)

      pay due regard to whether the nature of the cost is income related or capital related and the objective of the scheme; and

   2. (b)

      agree the treatment of any payment with the depositary.

2. (2)

   Where, for any class of units for any annual accounting period (see COLL 15.8.18R(2) (Income)), the amount of the income property is less than the income distributed, the shortfall must, as from the end of that period, be charged to the capital account and must not subsequently be transferred to the income account.

1. (1)

   3No payment may be made from scheme property to any person, other than a payment to the authorised fund manager permitted by the rules in COLL, for the acquisition or promotion of the sale of units in an authorised fund.

2. (2)

   Paragraph (1) does not apply to the costs an authorised fund incurs preparing and printing the key information document, provided the prospectus states, in accordance with COLL 15.4.5R(14) (Table: contents of a long-term asset fund prospectus), that these costs are properly payable to the authorised fund manager from scheme property.

1. (1)

   3Where the scheme property of an LTAF is transferred to a second authorised fund (or to the depositary for the account of the authorised fund) in consideration of the issue of units in the second authorised fund to unitholders in the first scheme, (2) applies.

2. (2)

   The ICVC or the depositary of the ICVC, ACS or AUT as the successor in title to the property transferred may pay out of the scheme property any liability arising after the transfer which, had it arisen before the transfer, could properly have been paid out of the property transferred, but only if:

   1. (a)

      there is nothing in the instrument constituting the fund of the LTAF expressly forbidding the payment; and

   2. (b)

      the authorised fund manager is of the opinion that proper provision was made for meeting such liabilities as were known or could reasonably have been anticipated at the time of the transfer.

3For a scheme that is an umbrella, any assets to be received into, or any payments out of, the scheme property which are not attributable to one sub-fund only must be allocated by the authorised fund manager between the sub-funds in a manner that is fair to the unitholders of the umbrella generally.

1. (1)

   3This rule applies in relation to a limited protection LTAF class unless the provisions in COLL 15.8.15EG to COLL 15.8.15PR have been applied.

2. (2)

   Payments out of the scheme property may be made from capital property rather than from income, provided the basis for this is set out in the prospectus.

An ICVC must not incur any expense in respect of the use of any movable or immovable property unless the scheme is dedicated to such investment or such property is necessary for the direct pursuit of its business.3

1. (2)

   [deleted.]3

1. (1)

   1A long-term asset fund must have:

   1. (a)

      an annual accounting period;

   2. (b)

      a half-yearly accounting period; and

   3. (c)

      an accounting reference date;

      the details of which must be set out in the prospectus.

2. (2)

   COLL 6.8.2R(2) to COLL 6.8.2R(7) (Accounting periods) also apply to the half-yearly accounting period and annual accounting period of a long-term asset fund.

3. (3)

   A long-term asset fund must have an annual income allocation date, which must be within four months of the accounting reference date.

4. (4)

   A long-term asset fund may have an interim income allocation date and interim accounting periods and if it does, the interim income allocation date must be within a reasonable period of the end of the relevant interim accounting period as set out in the prospectus.

5. (5)

   COLL 6.8.3R(3) (Income allocation and distribution) to COLL 6.8.3AG (Allocation of income to difference classes of unit) also apply to a long-term asset fund.