Jersey Legal Information Board

Initial offers and unitisations

4.01 Introduction to this Part and to Section A

1 Units in a pool may be created or cancelled only by the trustee or company and, subject to Articles 4.05 and 4.09.8, only upon receipt by the trustee, or the company and the depositary, as the case may be, of written instructions given by, or an application made by, the manager (which for the purposes of this Part in relation to any recognized fund shall be termed “creation instructions” and “cancellation instructions”). Creation instructions or cancellation instructions may be given at any time.

2 A pool shall have the choice, subject to Section D, of operating on an historic or forward pricing basis and subject to Article 4.10.1 of operating on a single pricing or a dual pricing basis.

3 Articles 4.02 – 4.04 apply to the setting up of a new pool by way of an initial offer, and apply during the period of such an offer.

4 The period of the initial offer is not to exceed 21 days and an initial offer must, subject to Article 4.04, be kept open for the period of the initial offer.

4.02 Creation of units: initial offer

1 During the period of the initial offer and on the business day after it, units in the pool may be created by the trustee or company under paragraph 2 or 4.

2 The manager may give creation instructions at the beginning of the first business day in the period.

3 At or before the beginning of that day, the manager must irrevocably choose, in respect of that initial offer, to proceed either under paragraph 4a. (“up and running”) or under paragraph 4b. (“pay over and wait”) and must notify the manager’s choice to the depositary and the company.

4 Where on any business day during the period the manager assumes any obligation for the sale of units, the manager must, depending on the manager’s choice under paragraph 3, either –

a. give creation instructions, at the beginning of the next business day, to create units in such number at least as will enable the manager immediately to fulfil that obligation, whether from the units so created or from other units; or

b. proceed as follows –

(i) pay to the depositary (in any case where the purchaser has sent a remittance) on the day of receipt of the remittance or on the next business day, the total amount, and

(ii) as soon as the period of the initial offer has come to an end, give creation instructions to create units in such number at least as will enable the manager to fulfil the manager’s obligations for the sale of units whether from the units so created or from other units.

5 The creation instructions shall state the number of units to be created, expressed either as a number of units or as an amount in value (or as a combination of the 2).

6 The trustee, or company, must or may respectively (subject to Article 4.11), create units on receipt of creation instructions given under this Article, and must not, during an initial offer, create units otherwise.

4.03 Initial price

1 The price for each unit created during the period of the initial offer payable by the manager to the depositary shall be the initial price of that unit.

2 For this purpose, “initial price” means such amount as may be determined by the manager (or in the case of a company its directors), and notified to the depositary as being the amount, exclusive of the manager’s preliminary charge, if any, which may be paid by a potential unitholder to the manager for units on an initial offer.

3 The amount which may be charged by the manager by way of preliminary charge shall comply with Article 8.02.

4 A unit is treated as created during the period of the initial offer if the manager had agreed to the sale of it or received an order for it to be sold before the close of the offer, and it was created only afterwards.

5 During the period of the initial offer, the manager shall not as agent agree to create units (as to which see Article 4.21 below) at a price which is other than the initial price to which may be added, for the account of the manager, any preliminary charge permitted under Article 8.02.

6 The initial price of units shall be expressed in the currency of the class of units: but, during the period of the initial offer, a currency other than that currency may be used if the manager is satisfied that the rate of exchange between the 2 currencies is not likely to result in any material prejudice to the interests of unitholders or potential unitholders.

7 Where the initial offer is made outside Jersey, there may be added to the initial price of units so offered an amount sufficient to cover additional duty or taxation leviable in that country and the cost of the remittance of money to Jersey.

4.04 Compulsory termination of initial offer

1 If the manager has reason to believe that if the current price of a unit were to be calculated by reference to a valuation taken forthwith, it would be likely to vary from the initial price of that unit by 2% or more of the initial price, the manager may carry out such a valuation.

2 If –

a. the manager carries out such a valuation and it shows a variation of 2% or more; or

b. the manager has reason to believe as mentioned in paragraph 1, but does not forthwith carry out a valuation for the purpose of that paragraph, then the period of the initial offer comes to an end and the manager must forthwith refrain from –

(i) agreeing to sell units at the initial price, and

(ii) arranging for the trustee or company to create units at the initial price except to fulfil an obligation to sell or an order for the purchase of units at that price which it has already assumed or received.

4.05 Creation of units: unitization

1 This Article applies in the case of a unitization, that is, arrangements for a newly formed pool under which –

a. the whole or part of the property of a body corporate (or a collective investment fund) becomes the first property of the pool; and

b. the holders of shares (or units) in the body corporate (or collective investment fund) being wound-up or property of which is being transferred become the first unitholders in the pool.

2 The trustee, or in the case of a company its directors with the agreement in writing of the depositary, alone shall have power, not dependent on an instruction by the manager, to determine to create units, having regard to the terms of any arrangements relating to the unitization to which he, she or the company is a party; and in exercising the power conferred by this paragraph, any particular number of units may be created in exchange for assets other than money only if the depositary is satisfied that to do so is not likely to result in any material prejudice to the interests of unitholders or potential unitholders.

3 Upon such a determination, units shall be created in favour only of the holders of shares or units referred to in paragraph 1b.

Creation and cancellation

4.06 Introduction

1 Articles 4.07 – 4.12 apply to creation and cancellation –

a. in an ongoing pool; and

b. where specifically stated, in relation to an initial offer and a unitization.

2 In this Section, a “valuation point” means the valuation point fixed by the manager under Article 4.28, whether on a periodic basis or for a particular valuation and where a valuation point falls outside normal business hours in Jersey, it shall be deemed (for the purposes of this Article and Articles 4.07.2 and 4.10) to be 9.00 am on the following business day; and a “notified point” means a subsequent moment, within 2 hours of a valuation point, and arrived at under paragraph 3 below.

3 If the manager wishes regularly to have a notified point, the manager may notify the trustee or the company of the manager’s intention, indicating the period of time not exceeding 2 hours after the valuation point at which the manager wishes the notified point to occur; and any change in the period is ineffective unless agreed upon by the depositary.

4.07 Creation instructions

1 Where the manager wishes new units to be created, and complies with Article 4.10, the manager may give creation instructions which shall state the number to be created, expressed either as a number of units or as an amount in value (or as a combination of the 2).

2 Where at any valuation point, the manager has any outstanding obligation to sell units, then the manager must give creation instructions, before –

a. 2 hours have elapsed since the valuation point; or

b. the next valuation point (if it is to occur within 2 hours of the last valuation point),

to create units in such number at least as will enable the manager immediately to fulfil that obligation, (whether from the units so created or from other units owned by the manager immediately before the valuation point (or notified point if there is one)).

4.08 Creation of units

1 Subject to paragraph 2 and to Article 4.11 units must be created on receipt of and in accordance with creation instructions given by the manager under Article 4.07, and must not, after an initial offer, be created otherwise.

2 The units may be created in exchange for assets other than money, but only –

a. if the depositary is satisfied that acquisition of the assets in exchange for the number of units to be created is not likely to result in any material prejudice to the interests of unitholders or potential unitholders; and

b. in a case governed by Article 11.05 (amalgamation) or 11.06 (reconstruction) the depositary is satisfied that the resolution concerned in relation to the recognized fund of which he or she is depositary has been duly carried or else is not required.

3 On the creation of units, the manager shall, within the period specified in paragraph 4 –

a. pay the price of the units (if it remains unpaid) to the depositary in cash or in cleared funds; or

b. in the case of an exchange under paragraph 2, ensure transfer to the depositary of the assets to be taken in exchange.

4 The period expires at the close of business on the 4th business day next after the relevant instructions were given by the manager.

5 In a case within paragraph 2 (exchange) the manager must ensure that an enforceable right in the assets is created in favour of the depositary with effect from the creation of the units, even if the legal ownership is not then transferred.

6 Paragraphs 2-5 above apply to an initial offer, but not to a unitization.

4.09 Cancellation of units

1 Where the manager wishes units to be cancelled, and complies with Article 4.10, the manager may give cancellation instructions which shall state the number to be cancelled, expressed either as a number of units or as an amount in value (or as a combination of the 2).

2 Where, at any moment of giving cancellation instructions, the manager has any outstanding obligation to sell units, the manager may not give cancellation instructions if or to the extent that the manager’s so doing would prevent the manager immediately from fulfilling any such obligation which had been assumed before the valuation point (or notified point if there is one).

3 Subject to Article 4.11 below units must be cancelled on receipt of cancellation instructions given by the manager, but subject to paragraph 8 may not be cancelled otherwise.

4 Where cancellation instructions are given at a time which is less than 2 hours after the last valuation point, and there have been received but not yet executed cancellation instructions previously given under paragraph 3, the later cancellation instructions must enable both or all sets of instructions to be executed simultaneously.

5 On the cancellation of units and on delivery to the depositary of such evidence of the title to those units as he or she may reasonably require, the depositary shall, within the period specified in paragraph 6, pay the price of the units to the unitholder or the manager as the case may be.

6 The period expires at the close of business on the 4th business day next after the cancellation of the units; but, where the manager has not ensured that the property of the pool includes or will include sufficient cash in the appropriate currency (or a sufficient facility to borrow without infringing any restriction in Part 5) within that period, the period is extended, for any relevant currency, until the shortage is rectified.

7 Paragraph 5 does not apply where units are cancelled following a request for repurchase or cancellation of units by the unitholder, for property transferred or sold under Article 4.27.

8 Nothing in this Article shall prevent or restrict the right of a pool to redeem all the units in issue on a date, or on the occurrence of any event specified in its constitutional documents, as the case may be, and in accordance with any provisions so specified.

4.10 Price of a unit

1 Subject to paragraphs 8 and 9, the constitutional documents may state that units are to be priced on a single price basis or that they are to be priced on a dual price basis. On the dual price basis a different valuation of the property of the pool is required to price a unit on creation to that required to price a unit on cancellation. Subject to paragraph 8, a change from one basis to the other in respect of any pool is permissible provided the constitutional documents permit such change in accordance with these Rules. The manager, or in the case of a company its directors may elect to make such change by notice given to the Commission in accordance with Article 2.10, and effect shall not be given thereto until the requirements of Article 2.10.3 have been satisfied and the proposed change and date of its implementation has been incorporated in a revised prospectus in accordance with Article 3.04 and 90 days have elapsed since the unitholders were notified in writing by the manager of the change to the prospectus and of the date when it is to come into effect.

2 Subject to paragraph 4, the price of a unit of any class shall be calculated as follows –

a. take the proportion, attributable to the units of the class in question, of the value of the property of the pool in accordance with Section F (excluding the distribution account and the unclaimed payments account), calculated by reference to the most recent valuation of the property of the pool;

b. compute the number of units of the relevant class in issue immediately before the valuation in a;

c. divide the total at a. by the number of units at b;

d. express the result in the base currency or, when appropriate, the currency of designation of the class of units in question, or else comply with paragraph 3; and

e. express the price in a form that is accurate to at least 4 significant figures.

3 A currency other than a currency referred to in 2d. above may be used if the manager is satisfied that the rate of exchange between the 2 currencies is not likely to result in any material prejudice to the interests of unitholders or potential unitholders.

4 A method of calculation other than that at paragraph 2 may be used as long as the manager is sure that it is bound to produce the same result.

5 Where a creation or cancellation is made at a time which is less than 2 hours after the last valuation point and before the next valuation point, it must be made by reference to the price of the relevant class of units calculated (or being calculated) for the last valuation point.

6 Any creation or cancellation to be made more than 2 hours after the last valuation point must be made by reference to the price of the relevant class of units next to be calculated and made only after the next valuation point has been reached.

7 In the case of a money market fund, in determining the price at which units may be created, issued, cancelled, or repurchased the manager may take into account interest, original issue discount, and other receipts minus expenses and other outgoings that shall accrue between the relevant valuation point and the date on which settlement of the transaction is to take place in accordance with the constitutional documents provided that the policy of the manager shall be disclosed in the prospectus.

8 The constituent parts of an umbrella fund must all be priced on either a dual or a single price basis.

9 All pools shall, within 3 years following the coming into force of these Rules, operate on a single pricing basis.

4.11 Refusal to create or cancel units

1 Subject to paragraphs 2 and 3 –

a. on receipt by a company of creation instructions or cancellation instructions the company may forthwith give written notice to the manager stating that the company refuses to create or cancel, as the case may be, all or such number of the units requested to be created or cancelled as is specified in the notice; and

b. on receipt by the depositary of creation instructions or cancellation instructions the depositary may forthwith give written notice to the manager stating that the depositary refuses to create or cancel, as the case may be, all or such number of the units requested to be created or cancelled as is specified in the notice,

and the consequence of the giving of either such notice shall be that the number of units shall not be created or cancelled.

2 Neither a company nor the depositary may give such notice in relation to the creation of units for the purposes of a unitization and, in any other case may give it only if –

a. in a case where the company proposes to give such notice, the directors are of the opinion; or

b. in a case where the depositary proposes to give such notice, it is of the opinion,

that it is not in the interests of participants for the units the subject of the notice to be created or cancelled as the case may be.

3 A company or trustee shall not create or cancel units of any class, and the depositary shall not consent to their creation or cancellation, during any period in which repurchase of units of that class is suspended.

4 This Article also applies to an initial offer.

4.12 Modification to number of units created or cancelled

1 After a creation instruction or cancellation instruction has been complied with, it may be modified, and appropriate consequential adjustments may be made by way of payment of money as between the manager and the depositary, provided that the requirements of this Article are satisfied.

2 The manager may make a modification under this Article only with the agreement of the depositary; and the depositary may not agree unless it is reasonably satisfied –

a. that the purpose of the modification is to rectify the consequences of an error in the instruction which related to the number of units held by, or proposed to be created or cancelled in connection with the sale or repurchase of units to or by, the manager; and

b. that, in view of the quality of the manager’s control systems, the circumstance that resulted in the error in question is an isolated one, and is unlikely to recur.

3 A modification under this Article shall be of no effect unless the consequential adjustments are completed by the end of the business day next following the relevant valuation point, or, if the depositary agrees, within the payment period applicable to the original instruction under Article 4.08.3 or 4.09.5.

4.14 Manager’s obligation to sell

Sale and Repurchase

4.13 Introduction

1 Articles 4.14 to 4.25 apply to sale and repurchases –

a. in an ongoing pool; and

b. where specifically stated, in relation to an initial offer and a unitization.

2 Those Articles also apply in similar manner to creations and cancellations of units effected or to be effected by the trustee or company acting through the manager as agent.

3 A currency other than the base currency may be used if the manager is satisfied that the rate of exchange between the 2 currencies is not likely to result in any material prejudice to the interests of unitholders or potential unitholders.

1 Subject to the pool having units in issue, the manager must at all times during the dealing day be willing to sell units in the pool; and the manager must, at the request in writing of any person, agree to sell units of at least one class in respect of that pool to that person at a price arrived at under these Rules.

2 Paragraph 1 above does not apply –

a. if the manager has reasonable grounds, relating to the circumstances of the person concerned, for refusing to sell units to the person;

b. if the number or value of the units sought to be sold is less than any number or value stated in the prospectus as the minimum number or value to be purchased or held; or

c. (in the case of a property fund) if the manager believes on reasonable grounds that the number or value of units sought to be sold would lead to the holding by any one person (or by any one person and any other person appearing to the manager to be acting in concert with that person) of more units than any number stated in the prospectus as the maximum number to be purchased or held.

3 Units must be sold in the base currency, unless the person concerned requests and the manager agrees that the units should be sold in another currency.

4 This Article applies during an initial offer, but not during a unitization.

5 This Article is subject to Part 13 (Suspension and termination).

4.15 Sale price parameters: dual pricing basis

1 In the case of a pool in relation to which the dual pricing basis has been adopted, except in the case of a large deal, the manager’s price for sale of units shall not exceed the maximum sale price, that is a price fixed by the manager and notified (or, for a sale at a forward price, next to be notified) to the depositary: and that maximum sale price itself must not exceed the total of –

a. the relevant creation price; and

b. the current preliminary charge.

2 In the case of an initial offer, the manager’s price for sale of units shall not exceed the sum of the initial price and any preliminary charge permitted under Article 8.02.

3 In the case of a large deal, the manager’s price for sale may exceed the maximum sale price but must not exceed the limit above which the maximum sale price could not have been fixed.

4 The manager’s price for sale shall not be less than the minimum repurchase price under Article 4.19.1.

5 In applying this Article to dealings after a valuation point but before the price relating to that point has been fixed and notified, the maximum sale price will be the one next to be notified in respect of that point, or, where relevant, the next point.

4.16 Sale price parameters: single pricing basis

1 In the case of a pool in relation to which the single pricing basis has been adopted the manager’s price for sale of units shall not exceed the price fixed by the manager and notified (or, for an issue at a forward price, next to be notified) to the depositary to which may be added –

a. any preliminary charge permitted under Article 8.02; and

b. any dilution levy permitted under Article 4.25.

4.17 Manager’s obligation to repurchase

1 Subject to Article 4.27 the manager must at all times during the dealing day be willing to repurchase units in the pool; and, accordingly, must at the request in writing of any unitholder agree to repurchase units owned by that unitholder at a price arrived at under these Rules.

2 Paragraph 1 above does not apply –

a. if the number or value of the units sought to be repurchased is –

(i) less than the entirety of the unitholder’s holding, and

(ii) less than any number or value stated in the prospectus as the minimum number to be repurchased;

b. if the number or value of the units of any class sought to be repurchased would result in the unitholder holding less than any number or value stated in the prospectus as the minimum number to be held of the relevant class;

c. if the manager ensures that the unitholder is able to sell his or her units on an investment exchange at a price not significantly different from the price at which they would have been repurchased;

d. to the extent that the power to refuse in paragraph 3 applies; or

e. in the case of an initial offer or unitization.

3 Units must be repurchased in the base currency or, at the request of the unitholder, in any other currency which is acceptable to the manager.

4 This Article is subject to Part 13 (Suspension and termination).

4.18 Payment on repurchase

1 On agreeing to repurchase units, the manager shall, within the period specified in paragraph 2 pay the appropriate proceeds of repurchase (less, where applicable, the cost of remitting the sum outside Jersey) to the unitholder.

2 The period expires at the close of business on the 4th business day next after –

a. the valuation point immediately following receipt by the manager of the request to repurchase; or

b. the time when the manager has all duly executed instruments and authorizations as effect (or enable the manager to effect) transfer of title to the units,

whichever is the later.

3 This Article does not apply where the manager is not repurchasing units in the usual sense but is buying them as principal on an approved market in accordance with a power in the constitutional documents, which envisages that settlement will be in accordance with the rules of that market.

4 Nothing in this Article shall require a manager to part with money in respect of a repurchase of units where the manager has not yet received the money due on the earlier sale of those units, or where the manager considers it necessary or appropriate to carry out or complete identification procedures in relation to the unitholder or another person pursuant to a statutory, regulatory or other obligation.

5 There may be deducted from what would otherwise be the proceeds of repurchase of a unit any repurchase charge permitted under Article 8.07.

4.19 Repurchase price parameters: dual pricing basis

1 In the case of a pool in relation to which the dual pricing basis has been adopted, except in the case of a large deal, the manager’s price for repurchase of units shall not be less than the relevant minimum repurchase price already notified (or, for a repurchase at a forward price, next to be notified) to the depositary.

2 The minimum repurchase price shall not be less than the relevant cancellation price.

3 In the case of a large deal, the manager’s price for repurchase may be less than the minimum repurchase price but must not be less than the relevant cancellation price.

4 In the case of an umbrella fund, except in the case of a large deal and then in accordance with Article 4.15.3, the maximum price at which units in one constituent part may be had in exchange for units in another such part shall not exceed the relevant maximum sale price (less any preliminary charge) of the new units; and the minimum price at which the old units may be taken in exchange shall not be less than the equivalent minimum repurchase price except in the case of a large deal and then in accordance with Article 4.19.3. Any charge on exchange of units shall be in accordance with Article 8.08.

5 The manager’s price for repurchase of units shall not exceed the relevant creation price under Article 4.15.1a.

6 In applying this Article to dealings after a valuation point but before the price relating to that point has been notified, the minimum repurchase price will be the one next to be notified in respect of that point, or where relevant, the next point.

4.20 Repurchase price parameters: single price basis

1 In the case of a pool in relation to which the single pricing basis has been adopted the amount to be paid by the manager as the proceeds of repurchase of a unit shall not be less than the price fixed by the manager and notified (or, for a repurchase at a forward price, next to be notified) to the depositary less –

a. any repurchase charge permitted under Article 8.07; and

b. any dilution levy permitted under Article 4.25.

2 In the case of an umbrella fund, the maximum price at which units in one constituent part may be had in exchange for units in another such part shall not exceed the relevant sale price of the new units as required to be notified to the depositary under Article 4.16.1 to which may be added any dilution levy permitted under Article 4.25; and the minimum price at which the old units may be taken in exchange shall not be less than the price required to be notified to the depositary under this Article less any dilution levy permitted under Article 4.25. Any charge on exchange of units shall be in accordance with Article 8.08.

4.21 Creation and cancellation through the manager when not acting as principal

1 This Article applies where the trustee or company has appointed the manager (with the manager’s consent) to act as its agent in connection with the creation or cancellation by the trustee or the company of units, either generally or in relation to any particular person or class of persons.

2 At the request of any person to whom the appointment relates, the manager is obliged to arrange for units to be created under this Article in any case where the manager is obliged to sell them under Article 4.14.

3 At the request of any person to whom the appointment relates, the manager is obliged to arrange for units to be cancelled under this Article in any case where the manager is obliged to repurchase them under Article 4.17.

4 The amount to be paid for a unit must be the total of –

a. the price next to be notified to the depositary;

b. for the account of the trustee or the company, any dilution levy permitted under Article 4.25; and

c. if the manager wishes and if not already incorporated in a. above, a preliminary charge not exceeding the current charge permitted under Article 8.02.

5 The amount to be paid on cancellation must be the total of –

a. the price next to be notified to the depositary;

b. less, for the account of the trustee or the company, any dilution levy permitted under Article 4.25; and

c. less any charge for the manager’s benefit if and to the extent that the manager would have been entitled to make such a deduction on repurchasing the units in question in accordance with Article 8.07.

6 The manager shall not make any charge in connection with the creation or cancellation of units under this Article which is not contemplated by this Article.

7 Where the manager, for the trustee or company, has agreed with a unitholder to arrange the creation or cancellation of any units, the manager must, at the start of the next business day, supply a report of the manager’s transactions to the trustee or depositary and company, who shall then treat that report as if it were creation instructions or cancellation instructions.

8 Where the manager has agreed to arrange the cancellation of units for the trustee or company, the manager shall pay the purchase price as if Article 4.18 applied to the transaction, and as if the units to be cancelled following the purchase by the trustee or company were being transferred to the manager.

4.22 Notification of prices to the depositary

1 Forthwith upon completion of a valuation under Section F (whether regular or otherwise) the manager shall notify the depositary of –

a. in relation to a pool which is priced on a single pricing basis the price of a unit or unit of each class (as the case may be) and the amount or rate of any dilution levy applicable in respect of any creation, sale, repurchase or cancellation of units; and

b. in relation to a pool which is priced on a dual pricing basis –

(i) the creation price,

(ii) the cancellation price,

(iii) the maximum sale price, and

(iv) the minimum repurchase price.

2 The prices to be notified under paragraph 1 are those relevant to deals based on prices determined at that valuation point.

3 Any notification under paragraph 1 shall include a statement of the number of units owned by the manager at that valuation point (or notified point if there is one).

4.23 Publication of prices

1 This Article applies unless the manager is excused from dealing with the public under these Rules.

2 Where the manager holds himself or herself out as willing –

a. to sell or repurchase units (or units of any class); or

b. to act as agent under Article 4.21,

the manager must make public the prices of units of each of those classes including, in the case of a pool which has adopted a dual pricing basis, maximum sale and minimum repurchase prices and must make public the current preliminary charge, if any.

3 The prices to be made public under paragraph 2 are to be the price or prices last notified to the depositary under Article 4.22 or, in the case of publication in a newspaper, last notified before the relevant newspaper ceased to accept material for publication in the relevant edition.

4 Where the manager is authorized to make a charge by way of deduction from the proceeds of repurchase, the manager must include in any publication required by paragraph 2 a note to indicate that fact.

5 Except in respect of any class of units that is marketed predominantly outside of the United Kingdom the prices to be made public under paragraph 2 above must be published in at least one national newspaper in the United Kingdom.

6 Where the manager holds himself or herself out as willing to sell and repurchase units (or as the case may be to act as agent under Article 4.21) in any other jurisdiction, the manager must also comply with paragraph 2 above in that jurisdiction in the manner provided for in the law of that jurisdiction.

7 The manager shall disclose the cancellation price, orally or in writing, to any person who requests it in person at, or by any communication addressed to, the manager’s principal place of business, and the manager must have arrangements to enable the manager accordingly to disclose, free of charge, at all times during the dealing day, the price last notified to the depositary.

4.24 Instructions etc. by manager

1 Any instruction or notification given (or report supplied), including the creation instructions and the cancellation instructions, under this Part by the manager to the depositary or company –

a. must be recorded by the manager, at the time when it is given or supplied;

b. must be sent in a form which enables the recipient to know or record the time of receipt; and

c. may be communicated in any form other than by word of mouth.

2 Instructions are given to the recipient within any period under this Part if they are received within that period, and instructions received after the expiry of any period are treated as given after that expiry.

3 This Article also applies, with the necessary modifications, to any notice or notification given by the depositary or the company to the manager.

4.25 Dilution levy

1 In relation to a pool which has adopted a single pricing basis the manager shall have the power to require either or both of –

a. the payment of a dilution levy in respect of the creation or sale of units or any class of units; and

b. the deduction of a dilution levy in respect of the repurchase or the cancellation of units or any class of units.

2 Any such payment or deduction shall become due at the same time as payment becomes due in respect of the relevant creation, sale, repurchase or cancellation.

3 A dilution levy may be imposed only in a manner that is, so far as practicable, fair to all unitholders and potential unitholders, but the imposition of a dilution levy (or a higher dilution levy) in respect of large deals in a manner described in the prospectus current at the time of the deal shall not be considered unfair.

4 If the manager receives a dilution levy in respect of any unit sold by it, it shall forthwith pay it to the depositary to become part of the property of the pool, except to the extent that it has already been paid by the manager to the depositary on the creation of the unit to the manager.

5 If the manager deducts a dilution levy from the proceeds of repurchase of a unit repurchased by it, it shall forthwith pay it to the depositary to become part of the property of the pool, but if the same unit shall be cancelled, any dilution levy that would otherwise then be deducted from the proceeds of cancellation shall be reduced to the extent that it has already been paid by the manager to the depositary on the repurchase.

Forward and historic pricing

4.26 Introduction

1 In relation to the sale and repurchase of units, the manager may, subject to this Article, operate on the basis of forward prices or on the basis of historic prices, and the manager’s power to choose, or the manager’s duty to operate on one basis only, is conditioned by Table 4.1 below.

2 Paragraph 1 is disapplied in relation to certain categories of pool (geared futures and options funds, property funds and warrant funds) later in these Rules.

Table 4.1 – Forward or Historic Pricing

RULES

Notes ‎

1 In this table “F Only” means that any price agreed upon must be a forward price; “H” means that any price agreed upon must be a historic price unless the manager is required by the Table to deal at a forward price. “General” means “in relation to all sales and repurchases agreed upon during the remainder of the relevant dealing period (except those that are agreed upon individual deviations)”; and an “individual deviation” is a decision, in relation to a particular transaction, covered by the rules in Section 3 of the Table.

2 This table does not apply to an initial offer or on unitization.

Section 1 General

1 Manager’s choice. The manager must express in the prospectus a choice for H or else for F Only.

2 If the manager’s current choice under 1 is F Only, all the manager’s deals must be at a forward price.

3 A manager may not choose H if the manager’s normal arrangements for valuation envisage valuation more than one business day apart.

4 The remainder of this table applies to a manager with a current choice of H.

5 He or she may at any time elect for F Only in respect of the rest of the then current dealing period.

6 He or she may bind himself or herself, in the prospectus, to switch from H to F Only at a certain point in each dealing period.

7 An election for (or switch to) F Only will last until the end of the dealing period and will then lapse.

8 For general purposes, repurchases must be on the same basis as sales.

Section 2 General duty to adopt forward pricing

9 Market movement. F Only applies once the manager knows or has reason to believe that the property of the pool, if valued under these Rules, would exceed the 2% tolerance (that is if there would be a 2% or greater difference between the value of the property of the pool and the last calculated value (taking that as 100% for this purpose)), but decides not to carry out an additional valuation under Article 4.28.

10 Valuation taking over 2 hours. F Only applies if new prices have not been notified to the depositary after 2 hours (or such longer period as the depositary may agree with the manager generally or in any specific case) from the valuation point.

11 Rule 10 does not apply if, within 2 hours of the valuation point, the manager has notified the depositary of the basis (creation or cancellation) on which the next prices will be fixed, and of the spread (reckoned in percentage or money terms) between the maximum sale price and the minimum repurchase price.

12 F Only under rules 9 and 10 will start when the relevant moment arrives, will last until the end of the dealing period and will then lapse.

Section 3 Individual deviations

13 Rules 14 to 17 apply in relation to an individual transaction without affecting the general position arrived at under Sections 1 and 2 above.

14 Request. F Only applies if the applicant for sale or repurchase so requests.

15 Large deals. F Only applies, if the manager so decides, in the case of a large deal (or the later transactions which are part of a large deal).

16 Postal deals. F Only applies if the order or offer reaches the manager through the post or any other form of one-way communication (fax etc.).

17 Creation or cancellation through the manager when not acting as principal. F Only applies in the case of a sale or purchase under Article 4.21.

Section 4 Notification

18 The manager must notify the depositary, and in the case of a company the company, of the fact and time of any adoption of F Only under rule 5 or Section 2.

SECTION E

“In specie” cancellation

4.27 In specie cancellation

1 If a unitholder requests the repurchase or cancellation of units the manager may arrange that in lieu of payment of the price for the units in cash the trustee or company shall cancel the units and transfer property of the pool or, if required by the unitholder, the net proceeds of sale of the relevant property of the pool to him or her, provided that –

a. the prospectus contains a statement describing the circumstances in which the manager is permitted to arrange for, and describing the procedures for, a cancellation of units in the manner described above;

b. the manager gives written notice to the unitholder before the proceeds of cancellation would otherwise become payable in cash, that in lieu of such payment it will arrange that the depositary will transfer property of the pool (or the net proceeds of the sale of the relevant property of the pool) to the unitholder; and

c. the property of the pool to be transferred (or sold) is selected by the manager, in consultation with the trustee or with the company and the depositary, and the selection is made with a view to achieving no more advantage or disadvantage to the unitholder requesting cancellation of his or her units than to the continuing unitholders.

2 Notwithstanding paragraph 1, the manager shall not, when acting as a principal, cancel units other than for payment in cash.

SECTION F

Valuation

4.28 Valuation of the property of the recognized fund

1 Regular Valuation. For the purposes of determining in accordance with these Rules the price at which units of any class in a pool may be created, cancelled, sold or repurchased, the manager shall carry out a valuation of the property of the pool at each valuation point for the pool.

2 An investment included in the property of the pool for which different prices are quoted according to whether it is being bought or sold shall, in the case of a pool which has adopted a single price basis, be valued at its mid-market price and, in the case of a pool which has adopted a dual price basis, shall be valued in 2 parts, one being at its offered or buying price (plus any fiscal charges or commissions or other charges that were paid or would be payable on the acquisition of the investment or other part of the property of the pool) and the other being at its bid or selling price (less any fiscal charges or commissions or other charges that were paid or would be payable on the disposal of the investment or other part of the property of the pool).

3 Any part of the property of the pool which is not an investment shall be valued at a fair value.

4 For the purposes of the preceding paragraphs, in the case of a pool which has adopted a single price basis there shall be excluded from the value of an investment or other part of the property of the pool any fiscal charges or commissions or other charges that were paid or would be payable on the acquisition or disposal of the investment or other part of the property of the pool.

5 There must be at least 2 valuation points in each calendar month and if there are only 2 valuation points in any calendar month they must be 2 weeks or more apart.

6 Paragraph 5 does not apply to a warrant fund and there must be at least one valuation point for them on each business day.

7 The frequency of regular valuation points shall be specified in the prospectus.

8 Notwithstanding paragraphs 5, 6 and 7, no valuation points are required during the period of any initial offer (but see Article 4.04).

9 Additional Valuation. The manager may determine to have an additional valuation point and to carry out an additional valuation of the property of the pool at any time if it considers it desirable to do so.

10 Prior to any additional valuation point the manager shall inform the depositary of it.

11 Additional or special requirements. Part 12 provides additional or special requirements relating to the valuation of fund property for certain categories of recognized fund.

PART 5

INVESTMENT AND BORROWING POWERS

5.01 Introduction

Each of Sections B to J below applies only to recognized funds or pools of the kind mentioned in the title to the relevant Section.

5.02 Investment powers: general

GENERAL

1 Subject to this Part, the property of a pool may comprise any property the holding of which is consistent with the relevant dedication in Article 2.05 and in addition the property of a recognized fund may include movable or immovable property that is necessary for the direct pursuit of the recognized fund’s business of investing in the first mentioned property.

2 The property of a pool may be invested only in accordance with this Part and within any relevant upper limit (such as “up to 10%”) in this Part.

3 The constitutional documents may restrict –

a. the descriptions of asset in which the property of the pool may be invested;

b. the proportion of the capital property attributable to the pool to be invested in assets of any description;

c. the descriptions of transactions permitted; or

d. the borrowing powers in relation to the pool,

and any such restrictions shall be observed as if they were included in this Part.

4 Restrictions from time to time included in a prospectus pursuant to paragraph 9 of Schedule 2 (and Article 11.04) shall be observed as if they were included in this Part.

5.03 Valuation

1 For the purpose of this Part, the value of the property of the pool means the net asset value, that is the net value of the property of the pool after deducting –

a. any outstanding borrowings whether immediately due to be repaid or not; and

b. in the case of a property fund, any capital sum outstanding on a hypothec or mortgage of an immovable.

2 Subject to paragraphs 3 and 4, Section F of Part 4 (Valuation) shall apply to any valuation of the property of the pool for the purposes of this Part.

3 In applying Part 4 for the purposes of this Part –

a. the cancellation basis only is required in the case of a pool which is valued on a dual price basis and in the case of a pool which is valued on a mid-market price basis, that basis shall apply;

b. the time as at which the valuation is being carried out for the purposes of this Part (the “relevant time”) is treated as if it were a valuation point; and

c. valuation solely for the purposes of this Part does not count as a valuation under Part 4, nor does the relevant time at b. of itself count as a valuation point for the purposes of anything in Part 4.

4 Part 4 may be affected by specific provisions in this Part, such as valuation of permitted immovables or Article 5.61 (stocklending).

5 Where a pool has paid any sum by way of initial outlay under Section D, E or K, the initial outlay is regarded as remaining part of the property of the pool, for the purposes of this Part only, even if it is not so regarded under Part 4.

6 Where the manager reasonably believes that the pool will become entitled to any unrealised profits which have been made on account of a derivatives transaction, that prospective entitlement is regarded as part of the property of the pool for the purposes of this Part only.

5.04 Part to be construed as a whole

1 In relation to any provision in this Part, whereby investment is permitted to be carried out or retained only if possible obligations arising out of the transaction would not cause any breach of any limit in these Rules (examples being Articles 5.15.1 (warrants), 5.15.2 (nil or partly paid securities) and 5.67.5(underwriting)) it is to be assumed –

a. in applying any of those provisions, that the maximum possible liability of the pool under any other such provision has also to be provided for; but

b. in relation to the value of the property of the pool itself, that any relevant investment included in that property is valued in accordance with Part 4.

2 In relation to any provision in this Part, whereby investment is permitted to be carried out or retained under one Section if the transaction in question and other similar transactions are “covered”, it is to be assumed –

a. in applying any of those provisions, that the pool must also simultaneously satisfy any other obligation relating to cover arising under another Section; and

b. that no element of cover is used more than once.

5.05 Transferable security

1 In these Rules, “transferable security” means any investment falling within any of paragraphs 1 to 6 of Schedule 1 to the Financial Services Act, unless paragraph 2 or 4 below applies.

2 An investment is not a transferable security if the title to it cannot be transferred, or can be transferred only with the consent of a third party.

3 In applying paragraph 2, where a security is issued by a body corporate and is an investment falling within paragraph 1 or 2 of Schedule 1 to the Financial Services Act, the need for any consent on the part of the body or any members or debenture holders of it may be ignored.

4 A security is not a transferable security if the liability of the holder of it to contribute to the debts of the issuer is not limited to any amount for the time being unpaid by the holder of it in respect of it.

5.06 Approved security

1 A transferable security is an “approved security” if –

a. it is admitted to official listing in the United Kingdom or in a member state;

b. it is traded on or under the rules of an eligible securities market (otherwise than by virtue of the specific permission of the market authority); or

c. it is recently issued within the meaning of paragraph 2.

2 A transferable security is recently issued if –

a. it was issued, within the last 12 months, on terms that an application for listing would be made to an exchange or market;

b. the application at a. has not been refused;

c. the manager is not aware of any reason why the application might be refused; and

d. acceptance of the application at a. would bring the security within paragraph 1a. or b. above.

5.07 Warrants

In these Rules, “warrants” includes, in addition to an investment falling within paragraph 4 of Schedule 1 to the Financial Services Act, any other transferable security (not being a nil paid or partly paid security) which is –

a. listed on an eligible securities market; and

b. akin to an investment within that paragraph in that it involves a down payment by the then holder and a right later to surrender the instrument and to pay more money in return for a further transferable security.

5.08 Derivative and approved derivative

1 In these Rules “derivative” means an option, or a future or a contract for differences.

2 In these Rules, “approved derivative” means a derivative which is traded or dealt in on an eligible derivatives market.

3 Off-exchange derivatives transactions are defined later, in Article 5.23.

4 An investment is not a derivative if it is a transferable security.

5.09 Eligible securities and derivatives markets

1 A securities market is eligible for the purposes of these Rules, if it is a market, established in the United Kingdom or in a member state, on which transferable securities, admitted to official listing in the United Kingdom or in the member state, are dealt in or traded.

2 A securities market not falling within paragraph 1 or a derivatives market is, at any time, eligible for the purposes of these Rules if –

a. the manager or directors, after consultation with the depositary, have decided, in accordance with paragraphs 3 and 4, to choose that market as one which is appropriate for the purpose of investment of or dealing in the property of the pool beyond, where appropriate, any limit which under these Rules, would otherwise apply;

b. that decision is notified in writing to the depositary and has not been revoked; and

c. the market is included in a list in the prospectus.

3 For the purposes of paragraph 2, a market may be considered to be appropriate if it –

a. is regulated;

b. operates regularly;

c. is recognized; and

d. is open to the public.

4 In exercising the choice in paragraph 2, regard shall in particular be had –

a. to the need for adequate liquidity in the market;

b. to the arrangements relevant to the market for unimpeded transmission of income and capital to or to the order of investors; and

c. to any relevant guidance issued by the Commission, whenever issued.

5.10 Permitted immovable and approved immovable

These concepts, relevant only to Section F (property funds) below, are defined in that Section.

5.11 Securities funds: general

SECURITIES FUNDS

1 Subject to this Section, to Sections A (general) and K (efficient portfolio management) and to the subsequent Sections of this Part, the property of the pool of a securities fund shall consist of transferable securities.

2 Up to 10% in value of the property of the pool may consist of transferable securities which are not approved securities, but there is no limit on the value of the property which may consist of approved securities.

3 Up to 5% in value of the property of the pool may consist of transferable securities which are units in collective investment funds but only if they fall within Article 5.14 below.

4 Investment under paragraph 3 counts towards the limit in paragraph 2 (except where the units are approved securities).

5 Articles 5.12 and 5.13 (spread) do not apply until –

a. the expiry of a period of 6 months after the date on which the pool is authorized (or on which the initial offer commenced if later); or

b. the date when the value of the property of the pool first exceeds £1,000,000 (or the equivalent in the base currency) (or on which the initial offer ends, if later),

whichever is the earlier, but the manager and the trustee or the directors shall ensure, so far as practicable, during that period that the pool is invested with the aim of spreading risk.

5.12 Spread: general

1 This Article does not apply to Government and other public securities as defined in Article 5.13.5.

2 Up to 5% in value of the property of the pool may consist of transferable securities issued by any one issuer.

3 In applying paragraph 2, investments within paragraph 5 of Schedule 1 to the Financial Services Act (certificates representing securities) are treated as equivalent to the underlying security.

4 The figure of 5% in paragraph 2 may be regarded as 10% in respect of up to 40% of the value of the property of the pool.

5.13 Spread: Government and other public securities

1 This Article applies to Government and other public securities only and in this Article they are described as “such securities”.

2 As long as 35% or less of the property of the pool is invested in such securities issued by any one issuer, there is no limit on the amount which may be invested in –

a. such securities; or

b. such securities issued by any one issuer or of any one issue.

3 Where, however, the property of the pool is invested as to more than 35% in such securities issued by any one issuer, then –

a. up to 30% of the property of the pool may consist of such securities of any one issue;

b. the property of the pool must include such securities issued by that or another issuer of at least 6 different issues; and

c. the disclosures in paragraph 4 must have been duly made.

4 Where it is intended or anticipated that paragraph 3 may apply, the constitutional documents, and the most recently published prospectus, must clearly state –

a. the fact that more than 35% of the property of the pool is or may be invested in Government and other public securities issued by one issuer; and

b. the identity of the issuer.

5 In these Rules, “Government and other public securities” means transferable securities which are investments falling within paragraph 3 of Schedule 1 to the Financial Services Act which are issued by or on behalf of –

a. the Government of the United Kingdom, of Northern Ireland, or of a member state;

b. a local authority in the United Kingdom or in a member state;

c. the Government of any of the countries listed in paragraph 6; or

d. an international organization of which the United Kingdom or a member state is a member,

and also includes any investment which would have been such an investment had it been issued, as opposed to merely guaranteed, by a Government or local authority specified in a., b. or c. above.

6 The countries relevant for paragraph 5c. above are –

a. Australia;

b. Canada;

c. Japan;

d. New Zealand;

e. Switzerland;

f. United States of America.

7 In paragraphs 2, 3 and 4 (but not in paragraph 5) above, in relation to Government and other public securities –

a. issue, issued and issuer include guarantee, guaranteed and guarantor; and

b. an issue differs from another if there is a difference as to repayment date, rate of interest, guarantor or other terms of the issue.

5.14 Investment in collective investment funds

1 A securities fund may invest in units in a collective investment fund only if the second fund –

a. is either –

(i) a recognized fund,

(ii) a collective investment fund that complies with the conditions necessary for it to enjoy the rights conferred by the UCITS Directive, or the corresponding rights under the law of the United Kingdom,

(iii) a recognized scheme, or

(iv) a collective investment fund the units of which are approved securities;

b. is dedicated to investing funds raised from the public in transferable securities or money market fund assets, as defined in Article 5.18;

c. operates on the principle of risk spreading; and

d. has terms which –

(i) prohibit more than 5% in value of the property of the collective investment fund consisting of units in collective investment funds, and

(ii) have the effect that the only units in which the collective investment fund may invest are units in collective investment funds themselves falling within this Article.

2 In relation to investment under this Article into a constituent part, or its equivalent, of a collective investment fund which is an umbrella fund, that constituent part, or its equivalent, shall be treated as a separate collective investment fund and such constituent part, or its equivalent, must meet all of the requirements of paragraph 1.

5.15 Investment in warrants and in nil paid or partly paid securities

1 A warrant falls within any power of investment only if it is reasonably foreseeable that the right to subscribe conferred by the warrant could be exercised by the pool without contravening these Rules.

2 A transferable security on which any sum is unpaid falls within any power of investment only if it is reasonably foreseeable that the amount of any existing and potential call for any sum unpaid could be paid by the pool, at the time when payment is required, without contravening these Rules.

3 Up to 5% of the value of the property of the pool may consist of warrants: but there is no similar limit in respect of securities on which any sum is unpaid.

4 A warrant, as defined in Article 5.07, which is an investment falling within paragraph 5 of Schedule 1 to the Financial Services Act which is akin to an investment falling within paragraph 4 of that Schedule may not be included in the property of the pool unless it is listed on an eligible securities market.

5.16 Significant influence

1 A recognized fund may only acquire transferable securities issued by a body corporate carrying rights to vote at a general meeting of that body if –

a. immediately before the acquisition the aggregate number of any such securities of that body held by the recognized fund does not give the recognized fund power significantly to influence the conduct of business of that body; and

b. the acquisition will not give the recognized fund that power.

2 For the purpose of paragraph 1 a recognized fund shall be taken to have power significantly to influence the conduct of business of a body corporate if it can, by virtue of the transferable securities held by it, exercise or control the exercise of 20% or more of the votes cast at a general meeting of that body (disregarding for this purpose any temporary suspension of voting rights in respect of the securities of that body).

3 A recognized fund must not hold –

a. transferable securities which do not carry rights to vote at a general meeting of the body corporate that issued them and represent more than 10% of the issued share capital of that body corporate; or

b. more than 10% of the units of a collective investment fund.

5.17 Investment in collective investment funds managed by manager etc.

Units in a collective investment fund do not fall within Article 5.14 if the collective investment fund is managed or operated by the manager or an associate of the manager of the investing fund, unless –

a. the instrument constituting the collective investment fund states that its investment will be restricted to a particular geographic area or economic sector or other specific investment objective;

b. the constitutional documents of the investing recognized fund and its prospectus clearly state that the property of the pool may include such units; and

c. Article 5.70 (investment in other group collective investment funds) is complied with.

5.18 Money market funds: general

MONEY MARKET FUNDS

1 Subject to this Section and to any other Sections of this Part, the property of the pool of a money market fund shall consist of “money market fund assets”.

2 For this purpose, “money market fund assets” means any of the following –

a. cash and near cash;

b. bills of exchange accepted by an eligible institution, if repayable within 12 months;

c. investments within paragraph 2 of Schedule 1 to the Financial Services Act (debentures) which are –

(i) repayable within 12 months,

(ii) not subordinated, and

(iii) either approved securities within Article 5.06.1a. or 5.06.1b. above (on-exchange), or else are issued by an eligible institution otherwise than in return for a deposit in a. above; and

d. a deposit which would be within a. above (near cash) except that it is repayable within 6 months (instead of immediately and without payment of a penalty exceeding 7 day’s interest calculated at ordinary commercial rates);

e. units in one or more regulated collective investment funds or a constituent part, or its equivalent, thereof each of which is either a money market fund or which is of a category that is equivalent to a money market fund.

3 Article 5.20 (spread) does not apply until –

a. the expiry of a period of 6 months after the date on which the money market fund is authorized (or on which the initial offer commenced if later); or

b. the date when the value of the property of the pool first exceeds £1,000,000 (or the equivalent in the base currency of the money market fund) (or on which the initial offer ends, if later),

whichever is the earlier, but the manager and the trustee or the directors shall ensure, so far as practicable, during that period that the pool is invested with the aim of spreading risk.

5.19 Investment limits

1 This Article is subject to Article 5.18.

2 At least 35% in value of the property of the pool must consist of instruments or deposits which are –

a. redeemable or repayable within 2 weeks; or

b. capable of being transferred without the consent of a third party (any issuer being regarded as a third party for this purpose).

3 Up to 80% in value of the property of the pool may consist of transferable securities.

5.20 Spread

1 Up to 5% in value of the property of the pool may consist of instruments issued by any one issuer; but this limit does not apply to instruments which are Government and other public securities.

2 Article 5.13 shall apply to Government and other public securities.

3 Up to 10% in value of the property of the pool may be kept on deposit with any one person.

4 For the purposes of paragraph 3, the depositary and its associates are regarded as one person, and the manager and its associates as another.

5 The figure of 10% in paragraph 3 may be regarded as 20% if the person is an eligible institution being an institution which has, or in the case of an eligible institution within the terms of sub-paragraph a. or e. of the definition of “eligible institution” in Schedule 4 having a subsidiary or holding company which is an eligible institution which has, capital which is shareholders’ funds of an amount, as most recently quoted in “The Banker” magazine published by Financial Times Information Limited, of US$ 1,000,000,000 or more, provided that the amount of the aggregate of the deposits of all pools of the recognized fund do not exceed 10% of that person’s issued capital and reserves as shown in its most recently published annual accounts.

6 Paragraphs 3, 4 and 5 do not apply to a money market fund with respect to any deposit which is less than £1,000,000 (or the equivalent amount in the base currency).

5.21 Other provisions

The following Articles apply to money market funds –

a. 5.15.2 (investment in nil paid or partly paid securities);

b. 5.16 (significant influence).

FUTURES AND OPTIONS FUNDS

5.22 Futures and options funds: general

1 Subject to this Section and to any other Sections of this Part, the property of the pool of a futures and options fund shall consist of any or all of the following –

a. transferable securities available to a securities fund;

b. derivatives under this Section;

c. forward transactions in currencies or gold under this Section;

d. cash or near cash (to which no limit applies);

e. units in collective investment funds under Article 5.24; and

f. gold.

2 In respect of investment within paragraph 1a., Section B above (securities funds) shall apply as if the futures and options fund were a securities fund, but subject to any specific modification in this Section.

3 In respect of investment within paragraph 1b. or c., a derivatives or forward transaction may be effected under this Section only if –

a. the transaction is of the kind specified in Article 5.23 (permitted transactions); and

b. the transaction is fully covered, as required by Article 5.25 (cover for derivatives and forward transactions), or else the subject of deposit arrangements, as required by Article 5.27.

4 Up to 10% in value of the property of the pool may be used for derivatives transactions in the form of uncovered purchased options (taking the current market value of the option as its value for this purpose), but the manager must deduct from that figure of 10% any percentage of the value of the property of the pool invested in transferable securities in the form of warrants.

5 Up to 10% in value of the property of the pool may be held in the form of gold.

6 Spread. Up to 10% in value of the property of the pool may be kept as cash on deposit with any one person.

7 For the purposes of paragraph 6, the depositary and the depositary’s associates are regarded as one person, and the manager and the manager’s associates as another.

8 The figure of 10% in paragraph 6 may be regarded as 20% if the person is an eligible institution being an institution which has, or in the case of an eligible institution within the terms of sub-paragraph a. or e. of the definition of “eligible institution” in Schedule 4 having a subsidiary or holding company which is an eligible institution which has, capital which is shareholders’ funds of an amount, as most recently quoted in “The Banker” magazine published by Financial Times Information Limited, of US$ 1,000,000,000 or more, provided that the amount of the aggregate of the deposits of all pools of the recognized fund do not exceed 10% of that person’s issued capital and reserves as shown in its most recently published annual accounts.

9 Paragraphs 6, 7 and 8 do not apply to a futures and options fund with respect to any deposit which is less than £1,000,000 (or the equivalent amount in the base currency).

5.23 Permitted transactions (derivatives and forwards)

1 A derivatives transaction under this Section must be –

a. in an approved derivative (as defined in Article 5.08.02);

b. one which complies with paragraphs 5 to 8 (off- exchange); or

c. a “synthetic future” which complies with paragraphs 9 and 10.

2 Any transaction in an approved derivative must be effected on or under the rules of an eligible derivatives market.

3 Any forward transaction must be with an approved counterparty which is within paragraph 6 (eligible institutions, listed money market institutions, etc.).

4 No more than 5% of the value of the property of the pool may be directed to initial outlay in respect of off-exchange transactions with any one counterparty.

5 Off-exchange. Any derivatives transaction under paragraph 1.b. must be –

a. a future or an option or a contract for differences resembling an option;

b. with an approved counterparty under paragraph 6;

c. on approved terms under paragraph 7; and

d. capable of valuation under paragraph 8.

6 A counterparty to a derivatives transaction is approved for the purposes of paragraph 5 only if it is –

a. an eligible institution;

b. a person included in the list maintained by the Bank of England for the purposes of section 43 of the Financial Services Act (listed money market institutions); or

c. an authorized person who is regulated by a recognized self-regulating organization (or by the Financial Services Authority) or a person registered and regulated by the Commission in respect of investment business of a kind which includes the writing or purchasing of off-exchange futures or options as principal.

7 The terms of a derivatives transaction are approved for the purposes of paragraph 5 only if, before the transaction is entered into, the depositary is satisfied that the counterparty has agreed with the manager –

a. to provide a valuation in respect of that transaction, on a buying and selling basis, or a mid-market price basis, as the case may be, –

(i) at least once a week, and

(ii) at any other time at the request of the manager; and

b. that he or she will, at the request of the manager, enter into a further transaction to close out that transaction at a price which is reasonably related to the “fair value” price (that is at a price corresponding with the value at which the derivative would be valued on the dual pricing basis, or the single pricing basis (as appropriate) under Part 4).

8 A derivatives transaction is capable of valuation for the purposes of paragraph 5 only if the manager reasonably believes that, throughout the time of the life of the derivative (if the transaction is entered into), the manager will be able to value the investment concerned with reasonable accuracy on the basis of a pricing model which has been agreed between the manager and the depositary, or on some other reliable basis reflecting an up-to-date market value which has been so agreed.

9 “Synthetic futures”. For the purposes of this Section, the manager may, in the 2 ways described in paragraph 10, create out of 2 options something in the nature of a composite derivative.

10 The 2 ways referred to in paragraph 9 are that –

a. a bought call option coupled with a written put option will create a synthetic bought future; and

b. a bought put option coupled with a written call option will create a synthetic sold future,

provided that the 2 options –

(i) are bought and written, whether simultaneously or not, on a single eligible derivatives market;

(ii) relate to the same underlying security or other asset;

(iii) give the purchasers of the options the same rights of exercise (whether at the same price or not); and

(iv) will expire, if not exercised, together.

11 A derivatives or forward transaction which will or could lead to delivery of property to the depositary may be entered into only if –

a. such property can be held by the pool (or else the transaction is a bought future or bought call option); and

b. the manager reasonably believes that delivery of the property pursuant to the transaction will not occur or will not lead to a breach of these Rules.

12 A transaction permitted under this Article may at any time be closed out.

5.24 Investment in collective investment funds

1 Up to 5% in value of the property of the pool may consist of units in collective investment funds or constituent parts, or their equivalent, of umbrella funds each of which –

a. is a regulated collective investment fund or constituent part, or its equivalent, thereof which is either a futures and options fund or a money market fund or a fund of a category that is equivalent to the category of one of such funds;

b. is within Article 5.14; or

c. would be within Article 5.14, if 5.14.1b. read as follows –

‘b. is dedicated to investing funds raised from the public in approved and other derivatives (where most or all of the transactions in derivatives are fully covered by cash, securities or other derivatives) whether with or without transferable securities or covered forward transactions in currency or gold.”

2 Units in a collective investment fund or constituent part, or its equivalent, of an umbrella fund do not fall within paragraph 1 above if the fund is managed or operated by the manager or an associate of the manager of the investing pool, unless –

a. the constitutional documents of the investing pool and its prospectus clearly state that the property of the investing pool may include such units; and

b. Article 5.70 (investment in other group collective investment funds) is complied with.

5.25 Cover for derivatives and forward transactions

1 Except where Article 5.27.1 applies, no derivatives or forward transaction may be entered into under this Section unless the maximum potential exposure created by the transaction, in terms of the principal or notional principal of the derivative or forward contract, is –

a. covered individually under paragraph 2 or 3; and

b. covered globally under paragraph 4,

and for this purpose the examples in paragraph 9 below may be relevant.

2 Subject to paragraph 3, exposure is covered individually if there is, in the property of the pool –

a. (in the case of an exposure in terms of property) a transferable security or other property which is of the right kind, and sufficient in amount, to match the exposure; and

b. (in the case of an exposure in terms of money), cash or near cash (or borrowing pursuant to Article 5.27) or transferable securities which is or are, or, on being turned into money in the right currency, will be, sufficient in amount to match the exposure.

3 Exposure to an index or basket of securities or other assets is covered individually only if the recognized fund holds securities or other property which (taking into account the closeness of the relationship between fluctuations in the price of the 2) can reasonably be regarded as appropriate to provide cover for the exposure, and they may be so regarded even if there is not complete congruence between the cover and the exposure.

4 Exposure is covered globally for the purposes of this Section if, after taking account of all the cover required under paragraph 2 or 3 for other positions already in existence, there is available adequate cover from within the property of the pool to enable the fresh transaction to be entered into.

5 Whether or not a derivative or forward transaction is available under Article 5.26 to provide cover for another derivative or forward transaction under this Section –

a. the 2 transactions involved in a “synthetic future” are to be treated as if they were a single derivative, and the net exposure from the combination is to be covered on the basis of the higher of the cover requirements of the options which make up the synthetic future;

b. “synthetic cash” (that is where a position in a derivative offsets an exposure in property to the point where that exposure has effectively been neutralised, and the effect of the combined holding of both property and the position in the derivative is the same as if the pool had received or stood to receive the value of the property in cash) is available to provide cover for a transaction as if it were cash.

6 Cash not yet received into the property of the pool but due to be received within one month is available as cover for the purposes of paragraphs 2b. and 3.

7 Subject to paragraph 5, to the extent that property of the pool has been used for cover in respect of one exposure (whether under this Section or otherwise), it is not available for cover in respect of another.

8 Property is not available for cover if it is the subject of a transaction under Section L (stocklending), unless the manager reasonably believes that it is obtainable (by return or re-acquisition) in time to meet the obligation for which cover is required.

9 Examples of the cover requirements are as follows –

a. A bought put option (or a written call option) on 1000 ordinary £1 shares (fully paid) of ABC plc has to be covered by an existing holding in the recognized fund of 1000 ordinary £1 shares (fully paid) of ABC plc (paragraph 2a. above).

b. A bought call option (or written put option) on 1000 ordinary £1 shares (fully paid) of ABC plc has to be covered by cover (in the form of cash or an allowable substitute for cash or transferable securities) which is sufficient in amount to meet the purchase of the shares on exercise of the option (paragraph 2b. above).

c. A sold contract for differences on short-dated sterling has to be covered by cash or near cash or transferable securities, the values of which together at least match the notional principal of the contract (e.g. a LIFFE short sterling contract, or a successive series of such contracts, is covered by £500,000) (paragraphs 2b. and 7 above).

d. A sold future on the FT-SE 100 Index may be covered by holdings of equities, (or a combination of cash (or near cash) and call options on that future) which satisfy the test of appropriateness for cover in paragraph 3 in relation to that future, and the values of which together at least match the current mark to market valuation of the future (e.g. if the multiplier per full index point is £25, and if the eventual obligation under the future is currently at 2800, the valuation of the futures position is 2800 x £25 = £70,000) (paragraph 3 above and Article 5.26).

e. Where the manager of a pool, which has holdings in “blue chip” U.K. shares, wishes to switch exposure to the US market, and decides to sell a FT-SE index future to the value of those shares (this transaction satisfying the test of appropriateness for cover in paragraph 3), then the sterling “synthetic cash” position created may thereupon be used as cover for a S&P 500 index future provided that the manager ensures that the cover remains sufficient (e.g. by reference to the sterling/US dollar exchange rate) (paragraphs 3 and 5b. above).

5.26 Derivatives covering derivatives

1 Where the manager proposes to use a position resulting from a derivatives transaction as cover (whether in whole or in part) for the exposure of another derivatives transaction, Article 5.25 shall have effect as modified by this Article.

2 In this Article “countervailing” means that one of the 2 derivatives has an exposure which, in terms of risk, is equal and opposite to the exposure of the other, and “offset” means that there is an equal and opposite coverage in terms of risk.

3 On the basis that the requirements of Article 5.25 about the amount and right kind of assets used as cover are satisfied, the following Table contains the rules for the purposes of paragraph 1.

Table 5.1 – Derivatives covering derivatives: ground rules

RULES

1 A derivative of one type provides cover for a countervailing derivative of the same type (e.g. a bought future covers a sold future, and a bought call option covers a written call option).

2 A derivative of one type provides cover for a countervailing derivative of a different type if, but only if, –

a. the right under one offsets and is offset by the obligation under the other; or

b. rule 6 applies.

3 In applying rules 1 and 2, differences between the derivatives in terms of price, maturity and exercise price may be ignored, except where rule 4 applies.

4 Rule 1 above does not apply if an opportunity to exercise the right under the one derivative will become available to the pool only after the first date on which the potential obligation under the other may become an actual obligation.

5 Where, under rule 1, the manager decides that a written option and a purchased option should provide mutual cover, the manager must arrange for the depositary to deposit and set aside with an eligible institution (and the manager may not use for the purposes of providing cover under these Rules) the whole amount of the difference between the exercise value of the 2 options (that is the amount which would be payable by or to the pool on exercise of the options) inclusive of any margin requirements of the exchange.

6 A written option provides cover for, and is covered by, a countervailing future only if the option is in the money to the purchaser of the option; but if the written option is out of the money to the purchaser, then both it and the future must each be separately covered under Article 5.25.

7 A contract for differences may be included in these rules if and to the extent that it has the characteristics of a future or an option.

5.27 Deposit arrangements (for purchased options) and borrowing

1 Deposit arrangements. Where the manager proposes to purchase an uncovered option in reliance on Article 5.22.4, the manager must arrange for the depositary to deposit and set aside with an eligible institution (and the manager must not use for the purposes of providing cover under these Rules) any amount by which 5% of the exercise value of the option (that is the amount which would be payable by the recognized fund on exercise of the option) exceeds the amount paid by way of premium.

2 The amount to be deposited and set aside may be in cash or else in Government and other public securities (which are to be valued for this purpose at the current mark to market valuation).

3 Borrowing. Cash obtained by borrowing, and borrowings which the manager reasonably regards an eligible institution to be committed to provide, are available for cover under Article 5.25, as long as the normal limits on borrowing (as to which see Articles 5.63 and 5.64) are observed.

4 Where, for the purposes of this Section, the depositary –

a. borrows for the pool an amount of currency from an eligible institution; and

b. keeps an amount in another currency, at least equal to the borrowing for the time being in a., on deposit with the lender (or the lender’s agent or nominee),

then this Section shall apply as if the borrowed currency, and not the deposited currency, were part of the property of the pool, and the normal limits on borrowing under Articles 5.63 and 5.64 do not apply to that borrowing.

5.28 Continuing nature of limits and requirements

1 The manager must, at each valuation point (and more frequently if necessary), re-calculate the amount of cover required in respect of derivatives and forward positions already in existence under this Section, and derivatives and rights under forward transactions under this Section may be retained in the property of the pool only so long as they remain covered both individually and globally under Article 5.25 (or, where relevant, the deposit requirements in Article 5.27 are complied with).

2 If at any time –

a. any fact or matter relating to the recognized fund or its economic environment; or

b. the aggregate of all outstanding derivatives or forward positions under this Section,

is such that at least one of the relevant transactions (assuming it did not exist) could not then properly have been effected, either in that size or at all, the manager must forthwith on becoming aware of that fact take such steps as are necessary to rectify the situation, whether by closing out or providing additional cover or otherwise.

SECTION E

GEARED FUTURES AND OPTIONS FUNDS

5.29 Geared futures and options funds: general

1 Subject to this Section and to any other Sections of this Part, the property of the pool of a geared futures and options fund shall consist of any or all of the following –

a. transferable securities available to a securities fund;

b. derivatives or forward transactions which are covered on the basis available to a futures and options fund;

c. derivatives under this Section;

d. forward transactions in currencies or gold under this Section;

e. cash or near cash (to which no limit applies);

f. units in collective investment funds under Article 5.32; and

g. gold.

2 In respect of investment within paragraph 1a., Section B above (securities funds) shall apply as if the pool were a securities fund, but subject to any special modification in this Section.

3. In respect of derivatives and forward transactions under paragraph 1.b., Section D above (futures and options funds), except Article 5.24, shall apply as if the pool were a futures and options fund, but subject to any special modifications in this Section.

4 In respect of derivatives within paragraph 1c. –

a. any derivatives transaction must be in an approved derivative, or else one which complies with Article 5.23.5 to 8 (off-exchange); and

b. any transaction in an approved derivative must be effected on or under the rules of an eligible derivatives market.

5 In respect of transactions within paragraph 1d., this Section, except paragraph 4 above and Article 5.30.5, shall apply as if any forward transaction were a derivatives transaction; and the transaction must be with a counterparty which is within Article 5.23.6 (eligible institutions, listed money market institutions, etc.).

6 Up to 10% in value of the property of the pool may be held in the form of gold.

7 The depositary of a geared futures and options fund does not have power to borrow whether by virtue of this Section or Section K or otherwise.

5.30 Limits on investment in initial outlay

1 Subject to paragraph 3, up to 20% in value of the property of the pool at any time may be devoted to initial outlay in any derivatives transactions which are at any time outstanding.

2 In these Rules, “initial outlay” means the amount which the pool is required to pay, transfer or deposit as a fidelity deposit or otherwise in order to obtain rights under a derivatives transaction; and, for these purposes, –

a. regard shall be had to the rules of any relevant eligible derivatives market relating to margin, initial margin, premium etc.;

b. any increase in margin or initial margin, if required by such a market, is regarded as initial outlay from then on;

c. any decrease in margin or initial margin, if allowed by such a market, ceases to be initial outlay from then on;

d. variation margin (that is an additional sum required to be paid to retain the rights following a movement in prices etc.) is not initial outlay;

e. premium which may become payable in the future pursuant to the transaction in respect of an option is regarded as initial outlay from the outset;

f. in the case of a purchased option, the amount mentioned in paragraph 4 is to be regarded as initial outlay;

g. in the case of a written off-exchange option, the amount mentioned in paragraph 5 is to be regarded as initial outlay;

h. in the case of an off-exchange future, the amount mentioned in paragraph 6 is to be regarded as initial outlay; and

i. in the case of a forward transaction, the amount mentioned in paragraph 7 is to be regarded as initial outlay.

3 Up to 10% in value of the property of the pool may be used for initial outlay on derivatives transactions in the form of purchased options without it counting towards the 20% in paragraph 1, but the manager must deduct from the figure of 10% any percentage of the value of the property of the pool invested in transferable securities in the form of warrants.

4 Where an option is purchased for the account of the pool, the manager shall ascertain the amount, if any, by which 5% of the exercise value of the option (that is the amount which would be payable or receivable by the pool on exercise of the option) exceeds the amount paid by way of premium.

5 Where an off-exchange option is written for the account of the pool the manager shall ascertain at the outset and at each valuation the sum of –

a. 5% of the exercise value of the option (that is the amount which would be payable by the purchaser of the option, on exercise of the option); and

b. the amount, if any, by which the option is “in the money” to the purchaser of the option.

6 Where a transaction in an off-exchange future is entered into for the account of the pool, the manager shall ascertain at the outset and at each valuation the amount which is the sum of –

a. 5% of the value of the amount of property to be bought or sold pursuant to the contract; and

b. the amount, if any, by which the future would cause a loss to the pool if it were to be closed out.

7 Where a forward transaction is entered into for the account of the pool, the manager shall ascertain at the outset and at each valuation the amount which is 5% of the value of the forward contract (that is the amount of currency or of gold to be purchased or sold pursuant to the transaction at the current valuation in the currency or one of the currencies relevant for the purposes of the transaction) for each period of 3 months (or part thereof) between the date of the latest valuation and the date of maturity.

8 The manager shall arrange for the depositary to deposit and set aside with an eligible institution (and the manager must not use for the purposes of providing cover under these Rules) the amounts for the time being required by paragraphs 4, 5, 6 and 7.

9 The amounts to be deposited and set aside may be in cash or else in Government and other public securities (which are to be valued for this purpose at the current mark to market valuation).

5.31 Spread

1 Subject to Article 5.30 there is no limit on the value of the property of the pool which may be devoted to initial outlay in respect of derivatives on or related to any one category of underlying security, commodity or factor.

2 Notwithstanding paragraph 1, the manager must exercise reasonable prudence in relation to the diversification of the property of the pool so far as it is devoted to derivatives, account being taken of the extent to which diversification is already achieved by use of derivatives which by their nature are broadly diversified (such as, for instance, derivatives related to a broadly based index).

3 Up to 5% in value of the property of the pool may be devoted to initial outlay in respect of off-exchange transactions with any one counterparty.

4 In paragraph 2, “diversification” relates to diversification in terms of geographical sectors, economic sectors, currencies, commodities, maturity of instruments, exercise price under instruments and any other form of spreading of risk undertaken by a reasonably prudent investment manager.

5 Up to 10% in value may be kept as cash on deposit with any one person.

6 For the purposes of paragraph 5, the depositary and the depositary’s associates are regarded as one person, and the manager and the manager’s associates as another.

7 The figure of 10% in paragraph 5 may be regarded as 20% if the person is an eligible institution being an institution which has, or in the case of an eligible institution within the terms of sub-paragraph a. or e. of the definition of “eligible institution” in Schedule 4 having a subsidiary or holding company which is an eligible institution which has, capital which is shareholders’ funds of an amount, as most recently quoted in “The Banker” magazine published by Financial Times Information Limited, of US$ 1,000,000,000 or more, provided that the amount of the aggregate of the deposits of all pools of the recognized fund do not exceed 10% of that person’s issued capital and reserves as shown in its most recently published annual accounts.

8 Paragraphs 5, 6 and 7 do not apply to a geared futures and options fund with respect to any deposit which is less than £1,000,000 (or the equivalent amount in the base currency).

5.32 Investment in collective investment funds

1. Up to 5% in value of the property of the pool may consist of units in collective investment funds or constituent parts, or their equivalent, of umbrella funds each of which –

a. is a regulated collective investment fund or constituent part, or its equivalent, thereof which is either a futures and options fund or a geared futures and options fund or a money market fund or a fund of a category that is equivalent to the category of one of such funds;

b. is within Article 5.14; or

c. would be within Article 5.14, if 5.14.1b. read as follows –

“b. is dedicated to investing funds raised from the public –

(i) in approved or other derivatives (where most or all of the transactions in derivatives are fully covered by cash, securities and other derivatives), whether with or without transferable securities or covered forward transactions in currency or gold, or

(ii) in approved and other derivatives (where the extent of investment is limited by the amount of the property of the pool available to be put up as initial outlay), whether with or without transferable securities and whether with or without investment within (i) above.”

a. the constitutional documents of the investing pool and its prospectus clearly state that the property of the investing pool may include such units; and

b. Article 5.70 (investment in other group collective investment funds) is complied with.

5.33 Delivery of property pursuant to a derivatives transaction

1 When entering into any derivatives transaction as a result of which any investment or asset may become part of the property of the pool, the manager must comply with paragraph 2 (where the investment or asset is one of which the property of the pool could in some measure consist) or with paragraph 3 (in any other case).

2 Where this paragraph applies, the manager must reasonably believe that the transaction will not result in any breach of these Rules –

a. either because it can readily be closed out; or

b. because the investment or asset concerned will at the expected time be included within the property of the pool in a manner which conforms with these Rules.

3 Where this paragraph applies, the manager must reasonably believe that the transaction can readily be closed out.

4 Where, in the event the belief in paragraph 2 or 3 proves unjustified, and the manager decides with the consent of the depositary, pursuant to Article 7.13, that it is in the interests of the unitholders that the property should temporarily be acquired, then the property concerned may, notwithstanding anything else in these Rules, form part of the property of the pool until the position can be rectified.

SECTION F

PROPERTY FUNDS

5.34 Property funds: general

1 Subject to this Section and to any other Sections of this Part, the property of the pool of a property fund shall consist of any or all of the following –

a. approved immovables;

b. property related assets, as defined in Article 5.36 below;

c. Government and other public securities;

d. units in collective investment funds under paragraph 5.

2 Up to 80% in value of the property of the pool may consist of approved immovables, but this limit is subject to paragraph 6 below.

3 Up to 80% in value of the property of the pool may consist of transferable securities, but these must be property related assets which are approved securities or else separately permitted within paragraph 4, 5 or 6 below.

4 Up to 35% in value of the property of the pool may consist of Government and other public securities.

5 Up to 5% in value of the property of the pool may consist of units in collective investment funds under Article 5.37 below.

6 Up to 10% in value of the property of the pool may, under Article 5.36.2 below, consist of shares which are property related assets but are not approved securities but any shares included pursuant to this paragraph must be included within the 80% limit in paragraph 2, which may therefore on occasion produce a limit of 70% for approved immovables.

7 Up to 5% in value of the property of the pool may consist of transferable securities within paragraph 3 which are warrants: but these must be property related assets which are approved securities.

5.35 Permitted and approved immovables

1 In these Rules “permitted immovable” means any interest in any land or building which falls within paragraph 2 (excluding immovable property of the type referred to in Article 5.02.1); and an approved immovable is a permitted immovable –

a. which is regarded as transferable or having marriage value within paragraph 3 or 4;

b. which is accessible within paragraph 5;

c. which has a good root of title within paragraph 6;

d. which is unencumbered (or adequately unencumbered) within paragraph 7; and

e. which has been or is to be bought promptly and at a reasonable price within paragraph 8.

2 An interest in land or a building qualifies for this purpose if –

a. it is in Jersey or in England and Wales or in Northern Ireland a freehold or leasehold interest, or in Scotland any interest or estate in or over land or heritable right including a long lease, (or the equivalent in any other country or territory);

b. the land or building is situated in Jersey, the United Kingdom, another member state or a country listed in paragraph 9; and

c. where the interest is leasehold (or its equivalent) it has an unexpired term of 20 years or more,

and furniture, fittings or other contents of any building may for this purpose be regarded as part of it.

3 An immovable is regarded as transferable if the manager has received a report from an appropriate valuer (as to which see paragraph 10) valuing the immovable (with and without any relevant subsisting mortgage) and stating that, in the valuer’s opinion, the immovable would, if acquired for the pool, be capable of being disposed of reasonably expeditiously at that valuation.

4 An immovable is regarded as having marriage value if the manager has received a report from an appropriate valuer valuing the immovable and stating that –

a. it is adjacent to or contiguous with an immovable included in the property of the pool; and

b. in the valuer’s opinion, the total value of the immovable, if acquired for the pool, and of the other immovable in a., would be at least equal to the sum of the price payable for the immovable and the existing value of the other immovable in a.

5 An immovable is regarded as accessible if the manager (after consulting the depositary in any case of substantial doubt) is satisfied that reasonable access to it is assured.

6 An immovable is regarded as having a good root of title if the manager (after taking such advice as appears to the manager appropriate) reasonably believes that the title to the immovable is a good marketable title.

7 An immovable is regarded –

a. as unencumbered if there is no subsisting hypothec or mortgage over or on it; and

b. as adequately unencumbered if the only hypothecs or mortgages over or on it are one or more approved mortgages within Article 5.39 which secures or together secure on the immovable repayment of a sum or sums not exceeding 50% of the value at paragraph 3, (that is that part of the value which is valued on the assumption that the immovable is not hypothecated or mortgaged).

8 An immovable is regarded as bought promptly and at a reasonable price if –

a. it is bought or agreed by enforceable contract to be bought within 6 months after receipt of a report by the manager within paragraph 3 or paragraph 4;

b. at the time of the purchase or agreement it would not reasonably have been apparent to the manager that the report could no longer reasonably be relied upon; and

c. it is bought at no more than 105% of the valuation in the report.

9 The countries or territories relevant for paragraph 2(b) above are –

a. Australia;

b. Austria;

c. Canada;

d. Finland;

e. Japan;

f. New Zealand;

g. Norway;

h. Sweden;

i. Switzerland;

j. United States of America.

10 In these Rules, a person is an appropriate valuer if –

a. the person has knowledge of and experience in the valuation of immovables of the relevant kind in the relevant area;

b. the person is or is qualified to be the standing independent valuer of a property fund or is reasonably considered by the pool’s standing independent valuer to hold equivalent qualifications;

c. the person is independent of the manager, depositary, company and each of the directors of the company, in the sense required for a standing independent valuer under Article 12.06 below; and

d. neither the person nor any partner (if any) nor fellow director (if any) of the person has been engaged, whether as principal or as agent, in relation to the finding of the immovable for the pool or the finding of the recognized fund for the immovable.

5.36 Property related assets

1 In these Rules, property related assets means –

a. investments falling within paragraph 1, 2 or 4 of Schedule 1 to the Financial Services Act which are issued by a property company; or

b. investments falling within paragraph 5 of that Schedule which confer rights in respect of an investment within a. above,

and “property company” means a body corporate a substantial activity of which relates to permitted immovables (whether by way of investing in, dealing in, developing, redeveloping or refurbishing them and whether directly or indirectly).

2 Even if not approved securities, property related assets may qualify for investment purposes (under Article 5.34.6) if –

a. they are investments falling within paragraph 1 of Schedule 1 to the Financial Services Act;

b. they are transferable securities; and

c. they are shares in a body corporate at least 75% of whose total assets (before deduction of liabilities and as shown in the most recently published accounts) consist of permitted immovables.

3 Up to 5% in the value of the property of the pool may consist of investments of the type referred to in paragraph 2 issued by any one issuer; but that figure may be regarded as 10% if –

a. the pool owns at least 90% of the rights to vote which are exercisable in all circumstances at general meetings of the body corporate;

b. the shares are or were bought within 6 months after receipt by the manager or the company of –

(i) a report from an appropriate valuer relating to permitted immovables owned by the body corporate, indicating that they are transferable (as at Article 5.35.3) or have marriage value (as at Article 5.35.4), and

(ii) a report, on the value of any assets other than permitted immovables, from a person then qualified to be an auditor of a company under the relevant legislation;

c. at the time of the purchase it would not have been reasonably apparent to the manager that the report at b(i) or (ii) could no longer reasonably be relied on; and

d. the shares were bought at no more than 105% of the total of the values in the reports at b(i) and (ii).

5.37 Investment in collective investment funds

1 A property fund may invest in units in a collective investment fund or constituent parts, or their equivalent, of an umbrella fund only if the second fund –

a. is a regulated collective investment fund or constituent part, or its equivalent, thereof;

b. complies or is treated as complying with Article 2.09 of these Rules (repurchase or cancellation of units at price related to valuation); and

c. is dedicated to approved immovables, with or without transferable securities which are property related assets or Government and other public securities or is a money market fund or a fund of a category that is equivalent to the category of such a fund.

a. the constitutional documents of the investing pool and its prospectus clearly state that the property of the investing pool may include such units; and

b. Article 5.70 (investment in other group collective investment funds) is complied with.

5.38 Property related limits

1 Up to 10% in value of the property of the pool may consist of approved immovables which are leasehold interests (or the equivalent: see Article 5.35.2a) having an unexpired term of less than 60 years.

2 Up to 25% in value of the property of the pool may consist of approved immovables which are unoccupied and non-income producing or in course of substantial development, redevelopment or refurbishment.

5.39 Mortgaged property

1 Up to 15% in value of that part of the property of the pool which for the time being consists of immovables may consist of mortgaged immovables.

2 An immovable subject to one or more hypothecs or mortgages may be retained in the pool only so long as the hypothec or mortgage or each of the hypothecs or mortgages is an approved mortgage, the total sums outstanding under which do not exceed 50% of the value of the immovable (assuming for this purpose that the immovable is not hypothecated or mortgaged).

3 In these Rules, a hypothec or mortgage is an approved mortgage only if the depositary reasonably believes that the hypothec or mortgage can be discharged on demand or within 28 days by repayment of all the money secured by the hypothec or mortgage (including, where appropriate, any additional sum provided for under the hypothec or mortgage) and that the hypothec or mortgage is “non-recourse” in nature, that is that there is no property on which the hypothec or mortgage is secured, whether immediately or contingently, other than the approved immovable in question.

5.40 Spread

1 Up to 15% in value of the property of the pool may consist of any one immovable.

2 In paragraph 1 “one immovable” includes adjacent or contiguous immovables.

3 The figure of 15% in paragraph 1 may be regarded as 25% once the immovable has been included in the property of the pool in compliance with that paragraph.

4 Up to 5% in value of the property of the pool may consist of property related assets issued (or conferring rights to investments issued) by any one issuer.

5 The figure of 5% in paragraph 4 may be regarded as 10% in respect of up to 40% of the value of the property of the pool.

6 Up to 20% of the income receivable in any accounting period may derive from members of any one group; but there is no restriction on the income receivable from any Government or body within Article 5.13 (issuers of Government and other public securities).

5.41 Initial periods

1 During the period of the initial offer, no immovable may be –

a. bought or leased; or

b. agreed, by enforceable contract, to be bought or leased,

unless it appears to the manager and to the depositary that more than £5 million (or the equivalent amount in the base currency) has been paid or agreed to be paid for units to be issued or sold.

2 Subject to paragraphs 3 and 4, during the first 2 years starting with the date on which the recognized fund receives a recognized fund certificate valid in relation to the pool (or on which the period of the initial offer commenced, if later) –

a. Articles 5.38.1 and 5.40 do not apply; and

b. the obligation, derived from Article 5.34, that (unless properly held or invested elsewhere) at least 20% in value of the property of the pool must consist of approved immovables does not apply.

3 Paragraph 2 ceases to apply if, at any time during the 2 year period, 6 months have elapsed from the first date on which the property of the pool exceeds £15 million in value (or the equivalent amount in the base currency).

4 Paragraph 2 postpones the application of Article 5.40.4 (spread of property related assets) for a maximum of 6 months only from the date there mentioned, and not of 2 years.

5 This Article applies, where there is no initial offer, as if –

a. the period of the process of unitization; or

b. the period of 21 days after the date on which persons are first invited to become unitholders,

were the period of the initial offer.

5.42 Grant of options, mortgages etc.

1 No option may be granted to buy any immovable comprised in the property of the pool, whether under Section K below (efficient portfolio management) or otherwise.

2 No hypothec or mortgage other than an approved mortgage may be created on or over any such immovable.

5.43 Other provisions

The following Articles apply to property funds –

a. 5.15 (investment in warrants and in nil or partly paid securities);

b. (subject to Article 5.36.3) 5.16 (significant influence).

SECTION G

WARRANT FUNDS

5.44 Warrant funds

1 Subject to this Section and to any other Sections of this Part, the property of the pool of a warrant fund shall consist of property which could be the property of the pool of a securities fund, except that up to 100% in value of the property of the pool may consist of warrants.

2 Accordingly, Section B above applies to a warrant fund as it applies to a securities fund, except that Article 5.15 does not apply.

SECTION H

FEEDER FUNDS

5.45 Feeder funds: general

1 Subject to Section A above and to Sections M and N below, the property of the pool of a feeder fund –

a. shall consist of units in a single recognized fund or other regulated collective investment fund or another collective investment fund acceptable to the Commission, or else;

b. shall consist of shares in or debentures of a single eligible investment trust (as to which see Article 5.46); and

c. may include cash and near cash for the purposes of redemption of units of the pool or for the purposes of efficient management of the pool or for other purposes consistent with and ancillary to the pool.

2 A feeder fund under Article 5.45.1a may not invest in –

a. a geared futures and options fund;

b. a property fund;

c. a warrant fund;

d. a feeder fund;

e. a fund of funds, unless the fund of funds is prevented by its constitutional documents from investing in any fund within a, b or c;

f. any constituent part, or its equivalent, of an umbrella fund which is invested as if it were a pool within a, b, c, d or e;

g. a regulated collective investment fund which would, if authorized, fall within any of a to f.

5.46 Feeder funds investing in eligible investment trusts

1 An investment trust is an eligible investment trust for the purposes of Article 5.45.1b. only –

a. if it is acceptable to the Commission and it fulfils the initial condition in paragraph 2; and

b. as long as the depositary of the feeder fund has, at any time in the last 6 months, been reasonably satisfied as to the matters in paragraph 3.

2 The initial condition is that, at the date on which the recognized fund certificate is granted or amended to be valid in relation to 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).

3 The matters of which the depositary must be or have been reasonably satisfied are –

a. at least 70% of the income of the investment trust received during either or both of –

(i) the last completed accounting period, and

(ii) the first half of the current accounting period,

consisted of income derived from approved securities;

b. (apart from transactions for hedging purposes) the property of the investment trust either –

(i) cannot be invested in derivatives, or

(ii) can be invested in derivatives only on the footing of cover to at least the extent required of a futures and options fund under Article 5.25;

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

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 regarded as 15% in respect of up to 30% in value of the property of the investment trust;

e. the feeder fund owns not more than 20% of the units or shares (or of any class of units or shares) in or of the debentures (or of any class of debentures) of the investment trust;

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 unit or share price for the time being;

g. the units or shares in (or debentures of) the investment trust are regularly offered for purchase and sale by at least 3 market makers who are recognized or registered as members of an eligible securities market; and

h. the investment trust has no limit on its duration.

SECTION I

FUNDS OF FUNDS

5.47 Funds of funds: general

1 Subject to this Section and to any other Sections of this Part, the property of the pool which is a fund of funds shall consist of units in recognized funds and/or other regulated collective investment funds.

2 A fund of funds may not invest in –

a. a feeder fund;

b. a fund of funds;

c. any constituent part, or its equivalent, of an umbrella fund which is a pool constituting a. or b; or

d. a regulated collective investment fund which would, if it were a recognized fund, fall within a or b.

3 Up to 20% in value of the property of the pool may consist of units in any one pool or other regulated collective investment fund.

5.48 Eligible combinations of funds

1 A fund of funds may invest in units in any one or more pools within, and/or one or more regulated collective investment funds which, if they were recognized funds, would be within, any one of Sections B, C, D, E, F, or G.

2 A fund of funds may invest in units in one or more money market funds and/or one or more regulated collective investment funds which, if they were recognized funds, would be money market funds (within Section C above) and in units in any one or more pools within, and/or one or more regulated collective investment funds which, if they were recognized funds, would be within, any one of the other Sections mentioned in paragraph 1.

3 As in the case of a recognized fund where each constituent part of an umbrella fund is a pool, each separate part or sub fund of any other regulated collective investment fund equivalent to an umbrella fund shall also be treated for the purposes of this Article and Article 5.47.3 as if it were a separate pool.

SECTION J

UMBRELLA FUNDS

5.49 Umbrella funds: general

1 Subject to paragraphs 2 and 3, each of the constituent parts of an umbrella fund shall be invested in a manner which complies with the limits expressed in any one of Sections B to I above.

2 No constituent part of an umbrella fund may be invested in units in another constituent part of the same umbrella fund.

3 No constituent part of an umbrella fund may be invested in accordance with Section D, E or F above unless the Commission has granted permission in writing for it to do so and, on an application made to it in connection with this paragraph and after being furnished with all such information as it may require, the Commission may grant permission for the constituent part to be invested in accordance with the relevant Section either unconditionally or subject to such conditions as it considers appropriate, or may refuse to grant permission.

SECTION K

EFFICIENT PORTFOLIO MANAGEMENT

5.50 Efficient portfolio management: general

1 This Section applies to any pool.

2 In the application of this Section to a feeder fund or fund of funds, Articles 5.51.2.c. and 5.52.2.b. do not apply.

3 This Section is subject to any restriction in the constitutional documents or in the prospectus.

5.51 Appropriate transactions

1 This Section enables the manager or the company to enter into transactions of the kind specified in Article 5.54 (permitted transactions) for the purpose of efficient portfolio management, but only when each of the following 2 conditions is satisfied –

a. the transaction is economically appropriate to that purpose, as required by Article 5.52; and

b. the transaction is fully covered, as required by Article 5.55.

2 The purpose of efficient portfolio management is to achieve one or more of the following in respect of the pool –

a. the reduction of risk;

b. the reduction of cost; and

c. the generation of additional capital or income for the recognized fund with no, or with an acceptably low level of, risk.

3 The purpose in paragraph 2 relates to –

a. property of the pool;

b. property (whether precisely identified or not) which is to be or is proposed to be acquired for the pool; and

c. anticipated cash receipts of the pool, if due to be received at some time and likely to be received within one month.

5.52 Economic appropriateness

1 Any transaction under this Section must be one which (alone or in combination with one or more others) is reasonably believed by the manager to be economically appropriate to the efficient portfolio management of the pool.

2 This means that the manager must reasonably believe that –

a. for transactions undertaken to reduce risk or cost (or both), the transaction (alone or in combination) will diminish a risk or cost of a kind or level which it is sensible to reduce; and

b. for transactions undertaken to generate additional capital or income, the pool is certain (or certain barring events which are not reasonably foreseeable) to derive a benefit from the transaction.

3 Where, for example, the manager wishes to achieve a switch in exposure, the manager may do so, rather than through sale and purchase of the property of the pool, by use of derivatives (a technique commonly called “tactical asset allocation”) if the transactions concerned reasonably appear to the manager to satisfy paragraphs 1 and 2a.

4 A transaction may not be entered into under this Section if its purpose could reasonably be regarded as speculative.

5 Where the transaction relates to the actual or potential acquisition of transferable securities, then the manager must intend that the scheme should invest in transferable securities within a reasonable time; and the manager must thereafter ensure that, unless the position has itself been closed out, that intention is realised within that reasonable time.

5.53 Generation of additional capital or income

1 There is an acceptably low level of risk, for the purposes of Article 5.51.2c, in any case where the manager reasonably believes that the pool is certain (or certain barring events which are not reasonably foreseeable) to derive a benefit –

a. on a basis set out in paragraph 2 or 3; or

b. pursuant to Section L (stocklending).

2 The first basis is that the pool takes advantage of pricing imperfections in relation to the acquisition and disposal (or disposal and acquisition) of rights in relation to the same or equivalent property, being property which the pool holds or may properly hold.

3 The second basis is that the pool receives a premium for the writing of a covered call option or a covered put option, even if that benefit is obtained at the expense of surrendering the chance of yet greater benefit.

5.54 Permitted transactions

1 A transaction under this Section must be –

a. a derivatives transaction; or

b. a forward transaction in a currency (or, where the property of the pool may include gold, in gold).

2 A derivatives transaction under paragraph 1.a. must be –

a. in an approved derivative (as defined in Article 5.08.2);

b. one which complies with Articles 5.23.5 to 8 (off-exchange); or

c. a “synthetic future” which complies with Articles 5.23.9 and 10.

3 Any transaction in an approved derivative must be effected on or under the rules of an eligible derivatives market.

4 Any forward transaction must be with an approved counterparty which is within Article 5.23.6 (eligible institutions, listed money market institutions, etc.).

5 No more than 5% of the value of the property of the pool may be directed to initial outlay in respect of off-exchange transactions with any one counterparty.

6 A derivatives or forward transaction which would or could lead to delivery of property to the depositary may be entered into only if –

a. such property can be held by the pool;

b. the manager reasonably believes that delivery of the property pursuant to the transaction will not lead to a breach of these Rules.

7 A transaction permitted under this Article may at any time be closed out.

5.55 Cover for transactions under this Section

1 No transaction may be entered into under this Section unless the maximum potential exposure created by the transaction, in terms of the principal or notional principal of the derivative or forward contract, is –

a. covered individually under paragraph 2 or 3; and

b. covered globally under paragraph 4,

and for this purpose the examples in paragraph 10 below may be relevant.

2 Subject to paragraph 3, exposure is covered individually if there is, in the property of the pool –

a. (in the case of an exposure in terms of property) a transferable security or other property which is of the right kind, and sufficient in amount, to match the exposure; and

b. (in the case of an exposure in terms of money), cash or near cash (or borrowing pursuant to Article 5.56) or transferable securities which is or are, or, on being turned into money in the right currency, will be, sufficient in amount to match the exposure.

3 Exposure to an index or basket of securities or other assets is covered individually only if the pool holds securities or other property which (taking into account the closeness of the relationship between fluctuations in the price of the 2) can reasonably be regarded as appropriate to provide cover for the exposure, and they may be so regarded even if there is not complete congruence between the cover and the exposure.

5 A derivative or forward transaction is not available to provide cover for another derivative or forward transaction under this Section, but –

c. a covered currency forward or a covered currency derivative may provide cover for a derivative.

6 Cash not yet received into the property of the pool but due to be received within one month is available as cover for the purposes of paragraphs 2.b. and 3.

7 Subject to paragraph 5, to the extent that property of the pool has been used for cover in respect of one exposure, (whether under this Section or otherwise), it is not available for cover in respect of another.

8 Property anticipated under a derivative does not count as property under paragraph 2.a.

9 Property is not available for cover if it is the subject of a transaction under Section L (stocklending), unless the manager reasonably believes that it is obtainable (by return or re-acquisition) in time to meet the obligation for which cover is required.

10 Examples of the cover requirements are as follows –

a. A bought put option (or a written call option) on 1000 ordinary £1 shares (fully paid) of ABC plc has to be covered by an existing holding in the pool of 1000 ordinary £1 shares (fully paid) of ABC plc (paragraph 2.a. above).

b. A bought call option (or written put option) on 1000 ordinary £1 shares (fully paid) of ABC plc has to be covered by cover (in the form of cash or an allowable substitute for cash or transferable securities) which is sufficient in amount to meet the purchase price of the shares on exercise of the option (paragraph 2.b. above).

d. A sold future on the FT-SE 100 Index has to be covered by holdings of equities, which satisfy the test of appropriateness for cover in paragraph 3 in relation to that future, and the values of which together at least match the current mark to market valuation of the future (e.g. if the multiplier per full index point is £25, and if the eventual obligation under the future is currently at 2800, the valuation of the futures position is 2800 x £25 = £70,000) (paragraph 3 above).

e. Where the manager of a recognized fund, which has holdings in “blue chip” U.K. shares, wishes to switch exposure to the US market, and decides to sell a FT-SE index future to the value of those shares (this transaction satisfying the test of appropriateness for cover in paragraph 3), then the sterling “synthetic cash” position created may thereupon be used as cover for a S&P 500 index future provided that the manager ensures that the cover remains sufficient (e.g. by reference to the sterling/US dollar exchange rate) (paragraphs 3 and 5.b. above).

5.56 Borrowing in the context of efficient portfolio management

1 Cash obtained by borrowing, and borrowings which the manager reasonably regards an eligible institution to be committed to provide, are available for cover under Article 5.55, as long as the normal limits on borrowing (as to which see Article 5.63 and 5.64) are observed.

2 Where, for the purposes of this Section, the manager –

a. borrows for the pool an amount of currency from an eligible institution; and

b. keeps an amount in another currency, at least equal to the borrowing for the time being in a., on deposit with the lender (or the lender’s agent or nominee),

then this Section shall apply as if the borrowed currency, and not the deposited currency, were part of the property of the fund, and the normal limits on borrowing under Articles 5.63 and 5.64 below do not apply to that borrowing.

5.57 Continuing nature of limits and requirements

1 The manager must, at each valuation point (and more frequently if necessary), re-calculate the amount of cover required in respect of positions already in existence under this Section, and derivatives and rights under forward transactions under this Section may be retained in the property of the pool only so long as they remain covered both individually and globally under Article 5.55.

2 If at any time –

a. any fact or matter relating to the pool or its economic environment; or

b. the aggregate of all outstanding positions under this Section,

SECTION L

STOCKLENDING

5.58 Stocklending: general

1 This Section applies to any pool to which Section K (efficient portfolio management) applies, but not to a feeder fund or fund of funds.

2 The powers conferred by this Section may be exercised by such a pool for the purpose of efficient portfolio management, that is when it reasonably appears to the manager to be economically appropriate to do so with a view to generating additional income for the pool with no, or an acceptable degree of, risk.

3 Paragraphs 1 and 2 are subject to any restrictions in the constitutional documents or prospectus.

5.59 Permitted stocklending

1 The depositary may, at the request of the manager, enter into a stocklending arrangement (in relation to the property of the pool) whereby the property of the pool is to be borrowed by a third party, but only if –

a. all the terms of the agreement under which securities are to be re-acquired by the depositary are in a form acceptable to the depositary and in accordance with good market practice; or

b. the counterparty is an authorized person or a person included in the list maintained for the purposes of section 43 of the Financial Services Act (listed money market institutions) or, in the case of stocklending effected through Clearstream or Euroclear, is acceptable to Clearstream or Euroclear as the case may be although undisclosed to the depositary; and

c. either collateral is obtained which is –

(i) acceptable to the depositary,

(ii) adequate within Article 5.61.1, and

(iii) sufficiently immediate within Article 5.61.2,

or in the case of stocklending effected through Clearstream or Euroclear, a guarantee is given to the depositary by Clearstream or Euroclear as the case may be which guarantees the transfer to the account of the depositary of the securities transferred to the account of the borrower under the stocklending arrangement of securities of the same kind and value, in the event of any default on the part of the borrower.

2 The counterparty for the purpose of paragraph 1 is the person who is obliged pursuant to or in consequence of the agreement referred to in paragraph 1a to transfer to the depositary or to the relevant account with Clearstream or Euroclear, as appropriate, the securities transferred by, or to the order of, the depositary under the stocklending arrangement or securities of the same kind.

5.60 Limitation by value

There is no limit on the value of the property of the pool which may be the subject of transactions within this Section.

5.61 Treatment of collateral

1 Collateral is adequate only if it –

a. exceeds in value, at the time of the transfer to the depositary, the value of the securities transferred by the depositary;

b. is transferred to the depositary or its agent;

c. is the subject of an agreement for transfer of the collateral, or of assets equivalent to the collateral, by the depositary as soon as the need for it has disappeared; and

d. is in the form of one or more of the following –

(i) cash,

(ii) near cash,

(iii) Government and other public securities,

(iv) a certificate of deposit,

(v) a letter of credit,

(vi) securities transferred in CREST by a DBV, or

(vii) securities transferred in the Clearstream or Euroclear systems.

2 Collateral is sufficiently immediate if –

a. it is transferred before or at the time of the transfer of the securities by the depositary; or

b. the depositary reasonably believes at that time that it will be transferred at the latest by the close of business on the day of the transfer.

3 The depositary shall take such steps as are necessary to ensure that the value of the collateral at all times exceeds the value of the securities transferred by the depositary.

4 Any agreement for transfer of securities or of collateral (or of the equivalent of either) under this Section at a future date may be regarded, for the purposes of valuation under Part 4 or these Rules, as an unconditional agreement for the sale or transfer of property, whether or not the property is part of the property of the pool.

5 Collateral transferred to the depositary is part of the property of the pool for the purposes of these Rules except in the following respects –

a. it does not fall to be included in any valuation for the purposes of Part 4 or these Rules, because it is offset under paragraph 4 above by an obligation to transfer;

b. it does not count as property for any purpose of Part 5 (other than this Section).

6 Paragraph 4 and paragraph 5a do not apply to any valuation of collateral itself for the purposes of this Section.

7 The duty in paragraph 3 may be regarded as satisfied in respect of collateral the validity of which is about to expire or has expired, where the depositary reasonably believes that sufficient collateral will again be transferred at the latest by the close of business on the day of expiry.

SECTION M

CASH, BORROWING, LENDING ETC.

5.62 Cash and near cash

1 The property of the pool may consist of cash and near cash, where this may reasonably be regarded as necessary in order to enable –

a. redemption of units;

b. efficient management of the pool in accordance with its objectives; or

c. other purposes which may reasonably be regarded as ancillary to the investment objectives of the pool.

2 Paragraph 1 does not apply to –

a. a money market fund;

b. a futures and options fund; or

c. a geared futures and options fund,

but the property of the pool of any such pool may consist of cash and near cash without limitation.

3 Paragraph 1 does not apply during the period of the initial offer, during which the property of the pool may consist of cash and near cash without limitation.

5.63 General power to borrow

1 Subject to any restriction in the constitutional documents, the depositary or the company may for the account of the pool in accordance with these Rules, borrow money for the use of the pool on terms that the borrowing is to be repayable out of the property of the pool.

2 The depositary may borrow under paragraph 1 only from an eligible institution.

3 Paragraph 1 does not apply to a geared futures and options fund.

4 Except in the case of a futures and options fund, the manager must ensure that the borrowing for the use of the pool is on a temporary basis, and, for this purpose –

a. the manager may have regard in particular to –

(i) the duration of any period of borrowing, and

(ii) the number of occasions on which resort is had to borrowing in any period; and

b. the manager must ensure that no period of borrowing exceeds 3 months, whether in respect of any specific sum or at all, without the prior consent of the depositary, which may be given only on such conditions as appear to the depositary appropriate to ensure that the borrowing does not cease to be on a temporary basis only.

5 This Article does not apply to “back to back” borrowing under Article 5.56.2.

6. A recognized fund shall not issue any debenture falling within paragraph 2 of Schedule 1 to the Financial Services Act.

5.64 Borrowing limits

1 The manager must ensure that the borrowing of a recognized fund for the use of a pool does not, on any business day, exceed 10% of the value of the property of the pool.

2 In the case of a property fund, the manager must ensure that the borrowing shall not, on any business day, exceed 10% of the value of that part of the property of the pool which for the time being does not consist of immovables.

3 In relation to a property fund, an approved mortgage under Article 5.39 or 5.42 does not count as borrowing for the purposes of paragraph 2 above.

4 This Article does not apply to “back to back” borrowing under Article 5.56.2.

5 In this Article, “borrowing” includes, as well as borrowing in a conventional manner, any other arrangement designed to achieve a temporary injection of money into the property of the pool, in the expectation that the sum will be repaid, for example by way of a combination of derivatives which produces an effect similar to a borrowing but does not include any arrangement for the company to pay to a third party (including the manager) any costs which the recognized fund is entitled to amortize under Article 8.12 and which were paid on behalf of the recognized fund by such third party.

5.65 Restriction on lending of money

1 None of the money in the property of the fund of any recognized fund may be lent.

2 Acquiring a debenture is not lending for the purposes of paragraph 1; nor is the placing of money on deposit or in a current account.

3 Paragraph 1 does not prevent a company from providing an officer of the company with funds to meet expenditure to be incurred by the officer for the purposes of the company (or for the purposes of enabling the officer properly to perform the officer’s duties as an officer of the company) or from doing anything to enable an officer to avoid incurring such expenditure.

5.66 Restriction on lending of property other than money

1 None of the property of the fund other than money may be lent by way of deposit or otherwise.

2 Transactions falling within Section L (stocklending) are not lending for the purposes of paragraph 1.

3 None of the property of the fund may be hypothecated or mortgaged or otherwise encumbered except under Section F (property funds).

4 Nothing in this Article prevents the company or the depositary at the request of the manager or the company from lending, depositing, pledging or charging property of the fund for margin requirements where the recognized fund is using derivatives or forward transactions pursuant to any other provision of these Rules.

5.67 General power to underwrite or accept placings

1 Subject to any restriction in the constitutional documents, any power in this Part to invest in transferable securities may be used for the purpose of entering into transactions to which this Article applies.

2 Subject to paragraph 3, this Article applies to any agreement or understanding (whereby transferable securities will or may become part of the property of the fund) –

a. which is an underwriting or sub-underwriting agreement; or

b. which contemplates that securities will or may be issued to or subscribed for or acquired by the recognized fund.

3 This Article does not apply to –

a. an option; or

b. purchase of a transferable security which confers a right –

(i) to subscribe for or acquire a transferable security, or

(ii) to convert one transferable security into another.

4 No agreement or undertaking to which this Article applies may be entered into if it relates to units in a collective investment fund.

5 The exposure of a recognized fund to agreements and undertakings within paragraph 2 must, on any business day –

a. be covered under Article 5.55 as if the exposure had been incurred in the context of Section K (efficient portfolio management) by means of transactions in approved derivatives; and

b. be such that, if all possible obligations arising under them had immediately to be met in full, there would be no breach of any limit in these Rules.

5.68 Guarantees and indemnities

1 A recognized fund shall not provide any guarantee or indemnity in respect of the obligations of any third party and none of the property of the fund may be used to discharge any obligation arising under a guarantee or indemnity given by the depositary or manager or the company or any director of the company with respect to the obligations of any third party.

2 Paragraph 1 does not apply to an indemnity given to a person winding up a body corporate or collective investment fund in circumstances to which Article 4.05.1 (unitization) applies.

SECTION N

MISCELLANEOUS

5.69 Requirement to cover sales

1 No agreement on behalf of a recognized fund to dispose of property may be made –

a. unless that obligation, and any other similar obligation, could immediately be honoured by the recognized fund in relation to the relevant pool by delivery of property of the pool or the assignment of rights; and

b. the property and rights at a. are owned by the recognized fund at the time of the agreement.

2 Paragraph 1 does not apply to a derivatives or forward transaction under Section K (efficient portfolio management).

3 Paragraph 1 does not apply to a futures and options fund or to a geared futures and options fund.

5.70 Investment in other group collective investment funds

1 No recognized fund (the “first fund”) may invest in or dispose of units in another collective investment fund (the “second fund”) managed or operated by the manager or an associate of the manager of the first fund, unless the manager of the first fund is under a duty to pay into the property of the first fund, within the period specified in paragraph 2 –

a. on investment, either any amount by which the consideration paid out of the property of the first fund for the units in the second fund exceeds the price that would have been paid for the benefit of the second fund had the units been newly created or issued by it or, if such price cannot be ascertained by the manager of the first fund, the maximum amount of any charge permitted to be made by the issuer of units in the second fund; and

b. on disposal, the amount of any charge made for the account of the manager of the second fund or an associate of the manager in respect of the disposal.

2 The period expires at the close of business on the 4th business day next after the agreement to buy or to sell.

3 For the purposes of this Article –

a. any addition to or deduction from the consideration paid on the acquisition or disposal of units in the second fund, which is applied for the benefit of the second fund and is, or is akin to, a dilution levy made pursuant to Article 4.25, shall be treated as part of the price of the units and not as part of any charge; and

b. any charge made in respect of an exchange of units in one constituent part or separate part of the second fund for units in another constituent part or separate part of that collective investment fund shall be included as part of the consideration paid for the units.

PART 6

TITLE AND TRANSFER

6.01 The register

1 The trustee or the company shall establish and maintain in Jersey a register of the unitholders (the “register”) in accordance with this Article.

2 The trustee or the company may appoint the manager or, in the case of a company, the depositary (the “registrar”) to establish and maintain the register on its behalf and, if the trustee or the company does so –

a. the trustee or the company remains responsible for the discharge of all of its duties in relation to the register under these Rules; and

b. anything required or authorized under these Rules to be done in relation to the register by, to or before the trustee or a representative of the company may be done by, to or before the registrar or its agent.

3 The registrar may appoint some other person to establish and maintain the register on its behalf and if the registrar does so it shall remain responsible for the acts and omissions of that other person as though they were the acts and omissions of the registrar itself.

4 The register shall be maintained in a legible form or in a manner capable of being reproduced in a legible form.

5 There shall be entered in the register –

a. the name and address of each unitholder or, in the case of joint unitholders, the names of each of the joint unitholders and the address of the first such unitholder (other than a unitholder or joint unitholders whose units are all for the time being represented by bearer certificates);

b. the number of units (including fractions of a unit) of each class held by each such unitholder (other than units the title to which is for the time being represented by bearer certificates);

c. the date on which the unitholder was registered in the register in respect of the units standing in the unitholder’s name; and

d. the number of units (including fractions of a unit) of each class for the time being in issue and represented by bearer certificates and the numbers of those certificates,

but the trustee or the company is not bound to register more than 4 persons as the joint unitholders of any units.

6 The trustee or the company must –

a. take all reasonable steps; and

b. exercise all due diligence,

to ensure that the information contained in the register is at all times complete and up to date.

7 In relation to paragraph 6, the manager must in particular –

a. take such steps as are necessary to obtain and supply information from or concerning any new unitholder to enable the entry in the register to be made; and

b. forthwith notify to the trustee or the company any information which the manager receives relating to the accuracy of or any change to any entry in the register.

8 Nothing in this Part requires the trustee or company to make or alter any entry in the register or to issue any certificate or other document or to accept any transfer or conversion in any case where either of them considers it necessary or appropriate to carry out or complete identification procedures in relation to the unitholder or another person pursuant to a statutory or regulatory obligation.

6.02 The register as evidence of title

1 Subject to Article 6.11 (default by unitholder), the register shall be conclusive evidence as to the persons respectively entitled to the units entered therein.

2 No notice of any trust, express, implied, or constructive in respect of any unit shall be binding on the manager or the depositary or the company.

6.03 Inspection of the register and copies of entries

1 The trustee or the company shall make the register available for inspection by or on behalf of the unitholders or the manager or depositary in Jersey free of charge at all times during ordinary office hours except that the register of a unit trust may be closed at such times and for such periods (not exceeding 30 days in any one year) as the trustee or the company may from time to time determine.

2 The trustee or company shall supply to the manager at the manager’s request a copy of the register or any part of it.

3 The trustee or company shall supply to a unitholder or the unitholder’s authorized representative at the unitholder’s request and free of charge a copy in print of the entries on the register relating to that unitholder.

6.04 The manager as unitholder

1 The manager may, unless expressly forbidden to do so by the constitutional documents, be a unitholder.

2 The manager is deemed to hold each unit which is in issue (other than a unit the title to which is for the time being represented by a bearer certificate) if no person is entered in the register as the unitholder thereof.

3 Where units are transferred by a unitholder to the manager, they need not be cancelled, nor need the name of the manager be entered on the register as the new unitholder.

6.05 Certificates, etc.

1 On or following the sale of units or, subject to Article 6.06, at any other time, a certificate or other document recording title to the units may be issued to the unitholder if and in such form as the trustee or company determines.

2 The manager and the trustee or company must agree on the procedures to be followed in repurchasing units.

3 Where the procedures agreed under paragraph 2 require the unitholder to surrender any document (or provide any information) as a condition precedent to obtaining the proceeds of repurchase, they must also oblige the trustee or the company to issue the document or provide any relevant information relating to an entry on the register in a timely manner once it is in a position to do so under those procedures.

4 Where the constitutional documents enable bearer certificates to be issued, the trustee must determine the form of them, and the manager and trustee must agree on the procedures to be followed in respect of them.

5 The steps required to be taken by a unitholder in relation to the sale and repurchase of units must be specified in the prospectus.

6 Every unitholder whose units are represented by certificates shall be entitled to exchange any or all of the unitholder’s certificates for one or more certificates of such denominations as the unitholder may require representing the same aggregate number of units of the same class but, before any such exchange is carried out, the unitholder shall surrender to the manager the certificate or certificates to be exchanged.

7 If a certificate has become mutilated or defaced, the trustee or company in its discretion may issue to the person entitled in exchange for and upon surrender of the mutilated or defaced certificate a new certificate representing the same aggregate number of units of the same class.

8 If a certificate shall be lost, stolen or destroyed, the trustee or company may in its discretion issue to the person entitled a new certificate in lieu thereof but no such new certificate shall be issued unless the applicant has –

a. furnished to the trustee or company evidence satisfactory to the trustee or company of the loss, theft or destruction of the original certificate;

b. paid all expenses incurred in connection with the investigation of the facts thereof; and

c. if required by the trustee or company so to do, furnished to the trustee or company such indemnity as the trustee or the company may require.

9 If authorized by the constitutional documents to do so, the trustee or company may make –

a. the issue of a certificate; and

b. the registration of any grant of probate, letters of administration or any other document relating to or affecting the title to any unit,

conditional on the payment to it of such reasonable fee as the manager and trustee or company may agree.

6.06 Transfer of units by act of parties

1 Subject to paragraph 2, every unitholder shall be entitled to transfer units held by the unitholder in respect of which the unitholder is entered in the register by an instrument of transfer in any usual or common form or in such other lawful form as the manager and the trustee or directors may from time to time approve.

2 The trustee and the company are not under any duty to accept a transfer –

a. if the number or value of the units of any class sought to be transferred would result in the unitholder, or the transferee, holding less than any number or value stated in the prospectus as the minimum number or value to be held of the relevant class;

b. if the constitutional documents contain a limitation upon the categories of persons who may be unitholders and the transferee is not within one of those categories; or

c. if the instrument relates to units of more than one class.

3 Every instrument of transfer of units shall be signed by or on behalf of the unitholder transferring the units (or, in the case of a body corporate, sealed by that body or signed by one of its officers authorized so to sign) and, unless the transferee is the manager, the transferor shall be deemed to remain the unitholder until the name of the transferee has been entered in the register.

4 Every instrument of transfer must be left with the trustee or the company for registration accompanied by –

a. any necessary declarations or other documents that may be required in consequence of any legislation now or hereafter from time to time in force; and

b. such other evidence as the trustee or company may require to prove the right of the transferor to transfer the units or in the case of a body corporate the authority of the signatory on its behalf.

5 All instruments of transfer which shall be registered shall be retained by the trustee or company in original, copy or non-documentary form for a period of 10 years.

6 Upon registration of an instrument of transfer, a reference shall be made on the register enabling the name of the transferor and the transferee and the date of transfer to be identified.

6.07 Transfer of units by operation of law

1 On the death of any one of the joint unitholders the survivor or survivors shall be the only persons recognized by the trustee or company as having any title to or any interest in the units held by such joint unitholders.

2 The executors or administrators of a deceased unitholder (not being one of 2 or more joint unitholders) shall be the only persons recognized by the trustee or company as having title to the units held by the deceased unitholder.

3 Where any person becomes entitled to a unit in consequence of the death or bankruptcy of any sole unitholder or of the survivor of joint unitholders –

a. the person may, subject to b. below, upon producing such evidence as to the person’s title as the trustee or company may properly require, either be registered himself or herself as unitholder of the unit (upon giving to the trustee or company notice in writing that the person so desires) or transfer the unit to some other person;

b. the provisions concerning transfer of units shall be applicable to any such notice or transfer as if the death or bankruptcy had not occurred and as if the notice or transfer were a transfer signed by the unitholder;

c. subject to d. below, the person so entitled may give a discharge for all monies payable in respect of the unit, but shall not until registered as a unitholder be entitled to receive notices or attend or vote at any meeting of unitholders, and

d. the trustee or company may at its discretion retain any monies payable in respect of the unit until the person so entitled is registered as the unitholder of such unit or duly transfers the same.

6.08 Change of name and address of unitholder

1 The trustee or company shall –

a. upon receipt of notice in writing of a change of name or change of address of any unitholder;

b. upon being satisfied thereof; and

c. on compliance with such formalities as the trustee or company may require,

alter the register accordingly.

2 Where a certificate has been issued and remains valid and the name or address of the unitholder is altered in the register, the trustee or company shall either issue a new certificate to the unitholder or make an appropriate endorsement on the unitholder’s existing certificate.

6.09 Conversion of units

1 This Article applies to any pool in relation to which there are units of more than one class in existence and governs the conditions of conversion of such units of one class into units of another class within the same pool.

2 Conversion by a unitholder is possible under this Article only if both classes of units are in existence and are offered for sale (the terms of which offer do not exclude the unitholder) at the time of the request for conversion.

3 If a unitholder requests the manager to convert such units, the manager shall –

a. in the case of a unit trust make a request in writing to the trustee; and

b. in the case of a company, if the depositary gives its consent make the conversion,

but the manager need not do so, nor need the trustee comply with the manager’s request if the manager does and the custodian need not give its consent, if the conversion would result in the unitholder holding less than any number or value of units of either class stated in the prospectus as the minimum number to be held.

4 Subject to paragraph 3 the manager or trustee, as the case may be, shall convert the units which are the subject of the request into the appropriate number of units of the other class, and that number shall be determined by the manager, after consulting the depositary, on terms that are fair to the unitholder requesting conversion and to other unitholders.

5 Part 4 above does not apply when units are converted under this Article.

6.10 Subdivision and consolidation of units

1 The manager or company may, unless expressly forbidden to do so by the constitutional documents, at any time or times when no bearer certificates are in issue with the approval of the depositary determine –

a. that each unit shall be subdivided into 2 or more units (whereupon each unit shall stand subdivided accordingly); or

b. that 2 or more units shall be consolidated (whereupon those units shall stand consolidated).

2 Upon a subdivision or consolidation of units the trustee or company shall (unless it has done so before the subdivision or consolidation became effective) forthwith give to each unitholder (or to the first named of joint unitholders) whose name is entered in the register notice of the subdivision or consolidation.

6.11 Default by unitholder

Where –

a. the unitholder of any units defaults in making any payment in money or a transfer of property due to the manager or the trustee or company under these Rules, or the constitutional documents, in respect of the creation or sale of units to that unitholder; and

b. the trustee or company is satisfied that there has been such a default by such evidence furnished to the trustee or company as the trustee or company, as the case may be, shall require,

the trustee or company may make any necessary deletion or alteration in the register; and thereafter the manager shall be entitled to the units in respect of which the defaulting unitholder’s name has been removed from the register until those units are either cancelled or sold and paid for.

PART 7

POWERS AND DUTIES OF THE MANAGER, THE DIRECTORS, THE COMPANY AND THE DEPOSITARY

7.01 Management of the recognized fund

THE MANAGER

1 It is the duty of the manager to manage the recognized fund in accordance with –

a. the constitutional documents and the management agreement;

b. these Rules; and

c. the most recently published prospectus.

2 Subject to paragraph 1, it is the manager’s right and duty to make decisions as to the constituents of the property of the fund in such a way as appears to the manager likely to secure that the objectives of the recognized fund are attained and that any particular objectives specified in the prospectus are achieved.

3 The manager must instruct the depositary from time to time in writing as to how rights attaching to the ownership of property of the fund are to be exercised; but not in the case where, under Article 7.10.2, the depositary has the right to decide after consultation with the manager or directors.

4 The duty at paragraph 1 extends to taking all reasonable steps, and exercising due diligence, to avoid the property of the fund being incorrectly priced, contrary to any provision of Part 4.

5 The duty at paragraph 1 extends to taking action forthwith to rectify any breach of Part 4; and where the breach relates to the incorrect pricing (or late payment in respect of the creation) of units –

a. rectification shall, unless the depositary otherwise directs, extend to the reimbursement (or payment) of money –

(i) by the manager to the recognized fund, to unitholders or to former unitholders, or

(ii) by the recognized fund to the manager; but

b. rectification need not, unless the depositary otherwise directs, extend to any such reimbursement (or payment) where it appears to the depositary that the incorrect pricing (or late payment in respect of the creation) is of minimal significance.

7.02 Dealings in property of the fund

1 The manager may without the specific authority of the depositary give instructions to agents as to the acquisition or disposal of property of the fund.

2 Where the depositary is of the opinion that a particular acquisition or disposal of property by the manager exceeds the powers conferred on the manager, it is the duty of the manager at the manager’s own expense to cancel the transaction or make a corresponding acquisition or disposal to secure restoration of the status quo ante.

3 Where the depositary is of the opinion that –

a. an acquisition of property by the manager necessarily involves documents of title or documents evidencing title being kept in the custody of a person other than the depositary; and

b. the depositary cannot reasonably be expected to accept the responsibility which would otherwise be placed upon the depositary as a delegator,

the depositary may require the manager to cancel the transaction or make a corresponding disposal.

7.03 Maintenance of records

1 The manager must keep such accounting and other records as are necessary –

a. to enable it to comply with these Rules; and

b. to demonstrate at any time that such compliance by it has been achieved.

2 The manager must keep a daily record of the units held, acquired or disposed of by it, including the class of such units, and of the balance of any acquisitions and disposals.

3 The manager must make the daily record available for inspection by the depositary in Jersey free of charge at all times during ordinary office hours and must supply the depositary with a copy of the record or any part of it on request free of charge.

7.04 Audit

1 The manager of a unit trust or the directors of a company must, at the outset, and upon any vacancy, with the approval of the depositary appoint as an auditor for the recognized fund a person –

a. qualified under the Company Law for appointment as auditor of a company under that law; and

b. not disqualified from being an auditor of the manager or depositary under any Article of the Permit Conditions Order or who would be disqualified under that Article if the company were a relevant holder under that Article.

2 An auditor appointed otherwise than under paragraph 1 must meet the requirements of sub-paragraphs a. and b. of that paragraph.

3 The audit fees of the auditor are determined by the manager of a unit trust or the directors of a company, with the approval of the depositary, unless the auditor was appointed by the company in general meeting in which case the company in general meeting shall determine such fees.

4 The manager must ensure that the accounts required to be included in the annual report of the recognized fund are audited by the duly appointed auditors; and that that report is accompanied by a report of the auditor to the unitholders that those accounts have been audited in accordance with approved auditing standards and stating whether or not in the auditor’s opinion they give a true and fair view of the financial position of the recognized fund as at the end of the annual accounting period.

5 An auditor may be removed at any time by –

a. the manager with the approval of the depositary in the case of a unit trust; and

b. by the company in general meeting in the case of a company,

and this power exists notwithstanding anything in any agreement between the persons concerned.

6 Notice of the removal of an auditor shall be given by the manager or directors, as appropriate, to the Commission.

7 An auditor shall have –

a. a right of access at all times to the accounting and other records of the recognized fund and to all other documents relating to its business; and

b. the right to require from the manager, directors, company and depositary such information and explanation as the auditor thinks necessary for the performance of his or her duties as auditor.

7.05 Tax returns

The manager must from time to time prepare and supply to the depositary such returns relating to the property of the fund as are required to be submitted by the depositary or the company to any fiscal authority.

7.06 Review of recognized fund’s constitution

The manager must keep under review the constitutional documents and the prospectus with a view to ensuring that they are in compliance with the law, including these Rules, and from time to time must make or propose the making of such changes therein as are necessary or desirable in the interests of unitholders.

7.07 Manager to supply information to depositary

The manager must on the request of the depositary forthwith supply it with such information concerning the management and administration of the recognized fund as the depositary may reasonably require.

7.08 Oversight by the depositary of the manager

THE DEPOSITARY

1 It is the duty of the depositary to take reasonable care to ensure –

a. except in relation to Part 5, that the recognized fund is managed by the manager in accordance with Article 7.01.1; and

b. in relation to Part 5, that decisions about the constituents of the property of the fund do not exceed the powers conferred by that Part.

2 The depositary must satisfy itself on reasonable grounds and on a continuing basis that the manager has maintained and is maintaining sufficient records and is adopting such procedures and methods for the calculation of prices at which units are sold and repurchased to ensure that those prices are within the limits for the time being prescribed by Part 4 above.

3 If the depositary is at any time not satisfied of any matter specified in paragraph 2, it must inform the Commission.

4 The depositary, in the context of its role as such, must act solely in the interests of the unitholders.

7.09 Control by the depositary over the property of the fund

1 The depositary must take all steps and execute all documents which are necessary to secure that acquisitions, disposals and loans properly made by the manager in accordance with Section A above are completed.

2 The depositary must take into its custody or under its control all the capital property of the recognized fund and hold it in trust for the unitholders in accordance with these Rules and the constitutional documents and the depositary agreement and shall ensure that any of the property of the fund in registered form shall, as soon as practicable, be registered in the name of the depositary, or subject to Article 7.14, its nominee and that any transaction entered into for the purposes of Section K of Part 5 (Efficient Portfolio Management) is entered into in such manner as to ensure that any resulting benefit is received by the depositary and held by it as part of the property of the fund.

3 The depositary is responsible for the collection of any income due to be paid to the recognized fund and for claiming any repayment of tax, and shall hold any income received in trust for the unitholders in accordance with these Rules and the constitutional documents.

4 The depositary must keep such records as are necessary –

a. to enable it to comply with these Rules; and

b. to demonstrate that such compliance by it has been achieved.

7.10 Exercise of rights in respect of the property of the fund

1 The depositary must take all steps and execute all documents as are necessary to secure that instructions properly given to it by the manager as to the exercise of rights (including voting rights) attaching to the ownership of property of the fund are carried out.

2 The depositary may exercise (or not exercise) any right of voting conferred by any of the property of the fund which is in units or shares in other collective investment funds (or, in the case of a feeder fund dedicated to an eligible investment trust, that investment trust) managed or otherwise operated by the manager or a director or by an associate of the manager or such director respectively, but only after consultation with the manager or the directors, as the case may be.

3 The depositary must upon the written request of the manager from time to time execute and deliver or cause to be executed or delivered to the manager or the manager’s nominees such powers of attorney or proxies as the manager may reasonably require, in such name or names as the manager may request, authorizing such attorneys and proxies to vote consent or otherwise act in respect of all or any part of the property of the fund not included in paragraph 2.

4 The depositary must without undue delay forward to the manager all notices of meetings, reports, circulars, proxy solicitations and other documents of a like nature received by it as registered holder of any investment.

5 In this Article “voting” includes giving any consent to or approval of any arrangement, scheme or resolution or any alteration in or abandonment of any rights attaching to any part of the property of the fund and “right” includes a requisition or joining in a requisition to convene any meeting or to give notice of any resolution or to circulate any statement or to consent to any short notice of any meeting.

THE MANAGER, THE DIRECTORS, THE COMPANY AND THE DEPOSITARY

7.11 Duties of the manager, the directors, the company and the depositary under the law

1 Subject to paragraph 4, the duties of the manager, the directors, the company and the depositary imposed on them by these Rules and by the constitutional documents and the management agreement and depositary agreement are in addition to and not in derogation from the duties which are otherwise imposed on them by law.

2 Subject to paragraph 4, the manager, the directors, the company and the depositary are required to fulfil those other duties by these Rules as well as by law.

3 Subject to paragraph 4, the manager, directors, company and the depositary have, by virtue of these Rules, all the powers conferred on them by the general law.

4 Paragraphs 1, 2 and 3 apply only in so far as the duties imposed or powers conferred by the general law are not qualified or restricted by these Rules.

7.12 Timely performance of duties

The manager, the directors and the depositary must perform the functions and fulfil the duties conferred upon them by these Rules in a timely manner unless delay is both lawful and in the interests of the unitholders.

7.13 Duties of the manager and depositary: investment and borrowing powers

1 Subject to paragraphs 6 and 7, it is the duty of the manager –

a. to take all reasonable steps; and

b. to exercise all due diligence,

to avoid the property of the fund being used or invested contrary to any provision in Part 5.

2 It is the duty of the depositary –

a. to take all reasonable steps; and

b. to exercise all due diligence,

to exercise such degree of supervision of the manager’s operation of the recognized fund as is appropriate with a view to ensuring that the manager complies with paragraph 1.

3 The duty at paragraph 1 extends to action forthwith to be taken by the manager, at its own expense, to rectify any breach of any provision in Part 5 to which the following paragraphs do not apply.

4 Paragraph 6 below applies –

a. where the property of the fund at any time is used or invested contrary to any provision of Part 5 (other than a provision excusing a failure to comply on a temporary basis); and

b. the reason for the contravention is beyond the control of both manager and depositary.

5 Paragraph 6 also applies on or in anticipation of the arrival of a supervening transaction (such as the purchase by the recognized fund of property pursuant to a rights issue, the conversion by the recognized fund of convertible stock, or the closing out of a position which, when open, justified a then existing transaction under Section D or E of Part 5) –

a. which, but for this Article, would constitute a breach of Part 5; and

b. where it was not possible for the manager or depositary to know at the time of the earlier transaction whether there would be a subsequent breach or not.

6 In the circumstances envisaged by paragraph 4 or 5 –

a. nothing in Part 5 prevents the manager from entering into a transaction within paragraph 5 provided that it has obtained the consent of the depositary in writing; and

b. the manager must take such steps as are necessary to ensure a restoration of compliance as soon as is reasonably practicable having regard to the interests of the unitholders and, in any event, within the period specified in paragraph 8.

7 Forthwith upon the depositary becoming aware of any circumstance envisaged by paragraph 4 or 5, it must take such steps as are necessary to ensure that the manager complies with paragraph 6b.

8 Subject to paragraph 9, the maximum period for restoration of compliance under paragraph 6b starts at the date of discovery of the relevant circumstance and lasts –

a. except where b, c or d applies, for 6 months;

b. where the transaction in question was in derivatives pursuant to Section D or E of Part 5 (futures and options funds or geared futures and options funds), until the close of business 5 business days later;

c. where the transaction in question was entered into under Section K of Part 5 (efficient portfolio management) until the close of business 5 business days later; and

d. where the recognized fund is a property fund and the property in question is an immovable, for 2 years.

9 The periods at 8b and 8c (5 business days) are extended –

a. if the transaction involved a delivery of a commodity (whether perishable or not), from 5 to 20 business days; or

b. if the reason for the contravention in paragraph 4 is the inability of the manager to close out a transaction because of a limit in the number or value of transactions imposed by an eligible derivatives exchange, until 5 business days after –

(i) the inability resulting for any such limit is removed; or

(ii) it becomes, to the knowledge of the manager, reasonably practicable and reasonably prudent for the transaction to be closed out in some other way.

7.14 Delegation

1 The directors of a company may delegate to any director, or any committee consisting of one or more directors, any of the directors’ powers or duties, but the directors shall remain responsible for the acts or omissions of any such director or committee as if they were acts or omissions of the directors.

2 The manager or the directors may delegate any function to any person, including the depositary.

3 Subject to paragraphs 4 and 5, the depositary may delegate any function to any person, including the manager and any director of the recognized fund.

4 The depositary may not delegate to the manager, or a director or the company, in the case of a recognized fund which is a company –

a. any function of oversight in respect of the manager, any of those directors or that company; or

b. any function of custody or control of the property of the fund,

nor may the depositary delegate any function in a. to an associate of the manager, or of any of those directors or of the company.

5 The depositary may not delegate to anyone the function of being a custodian of documents of title or documents evidencing title to property of the fund unless the arrangements with the custodian prevent the custodian from releasing the documents into the possession of a third party without the consent of the depositary.

6 If –

a. the manager delegates, or causes to be delegated, any function concerning the management of the property of the fund;

b. the manager or the directors delegate or cause to be delegated any of their respective functions to the depositary or to an associate of any of them or of the depositary; or

c. the depositary delegates any function to the manager or any of the directors of the recognized fund or to an associate of its own or of the manager or any such director,

then in the case of a., the manager and in the case of b., the manager or the directors and in the case of c., the depositary, remains responsible, even though it could have satisfied the conditions in paragraph 7, for the acts or omissions of the delegate as if they were the acts or omissions of the manager, or of the directors or of the depositary, as the case may be.

7 In the case of any delegation by the manager, the directors or the depositary to which paragraph 1 or 6 does not apply, the manager, the directors or the depositary, as the case may be, are not responsible by virtue of these Rules for any act or omission of the delegate if the manager, directors or depositary can show –

a. that it was reasonable for an agent to be employed for the function in question;

b. that it was reasonable for the manager, directors or depositary to believe that the agent was and remained competent to undertake the function in question; and

c. that the manager, directors or depositary, as the case may be, had taken reasonable care to ensure that the function in question was undertaken by the agent in a competent manner.

8 Paragraphs 1, 2 and 3 are subject to any restriction in the constitutional documents and the management agreement and depositary agreement.

7.15 Conflicts of interest etc.

1 The manager, the directors and the depositary must respectively take all reasonable steps to ensure that there is no breach of any of the following requirements in this Article by any “affected person”, that is to say, as the case may be, –

a. the manager;

b. the company;

c. the directors;

d. the depositary;

e. any investment adviser; and

f. any associate of any person in a., b., c., d. or e.

2 Cash forming part of the property of the fund or standing to the credit of the distribution account may be placed in any current, deposit or loan account with an affected person only if the person is an eligible institution and the arms length requirement in paragraph 9 is satisfied.

3 An affected person may lend money to the recognized fund only if the person is an eligible institution, and the arm’s length requirement in paragraph 9 is satisfied.

4 An affected person may not sell or deal in the sale of property to a recognized fund, if it is a company, or to the depositary for the account of the recognized fund unless paragraph 10 applies and for the purpose of this paragraph a sale shall include any lease or other transaction under which movable or immovable property is made available by the recognized fund.

5 An affected person may not vest property in the depositary or the company, against the issue of units in the recognized fund, unless upon a unitization or unless paragraph 10 applies.

6 An affected person may not purchase property from the recognized fund or the depositary acting for the account of the recognized fund unless Article 4.27 applies (in specie cancellation or repurchase) or unless paragraph 10 applies and for the purpose of this paragraph a sale shall include any lease or other transaction under which movable or immovable property is made available by the recognized fund.

7 An affected person may not enter into transactions within Section L of Part 5 (stocklending) in relation to the recognized fund unless the arm’s length requirement in paragraph 9 is satisfied.

8 An affected person within paragraph 1f above may not provide services for the recognized fund unless the depositary has reliable evidence that the services are provided on terms which satisfy the arm’s length requirement in paragraph 9.

9 The arm’s length requirement is that the arrangements are at least as favourable to the recognized fund as would be those of any comparable arrangement effected on normal commercial terms negotiated at arm’s length between 2 independent parties.

10 There is no breach of paragraphs 4, 5 or 6 if paragraph 11 (best execution on exchange) or paragraph 12 (independent valuation) or paragraph 13 (arm’s length transaction) applies.

11 There is best execution on exchange for the purposes of paragraph 10 if –

a. the property is an approved security or an approved derivative;

b. the transaction is effected with or through a member of the relevant exchange under the rules of that exchange;

c. there is evidence in writing of the effecting of the transaction and of its terms; and

d. the manager has taken all reasonable steps to effect the transaction or to ensure that it is effected on the terms which are the best available for the recognized fund in the circumstances.

12 There is independent valuation for the purposes of paragraph 10 if –

a. the value of the property is certified in writing for the purpose of that transaction by a person selected or approved by the depositary as –

(i) independent of any affected person, and

(ii) qualified to value property of the relevant kind; and

b. the depositary is of the opinion that the terms of the transaction are not likely to result in any material prejudice to unitholders.

13 There is an arm’s length transaction for the purposes of paragraph 10 if –

a. paragraph 11a is not satisfied;

b. it is not reasonably practicable to obtain an independent valuation under paragraph 12; and

c. the depositary has reliable evidence that the transaction is or will be on terms which satisfy the arm’s length requirement in paragraph 9.

14 Paragraphs 2-8 are subject to any provision in the constitutional documents or management agreement or depositary agreement forbidding the taking of advantage of all or any of them.

15 Nothing in this Article shall prevent the issue of units by the recognized fund to the manager or the cancellation by the recognized fund of units held by or belonging to the manager in accordance, in either case, with the relevant provisions of Part 4.

NEW MANAGERS AND DEPOSITARIES

7.16 Replacement of manager

1 Subject to Article 2.10, the manager for the time being shall be subject to removal by notice in writing given by the directors or the depositary to the manager in any of the following events –

a. a resolution or court order to wind-up the manager is adopted or is made (except in the case of a summary winding-up for the purpose of reconstruction or amalgamation upon terms previously approved in writing by the depositary) or the manager becomes bankrupt in any other manner specified in Article 8 of the Interpretation (Jersey) Law 1954; or

b. the manager commits, makes, suffers, consents to or acquiesces in any other act or omission indicative of insolvency under the law of any jurisdiction;

c. for good and sufficient reason the directors or the depositary are of the opinion and so state in writing that a change of manager is desirable in the interest of the unitholders;

d. an extraordinary resolution is passed removing the manager (or to determine that the manager be removed as soon as this is permitted by law);

e. the holders of 2/3 majority in value of the units of the relevant pool or pools in existence (excluding units held or deemed to be held by the manager or by any associate of the manager) make a request in writing to the directors or the depositary that the manager be removed; or

f. the manager ceases to hold a permit under the Law.

2 On receipt of a notice given by the directors or depositary under paragraph 1 the manager shall cease to be the manager; and the directors or the depositary shall by instrument appoint some other person eligible under these Rules and acceptable to the Commission to be the manager of the recognized fund upon and subject to that other person’s entering into such instruments or agreements and executing such other documents as the directors or depositary and the Commission may require.

3 If the name of the recognized fund contains a reference to the name of the former manager, the former manager shall be entitled to require the new manager and the depositary forthwith to propose a change in the name of the recognized fund.

7.17 Retirement of manager

1 Subject to Article 2.10, the manager shall have the right to retire in favour of some other person eligible under these Rules, acceptable to the Commission and approved in writing by the depositary upon and subject to fulfilment of the following conditions –

a. the retiring manager appointing in writing such a person as manager of the recognized fund in its place and novating and assigning to such appointee all its rights and duties as such a manager; and

b. the new manager entering into such agreements and executing such documents as the depositary may be advised is necessary or desirable to be entered into by that person in order to secure the due performance of its duties as a manager.

2 Upon retirement, the retiring manager –

a. is absolved and released from all further obligations under these Rules and under the constitutional documents but without prejudice to the rights of the depositary or the company or of any unitholder or any other person in respect of any act or omission on the part of the retiring manager prior to such retirement; and

b. may retain for its own benefit, and without having to account therefore to the unitholders or any of them, any consideration paid to it in connection with the change of manager.

3 Upon the retirement of the retiring manager, the new manager may exercise all the powers and enjoy all the rights and shall be subject to all the duties and obligations of the manager under these Rules and under the constitutional documents and management agreement or depositary agreement as fully as if it had originally been a party to the constitutional documents or management agreement or depositary agreement or had been appointed as the original manager of the recognized fund.

7.18 Supplementary

1 Upon the removal or retirement of the manager, the removed or retiring manager –

a. remains entitled to all units held or deemed to be held by it;

b. may require the issue to it of a certificate or certificates in respect thereof (if certificates are currently issued);

c. is to be registered in the register in respect thereof; and

d. thereafter has and may exercise all rights of a unitholder.

7.19 Retirement and replacement of the depositary

1 The depositary may not retire voluntarily except upon the appointment of a new depositary.

2 In the event that the depositary –

a. desires to retire;

b. a resolution or court order to wind-up the depositary is adopted or made (except in the case of a summary winding-up for the purpose of reconstruction or amalgamation upon terms previously approved in writing by the manager and by the directors, in the case of a recognized fund which is a company) or the depositary becomes bankrupt in any other manner specified in Article 8 of the Interpretation (Jersey) Law 1954;

c. the depositary commits, makes, suffers, consents to or acquiesces in any other act or omission indicative of insolvency under the law of any jurisdiction;

d. for good and sufficient reason the directors are of the opinion and so state in writing that a change of depositary is desirable in the interests of the unitholders;

e. an extraordinary resolution is passed removing the depositary (or to determine that the depositary be removed as soon as this is permitted by law); or

f. the depositary ceases to hold a permit under the Law,

then in the case of unit trust, the manager may, and in the case of a company, the directors may, subject to Article 2.10 of these Rules, by instrument supplemental to the constitutional documents or by agreement, as the case may be, appoint another person eligible under these Rules to be the depositary in its place on terms which are acceptable to the Commission.

PART 8

CHARGES AND EXPENSES

8.01 Payments by the recognized fund to the manager

1 No payment may be made or benefit given to the manager (whether as such or in any other capacity) out of the property of the pool by way of remuneration for its services, reimbursement of expenses or otherwise, unless the prospectus specifies each type of payment or benefit that may be made or given, each type of expense that may be so reimbursed and in the case of each category of remuneration (or remuneration related to a class of unit), specifies –

a. how it will be calculated and accrue and when it will be paid; and

b. the maximum and current rates or amount of such remuneration.

8.02 Preliminary charge

1 If the prospectus so permits, the manager may make a charge (“preliminary charge”) upon the sale of units by the manager whether acting as principal or not and that charge may be expressed either as a fixed amount, or calculated as a percentage of the creation price.

2 The manager shall not make any charge or levy in connection with the sale of units of any class except that referred to at paragraph 1 and, in the case of a recognized fund which has adopted a single pricing basis, a dilution levy in accordance with Article 4.25.

3 Where paragraph 1 permits the manager to include a preliminary charge, the amount which the manager may include shall not exceed the amount stated in the prospectus as the current charge.

4 Paragraph 1 does not apply on an exchange of units within an umbrella fund but nothing in this Article shall prevent the manager from making a charge on such an exchange in accordance with Article 8.08.

8.03 Increase in remuneration or preliminary charge

The manager may not rely on any introduction of a new category of remuneration for its services or any increase in the current rate or amount of its remuneration payable out of the property of the fund up to or towards any maximum stated in the prospectus or any introduction of or increase in the preliminary charge payable under Article 8.02, unless not less than 90 days before the introduction or increase –

a. the manager gave notice in writing of that introduction or increase and of the date of its commencement (in the case of remuneration payable out of the property of the fund to all unitholders or (in the case of preliminary charge) to all the persons who ought reasonably to be known to it to have made an arrangement for the purchase of units at regular intervals; and

b. the manager has revised the prospectus to reflect the introduction or new current rate or amount of remuneration or preliminary charge and the date of its commencement and has made the revised prospectus available.

8.04 Other payments out of the property of the recognized fund

1 No payments may be made or benefit given out of the property of the fund, other than under Article 8.01 and any sums due by virtue of any other Article in these Rules, unless the obligation to make such payment or give such benefit has been incurred by or for the account of the fund and the prospectus specifies each type of payment or benefit that may be made or given.

2 Paragraph 3 applies where the property of a body corporate (such as an investment trust) or of another collective investment fund is transferred to the depositary in consideration of the creation of units in the recognized fund to shareholders in that body or to participants in that other fund.

3 In such a case the depositary as the successor in title to the other property may pay out of the property of the fund any liability arising after the transfer which, had it arisen before the transfer, could properly have been paid out of that other property, but it may pay only if –

a. there is nothing in the constitutional documents expressly forbidding the payment; and

b. the depositary 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.

8.05 Exemption from liability to account for profits

1 The manager is not liable to account to the depositary or the unitholders or any of them for the amount of any charge properly taken in accordance with these Rules.

2 The depositary is not liable to account to the manager or the unitholders or any of them for the amount of any remuneration (or expenses) properly paid to the depositary in pursuance of these Rules.

3 Where the manager has disclosed prominently in the prospectus a statement that the manager or another specified affected person is under no obligation to account to the depositary or to the unitholders or any of them for any profit he or she makes on the sale of units, or on the re-sale or cancellation of units which he or she has repurchased, that person is not liable to account to the depositary or to the unitholders or any of them for any such profit made since the disclosure.

4 A person who is an affected person within Article 7.15.1 is not liable to account either to another such affected person or to the unitholders or any of them for any benefits or profits made or derived from or in connection with –

a. the person’s acting as agent for either or both of the depositary and the manager in the sale or purchase of property to or from the depositary for the account of the recognized fund;

b. the person’s part in any transaction or the supply of services permitted by Article 7.15; or

c. the person’s dealing in property equivalent to any owned by (or dealt in for the account of) the recognized fund.

8.06 Allocation of payments to capital or to income

1 Any payments under this Part (except as provided under paragraph 2 below) shall be made from the income account of the pool in the first instance.

2 Any broker’s commission, fiscal charges and other disbursements which are necessary to be incurred in effecting transactions for the recognized fund, and normally shown in contract notes, confirmation notes or difference accounts as appropriate may be charged to the capital account; and any interest on borrowings and charges incurred in effecting, terminating, negotiating or varying the terms of borrowings and taxation and duties payable on respect of or property of the pool and costs of the types described in Article 8.12 shall be made from the capital account or the income account, as the trustee, or directors, reasonably believe appropriate.

3 Following a payment made from the income account under paragraph 1 or 2, a transfer of the debit item from the income account to the capital account may be made if the expense is considered to be capital in nature.

4 Where it is clear from the prospectus that the pool is designed –

a. to concentrate on the generation of income as a higher priority than on capital growth; or

b. to place an equal emphasis on the generation of income and on capital growth,

the manager and the depositary (and in the case of a company if it is also acceptable to the directors), may agree that all or any part of the remuneration of the manager permitted by Article 8.01 is to be treated as a capital charge, and a transfer of the relevant debit item may be made from the income account to the capital account.

5 Following (or if in the view of the trustee or company it is necessary to do so in advance to enable) a payment made (or to be made) from the income account under paragraph 1 or 2, a transfer of credit to the income account from the capital account may be made if it appears to the trustee or company that there is insufficient income in the income account to meet payments made (or to be made), provided that the credit is re-transferred as soon as sufficient amounts are available in the income account in respect of the same annual accounting period.

6 Where, in respect of any annual accounting period, taken as a whole, the amount of income received or receivable is less than the net amount of payments made from the income account, the shortfall shall, as from the end of that period, be charged to the capital account and shall not thereafter be transferred to the income account.

8.07 Charges on repurchase

1 If the prospectus so permits, the manager may make a charge (the “repurchase charge”) upon the repurchase or cancellation of units by the manager, whether acting as agent or principal, and the amount payable on repurchase or cancellation may be arrived at after deduction of the charge for the benefit of the manager, and that charge may be expressed either as a fixed amount, or calculated as a percentage of the proceeds of repurchase which would otherwise have been payable.

2 The amount or percentage of the repurchase charge may be expressed as diminishing over the time during which the unitholder has held the units, but may not be expressed as liable to vary in any other respect.

3 Where the manager is permitted to make a repurchase charge the amount shall not exceed the amount that would be derived by applying the rate or method prescribed in the prospectus at the date on which the relevant units were sold.

4 Where the prospectus of a recognized fund, whenever made available, is modified so as to include a repurchase charge the modification must be expressed so as to apply only to units created or sold after the date on which the modification takes effect.

5 A change in the rate or method of the repurchase charge which is adverse to unitholders seeking to have their units cancelled or repurchased must be limited so as to apply only to units which have been created or sold (whether at the request of the current unitholder or otherwise) after the date on which the modification takes effect.

6 The manager may not rely on any change in the rate or method of the repurchase charge, unless –

a. the manager has given notice in writing of that increase and of the date of its commencement to the depositary and to all the persons who ought reasonably to be known to the manager to have made an arrangement for the purchase of units at regular intervals;

b. the manager has revised the prospectus to reflect the new rate or method and the date of its commencement; and

c. 90 days have elapsed since the revised scheme particulars became available.

7 If a prospectus contains a statement relating to the amount, or the calculation of the amount, of a repurchase charge, it shall also contain a statement as to the determination of the order in which units, which have been acquired at different times by a unitholder, are to be taken to be repurchased or cancelled for the purpose of the imposition of the repurchase charge.

8.08 Exchange of units in umbrella funds

1 In the case of an umbrella fund, the manager may make a charge on an exchange of units in one constituent part for units in an other constituent part but the charge shall not exceed the aggregate of –

a. any excess of the amount of the preliminary charge that would be applicable to a sale of the units being acquired (by reference to the current preliminary charge stated in the most recently published prospectus) over the preliminary charge actually paid on the original acquisition of the units being repurchased; and

b. the amount of any fee payable on switching specified in that prospectus.

2 The manager may not make a charge in excess of the fee referred to in paragraph 1(b), unless the prospectus contains a statement as to the determination of the order in which units which have been acquired at different times by a unitholder are to be taken to be repurchased or cancelled is to be determined in so far as necessary for calculating the maximum charge for an exchange of units in one constituent part for units in another constituent part.

8. 09 Restricted payments

No payment or benefit, other than a payment or benefit to the manager not prohibited by these Rules, may be made out of or given at the expense of the property of the fund to any person in consideration of that person acquiring (whether directly, indirectly, absolutely or conditionally) or promoting the sale of, or agreeing so to acquire or promote the sale of, units in the recognized fund.

8.10 Performance fees

No payment may be made out of the property of the fund and no repurchase charge may be made if the amount or frequency of the payment or the amount of the repurchase charge is intended to depend upon fluctuations in the value of the property of the fund or the income attributable thereto or in the price of a unit of any class as compared with fluctuations in the value or price of property of any description or in an index or other factor designated for the purpose.

8.11 Movable and immovable property

A recognized fund shall not incur any expense for the use of any movable or immovable property except to the extent that such property is necessary for the direct pursuit of its business.

8.12 Amortization

Without prejudice to Article 8.09, costs of the authorization and formation of a recognized fund and of its initial offer or sale of units (or initial offer or sale of units in respect of a constituent part) may be amortized over a period not exceeding 10 years.

8.13 Tax

The restrictions contained in this Part shall not affect any liability for any value added or similar tax related to a charge or expense, but any notice given in accordance with this Part and any statement in a prospectus relating to any charge or expense payable out of the property of the fund or by any unitholder or potential unitholder shall, if the person liable for the charge or expense may also be liable for such tax, contain a statement to this effect.

PART 9

INCOME

9.01 Accounting periods

1 A recognized fund must have an annual and a half-yearly accounting period, and this Article determines what they are.

2 A recognized fund must also have an accounting reference date, which is the date in any year stated in the most recently published prospectus as the date on which the recognized fund’s annual accounting period is to end.

3 The first annual accounting period shall, subject to the Company Law, begin –

a. where the recognized fund is the subject of an initial offer, on the first day of the period of the initial offer; or

b. in any other case, when the recognized fund is granted a recognized fund certificate,

and each subsequent period shall begin immediately after the end of the one before.

4 Each annual accounting period shall end either at the end of the day arrived at under paragraph 5 or, if the manager prefers, at the valuation point last preceding the end of that day.

5 The day for paragraph 4 is –

a. the next accounting reference date after the beginning of the period in question; or

b. if that period is the first period or a period in the course of which a change in the accounting reference date takes place, and the next accounting reference date in either case is less than 6 months after the beginning of the period, and the manager after consulting the auditor so determines, the next but one accounting reference date.

6 A half-yearly accounting period is a period beginning with the first day of an annual accounting period and ending on the day which is –

a. 6 months before the next accounting reference date; or

b. if the next accounting reference date is less than 6 months after that first day, 6 months before the next accounting reference date but one after that first day.

7 The manager may, with the agreement of the depositary, elect that a particular annual or half-yearly accounting period shall end on a day which is not more than 7 days after and not more than 7 days before the day on which the period would otherwise end.

9.02 Annual income allocation date

1 A recognized fund, other than a recognized fund consisting only of roll-up units, must have an annual income allocation date, which is the date in any year stated in the most recently published prospectus as the date on or before which, in respect of each annual accounting period, an allocation of income is to be made.

2 The annual income allocation date must be a date within 4 months after the relevant accounting reference date.

9.03 Annual allocation of income

1 Other than in relation to a pool consisting only of roll-up units, at the end of each annual accounting period, the trustee or the directors shall arrange for the manager to transfer in the books of the recognized fund the income property attributable to the pool to an account to be known as the “distribution account” and the amounts transferred shall be placed on deposit for an appropriate period which allows for any distribution payments to be made.

2 The trustee or the directors, as the case may be, are not obliged to comply with paragraph 1 if it appears to them, having consulted the manager, that the average payment to the unitholders (disregarding unitholders of bearer certificates, unitholders of accumulation units, and unitholders who are the manager or the depositary or associates of either of them) by way of income would be less than £5.00 (or the equivalent amount in the base currency).

3 Where the trustee or the directors decide under paragraph 2 not to distribute income, they must so inform the manager who must then immediately arrange either –

a. to carry the income forward to the next annual accounting period (and to regard it as received at the start of that period); or

b. to credit the income to the capital account.

4 On or before each annual income allocation date the manager shall calculate under paragraph 5 the amount available for income allocation in respect of the immediately preceding annual accounting period, and the manager shall inform the trustee or directors of that amount.

5 The calculation of available income is as follows –

a. take the aggregate of the income property received or receivable by the depositary or otherwise for the account of the pool in respect of the period;

b. deduct the aggregate of the charges, fees, expenses and other payments properly paid or payable in respect of the period in accordance with Article 8.06.1 (payments out of income);

c. add the manager’s best estimate of any relief from tax on such charges and expenses;

d. make such other adjustments as the manager considers appropriate (in the case of paragraphs (i) and (ii) below, after consulting the auditors) in relation to –

(i) taxation,

(ii) the proportion of the price received or paid for units that is related to income (taking account of any provisions in the constitutional documents relating to income equalization),

(iii) potential income which is unlikely to be received until 12 months after the income allocation date,

(iv) income which should not be accounted for on an accrual basis because of lack of information about how it accrues, and

(v) any transfer between income and capital account under Article 8.06; and

e. make any other adjustments (including for amortization under Article 8.12) that the manager considers appropriate after consulting the auditors.

6 On or before the annual income allocation date, the manager shall allocate the available income to the units of each class in existence taking account of the provisions of its constitutional documents relating to the proportion of available income attributable to each class. This Article does not apply to any roll-up units.

9.04 Annual allocation to accumulation units

1 The amount of income allocated to accumulation units shall, with effect from the end of the annual accounting period, become part of the capital property and the interests of the unitholders in that amount shall be satisfied by an adjustment, as at the end of the period, in the proportion of the value of the property of the pool to which the price of a unit of the relevant class is related.

2 The adjustment under paragraph 1 shall be such as will ensure that the price of an accumulation unit of the relevant class remains unchanged notwithstanding the transfer of the income to the capital property.

9.05 Annual distribution to unitholders of income units

1 Subject to paragraph 2, where the units in existence in a pool are or include income units, on or before each annual income allocation date the manager shall give the depositary timely instructions sufficient to enable the distribution of the income allocated to those units among the unitholders and the manager rateably in accordance with the number of such units held or deemed to be held by them respectively at the end of the relevant annual accounting period and the depositary shall pay the distribution in accordance with the instructions.

2 Before distributing income under paragraph 1, there shall be –

a. deducted any amounts previously allocated by way of interim allocation of income in respect of that annual accounting period; and

b. deducted and carried forward in the income account such amount as the manager and the directors may from time to time determine.

3 Nothing in this Part of these Rules requires the distribution of income allocated to any units in any case where the manager or the depositary considers it necessary or appropriate to carry out or complete identification procedures in relation to the unitholder or another person pursuant to a statutory, regulatory or other legal obligation.

9.06 Interim allocations of income

1 This Article applies if at any time the most recently published prospectus –

a. states that an allocation of income may be made before the annual income allocation date in any year in respect of a period (“an interim accounting period”) within the annual accounting period; and

b. specifies a date as the interim income allocation date in relation to that interim accounting period.

2 In such a case, Articles 9.03 to 9.05 shall apply so as to secure the making of an interim allocation of income as if –

a. the interim accounting period in question and all previous interim accounting periods in the same annual accounting period taken together, were the annual accounting period;

b. the interim income allocation date were the annual income allocation date; and

c. the manager and the company were to treat as the available amount of income for the interim allocation a sum in the manager’s or their opinion, as the case may be, not exceeding the amount which would be available for allocation of income if the interim accounting period and all previous interim accounting periods in the same annual accounting period taken together were an annual accounting period.

9.07 Income equalization

The constitutional documents may provide that an allocation of income (whether annual or interim) to be made in relation to any class of units in respect of each unit created or sold during the accounting period in respect of which that income allocation is made shall include a capital sum (“income equalization”).

9.08 How distributions may be made

1 Any monies payable by the depositary to a unitholder in respect of any unit, the title to which is for the time being represented by a bearer certificate, may be paid by crossed cheque or warrant made payable to the person who, in such manner as is prescribed in the constitutional documents, has identified himself or herself to the depositary as the person entitled to that distribution and may be sent by post to such address as that person shall have disclosed to the depositary for that purpose.

2 Any monies payable by the depositary to the manager or to a registered unitholder in respect of any unit may be paid –

(i) by crossed cheque or other means including directly to the registered unitholder’s bank account and when sent through the post to the registered address of such unitholder or the first named of joint unitholders, as the case may be; or

(ii) by payment to the bank or other agent nominated in writing by the manager or unitholder or all of the joint unitholders, as the case may be, by means of the electronic transfer of funds or otherwise.

3 The payment of any cheque to the first named of joint unitholders shall be as effective a discharge to the person making the payment as if such first named joint unitholder had been a sole unitholder.

4 Every such cheque which is so sent or electronic or other payment which is so made shall be a satisfaction of the monies payable and shall be a good discharge to the person making the payment.

5 Where the depositary holds an authority in writing given by the unitholder (or in the case of joint unitholders by all of them) which has been accepted by the trustee or company and is in such form and on such terms as the depositary shall consider sufficient he or she shall pay the amount payable in accordance with that authority and any payment so made shall be a good discharge to the depositary.

6 Any distribution payment which shall remain unclaimed after a period of 10 years from the date of payment shall then be transferred to and become part of the capital property and thenceforth neither the payee nor the unitholder nor any successor in title of his or her shall have any right thereto or therein.

9.09 Distribution statements and tax certificates

1 On or before each income allocation date (whether annual or interim) the depositary shall send to each unitholder (or to the first named of joint unitholders) entered in the register as at the end of the accounting period in question and shall on request give or send to every unitholder of units the title to which is represented by a bearer certificate –

a. a statement prepared by the manager showing the calculation of the amount to which the unitholder is entitled, whether or not the income is distributed to the unitholder or allocated to accumulation units and, where applicable, a statement of how much of the amount to which the unitholder is entitled represents income equalization; and

b. if the manager so decides, a statement prepared by the manager identifying the sources of income attributable to the unitholders and the amount of tax, if any, withheld from, or accountable in respect of, such amount.

2 In the case of any distribution on liquidation or dissolution of the pool, any statement given in accordance with paragraph 1 shall show what proportion of the distribution represents capital and what proportion represents income.

3 Paragraph 1b does not prevent the sending of a single tax certificate at least once in every annual accounting period.

4 This Article does not apply in relation to the unitholders of roll-up units.

PART 10

REPORTS

10.01 Annual and half-yearly reports

1 The manager of a unit trust, or the directors of a company, as the case may be, shall, in relation to each annual and half-yearly accounting period, prepare a report stating the matters set out in Part 1 of Schedule 3 below in respect of the 12 months (or 6 months) concerned and otherwise complying with the following requirements of this Article:

Half-yearly reports need not be prepared in relation to the first half-yearly accounting period if the first annual accounting period is a period of less than 12 months.

2 A report which relates to an annual accounting period shall contain –

a. a comparative table relating to that period stating the matters set out in Part 3 of Schedule 3 below;

b. a copy of a report of the auditor to the unitholders on the accounts contained in the report stating the matters set out in Part 4 (or in the case of short form accounts, Part 5) of Schedule 3 below; and

c. a copy of a report of the depositary to the unitholders stating the matters set out in Part 6 of Schedule 3 below and supplied to the manager or directors by the depositary in accordance with Article 10.05 below.

3 A report which relates to any accounting period shall contain the accounts of the recognized fund for the period to which the report relates which shall, subject to these Rules, include –

a. a balance sheet stating the matters set out in Part 7 of Schedule 3;

b. a statement of total return stating the matters set out in Part 8 of Schedule 3;

c. a portfolio statement stating the matters set out in Part 9 of Schedule 3;

d. a statement of movement in unitholder’s funds stating the matters set out in Part 10 of Schedule 3; and

e. notes to the accounts stating the matters set out in Part 11 of Schedule 3,

and shall be prepared in accordance with generally accepted accounting principles and shall give a true and fair view of the financial position of the recognized fund as at the end of period to which the accounts relate.

4 A report of an umbrella fund shall contain –

a. reports relating to each of its constituent parts which shall each, so far as practicable, contain the accounts and the information that would be required by paragraphs 1, 2a and 3 if the constituent part were a separate recognized fund; and

b. except insofar as contained in a report relating to a constituent part in accordance with that paragraph –

(i) the information referred to in paragraphs 1 and 2a, and

(ii) the copy reports relating to the recognized fund referred to in paragraphs 2b. and 2c.

5 A report relating to a constituent part which is not contained in a report under paragraph 4 shall contain –

a. so far as practicable the accounts and information that would be required by paragraphs 1, 2a. and 3 if the constituent part were a separate recognized fund;

b. the statements required by paragraph 13 of Part 1 of Schedule 3; and

c. the copy reports relating to the recognized fund referred to in paragraphs 2b. and 2c.

6 The manager, or the directors, shall ensure that the full accounts for an annual accounting period give a true and fair view of the net income and the net gains or losses on the property of the fund and each constituent part for that accounting period and the financial position of the recognized fund or constituent part as at the end of that period.

7 A report which relates to any accounting period shall be signed by 2 directors of the manager or, if the manager has only one director, by that director or, if the recognized fund is a company, in accordance with the Company Law.

10.02 Publication of manager’s or directors’ reports

1 The manager shall within 4 months after the end of each annual accounting period and within 2 months after the end of the half-yearly accounting period, publish the manager’s or directors’ annual and half-yearly report respectively in accordance with paragraphs 2 and 3 below.

2 The manager shall send a copy of the report free of charge to each unitholder (or to the first named of joint unitholders) entered in or entitled to be entered in the register at the close of business on the last day of the relevant accounting period (or, if the report relates to a half-yearly accounting period for which no interim allocation of income is made, as at the last day of that period) and shall supply free of charge a copy of the report to each unitholder of bearer units on request by the unitholder.

3 In the case of an umbrella fund, if the manager and trustee, or in the case of a company, its directors, so determine for any accounting period, the reports sent to unitholders in accordance with paragraph 2 may be the reports complying with Article 10.01.5 relating to the respective constituent part to which their unitholdings relate, but if requested to do so by any unitholder in respect of any particular accounting period, the manager shall send or supply to that unitholder (or in the case of joint unitholders, the first named), a report complying with Article 10.01.4.

4 The manager and the depositary shall make the most recent annual report and the most recent half-yearly report (unless it has been superseded by an annual report) available in English for inspection by the public free of charge at each place specified for the purpose in the most recently published prospectus during ordinary office hours.

5 The manager shall send a copy of each annual and half-yearly report and any report containing short form accounts on publication to the Commission.

10.03 Annual and half-yearly reports to be offered to purchasers of units

1 Subject to paragraph 2, the manager shall not effect any sale of units in the fund to any person until it has offered that person free of charge a copy of the most recent annual report of the manager in the case of a unit trust, or in the case of a company of the directors, and the most recent half-yearly report of the manager, or of the directors as the case may be, (unless it has been superseded by an annual report) in English.

2 Paragraph 1 does not apply where the sale is effected otherwise than in the course of a conversation conducted face to face or by telephone, but the manager must send free of charge a copy of the documents mentioned there to the purchaser if the purchaser asks for them.

10.04 Manager to publish daily statement of availability of reports, etc.

1 The manager shall, with every publication of prices under Article 4.23, publish a statement that the most recent report of the manager, or of the directors, and the prospectus are available free of charge to anyone who applies to the manager for them.

2 Paragraph 1 is sufficiently complied with if one of the pages of the newspaper in which managers publish prices carries the statement there required in relation to all the recognized funds referred to in those pages.

10.05 Annual Report by the depositary

1 It shall be the duty of the depositary to enquire into the conduct of the manager, or in the case of a company the manager and the directors, in the management of the recognized fund in each annual accounting period and to report thereon to the unitholders.

2 The depositary’s report shall contain the matters set out in Part 6 of Schedule 3 below and shall be delivered to the manager, or in the case of a company the directors, in good time to enable its inclusion in the annual report of the manager, or of the directors, to be published within 4 months after the end of the annual accounting period.

10.06 Short form accounts in reports

1 If the manager so determines the accounts to be included in a report sent to or supplied to each unitholder in accordance with Article 10.02.2 or 10.02.3 may be short form accounts except to the extent that, in respect of any particular accounting period, a unitholder (or in the case of joint unitholders, the first named) has requested that a report containing the full accounts referred to in Article 10.01.3 or 10.01.4 be sent or supplied to the unitholder.

2 Short form accounts must comply with the relevant requirements of Part 2 of Schedule 3.

PART 11

MEETINGS AND MODIFICATIONS

11.01 Introduction

This Part in its application is made subject to Article 2.10 (Alteration of funds, etc.,) and is made subject to applicable law, the provisions of which shall, in relation to a company apply to, and in the case of any conflict shall replace, any provisions of this Part.

11.02 Modification of the constitutional documents: with meeting

1 A modification may be made to the constitutional documents only by amendment thereto following –

a. the calling of a meeting of unitholders by notice (if required under paragraph 2); and

b. the approval of the unitholders (if required under paragraph 3).

2 The calling of a meeting is necessary unless the manager and the trustees, or directors in the case of a company, have agreed that the modification is one which may, in accordance with Article 11.03 below, be made without the approval of a resolution.

3 The approval of the unitholders (signified by the passing at the meeting of an extraordinary resolution (or by special resolution if applicable law so provides) authorizing the modification) is required in any case where a meeting of unitholders has to be called.

4 If a meeting is required under paragraph 2, the notice calling the meeting must state that the trustees, or directors, have reviewed the circumstances leading to the proposed resolution and considers that the information accompanying the notice contains sufficient information to enable unitholders to make an informed decision.

11.03 Modification of the constitutional documents: without meeting

1 Subject to paragraph 2 and to any restriction on the powers to modify which may be contained in the constitutional documents, a modification to the constitutional documents may be made without the approval of a resolution of the unitholders if it is required solely –

a. to implement any change in the law, including a change brought about by an amendment of these Rules;

b. as a direct consequence of any such change in the law;

c. to change the name of the recognized fund or of a constituent part of an umbrella fund;

d. to remove from the constitutional documents obsolete provisions;

e. to replace the manager or the depositary when he or she has been removed or wishes to retire or has retired;

f. to remove references to a constituent part of an umbrella fund, following the approval of the Commission under Article 2.10 of these Rules to a proposal to alter the recognized fund by removing that constituent part;

g. by virtue of Article 16.03 (transitional: constitutional documents etc.);

h. to make any other modification which the depositary and the manager have agreed in writing, or in the case of a company the directors consider, does not involve any unitholders or potential unitholders in any material prejudice; or

i. solely to reflect the introduction of a new constituent part.

2 A modification is not within paragraph 1 if it would affect any express restriction imposed by the constitutional documents on the powers which the manager and depositary or either of them would otherwise be able to exercise within these Rules.

11.04 Resolution to change the prospectus

1 Any change to, or introduction of, any of the following provisions of the prospectus –

a. investment policy or set of investment objectives in the prospectus of the kind referred to at Article 11.14.2b. and paragraph 9 of Schedule 2;

b. manner of calculation, accrual and payment of the manager’s remuneration of the kind referred to at paragraph 14 of Schedule 2, except if it is a change of minimal significance;

c. details of any other payments of the kind referred to at paragraph 17 of Schedule 2 that may be taken out of the property of the fund; or

d. the policy on dilution levy referred to at paragraph 15 of Schedule 2,

shall not be made without an ordinary resolution, and no significant departure shall be made thereto unless and until the departure has been approved by an ordinary resolution at a meeting of unitholders called for the purpose, and a prospectus amended accordingly has been published.

2 Except where approved by an extraordinary resolution at a meeting of unitholders called for the purpose, any change to, or introduction of, any of the following provisions to the prospectus relating to a proposal to –

a. change the maximum rate or amount of the manager’s remuneration (other than a decrease) of the kind referred to at paragraph 14a. of Schedule 2 may not be made; and

b. treat all or any part of the manager’s periodic charge as a capital charge, may not be made; but this prohibition does not apply where –

(i) the pool concerned already has clear investment objectives indicating –

a. greater preference for the generation of income than for capital growth, or

b. equal emphasis on the generation of income and on capital growth, and

(ii) 90 days have elapsed since the unitholders were notified in writing by the manager of the change to the prospectus and of the date when it is to come into effect.

3 Any amendment to the prospectus to introduce a list, or to add an eligible market to the list, required by paragraph 10 of Schedule 2 (list of eligible markets) shall require approval of an ordinary resolution at a meeting of unitholders unless –

a. the amendment is, in the context of the investment strategy of the pool, of minimal significance only, and the depositary and the manager have so agreed in writing; or

b. the manager has –

(i) given notice in writing of the intended amendment to the depositary and the unitholders,

(ii) included in the prospectus the proposed date of commencement of the amendment, and

(iii) before the amendment is relied upon, waited for 90 days to elapse since the amended prospectus became available.

4 Paragraphs 1, 2 and 3 shall not apply to a change to a prospectus which is required –

a. solely to fulfil a requirement resulting from a change in the law (including a change to these Rules); or

b. solely to reflect an amendment to the constitutional documents made –

(i) in accordance with Article 11.03.1(h), or

(ii) to reflect the introduction of a new constituent part.

5 No significant departure may be made in the management of the property of the pool from the statements in its prospectus current at the relevant time in fulfilment of the requirements of paragraph 9 of Schedule 2.

11.05 Amalgamation

1 An amalgamation is a scheme of arrangement (notified to the Commission under Article 2.10 of these Rules whenever a recognized fund is involved) whereby the whole of the property of a pool, or of a collective investment fund (whether a recognized fund or not) or constituent part, or its equivalent, thereof, or body corporate becomes the property (but not the first property) of a recognized fund, and whereby unitholders (or shareholders) in the collective investment fund or body corporate receive units in the recognized fund.

2 An amalgamation shall not result in the unitholders in a recognized fund becoming unitholders (or shareholders) in a collective investment fund which is not a regulated collective investment fund.

3 Where it is proposed that 2 or more pools should be amalgamated, the proposal will require the approval of the unitholders in the pool or any pool which would cease to exist if the proposal were implemented (the “discontinuing fund or funds”).

4 Where it is proposed that a pool should be subject to an amalgamation with a collective investment fund other than a recognized fund the proposal will require the approval of the unitholders in the pool.

5 Where it is proposed that a collective investment fund or constituent part, or its equivalent, thereof or a body corporate should be discontinued and amalgamated with a pool (the “continuing fund”), the proposal will (irrespective of any other approval and subject to Article 4.08.2) require the approval of the unitholders in the continuing fund unless paragraph 6 applies.

6 This paragraph applies if the depositary of the continuing fund is reasonably satisfied that the inclusion of the property concerned –

a. is not likely to result in any material prejudice to the interests of the unitholders in the continuing fund;

b. is consistent and is regarded by the manager as consistent with the objectives of the continuing fund; and

c. could be effected without any breach, inadvertent or not, of Part 5.

11.06 Reconstruction

1 A reconstruction of a pool is a scheme of arrangement (notified to the Committee under Article 2.10 of these Rules) whereby –

a. part of the property of a pool becomes the property of a collective investment fund or funds; or

b. the whole of that property becomes the property of 2 or more collective investment funds,

and whereby unitholders in the pool being reconstructed receive units in the collective investment fund or funds in exchange for the property received into that fund or funds.

2 A proposal for reconstruction requires, in respect of the pool being reconstructed, the approval of the unitholders in the pool.

3 Where it is proposed that property of the pool being reconstructed should become property of another pool, the proposal will (irrespective of any other approval and subject to Article 4.08.2) require the approval of the unitholders in that other pool, unless that approval would, by virtue of Article 11.05.5 and on the assumption that the property to be included were treated as a discontinuing fund, not have been required on an amalgamation.

11.07 Convening of meetings and attendance and voting thereat

1 The trustee or the manager of a unit trust, or in the case of a company the directors, may at any time convene a meeting of the unitholders at such a time and place as the trustee after consulting the manager, or the directors, may think fit.

2 The trustee, or the directors, shall, on request in writing of unitholders registered as holding not less than 1/10 (or any proportion below 1/10 specified for this purpose in the constitutional documents) in value of the units in issue, convene a meeting of unitholders at such time and place as the trustee after consulting the manager, or the directors, may think fit.

3 The manager shall be entitled to receive notice of and attend at any such meeting but shall not be entitled to vote or be counted in the quorum therefore and accordingly for the purposes of Articles 11.07 to 11.18, the units held or deemed to be held by the manager shall not be regarded as being in issue.

4 The words in paragraph 3 after “but” do not apply in respect of any units which the manager holds on behalf of or jointly with a person who, if himself or herself the sole registered unitholder, would be entitled to vote, and from whom the manager has received voting instructions.

5 Any associate of the manager shall not be entitled to vote at any such meeting except in respect of units which the associate holds on behalf of or jointly with a person who, if himself or herself the registered unitholder, would be entitled to vote, and from whom the associate has received voting instructions.

6 The depositary and its legal advisors shall be entitled to attend every such meeting.

7 In this Article, and in Articles 11.08 to 11.18, “unitholders” means –

a. the persons who were unitholders on the date 7 days before the notice under Article 11.09 is sent or delivered, whichever is the earlier, but excluding any persons who are known not to be unitholders at the time of the meeting or at any other relevant time; and

b. in the case of units for the time being represented by bearer certificates, the persons who for the time being are unitholders of such units which were in issue on the date 7 days before the notice under Article 11.09 is sent or delivered, whichever is the earlier,

but where a meeting is adjourned, this paragraph applies as if the references to Article 11.09 were references to Article 11.10.4.

11.08 Powers of a meeting of unitholders

A meeting of unitholders duly convened and held in accordance with this part of the Articles shall be competent by extraordinary resolution, or special resolution or ordinary resolution as the case may be, to require, authorize or approve any act, matter or document in respect of which any such resolution is required or expressly contemplated by these Rules, but shall not have any other powers, except such as are permitted by applicable law and are not inconsistent with these Rules, or are required by applicable law.

11.09 Notices of meetings of unitholders

1 Fourteen days’ notice (or any longer period of notice specified for the purpose in the constitutional documents or applicable law), inclusive of the day on which the notice is deemed to be served and of the day specified pursuant to paragraph 2, of every meeting shall be given to the unitholders in the manner provided for in Part 15 below.

2 The notice shall specify the place, day and hour of meeting and the terms of the resolutions to be proposed.

3 Unless the depositary has convened the meeting a copy of the notice shall be sent by post to the depositary.

4 The accidental omission to give notice to or the non-receipt of notice by any of the unitholders shall not invalidate the proceedings at any meeting.

11.10 Quorum

1 The quorum at a meeting of unitholders shall be 2 unitholders present in person or by proxy or in the case of a corporation, by a duly authorized representative.

2 No business shall be transacted at any meeting unless the requisite quorum is present at the commencement of business.

3 If within half an hour from the time appointed for the meeting a quorum is not present the meeting shall stand adjourned to such other day and time and to such place as may be appointed by the chairman (if a chairman has been appointed), or otherwise by the trustee, or in the case of a company the directors, and if at such adjourned meeting a quorum is not present within 15 minutes from the time appointed for the meeting the one or more unitholders present in person or by proxy or their duly authorized representatives shall be a quorum.

4 At least 7 days’ notice of any adjourned meeting of unitholders which is adjourned for 14 days or more shall be given in the same manner as for an original meeting and such notice shall state that one or more unitholders present in person or by proxy at the adjourned meeting whatever their number and the number of units held by them will form a quorum. Otherwise it shall not be necessary to give any such notice.

11.11 The chairman

Subject to any applicable law, some person, who need not be a unitholder, nominated in writing by the trustee or the directors shall preside at every meeting of unitholders or if no such person is nominated or if at any meeting the person nominated shall not be present within 15 minutes after the time appointed for holding the meeting then the unitholders present in person or by proxy shall choose one of their number to be chairman.

11.12 Adjournment

The chairman may, with the consent of any meeting of unitholders at which a quorum is present, and shall if so directed by the meeting, adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting from which the adjournment took place.

11.13 Votes at meetings

1 At any meeting of unitholders a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded by the chairman, by the depositary or by one or more unitholders present in person or by proxy and holding or representing 1/20 (or any proportion less than 1/20 specified for this purpose in the constitutional documents) in value of all the units in issue on the date specified in Article 11.07.7.

2 Unless a poll is so demanded a declaration by the chairman that a resolution has been carried or carried unanimously or by a particular majority or lost shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against such resolution.

3 If a poll is duly demanded it shall be taken in such a manner as the chairman may direct and the result of a poll shall be deemed to be the resolution of the meeting at which the poll was demanded.

4 A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith and a poll demanded on any other question shall be taken at such time and place as the chairman directs.

5 The demand for a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which the poll has been demanded.

6 On a show of hands every unitholder who (being an individual) is present in person, or (being a corporation) is present by its representative properly authorized in that regard, shall have one vote.

7 On a poll every unitholder who is present in person or by proxy shall have one vote for every complete undivided share in the property of the fund and a further part of one vote proportionate to any fraction of such an undivided share of which he or she is the unitholder; and a unitholder entitled to more than one vote need not, if he or she votes, use all his or her votes or cast all the votes the unitholder uses in the same way.

8 A corporation being a unitholder may authorize such person as it thinks fit to act as its representative at any meeting of unitholders and the person so authorized shall be entitled to exercise the same powers on behalf of the corporation which he or she represents as the corporation could exercise if it were an individual unitholder.

9 In the case of joint unitholders the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the other joint unitholders and for this purpose seniority shall be determined by the order in which the names stand in the register of unitholders.

10 On a poll votes may be given either personally or by proxy.

11.14 Restrictions on the putting of composite resolutions to meetings of holders

1 Modifications to the constitutional documents and departures from policies or a set of investment objectives stated in a prospectus of the description set out in paragraph 2 shall not be taken to have been authorized by an extraordinary resolution, a special resolution or an ordinary resolution, as the case may require, at a meeting of unitholders unless each such modification or departure has been the subject of a separate motion for its approval which has been separately approved by an extraordinary resolution or special resolution or ordinary resolution, as the case may be, at that meeting.

2 The following are the descriptions of modifications to the constitutional documents and departures from policy or investment objectives referred to in paragraph 1 –

a. a modification to any provision in the constitutional documents restricting –

(i) the descriptions of assets in which the property of the pool may be invested,

(ii) the proportion of the property of the pool to be invested in assets of any description,

(iii) the description of transactions permitted, or

(iv) the borrowing powers of the pool;

b. any statement made in the prospectus that the manager will or may in relation to any matter within paragraph 2a adopt, in the management of the pool, a policy or set of investment objectives more restrictive than the restrictions imposed in relation to that matter by Part 5 above or by the constitutional documents; and

c. any change to any statement in paragraph 2b.

11.15 Proxies

1 The instrument appointing a proxy shall be in writing under the hand of the appointor or of his or her attorney duly authorized in writing or, if the appointor is a corporation, either under the common seal or under the hand of an officer or attorney so authorized.

2 The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power or authority shall be deposited at such place as the depositary or the manager with the approval of the depositary may in the notice convening the meeting direct (or if no such place is appointed then at the registered office of the manager or in the case of a company, of the company) not less than 48 hours before the time appointed for holding the meeting or adjourned meeting (or in the case of a poll before the time appointed for the taking of the poll) at which the person named in the instrument proposes to vote and in default the instrument of proxy shall not be treated as valid.

3 No instrument for appointing a proxy shall be valid after the expiration of 12 months from the date named in it as the date of its execution.

4 A person appointed to act as a proxy need not be a unitholder.

5 An instrument of proxy may be in the usual common form or in any other form which the depositary shall approve.

6 A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or other revocation of the proxy or of the authority under which the proxy was executed or the transfer of the units in respect of which the proxy is given provided that no intimation in writing of such transfer or knowledge of such death, insanity, or other revocation shall have been received at the place appointed for the deposit of proxies or if no such place is appointed at the registered office of the manager and made known to the person exercising the proxy at the time at which the proxy is used.

11.16 Minutes

1 Minutes of all resolutions and proceedings at every meeting of the unitholders shall be made and duly entered in books to be from time to time provided for the purpose at the expense of the manager or, in the case of a company, the company.

2 Any such minute purporting to be signed by the chairman of the meeting shall be conclusive evidence of the matters therein stated and, until the contrary is proved, every such meeting in respect of the proceedings of which minutes have been made shall be deemed to have been duly held and convened and all resolutions passed thereat to have been duly passed.

11.17 Meaning of “extraordinary resolution” and of “ordinary resolution”

1 In these Rules “extraordinary resolution” means a resolution –

a. proposed and passed at a meeting of unitholders duly convened and held in accordance with this Part of these Rules of which notice specifying the intention to propose the resolution as an extraordinary resolution has been duly given; and

b. carried, whether on a show of hands or on a poll, by a majority consisting of not less than 2/3 (or any larger proportion specified for this purpose in the constitutional documents) of the total number of votes cast for and against such resolution.

2 In these Rules “ordinary resolution” means a resolution proposed passed and carried in like manner mutatis mutandis to that described in relation to an extraordinary resolution in paragraph 1 except that the required majority shall consist of not less than one half of the total number of votes cast for and against such resolution.

11.18 Class meetings

1 If the depositary is of the opinion that any resolution to be proposed is one in relation to which there is or might be a conflict of interest between the unitholders of one class of units and the unitholders of another class of units, whether such conflict might be in relation to classes which are both within a single pool or, additionally in the case of an umbrella fund, between the unitholders of a class of units in one constituent part and the unitholders of a class of units in another, such resolution shall be deemed to have been duly passed only if in lieu of being passed at a single meeting of all unitholders it shall be duly passed at separate meetings respectively of the unitholders of each class of units concerned.

2 This part of these Rules shall apply to each separate meeting held pursuant to paragraph 1 as it applies to other meetings.

11.19 Resolutions

1 Except where an extraordinary resolution is specifically required or permitted by these Rules or a special resolution is specifically required or permitted by these Rules or Company Law, any resolution referred to in these Rules shall be passed by an ordinary resolution.

2 In the case of an equality of votes cast (whether on a show of hands or on a poll) in respect of a resolution put to a general meeting, any chairman appointed pursuant to the constitutional documents shall be entitled to a casting vote in addition to any other vote the chairman may have.

PART 12

SPECIAL PROVISIONS FOR CERTAIN CATEGORIES OF RECOGNIZED FUND

12.01 Efficient portfolio management: off-exchange options

Article 12.02 applies to any pool (whether or not it is a futures and options fund) in so far as it engages in transactions for efficient portfolio management involving off-exchange derivatives.

FUTURES AND OPTIONS FUNDS

12.02 Off-exchange derivatives: discrepancy in valuation

If at any time it appears to the manager that the latest valuation provided to the manager under Article 5.23.7a. and the latest valuation under Article 5.23.8 (valuation of off-exchange derivatives transactions) are not reasonably similar in amount then the manager must –

a. take, after consulting the depositary, whatever action relating to the transaction which appears to be in the best interests of the unitholders; and

b. consider with the depositary whether the discrepancy requires them to consider the validity of the pricing model relevant to further off-exchange transactions under Article 5.23.5.

12.03 Special rule for selling and repurchase

1 This Article modifies Part 4 for futures and options funds.

2 Article 4.14.1 (obligation to sell units) and 4.17.1 (obligation to repurchase units) do not apply in the 15 minutes immediately before a regular valuation point, or, if the regular valuation points are less than one hour apart, in the last quarter of the interval between them, if the manager has stated in the prospectus that the manager is not obliged to sell or repurchase in the 15 minutes (or lesser period) immediately preceding a regular valuation point.

3 Where the manager has so stated in the prospectus, then the manager may not, during the period, agree or decide to sell or repurchase units for himself or herself as principal, or arrange or agree to arrange for the trustee or company to create or cancel units.

GEARED FUTURES AND OPTIONS FUNDS

12.04 Special rules for pricing

1 This Article modifies Part 4 above for geared futures and options funds.

2 Prices for sale and repurchase are to be on a forward basis only, and Article 4.26 does not apply.

3 Valuation of the property of the pool is to be carried out at least once on every business day.

12.05 Special rule for selling and repurchase

1 This Article modifies Part 4 for geared futures and options funds.

2 Article 12.03.2 and 3 shall apply to such funds.

12.06 Standing independent valuer

PROPERTY FUNDS

1 The manager shall, at the outset and upon any vacancy, with the approval of the depositary appoint as the standing independent valuer for the pool a person who is qualified under paragraph 2.

2 A person is qualified to be the standing independent valuer if the person is –

a. a fellow or professional associate of the Royal Institution of Chartered Surveyors;

b. a fellow or associate of the Incorporated Society of Valuers and Auctioneers; or

c. a fellow or associate of the Institute of Revenues, Rating and Valuation.

3 A person is eligible to be appointed, or to retain appointment, as the standing independent valuer only if the person is independent of the manager, the depositary and the directors, in that –

a. neither the person nor any partner (if any) or fellow director (if any) of the person’s –

(i) is an officer, servant or controller of, or

(ii) has a financial interest which it is reasonable to regard as significant in,

the manager, the depositary, any of the directors or the recognized fund or any body corporate in the same group as the manager, the depositary or the recognized fund, as the case may be; and

b. neither the manager nor the depositary nor any of the directors or their associates nor the recognized fund nor any body corporate in the same group as the manager, the depositary or the recognized fund has a financial interest which it is reasonable to regard as significant in any partnership of which the person is a member or in any body corporate of which the person is a director or controller.

4 The standing independent valuer may be removed from office by notice in writing given by the manager or by the depositary: the manager may not give any such notice without the agreement of the depositary, and the depositary must inform the manager of any notice given by the depositary.

5 Any partner of the person appointed to be the standing independent valuer who would himself or herself be eligible for appointment may act on his or her behalf: and, if the standing independent valuer considers it expedient that another person who is an appropriate valuer should act on his or her behalf, he or she may appoint that other as his or her delegate for the purpose of any specific valuation.

6 Details of the standing independent valuer shall be given in the prospectus, as specified in paragraph 4 of Schedule 2.

12.07 Functions of the standing independent valuer

1 The standing independent valuer shall value all the immovables held within the property of the pool, on the basis of a full valuation with physical inspection (including, where the immovable is or includes a building, internal inspection), at least once a year.

2 The standing independent valuer shall also value the immovables, on the basis of a review of the last full valuation, at least once a month.

3 The depositary may at any time require the manager to procure an additional valuation under paragraph 1 or under paragraph 2 as the depositary may specify.

4 Where, since the last valuation under paragraph 1, any new immovable has been purchased for the pool, and any appropriate valuer under Article 5.35 was not the standing independent valuer, the standing independent valuer shall –

a. if the report of the appropriate valuer was on the basis of full valuation with internal inspection, review that valuation as part of any valuation under paragraph 2 until the next full valuation under paragraph 1; and

b. if the report of the appropriate valuer was not on the basis in a., value the immovable on that basis as part of his or her next valuation under paragraph 2.

5. The manager and depositary shall each inform the standing independent valuer forthwith upon its becoming aware of any matter appearing likely to –

a. affect the outcome of a valuation of an immovable;

b. cause the valuer to decide to value under paragraph 1 instead of under paragraph 2; or

c. cause the valuer to recommend to the depositary that it should make a requirement under paragraph 3.

6 The manager and depositary shall each use their best endeavours to ensure that any affected person reports to the valuer forthwith upon that person’s becoming aware of any matter within paragraph 5.

7 Any valuation by the standing independent valuer (except one under paragraph 4a) shall be on the basis prescribed as an “open market value” in the Statements of Asset Valuation Practice and Guidance Notes on the valuation of assets published by the Assets Valuation Standards Committee of the Royal Institution of Chartered Surveyors (3rd edition published in August 1990 and revised in May 1992).

12.08 Special rules for pricing

1 This Article modifies Part 4 above for property funds.

2 Any valuation under Article 12.07 shall have effect, until the next valuation under that Article, for the purposes of ascertaining under Part 4 the fair value of the immovable property concerned.

3 Prices for the purposes of sale and repurchase are to be on a forward basis only, and Article 4.26 does not apply.

4 An agreement to transfer an immovable or an interest in an immovable is to be disregarded for the purpose of the valuation of the property of the pool unless it appears to be legally enforceable.

5 Dealing costs are to be those estimated by the standing independent valuer, and the valuer’s estimate must have regard to any special reduction which the valuer believes should be available to the manager in the amount or rate of charges or commission payable.

6 The following provisions do not apply to property funds –

(i) Article 4.02.3;

(ii) Article 4.02.4a.;

(iii) Article 4.04;

(iv) Article 4.26; and

(v) Table 4.1.

12.09 Failure to obtain minimum subscriptions

1 Where, immediately upon the expiry of the period of the initial offer, it appears to the manager or the directors that the aggregate of monies paid or agreed to be paid for units to be created or sold is less than £5m (or the equivalent in the base currency) –

a. the manager may not deduct any preliminary or periodic charge in respect of any units to be sold on or after that expiry;

b. the manager must credit back to the account of the unitholder any preliminary or periodic charge deducted on selling units during the initial period; and

c. the manager, the depositary and company must apply to the Commission for the exercise of the power of the Commission under Article 14.03.3 for the cancellation of the recognized fund certificate, or where the property fund is a constituent part of an umbrella fund, for the amendment and re-issue of the recognized fund certificate with its validity in relation to the property fund removed.

2 Paragraph 1 applies, where there is no initial offer, as if –

a. the period of the process of unitization; or

b. the period of 21 days after the date on which persons are first invited to become unitholders,

were the period of the initial offer.

12.10 Notification of breaches etc.

If the manager of a property fund is at any time of the opinion that there has been –

a. a breach of any provision of Part 5; or

b. a circumstance within the meaning of Article 7.13.4 or 7.13.5,

the manager must forthwith notify that breach (or circumstance) together with the manager’s proposals for rectification (or restoration of compliance) to –

c. the depositary and the directors; and

d. the Commission.

12.11 Suspension of dealings

1 This Article applies, without prejudice to Article 13.01 (suspension etc.), if at any time it appears to the depositary that there is insufficient property in the pool by way of –

a. cash or near cash;

b. property related assets; or

c. other assets capable of early liquidation,

to enable the trustee or company to cancel units as necessary to enable the manager to meet the demand or likely demand for repurchase of units.

2 In such a case, the trustee, or the directors with the agreement of the depositary –

a. shall require the manager to suspend dealings in units (whether by way of sale, repurchase, creation or cancellation);

b. shall not, while the suspension remains in force, create or cancel units;

c. shall forthwith inform the Commission of the suspension, stating the reasons for its action; and

d. shall thereupon confirm the suspension by giving notice in writing –

(i) to the manager, and

(ii) to the Commission.

3 The manager shall comply with a requirement under paragraph 2a, and in each country in which the recognized fund is registered for public sale shall notify the suspension to the authorities responsible for the authorization of collective investment funds, stating the reasons for this action.

4 Following the suspension, the manager shall report to the Commission with such frequency as the Commission shall require (and in writing if so required) giving particulars of the action being taken to enable dealings in units to be resumed.

5 The suspension shall expire on the close of business on the 28th day after the date of the suspension, unless extended under paragraph 6.

6 If it appears to the manager, or to the trustee or directors, that it is desirable in the interests of the unitholders that the suspension should be extended (or further extended) it or they may, not less than 5 business days before the date of expiry of the suspension, apply to the Commission in order to request such extension and, if it appears to the Commission to be desirable to do so in the interests of unitholders or potential unitholders, the Commission may grant such application.

7 Articles 4.14 and 4.17 (manager’s obligation to sell and repurchase) are subject to this Article.