IFM02220 - Authorised investment funds (AIFs): distributions and unit classes

Distribution

In each distribution period an AIF must distribute the total amount available for distribution shown in the accounts as available for distribution to investors in proportion with their rights. For this purpose a distribution includes an amount credited to the capital part of the scheme property of an AIF on behalf of an investor who holds accumulation units (see regulation 15 of SI2006/964).

Distribution accounts

These are accounts showing the total amount available for distribution to investors and how that total amount is calculated.

Distribution period

This is a period by reference to which the total amount available for distribution to investors is calculated (regulation 15(2) of SI2006/964).

Under Financial Conduct Authority (FCA) rules the distribution period cannot last more than a year and may be shorter. It is normally six months. Accounts must, in any event, be prepared half yearly.

Distribution date

The distribution date for a distribution period (see regulation 15(4) of SI 2006/964) is:

  • the date specified in the instrument of incorporation of the open-ended investment company or the terms of the authorised unit trust; or
  • if no date is specified, the last day of the distribution period.

Under FCA rules any date specified as a distribution date must always be within four months of the end of the distribution period.

Types of distribution - Regulation 17 of SI2006/964

The total amount appearing in the distribution accounts of the AIF must be shown as available for distribution in one of the following ways:

  • As a dividend distribution (see below); or
  • As a distribution of yearly interest (an interest distribution) (IFM0222 to IFM02224).

An interest distribution may not be paid with a dividend distribution, though note the special distribution rules for distributions by Property AIFs and Tax Elected Funds.

Dividend distributions

Amounts that are shown in the distribution accounts as available for distribution as dividends are treated by the AIF as dividends on shares which are paid on the distribution date. The amounts are therefore not to be deducted in the tax computation.

Unit classes

An AIF may issue different classes of unit, subject to approval by the FCA. The units in an AIF may include:

  • Income units - in which the income is allocated periodically to unit holders net of any tax deducted, and where the amount of any income distribution is paid to unitholders;
  • Accumulation units - in respect of which income (again net of any tax deducted) is not paid out to the unitholder but is added to the capital of the fund;
  • Currency class units - in respect of which the price is calculated and the distributions are paid in a different currency to the base currency of the fund;
  • Gross income or accumulation units - in respect of which the holders are entitled to receive gross distributions and so the income is allocated to unitholders or credited to capital, as the case may be, without deduction of tax.

In the case of an open-ended investment company the units are shares and have a denomination - the company may then issue shares of different denominations where the smaller denomination shares represent a proportion in line with the denomination of the rights attaching to a larger denomination share.

An AIF may not issue any class of unit where the rights to participate in the underlying capital and income property of the fund or distributions are different from those of any other unit class other than by value. Unit classes may however reflect accumulation or distribution of income, different currencies and different charging structures.