IFM12544 - Offshore Funds: Reporting funds: computation of reportable income: equalisation: meaning of equalisation arrangements

A reporting fund operates ‘equalisation arrangements’ if it has given a statement in its application that it intends to operate such arrangements (see IFM12423).

Where a reporting fund operates equalisation arrangements then adjustments are required to the calculation of reportable income as follows:

• when a person acquires an interest in the fund by way of initial purchase, increase the reportable income of the fund by an amount equal to the part of the acquisition cost which is attributable to undistributed income which had accrued to the fund in the period of account up to the time of acquisition and which is taken into account in determining the acquisition price (“the equalisation amount”)

• when a person disposes of an interest in the fund by way of redemption, reduce the reportable income of the fund by an amount equal to the part of the redemption price which is attributable to undistributed income which had accrued to the fund in the period of account up to the time of redemption and which is taken into account in determining the redemption price.

Note that only amounts that form part of the acquisition or redemption price should be taken into account as equalisation amounts. Where a reporting fund operates equalisation arrangements, there is no undistributed income at the beginning of each period of account. By way of further example, where a reporting fund makes quarterly distributions of income, the equalisation arrangements will operate separately for each quarter. In that way, any acquisition or redemption price in the second quarter will only include equalisation amounts by reference to the undistributed income of that second quarter. The same principles should apply where a new reporting period begins during a period of account.