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Authorised Unit Trusts (AUTs)
Unique to the UK, a unit trust, as the name suggests, is structured as a trust and is subject to UK trust law. As for any CIS, the investors' money is pooled, and investors receive units proportionate to the amount of money that they have invested on a particular day. Each unit trust fund has its own investment objectives and policy, which governs how the fund is managed.
Structure
Under a trust structure, the fund property (the stocks and shares) is held by one person (the trustee), on behalf of another person (the beneficiary), on agreed terms. The trustee has legal ownership of the fund property. However, the beneficiaries have the economic interest in the fund property, which is sometimes called the "equitable interest" or "beneficial interest". In the case of a unit trust, this means that the trustee (or its nominee) is the registered owner of the investments, which form the fund, and the beneficiaries are the investors in the fund. The investments are held by the trustee on behalf of the investors collectively. Economic benefits, such as dividends, are collected and distributed by the trustee to the investors of the fund.
A trust differs from a company in that it has no separate legal existence.
Manager and Trustee
The trustee safeguards the property and assets of the unit trust whilst the manager operates the scheme and, most significantly, makes all the investment decisions. The separation of management of the trust property from the possession and ownership of it is an elementary form of investor protection. The trustee also has a duty of oversight over the activities of the manager.
Documents and Authorisation
The central document, which constitutes a unit trust, is a Trust Deed, entered into between the manager and the trustee. In addition there are regulations on unit trusts which are directly applicable to both the manager and trustee, issued by the FSA.
The Prospectus or Scheme Particulars form an information document describing many of the characteristics of the unit trust fund.
The required contents for the Trust Deed and the Prospectus are laid down in the FSA's Collective Investment Schemes Sourcebook (COLL).
Authorisation for a unit trust is obtained by applying to the FSA (regulator of the UK financial services industry). The application must be accompanied by drafts of the Trust Deed and Prospectus, plus various other items of information and a fee. Authorisation is granted by the FSA issuing an Order of Authorisation. Once authorised, the Scheme can be promoted to the general public. The manager must abide by prescriptive regulations when marketing a CIS to the public.
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Disclaimer: The material and information contained on this website is provided for general information only. DATA does not provide any investment advice and you are recommended to obtain professional financial advice where appropriate.
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