ALFI UCITS IV implementation project – KID Q&A Document

Chapter 3, Content of Sections of the Key Investor Information DocumentSection 2, Risk and Reward ProfileArt 8Q. The SRRI between share classes may not be the same. This can typically be the case for unhedgedcurrency share classes. If a UCITS decides to use multiple share classes in one KID, is the following exampleacceptable?Lower riskHigher riskShare Class A – Cap. (LUxxxxxxxxxx)Share Class B – Dis. (LUxxxxxxxxxx)Potentially lower rewardPotentially higher reward1 2 3 4 5 6 7Share Class C – Cap. (LUxxxxxxxxxx) 1 2 3 4 5 6 7A. Yes, provided that the practitioner takes care to ensure that the resulting document is "clear and not misleading"(Art 26(3) and Recital 13).Q. When a representative share class is used, can the same example be used by referencing therepresentative share class in the left box?A. No. This question implies that there will be more than one representative share class on a KID or that arepresentative share class KID will be combined with a multiple-share class KID. There may only be onerepresentative share class on a KID. We do not think that will be permitted to combine the concept of a representativeshare-class KID and a multi-share class KID because it will be likely to confuse investors about what information isbeing presented on a representative basis and on an explicit basis.Q. Is it possible to create a KID per share class and to show the SRRI of another share class on the groundsthat the two share classes are similar (i.e., that the latter adequately represents the former)?A. No. The practitioner must decide whether to produce a single share class KID, a multi-share class KID or arepresentative share class KID and calculate the SRRI accordingly. Even in the latter case, we think that thepractitioner must calculate the SRRI for each share class to be satisfied that they are sufficiently similar for therepresentation to be satisfactory.Q. In the event of a merger where the receiving fund is a new fund, is it acceptable or not to use the return ofthe contributing fund to calculate the SRRI and the past performance chart?A. In respect of the SRRI it is acceptable because CESR/10-673 Box 4, Para 2.b permits a representative portfoliomodel to be used and to the extent that the receiving fund will pursue the same objectives and investment policy asthe contributing fund we consider that it is a good basis for computing the SRRI. In respect of past performancepresentation we see two possible cases:(1) In the case where the receiving fund has a performance history the receiving fund's history must be used(EU Regulation 583/2010, Art 19(4)).(2) In the case where the receiving fund is a new fund it should be treated as a fund without performance history(Art 15(4)). In the event of a redomiciliation by merger of the contributing fund into a new fund, we think that thecontributing fund's performance history can be used to simulate the performance of the new fund providedthere is no more than one contributing fund and the investment objective and policy remains the same. Such asimulation must be disclosed in the KID.Also, in the event that two existing funds are merged, the track record of the older fund cannot be inherited andthe performance histories of the two funds cannot in any way be chain-linked. It is prohibited by EU Regulation583/2010, Art 19(4) and CESR/09-949, Page 37, Box 14, Para 5.Q. If a fund with a long performance history launches a new share class with a materially lower managementfee and therefore a much lower expected ongoing charge, may the KID show a simulated performance history,based on the performance of another share class, adjusted for the difference in the ongoing charge?A. Yes, we think so.ALFI KID Q&A, Issue 1314, 11 April25 September 2012 Page 15