ALFI UCITS IV implementation project – KID Q&A Document

Q. If switch charges are applied in one country only, will the production of a KID specific to that country bepermitted?A. We think that the KID should be produced on a universal basis, with a statement that lesser charges might beapplied.Q. In the event of a merger, is the absorbing fund required to publish an updated KID showing estimatedongoing charges?A. Only if the practitioner believes that the single figure calculated in accordance with Art 10(2)(b) would not bepossible or reliable, in which case the KID should be published with an estimated ongoing charge. For example:If the absorbing fund is an existing fund and the practitioner thinks that the merger is not so significant withrespect to the size of the absorbing fund as to make the ongoing charges figure unreliable then Art 10(2)(b) willapply. If the merger is significant with respect to the size of the absorbing fund and the practitioner thinks that afigure produced in accordance with Art 10(2)(b) would be unreliable then the ongoing charges figure must beestimated in accordance with Art 24(2).If the absorbing fund is a new fund, the ongoing charges should be estimated in accordance with Art 13(1) andthe practitioner may consider the experience of the absorbed fund(s) in the preceding year when it prepares itsestimate.Art 10(2)(a)Q. Is it possible to show different entry or switch charges to the extent that they might vary from one countryto another and must they be published in every country or may a specific KID be produced for each countryaccording to its specific charges?A. We think that the KID should be produced on a universal basis, with a statement that lesser charges might beapplied. We do not think that country-specific KIDs should be produced in the manner suggested by this question.Q. Must swing pricing be disclosed in the charges table?A. No. Swing pricing is not a charge but an adjustment in the net asset value at which shares in the UCITS may betraded. Being a pricing model, it is not an essential feature of a fund in the sense required by the EU Regulation583/2010. However, as such it must be described in the fund's prospectus.Art 10(2)(b)Q. Should the ongoing charges figure be rounded and if so with what precision? (Example: Annex III requiressays that past performance must be presented to one decimal place.)A. CESR/10-674 (methodology for calculation of the ongoing charges figure in the KID) says that "the figure shall beexpressed as a percentage to two decimal places (Page 6, Para 10). In the case of new funds CESR's methodologysays that "if in the management company's opinion, expressing a figure to two decimal places would be likely tosuggest a spurious degree of accuracy to investors, it shall be sufficient to express that figure to one decimal place".Q. If management fees are charged to shareholders outside the share class, pursuant to a separateinvestment management agreement between the investment adviser and each shareholder, is there anyrequirement to include a figure for management fees in the on-going charges for the share class?A. No. It is not a fee paid by the fund but a fee paid directly by the investor pursuant to a separate fee agreement. Seealso CESR/10-674, page 4, paragraph 2: "ongoing charges are payments deducted from the assets of a UCITS."Q. In the event that the management company has waived a fee or met a portion of the fund's expenses so asto cap them, yet retained the right to revoke the waiver or lift the cap without notice, what should be includedin the KID?A. The KID should show the ongoing charges that were actually paid by the fund. To the extent that a fee has beenwaived or an expense has been capped in the period for which the ongoing charge is being calculated, the waived orcapped part should not be included in the calculation. To the extent that the waiver has been revoked or the cap hasbeen lifted in the period for which the ongoing charge is being calculated, the reinstated fee or expense should beincluded in the calculation. If the introduction or revocation of a waiver or a cap is likely to cause the ongoing charge tobe "no longer reliable" (Art 24(2) of EU Regulation 583/2010) then the ongoing charge should be estimated and theKID should be revised with an appropriate disclosure. Since this would be a decision taken by the managementALFI KID Q&A, Issue 1314, 11 April25 September 2012 Page 21