ALFI UCITS IV implementation project – KID Q&A Document

Q. Must the similarity test be applied to all sections of the KID?A. Yes, taking into account that certain differences such as accumulation or distribution policy may be satisfactorilyexplained by a note on the KID.Q. Is it therefore necessary to calculate on a "sliding window" basis (see above) the SRRI for a representativeshare class and every share class that it represents, to be sure that they produce the same result?A. We think that the practitioner should calculate the SRRI for each share class to be satisfied that they are sufficientlysimilar for the representation to be satisfactory.Q. When a UCITS has two or more share classes that are similar, which one should be the representative andwhich the represented?A. CESR/09-949 provides advice on how to choose a representative share class. Generally, the practitioner is free todecide but there are some restrictions. For example, at page 49 CESR says that, "if the highest charging share classhas not been available throughout the period covered in the past performance presentation, then it cannot be used asa representative class".Q. Is it permitted to use a share class that has a shorter performance history (say, 3 years) to represent ashare class that has a longer performance history (say, 10 years)?A. In the specific examples quoted (3 and 10 years), we think that it will not be permitted because much of theperformance history of the older share class will not be presented. If the difference is smaller – perhaps only a matterof months and still fair, clear, not misleading – we think that it would be permitted.Arts 26 and 27Q. Is a KID required for a share class that exists in the full prospectus but which has not yet been launched?A. Please see the related question and answer in respect of sub-funds at Art 25.If a share class is to be marketed before it is launched, its KID must be prepared, filed with relevant regulators andpublished.We do not think that it will be necessary to prepare KIDs for share classes until shortly before they are marketed.Notwithstanding that, we do think that certain KIDs will be required before share classes are marketed or launched,i.e., during the authorisation and notification process of a fund. For example:(1) In the case of an application to a home state regulator for authorisation to launch a new fund, it will benecessary to present an example of the fund's KID. If the practitioner intends to issue individual share classKIDs, it may be sufficient to file with the regulator a relevant example of the KID rather than every possibleinstance of a KID. This may benefit the practitioner and the regulator when the differences between individualKIDs of the same pattern are small and when some KIDs may not be launched until investment capital is raised.(2) In the case of a notification to a host state regulator, a KID for every share class listed on the notificationletter must be included in the file otherwise it will be rejected as incomplete.Q. Are you obliged to publish the KID for a share class or sub-fund that has not yet been launched but whichyou have prepared and filed with the CSSF, and how should you manage the share class launch and KIDpublication process with respect to regulatory process (e.g., home state approval and host state notification)and internal operational controls?A. Please see the related answer in respect of the preparation of a KID at Art 25, above. Irrespective of when it isprepared, the KID must be filed with the home state regulator before the share class or sub-fund is launched (for theremainder of this answer we will refer to both as the "fund"). Art 80 of the UCITS IV Directive obliges the practitioner togive the KID to investors before they invest and Art 81 of the UCITS IV Directive permits the KID to be published in a"durable medium" or by means of a website provided that investors must be given a paper copy free of charge if theyrequest it. Similarly, Art 81 says, "additionally, an up-to-date version of the [KID] shall be made available on thewebsite of the investment company or management company". We therefore conclude that from the point at which apractitioner offers a fund for sale, whether by private placement or public offer, it must make the KID available toinvestors through its sales channels and it must maintain an up-to-date copy of the KID on its website. Thispresupposes that it has the necessary regulatory consents (home state approval, host state notification) and that itsoperational processes have been prepared to support the sale of the fund. We have qualified our answer in terms ofthe point at which the fund is offered for sale because, although the Directive and the EU Regulation 583/2010 do notexplicitly permit it, we think that it will be acceptable not to publish the KID in the event that a fund is launched with thepractitioner's own seed capital and not immediately marketed, provided that the KID is filed with the home stateregulator prior to launch.ALFI KID Q&A, Issue 1314, 11 April25 September 2012 Page 32