ALFI UCITS IV implementation project – KID Q&A Document

Q. In case a KID is established for multiple share classes, for each share class, the following table shows acolour in the table row which can be referenced back to the bar. Is this acceptable?% European Equity60.0050.0040.0030.0020.0010.000.00-10.00-20.00-30.00-40.00-50.002000 2001 2002 2003 2004 2005 2006 2007 2008 2009European Equity - Class A - EUR -32.10 -20.60 -15.60 -7.40 -2.10 1.10 7.60 37.50 45.50 30.50European Equity - Class B - EUR -30.50 -19.50 -11.50 -5.70 0.10 -1.20 6.50 35.90 46.70 29.50European Equity - Class C - GBP -29.50 -18.90 -15.90 -9.10 -3.60 -2.20 7.70 34.90 44.30 28.50A. We think that the general idea of the table is acceptable but there are some aspects of it that are not acceptable.The performance numbers should be stated to one decimal place; the font size is too small; we think that the use ofcolour is at the limit of what is acceptable: the contrast between the colours is clear when the document is printed incolour or monochrome but it becomes difficult to see when the document is copied on a standard office photocopier.When they prepare multi-share class KIDs we recommend that practitioners take note of Rectal 13 of the EURegulation, which requires that the KID should not be "too complicated or crowded".Q. When a share class exists in the categories accumulation and distribution, (1) shall the two options bementioned separately, including the ISIN codes? (2) If yes, in which section should this information shall bedisplayed (title, practical information section)? (3) If yes, should charges be indicated separately? (4) Shouldthe past performance chart consider variations in share class performance?A. (1 and 2) The two share classes may be presented in one of three ways:(a) Separate KIDs, in which their accumulation or distribution characteristics would be clearly and separatelydescribed.(b) A representative KID with one of the share classes being the representative class and the other being therepresented class. For example, if the accumulation class was the representative class the KID would beprepared according to accumulation principles and the fact that the KID represents the distribution share classwould be declared in the Practical Information section (EU Regulation 583/2010, Art 20(3) and Art 27). Whenconsidering whether to use a representative KID in these circumstances, practitioners should assess, forexample, whether a KID that is based on an accumulation share class can satisfactorily inform investors aboutwhat the distribution policy of the distributing share class is and whether distributions present any risk of capitalerosion, etc.(c) A multi-share class KID. When deciding whether to combine accumulation and distribution share classeson a multi-share class KID, practitioners may wish to consider whether investors will be able to understand thecombined document and know when to disregard the information that is not relevant to the share class that theyare buying.(3) In a representative share class KID, the charges that are shown must be from the representative share class. In amulti-share class KID, the charges must be shown for each share class.(4) In a representative share class KID, the past performances that are shown must be from the representative shareclass. In a multi-share class KID, the past performances must be shown for each share class. The EU Regulation583/2010 says at Art 16 that past performance "shall be calculated on the basis that any distributable income of thefund has been reinvested". Therefore unless there are differences in the ongoing charges the past performance ofaccumulation and distribution share classes of the same fund denominated in the same currency will be the same – intheory, at least. In practice, there are many factors that can influence the relative performance of share classes andpractitioners should consider them carefully before they decide to produce a representative share class KID.Q. When share classes are referenced by a representative KID and a share class is entirely redeemed orliquidated, should the KID be updated?A. We think that practitioners may use their own discretion to decide whether and when to update the KID in thiscircumstance. If the practitioner does not intend to liquidate the share class then it may wish to consider leaving theKID unchanged in the expectation that subscriptions may follow. If the share class has been liquidated then the KIDshould be updated but the practitioner may consider it to be an immaterial change, which could be made during theALFI KID Q&A, Issue 1314, 11 April25 September 2012 Page 34