ALFI UCITS IV implementation project – KID Q&A Document

Page 6, Para 13Q. The point mentions that the methodology for calculation can be based on a UCITS' statement of operationpublished in the latest annual or semi-annual report "if this is sufficiently recent". What is acceptable to besufficiently recent?A. It is tempting to think of "sufficiently recent" as a fixed time limit – within 3 months of the end of the reporting period,for example – but we think that would be too arbitrary. We think that it would be better to consider whether the latestannual or semi-annual report would permit the practitioner to produce an ongoing charges figure that remains "fair,clear and not misleading at all times." (CESR/09-949, Box 7, paragraph 1) If in the practitioner's judgement it would,then we think that it would be an acceptable basis for the calculation. If it would not, then we think that the practitionershould use some other basis.Q. CESR/10-674 says that "the ex-post figure shall be based on recent cost calculations which themanagement company has determined on reasonable grounds to be appropriate for that purpose. The figuremay be based on the costs set out in the UCITS' statement of operations published in its latest annual or halfyearlyreport, if this is sufficiently recent." Can the management company decide to use the figures of the halfyearly report even though the calculation is based on the costs charged during a 6-month period and not a 12-month period, while Art 10(2)(b) of the EU Regulation 583/2010 seems to impose an ex post calculation basedon a full year. Is this a contradiction and how should it be resolved?A. There is no contradiction. The calculation may use data from the semi-annual report (CESR/10-674, paragraph 13)but it should adjust the data to ensure that the annualised ongoing charges are published (EU Regulation 583/2010,Art 10(2)(b), "charges taken from the UCITS over a year"). The practitioner may wish to take into account othermatters such as accrual adjustments to ensure that the published figure is reliable. The purpose of paragraph 13 is topermit the practitioner some flexibility to choose a cost data set that will produce a reliable indication of the ongoingcharge over a year.Q. If a practitioner wishes to produce a KID for an existing fund from 1 July 2011, should the ongoing chargesbe calculated with respect to the UCITS' most recent annual or semi-annual report or with respect to evenmore recent records?A. Please see the Q&A above in respect of what "sufficiently recent" means.Q. If the KID is updated at any time other than the annual revision (for example, because the SRRI changed),should the ongoing charges be recalculated using the most recent cost data or should the ongoing chargesfigure only be updated if the most recent records indicate a change greater than some threshold?A. CESR/09-949 at Box 17, Para 1 and 2(a) says that the KID must be reviewed prior to or following any materialchange affecting the sections on objectives and investment policy, risk and reward profile, charges, past performance,and practical information. However, at the bottom of page 44 of the same document, CESR says, "carrying out areview does not imply that there must be a consequential revision on every occasion; a review is an internal processwhich may conclude that there is no need for an actual revision at the present time." If the practitioner has established"procedures to ensure that the charges figures disclosed in the KID are kept under regular review, so that they remainfair, clear and not misleading at all times," (CESR/09-949, Box 7, Para 1) there is no need to recalculate the ongoingcharges figure when the KID is revised for some other reason. However, when the KID is revised part-way through ayear, the latest result from the practitioner's regular ongoing charge calculation should be published in the new KID(CESR/09-949, Box 8, Para 3).Q. In respect of fund set-up costs, which may be amortised over future years, and prepayments, should theongoing expenses contain only that part of the expense which is applicable to the period for which theexpenses were calculated?A. Yes.Page 6, Para 14Q. If the semi-annual report is to be used as the source of cost data and the UCITS accounting policy accruescosts on a calendar day basis (i.e., 365 calendar days per year), should the average net assets be calculatedas a simple average of all NAVs published or as an average of the NAV on each day in the calendar year.A. In this example, and taking into account our answer above in respect of annualised results, the average net assetsshould be calculated as an average of the NAV on each calendar day within the half-year, because that "relates to thesame period as the costs". It is for the practitioner to decide which NAV to apply on the calendar days when the NAV isnot published. We draw practitioners' attention to Art 24(2) of the EU Regulation 583/2010, which determines what thepractitioner should do in the case that the result of the calculation produces a result that would not be reliable.ALFI KID Q&A, Issue 1314, 11 April25 September 2012 Page 50