COLL 4.6 2Simplified Prospectus provisions

Note:

By reproducing schedule C (Contents of the simplified prospectus) to the UCITS Directive (as amplified by Commission Recommendation (2004/384/EC)) and cross-referring to other relevant material, this annex details the facts or matters that must included in a simplified prospectus.

Brief presentation of the simplified prospectus scheme (in this Table referred to as "the scheme").

(1)

when the scheme was created and an indication of the EEA State where the scheme has been registered or incorporated;

(2)

in the case of a scheme having different investment compartments (sub-funds), the indication of this circumstance;

(3)

the name and contact details of the operator (when applicable);

(4)

the expected period of existence of the scheme (when applicable);

(5)

the name and contact details of the depositary;

(6)

the name and contact details of the auditors;

(7)

the name and brief details of the financial group (e.g. a bank) promoting the scheme;

Investment information

(8)

a short description of the scheme's objectives including:

(a)

a concise and appropriate description of the outcomes sought for any investment in the scheme;

(b)

a clear statement of any guarantees offered by third parties to protect investors and any restrictions on those guarantees;

(c)

a statement, where relevant, that the scheme is intended to track an index or indices, and sufficient information to enable investors both to identify the relevant index or indices and to understand the extent or degree of tracking pursued; and6

(d)

where the scheme is a qualifying money market fund, short-term money market fund or money market fund, a statement identifying it as such a fund and a statement that the scheme's investment objectives and policies will meet the conditions in the definition of qualifying money market fund, short-term money market fund or money market fund, as appropriate;6

Notes:

1.

Information on (8)(a) should include a statement as to whether there is any arrangement intended to result in a particular capital or income return from the units or any investment objective of giving protection to their capital value or income return and, if so, details of that arrangement or protection.

2.

The information disclosed under (8)(b) should include an explanation of what is to happen when an investment is encashed before the expiry of any related guarantee or protection.

(9)

the scheme's investment policy, including:

(a)

the main categories of eligible financial instruments which are the object of investment;

(b)

whether the scheme has a particular strategy in relation to any industrial, geographic or other market sectors or specific classes of assets, e.g. investments in emerging countries' financial instruments;

(c)

where relevant, a warning that, whilst the actual portfolio composition is required to comply with the broad legal and statutory rules and limits, risk-concentration may occur in regard of certain tighter asset classes, economic and geographic sectors;

(d)

if the scheme invests in bonds, an indication of whether they are corporate or government, their duration and the ratings requirements;

(e)

if the scheme uses financial derivative instruments, an indication of whether this is done in pursuit of the scheme's objectives, or for hedging purposes only;

(f)

whether the scheme's management style makes some reference to a benchmark; and in particular whether the scheme has an 'index tracking' objective, with an indication of the strategy to be pursued to achieve this; and

(g)

whether the scheme's management style is based on a tactical asset allocation with high frequency portfolio adjustments;

provided the information is material and relevant;

Note:

The information referred to in paragraphs (8) and (9) may be set out as a single item in the simplified prospectus (e.g. for the information on index tracking), provided that the information so combined does not lead to confusion of the objectives and policies of the scheme. The order of the information items may be adapted to reflect the scheme's specific investment objectives and policy.

(10)

a brief assessment of the scheme's risk profile by investment compartment or sub-fund, including:

(a)

overall structure of the information provided:

(i)

a statement to the effect that the value of investments may fall as well as rise and that investors may get back less than they put in;

(ii)

a statement that details of all the risks actually mentioned in the simplified prospectus may be found in the full prospectus;

(iii)

a description in words of any risk investors have to face in relation to their investment, but only where such risk is relevant and material, based on risk impact and probability; and

(b)

details regarding the description (in words) of the following risks:

(i)

specific risks:

The description referred to in paragraph (10)(a)(iii) should include a brief and understandable explanation of any specific risk arising from particular investment policies or strategies or associated with specific markets or assets relevant to the scheme such as:

A

the risk that the entire market of an asset class will decline thus affecting the prices and values of the assets (market risk);

B

the risk that an issuer or a counterparty will default (credit risk);

C

only where strictly relevant, the risk that a settlement in a transfer system does not take place as expected because a counterparty does not pay or deliver on time or as expected (settlement risk);

D

the risk that a position cannot be liquidated in a timely manner at a reasonable price (liquidity risk);

E

the risk that the investment's value will be affected by changes in exchange rates (exchange or currency risk);

F

only where strictly relevant, the risk of loss of assets held in custody that could result from the insolvency, negligence or fraudulent action of the custodian or of a subcustodian (custody risk); and

G

risks related to a concentration of assets or markets; and

(ii)

horizontal risk factors:

The description referred to in paragraph (10)(a)(iii) should also mention, where relevant and material, the following factors that may affect the product:

A

performance risk, including the variability of risk levels depending on individual fund selections, and the existence, absence of, or restrictions on any guarantees given by third parties;

B

risks to capital, including potential risk of erosion resulting from withdrawals/cancellations of units and distributions in excess of investment returns;

C

exposure to the performance of the provider/third-party guarantor, where investment in the product involves direct investment in the provider, rather than assets held by the provider;

D

inflexibility, both within the product (including early surrender risk) and constraints on switching to other providers;

E

inflation risk; and

F

lack of certainty that environmental factors, such as a tax regime, will persist;

(iii)

possible prioritisation of information disclosure:

In order to avoid conveying a misleading image of the relevant risks, the information items should be presented so as to prioritise, based on scale and materiality, the risks so as to better highlight the individual risk profile of the scheme;

(11)

the historical performance of the scheme (where applicable) and a warning that this is not an indicator of future performance (which may be either included in or attached to the simplified prospectus), including:

(a)

disclosure of past performance:

(i)

the scheme's past performance, as presented using a bar chart showing annual returns for the last ten full consecutive years. If the scheme has been in existence for fewer than ten years but at least for a period of one year, it is recommended that the annual returns, calculated net of tax and charges, be given for as many years as are available; and

(ii)

if a scheme is managed according to a benchmark or if its cost structure includes a performance fee depending on a benchmark, the information on the past performance of the scheme should include a comparison with the past performance of the benchmark according to which the scheme is managed or the performance fee is calculated;

Note:

Comparison should be achieved by representing the past performance of the benchmark and that of the scheme through the use of appropriate graphs to assist the reader to make the comparison.

(b)

disclosure of cumulative performance:

Disclosure should be made of the cumulative performance of the scheme over the ten year period referred to in paragraph (11)(a)(i). A comparison should also be made with the cumulative performance (where relevant) of a benchmark, when comparison to a benchmark is required in accordance with paragraph (11)(a)(ii);

Note:

Where the scheme has been in existence for fewer than ten years but at least for a period of one year, disclosure of the past cumulative performance should be made for as many years as are available.

(c)

exclusion of subscription and redemption fees, subject to appropriate disclosure:

A statement should be made that past performance of the scheme does not include the effect of subscription and redemption fees.

Notes:

1.

Where a comparison is being made with the cumulative performance of a benchmark as required by paragraph (11)(b), the comparison should be achieved by representing the past performance of the benchmark and that of the scheme through the use of appropriate graphs to assist the reader to make the comparison.

2.

The scheme's historical performance may be produced as a separate attachment to the simplified prospectus.

(12)

a profile of the typical investor the scheme is designed for;

Economic information

(13)

the scheme's applicable tax regime, including:

(a)

the tax regime applicable to the scheme in the UK; and

(b)

a statement which explains that the regime of taxation of the income or capital gains received by individual investors depends on the tax law applicable to the personal situation of each individual investor and/or to the place where the capital is invested and that if investors are unclear as to their fiscal position, they should seek professional advice or information from local organisations, where available;

Note:

This information should include a statement in relation to SDRT provision, explaining how the scheme may suffer stamp duty reserve tax as a result of transactions in units and whether the operator's policy is such that an SDRT provision may be imposed.

(14)

details of any entry and exit commissions relating to the scheme and details of the scheme's other possible expenses or fees, distinguishing between those to be paid by the unitholder and those to be paid from the scheme's or the sub-fund's assets, including:

(a)

overall contents of the information provided:

(i)

disclosure of a total expense ratio (TER), calculated as indicated in Annex 1 to this chapter, except for a newly created fund where a TER cannot yet be calculated;

(ii)

on an ex ante basis, disclosure of the expected cost structure, that is an indication of all costs available according to the list set forth in Annex 1 to this chapter so as to provide investors, in so far as possible, with a reasonable estimate of expected costs;

(iii)

all entry and exit commissions and other expenses directly paid by the investor;

(iv)

an indication of all the other costs not included in the TER, including disclosure of transaction costs;

(v)

as an additional indicator of the importance of transaction costs, the portfolio turnover rate, calculated as shown in Annex 2 to this chapter; and

(vi)

an indication of the existence of fee-sharing agreements and soft commissions;

Note:

1.

In explaining the function of the TER to the reader, appropriate wording should be used in the simplified prospectus. For example, TER might be explained in the following terms: "The TER shows the annual operating expenses of the scheme - it does not include transaction expenses. All European funds highlight the TER to help you compare the annual operating expenses of different schemes."

2.

It is the FSA's understanding that the disclosure of a reasonable estimate of expected costs on an ex ante basis, as required by paragraph (14)(a)(ii), only applies to new schemes where a TER cannot yet be calculated. Where a TER can be calculated for a simplified prospectus scheme, there is no need to have to disclose a reasonable estimate of expected costs on an ex ante basis in accordance with paragraph (14)(a)(ii), in addition to the TER.

3.

Paragraph (14)(a)(vi)) should not be interpreted as a general validation of the compliance of any individual agreement or commission with the provisions of the Handbook . Taking into account current market practice, consideration should be given as to how far the scheme's existing fee-sharing agreements and comparable fee arrangements are for the exclusive benefit of the scheme.

4.

The simplified prospectus should make a reference to the full prospectus for detailed information on these kinds of arrangements, which should allow any investor to understand to whom expenses are to be paid and how possible conflicts of interest will be resolved in his/her best interest. The information provided in the simplified prospectus should remain concise in this respect.

5.

Details of entry and exit commissions relating to the scheme and details of the scheme's other possible expenses or fees, must be presented in the simplified prospectus in the form required by COBS 4.6.9 R (Charges and reduction in yield).4

(b)

information about 'fee sharing agreements' and 'soft commissions':

(i)

identification of 'fee-sharing agreements';

Note:

For the purposes of paragraph (14)(b)(i), fee-sharing agreements should be taken as those agreements whereby a party remunerated, either directly or indirectly, out of the assets of a scheme agrees to split its remuneration with another party and which result in that other party meeting expenses through this fee-sharing agreement that should normally be met, either directly or indirectly, out of the assets of the scheme.

(ii)

identification of soft commissions;

Note:

For the purposes of paragraph (14) (b) (ii), soft commissions should be regarded as any economic benefit, other than clearing and execution services, that an asset manager receives in connection with the scheme's payment of commissions on transactions that involve the scheme's portfolio securities. Soft commissions are typically obtained from, or through, the executing broker.

(c)

presentation of TER and portfolio turnover rate;

Note:

Both the TER and the portfolio turnover rate may be either included in or attached to the simplified prospectus in the same paper as information on past performance.

Commercial information

(15)

how to buy the units;

Note:

This should include an explanation of any relevant right to cancel or withdraw from the purchase, or, where it is the case, that such rights do not apply.

(16)

how to sell the units;

(17)

in the case of a scheme having different investment compartments (sub-funds), an explanation of how to switch from one investment compartment into another and any charges applicable in such cases;

(18)

when and how dividends on units or shares of the scheme (if applicable) are distributed;

(19)

when and where prices of units are published or made available;

Additional information

(20)

A statement that, on request, the full prospectus and the annual and half-yearly reports of the scheme may be obtained free of charge before the conclusion of the contract and afterwards, together with details of how they may be obtained or how a person may gain access to them;

(21)

the name and contact details of the FSA as being the competent authority which has authorised or registered the scheme;

(22)

details of a contact point (person or department, and, if appropriate the times of day etc.) where additional information may be obtained if needed;

(23)

the date of publication of the simplified prospectus.

General Note:

In making the disclosures required by paragraphs (8) to (19) of this Table, the information must be presented in the form of questions and answers. This format is designed to assist the comprehension of the reader. This requirement will not apply in relation to a simplified prospectus that is to be used to market the units of the scheme in another EEA state or in relation to a simplified prospectus that is to be used to market the units of the scheme exclusively to persons who are not retail clients 4 4.