Simplified prospectus proposals for collective investment schemes

The FSA set out its proposals last month for compliance with the Third UCITS Directive, which requires EU member states to provide investors in collective investment schemes (CISs) with a “simplified prospectus” (SP). They are designed to build on its current key features, question and answer approach to product information disclosure, with charges shown on the basis of a “Reduction in Yield” measure. Although most of the SP content specifications are already covered by the existing key features model, new elements are: a ‘Total Expense Ratio’ (TER) to indicate fund costs and charges, although it will not include front-end and exit charges or some fund expenses like dealing costs, which are treated separately; a ‘Portfolio Turnover Rate’ (PTR) that measures the dealing volume within the fund; a statement on taxation of the fund; historic performance of each UCITS which shows up to ten years’ annual returns; details of any reference benchmark, if used; and a statement about fee-sharing arrangements and ‘soft’ commissions with a pointer to where more information may be found in the full prospectus. An illustrative projection will no longer be required when there is a specified target as it is not an obligation under the directive. Work continues on a simple risk indicator, which is not yet a feature of the rules. The FSA is also interested to learn whether the industry believes that the SP requirements should be extended to non-UCITS schemes.