L 144/42 Official Journal of the European Union 30.4.2004 EN 
COMMISSION RECOMMENDA TION 
of 27 April 2004 
on some contents of the simplifie d prospectus as provided for in Schedule C of Annex I 
to Council Directive 85/611/ EEC 
(notifi ed under document number C(2002) 1541/2) 
(Text with EEA relevance) 
(2004/384/EC) 
THE COMM ISSIO N OF THE EU ROPEAN  COMMU NITIES, 
Having regard to the Treaty establishing the European Communit y, and in particular Article 
211, second indent, thereof, 
Whereas: 
(1) In order to enhance effective investor information, provisions concerning the 
simpl ified prospectus were introdu ced in Council  Directive  85/611/EEC of 20 
December 1985 on the coordination of laws, regulations,  and administrative pr ovisions 
relating to undertaking s for collective investments in transfer able securities (UCITS)1
by Directive 2001/107/EC of the European Parliament  and of the Council2. The 
simplifi ed prospectus is designed to provide clear information about the essentials the 
investor should know before investing in a fund, and be easily understoo d by the 
average retail investor. The simplifi ed prospectus is also designed to facilit ate the 
cross- border marketing of units of UCITS, and be used as a single marketing tool 
througho ut the Community. Those provisions  themselves stress that host Member 
States are not permi tted to ask for any additi ons or modificati ons except translation. 
(2) In order to ensure the effectiveness of this key element of investor protection, it is 
desirabl e to clarify the conten ts and presenta tion of some of the elem ents of 
inform ation which have to be included into the simpl ified prospectus pursuant to 
Schedule C of Annex I to Directive 85/611/EEC. This is critical to ensuring a common 
reading of the contents of Schedule C, and has to be achieved in the most appropriate 
and timely way avail able, takin g into account  the recent transposition process in the 
Member States and the need for appropriate im plementat ion. 
(3) For that purpose, the mere clarificat ion of definiti ons relating to the contents of the 
relevant indents of Schedule C would not be sufficient to achieve the necessary level 
of harmonisation, which is, in particular, intrinsical ly linked to the choice and 
1  OJ L 375, 31.12.1985, p. 3; Directiv e as last amended by Directiv e 2001/108/E C of the European Parliament 
and of th e Council  ( OJ  L 41, 13.2.2001, p. 35).  
2 OJ L 41, 13.2.2001, p. 20. 
30.4.20 04 Official Journal of the European Union L 144/43 EN 
definiti on of some ratios relating to economic information (i.e. costs and portfolio 
turnover). Setting those ratios, which are critical  to investor information, does not fall 
within the regulatory powers conferred upon the Commission by Article 53a of 
Directive 85/611/EEC. Since the implem enting powers conferred upon the 
Comm ission by the Direct ive do not include the choice  and structure of ratios, a 
Commission recommendati on is for the moment the only available  instrument to 
support a  common, compreh ensive read ing of the relevant contents of Schedu le C. 
(4) The description of the UCITS' investment objectives should inform investors about the 
investment  goal the UCITS intends to pursue. Therefore, it is desirable that the 
simplifi ed prospectus contain, in a concise form, an appropriate description of the 
outcomes sough t for the investment, information on any third-party  guarantees which 
protec t invest ors, for exampl e against  a downfall or on a minim um level of increase of 
the value of their  investment and inf ormation on index -tracking objectives. 
(5) In conformity with the requirements set forth under Article 24a(1) and (2) of Directive 
85/611/EEC, the description of the UCITS' investment  policy in the simplifi ed 
prospectus  should allow the average investor to understand the manner and method by 
which the investment  goal is expected to be achieved and draw investors’ attenti on on 
the UCITS’ releva nt charact eristi cs. Therefore , it is desirabl e that the simplifi ed 
prospectus briefly make clear the main categories of eligible instruments, the portfolio 
management strategy  of the UCITS, by drawing attention to possible  risk-
conce ntratio n profiles wher e releva nt, and the key chara cteris tics of the bond s in 
which the UCITS invests. It is also desirable that the simplified prospe ctus contain 
information on the financial derivative instruments, the management style and the 
strate gy to ac hieve the ind ex-trackin g objective  in th e cas e of index -tracking funds. 
(6) In keepin g with the safeguards provided for in Artic le 24a(1) and (3) of Directive 
85/61 1/EEC, the avera ge inves tor shou ld be enable d to under stand  the risk profile of a 
UCITS and be adequately informed of relevant risk characteristi cs. It is therefore 
desirabl e that the simplifi ed prospectus contain a brief and easily comprehensible 
description, in narrative form, of all the risks material  and relevant to the UCITS. It is 
also advisable to encourage Member States, where they deem it relevant in the light of 
customary disclosure practice and existing investor protection standards , to require 
that this information be supplemented by a quantitat ive risk indicator based on the 
UCITS vo latility, but subject to fur ther conver gence w ork on s uch risk indicators. 
(7) To avoid misleading information for investors on historical performanc e and to 
advance the comparability of UCITS for investors within the Community, it is 
necessar y to clarify  the way  past perf ormance sho uld be pres ented. 
(8) For the sake of clarity and concision of the simplifi ed prospectus, it is desirable that 
information on the tax regime be limited to the tax regime applicable  to the UCITS in 
its home Member State. To facilit ate proper investor information, it is however 
appropriate that this information be supplemented by a warning  that further taxation 
may apply to the indiv idual  investor taking into account that the taxation of individual  
investors will depend on the fiscal regulation applicable  in their personal or particular 
case. 
L 144/44 Official Journal of the European Union 30.4.2004 EN 
(9) To ensure effective investor protection and enhance investor confidence in the fund 
industry, it is desirable that the simplifi ed prospectus provide for full transparency of 
all the costs actua lly borne by invest ors in relation to the ir inv estme nt. To  this e nd, it  is 
necessary to discl ose a total expense ratio (TER) calculated as an indicator of the 
fund's total operating  costs. It is therefore also necessary to clarify how the TER 
should be calculat ed. Since entry and exit commissions and other expenses directly 
paid by the invest or are not included in the TER, it is desirabl e that they be shown 
separately as well as all the other costs not included in the TER, including disclosure 
of transaction costs when these are deemed to be available  by the home Member State 
competent authoriti es. In any case, it is desirable to disclose the portfolio turnover rate 
calculat ed on a standardised basis, as an additional  indicator of the relevance of 
transaction cos ts. 
(10) In view of the current differences  in market practice on fee-sharing agreements and 
compar able fee arrangeme nts, it is appropri ate that these be adequately disclosed to 
investors.  To improve transparency for investors, it is therefore necessary that the 
simplifi ed prospectus indicate the existence of any such agreements or arrangements. 
It is also advisab le to invite invest ors to consult  the full prospectus for detailed 
information on this kind of arrang ement, which should enable them to understand  to 
whom the expenses are paid and whether possible conflicts of interest will be resolved 
in the ir best  interest. 
(11) The understanding of investors' needs in terms of product information and cross-
border comparabili ty has to be made subject to further progress, also in the light of 
consume r studie s on national market s, in order to underpi n the compl etion of a true, 
investor-friendly, internal market for UCITS. Member States should therefore carry 
out, in so far as possible, further testing of measures taken in this field, in particular 
following this recommendati on, and to report accordingly to the Commission. The 
Comm ission may conside r in due time whether there is a need to propose legisl ative 
measures to leverage on experience and Member States' feedback on the 
implement ation of thi s recomm endati on, 
HEREBY RECOMMENDS: 
1. As regards the investment information referred to in the second heading of Schedule 
C in Annex I to Directive 85/611/EEC it is recommended that Member States apply the 
following i nterpretations. 
1.1. Interpretation of  ‘short definiti on of UCITS’ objectives’
In the first indent , Member State s are recomm ended to interpret ‘a short definit ion of UCITS' 
object ives’ as meaning the following informati on: 
(a) a concise and appropriate description of the outcomes sought for any 
invest ment  in the  UCITS; 
(b) a clear statement  of any guarantee s offered by third partie s to protect  investors 
and any restrictions on those guarantees; 
(c) a statement , where releva nt, that the UCITS is intended to track an 
index/indices, and sufficient indicati ons to enable investors both to identify the 
30.4.20 04 Official Journal of the European Union L 144/45 EN 
relevant index/indices and to understand the extent or degree of tracking 
pursued.
1.2. Interpretation of ‘the unit trust's/common fund's or the investment company's investment 
polic y’
In the second indent  Member States are recommended to interpret ‘the unit trust's/comm on 
fund' s or the inves tment comp any's inves tment policy’  as mean ing the following inform ation, 
provided it is m aterial and re levant: 
(a) the main categories of eligible financial instruments which are the object of 
investment; 
(b) whethe r the UCITS  has a particular strategy in relation to any industrial, 
geograp hic or other market sectors or specific classes of assets, e.g. 
investm ents in em erging countries’ fina ncial i nstrument s; 
(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 geogr aphic sectors; 
(d) if the UCITS invests in bonds, an indication of whether they are corporate or 
government, their duration and the rating  requirements; 
(e) if the UCITS uses financial derivative instruments, an indication of whether 
this is done in pursuit of the U CITS' objectives, or for hedging pur poses only; 
(f) whether the UCITS’ management style contemplates some reference to a 
benchmark; and in particular whether the UCITS has an ‘index tracking’ 
objecti ve, with an ind ication of the strate gy to be pursued to achiev e this;  
(g) whether the UCITS’ management style is based on a tactical asset allocation 
with high frequen cy portfolio adjustments. 
1.3. Joint presen tatio n of the UCITS’ obje ctives and i nvestment pol icy
Home Member States are recommended to allow the information required under points 1.1 
and 1.2 to be set out as a single item in the simplifi ed prospectus (e.g. for the information on 
index tracking),  provided that the informa tion so combi ned does not lead to confusion of the 
object ives and polic ies of the UCITS. The order of the informa tion items may be adapte d to 
reflect the UCI TS’ sp ecific invest ment  obje ctives an d pol icy.  
1.4. Interpretation of  ‘a brief assessment of the fund’s risk profil e’
In the second indent , Member State s are recomm ended to interpret ‘a brief assessment of the 
fund's risk profile’ as meaning the  following informati on: 
1.4.1. Overall structure of the i nformation provided;
L 144/46 Official Journal of the European Union 30.4.2004 EN 
(a) a statement  to the effect that the value of investment s may fall as well as rise 
and that investor s may g et back less than they pu t in; 
(b) a statement  that details of all the risks actually mentioned in the simplifi ed 
prospectus  may be f ound in the f ull prospectus ; 
(c) a textual description 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 probabi lity. 
1.4.2. P recisions r egarding  the textual des cription of ris ks
1.4.2.1. Specific risks 
The description referred  to in point 1.4.1(c) should include a brief and understandable 
explanation of any specific risk arising from particular investment  policies or strategies or 
associated with specifi c markets or assets relevant t o the UCITS 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 o r a counter party w ill 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 expect ed (sett leme nt risk) ; 
(d) the risk that a position can not be liquidat ed in a timel y manner at a reasonable 
price (liquidi ty 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); 
(g) risks related to a conce ntration of assets or market s. 
1.4.2.2. Horizontal risk factors 
The description referred to in point 1.4.1(c) should also mention, where relevant and material , 
the following factors that  may affect the product:  
(a) performanc e risk, inclu ding the variabi lity of risk level s dependi ng on 
indivi dual fund select ions, and the existenc e, absence of, or restrict ions on any 
guarantee s given by t hird part ies; 
(b) risks to capit al, inclu ding potent ial risk of erosion resulti ng from 
withdrawal s/cance llations of units and distri bution s in excess of investm ent 
returns; 
30.4.20 04 Official Journal of the European Union L 144/47 EN 
(c) exposure to the performance of the provider/third-party guarantor, where 
invest ment  in the product involves direct investment  in the provider, rather 
than assets  held by the provider; 
(d) inflexibility, both within the product (including early surrend er risk) and 
constraints o n switching  to other pr oviders; 
(e) inflati on risk; 
(f) lack of certainty  that environmental factor s, such  as a tax  regime, w ill persist. 
1.4.2.3. Possible pr ioritisation of inform ation disclosur e 
In order to avoid conveying  a mislead ing image of the releva nt risks, Membe r States  are also 
recom mend ed to consi der requi ring the presen tation of the information items to prioritize, 
based  on scale and material ity, the risks so as to better highlight the individual  risk profile of 
the UCITS.
1.4.3. Additional disclosure of a synthetic risk indicato r
Where the UCITS has been set up at least one year before, home Member States are also 
invited  to consider as a possible option requiring that the description referred to in point 
1.4.1.c) be supplemented by a synthetic indicator of risk in just one figure or word, based on 
the volati lity of the UCITS' portfolio, in which case:  
(a) the volat ility of the UCITS' portfoli o should be inten ded as measuri ng the 
dispersio n of the UCITS’ retu rn; 
(b) the UCITS'  return should be calculated taking into account all the UCITS' net 
asset values (NAVs) of the period, e.g. daily NAVs where this is the normal  
frequency of NAV calcul ation  as approve d by the UCITS compe tent 
autho rities, com puted  by assessi ng the  UCITS assets on th at same fre quency.  
1.5. Interpretation of ‘historical performance of the unit trust/common fund/invest ment 
company (where applicable) ’
In the third indent , Member States are recomme nded to interpre t the ‘historic al performance 
of the unit trust/c ommon fund/i nvestment company (where applic able)’  with ‘a warning that 
this is not an indi cator of future perf ormance’ as meaning the following informat ion: 
1.5.1 Disclosure of past performance : 
(a) the UCITS' past performance, as presented using a bar chart showing annual 
returns for the last 10 full consecutive years. If the UCITS has been in 
existence for fewer than 10 years but at least for a period of one year, it is 
recomm ended that the annual returns, calculat ed net of tax and charges, be 
given fo r as many  years  as are available; 
(b) if a UCITS is managed according to a benchmark or if its cost structure 
includes a performanc e fee depending on a benchmark, the information on the 
past performanc e of the UCITS should include a comparison with the past 
L 144/48 Official Journal of the European Union 30.4.2004 EN 
performance of the benchmark according to which the UCITS is managed or 
the performa nce fee is calcu lated. Member State s are recomm ended to require  
that comparison to be achieved by representing the past performance of the 
benchmark and that  of the UCITS on the same bar-chart and/ or separately. 
1.5.2. Disclosure of cumulati ve (average) performance
Additionall y, Member States are recommended to consider requiring disclosure, either of the 
cumul ative performa nce, or the cumul ative average  performance of the fund over specific 
periods of time (such as on three, five and 10 years). In case they use either of these options, 
Member States are recommen ded to require also a comparison with the cumulat ive 
performance, or cumulative average performance (where relevant) of a benchmark, when 
comparison to a benchmark is r equired in accordance with point 1.5.1 (b).  
1.5.3. Exclusion of su bscription and redemption fees, s ubject to appropriate disclosure
Taking into account existing regulatory standards, Member States are recommended to 
consider, whether or not to require subscription and redemption fees to be included in the 
calculation of the fund performance. However,  Member States should require the exclusion of 
that informat ion (where relevant ) to be subject to an appropriate  statement draw ing attention  
to this fact. Membe r States  are also recomm ended to encourage their compet ent authori ties to 
ensure progressive convergence to standards aligned on best practice in performance 
calcul ation . 
1.5.4. Disclosure of a benchmark
Member States are also invited to consider as a possible option requiring disclosure of a 
benchmark for all UCITS authorised in their jurisdiction, regardless of the fact that the 
UCITS' investment objecti ve does not explicitly refer to a benchmark. 
2. As regards the economic information referred to in the third heading of Schedule C in 
Annex I to Directive 85/611/EEC it is recommended that Member States apply the 
following interpretations:
2.1. Interpretation of ‘tax regime’
In the first indent , Member State s are recomm ended to interp ret ‘tax regim e’ as meani ng the 
followi ng informa tion: 
(a) the tax regime a pplic able t o the UCIT S in i ts home  Member St ate; 
(b) a statem ent which recall s that the regime of taxati on of the incom e or capit al 
gains received by individual investors depends on the tax law applicable to the 
personal situat ion of each indivi dual investo r and/or to the place where the 
capit al is investe d and that if investo rs are unclea r as to their fiscal positi on, 
they should seek professional advice or information from local organisations, 
where avai lable . 
2.2 Interpretation of ‘entry and exit commissions’ and ‘other possible expenses or fees’
2.2.1. Overall contents of the information provided
30.4.20 04 Official Journal of the European Union L 144/49 EN 
In the second and third  indents, Member States are recommended to interpret the ‘entry and 
exit commiss ions’ of the fund and ‘other possible expenses or fees, distinguishing between 
those to be paid by the unit-holder and those to be paid out of the unit trust's/common fund's 
or the investment company's assets’ as meaning the following inform ation: 
(a) disclosure of a total expense ratio (TER), calculat ed as indicated in Annex I, 
except for newly created UCITS where a TER cannot yet be ca lculated;  
(b) on an ex ante basis, disclosu re of the expected cost structure , i.e. an indic ation  
of all costs avail able accordi ng to the list set forth in Annex I so as to provide 
investo rs, insofar as possible , with a  reasonabl e esti mate  of expect ed costs;  
(c) all entry and exi t com missio ns and ot her expenses di rectly paid by t he inve stor; 
(d) an indication of all the other costs not included in the TER, including 
disclosure of transaction costs when these are deemed to be available  by the 
home Mem ber S tate competent authorities; 
(e) as an addit ional  indicator of the importance of transaction costs, the portfolio 
turnover r ate, calculated as s hown in A nnex I I; 
f) an indication of the existence of  fee-sh aring ag reements and soft commission s. 
The requirement set out in point (f) of the first paragr aph should not be interpreted as a 
general validati on of the compliance  of any indivi dual agreement  or commi ssion with 
Directive 85/611/EEC, and especially with Article 5f(1)(b) thereof, or with national 
regulati ons. Taking into account  current market practice, Member States are therefore invited 
to require UCITS to consider how far existing fee-shar ing agreements and comparable fee-
arrang ements are f or the ex clusive benef it of the UCI TS. 
Member States are recommended to provide for the simplified prospectus  to make a reference 
to the full prospectus for detailed information on that kind 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. Member States are therefore recommended 
to ensure that the informat ion provided in the simpl ified prospectus remains concise. 
2.2.2 Pre cisions on the notions of ‘ fee-sharing  agreem ents’ and  ‘soft com missions ’
2.2.2.1 Identifi cation of ‘f ee-sharing agreements’ 
Member States are recommended to identify and classify as fee-sharing agreements those 
agreements whereby a party remunerated, either directly or indirectl y, out of the assets of a 
UCITS 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 indirec tly, out of the assets of the UCITS. 
Furthermore, Member States are recommended to consider the following as fee-sharing 
agreements within t he meaning of the above paragraph: 
(a) fee-sharing agreements on transaction costs between a UCITS’ management 
company and a broker whereby the broker agrees to split with the management 
L 144/50 Official Journal of the European Union 30.4.2004 EN 
company the transactions fees paid by the UCITS to the broker for processing 
transactions for the UCITS; 
(b) fee-sharing agreements in funds of funds between a UCITS management 
company and another fund (or its management company) whereby, if that 
UCITS invests in the fund, part of the fees charged to that UCITS (either 
directly – subscription/redempt ion fees – or indirectl y – TER) because of this 
invest ment  will be paid by the target fund (or its management company) to the 
UCITS manag ement company. 
2.2.2.2. Identification of ‘soft com missions
Member States are recommended to identify as soft commissions any economic benefit, other 
than clearing and execution services,  that an asset manager receives in connection with the 
fund’s payment of commissions on transactions that involve the fund’s portfolio securities. 
Soft commissions are t ypically obtaine d from, or through, the executing broker. 
2.2.3. Presentation of  TER and portfoli o turnover rate
Member State s are invited to allow both the TER and the portfol io turnove r rate to be either 
included in or attached to the simpl ified prospectus in the same paper as informa tion on past 
performance. 
3. The Member States are requested to inform the Commission, in so far as possible, by 30 
September 2004 of any measures they have taken further to this recommendati on and to 
inform  it of the first results of its implementa tion, in as far as they are able, no later than 28 
February 2005.  
4. This recommendat ion is addressed to the Member St ates. 
Done at Brussels, 27 April 2004. 
For the Commission 
 F rederik BOLKE STEIN 
Member of t he Commission  
30.4.20 04 Official Journal of the European Union L 144/51 EN 
ANNEX  I 
Total expense ratio (TER) 
1. Definition of the TER: 
The total expense ratio (TER) of a UCITS is equal to the ratio of the UCITS'  total operating 
costs to its av erage ne t assets ca lculated as accor ding to par agraph 3.  
2. Includ ed/Excluded co sts 
2.1The total operating costs are all the expens es which come in deduction of a UCITS' assets. 
These costs are usually shown  in a UCITS’ statement  of operati ons for the relevan t fiscal 
period. They are assessed on an ‘all taxes inclu ded’ basis, which means that the gross value of 
expenses should  be used.  
2.2They inclu de any legitimate expenses of the UCITS, whatever their basis of calcul ation  
(e.g. flat -fee, asset -based, tra nsacti on-based3),such as: 
- management costs  including perfo rmance fees; 
- administra tion costs; 
- fees linked to d epository du ties; 
- audit fees; 
- payments to shareholder services providers including payments to the UCITS' transfer agent 
and payments to broker-dea lers that are record owners  of the UCITS' shares and that provide 
sub-account ing servic es for the benefic ial owners of the UCITS shares;  
- payment s to la wyers; 
- any dist ributi on or uni t canc ellation c osts charged t o the fun d; 
- registrat ion fees, regulato ry fees and si milar charges; 
- any addit ional  remuneration of the management company (or any other party) corresponding  
to certain fee-sharing ag reements in accordance to point 4 below. 
2.3 The total  operating costs do not  include:  
- transact ion costs which are costs incurred by a UCITS in connect ion with transact ions on its 
portfoli o. They inclu de brokerage fees, taxes and linke d charges and the market  impact of the 
3 This non-exhaus tive typology of calculation bases reflects the diversity of recent  commer cial practi ce across 
Member States (i.e. at the end of2003) and should not be interpreted as a gener al validation of the 
compl iance of any individual agreem ent or comm issio n with Directive 85/611/ EEC, as last amend ed by 
Direc tives  2001/107/E C and 2001/108/E C, and especiall y with Article  5f(1)(b) thereof,  regardi ng 
conflicts of  interest, or wi th national regulations.  
L 144/52 Official Journal of the European Union 30.4.2004 EN 
transac tion taking into account  the remuneration of the broker and the liquidi ty of the 
concerned assets; 
- interest on  borrow ing; 
- payments incurred because of financial derivat ive instrument s; 
- entry /exit commissions or any  other fees  paid directly b y the inves tor; 
- soft co mmissions in acco rdance w ith point 4. 
3. Calculat ion method and disc losure: 
3.1 The TER is calculat ed at least once a year on an ex post basis, generally with reference to 
the fiscal year of the UCITS. For specific purpose s it may also be calculated for other time 
periods. The simplified prospectus  should in any case include a clear reference to an 
information source (e.g. the fund’s website) where the investor may obtain previous 
years’/periods’ TER figures. 
3.2 The average net assets must be calculat ed using figures that are based on the UCITS' net 
assets at each calcu lation of the net asset value,  e.g. daily NAVs where this is the normal 
frequency  of NAV calcul ation  as approve d by the UCITS compe tent authoritie s. Further 
circumstances or events which could lead to misleadi ng figures have equally to be taken into 
consideration. 
Tax relief should not be t aken into account .  
The calcu lation meth od of the TER must be validated by the UCITS’ audit ors and/or 
compet ent aut horit ies.  
4. Fee-sharing agreements and soft commissions: 
It regularly results from fee-sharing agreements on expenses that are generally not included in 
the TER, that the management company or another party is actually meeting, in all or in part, 
operating costs that should normally be included in the TER. They should therefore be taken 
into account when calculating the TER, by adding to the total operating costs any 
remuneration of the management company (or another party) that derives from such fee-
sharing  agreements . 
There is no need to take into account fee-shar ing agreements on expens es that are already in 
the scope o f the TER. Sof t commissions s hould also b e left outside the s cope of the TER. 
Thus: 
– the remuneration of a management company through a fee-shar ing agreement 
with a broker on transaction costs and with other fund management companies 
in the case of funds of funds (if this remuneration has not been already been 
taken into account in the synthetic TER or through other costs already charged  
to the fund and therefore directly included into the TER) should anyway  be 
taken int o account i n the TER;  
30.4.20 04 Official Journal of the European Union L 144/53 EN 
– conversely, the remuneration of a management company through a fee-sharing 
agreement with a fund (except when this remuneration falls under the scope of 
the specific fund-of-fund case covered in the previous indent) should not be 
taken  into a ccount . 
5. Performance fees:
Performance fees should be included in the TER and should also be disclosed separately as a 
percent age of the  average ne t asset  value . 
6. UCITS investing in UCITS or in non-U CITS: 
When a UCITS invests at least 10 % of its net asset value in other UCITS or in non-UCITS 
which publish a TER in accordance with this Annex, a synthetic TER corresponding to that 
investment  should be disclosed. 
The synth etic TER i s equal t o the ra tio of : 
/g190 the UCITS' total operating costs expressed by its TER and all the costs suffered by the 
UCITS through holdings in underlying funds (i.e. those expressed by the TER of the 
underlying funds weighted on the basis of the UCITS investment  proportio n), plus the 
subscript ion and redempt ion fees o f these un derlying fund s, divi ded by 
/g190 the ave rage net a ssets of th e fund. 
As menti oned in the previous subparagraph, subscript ion fees and redempt ion fees of the 
underlyin g funds should be inclu ded into the TER. Subscript ion and redempt ion fees may not 
be charged when the underlyin g funds belong to the same group in accordanc e with Articl e 24 
(3) of Direct ive 85/ 611/EE C. 
When any of the underlyin g non-UCITS does not publish  a TER in accordan ce with this 
Annex , disclos ure of  costs should be adapted  in the fo llowing way: 
- the impossibility of calculating the synthetic TER for that fraction of the investment must be 
disclosed; 
- the maximum propor tion of management fees charg ed to the underly ing fund( s) must be 
disclosed in the simplified prospectus. 
- a synthetic f igure of total ex pected cos ts, by  calculating: 
– a truncated synthe tic TER incorpor ating the TER of each of those underly ing 
funds  for which the TER is calculat ed according to this Annex, weighted on the 
basis of the UCITS investment  proportion, and 
– by adding, for each of the other underlying funds, the subscription and 
redemption fees plus the best available  upper-bound assessment of TER-
eligible costs. This should include the maxim um managem ent fee and the last 
available  performance fee for that fund, weighted on the basis of the UCITS 
investment proportion.  
6. Umbrella funds/multiclass fun ds: 
L 144/54 Official Journal of the European Union 30.4.2004 EN 
In the case of umbrella funds, the TER should be calculat ed for each subfund. If, in the case 
of multi class funds, the TER differs between different share classes, a separate TER should be 
calculat ed and disclosed for each share class. Furthermore, in keeping with the principle of 
equality among investors, where there are differences in fees and expenses across classes, 
these different fees/expenses should be disclosed separately in the simplifi ed prospectus. An 
addit ional  statement shou ld indicate  that the objective criteria (e.g. the amount of 
subscr iption), on w hich these diff erences ar e based, are available in the f ull prospectus . 
30.4.20 04 Official Journal of the European Union L 144/55 EN 
ANNEX II 
Portfolio turnover rate 
A fund's or, where relevant, a compartment 's portfolio turnover rate should be calculat ed in 
the following way: 
Purchases of securities = X 
Sales of securities = Y 
Total 1 = Tot al of transactions i n securities = X + Y 
Issues/Subscriptions of units of the fund = S 
Cancel lations/Red empt ions of uni ts of the  fund = T 
Total 2 = Tot al transacti ons in units of the fund = S + T 
Reference average of total net  assets = M 
Turnover = [(Total 1 - Tot al 2)/M]*100  
The reference average of total net assets corresponds to the average of net asset values 
calculat ed with the same frequency as under Annex I, Article 1(3). The turnover rate 
disclosed should correspond to the period(s) for which a TER is disclosed. The simplifi ed 
prospectus should in any case include a clear reference to an information source (e.g. the 
fund’s website) where the investor may obtain previ ous periods’ p