2004/384/EC:Commission Recommendation of 27 April 2004 on some contents of the simplified prospectus as provided for in Schedule C of Annex I to Council Directive 85/611/EEC (Text with EEA relevance) (notified under document number C(2002) 1541/2)
Date: 2004-04-27
Institutions: European Commission
Subjects: approximation of laws, company structure, financial instrument, information, investment company, securities

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30.4.2004 

COMMISSION RECOMMENDATION 

of 27 April 2004 

on some contents of the simplified prospectus as provided for in Schedule C of Annex I 
to Council Directive 85/611/EEC 

(notified under document number C(2002) 1541/2) 

(Text with EEA relevance) 

(2004/384/EC) 

THE COMMISSION OF THE EUROPEAN COMMUNITIES, 

Having regard to  the  Treaty  establishing  the European Community, and in particular Article 
211, second indent, thereof, 

Whereas: 

(1)

(2)

In  order  to  enhance  effective  investor  information,  provisions  concerning  the 
simplified  prospectus  were  introduced  in  Council  Directive  85/611/EEC  of  20 
December 1985 on the coordination of laws, regulations, and administrative provisions 
relating to undertakings for collective investments in transferable securities (UCITS)1
by  Directive  2001/107/EC  of  the  European  Parliament  and  of  the  Council2.  The 
simplified prospectus is designed to provide clear information about the essentials the 
investor  should  know  before  investing  in  a  fund,  and  be  easily  understood  by  the 
average  retail  investor.  The  simplified  prospectus  is  also  designed  to  facilitate  the 
cross-border  marketing  of  units  of  UCITS,  and  be  used  as  a  single  marketing  tool 
throughout  the  Community.  Those  provisions  themselves  stress  that  host  Member 
States are not permitted to ask for any additions or modifications except translation. 

In  order  to  ensure  the  effectiveness  of  this  key  element  of  investor  protection,  it  is 
desirable  to  clarify  the  contents  and  presentation  of  some  of  the  elements  of 
information  which  have  to  be  included  into  the  simplified  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  available,  taking  into  account  the  recent  transposition  process  in  the 
Member States and the need for appropriate implementation. 

(3)

For  that  purpose,  the  mere  clarification  of  definitions  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,  intrinsically  linked  to  the  choice  and 

1  OJ L 375, 31.12.1985, p. 3; Directive as last amended by Directive 2001/108/EC of the European Parliament 

and of the Council ( OJ L 41, 13.2.2001, p. 35).  

2 OJ L 41, 13.2.2001, p. 20. 

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definition  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 
the 
Directive  85/611/EEC.  Since 
Commission  by  the  Directive  do  not  include  the  choice  and  structure  of  ratios,  a 
Commission  recommendation  is  for  the  moment  the  only  available  instrument  to 
support a common, comprehensive reading of the relevant contents of Schedule C. 

implementing  powers  conferred  upon 

the 

(4)

(5)

(6)

(7)

(8)

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 
simplified  prospectus  contain,  in  a  concise  form,  an  appropriate  description  of  the 
outcomes sought for the investment, information on any third-party guarantees which 
protect investors, for example against a downfall or on a minimum level of increase of 
the value of their investment and information on index-tracking objectives. 

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  simplified 
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’ attention on 
the  UCITS’  relevant  characteristics.  Therefore,  it  is  desirable  that  the  simplified 
prospectus briefly make clear the main categories of eligible instruments, the portfolio 
management  strategy  of  the  UCITS,  by  drawing  attention  to  possible  risk-
concentration  profiles  where  relevant,  and  the  key  characteristics  of  the  bonds  in 
which  the  UCITS  invests.  It  is  also  desirable  that  the  simplified  prospectus  contain 
information  on  the  financial  derivative  instruments,  the  management  style  and  the 
strategy to achieve the index-tracking objective in the case of index-tracking funds. 

In  keeping  with  the  safeguards  provided  for  in  Article  24a(1)  and  (3)  of  Directive 
85/611/EEC, the average investor should be enabled to understand the risk profile of a 
UCITS  and  be  adequately  informed  of  relevant  risk  characteristics.  It  is  therefore 
desirable  that  the  simplified  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  quantitative  risk  indicator  based  on  the 
UCITS volatility, but subject to further convergence work on such risk indicators. 

To  avoid  misleading  information  for  investors  on  historical  performance  and  to 
advance  the  comparability  of  UCITS  for  investors  within  the  Community,  it  is 
necessary to clarify the way past performance should be presented. 

For  the  sake of clarity  and  concision  of the  simplified  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  facilitate  proper  investor  information,  it  is  however 
appropriate  that  this  information  be  supplemented  by  a  warning  that  further  taxation 
may apply to the individual investor taking into account that the taxation of individual 
investors will depend on the fiscal regulation applicable in their personal or particular 
case. 

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(9)

(10)

(11)

To  ensure  effective  investor  protection  and  enhance  investor  confidence  in  the  fund 
industry, it is desirable that the simplified prospectus provide for full transparency of 
all the costs actually borne by investors in relation to their investment. To this end, it is 
necessary  to  disclose  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  calculated.  Since  entry  and  exit  commissions  and  other  expenses  directly 
paid  by  the  investor  are  not  included  in  the  TER,  it  is  desirable  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 authorities. In any case, it is desirable to disclose the portfolio turnover rate 
calculated  on  a  standardised  basis,  as  an  additional  indicator  of  the  relevance  of 
transaction costs. 

In  view  of  the  current  differences  in  market  practice  on  fee-sharing  agreements  and 
comparable  fee  arrangements,  it  is  appropriate  that  these  be  adequately  disclosed  to 
investors.  To  improve  transparency  for  investors,  it  is  therefore  necessary  that  the 
simplified prospectus indicate the existence of any such agreements or arrangements. 
It  is  also  advisable  to  invite  investors  to  consult  the  full  prospectus  for  detailed 
information on this kind of arrangement, which should enable them  to  understand to 
whom the expenses are paid and whether possible conflicts of interest will be resolved 
in their best interest. 

The  understanding  of  investors'  needs  in  terms  of  product  information  and  cross-
border  comparability  has  to  be  made  subject  to  further  progress,  also  in  the  light  of 
consumer  studies on  national  markets,  in  order  to  underpin  the  completion  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  recommendation,  and  to  report  accordingly  to  the  Commission.  The 
Commission  may  consider  in  due  time  whether there is a need to propose legislative 
the 
measures 
implementation of this recommendation, 

leverage  on  experience  and  Member  States'  feedback  on 

to 

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 interpretations. 

1.1. Interpretation of ‘short definition of UCITS’ objectives’

In the first indent, Member States are recommended to interpret ‘a short definition of UCITS' 
objectives’ as meaning the following information: 

(a) 

(b) 

(c) 

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

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

a  statement,  where  relevant,  that  the  UCITS  is  intended  to  track  an 
index/indices, and sufficient indications to enable investors both to identify the 

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L 144/45 

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 
policy’

In  the  second  indent  Member  States  are  recommended  to  interpret  ‘the  unit  trust's/common 
fund's or the investment company's investment policy’ as meaning the following information, 
provided it is material and relevant: 

(a) 

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

(b)  whether  the  UCITS  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) 

(e) 

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

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

(f)  whether  the  UCITS’  management  style  contemplates  some  reference  to  a 
benchmark;  and  in  particular  whether  the  UCITS  has  an  ‘index  tracking’ 
objective, with an indication of the strategy to be pursued to achieve this;  

(g)  whether  the  UCITS’  management  style  is  based  on  a  tactical  asset  allocation 

with high frequency portfolio adjustments. 

1.3. Joint presentation of the UCITS’ objectives and investment policy

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 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 UCITS. The order of the information items may be adapted to 
reflect the UCITS’ specific investment objectives and policy.  

1.4. Interpretation of ‘a brief assessment of the fund’s risk profile’

In the second indent, Member States are recommended to interpret ‘a brief assessment of the 
fund's risk profile’ as meaning the following information: 

1.4.1. Overall structure of the information provided;

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(a) 

(b) 

(c) 

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; 

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

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 probability. 

1.4.2. Precisions regarding the textual description of risks

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 specific markets or assets relevant to 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 or a counterparty will default (credit risk);  

(c) 

(d) 

(e) 

(f) 

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); 

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

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

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 concentration of assets or markets. 

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) 

(b) 

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; 

to  capital, 

risks 
from 
withdrawals/cancellations  of  units  and  distributions  in  excess  of  investment 
returns; 

including  potential 

risk  of  erosion 

resulting 

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(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; 

(f) 

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

1.4.2.3. Possible prioritisation of information disclosure 

In order to avoid conveying a misleading image of the relevant risks, Member States are also 
recommended  to  consider  requiring  the  presentation  of  the  information  items  to  prioritize, 
based on scale and materiality, the risks so as to better highlight the individual risk profile of 
the UCITS.

1.4.3. Additional disclosure of a synthetic risk indicator

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 volatility of the UCITS' portfolio, in which case: 

(a) 

(b) 

the  volatility  of  the  UCITS'  portfolio  should  be  intended  as  measuring  the 
dispersion of the UCITS’ return; 

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  calculation  as  approved  by  the  UCITS  competent 
authorities, computed by assessing the UCITS assets on that same frequency. 

1.5.  Interpretation  of  ‘historical  performance  of  the  unit  trust/common  fund/investment 
company (where applicable)’

In the third indent, Member States are recommended to interpret the ‘historical performance 
of the unit trust/common fund/investment company (where applicable)’ with ‘a warning that 
this is not an indicator of future performance’ as meaning the following information: 

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 
recommended  that  the  annual  returns,  calculated  net  of  tax  and  charges,  be 
given for as many years as are available; 

(b) 

if  a  UCITS  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  UCITS  should  include  a  comparison  with  the  past 

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performance  of  the  benchmark  according  to  which  the  UCITS  is  managed  or 
the performance fee is calculated. Member States are recommended 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 cumulative (average) performance

Additionally, Member States are recommended to consider requiring disclosure, either of the 
cumulative  performance,  or  the  cumulative  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  recommended  to  require  also  a  comparison  with  the  cumulative 
performance,  or  cumulative  average  performance  (where  relevant)  of  a  benchmark,  when 
comparison to a benchmark is required in accordance with point 1.5.1(b).  

1.5.3. Exclusion of subscription and redemption fees, subject 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 information (where relevant) to be subject to an appropriate statement drawing attention 
to this fact. Member States are also recommended to encourage their competent authorities to 
ensure  progressive  convergence  to  standards  aligned  on  best  practice  in  performance 
calculation. 

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 objective 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 States are recommended to interpret ‘tax regime’ as meaning the 
following information: 

(a) 

the tax regime applicable to the UCITS in its home Member State; 

(b) 

a  statement  which  recalls 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. 

2.2 Interpretation of ‘entry and exit commissions’ and ‘other possible expenses or fees’

2.2.1. Overall contents of the information provided

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In the second and third indents, Member States are recommended to interpret the ‘entry and 
exit  commissions’ 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 information: 

(a) 

disclosure  of  a  total  expense  ratio  (TER),  calculated  as  indicated  in  Annex  I, 
except for newly created UCITS where a TER cannot yet be calculated; 

(b)  on an ex ante basis, disclosure of the expected cost structure, i.e. an indication 
of all costs available according to the list set forth in Annex I so as to provide 
investors, insofar as possible, with a reasonable estimate of expected costs; 

(c) 

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

(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 Member State competent authorities; 

(e) 

as  an  additional  indicator  of the  importance  of transaction  costs,  the  portfolio 
turnover rate, calculated as shown in Annex II; 

f) 

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

The  requirement  set  out  in  point  (f)  of  the  first  paragraph  should  not  be  interpreted  as  a 
general  validation  of  the  compliance  of  any  individual  agreement  or  commission  with 
Directive  85/611/EEC,  and  especially  with  Article  5f(1)(b)  thereof,  or  with  national 
regulations. Taking into account current market practice, Member States are therefore invited 
to  require  UCITS  to  consider  how  far  existing  fee-sharing  agreements  and  comparable  fee-
arrangements are for the exclusive benefit of the UCITS. 

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 information provided in the simplified prospectus remains concise. 

2.2.2 Precisions on the notions of ‘fee-sharing agreements’ and ‘soft commissions’

2.2.2.1 Identification of ‘fee-sharing agreements’ 

Member  States  are  recommended  to  identify  and  classify  as  fee-sharing  agreements  those 
agreements  whereby  a  party  remunerated,  either  directly  or  indirectly,  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 indirectly, out of the assets of the UCITS. 

Furthermore,  Member  States  are  recommended  to  consider  the  following  as  fee-sharing 
agreements within the 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 

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30.4.2004 

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/redemption  fees – or indirectly – TER) because of this 
investment will be paid by the target fund (or its management company) to the 
UCITS management company. 

2.2.2.2. Identification of ‘soft commissions

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 typically obtained from, or through, the executing broker. 

2.2.3. Presentation of TER and portfolio turnover rate

Member States are invited to allow both the TER and the portfolio turnover rate to be either 
included in or attached to the simplified prospectus in the same paper as information 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  recommendation  and  to 
inform it of the first results of its implementation, in as far as they are able, no later than 28 
February 2005.  

4. This recommendation is addressed to the Member States. 

Done at Brussels, 27 April 2004. 

For the Commission 
Frederik BOLKESTEIN 
Member of the Commission 

 
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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 average net assets calculated as according to paragraph 3.  

2. Included/Excluded costs 

2.1 The total operating costs are all the expenses which come in deduction of a UCITS' assets. 
These  costs  are  usually  shown  in  a  UCITS’  statement  of  operations  for  the  relevant  fiscal 
period. They are assessed on an ‘all taxes included’ basis, which means that the gross value of 
expenses should be used.  

2.2 They  include  any  legitimate  expenses  of  the  UCITS,  whatever  their  basis  of  calculation 
(e.g. flat-fee, asset-based, transaction-based3), such as: 

- management costs including performance fees; 

- administration costs; 

- fees linked to depository duties; 

- audit fees; 

- payments to shareholder services providers including payments to the UCITS' transfer agent 
and payments to broker-dealers that are record owners of the UCITS' shares and that provide 
sub-accounting services for the beneficial owners of the UCITS shares; 

- payments to lawyers; 

- any distribution or unit cancellation costs charged to the fund; 

- registration fees, regulatory fees and similar charges; 

- any additional remuneration of the management company (or any other party) corresponding 
to certain fee-sharing agreements in accordance to point 4 below. 

2.3 The total operating costs do not include: 

- transaction costs which are costs incurred by a UCITS in connection with transactions on its 
portfolio. They include brokerage fees, taxes and linked charges and the market impact of the 

3  This  non-exhaustive  typology  of  calculation  bases  reflects  the  diversity  of  recent  commercial  practice  across 
Member  States  (i.e.  at  the  end  of2003)  and  should  not  be  interpreted  as  a  general  validation  of  the 
compliance of any individual agreement or commission with Directive 85/611/EEC, as last amended by 
Directives  2001/107/EC  and  2001/108/EC,  and  especially  with  Article  5f(1)(b)  thereof,  regarding 
conflicts of interest, or with national regulations.  

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transaction  taking  into  account  the  remuneration  of  the  broker  and  the  liquidity  of  the 
concerned assets; 

- interest on borrowing; 

- payments incurred because of financial derivative instruments; 

- entry /exit commissions or any other fees paid directly by the investor; 

- soft commissions in accordance with point 4. 

3. Calculation method and disclosure: 

3.1 The TER is calculated at least once a year on an ex post basis, generally with reference to 
the  fiscal  year  of  the  UCITS.  For  specific  purposes  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 calculated using figures that are based on the UCITS' net 
assets  at  each  calculation  of  the  net  asset  value,  e.g.  daily  NAVs  where  this  is  the  normal 
frequency  of  NAV  calculation  as  approved  by  the  UCITS  competent  authorities.  Further 
circumstances or events which could lead to misleading figures have equally to be taken into 
consideration. 

Tax relief should not be taken into account.  

The  calculation  method  of  the  TER  must  be  validated  by  the  UCITS’  auditors  and/or 
competent authorities.  

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-sharing agreements on expenses that are already in 
the scope of the TER. Soft commissions should also be left outside the scope of the TER. 

Thus: 

– 

the  remuneration  of  a  management  company  through  a fee-sharing 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 into account in the TER; 

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– 

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 account. 

5. Performance fees:

Performance fees should be included in the TER and should also be disclosed separately as a 
percentage of the average net asset value. 

6. UCITS investing in UCITS or in non-UCITS: 

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 synthetic TER is equal to the ratio of: 

" 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  proportion),  plus  the 
subscription and redemption fees of these underlying funds, divided by 

" the average net assets of the fund. 

As  mentioned  in  the  previous  subparagraph,  subscription  fees  and  redemption  fees  of  the 
underlying funds should be included into the TER. Subscription and redemption fees may not 
be charged when the underlying funds belong to the same group in accordance with Article 24 
(3) of Directive 85/611/EEC. 

When  any  of  the  underlying  non-UCITS  does  not  publish  a  TER  in  accordance  with  this 
Annex, disclosure of costs should be adapted in the following way: 

- the impossibility of calculating the synthetic TER for that fraction of the investment must be 
disclosed; 

-  the  maximum  proportion  of  management  fees  charged  to  the  underlying  fund(s)  must  be 
disclosed in the simplified prospectus. 

- a synthetic figure of total expected costs, by calculating: 

– 

– 

a  truncated  synthetic  TER  incorporating  the  TER  of each of those underlying 
funds for which the TER is calculated 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 maximum management fee and the last 
available  performance  fee  for  that  fund,  weighted  on  the  basis  of  the  UCITS 
investment proportion.  

6. Umbrella funds/multiclass funds: 

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In the case of umbrella funds, the TER should be calculated for each subfund. If, in the case 
of multiclass funds, the TER differs between different share classes, a separate TER should be 
calculated  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 simplified prospectus. An 
additional  statement  should  indicate  that  the  objective  criteria  (e.g.  the  amount  of 
subscription), on which these differences are based, are available in the full prospectus. 

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ANNEX II 

Portfolio turnover rate 

A  fund's  or,  where  relevant,  a  compartment's  portfolio  turnover  rate  should  be  calculated  in 
the following way: 

Purchases of securities = X 

Sales of securities = Y 

Total 1 = Total of transactions in securities = X + Y 

Issues/Subscriptions of units of the fund = S 

Cancellations/Redemptions of units of the fund = T 

Total 2 = Total transactions in units of the fund = S + T 

Reference average of total net assets = M 

Turnover = [(Total 1 - Total 2)/M]*100  

The  reference  average  of  total  net  assets  corresponds  to  the  average  of  net  asset  values 
calculated  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  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 periods’ p