COLL 4 Annex 1 Total expense ratio calculation

1This Annex belongs to the rule on the contents of the simplified prospectus in this chapter.

Total expense ratio (TER)

1.

Definition of the TER

The total expense ratio (TER) of a simplified prospectus scheme is the ratio of the scheme's total operating costs to its average net assets calculated according to paragraph 3.

2.

Included/excluded costs

(a)

The total operating costs are all the expenses which come in deduction of a simplified prospectus scheme's assets. These costs are usually shown in a scheme's statement of operation 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.

(b)

Total operating costs include any legitimate expenses of the simplified prospectus scheme, whatever their basis of calculation (e.g. flat-fee, asset-based, transaction-based - see note 2 above), such as:

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management costs including performance fees;

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administration costs;

-

fees linked to depositary duties;

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audit fees;

-

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

-

payments to lawyers;

-

any distribution or unit cancellation costs charged to the scheme;

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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 with paragraph 4 below.

(c)

The total operating costs do not include:

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transaction costs which are costs incurred by a simplified prospectus scheme in connection with transactions on its portfolio. They include brokerage fees, taxes and linked charges and the market impact of the 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 paragraph 4.

3.

Calculation method and disclosure

(a)

The TER is calculated at least once a year on an ex post basis, generally with reference to the fiscal year of the simplified prospectus scheme. 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 scheme's website) where the investor may obtain previous years'/periods' TER figures.

(b)

The average net assets must be calculated using figures that are based on the scheme's net assets at each calculation of the net asset value (NAV), e.g. daily NAVs where this is the normal frequency of NAV calculation as approved by the simplified prospectus scheme's 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 simplified prospectus scheme's 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 arrangements on expenses that are already in the scope of the TER. Soft commissions should also be left outside the scope of the TER.

Thus:

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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 already been taken into account in the synthetic TER (see paragraph 6 below) 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,

-

conversely, the remuneration of a management company through a fee-sharing agreement with a scheme (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.

Simplified prospectus scheme investing in UCITS scheme or in non-UCITS scheme:

When a simplified prospectus scheme invests at least 10% of its net asset value in UCITS schemes or in schemes that are not UCITS schemes 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:

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the simplified prospectus scheme's total operating costs expressed by its TER and all the costs borne by the scheme through holdings in underlying funds (i.e. those expressed by the TER of the underlying funds weighted on the basis of the simplified prospectus scheme's investment proportion), plus the subscription and redemption fees of these underlying funds, divided by

-

the average net assets of the scheme.

As mentioned in the previous subparagraph, subscription fees and redemption fees of the underlying funds should be included in 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 the UCITS Directive.

When any of the underlying schemes that are not UCITS schemes 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,

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

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a synthetic figure of total expected costs must be disclosed, by calculating:

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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 simplified prospectus scheme's investment proportion, and

-

by adding, for each of the other underlying funds, the subscription and redemption fees plus the best available maximum estimate 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 simplified prospectus scheme's investment proportion.

7.

Umbrella funds/multiclass funds:

In the case of umbrella funds, the TER should be calculated for each sub-fund. 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.

Notes:

1.

This Annex sets out the requirements in relation to the TER. It reproduces, and adapts where appropriate for the purposes of the Simplified Prospectus provisions, Annex 1 to Commission Recommendation (2004/384/EC), amplifying Schedule C (Contents of the simplified prospectus) to the Management Company Directive (2004/107/EC).

2.

The non-exhaustive typology of calculation bases referred to in paragraph 2(b) below reflects the diversity of recent commercial practice across Member States (at the end of 2003) and should not be interpreted as a general validation of the compliance of any individual agreement or commission with the provisions of the Handbook.