KIID webinar by CLS Communication on 10 Nov 2011

Webinar The Key Investor Information Document (KIID) – initial experiences and lessonsKatrina Austin Team Leader Language OperationsKatrina Austin, Team Leader Language OperationsReto Schlegel, Business Development Manager10 November 2011

UCITS IV and KIIDs What are they?UCITS IV and KIIDs – What are they?

UCITSUndertakings for collective investments in transferable securitiesUndertakings for collective investments in transferable securities

Scope of applicationEuropean Union and European Economic Area; Switzerland to followEuropean Union and European Economic Area; Switzerland to follow

Investment fund regulation in EuropeInvestment fund regulation in Europe

UCITS I 1985

UCITS IIFailure

UCITS III: New asset classes added

UCITS IV: Simplification/KIID

AIFM: Other collective investment schemes

Webinar – The Key Investor Information Document (KIID) – initial experiences and lessons | 10 November 20112

The challenge

Key Investor Information Document (KID/KIID/KII)

Mandatory for fund distribution in the EU and EEA, with Switzerland to follow

Replaces the simplified prospectusReplaces the simplified prospectus

Laid down in the UCITS IV Directive: in force since July 2011

“Grandfathering” exemption applies until July 2012 (except for funds underGrandfathering exemption applies until July 2012 (except for funds under German law)A KIID must be produced for each share class, translated into at least one

ffi i l l f h t i hi h th f d i di t ib t d >official language of each country in which the fund is distributed -> many different versions

Translations are legally bindingg y g

Responsibility for the KIID lies with the fund management company

Funds under Swiss law: KIIDs are to be introduced in July 2012 (for new


Funds under Swiss law: KIIDs are to be introduced in July 2012 (for new funds) and July 2014 (existing funds)

KIID requirementsKIID requirements

KIIDs follow a standard layout and must include:KIIDs follow a standard layout and must include: Brief description of the strategy and investment objective

Brief presentation of the risk/return profile (chart and text)Brief presentation of the risk/return profile (chart and text)

Charges

P t f i t d di d f tPast performance in standardised format

Practical information

Simple, easy-to-understand language must be used (short sentences, no jargon)Updated annuallyp yAlso updated whenever material changes take place (trigger events)Must be registered with the authorities and kept for five years (including the associated data)


associated data)

CLS’s model KIID

Key Investor Information Document (KIID) This document provides you with key investor information about this fund. It is not marketing material. The information is required by law to help you understand the nature and the risks of investing in this fund. You are advised to read it so you can make an informed decision about whether to invest.

Charges for this Fund

CLS Fund (Lux) Swiss Equity CHF ISIN LU0123456789, Swiss security no. 123456This fund is managed by CLS Fund Management, xx Route de XX, L-1470 Luxembourg

Objectives and Investment Policy

We invest in Swiss equities (stocks) and similar equity-like instruments, allowing you to share in the performance of the Swiss stock market. We aim to achieve a higher return than the benchmark’s. The investment process prioritises careful stock selection, and we are not required to follow a particular style (e.g. value or growth). We use macroeconomic fore-casts and sector analysis only to avoid excessive portfolio

Level of investment: At least two-thirds of the fund’s assets must be invested at all times. The cash position may not be more than one-third of the fund’s assets. Reinvestment fund: We reinvest income such as divi-dend payments rather than distributing it to you. As such, it contributes to the fund’s return.

Commission on the issue and redemption of fund units:

Entry charge max. 2.5%

Exit charge max. 2.5%

This is the maximum that might be taken out of your money before subscription/redemption.

Charges taken from the fund over a year:

Ongoing charges as at 31 December 2010 1.66%

This amount may vary from year to year

The entry and exit charges shown are maximum figures. In some cases you might pay less – you can find this out from your financial adviser.

The ongoing charges figure is based on expenses for the year ending [date]. This figure may vary from year to year. It excludes performance fees and portfolio transaction costs, except in the case of an entry/exit charge paid by the fund when buying or selling units in another collective investmentcasts and sector analysis only to avoid excessive portfolio

weightings for particular stocks or sectors. Investment universe and benchmark: Our portfolio holds stocks listed on the Swiss Exchange (SIX) and forming the Swiss Performance Index® TR (SPI). That index is used to measure our performance. We can also buy shares in com-panies that are listed on the Berne Exchange (BX), in unlisted companies and in companies that have their registered office in another country but generate most of their revenues in Switzerland. However, such investments may not make up more than 10% of the fund’s assets.

Daily trading: Each day, CLS Fund Services, xx Route de XX, L-1470 Luxembourg, calculates the net asset value (NAV) of the sub-funds of the CLS Funds SICAV under Luxembourg law. Fund subscriptions and redemp-tions are made at that price on the next value date. This means you can buy and sell units at the current net asset value on a daily basis. Transaction costs: Transaction costs are charged to the fund, which reduces its returns. Investment horizon: The CLS Fund (Lux) Swiss Equity

This amount may vary from year to year.

Charges taken from the fund under certain specific conditions:

No additional fees (such as performance fees or stock exchange fees) apply

units in another collective investment undertaking For more information about charges, please see the fund’s prospectus, which is available at www.sample_url.com/ucitsfund/.

Past Performance (in CHF)

40Percentage change versus previous year

Luxembourg law: Luxembourg law may lead to large devia-tions from the benchmark index. The three largest stocks in the benchmark index have weightings of well over 10%, which we are not allowed under Luxembourg law to replicate. Such deviations can have a positive or a negative effect for you.

Investment horizon: The CLS Fund (Lux) Swiss Equity CHF is a pure equity fund, so its performance is affected by stock market fluctuations. Recommendation: this fund may not be appropriate for investors who plan to withdraw their money within seven years.

‐40

‐20

0

20

40

1 2 3 4 5 6 7 8 9 10

Time (2001 = 1)

Swiss Performance Index ® TR (SPI)

CLS Fund (LUX) Swiss Equity CHF

Risk and Reward Profile

On the financial markets, returns in excess of the risk-free interest rate are earned by entering into risk. Over the longer term, investors who are prepared to accept greater risk can typically look forward to higher returns. The chart above

• The CLS Fund (Lux) Swiss Equity does not engage in securities lending; the shares in which we invest are all in the possession of the fund. No operational risk is entered into in this regard.

• As we only invest in securities, we do not enter into any counterparty risk (i.e. the risk of insolvency of a market participant in addition to that of the compa-nies in which investments are made).

• We seek to invest in liquid stocks, i.e. those that can b f l t d d Li idit i t l d f

1 2 3 4 5 6 7 Lower risk Higher risk

Typically lower reward Typically higher reward

Practical Information Luxembourg tax legislation may have an impact on the personal tax position of the investor.

The net asset value is published every day at www.sample-url.com and www.sample_url.com.

CLS Fund Management, xx Route de XX, L-1470 Luxembourg may be held liable solely on the basis of any statement contained in this document that is misleading, inaccurate or inconsistent with the relevant parts of the prospectus for the fund.

Investors have the right to switch free of charge between the sub-funds of the CLS Funds SICAV under Luxembourg law. yp ca y oo o a d o g e e u s e c a abo eshows the risk/reward profile of the CLS Fund (Lux) Swiss Equity CHF.

• Risk level 5 signals fairly high risk, with a commensurate fairly high return potential. Even investments in the low-est risk category are not entirely free of risk.

• The CLS Fund (Lux) Swiss Equity CHF is an equity fund. It is therefore subject to fluctuations in performance. As we are limited to buying and holding securities and do not engage in short-selling or borrow money to fund in-vestments, the fund does not fall into the very highest risk category

be freely traded. Liquidity is not always assured for small and medium-sized companies, particularly in the event of market turmoil. As such, a degree of li-quidity risk cannot be ruled out.

• Historical performance is not an indicator of current or future returns.

• The risk class to which the fund is assigned may change over time.

g g gThis KIID relates only to the CLS Fund (Lux) Swiss Equity CHF.

This fund is authorised in Luxembourg and Switzerland and regulated by the local supervisory authorities.

The depositary is ABC-Bank (Luxembourg) S.A. For more information about this fund, other sub-funds or unit classes, please see the fund’s prospectus. The prospectus and the most recent annual and semi-annual reports are available free of charge at www.sample-url.com/ucitsfund/, in English and German.

This key investor information is accurate as at 1 July 2011. It was published by CLS Asset Management AG, Elisabethenanlage 11, 4000 Basel, Switzerland and is accurate as at that date.

risk category.


Plain EnglishThe same universal rules apply across all types of writing:

- PoetryProse- Prose

- Technical texts

These rules have not changed materially over centuries.There are any number of readability formulae that can be used to test these rules, some of which are supported by software.

Nevertheless, the same principles apply!


Plain language requirement

The directive says:

“Key investor information shall be written in a concise manner and in non-technical language. It shall be drawn up in a common format, allowing for comparison, and shall be presented in a way that is likely to be understood by retail investors.”DIRECTIVE2009/65/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), Article 78

Th l id i th t t h ld b i f 25 dThe only guidance is that sentences should be a maximum of 25 words.So what does that mean for KIID writers?


Writers of English have the most guidance

English-speaking countries have the most organisations that have already addressed the issue of plain language. Examples include:

- Campaign for Plain English- SEC guidelinesg- Oxford Guide to Plain English- Warren Buffet: “When writing Berkshire Hathaway’s annual report, I pretend

that I’m talking to my sisters I have no trouble picturing them: though highlythat I m talking to my sisters. I have no trouble picturing them: though highly intelligent, they are not experts in accounting or finance. They will understand plain English, but jargon may puzzle them. My goal is simply to give them the information I would wish them to supply me if our positions were reversed.”information I would wish them to supply me if our positions were reversed.


General, long-standing rules

Wh CLS it d dit d t l ll t d i i l

+ MiFID principles

When CLS writes and edits documents, we apply generally accepted principles of plain language. We also offer innovative, objective software-supported text analysis.

There has been no further specification of readability requirements by the EU or industry associations. So what does that mean for KIID writers? -> Follow long-established rules -> Consider software-supported testing-> Keep the MiFID rules in mindp


Rafik Schami: Damascus NightsRafik Schami: Damascus Nights

“Words are sensitive, magical flowers, that only grow when they fall upon fertile ground in the listener’s ear ”ground in the listener’s ear.”

-> The act of writing implies a desire to be read to be ead

-> Text becomes meaningful when it is read, not when it is written


Focus must be on the reader, not the writer

The act of writing implies a desire to be read

Focus must be on the reader, not the writer

Who am I writing for? -> Know your reader -> Be your reader’s advocate yKIIDs: We are writing for retail investors, not for regulators or lawyers

There can often be a conflict when writing between the needs of the writer andThere can often be a conflict when writing between the needs of the writer and of the reader. The UCITS directive comes down squarely on the side of the reader.


C h ibilit d dComprehensibility depends on… …sentence length and structure

Based on several studies, press associations in the USA have laid down a readability table. Their survey shows readers find sentences of: up to 8 words very easy to read11 words easy14 words fairly easyy y17 words standard21 words fairly difficult25 words difficult25 words difficult29 words or more very difficult

(Jyoti Sanyal, Indlish)

The Oxford Guide To Plain English offers the following guideline: “Over the whole document, make the average sentence length 15-20 words.”

If h 2 d i ldi h !12

-> If a sentence reaches 25 words, start wielding the axe! Webinar – The Key Investor Information Document (KIID) – initial experiences and lessons | 10 November 2011

Comprehensibility depends on… …the words chosen

Use short, simple, precise wordsAvoid jargonBe consistent in terminology use – avoid synonyms-> Explain, gloss or omit Use verbs rather than nouns: English is built around verbsUse the active rather than the passive voiceUse a subject-verb-object word orderj jDon’t fear the imperativeBe sparing with adjectives and beware superlatives No need for defined terms/abbreviationsNo need for defined terms/abbreviationsCreate immediacy and clarity by using “we” and “you”Question everything!

13Webinar – The Key Investor Information Document (KIID) – initial experiences and lessons | 10 November 2011

E lExamples:

ORIGINAL: Financial derivatives are used by the investment manager to protectORIGINAL: Financial derivatives are used by the investment manager to protect the value of individual assets held by the sub-fund. BETTER: The investment manager uses financial derivatives to protect the value of individual assets held by the sub-fund.BEST: We use financial derivatives to protect the value of individual assets held by the sub-fund.ORIGINAL: For further information, we refer you to the prospectus.BETTER S th t f i f tiBETTER: See the prospectus for more information.Find out not ascertainSo not consequentlyB t hBuy not purchaseBelow not hereunderORIGINAL: We seek to achieve the investment objective by means of investments in stocks bonds and money market instruments and through theinvestments in stocks, bonds and money market instruments and through the use of derivatives for hedging purposes. BETTER: We seek to achieve the investment objective by investing in stocks, bonds and money market instruments and using derivatives for hedging

14

y g g gpurposes.


Is the language understandable to all? Software-supported testingSoftware-supported testing

CLS Communication analyses draft KIIDs according to numerousCLS Communication analyses draft KIIDs according to numerous comprehensibility parameters (such as the rules mentioned above). This is objective analysis conducted using software.The barriers to comprehension are plain to seeThe barriers to comprehension are plain to see. Transparent scores are awarded, with a figure shown for each index.The software can be used for English and German texts; the German

i h dditi l f ti litiversion has additional functionalities.

15Webinar – The Key Investor Information Document (KIID) – initial experiences and lessons | 10 November 2011

Initial experiences (I)Initial experiences (I) Linguistic

Technical

Regulatory/legal


Initial experiences (II)Initial experiences (II)Linguistic:

It can be hard to achieve clear and simple language in practice

Key information is missing (e.g. investment objective not stated)

W i d i h fWriters copy and paste straight from prospectuses

Tendency towards further standardisation of texts

L k f k l d th h t i tit ti l f L l d t tLack of knowledge throughout institutions, e.g. role of Legal departments

Resistance from clients (“We know that’s the mandatory wording but it’s not what we want it to say!”)y )

A separate KIID is produced for each share class. Very little use is being made of the representative share class option.


Initial experiences (III)Initial experiences (III)Technical:

Excel solutions

-> A nightmare for our clients!

Ab f i i l-> Absence of triggering rules

-> Difficult to update quickly

A t t d t th t li k t th ti f t t th t d t ll fitAutomated systems that link together sections of text that do not really fit

Automated systems that are not designed for KIIDs and require a lot of subsequent manual input q p

Automated systems through special KIID service providers

-> Our preferred option

-> Low level of error thanks to automated handling and triggering

-> Save on resources (even internal resources cost money)

-> Third-party costs can be charged to the fund assets Webinar – The Key Investor Information Document (KIID) – initial experiences and lessons | 10 November 2011

18

Initial experiences (IV)Initial experiences (IV)Regulatory/legal:

Slow progress on implementation into national law, but deadline must be met

Contradictions of the directive and additional requirements are being introduced in the implementation into national lawin the implementation into national law

-> KIID writers’ hands are tied

-> Denmark

-> Belgium


Examples of non-plain language:

“No person has been authorized to give any information or make any representation other than those contained or incorporated by reference in this joint proxy statement/prospectus, and, if given or made, such information or

t ti t t b li d h i b th i d ”representation must not be relied upon as having been authorized.”

“The foregoing Fee Table is intended to assist investors in understanding the costs and expenses that a shareholder in the Fund will bear directly orcosts and expenses that a shareholder in the Fund will bear directly or indirectly.”

“The fund is constructed with a volatility target of 10% but it can deviate due to dd l tilit ik Whil th d i ti d li id thsudden volatility spikes. While the derivatives used are liquid, these

instruments embed leverage. The fund aggregates three portfolios differentiated by investment horizons. In the case of an increase of the correlations between asset classes, a hedging overlay is applied to cover tail

Overly long

Technical jargon too much knowledge assumed

correlations between asset classes, a hedging overlay is applied to cover tail risk.”

Technical jargon – too much knowledge assumed

Unnecessary capitalisation

Passive voicePassive voice

Taken directly from a disclaimerWebinar – The Key Investor Information Document (KIID) – initial experiences and lessons | 10 November 2011

20

Reworked:

“You should rely only on the information contained in this document or that we have referred you to. We have not authorized anyone to provide you with information that is different.”

“This table describes the fees and expenses that you may pay if you buy and hold shares in the fund.”

“The fund has a volatility target of 10%, but it may deviate from this when there is sudden market volatility. The fund uses derivatives for which there is a ready market of buyers and sellers. By their nature, however, these instruments

t t b th iti d ti h i t i Th f d iaccentuate both positive and negative changes in asset prices. The fund is made up of three portfolios with different investment horizons. If correlation between asset classes increases, we use hedging to cover the unlikely but extreme risks that result.”extreme risks that result.


UCITS IV/KIIDUCITS IV/KIID

1 7 20111.7.2011

UCITS IV implemented in July 2011 KIIDs to be implemented by July 2012 (at the latest)

The challenge for you - To write a large number of

KIIDs in plain languageT t l t KIID

How you benefit- Glossaries and style guides- Internal expert knowledge:

i d fi i l dit

Our solution- Outsource writing, editing

and translation to CLS C i ti- To translate your KIIDs

into all target languages- Data and version

management, updates and

experienced financial editors –readability

- Specialist translators- Professional project

Communication- Full outsourcing in

conjunction with a cooperation partnerg

tight deadlinesj

management


Translation of KIIDs into all target languagesTranslation of KIIDs into all target languages

Our language professionals translate your KIIDs into all the languages you need.Our language professionals translate your KIIDs into all the languages you need.

You receive:

A text that is terminologically consistentg y

Translations that remain comprehensible to the general public


KIID workshopsKIID workshops

We work with you to define what plain language means within the context of your fundWe work with you to define what plain language means within the context of your fund range.

This can be defined separately for each language should you wish.

We build on our company-specific glossaries.


KIID instructions and glossariesKIID instructions and glossaries

We respond to your questions applying our general KIID glossary.We respond to your questions applying our general KIID glossary.

You can reap the benefits of our KIID language guidelines and corresponding

glossaries.g

On request, we can also manage your own KIID terminology.


KIID writing coursesKIID writing courses

CLS Communication can hold a tailored writing course at your premises, helping your experts toCLS Communication can hold a tailored writing course at your premises, helping your experts to hone their skills in writing KIIDs.

This is a practical course specifically designed around the KIID requirements.

The trainer will take your specialists through the KIID by means of presentations and exercises.


Entire KIID solutionsEntire KIID solutions

Structured workflow Clear division of responsibilitiesA network of expertise

Fund t CLS & IT partner Operational Fund

tOperational

Data input• Fund data

Approval and distribution

E il

management company

CLS & partners

IT partner

Data centre• Interfaces

KIID PDF file• Preparation

Ch k

ppartner management

company

ppartner

• Text blocks• Translations

• FundsXML• FTP

• E-mail• Download• FTP• Website

• Databases• Calculation module• Workflow module• Chart module• Output manager

• Checks• Quality assurance

• Other


How you benefitHow you benefit

The challenge How you benefitIT environment,interfaces

Incorporation into automated solutions (with fund services provider)interfaces p )

Expert knowledge Financial expertise and knowledge of UCITS IV and legal KIID requirements

Package of services Full-service provider for all your language needs from writing andPackage of services Full-service provider for all your language needs, from writing and editing through to translation

Multilingual Consistent use of your corporate terminology and plain language in all languagesg g

Tight deadlines (same deadline of 1 July 2012 applies to everyone)

Capacity for efficient translation into all EU languages

pp y )Reliability Professional project management


Your contacts at CLS Communication

In SwitzerlandIn SwitzerlandDaniel FunkSenior Financial CopywriterTel +41 44 206 41 77

Reto SchlegelBusiness Development ManagerTel +41 21 317 54 08Tel. +41 44 206 41 77

Sägereistr. 338152 Glattbrugg-Zurich | Switzerlanddaniel funk@cls communication com

Tel. +41 21 317 54 08Rue Centrale 101003 | Lausanne | Switzerland

t hl l@ l i [email protected]

In the UKK t i A ti

[email protected]

Katrina AustinTeam Leader Language OperationsTel. +44 (0)20 3117 2828

S S

Michael EllisHead of Business DevelopmentTel. +44 (0)20 3117 2814

14-20 Shand StreetLondon SE1 2ES | [email protected]

14-20 Shand StreetLondon SE1 2ES | [email protected]

www.cls-communication.com


Th kThank youfor your attentionfor your attention

Basel | Beijing | Chiasso | Copenhagen | Frankfurt | Hong Kong | Lausanne | London | Madrid| j g | | p g | | g g | | |Moncton | Montreal | New York | Ottawa | Paris | Quebec | Shanghai | Singapore | Toronto | Zurich