1. Product Development – Key Investor Information Document (KIID) 10 November 2011 Christian Pittard, Group Head of Product Development Aberdeen Asset Management

2. 1 Contents 1.Purpose of the “KIID” 2.Implementation Timeline 3.“KIID” components; -Objectives and Investment policy -Synthetic Risk and Reward Indicator -Synthetic Risk and Reward Indicator Calculation -Standard Performance Charts -Standard Charges Disclosure 4. Industry Examples of “KIIDs” 5. Implementation Challenges -Volume -Language -Costs -Delivery -Monitoring and Updating -Supplementary Information Document (SID) 6. Potential Wider Implications

3. 2 Purpose of the “KIID”? The simplified prospectus has been denounced as unfit for purpose for the following reasons: The information not being easily understood and accessible to the average retail investor; Too lengthy and too technical; The documents often including non-material information that does not help potential investors' decision making Lack of consistency across all member states. Failed to assist comparisons between funds, particularly when cross border sales are involved. The costs and associated risk of investing were not clearly presented.

4. 3 Purpose of the “KIID”? (Cont’d) The new Key Investor Information Document (KIID) is a two-page pre-sales document which replaces the Simplified Prospectus. The KIID contains concise descriptions of key fund information. It is a key provision of the UCITS IV Directive, which was approved by the European Commission on 13 January 2009. “Retail investors should receive clear, easily understandable and relevant information when they envisage to invest in UCITS. The simplified prospectus could be replaced by the Key Investor Information (KII) concept. This would be a simple document giving key facts to investors in a clear and understandable manner. It would assist them in making an informed investment decision” – European Commission

5. 4 Implementation Timeline From 30th June 2011 - All newly authorised UCITS umbrellas must produce a “KIID” per Sub Fund. From 1st July 2012 - All authorised UCITS funds will have to produce a “KIID” per Share Class in every market language per Sub Fund This extended date applies to: Standalone UCITS authorised before 30th June 2011 Existing Umbrella funds which launch a sub-fund after 30th June 2011 (these can elect to publish a “KIID” or a simplified prospectus) Existing Sub-Funds which launch a new share class after 30th June 2011. These can elect to publish a “KIID” or a simplified prospectus

6. 5 (KIID) Components Synthetic Risk Reward Indicator Standard performance charts Standard charges disclosure Minimum font size No obtrusive branding 2 sides maximum “Non technical” language Clear Concise Consistent

7. 6 A short description of the essential features of the investment product that must include: Categories of eligible financial instruments Any industrial or geographical focus. A statement that investors may redeem on demand. Disclosure as to whether dividend income is distributed or reinvested. Objectives and Investment policy

8. 7 Synthetic Risk and Reward Indicator A SRRI is a number between 1 and 7 which will allow investors to assess risk. A numeric value of 1 will mean potential low risk/low reward while a 7 will indicate the investment carries potential for high risk/high return The SRRI must be replicated in Semi Annual and Annual reporting. It is permitted for this to sit alongside any existing risk commentary

9. 8 (SRRI) Calculation Volatility Range (%)SRRI Category 0 - 0.5 1.00 0.5 - 2 2.00 2- 5 3.00 5- 10 4.00 10- 15 5.00 15- 20 6.00 20- 25 7.00 Calculation of the SRRI uses the annualized volatility of the total returns of the fund over a 5-year period. Weekly returns must be used where possible Each SRRI category represents a volatility range. Market Funds Structured Funds (Total Return, Absolute Return and Lifecycle Funds) Volatility returns are combined with other measures (such as the volatility implied by the risk limit of the fund) before an SRRI category is chosen. The SRRI must be calculated and monitored on an ongoing basis. If the calculated SRRI category differs from the published category for every calculation date over a 4 month period, then the KII document must be updated.

10. 9 Standard Performance Charts Similar to the simplified prospectus and must include: Bar chart displaying up to 10 years performance. Short- term performance changes will not be reflect as the metric used is annualised. The performance of a Benchmark if used. Where a UCITS has a track record of less than five complete calendar years a template must be included with blank slots used for any year for which data is not available. Performance charts should not be included for Funds with less then one calendar year’s performance track record.

11. 10 Standard Charges Disclosure A table setting out the charging structure and a brief narrative explanation of each of the charges. Disclose any one-off charges. Disclose any annual charges (excluding performance fees, which must be disclosed separately) No requirement to include a T.E.R or portfolio turnover rate. This is replaced by the “on-going” charge calculation. Past performance must be updated annually. And be published no later than 35 business days after 31 December each year.

12. 11 Industry Examples of “KIIDs”

13. 12 Industry Examples of “KIIDs”

14. 13 Industry Examples of “KIIDs”

15. Implementation Challenges

16. 15 Volume Key challenge with the addition of different share classes and languages. A single “KIID” can be issued per Sub- Fund demonstrating a “representative” Share class however this is complex, risky and predicted to be seen as undesirable. A system-driven solution is required that can handle volume. BlackRock, for example, will produce “KIIDs” to support different UCITS fund ranges domiciled in Germany, Ireland, Luxembourg and the UK. This equates to more than 14,000 “KIIDs” Number of documents

17. 16 Language Language must be “clear, easily understandable and relevant” No technical, long-winded or ambiguous language Inconsistencies with the prospectus need to be vigilantly avoided. A template approach should resolve a number of these issues however the Objectives and Investment policy, Risk and Reward profile and practical information sections all require bespoke wording. It has been recommended that groups establish focused working parties from the start to prevent hold-ups in sign-off due to specific requirements relating to wording. Translation A KIID will need to be provided for every Market language Good language service providers will use word repetition technology and standardise wording as far as possible across fund ranges. They should provide translation certification as a matter of course, confirming that the translations are a true and accurate version of the English original.

18. 17 Costs The total cost to the industry is unknown. However by way of example Schroder Investment Management have indicated they will be spending €1m creating “KIIDs” for their UCITS funds Costs to consider include: -Data collection -System costs -Drafting -Translation Because the KII is a statutory requirement, the costs will typically be charged to the funds rather than paid by the management group. Source: Fund Web

19. 18 Delivery “KIID” needs to be provided to the investor prior to their investing. This presents technical and logistical challenges. Via an intermediary it is the duty of the intermediary to ensure the client has seen a “KIID”. The Fund Manager is only responsible for providing the document to the intermediary. Questions remain as to who is responsible for providing “KIID” to investors who use trading platforms, such as Euroclear and Clearstream. Some Managers will require clients to download application forms. Those application forms sent in hard copy will be accompanied by a “KIID”. Verbal or written declaration on application forms that they have seen the current “KIID” “KIIDS” are not permitted to exist alongside a simplified prospectus. A number of key platforms are not ready to receive them – as such a challenge to ensure correct timing. Will platforms insist on their own “live date” for KIID?

20. 19 Monitoring and Updating KIID must be reviewed on certain occasions: At least annually, within 35 business days of each calendar year end. Prior to any proposed change to the prospectus, fund rules or instruments of if incorporation or any material change to the fund that requires amendments to be made to the KIID When a material change is the expected due to a decision by the management company, the KIID must be reviewed and updated prior to the change comes into effect. If not an expected change, the KIID must be updated “promptly”. As such, ongoing monitoring is required to ensure that KIID is kept up to date. The revision requirements if not properly managed could lead to the unnecessary reproduction of KIIDS adding additional burden in terms of cost.

21. 20 An industry working title for the essential information needed by clients, but which cannot be included in the “KIID”. This may include additional product information such as investment limits, cancellation rights, terms and conditions Unlike the “KIID”, there is no specific guidance on the content of a SID, so relevant parties shall need to consider the following: -What other information needs to be provided so that potential investors have everything they need before investing? -What have we traditionally included that is not really ‘material’? -What is the best format? -How do we ensure that the style and approach is consistent with our “KIIDs”? Supplementary Information Document (SID)

22. 21 Wider implications … Capture the essential features of a fund’s objectives, rather than trying to simplify legal wording. Moving firmly away from a ‘disclaimer approach’ Determine what is material and what is not. Multiple cross references to other documents should be avoided. Will the KIID space limitations allow Investment Managers to fully explain the risks and processes involved with a product?

23. 22 The KIID may change the way in which funds are perceived. Will retail investors start to differentiate between products on the basis of the new risk indicators? “Bunching” should occur. Little distinction between a fund investing in emerging markets and one focused on developed markets. Recent events may have blurred distinctions between so-called risky and less risky investments We are uncertain if gaps in product ranges will be exposed. It is important to highlight the narrative explanation of risk. Wider implications... (cont’d)

24. 23 Wider Implications (cont’d) Will promoters reconsider the rationale of having numerous funds in the same risk category and consequently rationalise their product offering? Will the use of the SRRI expose gaps in Asset Managers product ranges? Will the onset of KIIDS require an overhaul of fee arrangements and remuneration schemes with distributors? Given the purpose of the KIID is to facilitate simplistic product comparison will there be a greater need to monitor competition? Will the simplistic presentation of products in “KIIDs” make products appear indistinguishable leading to greater competition on price?