Guidelines for
Key Ratio Accounting of Investment Funds
Adopted by the Board of Directors of the Swedish Investment Fund Association on 2nd December 2002 and revised on 4th June 2004, on 6th December 2004 and on 23rd July 2008[1].
The regulation (FFFS 2008:11) issued by the Swedish Financial Supervisory Authority includes accounting directives for investment funds (Investment Funds Act).
Chapt. 19, §18 of the regulation stipulates that investment funds shall specify certain key ratios in the Directors’ Report. The Swedish Investment Fund Association has complemented the regulation with guidelines relating to key ratios for investment funds.
The Swedish Investment Fund Association’s guidelines for the accounting of key ratios with regard to investment funds are intended both to ensure that the information fulfils a given minimum standard and to enable investors to make comparisons between funds. The member companies are urged to state, in their comments to the annual report or half-yearly report, whether they have been obliged to deviate from the guidelines in one or more respects.
Key Ratios
Key ratios under the following headings shall be provided for all funds:
Net fund assets, Unit value, Dividend, Total yield as a percentage, Details of performance in corresponding year for relevant benchmark index, Management fee, Transaction costs, and Turnover through associated securities institutions.
Additional key ratios shall also be presented for funds extant for at least 12 months under the primary headings Turnover and Costs.
Return to volatility ratios shall also be presented for funds extant for at least 24 months.
When a key ratio is to be shown as an annual rate, the ratio shall be based on a “rolling” 12-month period.
The fund’s performance over the past five years[2](shall be included in both the annual report and the half-yearly report)
Yr. Yr. Yr. Yr. Yr.
Net fund assets, SEK/SEK k/SEK m (may be rounded off)
Unit value, shown in SEK and 100th parts thereof
Dividend, shown in SEK and 100th parts thereof per unit
Total yield as a percentage, calculated in accordance with the Swedish Investment Fund Association’s standard for calculating the total return of investment funds, Appendix 1
Details of development in a corresponding year for a relevant benchmark index, as a percentage
Risk and yield (not mandatory in half-yearly report) for the fund
All risk and yield calculations, with the exception of benchmark indices, are based on the month-end rate in accordance with the Swedish Investment Fund Association’s Guidelines for determining month-end values for performance measurement.
Total risk (Total risk shall be shown as the standard deviation of variations in the fund’s total
yield[3]). The information shall be based on monthly data and shall refer to the past 24 months.
Total risk for benchmark index (The information shall be based on monthly data and shall refer to the past 24 months.)
Active risk (Active risk shall be shown as the standard deviation for the variations in the difference in yield between the fund and its benchmark index3. The information is based on monthly data and shall refer to the past 24 months.
Duration (shall be shown for fixed income funds, as of the closing date, with comparative figures in respect of the situation one year ago)
Average annual yield, as a percentage, shown in accordance with the above-mentioned standard, Appendix 1, in respect of the performance over the past 24 months.
Average annual yield, as a percentage, for the past five years2, shown in accordance with the above-mentioned standard, Appendix 1.
Turnover (not mandatory in half-yearly report. If the information is provided in the half-yearly report, it shall be shown on an annual basis.)
Rate of turnover calculated in accordance with Appendix 2 and expressed as the number of times per year the portfolio has been turned over.
Turnover through associated securities institutions
Percentage of the fund’s turnover (total financial instruments bought and sold) traded through associated securities institutions[4].
Costs (not mandatory in half-yearly report. If the data is included in the half-yearly report, it shall be shown as an annual rate.)
Management fee as a percentage of the average net asset value of the fund.
Transaction costs (all costs related to the transaction and on top of the price).
These costs shall be shown in SEK and as a percentage of the value of the securities traded and to which the transaction costs are attributable. (The amount of the Transaction costs in SEK shall be stated here unless the information is stated separately in the Income Statement.)
Details of the Total Expense Ratio, TER
The Total Expense Ratio (TER) shall be specified in accordance with Appendix 3.
Sales and redemption charges
The sales and redemption charges that the fund management company levies from unit holders in conjunction with the sale and redemption of fund units shall be stated, as a percentage, in conjunction with the reporting of the TER.
Unit holders’ standardised cost, calculated using the examples provided below (not mandatory in the half-yearly report. If the data is included in the half-yearly report, it shall be shown as per the past 12 months.)
Management cost for lump sum deposit of SEK 10,000
Management cost in SEK, as per the Income Statement, attributable during the year to a unit holding that totalled SEK 10,000 at the beginning of the year and that has been retained in the fund throughout the year. Reinvested dividends shall be taken into account.
Management cost for regular savings of SEK 100
The management cost, as described above, shall also be stated, where relevant, for monthly savings of SEK 100 per month over the course of a year. Reinvested dividends shall be taken into account.
Appendix 1
Standard for calculating the total return of investment funds
The following formulae should be used when calculating the fund’s total return.
For funds not paying dividends:
For funds paying dividends:
Explanations: A = return during selected period
K = price at the end of the period
K1 = price at the beginning of the period
K2 = price after deduction of dividend
U = dividend
If the calculation covers several years, all dividends during the period should be reinvested (added back in).
A geometric method should be used when presenting a fund’s average annual percentage growth. Dividends paid during the period should be taken into account. The following formula is given as an example.
AV = 
AV = Unit price at the end of the period (inc. reinvested dividends)
K1 = Unit price at the beginning of the period
d = No. days in the period (always 30 per month)
K = Unit price at the end of the period
Un = Dividend number “n”
Kn = Price after deduction of dividend number “n”
If a fund does not pay a dividend, the accumulated dividend factor (1 (Un /Kn(] = 1, i.e. unit value = unit price.
Return calculations for fixed income funds may be based on both a “simple” interest (the interest for the period) and an effective annual interest rate. The method of calculating the return must, therefore, be stated for these funds.
Appendix 2
The Swedish investment fund association’s standard for calculating
rate of turnover for investment funds
adopted on 23rd January 1996, revised on 26th August 1998, 4th June 2004 and 6th December 2004
The following proposal is based on the ICI standard (USA) for “portfolio turnover rate”, albeit with certain simplifications.
Formula:
Numerator = A if A < B or B if B < A = Portfolio turnover rate
Denominator C
Explanations:
A = Sum of securities bought during the period
B = Sum of securities sold during the period
C = Average fund asset value during the period. Fund asset value shall be calculated on daily observations1
The use of whichever is the lower of the buying and selling amounts in the numerator enables the effects of the flows in and out of the fund as a result of the sale or redemption of units to be taken into account.
The term “security” refers to all financial instruments by means of which transactions in the fund have occurred. The following transactions shall, however, not be included:
Transactions in respect of
a) options, futures (that do not result in the delivery of the underlying assets) and securities loans, and
b) (to the extent that equity funds2 are concerned), fixed income securities with a remaining duration not exceeding one year at the time of acquisition.
The numerator shall be adjusted in the calculations for amounts that refer to excluded transactions.
Appendix 3
TER (Total Expense Ratio)
1. Definition of TER1:
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-based (2 )),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 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 feesharing 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,
—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
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.
[1] The revision of the 23rd July 2008 only refers to references to regulation (FFFS).
[2] If the fund was started during the past five-year period, the review shall relate to its development from the start.
[3] The standard deviation shall be shown as an annual rate, i.e. the monthly standard deviation shall be multiplied by the root of 12.
[4] The term, associated, refers to securities companies within the same corporate group as the fund management company.
1 Daily net assets values used for subscription and redemption of units of the fund should be used.
2 Funds whose fund rules stipulate investment of at least 75% of the assets in equities or equity-related financial instruments.
1 The definition of TER used stems from the European Commission’s recommendation (2004/384/EC of 20th April 2004) on some contents of the simplified prospectus as provided for in Schedule C of Annex I to Council Directive 85/611/EEC (Official Journal of the European Union L 144 of 30 April 2004).
2 This non-exhaustive typology of calculation bases reflects the diversity of recent commercial practice across Member States (i.e. at the end of 2003) 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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