4.1 Servicing Investors and the Contents of the Prospectus and Disclosure Document
Key Takeaways
No sale of units in a UTS can be made without a prospectus, and no contribution can be made to a PRS without a disclosure document.
The inside cover of a prospectus or disclosure document must carry a responsibility statement by the directors and a disclaimer that SC registration is not a recommendation to invest.
A fund whose assets consist, or will consist, of derivatives exceeding 30% of NAV must state its substantial investment in derivatives in bold on the cover.
A fund that may distribute out of capital must warn that capital will be eroded and that the cycle may continue until all capital is depleted.
The application form must include the unit trust loan financing risk disclosure statement.
What Good Service Looks Like
Investors are not just buying a product; they are entering a relationship with the Consultant, Distributor and Trustee. Success is measured in performance and also in:
- how easily transactions can be made;
- how responsive the provider is to requests and complaints;
- the knowledge of investor-service staff and Consultants; and
- the quality of ongoing reporting and care.
Most new business comes from repeat business and referrals from satisfied investors. Satisfied investors are those who get exactly what they thought they were buying, with no unexpected surprises. The study guide warns that many investors were attracted in the past by promises of extraordinary returns and later disappointed, so the selling process must include a full explanation of risks to manage expectations.
The Disclosure Materials
| Material | Scheme | Purpose |
|---|---|---|
| Prospectus | UTS | Full information so the investor can make an informed decision |
| Disclosure document | PRS | The PRS equivalent of a prospectus |
| Product Highlights Sheet (PHS) | UTS and PRS | Short summary of key features for understanding and comparison (section 4.2) |
Key rules:
- No sale of UTS units without a prospectus, and no PRS contribution without a disclosure document.
- Investors must get a copy (hard or soft) when they ask to subscribe, and be advised to read and understand it.
- Changes must be captured in supplementary documents issued under the CMSA and SC guidelines.
- Consultants must give investors the current prospectus or disclosure document, explain anything the investor needs clarified before the application is made, and know each document well enough to point investors to the relevant sections.
Minimum Contents of a Prospectus or Disclosure Document
Based on the SC's Prospectus Guidelines for CIS and the PRS Guidelines (study guide Table 4.1):
| No. | Part | Selected required content |
|---|---|---|
| 1 | Cover page | Fund name; provider and Trustee names and registration numbers; date; date of constitution; offer period (if limited); foreign-fund statements; bold statement to read the document and consult an adviser; bold pointer to the Risk Factors page; bold statement if derivatives exceed 30% of NAV |
| 2 | Inside cover | Responsibility statement by the directors; disclaimer that SC authorisation and registration are not a recommendation; investors' recourse under the CMSA; Shariah certification statement for Islamic funds; expiry statement for limited-offer funds; capital-erosion warning if distributions may come from capital |
| 3 | Contents and directory | Sections, definitions, glossary; addresses, telephone numbers, email and website of the provider and Trustee (and Shariah adviser or foreign-fund representative) |
| 4 | Fund details | Name and category; base currency; initial offer period and price; investment objective (with a statement that material changes need investors' approval); policy and strategy; derivatives use; securities lending; distribution policy; benchmark; permitted investments and limits; cross-trade policy; "capital not guaranteed" warning for capital-preservation funds; Shariah approval process |
| 5 | Fees, charges and expenses | Charges for buying and redeeming; fund fees and expenses; policy on rebates and soft commissions |
| 6 | Transaction information | Valuation bases (including suspended counters); valuation point; pricing policy (forward or historical); procedures for buying, redeeming, switching and transferring; cooling-off right; distribution channels; how unit prices are calculated; warning not to pay cash to any individual agent; mode of distribution and policy on unclaimed money |
| 7 | Scheme Provider | Corporate profile, directors, the person responsible for fund management, Shariah adviser, material litigation |
| 8 | Trustee | Corporate details, experience, duties, litigation, delegate (custodian) details |
| 9 | Salient terms of the deed | Investors' rights, liabilities and limits; maximum fees allowed by the deed and how fees can rise; permitted expenses; removal and retirement of the provider and Trustee; termination; unit holders' meetings |
| 10 | Approvals and conditions | Approvals obtained; any SC waivers granted |
| 11 | Related-party transactions and conflicts | Existing and proposed transactions; how conflicts are handled |
| 12 | Taxation | Tax adviser's opinion on the fund's and investors' tax position |
| 13 | Experts' reports | Where applicable |
| 14 | Additional information | How to follow the fund and its NAV; list of deeds; financial year-end and when reports are sent |
| 15 | Documents for inspection | Available at the provider's registered office |
| 16 | Specific requirements | Extra disclosures for index, money market, guaranteed, feeder funds and others |
| 17 | Application form | Must comply with the CMSA and include the unit trust loan financing risk disclosure statement |
Extra contents of a PRS disclosure document (Table 4.2)
- Key data summary – scheme information, fund information, fees and charges, with page cross-references.
- Scheme details – the scheme's name, benefits and operations.
- PRS Provider – including its audit committee (members' backgrounds, functions, meeting frequency) and any Shariah advisers.
- Contributions and withdrawals – procedures for contributing, withdrawals (including the tax penalty deduction on pre-retirement withdrawals), switching between funds and transferring accrued benefits to another provider.
- Consents – from advisers, reporting accountants, auditors and others named in the document.
How Consultants Use This in Practice
| Investor question | Where to point the investor |
|---|---|
| "What does this fund invest in, and what is it trying to achieve?" | Fund details: objective, policy and strategy |
| "How much will it cost me?" | Fees, charges and expenses; maximum fees in the salient terms of the deed |
| "Can I change my mind?" | Transaction information: cooling-off right |
| "What could go wrong?" | Risk Factors section (flagged on the cover) |
| "Who looks after my money?" | Trustee section and the custody arrangements |
| "Will I be taxed?" | Taxation report |
Exam Pointers
- The responsibility statement is made by the provider's directors, collectively and individually.
- The disclaimer says SC registration is not a recommendation.
- Derivatives above 30% of NAV need a bold cover statement.
- The cash-payment warning appears in the transaction information and in the PHS.
Which statement must appear on the inside cover of a UTS prospectus?
A guarantee by the Trustee of a minimum annual return
A statement that the fund's past performance will be repeated
A list of the fund's top ten holdings
A disclaimer that SC authorisation and registration are not a recommendation to invest
A fund's assets may include derivatives of up to 45% of NAV. What must its prospectus cover page include?
A statement that the fund is approved by Bank Negara Malaysia
Nothing, because derivative use is disclosed only in the annual report
A bold, prominent statement disclosing the fund's substantial investment in derivatives
A statement that the fund is only for sophisticated investors
Which item is required in a PRS disclosure document but not listed among the general UTS prospectus contents in the study guide?
Details of the PRS Provider's audit committee
The fund's investment objective and strategy
The fees and charges for buying and redeeming units
The name and registration number of the Trustee
Sections you finish are checked off in the contents.