Information: For immediate release Tuesday 1 June 1999

REVISION OF AUTIF'S INVESTMENT FUND CLASSIFICATION SYSTEM - SIMPLER FUND PERFORMANCE COMPARISON

The fund classification system currently used to compare the performance of UK unit trusts and OEICs has been updated. The aim is to put investors in a better position to assess the relative performance of funds based on their underlying investment objectives.

• As most investors’ focus is primarily on whether funds provide an income or are designed to achieve capital growth, it was decided to reclassify all funds under the headings income or growth.
  
  
• The nature of the funds’ assets then had to be considered - to most people this means where the fund is invested geographically.
  
  
• It was also felt necessary to introduce a third specialist sub-division. This takes into account those funds which have additional features and do not fit comfortably into the more straightforward income or growth subdivisions. These may include funds concentrating on a single country (eg Korea), a specific theme (eg ethical) or a single sector (eg healthcare). Not all funds in the specialist sectors will be directly comparable, but as they are likely to be funds appealing to the more sophisticated investor, with a better understanding of the potential for varying levels of risk, this was felt to be a more sensible approach than creating a myriad of subsectors often containing no more than a handful of funds. Those funds with common characteristics (eg fund of funds, ethical etc) will however, be identifiable by special flags. Full details appear in the attached appendices.

It is the responsibility of management companies to ensure on an ongoing basis that their funds appear in the correct sector. Providers are being encouraged by AUTIF to make clear in their six monthly Managers Reports the precise sector in which the portfolio appears.

Anne McMeehan, Director of Communications at AUTIF, commented:

"The primary aim of this fund classification system is to be customer focused. We took the view that the simpler the framework, the better. Performance measurement nowadays is virtually a science in its own right, so this system is not designed to provide a perfect solution. But it does offer consumers a practical starting point from which to investigate funds with similar characteristics."

The revised system becomes effective from 1 June 1999.

For further information please contact:

Anne McMeehan, Director of Communications, AUTIF, 0171 831 0898
Michael Quach, Head of Statistics, AUTIF, 0171 831 0898
Clare Arber, PR Manager, AUTIF, 0171 831 0898
Susie Poote, Communications Assistant, AUTIF, 0171 831 0898

Notes to Editors:

1. The review was undertaken by AUTIF’s Performance Category Review Committee (PCRC). This Committee is made up of industry representatives and performance measurement providers. The AUTIF membership was consulted regularly for comments, the first formal consultation being in December 1998.

As part of its general course of business, the PCRC identified several features of the previous structure that appeared anomalous. In addition, work being carried out on new pan-European sector classifications by FEFSI (the European confederation of trade associations to which AUTIF belongs), acted as a catalyst to the PCRC to undertake a thorough review.

2.The following revisions are also being made to the system:

• The UK Growth and UK Growth & Income sectors will be merged into the "UK All Companies Sector", (there is currently no significant difference between the two sectors).
• Data providers will include flags in their databases to identify certain other groups of fund types or characteristics (see Note 2 over), which will enable more detailed fund comparison.
• Index tracker funds will be listed in the UK All Companies sector, but will be flagged separately.
• Classification by legal form, eg Fund of Funds and Investment Trusts, has been dropped.
• Funds will be placed in a category reflecting their underlying asset mix and investment objective.
• UK Other Fixed Interest and International Fixed Interest will be renamed as UK General Bonds and Global Bonds respectively.
• Europe will be divided into "Europe including UK" and "Europe excluding UK". Funds investing in the Eurobloc will be flagged separately.
• "Global" to be used, rather than "International", following US practice.
• Money Market lower cash limit raised to 95%, from 80% to reinforce the security aspect of this practically risk-free investment.
• Managed funds have been subdivided into "cautious", "balanced", "active" and "income", depending on their stated fund objective. As managed funds become more popular and cover a diverse range of assets, the above subdivisions will again be more helpful for customer comparison.
• The Smaller Companies sector definition will now be defined as funds which invest at least 80% in the Hoare Govett Smaller Companies Index, or have an equivalent or lower market capitalisation. The Hoare Govett Index covers the bottom 10% UK market-capitalisation stocks. (Previously the FTSE Small Cap Index was used, which proved too restrictive.)
• A Guaranteed/Protected Fund Sector has been introduced to take account of their different fund objectives from the mainstream sectors. (They aim to provide a fixed return, with the benefit of possible market gains.)

3. Funds that will be flagged are:

• Index trackers
• Fund of funds – i) in-house ii) external
• Large cap companies
• Ethical funds
• Investment Trusts
• Eurobloc Corporate bond funds – i) funds investing predominantly in junk bonds and ii) investment grade bonds)

4. Attached:

• Appendix A – Revised Sector Name/Old Sector Name
• Appendix B – Sector Definitions Fund Classification System Structure

Attachment1 - Appendices