2.2 In order to make an informed investment decision, an investor who is contemplating investment in a CIS needs to understand both the potential rewards and the associated risks.

2.3 Principle 10 recognizes that the role of the regulator is to seek to ensure that investors are provided with all the information necessary to understand the risks involved in CIS investment.

2.4 Risk disclosure by a CIS should assist investors in understanding the relationship between risk and return, so that investors evaluating CIS performance do not focus solely on return, but also on the risk assumed to produce the return. Risk disclosure should help investors assess whether a CIS's potential return is an adequate reward for the risks taken.

2.5 Describing the risk associated with a particular investment product is usually complex. Also, investors have different investment objectives and different appetites for risk, as well as different abilities in understanding risk. Therefore, it is difficult to draw general guidelines for disclosure that take into account all these factors. Certain types of risk disclosure may not be appropriate even though they provide an overall picture of a particular fund. For example, assigning a level of risk (by way of numerical rating) to a CIS, with higher levels of risk deemed to be negative and lower levels deemed to be positive may not be appropriate for different types of CIS or investors and may not be possible from a regulatory perspective. Alternatively, where a particular index is commonly used to provide a risk rating, or where the link with the CIS investment objectives is very close (e.g. bonds and sensitivity) it may be appropriate for the index to be disclosed to potential investors.

2.6 Instead, the goal of risk disclosure should be to:

(a) provide an investor with sufficient information about CIS risk to evaluate whether the CIS is an appropriate investment vehicle to meet the investor's personal needs within the available investment time horizon, considering the investor's overall investment portfolio; and

(b) provide information in an easy to understand format, having regard to the type of investor.