Session 2: Ethical and Professional Standards: Application
Reading 9: Changing Investment Objectives
LOS a: Critique the disclosure of investment objectives and basic policies and determine whether they comply with the CFA Institute Standards of Professional Conduct.
Wanda Brunner, CFA, is reviewing a draft fund prospectus for her new “Leveraged Long Coffee” (LLC), a closed-end fund. LLC uses a of combination fundamental and technical trading models to evaluate individual securities. She notes the LLC prospectus has several disclosures which cause her to worry that prospective clients will avoid her fund.
- Disclosure 1: “LLC charges a flat 3.00% of assets under management.”
- Disclosure 2: “LLC may invest up to 40% of the fund’s assets in securities which are not related to coffee or other consumer products.”
- Disclosure 3: “LLC relies only on fundamental valuation of individual securities.”
Which of the following standards will most likely be violated by distribution of the prospectus?
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A) |
Standard III(C) Duties to Clients: Suitability because it misleads the reader as to the process by which securities are selected. | |
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B) |
Standard III(C) Duties to Clients: Suitability because the fees are exorbitant. | |
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C) |
Standard III(C) Duties to Clients: Suitability because the fund can hold an excessive portion of the portfolio in non-core assets. | |
LLC must adequately disclose the basic security selection and portfolio construction process, and the portfolio manager recommendations and investment actions must be consistent with the stated objectives and constraints of the fund. By failing to acknowledge the fund’s dependence on technical trading, the fund fails to meet this standard. | 
发表于 2011-3-1 15:41
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