AIMR-PPS Requirements for Composite Creation and Maintenance

D

Section A - "Creation and Maintenance of Composites" - of the PPS requires that convertible and hybrid securities be treated consistently across all composites.

The correct answer is D. I and II only.

The AIMR-PPS (Association for Investment Management and Research-Performance Presentation Standards) provides guidelines for the creation and maintenance of composites, which are used to measure and present the performance of investment portfolios. Let's analyze each statement to understand the requirements:

I. Performance must be measured at least quarterly: This statement is true and is required by AIMR-PPS. According to the standards, performance of investment portfolios should be measured and reported at least quarterly. This ensures that the performance data is updated regularly and provides more accurate information for evaluation and comparison.

II. Combining of assets-only returns with assets-plus-cash returns is prohibited: This statement is also true and is required by AIMR-PPS. The standards state that when creating composites, the returns of assets-only portfolios should not be combined with the returns of assets-plus-cash portfolios. This is because the inclusion of cash returns can distort the performance figures and make comparisons less meaningful. Therefore, the returns should be calculated separately for assets-only portfolios and assets-plus-cash portfolios.

III. Convertible and hybrid securities cannot be mixed with money-market securities in performance calculations: This statement is false. AIMR-PPS does not specifically prohibit the mixing of convertible and hybrid securities with money-market securities in performance calculations. The standards do provide guidance on how to handle different types of securities, but there is no specific restriction on mixing these particular securities in performance calculations.

To summarize, statements I and II are required by AIMR-PPS, while statement III is not. Therefore, the correct answer is D. I and II only.