Andy Pilling is a bond trading specialist who recently started a special fund, the "Structured Bond Fund." The strategy behind this fund is quite complex, involving a mix of highly speculative, high-yield bonds and various tax-free municipal bonds for some stability. Andy has a strong view that the economy will remain vibrant and bullish over the next two years and hence, is not worried about the risky bonds. Assuming a falling rate scenario in this case allows the fund to project an expected return 130 basis points above the S&P 500 return. In his special report, Pilling does not disclose such assumptions nor does he reveal any details about the bond strategy. He does analyze the state of the economy and the future outlook in the report. Based on his reputation and his association with some big name academics, Pilling is able to obtain capital of close to 75 million dollars on this fund alone. Andy has:
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A. B. C. D.C
Standard IV (A.2) - Research Reports requires members to describe the basic characteristics of an investment, the degree of risks involved and scenario analysis to illustrate possible losses under different market conditions. By suppressing such relevant details, Pilling has violated the AIMR Code of Ethics.
Based on the information provided, Andy Pilling, the bond trading specialist, has started a special fund called the "Structured Bond Fund." The fund employs a complex strategy that combines highly speculative, high-yield bonds with tax-free municipal bonds for stability. Andy believes that the economy will remain vibrant and bullish over the next two years and is not concerned about the risks associated with the speculative bonds. The fund aims to project an expected return that is 130 basis points above the return of the S&P 500.
In the special report, Andy does not disclose the assumptions or details about the bond strategy. However, he does analyze the state of the economy and provides his outlook for the future. It is mentioned that Andy has a strong reputation and is associated with prominent academics, which helps him attract close to $75 million in capital for this fund.
Now let's analyze the answer choices:
A. not violated any standards in the AIMR Code of Ethics. B. violated Standard IV (B.6) - Prohibition Against Misrepresentation. C. violated Standard IV (A.2) - Research Reports - by not revealing the assumptions and details about the strategy. D. violated Standard IV (B.1) - Fiduciary Duties - by not disclosing the nature of the strategy.
Standard IV (B.6) of the AIMR Code of Ethics prohibits misrepresentation. Based on the information provided, Andy does not misrepresent any facts or make false statements. Therefore, option B can be ruled out.
Standard IV (A.2) of the AIMR Code of Ethics relates to research reports. This standard emphasizes the importance of providing accurate and complete information in research reports. In this case, Andy's special report does not disclose the assumptions and details about the bond strategy. Although it is not explicitly stated whether the report is classified as a research report, the fact that it contains an analysis of the economy and outlook suggests that it falls within the realm of research. Therefore, it can be argued that Andy has violated Standard IV (A.2) by not revealing the assumptions and details about the strategy. Option C appears to be a valid choice.
Standard IV (B.1) of the AIMR Code of Ethics pertains to fiduciary duties. Fiduciary duties require investment professionals to act in the best interests of their clients and to disclose all relevant information that could affect investment decisions. In this case, Andy has not disclosed the nature of the strategy, which could be considered a violation of his fiduciary duties. Therefore, option D can also be considered a valid choice.
In summary, based on the information provided, Andy Pilling has likely violated Standard IV (A.2) - Research Reports - by not revealing the assumptions and details about the bond strategy, and he may have also violated Standard IV (B.1) - Fiduciary Duties - by not disclosing the nature of the strategy. Thus, the most appropriate answer would be either option C or option D, depending on the specific focus of the violation being evaluated.