Explanation
Correct Answer: A - Statement 1 only
Analysis:
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Standard III(D) - Performance Presentation: This standard requires members and candidates to:
- Make reasonable efforts to ensure that performance information is fair, accurate, and complete
- Not misrepresent past performance or reasonably expected performance
- Disclose material facts relevant to performance presentations
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Statement 1 Analysis - VIOLATION:
- "The fund's past performance indicates a return of at least 5% in the next few years"
- This statement violates the standard because:
- It implies that past performance guarantees future results
- It makes a specific forward-looking performance prediction based on historical data
- Past performance is not indicative of future results, and such statements can mislead investors
- The statement creates an unreasonable expectation about future performance
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Statement 2 Analysis - NO VIOLATION:
- "Monetary policy changes may increase the fund volatility to above 10% in the next few years"
- This statement is acceptable because:
- It is a forward-looking statement about potential risks
- It uses conditional language ("may increase") rather than definitive predictions
- It discusses potential volatility increases, which is a risk disclosure
- Risk disclosures that are reasonable and based on market factors are permitted and often required
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Key Distinction:
- Statement 1: Makes an unjustified performance guarantee/prediction → Violation
- Statement 2: Provides a reasonable risk disclosure → No violation
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Professional Requirements:
- Performance presentations must:
- Not guarantee or predict specific future performance
- Include appropriate risk disclosures
- Clearly state that past performance does not guarantee future results
- Be fair, accurate, and complete
Conclusion: Only Statement 1 violates the performance presentation standard because it makes an unjustified forward-looking performance prediction based on historical data.
