Use the following information for Questions 1 through 6.
Tom Hall is a portfolio manager for Falcon Wealth Managers, Inc. Falcon advises wealthy
individual investors and provides recommendations for stocks, bonds, and alternative assets.
Falcon uses the CFA Institute's Global Investment Performance Standards (GIPS®) to provide a
standardized presentation of its firm's performance. The table below and its footnotes are from
Hall's presentation of the performance for Falcon's Global Fixed-Income Composite. Although
Falcon claims GIPS compliance, it has not been externally verified.
Total Composite Total Firm Assets
Return Benchmark Number of Composite Assets at the End
at the End of
Return Portfolios Dispersion of Period (in U.S. Period (in U.S.
Falcon Wealth Managers, Inc., claims compliance with the Global Investment Performance
Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS
standards. Falcon Wealth Management, Inc., has not been independently verified.
1. Falcon Wealth Managers, Inc., is defined as an independent investment management firm
that is not affiliated with any parent organization. The firm invests in U.S. and international
2. Portfolio valuations were performed every month. For thinly traded junk bonds, Falcon uses
an average of three independent bids. For thinly traded international bonds, Falcon values
the bonds using its original cost.
3. The benchmark for this composite is an appropriate fixed income index.
4. The Falcon Wealth Managers Global Fixed-Income Composite was created in 1992. No
modifications to the composite presented here have occurred as a result of changes in
personnel or for any other reason at any time. A complete list of firm composites and
performance results is available upon request.
5. The dispersion of annual returns is measured by the equal-weighted standard deviation of
portfolio returns included within the composite for the full year.
6. The historical performance record presented for the Global Fixed-Income Composite
includes the performance of terminated portfolios. If a portfolio is terminated within a year,
the performance of that portfolio is annualized to represent its return for the last
measurement period. After that year, the returns for terminated portfolios are then dropped.
7. Performance results are presented before management fees but net of all actual trading
costs. A management fee schedule is attached to this report.
8. Performance results are presented in U.S. dollar terms.
Martha Sims is one of Falcon's oldest clients. She would like to know how her portfolio has
performed over the most recent quarter. She received a mid-year performance bonus at work,
which she invested in August. As her grandson has just started college, Sims liquidated a portion
of her portfolio to pay for his tuition in September. The market value of her portfolio and its cash
flows are shown below:
Cash Flow Value After
Question #1 of 6
Considering only the table headings (consider only what is presented and do not comment on
any missing information), Falcon's presentation:
A) should list composite assets as a percent of total firm assets to be in compliance with GIPS
B) is in compliance with GIPS standards.
C) should list the returns net of management fees to be in compliance with GIPS standards.
Question #2 of 6
Regarding the valuation of portfolios in Falcon's presentation:
A) the valuation method used for international and junk bonds is not in compliance with GIPS
B) it is in compliance with GIPS standards.
C) the valuation method used for the junk bonds is in compliance with GIPS standards but for
international bonds is not in compliance with GIPS standards.
Question #3 of 6
The handling of returns for terminated portfolios in the Falcon Global Fixed-Income Composite is:
A) in compliance with GIPS standards.
B) not in compliance with GIPS standards because the partial-year returns for terminated
portfolios should not be annualized, and the historical record for terminated portfolios should
C) not in compliance with GIPS standards because the partial-year returns for terminated
portfolios should not be annualized.
Question #4 of 6
To be in compliance, the table must also include standard deviation of returns for the composite
and benchmark based on:
A) 10 years of annual data.
B) 36 months of data.
C) since inception years of data.
Question #5 of 6
Regarding the information presented on the benchmark used for comparison and the composite
A) the benchmark description and composite creation date are not in compliance.
B) the benchmark description is not and composite creation date is in compliance.
C) the benchmark description and composite creation date are both in compliance
Question #6 of 6
If the monthly returns of the Sims portfolio in July and August are 7.50% and -13.39%, the GIPScompliant return for the quarter is closest to: