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Question 1 of 10
1. Question
Which of the following are the requirements for any information, other than the required information by the Commodity Futures Trading Commission, the antifraud provisions of the Act, or other federal or state laws or regulations under the disclosure requirement of the National Futures Association?
I. The information other than that required by the Commodity Futures Trading Commission shall be included in the Statement of Additional Information.
II. The information other than that required by the Commodity Futures Trading Commission is subject to antifraud provisions of the Act, CFTC rules, and NFA rules regarding the use of promotional material.
III. The information other than that required by the Commodity Futures Trading Commission shall be misleading in content or presentation.
IV. The information other than that required by the Commodity Futures Trading Commission shall be inconsistent with the required disclosures.Correct
Supplemental information is any information other than that required by the Commodity Futures Trading Commission rules, the antifraud provisions of the Act, other federal or state laws or regulations, and rules of a self-regulatory agency or laws of a non-United States jurisdiction. This information must be included in the Statement of Additional Information. It shall not be misleading in content or presentation and shall be consistent with the required disclosures. This information is subject to the antifraud provisions regarding the use of promotional interest by the Commodity Futures Trading Commission and National Futures Association rules. It may also include any other supplemental non-performance information as long as this information is presented after all required disclosures. It may also include non-supplemental information.
Incorrect
Supplemental information is any information other than that required by the Commodity Futures Trading Commission rules, the antifraud provisions of the Act, other federal or state laws or regulations, and rules of a self-regulatory agency or laws of a non-United States jurisdiction. This information must be included in the Statement of Additional Information. It shall not be misleading in content or presentation and shall be consistent with the required disclosures. This information is subject to the antifraud provisions regarding the use of promotional interest by the Commodity Futures Trading Commission and National Futures Association rules. It may also include any other supplemental non-performance information as long as this information is presented after all required disclosures. It may also include non-supplemental information.
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Question 2 of 10
2. Question
Which of the following statements are correct regarding the proprietary trading results under the disclosure requirements of the National Futures Association?
I. Proprietary trading results are the performance of any pool or account whereas 50% or more of the beneficial interest is owned or controlled by the Commodity Pool Operator.
II. Proprietary trading results are the performance of any pool or account whereas 50% or more of the beneficial interest is owned or controlled by the Trading Manager, if applicable.
III. Proprietary trading results may be included in a document unless it is labeled clearly as “Proprietary”.
IV. Proprietary trading results shall indicate the difference in costs, leverage, and trading methodology, including the differences between such performance and performance of the offered pool.Correct
The performance of any pool or account in which 50% or more of the beneficial interest is owned or controlled by the CPO, Trading Manager, an affiliate is the proprietary trading results. This proprietary trading result shall clearly be labeled as “proprietary” to be included in a document. However, it must have a separate required and non-required documents including the discussion of differences between such performance. It shall also include the discussion of any differences in costs, leverage, and trading methodology. Pro-forma adjustments must be made for fees and commissions and prepared on a conservative basis.
Incorrect
The performance of any pool or account in which 50% or more of the beneficial interest is owned or controlled by the CPO, Trading Manager, an affiliate is the proprietary trading results. This proprietary trading result shall clearly be labeled as “proprietary” to be included in a document. However, it must have a separate required and non-required documents including the discussion of differences between such performance. It shall also include the discussion of any differences in costs, leverage, and trading methodology. Pro-forma adjustments must be made for fees and commissions and prepared on a conservative basis.
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Question 3 of 10
3. Question
Which of the following is correct regarding the hypothetical results of hypothetical performances derived with the benefit of hindsight under the disclosure requirement of the National Futures Association?
I. The hypothetical performance results must clearly be labeled as “proprietary” aside from “hypothetical” for more significant and accurate hypothetical results.
II. The hypothetical trading results must appear in the Statement of Additional Information together with the proprietary trading results.
III. The hypothetical performance results shall include any proprietary trading over the last five years or if less than five years, over the entire performance history.
IV. A description of all material assumptions that were made in preparing the hypothetical results shall be included in the disclosure document under any hypothetical results.Correct
Any performance results derived with the benefit of hindsight are hypothetical performance results. However, it is discouraged by the National Futures Association to use hypothetical performance results but it is recognized in certain circumstances. It shall be clearly be labeled as “hypothetical” do know which results are hypothetical or proprietary. It is also included in the Statement of Additional Information. If the Commodity Pool Operator who prepared the hypothetical trading results has less than one year of experience in customer accounts, the past performance results shall also be disclosed for any proprietary trading over the last five years or even the entire performance history if it is less than five years. All material assumptions prepared using the hypothetical results shall provide a description in the disclosure document under the “hypothetical” section rather than “proprietary”.
Incorrect
Any performance results derived with the benefit of hindsight are hypothetical performance results. However, it is discouraged by the National Futures Association to use hypothetical performance results but it is recognized in certain circumstances. It shall be clearly be labeled as “hypothetical” do know which results are hypothetical or proprietary. It is also included in the Statement of Additional Information. If the Commodity Pool Operator who prepared the hypothetical trading results has less than one year of experience in customer accounts, the past performance results shall also be disclosed for any proprietary trading over the last five years or even the entire performance history if it is less than five years. All material assumptions prepared using the hypothetical results shall provide a description in the disclosure document under the “hypothetical” section rather than “proprietary”.
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Question 4 of 10
4. Question
Which of the following statements are correct regarding the computation of monthly and peak-to-valley under the disclosure requirements of the National Futures Association?
I. The worst peak-to-valley draw-down simply means the pool’s or trading program’s worst monthly percentage rate of return (ROR).
II. The worst monthly draw-down means the greatest cumulative percentage decline at the end of the month with a net asset value due to losses sustained by the accounts in which the initial month-end net asset value is not equal to the subsequent month-end net asset value.
III. The worst peak-to-valley draw-down is the largest percentage change from a peak to a valley.
IV. The worst-peak-to-valley draw-down shall report in the capsule the peak month and the valley month.Correct
The largest percentage change from a peak to a valley is the worst peak-to-valley draw-down. In the capsule, the peak month and the valley month should be reported. The pool’s or trading program’s worst monthly percentage Rate of Return (ROR) is the worst monthly draw-down. Draw-down refers to the experienced losses by a pool or trading program over a specified period. A peak-to-valley draw-down happened prior to the beginning of the most recent five calendar years shall be deemed occurred during that five-year period. The greatest cumulative percentage decline in month-end net asset value due to losses is the worst peak-to-valley draw-down. To calculate this, the firm should calculate first the Value Added Monthly Index continuously for the time period presented. In calculating this, the firm should determine the amount greater than that month’s Value Added Monthly Index.
Incorrect
The largest percentage change from a peak to a valley is the worst peak-to-valley draw-down. In the capsule, the peak month and the valley month should be reported. The pool’s or trading program’s worst monthly percentage Rate of Return (ROR) is the worst monthly draw-down. Draw-down refers to the experienced losses by a pool or trading program over a specified period. A peak-to-valley draw-down happened prior to the beginning of the most recent five calendar years shall be deemed occurred during that five-year period. The greatest cumulative percentage decline in month-end net asset value due to losses is the worst peak-to-valley draw-down. To calculate this, the firm should calculate first the Value Added Monthly Index continuously for the time period presented. In calculating this, the firm should determine the amount greater than that month’s Value Added Monthly Index.
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Question 5 of 10
5. Question
Which of the following are the calculations for the Value Added Monthly Index (VAMI) and the Annual Rate of Return (ROR) for the annual and year-to-date rates of return?
I. The Annual Rate of Return shall multiply the Value Added Monthly Index for the prior month to the Rate of Return for the month plus 1.
II. In the first month of the period, the Value Added Monthly Index is the product of the Value Added Monthly Index for the prior month to the Rate of Return for the month plus 1.
III. For all subsequent months, the Value Added Monthly Index shall multiply the Value Added Monthly Index for the prior month to the Rate of Return for the month plus 1.
IV. In the first month of the period, the Value Added Monthly Index is the product of one plus the Rate of Return and 1,000.Correct
The Annual Rate of Return (ROR) is calculated on a compounded monthly basis. There are certain methods in calculating this, including the Value Added Monthly Index (VAMI) method. This method generally assumes that the initial investment is $1,000 to show how such an investment would have fared over a certain period of time. In the first month of the period, the VAMI for the month is the product of $1,000 investment and the Rate of Return for month plus 1. For all subsequent months, the VAMI for the month is the product of the VAMI for the prior month and the Rate of Return for month plus 1. For the Annual Rate of Return, the year-end VAMI minus the $1,000 investment is divided by the $1,000 investment. In calculating the annual Rate of Return for subsequent years, the value of the initial investment should be the prior year-end VAMI.
Incorrect
The Annual Rate of Return (ROR) is calculated on a compounded monthly basis. There are certain methods in calculating this, including the Value Added Monthly Index (VAMI) method. This method generally assumes that the initial investment is $1,000 to show how such an investment would have fared over a certain period of time. In the first month of the period, the VAMI for the month is the product of $1,000 investment and the Rate of Return for month plus 1. For all subsequent months, the VAMI for the month is the product of the VAMI for the prior month and the Rate of Return for month plus 1. For the Annual Rate of Return, the year-end VAMI minus the $1,000 investment is divided by the $1,000 investment. In calculating the annual Rate of Return for subsequent years, the value of the initial investment should be the prior year-end VAMI.
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Question 6 of 10
6. Question
Which of the following statements are correct regarding the computation of the Rate of Return (ROR) as presented in the document under the performance information required by the Commodity Futures Trading Commission (CFTC) rules?
I. All voluntary and involuntary deductions during the period shall support the performance information presented in the document.
II. The beginning net asset value for the period shall equal to the previous period’s ending net asset value and support the performance information presented in the document.
III. All withdrawals and redemptions during the period, whether voluntary or involuntary, shall support all performance information presented in the document.
IV. The ending net asset value for the period shall represent the beginning net asset value plus the additions and minus the withdrawals.Correct
In computing the Rate of Return, all withdrawals and redemptions, whether voluntary or involuntary shall be presented in the document as performance information. Included in the performance information contained in any capsule is information not specified by the Commodity Futures Trading Commission. All additions shall also be presented whether voluntary or involuntary. The ending net asset for the period shall represent the beginning net asset value plus the additions and minus the withdrawal, redemptions, and net performance. It shall also indicate the number of units outstanding at the end of the period.
Incorrect
In computing the Rate of Return, all withdrawals and redemptions, whether voluntary or involuntary shall be presented in the document as performance information. Included in the performance information contained in any capsule is information not specified by the Commodity Futures Trading Commission. All additions shall also be presented whether voluntary or involuntary. The ending net asset for the period shall represent the beginning net asset value plus the additions and minus the withdrawal, redemptions, and net performance. It shall also indicate the number of units outstanding at the end of the period.
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Question 7 of 10
7. Question
Which of the following performance of other pools is not considered pools of different classes for the purposes of disclosing the performance of other pools?
Correct
In discussing the performance of other pools, the privately offered pools and public offerings, the principal-protected pools and non-principal protected pools, and the multi-advisor pools and non-multi-advisor pools shall be considered pools of different classes. If the offered pool is privately offered, then all the privately-offered pools are required to be presented on a pool-by-pool basis. The presentation shall be less prominent for the performance data for pools of a different class other than the offered pool. In a composite, only pools of the same class are included and they shall not differ materially to the rate of return.
Incorrect
In discussing the performance of other pools, the privately offered pools and public offerings, the principal-protected pools and non-principal protected pools, and the multi-advisor pools and non-multi-advisor pools shall be considered pools of different classes. If the offered pool is privately offered, then all the privately-offered pools are required to be presented on a pool-by-pool basis. The presentation shall be less prominent for the performance data for pools of a different class other than the offered pool. In a composite, only pools of the same class are included and they shall not differ materially to the rate of return.
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Question 8 of 10
8. Question
In computing aggregate gross capital subscription, which of the following statements are correct as required by the National Futures Association?
Correct
In computing the aggregate gross capital subscriptions as a disclosure requirement of the National Futures Association, the aggregate gross capital subscriptions refer to the total amount of all additions to the pool over its entire operating history. The aggregate gross capital subscriptions should be a gross figure and not reduced by the withdrawals from the pool. On the other hand, in computing for the Rate of Return (ROR), all performance information presented in the document must be supported by the amounts approved by the CFTC. These amounts include all additions, withdrawals, redemptions, and net performances of the period together with its beginning and ending balances.
Incorrect
In computing the aggregate gross capital subscriptions as a disclosure requirement of the National Futures Association, the aggregate gross capital subscriptions refer to the total amount of all additions to the pool over its entire operating history. The aggregate gross capital subscriptions should be a gross figure and not reduced by the withdrawals from the pool. On the other hand, in computing for the Rate of Return (ROR), all performance information presented in the document must be supported by the amounts approved by the CFTC. These amounts include all additions, withdrawals, redemptions, and net performances of the period together with its beginning and ending balances.
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Question 9 of 10
9. Question
Which of the following are not included in the disclosure of the performance presentation for accounts net of any fees and expenses under the disclosure requirements of the National Futures Association?
Correct
There is certain information required to be presented in the performance disclosure for accounts and must be net of any fees and expenses. This includes the name of the trading program, the Commodity Trading Advisor, or other person assigned in the trading of accounts. The name of the trading program shall also be stated together with the date on which the CTA or other person trading the account began trading client accounts and when client funds began being traded pursuant to the trading program. The annual and year-to-date rate of return for the trading program for the most recent five calendar years computed on a monthly basis shall also be stated.
Incorrect
There is certain information required to be presented in the performance disclosure for accounts and must be net of any fees and expenses. This includes the name of the trading program, the Commodity Trading Advisor, or other person assigned in the trading of accounts. The name of the trading program shall also be stated together with the date on which the CTA or other person trading the account began trading client accounts and when client funds began being traded pursuant to the trading program. The annual and year-to-date rate of return for the trading program for the most recent five calendar years computed on a monthly basis shall also be stated.
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Question 10 of 10
10. Question
What shall be included in the disclosure of performance presentation for pools net of any fees, expenses, or special allocations as required by the National Futures Association?
Correct
In the presentation of performance for pools, its disclosure must be net of any fees, expenses, or special allocations. The annual and year-to-date disclosure of the rate of return for the pool’s most recent five calendar years shall be computed on a compounded monthly basis. It shall also state the definition of draw-down in the document. The worst peak-to-valley draw-down during the most recent five calendar years shall be expressed as a percentage of the pool’s net asset value. Its period begins with the peak month and year and ends with the valley month and year. Expressed as a percentage of the pool’s net asset value is the largest monthly draw-down during the most recent five calendar years and year-to-date.
Incorrect
In the presentation of performance for pools, its disclosure must be net of any fees, expenses, or special allocations. The annual and year-to-date disclosure of the rate of return for the pool’s most recent five calendar years shall be computed on a compounded monthly basis. It shall also state the definition of draw-down in the document. The worst peak-to-valley draw-down during the most recent five calendar years shall be expressed as a percentage of the pool’s net asset value. Its period begins with the peak month and year and ends with the valley month and year. Expressed as a percentage of the pool’s net asset value is the largest monthly draw-down during the most recent five calendar years and year-to-date.