2019 CFA level 3 qbank r 1 2 CFA ins code of ethics and standards of prof conduct standards I–VII 2 questions

Question #3 of 199 Do QED's policies comply with CFA Institute Standards of Professional Conduct with respect to the information contained within the client investment policy statements

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Question #1 of 199

In the process of recommending an investment, in order to comply with Standard V(A),

Diligence and Reasonable Basis, a CFA Institute member must:

A) have a reasonable and adequate basis for the recommendation.

B) do both of these.

C) support a recommendation with appropriate research and investigation.

Jim Crockett is a portfolio manager for Miami Advisors and reports to Vicki Tubbs, the Chief

Investment O cer Miami has developed a proprietary model that has been thoroughly

researched and is known throughout the industry as the Miami model The model is purely

quantitative and takes a given set of client characteristics and universe of potential securities

and forms a portfolio for the investor Individual portfolio managers are responsible for

selecting securities to t into the model based on recommendations from the rm's research

department and the managers' own judgment Because of the speci c nature of the inputs to

the model, each manager is responsible for applying the model on his or her own computer

The basic philosophy of the process is thoroughly explained to clients Crockett does not

understand the basics of the model, but feels that since it provides pure quantitative output, he

does not need to understand it However, he misapplies the model for several of his clients In

reviewing some of Crockett's portfolios, Tubbs nds the errors and points them out to Crockett

Which of the following statements regarding Tubbs and Crockett is CORRECT?

A) Crockett has violated the Standards by not considering the appropriateness and

suitability of the investment for his clients

B) Tubbs has violated the Standards by failing to supervise adequately.

C) Crockett has violated the Standards by not exercising diligence and thoroughness in

making investment recommendations

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management of all client portfolios, and to this end, the rm requires that client objectives,

investment experience, and nancial limitations be clearly established at the outset of the

relationship This information is updated at regular intervals not to exceed eighteen months

The information is maintained in a written investment policy statement for each client

Anarudh Singh has been one of Patel's clients ever since she began managing money ten years

ago Shortly after his regular situational update, Singh calls to inform Patel that his uncle is ill,

and it is not known how long the uncle will survive Singh expects to inherit "a sizeable sum of

money," mainly in the form of municipal bonds His existing portfolio allocation guidelines are

for 75% to be invested in bonds Singh believes that the expected inheritance will allow him to

assume a more aggressive investment pro le and asks Patel to begin moving toward a 75%

allocation to equities He is speci cally interested in opening sizable positions in several

technology rms, some of which have only recently become publicly traded companies Patel

agrees to begin making the changes to the portfolio and the next day begins selling bonds from

the portfolio and purchasing stocks in the technology sector as well as in other sectors After

placing the trade orders, Patel sends Singh an email to request that he come to her o ce

sometime during the next week to update his investment policy statement Singh replies to

Patel, saying that he can meet with her next Friday

A few days before the meeting, however, Singh's uncle dies and the portfolio of municipal

bonds is transferred to Singh's account with QED Patel sees this as an opportunity to purchase

more technology stocks for the portfolio and suggests taking such action during her meeting

with Singh, who agrees Patel reviews her les on technology companies and locates a report

on NetWin The analyst's recommendation is that this stock is a "core holding" in the

technology sector Patel decides to purchase the stock for Singh's account, as well as several

other wealthy client accounts with high risk tolerance levels, but due to time constraints she

does not review the holdings in each account Patel does examine the aggregate holdings of the

accounts to determine the approximate weight that NetWin should represent in each portfolio

Since Patel has very recently passed the Level III examination leading to the award of the CFA

designation, QED sends a promotional email to all of the rm's clients The email states "QED is

proud to announce that Chandra Patel is now a CFA (Chartered Financial Analyst) This

distinction, which is the culmination of many years of work and study, is further evidence of the

superior performance you've come to expect at QED." Patel also places phone calls to inform of

her accomplishments several brokers that she uses to place trades for her accounts, stating

that she "passed all three CFA examinations on the rst attempt." One of the people Patel

contacts is Max Spellman, a long-time friend and broker with TradeRight Brokers Inc Patel uses

the opportunity to discuss her exclusive trading agreement with TradeRight for Singh's account

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When ordering trades for Singh's account, Patel's agreement with TradeRight for brokerage

services requires her to rst o er the trade to TradeRight and then to another broker if

TradeRight declines to take the trade TradeRight never refuses the trades from any manager's

clients Patel established the relationship with TradeRight because Singh, knowing the rm's fee

schedule relative to other brokers, asked her to do so However, because TradeRight is very

expensive and o ers only moderate quality of execution, Patel is considering directing trades

on Singh's account to BullBroker, which charges lower commissions and generally completes

trades sooner than TradeRight

Do QED's policies comply with CFA Institute Standards of Professional Conduct with respect to

the information contained within the client investment policy statements and the frequency

with which the information is updated?

In light of Singh's comments during his telephone call to Patel prior to his uncle's death, which

of the following actions that Patel can take comply with CFA Institute Standards of Professional

Conduct?

A) Patel may change the current portfolio strategy and begin trading based upon Singh’s

expectations because he advised her to do so

B) Patel must adhere to the existing portfolio strategy until she meets with Singh to

develop a new portfolio strategy based upon updated nancial information but may

C) Patel must not place any trades in the account until she meets with Singh to develop a

new portfolio strategy based on the updated information

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According to CFA Institute Standards of Professional Conduct, may Patel reallocate Singh's

portfolio toward technology stocks after his Uncle dies but before the meeting with Singh?

A) No, because Patel must wait until the next annual meeting to reallocate.

B) No, because Patel and Singh must meet and revise the investment policy statement and

portfolio strategy before reallocating

C) Yes, because the total value of the municipal bonds received into the account will be too

large relative to the other assets in the portfolio

Did Patel violate any CFA Institute Standards of Professional Conduct when she purchased the

NetWin stock for Singh's portfolio or for the other clients' portfolios?

Singh's portfolio Other portfolios

Which of the following is least accurate regarding the promotional announcement of Patel

passing the Level III exam?

A) The promotional announcement uses the letters “CFA” as a noun and hence is an

improper use of the designation

B) The announcement violates the Code of Ethics because it implies that obtaining a CFA

charter leads to superior performance

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C) The fact that a promotional announcement was made violates the restrictions on

misrepresenting the meaning of the CFA designation

With respect to the choice of broker, did Patel violate any CFA Institute Standards of

Professional Conduct?

A) No.

B) Yes, since Patel is obligated to seek the best possible price and execution for all clients.

C) Yes, since Patel failed to properly notify Singh that using TradeRight would lead to

higher commissions and opportunity costs

Greg Stiles, CFA, keeps a list of his clients' birthdays and has personally sent them a birthday

card each year at the appropriate time With respect to this action, which of the following may

be a violation of Standard III(E), Preservation of Con dentiality?

A) Sending a gift along with the card.

B) Hiring a company outside the rm to perform the task.

C) The mere act of sending a birthday card each year.

Jill Marsh, CFA, works for Advisors where she manages various portfolios Marsh's godfather is

an accountant and has done Marsh's tax returns every year as a birthday gift Marsh's

godfather has recently become a client of Advisors and asked speci cally for Marsh to manage

his account In order to comply Standard IV(B), Disclosure of Additional Compensation

Arrangements, she needs to:

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A) liquidate from her personal portfolio any stocks her godfather owns and verbally tell

her supervisor about the tax services

B) do neither of the actions listed here.

C) have her godfather cease doing her taxes.

Michael Pennington Case Scenario

Michael Pennington is Senior Vice President of equity investments at Alpha Investment

Advisors, Inc (AIA) He manages a team of analysts and portfolio managers and is responsible

for maintaining and developing client relationships AIA is located in Belgium and provides

investment management services to high net work individuals Pennington is also a Level III

Candidate for the CFA designation

One of Pennington's clients is the Flanders family Pennington had a long relationship with

Helmut Flanders Before Flanders's untimely death, he gave Pennington full discretion over his

portfolio based on an investment policy statement that had been re ned continuously over the

years

Flanders was the president of a publicly traded manufacturing company, Allux, and 20%

of his portfolio's assets were invested in Allux equity His contract with Allux prohibitedselling his Allux shares while he was employed

Flanders had little liquidity needs His children were grown, and his salary at Allux was

su cient to cover his annual expenditures as well as contribute to his investmentportfolio

A former accountant, Flanders had been extremely knowledgeable and comfortable withthe investment decision-making process

Pennington owns 10,000 shares of Allux and serves on Allux's board

Pennington played golf with Flanders on a regular basis and, with Flanders's help,developed many client relationships from these outings

AIA has an agreement with a local brokerage rm, First Brokerage, owned by Pennington's

sister to place all AIA trades through First Brokerage

Flanders agreed in writing that all trades in his portfolio would be directed to FirstBrokerage

Pennington purchased new carpets for his o ce with soft dollars He believes that hismanagers make better investment decisions when their environment is pleasant andcomfortable

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Pennington attended an industry conference in the Bahamas with soft dollars Theprogram is devoted to improving management of the investment advisory rm Hebelieves that a well-run rm makes better investment decisions.

Pennington consistently uses soft dollars to purchase research reports from anindependent research rm that does in-depth analysis of a company's nancialreporting Several of his managers have commented on the quality and usefulness ofthese reports to their analysis and decision making

Pennington has an appointment to meet with Flanders's widow, Elise, who, as an artist, left

management of their nancial assets to her husband She is meeting with Pennington to better

understand her nancial position

Which of the following Standards is most relevant regarding Pennington's meeting with Elise?

A) Standard III(A), Loyalty, Prudence, and Care.

B) Standard III(E), Preservation of Con dentiality.

C) Standard III(C), Suitability.

Standard VI(A), Disclosures of Con icts, requires Pennington to disclose all matters, including

bene cial ownership of securities of other investments, that could be expected to impair the

member's ability to make unbiased and objective recommendations Which of the following

matters would least likely be disclosed to Elise?

A) AIA has a soft dollar arrangement with a brokerage rm owned by Pennington’s sister.

B) Pennington owns shares in Allux.

C) Pennington played golf with Helmut Flanders on a regular basis and developed client

relationships from those golf outings

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Which of the following best describes Pennington's compliance with the CFA Institute Standards

regarding his use of soft dollars? The purchase of:

A) research reports and attending the conference are allowable uses of soft dollars.

B) research reports is an allowable use of soft dollars.

C) both research reports and carpeting are allowable uses of soft dollars.

Pennington would like to continue to direct trades from Elise's portfolio to his sister's

brokerage rm In order to continue with this arrangement and comply with the CFA Institute

Standards, which of the following disclosures are required?

A) Pennington must clearly disclose that his duty as the investment manager is to continue

to seek to obtain best execution

B) Pennington must disclose that directed brokerage arrangements that require the

investment manager to commit a certain percentage of brokerage might a ect his

C) Pennington must disclose policies with respect to all soft dollar arrangements and

receive written consent from Elise that she understands the consequences if he is not

After determining Elise's risk and return objectives, liquidity needs, tax considerations, and

unique circumstances, Pennington has decided the he must reduce Elise's holding of Allux

shares He has several other clients, whom he met through Flanders, who also have signi cant

holdings in Allux Pennington has also decided to reduce his own holdings in Allux since his

term as a director of Allux will be up in June He does not plan to seek reappointment, but as a

member of the audit committee, he is privy to information about a tender o er Pennington

realizes this is a complex situation

Of the following Standards, determine which would least likely help Pennington decide what

actions with respect to selling shares of Allux would be in compliance with the CFA Institute

Standards of Practice

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A) Standard III(B), Fair Dealing.

B) Standard VI(A), Disclosure of Con icts.

C) Standard III(C), Suitability.

Since Pennington is a director of Allux and a member of the audit committee, what additional

Standard is speci cally applicable to Pennington's decision to sell his and his clients' shares of

Allux?

A) Standard VII, Responsibilities as a CFA Institute Member or CFA Candidate.

B) Standard II, Integrity of Capital Markets.

C) Standard IV, Duties to Employers.

An analyst who routinely purges the les that support his research and recommendations:

A) may be violating Standard V(C), Record Retention.

B) is acting in accordance to Standard IV(A), Loyalty to Employer.

C) is acting in accordance to Standard III(E), Preservation of Con dentiality.

Denise Weaver is a portfolio manager who manages a mutual fund and has pension clients

When Weaver receives a proxy for stock in the mutual fund, she gives it to Susan Gri th, her

administrative assistant, to complete When the proxy is for a stock owned in a pension plan,

she asks Gri th to send the proxy on to the sponsor of the pension fund Weaver has:

A) violated the Standards by her policy on mutual fund and pension fund proxies.

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B) violated the Standards by her policy on mutual fund proxies, but not her policy on

pension fund proxies

C) not violated the Standards.

While it would be customary to report both ve-year and ten-year performance data, Seminole

Equity Partners has been in existence for only eight years Because of this, Kurt Dambach does

not report ten-year data but reports for both ve years and since the inception of the fund This

he notes in a footnote at the bottom of the information sheet This action is:

A) in accordance with the Code and Standards since he has indicated the basis in a

footnote

B) a violation of the Standard concerning performance presentation.

C) a violation of the Standard concerning prohibition against misrepresentation.

Wes Smith, CFA, works for Advisors, Inc In order to remain in compliance with Standard V(A),

Diligence and Reasonable Basis, Smith may recommend a security in which of the following

situations?

A) Advisors' research department recommends a stock.

B) For either of the reasons listed here.

C) Smith reads a favorable review of the security in a widely read periodical.

Janet Thompson, CFA, is employed as an analyst by Nationwide Securities According to CFA

Institute Standards of Professional Conduct, which of the following statements about

Thompson's duty to Nationwide is NOT correct? Thompson must refrain from:

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A) making arrangements to go into a competitive business before terminating her

relationship with Nationwide

B) engaging in independent competitive activity that could con ict with the business of

Nationwide unless she receives written consent

C) engaging in any conduct that would injure Nationwide.

Bella Brown is an experienced generalist securities analyst employed by Lang & Co., a major

U.S brokerage rm whose clients have a high regard for her research and stock selection

abilities She was visited recently by a Lang managing director who said, "Please take a look at

SpecChem Inc., the specialty chemical producer They are going to need an investment banker

soon and, because we make a market in their stock, we will be one of the rms considered for

this business I had lunch with SpecChem's Treasurer today, who told me that their European

problems are being resolved and that earnings results are de nitely looking good He likes us

and is expecting you to call him for details." The managing director then left Brown's o ce,

saying, "It would be great if you could rate the stock a 'Buy'."

In a subsequent hour-long telephone discussion with the Treasurer, Brown obtained some

useful information concerning recent company trends and developments as well as

SpecChem's overall view of the outlook for sales and earnings during the next several quarters

Brown began thinking quite positively about the company and its prospects She then reviewed

some general source material on the chemical industry and read the Standard & Poor's Stock

Guide on SpecChem Inc That afternoon, she wrote a report recommending purchase of the

stock, shown below as Exhibit B In accordance with Lang's routine procedures for

pre-dissemination review of Research Department recommendations, the report has been sent to

the rm's Director of Research, who is aware of the circumstances under which it was

prepared

Exhibit B

LANG & COMPANY Company Report

Industrial: Specialty Chemicals Equity Research

Rating: Buy

SpecChem Inc (NYSE: SCM)

We are initiating coverage of SpecChem Inc with this report

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Earnings, up to 51% in the rst quarter, are expected to be up again in the quarterending June 30 Higher sales, better margins, an improved geographic sales mix, andsavings from reduced pension expense are all contributing to this year's gains.

Although European production is up only modestly year-over-year, successful costreduction e orts are limiting the adverse e ects of weak volume and pricing A possibleplant closure in September could improve plant utilization by 10%, accompanied bypotentially dramatic margin improvement However, a $30 million after-tax specialcharge could be taken at the time of the closure

We expect a moderate increase in second half 2014 sales Although management looksfor European demand to remain slow, it feels that U.S sales could be above expectations

if auto-related demand strengthens Management is also optimistic about receiving asizable U.S government contract in the next few months

Based on the factors noted above, our con dence level concerning earnings levels overthe balance of the year is high

We think SpecChem stock is undervalued and believe it can easily reach the low 100s onthe strength of continuing earnings momentum The downside is estimated to be in themid-80s There is plenty of room for upside earnings surprises if volume and pricesimprove, which would take the stock up strongly Purchase is recommended

Analyst: Bella Brown

Research Department

This report is based upon information which we consider reliable, but we do not represent that

it is accurate, and it should not be relied upon as such We, or persons involved in the

preparation or issuance of this material, may, from time to time, have long or short positions in

the securities of the company mentioned herein

Under the CFA Institute Code and Standards, it is the responsibility of the Director of Research,

a CFA Institute member to:

A) exercise reasonable supervision over those subject to their supervision or authority to

prevent any violation of applicable statues, regulations or provisions of the Code and

S d d

B) not knowingly participate or assist in any violation of laws, rules, or regulations.

C) both of these.

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Under the current circumstances, the Director of Research should:

A) allow the report to be distributed, as is.

B) require the report to be redone with a neutral or hold rating pending the outcome of

the awarding of the investment banking business

C) require the report to be redone to ensure compliance with CFA Institute Standards.

The research report, as shown, has several aspects which violate CFA Institute Standards of

Professional Conduct Which of the following is NOT an apparent violation of CFA Institute

Standards?

A) The report violates guidelines on investment performance presentation.

B) The report does not distinguish between fact and opinion.

C) The report does not adequately discuss the factors important to analysis,

recommendations, or action

As to the process by which Brown's report in Exhibit B came into being, which of the following is

least likely a procedural error in violation of CFA Institute Standards of Professional Conduct?

A) Brown has violated the Standard relating to the prohibition against plagiarism.

B) Brown has violated the Standard relating to disclosure of basic characteristics.

C) Brown has violated the Standard relating to independence and objectivity.

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Brown has been invited to visit the world headquarters of SpecChem Brown expects that the

information that she learns there will help her to ush out some of the ne details in her

research on SpecChem's stock SpecChem plans to pay for all of Brown's expenses trip,

including meals, accommodations and lodging In order to comply with the Code and

Standards, which of the following actions should Brown take? Brown should:

A) Accept the reimbursement but disclose the total reimbursed expense-paid trip in the

report

B) Pay for all her travel expenses.

C) Accept the reimbursement if she is con dent that her report will still be objective.

Brown submits her report to the Director of Research for review, as required by Lang's

procedures Although the Director of Research supports Brown's general conclusion, he is

somewhat more optimistic about SpecChem's near-term prospects, and based on his own

thorough investigation believes that the stock could touch $150 The Director of Research

changes the report to indicate a target price somewhat higher than originally predicted by

Brown Brown is con dent that the Director of Research's conclusion has a reasonable basis,

but thinks that $150 is on the high side of what is likely The Director of Research adds his own

name to the report to re ect his contribution

In order to comply with CFA standards, must Brown request that her name be taken o the

report before it is disseminated?

A) Yes, because Brown should dissociate from the report.

B) No.

C) Yes, because the Director of Research has misrepresented his contribution.

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Jill Marsh, CFA, works for Advisors where she manages a portfolio for a wealthy family Marsh

earns 1% of the portfolio's value each year in the form of a commission from Advisors The

family just told her that any year the portfolio she manages earns more than a 10% return, the

family will give her the use of the family's vacation home for one week Marsh will comply with

Standard IV(B), Additional Compensation Arrangements, if she:

A) sends an e-mail to her supervisor about the vacation home.

B) does nothing with respect to this.

C) delivers a typed memo to her supervisor about the vacation home the rst time she

uses it

A nancial analyst and CFA Institute member sends a preliminary research report on a

company to his supervisor The supervisor approves the report, but then the analyst receives

news that causes him to revise downward the earnings estimate of the company The analyst

resubmits the report to the supervisor with the new earnings estimate The analyst soon nds

out that the supervisor plans to release the rst version of the report with the rst earnings

estimate without a reasonable and adequate basis In response to this the analyst must:

A) only insist that the rst report be followed up by a revision.

B) both insist that a follow up report be issued and take up the issue with regulatory

authorities

C) insist that the supervisor change the earnings forecast or remove his (the analyst's)

name from the report

An analyst belongs to a nationally recognized charitable organization, which requires dues for

membership The analyst has worked out a deal where he provides money management advice

in lieu of paying dues Which of the following must the analyst do?

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C) Nothing since he is not an employee of the charitable organization.

Ned Brenan manages two dozen pension accounts, one of which earned over 25% during the

past two years Brenan tells prospective clients that based on past experience they can expect a

25% return on their funds Which of the following statements is CORRECT?

A) Brenan has violated Standard of Professional Conduct III(D), Performance Presentation,

but Brenan has not violated Standard I(C), Misrepresentation

B) Brenan has not violated Standard of Professional Conduct III(D), Performance

Presentation, but Brenan has violated Standard I(C), Misrepresentation

C) Brenan has violated both Standard of Professional Conduct III(D), Performance

Presentation, and Standard I(C), Misrepresentation

May Frost, CFA, is an equity research analyst for a "precious metals mining" exchange traded

fund which has recently started signi cantly outperforming its benchmark after several years of

stagnation Upon investigating the source of the outperformance, Frost learns that the fund has

experienced severe style drift, and now has a signi cant proportion of its resources invested in

technology and Internet stocks Frost reviews the fund's prospectus and learns the current

sector weighting violates multiple prospectus covenants Frost contacts her supervisor and the

fund's compliance department and is told the portfolio weighting is not her responsibility and

that she should not pursue the matter further Frost reviews the rm's whistleblower policy,

contacts personal legal counsel, and then contacts regulatory authorities regarding the style

drift and prospectus violations Frost is most likely:

A) in violation of Standard III(E) "Preservation of Con dentiality."

B) in violation of Standard IV(A) "Loyalty."

C) not in violation of the Code and Standards.

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While having a conversation with a prospective client, John Henry states that his performance

across all of his past clients over the past ve years was over 20%, which was 200 basis points

higher than his benchmark He tells the client that while the benchmark may rise or fall over

time, his excess performance will remain consistent Henry violated the Standards of

Professional Conduct because:

A) he cannot discuss performance without clearly stating that the composite does not

conform to GIPS

B) the statement of excess performance is misleading with respect to its certainty.

C) he cannot discuss prospective future performance in any manner.

Dixie Miller, a Level II CFA candidate, heads the research department of a large brokerage rm

The rm has many analysts, some of whom are subject to the CFA Institute Code of Ethics and

Standards of Professional Conduct If Miller delegates some of her supervisory duties, which

statement best describes her responsibilities under the CFA Institute Code and Standards?

A) Miller's supervisory responsibilities do not apply to those subordinates who are not

subject to the CFA Institute Code and Standards

B) Miller retains supervisory responsibilities for those duties delegated to her

subordinates

C) CFA Institute Standards prevent Miller from delegating supervisory duties to

subordinates

Nancy Korthauer, CFA, has launched a new hedge fund called the Korthauer Tautology Fund

and is actively soliciting clients from competitor's rms Client presentations are necessarily

brief and often take place with the prospective client's current investment advisor in the room

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A) a prospective client’s current investment advisor not participate in meetings.

B) all client presentations provide a thorough review of all elements of the investment

management process Abbreviated presentations are forbidden

C) member or candidate provide (on request) additional detail information which supports

the abbreviated presentation

A company has a de ned bene t plan that is currently under-funded The plan sponsor has

instructed the portfolio manager of the plan to invest more aggressively to bring the funding

level up to an adequate amount Which of the following statements best describes the course

of action the portfolio manager should take? The portfolio manager should:

A) invest more aggressively because his duciary duties lie with the plan sponsor.

B) not invest more aggressively because this is not the method used to increase the

funding level of a plan

C) not invest more aggressively since this may expose the plan to too much risk and may

not be in the best interest of the plan's bene ciaries

Patricia Hoolihan is an individual investment advisor who uses mutual funds for her clients She

typically chooses funds from a list of 40 funds that she has thoroughly researched The Burns, a

married couple that are a client, asked her to consider the Hawkeye fund for their portfolio

Hoolihan had not previously considered the fund because when she rst conducted her

research three years ago, Hawkeye was too small to be considered However, the fund has now

grown in value, and cursory research uncovers no fundamental aws with the fund She puts

the fund in the Burns' portfolio but not in any of her other clients' portfolios The fund ends up

being the best performing fund on her list Hoolihan has:

A) violated the Standards by not dealing fairly with clients.

B) violated the Standards by not having a reasonable and adequate basis for making the

recommendation

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C) not violated the Standards.

Roger Halpert, CFA, prepares a company research report in which he recommends a strong

"buy." He has been careful to ensure that his report complies with the CFA Institute Standard

on research reports According to CFA Institute Standards of Professional Conduct, which of the

following statements about how Halpert can communicate the report is most correct?

A) Halpert can make his report in person.

B) Halpert can make his report in person, by telephone, or by computer on the Internet.

C) Halpert can transmit his report by computer on the Internet.

A money management rm has the following policy concerning new recommendations: When a

new recommendation is made, each portfolio manager estimates the likely transaction size for

each of their clients Clients are noti ed of the new recommendation in the order of their

estimated transaction size—largest rst All clients have signed a form where they acknowledge

and consent to this allocation procedure With respect to Standard III(B), Fair Dealing, this is:

A) not a violation because the clients have signed the consent form.

B) not a violation because the clients are aware of the policy.

C) a violation of the standard.

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Randal Brooks is the chief economist for a large brokerage rm In the aftermath of a national

tragedy, Brooks feels that it is very possible that the stock market will drop signi cantly and not

recover for several years However, he does not believe that this is the most likely scenario but

merely that the risk of investing in equities has increased He decides to write a market

commentary to the brokerage clients that discusses the reasons why the market will remain

stable and talks about why he, as a private citizen, feels patriotic He does not mention the

increase risk in equities Brooks has:

A) not violated the Standards.

B) violated the Standards by not including all of the relevant factors in the research report,

but not by making patriotic statements

C) violated the Standards by not including all of the relevant factors in the research report

and making patriotic statements

While servicing his clients' accounts, an analyst who is a CFA charterholder, determines that

one client is probably involved in illegal activities According to Standard III(E), Preservation of

Con dentiality, the analyst may NOT do which of the following?

A) Contact the appropriate governmental authorities about the determination.

B) There are no exceptions in this list.

C) Contact CFA Institute about the determination.

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The O'Douls (husband and wife) have decided to work with Jane Mack, CFA, to have her

recommend an investment portfolio for them The O'Douls are novice investors and Mack has

determined their asset allocation model falls into the conservative category After researching

various investment options for the O'Douls, Mack has made a recommendation that they divide

their account on a 25%/75% basis between shares of a computer peripherals manufacturing

company her brokerage rm is underwriting and investment grade corporate bonds The

O'Douls are not aware that Mack's rm is underwriting an o ering of the company in question

Which CFA Institute Standard(s) has Mack violated given her actions?

A) Standard V(A), Diligence and Reasonable Basis, and I(D), Misconduct.

B) Standard VI(A), Disclosure of Con icts, and III(C), Suitability.

C) Standard III(B), Fair Dealing, and III(A), Loyalty, Prudence, and Care.

Rajiv Singh, a CFA charterholder, works as an equity analyst with Horizon Investments, a large

broker/dealer After ski-resort developer HighLife misses a quarterly earnings target, Singh

changes his recommendation on HighLife from buy to hold Singh has been following HighLife

for years In several previous research reports on HighLife, Singh told clients that, based on his

detailed analysis of the nancial statements and market position, he believed HighLife had

stopped picking up market share He had mentioned concerns about HighLife several times in

his reports and said in the most recent report that he would downgrade the stock if it missed

quarterly earnings

Singh had produced his monthly report on HighLife just a week before the earnings

announcement, and because he had just written about his intention to downgrade the stock, he

felt he did not need to inform clients of his recommendation change until the next monthly

report

On the same day that the HighLife report was released, Singh initiated coverage on another

company, the convenience-store operator QuickStop, with a Buy rating His research report is

distributed that afternoon A client sends Singh a sell order for QuickStop via e-mail the same

day the new recommendation is being disseminated to all Singh's clients and prospects

John Womack, a Level II CFA candidate, is a trader at Horizon Womack, walking past the

conference room during an investment meeting, learns of the initiation of the buy rating on

QuickStop Prior to the dissemination of the buy rating to Horizon's clients, he buys up a large

block of QuickStop shares for Horizon's account in anticipation of clients' interest in the stock

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Horizon is drafting trade-allocation guidelines for companywide use Five regulations the

company is considering are listed below:

Regular orders are processed and executed on a pro-rata basis

Shares in initial public o erings will be allocated on a pro-rata basis to the rm'sportfolio managers according to advance indications of interest from the managers

When the full amount of a block order is not executed, partially executed orders areallocated on a rst-in, rst-out basis

Orders must be recorded in writing and stamped with the time of the order and theexecution

All clients participating in block trades are give the same execution price, and all clientsare charged the same commission

When Singh receives the sell order for QuickStop, he should:

A) ask the client to delay the order until he sees the new research report.

B) process the sell order immediately to ful ll his duciary duty to the client.

C) tell the client about the buy rating and advise him not to sell the stock.

Womack's trading actions are a violation of:

A) Standard III(E): Preservation of Con dentiality and Standard VI(B): Priority of

Transactions

B) Standard IV(A): Loyalty to Employer and Standard III(B): Fair Dealing.

C) Standard III(A): Loyalty, Prudence, and Care and Standard VI(B): Priority of Transactions.

With regard to his coverage of HighLife stock, Singh:

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A) violated the reasonable-basis Standard by downgrading a stock just because it missed

one quarterly earnings estimate

B) did not violate the Standards for reasonable basis or research reports.

C) violated the research reports Standard because he failed to di erentiate between facts

B) Standard III(B): Fair Dealing by not telling clients about the downgrade of HighLife in the

wake of his promise to downgrade the stock if it missed estimates

C) Standard V(A): Loyalty, Prudence, and Care by not exercising reasonable care and

prudent judgment in his research

Horizon's proposed IPO-allocation procedures are:

A) not a violation of Standard III(B): Fair Dealing if they are disclosed to all clients and

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Which of the following trade allocation procedures being considered for Horizon's trade

allocation policy would NOT be consistent with Standard III(B), Fair Dealing?

A) All clients participating in block trades are give the same execution price, and all clients

are charged the same commission

B) Regular orders are processed and executed on a pro-rata basis.

C) When the full amount of a block order is not executed, partially executed orders are

allocated on a rst-in, rst-out basis

A client calls his money manager and asks the manager to liquidate a large portion of his assets

under management for an emergency The manager warns the client of the risk of selling many

assets quickly but says that he will try to get the client the best possible price This is a violation

of:

A) Standard III(C), Suitability.

B) none of the Standards listed here.

C) Standard V(A), Diligence and Reasonable Basis.

An analyst nds a stock that has had a low beta given its historical return, but its total risk has

been commensurate with its return When writing a research report about the stock for clients

with well-diversi ed portfolios, according to Standard V(B), Communication with Clients and

Prospective Clients, the analyst needs to mention:

A) the relationship of the historical total risk to return only.

B) the relationship of the historical beta and return only.

C) both the historical beta and total risk and return.

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Which of the following is a possible breach of duciary duties by a CFA Institute member who

manages assets on behalf of a client?

A) Neither of these breach duciary duties.

B) Voting all proxies of stocks the client owns.

C) Using directed brokerage.

Nicholas Brynne, CFA, develops a trading model while working for CE Jones, an investment

management rm By working on the model at home from his personal computer, Brynne is

able to devote additional work hours Although the trading model is successful, Brynne loses

his job in a company restructuring, and decides to start his own practice using the trading

model Nicholas is most likely:

A) in violation of the Standards because he did not receive permission from his employer

to keep or use the les after employment ended

B) not in violation of the Standards because the trading model was created using his home

computer

C) in violation of the Standards because he did not have permission to build the trading

model using his home computer

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Janice Mel is a portfolio manager for Soprano Advisors Soprano has developed a proprietary

model that has been thoroughly researched and is known throughout the industry as the

Soprano model The model is purely quantitative and screens stocks into buy, hold, and sell

categories The basic philosophy of the model is thoroughly explained to clients The director of

research frequently alters the model based on rigorous research—an aspect that is well

explained to clients, although the speci c alterations are not continually disclosed Portfolio

managers use the model to assist them in making portfolio decisions, but, based on their own

fundamental research, are allowed to purchase securities not recommended by the model This

fact is not disclosed to the clients, because the head of marketing does not think it is relevant

Which of the following statements regarding the portfolio manager's investment decisions is

CORRECT?

A) There is no violation of the Standards.

B) Mel is violating the Standards by using two investment processes that are in con ict

with each other

C) Soprano is violating the Standards by not disclosing the fundamental research aspect of

the investment process

Nancy Westfall is an individual investment advisor who uses mutual funds for her clients She

typically chooses funds from a list of 40 funds that she has thoroughly researched The Craigs,

a married couple that is a client, asked her to consider the Eligis fund for their portfolio

Westfall had not previously considered the fund because when she rst conducted her

research three years ago, Eligis was too small to be considered However, the fund has now

grown in value, and after doing thorough research on the fund, she nds the fund has suitable

characteristics to be included in her acceptable list of funds She puts the fund in the Craigs'

portfolio but not in any of her other clients' portfolios The fund ends up being the poorest

performing fund in the Craigs' portfolio Has Westfall violated any Standards? Westfall has:

A) not violated the Standards.

B) violated the Standards by not dealing fairly with clients.

C) violated the Standards by not having a reasonable and adequate basis for making the

recommendation

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Stephen Rangen, a broker, has three accounts consisting of unsophisticated, inexperienced

individual investors with limited means One of these accounts is an elderly couple The clients

want to invest in safe, income-producing investments They rely heavily on Rangen's advice and

expect him to initiate most transactions in their respective accounts In managing their

accounts, Rangen pursues the following strategies: (1) buys U.S treasury strips and

non-dividend paying over-the-counter (OTC) stocks recommended by his rm's research

department, (2) uses margin accounts, and (3) concentrates the equity portion of their portfolio

in one or two stocks Rangen's approach leads to extremely high turnover rates in all three

accounts

Which of the following statements about Rangen's conduct is most accurate? Rangen's conduct:

A) meets the requirements of the Code and Standards because his rm's research

department recommended the U.S Treasury strips and non-dividend paying stocks

B) does not meet the requirements of the Code and Standards because his investment

strategy is inconsistent with his clients' objectives

C) meets the requirements of the Code and Standards because his clients are aware of the

risks that he is taking in managing their accounts

A member would most likely violate the Standard regarding duties to clients by:

A) adding a risky derivative security to the portfolio of a client with moderate risk

tolerance

B) recommending purchase of securities without a reasonable inquiry into the investment

experience of the client

C) executing a client order for a security the member believes is greatly overvalued.

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Robert Hamilton, a CFA candidate, is preparing a research report on Pets-R-Us for public

distribution Hamilton's preliminary report contains unfavorable earnings forecasts for the next

four quarters As part of his analysis, Hamilton met with Linda Brisson, the president of

Pets-R-Us, and asked her to review the preliminary report for factual inaccuracies Brisson revised

Hamilton's earnings forecasts so that the quarterly earnings showed an upward trend and

resulted in positive earnings by the fourth quarter Hamilton included the revised earnings

gures in his report without further review Although the nal report included the basic

characteristics of Pets-R-Us, it emphasized certain areas such as projected quarterly earnings

but only brie y touched on others According to CFA Institute Standards of Professional

Conduct on research reports, Hamilton:

A) violated the Standard because he did not thoroughly review and analyze any

information provided by Brisson

B) violated the Standard because the report did not give similar attention to all areas but

instead emphasized quarterly earnings at the expense of other areas

C) did not violate the Standard.

An investment advisor goes straight from a research seminar to a meeting with a prospective

new client with whom she has never been in contact The advisor is very excited about the

information she just received in the seminar and begins showing the prospect the new ideas

her rm is coming up with This is most likely a violation of:

A) Standard III(B), Fair Dealing.

B) Standard III(C), Suitability.

C) both of these.

An analyst needs to inform his supervisor in writing of which of the following?

A) An annual bonus, sent to the analyst by a client, which varies with the performance of

the client's portfolio that the analyst manages as an employee even though no verbal or

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B) Both the lunch and the bonus mentioned in the other answers.

C) A client and the analyst alternate paying for lunch at a local sandwich shop.

Lee Hurst, CFA, is an equity research analyst who has recently left a large rm to start

independent practice He is able to re-create several of his previous recommendation reports,

based on his clear recollection of supporting documentation he compiled at his previous

employer He publishes the reports and obtains several new clients Hurst is most likely:

A) not in violation of any Standard.

B) in violation of Standard V(A) "Diligent and Reasonable Basis."

C) in violation of Standard V(C) Record Retention.

Dan Lee, CFA, is a portfolio manager with Jewel Investment Advisors Doris Black, one of Lee's

long-time clients, tells Lee that he can use her vacation home in Aspen, Colorado, for a week

during skiing season if the return on her portfolio exceeds its benchmark by two percentage

points during the next year Black also o ers to reimburse Lee and his wife for their

transportation expenses to Aspen Lee accepts this arrangement According to CFA Institute

Standards of Professional Conduct, what is Lee's obligation, if any, to disclose this arrangement

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Greg Stiles, CFA, CAIA, is liquidating a large portion of a client's portfolio because the client is

planning to buy a vacation home Stiles informs one of his colleagues at the rm that the client

is looking for a vacation home, because the colleague's wife is a licensed real estate broker

With respect to Standard III(E) Preservation of Con dentiality, this action:

A) violates the Standard unless the client has given explicit permission to disclose his

plans

B) Does not violate the standards because he did not disclose any details about the client’s

portfolio or other nancial resources

C) does not violate the standards because he did not share the information outside the

rm

An analyst working at an investment rm has a client that provides income tax prep services for

individuals The client tells the analyst that as long as he is the client's analyst, he will prepare

the analyst's income tax return free of charge The analyst needs to:

A) inform his supervisor in writing of the o er.

B) explicitly refuse such an o er.

C) do nothing since the o er is not linked to the performance of the client's portfolio.

Fred Stroh is an international equity analyst for EmerWorld Capital Management (ECM) Stroh

has been studying the opportunities associated with the rumors of proposed joint ventures

involving U.S rms and rms partially owned by the government in a recently democratized

country Clients of Stroh have called him to ask about the investment possibilities This

concerns Stroh somewhat as he has had great di culty in nding and acquiring reliable

information about the quality and accessibility of the inputs and labor in local markets

Furthermore, there is still considerable uncertainty about which U.S rms will be o ered

partnerships, what the conditions of those partnerships will entail, and the accounting rules

that will govern the new ventures However, Stroh is con dent that there will be demand for

the output in local and international markets

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Stroh begins his investigation and e-mails an old friend who was an entrepreneur in the U.S.

and moved to the recently democratized country when he went into partial retirement

Although Stroh had not been in contact with the friend for several years, the friend writes back

and says that this is a great time to invest in the country He says that there will be national

elections soon, and it seems that a pro-business chief executive for the country will be elected

The friend includes website URL addresses which link to reports from reputable news sources

concerning the election Stroh goes to those sites and sees that recent opinion polls in the

country show that the pro-business candidate has a majority in the polls taken and is believed

to be able to easily win the election

Stroh calls his friend, and asks if the labor costs and input availability in the country gave the

country a comparative advantage in some areas The friend says yes, and that APX Corp is

planning to partner with the country's government to expand a plant for making car parts APX

is also in talks to make a tender o er for a French glass manufacturing rm, which was one of

the few non-nationalized and foreign owned rms in the country None of APX's intentions

were known to outsiders of the rm Stroh asks his friend how sure he is of the information,

and the friend says that he has been hired as a consultant for APX and has been a negotiator in

the tender o er dealings, which are going well Stroh warns his friend that he may be saying

too much, and his friend says that there are no rules in the country associated with trading on

this type of information The friend says he has some other useful information, but rst asks if

Stroh thought investing in APX was a good idea Stroh responds by saying that based on the

information just provided, and his training as an analyst and a CFA charterholder, the analysis

would indicate that his friend should buy APX The friend then says that IMI Corp has decided

not to enter into any partnerships in the country Stroh then asks about how sure his friend

was of IMI withdrawing from partnering in the country, and the friend says that although he

has no contacts in IMI, it was his own research that lead to that conclusion Stroh corroberated

his friend's research ndings

Stroh continues his investigation In his research he nds through public documents that APX

has purchased the land next to the car parts plant Some of APX's managers are already

working in the parts plant itself He also nds that APX representatives have been visiting the

headquarters of the French glass manufacturer In public documents, APX is projecting a big

increase in its production of engine parts and windshields

Stroh calls the CFO of IMI and during the conversation learns that IMI has decided to withdraw

its bid to be a joint venture partner, but that the formal announcement of the withdrawal will

not occur for another week The CFO declines to give a reason Stroh also nds that o cial

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Not wanting to miss an opportunity, Stroh completes his industry analysis and concludes that

EmerWorld will issue a buy recommendation on APX In the recommendation he says that APX

is planning on expanding its production of car parts and windshields by acquiring new

manufacturing plants in a country that o ers great cost advantages, but does not mention his

gathering the information concerning the land acquisition and the APX managers working in

the existing plant because he wants to conceal his research methods Stroh also says the

advantages to APX are exceptionally good because a new pro-business chief executive will soon

be elected Upon the announcement of IMI to not partner in the country, Stroh issues a sell

recommendation on IMI Stroh says in the sell recommendation that IMI's management does

not seem competent because it will not be capitalizing on the opportunities in the country and

apparently cannot recognize a good opportunity when it sees one

Which of the following pieces of information would Stroh have been able to use to trade upon?

A) IMI withdrawing from partnering in the country.

B) The plan by APX to partner in the car parts production in the country.

C) The labor and materials comparative advantage of the country.

The statement Stroh made in his recommendation of APX concerning the election of a

pro-business chief executive was:

A) appropriate because it did not relate directly to the rms themselves.

B) not appropriate because of the way it was mentioned in the recommendation.

C) appropriate because it was based on information from the public websites of reliable

news agencies

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With respect to the given information and the sell recommendation of IMI, which of the

following statements would NOT be allowable in the sell recommendation under the

Standards?

A) IMI is now abandoning its plan to partner in the country.

B) Research indicated IMI was likely to withdraw from any partnership agreements within

the country

C) IMI’s executives cannot recognize a good opportunity when they see it.

When Stroh answered his friend's question concerning whether the friend should invest in APX,

Stroh was in violation of all of the following Standards EXCEPT:

A) Standard III(B) Fair Dealing.

B) Standard III(C) Suitability.

C) Standards VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program.

Stroh attempted to maintain the con dence of his research methods by not revealing them in

his report By doing so, Stroh:

A) is exercising discretion in order to maintain a competitive edge.

B) is neither helping nor harming the consumers of his report, as long as he reaches

logical conclusions from the information the sources provide

C) may have violated the standards related to known limitations of his analysis and

material misrepresentation by omitting the source of his information and other facts

h l d hi l i

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With respect to Stroh's recommendations, the mosaic principle could play a role with respect to

the use of which piece of information?

A) The purchase of the glass manufacturing company in the country.

B) The partnering of APX with the government’s car parts operations.

C) The comparative advantage of the country in manufacturing.

Janet Coleman, CFA, is preparing a research report on Union Power and Light Due to

deregulation, utility companies face increased competition During the past year, three of the

ve utility companies in her region have cut their dividends by 50%, on average, to provide

more internal funds for investment purposes In a discussion with Union's chief executive

o cer, Coleman learned that Union expects to have a record amount of capital expenditures

during the next year Although Union subsequently issued a press release about its capital

expenditure plans, it did not make any public statements about a change in dividend policy

Coleman reasons that the management of Union will be under pressure to cut its dividends

within the next year to remain competitive Coleman issues a research report in which she

states:

"Union Power and Light will decrease its dividend from $2 to $1 a share by the second quarter

We expect that Union will strengthen its competitive position by using more internally

generated funds to nance its investment opportunities If investors buy the stock now at

around $50 a share, their total return could exceed 20% on the stock."

Based on CFA Institute Standards of Professional Conduct, which of the following statements

about Coleman's actions is most accurate?

A) Coleman violated the Standards because she failed to separate opinion from fact in her

research report

B) Coleman violated the Standards because she used material inside information.

C) Coleman did not violate the Standards.

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An analyst writes a report and includes the forecasts of an econometric model developed by

the rm's research department The analyst identi es the source of the forecast and includes

all the relevant statistics concerning the model and his opinion of the model's accuracy With

respect to Standard V(A), Diligence and Reasonable Basis, the analyst has:

A) violated the Standard by not testing the model himself.

B) violated the Standard by including quantitative details in a report.

C) complied with the Standard.

Paul Drake is employed by a company to provide investment advice to participants in the rm's

401(k) plan Company stock is one of the investment options in the plan Drake feels that the

stock is too risky for employees to own in their 401(k) plan and starts advising them to pull out

of the stock The Treasurer of the company calls Drake and tells him that he will be red if he

continues making such advice because he is violating his duciary duty to the company Drake

should:

A) continue to advise employees to sell their stock.

B) make sell recommendations but point out that the company Treasurer has a di ering

and valid point of view

C) tell employees that he cannot provide advice on company stock because of a con ict of

interest

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Steve Jones is a portfolio manager for Gregg Advisors Gregg has developed a proprietary

model that has been thoroughly researched and is known throughout the industry as the Gregg

model The model is purely quantitative and screens stocks into buy, hold, and sell categories

The basic philosophy of the model is thoroughly explained to clients The director of research

frequently alters the model based on rigorous research—an aspect that is well explained to

clients, although the speci c alterations are not continually disclosed Portfolio managers then

make speci c sector and security holding decisions, purchasing only securities that are

indicated as "buys" by the model Jones thoroughly understands the model and uses it with all

of his clients Jones is:

A) violating the Standards in not disclosing all alterations of the model to clients, but not in

purchasing stocks without a thorough research basis

B) violating the Standards in purchasing stocks without a thorough research basis and in

not disclosing all alterations of the model to clients

C) not violating the Standards either in purchasing stocks without a thorough research

basis or in not disclosing all alterations of the model to clients

Michel Marchant, CFA, recently became an independent money manager After six months, he

has only ten clients, who are family and friends To supplement his income, Marchant accepted

part-time employment as an advisor at Middleton Financial Advisors According to CFA Institute

Standards of Professional Conduct, which of the following statements about Marchant's duty to

his new employer is CORRECT?

A) Marchant must inform Middleton about his existing clients but need not inform his

existing clients about his new part-time employment with Middleton

B) Marchant need not inform Middleton about his existing clients but must inform his

existing clients about his new part-time employment at Middleton

C) Marchant must inform Middleton to keep his existing clients and must inform his

existing clients of his new part-time employment at Middleton

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Several years ago, Hilton and Ross, a full service investment rm, managed the initial public

o ering of eCom, Inc Now, eCom wants Hilton and Ross to underwrite its secondary public

o ering A senior manager at Hilton and Ross asks Brent Whitman, CFA, one of its equity

analysts, to write a favorable research report on eCom to help make the underwriting a

success Whitman conducts a thorough analysis of eCom and concludes that the company has

serious problems that do not suggest a favorable nancial outlook Nevertheless, Whitman

writes a favorable report because he is fearful of losing his job Hilton and Ross publicly

distribute a report that only contains a buy recommendation and a brief description of the

basic characteristics of eCom Whitman has violated:

A) Standard I(B) Independence and Objectivity, only.

B) Standard V(A) Diligence and Reasonable Basis only.

C) Both Standard I(B) Independence and Objectivity and Standard V(A) Diligence and

Reasonable Basis

In securing the shares for all accounts under her management, Linda Kammel of Northwest

Futures purchased three blocks of shares at three di erent prices She then allocated these

shares by placing shares from the rst block in accounts with surnames beginning with A-G

The second was allocated over accounts H-P, and the third over Q-Z This action is:

A) permissible only if the clients are informed of the allocation procedure.

B) consistent with her responsibilities under the Code and Standards.

C) not permissible under the Code and Standards.

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Sharon West is a CFA charterholder and trust o cer for REO Trust Company Soon after

beginning work for REO, West nds that REO has been conducting all its securities transactions

through her brother who is a registered representative West's brother charges REO

commissions that are equal to the lowest available from another broker West's brother tells

her that if she continues doing business with him, he will give her a substantial discount on all

personal transactions she conducts through him West:

A) does not need to inform her employer of the arrangement because the commissions

her brother charges the rm are the lowest possible

B) must inform her employer of the arrangement because she is doing business with a

member of her immediate family

C) must inform her employer of the arrangement because it provides her with additional

compensation

An analyst has found an investment with what appears to be a great return-to-risk ratio The

analyst double-checks the data for accuracy, keeps careful records, and is careful to not make

any misrepresentations as he simultaneously sends an e-mail to all his clients with a "buy"

recommendation According to Standard V(A), Diligence and Reasonable Basis, the analyst has:

A) ful lled all obligations.

B) violated the Standard if he does not verify whether the investment is appropriate for all

the clients

C) violated the Standard by communicating the recommendation via e-mail.

A money manager is meeting with a prospect She gives the client a list of stocks and says,

"These are the winners I picked this past year for my clients Their double-digit returns indicate

the type of returns I can earn for you." The list includes stocks the manager had picked for her

clients, and each stock has listed with it an accurately measured return that exceeds 10% Is

this a violation of Standard III(D), Performance Presentation?

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A) No, because the manager had the historical information in writing.

B) Yes, unless the positions listed constitute a complete presentation (i.e., there were no

stocks omitted that did not perform in the double digits)

C) Yes, because the manager cannot reveal historical returns of recent stock picks.

Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto He

places trades for the fund with Canadian Brokerage Canadian provides Calaveccio with soft

dollars to purchase research He uses these soft dollars to get research reports from

Canadian's research department regarding the issues currently held in the small cap portfolio,

and also for rms he is contemplating adding to the portfolio By using soft dollars in this

manner, Calaveccio has:

A) violated the Code and Standards by acquiring research on issues contemplated for

purchase but not by acquiring research on currently held issues

B) not violated the Code and Standards.

C) violated the Code and Standards by acquiring research on issues that the fund already

holds but not by acquiring research on issues contemplated for purchase

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The following information pertains to the Galaxy Trust, a trust established by Stephen P House

and managed by Gamma Investment LLC:

At the time the trust was established House provided $5 million in cash to fund the trust,but Gamma was aware that 93% of his personal assets were in the form of Oracle stock

Gamma has been asked to view his funds and the trust as a single entity for planningpurposes, since House's will stipulates that all of his estate will pass to the trust upon hisdeath

The investment policy statement, developed in September 1996, stipulates that the trustshould maintain a short position in Oracle stock and use the proceeds to diversify thetrust more adequately

House was able to sell all of his Oracle shares back to the corporation in January 1999 forcash

The policy statement redrawn in September 1999 continues to stipulate that the trusthold a short position in Oracle stock

House has given the portfolio manager in charge of the trust an all expenses paidvacation package anywhere in the world each year at Christmas The portfolio managerhas reported this fact in writing to his immediate supervisor at Gamma.

Which of the following is most correct? The investment manager is:

A) not in violation of the Code and Standards for not properly updating the investment

policy statement in light of the change in the circumstances and is not in violation with

B) in violation of the Code and Standards by not properly updating the investment policy

statement in light of the change in the circumstances but is not in violation with regard

C) in violation of the Code and Standards by not properly updating the investment policy

statement in light of the change in the circumstances and is in violation with regard to

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Tiêu đề	CFA Institute Code of Ethics and Standards of Professional Conduct
Trường học	CFA Institute
Chuyên ngành	Finance
Thể loại	Question Bank
Năm xuất bản	2019
Thành phố	Charlottesville

Định dạng
Số trang	92
Dung lượng	1,29 MB