Jason Reynolds meets Jack Parker, CFA, at a social engagement and asks for some "hot stock tips.

"
Parker declines, but sets up an appointment to review Reynolds’ risk and return objectives and financial
constraints. At the conclusion of their appointment, Parker recommends three securities he has
thoroughly researched: ACK, D-Wing, and Ophus-Littbinger. Parker is least likely:

A in violation of Standard III(A) "Loyalty, Prudence, and Care" for failing to consider the three securities
) in the context of the whole portfolio.

B) not in violation.

C in violation of Standard III(A) "Loyalty, Prudence, and Care" for failing to make a reasonable inquiry
) into the client’s investment experience.

Heidi Krueger, CFA, an investment advisor, applies soft dollars generated from client accounts to
purchase a report on the economic impact of world events, and to purchase a new conference table for
the office she uses to meet with clients and prospects. Do these purchases violate Standard III(A) Loyalty,
Prudence, and Care?

A Only one of these purchases violates the

) Standard.

B) Both of these purchases violate the Standard.

C) Neither of these purchases violates the Standard

According to Standard III(A) Loyalty, Prudence and Care, brokerage is an asset of the:

A) managing firm.

B) client.

C brokerage firm conducting the trades

)

Bertha Mader, CFA, received proxy material related to a hostile takeover attempt of Danube Industries by
Balnet Company. She holds shares of Danube in most of her client accounts. Mader has a high opinion of
Danube’s management because they have run the company successfully and have always responded
directly and honestly to her inquiries. She is not acquainted with Balnet’s management team but knows
they have a reputation for improving the bottom line at the companies they acquire, partly because they
tend to replace upper management at their targets and assume their functions. Balnet's offer is 60%
higher than the price of Danube shares before the announcement. Danube’s management has contacted
Mader and requested that she vote the shares she controls against the takeover because the
management is concerned for their jobs and for the welfare of the company. To comply with the Code and
Standards, Mader should:
A vote for the takeover if she can get assurance that Danube's management team will remain in place.
)

B delegate her proxy vote to another member of her firm due to the conflict of interest created when
) she was contacted by management.

C vote for the takeover if it is in the best interest of Danube's shareholders, regardless of the
) consequences to current management.

Which of the following is least likely required of fiduciaries who are responsible for pension plans?

A) Judging investments in the context of the total portfolio.

B Supporting the sponsor's management during proxy fights.

)

C) Acting solely in the interest of plan participants.

All of the following are required by fiduciaries under Standard III(A), Loyalty, Prudence, and Care,
EXCEPT:

A) act solely in the interest of the ultimate beneficiaries.

B place the client’s interest before the employer’s interest.

)

C support the sponsor's management during proxy fights.

)

Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places
trades for the fund with River City Brokerage. River City provides Calaveccio with soft dollars to purchase
research. River City also deals in municipal bonds, some of which Calaveccio holds in his personal
portfolio. He periodically uses the soft dollars to request research reports on various small cap stocks and
also on the status of the municipal bond market and issues that he holds. These actions are:

A in violation of his fiduciary duties regarding the municipal bond research but not so regarding the
) research on the small cap issues.

B) not in violation of the Code and Standards.

C in violation of his fiduciary duties regarding both the small cap research and the municipal bond
) research.
Which of the following is a possible breach of fiduciary duties by a CFA Institute member who manages
assets on behalf of a client?

A) Using directed brokerage.

B) Neither of these breach fiduciary duties.

C Voting all proxies of stocks the client owns.

)

An analyst with his own money management firm trades on behalf of several large pension funds. The
analyst now performs all trades through a particular brokerage firm because the brokerage provides his
firm with a no-interest line of credit if paid within 60 days. The line of credit is available to all brokerage
clients. The brokerage provides the analyst with personal account privileges that he would not otherwise
be eligible for. The brokerage also provides the analyst with free research reports on many companies.
Which of these benefits are violations of Standard III(A), Loyalty, Prudence, and Care?

A) Neither of these.

B The personal account

) privileges.

C) The research reports.

An independent analyst has only one client. One of the client’s largest holdings is a brokerage firm.
Because of the large holding by his client, the brokerage firm recently began allowing the analyst to tap
into the firm’s computer network to use the firm’s research facilities. This is allowable as long as the
analyst:

A uses the resources to help manage the client's account.

)

B) discloses the relationship to the client.

C) does both of the actions listed here.

Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. Calaveccio
places a trade with Quantco Brokerage. While Calaveccio's part of the transaction was conveyed
correctly to Quantco, there was a trading error made in Calaveccio's account due to a slip up within
Quantco. Calaveccio realizes that the error has taken place, and informs his contact at Quantco.
Calaveccio allows Quantco to cover the error, with no cost to TrustCo. This is:

A) a violation of Calaveccio's duty to his employer.

B permissible under CFA Institute Standards since some trading errors are a fact of life in the securities
) industry.

C) a violation of Calaveccio's fiduciary duties.

While trading on behalf of a pension account, an analyst receives special research reports from the
brokerage firm with whom she is doing the trades. Such an activity is:

A) a violation of only The Code of Ethics.

B) a violation of both Standard III(A), Loyalty, Prudence, and Care, and the Code of Ethics.

C not in itself a violation of Standard III(A), Loyalty, Prudence, and Care, nor the Code of
) Ethics.

Alan Cramer, CFA, practices in a country that does not regulate the investment of company retirement
plans. He was retained by Bingham Companies to manage their corporate pension plan. Bingham’s
management has approached Cramer and requested that Cramer invest the entire plan in Bingham stock.

Cramer may:

A not invest any of Bingham Company's retirement plan in its own stock regardless of the stock's
) prospects and in spite of management's request.

invest all of the retirement plan assets in Bingham Company stock according to management's
B
request only if Cramer can document that the investment is more prudent than any other investment
)
opportunity he finds.

C invest a portion of the retirement plan in Bingham Company stock if the investment is prudent and if
) he keeps the overall portfolio properly diversified.

Calvin Moore, CFA, has been transferred from the brokerage house of the Browning Company to the
portfolio management department. In portfolio management, Moore learns that clients are grouped into
three divisions according to portfolio value, divided as follows:

Group 1 up to $10,000

Group 2 from $10,001 to $100,000

Group 3 more than $100,000

When recommendations are announced or trades are initiated, a particular sequence is followed in
communicating to these groups. At the next monthly meeting, Moore suggests that the sequencing
practice is a breach of CFA Institute Standards. One of Moore’s co-workers replies that the grouping
approach helps the company in applying the Standard regarding portfolio recommendations. He further
suggests that because Browning’s overall performance is more strongly affected by actions taken on the
high value portfolios, that these portfolios should take priority over the small value portfolios. What should
Moore do? Moore should:

A) do nothing since there is no breach with the Standards.

B
disassociate himself from the problem and seek legal advice.
)

C) prepare a written report to the CEO describing the problem

Bjorn Sandvik, CFA, completes a research report with a buy recommendation for Acorn Properties. In the
early afternoon, Sandvik e-mails this recommendation to his clients who had responded to his request
that they provide Sandvik with their e-mail addresses. Later that afternoon, the printed recommendation is
forwarded to the postal service for normal delivery to all customers, who receive the mailing 1 to 3 days
later. Sandvik has:

A violated the Code and Standards by sending the e-mail recommendation to only some of his clients.
)

B not violated the Code and Standards because he acted fairly in disseminating research information to
) his clients.

C violated the Code and Standards by sending the e-mail recommendation in advance of the printed
) report.

Which of the following most accurately states a limitation that the Fair Dealing standard imposes?

A) Clients should not be discriminated against when disseminating investment recommendations.

B) Referral fees may be disclosed after proceeding with an agreement for service.

C Before trading on her own portfolio, a CFA charterholder must wait for employer and client deals to
) be executed.

Concerning Standard III(B), Fair Dealing, which of the following actions is NOT a valid procedure for
compliance with the Standard?

A Limit the number of people that are involved and are privy to the fact that an investment
) recommendation is going to be disseminated.

B Communicate investment recommendations to all customers including those accounts for which the
)
 securities are not eligible for purchase.

C Communicate investment recommendations simultaneously within the firm and to customers, where
) possible.

Which of the following statements regarding allocating trades is CORRECT? It is permissible under the
Standards to allocate trades:

A) based upon compensation arrangements.

B) on a pro-rata basis over all suitable accounts.

C based upon any method the firm deems suitable so long as the allocation procedure has been
) disclosed to all clients.

In securing the shares for all accounts under her management, Linda Kammel of Northwest Futures
purchased three blocks of shares at three different prices. She then allocated these shares by placing
shares from the first 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) not permissible under the Code and Standards.

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

C permissible only if the clients are informed of the allocation procedure.

)

money management firm 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 notified of the new recommendation in the order of their estimated transaction size—
largest first. 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) a violation of the standard.

C) not a violation because the clients are aware of the policy

Which of the following statements is least accurate regarding being a part of Standard III(B), Fair
Dealing?

A) Shorten the time between decision and dissemination.

B) Maintain a list of clients and their holdings.

C At the same time notify clients for whom an investment is suitable of a new investment
) recommendation.

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 firm is coming up with. This is
most likely a violation of:

A Standard III(B), Fair

) Dealing.

B) both of these.

C) Standard III(C), Suitability

An analyst meets with a new client. During the meeting, the analyst sees that the new client’s portfolio is
heavily invested in one over-the-counter stock. The analyst has been following the stock and thinks it will
perform well in the long run. The analyst arranges through a brokerage firm to simultaneously sell a large
number of shares of the stock via a series of cross trades from the new client’s portfolio to various
existing clients. He arranges the trades to be executed at a price that approximates the current market
price. This action is:

A a violation of Standard III(A), Loyalty, Prudence, and

) Care.

B) not in violation of the Standards.

C) a violation of Standard III(B), Fair Dealing

Which of the following would be a violation of Standard III(B), Fair Dealing?

A) Trading for regular accounts before discretionary accounts.

B) Having well defined guidelines for pre-dissemination.

C Limiting the number of employees privy to recommendations and changes.

)
All of the following are violations of Standard III(B), Fair Dealing, EXCEPT a member:

A telephones clients in distant cities the day after a buy recommendation is mailed to all clients
) because their mail service is later than the member's local clients.

B) places a trade for the firm account before issuing a buy recommendation.

C places a trade for her discretionary accounts before placing a trade for her non-discretionary
) accounts.

Lance Tuipulotu, CFA, manages investments for 400 individuals and families and often finds his
resources stretched. When his largest investors petition him to include a 5% to 7% allocation of non-
investment-grade bonds in their portfolios, he decides he needs additional help to meet the request. He
considers various independent advisors to use as submanagers, but determines that the most qualified
advisors would be too expensive. Reasoning that a lower-cost provider would enable him to pass the
savings along to his clients, he chooses that provider to invest the new bond allocation. Tuipulotu has
violated:

A Standard III(C) "Suitability" by failing to consider the appropriateness of the non-investment-grade

) bonds.

B) Both Standard III(C) "Suitability" and Standard V(A) "Diligence and Reasonable Basis."

C Standard V(A) "Diligence and Reasonable Basis" by letting fee structure determine the selection of
) the submanager.

Millie Walker, CFA, established an aggressive growth portfolio for her client, Jesse Wilmer, over three
years ago. Wilmer was placed on Walker’s employer’s client mailing list, and received monthly account
statements and the firm’s newsletter, which regularly informed clients that they should contact their
account representative with any change in their personal circumstances or investment objectives. As of
January, of this year, Walker had not spoken to Wilmer nor received any correspondence from Wilmer
since the account was established. Walker has:

A not violated the Code and Standards because Wilmer has been reminded regularly about the
) opportunity to inform Walker about any changes.

B violated the Code and Standards because the manager has not performed an update of Wilmer's
) financial situation and investment objectives.

C not violated the Code and Standards because there has been regular correspondence from Walker's
) firm to Wilmer.

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 firm'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 is NOT correct?

A) Rangen has a fiduciary duty to each client.

B) Rangen's conduct violates Standard III(C), Suitability.

C Rangen's conduct violates Standard IV(B), Additional Compensation

) Arrangements.

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

A meets the requirements of the Code and Standards because his firm'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.

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 firm is underwriting and
investment grade corporate bonds. The O’Douls are not aware that Mack’s firm is underwriting an offering
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 Conflicts, and III(C), Suitability.

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

Carol Hull, CFA, is an investment advisor whose prospective client, Frank Peters, presents special
requirements. To construct an investment policy statement for Peters, Hull inquires about Peters’
investment experience, risk and return objectives, and financial constraints. Peters states that he has a
great deal of investment experience in the capital markets and does not wish to answer questions about
his tolerance for risk or his other holdings. Under Standard III(C), Suitability, Hull:

A may accept Peters’ account but may only manage his portfolio to a benchmark or index.
)

B is permitted to manage Peters’ account without any knowledge of his risk preferences.
)

C) must decline to enter into an advisory relationship with Peters.

Karen Jackson is a portfolio manager for Super Selection. Jackson is friendly with David James,
president of AMD, a rapidly growing biotech company. James has provided Jackson with
recommendations in the biotech industry, which she buys for her own portfolio before buying them for her
clients. For three years, Jackson has also served on AMD's board of directors. She has received options
and fees as compensation.

Recently, the board of AMD decided to raise capital by voting to issue shares to the public. This was
attractive to board members (including Jackson) who wanted to exercise their stock options and sell their
shares to get cash. When the demand for initial public offerings (IPO) diminished, just before AMD's
public offering, James asked Jackson to commit to a large purchase of the offering for her portfolios.
Jackson had previously determined that AMD was a questionable investment but agreed to reconsider at
James' request. Her reevaluation confirmed the stock to be overpriced, but she nevertheless decided to
purchase AMD for her clients' portfolios.

Did Jackson violate Standard III(C) concerning Portfolio Recommendations and Actions?

A) Yes, she did not deal fairly with all clients.

B) No.

C Yes, she did not consider the appropriateness and suitability of investment recommendations or
) actions for each portfolio or client.

According to CFA Institute Standards of Professional Conduct, when a client asks her portfolio manager
to change the current investment strategy of the client’s portfolio, the manager should:

A) explain the implications of the new strategy after the member manager implements the strategy.

B examine whether the strategy is appropriate for the client and explain the implications of the new
) strategy before implementing the strategy.

C) obey the client's request without question.

Bob Hatfield, CFA, has his own money management firm with two clients. The accounts of the two clients
are equal in value. One of the clients gets married and the assets of the new spouse and the client are
combined. With the larger portfolio of the now married client, Hatfield determines that they can assume a
higher level of risk and begins a change in the policy concerning that portfolio. Which of the following
would violate Standard III(C), Suitability?
A) Assess the return objectives of the newly married client and his spouse.

B) Assess the time horizon of the newly married client and his spouse.

C Implement a similar policy for the other client who did not just get married.
)

Janet Reilly has just approached Betty Miller, CFA, about purchasing 10,000 shares of Brookshire Co., a
newly incorporated real estate development firm. Reilly is a retired schoolteacher living off the income
from her late husband's life insurance policy. This investment will represent a significant shift in her
investment portfolio. Brookshire Co. is a local firm that has recently received a lot of press concerning
some exciting, but speculative projects that they have undertaken in the region. Consistent with the
Standards, Miller should:

A accept Reilly's order after she acquaints Reilly with the downside risks associated with a risky
) investment of this type.

B) not accept the order, because it is not a suitable investment for Reilly.

C) accept Reilly's order, but have her sign a disclaimer absolving Miller of any potential losses.

What is the required frequency for updating information on each client’s financial situation, investment
experiences, and investment objectives?

A Only during the first meeting with the client.

)

B) Regularly.

C) Every year.

If an analyst has a policy of making an inquiry into a client’s financial situation, investment experience,
and investment objectives regularly, this is:

A) neither of these.

B) congruent with Standard III(C), Suitability.

C a violation of Standard III(E), concerning client confidentiality.

)
An analyst thinks that a major change in the tax law will benefit holders of utility company stocks. She
immediately begins calling all her clients and telling them of the upside potential of investing in such
assets now. Based upon this information, this is most likely:

A) a violation of Standard V(A), Diligence and Reasonable Basis.

B congruent with Standard V(A), Diligence and Reasonable

) Basis.

C) a violation of Standard III(C), Suitability.

Bob Hatfield, CFA, has his own money management firm with two clients. The accounts of the two clients
are equal in value. Hatfield has been trading on the clients’ behalf with a single brokerage firm for several
years. Because of his many years of business, the brokerage firm occasionally gives Hatfield shares in an
initial public offering (IPO) to sell to his clients. Hatfield has a policy of allocating the IPO shares equally
between the portfolios of the two clients. This policy is:

A congruent with Standard III(C),

) Suitability.

B a violation of Standard III(B), Fair

) Dealing.

C) a violation of Standard III(C), Suitability

Kim Lee manages a variety of accounts at Superior Investments. Some are permitted to invest in tax-
exempt issues only; others may not invest in a stock unless it pays dividends. Lee is researching a
biotech firm specializing in the analysis of "mad cow" disease. While touring company facilities and
meeting with management, she learns that they believe they may have found a way to reverse the
disease. Moreover, one manager conjectured, "Suppose that we reversed the disease in someone who
didn't even have it? We might then be able to boost that individual's IQ into the stratosphere!" Lee returns
to her office and buys shares for all accounts under her supervision. This action is:

A a violation of the Standard concerning appropriateness and suitability of investment actions.

)

B) appropriate given the obvious potential of the therapy.

C) a violation of the Standard concerning fiduciary duties

Procedures for compliance with Standard III(C), Suitability, include determining all of the following with
respect to a client EXCEPT:

A social habits and interests.

)

B) liquidity needs.

C) return objectives.

A portfolio manager must determine the client’s constraints, which may include all of the following
EXCEPT the client’s:

A mortgage payment.
)

B tax considerations.
)

C) liquidity needs.

Stephen Rangen, a former broker, had three accounts consisting of unsophisticated, inexperienced
individual investors with limited means. One of these accounts was an elderly couple. The clients wanted
to invest in safe, income-producing investments. They relied heavily on Rangen’s advice and expected
him to initiate most transactions in their respective accounts. In managing their accounts, Rangen
pursued the following strategies: (1) bought U.S. treasury strips and non-dividend paying over-the-counter
stocks, (2) used margin accounts, and (3) concentrated the equity portion of their portfolios in one or two
stocks. Rangen’s approach led to extremely high turnover rates in all three accounts. The Securities and
Exchange Commission sanctioned Rangen for unsuitable recommendations and excessive trading in
several accounts.

For this specific situation, which of the following is least likely to be an appropriate compliance procedure
involving Standard III(C), Suitability? The broker should:

A) develop an investment policy statement for each client.

B) assess and document each client's risk tolerance.

C
avoid using material nonpublic information received in confidence to benefit clients.
)

For this specific situation, all of the following are appropriate compliance procedures involving Standard
III(C), Suitability, EXCEPT:
A
complying with any prohibitions on activities imposed by their employer if a conflict of interest exists.
)

B) reviewing investment policy statements regularly.

C) educating clients about selecting appropriate asset allocations and strategies

For this specific situation, which of the following policy statements should be adopted to ensure that future
violations of this kind do not occur?

Before making any recommendations or taking any investment actions, managers should formulate
an investment policy for a client. They should consider the type and nature of the client and should
A obtain and analyze necessary information on the client's objectives (risk and return) and constraints.
) Managers should maintain and review regularly the investor's objectives and constraints to reflect
any changes in the client's circumstances. Where appropriate, managers should properly diversify
portfolios.

Before advising individual clients, managers should review the recommendations provided by the
firm's research department. From this set of recommendations, they should select those securities
B that provide the expected highest return on investment. Managers should review the investor's
) portfolio at least monthly to see if existing securities should be replaced with those more recently
recommended. Managers should turnover portfolios frequently and concentrate holdings within
portfolios in order to achieve the highest possible returns for clients.

When making recommendations or taking investment actions, managers should seek to minimize the
client's portfolio risk. Managers should review the recommendations of the firm's research
C department to identify securities with low volatility. In making asset allocation recommendations or
) decisions for discretionary accounts, managers should weight the portfolios towards dividend-paying
stocks and other income-producing assets such as bonds and mortgage REITS. Managers should
review portfolios at least semi-annually.

The best way to determine the suitability of an investment is:

A based on portfolio performance results, presented as a weighted average, from the biggest financial
) companies.

B to consider the financial situation, investment experience, and investment objectives of the client.
)

C) by administration of a specially designed survey of the client's opinions.

A broker was sanctioned for unsuitable recommendations and excessive trading involving three accounts
under his care. These clients were unsophisticated, inexperienced individual investors with limited means.
According to CFA Institute Standard III(C), Suitability, which of the following is least likely to be
considered a relevant factor in determining the appropriateness and suitability of investment
recommendations or actions for each portfolio or client?

A) Best interests of the investment professional.

B) Basic characteristics of the total portfolio.

C Needs and circumstances of the portfolio or client.

)

Nancy Korthauer, CFA, has launched a new hedge fund called the Korthauer Tautology Fund and is
actively soliciting clients from competitor’s firms. Client presentations are necessarily brief and often take
place with the prospective client’s current investment advisor in the room. The Code and Standards
require that:

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

B member or candidate provide (on request) additional detail information which supports the
) abbreviated presentation.

C all client presentations provide a thorough review of all elements of the investment management
) process. Abbreviated presentations are forbidden.

Paul Salyer,a portfolio manager, is making a presentation to a prospective client. Paul says that as a new
portfolio manager, he made an average annual rate of return of 50% in the last two years at his previous
firm and that based on this, he can guarantee a 50% return to the client. Which of the following
statements is in accordance with Standard III(D), Performance Presentation?

A) Implying that he can guarantee a return.

B Imputing his past performance to future performance.

)

C) Stating his past performance as long as it is fact.

While it would be customary to report both five-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 five 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) a violation of the Standard concerning prohibition against misrepresentation.

B) a violation of the Standard concerning performance presentation.

C in accordance with the Code and Standards since he has indicated the basis in a
) footnote.

A money management firm has created a new junk-bond fund. When the firm advertised the new fund at
its issuance, they used care to accurately compute the returns from the past 10 years for all assets in the
fund. The firm used the current portfolio weights to determine an average annual historical return equal to
18% and claim an 18% annual historical return in their advertising literature. With respect to Standard
III(D), Performance Presentation, this is:

A) in compliance.

B a violation because the Standard prohibits computing historical returns on risky assets like junk
) bonds.

C) a violation because the advertisement implies the firm generated this return.

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?

A Yes, unless the positions listed constitute a complete presentation (i.e., there were no stocks omitted
) that did not perform in the double digits).

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

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

A money manager, who is a member of CFA Institute, suggests during phone calls to his clients that, “I
hope you will relay to your friends the great returns I earned for you this past year.” The manager had
generated above average returns in the past year. Is this a violation of Standard III(D), Performance
Presentation?

A Yes, because the Standard forbids members asking their clients to say anything about how well the
) member has done.

B) Not if it is true.

C) Yes, because the intended message fails the test of completeness as required under the standard.

Calvin Doggett, CFA, has been contacted by the CFA Institute Professional Conduct Program (PCP)
regarding allegations that he has taken investment actions that were unsuitable for his clients. Doggett is
questioned by PCP concerning the identity of his clients he considered suitable for investing in a very
risky start-up company that eventually went bankrupt.

Doggett will:

A violate the Code and Standards by fully cooperating with a PCP investigation if it means revealing
) confidential information.
B not violate the Code and Standards by revealing the names, financial condition and investment
) objectives of his clients to PCP.

C not violate the Code and Standards only if he reveals the financial condition and investment
) objectives of his clients on an anonymous basis and does not reveal the names of his clients to PCP.

A CFA charterholder may disclose confidential information about a client when:

A) the CFA Institute Professional Conduct Program requests it.

B it is a necessary step in proceeding with research on client

) preferences.

C) the information is nonmaterial

Standard III(E), Preservation of Confidentiality, applies to the information that an analyst learns from:

A current clients, former clients, and prospects.

)

B) current clients and prospects only.

C) current clients and former clients only.

Andrew Mader, CFA, is an analyst with Metro Investment Services. During lunch with some of Metro's
managers, Mader is told, "There are going to be major problems at Gebco (a firm that Metro had brought
public last year). I was just over there and the place is just crawling with government inspectors.” Mader
had just issued a report with a "buy" recommendation on Gebco last week. Mader should:

A immediately issue a new report, but only after stopping by Gebco himself to corroborate the story.
)

B) not do anything to avoid a violation of fair dealing.

C) not do anything because to do so would violate his obligation to preserve confidentiality.

Greg Stiles, CFA, CAIA, has recently liquidated most of a client’s portfolio because the client is planning
to buy a house. Stiles informs one of the brokers in his office who has his real estate license about the
plans of his client. With respect to Standard III(E), Preservation of Confidentiality, this action:

A) is appropriate since Stiles keeps the information in the firm.

B) is appropriate since Stiles only tells a licensed salesman.

C violates the Standard unless the client asks Stiles to tell the licensed salesman.
)

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 Confidentiality?

A) Sending a gift along with the card.

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

C Hiring a company outside the firm to perform the task.

)

Greg Stiles, CFA, may withhold from CFA Institute information about a client acquired in the regular
performance of his duties:

A) only if Stiles is a relative of the client.

B only if Stiles has a special confidentiality agreement with the client.

)

C) for neither of the reasons listed.

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 Confidentiality, the
analyst may NOT do which of the following?

A) Contact CFA Institute about the determination.

B) There are no exceptions in this list.

C Contact the appropriate governmental authorities about the determination.

)

Trude Front, CFA, is a portfolio manager and works extensive hours. To give her a more flexible work
environment, she often works from home on her personal computer and keeps client account information
there – in violation of company policy. While away on travel, her home is burglarized and her computer is
taken. Rather than disclose the policy violation, she does not notify her company or her clients of the
contents of her computer files. Two months later the client account information is used to commit identity
theft, costing her clients a total of $58,000 in fraudulent charges. Front is most likely:
A not in violation of any Standard because the disclosure of confidential information was accidental and
) unavoidable.

B not in violation of any Standard because the confidential information was stored on her personal
) computer for use for work during her personal time.

in violation of Standard III(E) "Preservation of Confidentiality" for failing to follow company policies
C and procedures relating to electronic information and security resulting in accidental disclosure of
) confidential information.