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					一、Ethical and Professional Standards

1.: Code of Ethics
Question ID: 27272 All of the following are components of the Code of Ethics EXCEPT: demonstrating diligence, perseverance, and thoroughness when preparing investment reports. using reasonable care and exercising independent professional judgment. acting with integrity, competence, dignity, and in an ethical manner when dealing with others. striving to maintain and improve their competence and the competence of others in the profession.

A.

B.

C.

D.

A
The final component in the Code of Ethics is practicing and encouraging others to practice in a professional and ethical manner that will reflect credit on members and their profession.

Question ID: 27271 Which of the following is NOT a component of the Code of Ethics? In dealing with the public, clients, prospects, employers, employees, and fellow members, AIMR members shall act with:

A. B. C. D.

dignity. competence. integrity. humility.

D

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Although acting with humility may be desirable, AIMR members are not required to do so. However, they should act in a manner that reflects credit on themselves and their profession.

Question ID: 10579 Which of the following is NOT part of the AIMR's Code of Ethics?

A. B. C. D.

Integrity and dignity Competence Contractual provisions Independent judgment

C
Question ID: 10582 In dealing with the public and others, the AIMR Code of Ethics indicates that AIMR members will act with:

A. B. C. D.

integrity, competence, and dignity. honesty, professionalism, and goodwill. confidence, knowledge, and high ethical standards. conviction, skill, and ethical awareness.

A

Question ID: 10584 Which of the following is a component of the Code of Ethics? Members shall not engage in any professional conduct involving

A.

dishonesty, fraud, deceit, or misrepresentation or commit any act that reflects adversely on their honesty, trustworthiness, or professional

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competence. Candidates in the CFA Program, as defined in the AIMR Bylaws, may reference their participation in the CFA Program, but the reference must

B.

clearly state that an individual is a candidate in the CFA Program and cannot imply that the candidate has achieved any type of partial designation. Members shall use reasonable care and exercise independent professional judgment. Members shall not knowingly participate or assist in any violation of such laws, rules, or regulations.

C.

D.

C This is a component of the Code of Ethics. Others pertain to the Standards of Practice

Question ID: 10581 The AIMR Code of Ethics includes all of the following except AIMR members shall:

A. B. C. D.

act with integrity, competence, and dignity. practice their profession in an ethical manner. not knowingly violate the securities acts and laws. exercise independent judgment.

C

2-I.: Standards of Professional Conduct: I. Fundamental Responsibilities
Question ID: 27278 Matt LeBlanc, a CFA charterholder, is an investment analyst for a small stock brokerage firm. He wants to acquire and maintain knowledge about applicable laws, rules, and regulations relating to his professional activities. According to the AIMR Standards of Professional Conduct, which of the following ways is least likely to meet compliance procedures?

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A. B. C. D.

Maintain current files on applicable statues, rules, and regulations. Rely on past practices followed within his firm. Review written compliance procedures on a regular basis. Keep informed about changes in applicable laws, rules, and regulations.

C
LeBlanc should follow the compliance procedures under Standard IA -- Fundamental Responsibilities. Relying on his firm’s past practices may be insufficient for LeBlanc to stay current with changes in applicable laws, rules, and regulations.

Question ID: 10479 Robe Advisory Services operates an office in San Francisco, where it manages portfolios for its clients based in the United States. The firm also maintains an office in Tokyo, where it employs Sam Lee, CFA, who researches Japanese stocks. Lee is required to maintain knowledge of and comply with all applicable laws, rules, and regulations in: both the U.S. and Japan, but not the AIMR Standards of Professional Conduct. both the U.S. and Japan and the AIMR Standards of Professional Conduct. Japan, but not the U.S., and the AIMR Standards of Professional Conduct. the U.S., but not Japan, and the AIMR Standards of Professional Conduct.

A.

B. C. D.

A

Question ID: 27277 Janet Green, CFA, provides investment advice and other services to clients in several countries. She resides in Country A whose securities laws and regulations are less strict than the Code and Standards. She also conducts business with clients in Country B, which has no securities laws or regulations, and in Country C, which has securities laws and regulations that are stricter than the Code and Standards. Which of the following statements is TRUE? According the AIMR Standards of Professional Conduct, Green must adhere to
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the Code and Standards in:

A. B. C. D.

Country A and Company B but the law in Country C. Country B but the law in Country A and Country C. Country A, Country B, and Country C. Country A but the law in Country B and Country C.

A
Green needs to follow Standard IA -- Fundamental Responsibilities. In Country A, Green must adhere to the Code and Standards because Country A’s laws are less strict. In Country B, Green must also adheres to the Code and Standards because Country B has no securities laws. Because Country C’s applicable law is stricter than the requirements of the Code and Standards, Green must adhere to the laws of Country C.

Question ID: 27279 Bob Blanford, CFA, is an investment analyst for a large global brokerage firm. He recently moved to Ragatan, a developing country with few securities laws and regulations. As part of conducting a company analysis, Blanford interviews Ravi Shanti, vice-president of finance at Starr Industries. Starr is a major industrial firm in Ragatan and a client at Blanford’s firm. Based on his analysis, Blanford suspects that Shanti may have deliberately overstated Starr’s current earnings and its earnings for the past several quarters. If this information becomes public, Blanford believes that Starr’s stock price will drop substantially. Blanford suspects that Shanti may have violated Ragatan’s securities laws. Which of the following statements is least likely to comply with Standard I -- Fundamental Responsibilities? Blanford should:

A. B.

dissociate himself from the client, if the activity is illegal or unethical. determine the legality of the activity, possibly by consulting counsel. urge his firm to attempt to persuade Shanti to cease such conduct, if the activity is illegal. take no action.

C.

D.

D

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Because Blanford suspects Shanti of engaging in ongoing illegal activities, Blanford should take action by determining the legality of the suspected action, dissociating from any illegal activity, and urging his firm to attempt to persuade Shanti to cease such conduct if such an activity is illegal or unethical.

Question ID: 10491 Shortly after becoming employed by Valco & Co., an investment banking firm, Stan McDowell, CFA, learns that most of Valco's initial public offerings (IPO) are really effected in order to profit management via price manipulation of the shares. McDowell observes an illegal act, sanctioned by senior management, in progress and refuses to sign off on his responsibility. Instead, McDowell takes the documentation to his supervisor and tells him he should sign it in his place. This action is: an overreaction. Senior management's sanctioning of the act absolves McDowell from his ordinary responsibility as an AIMR member. a suitable reaction, and he is in compliance with the Code and Standards. a violation of the Code and Standards unless his supervisor is an AIMR member and signs off on the documentation. a violation of the Code and Standards since he is required not to knowingly participate or assist in such an act.

A.

B.

C.

D.

D
McDowell, by his action in taking the documentation to his supervisor, is knowingly participating in and/or assisting in an illegal act. This is clearly prohibited under Standard I.B, and he is in violation of the Standard. Question ID: 10490 Bob Smith, CFA, is an outside board member of Atlantic Technologies, but is not paid by the firm for his services. An employee at Atlantic informs Smith that Atlantic has improperly timed the booking of contracts to achieve the desired quarterly financial results. The misleading financial statements would turn losses into profits. Smith confers with the firm's legal counsel who indicates that this conduct is, in fact, illegal. Smith urges Sharon White, Atlantic's chief operating executive, to change the financial statements, but she refuses to do so. According to the AIMR Standards of Professional Conduct, which of the following statements best describes what Smith should do in this situation? Smith does not have to take any additional action because he is not one of the firm's paid employees.

A.

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Smith should promptly dissociate himself from Atlantic's actions by

B.

resigning as a director or by reporting the activities to the appropriate authorities. Smith should wait until the next board meeting, which is scheduled in two weeks, to make other board members aware of the situation. Smith should immediately make AIMR aware of the situation at Atlantic.

C.

D.

B
Smith should disassociate from any illegal activity by resigning as a director or by reporting the activities to appropriate authorities. Inaction combined with continuing association with Atlantic's illegal conduct may be construed as participation, or assistance, in the illegal conduct. Question ID: 27280 Allen Parsons, a CFA candidate, suspects a colleague at his firm of engaging in an illegal activity. Which of the following statements about procedures for compliance involving Standard I(B) Fundamental Responsibilities is FALSE? Parsons:

A.

should dissociate from any illegal activity. is required to report this legal violation to the appropriate governmental or regulatory organizations. should consult counsel to determine whether the conduct is, in fact, illegal. should urge his firm to attempt to persuade the perpetrator to cease such conduct.

B.

C.

D.

B
Standard I(B) -- Fundamental Responsibilities does not require that Parsons report legal violations to the appropriate governmental or regulatory organizations, but such disclosures may be appropriate under certain circumstances.

Question ID: 27282 Michael Bellow, CFA, is an investment banker who is involved with an initial public offering (IPO) of NewCo. Because this is Bellow’s first involvement in an IPO, he reports to an experienced supervisor. While reviewing past financial statements provided by NewCo,

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Bellow suspects that NewCo deliberately overstated its earnings for the past several quarters. Bellow seeks the advice of his firm’s highly competent general counsel and follows the advice given without deviation. Based on the general counsel’s advice, Bellow consults his immediate supervisor about the suspected overstatement of earnings. After reviewing the situation, Bellow’s supervisor explains why NewCo’s calculations of its earnings are correct. Bellow realizes that his inexperience and exuberance initially led him to an incorrect conclusion about NewCo’s earnings. Which of the following statements about Bellow’s actions involving Standard I – Fundamental Responsibilities and Standard IV(A.1) – Reasonable Basis and Representations is TRUE? Bellow:

A. B. C. D.

did not violate either Standard I or Standard IV(A.1). violated both Standard I and Standard IV(A.1). did not violate Standard I but violated Standard IV(A.1). violated Standard I but did not violate Standard IV(A.1).

A
Bellow did not violate Standard I – Fundamental Responsibilities because he sought advice of counsel and followed that advice. Bellow did not violate Standard IV(A.1) – Reasonable Basis and Representations because he made reasonable and diligent efforts to ensure the accuracy of the information and to avoid any material representation.

Question ID: 27281 Jason Blackwell, CFA, works as an investment manager for Mega Capital, a large multinational brokerage firm. He resides in a country whose applicable law is stricter than the Code and Standards but does business with clients in a country whose applicable law is less strict than the Code and Standards. Blackwell decides to follow the Code and Standards for clients in the less strict country. While Blackwell is still employed at Mega, Lego Associates verbally asks Blackwell to review client portfolios during evenings and weekends for a fee. Blackwell gets written consent from his immediate supervisor at Mega to undertake this independent activity for a one-month trial basis. Which of the following statements about Blackwell’s actions involving Standard I – Fundamental Responsibilities and Standard III(B) – Duty to Employer is TRUE? Blackwell:

A.

did not violated either Standard I or Standard III(B).

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B. C. D.

did not violate Standard I but violated Standard III(B). violated both Standard I and Standard III(B). violated Standard I but did not violate Standard III(B).

C
Blackwell violated Standard I – Fundamental Responsibilities. Because the applicable laws were stricter than the Code and Standards, he must adhere to the more strict applicable law. Blackwell also violated Standard III(B), which required him to obtain written consent from both Mega and Lego to undertake independent practice.

Question ID: 10476 Which of the following is a CORRECT statement of a member's duty under the Code and Standards? In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member's actions. A member who trades securities in a foreign securities market where no

A.

B.

applicable local laws or stock exchange rules regulate the use of material nonpublic information may take investment action based on this information. A member is required to comply only with applicable local laws, rules,

C.

regulations, or customs even though the AIMR code and Standards may impose a higher degree of responsibility or a higher duty on the member. A member who trades securities in a country with less strict laws, rules,

D.

regulations, or customs may follow those laws if he discloses this information to his client.

A

Question ID: 10489 When an AIMR member suspects a client or a colleague of planning or engaging in ongoing illegal activities, which of the statements about the actions that the member should take is

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most correct? According to the AIMR Standards of Professional Conduct, the AIMR member should: ignore the suspected illegal activity unless the suspected party is an AIMR member. disassociate from any illegal or unethical activity if the member has reasonable grounds to believe that the activity is illegal or unethical. consult counsel to determine the legality of the activity and disassociate

A.

B.

C.

from any illegal or unethical activity if the member has reasonable grounds to believe that the activity is illegal or unethical.

D.

consult counsel to determine the legality of the activity.

C
According to the procedures for compliance involving Standard I(B), AIMR members should determine legality and disassociate from any illegal or unethical activity.

Question ID: 10480 A U.S. Congressional oversight committee has concluded that investment company fees should be detailed in dollar terms each quarter and has proposed the enactment of new legislation to this end. Currently, the legal requirement is to report such data annually. In compliance with current legal requirements, Dolphin investments, a Florida-based investment firm, reports annually. Eun Shin, CFA and employee of Dolphin, learns of the proposed changes but does not convert Dolphin's reporting to a quarterly basis. This action:

A. B. C.

is a violation of his duty to employer as defined in the Code and Standards. constitutes professional misconduct as defined in the Code and Standards. is not a violation of the Code and Standards. is a violation of his responsibilities as a supervisor as defined in the Code and Standards.

D.

B
The quarterly fee presentation is only a proposal at this stage. There is no violation if Eun is

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following the regulations currently in force.

2-II.: Standards of Professional Conduct: Profession
Question ID: 27283

II. Relationships with and Responsibilities to the

Lucy Ackert and Chris Brown prepared the following information to be included in the promotional materials of their employer, Lofton Securities.   Lucy Ackert is one of five CFAs at Lofton Securities. She satisfied all requirements for the CFA in 1998. Chris Brown holds a CFA Level I designation, which he passed in 2001. He is registered to take the next scheduled Level II examination.

Are the promotional materials prepared by Ackert and Brown fully consistent with Standard II(A) – Use of Professional Designation? A. B. C. D.
Ackert: No. Brown: Yes. Ackert: No. Brown: No. Ackert: Yes. Brown: Yes. Ackert: Yes. Brown: No.

B
Neither statement is fully consistent with Standard II(A) – Use of Professional Designation. The CFA designation must always be used as an adjective and never as a noun as Ackert used in her promotional description. Correct use of the CFA designation would be: ―Lucy Ackert is one of five CFA charterholders at Lofton Securities.‖ No designation exists for someone who has passed Level I of the CFA examination. Thus, Brown’s statement saying that he ―holds a CFA Level I designation‖ represents incorrect use. A correct statement would be: ―Chris Brown passed Level I of the CFA examination in 2001.‖

Question ID: 10620 Ralph Lim and Susan Bland have both passed Level I of the CFA Program in 2000. Both are currently enrolled to sit for Level II in 2001. Lim's business card reads, "Ralph Lim, CFA Level I." Bland's resume states, "Level II Candidate in the CFA Program." According to the AIMR Standards of Professional Conduct involving use of the professional designation:

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A. B. C. D.

Both Lim and Bland violated the Standard. Neither Lim nor Bland violated the Standard. Lim violated the Standard, but Bland did not. Bland violated the Standard, but Lim did not.

C
There is no designation for someone who has passed Level I, Level II, or Level III of the CFA examination. Candidates may state, however, that they have completed Level I, II, or III, as the case may be, in the CFA Program. Thus, Lim violated the Standard, but Bland did not. Question ID: 10618 Judy Albert and Bob Tye, who recently started their own investment advisory business, plan to take the Level III CFA examination next year. Albert's business card reads, "Judy Albert, CFA Candidate." Tye has not put anything about the CFA on his business card. However, the firm's promotional materials describe the CFA requirements and indicate that Tye participates in the CFA program and has completed Levels I and II. According to AIMR's Standards of Professional Conduct:

A. B. C. D.

both Albert and Tye have violated the Standards. neither Albert nor Tye has violated the Standards. Tye has violated the Standards, but Albert has not. Albert has violated the Standards but Tye has not.

D

Question ID: 10626 Nichole Zeller and Randy Toffler have both passed Level II of the CFA Exam Program and have registered for Level III. Zeller circulates a resume stating that she is a candidate for the CFA designation and has passed Level II of the CFA program. Toffler circulates a resume stating that he is a CFA II. Which of the following statements is TRUE?

A.

Only Toffler has violated the Code of Standards.

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B. C. D.

Neither Zelller nor Toffler have violated the Code of Standards. Only Zeller has violated the Code of Standards. Both Zeller and Toffler have violated the Code of Standards.

A

Question ID: 27284 All of the following are violations of Standard II(B)—Professional Misconduct EXCEPT: any conduct that undermines confidence that the CFA charter represents a level of achievement based on merit and ethical conduct. conviction of a misdemeanor involving moral turpitude only if the offense related to a member's professional activities. dishonest activities that reflect negatively on professional competence even if they do not result in criminal convictions. conviction of a felony or crime punishable by more than one year in prison.

A.

B.

C.

D.

B
Conviction of a misdemeanor involving moral turpitude (lying, cheating, stealing, and other dishonest conduct) whether or not the offenses relate to a member’s professional activities are violations of Standard II(B)—Professional Misconduct.

Question ID: 27313 Which of the following does NOT violate Standard II(B) -- Professional Misconduct. Roland Lawson, a CFA charterholder and a financial analyst: is arrested three times during the past year for possession of a controlled substance. uses material public information and nonmaterial nonpublic information to predict a pending corporate takeover. drinks excessively during business meetings with clients and returns to

A.

B.

C.

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work under the influence of alcohol. falsifies expenses reports resulting from company visits needed to develop investment reports.

D.

B
Lawson has not engaged in professional misconduct because he has used perceptive analysis of material public information and nonmaterial nonpublic information, also called the mosaic theory, to predict a corporate action. He has not used material nonpublic information, which is prohibited under Standard V(A) -- Prohibition against Use of Material Nonpublic Information.

Question ID: 10636 According to the AIMR Standards of Professional Conduct, which of the following is NOT a form of plagiarism?

A.

Using charts and graphs without stating their sources. Presenting statistical estimates of forecasts prepared by others with the

B.

source identified, but without qualifying statements or caveats that may have been used. Using factual information published by recognized financial and statistical reporting services or similar sources without an acknowledgment. Citing specific quotations supposedly attributable to "leading analysts" and "investment experts" without specific reference.

C.

D.

C
Standard II(C) provides that "factual information published by recognized financial and statistical reporting services or similar sources" may be used without an acknowledgment. Question ID: 10635 Which of the following is NOT a form of plagiarism? Making a verbal comment at a meeting with associates giving the

A.

impression the analysis is original when in reality it is attributable to another analyst.

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Presenting statistical forecasts by others with the sources identified but

B.

without the qualifying statements that may have been used by the originator. Citing quotations said to be attributable to "leading analysts" or "investment experts" without specific reference. Using factual information published by a recognized financial statistics reporting service without acknowledgment.

C.

D.

D

Question ID: 27316 All of the following violate Standard II(C) – Prohibition against Plagiarism EXCEPT: using excerpts from reports prepared by others with minor word changes without acknowledgment. citing quotes attributable to "investment experts" without specific references. copying a proprietary computerized spreadsheet without seeking authorization from their creators. presenting factual information published by recognized statistical reporting services without acknowledgment.

A.

B.

C.

D.

D
Standard II(C) – Prohibition against Plagiarism permits using recognized sources of factual information such as Standard & Poor’s Corporation and Moody’s Investors Service without acknowledgment.

Question ID: 10637 According to the AIMR Standards of Professional Conduct, which of the following statements about the prohibition against plagiarism is most correct? The prohibition against plagiarism applies to written materials:

A.

and telecommunications only.
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B. C. D.

and oral communications only. oral communications, and telecommunications. only.

C
The prohibition against plagiarism applies to all three areas. Question ID: 10619 All of the following statements in promotion of your services are in violation of the AIMR Standards of Practice handbook EXCEPT: I guarantee under my management that you will receive returns in excess of the market index average. based upon my research, you will achieve a 20% compound annual rate of return on small cap stocks over the next 5 years. I passed all three levels of the CFA Program on the first try. I passed Level II of the CFA Program in 2001.

A.

B.

C. D.

D

Question ID: 27319 During 2001, Nancy Arnold received an undergraduate business degree with a management major and completed all requirements for the CFA designation imposed by AIMR. She is applying for employment at several brokerage firms. Her resume states, ―I was given the CFA charter in 2001 by the Association of Investment Management and Research.‖ Her resume also states that she graduated ―with honors‖ and majored in finance. Her grade point average was 3.48 but ―with honors‖ requires a 3.50 grade point average. Which of the following statements about Standard II(A) – Use of Professional Designation and Standard II(B) – Professional Misconduct – is TRUE? Arnold:

A. B.

did not violate either Standard II(A) or Standard II(B). violated Standard II(B) but she did not violate Standard II(A).
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C. D.

violated both Standard II(A) and Standard II(B). violated Standard II(A) but she did not violate Standard II(B).

C
Arnold violated Standard II(A) because charterholders are not given the CFA designation but are awarded the right to use the CFA designation. Arnold also violated Standard II(B) because her claims that she graduated ―with honors‖ and as a finance major show a lack of honesty.

Question ID: 27322 Ted Willis received his CFA designation in 1995 and was employed as an investment counselor until 1999. During the past year several years, Willis has been out of work because of a serious illness. He also failed to pay his annual AIMR dues during 2001. Willis has now recovered and accepted a position with an investment advisory firm. His new business card says, “Ted Willis, CFA.” As part of his job with his new firm, Willis uses PowerPoint® to make presentations to groups of prospective clients. He obtained some of these PowerPoint® slides from web sites, but removed the copyright notice before showing the slides to prospective clients. Which of the following statements about Standard II(A) – Use of Professional Designation and Standard II(C) – Prohibition against Plagiarism is TRUE? Willis:

A. B. C. D.

violated Standard II(A) but he did not violate Standard II(C). violated both Standard II(A) and Standard II(C). did not violate either Standard II(A) or Standard II(C). violated Standard II(C) but he did not violate Standard II(A).

B
Willis violated Standard II(A) because his right to use the CFA designation was suspended when he stopped paying AIMR dues. Thus, he can no longer use the CFA designation on his business card. Willis also violated Standard II(C) because he was guilty of plagiarism. He inappropriately used copyrighted material, which provided the impression that such material was his own.

Question ID: 10628

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Timothy Hooper, CFA, is a security analyst at an investment firm. In his spare time, Hooper serves as a volunteer for City Pride, which collects clothes for the homeless. Hopper has occasionally given some of the clothes to his friends or sold the clothes instead of returning all of the clothing to City Pride. City Pride discovers what he has been doing and dismisses him. Later, City Pride learns that other volunteer organizations have dismissed Hooper for similar actions. Has Hooper violated Standard II(B) on professional misconduct in the AIMR Standards of Professional Conduct? No, because Hooper's conduct is unrelated to his professional activities as a security analyst. No, because Hooper volunteers his services to City Pride. Yes. No, because Hooper has not been previously convicted of a misdemeanor or felony.

A.

B. C.

D.

C
Hooper violated Standard II(B) because he repeatedly engaged in conduct that indicates a disrespect for the law. This violation occurred despite the fact that his offenses do not relate directly to his professional activities. Question ID: 10640 Which of the following is NOT a violation of Standard II? Using factual information published by recognized financial and statistical reporting services without acknowledgment. Presenting statistical forecasts prepared by others with the source

A.

B.

identified but without qualifying statements or caveats that may have been used.

C.

Using charts and graphs without stating their source. Citing quotes attributable to "investment experts" without specific reference.

D.

A
This is not a violation of Standard II(C) and is explicitly permitted.

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2-III.: Standards of Professional Conduct: Employer
Question ID: 10648

III. Relationships and Responsibilities to the

To fulfill an analyst's requirement to inform his or her employer that the employer must follow AIMR's Code of Standards of Professional Conduct, the analyst must inform:

A. B. C. D.

his or her immediate supervisor in writing. the firm's chief executive in writing. the firm's chief executive either orally or in writing. his or her immediate supervisor either orally or in writing.

A

Question ID: 27325 According to AIMR Standards of Professional Conduct, which of the following statements about informing an employer of the Code and Standards is FALSE? AIMR members: are responsible for informing their employer in writing or orally that they are obligated to comply with the Code and Standards. are responsible for delivering a copy of the Code and Standards to their employer. need not give formal written notification if the employer has publicly

A.

B.

C.

acknowledged, in writing, adoption of the Code and Standards as part of its firm policies. are required to take steps to notify their employer of the Code and Standards through their direct supervisor.

D.

A
Standard II(A) -- Obligation to Inform Employer of Code and Standards requires that this notification be in writing, which includes any form of communication that can be documented.

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Question ID: 10650 Diane Lynch, CFA, and Pete Mackey, who is currently enrolled in the CFA program, recently joined a large money management firm. During her first week of employment, Lynch orally informs her immediate supervisor, who is not a member of AIMR, that she is obligated to comply with the Code and Standards. Mackey does not notify his supervisor about his obligation to comply with the Code and Standards. Mackey reasons that he does not have to provide such notification because his supervisor is a CFA charterholder and is aware of the Code and Standards. According to the AIMR Standards of Professional Conduct, which of the following statements about relationships with and responsibilities to the employer is most correct?

A. B. C. D.

Lynch violated the Standards, but Mackey did not. Mackey violated the Standards, but Lynch did not. Both Lynch and Mackey violated the Standards. Neither Lynch nor Mackey violated the standards.

C
Standard III(A) requires that Lynch notify her in employer in writing, not orally, of her obligation to comply with the Code and Standards. Standard III(A) also indicates that Mackey as a subordinate employee cannot assume that his supervisor is aware of the obligation, even if the supervisor is a member of AIMR. Question ID: 10663 Which of the following statements is/are correct under the Code of Standards?

I. II.

AIMR members are prohibited from undertaking independent practice in competition with their employer. Written consent from the employer is necessary to permit independent practice that could result in compensation or other benefits in competition with the member's employer.

III.

Written consent from the outside prospective client is necessary to permit independent practice that could result in compensation or other benefits in competition with the member's employer.

IV.

Members are prohibited from making arrangements or preparations to go into competitive business before terminating their relationship with their employer.

A.

III only

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B. C. D.

II and III only I and II only I, II, and III only

B

Question ID: 27328 Sue Parsons, CFA, works full-time as an investment advisor for the Malloy Group, an asset management firm. To help pay for her children’s college expenses, Parsons wants to engage in independent practice in which she would advise individual clients on their portfolios. She would conduct these investment activities only on weekends. Which of the following statements about Standard III(B) – Duty to Employer is TRUE? Standard III(B): does not require Parsons to notify Malloy of her intentions to undertake independent practice under the current conditions. requires Parsons to obtain written consent from both Malloy and the persons from whom she undertakes independent practice. precludes Parsons from entering into an independent competitive activity while still employed by Malloy. requires Parsons to notify Malloy in writing about her intention to undertake an independent practice.

A.

B.

C.

D.

B
Standard III(B) – Duty to Employer requires that Parsons obtain written consent from both her employer and the persons or entities for whom she undertakes independent practice that could result in compensation or other benefit in competition with Malloy.

Question ID: 10665 Janet Thompson, CFA, is employed as an analyst by Nationwide Securities. According to the AIMR Standards of Professional Conduct, which of the following statements about Thompson's duty to Nationwide is FALSE? Thompson must refrain from:

A.

engaging in any conduct that would injure the Nationwide.
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B.

being involved in any conduct that would deprive Nationwide of the advantage of Thompson's skills and ability. engaging in independent competitive activity that could conflict with the business of Nationwide unless she receives written consent. making arrangements to go into a competitive business before terminating the relationship with Nationwide.

C.

D.

D
Standard III(B) permits Thompson to make preparations to go into a competitive business before terminating her relationship with nationwide provided that such preparations do not breach her duty of loyalty.

Question ID: 10677 Ray Stone, CFA, follows the Amity Paving Company for his employer. Which of the following scenarios is Stone least likely to have to disclose to his employer.

A. B. C.

Stone's ownership of Amity securities. Stone's personal relationship with the CEO of Amity. Stone's participation on Amity's board of directors. The fact that Stone's son worked at Amity as a laborer during the summer while in school.

D.

D

Question ID: 10679 Arthur Harrow, CFA, is a pharmaceuticals analyst at Dominion Asset Management. His supervisor directs him to prepare separate research reports on Miracle Drug Company and Wonder Drug Company. Harrow's former college roommate and close friend is the president of Miracle. Harrow owns 2000 shares of Wonder, which currently sells for $25 a share. Harrow's supervisor is unaware of these facts. According to the AIMR Standards of Professional Conduct, which of the following action, if any, is Harrow required to take if he writes the research reports?

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A.

Harrow need not disclose to Dominion either his relationship with the president of Miracle or his ownership of shares in Wonder. Harrow must disclose to Dominion both his relationship with the president of Miracle and his ownership of shares in Wonder. Harrow must disclose to Dominion his ownership of shares in Wonder but not his relationship with the president of Miracle. Harrow must disclose to Dominion his relationship with the president of Miracle but not his ownership of shares in Wonder.

B.

C.

D.

B
Standard III(C) requires that Harrow disclose to Dominion conflicts that would interfere with rendering unbiased investment advice. Both Harrow's relationship with the president of Miracle and his ownership of a substantial dollar amount of Wonder's shares represent a potential conflict requiring prompt disclosure to Dominion. Question ID: 27331 Dwight Dawson, a CFA charterholder and portfolio manager at Ascott Investments, was recently appointed to the investments committee at Brightwood College. He will receive no compensation from Brightwood for serving on this committee. Another person at Ascott manages part of Brightwood’s endowment. Dawson does not inform Ascott’s compliance office of his involvement with Brightwood, because he does not believe doing so is necessary. Brenda Hamilton, a CFA candidate, also works for Ascott as an investment analyst. Procedures established at Ascott prohibit personal trading in securities analyzed or recommended by Ascott. One of these securities is Horizon, a telecommunications firm. Hamilton buys 10 shares of Horizon for her infant son’s trust account. She believes that reporting this purchase to Ascott’s compliance officer is unnecessary because the amount of the transaction is small and is not for her own personal account. Did Dawson or Hamilton’s actions violate AIMR Standards of Professional Conduct? Violated AIMR Standards:

A. B. C. D.

Dawson: Yes, Hamilton: No. Dawson: No, Hamilton: Yes. Dawson: No, Hamilton: No. Dawson: Yes, Hamilton: Yes.

23

D
Dawson violated Standard II (C) – Disclosure of Conflict to Employer by failing to inform Ascott of her involvement with Brightwood College. Dawson could reasonably be expected to be involved with investment policy decisions at Brightwood that could affect Ascott because Ascott manages a portion of Brightwood’s endowment. Hamilton also violated Standard II (C), because she ignored a directive of her employer. Her purchase of Horizon stock has an appearance of impropriety. Hamilton could discuss the purchase of Horizon stock with her firm’s compliance officer and request an exception to the prohibition against personal trading in securities analyzed or recommended by Ascott. Question ID: 10691 Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades for the fund with Worldwide Brokerage. Worldwide suggests to Calaveccio that they are willing to provide him with additional compensation for order flow, providing that he obtain written permission from TrustCo. Is this permissible?

A. B. C. D.

No, such an arrangement is in violation of the Code and Standards. Yes, but written permission is also required from Worldwide. Yes, but this must also be disclosed to clients and prospects. Yes, and no further permission is required.

C
In conformance with Standard III.D, Calaveccio is required to disclose the matter to TrustCo in writing. In conformance with Standard IV.B.8, he is also required to disclose the additional compensation to clients and prospects. Question ID: 10687 Sharon West is a CFA charter holder and trust officer for REO Trust Company. Soon after beginning work for REO, West finds that REO has been conducting all its securities transactions through her brother who is a registered representative. West's brother charges the 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

24

commissions her brother charges the firm are the lowest possible. must inform her employer of the arrangement because it provides her with additional compensation. does not need to inform her employer of the arrangement because REO has been doing business with her brother before she was hired. must inform her employer of the arrangement because she is doing business with a member of her immediate family.

B.

C.

D.

B

Question ID: 27334 Selma Brown, CFA, is a portfolio manager for Mainland Securities. Rick Wood, one of her clients and owner of Wood Fitness Centers, offers to permit Brown and her immediate family to use the facilities at his fitness centers at no cost during 2003. To get this benefit, Brown must achieve on Wood’s portfolio at least a 2-percentage point return above the total return on the S&P’s 500 index during 2002. Brown orally informs her immediate supervisor of the nature and duration of the proposed arrangement. Arnold Turley, an AIMR member, is a portfolio analyst at Mainland Securities. He was just elected to the Board of Directors for Omega Services, which pays him $1,000 plus expenses for attending each of its quarterly board meetings. Turley e-mails Mainland’s compliance officer informing her of this arrangement with Omega. Did Brown or Turley violate the AIMR Standards of Professional Conduct? Violated AIMR Standards:

A. B. C. D.

Brown: Yes, Turley: Yes. Brown: Yes, Turley: No. Brown: No, Turley: No. Brown: No, Turley: Yes.

B
Brown violated Standard III(D) – Disclosure of Additional Compensation Arrangements because she must disclose in writing other benefits to be received for services that are in

25

addition to compensation conferred by her employer. Turvey did not violate Standard III(D) because he notified his employer in writing, with includes e-mail.

Question ID: 10701 According to the AIMR Standards of Professional Conduct, which of the following statements about members with supervisory responsibility is FALSE? Members with supervisory responsibility: are expected to have in-depth knowledge of the Code and Standards and to apply this knowledge in discharging their supervisory responsibilities. are relieved of their supervisory responsibility if they delegate their supervisory duties to other members of AIMR. should bring an inadequate compliance system to the attention of the firm's senior managers and recommend corrective action. must make reasonable efforts to detect violation of laws, rules, regulations, and the Code and Standards.

A.

B.

C.

D.

B
Although members who supervise large numbers of employees may delegate supervisory duties, such delegation does not relieve them of their supervisory responsibility. Question ID: 27337 Which of the following statements about Standard II(E) – Responsibilities of Supervisors is FALSE? AIMR members with supervisory authority: are expected to have in-depth knowledge of the Code and Standards and to apply this knowledge in discharging their supervisory responsibilities. are expected to bring an inadequate compliance system to the attention of the firm's senior managers and recommend corrective action. must make reasonable efforts to detect violations of laws, rules, regulations, and the Code and Standards. may delegate supervisory duties, which relieves them of their supervisory authority.

A.

B.

C.

D.

D
26

Standard II(E) permits members to delegate supervisory duties but such delegation does not relieve members of their supervisory responsibility.

Question ID: 10699 Dixie Miller, CFA, heads the research department of a large brokerage firm. The firm has many analysts, some of whom are subjected to AIMR's Code of Ethics and Standards of Professional Conduct. If Miller delegates some of her supervisory duties, which statement best describes her responsibilities under AIMR's Code and Standards? Miller no longer has supervisory responsibility for those duties delegated to her subordinates. AIMR's Standards prevent Miller from delegating supervisory duties to subordinates. Miller's supervisory responsibilities do not apply to those subordinates who are not subjected to AIMR's Code and Standards. Miller retains supervisory responsibilities for those duties delegated to her subordinates.

A.

B.

C.

D.

D

Question ID: 10668 Michel Marchant, CFA, recently graduated from college and became an independent money manager. After six months, he has only ten clients, who are family and college friends. To supplement his income, Marchant accepted part-time employment as an advisor at Middleton Financial Advisors. According to the AIMR Standards of Professional Conduct, which of the following statements about Marchant's duty to his new employer is TRUE? Marchant must obtain written consent from Middleton to keep his existing

A.

clients and must advise his existing clients in writing of his new part-time employment at Middleton. Marchant must obtain written consent from Middleton to keep his existing

B.

clients but need not inform his existing clients of his new part-time employment at Middleton. Marchant must obtain written consent from Middleton to keep his existing clients but can inform his existing clients orally of his new part-time

C.

27

employment at Middleton. Marchant need not inform Middleton about his existing clients or his existing clients about his new part-time employment at Middleton.

D.

A
Standard III(B) requires that Marchant obtain written consent from both Middleton and his existing clients. Question ID: 10653 Elliott Whitney, a CFA charterholder, recently joined a large money management firm. During an orientation session, Whitney met several other members of his firm, including David Martin, his direct supervisor; Sheryl Whitten, the compliance officer; Richard Dobson, the investment officer; and Nathaniel Graham, the president. According to the AIMR Standards of Professional Conduct, which of these individuals is Whitney required to inform that he is obligated to comply with the Code and Standards?

A. B. C. D.

Dobson. Martin. Graham. Whitten.

B
Standard III(A) requires that Whitney inform his employer in writing, through his direct supervisor, who in this situation is Martin. Question ID: 10666 Brian Bellow, an AIMR member, is a portfolio manager for Progressive Trust Company. Several friends ask Bellow to review their investment portfolios. On his own time, Bellow examines their portfolios and makes several recommendations. He receives no monetary compensation from his friends for his investment advice and provides no future investment counsel to them. According to the AIMR Standards of Professional Conduct, did Bellow violate his duty to Progressive Trust?

A. B.

No, because Bellow received no monetary compensation for his services. Yes.

28

C. D.

No, because Bellow provided investment advice to his friends. No, because Bellow provided no ongoing investment advice.

B
Bellow violated his duty to employer because he did not receive written consent from both Progressive Trust and his friends for whom he undertook independent practice. Question ID: 10703 The following scenarios describe two members of AIMR who have supervisory responsibility.  The president of Hawthorne Investments, a newly founded money management firm with five investment professionals, asked Rebecca Long, CFA, to be the company's compliance officer and to develop the company's compliance procedures. Long has an in-depth knowledge of the Code and Standards, but she was too busy to develop a compliance manual herself. Therefore, she copied, with written permission, the compliance manual of a large money management firm. This manual was comprehensive and covered many areas not part of Hawthorne's operations. Long gave the manual to Hawthorne's president, but did not distribute the contents of the program to other appropriate personnel.  A co-worker at Barksdale Capital mentions to Stephen Luck, CFA, that George Trout, a candidate in the CFA Program, may have violated the AIMR standard involving priority of transactions. As Trout's supervisor, Luck decided to investigate this allegation but did not begin the investigation until a month after the alleged incident. Luck continued to maintain the same amount of supervision on Trout during the month before he began his investigation of Trout. According to the AIMR Standards of Professional Conduct, which of the follow statements about whether Long and Luck followed appropriate compliance procedures involving their responsibilities as supervisors is true?

A. B. C. D.

Neither Luck nor Long violate the procedures for compliance. Long violated the procedures for compliance, but Luck did not. Both Luck and Long violated the procedures for compliance. Luck violated the procedures for compliance, but Long did not.

C
Long violated the procedures for compliance involving her supervisory responsibility by not
29

tailoring the compliance manual to Hawthorne's operations and by not distributing the contents of the program to appropriate personnel. Luck also violated the procedures for compliance by not responding promptly to the allegation that Trout violated the AIMR standard involving priority of transactions and by not increasing supervision on Trout pending the outcome of the investigation. Question ID: 10689 Jane Talbot, CFA, is a portfolio manager at Cavalier Investments. Talbot manages the account of Wendall Wilcox. The performance of Wilcox's portfolio has been below that of the benchmark portfolio, the S&P 500, for the past several years. In an effort to enhance his portfolio's performance, Wilcox offers to pay Talbot $2,000 each year that his portfolio's return exceeds that of the S&P 500. Wilcox suggests this arrangement last for the next three years. The amount that Wilcox agrees to pay Talbot is in addition to the compensation that Talbot will receive from his employer and the standard fee that Wilcox will pay Cavalier for managing his portfolio over the three-year period. Talbot agrees to the arrangement proposed by Wilcox and informs Cavalier in writing of the terms of the agreement under which she will receive additional compensation. According to the AIMR Standards of Professional Conduct Talbot must disclose:

A.

both the nature and amount of compensation only. the nature and amount of compensation plus the duration of the agreement. the nature of the compensation only. the amount of the compensation only.

B.

C. D.

B
Procedures for compliance for Standard III(D) indicate that the written report should state the terms of any oral or written agreement under which Talbot will receive additional compensation including the nature of the compensation, the amount of compensation and the duration of the agreement. Question ID: 10649 The AIMR Standards of Practice Handbook requires AIMR members to do all the following EXCEPT: receive written permission from both their employer and outside clients to engage in investment consulting outside the firm. to disclose in writing to the proper regulatory authority all observed

A.

B.

30

violations of the securities laws and regulations. to disclose to their employer in writing all monetary compensation or

C.

benefits received for services performed in addition to their company compensation. inform their employer in writing that they are obligated to comply with the AIMR Code and Standards.

D.

B

Question ID: 10678 Ryan Brown, CFA, is an analyst with a large insurance company. His personal portfolio includes a significant investment in QRS common stock that his firm does not currently follow. The director of the research department asked Brown to analyze QRS and write a report about its investment potential. Based on AIMR Standards of Professional Conduct, Brown should:

A. B. C. D.

sell his shares of QRS before completing the report. decline to write the report without specific approval of his supervisor. place his shares of QRS in a trust. disclose the ownership of the stock to his employer and in the report.

D

Question ID: 10702 Wanda Kirby, CFA, recently joined Allegheny Investments as a senior analyst. Because of her extensive experience in the investments business and knowledge of the Code and Standards, Allegheny's management asked her to assume supervisory responsibility. Kirby reviewed Allegheny's existing compliance system and determined that it was inadequate to allow her to clearly discharge her supervisory responsibility. According to the AIMR Standard of Professional Conduct, Kirby should: decline orally to accept supervisory responsibility until Allegheny adopts reasonable procedures to allow her to adequately exercise such

A.

31

responsibility. agree to accept supervisory responsibility provided that Allegheny adopts

B.

reasonable procedures to allow her to adequately exercise such responsibility. decline in writing to accept supervisory responsibility until Allegheny adopts

C.

reasonable procedures to allow her to adequately exercise such responsibility. agree to accept supervisory responsibility and to develop reasonable procedures to allow her to adequately exercise such responsibility.

D.

C

2-IV.: Standards of Professional Conduct: and Prospects
Question ID: 10719

IV. Relationships with and Responsibilities to Clients

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 AIMR Standard on research reports. According to the AIMR Standards on Professional Conduct, which of the following statements about how Halpert can communicate the report is most correct? Halpert can make his report in person, by telephone, or by computer on the Internet. Halpert can make his report in person. Halpert can transmit his report by computer on the Internet. Halpert can make his report by telephone.

A.

B. C. D.

A
A report can be made via any means of communication, including in-person recommendation, telephone conversation, media broadcast, and transmission by computer such as on the Internet. Question ID: 10715

32

Peggy Green, CFA, is a research analyst following Brown Co. All the information she has gathered suggests the stock should be rated a weak "hold." During a recent lunch, Green overheard another analyst say that the stock should be rated a "buy." Green returns to her office and issues a "buy" recommendation. She violated AIMR SPC because she did not seek approval of the change from her firm's compliance director. She has violated AIMR SPC because she did not have a reasonable and adequate basis for making this recommendation. She is in full compliance with the AIMR SPC. She has violated AIMR SPC because she failed to distinguish between fact and opinion.

A.

B.

C.

D.

B

Question ID: 10722 The following two individuals are employed at Eaton Financial, located in New York City.  Henry Reed, CFA, is an analyst who specializes in computer software companies. He visited InfoCom's headquarters near Washington, D.C., to gather information for a research report that he is writing about the company. InfoCom paid for his accommodations and travel expenses. Reed disclosed this information to his supervisor at Eaton, who was pleased that Eaton did not have to pay for Reed's trip. InfoCom is not a client of Eaton.  Wanda Wright, a CFA candidate, manages the portfolio of Bart Haslem, who is a client at Eaton. During the past year, Wright achieved a return on Haslem's portfolio that exceeded the agreed upon benchmark by 3 percent. Haslem was so delighted with how Wright managed his portfolio that he offered Wright and her husband the use of his estate in Palm Beach for a week in February. He also agreed to pay their air transportation. Wright disclosed the gift to her supervisor and received his permission to accept the gift. According to the AIMR Standards of Conduct on independence and objectivity, which of the following statements about the actions of Reed and Wright is TRUE?

A. B.

Wright violated the Standard, but Reed did not. Both Reed and Wright violated the Standard.

33

C. D.

Neither Reed nor Right violated the Standard. Reed violated the Standard, but Wright did not.

D
In the scenario involving Reed, compliance procedures for achieving and maintaining objectivity require that Reed or his company pay for commercial transportation and hotel charges. In the scenario involving Wright, because she disclosed the gift to her employer, who subsequently approved it, she may accept the gift, which exceeds $100 in value, from Haslem. Standard IV(A.3) considers clients to be different from entities trying to gain influence over the analyst. Question ID: 10742 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: in violation of his fiduciary duties regarding the small cap research, but not so regarding the research on the municipal bonds. in violation of his fiduciary duties regarding the municipal bond research but not so regarding the research on the small cap issues. not in violation of the Code and Standards. in violation of his fiduciary duties regarding both the small cap research and the municipal bond research.

A.

B.

C.

D.

B
The issue at hand is the member's fiduciary responsibilities in handling "soft dollars" which are technically the property of the client. Standard IV.B.1 delineates the member's fiduciary responsibilities, and the requirements for conformance with the Code and Standards are spelled out on page 92 of the Handbook. Since such (municipal bond) research is clearly not relevant to the Small Cap Fund holders, he is clearly using the soft dollars to obtain research for his personal benefit and is in violation of the Standard. Question ID: 10737

34

Ryan Brown, CFA, is an analyst with a large insurance company. His personal portfolio includes a significant investment in QRS common stock that his firm does not currently follow. The director of the research department asked Brown to analyze QRS and write a report about its investment potential. Based on AIMR Standards of Professional Conduct, Brown should:

A. B. C. D.

place his shares of QRS in a trust. decline to write the report without specific approval of his supervisor. disclose the owernership of the stock to his employer and in the report. sell his shares of QRS before completing the report.

C

Question ID: 10738 Under the Employee Retirement Income Security Act (ERISA), all of the following are required of fiduciaries EXCEPT:

A. B. C. D.

supporting the sponsor's management during proxy fights. acting solely in the interest of plan participants. acting with the diligence of a prudent person. diversifying the plan's investments.

A

Question ID: 27340 Tony Bryant, CFA, is a trustee of individual trust accounts. As a fiduciary, Bryant must:

A. B. C.

favor income beneficiaries over remaindermen. be accountable only to income beneficiaries. be impartial between income beneficiaries and remaindermen.
35

D.

favor remaindermen over income beneficiaries.

C
Trustees of personal trust accounts must be impartial between income beneficiaries and remaindermen, whose interests are distinct, and must achieve an equitable balance between current income and the preservation of principal in real terms.

Question ID: 10746 Midland Investment Banking issued a prospectus for its open-end Midland Gold Fund. In the prospectus, the investment policy was disclosed as, "We will maintain an investment posture of 50 percent or more in gold stocks and/or bullion, depending upon market conditions." This policy was maintained until the price of gold fell by 20 percent, leaving the fund 40 percent invested in gold stocks and bullion. Management has decided that since the allocation was effected by market conditions, no action to either change the investment policy or to rebalance the portfolio is required. This decision is: in violation of the Standard concerning prohibition against

A.

misrepresentation. under the circumstances, not in violation of the Code and Standards. in violation of the Standard concerning fiduciary duties to clients. in violation of the Standard concerning portfolio investment

B. C.

D.

recommendations and actions.

D
Standard IV.B.2.d requires members to disclose "general principles and investment processes" to clients and to "promptly disclose to clients and prospects any changes that might significantly affect those processes." Under the Standard, Midland management is required either to: 1. rebalance the portfolio in a timely manner so as to maintain compliance with the investment policy or 2. communicate an intended change in that policy well in advance of the actual change so as to afford investors time to act prior to the change in investment policy taking place. Midland is in violation of the Standard.

36

Question ID: 10726 Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades for the fund with Worldwide Brokerage. Worldwide is holding a conference in Amsterdam and has offered to pay for Calaveccio's airfare, meals, and accommodations associated with his attendance of the conference. The conference concerns European small cap securities and the EASDAQ. He decides that he will accept their offer and attend the conference. In order to comply with the Code and Standards, he may: simply attend. Since the conference is directly related to his professional responsibilities, no further notification or permission is required. attend, but he must disclose the arrangement as additional compensation to his employer in writing. attend, but he must disclose the arrangement to TrustCo's clients and prospects as required under Standard IV.B.7. attend, but he must disclose the arrangement to his employer as a gift.

A.

B.

C.

D.

D
Under Standard IV.A.3, the payment of the expenses must be fully disclosed to his employer since the value is clearly in excess of USD $100. Note that this does not constitute additional compensation since it is probable that TrustCo would otherwise have paid for his expenses, or he would not have gone. He does not realize income directly from such expenses being paid, in any event. He does not need to disclose the matter as a conflict to clients and prospects since his attendance at the conference does not pertain to a specific security or compensation arrangement in return for referral of client business. Question ID: 10739 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:</FONT< p> a violation of the Standard concerning portfolio investment

A.

recommendations and actions.

37

B.

only permissible if the account holders are contacted first before the shares are purchased. a violation of the Standard concerning fiduciary duties. appropriate given the obvious potential of the therapy.

C. D.

A
Given the variety of accounts under her supervision, it is most unlikely that the shares of a speculative biotech firm would be suitable for all accounts. Placing such shares in all accounts indicates that she has failed to consider the appropriateness and suitability of the investment for each account, and this places her in violation of Standard IV.B.2.b. Question ID: 10717 The following scenarios refer to recommendations made by two analysts.  Jean King, CFA, is a quantitative analyst at Quantlogic, Inc. King uses computer-generated screens to differentiate value and growth stocks based on accounting numbers such as sales, cash flow, earnings, and book value. Based on her analysis of all domestically traded stocks in the U.S. over the past three years, King concludes that value stocks as a class have under performed growth stocks over that period. Using only this analysis, she recommends that account executives at Quantlogic sell all value stocks from the portfolios for which they have discretionary authority to trade and replace these stocks with growth stocks.  James Capelli, CFA, is a fundamental analyst at Wheaton Capital Management, which focuses on regional stocks. His analysis of Branson Wireless includes the investment's basic characteristics such as information about historical earnings, ownership of assets, outstanding contracts, and other business factors. In addition to conducting both a general industry analysis and a company financial analysis, Capelli interviews key executives at Branson. Based on his analysis, he concludes that the company's future prospects are strong and issues a "buy" recommendation. According to the AIMR Standards of Professional Conduct, did King and Capelli have a reasonable and adequate basis for making their recommendations?

A. B. C. D.

Neither King nor Capelli has a reasonable basis for their recommendations. Both King and Capelli have a reasonable basis for their recommendations. King has a reasonable basis for his recommendation, but Capelli does not. Capelli has a reasonable basis for his recommendation, but King does not.

38

D
Capelli appears to have exercised diligence and thoroughness in making his recommendation. King's recommendation is not based on thorough quantitative work because the period used in her study is only three years. Also, her recommendation does not consider the client's specific needs and circumstances. Question ID: 10743 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. B. C.

a violation of Calaveccio's duty to his employer. a violation of Calaveccio's fiduciary duties. a violation of the Standard regarding fair dealing. permissible under AIMR Standards since some trading errors are a fact of life in the securities industry.

D.

D
The issue is, in effect, an allocation of soft dollars. Clearly, if the brokers eat the losses, they expect to make up the difference in some way. However, since the error was on the part of Quantco Brokerage, Calaveccio is under no obligation to cover the cost of the trading error. Moreover, no reasonable observer expects that there exists any implied future allocation of trades to Quantco in return for correcting their own mistake. There is no violation of Standard IV.B.1, Fiduciary Duties. Question ID: 10723 Several years ago, Hilton and Ross, a full service investment firm, managed the initial public offering of eCom, Inc. Now, eCom wants Hilton and Ross to underwrite its secondary public offering. A senior manager at Hilton and Ross asked Brent Whitman, CFA, one of its equity analysts, to write a favorable research report on eCom to help make the underwriting a success. Whitman conducted a thorough analysis of eCom and concluded that the company has serious problems, which did not suggest a favorable financial outlook. Nevertheless, Whitman wrote a favorable report, because he was fearful of losing his job.

39

Hilton and Ross publicly distributed the report that only contained: 1. A brief description of the basic characteristics of eCom. 2. A statement that "the stock price will double within six months." 3. A buy recommendation. Which of the following statements about Whitman's violation of AIMR Standards of Professional Conduct is most correct? Whitman violated:

A. B. C. D.

Standard IV(A.1)-Reasonable Basis and Representation only. Standard IV (A.3)-Independence and Objectivity only. Standard IV(A.2)-Research Reports only. Standard IV(A.1), IV(A.2), and IV(A.3).

D
Whitman violated Standard IV(A.1) because he did not have a reasonable and adequate basis for issuing a favorable recommendation. He violated Standard IV(A.2) because he did not distinguish between fact and opinion in his research. The statement that "the stock price will double within six months" is an opinion, not a fact. Whitman violated Standard IV(A.3) because he did not act independently in issuing his recommendation but instead was influenced by senior management at Hilton and Ross.

2-V.: Standards of Professional Conduct: Investing Public
Question ID: 10755

V. Relationships with and Responsibilities to the

Which one of the following least accurately describes the AIMR Standard about using material nonpublic information?

A.

An analyst using material nonpublic information may be fined by AIMR. An analyst may violate this Standard by passing information to others even when it has been obtained from outside the company. An analyst may use material nonpublic information secured from sources that have neither breached their duty nor misappropriated the information. An analyst may use material nonpublic informaiton if it has been developed

B.

C.

D.

40

from a combination of nonmaterial items of information.

A

Question ID: 27343 According to AIMR Standards of Professional Conduct, which of the following statements about material nonpublic information is FALSE? Information is: material if its disclosure would be likely to have an impact on the price of a security. material if reasonable investors would want to know the information before making an investment decision. nonpublic until it has been disseminated to the marketplace in general. nonpublic until it has been disseminated to a select group of investors.

A.

B.

C. D.

D
Standard V(A) – Prohibition against Use of Material Nonpublic Information states that information is ―nonpublic‖ until it has been disseminated to the marketplace in general as opposed to a select group of investors.

Question ID: 10759 Which of the following statements concerning Standard V(A) is TRUE? A person: cannot trade on non-material non-public information even if it is not related to a tender offer. cannot trade on material but public information if it is related to a tender offer. can trade on material non-public information if it is related to a tender offer and has not been misappropriated. cannot trade on material non-public information irrespective of whether the information was obtained through a breach of duty or not.

A.

B.

C.

D.

41

D
The five questions that need to be asked are listed in Schweser Notes. Asking these questions renders all statements except this one false. Question ID: 27346 According to Standard V(A)—Prohibition against Use of Material Nonpublic Information, which of the following statements is FALSE? Members who possess material nonpublic information related to the value of a security are expected to: make reasonable efforts to achieve public dissemination of information disclosed in a breach of duty. not trade on the information if the information relates to a tender offer. make reasonable efforts to insure the information's accuracy before recommending that others trade on the information. not trade on the information if the information was misappropriated.

A.

B.

C.

D.

C
Standard V(A) – Prohibition against Use of Material Nonpublic Information prohibits those possessing material nonpublic information from trading or causing others to trade on that information if the information violates a breach of duty, was misappropriated, or related to a tender offer. Thus, members cannot recommend that others trade on the information.

Question ID: 27349 Which of the following statements about Standard V(B) – Performance Presentation is FALSE? The AIMR-PPS for each section are divided between requirements and recommendations. The AIMR-PPS and GIPS are designed to achieve industry-wide uniformity in the presentation of performance information. The AIMR-PPS are divided into four sections that reflect the basic elements of presenting performance information. Members are required to be in compliance with either the AIMR
42

A.

B.

C.

D.

Performance Presentation Standards (AIMR-PPS) or the Global Investment Performance Standards (GIPS) to be in compliance with Standard V(B).

D
Because AIMR-PPS and GIPS are voluntary, members can be in compliance with Standard V(B) without being in compliance with either standard (AIMR-PPS or GIPS).

Question ID: 20183 Which of the following statements about AIMR’s Performance Presentation Standards (PPS) is FALSE? AIMR’s PPS are voluntary standards, which may or may not be adopted by CFA Charterholders. Misrepresentation of past performance is prohibited. AIMR’s PPS are a requirement for all AIMR members. To be in compliance with the PPS, firms must comply on a firm wide basis and satisfy the standards on all material aspects.

A.

B. C.

D.

C
AIMR encourages members to adopt the PPS, but does not require it. However, if a firm adopts the standards, they must adopt them company wide and must not misrepresent past performance, along with complying with other requirements concerning the calculation of returns, the construction and maintenance of composites, the presentation of results and disclosures.

Question ID: 10770 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 professional misconduct.

43

B.

in accordance with the Code and Standards since he has indicated the basis in a footnote. a violation of the Standard concerning prohibition against

C.

misrepresentation. a violation of the Standard concerning performance presentation.

D.

B

Question ID: 27352 According to AIMR Performance Presentation Standards, which of the following is required in the calculation of returns?

A. B. C. D.

Neither asset-weighted nor equal weighted composites. Asset-weighted composites. Equal-weighted composites. Both asset-weighted and equal-weighted composites.

B
The AIMR-PPS require asset-weighted composites but recommend equal-weighted composites be presented in addition to, but not instead of, asset-weighted composites.

3: Standards of Practice Handbook
Question ID: 27365 Brendan Duval, CFA, works as a research analyst for Toby Securities. Duval recommends changing a recommendation from ―sell‖ to ―buy‖ on Dalton Company. His firm, which manages several mutual funds, may be interested in buying Dalton’s stock. He also manages the retirement account that his parents established with Tobias. Duval wants to buy shares of Dalton’s stock because it is an appropriate investment for his parent’s retirement account and obtains approval from his employer to do so. Duval is also thinking about personally investing in Dalton stock. According to AIMR Standards of Professional Conduct, which of the following best describes the priority of transactions? Duval should

44

give: all parties (Toby's clients, his employer, his parent's retirement account, and his personal account) the same priority of transactions. priority of transactions to Toby's clients, followed by his employer, then his parent's retirement account, and finally his personal account. Toby's clients, his employer, and his parent's retirement account the same priority followed by his personal account. priority to Toby's clients and his employer concurrently, followed by his parent's retirement account, and finally his personal account.

A.

B.

C.

D.

C
According Standard IV(B.4) – Priority of Transactions, Duval should give transactions for clients and employers priority over his personal transactions. Because his parent’s retirement account represents a client account at Toby, Duval should treat this account just like any other firm account. His parent’s retirement account should neither be given special treatment nor disadvantaged because of an existing family relationship with Duval. If Duval treats his parent’s retirement account differently from other accounts at Toby, he would breach his fiduciary duty to his parents.

Question ID: 10772 Brown is a partner in a money management firm. He recently attended a seminar and learned about a quantitative model presented by Dixon. Upon returning to his office, Brown began testing the model and making a few minor alterations. He showed the model to his partners who were impressed and decided to promote the model as proof of the firm's value added. In the firm's next newsletter, Brown included a discussion of the model, the results, and financial data on several stocks selected by the model. These factual data were taken from Standard and Poor's publication. According to the AIMR SPC, which of the following actions is Brown required to take?

A. B. C. D.

Brown must credit Dixon, no need to credit S & P. Brown must credit both Dixon and S & P. Brown need not credit either Dixon or S & P. Brown must credit S & P, no need to credit Dixon.

45

A

Question ID: 27364 Janine Turner, a CFA candidate, is an analyst for Lansing Asset Management. She just completed an investment report in which she recommends changing a ―buy‖ to a ―sell‖ for Gallup Company. Her supervisor at Lansing approves of the change in recommendation. She wonders about whether she needs to disseminate this investment recommendation to Lansing’s clients and if so, how to distribute this information. According to AIMR Standards of Professional Conduct, Turner is: not required to disseminate the change of recommendation from a buy to a sell because the change is not material. required to design an equitable system to disseminate the change in a prior investment recommendation. required to design a system to disseminate the change in a prior investment recommendation that gives priority to Lansing's largest clients. required to disseminate the change in a prior investment recommendation to all clients and customers on a uniform basis.

A.

B.

C.

D.

B
Standard IV(B.3) – Fair Dealing requires dealing fairly and objectively with all clients and prospects when disseminating material changes in prior investment recommendations. Note that the standard requires the dissemination be fair, but not necessarily equal due to the impossibility of contacting all clients simultaneously. A change of recommendation from ―buy‖ to ―sell‖ is generally material.

Question ID: 27367 While attending his wife’s office party, Donald North, CFA, overhears two top executives from Parker Industries discussing that the company’s Board of Directors just approved to omit its cash dividend due to unexpected losses during the quarter. Parker has paid a quarterly dividend for the past ten years. The next day, North calls his broker and instructs her to sell short Parker’s common stock. While in a coffee shop, Diane South, CFA, overhears two top executives from Ryland

46

Products say that their company is about to be acquired by another company for a substantial premium over the market price. The next day, South calls her broker and instructs him to buy 500 shares of Ryland’s common stock. Which of the following statements about whether North and South violated Standard V(A) – Prohibition against Use of Material Nonpublic Information is TRUE?

A. B. C. D.

Neither North nor South violated Standards V(A). North violated Standard V(A) but South did not violate Standard V(A). North did not violate Standard V(A) but South did violate Standard V(A). Both North and South violated Standard V(A).

C
North did not violate Standard V(A) by trading on the material nonpublic information that he accidentally overheard because his trading did not breach a duty or result from information that was misappropriated. South violated Standard V(A) by trading on the information she accidentally overhead because the material nonpublic information relates to a tender offer. Question ID: 10775 Dixie Miller, CFA, heads the research department of a large brokerage firm. The firm has many analysts, some of whom are subject to AIMR's Code of Ethics and Standards of Professional Conduct. If Miller delegates some supervisory duties, which statement best describes her responsibiities under AIMR's Code and Standards. Miller no longer has supervisory responsibility for those duties delegated to her subordinates. Miller's supervisory responsibilities do not apply to those subordinates who are not subject to AIMR's Code and Standards. Miller retains supervisory responsibility for all subordinates despite her delegation of some duties. AIMR's Standards prevent Miller from delegating supervisory duties to subordinates.

A.

B.

C.

D.

C
47

Question ID: 27368 Rachel Young, CFA, is making preparations to start a competitive business before terminating her relationship with her employer, a large money management company. Young asks Dot Wiggins, CFA, to consider joining her. In subsequent discussions with Young, Wiggins learns that Young has not disclosed to her employer ownership of stocks that Young recommended. She also learns that Young has used excerpts from research reports by others with only a slight change in wording without acknowledging the source. Wiggins declines Young’s offer to join the new business but does not dissociate herself from Young. According to AIMR Standards of Professional Conduct, which of the following statements is FALSE? Young violated Standard III(C) - Disclosure of Conflicts to Employer

A.

because she did not disclose to her employer ownership of stocks that she has recommended. Young violated Standard III(B) -- Duty to Employer because she was

B.

making preparations to start a competitive business before terminating her relationship with her employer. Wiggins violated Standard I - Fundamental Responsibilities because she did not dissociate herself from Young. Young violated Standard II(C) - Prohibition against Plagiarism because she

C.

D.

did not acknowledge the source of excepts that she used in research reports.

B
Young did not violate Standard III(B) – Duty to Employer because such preparations are permitted provided that they do not breach Young’s duty of loyalty to her employer. Breaches that would violate Standard III(B) include soliciting clients or taking records or files while still working for the current employer.

Question ID: 27370 Albert Long, CFA, manages portfolios of high net worth individuals for HKB Corp. Alice Thurmont, one of her close friends, heads a local charity for homeless children that depends on donations to operate. Because donations have declined during the past year, the charity is experiencing financial difficulty. Thurmont asks Long to give her a partial list of his clients so that she can contact them to make tax-deductible donations. Because Long knows that

48

the charity provides much benefit to the community, he provides Thurmont with the requested list. Betty Short, CFA, also works for HKB Corp. She receives a letter from AIMR’s Professional Conduct Program (PCP) requesting that she provide information about one of HKB’s clients who is being investigated. Short complies with the request despite the confidential nature of the information requested by the PCP. Based on Standard IV(B.5)—Preservation of Confidentiality, which of the following statements about Long and Short’s actions is TRUE?

A. B. C. D.

Long violated Standard IV(B.5) but Short did not violate Standard IV(B.5). Short violated Standard IV(B.5) but Long did not violate Standard IV(B.5). Neither Long nor Short violated Standard IV(B.5). Both Long and Short violated Standard IV(B.5).

A
Long violated Standard IV(B.5) because he did not preserve the confidentiality of information communicated by clients. Short did not violate Standard IV(B.5) because this standard does not prevent members from cooperating with an investigation by AIMR’s Professional Conduct Program. Thus, Short can forward confidential information to the PCP.

Question ID: 10773 Kim Lee is a research analyst at Superior Investments and 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!" After returning to her office, Lee issues a research report describing the compound as an "IQ booster with huge potential." This statement:

A. B.

lacks a reasonable and adequate basis in fact. violates the Standard concerning plagiarism. is allowable but only if quoted verbatim from her conversations with management.

C.

49

D.

is reasonable given the information she was provided by the company.

A
Standard IV.A.1 requires that a member have a "reasonable and adequate basis" in fact before making an investment recommendation. Extrapolating on the basis of the conjecture of one member of the management team, without independent corroboration, is clearly in violation of this Standard. She is also in violation of Standard IV.A.2 concerning the use of reasonable judgment regarding what is included or excluded in a research report. Question ID: 10776 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 are TRUE?

I. II. III. IV.

Brenan has not breached the Performance Presentation Standard V(B). Brenan has breached the Performance Presentation Standard V(B). If Brenan used time weighted geometric linking in his calculations he did not break the Standard. Brenan has breached Standard IV(B.6), prohibition against Misrepresentation.

A. B. C. D.

III only. II and IV only. I and IV only. III and IV only.

B
Brenan breached II by giving a false impression and IV by using the word "can" expect instead of "might" or "could" expect. Question ID: 27369 Cynthia Abbott, a CFA charterholder, is preparing a research report on Boswell Company for her employer, Capital Asset Management. Bob Carter, president of Boswell, invites Cummings and several other analysts to visit his company and offers to pay her transportation and lodging. Abbott declines Carter’s offer but, while visiting the company, accepts a gift from Carter valued at $75. Abbott fails to disclose the gift to her supervisor at Capital when she returns. In the course of the company visit, Abbott overhears a

50

conversation between Carter and his chief financial officer that the company’s earnings per share (EPS) is expected to be $1.10 for the next quarter. Abbott was surprised that this EPS is substantially above her initial earnings estimate of $0.70 per share. Without further investigation, Abbott decides to include the $1.10 EPS in her research report on Boswell. Using the high EPS positively affects her recommendation of Boswell. Which of the following statements about whether Abbott violated Standard IV(A.1) – Reasonable Basis and Representations and Standard IV(A.3) – Independence and Objectivity is TRUE? Abbott:

A. B. C. D.

did not violate Standard IV(A.1) but she violated Standard IV(A.3). violated both Standard IV(A.1) and Standard IV(A.3). violated Standard IV(A.1) but she did not violate Standard IV(A.3). did not violate either Standard IV(A.1) or Standard IV(A.3).

C
Abbott violated Standard IV(A.1) – Reasonable Basis and Representations because she did not have a reasonable and adequate basis to support the $1.10 EPS without further investigation. By including the $1.10 EPS in her report, she did not exercise diligence and thoroughness to ensure that any research report finding is accurate. If Abbott suspects that any information in a source is not accurate, she should refrain from relying on that information. Abbott did not violate Standard IV(A.3) – Independence and Objectivity because the gift from Carter did not exceed $100. Standard IV(A.3) requires her to disclose to her employer gifts from clients exceeding $100 in value.

4: AIMR Performance Presentation Standards Handbook
Question ID: 27371 Which of the following is NOT a goal of the AIMR Performance Presentation Standards?

A. B. C.

Improve the service offered to investment management clients. Enhance the professionalism of the industry. Bolster the notion of self-regulation.

51

D.

Achieve greater flexibility among performance presentations.

D
One goal of the AIMR-PPS is to achieve greater uniformity and comparability among performance presentations.

Question ID: 27372 All of the following are goals of the AIMR Performance Presentation Standards EXCEPT:

A.

enhancing the professionalism of the industry. achieving greater uniformity and comparability among performance presentations. enhancing the potential value or usefulness of the information contained in historical results. bolstering the notion of self-regulation.

B.

C.

D.

C
The AIMR-PPS are ―neither envisioned nor intended to enhance or detract from the potential value or usefulness of the information contained in historical results.‖

Question ID: 10457 Which of the following statements regarding the AIMR-PPS is FALSE? One of the stated goals of the Standards is to achieve greater uniformity and comparability among performance presentations. The AIMR-PPS are explicitly incorporated in the AIMR Code of Ethics and Standards of Professional Conduct. The AIMR-PPS are voluntary standards for the industry. Some aspects of the AIMR-PPS are mandatory (i.e., they must be followed) and others recommended (i.e., they should be followed).

A.

B.

C.

D.

52

B

Question ID: 20185 Several parties are affected by the AIMR Performance Presentation Standards (PPS). Which of the following parties are NOT affected by the PPS?

A. B. C. D.

Firms. SEC Auditors Prospective Clients. CFA Charterholders.

B
Firms, AIMR members, CFA candidates, CFA Charterholders, prospective clients, and current clients are all affected by the Performance Presentation Standards.

Question ID: 10461 All of the following are affected by the AIMR Performance Presentation Standards EXCEPT:

A. B. C. D.

current clients. the Federal Reserve. CFA candidates. an autonomous investment firm.

B

Question ID: 27373 Which of the following parties is least likely to be affected by AIMR-Performance Presentation Standards?

53

A. B. C. D.

Firms in the investments industry. Government regulators. Prospective and current clients. AIMR members, CFA charterholders, and CFA candidates.

B
The parties affected by the AIMR-PPS are firms, AIMR members, CFA, charterholders, CFA candidates, and prospective and current clients.

Question ID: 27374 Which of the following is NOT one of the four main topics of the AIMR-Performance Presentation Standards?

A. B. C. D.

Calculation of returns. Creation and maintenance of composites. Disclosures. Comparison with other firms.

D
The fourth main topic of the AIMR-PPS is presentation of results.

Question ID: 20186 AIMR members are encouraged to adopt AIMR Performance Presentation Standards (PPS), which consist of all of the following main topics EXCEPT the:

A. B. C.

construction and maintenance of composites. calculation of returns. presentation of investment results.

54

D.

guidelines for investment performance in written form.

D
Disclosures are the fourth section of AIMR’s PPS, not guidelines for investment performance in written form.

Question ID: 10463 All of the following are main topics of the AIMR Performance Presentation Standards EXCEPT:

A. B. C. D.

Selection of an index. Disclosures. Calculation of returns. Creation and maintenance of composites.

A

Question ID: 27376 To be in compliance with the AIMR Performance Presentation Standards, return calculations require all of the following EXCEPT:

A. B. C. D.

calculating performance after deducting trading expenses. using time-weighting. valuing portfolios at least annually. using total returns.

C
According to AIMR-PPS, portfolios must be valued at least quarterly.

55

Question ID: 10473 Which of the following statements about what constitutes a valid claim of compliance is FALSE?

A. B. C.

There is a two level approach to a valid claim of compliance. The verification process must be performed by an independent third party. The verification process is not voluntary. A verifier must indicate in an attestation statement what level of verification was performed.

D.

C

Question ID: 27375 To be in compliance with the AIMR Performance Presentation Standards, a firm’s presentation of its investment performance must comply with all requirements on a:

A. B. C. D.

selective basis. firm-wide basis. case-by-case basis. composite basis.

B
To claim compliance, firms must meet all composite, calculation, presentation, and disclosure requirements of the AIMR-PPS on a firm-wide basic.

Question ID: 10465 All of the following concerning the presentation of performance are true EXCEPT:

A. B.

the number of portfolios in a composite must be disclosed. returns must be time weighted and calculated at least quarterly.

56

C.

composite returns should be restated following changes in a firm's organization. composite returns must include terminated portfolios for periods prior to termination.

D.

C

Question ID: 10462 Which of the following is NOT affected by the Performance Presentation Standards?

A. B. C. D.

CFA Charterholders Prospective clients Firms The SEC (Securities and Exchange Comission)

D

Question ID: 27377 Which of the following statements about AIMR Performance Presentation Standards is FALSE?

A. B.

A main topic of the AIMR-PPS is creation and maintenance of composites. A goal of the AIMR PPS is to bolster the notion of self-regulation. Firms must meet all composite, calculation, presentation, and disclosure requirements of the AIMR-PPS to claim compliance. The AIMR-PPS only affect investment firms in the industry.

C.

D.

D
The AIMR-PPS affect firms, AIMR members, CFA charterholders, CFA candidates, and prospective and current clients.
57

Question ID: 20184 The AIMR Performance Presentation Standards (PPS) are intended to do all of the following EXCEPT: enhance regulation by AIMR and the Securities and Exchange Commission (SEC). achieve greater uniformity and comparability among performance presentations. improve the service offered to investment management clients. enhance the professionalism of the industry.

A.

B.

C. D.

A
The PPS are intended to bolster the notion of self-regulation, not outwardly imposed regulation by AIMR or the SEC.

Question ID: 27378 All of the following statements about AIMR Performance Presentation Standards (AIMR-PPS) are true EXCEPT:

A. B.

The AIMR-PPS affect prospective and current clients among others. A goal of the AIMR-PPS is to enhance professionalism of the industry. The four main topics of the AIMR-PPS are creation and maintenance of composites, calculation of returns, presentation of results, and conclusions. To be in compliance with the AIMR-PPS, a firm's presentation of its

C.

D.

investment performance must comply with the requirements on a firm-wide basis.

C
The four main topics of the AIMR-PPS are creation and maintenance of composites, calculation of returns, presentation of results, and disclosures.

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