Reading - 2 - LOS a, b: Q71-Q75 black, class

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71、Mason Dixon is an investment advisor with Vicki Lynn as a client. Lynn has expressed an interest in socially responsible investing and has expressed a desire to replace her international and small company funds with socially responsible funds. Dixon has research that indicates the Alpha International Fund and the Beta Small Company Fund are the best socially responsible funds in their class. He believes the Alpha fund will likely have slightly lower performance than the current international fund, but the Beta fund will have significantly worse performance than the current small company fund. Moreover, Dixon has research that supports the contention that socially responsible funds as a group will underperform regular funds. Dixon:

A)   must explain the research to Lynn and tell her that he cannot as her advisor purchase either fund without violating his fiduciary duty.

B)   can purchase the funds without explaining the research to Lynn.

C)   must explain the research to Lynn, who can purchase the funds if she still feels comfortable with these investments.

D)   must explain the research to Lynn and tell her that he cannot as her advisor purchase the Beta fund without violating his fiduciary duty, but he can purchase the Alpha fund.

 

72、Denise Weaver is a portfolio manager who manages a mutual fund and has pension clients. When Weaver receives a proxy for stock in the mutual fund, she gives it to Susan Griffith, her administrative assistant, to complete. When the proxy is for a stock owned in a pension plan, she asks Griffith to send the proxy on to the director of the pension fund. Weaver has:

A)   violated the Standards by her policy on pension fund proxies, but not her policy on mutual fund proxies.

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

C)   violated the Standards by her policy on mutual fund proxies, but not her policy on pension fund proxies.

D)   not violated the Standards.

 

73、Member compliance on issues relating to corporate governance or to soft dollars is primarily addressed by the Standard concerning:

A)   Fair Dealing.

B)   Disclosure of Conflicts to Clients and Prospects.

C)   Disclosure of Referral Fees.

D)   Loyalty, Prudence, and Care.

 

74、Travis 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 CFA Institute Standards of Professional Conduct, which of the following actions is Brown required to take?

A)   Brown must credit both Dixon and S & P.

B)   Brown must credit S & P, no need to credit Dixon.

C)   Brown must credit Dixon, no need to credit S & P.

D)   Brown need not credit either Dixon or S & P.

 

75、Joan Platt, CFA, operates an investment firm in New York, but maintains an office in Xania. Platt’s firm invests on its clients’ behalf in both domestic and international stocks and bonds. Platt’s employees include two analysts, Paula Linstrom, CFA, and Hershel Wadel, a member of the CFA Institute. Both analysts report to Platt directly. Thorvald Knudsen, CFA, manages the international bond portfolio.

Xania recently established a stock market, which is not very efficient. None of the Xanian stocks trade in the U.S. market. Xania legally permits the use of material inside information. Platt believes that using inside information would help her compete against other Xanian investment advisers, and also help some of her Xanian clients reach their investment objectives.

Platt instructs Wadel to write a research report on Gamma Company. Wadel's wife inherited 500 shares of Gamma Company from her father when he died five years ago. Gamma stock currently sells for $35 a share. Wadel does not believe that informing Platt about his wife's inheritance is necessary.

Doris Black, one of Wadel's long-time clients, verbally promised Wadel that he could use her vacation home in Aspen, Colo., for a week during skiing season if the return on her portfolio exceeded its benchmark by two percentage points during the next year. Black also promised to reimburse Wadel for his travel expenses. Because Wadel is the sole manager of Black’s portfolio, he says nothing to Platt about his arrangement with Black.

Platt instructs Linstrom to write a research report on Delta Enterprises. Delta's stock is widely held by institutional and individual investors. Linstrom does not own any Delta shares, though one of her friends owns 100 shares of Delta. Linstrom does not believe that informing Platt about her friend's ownership of Delta shares is necessary.

Linstrom has a client, Mandy Miller, with a large account. Miller has set a return goal for her portfolio, promising Linstrom that if the portfolio exceeded the target return, she would let Linstrom use her time-share in St. Maarten in December. Linstrom sent an e-mail to Platt describing Miller’s promise to her. Platt promptly replied to her email granting her permission to enter the agreement.

In February, Linstrom was able to arrange for the purchase of Brady Company bonds at a significant discount to market value. The purchase was made in three blocks at 13 percent, 15 percent, and 12 percent discounts to market value. Linstrom allocated the 15 percent discount block to Miller’s account and the balance to her remaining clients.

Knudsen’s uncle, Gustaf Jensen, owns a construction firm that has extra cash. When Jensen saw Knudsen at a family event last November, he asked Knudsen to give him advice about purchasing domestic bonds for the construction firm. In exchange for the advice, the construction firm would pay Knudsen $5,000 per year. At the same event, Knudsen’s aunt, Hanna Jorgensen, approached Knudsen and asked if he would manage Jorgensen’s apartment building for a fee of 10 percent of the gross rents. Knudsen agreed to both Jensen’s and Jorgensen’s proposals. Knudsen informed Platt of Jensen’s request, but not about the Jorgensen arrangement.

Platt suspects that one of the firm’s unpaid interns has violated a federal securities regulation.

Which of the following statements about Linstrom and Wadel's conduct regarding their research reports is TRUE?

A)   Wadel did not violate Standard VI(A): Disclosure of Conflicts, and Linstrom did violate Standard VI(A).

B)   Neither Linstrom nor Wadel violated Standard VI(A): Disclosure of Conflicts.

C)   Wadel violated Standard VI(A): Disclosure of Conflicts, and Linstrom did not violate Standard VI(A).

D)   Both Linstrom and Wadel violated Standard VI(A): Disclosure of Conflicts.

 

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71、Mason Dixon is an investment advisor with Vicki Lynn as a client. Lynn has expressed an interest in socially responsible investing and has expressed a desire to replace her international and small company funds with socially responsible funds. Dixon has research that indicates the Alpha International Fund and the Beta Small Company Fund are the best socially responsible funds in their class. He believes the Alpha fund will likely have slightly lower performance than the current international fund, but the Beta fund will have significantly worse performance than the current small company fund. Moreover, Dixon has research that supports the contention that socially responsible funds as a group will underperform regular funds. Dixon:

A)   must explain the research to Lynn and tell her that he cannot as her advisor purchase either fund without violating his fiduciary duty.

B)   can purchase the funds without explaining the research to Lynn.

C)   must explain the research to Lynn, who can purchase the funds if she still feels comfortable with these investments.

D)   must explain the research to Lynn and tell her that he cannot as her advisor purchase the Beta fund without violating his fiduciary duty, but he can purchase the Alpha fund.

The correct answer was C)

Lynn is in effect establishing a constraint that Dixon must respect in formulating her portfolio. As long as she has full knowledge of the economic consequences, Dixon can continue as her advisor.

72、Denise Weaver is a portfolio manager who manages a mutual fund and has pension clients. When Weaver receives a proxy for stock in the mutual fund, she gives it to Susan Griffith, her administrative assistant, to complete. When the proxy is for a stock owned in a pension plan, she asks Griffith to send the proxy on to the director of the pension fund. Weaver has:

A)   violated the Standards by her policy on pension fund proxies, but not her policy on mutual fund proxies.

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

C)   violated the Standards by her policy on mutual fund proxies, but not her policy on pension fund proxies.

D)   not violated the Standards.

The correct answer was B)

Proxies should be taken seriously, and although it is likely that Griffith can understand some of the issues, it is likely that she is not capable of making responsible decisions on all potential proxy issues. Proxies for a pension plan should be voted in the best interests of the beneficiaries, not the plan sponsor. The sponsor's interests will not always be the same as the beneficiary's interest.

73、Member compliance on issues relating to corporate governance or to soft dollars is primarily addressed by the Standard concerning:

A)   Fair Dealing.

B)   Disclosure of Conflicts to Clients and Prospects.

C)   Disclosure of Referral Fees.

D)   Loyalty, Prudence, and Care.

The correct answer was D)

Fiduciary duty on issues relating to corporate governance or to soft dollars is primarily addressed by Standard III(A), Loyalty, Prudence, and Care.

74、Travis 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 CFA Institute Standards of Professional Conduct, which of the following actions is Brown required to take?

A)   Brown must credit both Dixon and S & P.

B)   Brown must credit S & P, no need to credit Dixon.

C)   Brown must credit Dixon, no need to credit S & P.

D)   Brown need not credit either Dixon or S & P.

The correct answer was C)

The Standards require members to acknowledge the author of a model, but members are not required to acknowledge information from a recognized statistical and reporting service.

75、Joan Platt, CFA, operates an investment firm in New York, but maintains an office in Xania. Platt’s firm invests on its clients’ behalf in both domestic and international stocks and bonds. Platt’s employees include two analysts, Paula Linstrom, CFA, and Hershel Wadel, a member of the CFA Institute. Both analysts report to Platt directly. Thorvald Knudsen, CFA, manages the international bond portfolio.

Xania recently established a stock market, which is not very efficient. None of the Xanian stocks trade in the U.S. market. Xania legally permits the use of material inside information. Platt believes that using inside information would help her compete against other Xanian investment advisers, and also help some of her Xanian clients reach their investment objectives.

Platt instructs Wadel to write a research report on Gamma Company. Wadel's wife inherited 500 shares of Gamma Company from her father when he died five years ago. Gamma stock currently sells for $35 a share. Wadel does not believe that informing Platt about his wife's inheritance is necessary.

Doris Black, one of Wadel's long-time clients, verbally promised Wadel that he could use her vacation home in Aspen, Colo., for a week during skiing season if the return on her portfolio exceeded its benchmark by two percentage points during the next year. Black also promised to reimburse Wadel for his travel expenses. Because Wadel is the sole manager of Black’s portfolio, he says nothing to Platt about his arrangement with Black.

Platt instructs Linstrom to write a research report on Delta Enterprises. Delta's stock is widely held by institutional and individual investors. Linstrom does not own any Delta shares, though one of her friends owns 100 shares of Delta. Linstrom does not believe that informing Platt about her friend's ownership of Delta shares is necessary.

Linstrom has a client, Mandy Miller, with a large account. Miller has set a return goal for her portfolio, promising Linstrom that if the portfolio exceeded the target return, she would let Linstrom use her time-share in St. Maarten in December. Linstrom sent an e-mail to Platt describing Miller’s promise to her. Platt promptly replied to her email granting her permission to enter the agreement.

In February, Linstrom was able to arrange for the purchase of Brady Company bonds at a significant discount to market value. The purchase was made in three blocks at 13 percent, 15 percent, and 12 percent discounts to market value. Linstrom allocated the 15 percent discount block to Miller’s account and the balance to her remaining clients.

Knudsen’s uncle, Gustaf Jensen, owns a construction firm that has extra cash. When Jensen saw Knudsen at a family event last November, he asked Knudsen to give him advice about purchasing domestic bonds for the construction firm. In exchange for the advice, the construction firm would pay Knudsen $5,000 per year. At the same event, Knudsen’s aunt, Hanna Jorgensen, approached Knudsen and asked if he would manage Jorgensen’s apartment building for a fee of 10 percent of the gross rents. Knudsen agreed to both Jensen’s and Jorgensen’s proposals. Knudsen informed Platt of Jensen’s request, but not about the Jorgensen arrangement.

Platt suspects that one of the firm’s unpaid interns has violated a federal securities regulation.

Which of the following statements about Linstrom and Wadel's conduct regarding their research reports is TRUE?

A)   Wadel did not violate Standard VI(A): Disclosure of Conflicts, and Linstrom did violate Standard VI(A).

B)   Neither Linstrom nor Wadel violated Standard VI(A): Disclosure of Conflicts.

C)   Wadel violated Standard VI(A): Disclosure of Conflicts, and Linstrom did not violate Standard VI(A).

D)   Both Linstrom and Wadel violated Standard VI(A): Disclosure of Conflicts.

The correct answer was C)

Wadel violated Standard VI(A) by not disclosing his wife’s holdings, but Linstrom is not in violation of the Standard, as a friend’s ownership of the shares should not be expected to impair her ability to make objective decisions.