41、Patricia Hoolihan is an individual investment advisor who uses mutual funds for her clients. She typically chooses funds from a list of 40 funds that she has thoroughly researched. The Burns, a married couple that are a client, asked her to consider the Hawkeye fund for their portfolio. Hoolihan had not previously considered the fund because when she first conducted her research three years ago, Hawkeye was too small to be considered. However, the fund has now grown in value, and cursory research uncovers no fundamental flaws with the fund. She puts the fund in the Burns' portfolio but not in any of her other clients' portfolios. The fund ends up being the best performing fund on her list. Hoolihan has:

A)   violated the Standards by not having a reasonable and adequate basis for making the recommendation.

B)   not violated the Standards.

C)   violated the Standards by not maintaining independence and objectivity.

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

42、One year ago, Karen Jason left the employment as a portfolio manager of Howe Advisors. The departure was contentious and both parties threatened legal action. As a result, both parties signed a settlement in which Jason was paid a pro rated bonus, but agreed not to work on the portfolios of any existing Howe client for two years. The terms of the agreement were that both parties agreed to keep all aspects of the agreement confidential, including the fact that there was hostility surrounding the departure. Jason now works for Torre Advisors, who has the Stein Company as a new client. At the time Jason left Howe, Stein was a client of Howe, although Jason did not personally work on the Stein portfolio. Jason's supervisor at Torre wants Howe to work on the Stein portfolio. Jason should:

A)   work on the portfolio because she did not personally work on the portfolio when she was at Howe.

B)   inform her supervisor that she cannot work on the portfolio because of a non-compete agreement.

C)   inform her supervisor that she cannot work on the portfolio because of a legal agreement, but cannot tell him why.

D)   leave the employment of Torre because of a conflict of interest.

43、Scott Andrews, CFA, is a stockbroker selling an oversubscribed stock issue. Which of the following best describes Andrews' actions regarding this sale? Andrews:

A)   can offer this security on a prorated basis to all clients for which the security is appropriate.

B)   can offer this security to all clients on a first come first serve basis.

C)   can only offer this security to clients for which it is appropriate on a first come first serve basis.

D)   cannot offer an oversubscribed issue of stock to any clients.

44、The following information pertains to the Galaxy Trust, a trust established by Stephen P. House and managed by Gamma Investment LLC:

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

§ Gamma has been asked to view his funds and the trust as a single entity for planning purposes, since House’s will stipulates that all of his estate will pass to the trust upon his death.

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

§ House was able to sell all of his Oracle shares back to the corporation in January 1999 for cash.

§ The policy statement redrawn in September 1999 continues to stipulate that the trust hold a short position in Oracle stock.

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

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

A)   in violation of the Code and Standards by not properly updating the investment policy statement in light of the change in the circumstances and is in violation with regard to the acceptance of the gift from House.

B)   in violation of the Code and Standards by not properly updating the investment policy statement in light of the change in the circumstances but is not in violation with regard to the acceptance of the gift from House.

C)   not in violation of the Code and Standards for not properly updating the investment policy statement in light of the change in the circumstances and is not in violation with regard to the acceptance of the gift from House.

D)   not in violation of the Code and Standards for not properly updating the investment policy statement in light of the change in the circumstances but is in violation with regard to the acceptance of the gift from House.

45、Greg Hartsburg, a CFA charterholder, is a leading health-care industry analyst for Reynolds and Co., a New York-based brokerage firm. He has ten years of industry experience and has appeared on the Wall Street Journal’s roster of all-star analysts for four straight years. 

Hartsburg initiates coverage on Northern Lights Medical Equipment, a Minnesota-based company that designs medical equipment. Hartsburg owns shares of Northern Lights in his personal trading account, a stake of which his company is aware.

Maria Voltaire, a junior analyst, has asked the senior analyst to help her prepare for the 2005 Level III CFA exam. He makes himself available to answer her questions on specific topics during the course of her study and gives her two days off, with pay, to study during the week before the exam. He also discusses with her in detail his recollection of the topical areas covered on the 2003 Level III exam, which he took and passed.

One of Reynolds’ traders tells Hartsburg that he believes Voltaire is trading in her own account based on information she gathers from research reports written by analysts in the office before the reports are publicly released.

Hartsburg attends an analysts’ conference in Toronto. At dinner he is seated close to a table that includes a number of leading analysts in the health-care industry. Hartsburg overhears parts of the conversation, in which the group discusses new trends in the health-care industry as a result of the changing political climate in Washington. The consensus at the table is that trends in the industry are favorable over the next four or five years.

Hartsburg has been in the process of preparing his own detailed industry analysis in which he reaches similar conclusions. The conversation he overhears confirms his own analysis, though one of the analysts, Phil Houston, makes some points about competition in the medical-device area that Hartsburg had not considered. On the plane home that evening, Hartsburg rereads the financial statements of two companies he covers, then concludes that Houston’s points about competition are telling. 

When he returns home, Hartsburg completes his industry report. In the report he wants to use Houston’s ideas. But Houston works for a rival firm, and as a matter of policy, Reynolds does not refer to rival companies in its reports. So Hartsburg pulls some numbers from 10-K reports for context, starts with Houston’s premise, and makes a similar point in his own words. 

Hartsburg is planning to leave Reynolds at the end of the month to take a position as a portfolio manager at Lone Pine Investments. He has disclosed to Reynolds, in the form of an e-mail message to his supervisor, his intention to take with him to his new position a fundamental factor model that he developed before coming to Reynolds and further refined during his time at Reynolds. 

He also discloses plans to take with him three sample client investment policy statements (with the client names eliminated) to use as templates in the development of policy statements for his new clients at Lone Pine. In the e-mail to his supervisor, Hartsburg promises he will not solicit the business of these three clients.

Reynolds hires an outside firm to create a company website. Hartsburg is featured in promotional materials touting the firm’s performance. The material reads, in part, “Greg Hartsburg is a Chartered Financial Analyst (CFA) with 10 years of experience in the investment industry. He has appeared on the Wall Street Journal’s roster of all-star analysts for four years in a row.”

With respect to the allegation that Voltaire is front-running research recommendations, Hartsburg’s first priority, under CFA Institute Standard IV(C) concerning supervisory responsibilities, should be to:

A)   freeze Voltaire’s trading account and begin documenting her conduct as a precursor to possible termination.

B)   report the situation to his supervisor.

C)   promptly initiate an investigation.

D)   discuss with Voltaire how her actions may violate the fair-dealing standard and warn her that she could be fired if it happens again.

41、Patricia Hoolihan is an individual investment advisor who uses mutual funds for her clients. She typically chooses funds from a list of 40 funds that she has thoroughly researched. The Burns, a married couple that are a client, asked her to consider the Hawkeye fund for their portfolio. Hoolihan had not previously considered the fund because when she first conducted her research three years ago, Hawkeye was too small to be considered. However, the fund has now grown in value, and cursory research uncovers no fundamental flaws with the fund. She puts the fund in the Burns' portfolio but not in any of her other clients' portfolios. The fund ends up being the best performing fund on her list. Hoolihan has:

A)   violated the Standards by not having a reasonable and adequate basis for making the recommendation.

B)   not violated the Standards.

C)   violated the Standards by not maintaining independence and objectivity.

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

The correct answer was A)     

Despite the fact the addition of the fund was successful, Hoolihan acted improperly in not conducting the same degree of research as she did for the other funds on her list.

42、One year ago, Karen Jason left the employment as a portfolio manager of Howe Advisors. The departure was contentious and both parties threatened legal action. As a result, both parties signed a settlement in which Jason was paid a pro rated bonus, but agreed not to work on the portfolios of any existing Howe client for two years. The terms of the agreement were that both parties agreed to keep all aspects of the agreement confidential, including the fact that there was hostility surrounding the departure. Jason now works for Torre Advisors, who has the Stein Company as a new client. At the time Jason left Howe, Stein was a client of Howe, although Jason did not personally work on the Stein portfolio. Jason's supervisor at Torre wants Howe to work on the Stein portfolio. Jason should:

A)   work on the portfolio because she did not personally work on the portfolio when she was at Howe.

B)   inform her supervisor that she cannot work on the portfolio because of a non-compete agreement.

C)   inform her supervisor that she cannot work on the portfolio because of a legal agreement, but cannot tell him why.

D)   leave the employment of Torre because of a conflict of interest.

The correct answer was C)

Jason must inform her supervisor of the conflict, but she cannot violate the terms of the confidentiality agreement and she cannot work on the portfolio.

43、Scott Andrews, CFA, is a stockbroker selling an oversubscribed stock issue. Which of the following best describes Andrews' actions regarding this sale? Andrews:

A)   can offer this security on a prorated basis to all clients for which the security is appropriate.

B)   can offer this security to all clients on a first come first serve basis.

C)   can only offer this security to clients for which it is appropriate on a first come first serve basis.

D)   cannot offer an oversubscribed issue of stock to any clients.

The correct answer was A)

Standard III(B), Fair Dealing, applies. When new issues or secondary offerings are available or are being offered by the firm or if the firm is part of a selling syndicate, all clients for whom the security is appropriate are to be offered a chance to take part in the issue. If the issue is oversubscribed, then the issue is to be prorated to all subscribers.

44、The following information pertains to the Galaxy Trust, a trust established by Stephen P. House and managed by Gamma Investment LLC:

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

§ Gamma has been asked to view his funds and the trust as a single entity for planning purposes, since House’s will stipulates that all of his estate will pass to the trust upon his death.

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

§ House was able to sell all of his Oracle shares back to the corporation in January 1999 for cash.

§ The policy statement redrawn in September 1999 continues to stipulate that the trust hold a short position in Oracle stock.

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

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

A)   in violation of the Code and Standards by not properly updating the investment policy statement in light of the change in the circumstances and is in violation with regard to the acceptance of the gift from House.

B)   in violation of the Code and Standards by not properly updating the investment policy statement in light of the change in the circumstances but is not in violation with regard to the acceptance of the gift from House.

C)   not in violation of the Code and Standards for not properly updating the investment policy statement in light of the change in the circumstances and is not in violation with regard to the acceptance of the gift from House.

D)   not in violation of the Code and Standards for not properly updating the investment policy statement in light of the change in the circumstances but is in violation with regard to the acceptance of the gift from House.

The correct answer was B)

The investment manager is in violation of the Standard requiring him to make a reasonable inquiry into the client’s financial situation and update the investment policy statement since such a dramatic change in the client’s circumstances would undoubtedly alter the investment policy statement and would probably eliminate the need to hold a short position in Oracle. The investment manager is not in violation of the Standard concerning additional compensation, since the gift has been reported to his supervisor and has come from a client. If there was a failure to report such a gift, if the firm had a rule in place against the acceptance of gifts from clients, or if the gift had come from a non-client, there would be a violation of the standard.

45、Greg Hartsburg, a CFA charterholder, is a leading health-care industry analyst for Reynolds and Co., a New York-based brokerage firm. He has ten years of industry experience and has appeared on the Wall Street Journal’s roster of all-star analysts for four straight years. 

Hartsburg initiates coverage on Northern Lights Medical Equipment, a Minnesota-based company that designs medical equipment. Hartsburg owns shares of Northern Lights in his personal trading account, a stake of which his company is aware.

Maria Voltaire, a junior analyst, has asked the senior analyst to help her prepare for the 2005 Level III CFA exam. He makes himself available to answer her questions on specific topics during the course of her study and gives her two days off, with pay, to study during the week before the exam. He also discusses with her in detail his recollection of the topical areas covered on the 2003 Level III exam, which he took and passed.

One of Reynolds’ traders tells Hartsburg that he believes Voltaire is trading in her own account based on information she gathers from research reports written by analysts in the office before the reports are publicly released.

Hartsburg attends an analysts’ conference in Toronto. At dinner he is seated close to a table that includes a number of leading analysts in the health-care industry. Hartsburg overhears parts of the conversation, in which the group discusses new trends in the health-care industry as a result of the changing political climate in Washington. The consensus at the table is that trends in the industry are favorable over the next four or five years.

Hartsburg has been in the process of preparing his own detailed industry analysis in which he reaches similar conclusions. The conversation he overhears confirms his own analysis, though one of the analysts, Phil Houston, makes some points about competition in the medical-device area that Hartsburg had not considered. On the plane home that evening, Hartsburg rereads the financial statements of two companies he covers, then concludes that Houston’s points about competition are telling. 

When he returns home, Hartsburg completes his industry report. In the report he wants to use Houston’s ideas. But Houston works for a rival firm, and as a matter of policy, Reynolds does not refer to rival companies in its reports. So Hartsburg pulls some numbers from 10-K reports for context, starts with Houston’s premise, and makes a similar point in his own words. 

Hartsburg is planning to leave Reynolds at the end of the month to take a position as a portfolio manager at Lone Pine Investments. He has disclosed to Reynolds, in the form of an e-mail message to his supervisor, his intention to take with him to his new position a fundamental factor model that he developed before coming to Reynolds and further refined during his time at Reynolds. 

He also discloses plans to take with him three sample client investment policy statements (with the client names eliminated) to use as templates in the development of policy statements for his new clients at Lone Pine. In the e-mail to his supervisor, Hartsburg promises he will not solicit the business of these three clients.

Reynolds hires an outside firm to create a company website. Hartsburg is featured in promotional materials touting the firm’s performance. The material reads, in part, “Greg Hartsburg is a Chartered Financial Analyst (CFA) with 10 years of experience in the investment industry. He has appeared on the Wall Street Journal’s roster of all-star analysts for four years in a row.”

With respect to the allegation that Voltaire is front-running research recommendations, Hartsburg’s first priority, under CFA Institute Standard IV(C) concerning supervisory responsibilities, should be to:

A)   freeze Voltaire’s trading account and begin documenting her conduct as a precursor to possible termination.

B)   report the situation to his supervisor.

C)   promptly initiate an investigation.

D)   discuss with Voltaire how her actions may violate the fair-dealing standard and warn her that she could be fired if it happens again.

The correct answer was C)     

Standard IV(C) calls for supervisors to “prevent any violation of applicable statutes, regulation, or provisions of the Code and Standards.” While reporting the situation to a superior and discussing the situation with Voltaire are good ideas, he should first investigate the situation to see if these actions are warranted. Freezing Voltaire’s trading account is premature, as Hartsburg has not yet investigated the situation to find out whether a violation is actually taking place.