Question #1 of 25 Question ID: 1212311

Jack Stevens is employed by a company to provide investment advice to participants in the rm's 401(k)

plan. One of the investment options is a stable value fund run by the company. Stevens' research indicates

that the fund is far riskier and less liquid than the typical stable value fund and has a fundamental asset
value lower than the book value of the assets. He tells Jessica Cox, the head of employee bene ts, about

his research, and indicates that he will advise new employees to not invest in the fund and will advise

employees who already own the fund to reduce their holdings in the fund. Cox points out that the fund is

not in any current danger because there are very few redemptions requested of the fund. Cox also states

that a sell recommendation may become a self ful lling prophecy, causing investors to redeem their

shares and forcing the fund to liquidate, which in turn will cause the remaining investors to receive less

than their promised value. Stevens agrees with this assessment and feels his duciary duty is to all

employees. Stevens should:

A) continue to recommend that new investors do not invest in the fund and existing investors reduce
their holdings.

B) tell investors he cannot give advice on the fund because of a con ict of interest.

C) continue to recommend that new investors do not invest in the fund, but not advise existing
investors to reduce their holdings.

Question #2 of 25 Question ID: 1207877

When a rm seeks to allocate a disproportionate number of shares of a hot IPO to performance-based fee

accounts this constitutes a violation of the Standard concerning:

A) priority of transactions.

B) duciary duty.

C) additional compensation arrangements.

Question #3 of 25 Question ID: 1207861

All of the following would be e ective components of a formal compliance system EXCEPT:

A) as a duciary under ERISA, the rm will strictly follow pension plan instructions and restrictions,
which may include concentrating portfolios in a few securities or industries.

B) the rm prohibits analysts and portfolio managers from using material nonpublic information in
making investment recommendations or taking investment action.

C) the investor's objectives and constraints should be maintained and reviewed periodically to re ect
any changes in the client's circumstances.
Question #4 of 25 Question ID: 1212322

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

A) client.

B) brokerage rm conducting the trades.

C) managing rm.

Question #5 of 25 Question ID: 1212324

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

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

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

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

Question #6 of 25 Question ID: 1212320

Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. Calaveccio places
a trade with Quantco Brokerage. While Calaveccio's part of the transaction was conveyed correctly to
Quantco, there was a trading error made in Calaveccio's account due to a slip up within Quantco.
Calaveccio realizes that the error has taken place, and informs his contact at Quantco. Calaveccio allows

Quantco to cover the error, with no cost to TrustCo. This is:

A) a violation of Calaveccio's duciary duties.

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

C) permissible under CFA Institute Standards.

Question #7 of 25 Question ID: 1212310

Which of the following statements about a member's use of client brokerage commissions is NOT correct?
Client brokerage commissions:

A) should be used by the member to ensure that fairness to the client is maintained.

B) should be commensurate with the value of the brokerage and research services received.
C) may be directed to pay for the investment manager's operating expenses.

Question #8 of 25 Question ID: 1212318

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

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

A) not in violation of the Code and Standards.

B) in violation of his duciary duties regarding both the small cap research and the municipal bond
research.

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

Question #9 of 25 Question ID: 1207858

June Bird is a pension consultant asked to advise on the Backwater County Pension Plan. Bird notices that
20 percent of the plan's assets are invested in privately held local businesses. Bird is concerned about the
lack of liquidity and diversi cation caused by such an investment. She learns that state law allows
investing in local businesses and county law requires at least one- fth of the plan's assets to be dedicated

to investing in local businesses. Bird:

A) should le a written complaint to the Department of Labor pointing out that the law is in con ict
with the Employee Retirement Income Security Act (ERISA).

B) can continue to advise the pension plan as best she can with the restrictions.

C) should recommend that the trustees resign or risk being sued for violating the Prudent Expert
Rule.

Question #10 of 25 Question ID: 1207873

Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades
for the fund with Canadian Brokerage. Canadian provides Calaveccio with soft dollars to purchase
research. He uses these soft dollars to get research reports from Canadian's research department
regarding the issues currently held in the small cap portfolio, and also for rms he is contemplating adding
to the portfolio. By using soft dollars in this manner, Calaveccio has:
A) violated the Code and Standards by acquiring research on issues that the fund already holds but
not by acquiring research on issues contemplated for purchase.

B) not violated the Code and Standards.

C) violated the Code and Standards by acquiring research on issues contemplated for purchase but
not by acquiring research on currently held issues.

Question #11 of 25 Question ID: 1207857

Which of the following statements about soft dollars is least accurate?

A) Soft dollars are assets of the client.

B) Directed brokerage are soft dollars to be used for research that bene ts the investment rm.

C) Soft dollars are third party research arrangements.

Question #12 of 25 Question ID: 1212312

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

portfolio manager of the plan to invest more aggressively to bring the funding level up to an adequate
amount. Which of the following statements best describes the course of action the portfolio manager
should take? The portfolio manager should:

A) not invest more aggressively since this may expose the plan to too much risk and may not be in
the best interest of the plan's bene ciaries.

B) not invest more aggressively because this is not the method used to increase the funding level of
a plan.

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

Question #13 of 25 Question ID: 1212325

An independent analyst has only one client. One of the client's largest holdings is a brokerage rm.

Because of the large holding by his client, the brokerage rm recently began allowing the analyst to tap
into the rm's computer network to use the rm's research facilities. This is allowable as long as the
analyst:

A) does both of the actions listed here.

B) uses the resources to help manage the client's account.

C) discloses the relationship to the client.

Which of the following would be the least important proxy issue?

A) Election of internal auditors.

B) Compensation plans for o cers.

C) Takeover defense and related actions.

Question #15 of 25 Question ID: 1212317

Sharon Pope has been asked by the Chief Investment O cer to develop a rm-wide policy for proxy

voting. Which of the following would NOT be acceptable to include in the policy statement?

A) Portfolio managers of active funds must vote in all proxies; portfolio managers of index funds
should vote only when they have a de nitive opinion.

B) The value of proxy voting must be maximized.

C) Voting proxies may not be necessary in all instances.

Question #16 of 25 Question ID: 1212319

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

A) act solely in the interest of the ultimate bene ciaries.

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

C) support the sponsor's management during proxy ghts.

Question #17 of 25 Question ID: 1212323

Alan Cramer, CFA, practices in a country that does not regulate the investment of company retirement
plans. He was retained by Bingham Companies to manage their corporate pension plan. Bingham's

management has approached Cramer and requested that Cramer invest the entire plan in Bingham stock.

Cramer may:

A) not invest any of Bingham Company's retirement plan in its own stock regardless of the stock's
prospects and in spite of management's request.
B) invest all of the retirement plan assets in Bingham Company stock according to management's
request only if Cramer can document that the investment is more prudent than any other
i i h d
C) invest a portion of the retirement plan in Bingham Company stock if the investment is prudent
and if he keeps the overall portfolio properly diversi ed.

Question #18 of 25 Question ID: 1207855

Perley & Sons is an investment advisor company that just signed a contract with full discretionary power
for the management of assets for Bright Future, a charitable fund. Without consultation, portfolio
manager Martin Brown, CFA, decides to trade the funds' assets through a brokerage rm that provides, as

an additional bene t, research reports for companies in the microchip industry. These companies
represent the main investment interest for most of the Perley & Sons clients. The Bright Future portfolio
does not hold any equities in the microchip industry, and, because of its risk pro le, is unlikely to ever do
so. Which of the following activities represents a possible breach with the CFA Institute standards?

A) Accepting research reports from the brokerage rm that do not bene t client portfolios.

B) Lack of action in consulting with the client before choosing the brokerage rm.

C) Exercising a selection principle that does not comply with the idea of best trade price and
execution.

Question #19 of 25 Question ID: 1207878

Mohawk Asset Management buys on-the-run Treasuries at auction for its standard fee accounts. When
these move o -the-run, they are placed in performance-based accounts via in-house cross-trades at
prevailing market prices, and replaced in the standard fee accounts with new on-the-run issues. Which
standard is violated, if any?

A) The Standard concerning Fiduciary Duty.

B) The Standard concerning Priority of Transactions.

C) No Standard is violated.

Question #20 of 25 Question ID: 1207860

Jordan Conomos is the new trustee for the Grant Trust, which has both current bene ciaries and
remaindermen. Up until now, the trust has been entirely invested in long-term tax-free municipal bonds.
Conomos decides to put 30 percent of the assets in common stocks, with the justi cation that taxes
should be the concern of the trust bene ciaries and not the trust, and the trust needs some diversi cation
and growth. Conomos is:
A) violating his duciary duty by not considering taxes.

B) not violating his duciary duty.

C) violating his duciary duty by not investing solely for the purposes of the current bene ciaries.

Question #21 of 25 Question ID: 1212314

Paul Drake is employed by a company to provide investment advice to participants in the rm's 401(k)
plan. Company stock is one of the investment options in the plan. Drake feels that the stock is too risky for
employees to own in their 401(k) plan and starts advising them to pull out of the stock. The Treasurer of
the company calls Drake and tells him that he will be red if he continues making such advice because he
is violating his duciary duty to the company. Drake should:

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

B) continue to advise employees to sell their stock.

C) make sell recommendations but point out that the company Treasurer has a di ering and valid
point of view.

Question #22 of 25 Question ID: 1212321

Regarding (1) not voting all client proxies, and (2) using a directed brokerage arrangement, a member
would violate the Standards by:

A) engaging in neither of these practices.

B) using a directed brokerage arrangement.

C) not voting all proxies for client stocks.

Question #23 of 25 Question ID: 1212316

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

A) Loyalty, Prudence, and Care.

B) Disclosure of Con icts to Clients and Prospects.

C) Disclosure of Referral Fees.

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

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

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

C) not violated the Standards.

Question #25 of 25 Question ID: 1212313

Brenda Simone is a money manager and the Blue Streets Pension Fund is one of her clients. The director
of the pension fund calls Simone and asks her to use a particular broker so that the fund can obtain some
research services with the soft dollars from that broker. Simone believes that the desired broker will
provide the same price and execution as the normal broker that Simone uses. Simone does as the client
wishes. Simone has:

A) not violated the Standards as long as the research provided by the broker will bene t Blue Streets.

B) not violated the Standards as long as the research provided by the broker will bene t the plan
bene ciaries.

C) violated the Standards.