THROUGH 60 RELATE TO GIPS. REDLANDS CASE SCENARIO REDLAND...

Questions 55 through 60 relate to GIPS.

Redlands Case Scenario

Redlands Asset Management (RAM) is an active equity manager specializing in the

Asian Pacific region. The firm was founded by Carol Schroeder, CFA at the beginning

of 2006, with several members of her family serving as the firm’s first clients providing

the initial managed assets for the firm.

Schroeder has compiled the information in Exhibit 1 and plans to use it to market RAM

to institutional investors.

Exhibit 1

Redlands Asset Management GIPS Compliant Performance

Asia-Pacific Composite. (1/Jan/2006 thru 31/Dec/2008)

Year 2006 2007 2008

Return Gross of Fees 44.8% 66.9% 80.7%

Benchmark Return 43.1% 60.2% 85.6%

# of Portfolios 5 15 33

Composite Dispersion 6.7% 5.1%

350 760 1,630

Period Ending Total

Assets ($ millions)

% of Firm Assets 14% 25% 52%

Notes:

1. Performance results are presented gross-of fee so that they represent the return on

assets reduced by any trading expenses incurred during the period.

2. The Asia-Pacific composite includes two non-fee-paying accounts of the

Schroeder family.

3. A complete list and description of composites and their strategies, including any

that have been discontinued within the last five years, is available upon request.

4. Portfolio valuations are computed monthly and are denominated in US dollars.

5. RAM uses cash-basis accounting for the recognition of interest income on its

holdings of preferred stock.

6. The pricing source was changed prior to the end of the reporting period because,

in management’s opinion, performance was not fairly represented. The new

source has significantly improved the firm’s results.

7. RAM trades securities in illiquid markets with substantial political and economic

risks so trades are recorded on a settlement date basis to ensure that these trades

have been completed before they are included in performance calculations.

8. The composite presented above has been GIPS verified.

55. Which of the following performance presentation notes contains an error or

omission that is most likely to prevent RAM from being in compliance with the

GIPS standards?

A. Composite list availability.

B. Non-fee paying accounts disclosure.

C. Disclosure concerning discontinued composites.

56. Which of the following performance presentation notes most likely comply with

the recommendations and requirements of the GIPS standards?

A. Pricing source.

B. Cash-basis accounting.

C. Returns calculated gross of fees.

57. Which of the following performance presentation notes would least likely prevent

RAM from being in compliance with the GIPS standards?

A. Monthly valuations.

B. Non-fee paying accounts.

C. Settlement-date accounting.

58. Which of the following concerning fees in RAM’s performance presentation most

likely meets GIPS standards?

A. Gross of fee labeling.

B. The firm’s fee schedule.

C. The deduction of any other fees.

59. Does RAM’s performance presentation most likely meet GIPS standards

concerning dispersion?

A. Yes.

B. No, the method chosen must be disclosed.

C. No, the standard deviation must be presented.

By accessing this mock exam, you agree to the following terms of use: This mock exam is provided to

60. RAM’s verification most likely does not meet GIPS standards concerning

verification because:

A. composite verification is not allowed.

B. the minimum time period has not been met.

C. the calculation methodology must be disclosed.