THE PAIR OF SWAPS SHARMA SHOULD MOST LIKELY DESCRIBE ARE

18. The pair of swaps Sharma should most likely describe are:

Ng Case Scenario

Katherine Ng, a Global Investment Performance Standards (GIPS) specialist, has been

hired as a consultant to assist Rune Managers in becoming a GIPS-compliant firm.

Rune is a global asset manager with several divisions around the world that invest in

both stock and bond strategies. James Arnott, a performance specialist at Rune, is

responsible for the project. In their first meeting, Ng and Arnott discuss the GIPS

standards and the steps Rune will need to take to become compliant.

Ng recommends starting with the definition of the firm. She tells Arnott how the firm

is defined will affect the process for compliance and that the Standards recommend

the firm be defined as broadly as possible. Arnott replies that Rune managers have

been discussing the firm definition and they want their definition to include all Rune

divisions except their European division, Rune Europe. Rune Europe has its own

strategies and management team that are distinct from the rest of Rune. Ng replies

that the Rune Europe division should be included in the definition of the firm because

the division markets itself as part of Rune Managers.

Ng then asks about Rune's policies for the inclusion of portfolios in composites.

Arnott responds that Rune has the following policies for all composites:

Policy 1: All new accounts funded with cash or securities on or before the 10th day of

the month are added to the composite at the beginning of the following month. Those

funded after the 10th day of the month are added at the beginning of the 2nd month

after funding or at the beginning of the calendar month after the proceeds have been

substantially invested in the appropriate strategy. Policy 2: All portfolios are deemed

"nondiscretionary" on the date the notice of termination of the management

relationship is received and removed from the composite at the end of the month of

notification.

The discussion then moves on to a new composite Rune is constructing. Arnott tells

Ng that the marketing department has decided to target domestic Swiss investors and

would like to carve out the Swiss portion of international and global accounts for the

period of 1 January 2006 through 1 January 2011 and allocate cash to each carve-out

segment to create a Swiss franc (CHF) composite. Ng responds that this new

composite will comply with the standards, but Rune will be required to disclose the

percent of composite assets that are carve-outs for each annual period end and the

policy used to allocate cash to the carve-out segments.

Arnott interjects that the marketing department is looking forward to claiming GIPS

compliance in advertisements. He is meeting with the marketing department and asks

Ng what they need to be aware of regarding the GIPS standards in advertising. Ng

responds that there are several requirements in the GIPS Advertising Guidelines.

Specifically, the following must be disclosed in the advertisements: the firm

description, composite and benchmark descriptions, and the number of accounts in the

composite.

Arnott and Ng then move on to discuss one of Rune's GIPS-compliant performance

presentations, which is provided in Exhibit 1.

Rune Managers claims compliance with the Global Investment Performance

Standards (GIPS

) and has prepared and presented this report in compliance with the

GIPS standards. Rune Managers has not been independently verified.

Notes: