# Am II A

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

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RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF INVESTMENT MANAGEMENT

July 23, 1999
Our Ref. No. 98-680
Salomon Brothers
Asset Management Inc
and Salomon Brothers
Asset Management Asia
Pacific Limited
File Nos. 801-32046
and 801-51393~:_

Your letter dated November 11, 1998 on behalf of Salomon
Brothers Asset Management Ine ("SBAM") and Salomon Brothers Asset
Management Asia Pacific Limited ("SBAM AP") requests that we
confirm that published materials listing the net asset values of
a managed account, together with worksheets that demonstrate the
calculation of performance information based on those net asset
values, could form the basis for, or demonstrate the calculation
of, performance information under Section 204 of the Investment
Advisers Act of 1940 (the "Advisers Act")

thereunder.
Facts

and Rule 204-2(a) (16)

You state that SBAM and SBAM AP are registered as investment
advisers under the Advisers Act. You state that Mr. Giampaolo
Guarnieri is employed by SBAM AP as a portfolio manager, and he
currently manages, among other accounts, Salomon Brothers Asia
Growth Fund (the "Asia Growth Fund"). The Asia Growth Fund is a
portfolio of Salomon Brothers Series Funds Inc (the "Company"),
which is registered with the Commission as an open-end investment
company. SBAM serves as investment adviser to the Asia Growth
Fund and SBAM AP serves as subadviser. You state that SBAM AP
exercises all investment discretion with respect to the Asia
Growth Fund. You represent that since ~he commencement of
investment operations of the Asia Growth Fund on May 6, 1996, Mr.
Guarnieri has, been primarily responsible for its day-to-day
management, and no other person plays a significant rola~ in its
day-to-day management.
You state that prior to joining SBAM AP, Mr. Guarnieri was
employed by Credit Agricole Asset Management (South East Asia)
Limited ("Credit Agricole"), an investment advisory firm that is
unaffiliated with SBAM or SBAM AP. You
represent that during the
period from January 1, 1992 through March 1, 1995 (the "Relevant
Period"), Mr. Guarnieri was primarily responsible for the day-to­
day management of the Mosais Actions du Bassin Pacifique (the
"Pacific Mosais Fund"), a series of the Mosais Fund, an open-end
collective investment vehicle registered in Luxembourg and.
managed by Credit Agricole. You represent that no person other
than Mr. Guarnieri played a significant role in the day-to-day
management of the Pacific Mosais Fund during the Relevant 'Period.
You state that the Pacific Mosais Fund is not registered as an
investment company under the Investment Company Act of 1940 (the

/I 1940 Act /I). You state that ( according to the Pacific Mosais
Fund i s prospectus ( the fund offered to redeem and sell its shares
daily during the Relevant Period. 1

You state that SBAM and SBAM AP wish to use the Pacific
Mosais Fund i s performance information for the Relevant Period in
marketing materials distributed to U. S. clients and potential
U. S. clients. In particular ( SBAM and SBAM AP wish to use this
information in the prospectuses and marketing materials ~elating
to the Asia Growth Fund.

2 .­

You represent that the following procedures were used by
SBAM and SBAM AP to calculate the performance results of the
Pacific Mosais Fund for the Relevant Period. At the request of

SBAM and SBAM AP, PricewaterhouseCoopers LLP (" PWC" ), the
Company's independent auditors, obtained the net asset values of
the Pacific Mosais Fund for the first and last day of each
calendar year during the Relevant Period and at March 1, 1995 as
reported during the Relevant Period in the International Herald
Tribune (the "Tribune"). Based upon these publicly reported net
asset values ( PWC calculated the annualized and aggregate total
returns of the Pacific Mosais Fund for the Relevant Period. You
further represent that ( according to Mr. Guarnieri, no
di vidend paYments or distributions were made to shareholders of

the Pacific Mosais Fund during the Relevant Period. 3

1 Telephone conversation between David Shevlin of Simpson
Thacher & Bartlett and Alison Fuller of the staff on March 2,

1999.

"!

2

To ensure the accuracy of the Pacific Mosais Fund i s net
asset values that were reported by the Tribune, PWC compared them
with the Pacific Mosais Fund i s net asset values, as provided to
PWC by SBAM AP, that
were reported during the Relevant Period by
Standard & Poor's Micropal ("Micropal Ii). Micropal is an
independent ,organization that reports performance information
regarding offshore mutual funds. Based on PWC i S calculations
made according to the described procedures, SBAM and SBAM AP
concluded that there were no material discrepancies between the
total returns derived from the net asset values reported by the
Tribune and the total returns derived from the net asset values
reported by Micropal.

You state that SBAM and SBAM AP propose to maintain only the

following materials under Rule 204-2 (a) (16) with respect to the

Pacific Mosais Fund i s performance information: (1) copies of the
published net asset values reported by the Tribune and Micropal;
and (2) the worksheets that PWC prepared in connection with the
procedures described above. You state that Credit Agricole
reported the net asset values to the Tribune and Micropal
contemporaneously with the management of the
Pacific Mosais Fund
by Mr. Guarnieri. You state that the net asset values were not
generated for the express purpose of reporting the performance
information that SBAM and SBAM AP now seek to use.

Analysis

Section 204 of the Advisers Act and Rule 204-2 (a) (16)

thereunder generally require registered investment advisers to
maintain "all accounts, books, internal working papers i and any
other records or documents that are necessary to form the basis
for or demonstrate the calculation of the performance or rate of
return of any or all managed accounts 9r securities
recommendations" contained in any advertisement or other
communication distributed to ten or more persons. Rule 204­

2 (a) -(16) was rlesigned to allow the Commission's inspectjon staff
with Rule 206 (4) -1 under the Advis~rs Act which, among other
things, prohibits the use of false or misleading advertisements
by investment advisers. 4
to evaluate more effectively an investment adviser's cômpliance

fund that were calculated based upon published net asset values,
and using incorrect assumptions regarding the amounts and payment
dates of the second fund' s dividends and distributions, could be
fraudulent under Section 206 of the Advisers Act and materially
Section 34 (b) of the 1940 Act.
4 Se Investment Advisers Act Release No. 1093 (Nov. S, 1987)

misleading under

(proposing the addition of paragrapn (a) (16) , to Rule 204-2) . (the
"proposing release") .
3

"!

Rule 204 - 2 (a) (16) provides that an investment adviser shall
be deemed to have satisfied the requirements of the rule if, with
respect to the performance of its managed accounts, the
investment adviser retains all account statements, if they"
reflect all debits, credits, and other transactions in a client's
account for the period of the statement (" account statements"),
and all worksheets necessary to demonstrate the calculation of
the performance or rate of return of all managed accounts

("worksheets").5 Neither Rule 204-2(a) (16) nor the proposing or

adopting releases, however, states that retaining account
statements and worksheets is the exclusive method of complying

with the rule.

You argue that the Commission contemplated that data
published or generated subsequently but accumulated
contemporaneously with the management
of an account could be used
to form' the basis for, or demonstrate the calculation of,
performance information under Rule 204-2 (a) (16). You note that
the Commission stated in the adopting release that:
(s) upporting records for advertised performance must be made
contemporaneously with the recommendations or assumptions

made. However, data published or generated subsequently but
accumulated contemporaneously with the events could be used
to compute and substantiate advertised adviser

performance. . . . 6

You assert that, in light of the Commission's statement, the
records that SBAM and SBAM AP propose to maintain are sufficient
to satisfy Rule 204-2 (a) (16) because, among other things
i the net
asset values that were reported by Micropal and the Tribune were
accumulated and reported by Credit Agricole to Micropal and the
Tribune contemporaneously with the management of the account by

Mr. Guarnieri. ,',

- 5 The reference to account statements and worksheet-~ was

included in paragraph (a) (16) of the rule in response to concerns
expressed by certain commenters that the rule, as proposed, might
require investment advisers
that advertise the performance of
managed accounts to keep all documents of original entry from
which information is inputted into the adviser's client
accounting system. Se Investment Advisers Act Release No. 1135
(Aug. 17, 1988) (adopting the addition of paragraph (a) (16) to Rule
204-2) (the "adopting release"). Thus, the rule specifically
provides one alternative to the retention by an investment adviser
of all of its documents of original entry, but contemplates that
the retention of other records also could satisfy the requirements

of the rule.

6 Adopting release at n. 6 .
4

'"

,l

We believe that copies of published materials listing the
net asset values of a managed account (including an offshore
fund) could form the basis for performance information under

Section 204 of the Advisers Act and Rule 204-2 (a) (16) thereunder,
provided that the net asset values were accumulated
contemporaneously with the management of the account. 7 In
addition, we believe that worksheets that are generated by an
entity other than adviser, subsequently to the management of the
account, could demonstrate the calculation of performan6e
information under the rule, provided that the worksheets are
supported, in turn, by records that form the basis of the

performance information.

We note that as a matter of policy the staff will not

provide no-action assurances under Rule 204-2 (a) (16) regarding
whether an adviser i s records are sufficient to form the basis
for, or demonstrate the calculation of, the investment
performance of an investment adviser's managed accounts or
securities recommendations.

~~k. ?W
Alison M. Fuller

As s i stan t Chi e f Couns e 1

...

7 In connection with the use in an advertisement of the
performance of a managed account (such as a registered or
unregistered fund) that was achieved by a portfolio manager, net
asset values of the account would be deemed to be accumulated
contemporaneously with the portfolio manager's management of the
account if they were calculated contemporaneously with his or her

management of the account. The publication of the account i s net

asset values contemporaneously with the management of the account
by the portfolio manager -would show'that the published net asset
values were accumulated contemporaneously.

s

'"

.-;:L

SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, N.Y. 10017-3954

(212) 455-2000

FACS (212) 4155-2502

DIR DIAL NUMBER

E-MA ADDRE

November 11, 1998

Douglas J. Scheidt, Esq.
Associate Director and Chief Counel
Division of Investment Management
Sectlrities and Exchange Commission

450 Fift Street, NW
Mail Stop 5-6

Washington, DC 20549
Dear .M. Scheidt:

On behalf of Salomon Brothers Asset Management mc ("SBAi\1) and Salomon
Brothers Asset Management Asia Pacific Limited C'SBAM APIl), we hereby request that the
staff of the Division oÎ Investment Management (the ,. Stafr') of tlie Securties and Exchange

CC'mmission confin that published materials listig the net asset values of a managed
-',
account, together \\'Íth worksheets that demonstrate the diiculation
of performance based on

those'net asset values, could form the basis for or demonstrte calculation of perfomance
information under Section 204 of

the Investment A.dvisers Aft of.1940 (the "Advisers Act")

and Rule 204-2(a)(16) thereunder.
FACTS

SBA.\1 and SBAM AP are registered as investment advisers under the Advisers

Act. SBAl1 AI' is also registered as an investment adviser with the Hong Kong Secu.rities
and Fut1lIes Commission.;\fr Giampaolo Guaniier is employed

by SBAM AP as a
'q

LONDON

HONG KONG

TOKYO

SINGAPORE

CoLUMBUS

Los ANGEL

SIMPSON THACHER & BARTLETT

Securties and Exchange Commission

-2-

November 11, 1998

portfolio manager, and he curently manages, among other accounts, Salomon Brothers Asia

Growt Fund (the "Asia Growt Fund"). The Asia Growt Fund is a portfolio oLSalomon
Brothers Seres Funds Inc (the "Company"), which is registered with the Commission as an
open-end investment company. SBAM serves

as investment adviser to the Asia Growt

Fund and SBAM AP serves as subadviser. SBAM AP, however, exercises al investment

dicretion with respect to the Asia Growt Fund. Since the commencement of investment
operations of the Asia Growt Fund on May 6, 1996, Mr. Guaeri has been priarly

responsible for its day to day management and no person other than Mr. Guaeri plays a
signficant role in its day to day management.

Prior to joing SBAM AP, Mr. Guarer was employed by Credit Agricole
Asset Management (South East Asia) Limted ("Credit Agrcole"), an investment advisory

fi that is unaffiliated with SBAM orSBAM AP and was registered with the Hong Kong
Securties and Futues Commssion. Durg the period Januar 1, 1992 though March 1,
1995 (the "Relevant Period"), Mr. Guaer was priarly responsible for the ~y to day

management of

the Mosais Actions du Bassin Paçifique(the "Pacific Mosais Fund"), a

series of the Mosais Fund, an open-end collective investment vehicle registered in

Luxembourg and managed by Credit Agrcole.11 The Pacific Mosais Fund is not registered

as an investment company under the Investment Company Act of 1940, as amended (the

"Investment Company Act"). No other person played a signficant role in the day to day

11 It is our understadig that Credit Agrcole is not registered as an investment adviser witn
the Commssion.

SIMPSON THACHER & BARTLETT

Securties and Exchange Commission

-3-

November 11, 1998

management of the Pacific Mosais Fund durg the Relevant Period. SBAM and SBAM AP
wish to use the Pacific Mosais Fund's performance inormation for the Relevant P~riod in
marketig materals distrbuted to U.S. clients and potential U.S. clients. In parcular,

SBAM and SBAM AP wish to use th inormation in the prospectues andmarketig
material relatig to the Asia Growt Fund. J/

To calculate the performance results of the Pacific Mosais Fund for the

Relevant Period, the followig procedures were followed by SBAM and SBAM AP. At the
request of SBAM and SBAM AP, PrcewaterhouseCooper LLP, the Company's

independent auditors ("PWC"), obtaied the net asset values of the Pacific Mosais Fund for
the fit and last

day of each calenda year durg the Relevant Period and at March 1, 1995

'as reported durg the Relevant Period in the

Intemational Herald Tribune (the "Tribune").

Based upon these publicly reported net asset value figues, PWC calculated anualized and
aggregate total retu of the Pacific Mosai Fund for the, Relevant Period.1/ In order to
ensure no inaccurcieS in the reportg by the Tribune, PWC compared these net_~sset values

to net asset values provided to them by SBAM AP, which were reported durg the Relevant

l! We are of the view that the use of the performance inormation described herein would not
the Advisers Act and Rule 206(4)-1 thereunder, nor Sectiòn 34(b)
of the Investment Company Act, and that such use is consistent with the Staff's recent

violate Section 206(4) of

Fund (publicly available August 7, 1996);
Nicholas-Applegate Mutual Funds (publicly available Augut 6, 1996); and Growt Stock
positions in ths regard. See Bramwell Growt

Outlook Tr.t, Inc. (publicly avaiable Apri

15, 1986). Accordigly, we are not seekig the

assurance of the Staf with respect to the aforementioned sectiori and rule.

1/ Accordig to Mr. Guareri, no dividend payments or distrbutions were made to
shareholders of the Pacific Mosais Fund durg the Relevant Period.

..

SIMPSON THACHER & BARTLETT

Securties and Exchange Commission

-4-

November 11, 1998

Period by Standad and Poor's Micropal ("Micropal"), an independent organation that

report performance inormation regardig offshore mutu fuds. Based on PWC's
calculations made accordig to the described procedures, SBAM and SBAM AP concluded
that there were no material discrepancies between the retu figues derived from the net

asset value figures reported by the Tribune and the retu figures derved from the net asset

value figues reported by Micropal. Accordigly, the records SBAM and SBAM AP intend
to rely on in order to comply with Section 204 are copies of the published net asset value
figures reported by the Tribune and Micropal and the worksheets PWC prepared in

connection with the procedures descrbed above.~

ANAL YSIS

Section 204 of the Advisers Act requies registered investment advisers to keep
certai records, which are subject to reasonable examatons by the Commssion, as

prescrbed by rule by the Commssion. Ru1e 204-2(a)(16) requies that an investJent
adviser retai the books, records or other documents "necessar to form the basis for or
demonstrate the calcu1ation of the performànce or rate of retu of any or all managed
accounts" in any advertisement or other communcation distrbuted to ten or more I?eople.

5,/ Neither SBAM nor SBAM AP is now, or was at the tie the net asset value figues were

reported to and published by the Tribune and Micropal, "affiiated persons" (as defied
under the Investment Company Act) of any of
the Tribune, Micropal or Credit Agricole. In
addition, neither Mr. Guareri, nor to the knowledge~f SBAM and SBAM AP, Credit

Agricole, were affated persons of the Tribune or

Micropal at the tie the net asset value
figues were reported to and published by the Tribune and Micropal.

SIMPSON THACHER & BARTLETT

Securties and Exchange Commission

-5-

November 11, 1998

The Rile does not specify precisely what tye of records constitute sufficient

documentation. The adoptig releae for the Rile, however, states that "(s)uppor1g records
for advertsed performances must be made contemporaeously with the recommendations or

assumptions made. However, data publihed or generated subseqently but accumulated
contemporaneously with the events could be used to compute and substatiate advertsed

adviser performance. ,,~/ Therefore, it appear that the Commsion contemplated that data

published or generated subsequently but accumulated contemporaneously with the

management of an accormt coild be used to form the basis for or demonstrate the calculation
of performance

inormation under th Rule.

In light of ths interpretive language, it seems clear that the records used by

SBAM and SBAM AP to form the basis for the calcilation of the performance inormation
for the Pacific Mosais Frmd, namely the net asset values reported by the Tnbune and

Micropal along with the worksheets prepared by PWC, aie suffcient to satisfy the Rule,

The net asset values reported by Micropal and the Tnbune were accumilated and
independently reported by Credit Agrcole to Miq-OPal and the Tribrme contemporaneously
with the management of the Pacific Mosais Fund by Mr. Guaren. These net asset values

were not generated for the express purose of reporting the performance inormation that

SBAM and SBAM AP now seek to use. Furermore, the net asset value figues were not
generated or reported to the Tnbrme or Micropal for the purose of enablig SBAM SBAM
AP or any other investment adviser

to mainta records under Rule 204-2(a)(16).

~/ IA ReI. No. 1135 (Aug. 17, 1988).

c'

SIMPSON THACHER & BARTLETT

Securties and Exchange Commission

-6-

November i i, 1998

Furermore, as discussed above, SBAM SBAM AP and PWC undertook significant due

diligence procedures in an effort to ensure that these net asset values are accurateand that

the peiformance inormation derved from them is correct. Since the Commission's stated

puiose in promulgatig the Rule was to "deter the use of false or misleadig peiformance
inormation by advisers,"2/ these procedures should provide the Staff with additional comfort
that the Rule has been satisfied.

Additionally, since the Pacifc Mosais Fund is managed by a Hong Kong

regitered investment advier, the Commsion should have access to the Pacific Mosais
Fund's records and documents

Understandig signed between the

under the Memorandum of

United States and Hong Kong in 19951/ (the "Memorandum of
Understandig

Memorandum of

"). The

both countres to provide each

Understadig requies the authonties of

other with the "fullest mutual assistace" in enforcing each countr's securties laws and
regulations. Specifically mentioned as one of

the pnmar mean of

providig such

assistance is "obtaing information and documents from persons." Thus, ifthegommssion
determines that it is necessar or appropnate to r~view the records of the Pacific Mosais

Fund, it should have the assistace of the Hong Kong authonties in obtaig access to those
records under the Memorandum of

Understadig.
:!~:

§/Id.
11 Memorandum of Understadig between the United States Securties and Exchange.

Commssion and the Hong Kong Securties and Futues Commission Concerng

Consultation and Cooperation in the Adminstration and Enforcement of Securties Laws.
.. (October 5, 1995).

SIMPSON THACHER & BARTLETT

Securties and Exchange Commission

-7-

November 11, 1998

~. .'

CONCLUSION
Based on the text of Rule 204-2(a)(16) of

the Advisers Act, the intei.retive

langue in the adoptig release to the Rile and the procedures puruant to which SBAM

AP caculated the performance inormation regardig the Pacifc Mosais Fund, we are of the
view, and request that the Staff confi, that the records used by SBAM AP to form the
basis for or demonstrte the calcilation of ths performance information, namely the
published net asset value figures reported by the Tribune and Micropal and the related

worksheets prepared by PWC, are sufficient to satisfy Section 204 of the Advisers Act and

Rule 204-2(a)(16) thereunder.

'"

SIMPSON THACHER & BARTLETT

Securties and Exchange Commission

November 11, 1998

-8-

Should you requie additional inormation or fuer assistace, please call Gar
Schpero (212-455-3665) or David Shevli (212-455-3682) of

th fi. We thank

you for

your prompt consideration of ths matter.

r-.:i ~ ~

Veiy try your,

SIMPSON THACHER & BARTLETT

cc: Michael F. Rosenbaum

Robert A. Vegliante

."'­

'..

¥

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