SEC Division of Investment Management staff letter: The One Group

MAY 2 3 1995

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Our Ref. No. 94-07-CC

RESPONSE OF THE OFFICE OF CHIEF COUNSEL The One Group

DIVISION OF INVESTMNT MAAGEMENT File No. 811-4852

By letter dated May 19, 1995, you seek assurance that the

staff would not recommend enforcement action to the Commission

under Section 10 (f) of the Investment Company Act of 1940 (the

"1940 Act") if the investment portfolios (each a "Fund") of The

One Group (the "Trust") engage in the transactions described in

your letter.

The Trust is an open-end management investment company

registered under the 1940 Act. The Trust has thirty- one Funds,

each of which offers a separate series of shares of beneficial

interest (nine are not currently operational) .

Banc One Investment Advisors Corporation ("BOlA") is the

investment adviser to each Fund. Under the terms of its advisory

agreement with the Trust, BOlA selects, contracts with, and

compensates the investment subadvisers to certain of the Trust's

Funds (the "Subadvisers"). BOlA retains ultimate responsibility

for the investment program of each Fund, monitors the compliance

of the Subadvisers with the investment objectives and related

policies of each Fund, reviews the performance of the

Subadvisers, and reports periodically on their performance to the

Trust's trustees. Currently, three Subadvisers serve the Trust.

Goldman Sachs Asset Management ("GSAM"), Boston International

Advisors, Inc., and Van Kampen Merritt Management, Inc. each

manages one Fund.1
You represent that each Subadviser is completely independent

of each other Subadviser¡ no Subadviser is an "affiliated person"

of any other Subadviser, as that term is defined in Section

2 (a) (3) of the 1940 Act ¡ and each Subadviser competes directly or indirectly with each other Subadviser in the investment advisory

business. None of the Subadvisers is an affiliated person of

BOlA or of any officer, trustee, or employee of the Trust.

Section 10 (f), in relevant part, prohibits a registered

investment company from knowingly purchasing or otherwise

acquiring, during the existence of any underwriting or selling

syndicate, any security (except a security of which the company

is the issuer) a principal underwriter of which is an officer,

director, member of an advisory board, investment adviser, or

employee of the company, or an affiliated person of any of the

foregoing.
You state that Goldman Sachs is a maj or participant in the

business of underwriting securities offerings, and that it is

1 GSAM is a separate operating division of Goldman Sachs

& Co.

important to the investment performnce of a Fund that it not be

restricted in its purchases of securities during an underwriting

syndicate of which Goldman Sachs is a principal underwriter. You

propose that a Fund be permitted to purchase securities

principally underwritten by Goldmn Sachs, or any person of which

Goldman Sachs is an affiliated person, provided that Goldman

Sachs: ( 1) does not manage the purchas ing Fund ¡ and (2) is not an

affiliated person of the purchasing Fund' s Suba~viser, BOlA, or

any officer, trustee, or employee of the Trust. You assert that

the proposed transactions do not raise the concerns that Section 10 (f) was intended to address, such as "dumping," the practice of selling unmarketable securities to a controlled company, and

"bailing out," a practice in which a controlled company purchases

securities from a sponsor to alleviate the financial distress of

the sponsor.

On the basis of the facts and representations in your

letter, we would not recommend that the Commission take

enforcement action under Section 10 (f) if a Fund engages in the

proposed transactions. Because this response is based on the

facts and representations in your letter, you should note that

different facts or representations may require a different

conclusion. This letter expresses the Division's position on

enforcement action only and does not purport to express any legal

conclusions on the issues presented.

Having stated our views with respect to the circumstances

under which a portfolio of a series investment company may

purchase a security a principal underwriter of which is a

subadviser, or a person of which the subadviser is an affiliated

person, of another portfolio, we will no longer respond to

requests for no-action relief in this area unless they present

novel or unusual issues. 3 / /, I ,/, L'./ i i ..' I, ~/ fl-' 7 I: I' .... '. i ... c.~tt~~ l". JJ~-,,!~--,

Edward Jp benstein
J (-1

Senior Cõunsel

2 We note that The One Group and Goldman Sachs have obtained an exemption from Section 17 (a) of the 1940 Act to engage in the proposed transactions. See The One Group and Goldman. Sachs & Co., Investment Company Act ReI. Nos. 19410 (April 15, 1993) (notice) and 19470 (May 11, 1993) (order).

3 See also North American Security Trust and NASL Series

Trust (pub. avail. Feb. 2, 1993).

2

1001 PENNSYLVANIA AVENUE, N. W.
SUITE 1200 SOUTH

30 KENNEDY PLAZA
ONE INTERNATIONAL PLACE WASHINGTON, D. C. 20004 PROVIDENCE, R, i. 02903 BOSTON, MASSACHUSETTS 02110-2624 (202) 626-3900 (401) 455 -4400 (617) 951-7000 T£LECOPIER: (617) 951-7050 TELECOPIER: (202) 626-3961 TELECOPIER: (401) 455-4401 1940 Act
Section 10(t)
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PUBLIC ~ I? ~ , Ot￾VIA MESSENGER AVAILAILIT~
John V. O'Hanlon, Esq.

Special Counsel

Division of Investment Management

Securities and Exchange Commission

450 Fifth Street, N. W.

Room 10192, Mail Stop 10-6
Washigton, D. C. 20549

Re: The One Groll* Request for No-Action Letter Dear Mr. o 'Hanlon:
We are writing on behalf of The One Group* (the "Trust") to request the staff's assurance that it wil not recommend that the Commission take any enforcement action againt the Trust alleging a violation of Section 10(t) of the Investment Company Act of 1940 (the "Act") if the various investment portfolios of the Trust engage in the transactions described below. We believe that the proposed transactions are consistent with the language and purposes of Section 10(t) of the Act and with Commission positions with regard to the regulation of series companies under the Act, including the position taen by the Staff in Nort

American Security Trust ("NAST") (avaiL. February 2, 1993).

John V. O'Hanlon, Esq.

BACKGROUN
The Funds
The Trust is a Massachusetts business trst registered under the Act as an open-end

management investment company (File No. 811-4236). The Trust currently has th-one investment portfolios, (referred to herein as "Funds" or "Fund") each of which offers a separate series of shares of beneficial interest (nie of such series are not currently operational). The thirty-one Funds are listed on Exhbit A to this letter. The investment objectives, policies and restrictions applicable to each Fund of the Trust are described in the Trust's registration statement on Form N-1A (File No. 2-95973). Under Massachusetts law and its Declaration of Trust and Code of Regulations, the Trust is managed under the direction of its Trustees. Each Fund of the Trust has as its investment adviser Banc One Investment Advisors Corporation ("BOlA"), an indirect wholly-owned subsidiary of BANC ONE CORPORATION, that is registered with the Commssion as an investment adviser. 440 Financial Distributors, Inc. serves as the distributor and principal underwriter of the Trust. Under the term of its advisory agreement with the Trust, BOlA selects, contracts with, and compensates the investment Sub-Advisers to certin of the Trust's Funds (the "Sub-

Advisers "). BOlA retains ultimate responsibilty for the investment program of each Fund, monitors the compliance of the Sub-Advisers with the investment objectives and related policies of each Fund, reviews the performance of the Sub-Advisers, and reports periodically on their performance to the Trustees. BOlA also provides certin administrative services and total expense guarantees to each Fund of the Trust. The Sub-Advisers There are currently thee Sub-Advisers serving thee Funds of the Trust. Goldman Sachs Asset Mangement ("GSAM"), Boston International Advisors, Inc. ("Boston International") and Van Kampen Merritt Management, Inc. ("Van Kampen") each manages one Fund of the Trust. Each Sub-Adviser makes all decisions regarding the purchase and sale of securities on behalf of the Fund that it manages. Each Sub-Adviser is registered with the Commssion as an investment adviser.

John V. O'Hanon, Esq.

GSAM, a separate operating division of Goldma Sachs & Co. ("Goldman Sachs"), a New York limted partership, serves as Sub-Adviser to the Governent AR Fund. Boston International, an independently owned corporation, serves as Sub-Adviser to the Interntional Equity Index Fund. Van Kampen, a wholly-owned subsidiary of The Van Kampen Merritt Companies, Inc., which, in turn is a wholly-owned subsidiary of VK Holding Inc., serves as Sub-Adviser to the Short-Term Global Bond Fund. Each Sub-Adviser is completely independent of each other Sub-Adviser; no Sub-Adviser is an "affiliated person" of any other Sub-Adviser as tht term is defined in Section 2(a)(3) of the Act. Moreover, in economic reality, each Sub-Adviser competes directly or indirectly with each other Sub-Adviser in the investment advisory business. None of the Sub-Advisers is an affliated person of the Trust's adviser (BOlA) or of any officer, trustee or employee of the Trust. Relevant Provisions of the Act
Section iO(t) of the Act, in relevant part, prohibits a registered investment company from
knowingly purchasing or otherwise acquiring, during the existence of any underwriting or selling syndicate, any security (except a security of which the investment company is the issuer) a principal underwriter of which is an investment adviser of the registered investment company or, is a person of which any investment adviser of the registered investment company is an affliated person.
Section 2(a)(20) of the Act, in relevant part, defines an investment adviser of an investment
company as
(A) any person . . . who pursuant to contract with such company regularly furnshes

advice to such company with respect to the desirabilty of investing in, purchasing or selling securities or other propert, or is empowered to determe what securities or other propert shall be purchased or sold by such company and (B) any other person who

pursuat to contract with a person described in clause (A) regularly perform substatially all of the duties undertken by such person described in clause (A) . . . . The Interpretive Problem Other th purchases permtted by Rules lOf-l, lOf-2 and lOf-3, purchases by a Fund of

the Trust of securities of which that Fund's Sub-Adviser, or a person of which that Sub-Adviser is an affiiated person, is a principal underwriter are clearly prohibited by Section iO(t).

John V. O'Hanlon, Esq.

However, it is unclear whether the prohibitions of Section 1O(t) extend to purchases by a Fund of securities of which a Sub-Adviser to one of the other Funds, or a person of which such a Sub￾Adviser is an affiliated person, is a principal underwriter. For convenience, subsequent references to a Sub-Adviser as a principal underwriter wil include persons of which the Sub-Adviser is an affiliated person. As Goldman Sachs is a major participant in the business of underwriting securities offerings, it can be imortt to the investment performance of a Fund of the Trust that it not be

restricted in its purchases of securities during an underwriting syndicate of which a principal underwriter is Goldman Sachs. This no-action request seeks to mae entirely clear the possibilty of such unrestricted purchases by Funds to which GSAM does not serve as Sub-Adviser. Although in some cases, it might prove beneficial to a Fund to which GSAM serves as Sub￾Adviser to be able to purchase securities during an underwriting syndicate a principal underwriter of which is Goldman Sachs in excess of the amounts permitted by Commission rules, an exemptive order would be needed to engage in such purchases and, accordingly, such purchases are beyond the scope of ths request. In the absence of an exemptive order, each Fund to which GSAM serves as Sub-Adviser wil continue to purchase securities of which Goldman Sachs is a principal underwriter only to the extent permitted by rules under Section 10(t) of the Act. REQUEST FOR RELIEF AND BASIS THEREFOR The circumstances of the Trust are the same in all material respects to those of the applicants in NAST. As the NAST applicants argued, Section 1O(t) should not prohibit a Fund from purchasing securities principally underwritten by Goldman Sachs, or any person of which Goldman Sachs is an affiliated person, where (1) Goldman Sachs does not mange the purchasing Fund and (2) Goldman Sachs is not an affliated person of the Fund's Sub-Adviser, BOlA, or any offcer, trstee or employee of the Trust (the "Proposed Transactions"). As in NAST, we do not believe that the Proposed Transactions raise the type of concerns that Section 1O(t) was intended to address.l These concern, as expressed by the Staff in its response to NAST, include concern over sponsors of investment companes improperly using those companes as customers for certin securities; paricularly "dumping," the practice of sellng unmarketable securities to a controlled 1 Indeed, it may be compellingly argued, as it was in NAST, that Section 10(t) is not, in fact, applicable to the Proposed Transaction. However, in light of the Staff's recent consider￾ation and response to such arguments in NAST (see Footnote 4 in the Staff's response) those arguments wil not be repeated here.

John V. O'Hanlon, Esq.

company, and "bailng out," a transaction in which a controlled company receives securities to alleviate the finncial distress of the sponsor.

The staff of the Division of Investment Management has recently concluded that it is appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act to permt principal tranactions between Funds of the Trust and Sub-Advisers (or affliated persons thereot) other than the Sub-Adviser to the trading portfolio. See The One GroUPll. Goldman Sachs & Co. Investment Company Act 15, 1993) (notice) and 19470 (May 11, 1993) (order). As a result, the Funds are permitted to engage in principal transactions with Sub-Advisers of other portfolios in the ordin course of business. The staff's issuance, pursuant to delegated authority, of a notice and order permtting unrestricted principal trading in this context suggests that no action relief with respect to Section 1O(t) to permit the Proposed Transactions would be consistent with the Release Nos. 19410 (April

purposes and policies of the Act and prior positions taen by the Commssion and its staff. CONCLUSION We respectfully request your advice that you wil not recommend that the Commssion tae any enforcement action against the Funds alleging a violation of Section 1O(t) of the Act if the Funds of the Trust engage in the Proposed Transactions. Because this interpretive request involves a publicly-offered investment company and presents no issues peculiar to inurance products, we have directed ths letter solely to your offce. If you have any questions regarding this request, please feel free to contact the undersigned. AGP Irme :700399,01