12 OCT 1994
 

Our Ref. No. 94-S70-CC
 

RESPONSE OF THE OFFICE OF CHIEF COUNSEL
 Dana Investment

DIVISION OF INVESTMNT MAAGEMENT Advisors, Inc.
 

File No. 801-14828
 

Your letter of October 12, 1994 requests assurance that we
 

would not recommend enforcement action to the Commission if
 

Washington Hospital Services, Inc. ("WHS") proceeds as described in
 

your letter without WHS or its employees registering as investment
 

advisers under section 203 of the Investment Advisers Act of 1940
 

( "Advisers Act") or proceeding under rule 2 0 6 (4) - 3 thereunder. You 

also request assurance from the Division of Market Regulation that
 

it would not recommend enforcement action to the Commission under
 

section 15 (a) of the Securities Exchange Act of 1934 ("Exchange
 

Act") if WHS proceeds as described in your letter without WHS or
 its employees registering as broker-dealers under section 15 (b) of 

the Exchange Act.
 

Dana Investment Advisors, Incorporated ("Dana"), a registered
 

investment adviser, intends to organize a private investment fund


(the "Partnership") . that will be structured as a limited

partnership under Wisconsin law. The Partnership will not be
 

registered under the Investment Company Act of 1940 (" Investment
 

Company Act") in reliance on section 3 (c) (1) thereunder. i Dana
 

will be the FundI s general partner and investment adviser.
 

Limited partnership interests ("Units") in the Partnership
 will be offered 
 only to private hospitals that are members of the
 Washington State Hospital Ássociation, a not-for-profit Corporation
 

(the "Association") and certain qualifying affiliates (the
 

hospitals and their affiliates are collectively referred to as the
 

"Qualifying Hospitals"). Units will be offered and sold in private
 

transactions pursuant to Regulation D under the Securities Act of
 

1933 (" 1933 Act") and rule 506 thereunder. 2 .
 

The Association, through its wholly- owned subsidiary WHS,
 

proposes to enter into an agreement (the "Agreement") with the
 

Partnership under which WHS will disseminate information about
 

Partnership's existence to members of the Association eligible the
 

invest in the Partnership, and introduce Dana to such members. to
 will: WHS 

(1) provide Dana with certain public financial informtion
 about the Qualifying Hospitals, 

i Section 3 (c) (1) generally provides that any issuer whose
 

outstanding securities are owned by not more than one hundred
 

persons and which is not making and does not presently propose to
 

make a public offering of its securities is excepted from the
 

definition of an investment company.
 

2 You have not asked, and we express no opinion on, whether
 

the dissemination of informtion as proposed is consistent with 

the requirements of Regulation D under the 1933 Act, rule 506
 

thereunder, or the "no public offering" prohibition of section
 

3 (c) (1) of the Investment Company Act.
 

Modified: Effective November 4, 2022, Statements in this Letter Related to 

Rule 206(4)-3 are Withdrawn. Please consult the following web page for more 

information: 

https://www.sec.gov/divisions/investment/im-modified-withdrawn-staffstatements
- 2 ­

(2) request that Qualifying Hospitals fill out questionnaires


eliciting basic financial information,
 

(3) provide the Partnership with the names and addresses of
 Qualifying Hospitals, 

(4) personally introduce the appropriate officer of each
 

Qualifying Hospital to representatives of Dana,
 

(5) disseminate to Qualifying Hospitals general information
 about the existence of the Partnership through direct mailings, 

announcements in periodic newsletters, and brochures, and
 

(6) permit representatives of Dana who will be offering and


selling Units to rent a booth at the exhibit hall at the
 

Association's annual meeting to distribute the Partnership's
 

offering memorandum and sales literature and to discuss the
 

Partnership with Qualifying Hospitals.
 

The Partnership will pay WHS a fee (the "Fee") of up to .07%' per
 

annum of Partnership assets for WHS' services.
 

Investment Adviser Registration:
 

Section 202 (a) (11) of the Advisers Act defines an investment

adviser as one who, for compensation, engages in the business of
 

advising others, either directly or through publications or
 

writings, as to the value of securities or as to the advisability
 

of investing in, purchasing, or selling securities, or who, for
 

compensation and as part of a regular business, issues or
 

promulgates analyses or reports concerning securities. You state
 

that WHS and its employees will not be acting as investment
 

advisers. Specifically, you represent that the Agreement prohibits
 

WHS and its employees from, among other things:
 

(1) discussing with any person the advantages or disadvantages


of investments in general or of any particular investment,
 

including an investment in the Partnership,
 

(2) valuing, advising or recommending any investment,


including an investment in the Partnership,
 

(3) providing investment analyses, investment formulas or


investment guidelines,
 

(4) holding themselves out as investment advisers or persons


who provide investment advice,
 

(5) describing, recommending or endorsing Dana's services as


general partner of the Partnership or as the Partnership's
 

investment adviser, or .
 

(6) otherwise giving investment advice.
 
- 3 ­

Furthermore, you state that WHS will not endorse or recommend
 

participation in the Partnership, will not perform any services
 

with respect to actual investment by Qualifying Hospitals, and will
 

have no role in advising the Partnership.
 

Based on the facts and representations in your letter, we
 

would not recommend enforcement action to the Commission if WHS or
 

its employees engage in the proposed arrangement without
 

registering as investment advisers under section 203 of the
 

Advisers Act. Any different facts or representations may require a
 

different conclusion. Moreover, this response expresses the
 

Division's position on enforcement action only and does not express
 

any legal conclusions on the issues presented.
 

Rul e 206 (4) - 3 : 

You also request assurance that we would not recommend
 

enforcement action to the Commission if WHS or its employees
 

proceed under the Agreement without complying with rule
 206 (4) -3 under the Advisers Act. Rule 206 (4) -3 prohibits any 

investment adviser from paying a cash fee, directly or indirectly,
 

to a "solicitor" with respect to solicitation activities unless
 

certain disclosures regarding the solicitor's relationship with the
 

investment adviser are made. "Solicitor" is defined under rule
 

206 (4) -3 to mean "any person who, directly or indirectly, solicits
 

any client for, or refers any client to, an investment adviser."
 

You state that Dana will act as investment adviser to the
 

Partnership under an agreement with the Partnership, and that
 

Dana's advisory client will be the Partnership, rather than the
 

Qualifying Hospitals. You maintain that, as a result, WHS will not
 

be "soliciting" clients for Dana by introducing Dana or bringing
 

the existence of the Partnership to the attention of Qualifying
 

Hospitals. You also point out that WHS will be paid by the
 

Partnership rather than directly by Dana. Therefore, you conclude
 

that no policy would be served by deeming WHS a solicitor.
 

In our view, the proposed arrangement raises precisely the
 

type of concerns that rule 206 (4) -3 was designed to address. WHS
 

has an interest in the successful distribution of the Partnership,
 

and notice of that interest, together with sufficient information
 

to evaluate the interest, Shoul~ be given to Qualifying Hospitals
 

at the time they are solicited.
 

Section 208 (d) of the Advisers Act prohibits any person,
 

indirectly, or through or by any other person, from doing any act
 

or thing which it would be unlawful to do directly under the
 

3 Our view is not changed by the fact that the Partnership
 

will be paying the Fee. As investment adviser to, and general
 

partner of, the Partnership, Dana has substantial influence over
 

the Partnership's business affairs, including the ability to
 

direct that the Fee be paid to WHS.
 
- 4 ­

Advisers Act or any rule thereunder. Since it would be unlawful
 

for WHS to directly solicit clients for Dana without compliance
 

with rule 206 (4) -3, solicitation of Qualifying Hospitals ¡o invest


in the Partnership would be prohibited by section 208 (d) . 

Therefore, we are unable to assure you that we would not
 

recommend enforcement action against Dana and WHS under section 206
 

if they participate in the proposed arrangement without complying
 

with rule 206(4)-3.
 

Section 15 (a) of the Exchange Act:
 

The staff of the Division of Market Regulation has asked us to
 

inform you that they would not recommend enforcement action to the
 

Commission under section 15 (a) (1) of the Exchange Act if WHS or its
 

employees engage in the activities set forth in your letter without
 registering as a broker-dealer pursuant to section 15 (b) of the 

Exchange Act. You have not requested, and the staff of the
 

Division of Market Regulation is not expressing any opinion, on the
 

application of section 15 (a) to the activities of Dana and its


employees.

J~ R.~ 

Felice R. Foundos
 

At torney 

4 The proposed arrangement is distinguishable from
 

arrangements whereby service or distribution fees are paid by a
 

registered investment company pursuant to rule 12b-1 under the
 

Investment Company Act. This response is not intended to suggest
 

that such arrangements would be subject to rule 206 (4) -3. See
 

Letter to Alan Rosenblat (pub. avail. Dec. 4, 1990); Stein Roe &
 

Farnham Incorporated (pub. avail. June 29, 1990).
 
:...3 

Firstar Plaza Attorneys at Law in 

P. O. Box 2113 Milwaukee and Madison. Wisconsin 

Madison. Wisconsin 53701-2113 West Palm Beach and Naples. Florida 

608/251-5000 Phoenix. Arizona 

FAX 608/251-9166
 

Qunnes/Bmd 

Investment Advisers Act of 1940/
 

§ 203(a); Rule 206(4)-3
 

October l2, 1994
 

ACT -:1l-fI - Ll -

SECTION ;2.0 S ( Ct ) Ms. Dorothy Donahue, Acting Chief Counsel
 

Division of Investment Management RULE

Securities and Exchange Commission PUBLIC I 0 /1 ~.f 9 u

Mail Stop 10-6 AVAILABILIT - L450 Fifth Street, N. W.
 

Washington, D.C. 20549
 

Ms. Cai te McGuire, Chief Counsel 

Division of Market Regulation
 

Securi ties and Exchange Commission
 

Mail Stop 5-1
 

450 Fifth Street, N.W.
 

Washington, D.C. 20549
 

Re: Dana Investment Advisors, Inc. 

Dear Ms. McGuire and Ms. Donahue:
 

We represent Dana Investment Advisors, Incorporated ("Dana"),
 

a Wisconsin corporation registered as an investment adviser under
 

the Investment Advisers Act of 1940, as amended ("Advisers Act")
 and under the laws of several states, including the States of 

Wisconsin and Washington. Dana is organizing a private investment
 

fund ("Fund ") in which investment will be limited to private
 

hospitals that are members of the Washington State Hospital
 

Association ("Association") and qualifying affiliates. The Fund
 

will be structured as a limited partnership under Wisconsin law.
 

Dana will be the general partner of the Fund and will enter into an
 

investment advisory agreement with the Fund to serve as the Fund's
 

investment adviser.
 
Units of limited partnership interests in the Fund ("Units")
 

will be offered and sold on behalf of the Fund by employees of
 

Dana, as corporate general partner. The general partner will not
 

recei ve any commissions or other compensation for its services in
 

offering and selling Units. The Units will be offered and sold in
 

private transactions pursuant to Regulation D under the Securities
 

Act of 1933, as amended (the "Securities Act") and Rule 506
 

thereunder, and pursuant to the Uniform Limited Offering Exemption,
 

Sections 460-44A-SOO et seq. of the Securities Act of Washington
 

(the "Washington Act"). The Fund will not be registered under the


Investment Company Act of 1940, as amended, in reliance on Section


3 ( c ) ( 1) thereof. 

The Association, through its wholly-owned subsidiary,
 

Washington Hospital Services, Inc. ("WHS"), proposes to enter into
 

an agreement ("Agreement") with the Fund under which WHS will
 

receive a fee for its services in disseminating information about
 

the existence of the Fund to members of the Association eligible to
 

invest in the Fund and introducing the Fund's general partner to
 

such members. This letter seeks the concurrence of the staff that
 

implementation of the Agreement will not constitute WHS or its
 employees "brokers" or "dealers" wi thin the meaning of § 3 ( a ) of 

the Securities Exchange Act of 1934, as amended ("Exchange Act"),
 

subject to registration under § IS(a) thereof, "investment
 

advisers" within the meaning of § 202(a) of the Advisers Act,
 

subject to registration under § 203 (a) thereof, or solicitors under
 

Rule 206 (4) -3 under the Advisers Act.
 

Specifically, we respectfully request the following relief:
 

1. That the staff of the Division of Market Regulation 

advise us that it would not recommend enforcement action to 

theCommission if the proposed Agreement is implemented without WHS or its employees registering as broker-dealers under § 15 (a) of the

Exchange Act. 

2. That the staff of the Division of Investment Management
 

advise us that it would not recommend enforcement action to the
 

Commission if the proposed Agreement is implemented without WHS or
 

its employees registering as "investment advisers" under § 203(a)


of the Advisers Act or proceeding under Rule 206 (4) -3 thereunder. 

2
 
We are submitting the following information in support of this
 

reques t : 

Section I below provides background information about the
 

parties and the Fund.
 

Section II below describes the provisions of the proposed
 

Agreemen t between WHS and the Fund.
 

Section III below discusses the issues raised by this
 

request for no-action relief and precedent applicable thereto.
 

Attached hereto for the convenience of the staff is the
 

principal no-action letter on which this request relies: National
 

School Boards Association (available Feb. 13, 1984 with respect to
 

Exchange Act issues and Feb. 17, 1984 with respect to Advisers Act


issues) . 

I. BACKGROUND INFORMTION
 

A. The Association
 

The Association is a not-for-profi t corporation whose voting
 

members consist of 54 private hospitals, 39 statutory district
 

hospi tals and two federal hospitals located in the State of
 

Washington. The Association has served as a trade association for
 

its member hospitals for more than 60 years. It is organized under
 

the laws of the State of Washington and, except for a tax on
 

political activities, qualifies as a tax-exempt organization under
 

Section SOI(c)(6) of the Internal Revenue Code, as amended (the


"Code") . 

B . WHS
 

WHS is a wholly-owned, for-profit subsidiary of the 

Association incorporated effective January 1, 1988. It is governed 

by a board of directors consisting of the Chairman-Elect of the 

Association, the Vice President for Internal Operations for the

Association, and five directors elected at large by the 

Association, as shareholder. 

3
 
C. The Association's Services for Members
 

The Association performs a wide variety of services for its
 

member hospitals, including serving as an advocate for members'
 

interests in connection with public issues affecting health care,
 

sponsoring member meetings, presenting educational programs for
 

hospi tal personnel, and making technical advisory services relating
 

to organization, financing and health care delivery available to
 

member hospitals. In addition, through its subsidiary, WHS, the
 

Association (i) administers three state-authorized self-insurance
 

trusts for member hospitals,l and (2) facilitates the development
 

and availability of third-party services meeting the common service
 

needs of member hospitals. 2 In fulfilling this facilitating
 

function, WHS works to identify and investigate hospital service
 

needs that could be met by a common provider, to analyze the
 

products, performance and service costs of third-party providers of
 

such services, and to assist the providers it approves (and with
 

whom, in some cases, it has negotiated special price terms for
 

member hospitals) in marketing their services to member hospitals
 

and other health care providers. All fees earned by WHS inure to
 

the benefit of member hospitals, either directly, through the
 

funding of WHS' s services for members, or indirectly, in the form
 

of dividends available to the Association, WHS's not-for-profit


parent. 

These trusts, formed pursuant to Washington statute,
 

include the Public Hospital District Unemployment Compensation
 

Trust, the Public Hospital District Workers' Compensation Trust,
 

and the Washington Hospitals Workers' Compensation Trust. Dana
 

serves as investment adviser for these trusts pursuant to an
 

investment advisory agreement with each trust. Dana also provides
 

investment advisory services under separate agreements with the
 

Washington Hospitals Insurance Trust (a health and welfare trust)
 

and the Washington State Hospital Association Education & Research
 

Foundation and manages a cash reserve fund for the Association
 

under an investment advisory agreement with the Association.
 

2 Services and programs developed in response to member needs
 

have included, among others, electronic billing services, Medicaid
 

eligibili ty verification services, patient data reports, computer-


based clinical nursing information, medical waste treatment and
 

disposal services, medical records review services, medical
 

equipment financing services, telemedicine services, physician


recrui tment and locum tenens services, and compensation, insurance 

and retirement benefits services for hospital employees.
 

4 
D. Enti ties Entitled to Invest in the Fund 

Investment in the Fund will be limited to (i) the 54 private
 

hospi tal members of the Association (collectively, the "Qualifying
 

Hospi tals" ), and (ii) private clinics, nursing homes, hospices and
 

other health care providers that directly, or indirectly through
 

one or more intermediaries, control, are controlled by, or are
 

under common control with a Qualifying Hospital ( collectively, the
 

"Affiliates" ). Each Qualifying Hospital is located in and licensed
 

by the State of Washington and is a voting member of the
 Association. Forty-two of the Qualifying Hospitals are not-for­ profi t organizations exempt from federal income taxation under 

Section 501(c) (3) of the Code, and the remainder are for-profit
 

enti ties.
 

E. The Fund
 

Hospitals and their affiliates frequently are faced with the
 

need to invest funds held in reserve accounts for expenditure
 

within a one- to five-year period. The amount of funds available
 

within a single entity's reserve accounts may make it impractical
 

for the entity to maintain and manage an individual investment
 

portfolio. The purpose of the Fund is to permit Qualifying
 

Hospi tals and Affiliates to maximize their investment returns by
 

pooling their funds available for investment in a managed
 

investment primarily in mortgage securities issued by United States


government agencies. 3 

The Fund will be structured as a limited partnership under
 

Wisconsin law. Dana will be the general partner of the Fund and
 

will enter into an investment advisory agreement with the Fund to
 

manage the Fund's investments. For its services as investment
 

adviser, Dana will receive a fee of .50% (.0050) per annum of the
 

asset value of the Fund. 4 Investors' interests in the Fund will be
 

represented by "Units" of the Fund, which will be offered and sold
 

to Qualifying Hospitals and Affiliates by the general partner in
 

private transactions pursuant to Regulation D under the Securities
 

3 The Fund will invest primarily in intermediate-term
 

mortgage securities issued by United States government agencies.
 

However, the Fund also will be permitted to purchase intermediate-


term, high grade corporate mortgage securities.
 

4 Dana will not receive any fees as general partner, but it
 

may pay and be reimbursed for legal fees, accounting and audit fees


and general administrative expenses (such as postage, long distance 

telephone and copying expenses) incurred on behalf of the Fund.
 

5
 
Act and Sections 460-44A-500 et seq. under the Washington Act.
 

Units will not be transferable, but investors will be permitted to
 

purchase or redeem Units on a monthly basis. The general partner
 

will not receive any commissions or other compensation for sales or
 

redemptions of Units.
 

Fund assets will be held by a non-affiliated custodial bank,
 

and non-affiliated registered broker-dealers will effect all
 

purchases and sales of the Fund's portfolio securities. The Fund
 

will be audited annually by an independent certified public


accounting firm. 

I I . THE PROPOSED AGREEMNT
 

The proposed Agreement contains the provisions described
 below. These provisions have been structured in light of

provisions with respect to which the staffs of the Division of
 

Market Regulation and the Division of Investment Management
 

previously have taken no-action positions, as will be discussed in
 

greater detail in Section III below.
 

A. Provisions Reqardinq Services
 

The Agreement provides for WHS to perform the following
 

services for the Fund:
 

( 1 ) Provide the general partner of the Fund with certain public financial information about Qualifying Hospitals
 

and Affiliates.
 

(2) Ask Qualifying Hospitals and Affiliates to fill out
 questionnaires designed to elicit basic financial
 

information pertinent to investment in the Fund and
 

provide the completed questionnaires to the general


partner. 

(3) Provide the Fund with the names and addresses of
 

Qualifying Hospitals and Affiliates, and with respect to


each such entity, provide the name and title of the
 

officer to whom information about the Fund should be
 directed. 

(4) Personally introduce to the appropriate officer of each
 

Qualifying Hospital and Affiliate, at a meeting at the
 

officer's office scheduled by WHS, the representatives of
 the general partner who will be offering and selling

Uni ts . 

(5) Disseminate to Qualifying Hospitals and Affiliates general information about the existence of the Fund
 

6 
(which information would include the telephone number of


the general partner and a response card for requesting
 information about the Fund from the general partner) 

through any combination of the following:
 

(a) Direct mailings to Qualifying Hospitals and
 Affiliates. 

(b) Announcements in WHS' s periodic newsletters to
 Association members.
 

(c) Brochures to be made available at WHS' s offices and


at the booths and tables that WHS sets up at


various meetings of the Association and of
 

subgroups of Association members. 5
 

(6) Permit those representatives of the general partner who
 will be offering and selling Units to rent a booth at the
 

exhibi t hall at the Association's annual meeting to
 

distribute the Offering Memorandum and sales literature
 

and to discuss the Fund directly with Qualifying
 

Hospitals and Affiliates.
 

B. Provisions Reqardinq Compensation
 

The proposed Agreement provides for WHS to be compensated by
 

the Fund for its services in an amount not to exceed .07% (.0007)
 

per annum of Fund assets, payable quarterly. Nei ther WHS nor the
 

two WHS employees who will carry out the services called for by the
 

Agreement will receive any fee or other form of compensation based
 

on sales of Partnership Units.
 

C. Provisions Reqardinq Explici tl v Prohibited Acti vi ties 

The proposed Agreement prohibits WHS and its employees from
 

engaging in any of the following activities:
 

( 1 )	 Discussing with any person the advantages or 

disadvantages of investments in general or of any particular investment, including an investment in the 

Fund. 

5 The information contained in the mailings, announcements
 

and brochures will be very limited. It will consist of a general
 

announcement about the creation and purpose of the Fund, a
 

statement of the address and telephone numer of the general
 

partner from which information about the Fund may be obtained, and
 

a return card that can be sent to the general partner to request
 

information about the Fund.
 

7 
(2) Valuing, advising or recommending any investment,
 including an investment in the Fund; providing analyses,
 

investment formulas or investment guidelines; or in any
 

way giving investment advice.
 

( 3) Taking part in face-to-face negotiations between the
 general partner and any Qualifying Hospital or Affiliate
 

with respect to the offer and sale of Units.
 

(4) Assisting any Qualifying Hospital or Affiliate in making
 a decision whether to purchase Units.
 

(5) Delivering the Offering Memorandum for the Fund or in any
 way holding themselves out as providing services involving sales of Units or other transactions in securities. 

(6) Holding themselves out as investment advisers or persons
 who provide investment advice.
 

(7) Describing, recommending or endorsing Dana's services as
 general partner of the Fund or as the Fund's investment
 adviser. 

( 8 ) Receiving or handling any investor's Subscription Agreement or any funds to be used by an investor in purchasing Units. 

(9) Having any discretion with respect to the general
 partner's acceptance or rejection of any Qualifying
 

Hospi tal or Affiliate as an investor in the Fund.
 

D. Provisions Reqardinq Explicitlv Mandated Activities
 

The proposed Agreement requires WHS and its employees to:
 

(1) Refer all questions concerning participation in the Fund


to the general partner.
 

( 2) Send all requests for information (other than for the basic written information WHS is permitted to deliver
 

under the Agreement) directly to the general partner.
 

( 3 ) In connection wi th personal introductions of representatives of the general partner to representatives 

of Qualifying Hospitals and Affiliates:
 

(a) Make clear to the Qualifying Hospital and Affiliate
 that the introduction is being made pursuant to an
 

agreement between WHS and the Fund, under which
 

agreement WHS is entitled to compensation.
 

8 
(b) Make clear to the Qualifying Hospital and Affiliate


that Dana, and not WHS or the Association, will be
 

the provider of any securities services.
 

(c) Leave the room after the introduction and take no


further part in the conversation or in any further
 

conversations between the parties.
 

E. Required Disclosures
 

The proposed Agreement:
 

(1) Requires the Offering Memorandum for the Fund to


disclose (a) the terms of the Agreement between WHS and
 

the Fund (inc 1 uding its compensation prov is ions), (b) the
 

fact that Dana (and not WHS or the Association) will be
 the provider of any securities services, and (c) the fact 

that neither WHS nor the Association are registered
 

broker-dealers or registered investment advisers.
 

(2) Requires literature describing the Fund to disclose the
 terms of the Agreement between WHS and the Fund
 

(including its compensation provisions).
 

F. Addi tional Representations
 

(i) WHS does not endorse or otherwise recommend participation
 in the Fund. This will be made clear in the Offering
 

Memorandum and other literature about the Fund.
 

(2) WHS will perform no services with respect to actual
 investment by Qualifying Hospitals and Affiliates and has
 

no role in advising the Fund.
 

III. DISCUSSION
 

We believe that the activities called for by the proposed
 

Agreement are not such as to bring WHS or its employees wi thin the
 

definitions of "broker" or "dealer" under the Exchange Act or
 

"investment adviser" under the Advisers Act or to constitute them
 

"solicitors" under Rule 206(4)-3. Further, because the Association
 

and WHS have no mission apart from their mission to serve the needs
 

of Association members, we believe that registration under either
 Act would serve no purpose. Our discussion of these points is 

organized as follows:
 

9 
Paragraph A-I discusses the definitions of "broker" and
 

"dealer" under the Exchange Act and the reasons we believe


tha t WHS' s proposed services do not meet these def ini tions . 

Paragraph A-2 discusses the definition of "investment
 adviser II under the Advisers Act and the reasons we believe 

tha t WHS' s proposed services do not meet that def ini tion . 

Paragraph B-1 applies II finders agreement II no-action 

letters previously issued by the staff to the issues raised
 

herein under § 15 (a) of the Exchange Act.
 

Paragraph B-2 applies "membership organization" no-action
 

letter previously issued by the staff to the issues raised
 

herein under § 15 (a) of the Exchange Act and § 203 (a) of the
 Advisers Act and Rule 206(4)-3 thereunder. 

A. Definitions
 

i. Definitions of "Broker" and "pealer" Under Exchanqe Act
 

Section 3 ( a) ( 5) of the Exchange Act def ines "dealer II as any person, other than a bank, "engaged in the business of
 

buying and selling securities for his own account...." WHS
 

and its employees clearly will not be acting as "dealers"
 

under the Agreement because neither they nor the Association
 

are eligible to purchase Units in the Fùnd.
 

Section 3 ( a ) ( 4) of the Exchange Act def ines "broker" to 

mean any person, other than a bank, "engaged in the business
 

of effecting transactions in securities for the account of
 others. " WHS and its employees will not be acting as 

"brokers" under the Agreement because they neither will be
 

"effecting transactions" in securities nor receiving
 

transaction-based compensation.
 

In order to "effect transactions" in securities, one must
 

" become involved in the negotiations... (or) undertake an
 

advisory, evaluative or decision-making function. ,,6 One who
 

undertakes none of these activities but, rather, merely
 

provides information concerning potential investors to an
 

6 Financial Charters & Acquisitions, Incorporated (available
 

Nov. 25, 1984), at 5, citing to the staff's statement in F. Willard
 

Griffith, II (available Oct. 7, 1974).
 

10 
issuer or a broker-dealer and facilitates interaction between
 them is a "finder" and not a "broker. ,,7 

As Section II-C (pp. 7-8) of this letter points out, the
 

Agreement prohibits WHS and its employees from taking part in
 

any negotiations regarding purchases and sales of Partnership
 Units and from undertaking any advisory, evaluative or 

decision-making functions. Instead, WHS merely will, like the


finders in Colonial Equities Corp. 
 8 and the membership


organizations in National School Boards Association9 and
 

American Medical Association10, provide basic informational
 

and introductory services to a person who is offering an
 

ivestment opportunity and, like the membership organizations
 

in National School Boards Association, American Medical
 

11 Association and Indiana Hospital Assn. Investment Funds, 


assist in bringing the existence of the investment opportunity
 

to the attention of members.
 

Another element in determining whether a person is a
 

"broker" is whether the person receives transaction-based
 

compensation. As Section II-B (p. 7) of this letter points
 

out, neither WHS nor its employees will receive any fee or
 

other form of compensation based on sales of Partnership
 

Units. Instead, like the membership organizations in the no-


action letters cited above, WHS will receive compensation
 

measured solely by assets under management in the Fund.
 

2. Definition of "Investment Adviser" Under the Advisers Act
 

Under § 202(a) (11) of the Advisers Act, an "investment
 

adviser" is one who, for compensation (1) engages in the
 

business of advising others, either directly or through
 

publications or writings, as to the value of securities or as
 

to the advisability of investing in, purchasing, or selling
 

securities, or, alternatively (2) issues or promulgates
 

analyses or reports concerning securities as part of a regular


business. 

7 See ide and no-action letters cited below. 

8 Available June 28, 1988; discussed in i B-1, p. 13 below. 

9 See Feb. 17, 1984 letter, discussed in i B-2, beginning at
 

p. 14 below.
 

10 Available Oct. 11, 1977; discussed in i B-2, pp. 15-16 below. 

11 Available Oct. 15, 1993; discussed in note 19 below.
 

11 
WHS and its employees will not be acting as "investment
 

advisers" because (1) they will not provide and will not be
 

"engaged in the business" of providing advice as to the value
 

of securities or as to the advisability of investing in,
 

purchasing or selling securities, and (2) they will not issue
 

or promulgate and will not be "engaged in the business" of
 

issuing or promulgating analyses or reports concerning
 

securi ties.
 

As Section II-C (pp. 7-8) of this letter points out, the
 

Agreement prohibits WHS and its employees from (i) discussing


wi th any person the advantages or disadvantages of investments 

in general or of any particular investment, including an
 

investment in the Fund; (ii) valuing, advising or recommending
 

any investment, including an investment in the Fund; (iii)
 

providing investment analyses, investment formulas or
 

investment guidelines; (iv) holding themselves out as
 

investment advisers or persons who provide investment advice;
 

(v) describing, recommending or endorsing Dana's services as
 general partner of the Fund or as the Fund's investment
 

adviser; or (vi) otherwise giving investment advice. Instead,
 

WHS's services are restricted to finders' services, i. e., to
 

providing basic information about Qualifying Hospitals and
 

Affiliates to the general partner and assisting in bringing
 

the existence of the Fund to the attention of Qualifying
 

Hospitals and Affiliates.
 

Because it will not in fact be providing investment
 

advice or issuing analyses or reports concerning securities,
 

WHS clearly will not be "engaged in the business ", of providing
 

investment advice or issuing analyses or reports concerning
 

securi ties. To paraphrase from the request for no-action
 

relief set forth in National School Boards Association
 

(discussed under! B-2 below), WHS is engaged in the business


of representing the interests of hospital members of the
 

Association, not "in the business" of providing investment
 

advice, and its finder's services under the Agreement will
 consti tute only a small part of the many services it provides 

to Association members.1
 

B. No-Action Letters
 

1 . "Finders Aqreement II No-Action Letters Respectinq § 15 ( a)
 

of the Exchanqe Act
 

The staff of the Division of Market Regulation has issued
 

a series of no-action letters that support the proposition
 

12 See February 13, 1984 letter, at p. 8.
 

12 
that one who merely provides information concerning potential
 

investors to an issuer or a broker-dealer and facilitates
 

interaction between them is a "finder" and not a "broker. ,,13 

For examRle, in H.C. Copeland and Associates Equities, Incorporated, 4 the staff determined that it would not
 

recommend action to the Commission if independent consultants
 

provided a registered broker-dealer wi th demographic
 

information about potential investors, and introduced the
 

broker-dealer to these investors, 15 wí thout first registering
 

under § 15 (a) of the Exchange Act. As will be the case with
 

WHS under the instant Agreement, the independent consultants
 

were prohibited from giving investment advice, distributing
 

sales literature, or participating in negotiations with
 

potential investors.
 

Similarly, in Financial Charters /; Acquisitions,
 

Incorporated, the staff granted no-action relief under § 15 (a)
 

of the Exchange Act to independent consultants who proposed to
 

enter into finders agreements with a broker-dealer engaged in
 

marketing hedging strategies for securities trading to
 

financial institutions. Under the agreements, the consultants
 

were to set up initial meetings between the broker-dealer and
 

financial institutions and to attend such meetings solely for
 the purpose of introducing the parties .16 As will be the 

case with WHS under the instant Agreement, the consultants
 

were prohibited from discussing, evaluating or recommending
 

the proposed investment, from taking any part in negotiations
 

respecting the proposed investment, and, following their
 

introduction of parties, from taking any further part in the
 

ini tial meeting (and from taking part in any subsequent
 

meetings) between the parties.
 

In Colonial Equities Corp., the staff took a no-action
 

posi tion with respect to the applicability of § 15 (a) to
 

services of independent insurance agencies under proposed
 

finders agreements with a registered broker-dealer selling
 

13 The services performed by a "finder" generally are characterized as "clerical and ministerial" in nature. See, e. g. , 

Retirement System Distributors, Incorporated (available February 7,
 

1992) and no-action letters cited at pp. 11-12 therein.
 

14 Available April 8, 1982.
 

15 Such services are like the services of WHS described in Section II-A ( 1 ) and (4 ) (p. 6 ) of this letter. 

16 Such services are like the services of WHS described in Section II-A (4 ) (p. 6 ) of this letter. 

13 
interests in partnerships being syndicated by an affiliate.
 

The agreement provided for the agencies to ask clients to
 

complete questionnaires designed to elicit information
 pertinent to sui tabili ty standards for investment in the 

partnerships, to provide the completed questionnaires to the
 

broker-dealer, and to introduce clients identified as
 

potential investors to the broker-dealer in person or by
 

telephone.17 As will be the case with WHS under the instant
 

Agreement, the agreement provided that the agencies would not
 

offer explanations, advice or recommendations regarding an
 

investment in the partnerships, take part in negotiations
 

between clients and the broker-dealer, assist clients in
 

making investment decisions, or receive or handle any funds to
 

be used in purchasing interests in the partnerships. Further
 

(and again like WHS), agency personnel were required to leave


the room or get off the telephone, as applicable, following
 

the introduction of potential investors and to take no further
 

part in the conversation (or in any subsequent conversations)
 

between the parties.
 

We believe that these II finders agreement II no-action 

letters support our contention that WHS will not be acting as


a II broker II wi thin the meaning of § 3 ( a ) ( 4) of the Exchange

Act. 

2. "Membership Orqanization" No-Action Letters Respectinq
 

§ lS(a) of the Exchanqe Act and § 203(a) of the Advisers


Act and Rule 206 (4) -3 Thereunder 

In the II finders agreement II no-action letters, entities
 

wi th interests independent of the interests of potential
 

investors acted to bring investment opportunities to the
 

attention of such investors. By contrast, the no-action
 

letters discussed below focus on the activities of membership
 

organizations in bringing investment opportunities to the
 

attention of the members whose interests they were created to
 

serve. These no-action letters are pertinent to the issues
 

raised in the instant case under § 15 (a) of the Exchange Act


and § 203 (a) of the Advisers Act and Rule 206 (4) -3 thereunder. 

(a) Facts of National School Boards Association
 

The no-action letter most pertinent to the instant
 

Agreement (although it involved services more expansive than
 

the services WHS will perform) is National School Boards
 Association. In this no-action letter, the staffs of the 

17 Such services are like the services of WHS described in
 

Section II-A (2)-(4) (page 6) of this letter.
 

l4 
Division of Market Regulation and the Division of Investment
 

Management took respective no-action positions concerning the
 

applicabili ty of § 15 ( a) of the Exchange Act, § 203 ( a) of the
 

Advisers Act and Rule 206 (4) -3 under the Advisers Act to
 

services to be performed under a consulting agreement (the
 

"NSBA Agreement") between E. F. Hutton & Company ("Hutton")
 

and the National School Boards Association ("NSBA"), a not-


for-profit organization whose members consist of state school
 

board associations, local school boards and districts, and
 

other public educational entities.
 

The NSBA Agreement grew out of a decision by the NSBA, as
 

a service to its members, to work with Hutton to organize
 

liquid asset trusts on a state-by-state basis tailored
 exclusively for investment by local school districts

(collectively, the "Trusts ") . Hutton was to serve as the

administrator, investment adviser and distributor for the
 

Trusts. The NSBA Agreement provided for the NSBA to serve as
 

a consultant to Hutton at two stages of the development of the
 

Trusts: feasibility and operation.
 

At the feasibility stage, the NSBA was to consult with
 

Hutton regarding local markets, applicable local laws,
 

competing products, and whether Hutton should pursue
 

development of a Trust in the area. In addition, the NSBA was
 

to arrange for Hutton to meet with appropriate state and local
 

school district officials to 
 discuss local finances and the
 

purpose of the Trusts. At the operational stage, the NSBA was
 

to: (a) schedule and announce through NSBA publications
 

informational meetings and seminars at which Hutton
 

representatives would discuss the Trusts and related matters,
 

(b) consult with Hutton and the state school board


associations about local facilities (such as custodial banks)
 

to be used in connection with the Trusts, (c) assist in the
 

preparation and dissemination 
 of information with respect to
 

the existence of the Trusts, (d) allow the use of NSBA
 

publications to give information on how to obtain Trust
 

materials, (e) consult as to operational or coordinating
 

difficul ties that might arise between the Trusts and school
 

districts, (f) provide Hutton with mailing lists of NSBA
 

members, and (g) allow the Trusts to use the NSBA logo in
 informational materials. 

The NSBA Agreement provided that the NSBA would not: (i)
 

take part in face-to-face solicitations with respect to
 

participation in the Trusts, (ii) recommend participation in
 

the Trusts, (iii) answer specific questions about the Trusts,
 

or (iv) give investment recommendations, analyses, formulas,
 

guidelines or advice. In addition, Hutton, not the NSBA,
 

would distribute the Information Statement about a Trust to
 

potential settlors of the Trust (i.e., to the individual
 

school districts), and Hutton would be responsible for the
 

15 
contents of all communications describing the Trusts. If a
 

School District decided to become a settlor of a Trust , it
 

would submit its registration form directly to the Trust, not
 

to the NSBA. The NSBA would have no responsibility for funds
 

and no discretion whether to accept or reject registration
 

forms, and would be required to send all requests for
 

information (except for preprinted materials) directly to
 

Hutton for appropriate action. Further, the agreement between
 

the NSBA and Hutton was to be disclosed in the Information
 

Statement. 

The NSBA's compensation under the NSBA Agreement was a
 

fee of 20% of administration and investment advisory fees
 

received by Hutton (anticipated to be no more than .5% of
 

assets under management), plus reimbursement for out-of-pocket
 

expenses. Nei ther the NSBA nor its employees were to be
 

separately compensated for the offer or sale of shares of the


Trusts. 

(b) The NSBA's Contentions With Respect to Reqistration
 under § 15 (a) of the Exchanqe Act: Applicabili tv in the Instant Case . 

The NSBA cited both precedent and policy in support of
 

its request for no-action relief under § 15 (a) of the Exchange


Act. 

( 1 ) Preceden t 

Wi th respect to precedent, the NSBA pointed to the
 

similarities between its services and those at issue in H. C.
 

Copeland and Associates Equities (described above) and
 

American Medical Association, in which the staff of the
 

Division of Market Regulation had granted no-action relief
 under § 15 ( a) in connection with services to be provided by 

the American Medical Association ("AM") as administrator to
 

the AM Tax Exempt Income Fund. In connection with that fund
 the AM was to: ( i) handle inquiries, except those concerning shareholder accounts and sales, (ii) permit the use of the AM 

name and provide access to its membership list and mailings,
 

(iii) provide advertising and sales materials and space in AM
 publications for publishing the prospectus and tombstone type
 announcements, and ( i v) provide a booth (to be manned by 

personnel of the distributor) at AM conventions and meetings
 

to distribute prospectuses and sales literature and to answer
 questions. The AM was prohibited from taking part in any

face-to-face negotiations between the distributor and
 

potential investors (i. e., members of the AM or affiliated
 medical associations) and from answering inquiries with 

16
 
respect to shareholder accounts and sales of fund shares. 18
 

We believe that National School Boards Association and
 

the precedents it cites support our view that WHS and its
 

employees will not be acting as "brokers" as defined by
 

§ 3 (a) (4) of the Exchange Act. The services at issue in H. C.
 

Copeland and Associates Equities are described at page 12
 

above. Wi th respect to those at issue in National School
 

Boards Association and American Medical Association, we
 

believe that the instant Agreement presents an even stronger
 

argument for no action than the NSBA and AM agreements
 

because (1) the instant Agreement calls for less expansive
 

services than did the other two agreements, and yet (2) the
 

instant Agreement includes all of the prohibitions against
 

"brokers' services" included in the other two agreements.
 

Thus, for example, WHS will not engage (as did the NSBA) in
 

"feasibili ty stage" consulting with respect to local markets,
 

local laws, competing products and Trust feasibility, or in
 

"operational stage" consulting with respect to facilities
 

(such as custodial banks) or the operational and coordinating


difficul ties encountered by the distributor. Moreover, WHS
 

(unlike the NSBA and AM) will not permit use of the


Association's logo in connection with the Fund and will not


( as did the AM) provide space in its publications for

publishing the offering document for the Fund. At the same
 

time, WHS (like the NSBA and AM) will be prohibited from: (i)
 

taking part in any face-to-face negotiations or solicitations,
 

(ii) answering specific questions about the Fund, (iii)
 advising, valuing or recommending investments in the Fund,
 

(iv) delivering the offering document for the Fund, or
 recei ving or handling investors' subscriptions or subscription 

funds, or (v) having any discretion with respect to the
 

acceptance or rejection of qualifying members as investors.
 

Further, WHS (like the NSBA and the AM) will not receive any
 

commissions or other compensation based on sales of beneficial
 

interests in the Fund .19
 

18 See American Medical Association supra n. 10, at p. 2. 

19 We were unable to find a no-action letter subsequent to
 

National School Boards Association addressing the same issues 

addressed therein. However, we believe that Indiana Hospital Assn.
 

Investment Funds (available Oct. 15, 1993) also supports our
 

contention that WHS will not be acting as "broker" under the
 

instant Agreement and thus should not be subject to registration
 under § 15 ( a) . In Indiana Hospi tal Assn. Investment Funds, the

staff of the Division of Market Regulation took a no-action
 

position with respect to the applicability of § 15(a) to the
 

services of the Indiana Hospital Association ("IRA"), a not-for­

(continued. . . ) 

17 
(2) Policy
 

wi th respect to policy, the NSBA contended that no policy
 

or purpose would be served by a requirement that it register
 

under § 15 (a) of the Exchange Act because (1) it was acting on
 

behalf of its members in helping develop an investment medium
 

available to members, and (2) the fees it earned would be used
 

solely to fund its activities on behalf of its members .20
 

Similarly, WHS will be acting on behalf of Association
 

members in bringing an investment opportunity available to
 

members to the members' attention, and its activities under
 

the Agreement will be fully disclosed. Moreover, the fees
 

earned by WHS will inure to the benefit of the Association's
 

members either directly, through the funding of WHS' s services
 

19 ( . . . continued) 

profit organization comprised of approximately 145 Indiana
 

hospi tals, in establishing and operating investment funds (" Funds" )
 

for investment by it and qualifying members and affiliates.
 

The facts of the letter, briefly sumarized, were as follows:
 

The IRA had proposed to establish a business trust ("Trust) for the
 

purpose of administering the Funds. The IRA was to manage the
 

Trust, as trustee, for which it was to receive compensation in the
 

form of an asset-based fee. Neither the IRA nor its employees were
 

to receive any commissions or other compensation based on sales of
 

beneficial interests in the Trust. Trust assets were to be held by
 a custodian bank; a registered investment adviser (retained by the 

Trust) was to advise the trustee with respect to the investment of
 

Trust assets; and a registered broker-dealer was to effect all
 

transactions in portfolio securities and all offers and sales of
 

beneficial interests in the Trust.
 

The activities of the IRA's officers, directors and employees
 

in connection with offers and sales of beneficial interests in the
 

Trust were described in the IRA's letter seeking no-action relief
 

only as activities "permitted by Rule 3a4-1(a) (4) (iii) (under the
 

Exchange Act)." The activities permitted by the Rule include,
 

among others, "performing ministerial and clerical work involved in
 

effecting any transaction. II Although no detail is given in the
 

letter requesting no-action relief, it seems likely, based on the
 

stated facts, that the IRA's ministerial and clerical activities
 

included bringing the existence of the Trust to its members'
 

attention and introducing IRA members to the broker-dealer selling
 

interests in the Trust.
 

20 National School Boards Association (Feb. 17, 1984 letter),
 

at p. s.
 

18
 
for members, or indirectly, in the form of dividends available
 

to the Association, WHS' s not-for-profi t parent. Accordingly,
 

we believe that no policy or purpose would be served by


requiring WHS to register under § 15 (a) . 

(c) The NSBA's Contentions With Respect to Reqistration
 Under Section 203(a) of the Advisers Act;
 

Applicabili tv in the Instant Case
 

(1) Definition of "Investment Adviser"
 

In support of its contention that its activities would
 

not be those of an "investment adviser" as defined by
 

§ 202(a) (11) of the Advisers Act, the NSBA pointed out that
 

while it would be facilitating meetings and information-


sharing between its members and Hutton, informing its members
 

of the availability of the Trusts, and providing its logo for
 

use by the Trusts, it would not be advising members as to the
 

desirabili ty of investing in the Trusts and would not be
 

providing recommendations, analyses, investment formulas or
 

investment guidelines or otherwise giving investment advice.
 

The NSBA stated that it was a long established not-for-profi t
 

association "in the business" of representing its members,
 

not "in the business II of advising others as to investments,
 

and that the development of the Trusts, which it had
 

undertaken as a service to its members, was only one of many
 

services it provided for its members. ,,21 "Essentially," said
 

the NSBA, "a nonprofit organization is providing a service to
 

its members to meet a perceived need... .The NSBA will not be
 

recommending that its members participate in the Trusts, but
 

will be helping bring the opportunity to its members'
 

attention. Every' sponsor' of a private label fund does no
 

less and to the best of our knowledge, the staff has not
 

insisted on their registration as investment advisers. ,,22
 

We believe that the same analysis is applicable in the
 

instant case. In other words, for the reasons discussed in
 

detail at page 11 of this letter, WHS will not be acting as an
 "investment adviser" as defined by § 202 (a) (11) of the

Advisers Act because it will not provide or be "in the
 

business" of providing investment advice, and will not issue
 or be to in the business" of issuing analyses or reports 

concerning securities. WHS' s services under the Agreement
 

will be restricted to the services of a finder, and those
 

21 See Feb. 13, 1984 letter, at p.8. 

22 Id., at p. 9. 

19 
services will constitute only a small part of the services WHS
 

performs for members of the Association.
 

( 2 ) Policy 

The NSBA also stressed that no policy would be served by
 

requiring that it register under § 203(a) of the Advisers Act,
 stating: 

"The NSBA--an association of which the
 

investor is a member and whose interests it
 

represents--is receiving compensation, which
 

will be fully disclosed. .. .A registered
 investment adviser and broker-dealer are 

responsible for explaining the investment
 aspects of the (Trust).... The trustees of the

Trust are public officials. All aspects of
 

the Trust and its relation to Hutton and the
 

NSBA will be fully disclosed. It is difficult
 to imagine how the "investor" would be

benefitted by requiring registration of the
 

NSBA as an adviser." 23
 

Similarly, we believe that no policy or purpose would be
 

served by a requirement that WHS register as an investment
 

adviser. WHS--a wholly-owned subsidiary of a not-for-profi t
 

association that has represented the interests of Washington
 

hospitals for more than 60 years--itself was fOrmed to serve
 

the interests of Washington hospitals. In bringing to the
 

attention of Qualifying Hospitals and Affiliates the existence
 

of a vehicle for investing their funds held in reserve
 

accounts, WHS will be serving that mission. Moreover, the
 

Agreement under which WHS will be acting, and its compensation
 

thereunder, will be fully disclosed. Shares of interest in
 

the Fund will be offered and sold by the general partner
 

pursuant to Regulation D under the Securities Act and Sections
 

460-44A-SOO et seq. of the Washington Act, and the decision to
 

purchase Shares will be made in each case by persons standing
 

a fiduciary relationship with the hospital making the
 investment. Furthermore, a registered investment adviser will 

manage the invested funds. We do not believe that Qualifying
 

Hospitals or Affiliates would be benefitted by a requirement
 

that WHS register as an investment adviser.
 

Id., at p. 11.
 

20 

23 
(d) The NSBA' s Contentions Wi th Respect to Rule
 206 (4 )-3 Under the Advisers Act: Applicabilitv in
 

the Instant Case
 

Wi th respect to Rule 206 (4) -3, the NSBA stated:
 

"We recognize that Rule 206 (4) -3. . . deals 

specifically with paYments by an investment
 adviser to third parties for client

solicitation, and that it could be argued that
 

the NSBA is 'soliciting' clients for Hutton, a


registered investment adviser. . . . (However, the Rule) clearly contemplates a direct

contractual relationship between the adviser
 

and the 'client.' Hutton is the adviser in
 

this case, but the 'client' of the adviser is
 

the Trust, not the individual settlor School
 

Districts. Although the Trust in this case
 

will not be a registered investment company,
 

it nevertheless is a legal entity that will
 

enter into an advisory contract with Hutton.
 

The Trust is not a device to evade Rule
 

206(4)-3; it is an entity formed for a


legi timate purpose. 

"Thus, in bringing the existence of the
 

Trust to the attention of its members, the
 

NSBA is not soliciting 'clients' for Hutton,
 

the adviser. Although the investors in an


investment company could arguably be
 

considered to be indirect 'clients' of the
 

adviser, just as the School Districts could be
 

in this case, we have seen no indication that


the Commission intended Rule 206 (4) -3 to be 

applied in that context. 24
 

We believe that the same analysis is applicable in the
 

instant case. Dana will be acting as an investment adviser to
 

the Fund under an investment advisory agreement with the Fund,
 

and its investment advisory client will be the Fund, not the
 

individual limited partners. Like the Trust in National
 

School Boards Association, the Fund is a legal entity formed
 

for a legitimate purpose, not a device to evade Rule 206(4)-3.
 

Accordingly, in bringing the existence of the Fund to the
 

attention of Qualifying Hospitals and Affiliates, WHS will not
 

be soliciting "clients" for Dana, the investment adviser.
 

In addition, we believe that no policy would be served by
 

a decision that WHS should be viewed as a "solicitor" within
 

Id., at p. 10.
 

21 

24 
the meaning of Rule 206 (4) -3 under the Advisers Act. The 

purpose of Rule 206 (4) -3 is to "provide prospective investment
 

advisory clients with notice of the solicitor's bias and
 

sufficient information to evaluate that bias. ,,25 WHS has no
 

"bias" (i. e., no adverse interest) with respect to members of
 

the Association because (1) it has no mission apart from its
 

mission to serve their interests, and (2) because all fees
 

earned by WHS inure to the benefit of members.
 

For all of the foregoing reasons, we respectfully request: (1)
 

that the staff of the Division of Market Regulation advise us that
 

it would not recommend enforcement action to the Commission if the
 

proposed Agreement is implemented without WHS or its employees
 

registering as broker-dealers under § 15 (a) of the Exchange Act;
 

and (2) that the staff of the Division of Investment Management
 

advise us that it would not recommend enforcement action to the
 

Commission if the proposed Agreement is implemented without WHS or
 

its employees registering as "investment advisers" under § 203(a)


of the Advisers Act or proceeding under Rule 206 (4) -3 thereunder. 

If you have any questions, or if you need further information,
 

please contact the undersigned at (608) 251-5000. We would
 

appreciate it if you would notify us orally if it appears that you
 

will not be able to respond positively to our request so that we
 

can discuss it further.
 

Very truly yours,
 

QUARLES & BRAY 

//;;-£6// Ø;2 /(C~ / I- ._. t.._ ¡;. '_.
 

Molly K. Martin
 

52692.01 

25 Statement by the staff in Dechert Price and Rhoads 

t (available Dec. 4, 1990), at p. 7. 

22