i LfJ ikk
 

::lroN 3Lc -l-i--2D~ ll), 203
 

RULE 

~~~~ 11;a -= Is L 'i ~ ,
 

April 3, 1998
 

Our Ref. No. 97-S22-CC
 

Daughters of Charity 

RESPONSE OF THE OFFICE OF CHIEF COUNSEL National Health System, Inc. 

DIVISION OF INVSTMNT MAAGEMENT File No. 132-3 

Your letter of March 20, 1998 requests assurance that the
 

staff would not reconuend enforcement action to the Conuission if
 

the Daughters of Charity National Health System, Inc. ("DCNS")
 

expands the categories of institutions that may participate in
 

DCNHS's cash management system and investment program (together,
 

the "Health System Depository") and reallocates certain expenses
 

relating to the Health System Depository among participants in
 

the depository without: (1) registering DCNS or the Health
 

System Depository as an investment company in reliance on Section


3 (c) (10) of the Investment Company Act of 1940 (the "Investment 

Company Act"); (2) registering DCNHS as an investment adviser
 

under the Investment Advisers Act of 1940 (the "Advisers Act");
 

(3) registering interests in the Health System Depository under
 the Securities Act of 1933 (the "Securities Act") or the 

Securities Exchange Act of 1934 (the "Exchange Act") in reliance


on Section 3 (a) (4) of the Securities Act and Section 12 (g) (2) (D) 

of the Exchange Act; or (4) registering DCNS or the Heal th


System Depository as a broker or dealer under Section 15 (b) of 

the Exchange Act.
 

Facts 

You represent that DCNS is a not-for-profit Roman Catholic
 organization exempt from taxation under Section 501 (c) (3) of the

Internal Revenue Code. DCNS serves as a holding company for 33 

wholly controlled and three 50% controlled subsidiaries that
 

manage hospitals or other health care facilities
 

("Members"). 1.1 You represent that each Member is a not-for­ profit organization exempt from taxation under Section 501 (c) (3) 

of the Internal Revenue Code.
 

DCNS offers its Members access to certain services
 

including insurance, purchasing services, auditing services, and
 

the Health System Depository. You represent that DCNS has
 

established the Health System Depository to assist its Members in
 

il You represent that all of the wholly controlled subsidiaries
 

are Roman Catholic health care organizations. You also represent
 

that of the three subsidiaries that are 50% controlled by DCNS,
 

the reminder of control is held by a Baptist hospital, in one
 

case, and by conuunity-controlled hospitals in the other two
 

cases. You state that each of these three subsidiaries has
 

agreed to abide by the ethical and religious directives for Roman
 

Catholic health care facilities.
 
- 2 ­

managing their cash and investments. 21 The Health System
 

Depository consists of two components: a cash management system
 

through which Members may pool excess daily cash balances from
 

their checking accounts in a short - term investment fund (the
 

"Short-Term Fund"), and an investment program through which
 

Members may invest funds from other sources (including endowment
 

funds and other funds not needed for daily operations) in the
 

Short-Term Fund or in a longer-term investment fund (the "Long-


Term Fundi" together with the Short-Term Fund, the "Funds"). You
 

represent that a Member may invest in the Funds only those assets
 

to which the Member has inuediate, unrestricted, and exclusive
 

use, benefit, and enjoyment. You further represent that none of
 

the assets invested may be attributable to a retirement plan
 

providing for employee contributions or variable benefits . In
 

addition, you represent that no participant in the Health System
 

Depository may assign, encumer, or transfer its interest in the


Funds. 

You represent that the board of directors of DCNHS has
 

ultimate responsibility for setting the investment objectives of
 

the investment program, but takes no part in implementing those
 

obj ectives. Rather, DCNHS retains professional investment
 

advisers registered under the Advisers Act to make day-to-day
 

decisions regarding investment of the Funds' assets. ll You
 

represent that the investment conuittee of the board of directors
 

of DCNHS monitors the performnc~ of the advisers and, if it
 determines that the performnce of an adviser is unsatisfactory, 

will reconuend to the board of directors that it replace the
 

adviser. If the board of directors agrees with the
 

reconuendation, it would authorize the investment conuittee to
 

mae the reconuended change. You state that third-party
 

custodians hold the assets of the Funds. You 
 represent that Members are informed that DCNHS is not registered as an 

investment adviser under the Advisers Act or as a broker-dealer
 

under the Exchange Act, and that neither DCNS nor the Health
 

System Depository is registered as an investment company under
 

the Investment Company Act.
 

CUrrently, the incidental expenses of administering the
 

Health System Depository are charged to Members on a pro rata
 

ál You represent that the Health System Depository does not have
 

a legal existence separate from that of DCNS.
 

ll You represent that these investment advisers will have no
 

affiliation with DCNS, its Members, or, as discussed below, any 

of its proposed non-Member participants. You further represent 

that all securities trades will be executed only by a bank, or a 

broker or dealer registered under the Exchange Act that is not 

affiliated with DCNHS, its Members, or any of its proposed nonMember participants. 
- 3 ­

basis according to assets invested. These expenses include
 

investment management fees and office administration expenses for
 

the division of DCNS that administers the Health System
 

Depository. ~I You proposß to modify this method of allocating
 

expenses so that certain expenses of the Health System Depository
 

will be allocated in part ona usage basis, rather than solely on 

the basis of assets invested. In addition, you propose that
 

Members also pay overhead expenses relating to 
 Health" System Depository . the 

You also propose to expand participation in the Health
 

System Depository to include other not-for-profit health care
 

organizations exempt from taxation under Section 501 (c) (3) of the
 

Internal Revenue Code. Specifically, you propose to add two
 

general categories of non-Member participants: (1) entities that
 

would utilize more than one service provided by DCNS and would
 

enter into a relationship with DCNS for a period of more than
 

one year ("Affiliates") i and (2) entities that would utilize only
 

one of the services provided by DCNHS and would not necessarily
 

enter into a long-term relationship with DCNS ("Limited Service
 

Participants"). You represent that 
 each non-Member participant


will be a Roman Catholic health care organization.
 

You further represent that assets invested by any non-Member
 

participant, like those invested by Members, will be limited to
 

assets to which the participant has inuediate, unrestricted, and
 

exclusive use, benefit, and enjoyment, and which are not
 

attributable to a retirement plan providing for employee
 

contributions or variable benefits. In addition, you represent
 

that non-Member participants, like Members, will be informed that
 DCNS is not registered as an investment adviser under the 

Advisers Act or as a broker-dealer under the Exchange Act, and
 

that neither the Health System Depository nor DCNHS is registered
 

as an investment company under the Investment Company Act.
 

You state that monthly financial reports and a quarterly
 

newsletter containing financial reports are currently distributed
 

to all Members and will be distributed to all non-Memer
 

participants. You represent that DCNS is audited on an annual
 

basis, and distributes audit reports to all participants in the
 

Health System Depository.
 

41 You state that these expenses include salaries, benefits 

including health insurance, disability insurance, pension
 

contributions and a tuition reimbursement plan, computer time, a
 

portion of accounting expenses, and out-of-pocket expenses. You
 

do not request relief, and we take no position, regarding whether
 

the current allocation of these expenses among Members is
 

consistent with DCNHS's opinion that it currently is not acting


as an investment adviser within the meaning of Section 202 (a) (11) 

of the Advisers Act.
 
- 4 ­

You represent that the activities of DCNS and its officers,
 

directors, and employees will comply with the requirements of
 

Rule 3a4-1 under the Exchange Act, and that their activities will
 be limited to those permitted by paragraph (a) (4) (iii) of the 

rule. 51 In particular, you represent that no representative or
 

other associated person of DCNS who conuunicates with
 

participants in the Health System Depository will be subject to a
 statutory disqualification described in paragraph (a) (1) of the 

rule, and that no associated person of DCNS will receive any
 transaction-based compensation. In addition, you represent that 

associated persons of DCNS will limit their activities with 

respect to participants in the Health System Depository to 

ministerial and clerical matters, and preparation and delivery of 

written conuunications that have been approved by an officer of

DCNS . 

You also represent that DCNS will not solicit potential 

non-Member participants through general advertising or other 

broad-based solicitation methods. Rather, you represent that 

DCNHS will limit its solicitation of potential non-Member 

participants to other not-for-profit health care systems that are

exempt from taxation under Section 501 (.c) (3) of the Internal 

Revenue Code, have an existing relationship with DCNHS or one of
 

its Members, and share the charitable goals of DCNHS.
 

Analysis 

Based on the facts and representations in your letter, we
 

would not reconuend enforcement action to theConuission under
 

Section 7 (a) of the Investment Company Act if neither DCNHS nor
 

the Health System Depository registers as an investment company
 

in reliance on Section 3 (c) (10) (A) of the Investment Company
 

Act. QI Our position is based particularly on your
 

representations that: (1) DCNS and the Health System Depository
 

will be organized and operated, at all times, exclusively for
 

religious, educational, benevolent, fraternal, charitable, or
 

reformtory purposes and no part of the net earnings of DCNHS or
 

the Health System Depository will inure to the benefit of a
 

private shareholder or individual; (2) only Members, Affiliates,
 

~I Rule 3a4 - 1 provides a safe harbor under which associated
 

persons of an issuer will not be deemed to be brokers under the
 

Exchange Act, provided that they limit their activities to those
 specified by the rule. 

~I Section 3 (c) (10) (A) excepts from the definition of investment

company "(a) ny company organized and operated exclusively for
 

religious, educational, benevolent, fraternal, charitable, or
 

reformtory purposes . . . no part of the net earnings of which
 

inures to the benefit of any private shareholder or individual


" 
- 5 ­

and Limited Service Participants may invest in the Funds; (3) 

each Member, Affiliate, and Limited Service Participant will be a
 

Roman Catholic health care organization; 71 (4) DCNS and each
 

participant in the Health System Depository will be 
 exempt at all


times from taxation under Section 501 (c) (3) of the Internal 

Revenue Code; (5) each participant in the Health System
 

Depository will invest only those assets to which it has
 

inuediate, unrestricted, and exclusive use, benefit, and
 

enjoyment, and no participant may assign, encumer or otherwise
 

transfer any part of its interest in the Healt~ System
 

Depository; (6) participants will not invest assets that are
 

attributable to a retirement plan providing for employee
 

contributions or variable benefits; (7) certified public
 

accountants annually will prepare a written report on DCNS and
 

the Health System Depository, and will send the report to
 

participants; and (8) each participant will be informed that
 

neither DCNHS nor the Health System Depository is an investment
 

company registered under the Investment Company Act. ~I
 

You assert that DCNHS is not an investment adviser within
 

the meaning of Section 202 (a) (11) of the Advisers Act. Section 202 (a) (11) provides, in relevant part, that an investment adviser 

is "any person who, for compensation, engages in the business of
 

advising others . . . as to the value of securities or as to the
 

advisability of investing in, purchasing, or selling securities
 

. . . ." We believe that DCNHS's activities with respect to
 

setting the investment objectives of the investment program,
 

choosing registered investment advisers to manage the Funds, monitoring the performnce of these advisers, and replacing an 

adviser if the adviser's performnce is unsatisfactory may
 

constitute the provision of investment advice. ~I Because DCNHS
 

performs these functions on a regular basis, and receives
 

compensation for such advice in the form of reimbursement for
 

certain operating expenses, we believe that DCNS may be
 

7 I In the case of the partially controlled Memers, each Member
 

will be at least 50% controlled by DCNS, and will agree to abide
 

by the ethical and religious directives for Roman Catholic health
 

care facilities.
 

~I See,~, National Association of Congregational Christian
 

Churches of the United States (pub. avail. Aug. 11, 1995);
 

American Heart Association (pub. avail Feb. 26, 1993).
 

~I See Investment Advisers Act Release No. 1092 (Oct. 8, 1987)
 

(" (a) person providing advice to a client as to the selection or
 

retention of an investment manager . . . under certain
 

circumstances, would be deemed to be ' advising' others within the


meaning of Section 202 (a) (11) . ") . 
- 6 ­

considered an investment adviser within the meaning of Section


202 (a) (11). 101 

We would not reconuend enforcement action to the Conuission,
 

however, if DCNHS does not register as an investment adviser
 

under the Advisers Act in reliance on Section 203 
 (b) (4) of that Act. 111 Our position is based on the facts and representations 

in your letter, particularly your representations that: (1)
 

DCNHS is a charitable organization exempt from taxtion under
 

Section 501 (c) (3) of the Internal Revenue Code; and (2) DCNS
 

will provide investment advice only to Memers, Affiliates, and
 

Limited Service Participants, all of which will be charitable
 

organizations exempt from taxation under Section 501 (c) (3) of the Ipternal Revenue Code.
 

The staff of the Division of Corporation Finance has asked
 

us to tell you that, on the basis of the facts presented, noting
 

in particular that: (1) the Health System Depository, as defined
 

in your letter, does not have a separate legal - status and is not
 

a legal entity separate from DCNHS; (2) DCNHS, its Members and
 

its Non-Member Participants, as each is defined in your letter,
 

will at all times be organizations that are exempt from taxation
 

under Section 501 (c) (3) of the Internal Revenue Code; (3) Non-


Member Participants will be health care related entities or
 

entities involved in a conuunity-based network with current
 

Members, and will meet the criter~a set forth in your letter; (4)
 

any monies invested in DCNHS by Members and Non-Member
 

Participants must represent monies Over which the Members and
 

Non-Member Participants have inuediate, unrestricted and
 

exclusive use, benefit and enjoyment; (5) monies that are
 

attributable to a retirement plan providing for employee
 

contributions or variable benefits may not be invested in DCNHS;
 

(6) all benefits, profits, and income generated from DCNHS will
 

inure only to Members and Non-Member Participants and will be
 

distributed exclusively to the Members or Non-Member
 

101 See ide (the compensation element of Section 202 (a) (11) is 

satisfied by the receipt of "any economic benefit"); Northeastern 

Pennsylvania SYnod of the Evangelical Lutheran Church in America 

(pub. avail. May 25, 1988) (reimbursement for expenses, including
 

salaries, supplies, and office costs associated with investment
 

program, may constitute "compensation" within the meaning of


Section 202 (a) (11) ) . 

111 Section 203 (b) (4), in relevant part, exempts from
 

registration under the Advisers Act any investment adviser that
 is a charitable organization as defined in Section 3 (c) (10) (B) of 

the Investment Company Act and whose advice is provided only to
 other charitable organizations. Section 3 (c) (10) defines a 

charitable organization to include an organization described in
 

Section 501 (c) (3) of the Internal Revenue Code.
 
- 7 ­

Participants, as the case may be, and will be used solely for
 

their tax-exempt purposes; (7) independent certified public
 

accountants annually will prepare a written report on DCNS' s
 

financial condition and performnce, which will include audited
 

annual financial statements of each of DCNS and the Health
 

System Depository and will be sent to Members and Non-Member
 

Participants; and (8) Members and Non-Memer Participants may not
 

assign, encumer, or otherwise transfer any part of their
 

interest in DCNHS; it will not. reconuend any enforcement action
 

to the Conuission if DCNHS, in reliance on your opinion as


counsel that the exemptions afforded by Section 3 (a) (4) of the 

Securities Act and Section 12 (g) (2) (D) of the Exchange Act are 

available, implements the Health System Depository in the manner
 

described without registration under the Securities Act and the


Exchange Act. 

The staff of the Division of Market Regulation has asked us
 

to inform you that, based on the facts and representations in
 

your letter, and strict adherence thereto by DCNS and its
 

officers, directors, and employees, it would not reconuend


enforcement action to the Conuission under Section 15 (a) (1) of 

the Exchange Act if DCNS engages in the activities described in
 

your letter without DCNHS, its officers, directors, or employees
 

registering with the Conuission as brokers or dealers under
 

Section 15 (b) of the Exchange Act.
 

In reaching this position, the staff of the Division of
 

Market Regulation notes particularly your representations that,
 

in connection with its conuunications to prospective participants
 

in the Health System Depository, DCNS, its officers, directors,
 

and employees will comply with the requirements set forth in Rule
 

3a4-1 under the EXChange Act, and their activities will be
 

limited to those permitted 
 by paragraph (a) (4) (iii) of the rule.
 

Consequently, among other things, those activities will not
 

involve the oral solicitation of potential participants. In
 

addition: (1) only qualified entities maintaining a relationship
 

with DCNHS (as described in your letter) will be offered an
 

opportunity to participate in the Health System Depository; (2)
 

neither DCNS, its affiliates, nor any of their officers,
 

directors, or employees will receive any transaction-based
 

compensation in connection with the establishment or operation of
 

the Health System Depository; (3) neither DCNS, its affiliates,
 

nor any of their officers, directors, or employees engaging in
 

any activities in connection with the Health System Depository
 will be an associated person of a broker-dealer; (4) neither 

DCNS, its affiliates, nor any of their officers, directors, or
 

employees will hold funds or securities in connection with the
 

establishment or operation of the Health System Depository; (5)
 

each transaction in the portfolio of securities held by the
 

Health System Depository will be effécted by a registered broker-


dealer that will not be affiliated with DCNS, its Members, its
 

A£filiates, or the Limited Service Participants; and (6) all
 
- 8 ­

investment decisions will be made by registered investment
 

advisers that will have no affiliation with DCNS or any of its
 

Members, Affiliates, or Limited Service Participants.
 

Because these positions are based on the representations
 

made in your letter, you should note that any different facts or
 

circumtances may require different conclusions. Further, this
 

letter expresses the positions of the Divisions of Corporation
 

Finance and Market Regulation on enforcement action only and does
 

not express any legal conclusions on the questions presented.


~t uJ~­

Sarah A. Wagmn
 

Special counsei
 
. . 1933 Act/3 (a) (4) CHOATE, H YV.n 3 (a) (4); ALL & STE.uTA'D'T 1934 Act/12 (g) (2) (D) ;

A PARTNRSHIP INUDING PROFESSIONAL CORPRAIONS C A /33( (a) )( (50)) ;
 ompany ct c 1.;
 EXCHANGE PLACE Advisers Act/202 (a) (11); CA B. HEwr P.C: 203 (b) (4) 

(617) 24S0 53 STATE STREET 

BOSTON, MASACHUSETIS 02109-2891
 

TELEPHONE. (617) 246-5000
 

FACIMLE (617) 246-400 

TELEX 49615860 . 

March 20J 1998 

Marin Dun, Esq. 

Bar Mendelsohn, Esq.
 

Paula Jensen, Esq.
 

Sarah Wagman, Esq. 

Offce of the Chief Counsel 

Division of Corporation Finance 

Division of 
 Investment Management 

Division of 
 Market Regulation 

Securties and Exchange Commission
 

450 Fift Street, N.W.
 

Washington, DC 20549 

Re: Daughters of Charty National Health Svstem. Inc. 

Dear Mr. Dun Mr. Mendelsohn, Ms. Jensen and Ms. Wagman:
 

Daughters of Charty National Health System, Inc. ("DCNHS"), a Missour not-for-profit 

corporation, exempt from taxation under Section 501 
 the Internal Revenue Code (the 

~'Tax Code") has authonzed us to request a No-Action Letter from the sta of the Commission (c)(3) of 


(the "Staff') regarding the applicabilty of 
 the Securties Act of 1933, as amended (the

"Securties Act"), the Exchange Act of 1934, as amended (the "Exchange Act"), the Investent
 

Company Act of 1940, as amended (the "Investent Company Act"), and the Investent
 

Advisers Act of 1940, as amended (the "Investent Advisers Act"), to both the expansion of the 

categones of institutions permitted to paricipate in a cash management system (the "Cash 

Management System") and investment progr (the "Investment Progr") (collectively the 

~'Health System Depository") provided by DCNS, and a proposal to allocate certn expenses 

relating to the Health System Depository among paricipants in such Depository. At present, the 

Health System Depository is made available only to Members ofDCNHS and it is proposed to 

extend its availabilty to Affliates and Limited Services Paricipants (as such tenns are 

hereinafter defined at pages 9- 10). 

'. 
March 20, 1998 

Page 2 

A. Factual Background
 

1. General
 

DCNS is a not-for-ptofit corporation and serves as a holding company for ththee (33) wholly controlled but separate subsidiares (the "Full Members") that manage or 

operate hospitals and other health care related organzations thoughout the United States and 

thee (3) similar operating organzations over which DCNS exercises fift percent (50%) 

control (the "Associate Members" and collectively with the Full Members, the "Members"). 

All Full Members ofDCNHS are Roman Catholic health care organizations. The 50% control of 

the the Associate Members that does not rest in DCNHS, itself a Roman Catholic organization, 

is as follows: In one case, it is in a Baptist hospital and in the other two cases in communitycontrolled hospitals. However, both the Baptist and the communty-controlled hospitals each 

have agreed to abide by the ethical and religious directives for Catholic health care facilties. 

Each of the thirty-six (36) Members is a not-for-profit organization exempt from taation 

under Section 501(c)(3) of the Tax Code. DCNHS through its Board of Directors, the 

managing board (the "DCNHS Board" or the "Board"), creates the policies and operating 

procedures which govern the management of each of the Members. As all of the entities are 

not-for-profit, there is no equity or financial investment involved and therefore there can be 

no control stemming from a financial interest. With respect to the three (3) Associate 

Members, the decision making power is split equally between DCNHS and another entity. By 

analogy to a for-profit corporate context, thirty-three (33) of the thrty-six (36) Members, the 

Full Members, would be wholly-owned direct subsidiaries and the thee Associate Members 

would be fifty percent (50%) owned. 

DCNHS provides to its Members a variety of shared services which are designed to 

furer the benevolent objectives of the Members by achieving, on 
 their behalf, economies of 

scale. Such shared services include access to insurance, purchasing services, internal auditing, 

and the Health System Depository. The purose of these services, including the Health 

System Depository, is to maximize the utilzation of the Members' financial resources and 

produce greater effciency in the Members' operations. Ths no-action request concerns the 

proposed expansion of the Health System Depository to offer certn services to other not-forprofit health care related paricipants that are not controlled by DCNHS. The request includes 

a proposal to allocate to the Members and proposed new paricipants certin expenses related 

to .the Health System Depository. 

The DCNS Obligated Group (the "Obligated Group") provides an example of the 

benefits DCNS can attin on behalf of its Members by uniting Members' resources and 

credit strengths with the result of fuhering the Members' charitable mission that includes 

-. 
. \
 

: 

March 20, 1998 

Page 3
 

providing the best health care services to the areas served at the most economical cost. i 

DCNHS, twenty-four (24) Full Members and 10 other entities, that are either an Associate 

Member or a subsidiar of aI Associate Member, make up the th-five (35) Members of 

the Obligated Group. In September, 1997,DCNS issued thee series of bonds (the "Bonds") 

for the benefit of DCNS and cert Members, which are paricipants in the Obligated 

Group (collectively, the "Borrowers"). Pursuat to a Maser Tru rndentue, the Obligated 

Group has assumed financial obligations related to the payment of debt service with respect to 

the Bonds. The Obligated Group's combined cash and other investent assets as of June 30, 

1997 totaed approximately $1.7 billon,equa to one hundred seventy-four percent (174%) of 

the Obligated Group's outstading long-term debt. Pursuant to the Master Trust Indentue, 

Members of the Obligated Group are jointly and severally obligated to make payments under 

the Loan Agreements relating to the Bonds. 

The Master Trust Indentue imposes upon the Obligated Group a payment obligation 

that is simultaneous with that of the applicable Borrower for each bond series. The Obligated 

Group is treated as a single entity for financing puroses. Due to the simultaneous payment 

obligation, individual member hospitals which could not have obtained satisfactory financing, 

because of the nature of the credit risk they present, are able to obtain financing and on much 

more favorable terms. The Bonds have received "AA" ratings from Fitch and Standard and 

Poor's. Moody's has rate all such DCNHS transactions Aa since 1983. The hospitals most 

benefitted by this financing arangement are those that serve patients with the greatest 

financial need and are often located in troubled communties. 

Because of the combined financial power of the Obligated Group, the joint and several 

liabilty. feature and the simultaneous payment obligation of the Obligated Group, the 

Borrower is able to borrow at terms much more favorable than any the member Borrower 

could achieve individually. In the event that a Borrower lacks fudsto meet debt service 

obligations, the shortfall needed to meet the obligation is loaned to the Borrower by the 

Obligated Group. The Obligated Group exemplifies the overriding goal of DCNHS to utilze 

its Members' resources efficiently and for the maximum benefit.of the individua Members. 

The Health System .Depository similarly promotes Member goals by means of the combination 

of individual Member fuds. 

2. The Health System Depositorv
 

The Health System Depository is the system established by DCNS to manage the 

cash of the Members employed in their day-to-day operations and to manage the investment 

of their assets. The Members' assets, including excess cash, are pooled for the puroses of 

investment, thereby achieving the benefits of professional money management, diversification 

i No relief 
 is requested on account of 
 any activities of 
 the Obligated Group. 
March 20, 1998 

Page 4 

and economies of scale. The Health System Depository does not have a separate legal status 

and is not a legal entity separate from DCNHS. Although the Health System Depository is 

audited separately from DCNS for the inormation of its varous paricipants, its operating 

results and balance sheet are also included in DCNS' conslidated financial statements. 

Certin expenses of DCNHS that relate to the operation of the Health System Depository are 

charged to the Health System Depository. The Health System Depository operating 

ståtements separately break out and reflect those categories of expenses. . The abilty to pool 

the excess cash through a cash management program allows Members to act as a single entity 

with respect to cash management and investments. One of the underlying premises of the 

Health System Depository is that by combining the Members' excess working capital, the 

Members are able to paricipate in the benefits inherent in the management of larger sums of 

money, including: (i) access to professional money managers, (ii) reduction in proportionate 

costs of investing funds, (ii) maintenance of liquidity, (iv) availabilty of diversification 

greater investment and (v) abilty to occasionally finance projects internally. The end result is 

the maximization of Members' resourcès for the promotion of the charitable puroses of the 

Members and the benefit of the local communities served by the Members. 

The components of the Health System Depository are the Cash Management System 

and the Investment Program which are described in further detatl below. Paricipants in the 

Cash Management System automatically paricipate in the Investment Program. Members 

may paricipate in the Investment Program without paricipating in the Cash Management 

System. Members have been informed that DCNHS is not registered as an investment adviser 

under the Investment Advisers Act or as a broker-dealer under the Exchange Act and that 

neither DCNHS nor the Health System Depository is registered as an investment company 

under the Investment Company Act. 

(a) The Cash Management System
 

One of the two components of the Health System Depository is the Cash Management 

System, the role of which is to manage the operating cash of the Members and to 
 keep it 

invested at all times. Under the Cash Management System, each Member maintans an 

individual. checking account though a third-par ban. Curently that ban is Mellon Ban,
 

in Pittsburgh, Pennsylvania. The checking account is the day-to-day operating account and it 

is utilzed for both the deposit of income and donations generated by the Member and the 

payment of expenses that the Member incurs. It includes only assets to which the Member 

has immediate, unrestricted and exclusive use, benefit and enjoyment and does not include 

assets attibutable to a retirement plan providing for employee contrbutions or varable 

anuities. 

At the end of 
 each day, if the net balance of any Member's individual checking 

account at Mellon Ban is positive, the balance is swept into a sweep account under DCNHS' 

control also at Mellon Ban (the "Sweep Account"), leaving the Member's checking account 

.. 
March 20, 1998 

Page 5
 

balance at zero for each day. If the aggregate net balance of the fuds of all the varous
 

Members in the Sweep Account is positive at the end of the day, then the net balance is swept 

into a pooled investment fud, consisting of investents with an average maxum matuity 

of two-years (the "Short-Term Investment Fund") and managed by a registered investent
 

adviser (the "Adviser"). Ths sweep process, leaves the Sweep Account at zero at the end of
 

each day. If the aggregate net balance of the Sweep Account at the end of the day is 

negative, it would be replenished to zero by a tranfer from the Short-Term Investent Fund. 

An internal record keeping system keeps track of the fuds and b(;lances of each individual 

Member. If at the end of any day the net checking account balance of a Member is positive 

that balance passes though the Sweep Account into the Short Term Investment Fund to the 

credit of the Member. Conversely, if at the end of any day the Member's net checking 

account balance is negative, a call for funds passes through the Sweep account and is satisfied 

by a charge to the Member's assets in the Short Term Investment Fund. The result is that the 

Member's individual checking account is retured to zero by reducing the fuds being 

invested in the Short Term Investment Fund on its behalf. If, however, there were 

insufficient funds to the 
 credit of the Member in the Short-Term Investment Fund an advance

in the natue of a loan to the Member would be made from the Short-Term Investment Fund. 

If arangements had already been made for a line of credit and the advance was within the 

limits of the line, the interest charged on the loan 
 would be equa to the Bond Buyers Index

rate. Otherwise, the loan would be treated as coverage of an overdraft and the interest rate 

would be one and one-half times the Bond Buyers Index rate. All interest generated by this 

arangement is credited to the Short-Term Investment Fund and fuer credited to 'the 

accounts of the Members in proportion to their respective interests in such Fund. Futue 

paricipants who are not Members would be covered for shortfalls in their accounts with the 

Cash Management System but only to the extent that such futue paricipants who experience 

shortfalls have sufficient funds to their respective credit in the Short-Term Investment Fund. 

If a futue paricipant has a shortfall in its checking account at Mellon Ban, DCNHS would 

attempt to satisfy the shortfall by a charge to the paricipant's assets in the Short-Term 

Investment Fund, but a line of credit or loan would not be available to the parcipant. 

Interest at market rates on positive balances in the Short-Term Investment Fund is credited to 

the respective account of the Members based on their assets in that Fund. 

(b) The Investment Proipam
 

Program, 

the role of which is to invest fuds of the Members not anticipated to be needed for day-today operations, on a longer term basis. The Investment Program pools the fuds of the 

The second component of the Health System Depository is the Investment 


paricipants for the purposes of investment, while also recording separately the account
 

balance of each Member in the program. The source of these fuds includes endowments,
 

donations, certin statutory contributions relating to Medicare requirements, funded 
March 20, 1998 

Page 6 

depreciatioIi,2 as well as any fuds not needed for daly 
 operations mid allocated by the 

paricipant to the Investment Program. The Investent Program has its short-term ar, the 

Short-Term Investment Fund. already referred to, which invest entiely in debt instrents as

well as a long-term ar (the "Long-Term Investent Fund") which invest sixt percent 

(60%) in fixed-income securties and fort percent (40%) in equity securties. The paricipant 

determines the percentage of its fuds to be invested in each fud.
 

The Investment Program invests in a short-term fud (i) the daily net balances of the 

Sweep Accounts, as indicated above, and (ii) the fuds in the Short-Term Investent Fund of 

its Members as designated by them for such investment. It also invests its Members' funds in 

the Long-Term Investment Fund as designated by them for such investment. The DCNHS . 

Board has ultimate responsibilty for setting the investment objectives of the Investment 

Program, but takes no par in implementing those objectives. The Investment Committee. of 

the Board anually reviews, and makes recommendations to the Board regarding the 

investment objectives of the Investment Program. Upon approval by the Board of the 

recommendations, the Investment Committee retains professional registered investment 

advisers to make the day-to-day investment decisions and to implement the objectives. The 

Investment Committee monitors the pedormaIce of such investment advisers and if it were 

found to be unsatisfactory, would recommend to the Board that a change in an investment 

adviser or advisers be made. If 
 the Board agreed, it would, pursuant to its authority, authorize 

the Investment Committee to make the recommended change. The investment advisers to be 

retained by the Investment Committee to make investment decisions concerning the 

Investment Program wil be registered under the Investment Advisers Act and will be entirely 

independent of and wil have no affliation with DCNHS or any of its Members, Affiliates, or 

Limited Services Paricipants. Securities trades will be pursuant to orders issued by the 

investment adviser or advisers having management responsibilty and will 
 be effected only by 

a ban or a broker or dealer registered under the Exchange Act who is not affiiated with 

DCNHS, its Members, its Affiiates or the Limited Services Paricipants (a "Registered 

Broker-Dealer"). Third-par custodians, hold the assets employed in the Investment Program. 

Curently, State Street Ban is custodian of 
 the Long-Term Investment Fund assets and J.P. 

Morgan is custodian of the Short-Term Investment Fund assets. 

Members may invest assets in the Investment Program over and above the amounts 

invested from the Sweep Account at the end of each day. However, a Member is permitted to 

invest only those assets to which such Member has immediate, unestrcted and exclusive use, 

2 Funded depreciation refers to fuds generated from a pas Medicare reimburement statute 

which permitted providers to treat depreciation as a reimburable expense so long as an amount 

in cash equal to the amount treated as depreciation were placed in a separte account. Although 

the statute which provided for ths treatment has since been repealed, DCNHS continues to 

require its Members to make contrbutions to their accounts for fuded depreciation. 
March 20, 1998 

Page 7 

benefit and enjoyment. None of the assets may be attibutable to a retirement plan providing 

for employee contributions or variable benefits. 

Each Member's share of the Sweep Account and any additiona assets committed to . 

the Investent Program (the "Member's Investent Assets" or in the aggregate the 

"Members' Investment Assets") may be invested in one of two portfolios, the Short-Term 

Investment Fund and the Long-Term Investment Fund, or a combination of the two. As . 

indicated above, the Short-Term Investment Fund is the vehicle mandated for the Sweep 

Account assets. Each portfolio is invested consistent with anounced objectives and 

strategies, and the incidental expenses of the Investment Program, discussed infra, are 

allocated pro-rata among the Members based on the Member's deposits invested in each such 

fund. Similarly, the incidental expenses of the Cash Management System are allocated pro 

rata among the Members based upon the Member's assets in the System. No paricipant in 

the Health System Depository may assign, encumber or transfer its interest in the Health 

System Depository. 

percent (70%) of the assets in the 

Short-Term Investment Fund to be invested in instruments with an average maximum life of 

one year. The remaining thirt percent (30%) of the assets may be invested in the discretion 

of the Adviser provided that the maximum average life of the entire portfolio does not exceed

Curent asset allocation guidelines call for seventy 


two years. '
 

Currently, Members are permitted to withdraw their assets from the Investment 

Program at wil, but DCNHS does not allow more than three withdrawals in a three-month 

period from the Long-Term Investment Fund. Withdrawals ofTen Milion dollars 

($10,000,000) or more from the Long-Term Investment Fund are subject to an advance notice 

requirement of up to thirty (30) days so as to avoid the necessity of liquidating investments in 

a fire-sale atmosphere. 

It is our belief that neither the curent practice òf DCNHS regarding withdrawals nor 

the imposition of the notice requirement with respect to signficant withdrawals would 

constitute an impermissible restriction on access to the paricipants' fuds. In several past
 

No-Action Letters, various non-profit entities received no-action relief despite similar or more 

severe restrictions on access to funds. In Florida Baotist Investment Services (June 30, 1994), 

the certifcates at issue could be redeemed upon notice but redemptions were limited to one a 

month. In AASCU Capital Fund (October 19, 1988) withdrawals were permitted only 

anually and on a specified date. The YMCA required at leas thrt days' notice prior to 

redemption in National Council of Young Men's Chrstian Associations (October 29, 1990). 

Finally, Common Fund (April 23, 1971) contaned a restriction that was more limiting than 

the one proposed above by DCNHS in that the Common Fund program required thee 

month' wrtten notice prior to withdrawaL. 
Marh 20, 1998 

Page 8
 

Furermore, any paricipant can terminate its paricipation in the Health System 

Depository at any time and at no cost other th the repayment of any debts owed to 

DCNHS. Ths unestrcted right 
 of withdrawal in and of itself provides a level of access that 

we believe should be suffcient. 

3. Expenses
 

Curently, the incidenta expenses. 
 of administering the Investment Program are

charged pro-rata among the Members based on the Member's invested assets. Besides the 

investment management fees, the Investment Program's assets contribute to office 

administrative expenses of that division of DCNHS devoted entirely to the Health System 

Depository. These expenses constitute salaries, fringe benefits, computer time, a small portion 

of accounting expenses and out-of-pocket expenses. Fringe benefits include such usual 

employee benefits as health insurance, disabilty insurance, pension contrbutions, and a 

tuition reimbursement plan, and are benefits that are strictly standard withn the health care 

industr. 

At this time the Health System Depository charges the expenses of the Cash 

Management System checking accounts against all earings with the result that these expenses 

are paid by paricipants pro-rata to their investment in the Cash Management System and not 

necessarily in relation to usage. Management feels that this system of allocation has become 

unfair to those who use the Cash Management System less than their counterpars. In the 

future the Health System Depository wil instead bil paricipants for these expenses based 

more on usage. All other expenses of the Cash Management System ("General Services 

Expenses") wil continue to be charged against earings and therefore will be borne by present 

and future paricipants pro-rata to their investments in the Cash Management System; 

Expenses curently being charged the paricipants exclude overhead. It is contemplated that in 

the future overhead pertaining to the Health System Depository will be included in General 

Services Expenses and will be charged as well. However, these expenses are not significant. 

Anual administrative or operating expenses, as a percentage of tota assets, is only .21 of 1 % 

at ths date: With the inclusion of overhead, the percentage would increase .02% to .23 of 

1 %. In the past five years, the expenses of the Health System Depository as charged to 

Members has constituted between .16 of 1 % and .21 of 1 % of total assets. Ths expense ratio 

compares very favorably to the Management costs of mutual fuds that are marketed to 

intitutional investors.
 

B. Expanded Participation 

To date, paricipation in the Health System Depository has been a benefit provided 

only to Members of DCNHS. Recent changes in the health care industr, especially the trend. 

towards consolidation, has led DCNHS to conclude that it would be in the best interests of its 

Members, and the other not-for-profit health care entities with which it seeks to collaborate, 

.. 
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March 20, 1998 

Page 9 

to expand paricipation in the Health System Depository beyond curent Members to include 

cert other not-for-profit health care entities.
 

The attention to costs related to the provision of health care services has led to an 

indus-wide effort to trim cost though strctual reorganzations and consolidations. Forprofit entities have increasingly moved. to acquire assets and build large organzations that can 

draw on economies of scale in the operation of health care facilties. Not-for-profit entities, 

whose eleemosynar goals supported and fueled the health care indus for many years, have 

had to adapt to the changing environment in order to preserve the effectiveness of their 

charitable mission and continue to serve the local communities commitment with their 

tradition. DCNHS believes that there are business areas where distinct not-for-profit health 

care entities can work together to maximize resources and yet stil remain independent so as 

to offer the health care consumer more choice and cost efficiencies while preserving the 

viabilty of not-for-profit institutions devoted to the provision of health care services. 

DCNHS proposes to extend its paricipation in the Health System Depository solely to 

other not-for-profit tax exempt health care-oriented organizations. The By-Laws of DCNHS 

describe the membership classes that may paricipate in the Health System Depository. 

Currently, Members include Regional Corporation Members, Full Members and Associate 

Members, each of which have in common the fact that they are controlled in some degree by 

DCNHS. DCNHS proposes to expand paricipation in the Health System Depository to 

include entities which wil comprise four new types of non-membership categories. All such 

new paricipants would be not-for-profit entities exempt from taxation 
 under Section 501(c)(3) 

of the Tax Code ("Exempt Organizations"). The following is a description of the four new 

types of paricipants, i.e. three categories of Affliates, and 
 the category of Limited Services 

Paricipants: 

There are three categories of Affiiates. Paricipants in each of these categories would 

utilze more than one service provided by DCNHS and would enter into a relationship with 

DCNHS with a duration of more than one year. For example, an Affliate might parcipate 

in the Health System Depository and DCNHS' programs for risk management. Thè categories 

of Affliates include (i) a single organization, (ii) a system of health .care or health care related 

organizations and (ii) an entity involved in a communty-based network with one of the 

Members of DCNHS. 

Limited Services Paricipants are entities that would access only one of the services 

provided by DCNS and would not necessarly anticipate a long-term relationship with 

DCNHS. A limited services parcipant can be a single not-for-profit hospital or .other notfor-profit health care entity or an entire system of not-for-profit hospitas. 

All of the Affiiates and Limited Services Paricipants (collectively "Non-Member 

Paricipants") wil be health care related organizations or entities involved in a community­

.. 
March 20, 1998 

Page i 0 

based network with a Member. Furermore, the assets invested would be limited to assets to 

which the Non-Member Paricipants had immediate, unestcted and exclusive use, benefit 

and enjoyment and which were not attbutable to a retirement plan providing for employee 

contributions or varable benefits. Moreover, the Non-Member Paricipants would 'be 

informed that DCNS is not registered as an investment adviser under the Investent 

Advisers Act or as a broker-dealer under the Exchange Act. In addition, the Non-Member 

Paricipants would be informed that neither the Health System Depository nor DCNHS is a 

company registered under the Investent Company Act. 

Curently, monthy financial reports and a quarerly newsletter contaning financial 

report of DCNHS are distributed to all Members and will be distributed to all Non-Member 

Paricipants. In addition, an. anual audit of DCNHS, which includes the Health System 

Depository as well as a separate audit of the Health System Depository itself, is conducted by 

an independent "Big Six" accounting firm, and will be distributed to Members and NonMember Paricipants. 

DCNHS is in the process of preparing explanatory material describing its services, 

including the Health System Depository, to be furished to prospective Non-Member 

Paricipants. DCNHS, in targeting prospective Non-Member Paricipants to which it would 

offer the opportnity to paricipate in the Health System Depository, would include other notfor-profit exempt health care systems that are Exempt Organizations and do not have a similar 

system in place. DCNHS wil not solicit Non-Member Paricipants in the Health System 

Depository through general advertising or broad-based solicitation means. Rather, DCNHS 

will utilze the informative material to contact only those entities with which it or one of its 

Members has an existing relationship and which share the mission of the Daughters of Charty 

organzation. All Non-Member Paricipants will be Exempt Organizations and will tend to be 

other religiously affliated entities. 

One of the primar puroses of any relationship with a .Non-Member Paricipant is to 

assist the Non-Member Paricipant having common values with DCNHS to meet the needs of 

the sick and the 
 poor. Among the criteria to become a Non-Member Paricipant are (1) that it 

be a Roman Catholic health-care organzation, (2) that the organization's historical behaviors 

and actions indicate that its values are compatible with the DCNS core values, (3) that the 

organtion is committed to high quality patient care and to maintaining an effective quality 

and utilzation management program and (4) that the organzation complies with federal and 

ste anti-discrimination statutes and regulations. 

c. No-Action Request
 

We wish to confirm that the Staff would not recommend any enforcement action if (i) 

access to the Health System Depository were expanded to include Non-Member Paricipants, 

and/or (ii) General Services Expenses were allocated to parcipants in the Health System 
March 20, 1998 

Page 1 1 

Depository in accordance with the proposal described in Section A.3. above if, in each case, 

there were no registration of (x) interests in the Health System Depository, including the 

Investment. Program (the "Interests") under Section 12(g). of the Exchange Act or under the 

Securities Act, or (y) DCNHS, or the Health System Depository, as an investment company 

under the Investment Company Act, as an investment adviser under the Investent Advisers
 

Act, or as a broker or dealer under the Exchange Act. 

D. Analysis of Applicable Securities Laws 

We are of the opinion that neither the intended expansion of the Health System 

Depositòry nor the proposed method of allocation of General Services Expenses should 

require (i) the Interests to be registered under the Securities Act or the Exchange Act or (ii) 

DCNHS or the Health System Depository to be registered as an investment company under 

the Investment Company Act, as an investment adviser under the Investment Advisers Act or 

as a broker or dealer under the Exchange Act. The Staff has recognized such a position 

previously with respect to other not-for-profit entities that operated pooled investment funds 

on behalf of not- for-profit entities engaged in similar missions. 

1. The Securities Act
 

Weare of the opinion that the Interests are exempt from registration and certin other 

provisions of the Securties Act based on Section 3(a)( 4), which exempts therefrom "any 

securty issued by a person organized and operated exclusively for religious, educational, 

benevolent, fraternal, charitable or reformatory purposes and not for pecunar profit, and no 

par of the net earings of which inures to the benefit of any person, private stockholder, or 

individuaL." Furermore, neither the expansion of the Health System Depository to include 

Non-Member Paricipants nor the allocation of General Services Expenses, as proposed herein, 

alters that opinion. 

In the National Ass'n of Congregational Christian Churches of the United States (April 

I I, 1995)(hereinafter "National Association No-Action Letter"), the Staff indicated that 

satisfaction of the following six elements involving "paricipating Members" was necessar for 

the subject Trust to qualify for the Section 3(a)(4) exemption: 

First, any monies invested must represent monies over which the paricipant had 

immediate, unestricted and exclusive use and could not be attibutable to a retirement 

plan that provides for employee contrbutions. 

Second, the Association must notify Member churches of the establishment of the 

Trut through a written communication, either in the form of a letter or in the 

Association's newsletter. In such communcations, Members would be instrcted to 

call or write the Association's national office to obtan detailed information and the 

'. 
March 20, 1998 

Page 12
 

information would be provided only to Member churches, all of which are not-forprofit organzations. Furermore, prior to the time when a Member elected to 

paricipate in the Tru, each Member would have been fuly inormed about the 

Trut's policies, operations and objectives; All wrtten communcation would be 

approved by the Association's management and would specifically state that (i) neither 

the Association nor the Corporation is a re.gistered broker-dealer; (ii) the Corporation, 

the Association and the Trust will not be registered as investent companes under the
 

Investment Company Act; and (ii) neither the Corporation nor the. Association will be 

registered under the Investment Advisers Act. 

Third, all financial benefits, chiefly income and the right of a paricipant to redeem all 

or any portion of its interest in the trst, less fees and expenses, would be distributed 

only to Members, and would be used only for ta exempt puroses. 

Fourth, independent certified public accounts would prepare a written report regarding 

the Trust's financial condition and performance in connection 
 with the anual review 

of the Association's books and records. The report would include audited financial 

statements of the Trust and would be sent to paricipating members. All paricipating 

Members would be permitted to inspect the books and records relating to the Trust. 

Fift, no paricipating Member could assign, 
 encumber or otherwise transfer any par 

of its interest in the fud. 

Sixth, the Trust would not purchase the securities of, or otherwse invest in, the
 

Corporation, the Association or any Member. 

The Health System Depository satisfies all six elements specified in the National 

Association No-Action Letter. First, the assets invested in the Health System Depository have 

been and wil continue to be assets of which the paricipant ha sole, exclusive use and would
 

not be attbutable to a retirement plan providing for employee contrbutions. Second, as 

stted previously, a brochure describing the program will be distbuted to all futue
 

paricipants. All Members and Non-Member Paricipants will be inormed that DCNS is not 

registered as an investment adviser under the Investment Advisers Act and that neither 

DCNHS nor the Health System Depository is registered as an investment company under the 

Investent Company Act. Thrd, all benefits, profits, and income generated from the Health 

System Depository will inure only to the Members, and Non-Member Paricipants, all of 

which are Exempt Organzations, and all such proceeds will be used only for ta-exempt 

puroses. Net earngs of the Health System Depository are distributed to each paricipant

pro-rata to its invested assets. Fourh, also as stted previously, monthy financial report and 

a quarterly newsletter is curently distributed to all Members and an anual audit is conducted 

by an independent "Big Six" accounting firm, and will be distrbuted to Members. Fift, 

neither a Member or a Non-Member Paricipant may assign, encumber or otherwse tranfer 

.. 
March 20, 1998 

Page 13 

any par of its 
 interest in the Health System Depository. Finally, neither DCNS or the 

Health System Depository will invest in or purchase the securties of any Member or NonMember Paricipant. 

In No-Action Letters such as National Council of Young Men's Chrstian Associations 

29, 1991)(hereinafer "YMCA No-Action Letter), the National Association No-Action 

Letter, AASCU Capital Fund (October 19, 1988)(hereinaer "AASCU No-Action Letter", and 

(April 

Common Fund for Non-profit Organizations (April 23, 1971)(hereinafer "Common Fund NoAction Letter"), the Staff failed to require registation under the Securities Act since all. of the 

paricipants in the investment programs organzed by the entities involved were organzations 

exempt from taxation under Section 501(c)(3) of 
 the Tax Code and, therefore able to benefit 

from the exemption provided in Section 3(a)(4) of the Securties Act. 

The investment programs were created by each .of the entities referred to in the 

YMCA, AASCU and Common Fund No-Action Letters for the purose of furering their 

respective charitable goals and those of the paricipants involved in the related investment 

programs. As stated above, the Health System Depository complies with the six factors 

specified in the National Association No-Action Letter. Therefore, the objectives underlying 

the Health System Depository and the investment programs created by the YMCA, the 

AASCU, and the National Association of Congregational Christian Churches, and discussed in . 

the No-Action Letters cited in the preceding paragraph, would be identical: to better promote 

the charitable puroses for which the entities were established. . 

In Mennonite Foundation (September 10, 1980)(hereinafter "Mennonite Foundation 

No-Action Letter"), the Staff granted no-action relief under the Securities Act to the 

Foundation based on the representation that "all institutions and organizations advised by the 

Foundation would be exempt organzations under Section 501(c)(3) of the Tax Code and 

would be either (i) affiiates of the Mennonite Church, meanng organzations which are 

offcially pars of that denomination whose activities are cared out as programs of the 

Mennonite Church, (ii). affiliates of the General Conference of the Mennonite Brethen 

Church, or (ii) aligned in outlook with the Mennonite Church, meaning organizations which 

are not officially affliated . with the Mennonite Church, but whose stated puroses or activities 

furher the mission of the Mennonite Church." 

The expanded paricipation anticipated by DCNS would involve entities with a 

similar outlook and objectives, analogous to the relationship between the Mennonite Church 

and the entities paricipating in the Mennonite Foundation. The objective of the Investment 

Program would be identical to the objective of the programs of each of the paricipants: 

namely, to contribute as much as possible to the well-being of society though the provision 

of high quality, affordable health care services. 

. . 
March 20, 1998 

Page 14
 

Based on the above No-Action Letters and the similarty of the paricipants in the 

programs discussed therein to DCNHS's curent and proposed futue activities, we are of the
 

opinion that the Interests, if offered to Non-Member Paricipants as proposed, would be 

exempt from registration under Section 3(a)(4) of the Securties Act. Furermore, we are of

the opinion that registation would not be required even if the contemplated allocation of a
 

portion of the General Services Expenses, as described herein, were implemented. 

2. The Exchange Act
 

Weare of the opinion that the Interests are exempt from registration pursuant to 

Section 12(g)(2)(D) of the Exchange Act. Furhermore, neither the expansion of the Health 

System Depository to include Non-Member Paricipants nor the proposed allocation of a 

portion of the General Services Expenses, as proposed herein, alters that opinion. Section 

12(g) of the Exchange Act provides for the registration of equity securities when held by 

seven hundred fifty (750) or more persons. DCNHS wil not attin that number of 

paricipants, even after the contemplated expansion of the Health System Depository. 

Neverteless, Section 
 12(g)(2)(D) exempts from registration "securities of an issuer organized 

and operated exclusively for religious, educational, benevolent, fraternal, charitable, or 

reformatory puroses and not for pecuniar profit, and no Pai of the net earings of which 

inures to the benefit of any private shareholder or individuaL." As the applicant stated in the 

AASCU No-Action Letter, "the exemption is intended to exempt offerings and issuers with 

respect to which the protections of the federal securities laws are not necessar because such 

offerings are not made by profit-motivated principals, promoters or salesmen or for the benefit 

of any private person." The investment program created by the AASCU was. exempt from 

registration under the Exchange Act based on much the same rationale as its exemption from 

the Securities Act. 

The Exchange Act exemption is equally applicable to the factual circumstances 

surounding DCNHS' s contemplated futue expanion of the Health System Depository and 

the implementation of the proposed allocation of some General Services Expenses. The 

protection of the federal securities law is unecessa with respect to DCNS or the Health 

System Depository because no profit-motivated person ha been involved in the organzation, . 

promotion, and expansion of the Health System Depository, and no profit-motivated person 

will derive any benefit from the operation or performance of the Health System Depository. 

Finally, neither DCNS nor the Health System Depository would come withn the 

definition of broker or dealer under the Exchange Act. Sections 3(a)(4) and 3(a)(5), 

respectively, define "broker" and "dealer". The definitions are similar in that both require the 

respective regulated person to be "engaged in the business." The business in which a dealer 

would be engaged would be buying and sellng securties for that person's own account. The 

business in which a broker would be engaged would be that of "effecting transactions in 

securities for the account of others." Neither DCNHS nor. the Health System Depository can 

.. 
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March 20, 1998 

Page 15
 

be regarded as being "engaged in the business." Securties trades will be pursuat to orders

issued by the investent adviser or advisers having management responsibilty and will be
 

effected only by a ban or a Registered Broker-Dealer. The activities of DCNHS and its 

offcers, directors and employees, in disseminating information about the Health System 

Depository to actu paricipants and foreseeable paricipants will comply with the 

requirements of Rule 3a4- 1 under the Exchange Act (the "Rule"), aid their activities will be

limited to those permitted by paragraph (a)(4)(ii) of 
 the Rule. No representative or other 

associated person of DCNHS who has communcations with paricipants in the Health System 

Depository (an "Associated Person") will be subject to a sttutory disqualification described in 

paragraph (a)(l) of the Rule and no Associated Person will receive any transaction based 

compensation. Furtermore, each Associated Person's activities with paricipants in the 

Health System Depository wil be restricted to ministerial and clerical matters and preparation 

and delivery of written communications that have been approved by an offcer of DCNHS. 

In American Heart Ass'n, (February 26, 1993)(hereinafter "American Hear 

Association No-Action Letter") the Staff exempted the American Hear Association (the 

"AHA") from registration under Section 15(b) of 
 the Exchange Act. The AHA contended that 

neither it nor its employees would be "engaged in the business," since a registered brokerdealer would make all securities trades and employees would be engaged only in ministerial 

activities and not specially compensated though commissions or salaries based on the amount 

or performance of the investments. 

The Staff also exempted the AASCU Capital Fund from registration under the 

Exchange Act. The AASCU Capital Fund engaged a registered investment adviser. No par 

of the net earings of the AASCU Capital Fund would inure to the benefit of any private 

shareholder or individuaL. Moreover, the paricipants in the AASCU Capital Fund would 

reimburse the AASCU Capital Fund for the actual cost incurred in acting as a representative 

of the paricipating institutions, would be charged for the fees imposed by the investment 

adviser, and under the Administration Agreement, would reimburse the AASCU for its direct 

expenses in administering the Fund and for indirect costs according to a fee schedule based on 

the market value of the securities and the amount of cash held by the Fund as necessar 

incidental expenses. 

Neither DCNHS nor the Health System Depository can be considered to be "engaged 

in the business" under the Exchange Act. The Health System Depository is similar to the 

programs in the American Hear Association No-Action Letter and the AASCU No-Action 

Letter. DCNHS has employed and will continue to employ a registered investment adviser. 

The employees of DCNHS will continue to perform only administrative and ministerial duties 

regarding the Health System Depository and the Members pay only direct costs associated 

with the administration of the Health System Depository. It is proposed that the Members 

and Non-Member Paricipants pay a portion of General Services Expenses for such indirect 

costs as building and maintenance, pro-rata to their investments and for baning fees on a 
March 20, 1998 

Page i 6 

usage basis. Ths proposed arangement is consistent with the arangement described in the 

AASCU No-Action Letter. Since the Members and Non-Member Paricipants will pay only 

administrative expenses, the Health System Depository has contracted for and will continue to 

use the services of a registered investment adviser, and employees of the Health System 

Depository will remain responsible only for administative and ministerial duties. regarding the 

Health System Depository, we are of the opinion that neither DCNS nor the Health System 

Depository will be "engaged in the business" as either a broker or dealer under the Exchange 

Act 

3. The Investment Company Act 

. Section 3(c)(lO) of the Investment Company Act excludes from the definition of an 

investment company "any company organized and operated exclusively for religious, 

educational, benevolent, fraternal, charitable or reformatory puroses, no par of the net 

earings of which inures to the benefit of any private shareholder or individuaL." Since 

Section 3(c)(lO) of the Investment Company Act is virtually identical to Section 3(a)(4) of the 

Securities Act and Section 12(g)(2)(D) of the Exchange Act, we are of the opinion that the 

discussion of the applicabilty of these exemptions to the Health System Depository and 

DCNHS as well as the No-Action Letters cited above, is equally relevant here. See also, 

American Hear Association No-Action Letter. Consequently, neither DCNHS nor the Health 

System Depository should be considered an investment company and each should be exempt 

from registration under the Investment Company Act pursuantto Section 3(c)(10) thereof. 

4. The Investment. Advisers Act
 

Section 202(a)(1l) of the Investment Advisers Act defines an investment adviser as
 

"any person who, for compensation, engages in the business of advising others, either directly 

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

investing in, purchasing, or sellng securities, or who, for compensation and as par of a 

regular business, issues or promulgates analyses or report concernng securties.. ." Whether 

the proposed expanion of the Health System Depository to include Non-Member Paricipants 

or the proposed allocation of some General Services Expenses would cause DCNHS or the 

Health System Depository to be an investment adviser under ths definition depends on 

whether DCNHS or the Health System Depository would (a) provide advice regarding 

securities, (b) be in the business of providing such advice to others, and ( c) provide such 

advice for compensation. As the YMCA stted in its letter of inquiry, to be an investent 

adviser all thee elements of Section 202(a)(11) must be satisfied. 

We are of the opinion that neither DCNHS nor the Health System Depository would 

be an investment adviser under Section 202(a)(11) of 
 the Investment Advisers Act. Because 

the proposed expansion of the Health System Depository would only increase the number of 

paricipants, but not the involvement or interaction of DCNS in the Health System 
March 20, 1998 

Page 17
 

Depository, DCNHS would, in spite of such expanion, contiue to be exempt from the 

requirements of the Investment Advisers Act since it would not provide advice regarding 

securities, nor be "in the business of' providing such advice to others, nor would it do either 

for compensation. Furermore, the iiichision ora portion of General Services Expenses in 

the costs being allocated would not alter that opinion. However, should the Staf not agree 

with our conclusion that neither DCNS nor the Health System Depository is an investment 

adviser under Section 202(a)(1 1) of the Investment Advisers Act, we also believe that 

DCNHS and the Health System Depository are exempt from registration pursuat to Section 

203(b)(4) of the Investment Advisers Act.
 

(a) Neither DCNHS nor the Health System Depositorv will give investment 

advice. 

Based on the Staffs position in the American Hear Association and the National 

Association No-Action Letters, neither DCNHS nor the Health System Depository should be 

subject to regulation as an investment adviser. DCNHS, like the AHA and the National 

Association of Congregational Christian Churches, has retained and will continue to retain 

professional money managers, all of which wil be registered investent advisers under the 

Investment Advisers Act, to manage the assets of the Investment Program. The role of the 

Investment Committee is similar to the roles of the Corporation and Association in the 

National Association No-Action Letter and of the AHA in the American Hear Association 

No-Action Letter. Those entities, like the Investment Committee, chose the investIent 

adviser, promulgated guidelines or investment objectives, and had ultimate supervisory 

responsibility for the investment program, but played no role in the choice of investments. 

Although DCNHS recommends paricipation in the Health System Depository to its Me~bers 

and expects to recommend such paricipation to proposed Non-Member Paricipants, it does 

not and will not require such paricipation; it will merely offer the opportty to paricipate 

as did the AHA in the American Hear Association No-Action Letter and the Association and 

Corporation involved in the program discussed in the National Association No-Action Letter. 

(b) Neither DCNHS nor the Health System Depositorv would be in the 

"business of' providing advice regarding securties to others. 

(1) Inclusion of Some General Services Expenses as Costs Allocated among
 

DCNHS and its Subsidiares 

The allocation of expenses among a parent and its controlled subsidiaries, pursuant to 

the curent and proposed allocation arangements, raises issues that are an internal matter not 

falling within the ambit of protection under the Investent Advisers Act. Until the expanded 

paricipation occurs, DCNHShas been and will be allocating expenses among entities that, 

except in the case of thee Associate Members, which it parially controls, it wholly controls. 

Equitable Capital Management Corporation (April 18, 1989)(hereinafter "Equitable Capita 

.. 
March 20, 1998 

Page 18
 

No-Action Letter") suggests that the expense arangement. between a parent and subsidiar,
 

can be distinguished from traditional fee arangements between an inv~stent adviser and its

client. In the Equitable Capital No-Action Letter, a subsidiar registered under the Investment
 

Advisers Act provided investment advisory servces for the parent. At times, the advisory 

arangement provided for performance-based fees in violation of Section 205 of the 

Investment Advisers Act. However, the Staff granted no-action relief based on the fact that 

the request related only to the subsidiar's management of the parent's assets and the 

management of the assets of other wholly-owned subsidiares. The. subsidiar argued that the 

clear focus of the Investment Advisers Act is with regard to persons who are in the business
 

of giving advice to the "public." Moreover, it observed 
 that there is no public interest to be 

served in the regulation of the internal business arangements between a corporate parent and 

its subsidiar. 

The principles underlying the Equitable Capital No-Action Letter are equally if not 

more applicable to the allocation of expenses between DCNHS and those wholly controlled 

and parially controlled Members in the current expense situation. The Investment Advisers 

Act, which seeks. to protect the clients of investment advisers, should not play as urgent a role 

where the entities are wholly-controlled or parially controlled. An investment adviser is 

defined as a person who advises "others." A controlled entity appears less like others and 

more like an extension of self. Moreover, DCNHS's expense allocation arangement is 

merely the administration of internal business between parent and subsidiar. The aggregate 

expenses allocated on an anual basis to the Full Members' and Associate Members' assets 

amount to less than twenty-three one hundredths of a percent (.23%) of the Members' 

investment assets. Even if the proposed allocation of some indirect expenses were 

implemented, the percentage would not rise above one-four of one percent (.25%). Finally, 

as the Equitable Capital No-Action Letter suggests, the level of scrutiny under the Investment 

Advisers Act for parent-subsidiar interaction and investment services is lessened. 

Therefore, we are of the opinion that neither the. curent arangements to allocate 

expenses among Members nor the proposed expansion of the 
 expenses being allocated among 

Members so as to include some General Services Expenses would cause DCNHS or the 

Health System Depository to be in the "business or' providing advice regarding securties to 

others~ 

(2) Expansion of entities to which expenses are charged to include Non-Member
 

Paricipants 

Furermore, it is our opinion that neither DCNS nor the Health System Depository 

will be engaged in the "business or' providing advice regarding securities to others upon the 

addition of Non-Member Paricipants to the Health System Depository and the charging of 

expenses to such Non-Member Paricipants. 

" 
March 20, 1998 

Page 19
 

The purose of DCNS in establishing the Health System Depository and in offering 

the other services provided by it is to fuer the chartable. goals of the Exempt Organzations 

that. are its Members. The activities of the Health System Depository are wholly incidenta to 

the promotion and advancement of the chartable goals of all curent and proposed . 

paricipants. The rationale underlying the existence and expanion of the Health System 

Depository is identical to the rationale underlying the programs created by the AH and the 

Nationa Association of Congregational Chrstian Churches (the "National Association") in 

that the investment programs are wholly incidenta to, and a means to fulfill the chartable 

puroses of the respective institutions. 

The Health System Depository, the Investment Trust created by the National 

Association, and the Equity and Intermediate Funds created by the AHA each pool the assets 

of their non-profit paricipants in order to increase the investment power of such paricipants 

and.thus provide opportnities that the paricipants would not have had individually. As will 

be the case with the Non-Member Paricipants, none of the paricipants, in the case of the 

Nation.al Association or the AHA, appeared to be entirely controlled by the National 

Association or AHA respectively. .
 

Section 202(a)(11) of 
 the Investment Advisers Act states that an investment adviser is 

a "person who, for compensation, engages in the business of advising others.. ." The concept 

of "others" would not encompass Non-Member Paricipants which become paricipants of the 

Health System Depository. The Letter of Inquiry submitted to the Staff in connection with 

the Equitable Capital No-Action Letter suggests that the clear focus of the Investment 

Advisers Act is with regard to persons who are in the business of giving advice to the 

"public" and that the Investment Advisers Act was not intended to regulate internal 

relationships. Although the Staff did not speak to this point directly, the Staff did 
 grant 

Equitable Capital's request, the Staff s response being based "paricularly on the fact that your 

request relates only to Equitable Capital's management of the general account assets of 

Equitable and the general account assets of other wholly-owned life insurance subsidiaries of 

Equitable. " 

As a policy matter, we are of the opinion that the factul circumstaces surounding 

the proposed expanion of the Health System Depository are analogous to the facts in the
 

Equitable Capital No-Action Letter despite the fact that the Non-Member Paricipants would
 

not be wholly controlled entities of DCNHS. First, the expansion of the Health System
 

. Depository would allow only charitable health care related intitUtions to. 
 paricipate as NonMember Paricipants. The Non-Member Paricipants would have the sae chartable goals 

and interests as the curent Members and the Health System Depository would be offering the. 

Non-Member Paricipants the same choices and cost effciencies as offered to the Members 

who would, in tu, contribute to the abilty of such Non-Member Paricipants to preserve the
 

viabilty of their abilty to provide health care services without the motive of profit.
 

Paricipation in DCNHS and the Health System Depository would not be open to the public 

'. 
March 20, 1998 

Page 20 

since paricipation would be limited to entities tht meet cert criteria thus assurng that 

their goals and puroses were similar to those of the Members. Second, the magntude of 

expenses being charged would remain minial in comparson to the assets invested by the 

Non-Member Paricipants and the services provided by the Health System Depository. As 

discussed herein, the Sta has permitted some charging of expenses for services provided by 

charitable iriitutions for the benefit of other chartable insitutions which do not appear 

wholly controlled. 

Despite the expansion of the Health System Depository to Non-Member Paricipants, 

the Health System Depository would retain a common identity, purose, and interest among 

all of its paricipants to provide health care related services without a profit motive. Such 

common goals and interests shòuld not trigger the concerns and protections for. which the 

Investment Advisers Act was promulgated. 

Accordingly, we are of the opinion that the proposed inclusion of Non-Member 

Paricipants among the entities to which expenses are charged would not cause DCNHS or the 

Health System Depository to be in the "business or' providing advice regarding securities to 

"others. " 

( c) Neither DCNHS nor the Health System Depository will receive 

compensation. 

In the AASCU No-Action Letter, the AASCU, which was not registered under the 

Investment Advisers Act, was permitted to be reimbursed for its direct expenses of 

administering the fund for member universities and educational systems that were not 

controlled by the AASCU, and, in addition, for a portion of its indirect costs, according to a 

fee schedule. The reimbursement was, according to the AASCU, a necessar incidental cost 

to the paricipating institutions of the operation of the investment program. Although the 

AASCU did not seek relief under the Investment Advisers Act, the Staff in its response did 

not state that registration thereunder was required. In Florida Baptist Investment Services. 

Inc. ("FBIS"), (June 30, 1994)(hereinafer the "FBIS No-Action Letter"), although the FBIS 

did not request relief under the Investent Advisers Act, the employees of FBIS were 

permitted to receive "reasonable compensation for services actuly rendered in the
 

performance of his or her regular duties" without the Staf addressing the necessity of 

registration under the Investment Advisers Act. 

On the other hand, 
 no-action relief was not granted to the United Methodist 

Foundation in United Methodist Foundation of the Baltimore Anual Conference. Inc.. 

(September 29, 1988) (hereinafter "United Methodist Foundation No-Action Letter") because 

the Foundation charged a fee for its investment management services based on a percentage of 

the income generated in violation of Section 205(a)(1) of the Investment Advisers Act. In 

.. 
March 20, 1998 

Page 2 i 

addition, the United Methodist Foundation was also criticized for the fact that it took custody 

of and managed fuds and securties for certn United Methodist Churches.
 

In Northeastern Pennsylvania Synod of the Evangelical Lutheran Church in America. 

(May 2, i 988)(hereinafer "Synod No-Action Letter"), the Sta could not conclude that
 

reimbursements for expenses that included travel and meal expenses, portions of salares, 

supplies, and expenses associated with offce costs and computers were not an economic 

benefit and thus, "compensation" under the Investment Advisers Act. However, the issue of 

compensation only became relevant because the Staff also came to the conclusion that the 

Synod was engaged in the "business or' providing advisory services under the Investment 

Advisers Act and therefore would have to register. That conClusion was based on a factual 

pattern not present in the case of DCNHS under which the Synod would provide hands-on 

advice by assisting each paricipant in evaluating its own financial situation and determining 

its own investment objectives and in communcating its decisions to the investment advisers. 

Furthermore, the Synod would conduct seminars and meetings on the investment program for 

the benefit of the paricipants. 

DCNHS's curent and proposed expense allocations and the degree of interaction 

between institution and paricipants is more analogous to the AASCU, the FBIS, and the 

National Association than to the United Methodist Foundation and the Synod. In the National 

Association No-Action Letter, assets from the Trust would pay for investment management 

fees, custodian's fees, and whatever out-of-pocket expenses were incurred in creating and 

organizing the Trust. As in the AASCU No-Action Letter, the allocation of expenses among 

the Members and proposed Non-Member Paricipants is minimal and only for the activities 

incidental to the management of the Health System Depository. The charging of costs would 

remain minimal even if the proposed indirect costs were also charged. As in the National 

Association No-Action Letter, only out-of-pocket costs are proposed to be charged. DCNHS 

does not go as far as the FBIS in that it does not seek compensation for services rendered. 

DCNHS seeks only to break even. It will not charge 
 Members or Non-Member Paricipants 

based on the income generated, as did the United Methodist Foundation. Moreover, the 

degree of interaction between the paricipants and DCNHS is minimal. A thrd-par 

custodian holds the assets. DCNHS does not and will not provide advice on investment 

objectives as did the Synod; it merely provides Members and proposes to provide NonMember Paricipants the opportity to paricipate in the Health System Depository. As a 

chaitable institution, DCNHS does not seek any profit from the provision of services pursuat 

to the Health System Depository. Therefore, we are of the opinion that neither the curent 

expense allocation nor the proposed expanion of the expenses being charged Members and 

Non-Member would constitute compensation for the puroses of the Investent Advisers Act. 

Moreover, as discussed above, the Sta has granted no-action relief to charitable entities 

which charged similar expenses relating to services provided to other chartable entities. 

'. 
March 20, 1998 

Page 22 

The definition of investment adviser pursuat to Section 202(a)(1l) of the Investment 

Advisers Act sèts out a thee-pronged test: first, the person mus be providing advice 

regarding securties, second, the person mus be in the business of providing such advice, and 

third, the person must do so for compensation. The United Methodist Foundation No-Action 

Letter and the Synod No-Action Letter reflect that the Sta focuses on compenstion issues 

only after it determined that the person was "providing advice" and was "in the business of 

advising others." As indicated above, it is our opinion that DCNHS will not be providing 

advice regarding securities and would not be in the business of advising others regarding 

securties if the Health System Depository is expanded to include Non-Member Paricipants. 

Consequently, it is our fuher opinion that neither DCNHS nor the Health System Depository 

is required to register 
 under the Investment Advisers Act, even if the charging of expenses 

were considered to create "compensation". 

(d) Even if DCNHS and/or the Health System Depositorv were deemed investment 

advisers under Section 202( a)(ll) of the Investment Advisers Act. both 

DCNHS and the Health System Depository would qualify for. exemotion from 

registration oursuant to Section 203(b)( 4) of the Investment Advisers Act. 

Section 203 (b)( 4) was 
 enacted to exempt certain charitable organizations that are 

considered investment advisers under the Investment Advisers Act. To qualify for the Section 

203(b)(4) exemption, the entity must: (1) be a charitable organization as defined.under 

Section 3(c)(10)(D) of the Investment Company Act and (2) provide advice only to charitable 

organizations, funds excluded from the definition of an investment company under Section 

3(c)(10)(B) of the Investment Company Act or trsts or other institutions described in Section 

3(c)(lO)(B) of the Investment Company Act. DCNHS and the Health System Depository 

satisfy both components of the exemption: 

First, DCNHS is an Exempt Organization whose benefits and net earings do not inure 

to any private shareholder or individuaL. As stated above in the discussion of the Investment 

Company Act, we believe tlat DCNHS and the interests of the Health System Depository 

satisfy the requirements of Section 3(c)(10)(D) of the Investment Company Act since DCNHS 

is a chaitable organzation as defined in such section and the Health System Depository has 

no existence apar from DCNHS. 

Second, all of the curent Members of DCNHS and all paricipants in the Health 

System Depository are charitable organzations as defined by Section 501(c)(3) of the Tax 

Code. All proposed paricipants in the services to be offered by DCNS would also be 

charitable organizations as so defined such that the advice provided as a service of the Health 

System Depository would be provided strictly to charitable organzations. 

For these reasons, DCNHS and the Health System Depository, if deemed by the Staff 

to be "investent advisers" under Section 202(a)(1 1) of the Investment Advisers Act, would
 

.. 
, ., ,. "i 

March 20, 1998
 

Page 23 

neverteless be exempt from registration according to Section 203(b)(4) of the Investment 

Advisers Act as all paricipants in the services offered by both DCNS and the Health 

System Depository are Exempt Organzatioii.
 

Since DCNHS and the Health System Depository would not be providing advice 

concernng securities, would not be in the business of providing such advice to others, would 

not provide such advice for compensation, and would also quaify for exemption from 

registration if found to be an investent adviser we are of the opinion that neither DCNS 

nor the Health System Depository would be required to register as an investment adviser 

under the Investment Advisers Act upon the expanion of the . Health System Depository. 

E. Conclusion
 

Pursuant to the above analysis of the Staffs position in past No-Action Letters, we are 

of the opinion that the proposed allocation of some of the General Services Expenses and the 

intended expansion of the Health System Depository to Non-Member Paricipants should not 

require that (i) the Interests (interests in DCNHS and the Health System Depository, including 

the Investment Program) be registered under the Securities Act or under the Exchange Act, or 

(ii) DCNHS or the Health System Depository be registered as a dealer or broker under the 

Exchange Act, or as an investment company under the Investment Company Act, or as an 

investment adviser under the Investment Advisers Act. 

Accordingly, we respectfully request that the Staff advise us that it would not 

recommend any enforcement action to the Commission if neither DCNHS or the Health 

System Depository registers under the above-mentioned securities laws upon (x) the expansion 

of the Health System Depository to other health-care oriented not-for-profit entities and (y) 

the implementation of the proposal to charge General Services Expenses to Members and 

Non-Member Paricipants. We respectfully request the opportity for a conference in 

advance of any adverse determination. 

Very trly your,
 

t~. l;. ~-r

Carla B. Herwtz Esq. 

Choate, Hall & Stewar 

Y~tJ~ 

Danel W. Coyne, Esq. 

O'Keefe Ashendon Lyons & Ward 

30 Nort LaSalle, Suite 4100 

Chicago, llinois 60602 

(3 12) 621-0400 

DSl.36743S.1 '.