SEC Division of Trading and Markets no-action letter: D.A. Davidson & Co.

June 10, 2005

Lawrence Martinez, Esq. Senior Vice President, General Counsel D.A. Davidson & Co. Davidson Building 8 Third St. N. P.O. Box 5015 Great Falls, MT 59403

Re: Suppression of Monthly Account Statements for Certain Customers

Dear Mr. Martinez:

In your letter, dated June 10, 2005, on behalf D.A. Davidson & Co. ("Davidson"), you request an exemption pursuant to paragraph (f) of Rule 10b-10 under the Securities Exchange Act of 1934 (the "Exchange Act") to permit Davidson to send quarterly account statements (in lieu of monthly statements) to its customers whose only account activity consists of transactions involving the automatic reinvestment of dividends in the shares of pre-selected money market funds.

Based on your letter we understand the facts to be as follows:

Davidson, a registered broker-dealer, offers its customers, by prospectus, shares of money market cash account trusts managed by Deutsch Investment Management Americas Inc. under the names Davidson Cash Equivalent Plus Shares, Davidson Cash Equivalent Shares, Scudder Government Cash Institutional Shares and Scudder Institutional Share (the "Funds"). All of the Funds are no-load, diversified, open-end investment companies registered under the Investment Company Act of 1940 (the "1940 Act") that meet the requirements of Rule 2a-7 under the 1940 Act. The Funds endeavor to maintain a stable net asset value of $1.00 per share.

Customers of Davidson pre-designate the Fund class in which they wish to invest. Thereafter, dividends are paid and automatically reinvested into the selected Fund class once each month (on the same day each month), at the same time for all Fund share classes.

Davidson currently "confirms" Fund dividend reinvestments by monthly account statements in accordance with Rule 10b-10(b). Davidson has requested an exemption to permit it to suppress monthly statements for those customer accounts in which the only activity in a given month is the automatic reinvestment of dividends in the shares of pre-selected Funds. Instead, such accounts will receive a quarterly statement confirming the automatic reinvestments. All other account activity will continue to be confirmed in monthly statements or immediate confirmations in compliance with Rule 10b-10. Specifically, confirmation suppression will not take place where there is any activity in the account (including the deduction of any fee) other than the payment of and the automatic reinvestment of dividends earned on Fund balances in the account.

Customers will receive a minimum of four statements annually (in March, June, September and December). Customers will also be able to obtain current information concerning all Fund investments by either contacting their Financial Consultant or by accessing their account via the Internet, under a free service that allows for electronic viewing of customer balances and transactions.

Davidson will provide a prominently displayed notice to all customers explaining the changes in account statement frequency on a quarterly statement. This notice will be repeated a second time on account statements following the commencing of the account statement suppression. This notice will also appear electronically on the Internet for a period of months. In addition, customers will be encouraged to contact their Financial Consultants with any questions about Fund or cash interest activity.

Response:

On the basis of your representations and the facts presented, we find that it is appropriate in the public interest and consistent with the protection of investors to grant, and hereby grant, an exemption from Rule 10b-10 to permit Davidson to confirm automatic dividend reinvestment transactions for dividends in shares of the Funds through the use of quarterly account statements.

This exemption is conditioned on your representations and the facts presented, and particularly on the fact that (1) Davidson will continue to confirm all account activity, except the automatic reinvestment of dividends, as required by Rule 10b-10; (2) customers will be able to obtain current information on automatic dividend reinvestment transactions via the Internet and by contacting their Financial Consultants via telephone; and (3) customers will receive quarterly statements confirming account activity, including automatic dividend reinvestments in the Funds. Moreover, this exemption is strictly limited to the application of Rule 10b-10 to automatic dividend reinvestments. The Division of Market Regulation expresses no view with respect to other questions that Davidson's activities may raise, including the applicability of any other federal or state laws, or self-regulatory organization rules, to such activities.

For the Commission, by the Division of Market Regulation pursuant to delegated authority, 1

Brian A. Bussey Assistant Chief Counsel

Endnotes

1 17 CFR 200.30-3(a)(32).

Incoming Letter:

The Incoming Letter is in Acrobat format.

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I D.A. Davidson & Co.
Davidson Trust Co.
Davidson Investment Advisors
I Davidson Travel
VIA FACSIMILE AND FEDERAL EXPRESS
Chief Counsel
Office of Chief Counsel
Division of Market Regulation
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: D.A. Davidson & Co. - Request for Approval Per Rule lob-10 to Suppress Monthly Account Statements for Certain Customers Dear Ms. McGuire:
This letter is submitted on behalf of D.A. Davidson & Co., a registered broker-dealer with over 40 branch offices located primarily in the Pacific Northwest ("Davidson" or the "Firm"). The Firm hereby requests an exemption pursuant to S.E.C. Rule lob-10 under the Securities Exchange Act of 1934 (the "Act"). Specifically, Davidson seeks permission to send quarterly account statements (in lieu of monthly statements) to its customers whose only account activity consists of transactions involving automatic reinvestment of the receipt of dividends in the shares of pre-selected money market funds, referred to below. Background of Davidson The Firm is a full-service broker-dealer headquartered in Great Falls, Montana. Davidson is a member of the National Association of Securities Dealers, Inc. The Firm services over one hundred thousand customer accounts and provides correspondent clearing services to one other small broker-dealer. The Firm presently executes approximately 3,100 trades a day, on average, in either listed or OTC stocks, fixed income and mutual funds; the Firm also acts as market maker in over 260 issues. All Davidson customers have the option to enlist in a free service that allows for electronic viewing of customer balances and transactions via a password protected site accessible via the Internet. Money Market Dividends By prospectus, Davidson offers to its customers investments in shares of money market cash account trusts managed by Deutsch Investment Management Americas Inc. ("Deutsche") under the names Davidson Cash Equivalent Plus Shares, Davidson Cash Equivalent Shares, Scudder Government Cash Institutional Shares and Scudder Institutional Share (the "Funds"). Davidson Building 8 Third St. N. P.O. Box 501 5 Great Falls, MT 59403 (406) 727-4200 1-800-332-591 5 FAX (406) 791-7380 www.dadavidsoncompanies.com

As stated in their filings with the S.E.C., the Funds are no-load diversified, open-end management investment companies. The Funds are also registered pursuant to the Investment Company Act of 1940, and "comply with the various requirements of [S.E.C.] Rule 2a-7, which regulates money market mutual fbnds." The Funds endeavor to maintain a stable net asset value of $1 .OO per share. Customers pre-designate the Fund class they wish to utilize, and thereafter dividends are paid and reinvested into the selected Fund class once each month (on the same day each month), at the same time for all Fund share classes. Currently, the Firm "confirms" Fund dividend reinvestments by monthly account statement. Davidson plans to suppress monthly statements (and thus send only quarterly statements) if such dividend reinvestment constitutes the only activity in a given month. All other Fund transactions would continue to be confinned in compliance with Rule lob- 10. The planned suppression would apply to all customer accounts (e.g.,cash, margin, IRAs, trusts, etc.). Customers will receive a monthly statement in any month where there is any activity in the account (including the deduction of any fee) other than the payment of and reinvestment of dividends earned on Fund balances in the account. Customers would always be able to obtain current information on Fund transactions by contacting their Financial Consultant or by accessing their account via the Internet. The Firm is not aware of any SEC regulation or Self Regulatory Organization rule requiring a broker-dealer to send account statements on a monthly basis. The Commission indirectly regulates account statement frequency through the exemptions provided in Rule lob-1 0, whch, in the main, allow for quarterly confirmation of certain transactions if categorized as pertaining to "periodic plans" or "investment company plans," and monthly ~o~rmation for other plans possessing specified characteristics of money market funds. The SEC has previously provided an exemption in similar circumstances, including to Edward D. Jones & Co. LP ("Edward Jones"), from Rule lob￾10 (letter dated August 1,2003 (available at http://www.sec.gov/divisions/marketreg/mr￾noaction/edward080103.htm). The analysis in this letter relies on the Edward Jones analysis and proposed course of action. The Funds fall into the category of registered investment companies as described in Rule 1 Ob￾1 O(b)(l). As such, per Rule lob-1 0(b)(2), such transactions would need to be confirmed on a monthly basis. In contrast, periodic plans may be confinned by quarterly statement. Rule lob￾10(d)(5) essentially defines a "periodic plan" as any written authorization for a broker acting as agent to purchase or sell for a customer a specific security "in specific amounts ...at specific time intervals." Davidson hereby submits that the Fund reinvestments are suficiently similar to periodic plans so as to warrant the same exception of quarterly confirmation.
Specifically, the Firm hereby submits that its planned account statements suppression satisfies the Rule because of the following:

Since the Fund's dividend policy is to distribute all income on a daily basis, a stable NAV of $1 .OO is maintained. Since Fund reinvestments are generated the same time, once each month, they are made "at specific intervals." Moreover, the Firm plans to implement customer safeguards in conjunction with the approval sought herein (as discussed below). Accordingly, the Firm requests approval to send quarterly statements (in lieu of monthly statements) for all customer accounts having only Fund reinvestment activity withn a given quarter. Concurrently, over the course of a year, a customer would at the very least receive four statements a year (March, June, September and December). Savings to Firm and Its Customers Davidson estimates that, at the least, the suppression of monthly statements currently being sent to customers during each month in whlch money market dividends are posted would result in the annual savings to the Firm of approximately $150,000. This amount is derived by calculating the operating costs of producing and mailing monthly statements to the approximately 25,000 identified customers whose only monthly activity is in the form of money market dividends. Planned Notifications and Safeguards As part of its planned transition, Davidson has identified the customer measures listed below, which largely track the notifications and safeguards as outlined in the Edward Jones letter:

1. Customer Notification
   The Firm intends to prominently display on a quarterly statement a notice to all customers explaining the changes in account statement frequency. This notice will be repeated a second time on account statements following the commencing of the account statement suppression. This notice will also appear electronically on the Internet for a period of months (for the benefit of customers utilizing the Internet to access their accounts). Customers would additionally be encouraged to contact their Financial Consultant with any questions about Fund or cash interest activity.

2. System Override Capabilities
   The planned suppression of monthly statements for relevant accounts does not preclude Firm personnel from reinstituting monthly reporting on an as-needed basis. For example, if the Operations Department believed that an account warranted a notification because of an additional charge or credit, the system can return to monthly printing and mailings.

3. Continuation of Customer Disclosures
   The account statement suppression discussed herein will in no way effect the Firm's communication of existing customer notification requirements. The Firm will ensure that all customers will continue to receive all disclosures required by law. For example, the June customer statement, among other disclosures, includes the Privacy Notice required by Regulation S-P, as well as the annual Margin Disclosure statement required by NASD Rule 2341.

4. Customer Call In Number
   Each Davidson account statement contains a "1-800" number for customer questions. 'Ihs number is for the Corporate Office of the Firm, which will be trained and well positioned to direct any questions from customers concerning both the decrease in the number of account statements or to provide specifics about individual customer accounts.

5. Employee Education
   The Firm intends to immediately notify all relevant associates of the plan to suppress monthly statements for certain accounts. This notification will involve electronic and print guidance for both registered and unregistered personnel. Additionally, the account statement suppression described herein will in no way affect the ability of regulators conducting branch inspections to immediately view all monthly activity in each customer's account via the broker's various computerized screens andlor quarterly customer statements. Of course, this information is also available for viewing by customers (vis-a-vis their own accounts) who may visit the branch oflice.

6. Change to Relevant Prospectuses
   Davidson will work with representatives of the Funds to ensure any necessary updates to the prospectuses are made in a timely manner. Conclusion The Firm believes that the relief sought herein is non-controversial and consistent with relief previously provided by the Commission under similar circumstances. Concurrently, Davidson notes that the planned changes are in keeping with industry progress in general and recent Commission action in particular. Therefore, the Firm writes simply to obtain formal approval for reductions in paperwork that have long been requested by, and approved for, broker-dealers bearing significant costs in generating mailings to customer accounts.

The Firm also understands that regardless of the nature of its request, a commitment to certain internal education and external communication is necessary. The Firm would appreciate your efforts to review this request as expeditiously as your schedule permits. The Firm thanks the Commission for its attention to this matter. If the staff has any questions, please do not hesitate to contact the undersigned at (406) 268-3056. Very truly yours, Lawrenc kp'".i Martinez Senior Vice President, General Counsel