SEC Division of Trading and Markets no-action letter: Legg Mason Investor Services, LLC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

DIVISION OF
TRADING AND MARKETS
April 7, 2009
Roger P. Joseph, Esq.

Bingham McCutchen LLP

One Federal Street

Boston, MA 02110-1726

Re: Legg Mason Investor Services, LLC - Request for Approval Per Rule IOb-IO to Suppress Monthly Account Statements for Certain Customers Dear Mr. Joseph:
In your letter dated April 6, 2009, on behalf of Legg Mason Investor Services, LLC ("LMIS"), you request an exemption pursuant to paragraph (f) ofRule lOb-l 0 under the Securities Exchange Act of 1934 to permit LMIS to send quarterly account statements (in lieu of monthly statements) to its customers whose only account activity consists oftransactions involving the automatic reinvestment of dividends in the shares ofthe Funds. I Based on your letter, we Understand the facts to be as follows:
LMIS offers its customers, by prospectus, shares ofthe Funds, which are no-load, diversified, open-end investment companies registered under the 1940 Act that meet the requirements of Rule 2a-7 under that Act. The Funds endeavor to maintain a stable net asset value of $1.00 per share. Customers of LMIS 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. LMIS currently "confirms" Fund dividend reinvestments by monthly account statements in accordance with Rule 1Ob-l O(b). LMIS has requested an exemption to permit it to suppress monthly statements for those customer accounts in which the only I Unless otherwise noted, each defined te~ in this letter has the same meaning as defined, directly or by reference, . in your letter.

Roger P. Joseph, Esq.
April 7, 2009 activity in a given month is the automatic reinvestment of dividends in the shares ofthe 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 1Ob-l O. 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 the Funds' customer service center or by accessing their account via the Internet, under a free service that allows for electronic viewing of customer balances and transactions. LMIS 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 ofthe 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 the Funds' customer service center 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 1Ob~ 10 to permit LMIS 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) LMIS will continue to confirm all account activity, except the automatic reinvestment of dividends, as required by Rule 1Ob-l 0; (2) customers will be able to obtain current information on automatic dividend reinvestment transactions via the Internet and by contacting the Funds' customer service center 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 1Ob-l 0 to automatic dividend reinvestments. The Division of Trading and Markets expresses no view with respect to other questions that LMIS's activities may raise, including the applicability of any other federal or state laws, or self-regulatory organization rules, to such activities. Prior Exemptions pursuant to Rule lOb-lO(t) As noted in your letter, the Staff has provided exemptions pursuant to paragraph (f) of Rule 1Ob-l 0 to permit broker-dealers to send quarterly
account statements (in lieu of a monthly

Roger P. Joseph, Esq.
April 7, 2009 statements) to customers whose only account activity consists oftransactions involving automatic reinvestment of the receipt of dividends in the shares of money market funds. 2 Those exemptions were largely based on facts and representations that are similar to those in your letter, although your request applies to any money market funds that LMIS may underwrite in the future. Extension of Class Relief With the experience we have gained in this area, 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 1Ob-l 0 to permit any broker-dealer to send quarterly account statements (in lieu of a monthly statements) to customers whose only account activity consists oftransactions involving the automatic reinvestment of the receipt of dividends in the shares of no-load, diversified, open-end investment companies registered under the 1940 Act that meet the requirements of Rule 2a-7 under that Act and that endeavor to maintain a stable net asset value of $1.00 per share, provided that the broker-dealer satisfies the following conditions: (l) the broker-dealer 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 telephone; and (3) customers will receive quarterly statements confirming account activity, including automatic dividend reinvestments. Moreover, this exemption is strictly limited to the application of Rule lOb￾10 to automatic dividend reinvestments. The Division of Trading and Markets expresses no view with respect to other questions that LMIS's activities may raise, including the applicability of any other federal or state laws, or self-regulatory organization rules, to such activities. Requests for relief that cannot meet these criteria will continue to be considered upon request, on a case-by￾case basis. For the Commission, by the Division of Trading and Markets Pursuant to delegated authority,3 ps?-e 9c/'L£ -- Deputy Chief Counsel 2 See Letters re: Edward D. Jones & Co., LP (August I, 2003); D.A. Davidson & Co. (June 10, 2005). 3 17 CFR 5 200.30-3(a)(32)

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Hong Kong
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Billgl1am M,tl,'(h~n LLP
On~ federal Sireet eO~lUn. MA ",.1IU->72&
Roger P. Joseph
Direct Phone: 617.95 L8247
Direct Fax: 617.428.6343 roger.joseph@bingham.com April 6, 2009 Via Email and Federal Express James L. Eastman, Esq. Chief Counsel & Associate Director Division ofTrading and Markets U.S. Securities and Exchange Commission 100 r Street, N.E. Washington, D.C. 20549 H.e: Lcgg Mason Investor Services, LLC - Requesl for Approval PCI' Rulc lOb-to 10 Suppress Monthly Account Slatements for Certain Customers Dear Mr. Eastman:
This lettcr is submitted on behalf of Legg Mason Investor Services, LLC ("LMI S..). LMIS hereby requests an exemption pursuant to Rule IOb- I0 under the Securities Exchange Act of 1934. Specifically, LMIS seeks permission to send qUal1erly account statemcnts (in lieu of monthly slatements) (0 its customers whose only account activity consists oftransactiOilS involving automatic reinvestment ofthe receipi of dividends in the shares of tile money market funds listed in Annex A (the ""Funds"). In addition, LMIS requests that the exemption apply to any additional money market funds ror which it will serve as underwriter in the future. Background of LMJS LMIS is a broker-dealer headquartered in 13altimore, Maryland. LMIS is tile underwriter or sponsor of several mutual funds, including the Funds. LMIS is a member firm 01: and subject to supervision by, the Financiallndllstry RegulatolY Authority. With respect to the Funds, LMIS serves ovcr 16,500 customer accounts. LM IS prescntly executcs approximatcly 1,400 trades a day, on average. in the shares ofthc Funds. All LMIS customers have the option to enlist in a free service that allows for electronic viewing ofcustol11cr balanccs and transactions via a password protected site accessible via the Internet. Moncy Market Dividends By prospectus, LMIS offers to its customcrs investments in shares or the Funds. as well as other mutual funds that arc not the subject of this request. A!72H6SS45,ll ~11,95·.6ooo (,'7.9'>' ~no lllnHham.,om

James L. Eastman, Esq.
April 6. 2009
As stated in their filings with the SEC, the Funds are no-load diversified, open￾end management investment companies. The Funds are also registered pursuant to the Investment Company Act of 1940 (the "1940 Act"), and comply with Ihe various requirements of Rule 2a-7 under the 1940 Act, which regulates moncy market mutual funds. The Funds endeavor to maintain II stable net asset value of$I.OO per share. Customers pre-designate the Fund class they wish 10 utilize, and thereafter dividends arc paid and reinvested into the selected Fund class once cileh month (on the same day each month), <lithe same time for all Fund share classes. Currently. LMIS "confimls" Fund dividend rcinvestments by monthly llCeOlll11 stlltemcnt. LM IS plans to suppress mOllthly statements (and thus send only quancrly sllltemcnts) if such dividend reinvestment constitutes the only activity in a givelllllonth. All other Fund transactions would continue to be confirmed in compliance with Rule IOb·1 O. The planned suppression would apply to all customer accounts. A customer 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 \ould always be able to obtain current infonnation on Fund transactions by contacting the Funds' customer service center or by accessing their account via the Internet. LMIS is not aware of any SEC regulation or self-regulatory organization rule requiring a broker-dealer to send account statemcnts on a monthly basis. TIle Commission indirectly regulates account statement frequency through the exemptions provided in Rule IOb- I0, which, in thc main, allow for quarterly conlirmation of certain transactions if categorized as pertaining to "pcriodic plans" or "investment company plans;' and monthly eonfinnation for other plans possessing specified characteristics of money marke! funds. The SEC has previously provided exemptions in similar circumstances. including to D.I. Davidson & Co. ("D.I. Davidson"i and to Edward D. Jones & Co. LP ("Edward D. Jones''),;!, frolll Rule IOb-IO. The analysis in lhis lcller relies on thc analyscs in the D.A. Davidson and Edward D. Jones Ictters and the courses of action proposed therein. The Funds fall into the category of registered investment companies as described in Rule 10b-IO(b)(I). As such, per Rule IOb-IO(b)(2), such transactions would need to be confirmed on a monthly basis. In contrast, periodic plans may be confirmed by quarterly statement. Rule lOb-I O(dX5) essentially dellnes a "periodic plan" as any wriuen authorization for a broker acting as agent to purchase or sell for a customer a specillc security "in specific amounts ... at specific time intervals:' LM IS hercby submits that the Fund reinvestments are sufficiently similar to periodic plans so as to warrant the same exception of quarterly confinnation. Letler dated June 10,2005,
available at hnp:llwww.sec.gov/di'isions/markctreglmr· noaet ion/davidson061 005. htm. Leiter dnted August 1,2003. available at http://www.scc.gov/divisiolls/markclrcglmr￾nO:lctioll/cdward080 I03 .htm. 1/72865545 11 B,o~ham M(CuIChtO LlP bl,,~h~m (0)10

James L. Eastman, Esq.
April 6. 2009
Specifically, LMIS hereby submits that its planned account statements suppression satisfies the Rule because of the following:

• Since each Fund's dividend policy is to distribute all income on a daily basis.
  a stable NAV of $1.00 is maintained.
• Since Fund reinvestments arc generated at the same time. once each month.
  they are made "at specific intervals."
• Moreover. LMIS plans to implement customer safeguards in conjunction
  with the approval sought herein (as discussed below).
  Accordingly, LMIS requests approval to send quarterly statements (in lieu of monthly statements) for all customer accounts having only Fund reinvestment activity within 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 (0 Firm and lis Customers LMIS estimates that. at the least. the suppression of monthly statements currently being sent to customers of the Funds during each month in which money market dividends are posted would result in annual savings to Ihe Funds of approximately $83.000. This amount is derived by calculating the operating costs of producing and mailing monthly statements to the approximately 12,000 identified cuslomers whose only monthly activity is in the form of money market dividends. Planned Notifications and Safeguards As part of its planned transition, LMIS has identified the customer measures listed below, which largely track the notifications and safeguards as outlined in the D./. Davidson & Edward D. Jones letters:

1. Customer Notilic:ttion
   LMIS intends to prominently display on a quarterly statement a nOlice to all customers explaining the changes in account statement frequency. This notice will be repeated a second time on account statements follo\ ing the commencing ofthc account statement suppression. lllis notice will also appear elcctronically on the Internet lor a period of months (for the benefit of customers utilizing the Internelto access their accoullts). Customers would additionally be encouragcd to conlact the Funds' customcr service center with any questions about Fund or cash interest activity.
2. Systcm Ovcrridc ClJpabilitics
   The planned suppression of monthly statclllcnls for relevant aceoulllS docs not preclude Finn personnel from reinstituting monthly reporting on an as·needed basis. For Al7286,S,S4S II B,nKII.m M, C"t(l!~n IlP bin!".," '"

James L. Eastman, Esq.
Apri I 6, 2009 example, iflhe Operations Departmelll believed that'lIl account warranted a notification because of an additional charge or credit, the system can return to month Iy printing and mailings.
3. Continuation ofCustorner Disclosures
The account statement suppression discussed herein will in no way affect LMIS's communication ofexisting customer notification requirements. For example. the Privacy otice required by Regulation S-P is currently delivered to customers either with an annual prospectus update or in a separate mailing, and that delivery will not be affected by the requested relief. LMIS will ensure that all customers will continue to receive all disclosures requircd by law.
4. Customer Call In Number
Each account statement contains a "1-800" number for customer questions. This number is for the Funds' customcr scrvice center, 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
LMIS 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 unregistercd personnel. Additionally, the account statement suppression described herein will in no way affect the ability of regulators conducting inspections to immediately vicw all monthly activity in each customer's account via vClriOLlS computerized screens and/or quarterly customer statements. Of course, this information is ulso available for viewing by customers (vis-a·vis their own accounts) over the Inteme.
6. Change to Relevant IJrospectuscs
LMIS will work with representatives of the Funds to ensure any necessary updates to the prospectuses arc made in a timely manner. Conclusion LMIS believes Ihut the reliefsought herein is non-controversial and consistent with relief previously provided by the Commission ut-cer similar circumstances. Concurrently, LMIS notes that the planned changes arc in keeping with industry progress in general and recent Commission action in particular. Therefore. LMIS writes simply to obtain formal approval for reductions in paperwork that have long been requested by. and approved lor. broker-dealers bearing significant costs in generating mailings tocustOlller accounts. N72865~5 11 B,nXh.'" M«ultnfn UP bln~h.m.t<J,"

• • •
  James L. Eastman. Esq.
  April 6. 2009
  LMIS also understands that regardlcss of Ihc nature of its request. a commitmcnt to certain intemal education and cxtcmal communication is necessary. LMIS would appreciate your efforts to review this request as expeditiously as your schedule perm its. Please call me at (617) 951·8247, or my panner Lea Anne Copenhefcr al (617) 951-8515. if you have any questions or if we can otherwise assist in resolving this mailer. Sincerely yours. ~C}~ Roger P. Joseph Attachment cc: Brian A. Bussey, Esq. Ignacio A. Sandoval, Esq. Lea Anne Copenhe fer. Esq. N72865S·4j II a,II.II,m M«utch~n UP tlln~h.. tn IJm

Annex A
Monel' Markel funds b' Trust
Legg Mason Partners Mone' Market Trust
Citi California Tax Free Reserves
Citi Cash Reserves
Cili Connecticul Tax Free Reserves
Citi ew York Tax Free Reserves
Citi Tax Free Reserves
Citi U.S. Trcasul)' Reserves
Western Asset AMT Tax Free Money Market Fund
Western Asset California Municipal Money Market Fund Weslern Asset Government Money Market Fund Western Asset Massachusetts Municip.11 Money Market Fund Western Assel New York Municipal Money Market Fund Weslern Asset Money Market Fund Western Asset Municipal Money Markel Fund Legg Mason Partners Institutional Trust Western Asset Inslitutional Money Markel Fund Citi Institutional Cash Reserves Citi Institutional Liquid Reserves Citi Institutional Tax Free Reserves Citl Institutional U.S. Treasury Reserves Western Asset Institutional Government Money Mark<.1 Fund Western Asset Institutional Municipal Money Market Fund Legg Muson Partners Premium MOlle' Murke! TI'ust Cili Premium Liquid Reserves Cili Premium U.S. Treasury Reserves Legg M:tson Partners Variable Income Trusl Lcgg Mason Partners Variable Money Market Portfolio