SEC no-action letter: Edward D. Jones & Co., LP exemption from monthly account statements for automatic dividend reinvestments

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August 1, 2003

Mr. Louis R. Branz Assistant General Counsel, Legal Department Edward D. Jones & Co., LP 12555 Manchester Road St. Louis, MO 63131-3729

Re: Suppression of Monthly Account Statements for Certain Customers

Dear Mr. Branz:

In your letter dated July 25, 2003, on behalf of Edward D. Jones & Co., LP, ("Edward Jones"), you request an exemption pursuant to paragraph (f) of Rule 10b-10 under the Securities Exchange Act of 1934 (the "Exchange Act") to permit Edward Jones 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 two pre-selected money market funds.

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

Edward Jones, a registered broker-dealer, offers to its customers by prospectus shares in Edward Jones Money Market Fund, which has two classes of shares, and the Federated Tax Free Investments Trust, which has one class of shares, (together, "the EJ Funds"). Both of the EJ Funds are no-load, diversified, open-end management 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 EJ Funds hold themselves out as money market funds and attempt to maintain a stable net asset value per share. Accordingly, they meet the alternative periodic reporting standards described in Rule 10b-10(b)(1) under the Exchange Act.

Customers of Edward Jones pre-designate the EJ Fund class in which they wish to invest. Thereafter, dividends are paid and reinvested into the selected EJ Fund class once each month, at the same time for all three classes of EJ Fund shares. All dividends and distributions on shares of the EJ Funds are automatically reinvested at the net asset value in additional shares of the respective fund.

Customers currently receive written confirmations of automatic reinvestments on a monthly basis in accordance with Rule 10b-10(b). Edward Jones 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. Instead, such accounts will receive a quarterly statement confirming the automatic reinvestments. All other account activity will continue to be included in a monthly statement, or immediate confirmations, in compliance with Rule 10b-10. Confirmation suppression will not take place when an account is charged any fee or when there is any activity other then the automatic dividend reinvestment. 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 EJ Fund investments by either contacting their investment representative or by accessing Edward Jones' free "AccountLink" Internet service.

Edward Jones will provide customers with written notification of the change in confirmation procedures and will advise customers on how to contact their investment representatives with any questions about the change. Customers will also be advised on how to obtain information about their account.

Response:

On the basis of your representations and the facts presented, the Commission hereby grants an exemption from Rule 10b-10 to permit Edward Jones to confirm automatic dividend reinvestment transactions for dividends in shares of the EJ 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) Edward Jones will continue to confirm all account activity, except the automatic reinvestment of dividends, on a monthly basis as required by Rule 10b-10(b); (2) customers will be able to obtain current information on automatic dividend reinvestment transactions by telephone and via the Internet; 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 10b-10 to automatic dividend reinvestments. The Division expresses no view with respect to other questions that Edward Jones' activities may raise, including the applicability of any other federal or state laws to such activities.

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

Catherine McGuire Chief Counsel

Incoming Letter

Via UPS Express

July 25, 2003

Ms. Catherine McGuire Chief Counsel Office of Chief Counsel Division of Market Regulation U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549

Re:

Request for Approval Per Rule 10b-10 to Suppress Monthly Account Statements for Certain Customers

Dear Ms. McGuire:

This letter is submitted on behalf of Edward D. Jones & Co., LP, a registered broker-dealer with over 8,100 branch offices located throughout the 50 states ("Edward Jones" or the "Firm"). The Firm hereby requests an exemption pursuant to S.E.C. Rule 10b-10 under the Securities Exchange Act of 1934 ("the Act"). Specifically, Edward Jones 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 two, pre-selected money market funds.

Background of Edward Jones

The Firm is a full-service broker-dealer headquartered in St. Louis, Missouri. Edward Jones is a member of the National Association of Securities Dealers, Inc., the New York Stock Exchange, and the Chicago Stock Exchange. The majority of Edward Jones branch offices are staffed by a registered Investment Representative ("IR") and an unregistered sales assistant. The Firm services over five million customer accounts but does not provide correspondent clearing services to any other broker-dealers.

The Firm's clientele is almost entirely non - institutional'' ( i.e., individuals and small businesses). The Firm presently executes approximately 80,000 trades a day, on average, in either listed or OTC stocks and mutual funds; the Firm also acts as market maker in twelve issues. Edward Jones does not engage in the trading of options, warrants or commodities, and the Firm does not offer on-line'' trading. All Edward Jones customers have the option to enlist in "AccountLink", a free service that allows for electronic viewing of customer balances and transactions via the Internet.

Money Market Dividends

By prospectus, the Firm offers to its customers a total of three classes of investment shares in two money market funds managed by Federated Investors, Inc. ("Federated"). One fund is entitled Edward Jones Money Market Fund, and the shares therein are classified as "Investment Shares" or "Retirement Shares." The other fund is entitled Federated Tax Free Instruments Trust ( collectively, "the EJ Funds").

As stated in their filings with the S.E.C., the EJ Funds are no-load diversified, open-end management investment companies established under the laws of Massachusetts in 1980 and 1988, respectively. The EJ 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 funds." The Funds endeavor to maintain a stable net asset value of $1.00 per share.

Customers pre-designate the EJ Fund class they wish to utilize, and thereafter dividends are paid and reinvested into the selected EJ Fund class once each month, at the same time for all three EJ Fund share classes. In recent periods, these EJ Funds have paid under 1% in interest. Currently, the Firm "confirms" EJ Fund dividend reinvestments by monthly account statement.

The Firm 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 EJ Fund transactions would continue to be confirmed in compliance with Rule 10b-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 EDJ Fund transactions by contacting their Investment Representative or through AccountLink.

The Firm is not aware of any S.E.C. regulation or Self Regulatory Organization rule requiring a broker-dealer to send account statements on a monthly basis. NYSE Rule 409(a) addresses account statement frequency by generally requiring account statements "at least quarterly to all accounts having an entry, money or security position during the preceding quarter." The Commission indirectly regulates account statement frequency through the exemptions provided in Rule 10b-10, which, in the main, allow for quarterly confirmation of certain transactions if categorized as pertaining to "periodic plans" or "investment company plans," and monthly confirmation for other plans possessing specified characteristics of money market funds. 1

The EJ Funds fall into the category of registered investment companies as described in Rule 10b-10(b)(1). As such, per Rule 10b-10(b)(2), such transactions would need to be confirmed on a monthly basis. In contrast, periodic plans may be confirmed by quarterly statement. The requirements of "periodic plans," which are stated in 10b-10(b)(1), essentially state that in order to qualify as a "periodic plan" one that invests "in specific amounts...at specific time intervals." 2 The Firm hereby submits that the EJ Fund reinvestments are sufficiently 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 EJ Fund reinvestments are calculated at a stable interest rate, they are made in consistent, "specified amounts", and

Since EJ Fund reinvestments are generated the same time, once each month, they are made "at specific intervals."

Moreover, the Firm plans to implement a host of customer safeguards in conjunction with the approval sought herein (as is discussed below).

Accordingly, the Firm requests approval to send quarterly statements (in lieu of monthly statements) for all customer accounts having only EJ 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 to Firm and Its Customers

Edward Jones estimates that, at the least, the suppression of monthly statements currently being sent to customers during each month in which money market dividends are posted would result in the annual savings to the Firm of between $920,000 and $1,020,000. This number is derived by calculating the operating costs of producing and mailing monthly statements to the approximately 230,000 identified customers.

Planned Notifications and Safeguards

As part of its planned transition, Edward Jones has identified the customer measures listed below:

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 Firm's free AccountLink service).

Of course, customers would additionally be encouraged to contact their IRs 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 department entitled "Customer Reporting" believed that an account warranted a notification because of an additional charge or credit, the system can be instantly overridden to 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 March customer statement, among other disclosures, includes the Privacy Notice required by Regulation S-P, while the December statement, among other things, will continue to carry the Required Minimum Distribution disclosure required by IRS rules as well as the annual Margin Disclosure statement required by NASD Rule 2341.

4. Customer Call In Number

Each Edward Jones account statement contains a "1-800" number for customer questions. This number is for the Customer Relations Department of the Firm, which will be well positioned to handle 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.

6. Required Change in Relevant Prospectuses

The Firm understands its obligation to timely update the two prospectuses corresponding to the Funds.

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. 3 Of course, this information - which is maintained by a department called "Internal Control" and cannot be altered by the broker in the branch office - is also available for viewing by customers (vis-a-vis their own accounts) who visit the branch office.

Conclusion

The Firm believes that the relief sought herein is non-controversial. 4 Concurrently, Edward Jones notes that the planned changes are in keeping with industry progress in general and recent Commission action in particular. 5 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 (314) 515-5241.

Sincerely,

Louis R. Branz Assistant General Counsel Legal Department

http://www.sec.gov/divisions/marketreg/mr-noaction/edward080103.htm

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Modified: 08/08/2002