[Federal Register Volume 70, Number 85 (Wednesday, May 4, 2005)]
[Notices]
[Pages 23262-23264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2167]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26861; 812-13163]


Edward D. Jones & Co., L.P.; Notice of Application

April 28, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 22(d) of the Act, as well as certain disclosure requirements.

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Summary of Application: Edward D. Jones & Co., L.P. (``Edward Jones'')

[[Page 23263]]

requests an order that would permit the sale of shares of certain 
registered open-end investment companies (``mutual funds'') at a price 
that reflects the elimination of the front-end sales load, in 
connection with a Deferred Consideration Agreement entered into by 
Edward Jones with the United States Attorney's Office for the Eastern 
District of Missouri. Edward Jones also requests that the relief extend 
to such mutual funds and their principal underwriters.

DATES: The application was filed on February 4, 2005, and amended on 
April 5, 2005.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on May 24, 2005, and should be accompanied by proof of service on 
applicants, in the form of an affidavit, or for lawyers, a certificate 
of service. Hearing requests should state the nature of the writer's 
interest, the reason for the request, and the issues contested. Persons 
who wish to be notified of a hearing may request notification by 
writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicant, 12555 Manchester Road, St. Louis, MO 63131-3729.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 551-6817, or Todd F. Kuehl, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicant's Representations

    1. Edward Jones, a Missouri limited partnership, is registered as a 
broker-dealer under the Securities Exchange Act of 1934. Edward Jones 
is one of the largest sellers of brokerage-sold mutual funds in the 
United States and has selling agreements with approximately 240 mutual 
fund families.
    2. On December 20, 2004, Edward Jones entered into a Deferred 
Consideration Agreement (``Agreement'') with the United States 
Attorney's Office for the Eastern District of Missouri (``Office''). 
The Agreement states that the Office investigated the conduct of Edward 
Jones relating to revenue sharing payments made by certain mutual funds 
that were designated as preferred funds (``Preferred Funds''). Among 
other things, Edward Jones acknowledged in the Agreement that it 
recommended the Preferred Funds to its customers and did not provide 
disclosure about the receipt of revenue sharing to its customers.
    3. The Agreement provides that the Office will delay consideration 
of any actions stemming from the investigation for a period of two 
years in consideration of, among other things, Edward Jones offering 
all of its customers who owned shares of any Preferred Funds on 
December 31, 2004 (``Eligible Customers'') the opportunity, for a 
period of 90 days, to sell their interests in the Preferred Funds and 
purchase shares of any other mutual fund with which Edward Jones has a 
selling agreement (the ``Switch Funds'') without the payment of a 
front-end sales load (the ``Switch''). In connection with the Switch, 
the front-end sales load will either be waived by a Switch Fund's 
principal underwriter and Edward Jones (the ``NAV Switch Funds'')\1\ or 
Edward Jones will rebate the front-end sales load back to the customer 
(the ``Rebate Switch Funds'').
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    \1\ The term NAV Switch Funds also includes any Switch Funds 
whose principal underwriters make a ``full dealer reallowance'' of 
the front-end sales load amount to Edward Jones.
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Applicant's Legal Analysis

    1. Section 22(d) of the Act, in relevant part, prohibits any 
registered investment company, any principal underwriter and any dealer 
from selling a redeemable security except at a current public offering 
price described in the prospectus. Rule 22d-1 under the Act provides an 
exemption from section 22(d) allowing a mutual fund, its principal 
underwriter and dealers to sell shares at prices that reflect 
variations in, or elimination of, the sales load, if certain conditions 
are met. Rule 22d-1(a) requires that the mutual fund, its principal and 
dealer apply any scheduled variation uniformly to all offerees in the 
class specified. Rule 22d-1(b) requires the mutual fund to furnish to 
existing shareholders and prospective investors adequate information 
concerning any scheduled variation, as prescribed in applicable 
registration form requirements. Rule 22d-1(c) requires the mutual fund, 
before making any new sales load variation available to the purchasers 
of the fund's shares, to revise its registration statement to describe 
that new variation. Finally, rule 22d-1(d) requires the mutual fund to 
advise its existing shareholders of any new sales load variation within 
one year of the date when that variation is first made available to 
purchasers of the fund's shares.
    2. Form N-1A is the registration statement used by mutual funds. 
Item 7(a)(2) of Form N-1A requires disclosure of waivers or variations 
of sales loads. Item 18(a) of Form N-1A requires additional disclosure 
of how a mutual fund's shares are offered to the public, including 
waivers or variations of sales loads.
    3. Section 6(c) of the Act provides that the Commission may exempt 
any class of persons, securities or transactions, from any provision of 
the Act, if and to the extent that such exemption is necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act.
    4. Edward Jones requests an order pursuant to section 6(c) of the 
Act exempting it, the Switch Funds and their principal underwriters 
from section 22(d) of the Act to the extent necessary to implement the 
Switch, and exempting the Switch Funds from the requirements of Items 
7(a)(2) and 18(a) of Form N-1A as they would apply to the elimination 
of the front-end sales load in connection with the Switch. Edward Jones 
states that the provisions of section 22(d) were intended to prevent 
disruption of orderly distribution by dealers selling shares at a 
discount and discrimination among investors resulting from different 
prices charged to different investors. Edward Jones states that the 
Switch does not implicate any of these concerns and that the requested 
relief meets the standards of section 6(c) of the Act.
    5. Edward Jones states that it will ensure that the elimination of 
the front-end sales load in the Switch will be applied uniformly to all 
offerees in the class specified, as required by rule 22d-1(a). Edward 
Jones further states that each NAV Switch Fund will advise its existing 
shareholders of the front-end sales load elimination within one year of 
the Switch, as required by rule 22d-1(d). As a condition to the 
requested order, participation by an NAV Switch Fund in the Switch must 
receive prior approval of the NAV Switch Fund's board of directors, 
including a majority of the directors who are not interested persons. 
Edward Jones argues that compliance with the requirements of rule 22d-
1(b) and (c) is unduly

[[Page 23264]]

burdensome under the circumstances. Edward Jones states that it will 
notify all Eligible Customers in writing of their opportunity to 
participate in the Switch. In the notice to Eligible Customers, Edward 
Jones will disclose that the customer's purchase of Rebate Switch Funds 
may be more expensive to Edward Jones than their purchase of NAV Switch 
Funds, thus creating a conflict of interest. The notice also will 
identify those Switch Funds that are NAV Switch Funds and those that 
are Rebate Switch Funds.

Applicant's Conditions

    Applicant agrees that any order granting the requested relief will 
be subject to the following conditions:
    1. Prior to implementing the Switch, Applicant will obtain an 
undertaking in writing from each of the NAV Switch Funds that the NAV 
Switch Fund will comply with Rule 22d-1(d) under the Act with respect 
to the Switch.
    2. Prior to an NAV Switch Fund's participating in the Free Switch, 
the board of directors or trustees of the NAV Switch Fund (``Board''), 
including a majority of the Board members who are not ``interested 
persons,'' as defined in Section 2(a)(19) of the Act, will review any 
sales load waiver proposed to be made by the NAV Switch Fund or its 
principal underwriter in connection with the Switch to determine 
whether the waiver is in the best interest of the NAV Switch Fund and 
its shareholders. To assist the Board in making this determination, the 
NAV Switch Fund's principal underwriter will provide the Board with 
such information as may reasonably be necessary to enable the Board to 
make an informed decision. The factors considered and the basis for the 
Board's determination will be reflected in the Board's minutes, which 
will be preserved for a period of not less than six years from the date 
of the NAV Switch Fund's participation in the Switch, the first two 
years in an easily accessible place.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2167 Filed 5-3-05; 8:45 am]
BILLING CODE 8010-01-P