UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


__________________________________________





FORM 10-Q


(Mark One)







[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended March 26, 2010


OR





[     ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934


For the transition period from _________ to _________





Commission file number 0-16633





THE JONES FINANCIAL COMPANIES, L.L.L.P.





(Exact name of registrant as specified in its Charter)





MISSOURI                                                                                                                                                     43-1450818





(State or other jurisdiction of                                                                                                                     (IRS Employer Identification No.)


incorporation or organization)





12555 Manchester Road


Des Peres, Missouri 63131





(Address of principal executive office)


(Zip Code)





(314) 515-2000





(Registrant's telephone number, including area code)





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [   ]





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [   ] NO [   ]





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):





Large accelerated filer [   ]                                                                                         Accelerated filer [   ]


Non-accelerated filer [ X ]                                                                                           Smaller reporting company [   ]


(do not check if a smaller reporting company)





Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [   ] No [ X ]





As of April 30, 2010, 459,145 units of limited partnership interest ("Units") are outstanding, each representing $1,000 of limited partner capital.  There is no public or private market for such units.





THE JONES FINANCIAL COMPANIES, L.L.L.P.





INDEX





PagePart I.
FINANCIAL INFORMATIONItem 1.
Financial StatementsConsolidated Statements of Financial Condition
3Consolidated Statements of Income
5Consolidated Statements of Changes in Partnership Capital Subject toMandatory Redemption
6Consolidated Statements of Cash Flows
7Notes to Consolidated Financial Statements
8Item 2.
Management’s Discussion and Analysis of Financial Conditionand Results of Operations
21Item 3.
Quantitative and Qualitative Disclosures about Market Risk
45Item 4.
Controls and Procedures
46Part II.
OTHER INFORMATIONItem 1.
Legal Proceedings
47Item 1A.
Risk Factors
48Item 6.
Exhibits
48Signatures
50
 
  2
 PART I.FINANCIAL INFORMATION
 
 ITEM 1.
FINANCIAL STATEMENTS




THE JONES FINANCIAL COMPANIES, L.L.L.P.


CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


ASSETS





(Unaudited)March 26,


December 31,(Dollars in thousands)

2010


2009Cash and cash equivalents

$
128,556


$
227,544Cash and investments segregated under federal regulations


2,834,001



2,812,154Securities purchased under agreements to resell


889,034



766,277Receivable from:Customers


2,164,350



2,151,243Brokers, dealers and clearing organizations


234,148



197,823Mutual funds, insurance companies, and other


153,361



149,531Securities owned, at fair valueInventory securities


157,245



76,346Investment securities


88,539



91,041Equipment, property and improvements, at cost,net of accumulated depreciation and amortization


613,612



620,229Other assets


75,207



76,187TOTAL ASSETS

$
7,338,053


$
7,168,375


The accompanying notes are an integral part of these Consolidated Financial Statements.
 3
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued




THE JONES FINANCIAL COMPANIES, L.L.L.P.


CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


LIABILITIES





(Unaudited)March 26,


December 31,(Dollars in thousands)

2010


2009Payable to:Customers

$
4,802,532


$
4,715,729Brokers, dealers and clearing organizations


132,638



44,331Securities sold, not yet purchased, at fair value


10,309



10,656Accrued compensation and employee benefits


327,150



380,547Accounts payable and accrued expenses


171,019



175,600Bank loans


58,000



58,000Long-term debt


60,235



59,3005,561,883



5,444,163Liabilities subordinated to claims of general creditors


257,400



257,400Commitments and contingencies (See Notes)Partnership capital subject to mandatory redemption,net of reserve for anticipated withdrawals


1,461,583



1,436,528Reserve for anticipated withdrawals


57,187



30,284Total partnership capital subject to mandatory redemption


1,518,770



1,466,812TOTAL LIABILITIES

$
7,338,053


$
7,168,375





The accompanying notes are an integral part of these Consolidated Financial Statements.
 4
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued




THE JONES FINANCIAL COMPANIES, L.L.L.P.


CONSOLIDATED STATEMENTS OF INCOME


(Unaudited)


Three Months Ended(Dollars in thousands,

March 26,


March 27,except per unit information)

2010


2009Revenue:Trade revenueCommissions

$
372,850


$
313,446Principal transactions


107,330



124,837Investment banking


15,747



18,237Fee revenueAsset fees


311,307



202,804Account and activity fees


122,396



119,040Interest and dividends


28,319



25,064Other revenue (loss)


5,496



(1,816
)Total revenue


963,445



801,612Interest expense


14,645



14,884Net revenue


948,800



786,728Operating expenses:Compensation and benefits


600,305



483,619Occupancy and equipment


85,759



78,000Communications and data processing


71,990



72,104Payroll and other taxes


42,705



36,263Advertising


21,107



14,160Postage and shipping


12,883



11,134Clearance fees


2,781



3,742Other operating expenses


34,727



38,025Total operating expenses


872,257



737,047Income from continuing operations


76,543



49,681Loss from discontinued operations


-



(13,435
)Income before allocations to partners


76,543



36,246Allocations to partners:Limited partners


8,622



4,374Subordinated limited partners


8,045



3,689General partners


59,876



28,183Net income

$
-


$
-Income before allocations to limited partnersper weighted average $1,000equivalent limited partnership unit outstanding

$
18.72


$
9.14Weighted average $1,000 equivalentlimited partnership units outstanding


460,577



478,556


The accompanying notes are an integral part of these Consolidated Financial Statements.
 5
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued





THE JONES FINANCIAL COMPANIES, L.L.L.P.


CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL


SUBJECT TO MANDATORY REDEMPTION


THREE MONTHS ENDED MARCH 26, 2010 AND MARCH 27, 2009





(Unaudited)





(Dollars in thousands)

Limited Partnership Capital


Subordinated Limited Partnership Capital


General Partnership Capital


TotalTOTAL PARTNERSHIP CAPITALSUBJECT TO MANDATORYREDEMPTION, DECEMBER 31, 2008

$
504,048


$
182,313


$
788,954


$
1,475,315Reserve for anticipated withdrawals


(21,682
)


(5,380
)


(35,558
)


(62,620
)Partnership capital subject to mandatoryredemption, net of reserve for anticipatedwithdrawals, December 31, 2008


482,366



176,933



753,396



1,412,695Issuance of partnership interests


-



23,484



-



23,484Redemption of partnership interests


(5,903
)


(2,618
)


-



(8,521
)Income allocated to partners


4,374



3,689



28,183



36,246Withdrawals and distributions


(7
)


(114
)


(796
)


(917
)TOTAL PARTNERSHIP CAPITALSUBJECT TO MANDATORYREDEMPTION, MARCH 27, 2009

$
480,830


$
201,374


$
780,783


$
1,462,987Reserve for anticipated withdrawals


(4,367
)


(3,575
)


(19,610
)


(27,552
)Partnership capital subject to mandatoryredemption, net of reserve for anticipatedwithdrawals, March 27, 2009


476,463



197,799



761,173



1,435,435TOTAL PARTNERSHIP CAPITALSUBJECT TO MANDATORYREDEMPTION, DECEMBER 31, 2009

$
475,737


$
198,913


$
792,162


$
1,466,812Reserve for anticipated withdrawals


(12,736
)


(2,972
)


(14,576
)


(30,284
)Partnership capital subject to mandatoryredemption, net of reserve for anticipatedwithdrawals, December 31, 2009


463,001



195,941



777,586



1,436,528Issuance of partnership interests


-



23,365



-



23,365Redemption of partnership interests


(3,158
)


(9,458
)


(2,219
)


(14,835
)Income allocated to partners


8,622



8,045



59,876



76,543Withdrawals and distributions


(144
)


(339
)


(2,348
)


(2,831
)TOTAL PARTNERSHIP CAPITALSUBJECT TO MANDATORYREDEMPTION, MARCH 26, 2010

$
468,321


$
217,554


$
832,895


$
1,518,770Reserve for anticipated withdrawals


(8,478
)


(7,706
)


(41,003
)


(57,187
)Partnership capital subject to mandatoryredemption, net of reserve for anticipatedwithdrawals, March 26, 2010


459,843



209,848



791,892



1,461,583


The accompanying notes are an integral part of these Consolidated Financial Statements.
 6
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued


THE JONES FINANCIAL COMPANIES, L.L.L.P.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




Three Months EndedMarch 26,


March 27,(Dollars in thousands)

2010


2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
-


$
-Adjustments to reconcile net income to netcash (used in) provided by operating activitiesIncome before allocations to partners


76,543



36,246Depreciation and amortization


24,063



23,286Changes in assets and liabilities:Cash and investments segregated under federal regulations


(21,847
)


(222,941
)Securities purchased under agreements to resell


(122,757
)


915,239Net payable to customers


73,696



(634,878
)Net receivable to brokers, dealers andclearing organizations


51,982



92,701Receivable from mutual funds, insurance companiesand other


(3,830
)


18,582Securities owned, net


(78,744
)


(64,834
)Other assets


980



5,241Accrued compensation and employee benefits


(53,397
)


(72,521
)Accounts payable and accrued expenses


(3,055
)


1,147Net cash (used in) provided by operating activities


(56,366
)


97,268CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of equipment, property and improvements, net


(18,972
)


(70,004
)Net cash used in investing activities


(18,972
)


(70,004
)CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of bank loans


-



30,000Issuance of long-term debt


1,983



-Repayment of long-term debt


(1,048
)


(195
)Issuance of partnership interests


23,365



23,484Redemption of partnership interests


(14,835
)


(8,521
)Withdrawals and distributions from partnership capital


(33,115
)


(63,537
)Net cash used in financing activities


(23,650
)


(18,769
)CHANGES IN CASH AND CASH EQUIVALENTS ASSOCIATEDWITH SOLD SUBSIDIARY


-



(5,142
)Net (decrease) increase in cash and cash equivalents


(98,988
)


3,353CASH AND CASH EQUIVALENTS:Beginning of period


227,544



190,861End of period

$
128,556


$
194,214Cash paid for interest

$
9,968


$
10,575Cash paid for taxes

$
695


$
285NON-CASH ACTIVITIES:Additions of equipment, property and improvementsin accounts payable and accrued expenses

$
3,286


$
18,299


The accompanying notes are an integral part of these Consolidated Financial Statements.
 7
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued




THE JONES FINANCIAL COMPANIES, L.L.L.P.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





(Dollars in thousands, except per unit information)





NOTE 1 – BASIS OF PRESENTATION





The Partnership's Business and Basis of Accounting.The accompanying Consolidated Financial Statements include the accounts of The Jones Financial Companies, L.L.L.P. and all wholly-owned subsidiaries (collectively, the "Partnership").  All material intercompany balances and transactions have been eliminated in consolidation.  Non-controlling minority interests are accounted for under the equity method.  The results of the Partnership's subsidiary in Canada are included in the Partnership's Consolidated Financial Statements for the three months ended February 28, 2010 and February 28, 2009 because of the timing of the Partnership's financial reporting process.





The Partnership's principal operating subsidiary, Edward D. Jones & Co., L.P. (“Edward Jones”), is comprised of two registered broker-dealers primarily serving individual investors in the United States of America ("U.S.") and Canada. Edward Jones primarily derives its revenues from the retail brokerage business through the sale of listed and unlisted securities, insurance products, investment banking and principal transactions and as a distributor of mutual fund shares, and revenue related to assets held by and account services provided to its customers.  Edward Jones conducts business in the U.S. and Canada, with its customers, various brokers, dealers, clearing organizations, depositories and banks.  For financial information related to the Partnership's two operating segments for the three months ended March 26, 2010 and March 27, 2009, see Note 10 to the Consolidated Financial Statements below.  Trust services are offered to Edward Jones' U.S. customers through Edward Jones Trust Company ("EJTC"), a wholly-owned subsidiary of the Partnership.





On November 12, 2009, Edward Jones completed the sale of all of the issued and outstanding shares of its U.K. subsidiary, Edward Jones Limited (“EDJ Limited”).  EDJ Limited is presented as a discontinued operation for all periods prior to the completion of the sale.  All other information contained in these Consolidated Financial Statements is presented on a continuing operations basis unless otherwise noted.  See Note 2 to the Consolidated Financial Statements below for further details on this sale.





The Consolidated Financial Statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America ("GAAP") which require the use of certain estimates by management in determining the Partnership's assets, liabilities, revenues and expenses.  Actual results could differ from these estimates.





Under the terms of the Seventeenth Amended and Restated Partnership Agreement (the "Partnership Agreement"), a partner’s capital will be redeemed by the Partnership in the event of the partner’s death, resignation or termination.  In the event of a partner’s death, the Partnership must generally redeem the partner’s capital within six months.  Limited partners withdrawing from the Partnership due to termination or resignation are repaid their capital in three equal annual installments beginning the month after their resignation or termination.  The


8
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued


capital of general partners resigning or terminating from the Partnership is converted to subordinated limited partnership capital.  Subordinated limited partners are repaid their capital in six equal annual installments beginning the month after their request for withdrawal of contributed capital.  The Partnership’s Managing Partner has discretion to waive these withdrawal restrictions.  All current and future partnership capital is subordinate to all current and future liabilities of the Partnership.





The interim financial information included herein is unaudited.  However, in the opinion of management, such information includes all adjustments, consisting primarily of normal recurring accruals, which are necessary for a fair presentation of the results of interim operations.  Certain prior period amounts have been reclassified to conform to the current year presentation, which includes discontinued operations.





The results of operations for the three months ended March 26, 2010 and March 27, 2009 are not necessarily indicative of the results to be expected for the full year.  These Consolidated Financial Statements should be read in conjunction with the Partnership's Annual Report on Form 10-K for the year ended December 31, 2009.





Revenue Recognition.The Partnership records customertransactions on a settlement date basis and the related commissions, principal transactions and investment banking revenues are recorded on a trade date basis.  All other forms of revenue are recorded on an accrual basis.





Commissions consist of charges to customers for the purchase or sale of securities, insurance products and mutual fund shares.





Principal transactions revenue is the result of the Partnership’s participation in market-making activities in over-the-counter corporate securities, municipal obligations (including general obligations and revenue bonds), U.S. Government obligations, unit investment trusts, mortgage-backed securities and certificates of deposit.





Investment banking revenue is derived from the Partnership’s underwriting and distribution of securities on behalf of issuers.





Asset fees revenue consists primarily of service fees and other revenues received under agreements with mutual fund and insurance companies based on the underlying value of the Partnership’s customers’ assets invested in those companies’ products.  The Partnership also receives asset fee revenue from its Advisory Solutions and Managed Account Programs, which provide investment advisory services to its customers for a fee based upon their asset values in the program.  Asset-based revenue related to the Partnership’s interest in the advisor (Passport Research Ltd.) to the Edward Jones Money Market Funds is also included in asset fees revenue.





Account and activity fees revenue includes fees received from mutual fund companies for sub-transfer agent accounting services performed by the Partnership and self-directed IRA custodian account fees.  It also includes other activity based revenues from customers, mutual fund companies and insurance companies.





Interest and dividend income is earned primarily on margin account balances, cash and cash equivalents, cash and investments segregated under federal regulations, securities purchased under agreements to resell, inventory securities and investment securities.


9
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued





The Partnership derived 24% of its total revenue for the three months ended March 26, 2010 and 27% of its total revenue for the three months ended March 27, 2009 from one mutual fund vendor.  Significant reductions in the revenues from this mutual fund source could have a material impact on the Partnership's results of operations.





NOTE 2 – DISCONTINUED OPERATIONS





As noted in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2009, Edward Jones completed the sale of all of the issued and outstanding shares of its U.K. subsidiary, EDJ Limited, to Towry Law Finance Company Limited (“Towry”) pursuant to a Share Purchase Agreement dated October 22, 2009.  In connection with the sale, Towry acquired all of the EDJ Limited client accounts as well as its financial advisors, branch office administrators and home office employees.





The following table sets forth the components of the loss from discontinued operations relating to EDJ Limited for the quarters ended:





March 26,


March 27,2010


2009Trade revenue

$
-


$
8,304Fee revenue


-



2,039Total Revenue


-



10,343Interest expense


-



20Net revenue


-



10,323Operating expenses


-



22,612Foreign currency translation loss


-



(1,146
)Loss from discontinued operations

$
-


$
(13,435
)


10
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued


NOTE 3 – FAIR VALUE OF SECURITIES





Substantially all of the Partnership's short-term financial assets and liabilities are carried at fair value or contracted amounts which approximate fair value.





Fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).  Financial assets are marked to bid prices and financial liabilities are marked to offer prices.  Upon the adoption of fair value guidance set forth in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") No. 825, Financial Instruments,  the Partnership elected not to take the fair value option on long-term debt and liabilities subordinated to the claims of general creditors.





The Partnership's assets and liabilities recorded at fair value in the Consolidated Statement of Financial Condition are categorized based upon the level of judgment associated with the inputs used to measure their fair value.  Hierarchical levels, defined by FASB ASC No. 820, Fair Value Measurement and Disclosure, and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:





Level I – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.





The types of assets and liabilities categorized as Level I generally are government and agency securities, equities listed in active markets, unit investment trusts and investments in publicly traded mutual funds with quoted market prices.





Level II – Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with related market data at the measurement date and for the duration of the instrument’s anticipated life.  The Partnership uses the market approach valuation technique (incorporates prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities) in valuing these types of investments.




The types of assets and liabilities categorized as Level II generally are certificates of deposit, municipal bonds, mortgage and asset backed securities and corporate debt.





Level III – Inputs are both unobservable and significant to the overall fair value measurement.  These inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.  Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.





The Partnership did not have any assets or liabilities categorized as Level III during the periods ended March 26, 2010 and December 31, 2009.  In addition, there were no transfers into or out of Levels I, II or III during these periods.





11
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued


The following tables set forth the Partnership's financial assets and liabilities measured at fair value:





Financial Assets at Fair Value as ofMarch 26, 2010Level I


Level II


Level III


TotalSecurities purchased underagreements to resell

$
889,034


$
-


$
-


$
889,034Investments segregated underfederal regulations:Certificates of deposit


-



350,000



-



350,000U.S. treasuries


25,000



-



-



25,000$
25,000


$
350,000


$
-


$
375,000Securities owned:Inventory securities:Certificates of deposit

$
-


$
1,925


$
-


$
1,925U.S. and Canadian governmentand U.S. agency obligations


2,209



-



-



2,209State and municipal obligations


-



132,094



-



132,094Corporate bonds and notes


-



11,231



-



11,231Collateralized mortgage obligations


-



1,035



-



1,035Equities


8,028



-



-



8,028Unit investment trusts


723



-



-



723Total inventory securities

$
10,960


$
146,285


$
-


$
157,245Investment Securities:U.S. government and agencyobligations held by U.S.broker-dealer

$
11,781


$
-


$
-


$
11,781U.S. and Canadian governmentand U.S. agency obligationsheld by foreign broker-dealers


2,832



-



-



2,832Municipal bonds


-



6,651



-



6,651Mutual funds


66,452



-



-



66,452Equities


823



-



-



823Total investment securities

$
81,888


$
6,651


$
-


$
88,539Financial Liabilities at Fair Value as ofMarch 26, 2010Level I


Level II


Level III


TotalSecurities sold, not yet purchased:Certificates of deposit

$
-


$
470


$
-


$
470U.S. and Canadian governmentand U.S. agency obligations


504



-



-



504State and municipal obligations


-



441



-



441Corporate bonds and notes


-



7,234



-



7,234Collateralized mortgage obligations


-



35



-



35Equities


1,396



-



-



1,396Unit investment trusts


229



-



-



229Total inventory securities

$
2,129


$
8,180


$
-


$
10,309


12
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued


Financial Assets at Fair Value as ofDecember 31, 2009Level I


Level II


Level III


TotalSecurities purchased underagreements to resell

$
766,277


$
-


$
-


$
766,277Investments segregated underfederal regulations

$
-


$
400,000


$
-


$
400,000Securities owned:Inventory securities:Certificates of deposit

$
-


$
400


$
-


$
400U.S. and Canadian governmentand U.S. agency obligations


1,820



-



-



1,820State and municipal obligations


-



50,697



-



50,697Corporate bonds and notes


-



8,243



-



8,243Collateralized mortgage obligations


-



1,355



-



1,355Equities


13,485



-



-



13,485Unit investment trusts


346



-



-



346Total inventory securities

$
15,651


$
60,695


$
-


$
76,346Investment Securities:U.S. government and agencyobligations held by U.S.broker-dealer

$
11,770


$
-


$
-


$
11,770U.S. and Canadian governmentand U.S. agency obligationsheld by foreign broker-dealers


2,824



-



-



2,824Municipal bonds


-



6,651



-



6,651Mutual funds


69,082



-



-



69,082Equities


714



-



-



714Total investment securities

$
84,390


$
6,651


$
-


$
91,041Financial Liabilities at Fair Value as ofDecember 31, 2009Level I


Level II


Level III


TotalSecurities sold, not yet purchased:Certificates of deposit

$
-


$
618


$
-


$
618U.S. and Canadian governmentand U.S. agency obligations


2,096



-



-



2,096State and municipal obligations


-



890



-



890Corporate bonds and notes


-



4,643



-



4,643Collateralized mortgage obligations


-



64



-



64Equities


2,241



-



-



2,241Unit investment trusts


104



-



-



104Total inventory securities

$
4,441


$
6,215


$
-


$
10,656


13
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued


The Partnership attempts to reduce its exposure to market price fluctuations of its inventory securities through the sale of U.S. government securities and, to a limited extent, the sale of fixed income futures contracts.  The amount of the securities purchased or sold will fluctuate on a daily basis due to changes in inventory securities owned, interest rates and market conditions.  Futures contracts are settled daily, and any gain or loss is recognized in principal transactions revenue.  The notional amount of futures contracts outstanding was $13,000 and $7,000 at March 26, 2010 and December 31, 2009, respectively.  The average notional amount of futures contracts outstanding throughout the three month period ended March 26, 2010 and the year ended December 31, 2009, was approximately $9,300 and $7,800, respectively.  The underlying assets of these contracts are not reflected in the Partnership's Consolidated Financial Statements; however, the related mark-to-market adjustments of $53 and $34 are included in the Consolidated Statement of Financial Condition as of March 26, 2010 and December 31, 2009, respectively.  The related gains or losses recorded related to these assets were a $78 loss and a $137 gain for the three months ended March 26, 2010 and March 27, 2009, respectively.





Due to the short-term nature of the Partnership's bank loans, the fair value of bank loans is estimated at carrying value.  The Partnership estimates the fair value of long-term debt and liabilities subordinated to claims of general creditors based on the present value of future principal and interest payments associated with the debt.  The following table shows the estimated fair values of bank loans, long-term debt and liabilities subordinated to claims of general creditors as of:





March 26,


December 31,2010


2009Bank loans

$
58,000


$
58,000Long-term debt


58,500



62,500Liabilities subordinated to claims of general creditors


271,311



267,000Total

$
387,811


$
387,500





NOTE 4 – BANK LOANS AND LINES OF CREDIT





The following table shows the composition of the Partnership's aggregate bank lines of credit in place as of:





March 26,


December 31,2010


2009Uncommitted secured

$
645,000


$
645,000Uncommitted unsecured


50,000



50,000Total

$
695,000


$
695,000




The Partnership's uncommitted lines of credit are subject to change at the discretion of the banks and, therefore, due to credit market conditions and the uncommitted nature of these credit facilities, it is possible that these lines of credit could decrease or not be available in the future. Subsequent to March 26, 2010, the Partnership's uncommitted lines of credit are being reduced by $50,000 by banks participating in the Partnership's agreement for a $320,000 committed, unsecured revolving line of credit, as described further in Note 12 to the Consolidated Financial Statements. This decrease will reduce the aggregated bank lines of credit to $645,000.


14
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued


Actual borrowing availability on the secured lines is based on customer margin securities and Partnership securities, which serve as collateral on loans.  There were no amounts outstanding on the lines of credit as of March 26, 2010 and December 31, 2009.  In addition, the Partnership did not have any overnight draws against these lines of credit during the three months ended March 26, 2010 or March 27, 2009.  However, the Partnership had two overnight draws against an uncommitted secured line of credit during the year ended December 31, 2009.  The draws during 2009 averaged $27,500 with the highest overnight draw being $35,000.  Subsequent to March 26, 2010, the Partnership had one overnight draw against these lines of credit in the amount of $40,000.





NOTE 5 – LONG-TERM DEBT





In October 2009, the Partnership entered into a financing agreement with three banks to fund up to $30,000 for purchases of office equipment.  The Partnership has borrowed $17,176 under this agreement and repaid $1,240, resulting in $15,936 outstanding on the agreement as of March 26, 2010.  Subsequent to March 26, 2010, the Partnership borrowed an additional $2,743 under this agreement and repaid $727 resulting in $17,952 outstanding as of May 7, 2010.  Additional amounts are expected to be borrowed in future periods to fund additional purchases of office equipment.  The term of each borrowing will be for a maximum of 48 months from the date of borrowing.  As of March 26, 2010, Edward Jones was required, under the note agreement, to maintain minimum partnership capital of $625,000 and was in compliance with this covenant as of that date.





NOTE 6 – PARTNERSHIP CAPITAL SUBJECT TO MANDATORY REDEMPTION





FASB ASC No. 480, Distinguishing Liabilities from Equity ("ASC 480"), established standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity.  Under the provisions of ASC 480, the obligation to redeem a partner's capital in the event of a partner's death is one of the Statement's criteria requiring capital to be classified as a liability.





Since the Partnership Agreement obligates the Partnership to redeem a partner’s capital after a partner’s death, the Statement requires all of the Partnership’s equity capital be classified as a liability.  Income allocable to limited, subordinated limited and general partners prior to the issuance of ASC 480 was classified in the Partnership's Consolidated Statement of Income as net income.  In accordance with ASC 480, these allocations are now classified as a reduction of income before allocations to partners, which results in a presentation of $0 net income for the three month periods ended March 26, 2010 and March 27, 2009.  The financial statement presentations required to comply with ASC 480 do not alter the Partnership’s treatment of income, income allocations or capital for any other purposes.  In addition, ASC 480 does not have any effect on, nor is it applicable to, the Partnership’s subsidiaries’ financial statements.





Net income, as defined in the Partnership Agreement, is equivalent to income before allocations to partners on the Consolidated Statements of Income.  Such income, if any, for each calendar year is allocated to the Partnership’s three classes of capital in accordance with the formulas prescribed in the Partnership Agreement.  First, limited partners are allocated net income (as defined in the Partnership Agreement) in accordance with the prescribed formula for their share of net income.  Limited partners do not share in the net loss in any year in which there is a net loss and the Partnership is not dissolved or liquidated.  Thereafter, subordinated limited partners


15
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued


and general partners are allocated any remaining net income or net loss based on formulas in the Partnership Agreement.





The partnership capital subject to mandatory redemption of $1,518,770 consists of $468,321 of limited partnership capital issued in $1,000 units, $217,554 of subordinated limited partnership capital and $832,895 of general partnership capital as of March 26, 2010.  As of December 31, 2009, the partnership capital subject to mandatory redemption of $1,466,812 consisted of $475,737 of limited partnership capital issued in $1,000 units, $198,913 of subordinated limited partnership capital and $792,162 of general partnership capital.





The limited partnership capital subject to mandatory redemption is held by current and former employees and general partners of the Partnership.  Limited partners participate in Partnership profits and are also guaranteed a minimum 7.5% return on the face amount of their capital, and that return totaled $8,637 and $8,975, for the three months ended March 26, 2010 and March 27, 2009, respectively, and is included as a component of Interest Expense.  The 7.5% return is paid to limited partners regardless of the Partnership’s earnings.





The subordinated limited partnership capital subject to mandatory redemption is held by current and former general partners of the Partnership.  Each subordinated limited partner receives a varying percentage of the net income of the Partnership.  The subordinated limited partner capital subject to mandatory redemption is subordinated to the limited partnership capital.





The general partnership capital subject to mandatory redemption is held by current general partners of the Partnership.  Each general partner receives a varying percentage of the net income of the Partnership.  The general partner capital subject to mandatory redemption is subordinated to the limited partnership capital.





NOTE 7 – NET CAPITAL REQUIREMENTS





As a result of its activities as a broker-dealer, Edward Jones is subject to the net capital provisions of Rule 15c3-1 of the Securities Exchange Act of 1934 ("Exchange Act").  Under the alternative method permitted by the rules, Edward Jones must maintain minimum net capital equal to the greater of $250 or 2% of aggregate debit items arising from customer transactions.  The net capital rule also provides that partnership capital may not be withdrawn if resulting net capital would be less than 5% of aggregate debit items.  Additionally, certain withdrawals require the consent of the Securities Exchange Commission ("SEC") to the extent they exceed defined levels, even though such withdrawals would not cause net capital to be less than 5% of aggregate debit items.





At March 26, 2010, Edward Jones' net capital of $738,549 was 36.3% of aggregate debit items and its net capital in excess of the minimum required was $697,867.  Net capital after anticipated withdrawals, as a percentage of aggregate debit items, was 33.9%.  Net capital and the related capital percentages may fluctuate on a daily basis.





At March 26, 2010, the Partnership’s Canadian broker-dealer subsidiary and EJTC were in compliance with regulatory capital requirements in the jurisdictions in which they operate.





16
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued


NOTE 8 – CONTINGENCIES





In the normal course of business, the Partnership has been named as a defendant in various legal actions, including arbitrations, class actions and other litigation.  Certain of these legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages.  The Partnership is also involved from time to time in investigations and proceedings by governmental and self-regulatory agencies, certain of which may result in adverse judgments, fines or penalties.





In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases in which claimants seek substantial or indeterminate damages, or actions which are in very preliminary stages, the Partnership cannot predict with certainty the eventual loss or range of loss related to such matters.  The Partnership has determined that it is likely that ultimate resolution in favor of the plaintiffs will result in losses to the Partnership on some of these matters, and as a result, has established appropriate accruals for potential litigation losses.  Based on current knowledge and after consultation with counsel, the Partnership believes the outcome of these actions will not have a material adverse effect on the consolidated financial condition of the Partnership, although the outcome could be material to the Partnership’s future operating results for a particular period or periods.





Also, in the normal course of business, the Partnership enters into contracts which contain indemnification provisions, such as purchase contracts, service agreements, escrow agreements, sales of assets, outsourcing agreements and leasing arrangements.  Under the provisions of these contracts, the Partnership may indemnify counterparties to the contracts for certain aspects of the Partnership's past conduct if other parties fail to perform, or if certain events occur.  These indemnification provisions will vary based upon the contract.  The Partnership may in turn obtain indemnifications from other parties in certain contracts.  These indemnification provisions are not expected to have a material impact on the Partnership's results of operations or financial condition.





NOTE 9 – COMMITMENTS





The Partnership has been in the process of expanding its home office facilities in order to support its current and future growth plans.  Construction activities that were completed in 2009 included an office building at its St. Louis, Missouri, North Campus location, a building addition and garage at its South Campus location, and a parking garage at its Tempe, Arizona campus.  The Partnership has commitments relating to these construction activities of $8,428 remaining as of March 26, 2010.





In addition, the Partnership committed, in October 2009, to construct an additional parking garage at its St. Louis, Missouri, North Campus location.  The Partnership estimates the cost to construct the garage to be approximately $24,000 as of March 26, 2010 and has executed agreements of $13,910 for the construction.  As of March 26, 2010, the Partnership has paid $2,683 related to commitments for this construction project.  The Partnership anticipates the remaining estimated amounts to be incurred and paid throughout 2010 and into the early portion of 2011.





The total estimated amount needed to complete the construction of this parking garage and other projects and the repayment of outstanding bank loans will be financed through the Partnership's existing working capital and additional financing obtained in the future.  There can be no assurance that such financing will be available at attractive terms, or at all, in the future.


17
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued


NOTE 10 – SEGMENT INFORMATION





Operating segments are defined as components of an entity that has all of the following characteristics:  it engages in business activities from which it may earn revenues and incur expenses; its operating results are regularly reviewed by the entity's chief operating decision-maker (or decision-making group) for resource allocation and to assess performance; and discrete financial information is available.  The Partnership has determined it has two reportable segments based upon geographic location, the U.S. and Canada.





Each segment, in its own geographic location, primarily derives its revenues from the retail brokerage business through the sale of listed and unlisted securities and insurance products, investment banking, principal transactions and as a distributor of mutual fund shares, and revenue related to assets held by and account services provided to its customers.





The accounting policies of the segments are the same as those described in the Notes to the Consolidated Financial Statements of the Partnership's Annual Report on Form 10-K for the year ended December 31, 2009.  Financial information about the Partnership's reportable segments is presented in the following table.  For the computation of its segment information, the Partnership allocates costs incurred by the U.S. entity in support of Canadian operations to the Canadian segment.





The Partnership evaluates the performance of its segments based upon income from continuing operations as well as income before variable compensation expense.  Variable compensation is determined at the Partnership level for profit sharing and headquarters bonus amounts, and therefore is allocated to each segment independent of that segment's individual income.  While overall Partnership profitability determines the amount of financial advisor and branch employee bonuses, performance at the individual segment can impact the amount of bonus expense for each segment.  As such, both income from continuing operations and income before variable compensation expense are considered in evaluating segment performance and are provided below.





The Canada segment information as reported in the following table is based upon the Consolidated Financial Statements of the Partnership's Canadian operations without eliminating any intercompany items, such as management fees that it pays to affiliated entities.  The U.S. segment information is derived from the Partnership's Consolidated Financial Statements less the Canada segment information as presented.  This is consistent with how management reviews the segments in order to assess performance.





18
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued


Financial information for the Company’s reportable segments is presented in the following table for the quarters ended:





March 26,


March 27,2010


2009Net revenue:United States of America

$
908,365


$
758,326Canada


40,435



28,402Total net revenue


948,800



786,728Pre-variable income (loss):United States of America


125,869



66,424Canada


(4,890
)


(8,050
)Total pre-variable income


120,979



58,374Variable compensation:United States of America


42,874



8,803Canada


1,562



(110
)Total variable compensation


44,436



8,693Income (Loss) from continuing operations:United States of America


82,995



57,621Canada


(6,452
)


(7,940
)Total Income from continuing operations

$
76,543


$
49,681


19
 PART I.FINANCIAL INFORMATION
 
 Item 1. Financial Statements, continued


NOTE 11 – GOVERNMENTAL REFORM





Financial Services Regulatory Reform.Significant financial services industry regulatory reform has been proposed and is currently being discussed and considered by various governmental agencies, financial services firms and other industry participants.  This proposed regulatory reform includes creating a new consumer financial protection agency, adding new fiduciary standards for broker-dealers, and other provisions that could potentially impact the Partnership's operations.  While this regulatory reform is only proposed, the industry and the Partnership continue to assess the specific impact.





Healthcare Reform.Significant health care reform, The Patient Protection and Affordable Care Act ("PPACA") has been passed.  PPACA requires employers to provide affordable coverage with a minimum essential benefit to full-time employees or pay a financial penalty. The bill contains provisions that go into effect over the next several years that expand employee eligibility for the Partnership's medical plan and places limits on plan design. Regulatory guidance required to fully assess the impact of this law is still forthcoming.  Accordingly, the Partnership is not yet able to determine the potential financial impact on its operating results.




NOTE 12 – SUBSEQUENT EVENT





In April 2010, the Partnership entered into an agreement with eight banks for a $320,000 committed, unsecured revolving line of credit, which has a final maturity date of April 20, 2011.  This line of credit has a tiered interest rate based on the Partnership's leverage ratio (ratio of total net debt to total capitalization) or credit rating.  Borrowings made with a three day advance notice will have a rate of London Interbank Offered Rate ("LIBOR") plus a margin ranging from 2.38% to 3.00%.  Same day borrowings will have a rate of a margin ranging from 1.13% to 1.75% plus the greater of the prime rate, the federal funds effective rate plus 1.50% or the one month LIBOR rate plus 1.50%.  In accordance with this agreement, the Partnership is required to maintain a leverage ratio of no more than 35% and a minimum partnership capital, net of reserve for anticipated withdrawals, of at least $1,100,000 plus 50% of subsequent increases in partnership capital, net of reserve for anticipated withdrawals, for each fiscal quarter.  The Partnership anticipates that it will be able to borrow the full $320,000, if needed, and remain compliant with all covenants.  As of May 7, 2010, the Partnership has not borrowed against this line of credit.





20
 PART I.FINANCIAL INFORMATION
 
 ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following Management's Discussion and Analysis is intended to help the reader understand the results of operations and the financial condition of the Partnership.  Management's Discussion and Analysis should be read in conjunction with the Partnership's Consolidated Financial Statements and accompanying notes included in Item 1, Financial Statements of this Quarterly Report on Form 10-Q and Item 8, Financial Statements and Supplementary Data of the Partnership's Annual Report on Form 10-K for the year ended December 31, 2009.





In November 2009, the Partnership completed the sale of its U.K. operations.  As a result, the U.K. operations are presented as a discontinued operation for the three months ended March 27, 2009 and have been reclassified to conform to this presentation.  For further details regarding the sale, see Note 2 to the Consolidated Financial Statements in Item 1, Financial Statements of this Quarterly Report on Form 10-Q.  Accordingly, all information contained in this Quarterly Report on Form 10-Q is presented on a continuing operations basis unless otherwise noted.





21
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


OVERVIEW





The following table sets forth the increases (decreases) in major categories of the Consolidated Statements of Income as well as several key related metrics for the three months ended March 26, 2010 and March 27, 2009.  Management of the Partnership relies on this financial information and the related metrics to evaluate the Partnership's operating performance and financial condition.  All amounts are presented in millions, except the number of financial advisors and as otherwise noted.





For the three months ended


2010 vs. 2009March 26,


March 27,


Change2010


2009


$/#


%Revenue:Trade revenue:Commissions

$
372.9


$
313.4


$
59.5



19
%Principal transactions


107.3



124.8



(17.5
)


-14
%Investment banking


15.7



18.2



(2.5
)


-14
%Total trade revenue


495.9



456.4



39.5



9
%% of net revenue


52
%


58
%Net fee revenue:Asset fees


311.3



202.8



108.5



54
%Account and activity fees


122.4



119.1



3.3



3
%Net interest and dividends


13.7



10.2



3.5



34
%Other revenue (loss)


5.5



(1.8
)


7.3



406
%Total net fee revenue


452.9



330.3



122.6



37
%% of net revenue


48
%


42
%Net revenue


948.8



786.7



162.1



21
%Operating expenses


872.3



737.0



135.3



18
%Income from continuingoperations

$
76.5


$
49.7


$
26.8



54
%Related metrics:Customer dollars invested(1):Trade ($ billions)

$
20.6


$
22.0


$
(1.4
)


-6
%Advisory Solutions ($ billions)

$
5.9


$
1.2


$
4.7



392
%Customer households (millions)


4.62



4.55



0.07



2
%Customer assets under care:At quarter end ($ billions)

$
532.9


$
403.2


$
129.7



32
%Average ($ billions)

$
518.7


$
397.7


$
121.0



30
%Financial advisors:At period end


12,717



11,875



842



7
%Average


12,695



11,823



872



7
%Attrition %


15.9
%


16.7
%


n/a



n/aDow Jones Industrial Average:At period end


10,850



7,776



3,074



40
%Average for period


10,469



7,758



2,711



35
%(1) Customer dollars invested related to trade revenue, includes the principal amount of customers' buy and sell transactions generating a commission. Customer dollars invested related to Advisory Solutions revenue, represents the net inflows of customer dollars into this program.


22
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


Basis of Presentation





The Partnership broadly categorizes its revenues as trade revenue (revenue from customer buy or sell transactions of securities) and net fee revenue (sources other than trade revenue including asset fees, account and activity fees and net interest income).  In the Partnership’s Consolidated Statements of Income, trade revenue is composed of commissions, principal transactions and investment banking.  Net fee revenue is composed of asset fees, account and activity fees, interest and dividends (net of interest expense), and other revenues.  These sources of revenue are affected by a number of factors.  Trade revenue is impacted by the number of financial advisors, trading volume (customer dollars invested), mix of the products in which the customers invest, margins earned on the transactions and market volatility.  Asset fees are impacted by the total market value of assets under care, customer dollars invested in products which generate asset fees, and market volatility affecting the asset values.  Account and activity fees and other revenue are impacted by the number of customer accounts, the variety of services provided to those accounts and foreign exchange rates, among others.  Net interest income is impacted by the amount of cash and investments, receivables from customers and payables to customers, including interest rates earned and paid on such balances.





RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 26, 2010 AND MARCH 27, 2009





During the first quarter of 2010, the Partnership's results of operations were stronger as compared to the first quarter of 2009.  Market conditions during the first quarter of 2009 were still turbulent, including a continuing decline in asset values, interest rates and customer activity.  The rebound in asset values that began in mid-2009 continued through the first quarter of 2010, which improved the quarter-over-quarter results.  In addition, customer activity also increased due to an increase in customer confidence as the market recovered.  These improvements in market conditions are reflected in many of the financial and related metrics used by the Partnership in the evaluation of its business results.  Trade revenue and net fee revenue increased by 9% and 37%, respectively, compared to the first quarter of 2009.  Operating expenses for the first quarter of 2010 increased 18% quarter-over-quarter primarily as a result of increased financial advisor commissions and variable compensation due to the Partnership's increased revenues and profitability.  Despite the recent unusual economic times, the Partnership has remained focused on growing the number of financial advisors and its branch office network. The discussion below details the major fluctuations and the drivers of those fluctuations for each of the major categories of the Partnership's Consolidated Statements of Income for the quarter ended March 26, 2010 as compared to March 27, 2009.





For the three months ended March 26, 2010, net revenue increased 21% ($162.1 million) to $948.8 million, which was attributable to increased trade revenue, asset fee revenue, account and activity fee revenue, net interest income and other revenue.  For further details on these fluctuations, see the discussion in the Trade Revenue and Net Fee Revenue sections below.





Compensation and benefits expenses increased 24% ($116.7 million) primarily due to an increase in financial advisor compensation, due to increased revenues on which commissions are paid, and an increase in variable compensation, which was caused by increased Partnership profitability.  Remaining operating expenses (excluding compensation and benefits expenses) increased 7% overall, primarily due to increases in occupancy and equipment


23
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


expense (consistent with the growth in the Partnership's branch network), payroll taxes and advertising expense.  During the twelve months ended March 26, 2010, the Partnership added 842 financial advisors ending the period with 12,717 financial advisors, an increase of 7% from 11,875 as of March 27, 2009.





Income from continuing operations increased 54% ($26.8 million) to $76.5 million.  The Partnership’s first quarter profit margin based on income from continuing operations increased to 7.9% in 2010 from 6.2% in 2009.





Trade Revenue





Trade revenue, which consists of commissions revenue, principal transactions revenue and investment banking revenue, comprised 52% and 58% of net revenue for the three months ended March 26, 2010 and March 27, 2009, respectively.  Conversely, net fee revenue comprised 48% and 42% for the same periods in 2010 and 2009, respectively.  The increase in the proportion of revenues attributable to net fee revenue is due to an increase in asset fees caused by mutual fund and insurance asset value growth due to the market recovery, as well as an increase in Advisory Solutions program revenue.





Trade revenue of $495.9 million increased 9% ($39.5 million) during the first three months of 2010 compared to the first three months of 2009.  This increase in trade revenue was due to an increase in the margin earned on overall customer dollars invested, which was partially offset by a decrease in customer dollars invested (the principal amount of customers' buy and sell transactions generating a commission) and one less business day in the three months ended March 26, 2010.  Total customer dollars invested were $20.6 billion during the three months ended March 26, 2010, a 6% ($1.4 billion) decrease from $22.0 billion in the same period of 2009.  The Partnership's margin earned on each $1,000 invested increased to $24.10 in the first quarter of 2010 from $20.70 in the first quarter of 2009.  This increase was primarily due to customer investments beginning to shift back to mutual funds and equities in 2010 from fixed income products and certificates of deposit as experienced in 2009.  A discussion specific to each component of trade revenue follows.





24
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


Commissions




Three Months EndedMarch 26,


March 27,


$



%2010


2009


Change


ChangeCommissions revenue ($ millions):Mutual funds

$
214.7


$
170.4


$
44.3



26
%Equities


87.1



71.5



15.6



22
%Insurance


71.1



71.4



(0.3
)


0
%Corporate bonds


-



0.1



(0.1
)


-100
%Total commissions revenue

$
372.9


$
313.4


$
59.5



19
%Related metrics:Customer dollars invested ($ billions)

$
14.3


$
12.4


$
1.9



15
%Margin per $1,000 invested

$
26.00


$
25.30


$
0.7



3
%U.S. business days


58



59



(1
)


-2
%





Commissions revenue increased 19% ($59.5 million) in the first quarter of 2010 to $372.9 million.  This increase was due primarily to a 15% ($1.9 billion) increase in customer dollars invested in commission generating transactions to $14.3 billion and an increase in the margin earned on the customer dollars invested, which was partially offset by one less business day in the first quarter of 2010.  Mutual fund commissions increased 26% ($44.3 million) and equities commissions increased 22% ($15.6 million) due to the increase in customer dollars invested as mentioned above.  The margin earned on each $1,000 invested in commission generating transactions increased to $26.00 in the first quarter of 2010 from $25.30 in the same period of 2009.  This increase in margin earned is primarily due to an increase in margin earned on insurance products resulting from a shift in product mix from fixed annuities to higher margin variable annuities and life and long-term care insurance products.





25
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


Principal Transactions




Three Months EndedMarch 26,


March 27,


$


%2010


2009


Change


ChangePrincipal transactions revenue ($ millions):Municipal bonds

$
57.9


$
75.8


$
(17.9
)


-24
%Unit investment trusts


26.5



7.3



19.2



263
%Corporate bonds


11.6



23.1



(11.5
)


-50
%Government bonds


5.0



5.4



(0.4
)


-7
%Certificates of deposit


4.5



9.9



(5.4
)


-55
%Collateralized mortgage obligations


1.8



3.3



(1.5
)


-45
%Total principal transactions revenue

$
107.3


$
124.8


$
(17.5
)


-14
%Related metrics:Customer dollars invested ($ billions)

$
5.8


$
8.9


$
(3.1
)


-35
%Margin per $1,000 invested

$
18.60


$
13.90


$
4.70



34
%U.S. business days


58



59



(1
)


-2
%




Principal transactions revenue decreased 14% ($17.5 million) to $107.3 million compared to the first quarter of 2009, primarily attributable to a decrease in customer dollars invested and one less business day in the first quarter of 2010, partially offset by an increase in the margin earned on the customer dollars invested.  Customers invested $5.8 billion in products that resulted in principal transactions revenue in the first quarter of 2010 compared to $8.9 billion in the same period of 2009.  The Partnership’s margin earned on principal transactions for each $1,000 invested increased to $18.60 during the first quarter of 2010 from $13.90 during the first quarter of 2009 primarily a result of a shift in product mix from shorter-term, lower margin certificates of deposit to higher margin fixed income products.





Quarter-over-quarter, revenue from municipal bonds decreased 24% ($17.9 million), corporate bonds revenue decreased 50% ($11.5 million), certificates of deposit revenue decreased 55% ($5.4 million), government bond revenue decreased 7% ($0.4 million) and collateralized mortgage obligations decreased 45% ($1.5 million), while revenue from unit investment trusts increased 263% ($19.2 million).  The decrease in municipal bonds revenue was due to the less attractive yields on municipal bonds relative to treasury securities in addition to a lower supply of traditional tax free bonds in 2010 versus 2009.  Corporate bonds revenue decreased as a result of reduced activity due to the interest rate and market environment.  Certificates of deposit revenue declined from the 2009 levels, primarily due to the shift in product mix away from certificates of deposit in 2010.  In early 2009, customers were investing more in products such as certificates of deposit when the markets were volatile, and then moved away from these products in 2010 as the markets began to recover.  In addition, unit investment trusts revenue increased quarter-over-quarter because of an increase in traditional tax free trusts and the introduction of a new trust for taxable municipal bonds.





26
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


Investment Banking





Investment banking revenue decreased 14% ($2.5 million) to $15.7 million in the first quarter of 2010 compared to the first quarter of 2009, due primarily to a lower volume of taxable debt underwritings.





Net Fee Revenue





Net fee revenue, which is asset fees revenue, account and activity fees revenue and interest and dividends revenue net of interest expense, increased 37% ($122.6 million) to $452.9 million compared to the first quarter of 2009.





Asset Fees


Three Months EndedMarch 26,


March 27,


$


%2010


2009


Change


ChangeAsset fees revenue ($ millions):Service fees

$
167.3


$
120.7


$
46.6



39
%Advisory Solutions fees


96.0



14.0



82.0



586
%Revenue sharing


29.2



25.1



4.1



16
%Managed account program


9.3



9.0



0.3



3
%Money market fees


4.8



30.9



(26.1
)


-84
%Trust fees


4.7



3.1



1.6



52
%Total asset fees revenue

$
311.3


$
202.8


$
108.5



54
%Related metrics ($ billions):Average U.S. customer asset values(1):Mutual fund assets held outsideof Advisory Solutions

$
260.7


$
185.7


$
75.0



40
%Insurance


43.0



31.2



11.8



38
%Money market


19.5



22.7



(3.2
)


-14
%Advisory Solutions


30.0



5.4



24.6



456
%Total customer asset values

$
353.2


$
245.0


$
108.2



44
%
  (1)  U.S. asset fee revenue represents 97% of consolidated asset fee revenue for the quarters ended March 26, 2010 and March 27, 2009.


27
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


Asset fees revenue increased 54% ($108.5 million) to $311.3 million due primarily to increases in the average market values of customer mutual fund assets held, which is most notably reflected in the 39% increase in service fees revenue.  This is consistent with the movement in the Dow Jones Industrial Average ("DJIA"), which has averaged 35% higher during the first quarter of 2010 compared to the first quarter of 2009.  Advisory Solutions© fee revenue was $96.0 million in the first quarter of 2010 as compared to $14.0 million in the first quarter of 2009, an increase of $82.0 million.  The value of customer assets in the Advisory Solutions program was $32.6 billion as of March 26, 2010 compared to $5.8 billion as of March 27, 2009, which has grown due to both an increase in the customer dollars invested in the program as well as the growth in asset values as previously noted.  Customer assets held in the Advisory Solutions program include other assets previously held with the Partnership.





Money market fees decreased 84% ($26.1 million) due primarily to voluntary reduction of certain fees earned in 2010.  As a 49.5% limited partner of Passport Research Ltd., the investment advisor to money market funds made available to Edward Jones customers, the Partnership receives a portion of the income of the investment advisor.  Due to the current low interest rate environment, the investment advisor voluntarily chose (beginning in March 2009) to reduce certain fees charged to the funds to a level that will maintain a positive customer yield on the funds.  This reduction of fees resulted in a decrease of $22.8 million to the revenue earned by the Partnership for the three months ended March 26, 2010.  Money market fees were also lower as a result of a 14% decrease in average money market asset balances during 2010.  Based upon the current interest rate environment, the reduction in fees charged to the funds is expected to continue in future periods and is estimated to reduce the Partnership's revenue by a total of approximately $90.0 million annually.





Account and Activity Fees


Three Months EndedMarch 26,


March 27,


$


%2010


2009


Change


ChangeAccount and activity fees revenue ($ millions):Sub-transfer agent services

$
71.9


$
71.2


$
0.7



1
%Retirement account fees


33.3



31.9



1.4



4
%Other account and activity fees


17.2



16.0



1.2



8
%Total account and activity fees

$
122.4


$
119.1


$
3.3



3
%Related metrics ($ millions):Average customer accounts:Sub-transfer agent services(1)


18.7



16.4



2.3



14
%Retirement accounts


3.3



3.1



0.2



6
%(1) Amount represents average number of individual mutual fund holdings serviced.




Account and activity fees of $122.4 million increased 3% ($3.3 million) quarter-over-quarter.  Revenue received from sub-transfer agent services performed for mutual fund companies increased 1% ($0.7 million) to $71.9 million.  In addition, retirement account fees increased 4%


28
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


($1.4 million) to $33.3 million compared to the first quarter of 2009, primarily attributable to an increase in the number of U.S. retirement accounts.  The major components of other account and activity fees revenue are mortgage revenue, proxy revenue, dividend reinvestment fees, postage and handling fees and other fees.  Other account and activity fees revenue is up $1.2 million to $17.2 million in the first quarter of 2010.





Net Interest and Dividends




Three Months EndedMarch 26,


March 27,


$


%2010


2009


Change


ChangeNet interest and dividends revenue ($ millions):Customer loan interest

$
25.4


$
22.0


$
3.4



15
%Overnight investing interest


2.0



1.3



0.7



54
%Other interest and dividends


0.9



1.8



(0.9
)


-50
%Interest expense


(14.6
)


(14.9
)


0.3



2
%Total net interest and dividends revenue

$
13.7


$
10.2


$
3.5



34
%Related metrics:Average funds invested ($ millions)

$
3,728.8


$
2,853.6


$
875.2



31
%Average rate earned


0.23
%


0.21
%


0.02
%


10
%Average customer loan balance ($ millions)

$
2,074.4


$
1,863.2


$
211.2



11
%Average rate earned


5.27
%


5.01
%


0.26
%


5
%
  Net interest and dividend income increased 34% ($3.5 million) to $13.7 million quarter-over-quarter due primarily to an increase in interest rates and average amounts invested.  Interest income from customer loans increased 15% ($3.4 million) to $25.4 million.  The average aggregate customer loan balance increased 11% ($211.2 million) to $2.1 billion, and the average rate earned on those customer loan balances increased to 5.27% during the first quarter of 2010 from 5.01% for the same period of 2009.  Collateral held in customer accounts with loan balances increased 33% ($2.4 billion) to $9.6 billion as of March 26, 2010 as compared to March 27, 2009.  However, collateral held in customer accounts can fluctuate due to market conditions or the withdrawal of securities, provided the customer remains in compliance with applicable New York Stock Exchange rules (loan to customer no greater than 75% of the value of the securities in the account) and maintenance requirements imposed by the Partnership (generally, loan to customer no greater than 65% of the value of the securities in the account).  Losses incurred on customer loan balances were less than $100,000 during the first quarters of 2010 and 2009.  Additionally, interest income from cash and cash equivalents, cash and investments segregated under federal regulations and securities purchased under agreements to resell increased 54% ($0.7 million).  The related average funds invested during the first three months of 2010 was $3.7 billion, compared to $2.9 billion in the first three months of 2009, including $2.8 billion and $2.1 billion of funds that were segregated in special reserve bank accounts for the benefit of U.S. customers under SEC Rule 15c3-3 as of March 26, 2010 and March 27, 2009, respectively.  The average rate earned on these investments increased to 0.23% during the first quarter of 2010 from 0.21% during the first quarter of 2009.  In addition, interest expense decreased 2% ($0.3 million) to $14.6 million during the first three months of 2010 due primarily to reductions in interest paid to customers on credit balances in their accounts and in limited partner interest due to limited partner


29
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


liquidations.  These decreases were partially offset by increases in interest expense on financing activities initiated in 2009.  See the Liquidity and Capital Resources discussion below for additional information.





Other Revenue





Other revenue increased $7.3 million quarter-over-quarter.  The increase between years is primarily attributable to the increase in value in the investments held related to the Partnership's non-qualified deferred compensation plan and an increase in transitional services revenue for the first quarter of 2010 as compared to the first quarter of 2009.  The investments held related to the non-qualified deferred compensation plan increased in market value by $1.5 million during the quarter ended March 26, 2010, versus a decrease of $3.0 million in the quarter ended March 27, 2009, resulting in a $4.5 million increase in revenue quarter-over-quarter.  As the fair value of the investments held related to the non-qualified compensation plan fluctuates, the gains or losses are reflected in other revenue with an offset in compensation and benefits expense, which results in no net impact to the Partnership's income before allocations to partners.  In addition, $2.1 million of the increase is due to the transitional services revenue received from Towry as it relates to ongoing services being provided in accordance with the Share Purchase Agreement related to the sale of the Partnership's U.K. subsidiary, as discussed in the Partnership's Annual Report on Form 10-K.  However, the Partnership's responsibility to provide transitional services, and the corresponding revenue received, is expected to end in the second quarter of 2010.





30
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


Operating Expenses





Three Months EndedMarch 26,


March 27,


$


%2010


2009


Change


ChangeOperating expenses ($ millions):Compensation and benefits

$
600.3


$
483.6


$
116.7



24
%Occupancy and equipment


85.8



78.0



7.8



10
%Communications and data processing


72.0



72.1



(0.1
)


0
%Payroll and other taxes


42.7



36.3



6.4



18
%Postage and shipping


12.9



11.1



1.8



16
%Advertising


21.1



14.2



6.9



49
%Clearance fees


2.8



3.7



(0.9
)


-24
%Other operating expenses


34.7



38.0



(3.3
)


-9
%Total operating expenses

$
872.3


$
737.0


$
135.3



18
%Related metrics:Number of branches


11,244



10,670



574



5
%Full-time equivalent employees:Financial advisors:At period end


12,717



11,875



842



7
%Average


12,695



11,823



872



7
%Branch employees:At period end


12,381



11,878



503



4
%Average


12,302



11,805



497



4
%Headquarters employees:At period end


4,858



4,832



26



1
%Average


4,848



4,823



25



1
%Headquarters employees per100 financial advisors (average)


38.2



40.8



(2.6
)


-6
%Branch employees per 100financial advisors (average)


96.9



99.8



(2.9
)


-3
%Operating expenses per averagenumber of financial advisors(1)

$
38,931


$
39,951


$
(1,020
)


-3
%(1) Operating expenses used in calculation represents total operating expenses less financial advisor and variable compensation.


Operating expenses increased 18% ($135.3 million) to $872.3 million compared to the first quarter of 2009 primarily due to increases in compensation and benefits and related payroll taxes, occupancy and equipment and advertising expenses.





Total compensation and benefits costs increased 24% ($116.7 million) to $600.3 million, primarily due to increases in financial advisor compensation and variable compensation.





Financial advisor compensation (excluding variable compensation and financial advisor salary and subsidy) increased 30% ($77.5 million).  This increase is primarily due to increases in trade


31
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


and asset fee revenue on which financial advisor commissions are paid, in addition to the $4.5 million increase related to the Partnership's non-qualified deferred compensation plan mentioned above.





Variable compensation (which includes bonuses and profit sharing paid to financial advisors, branch office assistants and headquarters employees) expands and contracts in relation to revenues, income before allocations to partners and the Partnership's related profit margin.  As the Partnership's financial results and profit margin improve, a significant portion is allocated to variable compensation and paid to employees in the form of increased profit sharing and bonuses.  In the first three months of 2010, variable compensation increased 416% ($35.8 million), to $44.4 million, as compared to $8.6 million in the first three months of 2009.  This increase is primarily due to the Partnership's increased profitability.





Headquarters salary and benefit expense decreased 1% ($0.4 million) to $79.8 million quarter-over-quarter.  Branch salary and benefit expense increased 4% ($4.4 million) to $107.4 million.  Branch salary and benefit expense increased as the Partnership added personnel to support its expanding financial advisor network.  The Partnership implemented a salary freeze for home office and branch employees effective April 1, 2009, due to overall market conditions, which avoided increases in individual employee compensation costs during 2009 and in the first quarter of 2010.  Effective April 1, 2010, the Partnership has lifted its salary freeze, which is expected to result in a future increase to headquarters and branch salary and benefit expense.  The Partnership estimates that the impact of merit raises for 2010 will be approximately $20.0 million of additional expense related to branch and headquarters employees.  In addition, any increase in staffing levels will further increase compensation costs.  On a full-time equivalent basis, the Partnership had 4,858 headquarters employees and 12,381 branch staff employees as of March 26, 2010, compared to 4,832 headquarters employees and 11,878 branch staff employees as of March 27, 2009.  The increase in branch employees is to directly support the increased number of financial advisors.  The Partnership uses the ratios of the number of headquarters employees to the number of financial advisors and the number of branch staff to financial advisors as key metrics in managing its costs.  In the first quarter of 2010, there were an average of 38.2 headquarters employees and 96.9 branch staff for each 100 financial advisors, compared to an average of 40.8 headquarters employees and 99.8 branch staff for each 100 financial advisors in the first quarter of 2009.  The decline in both ratios quarter-over-quarter is a result of the Partnership's cost management strategy to continue to grow its financial advisor network while growing its support staff at a slower pace.





Occupancy and equipment expense increased 10% ($7.8 million) to $85.8 million compared to 2009 due to increased costs related to the continued expansion of the Partnership's branch office network and home office facilities.





32
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


The remaining operating expenses increased 6% ($10.8 million) primarily due to increased payroll taxes due to the above noted increase in compensation, as well as an increase in advertising costs as the Partnership has increased its planned advertising costs as compared to last year.





Segment Information





Operating segments are defined as components of an entity that has all of the following characteristics:  it engages in business activities from which it may earn revenues and incur expenses; its operating results are regularly reviewed by the entity's chief operating decision-maker (or decision-making group) for resource allocation and to assess performance; and discrete financial information is available.  Operating segments may be combined in certain circumstances into reportable segments for financial reporting.  The Partnership has determined it has two operating and reportable segments based upon geographic location, the U.S. and Canada.





Each segment primarily derives its revenues from the retail brokerage business through the sale of listed and unlisted securities and insurance products, investment banking, principal transactions, as a distributor of mutual fund shares and through revenues related to assets held by and account services provided to its customers.





The Partnership evaluates the performance of its segments based upon income from continuing operations as well as income before variable compensation expense.  Variable compensation is determined at the Partnership level for profit sharing and headquarters bonus amounts, and therefore is allocated to each geographic segment independent of each segment's individual income before variable compensation expense.  While overall Partnership profitability determines the amount of financial advisor and branch employee bonuses, performance at the individual financial advisor level, as well as the number of branch employees, impacts the amount of bonus expense allocated to each reportable segment.  As such, both income from continuing operations and income before variable compensation expenses are considered in evaluating each reportable segment's financial performance and are provided below.





The Canada segment information as reported in the following table is based upon Canada's Consolidated Financial Statements of the Partnership's Canadian operations without eliminating any intercompany items, such as management fees that it pays to affiliated entities.  The U.S. segment information is derived from the Partnership's Consolidated Financial Statements less the Canada segment information as presented.  This is consistent with how management reviews the segments in order to assess performance.





33
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


Financial information about the Partnership's reportable segments, for the three months ended March 26, 2010 and March 27, 2009, is presented in the following table.





(All amounts are presented in millions)Three Months EndedMarch 26,


March 27,


$


%2010


2009


Change


ChangeNet revenue:United States of America

$
908.4


$
758.3


$
150.1



20
%Canada


40.4



28.4



12.0



42
%Total net revenue


948.8



786.7



162.1



21
%Operating Expenses:United States of America


782.5



691.9



90.6



13
%Canada


45.3



36.5



8.8



24
%Total operating expenses


827.8



728.4



99.4



14
%Pre-variable income (loss):United States of America


125.9



66.4



59.5



90
%Canada


(4.9
)


(8.1
)


3.2



40
%Total pre-variable income


121.0



58.3



62.7



108
%Variable compensation:United States of America


42.9



8.8



34.1



388
%Canada


1.6



(0.2
)


1.8



900
%Total variable compensation


44.5



8.6



35.9



417
%Income (loss) from continuing operations:United States of America


83.0



57.6



25.4



44
%Canada


(6.5
)


(7.9
)


1.4



18
%Income from continuing operations

$
76.5


$
49.7


$
26.8



54
%
  United States of America





Net revenue increased 20% ($150.1 million) in the first quarter of 2010, from the first quarter of 2009 primarily due to increases in trade revenue ($31.0 million), service fees ($43.0 million), Advisory Solutions revenue ($82.1 million), net interest income ($3.7 million) and in the value of the investments held related to the non-qualified deferred compensation plan ($4.6 million), partially offset by a decrease in money market fees ($26.1 million).





The increase in trade revenue is primarily due to higher margins earned on each $1,000 invested by customers, which increased to $23.90 in the first quarter of 2010 from $20.70 in the same period of 2009.  This increase was partially offset by lower customer dollars invested, which decreased $1.5 billion (7%) from $21.1 billion, to $19.6 billion in 2009.  Service fee revenue increased due to an increase in average asset values on which service fees are earned, due to the recent market turnaround.  Advisory Solutions revenue increased because customer dollars invested into the program have grown significantly.  Net interest income increased primarily due to increases in the average rates earned on an increased amount of


34
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


overnight investing and increases in client margin loan interest due to an increase in interest rates and average margin loans outstanding.  The increase in the value of the investments held related to the non-qualified deferred compensation plan of $1.6 million in 2010, as compared to a decrease in 2008 of $3.0 million, resulted in an increase in revenue in 2009 of $4.5 million.  The decrease in money market revenue is due to the reduction in certain fees earned by the Partnership in order to maintain a positive customer yield, which began in March 2009, and reduced the Partnership's revenue by $22.8 million in the first quarter of 2010.





Operating expenses increased 13% ($90.6 million) primarily due to increases in financial advisor compensation, occupancy and equipment costs and advertising costs. The increase in financial advisor compensation of $76.3 million was due to increases in trade and asset fee revenue on which financial advisor commissions are paid and the related expense due to the increase in the value of the investments held related to the non-qualified deferred compensation plan (described above).  The increase in occupancy and equipment costs of $7.0 million was related to the growth of the financial advisor network.  The increase in advertising costs of $6.3 million was due to the fact that the Partnership has increased its advertising programs as compared to last year.





Canada





Net revenue increased 42% ($12.0 million) in the first quarter of 2010, from the first quarter of 2009 primarily due to increases in trade revenue ($8.4 million) and in asset based fee revenue ($3.5 million).  Trade revenue increased primarily due to higher margins earned on each $1,000 invested by customers, which increased 26% to $27.50 in the first quarter of 2010 from $21.90 in the same period of 2009, and higher customer dollars invested, which increased $131.6 million (16%), from $836.8 million in the first quarter of 2009, to $968.4 million in the first quarter of 2010.  Asset based fee revenue has increased due to the increase in average asset values on which these fees are earned, mostly due to the recent increase in the market.





Operating expenses increased 24% ($8.8 million) in the first quarter of 2010 from the first quarter of 2009 primarily due to a $5.1 million increase in financial advisor compensation resulting from an increase in revenue on which commissions are paid.  In addition, headquarters and branch salary and benefit expense increased 21% ($1.5 million) as the Partnership added personnel to support its expanding financial advisor network.  The remainder of the increase is primarily due to increases in occupancy and equipment costs to support the growth of the financial advisor network as well as in advertising costs due to an increase in the advertising programs as compared to last year.





As a result of revenue increasing more than operating expenses, the pre-variable income for the Canadian business segment improved from a loss of $8.1 million in the first quarter of 2009 to a loss of $4.9 million in the first quarter of 2010.


35
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


MUTUAL FUNDS AND ANNUITIES





Regulatory proposals are being considered by the SEC that could have a significant adverse affect on the amount of compensation that broker-dealers derive from mutual funds and annuity products.  If adopted, such regulation may require broker-dealers to provide more disclosure to their customers with respect to payments received by them from the sales of these products.  It is also possible that such payments may be restricted by law or regulation.  For additional discussion of mutual fund regulatory initiatives, refer to "Item 1A - Risk Factors, Regulatory Initiatives" in the Partnership's Form 10-K for the fiscal year ended December 31, 2009.





The Partnership derived 66% of its total revenue from sales and services related to mutual fund and annuity products in the first three months of 2010 and 59% in the first three months of 2009.  The Partnership derived 24% of its total revenue for the first three months of 2010 and 27% for the first three months of 2009 from one mutual fund vendor.  All of the revenue generated from this vendor relates to business conducted with the Partnership's U.S. segment.  Significant reductions in the revenues from this mutual fund source could have a material adverse effect on the Partnership's results of operations.





LIQUIDITY AND CAPITAL RESOURCES





The Partnership requires liquidity to cover its operating expenses, net capital requirements, capital expenditures, debt repayment obligations and redemptions of partnership interests.  The principal sources for meeting the Partnership's liquidity requirements include existing liquidity and capital resources of the Partnership and funds generated from operations.  The Partnership believes that the liquidity provided by these sources will be sufficient to meet its capital and liquidity requirements for the next twelve months.  Depending on conditions in the capital markets and other factors, the Partnership will, from time to time, consider the issuance of debt and additional partnership capital, the proceeds of which could be used to meet growth needs or for other purposes.





Partnership Capital





A portion of the Partnership's growth in capital has historically been through the sale of limited partnership interests to its employees and existing limited partners, the sale of subordinated limited partnership interests to its current or retiring general partners, retention of general partner earnings, private placements of subordinated debt, long-term secured debt and operating leases under which the Partnership rents facilities.





The Partnership's capital subject to mandatory redemption at March 26, 2010, excluding the reserve for anticipated withdrawals, was $1.5 billion, an increase of $25.1 million from December 31, 2009.  The increase in the Partnership's capital subject to mandatory redemption is primarily due to the retention of general partner earnings ($16.5 million) and the issuance of subordinated limited partner interests ($23.4 million), offset by redemption of limited partner, subordinated limited partner and general partner interests ($3.2 million, $9.5 million and $2.2 million, respectively).  The Partnership agreement provides, subject to the Managing Partner's discretion, that it is the intention, but not requirement, of the Partnership to retain approximately 28% of income allocated to general partners.  During the quarters ended March 26, 2010 and March 27, 2009, the Partnership retained 27.6% of income allocated to general partners.


36
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued





Under the terms of the Partnership Agreement, a partner’s capital will be redeemed by the Partnership in the event of the partner’s death, resignation or termination from the Partnership.  In the event of a partner’s death, the Partnership must generally redeem the partner’s capital within six months.  The Partnership has withdrawal restrictions in place limiting the amount of capital that can be withdrawn at the discretion of the individual partner.  Limited partners withdrawing from the Partnership due to the partner's termination or resignation from the Partnership are repaid their capital in three equal annual installments beginning the month after their resignation or termination.  The capital of general partners resigning or terminating from the Partnership is converted to subordinated limited partnership capital or, at the discretion of the Managing Partner, redeemed by the Partnership.  Subordinated limited partners are repaid their capital in six equal annual installments beginning the month after their request for withdrawal of contributed capital.  The Partnership’s Managing Partner has discretion to waive these withdrawal restrictions and to accelerate the return of capital.





Partnership capital consists of capital contributions made by individual limited partners, general partners and subordinated limited partners of the Partnership.  The Partnership facilitates bank loans for individual general or limited partners who choose to finance the purchase of their partnership capital or choose to maintain their partnership capital investment through unsecured personal bank loans.  Any such bank loan agreement is between the individual and the bank.  The bank loans of the individual general partners are one year term loans, which are renewed annually and have no required principal payments prior to maturity.  The current bank loans of the individual limited partners are due on January 3, 2012 and also have no required principal payments prior to that time.  The Partnership does not guarantee the bank loans nor can the individual general or limited partner pledge their partnership interest as collateral for the bank loan.  Historically, the Partnership has facilitated its employees financing a portion of the purchase of limited partnership interests through individual unsecured bank loans to those employees from banks with whom the Partnership has other banking relationships.  For all individual purchases financed through banks that also provide financing to the Partnership, the individual partner provides an irrevocable letter of instruction instructing the Partnership to apply the proceeds from the liquidation of the partner's capital account to the repayment of the partner's bank loan prior to any funds being released to the partner.  Should a partner's individual bank loan not be renewed upon maturity for any reason, the Partnership could experience increased requests for capital liquidations, which could impact the Partnership's liquidity.





Individual partners who finance all or a portion of their partnership interest with bank financing may be more likely to request the withdrawal of capital to meet bank financing requirements should the individual partners experience a period of reduced earnings, including potential operating losses.  As a partnership, any withdrawals by general partners, subordinated limited partners or limited partners would reduce the Partnership's available liquidity and capital.





Many of the same banks which provide financing to individual limited and general partners also provide various forms of financing to the Partnership.  To the extent banks increase credit available to individual partners, financing available to the Partnership may be reduced.





All partners who obtain individual financing with banks which also provide the Partnership financing are required to apply partnership earnings, net of any firm retention and any distributions to pay taxes, to service the interest and principal on the bank loan.


37
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


The Partnership, while not a party to any individual partner bank loan, does facilitate making payments of allocated income to certain banks on behalf of the partner.  The banks providing these loans also provide the Partnership with financing.  The following table represents amounts related to individual partner bank loans of which the Partnership is aware.  Individual partners may have arranged their own bank loans to finance their partnership capital that the Partnership is not aware of and therefore any such loans are not included in the table.





(Dollars in thousands)

As of March 26, 2010Limited Partnership Interests


Subordinated Limited Partnership Interests


General Partnership Interests


Total Partnership CapitalPartnership capital*:Total partnership capital

$
459,843


$
209,848


$
791,892


$
1,461,583Partnership capital owned by partnerswith individual bank loans

$
135,605


$
1,356


$
340,582


$
477,543Partnership capital owned by partnerswith individual bank loans as apercent of total partnership capital


29.5
%


0.6
%


43.0
%


32.7
%Bank loans:Individual bank loans

$
37,950


$
348


$
120,622


$
158,920Individual bank loans as a percent oftotal partnership capital


8.3
%


0.2
%


15.2
%


10.9
%Individual bank loans as a percent ofpartnership capital owned by partnerswith individual bank loans


28.0
%


25.7
%


35.4
%


33.3
%*Partnership capital is net of reserve for anticipated withdrawals


Historically, neither the amount of partnership capital financed with individual bank loans as indicated in the table above, nor the amount of individual partner capital withdrawal requests has had a significant impact on the Partnership's liquidity or capital resources.





Partnership Debt





The following table shows the composition of the Partnership's aggregate bank lines of credit in place as of:





(Dollars in thousands)

March 26,


December 31,2010


2009Uncommitted secured

$
645,000


$
645,000Uncommitted unsecured


50,000



50,000Total

$
695,000


$
695,000


38
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


The Partnership's uncommitted lines of credit are subject to change at the discretion of the banks and, therefore, due to credit market conditions and the uncommitted nature of these credit facilities, it is possible that these lines of credit could decrease or not be available in the future. Subsequent to March 26, 2010, the Partnership's uncommitted lines of credit are being reduced by $50.0 million by banks participating in the Partnerhip's agreement for a $320.0 million committed, unsecured revolving line of credit, as described further in Note 12 to the Consolidated Financial Statements. This decrease will reduce the aggregated bank lines of credit to $645.0 million.





Actual borrowing availability on the secured lines is based on customer margin securities and Partnership securities which serve as collateral on loans.   There were no amounts outstanding on these lines of credit as of March 26, 2010 or December 31, 2009.  In addition, the Partnership did not have any overnight draws against these lines of credit during the three months ended March 26, 2010 or March 27, 2009.  However, the Partnership did have two overnight draws against an uncommitted secured line of credit during the year ended December 31, 2009.  The draws during 2009 averaged $27.5 million with the highest overnight draw being $35.0 million.  Subsequent to March 26, 2010, the Partnership had one overnight draw against these lines of credit in the amount of $40.0 million.





In 2009, the Partnership entered into a financing agreement with three banks to fund up to $30.0 million for purchases of office equipment.  This financing agreement will be repaid over a term of 48 months at a rate of 315 basis points (3.15%) in excess of the one-month LIBOR and is secured by the equipment being financed.  The Partnership had borrowed $17.2 million under this agreement and repaid $1.2 million, resulting in $15.9 million outstanding on the agreement as of March 26, 2010.  Subsequent to March 26, 2010, the Partnership borrowed an additional $2.7 million under this agreement and repaid $0.7 million, resulting in $17.9 million outstanding as of May 7, 2010.  Additional borrowings are expected to be borrowed in future periods to fund additional purchases of office equipment.





In addition, the Partnership also entered into a $36.4 million fixed rate mortgage in 2009, collateralized by a home office building and related parking garage located on its St. Louis, Missouri, North Campus location.  The loan has a fixed monthly principal and interest payment beginning February 1, 2010 through December 1, 2012.  On the maturity date of December 22, 2012, the entire unpaid balance plus accrued interest, totaling $32.6 million, is due.  The fixed interest rate of 3.5% is contingent upon the Partnership, or a subsidiary, maintaining a matching interest bearing deposit account with the lender in an amount equal to or exceeding the principal amount.  If the matching deposit is withdrawn, the interest rate converts to a floating rate of the one-month LIBOR plus 5.0%.  The matching deposit is currently maintained by Edward Jones, and it is the Partnership's intent that the matching deposit will continue to be maintained throughout the life of the loan.  The Partnership made principal payments of $0.2 million, resulting in $36.2 million outstanding under this agreement as of March 26, 2010.  Subsequent to March 26, 2010, the Partnership made additional principal payments of $0.2 million, resulting in $36.0 million outstanding under this agreement.





In 2008, the Partnership entered into a $120.0 million revolving unsecured line of credit which the Partnership has used for funding the construction of the new buildings and parking garages at its home office facilities in St. Louis, Missouri and Tempe, Arizona.  The revolving unsecured line of credit has a final maturity date of August 22, 2010.  To the extent the Partnership obtains permanent financing on its St. Louis, Missouri South Campus facility ("South Campus") prior to August 22, 2010, the Partnership must apply the proceeds from the financing towards the amounts outstanding on the revolving unsecured line of credit.  However, any financing obtained for the St. Louis, Missouri South Campus facility will not reduce the total $120.0 million availability under the revolving unsecured line of credit.  As of March 26, 2010, the Partnership


39
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


had drawn $88.0 million and re-paid $30.0 million, resulting in $58.0 million outstanding on the revolving unsecured line of credit to fund construction projects.  As of March 27, 2009, the Partnership had $73.0 million drawn and outstanding on the revolving unsecured line of credit.  Subsequent to March 26, 2010, no additional amounts were drawn or re-paid on the revolving unsecured line of credit, resulting in $58.0 million total outstanding on the revolving unsecured line of credit as of May 7, 2010.  Each draw is for an interest period of up to six months, at which time interest is due, and the Partnership has the option to renew the draw.  The Partnership plans to renew the existing and future draws at their maturities and anticipates that at final maturity the revolving unsecured line of credit will have an aggregate balance outstanding of $58.0 million plus any draws less any repayments subsequent to May 7, 2010.  The weighted average interest rate for outstanding amounts under the revolving unsecured line of credit was 1.00% as of March 26, 2010, and fluctuates with LIBOR.





In April 2010, the Partnership entered into an agreement with eight banks to obtain a $320.0 million committed, unsecured revolving line of credit, which has a final maturity date of April 20, 2011.  This line of credit has a tiered interest rate based on leverage ratio (ratio of total net debt to total capitalization) or credit rating.  Borrowings made with a three day advance notice will have a rate of LIBOR plus a margin ranging from 2.38% to 3.00%.  Same day borrowings will have a rate of a margin ranging from 1.13% to 1.75% plus the greater of the prime rate, the federal funds effective rate plus 1.50% or the one month LIBOR rate plus 1.50%.  In accordance with this agreement, the Partnership is required to maintain a leverage ratio of no more than 35% and minimum partnership capital, net of reserve for anticipated withdrawals, of at least $1.1 billion plus 50% of subsequent increases in partnership capital, net of reserve for anticipated withdrawals, for each fiscal quarter.  As of May 7, 2010, the Partnership has not borrowed against this line of credit.





As of March 26, 2010, the Partnership is in compliance with all covenants related to the previously mentioned debt agreements.  For further details on covenants, see discussion regarding debt covenants in the Notes to the Consolidated Financial Statements in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2009.





The Partnership has been in the process of expanding its home office facilities in order to support its current and future growth plans.  Construction activities completed during 2009 included an office building at its St. Louis, Missouri, North Campus location, a building addition and garage at its South Campus location, and a parking garage at its Tempe, Arizona campus.  The Partnership has commitments relating to these construction activities of $8.4 million remaining as of March 26, 2010.  See the Notes to the Consolidated Financial Statements in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2009 for further details on the completion of these activities.





In addition, the Partnership committed, in October 2009, to construct an additional parking garage at its St. Louis, Missouri, North Campus location.  The Partnership estimates the cost to construct the garage to be approximately $24.0 million and has executed agreements of $13.9 million for the construction.  As of March 26, 2010, the Partnership has paid $2.7 million related to commitments for this construction project.  The Partnership anticipates the remaining estimated amounts to be incurred and paid throughout 2010 and into the early portion of 2011.





The total estimated amount needed to complete the construction of this parking garage and other projects and the repayment of the $58.0 million outstanding balance on the revolving


40
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


unsecured line of credit (which matures August 2010) will be financed through the Partnership's existing working capital and additional financing in the future.  There can be no assurance that such financing will be available on favorable terms to the Partnership, or at all, in the future.





Cash Activity





As of March 26, 2010, the Partnership had $128.6 million in cash and cash equivalents.  In addition, the Partnership had $889.0 million in securities purchased under agreements to resell, which have maturities of less than one week.  The Partnership also had $2.8 billion in cash and investments segregated under federal regulations, which was not available for general use.





During the first quarter of 2010, cash and cash equivalents decreased $99.0 million from $227.5 million as of December 31, 2009.  Cash used in operating activities was $56.4 million.  The primary uses of cash by operating activities include a net increase in assets ($174.2 million), partially offset by income before allocations to partners ($76.5 million) adjusted for depreciation expense ($24.1 million) and a net increase in liabilities ($17.2 million).  During the first three months of 2010, cash used in investing activities was $19.0 million consisting of capital expenditures supporting the growth of the Partnership’s operations and for the construction of new office space as noted above.  During the first three months of 2010, cash used in financing activities was $23.7 million, consisting primarily of partnership withdrawals and distributions ($33.1 million), redemption of partnership interests ($14.8 million), and repayment of long-term debt ($1.1 million), offset by the issuance of long-term debt ($1.9 million) and the issuance of partnership interests ($23.4 million).





Regulatory Requirements





As a result of its activities as a U.S. broker-dealer, Edward Jones, is subject to the net capital provisions of Rule 15c3-1 of the Exchange Act.  Under the alternative method permitted by the rules, Edward Jones must maintain minimum net capital, as defined, equal to the greater of $0.25 million or 2% of aggregate debit items arising from customer transactions.  The net capital rules also provide that partnership capital may not be withdrawn if the resulting net capital would be less than 5% of aggregate debit items.  Additionally, certain withdrawals require the consent of the SEC to the extent they exceed defined levels, even though such withdrawals would not cause net capital to be less than 5% of aggregate debit items.  As of March 26, 2010, Edward Jones' net capital of $738.5 million was 36.3% of aggregate debit items and its net capital in excess of the minimum required was $697.9 million.  Net capital as a percentage of aggregate debit items after anticipated withdrawals was 33.9%.  Net capital and the related capital percentage may fluctuate on a daily basis.  As of March 26, 2010, the Partnership’s Canadian broker-dealer subsidiary and EJTC were in compliance with regulatory capital requirements in the jurisdictions in which they operate.





RISK MANAGEMENT





Overview





The Partnership's business model and activities expose it to a number of different risks.  The most significant risks to which the Partnership is subject include business and operational risk, credit risk, market and liquidity risk, and legal, regulatory and reputational risk.  The identification and ongoing management of the Partnership's risk is critical to its long term


41
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


business success and related financial performance.  The Partnership is governed by an Executive Committee, which is ultimately responsible for overall risk management.  As of March 26, 2010, the Executive Committee consisted of the Partnership's Managing Partner and seven other general partners, each responsible for broad functional areas of the Partnership.  The Executive Committee is responsible for providing advice and counsel to the Managing Partner and helps establish the strategic direction of the firm.  In addition the Executive Committee takes an active role in identifying, measuring and controlling the risks to which the Partnership is subject.  The Executive Committee communicates regularly, meets monthly and also conducts periodic planning sessions to meet its responsibilities.





The Management Committee assists the Executive Committee in its ongoing risk management responsibilities through its day-to-day operations.  The Management Committee consists of up to 25 general partners, including members of the Executive Committee, with the specific number to be determined by the Managing Partner.  As of March 26, 2010, the Management Committee consisted of 19 general partners.  The Management Committee is responsible for identifying, developing and accomplishing the Partnership's objectives.  In addition, the Management Committee is responsible for sharing information across divisions, identifying issues and risks with other members of the Committee.  The Management Committee generally meets weekly and provides a forum to both identify and resolve risk management issues for the Partnership.





Several other committees and departments support the Executive Committee's risk management responsibilities by managing certain components of the risk management process.  Those committees and departments and their primary responsibilities, as they relate to risk management, are described further in the Partnership's Annual Report of Form 10-K for the year ended December 31, 2009.  Any changes to the descriptions set forth in that document are listed below:





Audit Committee -oversees the Partnership's efforts to comply with the financial reporting control requirements of Sarbanes Oxley, develops and maintains an understanding of the Partnership's financial statements and financial reporting process, and provides input to the Partnership's Internal Audit division regarding audit topics and the resolution of outstanding audit findings.  The committee is also directly responsible for appointing, compensating, retaining and overseeing the work of any registered public accounting firm engaged by the Partnership.





CRITICAL ACCOUNTING POLICIES





The Partnership’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which may require judgment and involve estimation processes to determine its assets, liabilities, revenues and expenses which affect its results of operations.





The Partnership believes that of its significant accounting policies, the following critical policies may involve a higher degree of judgment and complexity.





Customers' transactions are recorded on a settlement date basis with the related revenue and expenses recorded on a trade date basis.  The Partnership may be exposed to risk of loss in the event customers, other brokers and dealers, banks, depositories or clearing organizations are unable to fulfill contractual obligations.  For transactions in which it extends credit to customers,


42
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


the Partnership seeks to control the risks associated with these activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines.  Securities owned and sold, not yet purchased, including inventory securities and investment securities, are recorded at fair value.





In addition, the following significant accounting policies require estimates that involve a higher degree of judgment and complexity.





The Partnership provides for potential losses that may arise out of litigation, regulatory proceedings and other contingencies to the extent that such losses can be estimated, in accordance with ASC No. 450, Contingencies.  See Part II, Item 1 − Legal Proceedings, and Part I, Item 2 − Management’s Discussion and Analysis of Financial Condition and Results of Operations − Mutual Funds and Annuities for further discussion of these items.  The Partnership regularly monitors its exposures for potential losses.  The Partnership’s total liability with respect to litigation and regulatory proceedings represents the best estimate of probable losses after considering, among other factors, the progress of each case, the Partnership’s experience and discussions with legal counsel.





The Partnership’s periodic evaluation of the estimated useful lives of equipment, property and improvements is based on the original life determined at the time of purchase and any events or changes in circumstances that would result in a change in the useful life.





For additional discussions of the Partnership’s accounting policies, refer to Note 1 to the Consolidated Financial Statements included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2009.





THE EFFECTS OF INFLATION





The Partnership's net assets are primarily monetary, consisting of cash and cash equivalents, securities inventories and receivables less liabilities.  Monetary net assets are primarily liquid in nature and would not be significantly affected by inflation.  Inflation and future expectations of inflation influence securities prices, as well as activity levels in the securities markets.  As a result, profitability and capital may be impacted by inflation and inflationary expectations.  Additionally, inflation's impact on the Partnership's operating expenses may affect profitability to the extent that additional costs are not recoverable through increased prices of services offered by the Partnership.





NEW ACCOUNTING STANDARDS





In February 2010, the FASB issued Accounting Standards Update ("ASU") No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements ("ASU 2010-09"), amending ASC No. 855, Subsequent Events, to remove the requirement that an entity that is an SEC filer is required to disclose the date through which subsequent events have been evaluated.  ASU 2010-09 is effective upon issuance of the ASU.  Adoption of ASU 2010-09 did not have an impact on the Partnership's Consolidated Financial Statements.





In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements ("ASU 2010-


43
 PART I.FINANCIAL INFORMATION
 
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations, continued


06").  ASU 2010-06 amends ASC 820, Fair Value Measurements and Disclosures, to require new disclosures related to transfers into and out of Levels I, II and III of the fair value hierarchy and additional disclosures relating to Level III measurements.  The guidance also clarifies existing fair value measurement disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value.  ASU 2010-06 is effective for the first reporting period beginning after December 15, 2009, except for the additional disclosure requirements related to Level III measurements which are effective for fiscal years beginning after December 15, 2010.  Adoption of ASU 2010-06 did not have an impact on the Partnership's Consolidated Financial Statements.  The additional disclosure requirements effective for periods beginning after December 15, 2010 are also not expected to have an impact on the Partnership's Consolidated Financial Statements.





FORWARD-LOOKING STATEMENTS





This report on Form 10-Q and, in particular, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of the federal securities laws.  You can identify forward-looking statements by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “will,” “should,” and other expressions which predict or indicate future events and trends and which do not relate to historical matters.  You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Partnership.  These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Partnership to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.





Some of the factors that might cause differences include, but are not limited to, the following: (1) market conditions; (2) transaction volume volatility; (3) interest rate changes; (4) risk of inflation; (5) impact of cyclical nature of business on the Partnership's growth rate; (6) capital limitations; (7) liquidity; (8) lack of capital permanency; (9) Canadian operations; (10) actions by regulatory agencies; (11) legislative and regulatory initiatives; (12) branch office system; (13) litigation; (14) upgrade of technological systems; (15) interruption of technological systems; (16) operations systems; (17) reliance on organizations; (18) credit risk; (19) underwriting, syndicate and trading position risks; and (20) competition.  These forward-looking statements were based on information, plans and estimates at the date of this report, and the Partnership does not undertake to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.


44
 PART I.FINANCIAL INFORMATION
 ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


The SEC issued market risk disclosure requirements to enhance disclosures of accounting policies for derivatives and other financial instruments and to provide quantitative and qualitative disclosures about market risk inherent in derivatives and other financial instruments.  Various levels of management within the Partnership manage the Partnership’s risk exposure.  Position limits in trading and inventory accounts are established and monitored on an ongoing basis.  Credit risk related to various financing activities is reduced by the industry practice of obtaining and maintaining collateral.  The Partnership monitors its exposure to counterparty risk through the use of credit exposure information, the monitoring of collateral values and the establishment of credit limits.  For further discussion of monitoring, see the Risk Management discussion in the Management's Discussion and Analysis of Financial Condition and Results of Operations section.





The Partnership is exposed to market risk from changes in interest rates.  Such changes in interest rates impact the income from interest earning assets, primarily receivables from customers on margin balances and average overnight investments, which were $2.1 billion and $3.7 billion as of March 26, 2010, respectively.  The changes in interest rates may also have an impact on the expense related to liabilities that finance these assets, such as amounts payable to customers and other interest and non-interest bearing liabilities.





The Partnership performed an analysis of its financial instruments and assessed the related interest rate risk and materiality in accordance with the SEC rules.  Under current market conditions and based on current levels of interest earning assets and the liabilities that finance these assets, the Partnership estimates that a 100 basis point (1.00%) increase in short-term interest rates could increase its annual net interest income by approximately $28.0 million.  Conversely, the Partnership estimates that a 100 basis point (1.00%) decrease in short-term interest rates could decrease the Partnership’s annual net interest income by approximately $5.0 million.  A decrease in short-term interest rates currently has a less significant impact on net interest income due to the current low interest rate environment.  The Partnership has two distinct types of interest bearing assets: customer receivables from margin accounts and overnight investments, which are primarily comprised of cash and investments segregated under federal regulations and securities purchased under agreements to resell.  The Partnership has put in place an interest rate floor for the interest charged related to its customer margin loans, which helps to limit the negative impact of declining interest rates.  Overnight investments have earned interest at an average rate of approximately 23 basis points (0.23%) for the year ended March 26, 2010, and therefore the financial dollar impact of further declines in rates is minimal.




In addition to the interest earning assets and liabilities noted above, the Partnership's revenue earned related to its minority ownership interest in the advisor to the Edward Jones Money Market Funds is also impacted by changes in interest rates.  As noted in previous discussions, as a 49.5% limited partner of Passport Research Ltd., the investment advisor to the money market funds made available to Edward Jones customers, the Partnership receives a portion of the income of the investment advisor.  Due to the current historically low interest rate environment, the investment advisor voluntarily chose (beginning in March 2009) to reduce certain fees charged to the funds to a level that will maintain a positive customer yield on the funds.  This reduction of fees is estimated to reduce the Partnership's revenue by a total of approximately $90.0 million annually.  Alternatively, if the interest rate environment improved such that that this reduction in fees was no longer necessary to maintain a positive customer yield, the Partnership's revenue could increase by up to $90.0 million annually.


45
 PART I.FINANCIAL INFORMATION
 ITEM 4.
CONTROLS AND PROCEDURES




The Partnership maintains a system of disclosure controls and procedures which are designed to ensure that information required to be disclosed by the Partnership in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including the Partnership’s certifying officers, as appropriate to allow timely decisions regarding required disclosure.





Based upon an evaluation performed as of the end of the period covered by this report, the Partnership's certifying officers, the Chief Executive Officer and the Chief Financial Officer, have concluded that the Partnership's disclosure controls and procedures were effective as of March 26, 2010.





There have been no changes in the Partnership's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting.


46
 PART II.OTHER INFORMATION
 
 ITEM 1.
LEGAL PROCEEDINGS





The following information supplements the discussion in Part I, Item 3 "Legal Proceedings" in the Partnership's Form 10-K for the fiscal year ended December 31, 2009:





Virginia Matter.In April 2002, the Virginia State Corporation Commission, Division of Securities and Retail Franchising (the "Division") commenced an investigation into Edward Jones based on actions of a former financial advisor and his recommendation for use of margin dating back to 1998.  After investigating the matter, the Division alleges Edward Jones conducted activity that constituted a violation of the Virginia Securities Act and provisions of the Code of Virginia: (i) by engaging  in a transaction, practice or course of business which operates as a fraud or deceit upon a purchaser; (ii) by failing to make and keep true, accurate and current, and preserve the books and records relating to its business; (iii) by failing to establish, maintain and enforce written procedures; (iv) by failing to perform frequent examinations of all customer accounts to detect and prevent irregularities or abuses; and (v) by failing to review and receive written approval by the designated supervisor of the delegation by any customer of discretionary authority with respect to the customer's account.





On March 19, 2010, the Division and Edward Jones entered into a settlement agreement by which Edward Jones agreed to offer to pay 50% of the equity losses incurred by four Virginia investors identified by the Division and to offer a rebate of 65% of the margin interest paid by the Virginia investors identified to the Division and who had a margin loan between January 1, 1998 and June 30, 2001.  The total amount offered to investors was approximately $380,000 and will be charged against previously established expense accruals.





Missouri Investigation.In connection with the Financial Industry Regulatory Authority, Inc. ("FINRA") Missouri Investigation described in the Partnership's Annual Report on Form 10-K filed March 31, 2010, the state of Missouri is currently investigating the activities of a former financial advisor for allegedly misappropriating customer funds.  Edward Jones terminated the financial advisor, who is currently facing criminal charges.  Edward Jones has identified the customers involved and paid restitution totaling approximately $750,000 to those individuals.  The cost of the restitution payments was charged against previously established expense accruals.  The Missouri inquiry is still pending.





FINRA Fixed-Income Trading Matter.Since the fall of 2007, FINRA has been investigating Edward Jones' trading activity in fixed-income securities during the period from January 1, 2004 through December 31, 2004.  FINRA is now alleging that 31 of those trades were not priced as favorably as possible under prevailing market conditions, in violation of NASD Rules 2110 and 2320.  FINRA is also alleging that Edward Jones' written supervisory procedures concerning best execution of fixed-income transactions in place in 2004 were inadequate, in violation of NASD Rules 2110 and 3010.  FINRA has given Edward Jones an opportunity to furnish a written submission in response to the allegations.





Tennessee Investigation.  Edward Jones has settled the remaining claim in the Givens arbitration in May 2010. The cost of this settlement will be charged against previously established expense accruals.





For further discussion of legal proceedings, see Part I, Item 3 "Legal Proceedings" in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2009.


47
 PART II.OTHER INFORMATION


ITEM 1A.           RISK FACTORS





There have been no material changes from the risk factors disclosed in the Partnership's Form 10-K for the fiscal year ended December 31, 2009.





ITEM 6.
EXHIBITS





Exhibit


Number
Description





3.1

*
Seventeenth Amended and Restated Agreement of Registered Limited Liability Limited Partnership of the Registrant, dated as of March 26, 2010, incorporated by reference to Exhibit 3.1 to the Registrant's Form 10-K for the year ended December 31, 2009.




3.2

*
Sixteenth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated as of July 11, 2007, as amended, incorporated herein by reference to Exhibit 3.2 to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 29, 2007.




3.3

*
Eleventh Amended and Restated Agreement of Limited Partnership Agreement of Edward D. Jones & Co., L.P., dated March 10, 2010, incorporated by reference to Exhibit 3.3 to the Registrant's Form 10-K for the year ended December 31, 2009.




10.1

**
Credit Agreement by The Jones Financial Companies, L.L.L.P. and Wells Fargo Bank, National Association, for a $320,000,000 revolving line of credit, dated April 21, 2010.




31.1

**
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Act of 1934, as amended, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.




31.2

**
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Act of 1934, as amended, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.




32.1

**
Certification of Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.




48
 PART II.OTHER INFORMATION
 
 ITEM 6.EXHIBITS, continued


32.2

**
Certification of Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.









*   Incorporated by reference to previously filed exhibits.


** Filed herewith.


49


SIGNATURES








Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.






THE JONES FINANCIAL COMPANIES, L.L.L.P.





By:   /s/ James D. Weddle


James D. Weddle


Managing Partner (Principal Executive Officer)


May 7, 2010





Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated:





Signatures

Title

Date/s/ James D. Weddle

Managing Partner

(Principal Executive Officer)

May 7, 2010James D. Weddle /s/ Kevin Bastien

Chief Financial Officer

(Principal Financial and

May 7, 2010Kevin BastienAccounting Officer)