June 15, 1992
TO: STATE SECURITIES MEMBERS NO. 31-92
OPERATIONS MEMBERS NO. 22-92
TRANSFER AGENT ADVISORY COMMITTEE NO. 31-92
RE: MARYLAND LEGISLATION ENACTED PERMITTING FUNDS TO REDEEM
SMALL ACCOUNTS
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House Bill 842 was signed by the Governor on May 27, 1992
which authorizes the redemption of a shareholder’s account valued
at $500 or less provided that written notice is given to the
shareholder. The bill also sets forth a procedure for a
shareholder to object to the redemption if he or she wishes to
maintain the account at an under $500 level.
Please note that Section 2-310(1)(B) of the bill provides
that "[t]he price to be paid for the shares redeemed ... shall be
the aggregate net asset value of the shares at the close of
business on the date of the redemption or the date of the notice,
whichever is greater" (emphasis added). The underlined language,
directly conflicts with Rule 22c-1 of the Investment Company Act
of 1940 which prohibits a mutual fund from selling or redeeming
any security except at a price based upon the current net asset
value of the security which is calculated after the receipt of a
tender of the security or of an order to purchase or sell the
security.
In an April 23rd letter to the Governor, the Attorney
General explained that under federal law an investment company is
required to redeem shares of a mutual fund at a price based on
the date of redemption; thus, funds complying with Section 2-
310.(1)(B) would violate federal law. However, if the provision
in conflict with federal law is severed, the remainder of the
bill may be given effect. It is our understanding that the
language "or the date of the notice, whichever is greater" will
be considered severed from House Bill 842.
* * *
A copy of House Bill 842 and the Attorney General’s letter
is attached. We will keep you advised of developments.
Patricia Louie
Assistant Counsel
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