January 7, 1993
TO: STATE SECURITIES MEMBERS NO. 1-93
OPERATIONS MEMBERS NO. 1-93
TRANSFER AGENT ADVISORY COMMITTEE NO. 1-93
RE: MARYLAND ISSUES NO-ACTION LETTER ON SMALL ACCOUNT REDEMPTION
DISCLOSURE
__________________________________________________________
As we previously advised you, the Institute submitted a
letter to the Maryland Division of Securities requesting that the
Division take no enforcement action against a mutual fund,
organized in Maryland, if the fund automatically redeems small
accounts as expressly provided for in the charter of the fund,
and in accordance with the description of its ability to
automatically redeem small accounts as set forth in its
prospectus or statement of additional information. This request
was necessitated since the requirements of a recently enacted
statutory provision for redemption of small accounts are
generally inconsistent with the procedures adopted by most mutual
funds. (See Memorandum to State Securities Members No. 46-92,
Operations Members No. 51-92 and Transfer Agent Advisory
Committee No. 75-92, dated December 17, 1992.)
The Institute has been advised by the Maryland Securities
Commissioner that the Securities Division will "take no action to
require affected mutual funds to amend disclosure concerning
automatic redemption programs as a result of the enactment of
Section 2-310.1." A copy of the letter to the Institute from the
Maryland Securities Commissioner is attached.
However, please be aware that while the Securities Division
has taken a no-action position with respect to the disclosure
contained in the fund's prospectus regarding its small account
redemption procedure, similar no-action assurance was not given
in the event the fund actually redeems small accounts. This
position is not unusual since the disclosure contained in a fund
prospectus is directly within the jurisdiction of the Securities
Division and it would be unlikely that the Securities Division
could have taken a position with respect to a provision contained
in the Maryland corporate code.
The Institute will be sponsoring legislation during the
1993 Maryland legislative session to clarify that the procedure
set forth in Section 2-310.1 applies only to mutual funds whose
charters are silent as to the fund's ability to redeem small
accounts.
We will keep you advised of developments.
Patricia Louie
Associate Counsel
Attachment