April 21, 1993
TO: STATE SECURITIES MEMBERS NO. 19-93
OPERATIONS MEMBERS NO. 21-93
SEC RULES COMMITTEE NO. 39-93
TRANSFER AGENT ADVISORY COMMITTEE NO. 29-93
RE: LEGISLATION AMENDING SMALL ACCOUNT REDEMPTION PROCEDURE
PASSED IN MARYLAND
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The Institute is pleased to inform you that legislation
amending the procedure for redemption of small accounts by a
mutual fund has passed both houses of the Maryland Legislature.
The legislation is expected to be signed by the Governor in the
near future and would be effective as of October 1, 1993.
House Bill 392 provides that a mutual fund may redeem
shares of its stock if the fund's charter expressly provides for
such. If the fund's charter does not expressly provide for the
redemption of its shares, the following conditions must be met:
(1) the aggregate net asset value of the account, as of
the date of redemption, must be $500 or less;
(2) written notice must be given to the shareholder of
record that is mailed first class mail to the last known
address of record;
(3) the notice must state that all of the shares will be
redeemed and establish a date of redemption which is at
least 45 days from the date of the notice; and
(3) the price to be paid for shares redeemed under this
provision shall be the aggregate net asset value of the
shares at the close of business on the date of the
redemption. (However, please note that if the aggregate
net asset value of the shares increases to an amount
greater than $500 between the date of the notice and the
date of redemption, the notice of redemption shall have no
effect.)
As you may recall, this legislation was necessary since the
current statutory provision outlining the procedure for
redemption of small accounts could have been construed to cover
all mutual funds organized in Maryland and is generally
inconsistent with the procedure adopted by most funds to redeem
small accounts. Specifically, 2-310.1 currently requires a
fund to give writtennotice to the shareholder that is personally
delivered or mailed by registered or certified mail and grants
the shareholder the right to object to the redemption. As noted
above, House Bill 392 amends the manner notice must be given to
shareholders and repeals the right of the shareholder to object
to the redemption.
A copy of House Bill 392 is attached.
Patricia Louie
Associate Counsel
Attachment