Do all mutual funds need to notice file with all jurisdictions? A review of Blue Sky laws


Monday, November 25, 2019 | By Kevin L. Caravella, Director Blue Sky Administration

Do all mutual funds need to notice file with all jurisdictions? A review of Blue Sky laws

The differences between states’ Blue Sky laws can create a lot of confusion when it comes to compliance. What constitutes an offer and sale in a state? What type of an entity qualifies as an exempt institutional investor? How do mutual funds factor into the equation?

Our recent webinar, Do all Mutual Funds Need to Notice File with all Jurisdictions? explores how to navigate the differences in regulation of mutual funds from state to state, and how to minimize the Blue Sky fees on mutual funds. Joining me for the webinar were Tamara Salmon, Associate General Counsel at Investment Company Institute, and Richard Alvarez, principal Attorney at Law for the Law Office of Richard I. Alvarez.

Like the federal securities laws, every state regulates the offer and sale of securities that are made to investors in their state. Generally, every state law requires that any federal-covered security (public or private fund) offered and sold in the state provide a notice filing and a fee, unless a state exemption is available in which case the fund may avoid these filings and fees.

Blue sky analysis is based principally on an examination of available exemptions, including a review of defined terms that interpret exemptions. Those definitions vary by state, and each state offers exemptions from registration requirements based either on the type of security offered or the type of transaction in which the securities are sold.

Exempt securities include those securities that are issued by government issuers, banks, insurance companies, etc., and generally do not have relevance for mutual fund companies offering securities in a state. On the other hand, the exempt transactions that are found in most all state statutes do have relevance to mutual funds. These exemptions fall into two broad categories—exemptions that are based on the type of transaction under which the security is sold, or exemptions that are based on the nature of the investor to whom the securities are sold. It is this second category which includes two useful exemptions for mutual funds: the institutional investor exemption and the existing security holder exemption. These exemptions are significant for mutual funds in that they offer the possibility of avoiding having to report some or all sales of mutual fund securities to a state, potentially reducing the fees a fund is required to pay to the states.

For a deeper discussion about the differences between the different types of institutions, how retirement accounts offer potential exemptions and how to comply with regulations while maximizing exemptions and minimizing costs, download our webinar.



Alternative Investments, Regulation


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