DISCUSSION DRAFT Revised ^ September 10, 2007 THE EFFECTS ... · description of the effects of NSMIA on state blue sky requirements applicable to municipal securities. Part IV contains

DISCUSSION DRAFTRevised ^ September 10, 2007

THE EFFECTS OF NSMIA ON BLUE SKY REQUIREMENTS APPLICABLE TO MUNICIPAL SECURITIES

by Thomas N. Harding

Thomas N. Harding and Associates330 West Diversey Parkway

Suite 906Chicago, Illinois 60657

Telephone: (773) 477-9506E-mail: [email protected]

Copyright ^ 2007 by Thomas N. Harding

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TABLE OF CONTENTS

Page

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1A. Background - Blue Sky Laws and Blue Sky Memoranda . . . . . . . . . . . . . . . . . . . . . 1B. Purpose of This Paper and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

II. SECTION 18 OF THE SECURITIES ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3A. Section 18(a) Pre-Emptions After NSMIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3B. Covered Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42. Section 3(a)(2) Exemptions from Registration . . . . . . . . . . . . . . . . . . . . . . . . 4

(a) General Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5(b) IDB Exemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5(c) Bank Guaranty Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3. Exemption from Registration Under Rule 506 of Regulation D . . . . . . . . . . . 74. The Special Problems of Taxable IDB’s . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

C. State Requirements Not Pre-empted by NSMIA . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

III. THE EFFECTS OF NSMIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10A. Amendments to State Blue Laws to Codify NSMIA Provisions ^ and

Imposition of Notice Filing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10B. Dual Track Blue Sky Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11C. Changes In Registration Requirements for Industrial ^ or

Commercial Enterprise/Industrial Development Bonds . . . . . . . . . . . . . . . . . . . . . . . 121. Industrial or Commercial Enterprise/Industrial ^ Development

Bond States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 132. Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163. Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 194. Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

D. Other Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201. Conditions for Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202. Offering Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 223. New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 22

E. Separate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231. Rule 131 and the IDB Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232. Rule 131 and the General Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243. Securities Issued or Guaranteed by Any Bank . . . . . . . . . . . . . . . . . . . . . . . 264. Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

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F. Uniform Securities Act of 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 27

IV. STATE ANALYSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Arkansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36District of Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Hawaii . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 41Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 42Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 42Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 42Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 43Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 43Montana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 43Nebraska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 45Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 46New Hampshire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 48New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 51New Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 51New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 53North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 54North Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 54Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 57Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 59Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 59

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Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 59Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 63Rhode Island . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 64South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 65South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 66Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 66Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 67Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 67Vermont . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 67Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 68Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 68West Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 70Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 71Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ^ 74

Appendix - Section 18 of the Securities Act of 1933, as amended . . . . . . . . . . . . . . . . . . . . . . . . A-1

1MARTIN R. MILLER ET AL., BLUE SKY REGULATION OF MUNICIPAL SECURITIES 1 (1995)[hereinafter MILLER]

2For example, for Florida issuers, the Florida blue sky law requires the disclosure of certain priordefaults, and for Pennsylvania issuers, the Pennsylvania blue sky law imposes certain requirements inconnection with the use of financial forecasts. See Part III., THE EFFECTS OF NSMIA, D. OtherChanges, 3. Offering Documents.

THE EFFECTS OF NSMIA ON BLUE SKY REQUIREMENTS APPLICABLE TO MUNICIPAL SECURITIES

by Thomas N. Harding

I. INTRODUCTION

A. Background - Blue Sky Laws and Blue Sky Memoranda.

The securities or “blue sky” laws of each state regulate the entities and individuals who offer andsell securities in that state, set forth the requirements for the registration (or exemption from registration)of the securities offered or sold therein, and establish anti-fraud protections for securities transactions.1

One of the roles of counsel to an underwriter of bonds, notes and other obligations issued by statesand political subdivisions (“municipal securities”) is to provide advice on blue sky law matters. This advicebegins in the early stages of a financing, since some states’ blue sky laws impose requirements on thecontent of official statements.2

In addition, underwriter’s counsel usually provides the underwriter a “blue sky memorandum” atthe time that a preliminary official statement is distributed to the public. Blue sky memoranda typically list:(1) the states in which the securities may be offered and sold to the public without the necessity ofregistration or other action pursuant to an “exempt security” exemption from registration, provided that theunderwriter is registered as a broker or dealer therein; (2) the states in which registration or other actionmust be taken before the securities may be offered to the public; and (3) the states in which no action needbe taken if the securities are offered and sold not to the public but, rather, to specified types of institutionalinvestors in an “exempt transaction.”

The conclusions contained in a blue sky memorandum can significantly affect an underwriter’smarketing efforts. The process of registering an issue of municipal securities with a state securitiescommission can take several weeks and often (1) involves the filing of drafts of the bond documents andthe official statement and a consent to service of process signed by the issuer or its conduit obligor, (2)requires that financial statements included in the official statement meet certain standards and (3) includes

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the payment of a registration fee that may exceed $1,000. Other action, such as the requirement of a noticefiling, may also require filing of specified documents and the payment of a filing fee.

For these reasons, underwriters are usually reluctant to offer municipal securities for sale to thepublic in a state where registration is required. Generally, an underwriter will offer municipal securities forsale to the public in a state where other action (such as a notice filing) is required only if the underwriterbelieves that access to the state’s investors is critical to its marketing efforts and if the requirements for suchother action (especially the amount of any notice filing fee and the requirement of a consent to service ofprocess) are not unduly burdensome.

The exempt transactions section of a blue sky memorandum lists, for each state, the categories ofinstitutional investors to whom the securities may be sold without registration. Typically, such institutionalinvestors include banks, savings institutions, trust companies, insurance companies and investmentcompanies as defined in the Investment Company Act of 1940. In many states, the underwriter does notneed to be licensed as a broker or dealer in that state in order to offer the securities to the qualifyinginstitutional investors, provided that the underwriter has no place of business in the state and offers thesecurities in the state exclusively with or through issuers of the securities involved in the transactions, otherbroker-dealers or the state’s categories of qualifying institutional investors. However, this additional sourceof exemption from registration usually is not very useful to an underwriter whose primary focus is the retailmarket (i.e., individuals). Moreover, the categories of qualifying institutional investors are not uniformamong the states.

B. Purpose of This Paper and Overview.

This paper discusses the effects of the National Securities Markets Improvement Act of 1996(“NSMIA”) and state legislation enacted in response to NSMIA on blue sky laws applicable to the offerand sale of municipal securities and is intended as an aid in the preparation of blue sky memoranda formunicipal securities.

NSMIA became law on October 11, 1996. NSMIA significantly amended the Securities Act of1933 (the “Securities Act”), the Securities Exchange Act of 1934, the Investment Company Act of 1940and the Investment Advisers Act of 1940.

Prior to NSMIA, Section 18 of the Securities Act provided that the Securities Act did notpre-empt the jurisdiction of any state securities commission with respect to municipal securities offered orsold in that state. Prior to NSMIA, several states required registration of certain types of municipalsecurities and/or imposed requirements on the content of offering documents as a condition to the offer andsale of such municipal securities to the general public.

NSMIA’s amendments included a re-writing of Section 18 of the Securities Act and generallyresulted in the federal pre-emption of many, but not all, state registration and offering document

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requirements. As discussed more fully herein, the main effects of NSMIA on blue sky requirementsapplicable to municipal securities have been to cause many states to amend their blue sky laws to codifyNSMIA’s provisions and to impose notice filing requirements on covered securities and to provide analternative legal analysis as a means of avoiding state registration and offering document requirements.

Part II of this paper contains an analysis of 18 of the Securities Act. Part III contains a generaldescription of the effects of NSMIA on state blue sky requirements applicable to municipal securities. PartIV contains detailed legal analyses and statutory and regulatory citations for each state. The full text ofSection 18 of the Securities Act, as amended by NSMIA, is reproduced in the Appendix at the end of thispaper.

As used in this paper, the term “taxable” means “includable in gross income for federal income taxpurposes,” and the term “tax-exempt” means “excludable from gross income for federal income taxpurposes.” Unless otherwise noted, Section refers to the specified section of the Securities Act.

This paper incorporates the comments and suggestions of Ronald Grosser of Hawkins, Delafield& Wood, New York, New York; Paul C. Kosin of Chapman and Cutler, Chicago, Illinois; Virginia M.Harding of Gould & Ratner, Chicago, Illinois; Elizabeth M. Columbo, Nixon Peabody LLP, New York,New York; Monique Y. DeLapenha of Duane, Morris & Heckscher, LLP, Philadelphia, Pennsylvania;John Green of Gray, Plant, Mooty, Mooty, & Bennett, P.A., Minneapolis, Minnesota; Walter G. Harper,Joseph Letizia and Ryan Callender of Calfee, Halter & Griswold LLP of Cleveland, Ohio; Maria Harwood,Sherman & Howard L.L.C., of Denver, Colorado; William L. Hirata of Parker, Poe, Adams & Berstein,L.L.P., Charlotte, North Carolina; Amy K. Johnson of Robinson, Bradshaw & Hinson, P.A., Charlotte,North Carolina; William L. Logan of Dykema Gossett PLLC, Lansing, Michigan; Stephen Marcus of SchiffHardin & Waite, Chicago, Illinois; Terry D. Nelson of Foley & Lardner, Madison, Wisconsin; James C.Pitney, Jr. of Preti, Flaherty, Beliveau, Pachios & Haley, LLC, Augusta, Maine; Walter J. St. Onge, IIIand Ben Schuler of Palmer & Dodge LLP, Boston, Massachusetts; Charles Laddy Potuznik of Dorsey &Whitney, LLP, Minneapolis, Minnesota; G. Philip Rutledge, Chief Counsel, Pennsylvania SecuritiesCommission, Harrisburg, Pennsylvania; Robert C. Schneider of Cuddy & Feder & Worby, White Plains,New York; and Andrea McKenna of Ballard, Spahr, Andrews & Ingersoll LLP, Philadelphia,Pennsylvania.

II. SECTION 18 OF THE SECURITIES ACT

A. Section 18(a) Pre-Emptions After NSMIA.

Section 18, as amended by NSMIA, limits state authority to regulate the offer and sale ofmunicipal securities that constitute “covered securities” (as described in Section B. below).

3Section 18(d)(3) provides that the term “State” has the same meaning as in Section 3 of theSecurities Exchange Act of 1934. Under Section 3 of the Securities Act of 1934, State means “any Stateof the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other possession ofthe United States.”

4Pursuant to Section 18(b)(3), a security (including a municipal security) is a covered security withrespect to the offer or sale of the security to “qualified purchasers,” as defined by the SEC by rule.However, as of the date of this paper, “qualified purchasers” has not been defined by the SEC.

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Section 18(a) now provides that, except as otherwise provided in Section 18, no law, rule,regulation, or order, or other administrative action of any state3 or any political subdivision thereof:

1. requiring registration or qualification of securities or securities transactions shallapply to a covered security,

2. shall prohibit, limit, or impose any conditions upon the use of any offeringdocument (i.e., an official statement) for a covered security, or

3. shall prohibit, limit, or impose conditions, based on the merits of such offering orissuer, upon the offer or sale of any covered security.

B. Covered Securities.

1. General. The key to understanding NSMIA is an understanding of the two typesof municipal securities that constitute covered securities. Municipal securities are covered securities underSections 18(b)(4)(C) or 18(b)(4)(D), respectively, if they are:

(a) Securities that are exempt from registration under Section 3(a), except that amunicipal security that is exempt from Securities Act registration pursuant to Section 3(a)(2) is not acovered security if it is offered or sold in the state in which the issuer is located. In addition, the definitionof covered security excludes securities of certain not-for-profit organizations under Section 3(a)(4),securities issued in connection with a bankruptcy or reorganization under Section 3(a)(10) and securitiessold only to residents in a single state under Section 3(a)(11).

(b) Securities that are exempt from registration under Securities and ExchangeCommission (“SEC”) rules and regulations promulgated pursuant to Section 4(2). These rules andregulations consist of Rule 506 of SEC Regulation D, which provides a “safe harbor” exemption fromregistration for “transactions by an issuer not involving any public offering.”

These exemptions are discussed in sub-section 2. below.4

5Provided, in the case of 501(c)(3) bonds that any “separate security” that may be part of thetransaction (such as a loan agreement between a municipal issuer and a not-for-profit hospital) qualifies forits own exemption from registration (for example, the Section 3(a)(4) exemption for securities issued bynot-for-profit organizations). See also “Separate Securities - Rule 131 and the General Exemption,”herein.

6The need to issue Taxable IDB’s typically arises because issuance expenses for the financingexceed 2% of the proceeds of a related tax-exempt issue, in violation of the limitation imposed by Section147(g) of the 1986 Code.

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2. Section 3(a)(2) Exemptions from Registration. There are three exemptions fromregistration for municipal securities under Section 3(a), which this paper will refer to as: (a) the GeneralExemption, (b) the IDB Exemption and (c) the Bank Guaranty Exemption (collectively, the “Section 3(a)Exemptions”). The IDB Exemption requires that the interest on the municipal security in question betax-exempt. As noted above in Part II.B.1.(a), the Section 3(a) Exemptions confer covered security statusonly on municipal securities issued by out-of-state issuers; municipal securities that qualify for a SecuritiesAct exemption from registration pursuant to one of the Section 3(a) Exemptions are not covered securitiesin the state in which the issuer is located.

In addition to the Section 3(a) Exemptions, counsel must also consider whether the financingstructure includes a “separate security” that is subject to registration or qualifies for a separate exemptionfrom registration. The effect of NSMIA on separate security analysis is discussed below under “SeparateSecurities.”

(a) General Exemption. Section 3(a)(2) provides an exemption fromregistration for any security issued or guaranteed by any state or by any political subdivision of a state orby any public instrumentality of one or more states (the “General Exemption”). The General Exemptionprovides the exemption from registration for traditional or “governmental purpose” municipal securities suchas general obligation bonds and water and sewer revenue bonds, as well as private activity bondsconstituting mortgage bonds, student loan bonds, redevelopment bonds and 501(c)(3) bonds .5 Thisexemption is available regardless of whether the interest on the municipal securities is tax-exempt.

(b) IDB Exemption. Section 3(a)(2) provides an exemption from registration(the “IDB Exemption”) for any security that is an industrial development bond (“IDB”), as defined inSection 103(c)(2) of the Internal Revenue Code of 1954 (the “1954 Code”) and issued to providemanufacturing facilities or certain “exempt activities,” provided that the interest thereon is excludable fromgross income pursuant to Sections 103(c)(4) or 103(c)(6) of the 1954 Code, respectively.6 The IDB

7After the IDB Exemption was enacted, the subsections of Section 103 of the 1954 Code werere-lettered, so that Section 103(c)(2) became Section 103(b)(2), Section 103(c)(4) became Section103(b)(4), etc. The cross references to the 1954 Code in the IDB Exemption were never up-dated tothe reflect the re-numbering of the 1954 Code. However, the cross references in Section 3(a)(2) areinterpreted by practitioners to mean the re-lettered sections in Section 103 of the 1954 Code.

8See, for example, Tooele County, SEC No Action Letter (August 30, 1989).

9See Tooele County, SEC No Action Letter (August 30, 1989).

6

Exemption does not apply to IDB’s issued to provide “projects for residential rental property” underSection 103(c)(4)(A) of the 1954 Code or industrial parks.7

The term “industrial development bond” was used in the 1954 Code but was eliminated from theInternal Revenue Code of 1986 (“1986 Code”) and replaced with the concept of the private activity bond(“Private Activity Bond” or “Private Activity Bonds”). The IDB Exemption under Section (3)(a)(2) hasnot been amended to make a corresponding change, but following the adoption of the 1986 Code, the SEChas taken the position that the words “private activity bond” should be substituted for the words “industrialdevelopment bond” under Section 3(a)(2).8

The SEC has also taken the position that the references in Section 3(a)(2) to 1954 Code Sections103(c)(4) and 103(c)(6) should be read to mean the corresponding successor provisions under the 1986Code, as amended from time to time. For example, tax-exempt bonds issued to provide “exemptactivities” under Section 103(c)(4) of the1954 Code have been construed to include “exempt facilitybonds” issued to provide “qualified hazardous waste facilities” under Section 142(a) of the 1986 Code.9

Thus, under the IDB Exemption, Private Activity Bonds under the 1986 Code that are issued toprovide either: (1) manufacturing facilities, as defined in Section 144 of the 1986 Code, or (2) “exemptfacilities” under Section 142(a) of the 1986 Code (other than “qualified residential rental projects”) are

10In addition to qualified residential rental projects, under current law exempt facility bonds maybe issued under Section 142 of the 1986 Code to provide airports, docks and wharves, mass commutingfacilities, facilities for the furnishing of water, sewage facilities, solid waste disposal facilities, facilities forthe local furnishing of electric energy or gas, local district heating or cooling facilities, qualified hazardouswaste facilities, high-speed intercity rail facilities and environmental enhancements of hydroelectricgenerating facilities.

11Even though IDB’s (now, Private Activity Bonds) issued to provide residential rental propertydescribed in Section 103(c)(4)(A) of 1954 Code are not covered by the IDB Exemption, practitionersroutinely take the position that both tax-exempt and taxable Private Activity Bonds issued to providequalified residential rental projects under the Section 142(d) of the 1986 Code are exempt from registrationpursuant to the General Exemption, in reliance upon a series of SEC no-action letters in which, by reasonof the public purpose of the financing and the control of the project by the issuer, the project is determinedto be a public project owned and operated by or on behalf of and under the control of a governmental unitwithin the meaning of SEC Rule 131(b)(2). See, for example, Kidder Peabody & Co., Incorporated, SECNo-Action Letter (January 3, 1984).

12Section 3(a)(2) provides an exemption from registration for any “security issued or guaranteedby any bank” and defines “bank” to include “any national bank, or any banking institution organized underthe laws of any state..., the business of which is substantially confined to banking and is supervised by thestate...banking commission...” The domestic branch of a foreign bank may also qualify as a “bank” underSection 3(a)(2). See III. The Effects of NSMIA, 3. Securities Issued or Guaranteed by Any Bank, infra.

7

exempt from registration under Section 3(a)(2) pursuant to the IDB Exemption, provided that the intereston such Private Activity Bonds is excludable from gross income for federal income tax purposes.10, 11

However, taxable Private Activity Bonds issued to provide manufacturing facilities, as defined inSection 144 of the 1986 Code, or “exempt facilities” under Section 142(a) of the 1986 Code (other than“qualified residential rental projects”) (collectively, “Taxable IDB’s”) are not exempt from registration underSection 3(a)(2) and do not constitute covered securities.

Taxable IDB’s have special problems involving state and federal registration requirements, asdiscussed below under the heading “The Special Problems of Taxable IDB’s.”

(c) Bank Guaranty Exemption. Finally, municipal securities may be exemptfrom registration under Section 3(a)(2) as securities “guaranteed by any bank” (the “Bank GuarantyExemption”).12

Typically in such transactions, the payment of the principal of and interest on the municipal securitiesis secured by a direct-pay letter of credit issued by a state or national bank or a by a qualifying domesticbranch of a foreign bank, in an “available amount” equal to the full principal amount of the obligations plus

13See generally, NATIONAL ASSOCIATION OF BOND LAWYERS, FUNDAMENTALS OF MUNICIPAL

BONDS (SECURITIES LAW), Chapter II.A.2. (2000); Steven L. Clark, Taxable Municipal Bonds: AWorking Guide to Federal Securities Law Considerations, 7 MUNICIPAL FINANCE JOURNAL 183, 185-186 (1986); and Securities Issued or Guaranteed by Branches or Agencies of Foreign Banks, SecuritiesAct of 1933 Release No. 33-6661 (September 23, 1986).

14Rule 506 provides an exemption from registration for limited offers and sales without regard tothe dollar amount of the offering. Rule 506(b)(1) provides that offers and sales that qualify under Rule 506must satisfy all the terms and conditions of Rules 501 (Definitions and Terms Used in Regulation D) and502 (General Conditions to Be Met).

Regulation D also includes Rules 504 and 505, which were promulgated pursuant to Section 3(b)of the Securities Act. Section 3(b) of the Securities Act provides that the Securities and ExchangeCommission may, from time to time by its rules and regulations and subject to such terms and conditionsas may be prescribed therein, add any class of securities to the securities exempted from registration underSection 3, if it finds that the enforcement of the Securities Act is not necessary in the public interest and forthe protection of investors by reason of the small amount involved or the limited character of the offering,provided that the aggregate amount of the issue does not exceed $5,000,000.

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accrued interest. The payment of the purchase price, if applicable, upon mandatory or optional tender, mayalso be covered by the letter of credit.13 This exemption is available regardless of whether the interest onthe municipal securities is tax-exempt.

3. Exemption from Registration Under Rule 506 of Regulation D. Municipalsecurities that are exempt from registration under Rule 506 of Regulation D are also covered securities.Covered security status pursuant to Rule 506 does not depend upon the issuer’s location and, thus, canprovide an exemption from registration for municipal securities in the state in which they are issued. Theexemption from registration pursuant to Rule 506 also does not depend upon whether the interest on thesecurities in question is tax-exempt. Rule 506 provides an additional means of achieving covered securitystatus and a Securities Act exemption from registration for Taxable IDB’s.14

4. The Special Problems of Taxable IDB’s. Taxable IDB’s issued by out-of-stateissuers that do not qualify for an exemption from registration under the General Exemption, the BankGuaranty Exemption or under Rule 506 are not covered securities and are subject to compliance with stateregistration requirements, unless the transaction by which they are offered and sold qualifies as an exempttransaction under state law. States may also regulate the content of the offering documents for TaxableIDB’s that are not covered securities.

Taxable IDB’s that do not qualify for an exemption from registration under the General Exemption,the Bank Guaranty Exemption or Rule 506 must also comply with the registration requirements of Section

15For a general discussion of the private placement exemption under Section 4(2), see LOUIS LOSS

AND JOEL SELIGMAN, FUNDAMENTALS OF SECURITIES REGULATION 307-313 (3rd ed. 1994).

16Section 18(b)(4)(C).

17Section 18(c)(2)(A).

18Section 18(b)(4)(D).

19Section 18(c)(2)(B)(i).

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5 of the Securities Act, unless the transaction in which they are offered and sold qualifies for an exemptionfrom registration under Rules 504 or 505 or as a “statutory private placement” under Section 4(2).15

C. State Requirements Not Pre-empted by NSMIA.

NSMIA’s amendments to Section 18 did not pre-empt the following blue sky requirementsapplicable to the sale of municipal securities:

1. For municipal securities that are exempt from registration under Section 3(a), astate may impose securities registration, offering document restrictions and conditions upon sale, basedupon the merits of the offering or issuer, upon the sale of municipal securities by issuers located within itsboundaries.16

2. A state securities commission may impose a notice filing requirement upon the saleof covered securities. Such a filing may include the filing of any document filed with the SEC, together withannual or periodic reports of the value of the securities offered or sold to persons located in the state, solelyfor notice purposes, together with a consent to service of process and any required fee.17

3. A state may impose on the sale of covered securities that are exempt fromregistration under SEC rules and regulations promulgated pursuant to Section 4(2) (i.e., Rule 506 ofRegulation D), notice filing requirements that are substantially similar to those required by Regulation D asof September 1, 1996.18

4. Unless otherwise provided by state law (for example, by a blue sky law amendmentthat grants an exemption from registration for covered securities), filing or registration fees with respect tosecurities or securities transactions in amounts determined pursuant to state law as in effect on October10, 1996 (the day before the effective date of NSMIA) shall continue to be collected.19

20Section 18(c)(3).

21Section 18(c)(1).

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5. A state securities commission may suspend the offer or sale of securities within itsboundaries because of the failure to submit any filing or fee required under state law and permitted bySection 18 (i.e., the filings and fees described in subparagraphs 2., 3. and 4. above).20

6. A state securities commission (or any agency or officer performing like functions)shall retain jurisdiction to investigate and bring enforcement actions with respect to fraud and deceit, orunlawful conduct by a broker or dealer, in connection with securities and securities transactions.21

As discussed more fully in Part III. The Effects of NSMIA, infra, many states have imposed noticefiling requirements of the types outlined in paragraphs 2. and 3. above.

III. THE EFFECTS OF NSMIA.

The purpose of Part III is to describe generally the effects of NSMIA on blue sky law requirementsapplicable to municipal securities. Analyses of each state’s blue sky laws and statutory and regulatorycitations are set forth in Part IV.

A. Amendments to State Blue Laws to Codify NSMIA Provisions and Imposition of Notice Filing Requirements.

One of the major effects of NSMIA was to prompt states to adopt amendments to their blue skylaws that codified NSMIA’s provisions.

When NSMIA became effective in 1996, many states’ blue sky laws were based upon the UniformSecurities Act of 1956 (the “1956 Act”), which had been promulgated by the National Conference ofCommissioners on Uniform State Laws (“NCCUSL”). In 1997, in response to the enactment of NSMIA,NCCUSL promulgated amendments to the Uniform Securities Act of 1956 (the “1997 Amendments”),which codified many of NSMIA’s provisions. Most states that had enacted the 1956 Act enacted the1997 Amendments.

The provisions of the 1997 Amendments that concern municipal securities are those that (1)provide a definition of and separate exemption from registration for covered securities and (2) authorizethe state’s securities commission to impose notice filing requirements on covered securities, includingcovered securities that derive their exemption from federal registration under Section 3(a)(2) of theSecurities Act (i.e., the General Exemption, the IDB Exemption and the Bank Guaranty Exemption) andthose that derive their exemption from federal registration under Rule 506.

22See also II. Section 18 of the Securities Act., B. Covered Securities, 4. The Special Problemsof Taxable IDB’s, supra.

23For a more detailed discussion of dual track blue sky analysis, see Thomas N. Harding, DualTrack Blue Sky Analysis for Municipal Securities As a Way to Get to No-Action Land, THE BOND

LAWYER, September 1, 2004 issue.

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In response to NSMIA, many states proceeded to impose notice filing requirements on one or bothtypes of covered securities, either as a result of their enactment of the 1997 Amendments or pursuant toother rule-making authority contained in their blue sky laws.

The states which have imposed notice filing requirements on municipal securities that derive theircovered security status pursuant to Section 3(a)(2) of the Securities Act are: Arizona, Montana, ̂ Nevada,New Hampshire, New Mexico, New York, North Dakota, Ohio, Washington and Wisconsin. This typeof notice filing is the important one, since virtually all municipal bonds rely upon Section 3(a)(2) of theSecurities Act for their covered security status and an exemption from federal registration.

The states which have imposed noticed filings on Rule 506 offerings are: Alabama, Alaska,Arkansas (but only on out-of-state issuers), Alaska, California, Connecticut, Delaware, Georgia, Idaho,^, Kansas, Kentucky, Maine, Massachusetts, Minnesota, Mississippi, Missouri, Nebraska (but only onout-of-state issuers), Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, NorthDakota, Oklahoma, South Carolina, Tennessee, Utah, Vermont, Wisconsin and Wyoming.

Municipal securities that rely upon Rule 506 for their exemption from federal registration andcovered security status are extremely rare. An example of such a municipal security would be a taxableindustrial development bond that is not secured by a qualifying letter of credit under the Bank GuarantyExemption.22

Rule 506 offerings of municipal securities are extremely rare, because underwriters are rarely willingto underwrite an issue of municipal securities that is burdened with the requirements of a private placement.In addition, as mentioned the immediately preceding paragraph, the need for a private placement underRule 506 usually arises in connection with the issuance of a taxable industrial development bond, but thisneed can be avoided by securing the issue with a letter of credit that qualifies under the Bank GuarantyExemption (which exemption, among other things, does not require that the bonds in question betax-exempt).

B. Dual Track Blue Sky Analysis.23

Another major effect of NSMIA was the introduction of what I refer to as dual track blue skyanalysis.

24See, for example, Section 301 of the Uniform Securities Act of 1956.

25In any particular state, this alternative non-registration means of compliance arises either becausethe state has enacted the 1997 Amendments to its blue sky law or because the state has enacted theUniform Securities Act of 2002, which contains both non-registration means of compliance (see F. UniformSecurities Act of 2002, infra) or simply because of the pre-emptive nature of NSMIA.

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The general approach of state blue sky laws is that it is illegal to offer and sell an issue of securitiesin the state in question unless the issue (1) is registered, or (2) qualifies for an exemption from registrationas an exempt security or an exempt transaction.24 Since the enactment of NSMIA and its partialpre-emption of state blue laws, there is now a second, alternative means of blue sky law compliance thatdoes not involve registration, namely, the security in question constitutes a covered security, as defined byNSMIA, provided that the applicable notice filing, if any, is satisfied.25

The gist of dual track blue sky analysis is to ask two questions; namely, for the municipal securitiesin question:

(1) what is the result under each state’s blue sky law without taking NSMIA into account (i.e.,traditional blue sky analysis), and

(2) to the extent that some form of action is required pursuant to question (1), what is the resultafter applying NSMIA’s provisions?

If traditional blue analysis for a particular state’s blue sky law reveals that no action needs to betaken in that state for the issue in question, then it is unnecessary to consider the effect of NSMIA on thatissue, including any notice filing requirement that the state may have imposed on covered securities.

If, however, traditional blue sky analysis indicates that some form of action needs to be taken, thenone must also determine what is the result after applying NSMIA’s provisions. The final step in the analysisis compare the two outcomes and choose the less burdensome outcome as the means of compliance.

In general, when traditional blue sky analysis indicates that action needs to be taken, the actionrequired is usually registration. In general, the result after applying NSMIA is either a notice filing or noaction at all (since some states have not imposed notice filing requirements). And, therefore, generallyspeaking, compliance with NSMIA’s provisions is usually the less burdensome course.

But not always. For example, filing the New York Form 103 (which is a condition for anexemption from registration) is actually less burdensome than filing the New York Form 99 (which is notice

26These forms are discussed in more detail in D. Other Changes 3. New York and Part IV. StateAnalyses - New York, infra.

27For example, pursuant to unpublished administrative policy, not-for-profit entities that qualify foran exemption under Chapter 135, Section 10502.1.J., Maine Revised Statutes Annotated, as amended(including an entity that is exempt from federal income taxes under Section 501(c)(3) of the 1954 Code),are not treated as “commercial enterprises” under Chapter 135, Section 10502.1.A., Maine RevisedStatutes Annotated, as amended. The unpublished, administrative position of the North Dakota securitiescommissioner is that single family mortgage revenue bonds and student loan bonds are exempt fromregistration. On the other hand, Section 460-42A-020, Washington Administrative Code, Securities Rules,as amended, provides that the term “industrial or commercial enterprise” includes, but is not limited to, aprivate profit or nonprofit hospital, health care facility, college, university or educational institution, singleor multi-family mortgage loan program, port authority concessionaire or manufacturing or service business.The Washington Securities Division has not taken a position as to whether student loan bonds are exemptfrom registration. As to the other states described above, see generally the state analyses in Part IV. StateAnalyses.

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filing promulgated in response to NSMIA).26 In addition, while a notice filing under NSMIA is usually lessburdensome than a registration, even a notice filing under NSMIA may be more burdensome than anunderwriter cares to tolerate. For example, the notice filing fee in New Hampshire can easily reach $1,250;an underwriter may decide to forego sales to the public when faced with paying a fee in this amount.

The rest of this paper is devoted to exploring the results under traditional blue sky analysis and aftertaking NSMIA’s provisions into account.

C. Changes In Registration Requirements for Industrial or Commercial Enterprise/Industrial Development Bonds .

1. Industrial or Commercial Enterprise/Industrial Development Bond States.

Under statutory provisions enacted prior to NSMIA, in Maine, ̂ Montana, New Mexico, NorthDakota, Rhode Island and Washington, municipal securities payable solely from payments to be receivedin respect of property or money used under a lease, sale or loan arrangement by or for a nongovernmentalindustrial or commercial enterprise are subject to registration. There is substantial variation among thesestates as to whether the requirement for registration extends beyond IDB’s to include 501(c)(3) bonds,student loan bonds, single family mortgage bonds and multifamily housing revenue bonds.27

In addition, under statutory provisions enacted prior to NSMIA, in New Hampshire, municipal

securities classified as “industrial development bonds” and in Vermont, municipal securities classified as“industrial revenue bonds” or “industrial development bonds” are subject to registration. The New

28In addition, in New Hampshire, not all obligations of in-state issuers of industrial bonds aresubject to registration, because the definition of “industrial bond” excludes a “a general obligation of agovernmental unit having the power to tax property or an agency of the State of New Hampshire.” SeeSection 421-B:2(VII), New Hampshire Revised Statutes Annotated, 1955, as amended and Part IV.,State Analyses, New Hampshire, infra.

29Title, 9, Chapter 131, Sections 4203a(1) and 4203(a)(9), Vermont Statutes Annotated, asamended.

30 For example, in Maine, an exemption from registration is available if the payments on theIndustrial or Commercial Enterprise/Industrial Development Bonds are guaranteed by certain banks, creditunions or insurance companies, by qualified utilities, by a person whose securities are listed on certainstock exchanges (with certain exceptions) or by certain Canadian government entities or any foreigngovernment with which the United States currently maintains diplomatic relations if the security is recognizedas a valid obligation by the issuer, insurer or guarantor. See Chapter 135, Section 10502.1.A., MaineRevised Statutes Annotated, as amended.

14

Hampshire blue sky law and regulations give no guidance as to whether the requirement for registrationextends beyond IDB’s.28 In Vermont, industrial revenue bonds and industrial development bonds do notinclude any issue for which substantially all of the proceeds are to be used to finance student or othereducation loans or single family residential mortgage loans or if the securities commissioner finds, by ruleor order, that registration with respect to such securities is not necessary to further the public interest andprotect investors.29

The foregoing municipal securities are hereinafter collectively referred to as “Industrial orCommercial Enterprise/Industrial Development Bonds,” and the foregoing states are hereinafter collectivelyreferred to as the “Industrial or Commercial Enterprise/Industrial Development Bond States.”

The blue sky laws of the Industrial or Commercial Enterprise/Industrial Development Bond Statesprovide various exemptions from registration for Industrial or Commercial Enterprise/IndustrialDevelopment Bonds. These exemptions from registration are not uniform among the Industrial orCommercial Enterprise/Industrial Development Bond States, but the following are the general types ofexemptions that can often be found in these states after appropriate research:

(i) the underlying industrial or commercial enterprise is of a type whose securities are exempt fromregistration under another provision of state blue sky law,30

(ii) the municipal securities can be characterized as “guaranteed by a bank” (under a separate stateblue sky law exemption from registration for bank securities), because the Industrial or CommercialEnterprise/Industrial Development Bonds in question are secured by a bank letter of credit in the amount

31See MILLER, supra, note 1, at 24-25.

32See, for example, Part IV., State Analyses, Washington, infra.

33See I. Introduction, A. Background - Blue Sky Laws and Blue Sky Memoranda, supra.

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of the outstanding principal of and accrued interest on the Industrial or Commercial Enterprise/IndustrialDevelopment Bonds,31

(iii) the Industrial or Commercial Enterprise/Industrial Development Bonds in question have aspecified rating,32 or

(iv) the offer and sale of the Industrial or Commercial Enterprise/Industrial Development Bonds inquestion qualifies as an exempt transaction.33

Industrial or Commercial Enterprise/Industrial Development Bonds that do not qualify for a stateblue sky law exemption from registration under traditional blue sky analysis are hereinafter referred to as“Registrable Industrial or Commercial Enterprise/Industrial Development Bonds.”

In the Industrial or Commercial Enterprise/Industrial Development Bond States, the effects ofNSMIA on Registrable Industrial Enterprise/Industrial Development Bonds are:

(a) Tax-exempt Registrable Industrial or Commercial Enterprise/IndustrialDevelopment Bonds that are issued by in-state issuers and exempt from Securities Act registrationpursuant to the IDB Exemption under Section 3(a)(2), if offered or sold in the issuer’s state, andall Registrable Industrial or Commercial Enterprise/Industrial Development Bonds that are issuedby in-state issuers and exempt from Securities Act registration pursuant to the General Exemptionor the Bank Guaranty Exemption under Section 3(a)(2), regardless of their tax status, if offered orsold in the issuer’s state, remain subject to state registration (because such Bonds are not coveredsecurities under Section 18(b)(4)(C)).

(b) Tax-exempt Registrable Industrial or Commercial Enterprise/IndustrialDevelopment Bonds that are issued by out-of-state issuers and exempt from Securities Actregistration pursuant to the IDB Exemption under Section 3(a)(2) and all Registrable Industrial orCommercial Enterprise/Industrial Development Bonds that are issued by out-of-state issuers andexempt from Securities Act registration pursuant to the General Exemption or the Bank GuarantyExemption under Section 3(a)(2), regardless of their tax status, are exempt from state registration(because such Bonds are covered securities under Section 18(b)(4)(C)); however, in ^ Montana,New Hampshire, New Mexico, North Dakota and Washington, such Registrable Industrial or

34In New Hampshire, Montana and Washington, the notice filing requirements include the filing ofa consent to service of process. In New Hampshire, the consent to service of process is not required ifthe municipal securities are being sold on a “firmly underwritten basis” by a New Hampshire licensedbroker-dealer. In Montana and Washington, the consent to service of process must be signed by an officerof the issuer. Issuers invariably refuse to sign consents to service of process, which makes it impossibleto comply with the notice filing requirements of these two states.

35The notice requirement for Rule 506 offerings will no longer be in effect in Maine, beginningJanuary 1, 2006, and in Vermont, beginning, July 1, 2006. See III. The Effects of NSMIA, B. Exemptionsfrom State Registration Retained But Notice Filings Are or May Be Imposed on Rule 506 offerings, supra,and III. The Effects of NSMIA, F. Uniform Securities Act of 2002, infra.

16

Commercial Enterprise/Industrial Development Bonds must comply with certain notice filingrequirements.34

(c) Registrable Industrial or Commercial Enterprise/Industrial DevelopmentBonds that are exempt from Securities Act registration pursuant to Rule 506 of Regulation D,regardless of their tax status or the issuer’s location (for example, a Taxable IDB that is offered incompliance with Rule 506 of Regulation D), are exempt from state registration (because suchBonds are covered securities under Section18(b)(4)(D)); however, in Maine, Minnesota, Montana,New Hampshire, New Mexico, North Dakota and Vermont, such Registrable Industrial orCommercial Enterprise/Industrial Development Bonds must comply with certain notice filingrequirements applicable to Rule 506 offerings.35

(d) Registrable Industrial or Commercial Enterprise/Industrial DevelopmentBonds that are exempt from Securities Act registration pursuant to Rules 504 or 505 of RegulationD or pursuant to a “statutory private placement” under Section 4(2) or that have been registeredunder Section 5, regardless of their tax status or the issuer’s location, are subject to stateregistration (in each case because such Bonds do not constitute covered securities under eitherSection 18(b)(4)(C) or 18(b)(4)(D)).

The notice filing requirements for the states described in paragraphs (b) and (c) above aresummarized in Part IV., State Analyses. In many instances, the notice filing includes a consent to serviceof process and the payment of a filing fee. Depending on the jurisdiction, the filing fee may exceed $1,000.

Arizona, Texas and Wisconsin have enacted amendments to their respective blue sky laws thatdiffer from the blue sky law amendments of the Industrial or Commercial Enterprise/Industrial DevelopmentBond States, as described below.

2. Arizona.

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A. Section 44-1843.A.1., Arizona Revised Statutes, as amended, provides anexemption from registration for “securities issued or guaranteed by the United States, or by any state,territory or insular possession thereof, or by any political subdivision of such state, territory or insularpossession, or by the District of Columbia, or by any agency or instrumentality of one or more of any ofthe foregoing.” This exemption from registration does not apply to securities regulated pursuant to Section44-1843.01, Arizona Revised Statutes, as amended.

B. Section 44-1843.01.A., Arizona Revised Statutes, as amended, provides that:

(i) the following municipal securities, when issued by an Arizona issuer (collectively, “RegistrableArizona Bonds”), are subject to state registration, unless the requirements of paragraph C. are met, and

(ii) the following municipal securities that are described as covered securities under Section18(b)(4)(C) of the Securities Act of 1933, as amended, shall satisfy the requirements of paragraph D.below:

(a) “industrial development bonds” (as defined in the 1954 Code), other than suchbonds issued to provide residential real property for family units, airports, docks, wharves, masscommuting facilities, parking facilities, sewage or solid waste disposal facilities, air or waterpollution control facilities, or facilities for the furnishing of water if available on reasonable demandto members of the general public;

(b) bond anticipation notes authorized pursuant to title 48, chapter 6, article 1, ArizonaRevised Statutes, as amended;

(c) improvement district bonds authorized pursuant to title 48, chapter 6, article 2,Arizona Revised Statutes, as amended;

(d) bonds of issuers located outside the state secured only by special assessments; and

(e) securities of public subdivisions used to provide monies to finance the acquiring,constructing, improving, equipping or furnishing of medical office buildings, sanitariums, clinics,medical hotels, mortuaries, cemeteries, mausoleums, rest homes, nursing homes, skilled nursingfacilities or other similar facilities for use by corporations or entities other than municipal whichbonds or notes are not fully secured by an entity owning or operating, repurchasing or leasing ahospital from a political subdivision.

C. Section 44-1843.01.B., Arizona Revised Statutes, as amended, provides thatRegistrable Arizona Bonds are not subject to registration if a notice of the proposed offering, trustindenture, a $200 filing fee and official statement containing required disclosures are filed with the state

36Recall that a covered security under Section 18(b)(4)(C) includes a municipal security that isissued by an out-of-state issuer and exempt from registration under Section 3(a) (i.e., exempt fromregistration pursuant to the General Exemption, the IDB Exemption or the Bank Guaranty Exemption).

18

securities commission and the exemption from registration is not denied within 20 days of receipt by thestate securities commission.

D. Section 44-1843.01.C., Arizona Revised Statutes, as amended, provides thatmunicipal securities of the types described in the above paragraphs B.(a) through B.(e) that are alsocovered securities under Section 18(b)(4)(C)36 are subject to a notice filing requirement consisting of acover letter that describes the offering to be made in Arizona, any documents that are filed with the SECand that are required by the commission, and a filing fee of $200.

E. Section 44-1843.02.C., Arizona Revised Statutes, as amended, provides thatissuers of securities that are described as covered securities in Section 18(b)(4)(D) (i.e., municipalsecurities that are offered and sold in a transaction that qualifies under Rule 506 of Regulation D) shall filewith the Arizona Securities Commission a notice on Form D and an initial filing fee of $250.

F. Section 44-1843.02.A., Arizona Revised Statutes, as amended, provides that anyadvertising or sales material, other than notices required by law to be published or posted, used inconnection with offers or sales to the public of any securities to which Section 44-1843.01.A. applies (i.e.,the securities described in paragraph B. above) shall be filed with the Arizona Securities Division threebusiness days before its proposed use.

G. The Arizona Corporation Commission has issued several no-action letters relatedto the above statutory provisions. These no-action letters are summarized in Part IV., State Analyses -Arizona.

H. As a result of the foregoing:

(a) Registrable Arizona Bonds issued by Arizona issuers, if offered or sold in Arizona,regardless of their tax status, are subject to state registration (because such bonds are not coveredsecurities), unless: (1) subparagraph (c) below applies, (2) a notice of the proposed offering, trustindenture, filing fee and official statement containing required disclosures are filed with the statesecurities commission and the exemption from registration is not denied (see paragraph C. above),or (3) the transaction qualifies as an exempt transaction under Section 44-1844, Arizona RevisedStatutes;

(b)(1) Tax-exempt municipal securities of the types described in the above paragraphsB.(ii)(a) through B.(ii)(e) that are issued by out-of-state issuers and exempt from Securities Act

19

registration pursuant to the IDB Exemption under Section 3(a)(2) and (2) municipal securities ofthe types described in the above paragraphs B.(ii)(a) through B.(ii)(e) that are issued byout-of-state issuers and exempt from Securities Act registration pursuant to the General Exemptionor the Bank Guaranty Exemption under Section 3(a)(2), regardless of their tax status, are exemptfrom state registration (because such bonds are covered securities under Section 18(b)(4)(C)), butmust comply with state notice filing requirements summarized in paragraph D. above;

(c) Municipal securities of the types described in the above paragraphs B.(a) through B.(e),

regardless of their tax status and the issuer’s location, that are exempt from Securities Actregistration pursuant to Rule 506 of Regulation D are exempt from state registration (because suchmunicipal securities are covered securities under Section 18(b)(4)(D)), but must comply with statenotice filing requirements applicable to Rule 506 transactions summarized in paragraph E. above;and

(d) Municipal securities of the types described in the above paragraphs B.(a) through B.(e),regardless of their tax status, that are issued by out-of-state issuers and exempt from registrationunder the Securities Act pursuant to Rules 504 or 505 of Regulation D or pursuant to a “statutoryprivate placement” under Section 4(2) or that have been registered under Section 5 are exemptfrom state registration and no notice filings are required.

3. Texas. Prior to NSMIA, municipal securities were exempt from state registration,except that pursuant to Chapter 135, Texas Blue Sky Regulations, certain “industrial development bonds”were subject to registration. After NSMIA, Texas has repealed the Chapter 135 registration requirementso that now all municipal securities are exempt from registration.

4. Wisconsin. The state’s blue sky law provides that any municipal security thatis payable from payments to be made in respect of property or money used under a lease, sale or loanarrangement by or for a nongovernmental industrial or commercial enterprise, other than bonds that aresecured by a qualifying letter of credit or bonds that satisfy the requirements of Wisconsin Department ofFinancial Institution (“DFI”) rules, are subject to registration (“Registrable Wisconsin Conduit Bonds”).Pursuant to the requirements set forth in various interpretive opinions, municipal securities that are securedby payments made by organizations described in Section 501(c)(3) of the 1986 Code and student loanbonds do not constitute Registrable Wisconsin Conduit Bonds. DFI provides an extensive on-lined i s c u s s i o n o f e x e m p t i o n s a v a i l a b l e f o r m u n i c i p a l s e c u r i t i e s a twww.wdfi.org/fi/securities/regexemp/exemptions under the heading “Government-Issued Securities.”

DFI rules provide for an exemption from registration if the enterprise is a public utility or if itssecurities are listed on a national stock exchange or if a notice of the offering (including a trust indenture,official statement and financial statements meeting certain requirements) is filed with the WisconsinSecurities Division.

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The state’s blue sky law amendments in response to NSMIA (1) provide a separate exemptionfrom registration for covered securities, (2) with respect to any security that is a covered security underSection 18(b)(4)(D) (for example, a Taxable IDB that is offered in compliance with Rule 506 of RegulationD), authorize the division, by rule or order, to require the issuer to file a notice on SEC Form D and thepayment of a filing fee and (3) authorize the division, by rule or order, to require the filing of any documentfiled with the SEC under the Securities Act with respect to any covered security under Section 18(b)(4)and the payment of a filing fee.

DFI rule amendments in response to NSMIA provide that with respect to a covered security thatis a revenue obligation of the type described above, that is issued by a non-Wisconsin issuer and that wouldhave required a filing with the Division, the issuer or a person acting on behalf of the issuer shall file a noticeidentifying the issue and a $200 fee.

In Wisconsin, the effects of NSMIA on Registrable Wisconsin Conduit Bonds are:

(a) Registrable Wisconsin Conduit Bonds issued by Wisconsin issuers, ifoffered or sold in Wisconsin, regardless of their tax status, are subject to state registration (becausesuch bonds are not covered securities), unless: (1) subparagraph (c) below applies, (2) the bondsare secured by a qualifying letter of credit, (3) the bonds satisfy the requirements of DFI rules or(4) the transaction qualifies as an exempt transaction under the state blue sky law.

(b) (1) Tax-exempt Registrable Wisconsin Conduit Bonds issued byout-of-state issuers that are exempt from Securities Act registration pursuant to the IDB Exemptionunder Section 3(a)(2) and that previously would have required a filing with the state securitiesdivision and (2) Registrable Wisconsin Conduit Bonds issued by out-of-state issuers, regardlessof their tax status, that are exempt from Securities Act registration pursuant to the GeneralExemption or the Bank Guaranty Exemption under Section 3(a)(2) and that previously would haverequired a filing with the state securities division are exempt from state registration (because suchbonds are covered securities under Section 18(b)(4)(C)), but must comply with state notice filingrequirements.

(c) Registrable Wisconsin Conduit Bonds, regardless of their tax status and

the issuer’s location, that are exempt from Securities Act registration pursuant to Rule 506 ofRegulation D and that previously would have required a filing with the state securities division areexempt from state registration (because such bonds are covered securities), but must comply withstate notice filing requirements.

(d) Registrable Wisconsin Conduit Bonds, regardless of their tax status andthe issuer’s location, that are exempt from registration under the Securities Act pursuant to Rules504 or 505 of Regulation D or pursuant to a “statutory private placement” under Section 4(2) orthat have been registered under Section 5 are subject to state registration (in each case because

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such bonds do not constitute covered securities), unless: (1) the bonds are secured by a qualifyingletter of credit, (2) the bonds satisfy the requirements of DFI rules or (3) the transaction qualifiesas an exempt transaction under the state blue sky law.

D. Other Changes.

1. Conditions for Exemption. Under statutory provisions enacted prior to NSMIA,the following states impose the following conditions on the state exemption from registraton:

(a) In Florida, municipal securities are exempt from registration, except thatno person shall offer securities, other than general obligation bonds, if the issuer or guarantor has been indefault at any time after December 31, 1975 with respect to principal and interest, except by an offeringcircular containing a full and fair disclosure as prescribed by rule of the Florida Department of Banking andFinance.

(b) In Ohio, municipal securities are exempt from registration; except thatmunicipal securities not payable out of proceeds of a general tax are exempt only if at the time of the firstsale in Ohio there is no default in the payment of any interest or principal of the security and there are noadjudications or pending suits adversely affecting validity.

(c) In Wisconsin, financial statements for issuers of general obligation must debtbe prepared in accordance with generally accepted accounting principles or in accordance with WisconsinDepartment of Financial Institution rules. Wisconsin law also imposes certain requirements with respectto trust indenture, official statement and financial statements for certain issues of municipal securitiespayable from payments made under a lease, sale or loan arrangement by or for a nongovernmentalindustrial or commercial enterprise.

After NSMIA, states may not impose any conditions, based upon the merits of the offering or theissuer, on the offer or sale of any covered security.

Thus, as a result of NSMIA, in Florida the merit condition for exemption described in subparagraph(a) above does not apply to: (1) municipal securities that are (i) issued by out-of-state issuers and (ii)exempt from registration pursuant to the General Exemption, the IDB Exemption or the Bank GuarantyExemption, and (2) municipal securities that are exempt from registration pursuant to Rule 506, regardlessof their tax status or the issuer’s location (in each case because such municipal securities are coveredsecurities).

The Florida merit condition for exemption described in subparagraph (a) above applies to: (1)municipal securities issued by Florida issuers, if offered or sold in Florida, regardless of their tax status(unless the issue is exempt from registration pursuant to Rule 506), and (2) municipal securities that areexempt from registration pursuant to Rules 504 or 505 of Regulation D or pursuant to a “statutory private

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placement” under Section 4(2) or that have been registered under Section 5, regardless of their tax statusor the issuer’s location (in each case because such municipal securities are not covered securities).

Similarly, after NSMIA, in Ohio and Wisconsin, the merit conditions described in subparagraphs(b) and (c) above, respectively, do not apply to: (1) municipal securities that are (i) issued by out-of-stateissuers and (ii) exempt from registration pursuant to the General Exemption, the IDB Exemption or theBank Guaranty Exemption, and (2) municipal securities that are exempt from registration pursuant to Rule506, regardless of their tax status or the issuer’s location (in each case because such municipal securitiesare covered securities).

Similarly, after NSMIA, in Ohio and Wisconsin, the merit conditions described in subparagraphs(b) and (c) above, respectively, apply to: (1) municipal securities issued by in-state issuers, if offered or soldin the issuer’s state, regardless of their tax status (unless the issue is exempt from registration pursuant toRule 506 of Regulation D), and (2) municipal securities that are exempt from registration pursuant to Rules504 or 505 of Regulation D or pursuant to a “statutory private placement” under Section 4(2) or that havebeen registered under Section 5, regardless of their tax status or the issuer’s location (in each case becausesuch municipal securities are not covered securities).

2. Offering Documents. Section 609.010, Pennsylvania Blue Sky Regulations,imposes ^ certain restrictions on the use of financial forecasts in connection with the offering ofsecurities that are registered under Sections 205 and 206 of the Pennsylvania Securities Act of1972 or that are exempt from registration under Sections 202(a) or 203(d) of the PennsylvaniaSecurities Act of 1972.

After NSMIA, states may not impose any conditions on the use of any offering document for acovered security.

Thus, after NSMIA, in Pennsylvania the above described ^ offering document conditions ^relating to the use of financial forecasts do not apply to: (1) offering documents for municipal securitiesthat are (i) issued by out-of-state issuers and (ii) exempt from registration pursuant to the GeneralExemption, the IDB Exemption or the Bank Guaranty Exemption, and (2) offering documents for municipalsecurities that are exempt from registration pursuant to Rule 506, regardless of their tax status or theissuer’s location (in each case because such municipal securities are covered securities).

^ In addition, after NSMIA, the Pennsylvania offering document conditions described aboveapply to offering documents for municipal securities issued by Pennsylvania issuers, if offered or sold inPennsylvania, regardless of their tax status (unless the issue is exempt from registration pursuant to Rule506).

Finally, regardless of NSMIA and regardless of the issuer’s location, the Pennsylvania offeringdocument conditions also do not apply to municipal securities that are offered for sale in an exempttransaction, which could include, among others: (1) an offer to an institutional investor pursuant to Section

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203(c) of the Pennsylvania Securities Act of 1972, (2) an offer or sale of a security that is exempt fromregistration pursuant to Rule 505, provided that the issuer satisfies the conditions for the companion Rule505 exemption from registration in Section 203(s) of the Pennsylvania Securities Act of 1972, or (3) anoffer or sale to an accredited investor, as defined in SEC rules and regulations (including an offer or salethat is exempt from registration pursuant to Rule 504), provided that the issuer satisfies the conditions foran exemption from registration for sales to accredited investors, as set forth in Section 203(t) of thePennsylvania Securities Act of 1972.

3. New York. For years prior NSMIA, most underwriter’s counsel required that issuers ofmunicipal securities secured directly or indirectly by real estate (for example, a hospital revenue bond issuesecured by a mortgage on the hospital’s campus) file a Policy Statement 103 Application and a Notice ofAppearance with the New York Bureau of Real Estate Syndication, so that the municipal securities inquestion would be exempt from filing requirements under Section 359-e of the New York General BusinessLaw. In response to NSMIA, a notice filing (Form 99) may be used instead of the Policy Statement 103Application. The filing fee for both the Policy Statement 103 Application and the Form 99 is $300. Whena filing is required (see below), I recommend filing the Policy Statement 103 Application, which is the lessburdensome form.

Under Section 352-e of the New York General Business Law, these filing requirements apply tosecurities which “consist primarily of participation interests or investments in one or more real estateventures, including cooperative interests in realty...” Section 352-e also provides that the term real estatedoes not include “buildings, structures, land or other realty housing or containing business offices orindustry, owned or leased by the issuer, where the issuer is not primarily engaged in the business of buyingand selling such building or other realty or leases or interests therein.” The notice filing requirement shouldnot apply to financings in which a mortgage or other interest in real estate is meant simply as security forpayment. In addition, it would be highly unusual to find a bond issuer (and, by extension, a hospital) thatis “primarily engaged in the business of buying and selling such building or other realty or leases or intereststherein.” On the other hand, it is appropriate to file one of these forms in connection with an issue of singlefamily mortgage revenue bonds, where the debt service structure of the bonds is dependent upon andderived from the underlying mortgage loans purchased with the proceeds of the bonds or in connection withthe issuance of lease participation certificates, in which the holder owns an undivided interest in the rentalpayments under a lease.

E. Separate Securities.

1. Rule 131 and the IDB Exemption. Even though a conduit issue of municipalsecurities may qualify for an exemption from registration under the IDB Exemption, SEC Rule131 attemptsto require registration of the lease, sale or loan arrangement under which the conduit obligor agrees makepayments sufficient to the debt service on the municipal securities.

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SEC Rule 131 provides that any part of an obligation evidenced by an indebtedness issued by agovernmental unit specified in Section 3(a)(2) which is payable from payments made under a lease, saleor loan arrangement by or for an industrial or commercial enterprise shall be deemed a separate securityunder Section 2(1) issued by the lessee or obligor under the lease, sale or loan arrangement (therebyrequiring registration or a separate exemption from registration for such arrangement). However, anobligation will not be a separate security if:

(a) the obligation is payable from the general revenues of agovernmental unit having other resources which may be used for payment of theobligation,

(b) the obligation relates to a public project or facility owned andoperated by or on behalf of or under the control of a governmental unit, or

(c) the obligation relates to a facility which is leased to and under thecontrol of an industrial or commercial enterprise but is part of a public project,which, as a whole, is owned by and under the general control of a governmentalunit or an instrumentality thereof.

Subsequent to the promulgation of SEC Rule 131, the SEC in SEC Release No. 33-5103acknowledged that lease, sale or loan arrangements entered into in connection with tax-exempt IDB’s thatqualified under the IDB Exemption (i.e., tax-exempt IDB’s issued to provide manufacturing facilities or“exempt activities” pursuant to Sections 103(c)(4) or 103(c)(6) of the 1954 Code, other than “projectsfor residential rental property”) would not be deemed separate securities. Thus, the related lease, sale or loan arrangement under which the conduit industrial or commercialenterprise agrees to make payments sufficient to pay the debt service on tax-exempt Private ActivityBonds that are exempt from registration pursuant to the IDB Exemption is included within the IDBExemption and is not a separate security that requires its own exemption from registration. As noted under“IDB Exemption,” Private Activity Bonds that qualify under the IDB Exemption are covered securities.

2. Rule 131 and the General Exemption.

Unless the municipal securities qualify for an exemption from registration pursuant to the IDBExemption or unless one of the three exceptions to Rule 131 apply (as discussed under “Rule 131 and theIDB Exemption”), the application of SEC Rule 131 can result in registration under the Securities Act if thefinancing structure includes a lease, sale or loan arrangement under which a conduit obligor agrees to makepayments sufficient to pay debt service on the municipal securities.

The problem typically arises in connection with the issuance of 501(c)(3) bonds that are securedin whole or in part by a lease, sale or loan arrangement under which a not-for-profit hospital that is exempt

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from federal income taxes under Section 501(c)(3) of the 1986 Code agrees to make payments sufficientto pay debt service on the related municipal securities. The need for a separate exemption from registrationunder the Securities Act for the lease, sale or loan arrangement is usually solved by relying upon theseparate exemption from registration provided under Section 3(a)(4) for any security issued by anot-for-profit organization.

However, even though an issue of 501(c)(3) bonds and the related lease, loan or sale arrangementmay be exempt from federal registration pursuant to Sections 3(a)(2) and 3(a)(4), Section 18(b)(4)(C)expressly excludes from the definition of covered security any security that is exempt from registration underSection 3(a)(4). This situation poses the risk that even though the related lease, loan or sale arrangementis exempt from registraton under the Securities Act, because it is not a covered security it may be treatedunder state blue sky law as a separate security that requires registration or a separate exemption fromregistration.

Until recently, the risk that under state law the underlying lease, loan or sale arrangement would betreated as a separate security was probably more theoretical than real, because the states have not enactedtheir own versions of SEC Rule 131. The application of the General Exemption and SEC Rule 131requires a two-step analysis to arrive at the conclusion that registration is required; namely, even thoughan issue of municipal securities qualifies for an exemption from registraton, registration may nonethelessbe required because of the character of the underlying lease, loan or sale arrangement. For those statesin which the exemption from registration depends upon the nature of the underlying lease, loan or salearrangement (i.e., the Industrial or Commercial Enterprise/Industrial Development Bond States, Arizonaand Wisconsin), the municipal security exemption itself takes into account the nature of the lease, loan orsale arrangement.

However, effective July 12, 2003 the Pennsylvania Securities Commission has amended Section202.010 of the Pennsylvania Blue Sky Regulations to provide that the exemption from registration formunicipal securities under Section 202(a) of the Pennsylvania Securities Act of 1972 is available for anysecurity described in that section which is an exempt security under Section 3(a)(2) of the Securities Act,except for any part of an obligation evidenced by a bond, note, debenture or other evidence ofindebtedness issued by any governmental unit specified in Section 3(a)(2) that is deemed a separatesecurity under SEC Rule 131.

In addition, effective July 12, 2003, the Pennsylvania Securities Commission has amended Section202.092 of the Pennsylvania Blue Sky Regulations to provide that the official statement, trust indenture,user and other requirements set forth therein apply to (i) the guaranty of a bond that is an exempt securityunder Section 3(a)(2) when the issuer of the security is located in Pennsylvania and (ii) the guaranty of abond that is an exempt security under Section 3(a)(2), but only when the guaranty is deemed to be aseparate security under SEC Rule 131 (for non-Pennsylvania issuers).

What is a separate security under Rule 131?

37See, generally, III. The Effects of NSMIA, E. Separate Securities, 1. Rule 131 and the IDBExemption, supra.

38See II. Section 18 of the Securities Act, B. Covered Securities, 2. Section 3(a)(2) Exemptionsfrom Registration, (c) Bank Guaranty Exemption, supra.

39See III. The Effects of NSMIA, E. Separate Securities, 4. Insurance Policies, infra.

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(a) Lease, sale or loan arrangements entered into in connection withan issue of tax-exempt IDB’s that qualifies under the Section 3(a) IDB Exemption(i.e., tax-exempt IDB’s issued to provide manufacturing facilities, as defined inSection 144 of the 1986 Code, or “exempt facilities” under Section 142(a) of the1986 Code, other than “qualified residential rental projects”) do not constituteseparate securities.37

(b) The staff of the Pennsylvania Securities Commission has issuednumerous no-action letters in which the staff concurred in counsel’s opinion thatthe 501(c)(3) bonds in question were exempt from registration, even where thereexisted an underlying loan, lease or sale arrangement.

(c) The staff of the Pennsylvania Securities Commission has taken theposition that bond insurance and letters of credit are exempt from the officialstatement, trust indenture, user and other requirements that are imposed on bondguaranties under Section 202.092 of the Pennsylvania Blue Sky Regulations.NSMIA has reinforced the position, provided that the letter of credit in questionqualifies under Section 3(a)(2)38 or that bond insurance in question qualifies underSection 3(a)(8).39

(d) Several SEC no-action letters offer guidelines but not definitivestandards concerning the elements of a Rule 131 separate security. When in doubtabout the applicability of Rule 131 to a particular financing, one should seekguidance from the Pennsylvania Securities Commission.

For a more detailed discussion of the above and other Pennsylvania blue sky requirements,including citations to Pennsylvania Staff No-Action Letters, see IV. State Analyses, Pennsylvania, infra.

3. Securities Issued or Guaranteed by Any Bank. In Arkansas, Montana, NewMexico, North Carolina and North Dakota, the state blue sky law exemption from registration for securitiesissued by banks does not include securities issued by the domestic branch of a foreign bank. It has beenthe practice in these states to seek a no-action letter when an issue of municipal securities is secured by a

40MILLER, supra, note 1, at 25

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letter of credit issued by the domestic branch of a foreign bank.40 The argument made in these no-actionletters is that the letter of credit is not a “separate security” because it is an integral part of the municipalsecurities and, therefore, the letter of credit is covered by the municipal securities’ exemption fromregistration.

Section 3(a)(2) provides an exemption from registration for any “security issued or guaranteed byany bank” and defines “bank” to include “any national bank, or any banking institution organized under thelaws of any state..., the business of which is substantially confined to banking and is supervised by thestate...banking commission...” Because of the Section 3(a)(2) exemption, securities that are “issued by anybank” constitute covered securities, regardless of the bank’s location.

On September 23, 1986, the SEC issued its Securities and Exchange Release No. 33-6661 (the“1986 Release”), in which it reaffirmed the position expressed in numerous no-action letters to the effectthat for purposes of the Section 3(a)(2) exemption, a branch or agency of a foreign bank located in theUnited States is deemed to be a “national bank” or a “banking institution organized under the laws of anystate” if the nature and extent of federal and/or state regulation and supervision of the particular branch oragency is substantially equivalent to that applicable to federal or state chartered domestic banks doingbusiness in the same jurisdiction. In the 1986 Release, the SEC pointed out that the determination withrespect to the requirement of “substantially equivalent regulation,” as well as the determination as to whetherthe business of the branch or agency in question “is substantially confined to banking and supervised by thestate...banking commission...” is the responsibility of the issuers and their counsel.

There does not appear to be any legislative history or case law with respect to the SEC’s position.No-action letters typically provide that the views expressed therein reflect only the staff’s position onenforcement action and do not purport to express any legal conclusions on the questions presented.Nonetheless, provided that the determinations described in the preceding paragraph can be made, the 1986Release and the underlying no-action letters provide a substantial basis from which to argue in these statesthat even if the letter of credit is deemed to be separate security, it should be treated as a security issuedby any bank and, thus, a covered security that is exempt from registration.

4. Insurance Policies. Section 3(a)(8) provides an exemption from registration for“any insurance or endowment policy or annuity contract or optional annuity contract, issued by acorporation subject to the supervision of the insurance commissioner, bank commissioner, or any agencyor officer performing like functions, of any State or Territory of the United States or the District ofColumbia.” A bond insurance policy of the type described in Section 3(a)(8) is a covered security becauseit is a security that is: (a) exempt from registration under Section 3(a) and (b) not excluded from coveredsecurity status under Section 18(b)(4)(C) (i.e., securities described in Sections 3(a)(4), 3(a)(10) and

41See Part II. Section 18 of the Securities Act, B. Covered Securities, 1. General.

42MILLER, supra, note 1 at 25.

43Prefatory Note to the Uniform Securities Act (2002), LEO V. ROINILA , J.D. AND JAY B.FISHMAN, LAW AND EXPLANATION: UNIFORM SECURITIES ACT OF 2002, page 155 (2003) [hereinafterROINILA]

44ROINILA , note 40, supra, page 155

45See, for example, the discussion under III. The Effects of NSMIA. C. Changes in RegistrationRequirements for Industrial or Commercial Enterprise/Industrial Development Bonds.

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3(a)(11)).41 In various states bond insurance has been treated as a separate security for state blue sky lawpurposes;42 however, no states have imposed notice filing requirements on insurance policies.

F. Uniform Securities Act of 2002.

The Uniform Securities Act of 2002 (the “2002 Act” was promulgated by the National Conferenceof Commissioners on Uniform State Laws (“NCCUSL”) and is the latest in a series of uniform blue skylaws promulgated by NCCUSL. NCCUSL’s Uniform Securities Acts have been an important source ofthe state blue sky laws for decades. The Uniform Securities Act of 1956 (the “1956 Act”) has beenadopted at one time or another, in whole or in part, by 37 jurisdictions. Only few states have adoptedNCCUSL’s Revised Uniform Securities Act of 1985 (“RUSA”).43 As described in this paper, both theUniform Securities Act of 1956 and RUSA have been pre-empted in part by NSMIA.

The Prefatory Note to the 2002 Act cites NSMIA as one of the reasons for a new UniformSecurities Act,44 although, as described in prior sections of this paper,45 pursuant to amendmentspromulgated by NCCUSL in 1997 in response to NSMIA, many states have amended their blue sky lawsto provide for notice filings for certain types of conduit bonds.

Section 201(1) of the 2002 Act provides:

The following securities are exempt from the requirements of Sections 301 through 306[registration and notice filings contemplated by NSMIA] and Section 504 [filing of sales andadvertising literature]:

(1) a security, including a revenue obligation or a separate security as defined in Rule 131

(17 C.F.R. 230.131) adopted under the Securities Act of 1933, issued, insured or guaranteedby...a State; by a political subdivision of a State; by a public authority, agency, or instrumentalityof one of more States; by a political subdivision of one or more States...”

46The states are Arizona, Montana, New Hampshire, New Mexico, North Dakota, Rhode Island,Washington, Wisconsin and Vermont.

47The states are Arizona, Montana, Nevada, New Hampshire, New Mexico, New York, Ohio,North Dakota, Washington and Wisconsin.

48For a more detailed discussion of the 2002 Act, see Thomas N. Harding, The Effects of theUniform Securities Act of 2002 on Blue Sky Requirements Applicable to Municipal Securities, THE

BOND LAWYER, December 1, 2003 edition.

49www.nccusl.org/Securities Act

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Section 201(1) of the 2002 Act abolishes all registration and notice filing requirements applicableto municipal securities.

This is significant because if the 2002 Act is enacted in all states, the District of Columbia and theCommonwealth of Puerto Rico, it will establish a general, across-the-board exemption from state blue skyregistration and notice filings for all types of municipal securities. Recall that notwithstanding NSMIA’spartial pre-emption of state blue sky laws, ^ nine states still require registration of certain conduit bondsissued by issuers located within their respective boundaries46 and ̂ ten states, in response to NSMIA, haveimposed notice filing requirements, including the payment of filing fees, on various types of municipalsecurities issued by issuers located outside their respective boundaries.47

Other changes made by the 2002 Act include expanding the categories of institutional investors towhom sales may be made without registration or the taking of other action and expansion of the generalscope of the municipal securities exemption from registration.48

According to the NCCUSL website,49 as of the date of this paper, the 2002 Act ^ is beingconsidered for enactment in the District of Columbia, Michigan and Washington. As of the date ofthis paper, the 2002 Act has been enacted in the U.S. Virgin Islands, Idaho (effective September 1,2004), Missouri (effective September 1, 2003), Oklahoma (effective July 1, 2004), South Dakota(effective July 1, 2004), Iowa (effective January 1, 2005), Kansas (effective July 1, 2005), Maine andSouth Carolina (effective January 1, 2006) ^, Vermont (effective July 1, 2006), Minnesota (effectiveAugust 1, 2007), Hawaii (effective January 1, 2008) and Indiana (effective July 1, 2008).

The 2002 Act is now five years old. Why has it not been more widely adopted?

According to Jay Fishman, J.D., CCH Blue Sky Law Report Letter No. 1271, datedDecember 6, 2006, opposition to the 2002 Act stems not from the securities industry but frombanks and insurance companies. According to Mr. Fishman, banks oppose the 2002 Act because

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the 2002 Act’s provisions that exempt banks from registering as broker-dealers are narrowerthan the comparable exemptions from broker-dealer registration requirements under theSecurities Exchange Act of 1934. Insurance companies are opposed the 2002 Act because itgives the states enacting it the option to treat variable annuities as “securities” within themeaning of the 2002 Act, thereby raising the specter that insurance sales persons could berequired to register as broker-dealers under the 2002 Act before being permitted to sell variableannuities.

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IV. STATE ANALYSES

This Part provides, on a state-by-state basis, summaries of the effects of NSMIA on blue skyrequirements applicable to municipal securities. These summaries are based upon materials contained inthe CCH Blue Sky Law Reporter through Report Letter Number ^ 1288, dated ^ August 31, 2007.Citations to CCH paragraphs are to paragraphs in the CCH Blue Sky Law Reporter.

The author of this paper has used his best efforts in preparing the following analyses. However,the following analyses are only summaries and the author of this paper makes no representation or warrantyas to accuracy or completeness. The practitioner is encouraged to conduct his or her own independentresearch on the topics dealt with below before advising clients or otherwise relying upon the followingsummaries in connection with particular transactions. Independent research (for example, by written ortelephone inquiry to a state securities commission) is especially recommended with respect to a mattersummarized below that is derived from a no-action letter or characterized as an unpublished, administrativeposition of a state securities commission.

Alabama

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

Under State law, municipal securities were exempt from registration prior to NSMIA and continueto be exempt. Alabama has not enacted any blue sky law amendments that affect the exemption fromregistration for municipal securities.

Alaska

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

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Arizona

Pre-NSMIA Action:

None, except notice filing, followed by merit review by the securities director, or registration forcertain “industrial development bonds” (as defined in the 1954 Code) and certain other issues

Post-NSMIA Action:

See below

Analysis:

1. Section 44-1843.A.1., Arizona Revised Statutes, as amended, provides an exemption fromregistration for “securities issued or guaranteed by the United States, or by any state, territory or insularpossession thereof, or by any political subdivision of such state, territory or insular possession, or by theDistrict of Columbia, or by any agency or instrumentality of one or more of any of the foregoing.” Thisexemption from registration does not apply to securities regulated pursuant to Section 44-1843.01, ArizonaRevised Statutes, as amended.

2. Section 44-1843.01.A., Arizona Revised Statutes, as amended, provides that:

(i) the following municipal securities, when issued by an Arizona issuer (collectively, “RegistrableArizona Bonds”), are subject to state registration, unless the requirements of paragraph 3. are met, and

(ii) the following municipal securities that are described as covered securities under Section18(b)(4)(C) of the Securities Act of 1933, as amended, shall satisfy the requirements of paragraph 4.below:

(a) “industrial development bonds” (as defined in the 1954 Code), other than such bondsissued to provide residential real property for family units, airports, docks, wharves, mass commutingfacilities, parking facilities, sewage or solid waste disposal facilities, air or water pollution control facilities,or facilities for the furnishing of water if available on reasonable demand to members of the general public;

(b) bond anticipation notes authorized pursuant to title 48, chapter 6, article 1, Arizona RevisedStatutes, as amended;

(c) improvement district bonds authorized pursuant to title 48, chapter 6, article 2, ArizonaRevised Statutes, as amended;

50Recall that a covered security under Section 18(b)(4)(C) includes a municipal security that isissued by an out-of-state issuer and exempt from registration under Section 3(a) (i.e., exempt fromregistration pursuant to the General Exemption, the IDB Exemption or the Bank Guaranty Exemption).

33

(d) bonds of issuers located outside the state secured only by special assessments; and

(e) securities of public subdivisions used to provide monies to finance the acquiring,constructing, improving, equipping or furnishing of medical office buildings, sanitariums, clinics, medicalhotels, mortuaries, cemeteries, mausoleums, rest homes, nursing homes, skilled nursing facilities or othersimilar facilities for use by corporations or entities other than municipal which bonds or notes are not fullysecured by an entity owning or operating, repurchasing or leasing a hospital from a political subdivision.

3. Section 44-1843.01.B., Arizona Revised Statutes, as amended, provides that RegistrableArizona Bonds are not subject to registration if a notice of the proposed offering, trust indenture, a $200filing fee and official statement containing required disclosures are filed with the state securities commissionand the exemption from registration is not denied within 20 days of receipt by the state securitiescommission.

4.. Section 44-1843.01.C., Arizona Revised Statutes, as amended, provides that municipalsecurities of the types described in the above paragraphs 2(a) through 2(e) that are also covered securitiesunder Section 18(b)(4)(C)50 are subject to a notice filing requirement consisting of a cover letter thatdescribes the offering to be made in Arizona, any documents that are filed with the SEC and that arerequired by the commission, and a filing fee of $200.

5. Section 44-1843.02.C., Arizona Revised Statutes, as amended, requires that issuers ofsecurities that are described as covered securities in Section 18(b)(4)(D) (i.e., municipal securities that areoffered and sold in a transaction that qualifies under Rule 506 of Regulation D) shall file with the ArizonaSecurities Commission a notice on Form D and an initial filing fee of $250.

6 Section 44-1843.02.A., Arizona Revised Statutes, as amended, provides that anyadvertising or sales material, other than notices required by law to be published or posted, used inconnection with offers or sales to the public of any securities to which Section 44-1843.01.A. applies (i.e.,the securities described in paragraph 2. above) shall be filed with the Arizona Securities Division threebusiness days before its proposed use.

7. The Arizona Corporation Commission has issued several no-action letters related to theabove statutory provisions (summarized below):

(a) No action position taken by the Commission where proceeds of the bonds were be loanedto hospital exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code of

34

1986, as amended (a “501(c)(3) hospital”) to acquire health care facilities and to refund certain bonds,even though portions of the proceeds of the bonds and the bonds to be refunded were to be used or usedto finance a skilled nursing facility. Letter dated June 10, 1992, CCH para. 9,640.

(b) No action position taken where proceeds of bonds were to be loaned to the followingorganizations for the following purposes, each of which organizations was exempt from federal income taxespursuant to Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”): (1) to acenter for mentally ill to construct a new facility which does not constitute a “clinic,” but, even if it did, lessthan 30% of the proceeds of the bonds would be used for such purpose; (2) to a hospital to refinance debtfor renovations to an existing hospital facility; (3) to a college to refinance mortgage indebtedness andcapital loans for computers, telephone and copying equipment. Letter dated June 2, 1992, CCH para.9,645.

(c) No action position taken where proceeds of the bonds were to be loaned to a 501(c)(3)hospital to refund bonds issued to acquire, construct and equip an acute care hospital and attendantfacilities. Letter dated June 2, 1992, CCH para. 9,646.

(d) No action position taken where proceeds of the bonds were be loaned to a 501(c)(3)hospital to pay costs of hospital facilities. Letter dated November 19, 1992, CCH para. 9,662.

(e) No action position taken where proceeds of the bonds were to be loaned to a 501(c)(3)hospital to acquire and improve an existing acute care hospital. Letter dated March 16, 1993, CCH para.9,663.

(f) No action position taken with respect to beneficial interest certificates to be issued tofinance the acquisition of buses to be used by the New York Transit Authority (the “Transit Authority”) andsecured by payments to be made the Transit Authority under a sublease between the Triborough Bridgeand Tunnel Authority and the Transit Authority. Letter dated April 1, 1993, CCH para. 9,669.

(g) No action position taken with respect to certificates of participation where all members ofthe obligated group operate hospitals, even though obligated group members may have some skilled nursingfacilities or other excluded types of facilities. Letter dated July 21, 1993, CCH para. 9,671. See alsoLetters dated November 9, 1993, CCH paras. 9,677 through 9,679. Compare Letter dated October 10,1992, CCH para. 9,567, where no action request was denied; proceeds of certificates of participationwere to be used to refund prior certificates of participation and the obligor under the certificates owned andoperated a continuing care retirement facility.

(h) No action position taken where proceeds of the bonds were to be used to refund bondsissued to provide pollution control facilities. Letter dated December 17, 1993, CCH para. 9,682.

35

(i) No action position taken where proceeds of the bonds were to be used to provide sewageor solid waste disposal facilities. Letter dated January 4, 1994, CCH para. 9,695E.

The Arizona Corporation Commission, Securities Division, has issued a Policy Statement dated

January 21, 1991, to the effect that where a guaranty/letter of credit is an integral part of an underlyingsecurity and is not separable from the underlying security and has no value apart from the underlyingsecurity, the guarantee/letter of credit and the underlying security will be considered a single unit. Whenthe underlying security is exempt from registration, separate registration of the guarantee/letter of credit isnot required. CCH para. 9,618.

8. As a result of the foregoing:

(a) Registrable Arizona Bonds issued by Arizona issuers, if offered or sold in Arizona, regardlessof their tax status, are subject to state registration (because such bonds are not covered securities), unless:(1) subparagraph (c) below applies, (2) a notice of the proposed offering, trust indenture, filing fee andofficial statement containing required disclosures are filed with the state securities commission and theexemption from registration is not denied (see paragraph 3. above), or (3) the transaction qualifies as anexempt transaction under Section 44-1844, Arizona Revised Statutes;

(b)(1) Tax-exempt municipal securities of the types described in the above paragraphs 2(ii)(a)through 2(ii)(e) that are issued by out-of-state issuers and exempt from Securities Act registration pursuantto the IDB Exemption under Section 3(a)(2) and (2) municipal securities of the types described in theabove paragraphs 2(a) through 2(e) that are issued by out-of-state issuers and exempt from Securities Actregistration pursuant to the General Exemption or the Bank Guaranty Exemption under Section 3(a)(2),regardless of their tax status, are exempt from state registration (because such bonds are covered securitiesunder Section 18(b)(4)(C)), but must comply with state notice filing requirements summarized in paragraph4. above;

(c) Municipal securities of the types described in the above paragraphs 2(a) through 2(e),regardless of their tax status and the issuer’s location, that are exempt from Securities Act registrationpursuant to Rule 506 of Regulation D are exempt from state registration (because such municipal securitiesare covered securities under Section 18(b)(4)(D)), but must comply with state notice filing requirementsapplicable to Rule 506 transactions summarized in paragraph 5. above; and

(d) Municipal securities of the types described in the above paragraphs 2(a) through 2(e),regardless of their tax status, that are issued by out-of-state issuers and exempt from registration under theSecurities Act pursuant to Rules 504 or 505 of Regulation D or pursuant to a “statutory private placement”under Section 4(2) or that have been registered under Section 5 are exempt from state registration and nonotice filings are required.

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Arkansas

Pre-NSMIA Action: None

Post-NSMIA Action: None, except notice filings for Rule 506 offerings by out-of-state issuers

Analysis:

The state’s blue sky law amendments in response to NSMIA (1) limit the municipal exemption fromregistration to obligations issued by Arkansas issuers, (2) provide a separate exemption from registrationfor covered securities and (3) with respect to any security that is a covered security under Section18(b)(4)(D) (for example, a Taxable IDB that is offered in compliance with Rule 506 of Regulation D),authorize the securities commissioner, by rule or order, to require the issuer to file a notice on SEC FormD, a consent to service of process and the payment of a filing fee. Sections 23- 42-501, 23-42-503(a) and23-42-509(c), Arkansas Code of 1987, as amended. The securities commissioner has imposed a noticefiling requirement on Rule 506 offerings, but waived such requirement if the security or transaction qualifiesfor an exemption from registration under Sections 23-42-503 or 23-42-504, Arkansas Code of 1987, asamended. Rule 509.01, Arkansas Blue Sky Regulations and CCH para. 10,670. Since the municipalexemption from registration now applies only to Arkansas issuers, Rule 506 offerings of municipal securitiesissued by out-of-state issuers are subject to compliance with the state notice filing requirement. Under Rule509.01, Arkansas Blue Sky Regulations, the notice filing consists of SEC Form D and the filing requiredby Section 23-42-509(c), Arkansas Code of 1987, as amended (i.e., 1/10 of one percent of the maximumaggregate offering price at which the securities are offered in Arkansas, but in no case less than $100 ormore than $500).

California

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

Colorado

Pre-NSMIA Action: None

37

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

Connecticut

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

Delaware

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

District of Columbia

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

Prior to NSMIA, the District of Columbia Securities Act did not impose any registration or noticefiling requirements on any securities, including municipal securities.

38

The District’s blue sky law amendments in response to NSMIA (1) provide for the registration ofsecurities, (2) provide an exemption from registration for municipal securities and a separate exemptionfrom registration for covered securities, (3) with respect to any security that is a covered security underSection 18(b)(4)(D) that is not otherwise exempt from registration, authorize the securities commissioner,by rule or otherwise, to require the issuer to file a notice on SEC Form D, a consent to service of processand the payment of a filing fee, and (4) with respect to any security that is a covered security under Section18(b)(3) or (4) that is not otherwise exempt from registration, authorize the securities commissioner, by ruleor order, to require the filing of a document filed with the SEC and the payment of a filing fee in the amountestablished by rule. Sections 301, 308 and 401, District of Columbia Securities Act of 2000.

The District initially promulgated emergency regulations, which imposed certain filing requirementson federal covered securities under Sections 18(b)(4)(C) and 18(b)(4)(D) that are offered and sold in theDistrict. Sections 1941 and 1942 of the District of Columbia Blue Sky Regulations, CCH paras. 16,540and 16,541. These regulations impose notice filing requirements on all federal covered securities underSections 18(b)(4)(C) and 18(b)(4)(D), including municipal securities.

However, Section 308(a) of the District of Columbia Securities Act of 2000 (entitled Federalcovered securities) authorizes the imposition of notice filings only on federal covered securities that are nototherwise exempt from registration, and Section 401(1) of the District of Columbia Securities Act of 2000provides that all municipal securities are exempt from registration. At the time that the emergencyregulations were issued, it was the opinion of the author of this paper that the scope of Sections 1941 and1942 exceeded the authority for such regulations granted by Section 308 of District of Columbia SecuritiesAct of 2000 and that, accordingly, such regulations should be construed to apply only to covered securitiesthat are not otherwise exempt from registration.

This interpretive problem has been resolved favorably by revised, permanent regulations, thatbecame effective November, 30, 2001. Section 1943.2. of the revised, permanent District of ColumbiaBlue Sky Regulations provides that issuers relying upon the exemption from registration provided in Section401(1) (i.e., municipal securities) shall not file any notice or pay any fee to the District of ColumbiaDepartment of Insurance and Securities Regulation. Thus, municipal securities are not subject to the noticefiling requirements of Sections 1941 and 1942 of the District of Columbia Blue Sky Regulations.

Florida

Pre-NSMIA Action: Disclosure of prior defaults by issuers of revenue obligations

Post-NSMIA Action: See below

Analysis:

39

Section 517.051(1), Florida Statutes, 1987, as amended, exempts from municipal securities fromregistration under that Act, except that no person shall offer securities, other than general obligation bonds,under such subsection, if the issuer or guarantor has been in default at any time after December 31, 1975with respect to principal and interest, except by an offering circular containing a full and fair disclosure asprescribed by rule of the Florida Department of Banking and Finance. The state’s blue sky lawamendments (1) do not change the pre-NSMIA exemption from registration, (2) provide a separateexemption from registration for covered securities and (3) unlike many other states, do not contain anyauthority for imposing notice filings on covered securities. Sections 517.051(1) and 517.07, FloridaStatutes, 1987, as amended.

Florida Department of Banking and Finance Rule 3E-400.003(1) provides a detailed list of thetypes of information that constitute “full and fair disclosure.” Rule 3E-400.003(2) provides that if theperson required to make the disclosures required by Rule 3E-400.003(1) in good faith believes that anyof such disclosures is not an appropriate disclosure in that the information would not be considered materialby a reasonable investor, the offering circular shall set forth the fact that the Department of Banking andFinance has required such disclosure and the reason such disclosure is not deemed appropriate andmaterial by the person required to make such disclosure.

After NSMIA, states may not impose any conditions, based upon the merits of the offering or theissuer, on the offer or sale of any covered security.

Thus, in Florida, the above merit condition for exemption relating to prior defaults does not applyto: (1) municipal securities that are (i) issued by out-of-state issuers and (ii) exempt from registrationpursuant to the General Exemption, the IDB Exemption or the Bank Guaranty Exemption, and (2)municipal securities that are exempt from registration pursuant to Rule 506, regardless of their tax statusor the issuer’s location (in each case because such municipal securities are covered securities).

The Florida merit condition for exemption described above applies to: (1) municipal securitiesissued by Florida issuers, if offered or sold in Florida, regardless of their tax status (unless the issue isexempt from registration pursuant to Rule 506), and (2) municipal securities that are exempt fromregistration pursuant to Rules 504 or 505 of Regulation D or pursuant to a “statutory private placement”under Section 4(2) or that have been registered under Section 5, regardless of their tax status or theissuer’s location (in each case because such municipal securities are not covered securities).

Georgia

Pre-NSMIA Action: None

Post-NSMIA Action: None

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Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

Hawaii

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

Idaho

^

Analysis:

Idaho has enacted the Uniform Securities Act of 2002, effective September 1, 2004. See Section30-14-101 et. seq., Idaho Code of 1947, as amended, and III. The Effects of NSMIA, F. UniformSecurities Act of 2002, supra. Pursuant to Section 30-14-201, Idaho Code of 1947, as amended, allmunicipal bonds that are offered and sold in Idaho are exempt from registration and notice filings.However, in most cases, sales to the general public may only be made by a registered broker-dealer. SeeSection 30-14-401, Idaho Code of 1947, as amended.

51See II. Section 18 of the Securities Act, B. Covered Securities, 4. The Special Problems ofTaxable IDB’s, supra.

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Illinois

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

Indiana

Pre-NSMIA Action: None, except registration for Taxable IDB’s

Post-NSMIA Action: None, except registration for Taxable IDB’s ^

^ Analysis:

Section 23-2-1-2(a)(1), Indiana Code, provides an exemption from registration for all typesof municipal bonds; however, Section 23-2-1-2(a)(9), Indiana Code, provides an exemption fromregistration only for tax-exempt IDB’s. Taken together, the result under these two sections isthat Taxable IDB’s are not exempt from registration, regardless of the location of the issuer,unless some other exemption from registration is available (for example, the Taxable IDB’s aresecured by a letter of credit that qualifies under the bank guaranty exemption set forth in Section23-2-1-2(a)(3)). NSMIA did not change this result because Taxable IDB’s are not coveredsecurities.51

Indiana has enacted the Uniform Securities Act of 2002, effective July 1, 2008.

Iowa

^Analysis:

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Iowa has enacted the Uniform Securities Act of 2002, effective January 1, 2005. See Section502.101 et. seq., Code of Iowa, 1993, as amended, and III. The Effects of NSMIA, F. Uniform SecuritiesAct of 2002, supra. Pursuant to Section 502.201.(1), Code of Iowa, 1993, as amended, all municipalbonds that are offered and sold in Iowa are exempt from registration and notice filings. However, in mostcases, sales to the general public may only be made by a registered broker-dealer. See Section 502.401,Code of Iowa, 1993, as amended.

Kansas

^

Analysis:

Kansas has enacted the Uniform Securities Act of 2002, effective July 1, 2005. See CCH para.26,128A, Section 1, and III. The Effects of NSMIA, F. Uniform Securities Act of 2002, supra. Pursuantto CCH para. 26,128B, Section 6, all municipal bonds that are offered and sold in Kansas are exempt fromregistration and notice filings. However, in most cases, sales to the general public may only be made bya registered broker-dealer. See CCH para. 26,128D, Section 18.

Kentucky

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

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Louisiana

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

Maine

^ Analysis:

Maine has enacted the Uniform Securities Act of 2002, effective January 1, 2006. See Chapter135, Section 16701, Maine Revised Statutes Annotated, as amended, and III. The Effects of NSMIA, F.Uniform Securities Act of 2002, supra. Pursuant to Section Chapter 135, Section 16201.1., MaineRevised Statutes Annotated, as amended, all municipal bonds that are offered and sold in Maine areexempt from registration and notice filings. However, in most cases, sales to the general public may onlybe made by a registered broker-dealer. See Chapter 135, Section 16401.1., Maine Revised StatutesAnnotated, as amended.

Maryland

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

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Massachusetts

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

Michigan

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration. Two releases of the Michigan Corporation, Securities and Land DevelopmentBureau (CCH paras. 32,644 and 32,645) note in passing that securities issued by municipalities locatedin Michigan are exempt from state registration pursuant to Section 402(a)(1) of the Michigan CompiledLaws, 1979, as amended.

Minnesota

^ Analysis:

^ Minnesota has enacted the Uniform Securities Act of 2002, effective August 1, 2007.See Section 80A.40 et. seq., Minnesota Statutes, 1986, as amended, and III. The Effects of NSMIA,F. Uniform Securities Act of 2002, supra. Pursuant to Section 30-14-201, Minnesota Statutes,1986, as amended, all municipal bonds that are offered and sold in Idaho are exempt fromregistration and notice filings. However, in most cases, sales to the general public may only bemade by a registered broker-dealer. See Section 30-14-401 ^, Minnesota Statutes, 1986, asamended. ^

45

Mississippi

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

Missouri

^

Analysis:

Missouri has enacted the Uniform Securities Act of 2002, effective September 1, 2003. SeeSection 409.1-101, Missouri Revised Statutes, 1986, as amended, and III. The Effects of NSMIA, F.Uniform Securities Act of 2002, supra. Pursuant to Section 409.2-201, Missouri Revised Statutes, 1986,as amended, all municipal bonds that are offered and sold in Missouri are exempt from registration andnotice filings. However, in most cases, sales to the general public may only be made by a registeredbroker-dealer. See Section 409.4-401, Missouri Revised Statutes, 1986, as amended.

Montana

Pre-NSMIA Action: None, except registration or merit review for certain conduit issues

Post-NSMIA Action: See below

Analysis:

Because of the complicated interaction of state and federal law in this state, particularly formunicipal securities that are secured by a letter of credit, the author recommends that you read Part III. TheEffects of NSMIA, C. Changes in Registration Requirements for Industrial or CommercialEnterprise/Industrial Development Bonds, 1. Industrial or Commercial Enterprise/Industrial DevelopmentBonds States, supra, as part of your consideration of this state’s requirements.

46

The state’s blue sky provides that municipal securities that are payable solely from payments to bereceived in respect of property or money used under a lease, sale or loan arrangement by or for anongovernmental industrial or commercial enterprise (“Registrable Montana Industrial or CommercialBonds”), other than municipal securities for which the related enterprise or any security of which it is theissuer qualifies for an “exempt security” exemption under the blue sky law, are subject to state registration.Such exempt securities include securities issued by certain banks, qualified utilities or insurance companiesor by a person whose securities are listed on certain stock exchanges or by certain Canadian governmententities or any other foreign government with which the United States currently maintains diplomaticrelations if the security is recognized as a valid obligation of the issuer or guarantor or by not-for-profitentities organized and operated exclusively for religious, educational, benevolent, fraternal, social, athleticor reformatory purposes, provided that, in the case of such not-for-profit entities, the issuer pays a fee of$50 and files with the securities commissioner 20 days prior to the offering a written notice specifying theterms of the offer and the commissioner does not disallow the exemption within the 20-day period. Section30-10-104(1), Montana Code, Annotated, 1989, as amended. The unpublished, administrative positionof the state’s securities department is that single family mortgage revenue bonds and student loan bondsare also exempt from registration.

Registrable Montana Industrial or Commercial Enterprise Bonds also do not include revenueobligations that are payable from payments to be made in respect of property or money used under a lease,sale or loan arrangement by or for a nongovernmental industrial or commercial enterprise if such revenueobligations are offered and sold in a transaction qualifies as an exempt transaction under Section30-10-105, Montana Code, Annotated, 1989, as amended.

The state’s blue sky law amendments in response to NSMIA (1) do not change the pre-NSMIAexemption from registration, (2) provide a separate exemption from registration for covered securities, (3)with respect to any security that is a covered security under Section 18(b)(4)(D) (for example, a TaxableIDB that is offered in compliance with Rule 506 of Regulation D), authorize the securities commissionerto require the issuer to file a notice on SEC Form D, a consent to service of process and the payment ofa filing fee and (4) with respect to any security that is a covered security under Section 18(b)(3) or (4),authorize the securities commissioner to require the filing of any document filed with the SEC and thepayment of a filing fee. Sections 30-10-202(2) and 30-10-211(2) and (3), Montana Code, Annotated,1989, as amended.

A notice filing is required for municipal securities that are covered securities under Section 18(b)(4)and that are not exempt from registration under Section 30-10-104(1), Montana Code, Annotated, 1989,as amended. The notice filing consists of a letter explaining that the municipal security in question is acovered security pursuant to Section 18(b)(4), a consent to service of process signed by the issuer of themunicipal security and a filing fee of $200. See Section 6.10.148, Montana Blue Sky Regulations, CCHPara. 36,488.

47

A notice filing is also required for Rule 506 offerings. Section 6.10.149., Montana Blue SkyRegulations. The notice filing consists of a notice on SEC Form D, a consent to service of process and afiling fee required by Sections 30-10-209(1)(a) and (1)(c), Montana Code, Annotated, 1989, as amended(i.e., $200 for the first $100,000 of the initial issue or portion of the first $100,000 of the issue, plus 1/10of one per cent for any excess over $100,000, with a maximum fee of $1,000, plus certain additionalamounts if the issuer sells securities in excess of the aggregate amount for which a notice filing has beensubmitted).

As a result of the foregoing:

(a) Tax-exempt Registrable Montana Industrial or Commercial Enterprise Bonds that areissued by Montana issuers and exempt from Securities Act registration pursuant to the IDB Exemptionunder Section 3(a)(2), if offered or sold in Montana, and all Registrable Montana Industrial or CommercialEnterprise Bonds that are issued by Montana issuers and exempt from Securities Act registration pursuantto the General Exemption or the Bank Guaranty Exemption under Section 3(a)(2), regardless of their taxstatus, if offered or sold in Montana, remain subject to state registration (because such Bonds are notcovered securities under Section 18(b)(4)(C)).

(b) Tax-exempt Registrable Montana Industrial or Commercial Enterprise Bonds that areissued by out-of-state issuers and exempt from Securities Act registration pursuant to the IDB Exemptionunder Section 3(a)(2) and all Registrable Montana Industrial or Commercial Enterprise Bonds that areissued by out-of-state issuers and exempt from Securities Act registration pursuant to the GeneralExemption or the Bank Guaranty Exemption under Section 3(a)(2), regardless of their tax status, areexempt from state registration (because such Bonds are covered securities under Section 18(b)(4)(C)),but must comply with the notice filing requirement described above.

(c) Registrable Montana Industrial or Commercial Enterprise Bonds issued by out-of-stateissuers that are exempt from Securities Act registration pursuant to Rule 506 of Regulation D, regardlessof their tax status or the issuer’s location (for example, a Taxable IDB that is offered in compliance withRule 506 of Regulation D), are exempt from state registration (because such Bonds are covered securitiesunder Section18(b)(4)(D)); however, such Registrable Montana Industrial or Commercial EnterpriseBonds must comply with state notice filing requirements applicable to Rule 506 offerings.

(d) Registrable Montana Industrial or Commercial Enterprise Bonds that are exempt fromSecurities Act registration pursuant to Rules 504 or 505 of Regulation D or pursuant to a “statutory privateplacement” under Section 4(2) or that have been registered under Section 5, regardless of their tax statusor the issuer’s location, are subject to state registration (in each case because such Bonds do not constitutecovered securities under either Section 18(b)(4)(C) or 18(b)(4)(D)).

Nebraska

48

Pre-NSMIA Action: None

Post-NSMIA Action: None, except notice filings for Rule 506 offerings of out-of-state issuers

Analysis:

The state’s blue sky law amendments in response to NSMIA (1) limit the municipal exemption fromregistration to obligations issued by Nebraska issuers, (2) provide a separate exemption from registrationfor covered securities, (3) with respect to any security that is a covered security under Section 18(b)(4)(D)(for example, a Taxable IDB that is offered in compliance with Rule 506 of Regulation D), authorize thedirector, by rule and regulation or order, to require the issuer to file a notice on SEC Form D and thepayment of a filing fee, and (4) authorize the director, by rule and regulation or order, to require the filingof any document filed with the SEC with respect to a covered security under Section 18(b)(3) or (4)(A),(B) and (C), together with a filing fee of $200. Sections 8-1104(3), 8-1108.02(2) and (3), and 8-1110(1),Revised Statutes of Nebraska, 1943, as amended. Chapter 20, part 003, Nebraska Blue Sky Regulations,requires a notice filing for Rule 506 offerings. Municipal securities that are covered securities under Rule506 and that are issued by Nebraska issuers are exempt from registration under the exempt securitiesexemption of the Nebraska blue sky law. The notice filing for Rule 506 offerings applies only to municipalsecurities that are covered securities under Rule 506 and issued by non-Nebraska issuers. The notice filingconsists of a SEC Form D, a consent to service of process and a $200 fee.

Nevada

Pre-NSMIA Action: None, except registration or filing to claim exemption from registration for certainconduit issues

Post-NSMIA Action: Notice filings for Rule 505 and 506 offerings and certain conduit bonds

Analysis:

Section 90.520.2.(a), Nevada Revised Statutes, provides an exemption from registraton for “asecurity, including a revenue obligation, issued, insured or guaranteed by...a state, a political subdivisionof a state, or an agency or corporate or other instrumentality of one or more states or their politicalsubdivisions”, but this exemption does not include a security payable solely from revenues to be receivedfrom an “enterprise” unless the:

(1) payments are insured or guaranteed by a political subdivision of a state or an agency orcorporate or other instrumentality of one or more of the states or their political subdivisions or by a personwhose securities are exemption from registration under the Nevada blue sky law (i.e., certain banks,

49

insurance companies or qualified utilities, a person whose securities are listed on certain stock exchangesor certain Canadian government entities or any other foreign government with which the United Statesmaintains diplomatic relations if the security is recognized as a valid obligation by the issuer, insurer orguarantor);

(2) security is issued by the State of Nevada or any agency, instrumentality or politicalsubdivision of the State of Nevada; or

(3) payments are insured or guaranteed by a person who, within the 12 months next precedingthe date on which the securities are issued, has received a rating within one of the top four rating categoriesof either Moody’s Investors Service, Inc. or Standard and Poor’s Ratings Services.

Section 90.520.2.(a)(3) is often the source of an exemption from registration for municipalsecurities that are secured by bond insurance that satisfies the rating requirement of that Section. Section90.520.2(d), Nevada Revised Statutes, provides an alternative, separate exemption from registration for“a security...insured or guaranteed by, an insurance company organized under the laws of any state andauthorized to do business in this state.” Note that while the Section 90.520.(d), Nevada Revised Statutes,does not impose a rating requirement, it does require that the insurance company be organized under thelaws of any state and authorized to do business in Nevada.

The state’s blue sky law and blue sky law regulations give no guidance as to the meaning of theterm “enterprise.”

A notice filing is required for Rule 505 and 506 offerings. The notice filing consists of a manuallysigned copy of a notice on SEC Form D, a Claim of Exemption from Securities Regulation (Nevada FormN-9) and a filing fee of $300. Section 90.515, Nevada Blue Sky Regulations.

A notice filing is also required for obligations described in paragraphs ̂ (1) and ^(3) above, unlesssuch obligations would have been exempt from registration prior to the enactment of NSMIA. The noticefiling consists of a Claim of Exemption from Securities Regulation (Nevada Form N-9) and a filing fee of$300. Section 90.519, Nevada Blue Sky Regulations.

Municipal securities which are payable from solely from revenues to be received from an“enterprise” and which do not satisfy the requirements of any of the foregoing subparagraphs ̂ (1) or ^(3)are hereinafter referred to as “Registrable Nevada Bonds”.

As a result of the foregoing:

(a) (1) Tax-exempt Registrable Nevada Bonds issued by out-of-state issuers that are exemptfrom Securities Act registration pursuant to the IDB Exemption under Section 3(a)(2) and (2) RegistrableNevada Bonds issued by out-of-state issuers, regardless of their tax status, that are exempt from Securities

50

Act registration pursuant to the General Exemption or the Bank Guaranty Exemption under Section 3(a)(2)are exempt from state registration (because such bonds are covered securities under Section 18(b)(4)(C));however, such Registrable Nevada Bonds must comply with the notice filing requirements set forth inSection 90.519, Nevada Blue Sky Regulations.

(b) Registrable Nevada Bonds issued by out-of-state issuers, regardless of their tax status,that are exempt from Securities Act registration pursuant to Rule 505 or 506 of Regulation D are exemptfrom state registration; however, such Registrable Nevada Bonds must comply with the notice filingrequirements set forth in Section 90.515, Nevada Blue Sky Regulations.

(c) Registrable Nevada Bonds issued by out-of-state issuers, regardless of their tax status,that are exempt from Securities Act registration pursuant to Rules 504 of Regulation D or pursuant to a“statutory private placement” under Section 4(2) or that have been registered under Section 5 are subjectto state registration (in each case because such bonds do not constitute covered securities), unless thetransaction qualifies as an exempt transaction under Section 90.530., Nevada Revised Statutes, asamended.

New Hampshire

Pre-NSMIA Action: None, except registration for "industrial development bonds" and offering documentlegend for all municipal securities Post-NSMIA Action: See below

Analysis:

Because of the complicated interaction of state and federal law in this state, particularly formunicipal securities that are secured by a letter of credit, the author recommends that you read Part III. TheEffects of NSMIA, C. Changes in Registration Requirements for Industrial or CommercialEnterprise/Industrial Development Bonds, 1. Industrial or Commercial Enterprise/Industrial DevelopmentBonds States, supra, as part of your consideration of this state’s requirements.

The state’s blue sky law provides that the exemption from registraton for municipal securities doesnot include any "industrial development bond" or any “industrial revenue bond” (“Registrable NewHampshire Industrial Bonds”), and offering documents for all municipal securities are required to containa specified legend. Sections 421-B:17,I.(a) and 421-B:20, New Hampshire Revised Statutes Annotated,1955, as amended.

Section 421-B:2., VIII, New Hampshire Revised Statutes Annotated, 1955, as amended,provides:

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“Industrial bond” means any obligation issued by a governmental unit (including the UnitedStates, any state, any political subdivision of a state, or any agency, or corporate or otherinstrumentality, of one or more of them) other than a general obligation of a governmental unithaving power to tax property or of an agency of the state of New Hampshire:

(a) Which is issued as a part of an issue, all or a major portion of the proceeds ofwhich are to be used directly or indirectly in any trade or business, and

(b) The payment of the principal or interest on which (under the terms of suchobligation or any underlying arrangement) is, in whole or major part:

(1) secured by any interest in property used or to be used in a trade orbusiness or in payment in respect or such property, or

(2) to be derived from payments in respect of property or borrowed money,used or to be used in a trade or business. [emphasis added]

The New Hampshire blue sky law and regulations give no guidance as to the meaning of the term“trade or business.” A representative of the New Hampshire Bureau of Securities Regulation has indicatedinformally by telephone that, in construing this term, the Bureau considers the nature of the ultimate user ofthe proceeds of the municipal securities (i.e., public v. private or not-for-profit entity). The author of thispaper recommends that, in the context a particular financing, especially 501(c)(3) bonds, student loanbonds and single family mortgage revenue bonds, one should first call the New Hampshire Bureau ofSecurities Regulation to ask for guidance as to whether an exemption from registration is available.

Must an obligation of an agency of the State of New Hampshire be a general obligation to avoidbeing treated as an industrial bond or will any type of obligation of an agency of the State of NewHampshire suffice? When confronted with an obligation of an agency of the State of New Hampshire thatis not a general obligation, one should call the New Hampshire Bureau of Securities Regulation forguidance.

Registrable New Hampshire Industrial Bonds also do not include Industrial Bonds that are offeredand sold in a transaction qualifies as an exempt transaction under Section 421-B:17.II, New HampshireRevised Statutes Annotated, 1955, as amended.

The state’s blue sky law amendments in response to NSMIA provide that is it unlawful for anyperson to offer or sell any security in the state unless it is registered, the security or the transaction qualifiesfor an exemption from registration or it is a covered security for which certain fees have been anddocuments have been filed. Section 421-B:11,I., New Hampshire Revised Statutes Annotated, 1955, asamended. Sections 421-B:11,I-a.(d) and (e), New Hampshire Revised Statutes Annotated, 1955, as

52

amended, impose notice filings on the sale of covered securities under Section 18(b)(4)(C) and18(b)(4)(D), respectively.

The state notice filing requirements for covered securities under Section 18(b)(4)(C) consist of anotice which includes the name, address and telephone number of the issuer, and the type of securities tobe sold, a consent to service of process signed by the issuer, a copy of the offering document, the nameof the registered broker-dealer that is offering the securities, an initial notice fee equal to 2/10 of onepercent of the sales of the covered securities, provided that such fee shall not be more than $1,050, plusa $200 non-refundable initial notice fee, and an annual notice fee equal to 2/10 of one percent of thecovered securities, provided that such fee shall not be more than $1,050. The consent to service of processis not required if the municipal securities are being sold on a “firmly underwritten basis” by a NewHampshire licensed broker-dealer. Sections 421-B:11,I-a.(d), 421-B:31,I.(k) and 421-B:31,II.(f), NewHampshire Revised Statutes Annotated, 1955, as amended and New Hampshire Bureau of SecuritiesRegulation, New Hampshire Notice Filings, paragraph D., Municipal Securities, CCH para. 39,610.

The state notice filing requirements for covered securities under Section 18(b)(4)(D) consist of anotice which includes the name, address and telephone number of the issuer, and the type of securities tobe sold, a consent to service of process signed by the issuer, a complete Form D, including pages 1-8, filedwith the SEC, the name of the registered broker-dealer that is offering the securities, and an initial andannual renewal notice filing fee of $500. Sections 421-B:11.I-a.(e) and 421-B:31, I.(h)(4), NewHampshire Revised Statutes Annotated, 1955, as amended

As a result of the foregoing:

(a) Tax-exempt Registrable New Hampshire Industrial Bonds that are issued by NewHampshire issuers and exempt from Securities Act registration pursuant to the IDB Exemption underSection 3(a)(2), if offered or sold in New Hampshire, and all Registrable New Hampshire Industrial Bondsthat are issued by New Hampshire issuers and exempt from Securities Act registration pursuant to theGeneral Exemption or the Bank Guaranty Exemption under Section 3(a)(2), regardless of their tax status,if offered or sold in New Hampshire, remain subject to state registration (because such Bonds are notcovered securities under Section 18(b)(4)(C)).

(b) Tax-exempt Registrable New Hampshire Industrial Bonds that are issued by out-of-stateissuers and exempt from Securities Act registration pursuant to the IDB Exemption under Section 3(a)(2)and all Registrable New Hampshire Industrial Bonds that are issued by out-of-state issuers and exemptfrom Securities Act registration pursuant to the General Exemption or the Bank Guaranty Exemption underSection 3(a)(2), regardless of their tax status, are exempt from state registration (because such Bonds arecovered securities under Section 18(b)(4)(C)), but must comply with the notice filing requirement describedabove.

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(c) Registrable New Hampshire Industrial Bonds issued by out-of-state issuers that are exemptfrom Securities Act registration pursuant to Rule 506 of Regulation D, regardless of their tax status or theissuer’s location (for example, a Taxable IDB that is offered in compliance with Rule 506 of Regulation D),are exempt from state registration (because such Bonds are covered securities under Section18(b)(4)(D));however, such Registrable New Hampshire Industrial Bonds must comply with state notice filingrequirements applicable to Rule 506 offerings.

(d) Registrable New Hampshire Industrial Bonds that are exempt from Securities Actregistration pursuant to Rules 504 or 505 of Regulation D or pursuant to a “statutory private placement”under Section 4(2) or that have been registered under Section 5, regardless of their tax status or theissuer’s location, are subject to state registration (in each case because such Bonds do not constitutecovered securities under either Section 18(b)(4)(C) or 18(b)(4)(D)).

^

New Jersey

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

New Mexico

Pre-NSMIA Action: None, except registration for certain conduit issues

Post-NSMIA Action: See below

Analysis:

Because of the complicated interaction of state and federal law in this state, particularly formunicipal securities that are secured by a letter of credit, the author recommends that you read Part III. TheEffects of NSMIA, C. Changes in Registration Requirements for Industrial or Commercial

54

Enterprise/Industrial Development Bonds, 1. Industrial or Commercial Enterprise/Industrial DevelopmentBonds States, supra, as part of your consideration of this state’s requirements.

The state’s blue sky law provides that municipal securities that are payable solely from revenuesto be received from a nongovernmental industrial or commercial enterprise (“Registrable New MexicoIndustrial or Commercial Enterprise Bonds”), other than municipal securities that are directly or indirectlyinsured or guaranteed by or for which such revenues are derived from certain banks, qualified utilities orinsurance companies or certain Canadian government entities or any other foreign government orgovernmental combination or entity with which the United States maintains diplomatic relations if thesecurity is recognized as a valid obligation by the issuer or guarantor, are subject to registration. The state’sblue sky law expressly provides that a nongovernmental industrial or commercial enterprise does notinclude the financing of student loans or single-family residential mortgage loans. Section 58-13B-26.A.,New Mexico Statutes, 1978, Annotated, as amended.

In 1991, the Securities Division of the New Mexico Regulation and Licensing Department issuedan unpublished no action letter to the effect that an organization described in Section 501(c)(3) of theInternal Revenue Code is not a nongovernmental industrial or commercial enterprise. This appears to bethe Securities Division’s current position, but it would be advisable to contact the Division for guidancebefore relying on the no action letter.

Registrable New Mexico Industrial or Commercial Enterprise Bonds also do not include municipalsecurities payable solely from revenues to be received from a nongovernmental industrial or commercialenterprise that are offered and sold in a transaction qualifies as an exempt transaction under Section58-13B-27., New Mexico Statutes, 1978, Annotated, as amended.

The state’s blue sky law amendments in response to NSMIA (1) provide a separate exemptionfrom registration for covered securities, (2) with respect to any security that is a covered security underSection 18(b)(4)(D) (for example, a Taxable IDB that is offered in compliance with Rule 506 of RegulationD), authorize the director, by rule or order, to require the issuer to file a notice on SEC Form D, a consentto service of process and the payment of a notification fee of $350 and (3) authorize the director, by ruleor order, to require the filing of any document filed with the SEC under the Securities Act with respect toany covered security under Section 18(b)(4) and the payment of a filing fee to be determined by thedirector. Sections 58-13B-20C. and 58-13B-24.Q. and R., New Mexico Statutes, 1978, Annotated, asamended.

The state has imposed notice filings on Rule 506 offerings and on covered securities pursuant toSection 18(b)(4)(C) (i.e., all other municipal securities), unless such Section 18(b)(4)(C) covered securitiesare exempt from registration under Section 58-13B-26A., New Mexico Statutes, 1978, Annotated, asamended.

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Rule 12 NMAC 11.4.14.9. Notice filing procedures for Rule 506 offerings, requires the filing ofa notice on SEC Form D, a consent to service of process and a fee of $350. Rule 12 NMAC11.4.14.10, Industrial revenue bonds., New Mexico Blue Sky Regulations, requires the filing of a noticeon Form U-1, Uniform Application to Register Securities, accompanied by a fee calculated pursuant toSection 58-13B-24.B.(1)., New Mexico Statutes, i.e., 1/10 of one percent of the offering price of thesecurities offered in New Mexico, but not less than $525 or more than $2,500.

As a result of the foregoing:

(a) Tax-exempt Registrable New Mexico Industrial or Commercial Enterprise Bonds that areissued by New Mexico issuers and exempt from Securities Act registration pursuant to the IDB Exemptionunder Section 3(a)(2), if offered or sold in New Mexico, and all Registrable New Mexico Industrial orCommercial Enterprise Bonds that are issued by New Mexico issuers and exempt from Securities Actregistration pursuant to the General Exemption or the Bank Guaranty Exemption under Section 3(a)(2),regardless of their tax status, if offered or sold in New Mexico, remain subject to state registration (becausesuch Bonds are not covered securities under Section 18(b)(4)(C)).

(b) Tax-exempt Registrable New Mexico Industrial or Commercial Enterprise Bonds that areissued by out-of-state issuers and exempt from Securities Act registration pursuant to the IDB Exemptionunder Section 3(a)(2) and all Registrable New Mexico Industrial or Commercial Enterprise Bonds that areissued by out-of-state issuers and exempt from Securities Act registration pursuant to the GeneralExemption or the Bank Guaranty Exemption under Section 3(a)(2), regardless of their tax status, areexempt from state registration (because such Bonds are covered securities under Section 18(b)(4)(C)),but must comply with the notice filing requirement described above.

(c) Registrable New Mexico Industrial or Commercial Enterprise Bonds issued by out-of-stateissuers that are exempt from Securities Act registration pursuant to Rule 506 of Regulation D, regardlessof their tax status or the issuer’s location (for example, a Taxable IDB that is offered in compliance withRule 506 of Regulation D), are exempt from state registration (because such Bonds are covered securitiesunder Section18(b)(4)(D)); however, such Registrable New Mexico Industrial or Commercial EnterpriseBonds must comply with state notice filing requirements applicable to Rule 506 offerings.

(d) Registrable New Mexico Industrial or Commercial Enterprise Bonds that are exempt fromSecurities Act registration pursuant to Rules 504 or 505 of Regulation D or pursuant to a “statutory privateplacement” under Section 4(2) or that have been registered under Section 5, regardless of their tax statusor the issuer’s location, are subject to state registration (in each case because such Bonds do not constitutecovered securities under either Section 18(b)(4)(C) or 18(b)(4)(D)).

New York

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Pre-NSMIA Action: For municipal securities secured directly or indirectly by real estate, file PolicyStatement 103 Application.

Post-NSMIA Action: Issuers may file either Policy Statement 103 Application or new Form 99.

Further Reflection: The notice filing requirement should not apply to financings in which a mortgage or otherinterest in real estate is meant simply as security for payment. On the other hand, it is appropriate to fileone of these forms in connection with an issue of single family mortgage revenue bonds, where the debtservice structure of the bonds is dependent upon and derived from the underlying mortgage loans purchasedwith the proceeds of the bonds or in connection with the issuance of lease participation certificates, in whichthe holder owns an undivided interest in the rental payments under a lease.

Analysis:

For years prior NSMIA, most underwriter’s counsel required that issuers of municipal securitiessecured directly or indirectly by real estate (for example, a hospital revenue bond issue secured by amortgage on the hospital’s campus) file a Policy Statement 103 Application and a Notice of Appearancewith the New York Bureau of Real Estate Syndication, so that the municipal securities in question wouldbe exempt from filing requirements under Section 359-e of the New York General Business Law. Inresponse to NSMIA, a notice filing (Form 99) may be used instead of the Policy Statement 103Application. The filing fee for both the Policy Statement 103 Application and the Form 99 is $300. Whena filing is required (see below), I recommend filing the Policy Statement 103 Application, which is the lessburdensome form.

Under Section 352-e of the New York General Business Law, these filing requirements apply tosecurities which “consist primarily of participation interests or investments in one or more real estateventures, including cooperative interests in realty...” Section 352-e also provides that the term real estatedoes not include “buildings, structures, land or other realty housing or containing business offices orindustry, owned or leased by the issuer, where the issuer is not primarily engaged in the business of buyingand selling such building or other realty or leases or interests therein.” The notice filing requirement shouldnot apply to financings in which a mortgage or other interest in real estate is meant simply as security forpayment. In addition, it would be highly unusual to find a bond issuer (and, by extension, a hospital) thatis “primarily engaged in the business of buying and selling such building or other realty or leases or intereststherein.” On the other hand, it is appropriate to file one of these forms in connection with an issue of singlefamily mortgage revenue bonds, where the debt service structure of the bonds is dependent upon andderived from the underlying mortgage loans purchased with the proceeds of the bonds or in connection withthe issuance of lease participation certificates, in which the holder owns an undivided interest in the rentalpayments under a lease.

North Carolina

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Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

North Dakota

Pre-NSMIA Action: None, except registration for certain conduit issues

Post-NSMIA Action: See below

Analysis:

Because of the complicated interaction of state and federal law in this state, particularly formunicipal securities that are secured by a letter of credit, the author recommends that you read Part III. TheEffects of NSMIA, C. Changes in Registration Requirements for Industrial or CommercialEnterprise/Industrial Development Bonds, 1. Industrial or Commercial Enterprise/Industrial DevelopmentBonds States, supra, as part of your consideration of this state’s requirements.

The North Dakota blue sky law exemption from registration for municipal securities (Section10-04-05.1., North Dakota Century Code, as amended) was amended in 2005 to read as follows:

A security, including a revenue obligation or a separate security as defined in rule 131 adoptedunder the Securities Act of 1933, issued, insured or guaranteed...by a state, by a politicalsubdivision of a state, by a public authority, agency or instrumentality of one or more states, by apolitical subdivision of one or more states...except that this exemption does not include a municipalsecurity with respect to the offer or sale in this state if the security is payable solely from revenuesto be received from a nongovernmental industrial or commercial enterprise, unless such paymentsare made or unconditionally guaranteed by a person whose securities are exempt from registrationor the issuer first files a notice in a record specifying the terms of the proposed offer or sale andpays a nonrefundable filing fee of one hundred dollars.

Even though North Dakota has not enacted the Uniform Securities Act of 2002, in the abovesection, the words “a separate security as defined in rule 131 adopted under the Securities Act of 1933,issued, insured or guaranteed...by a state, by a political subdivision of a state, by a public authority, agency

52See, generally, III. The Effects of NSMIA, F. Uniform Securities Act of 2002, supra.

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or instrumentality of one or more states, by a political subdivision of one or more states” follow themunicipal bond exemption from registration contained in Section 201(1) of the Uniform Securities Act of2002 (the “2002 Act”).52

However, while the 2002 Act exempts all types of municipal securities from registration, the aboveNorth Dakota exemption from registration for municipal securities does not extend to municipal securitiesthat are “payable solely from revenues to be received from a nongovernmental industrial orcommercial enterprise, unless such payments are made or unconditionally guaranteed by a personwhose securities are exempt from registration [emphasis added] or the issuer first files a notice in arecord specifying the terms of the propose offer or sale and pays a nonrefundable filing fee of one hundreddollars.” The italicized exclusion from the exemption from registration set forth in the immediately priorsentence follows the exclusion from the exemption that existed before the 2005 amendments to the NorthDakota blue sky law.

A “person whose securities are exempt from registration” includes, among others, certain bankinginstitutions, an insurance company subject to supervision by an agency of the state of North Dakota,qualifying public utilities and entities whose securities are listed or approved for listing on the certain stockexchanges.

The unpublished position of the state’s securities commission is the single family mortgage revenuebonds and student loan bonds are also exempt from registration.

Municipal securities that do not qualify for an exemption from registration under Section10-04-05.1., North Dakota Century Code, as amended, are hereinafter referred to as “Registrable NorthDakota Industrial or Commercial Enterprise Bonds.” Registrable North Dakota Industrial or CommercialEnterprise Bonds do not include municipal securities payable solely from revenues to be received froma nongovernmental industrial or commercial enterprise that are offered and sold in a transaction qualifiesas an exempt transaction under Section 10-04-06, North Dakota Century Code, as amended.

The state’s blue sky law amendments in response to NSMIA (1) provide a separate exemptionfrom registration for covered securities and (2) with respect to any security that is a covered security underSection 18(b)(4)(D) (for example, a Taxable IDB that is offered in compliance with Rule 506 of RegulationD) require the issuer to file a notice on SEC Form D and a consent to service of process and the paymentof a $100 filing fee. Sections 10-04-04 and 10-04-08.4.2., North Dakota Century Code, as amended.

Pursuant to a Policy Statement dated September 16, 1998, the Office of the North DakotaSecurities Commissioner has imposed a notice filing requirement on municipal securities that are not exempt

59

from registration under Section 10-04-05.1., North Dakota Century Code, as amended (i.e., the NorthDakota Registrable Bonds). The Policy Statement provides that, “The filing notice, which may be in theform of a letter, is to state that it is a written notice filing in conformance with Title I of the Capital MarketsEfficiency Act of 1996, the name of the issuer, name of the project and the type or class of security to beoffered for sale and such notice to be accompanied by a filing fee of $100.00, the minimum registrationfee.” CCH para. 44,525.

As a result of the foregoing:

(a) Tax-exempt Registrable North Dakota Industrial or Commercial Enterprise Bonds that areissued by North Dakota issuers and exempt from Securities Act registration pursuant to the IDB Exemptionunder Section 3(a)(2), if offered or sold in North Dakota, and all Registrable North Dakota Industrial orCommercial Enterprise Bonds that are issued by North Dakota issuers and exempt from Securities Actregistration pursuant to the General Exemption or the Bank Guaranty Exemption under Section 3(a)(2),regardless of their tax status, if offered or sold in North Dakota, remain subject to state registration(because such Bonds are not covered securities under Section 18(b)(4)(C)).

(b) Tax-exempt Registrable North Dakota Industrial or Commercial Enterprise Bonds thatare issued by out-of-state issuers and exempt from Securities Act registration pursuant to the IDBExemption under Section 3(a)(2) and all Registrable North Dakota Industrial or Commercial EnterpriseBonds that are issued by out-of-state issuers and exempt from Securities Act registration pursuant to theGeneral Exemption or the Bank Guaranty Exemption under Section 3(a)(2), regardless of their tax status,are exempt from state registration (because such Bonds are covered securities under Section 18(b)(4)(C)),but must comply with the notice filing requirement described above.

(c) Registrable North Dakota Industrial or Commercial Enterprise Bonds issued byout-of-state issuers that are exempt from Securities Act registration pursuant to Rule 506 of RegulationD, regardless of their tax status or the issuer’s location (for example, a Taxable IDB that is offered incompliance with Rule 506 of Regulation D), are exempt from state registration (because such Bonds arecovered securities under Section18(b)(4)(D)); however, such Registrable North Dakota Industrial orCommercial Enterprise Bonds must comply with state notice filing requirements applicable to Rule 506offerings.

(d) Registrable North Dakota Industrial or Commercial Enterprise Bonds that are exempt fromSecurities Act registration pursuant to Rules 504 or 505 of Regulation D or pursuant to a “statutory privateplacement” under Section 4(2) or that have been registered under Section 5, regardless of their tax statusor the issuer’s location, are subject to state registration (in each case because such Bonds do not constitutecovered securities under either Section 18(b)(4)(C) or 18(b)(4)(D)).

Ohio

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Pre-NSMIA Action: Register municipal securities that are not payable out of the proceeds of a generaltax, issued by any issuer, regardless of location, if payment default exists at time of issuance or if litigationaffecting validity is pending.

Post-NSMIA Action: See below

Analysis:

The state’s blue sky law provides that municipal securities that are not payable out of proceeds ofa general tax are subject to registration if at the time of the first sale in Ohio there is a default in the paymentof any interest or principal of the security or if there is an adjudication or pending suit adversely affectingvalidity (“Registrable Ohio Bonds”). Section 1707.02(B), Ohio Revised Code, as amended. As apractical matter, since issuers customarily certify at the time of issuance of their obligations that no suchdefaults have occurred and no such litigation is pending, virtually all new issues of municipal securities donot constitute Registrable Ohio Bonds. Ohio has imposed a notice filing on covered securities that are notexempt from registration under Section 1707.02, Ohio Revised Code, as amended. The notice filingincludes a consent to service of process and a filing fee equal to the sum of (1) $100 plus (2) one-tenth ofone percent of the aggregate price at which the securities are to be sold to the public, which shall be notless than $100 nor more than $1,000. Section 1707.092(C), Ohio Revised Code, as amended.

After NSMIA, states may not impose any conditions, based upon the merits of the offering or theissuer, on the offer or sale of any covered security.

Thus, after NSMIA in Ohio the above merit condition relating to pending defaults and litigationdoes not apply to: (1) municipal securities that are (i) issued by out-of-state issuers and (ii) exempt fromregistration pursuant to the General Exemption, the IDB Exemption or the Bank Guaranty Exemption, and(2) municipal securities that are exempt from registration pursuant to Rule 506, regardless of their tax statusor the issuer’s location (in each case because such municipal securities are covered securities).

After NSMIA, in Ohio the above merit condition applies to: (1) municipal securities issued byOhio issuers, if offered or sold in Ohio, regardless of their tax status (unless the issue is exempt fromregistration pursuant to Rule 506), and (2) municipal securities that are exempt from registration pursuantto Rules 504 or 505 of Regulation D or pursuant to a “statutory private placement” under Section 4(2) orthat have been registered under Section 5, regardless of their tax status or the issuer’s location (in each casebecause such municipal securities are not covered securities).

As a result of the foregoing:

(a) Registrable Ohio Bonds issued by Ohio issuers, if offered or sold in Ohio, regardless oftheir tax status, are subject to state registration (because such bonds are not covered securities), unless

61

subparagraph (c) below applies or unless the transaction qualifies as an exempt transaction under Section1707.03, Ohio Revised Code, as amended;

(b) (1) Tax-exempt Registrable Ohio Bonds issued by out-of-state issuers that are exemptfrom Securities Act registration pursuant to the IDB Exemption under Section 3(a)(2) and (2) RegistrableOhio Bonds issued by out-of-state issuers, regardless of their tax status, that are exempt from SecuritiesAct registration pursuant to the General Exemption or the Bank Guaranty Exemption under Section 3(a)(2)are exempt from state registration (because such bonds are covered securities under Section 18(b)(4)(C)),but must comply with the notice filing requirement described above;

(c) Registrable Ohio Bonds, regardless of their tax status and the issuer’s location, that areexempt from Securities Act registration pursuant to Rule 506 of Regulation D are exempt from stateregistration (because such bonds are covered securities), but must comply with the notice filing requirementdescribed above; and

(d) Registrable Ohio Bonds, regardless of their tax status and the issuer’s location, that areexempt from Securities Act registration pursuant to Rules 504 or 505 of Regulation D or pursuant to a“statutory private placement” under Section 4(2) or that have been registered under Section 5 are subjectto state registration (in each case because such bonds do not constitute covered securities), unless thetransaction qualifies as an exempt transaction under Section 1707.03, Ohio Revised Code, as amended.

Oklahoma

^

Analysis:

Oklahoma has enacted the Uniform Securities Act of 2002, effective July 1, 2004. See Section71-1-101, Oklahoma Statutes 1981, as amended, and III. The Effects of NSMIA, F. Uniform SecuritiesAct of 2002, supra. Pursuant to Section 71-1-201, Oklahoma Statutes 1981, as amended, all municipalbonds that are offered and sold in Oklahoma are exempt from registration and notice filings. However, inmost cases, sales to the general public may only be made by a registered broker-dealer. See Section71-1-401, Oklahoma Statutes 1981, as amended.

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Oregon

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

Pennsylvania

General.

Section 202(a) of the Pennsylvania Securities Act of 1972 (70 Pennsylvania Statutes, Sections1-101 et seq.) provides an exemption from registration for “Any security issued or guaranteed by...anystate...any political subdivision of a state...or any agency of corporate or other instrumentality of theforegoing...”

The state’s blue sky law amendments in response to NSMIA (1) do not change the pre-NSMIAexemption from registration set forth in Section 202(a) of the Pennsylvania Securities Act of 1972, (2)provide a separate exemption from registration for covered securities and (3) with respect to any securitythat is a covered security under Section 18(b)(4)(D) (for example, a Taxable IDB that is offered incompliance with Rule 506 of Regulation D) require the issuer to file a notice on SEC Form D and thepayment of a filing fee.

IDB Exemption.

Effective July 12, 2003, the Pennsylvania Securities Commission has amended Section 202.010of the Pennsylvania Blue Sky Regulations to provide that the exemption from registration under Section202(a) of the Pennsylvania Securities Act of 1972 is available for any security described in that sectionwhich is an exempt security under Section 3(a)(2) of the Securities Act, except for any part of an obligationevidenced by a bond, note, debenture or other evidence of indebtedness issued by any governmental unitspecified in Section 3(a)(2) that is deemed a separate security under SEC Rule 131.

What is a separate security under Rule 131?

1. Lease, sale or loan arrangements entered into in connection with an issue of tax-exempt IDB’sthat qualifies under the Section 3(a) IDB Exemption (i.e., tax-exempt IDB’s issued to provide

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manufacturing facilities, as defined in Section 144 of the 1986 Code, or “exempt facilities” under Section142(a) of the 1986 Code, other than “qualified residential rental projects”) do not constitute separatesecurities.

2. The staff of the Pennsylvania Securities Commission has issued numerous no-action letters inwhich the staff concurred in counsel’s opinion that the 501(c)(3) bonds in question were exempt fromregistration, even where there existed an underlying loan, lease or sale arrangement. See Staff No-ActionLetters in Illinois Health Facilities Authority Revenue Bonds, Series 1982 (St. Therese HospitalProject) (publicly available March 16, 1981), Industrial Development Authority of the County ofAccomack, VA Industrial Revenue Bonds (New Church Energy Associates Project), Series of 1983(publicly available May 5, 1983) and Holy Cross Health System Corporation Revenue Bonds, Series1983 (publicly available February 1, 1984).

3. As to bond insurance, letters of credit and bond guaranties, see “Bond Guaranty Exemption”below.

4. As to anything else that might constitute a separate security under Rule 131, one should seekguidance from the Pennsylvania Securities Commission.

Bond Guaranty Exemption.

Effective July 12, 2003, the Pennsylvania Securities Commission has amended Section 202.092of the Pennsylvania Blue Sky Regulations to provide that the official statement, trust indenture, user andother requirements set forth therein apply to (i) the guaranty of a bond that is an exempt security underSection 3(a)(2) when the issuer of the security is located in Pennsylvania and (ii) the guaranty of a bond thatis an exempt security under Section 3(a)(2), but only when the guaranty is deemed to be a separate securityunder SEC Rule 131 (for non-Pennsylvania issuers).

There are several exceptions to the applicability of Section 202.092 of the Pennsylvania Blue Sky

Regulations.

Prior to NSMIA, in the City of San Diego Certificates of Participation (publicly availableSeptember 27, 1984) No-Action Letter, Pennsylvania Securities Commission staff concurred in counsel’sopinion that certificates evidencing and representing direct and proportionate lease payments to be madeby the City of San Diego to a leasing company under a lease agreement were exempt from registrationunder the municipal securities exemption in Section 202(a) of the Pennsylvania Securities Act of 1972, evenwhere the payment of the certificates was insured by the Municipal Bond Insurance Association.

53See, III. The Effects of NSMIA, E. Separate Securities, 4. Insurance Policies, supra.

54See II Section 18 of the Securities Act, B. Covered Securities, 2. Section 3(a)(2) Exemptionsfrom Registration, (c) Bank Guaranty Exemption, and III. The Effects of NSMIA, E. Separate Securities,3. Securities Issued or Guaranteed by Any Bank, supra.

55See Section 18(b)(1).

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NSMIA has reinforced this position by treating insurance policies that meet the requirements ofSection 3(a)(8) as covered securities.53 Such policies enjoy covered security status regardless of the bondissuer’s location. As a practical matter, virtually all bond insurance policies can be expected to qualify ascovered securities; nonetheless, in the context of a financing one should first check to make certain that thepolicy in question meets the requirements of Section 3(a)(8).

Prior to NSMIA, the staff of the Pennsylvania Securities Commission generally took the positionthat a letter of credit issued in connection with an offering of municipal securities constituted a separatesecurity. However, if the letter of credit was issued by a bank, as defined in Section 102(d) of thePennsylvania Securities Act of 1972, then the self-executing exemption from registration for securities“issued...by any bank” under Section 202(b) of the Pennsylvania Securities Act of 1972 would be available(see Staff No-Action Letter in Illinois Health Facilities Authority Revenue Notes, Series 1981 (WestSuburban Hospital Project), publicly available June 25, 1981).

NSMIA reinforced this position, provided that the letter of credit qualifies under Section 3(a)(2)as a security “guaranteed by any bank.”54

In addition, regardless of the issuer’s location, the official statement, trust indenture, user and other

requirements of Section 202.092 of the Pennsylvania Blue Sky Regulations do not apply to:

(i) a bond guaranty is offered and sold as part of a transaction that qualifies as an exempttransaction under Section 203 of the Pennsylvania Securities Act of 1972,

(ii) a bond guaranty that qualifies for its own exemption from registration as an exempt securityunder Section 202 of the Pennsylvania Securities Act of 1972 (for example, under Section202(f), a bond guaranty issued by an entity whose securities are listed, or approved forlisting upon issuance, on the New York, American or Philadelphia stock exchange),

(iii) a bond guaranty that enjoys covered security status in its own right under NSMIA (forexample, a guaranty issued by an entity whose securities are listed or authorized for listingon the New York Stock Exchange or certain other exchanges55 or by an investment

56See Section 18(b)(2).

57See, generally, FUNDAMENTALS OF MUNICIPAL BONDS, 1998 edition, Part III. Securities Laws,Chapter II. Registration, E. Separate Securities, 1. Guaranties, a. Guaranties of Private EnterpriseObligations in Industrial Development Bond Financing and Other Contexts, pages 60-62.

58See, generally, Stephen Bradford Lyons, SEC Registration Requirements for TaxableMunicipal Securities, 21 THE URBAN LAWYER 223 (1989).

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company that is registered, or that has filed a registration statement under, the InvestmentCompany Act of 194056), and

(iv) a bond guaranty that qualifies as a covered security under NSMIA because it is offeredand sold as part of a transaction that qualifies under Rule 506.

In addition, for non-Pennsylvania issuers, in many instances the bond guaranty may be deemed part

of (and not “separate” from) the guaranteed municipal security that itself is exempt from registration underSection 3(a)(2). The SEC has issued no action letters in connection with the issuance of industrialdevelopment bonds to the effect that a bond guaranty need not be registered if the guarantor is the primaryuser of the bond-financed facility or is related to the primary user of the bond-financed facility. It has alsoissued a no-action letter in connection with the issuance of tax-exempt bonds issued for the benefit of anobligated group of not-for-profit health care organizations. In that situation, additional for-profit affiliatesbecame jointly and severally liable for the obligations securing the bonds; however, a large majority of therevenues and asset value securing the bonds would continue to be attributed to the not-for-profit entities.57

The analytic bases for no action letters are often uncertain since the SEC typically decides the issue at handwithout articulating its reasoning.58 These no action letters should be viewed as offering guidelines but notdefinitive standards.

In summary, unless the bond guaranty takes the form of qualifying insurance policy or letter of creditor unless the bond guaranty qualifies for one of the exemptions from registration pursuant to subparagraphs(i) through (iv) above, one should contact the Pennsylvania Securities Commission for guidance concerningthe applicability of Section 202.092 of the Pennsylvania Blue Sky Regulations.

Financial Forecasts.

Section 609.010, Pennsylvania Blue Sky Regulations, imposes certain restrictions on the use offinancial forecasts in connection with the offering of securities that are registered under Sections 205 and206 of the Pennsylvania Securities Act of 1972 or that are exempt from registration under Sections 202(a)or 203(d) of the Pennsylvania Securities Act of 1972.

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After NSMIA, states may not impose any conditions on the use of any offering document for acovered security.

Thus, after NSMIA, in Pennsylvania the above offering document conditions relating to the use offinancial forecasts do not apply to: (1) offering documents for municipal securities that are (i) issued byout-of-state issuers and (ii) exempt from registration pursuant to the General Exemption, the IDBExemption or the Bank Guaranty Exemption, and (2) offering documents for municipal securities that areexempt from registration pursuant to Rule 506, regardless of their tax status or the issuer’s location (in eachcase because such municipal securities are covered securities).

In addition, after NSMIA, the Pennsylvania offering document conditions described above applyto offering documents for municipal securities issued by Pennsylvania issuers, if offered or sold inPennsylvania, regardless of their tax status (unless the issue is exempt from registration pursuant to Rule506).

Finally, regardless of NSMIA and regardless of the issuer’s location, the Pennsylvania offeringdocument conditions also do not apply to municipal securities that are offered for sale in an exempttransaction, which could include, among others: (1) an offer to an institutional investor pursuant to Section203(c) of the Pennsylvania Securities Act of 1972, (2) an offer or sale of a security that is exempt fromregistration pursuant to Rule 505, provided that the issuer satisfies the conditions for the companion Rule505 exemption from registration in Section 203(s) of the Pennsylvania Securities Act of 1972, or (3) anoffer or sale to an accredited investor, as defined in SEC rules and regulations (including an offer or salethat is exempt from registration pursuant to Rule 504), provided that the issuer satisfies the conditions foran exemption from registration for sales to accredited investors, as set forth in Section 203(t) of thePennsylvania Securities Act of 1972.

Puerto Rico

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

Prior to NSMIA, Puerto Rico did not impose any registration or notice filing requirements onmunicipal securities. NSMIA did not change this result.

Rhode Island

Pre-NSMIA Action: None, except registration for certain conduit issues

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Post-NSMIA Action: See below

Analysis:

Because of the complicated interaction of state and federal law in this state, particularly formunicipal securities that are secured by a letter of credit, the author recommends that you read Part III. TheEffects of NSMIA, C. Changes in Registration Requirements for Industrial or CommercialEnterprise/Industrial Development Bonds, 1. Industrial or Commercial Enterprise/Industrial DevelopmentBonds States, supra, as part of your consideration of this state’s requirements.

The state’s blue sky law provides that a municipal security that is payable solely from revenues tobe received from a nongovernmental industrial or commercial enterprise (“Registrable Rhode IslandIndustrial or Commercial Enterprise Bonds”), other than a municipal security for which the payments areinsured or guaranteed by certain banks, qualified utilities or insurance companies or an entity whosesecurities are listed on certain stock exchanges or by certain Canadian government entities or other foreigngovernment or governmental combination with which the United States maintains diplomatic relations if thesecurity is recognized as a valid obligation by the issuer, insurer or guarantor, are subject to registration.Section 7-11-401(1), 1992 Reenactment, General Laws of Rhode Island, 1956, as amended. The statesecurities commission has taken the position (unpublished) that the term commercial enterprise does notinclude a not-for-profit entity. As to the availability of other exemptions from registration (for example, forsingle family mortgage revenue bonds and student loan bonds), the staff recommends sending a writtenrequest for guidance.

Registrable Rhode Island Industrial or Commercial Enterprise Bonds also do not include municipalsecurities payable solely from revenues to be received from a nongovernmental industrial or commercialenterprise that are offered and sold in a transaction qualifies as an exempt transaction under Section7-11-402, 1992 Reenactment, General Laws of Rhode Island, 1956, as amended.

The state’s blue sky law amendments in response to NSMIA (1) do not change the pre-NSMIAexemption from registration, (2) provide a separate exemption from registration for covered securities, (3)with respect to any security that is a covered security under Section 18(b)(4)(D) (for example, a TaxableIDB that is offered in compliance with Rule 506 of Regulation D), authorize the director, by rule orotherwise, to require the issuer to file a notice on SEC Form D, a consent to service of process and thepayment of a filing fee, and (4) authorize the director, by rule or otherwise, to require the filing of anydocument filed with the SEC, with respect to a covered security under Section 18(b)(3) or (4), togetherwith a notice and a filing fee. Sections 7-11-301(3), 7-11-307(b) and (c), and 7-11-401(1), 1992Reenactment, General Laws of Rhode Island, 1956, as amended. To date, no such requirements have beenimposed.

As a result of the foregoing:

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(a) Tax-exempt Registrable Rhode Island Industrial or Commercial Enterprise Bonds that areissued by Rhode Island issuers and exempt from Securities Act registration pursuant to the IDB Exemptionunder Section 3(a)(2), if offered or sold in Rhode Island, and all Registrable Rhode Island Industrial orCommercial Enterprise Bonds that are issued by Rhode Island issuers and exempt from Securities Actregistration pursuant to the General Exemption or the Bank Guaranty Exemption under Section 3(a)(2),regardless of their tax status, if offered or sold in Rhode Island, remain subject to state registration (becausesuch Bonds are not covered securities under Section 18(b)(4)(C)).

(b) Tax-exempt Registrable Rhode Island Industrial or Commercial Enterprise Bonds that areissued by out-of-state issuers and exempt from Securities Act registration pursuant to the IDB Exemptionunder Section 3(a)(2) and all Registrable Rhode Island Industrial or Commercial Enterprise Bonds that areissued by out-of-state issuers and exempt from Securities Act registration pursuant to the GeneralExemption or the Bank Guaranty Exemption under Section 3(a)(2), regardless of their tax status, areexempt from state registration (because such Bonds are covered securities under Section 18(b)(4)(C)).

(c) Registrable Rhode Island Industrial or Commercial Enterprise Bonds issued by out-of-stateissuers that are exempt from Securities Act registration pursuant to Rule 506 of Regulation D, regardlessof their tax status or the issuer’s location (for example, a Taxable IDB that is offered in compliance withRule 506 of Regulation D), are exempt from state registration (because such Bonds are covered securitiesunder Section18(b)(4)(D)).

(d) Registrable Rhode Island Industrial or Commercial Enterprise Bonds that are exempt fromSecurities Act registration pursuant to Rules 504 or 505 of Regulation D or pursuant to a “statutory privateplacement” under Section 4(2) or that have been registered under Section 5, regardless of their tax statusor the issuer’s location, are subject to state registration (in each case because such Bonds do not constitutecovered securities under either Section 18(b)(4)(C) or 18(b)(4)(D)).

South Carolina

^ Analysis:

^ South Carolina has enacted the Uniform Securities Act of 2002, effective January 1, 2006. Seerevised Chapter 1, Title 35 of the Code of Laws of South Carolina, 1976, as amended, and III. The Effectsof NSMIA, F. Uniform Securities Act of 2002, supra. Pursuant to revised Section 35-1-201, the Codeof Laws of South Carolina, 1976, as amended, all municipal bonds that are offered and sold in SouthCarolina are exempt from registration and notice filings. However, in most cases, sales to the general publicmay only be made by a registered broker-dealer. See revised Section 35-10-401 of the Code of Lawsof South Carlina, 1976, as amended.

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South Dakota

Pre-NSMIA Action: None, except registration for certain conduit issues

Post-NSMIA Action: None

Analysis:

South Dakota has enacted the Uniform Securities Act of 2002, effective July 1, 2004. See Section47-31B-101 et. seq., South Dakota Codified Laws, and III. The Effects of NSMIA, F. Uniform SecuritiesAct of 2002, supra. Pursuant to Section 47-31B-201.(1), South Dakota Codified Laws, all municipalbonds that are offered and sold in South Dakota are exempt from registration and notice filings. However,in most cases, sales to the general public may only be made by a registered broker-dealer. See Section47-31B-401, South Dakota Codified Laws.

Tennessee

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

Under State law, municipal securities were exempt from registration prior to NSMIA. The state’sconforming amendments do not change the pre-NSMIA exemption from registration.

Texas

Pre-NSMIA Action: None, except registration for certain “industrial development bonds”

Post-NSMIA Action: None

Analysis:

Prior to NSMIA, municipal securities were exempt from state registration, except that pursuant toChapter 135, Texas Blue Regulations, certain “industrial development bonds” were subject to registration. After NSMIA, Texas has repealed the Chapter 135 registration requirement, so that all municipalsecurities are exempt from registration.

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Utah

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

Vermont

^ Analysis:

Vermont has enacted the Uniform Securities Act of 2002, effective July 1, 2006. See The Effectsof NSMIA, F. Uniform Securities Act of 2002, supra. Pursuant to Title 9, Chapter 150, Section 5201,Vermont Statutes Annotated, as amended, all municipal bonds that are offered and sold in Vermont areexempt from registration and notice filings. However, in most cases, sales to the general public may onlybe made by a registered broker-dealer. See Title 9, Chapter 150, Section 5401, Vermont StatutesAnnotated, as amended.

Virginia

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

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Washington

Pre-NSMIA Action: Registration for certain conduit issues

Post-NSMIA Action: See below

Analysis:

Because of the complicated interaction of state and federal law in this state, particularly formunicipal securities that are secured by a letter of credit, the author recommends that you read Part III. TheEffects of NSMIA, C. Changes in Registration Requirements for Industrial or CommercialEnterprise/Industrial Development Bonds, 1. Industrial or Commercial Enterprise/Industrial DevelopmentBonds States, supra, as part of your consideration of this state’s requirements.

The state’s blue sky law provides that any municipal security that is payable solely from revenuesto be received from a nongovernmental industrial or commercial enterprise (“Registrable WashingtonIndustrial or Commercial Enterprise Bonds”), other than a municipal security for which such payments aremade or unconditionally guaranteed by any railroad, other common carrier, public utility or holdingcompany which meets certain requirements or a municipal security which satisfies certain ratingrequirements (described below), are subject to registration. Section 21.20.310(1), 1989 Revised Codeof Washington, as amended.

The term “industrial or commercial enterprise” includes, but is not limited to, a private profit ornonprofit hospital, health care facility, college, university or educational institution, single or multi-familymortgage loan program, port authority concessionaire or manufacturing or service business. Section460-42A-020, Washington Administrative Code, Securities Rules, as amended. The state’s securitiesdivision has not taken a position as to whether student loan bonds are exempt from registration.

Any security which would otherwise be exempt from registration, except that it is payable from anon-governmental industrial or commercial enterprise, shall be exempt from registration if it meets therequirements of either paragraphs (1) or (2) below:

(1) the security receives a rating of “AA” or better from Standard and Poor’s Corporation oran equivalent rating from Moody’s Investors Service, Inc.; or

(2) (a) the security is issued to fund a single-family mortgage loan program established andoperated by a state housing finance agency; and (b) the security receives a rating of at least “A+” fromStandard and Poor’s Corporation or an equivalent rating from Moody’s Investors Service, Inc. Section460-42A-030, Washington Administrative Code, Securities Rules, as amended.

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Registrable Washington Industrial or Commercial Enterprise Bonds also do not include municipalsecurities payable from revenues to be received from a nongovernmental industrial or commercialenterprise that are offered and sold in a transaction qualifies as an exempt transaction under Section21.20.320, 1989 Revised Code of Washington, as amended.

The state’s blue sky law amendments in response to NSMIA (1) provide a separate exemptionfrom registration for covered securities, (2) with respect to any security that is a covered security underSection 18(b)(4)(D) (for example, a Taxable IDB that is offered in compliance with Rule 506 of RegulationD), authorize the director, by rule or otherwise, to require the issuer to file a notice on SEC Form D, aconsent to service of process and the payment of a filing fee and (3) authorize the director, by rule orotherwise, to require the filing of any document filed with the SEC under the Securities Act with respectto any covered security under Section 18(b)(4) and/or the payment of a filing fee. Securities that areexempt from state registration are also exempt from the notice filings described in the foregoing clauses (2)and (3). Sections 21.20.310(1), 21.20.140 and 21.20.327(2) and (3), 1989 Revised Code ofWashington, as amended.

Pursuant to WAC 460-18A-100 (which supercedes CCH para. 61,810A, Policy Statement No.18, dated April 1, 1997), the state has imposed notice filings on municipal securities that are coveredsecurities pursuant to Sections 3(a)(2) and 18(b)(4)(C) and that are not also exempt from state registration.WAC 460-18A-100 imposes an initial notice filing consisting of a completed municipal securities noticefiling form, a consent to service of process signed by the issuer of the municipal securities and the filing feerequired by Section 21.20.340(1)(b), 1989 Revised Code of Washington, as amended (i.e., $100 for thefirst $100,000 of the issue or portion thereof offered in Washington, plus 1/20 of one percent of any excessover $100,000), and a renewal filing for the portion of the offering remaining unsold after 12 months,consisting of a renewal announcement, a renewal fee of $50 to renew the unsold portion of the securitiesfor which a notice filing has previously been paid, plus if the amount of securities subject to the notice filingis being increased, the fee prescribed by Section 21.20.340(1)(b), 1989 Revised Code of Washington,as amended (i.e., $100 for the first $100,000 of the issue or portion thereof, offered in Washington, plus1/20 of one percent of any excess over $100,000) to cover the increase in the amount of securities to beoffered.

As a result of the foregoing:

(a) Tax-exempt Registrable Washington Industrial or Commercial Enterprise Bonds that areissued by Washington issuers and exempt from Securities Act registration pursuant to the IDB Exemptionunder Section 3(a)(2), if offered or sold in Washington, and all Registrable Washington Industrial orCommercial Enterprise Bonds that are issued by Washington issuers and exempt from Securities Actregistration pursuant to the General Exemption or the Bank Guaranty Exemption under Section 3(a)(2),regardless of their tax status, if offered or sold in Washington, remain subject to state registration (becausesuch Bonds are not covered securities under Section 18(b)(4)(C)).

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(b) Tax-exempt Registrable Washington Industrial or Commercial Enterprise Bonds that areissued by out-of-state issuers and exempt from Securities Act registration pursuant to the IDB Exemptionunder Section 3(a)(2) and all Registrable Washington Industrial or Commercial Enterprise Bonds that areissued by out-of-state issuers and exempt from Securities Act registration pursuant to the GeneralExemption or the Bank Guaranty Exemption under Section 3(a)(2), regardless of their tax status, areexempt from state registration (because such Bonds are covered securities under Section 18(b)(4)(C)),but must comply with the notice filing requirement described above.

(c) Registrable Washington Industrial or Commercial Enterprise Bonds issued by out-of-stateissuers that are exempt from Securities Act registration pursuant to Rule 506 of Regulation D, regardlessof their tax status or the issuer’s location (for example, a Taxable IDB that is offered in compliance withRule 506 of Regulation D), are exempt from state registration (because such Bonds are covered securitiesunder Section18(b)(4)(D)).

(d) Registrable Washington Industrial or Commercial Enterprise Bonds that are exempt fromSecurities Act registration pursuant to Rules 504 or 505 of Regulation D or pursuant to a “statutory privateplacement” under Section 4(2) or that have been registered under Section 5, regardless of their tax statusor the issuer’s location, are subject to state registration (in each case because such Bonds do not constitutecovered securities under either Section 18(b)(4)(C) or 18(b)(4)(D)).

West Virginia

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

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Wisconsin

Pre-NSMIA Action:

Revenue Obligations: Registration for certain conduit issues, regardless of issuer’s location, thatare payable from payments made by nongovernmental industrial or commercial enterprises, unless (a) thebonds are secured by a qualifying letter of credit or (b) the bonds satisfy the certain requirements ofWisconsin Department of Financial Institutions (“DFI”). DFI rules require a notice filing for certain conduitbonds (described below) that includes a trust indenture, official statement and financial statements that meetcertain requirements.

General Obligations: Financial statements for issuers of general obligation debt, regardless ofissuer’s location, must be prepared in accordance with generally accepted accounting principals or inaccordance with DFI rules.

Post-NSMIA Action:

See below

Analysis:

Revenue Obligations: The state’s blue sky law provides that any municipal security that is payablefrom payments to be made in respect of property or money used under a lease, sale or loan arrangementby or for a nongovernmental industrial or commercial enterprise (“Registrable Wisconsin Conduit Bonds”),other than bonds that are secured by a qualifying letter of credit described in Section 551.22(1)(b),Wisconsin Statutes, 1987-1988, as amended, or bonds that satisfy the requirements of DFI rules, aresubject to registration. Section 551.22(1)(a) and (b), Wisconsin Statutes, 1987-1988, as amended.

Pursuant to the requirements set forth in various interpretive opinions, municipal securities that aresecured by payments made by organizations described in Section 501(c)(3) of the Internal Revenue Codeof 1986 (CCH paras. 64, 953 and 64,961) and student loan bonds (CCH para. 64,976) are not subjectto registration. DFI provides an extensive on-line discussion of exemptions available for municipalsecurities at www.wdfi.org/fi/securities/regexemp/exemptions under the heading “Government-IssuedSecurities.”

DFI rules provide for an exemption from registration if:

(a) The enterprise is a public utility having securities registered under Section 12 of theSecurities Exchange Act of 1934 or is a wholly-owned subsidiary of one or more such utilities.

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(b) Any securities of the enterprise or any securities of an unconditional guarantor of allpayments under the lease, sale or loan arrangement are covered securities under Section 18(b)(1) (i.e.,securities are listed on specified securities exchanges) or are exempt under Section 551.22(7), WisconsinStatutes, 1987-1988, as amended (i.e., securities listed or authorized for listing on securities exchangesdesignated by rule by the Division).

(c) a notice of the offering (including a trust indenture, official statement and financial statementsmeeting certain requirements) are filed with the Wisconsin Securities Division and the Division does not byorder deny the exemption within 10 days of the date the notice is filed. DFI Rule 2.01(1)(a)(1), (2) and(3).

General Obligations: The state’s blue sky law also provides that any municipal security, other thana revenue obligation, is exempt from registration only if the issuer’s financial statements are preparedaccording generally accepted accounting principles or guidelines which the Division designates by rule.

State Blue Sky Law Response to NSMIA: The state’s blue sky law amendments in response toNSMIA (1) provide a separate exemption from registration for covered securities, (2) with respect to anysecurity that is a covered security under Section 18(b)(4)(D) (for example, a Taxable IDB that is offeredin compliance with Rule 506 of Regulation D), authorize the division, by rule or order, to require the issuerto file a notice on SEC Form D and the payment of a filing fee and (3) authorize the division, by rule ororder, to require the filing of any document filed with the SEC under the Securities Act with respect to anycovered security under Section 18(b)(4) and the payment of a filing fee. Sections 551.21(1)(c) and551.29(2) and (3), Wisconsin Statutes, 1987-1988, as amended.

DFI rule amendments in response to NSMIA provide that with respect to a covered security underSection 18(b)(4)(D) (i.e., a municipal security offered in reliance upon Rule 506 of Regulation D) requirethe issuer or a person acting on behalf of the issuer to file with the Division a notice consisting of acompleted Form D and a $200 fee. DFI Rule 2.04(2)

DFI rule amendments in response to NSMIA also provide that with respect to a covered securitythat is a revenue obligation of the type described above, that is issued by a non-Wisconsin issuer and thatwould have required a filing with the Division, the issuer or a person acting on behalf of the issuer shall filea notice identifying the issue and a $200 fee. DFI Rule 2.04(3).

As a result of the foregoing:

(a) Registrable Wisconsin Conduit Bonds issued by Wisconsin issuers, if offered or sold inWisconsin, regardless of their tax status, are subject to state registration (because such bonds are notcovered securities), unless: (1) subparagraph (c) below applies, (2) the bonds are secured by a qualifyingletter of credit, (3) the bonds satisfy the requirements of DFI rules or (4) the transaction qualifies as anexempt transaction under Section 551.23, Wisconsin Statutes, 1987-1988, as amended;

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(b)(1) Tax-exempt Registrable Wisconsin Conduit Bonds issued by out-of-state issuers that areexempt from Securities Act registration pursuant to the IDB Exemption under Section 3(a)(2) and thatpreviously would have required a filing with the state securities division and (2) Registrable WisconsinConduit Bonds issued by out-of-state issuers, regardless of their tax status, that are exempt from SecuritiesAct registration pursuant to the General Exemption or the Bank Guaranty Exemption under Section 3(a)(2)and that previously would have required a filing with the state securities division are exempt from stateregistration (because such bonds are covered securities under Section 18(b)(4)(C)), but must comply withstate notice filing requirements;

(c) Registrable Wisconsin Conduit Bonds, regardless of their tax status and the issuer’s location,that are exempt from Securities Act registration pursuant to Rule 506 of Regulation D that previously wouldhave required a filing with the state securities division are exempt from state registration because such bondsare covered securities, but must comply with state notice filing requirements; and

(d) Registrable Wisconsin Conduit Bonds, regardless of their tax status and the issuer’s location,that are exempt from registration under the Securities Act pursuant to Rules 504 or 505 of Regulation Dor pursuant to a “statutory private placement” under Section 4(2) or that have been registered underSection 5 are subject to state registration (in each case because such bonds do not constitute coveredsecurities), unless: (1) the bonds are secured by a qualifying letter of credit, (2) the bonds satisfy therequirements of DFI rules or (3) the transaction qualifies as an exempt transaction under Section21.20.230, Wisconsin Statutes, 1987-1988, as amended.

After NSMIA, states may not impose any conditions, based upon the merits of the offering or theissuer, on the offer or sale of any covered security.

Thus, after NSMIA in Wisconsin the above merit conditions relating to the trust indenture, officialstatement and financial statements for the revenue obligations described above and relating to financialstatements for issuers of general obligations do not apply to: (1) municipal securities that are (i) issued byout-of-state issuers and (ii) exempt from registration pursuant to the General Exemption, the IDBExemption or the Bank Guaranty Exemption, and (2) municipal securities that are exempt from registrationpursuant to Rule 506, regardless of their tax status or the issuer’s location (in each case because suchmunicipal securities are covered securities).

After NSMIA, in Wisconsin the above merit conditions apply to: (1) municipal securities issuedby Wisconsin issuers, if offered or sold in Wisconsin, regardless of their tax status (unless the issue isexempt from registration pursuant to Rule 506), and (2) municipal securities that are exempt fromregistration pursuant to Rules 504 or 505 of Regulation D or pursuant to a “statutory private placement”under Section 4(2) or that have been registered under Section 5, regardless of their tax status or theissuer’s location (in each case because such municipal securities are not covered securities).

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Wyoming

Pre-NSMIA Action: None

Post-NSMIA Action: None

Analysis:

The state’s blue sky law amendments in response to NSMIA do not change the pre-NSMIAexemption from registration.

A - 1

APPENDIX

Section 18 of the Securities Act of 1933, as amended

18. EXEMPTION FROM STATE REGULATION OF SECURITIES OFFERINGS.

(a) SCOPE OF EXEMPTION--Except as otherwise provided in this section, no law, rule,regulation, or order, or other administrative action of any State or any political subdivision thereof --

(1) requiring, or with respect to, registration or qualification of securities, or registration orqualification of securities transactions, shall directly or indirectly apply to a security that–

(A) is a covered security; or

(B) will be a covered security upon completion of the transaction;

(2) shall directly or indirectly prohibit, limit, or impose any conditions upon the use of–

(A) with respect to a covered security described in subsection (b), any offeringdocument that is prepared by or on behalf of the issuer; or

(B) any proxy statement, report to shareholders, or other disclosure documentrelating to a covered security or the issuer thereof that is required to be and is filed with theCommission or any national securities organization registered under section 15A of theSecurities Exchange Act of 1934, except that this subparagraph does not apply to thelaws, rules, regulations, or orders, or other administrative actions of the State of incorpora-tion of the issuer; or

(3) shall directly or indirectly prohibit, limit, or impose conditions, based on the merits ofsuch offering or issuer, upon the offer or sale of any security described in paragraph (1).

(b) COVERED SECURITIES--For purposes of this section, the following are covered securities:

(1) EXCLUSIVE FEDERAL REGISTRATION OF NATIONALLY TRADEDSECURITIES--A security is a covered security if such security is–

(A) listed, or authorized for listing, on the New York Stock Exchange or theAmerican Stock Exchange, or listed, or authorized for listing, on the National MarketSystem of the Nasdaq Stock Market (or any successor to such entities);

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(B) listed, or authorized for listing, on a national securities exchange (or tier orsegment thereof) that has listing standards that the Commission determines by rule(on itsown initiative or on the basis of a petition) are substantially similar to the listing standardsapplicable to securities described in subparagraph (A); or

(C) is a security of the same issuer that is equal in seniority or that is a seniorsecurity to a security described in subparagraph (A) or (B).

(2) EXCLUSIVE FEDERAL REGISTRATION OF INVESTMENT COMPANIES--Asecurity is a covered security if such security is a security issued by an investment company that isregistered, or that has filed a registration statement, under the Investment Company Act of 1940.

(3) SALES TO QUALIFIED PURCHASERS--A security is a covered security withrespect to the offer or sale of the security to qualified purchasers, as defined by the Commissionby rule. In prescribing such rule, the Commission may define the term "qualified purchaser"'differently with respect to different categories of securities, consistent with the public interest andthe protection of investors.

(4) EXEMPTION IN CONNECTION WITH CERTAIN EXEMPT OFFERINGS--Asecurity is a covered security with respect to a transaction that is exempt from registration underthis title pursuant to–

(A) paragraph (1) or (3) of section 4, and the issuer of such security files reportswith the Commission pursuant to section 13 or 15(d) of the Securities Exchange Act of1934;

(B) section 4(4);

(C) section 3(a), other than the offer or sale of a security that is exempt from suchregistration pursuant to paragraph (4), (10), or (11) of such section, except that amunicipal security that is exempt from such registration pursuant to paragraph (2) of suchsection is not a covered security with respect to the offer or sale of such security in theState in which the issuer of such security is located; or

(D) Commission rules or regulations issued under section 4(2), except that thissubparagraph does not prohibit a State from imposing notice filing requirements that aresubstantially similar to those required by rule or regulation under section 4(2) that are ineffect on September 1, 1996.

(c) PRESERVATION OF AUTHORITY–

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(1) FRAUD AUTHORITY--Consistent with this section, the securities commission (or anyagency or office performing like functions) of any State shall retain jurisdiction under the laws ofsuch State to investigate and bring enforcement actions with respect to fraud or deceit, or unlawfulconduct by a broker or dealer, in connection with securities or securities transactions.

(2) PRESERVATION OF FILING REQUIREMENTS–

(A) NOTICE FILINGS PERMITTED--Nothing in this section prohibits thesecurities commission (or any agency or office performing like functions) of any State fromrequiring the filing of any document filed with the Commission pursuant to this title, togetherwith annual or periodic reports of the value of securities sold or offered to be sold topersons located in the State (if such sales data is not included in documents filed with theCommission), solely for notice purposes and the assessment of any fee, together with aconsent to service of process and any required fee.

(B) PRESERVATION OF FEES--

(i) IN GENERAL--Until otherwise provided by law, rule, regulation, ororder, or other administrative action of any State, or any political subdivisionthereof, adopted after the date of enactment of the National Security MarketsImprovement Act of 1996, filing or registration fees with respect to securities orsecurities transactions shall continue to be collected in amounts determinedpursuant to State law as in effect on the day before such date.

(ii) SCHEDULE--The fees required by this subparagraph shall be paid,and all necessary supporting data on sales or offers for sales required undersubparagraph (A), shall be reported on the same schedule as would have beenapplicable had the issuer not relied on the exemption provided in subsection (a).

(C) AVAILABILITY OF PREEMPTION CONTINGENT ON PAYMENT OFFEES–

(i) IN GENERAL--During the period beginning on the date of enactmentof the National Securities Markets Improvement Act of 1996 and ending 3 yearsafter that date of enactment, the securities commission (or any agency or officeperforming like functions) of any State may require the registration of securitiesissued by any issuer who refuses to pay the fees required by subparagraph (B).

(ii) DELAYS--For purposes of this subparagraph, delays in payment offees or underpayments of fees that are promptly remedied shall not constitute arefusal to pay fees.

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(D) FEES NOT PERMITTED ON LISTED SECURITIES--Notwithstandingsubparagraphs (A), (B), and (C), no filing or fee may be required with respect to anysecurity that is a covered security pursuant to subsection (b)(1), or will be such a coveredsecurity upon completion of the transaction, or is a security of the same issuer that is equalin seniority or that is a senior security to a security that is a covered security pursuant tosubsection (b)(1).

(3) ENFORCEMENT OF REQUIREMENTS--Nothing in this section shall prohibit thesecurities commission (or any agency or office performing like functions) of any State fromsuspending the offer or sale of securities within such State as a result of the failure to submit anyfiling or fee required under law and permitted under this section.

(d) DEFINITIONS--For purposes of this section, the following definitions shall apply:

(1) OFFERING DOCUMENT--The term "offering document"–

(A) has the meaning given the term "prospectus" in section 2(a)(10), but withoutregard to the provisions of subparagraphs (a) and (b) of that section; and

(B) includes a communication that is not deemed to offer a security pursuant to arule of the Commission.

(2) PREPARED BY OR ON BEHALF OF THE ISSUER--Not later than 6 months afterthe date of enactment of the National Securities Markets Improvement Act of 1996, theCommission shall, by rule, define the term "prepared by or on behalf of the issuer" for purposes ofthis section.

(3) STATE--The term "State" has the same meaning as in section 3 of the SecuritiesExchange Act of 1934.

(4) SENIOR SECURITY--The term "senior security" means any bond, debenture, note,or similar obligation or instrument constituting a security and evidencing indebtedness, and anystock of a class having priority over any other class as to distribution of assets or payment ofdividends."