Commissioner’s Release: 101-C


Pete Wilson, Governor
Date: November 18, 1996

Keith Paul Bishop, Commissioner

The National Securities Markets Improvement Act of 1996 (H.R. 3005) was signed into law by the President on October 11, 1996. Title I of that act became effective immediately upon enactment. One of the provisions of Title I preempts state qualification or registration of the offer and sale of securities issued by an investment company registered, or that has filed an application for registration under, the federal Investment Company Act of 1940.

Section 3.5 of Article 3 of the California Constitution provides that a state administrative agency has no power to declare a state statute unenforceable on the basis that federal law prohibits the enforcement of the statute, unless an appellate court has made a determination that the enforcement of the statute is prohibited by federal law or regulations.

The California Legislature passed, and the Governor signed, SB 1729 (Chapter 268, Statutes 1996). This legislation creates an exemption from qualification under Corporations Code Section 25100(t) for securities issued by registered investment companies. However, this exemption does not become effective until January 1, 1997. A new filing procedure will be proposed before January 1st to reflect the provisions of Section 25100(t).

As a consequence of the federal preemption language of H.R. 3005 and the obligation of the Commissioner of Corporations under Section 3.5 of Article 3 of the California Constitution, the Commissioner has instituted the following procedures for the qualification of securities of investment companies registered under federal law:

Application Filings

  1. An application for qualification under Section 25111 or the Form U-1 (Uniform Application to Register Securities) is to be filed in compliance with Commissioner’s Rule 260.111 (10 C.C.R. Sec. 260.111).
  2. The fee is paid, as calculated under Section 25608(f), upon the filing of the application.
  3. The Form U-2 (Uniform Consent to Service of Process) or the consent to service of process form under Section 26165 (Commissioner’s Rule 260.165) is filed with the application.
  4. One copy of the prospectus and the statement of additional information are to be filed with the application, along with any exhibits to the application usually filed by the investment company under Section 25111. Material already on file with the Department of Corporations will be incorporated by reference, upon request of the applicant investment company.

Annual Renewals

  1. An investment company seeking to renew its qualification should comply with the procedure under “Application Filings”.


  1. Upon review by the Commissioner to determine the completeness of the application filing as set forth, above, the Commissioner will waive the determination of the “fairness” under Section 25140, and the requirements of the Commissioner’s Rules (10 C.C.R. Secs. 260.140.80 through 260.140.89, and issue an order waiving filing period for statement of offering price, discounts and commissions and an order accelerating effectiveness of qualification. Withdrawal of an Undertaking1. An investment company that has previously obtained a qualification presently in effect, and that wishes to withdraw the undertakings made to the Commissioner in relation to that qualification, must file a post-effective amendment to its application as required by Section 25110 and pay the fee required by Section 25608(n). Otherwise, undertakings may be withdrawn at the time of annual renewal of the qualification.
  2. The procedure under “Application Filings” and “Qualification” will be followed with respect to the filing of the post-effective amendment.

Assistant Commissioner
Office of Policy