Municipal Fund Securities

529 College Savings Plans
Local Government Investment Pools

Local Government Investment Pools

The information provided below is a general summary of some of the basic features of LGIPs. These features may vary from state to state and between different LGIPs offered within the same state. For a more complete understanding of pool-specific features, please refer to the applicable state statutes and the program disclosure materials available from the LGIPs and their agents.

Introduction:  LGIPs are established by state or local governmental entities as trusts that serve as vehicles for the pooled investment of public moneys of participating governmental entities.  Participating units of governments purchase interests in the trust and trust assets are invested according to the trust’s stated investment objectives.  Many LGIPs engage investment management firms to manage the investment of trust assets, although many also rely on government employees to undertake such management.  In a limited number of cases, broker-dealers have been engaged to market interests in LGIPs to local governments.

Investment Risk:  Investments in LGIPs typically involve investment risks.  Although plans are established by governmental entities, these entities do not provide guarantees against investment loss, except in certain very limited cases.  As with any investment in a mutual fund or other equity security, an investment in an LGIP can decrease in value.  Although most LGIPs invest in short-term securities and are designed to maintain a stable net asset value, there is no assurance that participants’ holdings will remain fully liquid or that such “money market” LGIPs will always maintain a share price that does not fall below $1 (or “break the dollar”).  Furthermore, although the past performance of an LGIP may be one of several appropriate factors to consider in choosing an investment, such past performance is not necessarily indicative of how a particular investment vehicle will perform in the future.

Application of Federal Securities Laws:  Although LGIPs generally have been modeled after mutual funds, they are not subject to regulation under the Investment Company Act.  In particular, in structuring an LGIP, an issuer is not required to meet the basic requirements set forth in the Investment Company Act.  The requirements from which an LGIP issuer is exempted include, among other things, registration with the Securities and Exchange Commission ("SEC"), preparation of a prospectus and statement of additional information (SAI), daily calculation of net asset value, and establishment of a board of directors that includes independent directors.  Furthermore, money market LGIPs are exempt from the SEC’s risk-limiting rules (specifically, Investment Company Act Rule 2a-7) designed to ensure that money market mutual funds maintain their liquidity and do not break the dollar.  Broker-dealers that market LGIPs are also exempt from the Investment Company Act, but they must fully comply with MSRB rules.  See Securities Regulation.

LGIP Participants:  Investors, or participants, in LGIPs are state or local governmental units.  In many cases, the participants in a particular LGIP will be limited to a specific type of governmental entity and/or entities located within a specific jurisdiction.  For example, a LGIP may be available solely to participants that are school districts within a particular state, or it may be available solely to cities and townships within a particular county.  In some cases, a governmental unit may qualify to participate in more than one LGIP within its state.  The nature of participants permitted to invest in LGIPs is governed by state law or LGIP rules and procedures. 

Nature of Investments:  LGIPs generally are structured to meet a particular investment objective.  In most cases, they are designed to serve as short-term investments for funds that may be needed by participants on a day-to-day or near-term basis.  These LGIPs tend to emulate typical money market mutual funds in many respects, particularly by maintaining a stable net asset value of $1 through investments in short-term securities.  A few LGIPs are designed to provide the potential for greater returns through investment in longer-term securities for participants’ funds that may not be needed on a near-term basis.  The value of shares in these LGIPs fluctuates depending upon the value of the underlying investments.  LGIPs also may be designed to assist issuers of municipal bonds to meet their yield restriction obligations under the Internal Revenue Code with respect to the investment of bond proceeds.  LGIPs limit the nature of underlying investments to those in which its participants are permitted to invest under applicable state law, or state law may explicitly authorize participants to invest in the LGIP. 

Program Disclosures:  Each LGIP typically provides information designed to assist participants in making an investment decision and in understanding how the LGIP operates.  Many LGIPs provide some or all of this information through their websites.  In addition, for LGIPs where a broker-dealer has been engaged to provide marketing services, SEC Rule 15c2-12 requires that the broker-dealer receive from the issuer a copy of an “official statement” (often referred to as an Information Statement) that includes, among other things, information concerning the terms of the securities and information concerning the issuer and other entities, enterprises, funds, accounts and other persons material to an evaluation of the offering.  This requirement does not apply, however, in situations where state employees market their LGIPs directly to participants without the assistance of a broker-dealer.  If a broker-dealer sells LGIP shares, it generally is obligated under MSRB Rule G-32 to provide a copy of the official statement to the participant by settlement.

Fees and Charges:  As with the purchase of a mutual fund, certain fees and charges may affect the total return on an LGIP investment.  If LGIP shares are sold by broker-dealers, it is possible that a commission or sale charge may be charged.  In addition, the LGIP may charge annual or other miscellaneous charges.  Further, any investment management firm engaged by the LGIP typically will charge a fee based on the assets under management.  In some cases, these fees and charges may be paid out of the assets in the plan, in which case current returns on money market LGIPs and share values of other LGIPs will accordingly be reduced.  Other charges, including but not limited to any commissions or annual account maintenance fees, will be payable directly by the investor.

Investing Directly Through LGIP Personnel: Most LGIPs provide for investments to be made directly through LGIP personnel without the assistance of a broker-dealer. MSRB rules do not apply to sales by non-broker-dealer LGIP personnel.

Investing Through a Broker-Dealer:  A limited number of LGIPs are marketed by broker-dealers.  Typically, this broker-dealer is affiliated with the investment management firm engaged by the LGIP to manage the investment of pool assets. Broker-dealers must conduct their marketing activities in compliance with MSRB rules.

For More Information: More information about LGIPs may be obtained from each of the pools, any outside investment management firms engaged to manage the pools, or any broker-dealers involved in the marketing of such pools. Information on LGIPs often is available from the state treasurer's office. The National Association of State Treasurers (NAST) provides links to state treasurer web sites and publishes other resources relating to LGIPs. The Government Finance Officers Association (GFOA) also provides information to its members on LGIPs. Information regarding the accounting standards applicable to LGIPs is available from the Governmental Accounting Standards Board, in particular its Statement No. 31. In addition, general information regarding LGIPs is available from Standard & Poor's. The MSRB does not control or maintain these web sites, nor does it guarantee the accuracy or completeness of the information on these web sites.