LGIP Regulation and Disclosure
While LGIPs are similar to mutual funds, they are not subject to regulation under the Investment Company Act. In particular, they are not required to register with the SEC, prepare a prospectus, or calculate net asset value on a daily basis. Municipal securities dealers that market LGIPs are also exempt from the Investment Company Act, but they must comply with MSRB rules.
Most LGIP participants invest directly through government personnel without the assistance of a municipal securities dealer. MSRB disclosure rules do not apply for LGIPs when state employees market their pools to participants without outside assistance. If municipal securities dealers market LGIPs, the LGIP is exempt from the regulations contained within the Investment Company Act, but the dealers must comply with MSRB rules.
MSRB Rule G-32, for example, requires municipal securities dealers/underwriters to provide investors with an official statement drafted by the issuer, which provides information about the issuer and its securities and any other information necessary for evaluating the investment. Dealers must provide investors with this official statement by the settlement of the transaction. When managed by government personnel, however, LGIP issuers do not have to provide this information to customers.
When an LGIP is managed by a private investment management firm and a municipal securiti