Program Disclosure Document

An issuer of municipal bonds prepares a disclosure document for investors in a new issue. That document is called:

1. A.A prospectus, the same document used in a registered corporate offering.Wrong. That term belongs to registered corporate offerings, and municipal issues are exempt from that registration.
2. B.An official statement, the municipal counterpart to a corporate prospectus.Correct. Municipal issuers disclose through an official statement, which serves the same investor-protection purpose.
3. C.A program disclosure document, used for all state and local government debt.Wrong. That document belongs to municipal fund securities such as 529 plans rather than to general obligation or revenue bonds.
4. D.A registration statement, filed with the SEC before the bonds may be sold.Wrong. Municipal securities are exempt from Securities Act registration, so no such filing is made for the issue.

Why: Municipal securities are exempt from registration under the Securities Act, so a municipal issuer files no registration statement and delivers no prospectus. Disclosure comes instead through an official statement describing the issuer, the security behind the bonds, the use of proceeds and the risks. A separate document, the program disclosure document, is used for municipal fund securities such as 529 plans. The exemption from registration never displaces the antifraud provisions, which is why the accuracy of an official statement still matters a great deal.

A customer opening a 529 college savings plan account asks for the offering document describing the plan's investment options and fees. She should receive:

1. A.The program disclosure document prepared for that specific plan.Correct. Municipal fund securities are described in a program disclosure document rather than in a prospectus.
2. B.The official statement used for the state's general obligation bonds.Wrong. That document covers the state's own borrowing and has nothing to do with a savings program.
3. C.A prospectus registered with the SEC for the plan's underlying portfolios.Wrong. The plan interest is itself a municipal fund security, so disclosure does not come through a fund registration.
4. D.A preliminary prospectus, since 529 accounts are opened continuously.Wrong. A preliminary document belongs to the cooling-off period of a registered offering, which this is not.

Why: A 529 plan interest is a municipal fund security, which places it in the municipal family rather than the registered investment company family. Disclosure therefore arrives through a program disclosure document covering the investment options, the fees, the tax treatment and the rules on qualified use. The document is specific to the plan and the state sponsoring it, which matters because terms differ from one state's program to another. Its function mirrors a prospectus, but the vocabulary and the regulatory framework are municipal.