Analysts Federation Finds Some Support For Making Issuers Give Disclosure Aims

WASHINGTON -- About 140 municipal analysts and portfolio managers have thrown their support behind the National Federation of Municipal Analysts' controversial recommendation that bond issuers spell out in official statements whether they will or will not provide secondary market disclosure.

The number represents less than a quarter of the group's 700 members, who were asked to support the resolution in a recent mailing, but officials of the analysts group say they expect the list to grow considerably as names continue to come in daily. Moreover, some analysts may have been responding for others at their firms, the officials added.

Among the analysts and managers backing the resolution are those representing some of the major institutional buyers, including Loews/CNA Holdings, Franklin Group of Funds, Fidelity Investments, Stein Roe & Farnham, Federated Research Corp., CIGNA Investments Inc., American Express Co., METLIFE, USF&G, Eaton Vance Management Corp., Kemper Securities, and John Nuveen & Co.

Officials from the municipal analysts group stressed that the endorsements were made by the individual analysts and managers and not the firms.

The resolution by the municipal analysts group calls for the introductions to official statements to include one of the following two statements: "The issuer will provide annual financial statements and other pertinent credit information, including the comprehensive annual financial report, if one is prepared upon request," or, "The issuer has made no provision to provide any annual financial statements or other credit information to investors on a periodic basis."

The language goes one step further than disclosure guidelines published last year by the Government Finance Officers Association. Those guidelines said issuers should declare in official statements that they will provide annual reports and other ongoing information, but the group's guidelines did not tell issuers to spell out if they would not provide secondary disclosure.

"This was just our first go round," said Mary Jo Ochson, president of the municipal analysts group and vice president of Federated Research Corp. in Pittsburgh. "We are just at a beginning stage. More names are coming." Ms. Ochson's group has grown increasingly frustrated at the market's sluggish response to a push by industry groups for improved secondary market disclosure.

"The response we are getting to the resolution confirms that there is overwhelming support in the analyst and buying ranks for something to be done about issuers revealing their disclosure intentions," said Richard Ciccarone, senior vice president and director of fixed-income research at Kemper Securities in Chicago.

"The fact that you have so many feeling this is important, I think, is going to have to make issuers think twice" about not providing for secondary market disclosure, he said.

He stressed that the model language is not etched in stone and can be modified by issuers. "We want issuers to tell us the story the way it is today," he said. "They can say in the introduction that they have made no current provision for secondary market disclosure, but may consider it in the future."

Or, if they are a small issuer, they can simply say that providing secondary market disclosure would be too expensive, he said. Another alternative is to pledge to provide it on the condition that analysts pay postage and handling, he added.

In a related move, the Public Securities Association's board of directors, which already has joined forces with analysts in supporting the recommendation, went one step further last week. The group's credit research committee, chaired by Thomas Buckmeyer, vice president of municipal research at Smith Barney, Harris Upham & Co., voted to ask PSA's public finance committee to recommend that investment bankers push the language among their issuer clients.

"By endorsing better disclosure practices, PSA furthers its goal of promoting a healthy municipal bond market without burdensome regulation," Mr. Buckmeyer said. "The NFMA proposal that municipal bond issuers state their intention regarding ongoing disclosure will allow investors to factor the credit information availability risk into their investment decisions."

The PSA is the only municipal industry group other than the analysts to formally support the measure to date.

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