One of the great privledges of working with the All-American Municipal Analysts throughout the year is sharing their concerns about municipal investments and municipal governments.

Over 130 people will attend the 1991 All-American Municipal Analysts Conference, which shows a strong vote of support for municipal research.

It struck me watching a music video television station that everyone involved in the municipal bond industry is "cool" or "hot" or "new age" because the industry is "doing something" about reducing pollution, cleaing up our nation's water and air, and even saving our nation's forests.

The real concerns underlying municipal analysis are quite extraordinary:

* How can a hospital improve the delivery of health care?

* Will new technologies and methods to reduce the amount of garbage being dumped into landfills?

* What can be done to help water and sewer districts' treatment facilities produce cleaner water?

* Where can a facility be build to care for AIDS patients?

* Can a school system increase its graduation rate through better facilities?

These concerns of the municipal bond industry wouldmake Mr. Jacob Marley in Charles Dicken's Christmas Carol proud; this is the realbusiness of mankind.

Risky Business

Unfortunately, the concerns of municipal bond analysts also include the increasing likelihood that municipalities may seek protection under chapter 9 of the U.S. bankruptcy code.

James Spiotto, partner at the law firm of Chapman & Cutler, joins Nancy Utterback of Kidder, Peabody & Co. in discussing the implications of municipal bankruptcy at the conference.

As Robert Chamberlin of Dean Witter Reynolds mentioned at last year's All-American Conference, "it's back to basics in municipal research."

That includes examining not only the ability of municipal issuers to pay, but also the willingness of issuers to pay.

H. Russell Fraser, chairman of Fitch Investors Services Inc., is the keynote speaker for the conference.

Fraser believes the role of municipal analysts is more important, and the profession more challenging.

Specifically, Fraser believes that municipal analyst must make judgments based upon macro-economic trends that extend far beyond the borders and regions surrounding any single municipal issue or issuer.

Analysts cannot be satisfied with a municipal issuer's credit quality based on traditional, micro-economic credit quality concerns about tax revenues, budgets, and population statistics.

Disclosure

The single most important factor influencing municipal analysis continues to be disclosure.

During 1991, progress was made toward the goal of achieving accurate, timely, consistent and ongoing disclosure.

To be sure, but difficult challenges still face the industry before adequate disclosure is achieved.

Clearly the thorniest problems are centered around ongoing disclosure. Particularly, who should pay for ongoing disclosure and what form it should take.

If issuers are going to borrow money in the public markets, I believe it is only fair to provide the public with regular updates on the ability of the issuers to repay their debt obligations.

Given the public purpose that bond proceeds are used for in the municipal bond markets, I can empathize with the issuers that balk at spending money for ongoing disclosure.

But, I also recognize that many of today's municipal bonds are purchased by retail investors - people that work too hard for their money to be blindsided by an entire city that defaults on its promised repayment of principal and interest.

Over the past year, I've heard issuers try to stonewall added disclosure on the grounds that retail investors "already can't understand what's in an official statement."

I don't know whether a retail investor that is smart enough to scap together enough money to purchase municipal bonds can understand an official statement.

I do know that todya's municipal analysts add value to retail investors' bonds by providing timely and concise reports that alert the public about potentially troublesome credits.

That's why I believe we'll see more municipal research reports over the coming year - it's incument upon municipal analysts and their firms to disseminate the disclosed information to the public as quickly and as accurately as possible.

Very truly yours, Terence M. Smith General Manager

PS: Have a great holiday season and a happy, healthy and prosperous New Year.

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