An open letter from the SEC Chairman.

Proper disclosure by issuers of municipal securities has been a subject close to my heart since my first days as Chairman of the Securities and Exchange Commission. The strength of our municipal securities markets is largely due to the confidence investors have in state and local government issuers of municipal securities. Today I ask you and all issuers of municipal securities to focus your attention on one of the most pressing disclosure issues we face today - Year 2000 readiness.

As you well know, unless modifications are made, at midnight on December 31, 1999, the vast majority of computer systems may not be able to distinguish the year 2000 from the year 1900. Many experts fear that this programming flaw could debilitate operating systems worldwide. Approximately 50,000 state and local governments have more than $1.3 trillion in municipal securities outstanding. Like any other organization, state and local governments, authorities, and agencies may have Year 2000 problems. As issuers of municipal securities, your Year 2000 problems also may be important to investors.

The Securities and Exchange Commission itself has recently spoken on this crucial issue. We have just issued an interpretive release that includes a section addressed specifically to issuers of municipal securities. You may access the full release on the SEC Web site at www.sec.gov or call the Office of Municipal Securities at 202/942-7300 for a paper copy. In Section III.E of the release, printed below, we provide guidance to municipal issuers and persons assisting in the preparation of their disclosures regarding Year 2000 disclosure.

We have worked together over the last few years to improve the quality and availability of disclosure in the municipal marketplace. Let us continue our partnership and encourage all issuers of municipal securities to give careful consideration to their Year 2000 problems and, when making disclosure to the marketplace, disclose all material concerns to investors.

Sincerely,

Arthur Levitt, Chairman Securities and Exchange Commission

Generally, municipal securities offerings are exempt from registration and municipal securities issuers are exempt from the reporting provisions of the federal securities laws, including line-item disclosure rules. However, they are not exempt from the anti-fraud provisions. Disclosure documents used by municipal issuers are subject to the prohibition against false or misleading statements of material facts, including the omission of material facts necessary to make the statements made, in light of the circumstances in which they are made, not misleading.

Issuers of municipal securities and persons assisting in preparing municipal issuer disclosures are encouraged to consider whether such disclosures should contain a discussion of Year 2000 issues. Persons, including "obligated persons" as defined in Rule 15c2-12, who provide information for use in disclosure documents or in ongoing disclosure to the market, are urged to consider their own Year 2000 issues. Year 2000 issues should be considered in preparing all disclosure documents, whether in the context of an official statement, continuing disclosure provided in compliance with a disclosure covenant, or other information that is reasonably expected to reach investors and the trading markets.

Whether Year 2000 issues are material depends upon the particular facts and circumstances for each municipal issuer. Consideration may be given, for example, to whether Year 2000 issues affect internal operations of an issuer or affect an issuer's ability to provide services and meet its obligations, including timely payment of its indebtedness.

Because of the varieties of municipal issuers and of municipal securities, the examples provided below may or may not apply to a particular issuer and an issuer may be subject to facts and circumstances requiring disclosure not described below. Issuers and the persons assisting in disclosure preparation should give careful consideration to Year 2000 issues within the context of the facts and circumstances applicable to the disclosing issuer or the securities.

Examples of Potential Year 2000 Problems

For municipal issuers, Year 2000 issues may be divided into three categories: internal, external and mechanical.

Internal Year 2000 issues may arise from an issuer's own operations and materially affect its creditworthiness and ability to make timely payment of its obligations.

External Year 2000 issues may arise from parties, other than an issuer, that provide payments that support the debt service on an issuer's municipal securities. Such payments may include, for example, health care reimbursement payments and payments under housing and student loan programs, as well as payments made by an obligated person under a lease, loan or installment sale agreement in a conduit financing.

Mechanical Year 2000 issues may arise if Year 2000 problems disrupt the actual mechanical process used to send payments to bondholders. For example, many municipal securities pay interest semiannually on January 1 and July 1 of each year, or have periodic sinking fund installments due to an indenture trustee or fiscal agent. Issuers may wish to determine whether Year 2000 issues affect their ability to identify and meet such obligations in a timely manner and to disclose any measures that will be undertaken if an issuer determines it will not be able to meet such obligations.

Issuers of general obligation debt may wish to consider, for example, the adverse effects, if any, Year 2000 issues may pose to their ability to assess and collect ad valorem taxes and allocate receipts and disbursements to proper funds in a timely manner to make debt service payments when due. In addition, while Year 2000 issues may not directly affect an issuer's ability to pay debt service, they may affect an issuer's general accounting and payment functions, which may be material to investors.

Revenue bond issuers may wish to consider, for example, any adverse effects Year 2000 issues may have on their ability to collect and administer the revenue stream securing their bonds and their ability to make timely payment of principal and interest on their obligations, as well as adverse effects to general accounting and payment functions, which may be material to investors.

Conduit borrowers, such as hospitals, universities, and others, may wish to consider, for example, any adverse effects Year 2000 issues may have on their ability to deliver services, collect revenue and make timely payment on their obligations, including the obligation to pay debt service relating to municipal securities, which may be material to investors.

All issuers and conduit borrowers also may wish to consider the impact of Year 2000 problems facing third parties on their own ability to satisfy their responsibilities.

Other examples of suggested disclosure for consideration include, but are not limited to, the costs associated with fixing an issuer's Year 2000 problems, any loss associated with fixing an issuer's Year 2000 problems, any loss an issuer may incur because of Year 2000 problems, and any liabilities associated with an issuer's Year 2000 problems.

While not binding on issuers of municipal securities, issuers and persons assisting in preparing municipal issuer disclosure seeking further guidance may wish to review Sections III.A, B, and C of this release applicable to public companies. The anti-fraud provisions of the federal securities law prohibit materially false and misleading statements or omissions, including those relating to the Year 2000 issues we have discussed in this release.