At the time of purchase, obligations must be of investment
grade quality. This means that they must either
be rated within the four highest credit ratings assigned
by nationally recognized statistical rating organizations or,
if unrated, be determined to be of comparable quality
by the Adviser/Sub-Adviser.
of Municipal Bond Ratings
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation
rating is a current assessment of the creditworthiness of an obligor with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes
in, or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default - capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is extremely
AA Debt rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only in
A Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful completion
of the project being financed by the debt being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
Moody's Investors Service. A brief description of the applicable
Moody's Investors Service rating symbols and their meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edge". Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long?term risks appear somewhat larger
than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time
in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings. There are four rating categories
for short?term obligations, all of which define an investment grade situation.
These are designated Moody's Investment Grade as MIG 1 through MIG 4.
In the case of variable rate demand obligations (VRDOs), two ratings are
assigned; one representing an evaluation of the degree of risk associated
with scheduled principal and interest payments, and the other representing
an evaluation of the degree of risk associated with the demand feature.
The short?term rating assigned to the demand feature of VRDOs is designated
as VMIG. When no rating is applied to the long or short?term aspect of
a VRDO, it will be designated NR. Issues or the features associated with
MIG or VMIG ratings are identified by date of issue, date of maturity
or maturities or rating expiration date and description to distinguish
each rating from other ratings. Each rating designation is unique with
no implication as to any other similar issue of the same obligor. MIG
ratings terminate at the retirement of the obligation while VMIG rating
expiration will be a function of each issuer's specific structural or
MIG1/VMIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad?based access to the market for refinancing.
MIG2/VMIG2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG3/VMIG3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength
of the preceding grades. Liquidity and cash flow protection may be narrow
and market access for refinancing is likely to be less well established.
MIG4/VMIG4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk
Fitch Investors Service. A brief description of the applicable
Fitch Investors Service rating symbols and their meanings follows:
AAA Highest credit quality. 'AAA' ratings denote the lowest expectation
of credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment
of financial commitments. This capacity is not significantly vulnerable
to foreseeable events.
A High credit quality. 'A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes
in circumstances or in economic conditions than is the case for higher
BBB Good credit quality. 'BBB' ratings indicate that there is currently
a low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances
and in economic conditions are more likely to impair this capacity. This
is the lowest investment-grade category.
Notes to Long-term and Short-term ratings:
"+" or "-" may be appended to a rating to denote
relative status within major rating categories. Such suffixes are not
added to the 'AAA' Long-term rating category, to categories below 'CCC',
or to Short-term ratings other than 'F1'.
'NR' indicates that Fitch does not rate the issuer or issue in question.
'Withdrawn': A rating is withdrawn when Fitch deems the amount of information
available to be inadequate for rating purposes, or when an obligation
matures, is called, or refinanced.
Rating Watch: Ratings are placed on Rating Watch to notify investors
that there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive",
indicating a potential upgrade, "Negative", for a potential
downgrade, or "Evolving", if ratings may be raised, lowered
or maintained. Rating Watch is typically resolved over a relatively short
A Rating Outlook indicates the direction a rating is likely to move over
a one to two-year period. Outlooks may be positive, stable or negative.
A positive or negative Rating Outlook does not imply a rating change is
inevitable. Similarly, companies whose outlooks are `stable` could be
upgraded or downgraded before an outlook moves to positive or negative
if circumstances warrant such an action. Occasionally, Fitch may be unable
to identify the fundamental trend. In these cases, the Rating Outlook
may be described as evolving.
Short-Term Obligations. The following ratings scale applies to
foreign currency and local currency ratings. A Short-term rating has a
time horizon of less than 12 months for most obligations, or up to three
years for US public finance securities, and thus places greater emphasis
on the liquidity necessary to meet financial commitments in a timely manner.
F1 Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote
any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in
the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result
in a reduction to non-investment grade.