S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Other CriteriaVariable Net Asset Value (NAV) Pool Credit Quality Rating DefinitionsA Standard & Poor’s Bond Fund/Variable Net Asset Value (NAV) Pool credit qualityrating is an assessment of the overall credit quality of a fund’s portfolio. The ratingreflects the level of protection that the pool’s portfolio provides against lossesfrom credit defaults. Credit quality ratings, identified by the ‘f’ subscript, areassigned to bond funds and other actively managed funds that exhibit variable netasset values. These ratings are current assessments of the overall credit qualityof a fund’s portfolio. The ratings reflect the level of protection against lossesfrom credit defaults and are based on an analysis of the credit quality of theportfolio investments and the likelihood of counterparty defaults. Symbols anddefinitions follow:AAAfThe fund’s portfolio holdings provide extremely strong protection against lossesfrom credit defaults.AAfThe fund’s portfolio holdings provide very strong protection against losses fromcredit defaults.AfThe fund’s portfolio holdings provide strong protection against losses from creditdefaults.BBBfThe fund’s portfolio holdings provide adequate protection against losses fromcredit defaults.BBfThe fund’s portfolio holdings provide uncertain protection against losses fromcredit defaults.BfThe fund’s portfolio holdings exhibit vulnerability to losses from credit defaults.CCCfThe fund’s portfolio holdings make it extremely vulnerable to losses from creditdefaults.Plus or MinusThe ratings from ‘AAf’ to ‘CCCf’ may be modified by the addition of a plus (+) orminus (-) sign to show relative standing within the major rating categories.A credit quality rating is not a recommendation to purchase, sell, or hold a security,inasmuch as it is not a comment on the market price, yield, or suitability for a particularinvestor. The ratings are based on current information furnished by the fund or obtainedfrom other sources that Standard & Poor’s considers reliable. Standard & Poor’s doesnot perform an audit in connection with any rating and may, on occasion, rely on unauditedinformation The ratings may be changed, suspended, or withdrawn as a result ofchanges in, or unavailability of, such information, or based on other circumstances.agement review and portfolio strategy meeting toreview any changes made during the year.Fund credit quality ratings criteriaA Standard & Poor’s credit quality rating is anassessment of the overall credit quality of a fund’sportfolio. Credit quality ratings, identified by the ‘f’subscript, are assigned to bond funds and otheractively managed funds that exhibit variable NAVs.The ratings reflect the level of protection againstlosses from credit defaults and are based on ananalysis of the credit quality of the portfolio investmentsand the likelihood of counterparty defaults(see Variable Net Asset Value(NAV) Pool CreditQuality Rating Definitions).The credit quality rating captures the fund’s overallexposure to default risk and is based on a creditmatrix approach derived from Standard & Poor’shistorical default and ratings transition rates.Standard & Poor’s credit quality criteria calls forthe assets of a managed fund, and its counterparties,to be consistent with the credit quality rating.The assessment is based on the credit quality and/orratings of the investments held by the fund, as wellas the credit quality of the counterparties withwhich the fund engages in market transactions,such as swaps or repurchase agreements (repos).To evaluate a fund’s overall level of protectionagainst losses associated with credit risk,Standard & Poor’s applies the factors and scoresfrom the Credit Quality Matrix to the fund’s portfolioholdings. These credit factors and credit qualityscores are derived from Standard & Poor’s historicalratings stability and ratings transition studies. Thecredit factor for each of the long-term ratings categories(e.g., ‘AAA’, ‘AA’, ‘BBB’) were derived fromthe singular, discrete, worst-case one-year defaultrate experience and the average one-year ratingstransition experienced during a 20-year period. Theresulting credit factor for each long-term rating categoryassumes that the securities or holdings withineach rating category will exhibit the worst-casedefault rates and the average ratings transition ratesover a one-year holding period. The credit qualityrating assigned to a fund or pool of managed assetsdoes not address a fund’s ability to meet ‘paymentobligations’. For further information and in-depthanalysis please refer to the most recent Standard &Poor’s Fund Ratings Criteria publication.In conjunction with this analysis, Standard &Poor’s closely reviews the manager’s internal creditanalysis and security evaluation and surveillanceprocedures. Securities rated by other nationally recognizedstatistical rating organizations (NRSRO’s),but not rated by Standard & Poor’s, may be consideredeligible if there is an analytic basis for consideringthese securities as having comparable creditquality. Total exposure to non-Standard & Poor’srated securities in a rated bond fund should be25% or less, with no more than 5% in any oneissuer and may be subject to certain criteria adjustments.For further information and in-depth analysisplease refer to the most recent Standard &Poor’s Fund Ratings Criteria publication.Counterparty criteriaStandard & Poor’s has established minimum creditquality guidelines for counterparties that engage in320 Standard & Poor’s Public Finance Criteria 2007