[GRAPHIC] Advisor Class Shares September 10, 1999
- --------------------------------------------------------------------------------
SUPPLEMENT
TO THE MAY 1, 1999 PROSPECTUS
- --------------------------------------------------------------------------------
THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL INFORMATION BEYOND THAT CONTAINED IN
THE PROSPECTUS, AND SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS.
CAPITALIZED TERMS NOT DEFINED HEREIN HAVE THE MEANINGS SET FORTH IN THE
PROSPECTUS.
- --------------------------------------------------------------------------------
Accessor Funds, Inc. [LOGO]
================================================================================
International Equity Fund Money Manager Fee
- --------------------------------------------------------------------------------
On August 19, 1999, the Board of Directors of Accessor Funds, Inc. (the "Fund")
including all of the Directors who are not "interested persons" of the Fund,
approved an amended Money Manager Agreement among the Fund, Accessor Capital
Management LP, and Nicholas-Applegate Capital Management, the Money Manager of
the International Equity Fund, to reflect a change in the schedule of fees
payable to the Money Manager, effective September 1, 1999 (the "Amended Money
Manager Agreement"). Under the current Money Manager Agreement, the Money
Manager receives a basic fee at the annual rate of 0.20% the International
Equity Fund's average daily net assets; there is no limit on the maximum amount
of the basic fee. The basic fee under the Amended Money Manager Agreement will
be limited to a maximum fee of $400,000 annually. In substance, when the
International Equity Fund's assets exceed $200,000,000, there will be no further
additional basic fee payable to the Money Manager; at August 19, 1999, the
International Equity Fund had net assets of $217,630,865.61.
With the exception of the fee schedule and certain administrative changes, the
Amended Money Manager Agreement among the Fund, Accessor Capital and
Nicholas-Applegate relating to the International Equity Fund is substantially
similar to the previous Money Manager Agreement.
[Graphic] On page 23, the following replaces the second paragraph and the table
in the section entitled Management, Organization and Capital Structure -
International Equity Fund:
Nicholas-Applegate earns a management fee calculated and paid quarterly that
consists of a basic fee and a performance fee. The basic fee is equal to an
annual rate of 0.20% of the Fund's average daily net assets up to a maximum of
$400,000 annualized. The performance fee for any quarter depends on the
percentage amount by which the International Equity Fund's performance exceeds
or trails that of the MSCI EAFE+EMF Index during the applicable measurement
period based on the following schedule:
- --------------------------------------------------------------------------------
Average Annual Performance Annual Performance
Differential vs. Benchmark Index Fee
- --------------------------------------------------------------------------------
Equal to or greater than 4.00% 0.40%
Equal to or greater than 2.00% and
Less than 4.00% 0.30%
Equal to or greater than 0.00% and
Less than 2.00% 0.20%
Equal to or greater than -2.00% and
Less than 0.00% 0.10%
Less than -2.00% 0.00%
<PAGE>
Example: If Nicholas-Applegate is outperforming the Index by more than 4% per
year, then the following table shows the annualized total fee at various asset
levels:
- --------------------------------------------------------------------------------
Asset Level New Total Annual Fee Old Total Annual Fee
- --------------------------------------------------------------------------------
$150 million 0.20% + 0.40% = 0.60% 0.20% + 0.40% = 0.60%
$200 million $400,000 (or 0.20%) + 0.40% = 0.60% 0.20% + 0.40% = 0.60%
$250 million $400,000 (or 0.16%) + 0.40% = 0.56% 0.20% + 0.40% = 0.60%
$300 million $400,000 (or 0.13%) + 0.40% = 0.53% 0.20% + 0.40% = 0.60%
$350 million $400,000 (or 0.11%) + 0.40% = 0.51% 0.20% + 0.40% = 0.60%
$400 million $400,000 (or 0.10%) + 0.40% = 0.51% 0.20% + 0.40% = 0.60%
<PAGE>
Intermediate Fixed-Income Fund and Short Intermediate Fixed Income Fund
The Intermediate Fixed-Income Fund and the Short-Intermediate
Fixed-Income Fund (the "Funds") invest principally in debt securities rated A or
higher by Standard & Poor's ("S&P") or Moody's Investors Services, Inc.
("Moody's") or determined to be of equivalent quality by the Money Manager or
Accessor Capital Management L.P. ("Accessor Capital") at the time of purchase.
The Board of Directors unanimously approved a change to allow the Intermediate
Fixed-Income Portfolio and Short-Intermediate Fixed-Income Funds to invest up to
20% of the assets of these Funds in securities rated BBB by S&P or Baa Moody's
or determined to be of equivalent quality by the Money Manager or Accessor
Capital at the time of purchase and up to 6% of the assets of these Funds in
securities rated BB by S&P or Ba Moody's or determined to be of equivalent
quality by the Money Manager or Accessor Capital at the time of purchase.
Cypress Asset Management, the Money Manager for the Funds, believes
that these Funds could improve their performance over their benchmark indices to
a greater extent by being able to invest in lower rated securities. The Money
Manager plans to purchase securities rated BB or higher by S&P or Ba or higher
by Moody's or determined to be of equivalent quality by the Money Manager or
Accessor Capital at the time of purchase. The Money Manager intends to purchase
these securities when the Money Manager views the issuer's credit as stable or
improving, and the difference in the yield offered by investment grade and below
investment grade securities is large enough to compensate for the increased
risks associated with investing in lower rated securities. The Funds will
continue to maintain the duration controls described in the prospectus: between
three and ten years for the Intermediate Fixed-Income Fund and between one and
five years for the Short-Intermediate Fixed-Income Fund. Lower rated securities
have speculative characteristics and changes in economic conditions and other
circumstances are more likely to lead to a weakened capacity of issuers to pay
interest and repay principal and to result in a decrease in value of the
securities.
In connection with this change, the following language is inserted in the
following sections of the Advisor Class Shares Prospectus:
[Graphic] On page 15, the section entitled Fixed-Income Funds' Objectives and
Strategies -- Intermediate Fixed-Income Fund -- Investment Strategy is restated
as follows:
Investment Strategy The Fund seeks to achieve its objective by investing at
least 65% and generally more than 80% of its total assets in fixed-income
securities and will have a dollar-weighted average duration of between three and
ten years. The Fund invests principally in debt securities with durations of
between three and ten years and rated A or higher by Standard & Poor's
Corporation ("S&P"), or by Moody's Investors Service, Inc. ("Moody's") at the
time of purchase. The Fund may invest up to 20% of the net assets of the Fund in
securities rated BBB by S&P or Baa by Moody's and up to 6% of the net assets of
the Fund in securities rated BB by S&P or Ba by Moody's. The Money Manager may
also invest in debt securities not rated by S&P or Moody's if the Money Manager
[or Accessor Capital] determines the securities to be of comparable quality to
rated securities at the time of purchase. The Fund may invest in the following
debt securities: 1) corporate bonds, 2) U.S. government and agency bonds, and 3)
mortgage asset backed securities.
Investment selections will be based on fundamental economic, market and other
factors leading to variation by sector, maturity, quality and other criteria
appropriate to meet the Fund's objective. The Fund may purchase lower quality
debt securities when the Money Manager views the issuer's credit as stable or
improving, and the difference in the yield offered by investment grade and below
investment grade securities is large enough to compensate for the increased
risks associated with investing in lower rated securities. The Money Manager
will attempt to exceed the total return performance of the LBGC Index. The Money
Manager will also seek to enhance returns through the use of certain trading
strategies such as purchasing odd lot securities. The Fund may utilize options
on U.S. Government securities, interest rate futures contracts and options on
interest rate futures contracts to reduce certain risks of its investments and
to attempt to enhance income, but not for speculation.
[Graphic] On page 15, the section entitled Fixed-Income Funds' Objectives and
Strategies --Short-Intermediate Fixed-Income Fund -- Investment Strategy is
restated as follows:
Investment Strategy The Fund seeks to achieve its objective by investing at
least 65% and generally more than 80% of its total assets in fixed-income
securities and will have a dollar-weighted average duration of not less than two
years nor more than five years. The Fund invests principally in debt securities
with durations between one and five years and rated A or higher by Standard &
Poor's Corporation ("S&P"), or by Moody's Investors Service, Inc. ("Moody's") at
the time of purchase. The Fund may invest up to 20% of the net assets of the
Fund in securities rated BBB by S&P or Baa by Moody's and up to 6% of the net
assets of the Fund in securities rated BB by S&P or Ba by Moody's. The Money
Manager may also invest in debt securities not rated by S&P or Moody's if the
Money Manager [or Accessor Capital] determines the securities to be of
comparable quality to rated securities at the time of purchase. The Fund may
invest in the following debt securities: 1) corporate bonds, 2) U.S. government
and agency bonds, and 3) mortgage asset backed securities.
Investment selections will be based on fundamental economic, market and other
factors leading to variation by sector, maturity, quality and other criteria
appropriate to meet the Fund's objective. The Fund may purchase lower quality
debt securities when the Money Manager views the issuer's credit as stable or
improving, and the difference in the yield offered by investment grade and below
investment grade securities is large enough to compensate for the increased
risks associated with investing in lower rated securities. The Money Manager
will attempt to exceed the total return performance of the LBGC1-5 Index. The
Money Manager will also seek to enhance returns through the use of certain
trading strategies such as purchasing odd lot securities. The Fund may utilize
options on U.S. Government securities, interest rate futures contracts and
options on interest rate futures contracts to reduce certain risks of its
investments and to attempt to enhance income, but not for speculation.
[Graphic] On page 18, the section entitled Fixed-Income Funds' Principal
Securities and Risks -- Credit Risks is restated as follows:
Credit Risks. Credit risk is the possibility that an issuer will fail to make
timely payments of interest or principal. Some issuers may not make payments on
debt securities held by a Fund, causing a loss. Or, an issuer may suffer adverse
changes in its financial condition that could lower the credit quality of a
security, leading to greater volatility in the price of the security and in
shares of a Fund. A change in the quality rating of a bond or other security can
also affect the security's liquidity and make it more difficult for a Fund to
sell. Lower quality debt securities and comparable unrated debt securities in
which a Fund may invest are more susceptible to these problems than higher
quality obligations.
The U.S. Government Money Fund invests in repurchase agreements, agencies and
government securities. The risk of a credit rating downgrade or default of U.S.
Government securities is considered remote. Agencies are not backed by the full
faith and credit of the U.S. Government but are considered just below U.S.
securities in creditworthiness. Repurchase agreements are corporate debt but are
102% collateralized by agency and/or government debt obligations.
[Graphic] On page 18, the following paragraph is added after the section
entitled Fixed-Income Funds' Principal Securities and Risks -- Credit Risks:
Lower Rated Debt Securities. Debt securities rated BBB or lower by S&P or Baa or
lower by Moody's are commonly referred to as "junk bonds". Lower rated debt
securities and comparable unrated debt securities have speculative
characteristics and are subject to greater risks that higher rated securities.
These risks include the possibility of default on principal or interest payments
and bankruptcy of the issuer. During periods of deteriorating economic or
financial conditions, the ability of issuers of lower rated debt securities to
service their debt, meet projected goals or obtain additional financing may be
impaired. In addition, the market for lower rated debt securities has in the
past been more volatile and less liquid than the market for higher rated debt
securities. These risks could adversely affect the Funds that invest in these
debts securities.
<PAGE>
[GRAPHIC] Investor Class Shares September 10, 1999
- --------------------------------------------------------------------------------
SUPPLEMENT
TO THE MAY 1, 1999 PROSPECTUS
- --------------------------------------------------------------------------------
THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL INFORMATION BEYOND THAT CONTAINED IN
THE PROSPECTUS, AND SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS.
CAPITALIZED TERMS NOT DEFINED HEREIN HAVE THE MEANINGS SET FORTH IN THE
PROSPECTUS.
- --------------------------------------------------------------------------------
Accessor Funds, Inc. [LOGO]
================================================================================
International Equity Fund Money Manager Fee
- --------------------------------------------------------------------------------
On August 19, 1999, the Board of Directors of Accessor Funds, Inc. (the "Fund")
including all of the Directors who are not "interested persons" of the Fund,
approved an amended Money Manager Agreement among the Fund, Accessor Capital
Management LP, and Nicholas-Applegate Capital Management, the Money Manager of
the International Equity Fund, to reflect a change in the schedule of fees
payable to the Money Manager, effective September 1, 1999 (the "Amended Money
Manager Agreement"). Under the current Money Manager Agreement, the Money
Manager receives a basic fee at the annual rate of 0.20% the International
Equity Fund's average daily net assets; there is no limit on the maximum amount
of the basic fee. The basic fee under the Amended Money Manager Agreement will
be limited to a maximum fee of $400,000 annually. In substance, when the
International Equity Fund's assets exceed $200,000,000, there will be no further
additional basic fee payable to the Money Manager; at August 19, 1999, the
International Equity Fund had net assets of $217,630,865.61.
With the exception of the fee schedule and certain administrative changes, the
Amended Money Manager Agreement among the Fund, Accessor Capital and
Nicholas-Applegate relating to the International Equity Fund is substantially
similar to the previous Money Manager Agreement.
[Graphic] On page 23, the following replaces the second paragraph and the table
in the section entitled Management, Organization and Capital Structure -
International Equity Fund:
Nicholas-Applegate earns a management fee calculated and paid quarterly that
consists of a basic fee and a performance fee. The basic fee is equal to an
annual rate of 0.20% of the Fund's average daily net assets up to a maximum of
$400,000 annualized. The performance fee for any quarter depends on the
percentage amount by which the International Equity Fund's performance exceeds
or trails that of the MSCI EAFE+EMF Index during the applicable measurement
period based on the following schedule:
- --------------------------------------------------------------------------------
Average Annual Performance Annual Performance
Differential vs. Benchmark Index Fee
- --------------------------------------------------------------------------------
Equal to or greater than 4.00% 0.40%
Equal to or greater than 2.00% and
Less than 4.00% 0.30%
Equal to or greater than 0.00% and
Less than 2.00% 0.20%
Equal to or greater than -2.00% and
Less than 0.00% 0.10%
Less than -2.00% 0.00%
<PAGE>
Example: If Nicholas-Applegate is outperforming the Index by more than 4% per
year, then the following table shows the annualized total fee at various asset
levels:
- --------------------------------------------------------------------------------
Asset Level New Total Annual Fee Old Total Annual Fee
- --------------------------------------------------------------------------------
$150 million 0.20% + 0.40% = 0.60% 0.20% + 0.40% = 0.60%
$200 million $400,000 (or 0.20%) + 0.40% = 0.60% 0.20% + 0.40% = 0.60%
$250 million $400,000 (or 0.16%) + 0.40% = 0.56% 0.20% + 0.40% = 0.60%
$300 million $400,000 (or 0.13%) + 0.40% = 0.53% 0.20% + 0.40% = 0.60%
$350 million $400,000 (or 0.11%) + 0.40% = 0.51% 0.20% + 0.40% = 0.60%
$400 million $400,000 (or 0.10%) + 0.40% = 0.51% 0.20% + 0.40% = 0.60%
<PAGE>
Intermediate Fixed-Income Fund and Short Intermediate Fixed Income Fund
The Intermediate Fixed-Income Fund and the Short-Intermediate
Fixed-Income Fund (the "Funds") invest principally in debt securities rated A or
higher by Standard & Poor's ("S&P") or Moody's Investors Services, Inc.
("Moody's") or determined to be of equivalent quality by the Money Manager or
Accessor Capital Management L.P. ("Accessor Capital") at the time of purchase.
The Board of Directors unanimously approved a change to allow the Intermediate
Fixed-Income Portfolio and Short-Intermediate Fixed-Income Funds to invest up to
20% of the assets of these Funds in securities rated BBB by S&P or Baa Moody's
or determined to be of equivalent quality by the Money Manager or Accessor
Capital at the time of purchase and up to 6% of the assets of these Funds in
securities rated BB by S&P or Ba Moody's or determined to be of equivalent
quality by the Money Manager or Accessor Capital at the time of purchase.
Cypress Asset Management, the Money Manager for the Funds, believes
that these Funds could improve their performance over their benchmark indices to
a greater extent by being able to invest in lower rated securities. The Money
Manager plans to purchase securities rated BB or higher by S&P or Ba or higher
by Moody's or determined to be of equivalent quality by the Money Manager or
Accessor Capital at the time of purchase. The Money Manager intends to purchase
these securities when the Money Manager views the issuer's credit as stable or
improving, and the difference in the yield offered by investment grade and below
investment grade securities is large enough to compensate for the increased
risks associated with investing in lower rated securities. The Funds will
continue to maintain the duration controls described in the prospectus: between
three and ten years for the Intermediate Fixed-Income Fund and between one and
five years for the Short-Intermediate Fixed-Income Fund. Lower rated securities
have speculative characteristics and changes in economic conditions and other
circumstances are more likely to lead to a weakened capacity of issuers to pay
interest and repay principal and to result in a decrease in value of the
securities.
In connection with this change, the following language is inserted in the
following sections of the Advisor Class Shares Prospectus:
[Graphic] On page 15, the section entitled Fixed-Income Funds' Objectives and
Strategies -- Intermediate Fixed-Income Fund -- Investment Strategy is restated
as follows:
Investment Strategy The Fund seeks to achieve its objective by investing at
least 65% and generally more than 80% of its total assets in fixed-income
securities and will have a dollar-weighted average duration of between three and
ten years. The Fund invests principally in debt securities with durations of
between three and ten years and rated A or higher by Standard & Poor's
Corporation ("S&P"), or by Moody's Investors Service, Inc. ("Moody's") at the
time of purchase. The Fund may invest up to 20% of the net assets of the Fund in
securities rated BBB by S&P or Baa by Moody's and up to 6% of the net assets of
the Fund in securities rated BB by S&P or Ba by Moody's. The Money Manager may
also invest in debt securities not rated by S&P or Moody's if the Money Manager
[or Accessor Capital] determines the securities to be of comparable quality to
rated securities at the time of purchase. The Fund may invest in the following
debt securities: 1) corporate bonds, 2) U.S. government and agency bonds, and 3)
mortgage asset backed securities.
Investment selections will be based on fundamental economic, market and other
factors leading to variation by sector, maturity, quality and other criteria
appropriate to meet the Fund's objective. The Fund may purchase lower quality
debt securities when the Money Manager views the issuer's credit as stable or
improving, and the difference in the yield offered by investment grade and below
investment grade securities is large enough to compensate for the increased
risks associated with investing in lower rated securities. The Money Manager
will attempt to exceed the total return performance of the LBGC Index. The Money
Manager will also seek to enhance returns through the use of certain trading
strategies such as purchasing odd lot securities. The Fund may utilize options
on U.S. Government securities, interest rate futures contracts and options on
interest rate futures contracts to reduce certain risks of its investments and
to attempt to enhance income, but not for speculation.
[Graphic] On page 15, the section entitled Fixed-Income Funds' Objectives and
Strategies --Short-Intermediate Fixed-Income Fund -- Investment Strategy is
restated as follows:
Investment Strategy The Fund seeks to achieve its objective by investing at
least 65% and generally more than 80% of its total assets in fixed-income
securities and will have a dollar-weighted average duration of not less than two
years nor more than five years. The Fund invests principally in debt securities
with durations between one and five years and rated A or higher by Standard &
Poor's Corporation ("S&P"), or by Moody's Investors Service, Inc. ("Moody's") at
the time of purchase. The Fund may invest up to 20% of the net assets of the
Fund in securities rated BBB by S&P or Baa by Moody's and up to 6% of the net
assets of the Fund in securities rated BB by S&P or Ba by Moody's. The Money
Manager may also invest in debt securities not rated by S&P or Moody's if the
Money Manager [or Accessor Capital] determines the securities to be of
comparable quality to rated securities at the time of purchase. The Fund may
invest in the following debt securities: 1) corporate bonds, 2) U.S. government
and agency bonds, and 3) mortgage asset backed securities.
Investment selections will be based on fundamental economic, market and other
factors leading to variation by sector, maturity, quality and other criteria
appropriate to meet the Fund's objective. The Fund may purchase lower quality
debt securities when the Money Manager views the issuer's credit as stable or
improving, and the difference in the yield offered by investment grade and below
investment grade securities is large enough to compensate for the increased
risks associated with investing in lower rated securities. The Money Manager
will attempt to exceed the total return performance of the LBGC1-5 Index. The
Money Manager will also seek to enhance returns through the use of certain
trading strategies such as purchasing odd lot securities. The Fund may utilize
options on U.S. Government securities, interest rate futures contracts and
options on interest rate futures contracts to reduce certain risks of its
investments and to attempt to enhance income, but not for speculation.
[Graphic] On page 18, the section entitled Fixed-Income Funds' Principal
Securities and Risks -- Credit Risks is restated as follows:
Credit Risks. Credit risk is the possibility that an issuer will fail to make
timely payments of interest or principal. Some issuers may not make payments on
debt securities held by a Fund, causing a loss. Or, an issuer may suffer adverse
changes in its financial condition that could lower the credit quality of a
security, leading to greater volatility in the price of the security and in
shares of a Fund. A change in the quality rating of a bond or other security can
also affect the security's liquidity and make it more difficult for a Fund to
sell. Lower quality debt securities and comparable unrated debt securities in
which a Fund may invest are more susceptible to these problems than higher
quality obligations.
The U.S. Government Money Fund invests in repurchase agreements, agencies and
government securities. The risk of a credit rating downgrade or default of U.S.
Government securities is considered remote. Agencies are not backed by the full
faith and credit of the U.S. Government but are considered just below U.S.
securities in creditworthiness. Repurchase agreements are corporate debt but are
102% collateralized by agency and/or government debt obligations.
[Graphic] On page 18, the following paragraph is added after the section
entitled Fixed-Income Funds' Principal Securities and Risks -- Credit Risks:
Lower Rated Debt Securities. Debt securities rated BBB or lower by S&P or Baa or
lower by Moody's are commonly referred to as "junk bonds". Lower rated debt
securities and comparable unrated debt securities have speculative
characteristics and are subject to greater risks that higher rated securities.
These risks include the possibility of default on principal or interest payments
and bankruptcy of the issuer. During periods of deteriorating economic or
financial conditions, the ability of issuers of lower rated debt securities to
service their debt, meet projected goals or obtain additional financing may be
impaired. In addition, the market for lower rated debt securities has in the
past been more volatile and less liquid than the market for higher rated debt
securities. These risks could adversely affect the Funds that invest in these
debts securities.
<PAGE>
SUPPLEMENT DATED SEPTEMBER 8, 1999, TO ACCESSOR FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1999
Appendix A of the Statement of Additional Information should be amended to read:
APPENDIX A
RATINGS OF DEBT INSTRUMENTS
Corporate Bond Ratings
Moody's Investors Service ("Moody's")
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 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.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
<PAGE>
Standard & Poor's Corporation ("S&P")
AAA - An obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA - An obligation rated 'AA' differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A - An obligation rated 'A' is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB - An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB - An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
Obligations rated 'BB' or lower are regarded as having significant speculative
characteristics. 'BB' indicates the least degree of speculation. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
The AA, A, BBB and BB ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the AA, A, BBB or BB rating
category, respectively.
Note Ratings
Moody's
Moody's rating for short-term obligations will be designated Moody's Investment
Grade ("MIG"). This distinction is in recognition of the differences between
short-term credit risk and long-term risk. Factors affecting the liquidity of
the borrower are uppermost in importance in short-term borrowing, while various
factors of the first importance in bond risk are of lesser importance in the
short run. Symbols used are as follows:
MIG-1 - Notes bearing this designation are of the best quality, enjoying strong
protection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2 - Notes bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
S&P
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment.
o Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
o Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
SP-1 - This designation denotes strong or very strong capacity to pay interest
and repay principal. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) sign designation.
SP-2 - This designation denotes satisfactory capacity to pay interest and repay
principal.
Commercial paper rated A by S&P has the following characteristics: liquidity
ratios are adequate to meet cash requirements. Long-term senior debt is rated A
or better. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determine whether the issuer's commercial paper is rated A-1, A-2
or A-3.
A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 - This designation indicates the capacity for timely payment on issues with
this designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1.
A-3 - This designation indicates a satisfactory capacity for timely payment.
Obligations carrying this designation are, however, somewhat more vulnerable to
the adverse effects of changes in circumstances than obligations carrying the
higher designations.
