Fitch Affirms City of Colorado Springs, Colorado Investment Portfolio at 'AAA/V1'

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NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the 'AAA/V1' ratings assigned to City of Colorado Springs, Colorado Investment Portfolio, a local government operating fund managed by Cutwater Asset Management (Cutwater) on behalf of the City of Colorado Springs, CO (the city).

The main drivers of the fund's credit rating affirmation are the high credit quality and diversification of the portfolio's assets and the capabilities of Cutwater as investment adviser. The main drivers of the fund's volatility rating affirmation are the stability of the fund's market risk profile, as reflected by fund duration, as well as appropriate levels of liquidity relative to expected cash outflows.

The fund's 'AAA' fund credit rating reflects the fund's vulnerability to losses as a result of defaults in a bond fund portfolio and is based on the actual and prospective average credit quality of the fund's invested portfolio. As such, the fund is expected to maintain a weighted average portfolio rating of 'AAA', taking into account certain adjustments for the reduced credit risk of short-term securities. While the fund is permitted, per its investment policy, to invest in securities rated at least 'A/F1' or equivalent, the fund has historically focused its investment strategy on 'AAA' rated government and agency securities. The fund may also invest in unrated negotiable deposits, provided they are overcollateralized by at least 102% with the U.S. Treasury securities. As of Jan. 31, 2011, 92% of the portfolio was invested in U.S. instrumentality securities and 8% was invested in the Colorado Local Government Liquid Asset Trust, a local government investment pool (LGIP) rated 'AAA/V1' by Fitch. As of Jan. 31, 2011, the weighted average credit quality of the fund, as measured by Fitch's weighted average rating factor (WARF), was 0.13, which corresponds to an 'AAA' fund credit rating.

The fund's 'V1' fund volatility rating reflects low market risk and a capacity to return stable principal value to meet anticipated cash flow requirements, even in adverse interest rate environments. The portfolio is permitted by its investment policy to invest in securities maturing up to five years from the date of trade settlement, unless matched to a specific cash flow requirement. The weighted average final maturity of portfolio holdings can at no time exceed three years. The portfolio has historically benefited from highly predictable cash outflow needs and, at present, is comprised almost entirely of sales and property tax revenues and other city revenues. Furthermore, the City of Colorado Springs is the sole participant in the portfolio. The portfolio's anticipated redemptions include payroll and benefit payments, accounts payable, debt services and other planned expenditures of the city. The city's investment policy requires the portfolio to maintain at least 5% of its total assets in short-term investments maturing in less than 30 days. As of Jan. 31, 2011, 8.4% of the portfolio's assets matured overnight. Given the short-dated nature of the portfolio, along with the high allocation to government and agency securities (which receive a 0.00 spread factor under Fitch's analytical framework for determining fund volatility ratings), the market risk of the portfolio is viewed as consistent with a 'V1' fund volatility rating.

The City of Colorado Springs, Colorado Investment Portfolio is managed and administered by Cutwater through a non-discretionary investment advisory agreement and is overseen by the Chief Financial Officer of the City of Colorado Springs, following approved cash management investment policies. As of Jan. 31, 2011, the portfolio had approximately $90 million in assets under management.

The rating may be sensitive to material changes in the credit quality or market risk profiles of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the rating to be lowered by Fitch. For example, should portfolio parameters change or volatility of outflows increase, this could adversely affect the portfolio's fund credit and/or fund volatility ratings. For additional information about Fitch closed-end fund ratings guidelines, please review the criteria referenced below, which can be found on Fitch's website.

Additional information is available at 'www.fitchratings.com'.

The sources of information used to assess these ratings were the public domain, The City of Colorado Springs, CO and Cutwater Asset Management.

Applicable Criteria and Related Research:

--'Global Bond Fund Rating Criteria', dated Feb. 10, 2010;

--'Global Bond Fund Rating Criteria - Short-Term Bond Fund Addendum', dated March 22, 2010.

Applicable Criteria and Related Research:

Global Bond Fund Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=499472

Global Bond Fund Rating Criteria - Short-Term Bond Fund Addendum

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=505657

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