The rating on Tennessee Housing Development Agency's bonds primarily reflects the moral obligation pledge of the state of Tennessee to replenish the debt service reserve fund. Under the mortgage finance program resolution, the debt service reserve fund is funded at maximum annual debt service on all outstanding bonds. The reserve fund provides coverage for the credit and liquidity shortfalls associated with the mortgage insurance on properties under the resolution. To date, the agency has never called upon the state to replenish the reserve. The reserve fund is fully invested in government agency securities with an average maturity of about three years, and it is anticipated that the reserve from the series 1995A bonds will be similarly invested. All other funds
