07/09/2014

Aquila Municipal Bond Funds Avoid Puerto Rico

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Each of the municipal bond funds offered in the Aquila Group of Funds adheres to an investment strategy focused on investment grade bonds as a means of managing credit risk, and an intermediate average portfolio maturity as a means of managing interest rate risk.  In keeping with our emphasis on high-quality holdings, the seven state-specific municipal bond funds offered by Aquila have no Puerto Rico holdings, whereas Morningstar has reported that roughly two-thirds of municipal bond funds hold Puerto Rico bonds.

The commonwealth of Puerto Rico has been grappling with budgetary issues which have generated a significant amount of attention in the municipal bond market and in the media.  In late June, the Puerto Rico Governor signed the Puerto Rico Public Company Debt Enforcement and Recovery Act, which would enable public corporations (power and transportation agencies) to restructure their debt through a process similar to bankruptcy.  Puerto Rico, like the states, cannot file for Chapter 9 federal bankruptcy protection, and the new legislation does not apply to general obligation debt of the commonwealth.

Response to the new legislation was swift, with prices on certain Puerto Rico agency bonds dropping abruptly, and lawsuits filed challenging the constitutionality of the legislation.

On the Aquila Group of Funds website, you will find information regarding the investment strategies and full portfolio holdings of each state-specific municipal bond fund.  The investment objectives, risks, charges, expenses, and other information will be found in the Fund prospectus.  Information on the Fund holdings will be found in the Fact Sheet, Annual and Semi-Annual reports, and the Portfolio Holdings report.  We encourage you to review this information, and to visit the web site frequently for updates on each fund, and our perspectives on the markets.