• Recovery efforts are underway, along with assistance at the local and Federal levels.
  • Certain bonds are protected by two Kentucky guarantee programs: 1) the State’s intercept program for lease-supported debt service payments, and 2) the Support Education Excellence in Kentucky (SEEK) funding program.
  • Portfolio management continues to prioritize credit quality and place value on municipal bond covenants to help manage credit risk.
  • The Fund employs a locally-based, actively managed approach to risk management to help react to changing market conditions.
  • The recent tornadoes that tore throughout Kentucky, as well as five other states, produced devastating damage across numerous counties and towns throughout the State. The main tornado that hit Western Kentucky was rated as EF4 in the following counties: Caldwell, Fulton, Graves, Hickman, Lyon, Marshall, and Muhlenberg.1 These are considered perhaps the worst storms ever to affect the region. Aquila extends heartfelt thoughts and well-wishes to our colleagues, clients, partners, and everyone affected.

    Local Assistance

    Recovery efforts are currently underway, as disaster-aid and humanitarian groups, such as the American Red Cross, The Salvation Army, and World Vision are collecting donations and traveling to or shipping relief items to affected areas to provide aid.

    President Biden approved a federal emergency disaster declaration for Kentucky. Governor Beshear declared a state of emergency for parts of Western Kentucky. He also announced the creation of a tornado relief fund and asked people to donate blood, as donated blood was running low throughout the pandemic.

    Federal Emergency Management Agency (FEMA) is working with its federal, state and local partners, as well as non-governmental agencies, to support needs of areas affected by the tornado outbreak. This includes the following: In addition to a Kentucky FEMA Integration Team member, two FEMA Incident Management Assistance Teams are in Kentucky to assist with federal coordination efforts. An Incident Support Base was established at Fort Campbell, Kentucky, to rapidly deploy personnel and supplies as needed. And 11 shelters were opened in Kentucky.

    Team Western Kentucky Tornado Relief Fund was established to help survivors at

    Aquila Churchill Tax-Free Fund of Kentucky

    As of this writing, the Fund’s portfolio consists of municipal bonds of several issuers that were impacted by the tornadoes, including: Franklin County School District, Hopkins County School District, Logan County School District, Shelby County Schools District, Warren County General Obligation and Hospital Bonds.

    It is important to note that all Kentucky School Bonds are backed by two Kentucky guarantee programs: 1) the State’s intercept program for lease-supported debt service payments, which guarantees the timely payment of principal and interest; and 2) the Support Education Excellence in Kentucky (SEEK) funding program, a formula-driven allocation of State-provided funds to local school districts.

    In addition, we believe that legislative backing for damages to any school building that falls outside of property and casualty insurance, which school districts are required to carry, is likely to be appropriated by the legislature.

    Prioritizing Credit Quality and Risk Management

    In managing Aquila Churchill Tax-Free Fund of Kentucky, we prioritize credit quality and place value on such bond covenants, which incorporate protection into bond structures to support bond issuers, and grant security to bondholders. Security selection and sector exposure decisions are also determined as a result of our proprietary credit reports, which facilitates a more quantifiable determination of the types of risks they we view as acceptable versus those without protection.

    Looking Ahead

    How long it takes to rebuild, and how far each local economy contracts, are unknowns for local governments. It will likely take several weeks, if not months, before Kentucky details the extent of the damages and what may be needed to recover. The Fund’s locally-based portfolio management team will continue to monitor effects on the local market and economy. Aquila’s actively managed approach enables the Fund to swiftly react as needed and seek to identify investment opportunities as they arise.

    1Source: National Weather Service of Paducah, Kentucky. The Enhanced Fujita Scale, or EF Scale, which became operational on February 1, 2007, is used to assign a tornado a rating based on estimated wind speeds and related damage.

    Mutual fund investing involves risk; loss of principal is possible. Investments in bonds may decline in value due to rising interest rates, a real or perceived decline in credit quality of the issuer, borrower, counterparty, or collateral, adverse tax or legislative changes, court decisions, market or economic conditions. Fund performance could be more volatile than that of funds with greater geographic diversification.

    The Fund seeks to provide as high a level of income exempt from state and federal income tax as is consistent with capital preservation. For certain investors, some dividends may be subject to federal and state taxes, including the Alternative Minimum Tax. Consult a tax professional.

    Information regarding holdings is subject to change and is not necessarily representative of the entire portfolio. It is for informational purposes only and not intended to represent a solicitation to buy or sell any particular security.

    Before investing in the Fund, carefully read about and consider the investment objectives, risks, charges, expenses, and other information found in the Fund prospectus. The prospectus is available from your financial advisor, when you click here or call 800-437-1020.