Defending Tax-Exempt Status of Municipal Bonds


On March 9, 2017 a bi-partisan letter was sent by U.S. Congressmen to the House Ways and Means Committee asking that leadership reject any proposal to cap or eliminate the deduction on tax-exempt municipal bonds used to finance the vast majority of infrastructure projects in America’s communities.  The letter was signed by 156 Congressmen; 94 Democrats and 61 Republicans.

As Congress considers tax reform and infrastructure financing, those signing the letter expressed their strong support for tax-exempt municipal bonds as an important tool which, for more than a century, has provided states and local governments with a reliable and efficient means of financing.

Factors cited in support of maintaining the municipal bond tax-exemption include:

  • Municipal bonds are pro-growth investments which spur job creation, help our economies grow, and strengthen our communities
  • Millions of Americans depend on municipal bonds for their economic security, and invest in them because of their low-risk nature
  • Nearly 75% of municipal bond investors earn less than $200,000 per year, and more than 75% are 55 or older
  • A combination of local control and local responsibility make municipal bonds an incredibly effective and efficient tool
  • Federal tax exemption reduces the cost if issuing municipal bonds, but local voters pay the interest and principal on municipal bonds

The letter concludes by stating that the current tax-exempt status of municipal bonds contributes to efficient economic growth that benefits all Americans.

Separately on March 9th, the Securities Industry and Financial Markets Association (SIFMA) commented on the American Society of Civil Engineers 2017 Infrastructure Report Card, saying “the 2017 ASCE Report Card clearly shows the desperate need for a strong commitment to infrastructure investment, which will help spur job creation and economic growth. SIFMA strongly advocates that the tax exemption for municipal bond interest remain intact, so that it may continue to help America’s cities and states boost their local economies through the construction of new projects such as roads, hospitals and schools.”

As Congress begins consideration of tax reform and infrastructure spending, we encourage you to contact your Congressional members to express your views on the tax-exempt status of municipal bonds.


2016 Shareholder Tax Forms Have Been Mailed Early


Every year, mutual fund companies must mail IRS Form 1099-B to their customers by February 15th.  Forms going out to Aquila Group of Funds direct shareholders were in the mail the week of February 6, 2017.

In the fall of 2008, the IRS enacted a new law which changed the 1099-B mailing deadline from January 31 to February 15.

The prompt delivery of year-end tax forms is just one example of the ways in which we strive to be exceptionally shareholder oriented in everything we do.


A Good Time for Munis


Asset TV Interview:  Is it a good time to consider municipal bonds?

Aquila Group of Funds portfolio manager, JT Thompson, was interviewed in January, 2017 by Asset TV for a program regarding opportunities in the municipal bond market.  Mr. Thompson highlights objectives of the new administration, such as infrastructure spending, tax reform and regulatory reform, and the need for portfolio managers to be nimble in order to take advantage of any opportunities resulting from these initiatives.  JT also discussed other key topics of interest to municipal bond investors.

We think you’ll find the interview insightful and informative.

Each Aquila Group of Funds state-specific municipal bond fund in invests in investment grade bonds and maintains an average intermediate portfolio maturity, in order to manage credit and interest rate risk.

Shares of the Funds may only be sold by offering the Funds’ Prospectus. Before investing in a Fund, carefully read about and consider the investment objectives, risks, charges, expenses, and other information found in the Fund prospectus. The prospectus is available on this site, from your financial adviser, and when you call 800-437-1020.

If you experience difficulty viewing this video on your equipment, you may also view it by registering (at no cost) on the Asset TV site.


Aquila Group of Funds’ Municipal Bond Funds Recognized by U.S. News and World Report


Aquila Group of Funds’ seven single state municipal bond funds were recently included in a US News and World Report Best Funds list for Municipal Single State Intermediate Funds.

For over 30 years, we have sought to provide municipal bond fund investors with double tax-exempt income and preservation of capital. We seek to manage interest rate and credit risk by consistently maintaining broadly-diversified, high-quality bond portfolios with an intermediate average maturity.

Our locally based portfolio managers and credit analysts have an up-close perspective on bond issuers and the economy in their states. We believe this gives them valuable insights about the economic and political climate of the state and the financing needs and the capabilities of individual issuers.

The U.S. News Mutual Fund scores assigned to the 65 funds included in the Municipal Single State Intermediate Category is produced using an equal weighting of the overall ratings provided by their data sources (Morningstar, S&P, Lipper Leaders, Zacks, and TheStreet.com ), and was published on 11/22/16. Individual fund rating systems are normalized to a 100-point scale based on point totals assigned to individual scoring systems. For example, each star from Morningstar would receive 20 points. The U.S. News score is calculated by dividing total points awarded according to their system by the five data sources. The Combined U.S. News Mutual Fund Score ranks funds numerically based on the score and funds with identical scores are awarded the same numerical ranking.

Before investing in a Fund, carefully read about and consider the investment objectives, risks, charges, expenses, and other information found in the Fund prospectus. The prospectuses are available on this site, from your financial adviser and when you call 800-437-1020.


Municipal Market Outlook


Due to the recent outcome of the U.S. Election, and the accompanying expectation of a large infrastructure spending program that could increase inflationary pressures, the municipal market has experienced an increase in municipal yields and a decline in market values. While there is significant uncertainty concerning policy changes that may be implemented by the new administration, there are still overall positive underlying themes to the municipal market that we think investors should keep in mind.

• Interest rate increases tend to reduce the supply of new municipal bond issuance coming to market which helps mitigate supply/demand imbalances.

• Muni bond yields, as a percentage of Treasuries, which are relatively attractive at these levels, have historically encouraged traditional taxable buyers to cross-over into the municipal bond market.

• An increase in the Federal Funds rate had been widely-anticipated by the markets, based on commentary from the Fed, and was likely reflected in recent bond prices.  A wide range of economic factors, domestically and globally, will affect the markets’ reaction to the rate increase.

• There have been occasions, over the past 10 years, when the municipal bond market sold off. At some level, buyers were attracted by the values seen in municipal bonds, and the market subsequently rebounded, as illustrated below. This past performance is no guarantee of future results.

Index chart


We expect market volatility to continue until we get more clarity on President-elect Trump’s policies and his ability to pass the proposals he offered during his campaign through Congress. We have positioned our municipal portfolios in anticipation of higher rates, and with the expectation of potentially being able to take advantage of buying opportunities.


Estimated capital gains as of November 30, 2016


The funds listed below may pay a capital gain distribution in December, 2016.  The amount reflected represents an estimate, per share, as of the date indicated.     Printable Version



Aquila Three Peaks Opportunity Growth Fund1            $0.00                   $0.01

Aquila Tax-Free Trust of Arizona2                                $0.00                   $0.01

Aquila Tax-Free Fund For Utah2                                  $0.00                   $0.01

1 Represents undistributed gains from fiscal year 2015 which must be distributed.

Represents undistributed gains from fiscal year 2016 which must be distributed.

Aquila Three Peaks Opportunity Growth Fund:  In the event that capital gains distributions are declared, the fund is anticipated to have a record date of December 1, 2016, an ex-date of December 2, 2016, a payable date of December 2, 2016, and a reinvestment date of December 2, 2016.

All Other Funds:  In the event that capital gains distributions are declared, the funds are anticipated to have a record date of December 28, 2016, an ex-date of December 29, 2016, a payable date of December 29, 2016, and a reinvestment date of December 29, 2016.  Note:  these dates have been revised relative to earlier announcements.

Estimates are subject to change depending on market conditions, board approvals, and other circumstances.  This report is the result of estimates and is based on information available as of November 30, 2016.  The amount and character of distributions will be finalized on the record dates.

Although the funds listed below could pay capital gains distributions in December, 2016, at this time, a capital gain distribution is not anticipated.

Aquila Tax-Free Fund of Colorado

Hawaiian Tax-Free Trust

Aquila Churchill Tax-Free Fund of Kentucky

Aquila Narragansett Tax-Free Income Fund (RI)

Aquila Tax-Free Trust of Oregon

Aquila Three Peaks High Income Fund

Shares of the Funds may only be sold by offering the Funds’ Prospectus. Before investing in a 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, and when you call 800-437-1020 or visit www.aquilafunds.com.



Post-Election Market Views


With the 2016 election cycle behind us, we share observations regarding the municipal, equity, and corporate high yield bond markets.

Printable version


Within the past 5 years, we’ve seen two periods in which volatility spiked in the municipal bond market; in 2011 following inaccurate predictions for the municipal bond market made by an equity analyst, and in 2013 during what’s been dubbed the taper tantrum.  Although municipal bond yields rose in the days immediately following the 2016 elections, we don’t anticipate that this downturn will last as long as the two prior periods.  As of mid-November, we were already seeing the Treasury market improve a bit.  We believe the market is focusing on a couple of topics, one being infrastructure spending.  President-Elect Trump has spoken extensively about significant new infrastructure spending, and along with that, he has discussed reductions in tax rates for both individuals and corporations.  The combination of extensive infrastructure spending and lower taxes has raised concerns that the U.S. deficit could rise dramatically, which tends to be inflationary, and drive interest rates higher.  Read more “Post-Election Market Views”


Sandy Rufenacht on high yield bonds, rates and strategy


During a recent MoneyLife interview, Sandy Rufenacht talked about expectations for the Federal Funds rate, the potential hazards of reaching for yield, and the importance of knowing what you own.

Mr. Rufenacht pointed out that a rising rate environment generally has less impact on the high yield corporate segment of the bond market since the segment is less duration-sensitive, given that maturities are typically shorter and coupons are typically larger.

As the current period of very low rates has stretched on, investors have been reaching for additional yield by increasing positions in longer maturity or lower quality bonds, either of which may exhibit higher volatility in a risking rate environment.  The high yield bond market is a large asset class with a range of quality ratings from BB on the high end, through CCC and defaulted issues on the low end.  Mr. Rufenacht feels that reaching for yield in the lowest quality high yield bonds entails risk that is comparable to the equity market, which may actually provide more liquidity than the lowest quality high yield bonds.

He pointed out the importance of knowing what you own in a high yield fund.  Short duration bonds in the upper range of the high yield quality spectrum can provide attractive risk-adjusted returns with less volatility relative to the lowest quality categories and equity-like securities that some managers may include in a high yield bond fund portfolio.

Click below to listen to the full interview (approximately 14 minutes).


Oregon’s Retirement Conundrum


Tim Iltz VP, Municipal Bond Credit Analyst

Tim Iltz
VP, Municipal Bond Credit Analyst

Oregon’s Public Employees Retirement System (PERS) has once again become front page news in anticipation of the release of the 2017-19 contribution rates. The headline making news this week is that PERS now has an unfunded liability which has reached $21.8 billion or $16.2 billion when including side accounts. However, it is important to keep in mind that approximately 900 public employers participate in Oregon’s PERS, including school districts, special districts, cities, counties, and state agencies. Each of these participants has a different contribution rate and surplus or liability. System wide, rates are estimated to increase by 4.66% or 3.62% on a weighted basis.

While none of this is good news for participating Oregon local governments, it does not impact all participants equally. For example, Junction City School District and South Lane School District are both located in Lane County, and both serve the mission of educating K-12 students. However, Junction City School District has a total net contribution rate of 22.33% of covered payroll for tier-one/tier-two employees while South Lane School District has a net contribution rate of 4.37% of covered payroll. These rates are also affected differently by the proposed increases; Junction City School District’s contribution rates are estimated to increase an additional 4.61% to 26.94% while South Lane School District’s rates are estimated to increase 3.69% to 8.06%. Due to the large variance in rates and liabilities, we review each holding on an individual basis rather than resorting to broad generalizations. Read more “Oregon’s Retirement Conundrum”