10/29/2020

Colorado Local Bond Measure Election Analysis

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This year Colorado voters will be presented with approximately 1.5 billion in K-12 municipal issuance and mill levy overrides in 20 school districts, as well as Amendment B, a statewide ballot measure that would repeal the Gallagher Amendment, and Proposition 116 to reduce the state income tax rate. The Gallagher Amendment is a constitutional limit to the amount of property tax revenue Colorado residential property owners pay, currently 45%, compared to the 55% nonresidential property owners pay of the overall property tax revenue.

See Portfolio Manager Chris Johns’ comments on the Gallagher Amendment in a recent article  published in the Denver Post.

Property tax revenue supports public schools, county governments, special districts and municipal governments. The residential assessment rate is currently 7.15% for residential properties and fixed at 29% for nonresidential properties. A repeal of the Gallagher Amendment will keep the residential assessment rate at 7.15% for residential properties and will eliminate projected future reductions in the residential assessment rate, which could result in higher property taxes for residential taxpayers in the future. Proposition 116 is a statewide ballot issue that would reduce the state income tax rate from 4.63% to 4.55%. The passage of Proposition 116 could reduce state income tax revenue by $154 million in fiscal year 2021-22.

School Bond Issues

Unlike at the state level, where Colorado has experienced difficulty in passing tax increases, voters have historically shown a willingness to approve local bond issues. These measures are used to finance new schools and other capital improvements throughout the state. School district bond issues on the November ballot range in size from approximately $220,000 to as much as $795 million.

10/29/2020

Estimated Capital Gain Distributions as of September 30, 2020

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The funds listed below may pay a capital gain distribution in December, 2020. The amount reflected represents a preliminary estimate as of the date indicated, and is based on information available as of September 30, 2020. Estimates are subject to change based on a number of factors, including changes in the number of shares outstanding, certain tax adjustments, market conditions, board approvals, and other circumstances. These factors may also result in year-end distributions being made by funds which show no estimate as of the date of this report. The amount and character of distributions will be finalized on the record dates.

Aquila Distributors LLC does not provide accounting, tax or legal advice. Shareholders should seek tax advice based upon their particular situation.

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 2, 2020, an ex-date of December 3, 2020, a payable date of December 3, 2020, and a reinvestment date of December 3, 2020.

Hawaiian Tax-Free Trust and all other Funds: In the event that capital gains distributions are declared, the funds are anticipated to have a record date of December 29, 2020, an ex-date of December 30, 2020, a payable date of December 30, 2020, and a reinvestment date of December 30, 2020.

Although the following funds could pay capital gains distributions in December, 2020, as of the date of this report, a capital gain distribution is not anticipated.

Aquila Tax-Free Trust of Arizona
Aquila Tax-Free Fund of Colorado
Aquila Churchill Tax-Free Fund of Kentucky
Aquila Narragansett Tax-Free Income Fund (RI)
Aquila Tax-Free Trust of Oregon
Aquila Tax-Free Fund For Utah
Aquila Three Peaks High Income Fund

Printable Version

1 Represents undistributed realized gains from fiscal year 2020 which must be distributed in 2020 and cannot be reduced.

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.

10/07/2020

Credit Research & The Risk of Unplanned Events

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With wildfires consuming significant portions of western states, hurricanes impacting the Gulf and East Coast, and droughts and floods in-between, it is evident that climate risk and natural disasters have become an important consideration for investors.

These events are occurring with increasing frequency, and on larger scales. As a result, urban areas where large and typically higher rated municipal bond issuers are located have seen an increased risk of damage, which is only expected to grow.

As a municipal bond fund manager, knowing we can’t change the unpredictable nature of these events, we focus our credit research on finding municipal bond issuers that we believe are better prepared to withstand the financial challenges these events may pose.

Hurricanes, fires, floods, and other disasters present municipal bond issuers with a variety of risks including population declines threatening property tax revenues, revenue loss and increased operation and maintenance costs to maintain infrastructure.

Management of Aquila’s seven single-state municipal bond funds begins with the assessment of risk.

Although disclosure of natural disaster and climate related risks by municipalities remains minimal, we are able to focus our credit research efforts on examining the ability of local governments to respond to unforeseen incidents through a variety of criteria including: fund balance levels and policies, liquidity metrics, debt metrics and debt management policies, pension funding and other post-employment benefits exposure, and reviewing revenue concentrations.

Our credit reviews are performed with awareness of climate challenges faced by issuers, and prior occurrence of natural disasters, and we monitor holdings regularly for developments. Our local surveillance is one of the critical components of our process and includes a review of individual credit reports by our credit committees, which typically meet on a quarterly basis, and have been convening more frequently since the onset of COVID-19.

Although there are many differences between the global pandemic and the wildfires burning across the western states, both events were unforeseen and both have the potential to have an acute impact on local government finances. In this era of pandemics, pension crisis and various climate related threats, we believe credit research is more important than ever.

 

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

Mutual fund investing involves risk. Loss of principle is possible. Investments in bonds may decline in value due to rising interest rates, a real or perceived the chronic 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.

08/12/2020

Pandemic Pressure on the Higher Education Sector in Colorado

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The COVID-19 pandemic has caused the learning environment in Colorado’s higher education institutions to change dramatically. Students were forced to end the spring 2020 semester learning virtually, and Colorado universities plan on opening the fall 2020 semester learning on campus along with a hybrid approach of on campus and virtual learning.

According to Standard & Poor’s (S&P), “the COVID-19 pandemic and related economic and financial impacts exacerbate pressures already facing colleges and universities.” S&P’s ratings outlook has been negative for three straight years in the U.S. not-for-profit higher education sector. Moody’s lowered its rating outlook to negative for the higher education sector on March 18, 2020 due to “unprecedented enrollment uncertainty.”

To balance Colorado’s $3 billion revenue shortfall for its fiscal year 2020-21 budget, the state cut its support to the Department of Higher Education’s fiscal year 2020-21 budget by $493 million. However, the governor allocated $450 million from the Coronavirus Aid, Relief and Economic Stimulus Act (CARES) to the state’s public colleges and universities to help minimize the budget cuts.

Enrollment increased at most of Colorado’s universities in fiscal year 2020, but COVID-19 continues to present uncertainty for the fall semester. A resurgence of COVID-19 could reduce future enrollment at Colorado universities and impact revenues, as expenses increase due to a shift to an online learning environment. Currently, none of Colorado’s public universities have plans to raise tuition for fiscal year 2021.

Every institution of public higher education in Colorado was affected by the reduction in state funding. Public higher education institutions have instituted furloughs, hiring freezes, layoffs and other cost cutting strategies The one-time CARES support will soften the blow for fiscal year 2021, but fiscal year 2022 could be challenging if enrollments decline and state aid is further reduced. Currently, there are no plans for additional federal support to higher education institutions. The chart below demonstrates the current Fund holdings of higher education bonds and the amount of state aid reduction and CARES support received.

Higher education institutions represented 16% of Aquila Tax-Free Fund of Colorado’s portfolio as of June 30, 2020. Of this amount, almost 75% of the higher education bonds are insured, pre-refunded or part of the state’s intercept program, which makes debt service payments if the public higher education institution is unable. We will continue to monitor the Fund’s higher education portfolio holdings and their ability to withstand any potential uncertainty with a resurgence of COVID-19 and any future state aid reductions.

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

Information regarding holdings is subject to change and is not necessarily representative of the entire portfolio.

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.

06/10/2020

Tony Tanner, CFA® on Money Life with Chuck Jaffe

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Tony Tanner

Tony Tanner

Tony Tanner, CFA®, Municipal Bond Fund Portfolio Manager with Aquila Group of Funds, was recently interviewed on Money Life with Chuck Jaffe.

During their conversation, Tony discussed how the troubled economy and lower interest rates will impact the bond market and may lead investors to diversify their fixed-income holdings. He notes that while he doesn’t anticipate a big wave of municipal defaults, credit-quality will be challenged.

Chuck Jaffe is a veteran financial journalist and nationally syndicated financial columnist whose work appears in newspapers from coast to coast. He started the Money Life podcast in 2012, and previously hosted Your Money and various podcasts for MarketWatch, where he was a senior columnist.

We hope you enjoy the interview.

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

05/28/2020

Oregon Local Bond Measure Election Analysis

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In the May 2020 election, Oregon residents approved almost $340 million of general obligation bonds, substantially more than the $180 million approved in May 2019, Although results have yet to be certified, and therefore still preliminary, the bonds approved by this election are in high demand as investors seek high quality tax-exempt investment alternatives.

There are four scheduled election dates in Oregon each year: the second Tuesday in March, the third Tuesday in May, the third Tuesday in September, and the Tuesday after the first Monday in November. In November 2008, Oregon voters approved Ballot Measure 56, which repealed a law requiring more than 50% of a county’s registered voters to vote in bond measure elections held in May and November. As a result, the May election has become an important election to follow for new bond measures.

By election measure 64% of the bond issues were approved; however, 75% of the total requested par amount was approved by voters. Oregon typically sees more ballot measures during general elections, which are held in November, of even-numbered years. Accordingly, the current election falls flat versus the 2019 November general election, which approved a healthy $820 million of new supply.


Read more “Oregon Local Bond Measure Election Analysis”

05/28/2020

We recognize recently retired Trustee, B. J. Kobayashi

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B. J. Kobayashi retired from the board of Hawaiian Tax-Free Trust on March 31, 2020. He served as a member of the Aquila Group of Funds Compliance, Risk and Insurance Oversight Committee through December 31, 2019 and formerly served as Trustee of Pacific Capital Funds of Cash Assets Trust (three money-market funds in the Aquila Group of Funds) from 2009-2012. His fellow Trustees, the Aquila Group of Funds and the staff of Aquila Investment Management LLC have benefited greatly from his personal integrity, considerable experience and valuable business insight, and we recognize and appreciate Mr. Kobayashi’s judgment, perseverance and skill throughout his service as an independent Trustee.

On behalf of Aquila Group of Funds, we express our sincere appreciation and gratitude for Mr. Kobayashi’s contributions and for his dedication to the interests of the Trust’s shareholders.

05/08/2020

Chris Johns Covers the Current Municipal Bond Market in Asset TV Masterclass

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Chris Johns, portfolio manager of Aquila Tax-Free Fund of Colorado and Aquila Tax-Free Trust of Oregon, was a panelist in the May 2020 Asset TV Municipal Bond Masterclass. The discussion covered how the coronavirus pandemic, historic volatility and the Fed’s response is creating a unique market environment for municipal bonds. The panelists examined the impact on local and state issuers, different municipal sectors and credit strength.

 

Chris Johns is Senior Vice President, Managing Director and Portfolio Manager with Davidson Fixed Income Management, sub-adviser to Aquila Tax-Free Fund of Colorado and Aquila Tax-Free Trust of Oregon. Joining Mr. Johns on the panel were JR Reiger, Owner of the Reiger Report, and Grant Dewey, Head of Municipal Capital Markets at Build America Mutual.

The full program linked above provides CE Credit. We hope you find the program informative.

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.

04/24/2020

Aquila Tax-Free Trust of Oregon Special Shareholder Meeting to be held Virtually

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In light of public health concerns regarding the ongoing COVID-19 pandemic, Aquila Tax-Free Trust of Oregon announced on April 24, 2020 that the Fund’s Special Meeting of Shareholders, to be held on May 29, 2020, will be held as a virtual meeting. Shareholders will not be able to attend the meeting in person. This change has been made out of an abundance of caution and is intended to support the health and well-being of shareholders. The March 2, 2020 record date for determining shareholders entitled to vote at the meeting remains unchanged. For more information, please review the Press Release and Proxy, which is available on this website.

04/17/2020

S&P Considers Kentucky Adequately Positioned for COVID-19 Pressures

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Standard and Poor’s Global Ratings recently announced they consider the state of Kentucky “adequately positioned” to handle economic pressures brought on by the COVID-19 pandemic.

In an effort to effectively address the state’s rapidly changing needs, the Kentucky Legislature, which normally releases a biennial budget, passed House Bill 352 on April 15th, adopting an $11.4 billion one-year executive branch budget. The fiscal 2021 budget reduced the revenue forecast by $130 million, but S&P cited that they firmly believe Kentucky has sufficient near term liquidity to manage pressures brought on by economic hardships related to the pandemic. The bill also fully funds the teachers and state employees’ pension plans. Fiscal year 2021 will mark the second year in a row that Kentucky has made full contributions to those plans.

If excessive pressure does weigh on the state’s finances due to the current crisis, Kentucky also has the ability to issue Tax and Revenue Anticipation Notes (TRANs) amounting to 75% of estimated revenues anticipated throughout the year.

The recently passed Coronavirus Aid, Relief and Economic Security Act (CARES) created a Coronavirus Relief Fund for state and local governments which is expected to allocate $1.732 billion to Kentucky. Of that amount, $1.6 billion will go to the state, and $134 million will go to the city of Louisville and Jefferson County, the only local government under the law to quality for relief based on the number of residents. Kentucky will also receive approximately $410 million through CARES’ Education Stabilization Fund, which will fund K – 12 education and colleges and universities.

At Aquila Group of Funds, we have been monitoring Kentucky’s economic and credit strength since 1987. We have been pleasantly surprised recently by the resilience of sectors feeling the most stress. For example, the Louisville Jefferson County Airports have over $105 million of unencumbered investments in government agencies, and their annual budget is $75 million. We expect they will be able to withstand a fairly long reduction in revenue. We are also watching private colleges, and believe that they can handle the financial pressure due to their healthy endowments. We believe, through our ongoing analysis, that the state is well positioned to weather this storm with the recently passed budget and emergency government funding.

Before investing in one of the Aquila Group of Funds, 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 advisor, or by calling 800-437-1020.