The Arizona Municipal Bond Monsoon


Arizona municipal bonds were plentiful in the new issue market during 2019. In fact, it turned out to be the busiest year for new municipal bond issuance in the state for the entire decade. A total of $7.9 billion of new municipal bonds from Arizona’s state and local governments came to market, eclipsing the previous high of $7.5 billion that came to market in 2016. That year, issuers accelerated their borrowing in advance of the 2016 election and potential tax law changes that were expected to limit municipal borrowing.

Revenue bonds dominated 2019 issuance, comprising 83% of the total in Arizona, which is not surprising. Unlike larger states like Illinois and Texas, Arizona does not issue tax-supported general obligation debt. In fact, only about 10% of the approximately $44 billion in outstanding munis in Arizona are state-related obligations.

New municipal bond issues were dominated by the Education, Healthcare, and Transportation sectors, whose capital projects and borrowing needs are most associated with a rapidly growing population. These three sectors accounted for 63% of the total issuance and almost 70% of the new deals brought to market.

We have highlighted the population growth in Arizona, led by Maricopa County, in recent Aquila Tax-Free Trust of Arizona investment commentaries. Well thought out new construction, expansion, and maintenance capital projects are vital to both enhancing the basic service needs and necessary infrastructure facilities that maintain the quality of life for Arizona residents. Read more “The Arizona Municipal Bond Monsoon”


We Recognize and Celebrate Three Retiring Trustees


At Aquila Group of Funds, the hallmark of our time-tested municipal bond fund strategy has always been our local presence in the markets in which we invest. Included in that local presence are the members of our Boards of Trustees who reside in the states where we manage mutual funds.

Mutual fund boards are the champions of shareholders, and for over 35 years Aquila Group of Funds and our respected Trustees have been shareholder focused. In December, our company recognized the pending retirements of three esteemed independent Trustees, Mr. Richard L. Humphreys, Mr. Russell K. Okata, and Mr. Ralph R. Shaw.

Mr. Richard L. Humphreys, retired from the board of Hawaiian Tax-Free Trust, effective December 31, 2019, after having served as a Trustee since 2009 and Chair of the Board since 2013. Mr. Humphreys is President of both Hawaii Receivables Management, LLC, a factoring company, and Lynk Payment Systems Hawaii, LLC, a credit card processing firm. Among other executive roles in banking and finance, he was formerly Chairman of Bank of America, Hawaii, President of Hawaiian Trust Company (the original investment adviser of Hawaiian Tax-Free Trust, which later merged with the Trust’s current adviser, Bank of Hawaii), President of First Federal S&L and Executive Vice President of Bank of Hawaii. Mr. Humphreys is currently serving and has previously served on the board of directors of a broad variety of local organizations, including Kahua Ranch Ltd. His considerable business experience and valuable business insight have greatly benefitted Aquila Investment Management, his fellow Trustees, and shareholders.

Mr. Russell K. Okata retired from the board of Hawaiian Tax-Free Trust and the board of Aquila Funds Trust, effective December 31, 2019. Mr. Okata joined the board of Hawaiian Tax-Free Trust in 1992, and was a Trustee of Pacific Capital Funds of Cash Assets Trust (three former money-market funds in the Aquila Group of Funds) from 1993-2012. In 2007, Mr. Okata joined the board of Trustees of Aquila Three-Peaks High Income Fund, and later became a Trustee of Aquila Funds Trust which oversees both Aquila Three Peaks Opportunity Growth Fund and Aquila Three Peaks High Income Fund. During his tenure as Trustee, Mr. Okata was a member of the Judicial Council of Hawaii and served as a director of various civic and charitable organizations. He was the Executive Director of Hawaii Government Employees Association and the International Vice President of American Federation of State, County and Municipal Employees from 1981 – 2007. Mr. Okata’s experience in local government affairs and his knowledge of Hawaii has been invaluable to the boards and shareholders he served.

Mr. Ralph R. Shaw retired from the board of Aquila Tax-Free Trust of Oregon, effective December 31, 2019, after having served as Trustee since 2000. During his tenure as a Trustee, Mr. Shaw served in a variety of leadership roles including as Audit Committee Chair since 2002. Mr. Shaw’s prestigious and varied background included extensive experience in the securities business and as a member of the board of directors of a number of companies throughout the country, including Rentrak Corporation, a global media research company. He has served as a leading venture capitalist in the Pacific Northwest, backing a broad variety of companies including Costco. Mr. Shaw is owner of Shaw Management LLC, and was President of Shaw Management Company, an investment counseling firm, from 1980 – 2018. His extensive business experience and insight have greatly benefitted his fellow Trustees and the Fund’s shareholders during his time as Trustee.

On behalf of the Funds, we express our sincere appreciation and gratitude to each of these retired Trustees. All three individuals, over their tenure as Trustee, brought a high level of dedication and professionalism to their role as a fiduciary on behalf of fund shareholders. We are very proud to have worked with them, appreciative of their years of service, and we wish them well in all of their future endeavors.


Take a Closer Look at this Mid Cap Fund


Aquila Three Peaks Opportunity Growth Fund had a notable year in 2019. It was recognized by The Wall Street Journal as a Mid Cap Core Category King during the months of May, July, August, October, November and most recently for one-year performance as of December 31, 2019, when the Fund ranked 5th out of 360 funds in the Lipper Mid Cap Core equity category with a total return of 35.9%. The Fund was also recently recognized by Investor’s Business Daily on a list of growth funds leading the market. We credit this success to our distinctive management process that is rooted in intense research and built on our experience in the high yield market. See the Fund Fact Sheet for quarter-end standardized performance.

In selecting investments for Aquila Three Peaks Opportunity Growth Fund, we begin with the universe of companies we know best – those we follow in managing Aquila Three Peaks High Income Fund. We look for issuers of high-yield corporate debt and companies generating free cash flow and improving the corporate balance sheet by paying down debt.

We attempt to mitigate risk by looking for companies in industries with relatively consistent revenue generation (non-cyclical industries), that have demonstrated the ability to grow even in a low-growth economy. Our strategy is to maintain a broadly diversified, well researched, well balanced portfolio to reduce volatility. We implement this strategy through a fundamental, bottom-up analysis of each company in which we invest.

If you are looking for an equity fund with a management strategy unlike many of its peers, take a closer look at Aquila Three Peaks Opportunity Growth Fund. Read more “Take a Closer Look at this Mid Cap Fund”


Get to Know Arizona’s 21st Century Healthcare Economy


Tony Tanner, CFA®, recently authored The Ascension of Arizona’s 21st Century Healthcare Economy for Phoenix’s inBusiness publication. Read the article to learn more about how the healthcare sector in Arizona has become a significant component of the state’s economy and a contributor to growth.

Tony Tanner

Tony Tanner, CFA®

Tony Tanner, CFA® is Senior Vice President of Aquila Investment Management and the Lead Portfolio Manager of Aquila Tax-Free Trust of Arizona.


Actual 2019 Capital Gain Distributions


Aquila Three Peaks Opportunity Growth Fund – December 4, 2019 Capital Gain Distributions


Hawaiian Tax-Free Trust – December 30, 2019 Capital Gain Distribution

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


Following are funds that did not pay capital gain distributions in 2019.


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 gains from fiscal year 2019 which must be distributed in 2019 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 on this site,  from your investment professional, and when you call 800-437-1020.



Arizona’s Credit Rating Upgraded


On November 19, 2019, Moody’s Investor Service upgraded the state of Arizona’s credit rating from Aa2 to Aa1, which is the second-highest credit rating that the agency offers and the highest issuer rating that Arizona has ever received from Moody’s. The current outlook is stable. Moody’s has increased Arizona’s credit rating three times since 2009, and Arizona is the only state to receive two ratings upgrades since 2015. The State is now rated higher by Moody’s than at the outset of the credit crisis.

In a press release, Moody’s cited continued economic growth, a healthy rainy day fund and debt reduction as reasons for the upgrade. Since the great recession, the state has experienced strong growth of reserve funds partly due to diverse population increases over the last decade. As we have stated in our most recent investment commentary, Arizona has one of the most rapidly diversifying economies and fastest growing populations in the country and the state has done a commendable job preparing to support the increase. Paying down debt, strategic new borrowing, and thoughtful management of pension liabilities has positively impacted the state’s fiscal situation.

According to Governor Ducey, Arizona’s rainy day fund is currently at the highest level that is has ever been. Since 2015, the state has turned a $1 billion deficit into a $1 billion dollar surplus. Arizona continues to be committed to investing in K-12 education, public safety and infrastructure.

Aquila Tax-Free Trust of Arizona, is the state’s oldest single-state tax-exempt municipal bond fund in existence today, and has over 33 years of history investing in Arizona’s municipal bond market with a local portfolio management team. A hallmark of our investment process is having managers in the markets in which we invest so that we can see firsthand what is happening from a legislative and economic standpoint. The recent upgrade will positively impact the quality of our investment grade portfolio. As of 09/30/19, over 68.5% of our holdings were rated Aa or higher.

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 here, from your financial professional, or by calling 800-437-1020.

Consideration should be given to the risks of investing. Investments in bonds involve certain risks including a 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. For certain investors, some dividends may be subject to Federal and state taxes, including Alternative Minimum Tax (AMT). Please consult your professional tax advisor.

Independent rating services (such as Standard & Poor’s, Moody’s and Fitch) assign ratings, which generally range from AAA (highest) to D (lowest), to indicate the credit worthiness of the underlying bonds in the portfolio. Where the independent rating services differ in the rating they assign to an issue, or do not provide a rating for an issue, the highest available rating is used in calculating allocations by rating.


Oregon Local Bond Measure Election Results


Oregon residents approved over $820 million of general obligation bonds across the State on Election Day, which was historically strong. Although results are preliminary and have yet to be certified, bonds approved during this election far outweigh the $180 million approved during the May special election earlier this year. By election measure, approximately 67% of the issues were approved, with an approval of 88% of the total par amount requested. Oregon typically sees more ballot measures during general elections, which are held in November, of even-numbered years. Accordingly, the current election falls short of the 2018 November general election, which approved a robust $1.39 billion of new supply and set 2019 off to a strong start.


Over 80% of the principal amount approved by the election was for projects in the Portland Metropolitan area. Tax-rate and the overall par amount requested did not seem to weigh into voter decisions as much as demographics and geography. The measures with the highest tax rate and the highest par amount both passed. The majority of the bonds approved were for Metro’s $475 million general obligation bonds to finance regional programs to protect and improve water quality. Metro cited climate resiliency as a top priority during the development of the bond measure. According to Metro, future bond investments are intended to make communities more resilient to the effects of climate change.

Schools were also a significant consideration in this election with five schools requesting approval for almost $400 million in funding. A significant marketing point for all of the school bond issues was the Oregon School Capital Improvement Matching program, a grant program offered by the Oregon Department of Education, which supports communities that approve general obligation bonds for school improvements. Overall, this election is expected to generate over $20 million of grant disbursements from the state for school improvements. The only district that failed to pass its bond measure was Grants Pass School District No. 7. Josephine County has historically been a tough place to pass money measures. This is the third time in six years that district voters have declined to approve funding for school upgrades. Proceeds from the bond would have improved safety for staff and students. This includes doors, door locking and a new emergency alert system. Bond proceeds would have also replaced the district’s North Middle School.

Some of the elections were closer than others. The Lyons-Mehama Water District’s general obligation bond was last reported as passing in Marion County and failing in Linn County with the measure failing overall. If approved, the bond measure would pay for two water storage reservoirs, two new water mains to improve fire flow capacity and fund site improvements. The district’s primary tank used for storing treated water is made of wood and dates back to 1957. Due to the critical nature of the project, the district intends to ask for voter approval again during the next election, and plans to provide more voter education.

Overall, this election will provide a significant source of additional supply to the Oregon bond market, but since this election approved just over half the total par amount approved last November, sourcing bonds may prove more challenging from a supply perspective in 2020.



Colorado Local Bond Measure Election Results


The November 2019 midterm election was a mixed bag for the state. Proposition DD, a statewide ballot measure legalizing sports betting, passed with 51.4% of the vote and is set to effective in six months. The state was less fortunate on Proposition CC, a measure to end the cap on state tax revenue as required by the Taxpayer’s Bill of Rights. Compared to the November 2018 election, which approved $1.6 billion of bond issuance, this election was a success for local governments. Although results are preliminary and have yet to be certified, nearly $1.0 billion of general obligation bonds were approved by Colorado voters. By election measure, approximately 50% of issues were approved, which represents 72% of the total requested par amount.

There were more than 100 municipal measures on November ballots in Colorado. Ballot measures covered affordable housing, broadband, bond proposals for public improvements, economic development, governance, marijuana, tax increases, sports betting and transportation. All four TABOR over-ride ballot measures were approved by voters in addition to $124.4 million of city bond issues.

Colorado voters were faced with $1.2 billion of school bond issues and mill levy overrides in 22 school district elections, almost on par with the $1.4 billion school districts requested from voters in 2018. School district bond issues on the ballot ranged from $1.6 million to $400 million. Voters approved five of the twelve school district bond issues for $900 million that will fund new schools and capital improvements. In addition, voters also approved $27.0 million in school districts mill levy overrides.

Overall, voters continue to demonstrate a willingness to approve local bond issues, which provide new schools and other capital improvements throughout the state. The results of these elections will provide a significant source of additional supply to the Colorado bond market later this year and into 2020.


Aquila Three Peaks Opportunity Growth Fund Recognized as a Category King


Aquila Three Peaks Opportunity Growth Fund was once again recognized as a Category King by The Wall Street Journal for the year-to-date period ending October 31, 2019. The Category Kings report recognizes the top performing funds, based on total return, in 10 Lipper categories for the year-to-date period. Aquila Three Peaks Opportunity Growth Fund Class Y (ATGYX) was listed at #5 in the Lipper Mid Cap Core equity category, out of 375 funds. During this period, the Fund generated a return of 28.1% compared to the Lipper Mid Cap Core category average of 20.3% and the Russell 3000 Index return of 22.7%. The Fund was also listed as a Category King in May, July and August of this year based on year-to-date returns.
Read more “Aquila Three Peaks Opportunity Growth Fund Recognized as a Category King”


2019 Aquila Tax-Free Fund For Utah Annual Shareholder Meeting


Shareholders of Aquila Tax-Free Fund For Utah are cordially invited to attend their annual shareholder meeting Tuesday, November 19, 2019 at 8:30 a.m. at the Little America Hotel, 500 South Main Street, Salt Lake City, Utah. Breakfast will be served prior to the meeting.

Attendees will have the opportunity to visit with Fund Executives, Trustees, the Portfolio Managers and hear from Brian Butler, CPA and CFO of Salt Lake City Corporation’s Department of Airports. In his role as CFO of the Airport, Brian is responsible for overseeing the construction budget and debt financing of the new Salt Lake City Airport that is scheduled to begin opening in 2020.

Mr. Butler received his bachelors degree in Corporate Finance from Brigham Young University, an additional bachelors degree in Accounting from Utah Valley University, as well as a Masters of Accountancy from the University of Utah. He is a CPA and belongs to both the Utah Association of Certified Public Accounts as well as the American Institute of Certified Public Accountants. Prior to joining the Airport in 2015, Brian worked in public accounting as an auditor for Eide Bailly, as well as a Financial Representative for Fidelity Investments.

We look forward to seeing you in Salt Lake City.