Aquila Group of Funds was profoundly saddened by the recent tragic events in Maui, Hawaii. The State of Hawaii is deeply rooted in our long history, and our thoughts remain with everyone affected.
We understand that our shareholders and their financial professionals may be wondering about the potential impact these developments might have on the local market and economy, as well as Hawaiian Tax-Free Trust (the “Trust”) and its portfolio. Below is information available at this time to help address concerns and questions you may have. Circumstances are fluid and subject to change, and we encourage shareholders to consult with a financial professional regarding their individual investment needs.
Q: Does Hawaiian Tax-Free Trust hold any securities issued by Hawaiian Electric Company?
A: No, the Trust does not hold municipal bonds directly issued by Hawaiian Electric Company or its parent company, Hawaiian Electric Industries. However, the Trust has historically held an allocation to securities issued by the State of Hawaii Department of Budget and Finance for the benefit of, and guaranteed by, Hawaiian Electric Company.
These securities are typically issued in the form of bonds, which are not debt obligations of the State of Hawaii or any sub-division of the State.1 The State of Hawaii Department of Budget and Finance Hawaiian Electric bonds are supported with discrete loans from Hawaiian Electric Company and its three underlying subsidiaries: Hawaiian Electric Company (Oahu), Hawaii Power Company (Big Island) and Maui Electric Company (Maui, Molokai and Lanai), with a wrapped guarantee issued by Hawaiian Electric Company for the bonds.
Q: What is the Trust’s portfolio allocation to securities issued by the State of Hawaii Department of Budget and Finance for the benefit of, and guaranteed by, Hawaiian Electric Company?
A: Due to the active management of Hawaiian Tax-Free Trust’s Investment Adviser, Asset Management Group of the Bank of Hawaii, portfolio allocation to State of Hawaii Budget and Finance Hawaiian Electric bonds was reduced to-date by approximately 66% since the fires in Maui began on August 8, 2023.
As of the most current release of portfolio holdings (August 25, 2023), securities issued by the State of Hawaii Department of Budget and Finance represented 1.66% of the portfolio’s total assets. This compares to a 4.94% allocation as of June 30, 2023. For further information regarding Hawaiian Tax-Free Trust’s complete portfolio holdings as of both August 25, 2023 and June 30, 2023, please refer to Aquila Group of Funds’ website at www.aquilafunds.com.
Asset Management Group of the Bank of Hawaii, Investment Adviser for the Trust, continues to closely monitor market conditions to assess current and future portfolio holdings.
Q: How are Hawaii municipal bonds generally faring relative to the broader municipal bond market?
A: Based on their research, Asset Management Group of the Bank of Hawaii, Investment Adviser for Hawaiian Tax-Free Trust, has indicated that municipal bonds issued by the State of Hawaii and counties have traded within a range similar to that of the national municipal bond market since the Maui wildfires.
The Investment Adviser’s portfolio management team continues to monitor the impact on Hawaii credit through its observation of transactions on daily municipal bond trading data. However, as is the case with the municipal bond asset class, many municipal bonds do not trade frequently and there could be a time delay before the full impact of the fires becomes known.
Q: Is the Trust’s Investment Adviser located in Hawaii?
A: Yes, the Investment Adviser for Hawaiian Tax-Free Trust, Asset Management Group of the Bank of Hawaii, is located in Honolulu, Hawaii and employs a locally-based approach to municipal bond investing. The Trust’s portfolio management operations were not directly impacted by the Maui wildfires.
As with each of Aquila Group of Funds’ single-state municipal bond funds, the portfolio management team for Hawaiian Tax-Free Trust has an up-close perspective on the local market and economy. We believe that locally-based investment management teams help deliver valuable insights regarding important developments, the financing needs and capabilities of individual issuers, and ready access to multiple sources of information when evaluating the potential risk and return opportunities of a given security.
Q: What are the Trust’s primary investment strategy and objectives?
A: Hawaiian Tax-Free Trust seeks to provide the highest level of income exempt from regular federal and state income taxes, as is consistent with preservation of capital. It invests primarily in municipal obligations issued in Hawaii, which are investment-grade bonds at the time of purchase—those in the four highest credit rating categories by a Nationally Recognized Statistical Rating Organization (“NRSRO”) or determined to be of comparable quality by the Trust’s Investment Adviser. In light of the Maui wildfires, several NRSROs have recently downgraded (below investment-grade) the securities issued by State of Hawaii Department of Budget and Finance for the benefit of Hawaiian Electric Company.
The Trust’s Investment Adviser, Asset Management Group of the Bank of Hawaii, employs an active management approach to municipal bond investing, including a disciplined investment and research process. The portfolio management team has extensive experience and in-depth knowledge of the municipal bond market, with a keen ability to manage ever-changing market cycles and conditions.
Q: How long has Hawaiian Tax-Free Trust been in existence?
A: Hawaiian Tax-Free Trust was organized on May 7, 1984 and commenced operations on February 20, 1985. It was the first single-state municipal bond fund at Aquila Group of Funds, and was the first Hawaiian municipal bond fund in the mutual fund industry. The State of Hawaii is, therefore, deeply rooted in Aquila’s long history.
Hawaiian Tax-Free Trust’s locally-based Investment Adviser, Asset Management Group of the Bank of Hawaii, continues to closely monitor the situation.
1The bonds, together with the interest thereon, are special limited obligations of the Department of Budget and Finance of the State of Hawaii and shall not constitute a general or moral obligation of the State of Hawaii or a charge upon the general fund of the State of Hawaii. The full faith and credit of the State of Hawaii are not pledged to the payment of the principal of and premium, if any, and interest on the bonds. The bonds are not secured by the property and improvements refinanced with the proceeds of the bonds constituting the facilities nor are the bonds secured by any other property of the companies.
The information provided above is as of August 25, 2023. It is general in nature and not intended to provide investment, accounting, tax or legal advice, nor is it meant to represent a recommendation or solicitation related to any particular investment, security or industry sector. Information regarding holdings is subject to change and is not necessarily representative of the entire portfolio. A complete list of the Trust’s current holdings, including percentage allocation, is available on Aquila Group of Funds’ website at www.aquilafunds.com.
Asset Management Group of the Bank of Hawaii is the Investment Adviser for Hawaiian Tax-Free Trust. Aquila Investment Management LLC serves as the Trust’s Administrator/Business Manager.
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. State-specific fund performance could be more volatile than that of funds with greater geographic diversification.
Before investing in the Fund, carefully read about and consider the investment objectives, risks, charges, expenses, and other information found in the Fund’s prospectus. The prospectus is available from your financial professional, by clicking here, and by calling 800-437-1020.