UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4503
AQUILA MUNICIPAL TRUST
(Exact name of Registrant as specified in charter)
120 West 45th Street, Suite 3600
New York, New York 10036
(Address of principal executive offices) (Zip code)
Joseph P. DiMaggio
120 West 45th Street, Suite 3600
New York, New York 10036
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 697-6666
Date of fiscal year end: 3/31/15
Date of reporting period: 9/30/15
FORM N-CSRS
ITEM 1. | REPORTS TO STOCKHOLDERS. |
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Semi-Annual Report September 30, 2015 | ||||||||||||||||||||||||||
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![]() | Aquila Churchill Tax-Free Fund of Kentucky Serving Kentucky investors since 1987 | ![]() |
November, 2015
Dear Fellow Shareholder:
As you are no doubt aware, the Federal Funds rate (a key short term interest rate between commercial banks, which influences borrowing costs throughout the economy) has been held close to zero since 2008.
With no change in this rate in seven years, the relationship between interest rates and the share value of fixed-income securities, such as those in which the bond funds in the Aquila Group of Funds invest, has attracted limited attention.
Now that it seems probable that interest rates may slowly start to climb, we thought it was a good time to revisit this topic. Management of the Aquila Group of Funds well recognizes that it is much easier to accept variations with your investment when you understand the forces influencing them.
Simply put, interest rates and the share prices of the bond funds in the Aquila Group of Funds are inversely related. When interest rates increase, the share value of your Fund will generallly decrease. And, conversely, when interest rates decrease, the share value will generally increase.
Why is this the case?
When a bond is issued, it has a fixed face value and coupon rate (that is usually close to prevailing marketplace interest rates). For example, a $1,000 bond with a 5% coupon rate will pay interest of $50 per year and, at maturity, will repay the bondholder the $1,000 face value. The promise to pay $1,000 at maturity and the $50 per year interest payment doesn’t change. What does change is the bond’s market price.
If interest rates on similar bonds rise to 6%, our example above may no longer be attractive.
For the 5% bond to be attractive, its market price must fall below its $1,000 face value until the $50 per year represents a yield closer to 6%. Conversely, if prevailing interest rates decrease to 4%, people may be willing to pay more than the bond’s $1,000 face value in order to receive the $50 per year interest payments.
Simply put, bond prices fluctuate so that their yield reflects prevailing interest rates in the marketplace.
While we cannot control the direction in which interest rates will move, or the resulting effect such changes will have on your Fund’s share price, we do take steps which are designed to minimize (to the extent possible) the volatility of such movement.
NOT A PART OF THE SEMI-ANNUAL REPORT
We firmly believe that credit quality has an impact on stability. Each of the funds in the Aquila Group of Funds intentionally limits, by prospectus, its investments (at the time of purchase) to Investment Grade bonds - that is to say, bonds that are rated in one of the four highest credit ratings assigned by a nationally recognized statistical rating organization, or if unrated, determined to be of comparable credit quality by the Adviser/ Sub-Adviser (as applicable). Investment Grade credit ratings are one of several factors the Adviser/ Sub-Adviser (as applicable) considers in identifying those municipal issues which are most likely to pay interest when due and to return principal at maturity.
Another technique we use in the construction of the overall portfolio in an effort to achieve a stable share price is the laddering of bond maturities. Generally, bonds with short-term maturities tend to have relatively less price fluctuation, and provide a lower yield. Conversely, bonds with long-term maturities may provide a higher yield, and have higher price volatility. This higher price volatility reflects the risks associated with the unpredictability of future events and the potential interest rate changes over the extended life of the municipal bond.
Through utilizing a blend of maturities – both short-term and long-term – your Fund attempts to provide as high a level of current income as is consistent with the preservation of capital. We believe these portfolio management construction techniques are reasonably designed to manage, to the extent possible, share price variations – gaining both a degree of stability from the shorter-term maturities and higher yields from the longer-term maturities.
With more than 30 years of experience utilizing these techniques, with the Aquila Group of Funds, we believe that we have developed a process that helps to mitigate some of the volatility that will inevitably occur in the bond markets with changes in interest rates.
Sincerely,
![](https://capedge.com/proxy/N-CSRS/0000784056-15-000072/dsiga.jpg)
![](https://capedge.com/proxy/N-CSRS/0000784056-15-000072/dsig2a.jpg)
Diana P. Herrmann, Vice Chair and President
NOT A PART OF THE SEMI-ANNUAL REPORT
Mutual fund investing involves risk and loss of principal is possible.
The market prices of the Fund’s securities may rise or decline in value due to general market conditions, such as real or perceived adverse economic or political conditions, inflation, changes in interest rates, lack of liquidity in the bond markets or adverse investor sentiment. When market prices fall, the value of your investment may go down.
The value of your investment may go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term securities. Conversely, when interest rates fall, the value of your investment may rise. Interest rates in the U.S. recently have been historically low and are expected to rise at some point in time.
Investments in the Fund are subject to possible loss due to the financial failure of the issuers of underlying securities and their inability to meet their debt obligations.
The value of municipal securities can be adversely affected by changes in the financial condition of one or more individual municipal issuers or insurers of municipal issuers, regulatory developments, legislative actions, and by uncertainties and public perceptions concerning these and other factors. The Fund may be affected significantly by adverse economic, political or other events affecting state and other municipal issuers in which it invests, and may be more volatile than a more geographically diverse fund.
If interest rates fall, an issuer may exercise its right to prepay its securities, and the Fund could be forced to reinvest prepayment proceeds at a time when yields on securities available in the market are lower than the yield on the prepaid security.
A portion of income may be subject to local, state, Federal and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax.
These risks may result in share price volatility.
Past performance is no guarantee of future results, and there is no guarantee that any market forecasts discussed will be realized.
Any information in this Semi-Annual Report regarding market or economic trends or the factors influencing the Fund’s historical or future performance are statements of opinion as of the date of this report. These statements should not be relied upon for any other purposes.
NOT A PART OF THE SEMI-ANNUAL REPORT
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | |||
SCHEDULE OF INVESTMENTS | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (3.9%) | and Fitch | Value | ||||||
Campbell County, Kentucky Public | |||||||||
Project | |||||||||
$ | 1,625,000 | 4.375%, 12/01/25 Syncora Guarantee, | |||||||
Inc. Insured (pre-refunded) | Aa2/NR/NR | $ | 1,668,875 | ||||||
Henderson County, Kentucky | |||||||||
330,000 | 3.000%, 11/01/20 | Aa3/NR/NR | 347,470 | ||||||
Lexington-Fayette Urban County, | |||||||||
Kentucky | |||||||||
4,175,000 | 4.250%, 05/01/23 NPFG Insured | Aa2/AA/NR | 4,336,698 | ||||||
Louisville & Jefferson County, Kentucky | �� | ||||||||
955,000 | 4.200%, 11/01/22 NPFG Insured | ||||||||
(pre-refunded) | Aa1/AA+/AAA | 995,368 | |||||||
Warren County, Kentucky, Unlimited | |||||||||
Tax | |||||||||
615,000 | 4.000%, 06/01/25 | Aa2/AA-/NR | 665,719 | ||||||
635,000 | 4.000%, 06/01/26 | Aa2/AA-/NR | 684,581 | ||||||
660,000 | 4.000%, 06/01/27 | Aa2/AA-/NR | 709,005 | ||||||
Total General Obligation Bonds | 9,407,716 | ||||||||
Revenue Bonds (95.6%) | |||||||||
Agencies (19.3%) | |||||||||
Kentucky Asset & Liability Commission | |||||||||
Federal Highway Notes | |||||||||
1,000,000 | 5.000%, 09/01/22 Series A | A2/AA/A+ | 1,152,630 | ||||||
2,000,000 | 5.250%, 09/01/25 Series A | A2/AA/A+ | 2,398,620 | ||||||
2,000,000 | 5.000%, 09/01/26 Series A | A2/AA/A+ | 2,344,640 | ||||||
1,000,000 | 5.000%, 09/01/27 Series A††† | A2/AA/A+ | 1,173,580 | ||||||
Kentucky Asset & Liability Commission | |||||||||
University of Kentucky Project | |||||||||
1,500,000 | 4.500%, 10/01/22 NPFG/ FGIC | ||||||||
Insured (pre-refunded) | Aa2/AA/NR | 1,500,000 | |||||||
500,000 | 5.000%, 10/01/25 Series B | ||||||||
(pre-refunded) | Aa2/AA/NR | 543,015 | |||||||
750,000 | 5.000%, 10/01/26 Series B | ||||||||
(pre-refunded) | Aa2/AA/NR | 814,522 | |||||||
1,000,000 | 5.000%, 10/01/27 Series B | ||||||||
(pre-refunded) | Aa2/AA/NR | 1,086,030 | |||||||
Kentucky Economic Development | |||||||||
Finance Authority Louisville Arena | |||||||||
Project | |||||||||
2,500,000 | 5.750%, 12/01/28 AGC Insured | A3/AA/NR | 2,684,725 |
1 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | ||||
SCHEDULE OF INVESTMENTS (continued) | ||||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Agencies (continued) | |||||||||
Kentucky Higher Education Student | |||||||||
Loan | |||||||||
$ | 400,000 | 5.000%, 06/01/24 Senior Series A AMT | NR/A/A | $ | 436,336 | ||||
1,635,000 | 3.750%, 06/01/26 Senior Series A AMT | NR/A/A | 1,643,208 | ||||||
Kentucky Rural Water Finance Corp. | |||||||||
355,000 | 4.600%, 02/01/25 | NR/A+/NR | 381,707 | ||||||
205,000 | 4.250%, 08/01/19 NPFG Insured | A3/AA-/NR | 210,748 | ||||||
210,000 | 4.250%, 08/01/20 NPFG Insured | A3/AA-/NR | 215,872 | ||||||
200,000 | 4.375%, 08/01/22 NPFG Insured | A3/AA-/NR | 205,746 | ||||||
240,000 | 4.500%, 08/01/23 NPFG Insured | A3/AA-/NR | 247,282 | ||||||
255,000 | 4.500%, 08/01/24 NPFG Insured | A3/AA-/NR | 262,650 | ||||||
290,000 | 4.500%, 08/01/27 NPFG Insured | A3/AA-/NR | 298,117 | ||||||
245,000 | 4.600%, 08/01/28 NPFG Insured | A3/AA-/NR | 251,934 | ||||||
315,000 | 4.625%, 08/01/29 NPFG Insured | A3/AA-/NR | 323,823 | ||||||
375,000 | 4.000%, 02/01/28 Series 2012C | NR/A+/NR | 398,051 | ||||||
305,000 | 4.000%, 02/01/29 Series 2012C | NR/A+/NR | 323,901 | ||||||
435,000 | 4.000%, 02/01/26 Series 2012F | NR/A+/NR | 462,962 | ||||||
450,000 | 4.000%, 02/01/27 Series 2012F | NR/A+/NR | 475,726 | ||||||
465,000 | 4.000%, 02/01/28 Series 2012F | NR/A+/NR | 488,296 | ||||||
490,000 | 4.000%, 02/01/29 Series 2012F | NR/A+/NR | 512,261 | ||||||
Kentucky State Office Building COP | |||||||||
1,640,000 | 5.000%, 06/15/34 | Aa3/NR/NR | 1,869,633 | ||||||
Kentucky State Property and | |||||||||
Buildings Commission | |||||||||
1,020,000 | 5.000%, 11/01/20 | Aa3/A/A+ | 1,139,177 | ||||||
1,375,000 | 5.375%, 11/01/23 | Aa3/A/A+ | 1,547,631 | ||||||
1,000,000 | 5.000%, 10/01/25 | Aa3/A/A+ | 1,184,790 | ||||||
750,000 | 5.500%, 11/01/28 | Aa3/A/A+ | 844,320 | ||||||
2,800,000 | 5.250%, 02/01/28 AGC Insured | Aa3/AA/A+ | 3,129,308 | ||||||
2,500,000 | 5.000%, 02/01/29 AGC Insured | Aa3/AA/A+ | 2,759,350 | ||||||
2,820,000 | 5.750%, 04/01/24 Project 91 | A1/A/A | 3,131,497 | ||||||
2,625,000 | 5.750%, 04/01/29 Project 91 | A1/A/A | 2,905,376 | ||||||
625,000 | 4.000%, 04/01/26 Project 105 | A1/A/A | 673,600 | ||||||
655,000 | 4.000%, 04/01/27 Project 105 | A1/A/A | 702,271 | ||||||
1,500,000 | 5.000%, 10/01/29 Project 106 | Aa3/A/A+ | 1,731,285 | ||||||
3,000,000 | 5.000%, 08/01/33 Project 108 | Aa3/A/A+ | 3,438,300 | ||||||
Total Agencies | 45,892,920 |
2 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Airports (7.0%) | |||||||||
Kenton County, Kentucky Airport | |||||||||
Board Airport Revenue | |||||||||
$ | 1,300,000 | 5.000%, 03/01/23 NPFG Insured AMT | A3/AA-/A- | $ | 1,304,004 | ||||
Lexington-Fayette Urban County | |||||||||
Airport Board, Kentucky | |||||||||
1,555,000 | 5.000%, 07/01/28 2012 Series A AMT | Aa2/AA/NR | 1,769,839 | ||||||
400,000 | 5.000%, 07/01/29 2012 Series A AMT | Aa2/AA/NR | 446,396 | ||||||
1,350,000 | 5.000%, 07/01/30 2012 Series A AMT | Aa2/AA/NR | 1,499,647 | ||||||
750,000 | 5.000%, 07/01/31 2012 Series A AMT | Aa2/AA/NR | 827,393 | ||||||
Louisville, Kentucky Regional Airport | |||||||||
Authority | |||||||||
2,070,000 | 5.000%, 07/01/23 AMT | NR/A+/A+ | 2,435,189 | ||||||
2,325,000 | 5.000%, 07/01/26 AMT | NR/A+/A+ | 2,695,535 | ||||||
1,060,000 | 5.000%, 07/01/18 AMT (pre-refunded) | A2/A+/A+ | 1,174,862 | ||||||
1,000,000 | 5.250%, 07/01/23 AGMC Insured AMT | ||||||||
(pre-refunded) | A2/NR/A+ | 1,113,660 | |||||||
2,895,000 | 5.000%, 07/01/27 Series A AMT | NR/A+/A+ | 3,334,664 | ||||||
Total Airports | 16,601,189 | ||||||||
Higher Education (8.9%) | |||||||||
Boyle County, Kentucky College | |||||||||
Refunding & Improvement | |||||||||
1,035,000 | 4.500%, 06/01/22 AGC Insured | A3/AA/NR | 1,094,140 | ||||||
200,000 | 4.625%, 06/01/24 AGC Insured | A3/AA/NR | 211,566 | ||||||
Eastern Kentucky University General | |||||||||
Receipts | |||||||||
1,250,000 | 4.000%, 10/01/27 | Aa3/A/NR | 1,306,187 | ||||||
870,000 | 4.500%, 04/01/32 Series A | Aa3/NR/NR | 969,458 | ||||||
Lexington-Fayette, Kentucky Urban | |||||||||
County Government Transylvania | |||||||||
University Project | |||||||||
1,390,000 | 4.500%, 03/01/29 | NR/A+/NR | 1,451,605 | ||||||
Morehead State University, Kentucky | |||||||||
General Receipts | |||||||||
1,000,000 | 5.000%, 04/01/29 Series A | Aa3/NR/NR | 1,179,470 | ||||||
1,000,000 | 4.000%, 04/01/31 Series A | Aa3/NR/NR | 1,049,140 | ||||||
Murray State University Project, | |||||||||
Kentucky General Receipts | |||||||||
745,000 | 4.500%, 09/01/23 AMBAC Insured | Aa3/A/NR | 794,967 | ||||||
1,850,000 | 4.500%, 03/01/30 Series A | Aa3/NR/NR | 2,056,664 |
3 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | ||||
SCHEDULE OF INVESTMENTS (continued) | ||||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Higher Education (continued) | |||||||||
University of Kentucky General | |||||||||
Receipts | |||||||||
$ | 885,000 | 4.500%, 10/01/22 Syncora Guarantee, | |||||||
Inc. Insured (pre-refunded) | Aa2/AA/NR | $ | 922,126 | ||||||
1,545,000 | 4.500%, 10/01/23 Syncora Guarantee, | ||||||||
Inc. Insured (pre-refunded) | Aa2/AA/NR | 1,609,813 | |||||||
1,625,000 | 4.500%, 10/01/25 Syncora Guarantee, | ||||||||
Inc. Insured (pre-refunded) | Aa2/AA/NR | 1,693,169 | |||||||
1,010,000 | 4.500%, 10/01/26 Syncora Guarantee, | ||||||||
Inc. Insured (pre-refunded) | Aa2/AA/NR | 1,052,370 | |||||||
University of Louisville, Kentucky | |||||||||
General Receipts | |||||||||
1,000,000 | 5.000%, 09/01/30 2011 Series A | Aa3/AA-/NR | 1,147,680 | ||||||
Western Kentucky University General | |||||||||
Receipts | |||||||||
2,000,000 | 4.200%, 09/01/25 Series A NPFG | ||||||||
Insured | Aa3/AA-/NR | 2,094,100 | |||||||
2,475,000 | 4.200%, 09/01/26 Series A NPFG | ||||||||
Insured | Aa3/AA-/NR | 2,584,321 | |||||||
Total Higher Education | 21,216,776 | ||||||||
Hospital (15.3%) | |||||||||
City of Ashland, Kentucky, Medical | |||||||||
Center (Ashland Hospital Corp.) | |||||||||
2,000,000 | 5.000%, 02/01/22 Series B | Baa2/BBB/A- | 2,208,760 | ||||||
1,535,000 | 5.000%, 02/01/23 Series B | Baa2/BBB/A- | 1,692,568 | ||||||
Hardin County, Kentucky, Hardin | |||||||||
Memorial Hospital | |||||||||
735,000 | 5.500%, 08/01/22 AGMC Insured | A2/AA/NR | 875,532 | ||||||
675,000 | 5.500%, 08/01/23 AGMC Insured | A2/AA/NR | 811,660 | ||||||
500,000 | 5.250%, 08/01/24 AGMC Insured | A2/AA/NR | 588,960 | ||||||
Kentucky Economic Development | |||||||||
Finance Authority, Baptist | |||||||||
Healthcare System | |||||||||
4,795,000 | 5.375%, 08/15/24 | A2/NR/A+ | 5,329,067 | ||||||
Kentucky Economic Development | |||||||||
Finance Authority, Catholic Health | |||||||||
500,000 | 2.700%, 05/01/39 Series B | A2/A/A+ | 508,455 |
4 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Hospital (continued) | |||||||||
Kentucky Economic Development | |||||||||
Finance Authority, Kings Daughter | |||||||||
Medical Center | |||||||||
$ | 1,000,000 | 5.000%, 02/01/30 | Baa2/BBB/A- | $ | 1,065,010 | ||||
Louisville & Jefferson County, Kentucky | |||||||||
Metropolitan Government Health | |||||||||
System, Norton Healthcare, Inc. | |||||||||
7,030,000 | 5.000%, 10/01/26 | NR/A-/A- | 7,317,386 | ||||||
1,100,000 | 5.000%, 10/01/30 | NR/A-/A- | 1,140,194 | ||||||
Louisville & Jefferson County, Kentucky | |||||||||
Metropolitan Government, Louisville | |||||||||
Medical Center, Laundry Facility | |||||||||
Project | |||||||||
695,000 | 4.250%, 05/01/23 Series 2012 | NR/A-/NR | 760,288 | ||||||
Louisville & Jefferson County, Kentucky | |||||||||
Metropolitan Government, Louisville | |||||||||
Medical Center, Steam & Chilled | |||||||||
Water Plant Project | |||||||||
915,000 | 4.250%, 05/01/22 Series 2012A | NR/A-/NR | 1,026,209 | ||||||
Louisville & Jefferson County, Kentucky | |||||||||
Metropolitan Government Revenue | |||||||||
Refunding, Catholic Health Initiatives | |||||||||
1,000,000 | 5.000%, 12/01/30 | A2/A/A+ | 1,096,410 | ||||||
Louisville & Jefferson County, Kentucky | |||||||||
Metropolitan Government, Catholic | |||||||||
Health Initiatives | |||||||||
2,005,000 | 5.000%, 12/01/35 Series 2012A | A2/A/A+ | 2,153,751 | ||||||
Russell, Kentucky Bon Secours Health | |||||||||
System | |||||||||
3,100,000 | 5.000%, 11/01/26 Series 2013 | A3/A-/A | 3,517,725 | ||||||
Warren County, Kentucky, Warren | |||||||||
County Community Hospital Corp. | |||||||||
4,975,000 | 5.000%, 04/01/28 | NR/A+/NR | 5,584,736 | ||||||
680,000 | 4.000%, 10/01/29 | NR/A+/NR | 688,276 | ||||||
Total Hospital | 36,364,987 | ||||||||
Housing (2.4%) | |||||||||
Kentucky Housing Corporation | |||||||||
Housing Revenue | |||||||||
180,000 | 4.500%, 07/01/25 | Aaa/AAA/NR | 192,163 | ||||||
600,000 | 4.750%, 07/01/26 | Aaa/AAA/NR | 630,258 |
5 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Housing (continued) | |||||||||
Kentucky Housing Corporation | |||||||||
Housing Revenue (continued) | |||||||||
$ | 470,000 | 4.800%, 01/01/18 AMT | Aaa/AAA/NR | $ | 470,653 | ||||
575,000 | 4.800%, 07/01/18 AMT | Aaa/AAA/NR | 575,799 | ||||||
1,570,000 | 4.800%, 07/01/22 AMT | Aaa/AAA/NR | 1,590,017 | ||||||
810,000 | 5.000%, 01/01/23 AMT | Aaa/AAA/NR | 815,824 | ||||||
Kentucky Housing Multifamily | |||||||||
Mortgage Revenue | |||||||||
1,325,000 | 5.000%, 06/01/35 AMT | NR/NR/NR* | 1,331,174 | ||||||
Total Housing | 5,605,888 | ||||||||
Local Public Property (6.9%) | |||||||||
Grant County, Kentucky Public | |||||||||
Property Corp. Justice Center Project | |||||||||
1,000,000 | 4.500%, 12/01/24 | Aa3/NR/NR | 1,074,000 | ||||||
Jefferson County, Kentucky Capital | |||||||||
Projects | |||||||||
1,575,000 | 4.250%, 06/01/23 AGMC Insured | Aa3/NR/AA+ | 1,658,821 | ||||||
1,950,000 | 4.375%, 06/01/24 AGMC Insured | Aa3/NR/AA+ | 2,055,787 | ||||||
1,640,000 | 4.375%, 06/01/28 AGMC Insured | Aa3/NR/AA+ | 1,717,064 | ||||||
2,060,000 | 4.375%, 06/01/26 Series A AGMC | ||||||||
Insured | Aa3/NR/AA+ | 2,170,004 | |||||||
1,070,000 | 4.375%, 06/01/27 Series A AGMC | ||||||||
Insured | Aa3/NR/AA+ | 1,125,512 | |||||||
Kentucky Association of Counties | |||||||||
Finance Corp. Financing Program | |||||||||
1,145,000 | 4.250%, 02/01/24 | NR/AA-/NR | 1,266,175 | ||||||
515,000 | 4.000%, 02/01/25 | NR/AA-/NR | 545,354 | ||||||
315,000 | 5.375%, 02/01/27 | NR/AA-/NR | 366,509 | ||||||
330,000 | 5.375%, 02/01/28 | NR/AA-/NR | 382,701 | ||||||
Kentucky Bond Corp. Financing | |||||||||
Program | |||||||||
915,000 | 5.125%, 02/01/28 | NR/AA-/NR | 1,058,152 | ||||||
Laurel County, Kentucky Public | |||||||||
Property Corp. Justice Center Project | |||||||||
250,000 | 4.625%, 03/01/28 | Aa3/NR/NR | 269,993 | ||||||
Lexington-Fayette Urban County, | |||||||||
Kentucky Public Facilities | |||||||||
500,000 | 4.125%, 10/01/23 NPFG Insured | Aa3/NR/NR | 515,035 | ||||||
500,000 | 4.250%, 10/01/26 NPFG Insured | Aa3/NR/NR | 516,000 |
6 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Local Public Property (continued) | |||||||||
River City Parking Authority of River | |||||||||
City, Inc., Kentucky First Mortgage | |||||||||
$ | 1,000,000 | 4.750%, 06/01/27 2013 Series B | Aa2/AA/NR | $ | 1,146,850 | ||||
Warren County, Kentucky Justice | |||||||||
Center | |||||||||
365,000 | 4.300%, 09/01/22 NPFG Insured | Aa3/NR/NR | 366,022 | ||||||
Total Local Public Property | 16,233,979 | ||||||||
School Building (17.3%) | |||||||||
Barren County, Kentucky School | |||||||||
Building Revenue | |||||||||
1,265,000 | 4.250%, 08/01/25 AGC Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 1,306,530 | |||||||
1,670,000 | 4.375%, 08/01/26 AGC Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 1,726,546 | |||||||
Boone County, Kentucky School | |||||||||
District Finance Corp. School | |||||||||
Building Revenue | |||||||||
1,580,000 | 4.500%, 08/01/23 AGMC Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 1,635,110 | |||||||
1,250,000 | 4.125%, 03/01/25 AGMC Insured | Aa3/NR/NR | 1,298,125 | ||||||
Bullitt County, Kentucky School | |||||||||
District Finance Corp. | |||||||||
1,145,000 | 4.500%, 04/01/27 | Aa3/NR/NR | 1,237,081 | ||||||
1,200,000 | 4.500%, 04/01/28 | Aa3/NR/NR | 1,295,580 | ||||||
Campbell County, Kentucky School | |||||||||
District Finance Corp. School Building | |||||||||
340,000 | 3.500%, 08/01/22 | Aa3/NR/NR | 364,215 | ||||||
Fayette County, Kentucky School | |||||||||
District Finance Corp. | |||||||||
3,000,000 | 5.000%, 08/01/31 | Aa3/A+/NR | 3,454,650 | ||||||
4,335,000 | 4.375%, 05/01/26 AGMC Insured | ||||||||
(pre-refunded) | A1/AA/NR | 4,599,825 | |||||||
1,000,000 | 5.000%, 10/01/27 Series A | A1/A+/NR | 1,164,280 | ||||||
750,000 | 4.250%, 06/01/29 Series A | A1/A+/NR | 790,417 | ||||||
Fort Thomas, Kentucky Independent | |||||||||
School District Finance Corp. | |||||||||
610,000 | 4.375%, 04/01/25 (pre-refunded) | Aa3/NR/NR | 622,651 |
7 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
School Building (continued) | |||||||||
Franklin County, Kentucky School | |||||||||
District Finance Corp. | |||||||||
$ | 1,560,000 | 4.000%, 06/01/29 | Aa3/NR/NR | $ | 1,663,132 | ||||
1,135,000 | 4.000%, 04/01/24 Second Series | Aa3/NR/NR | 1,268,170 | ||||||
Jefferson County, Kentucky School | |||||||||
District Finance Corp. | |||||||||
805,000 | 5.000%, 04/01/28 Series A | Aa2/AA-/NR | 950,206 | ||||||
1,075,000 | 4.500%, 04/01/32 Series A | Aa2/AA-/NR | 1,193,228 | ||||||
4,000,000 | 4.000%, 07/01/26 Series B | Aa2/AA-/NR | 4,366,680 | ||||||
Kenton County, Kentucky School | |||||||||
District Finance Corp. | |||||||||
445,000 | 4.300%, 04/01/22 AGC Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 454,065 | |||||||
750,000 | 4.375%, 04/01/24 AGC Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 765,555 | |||||||
325,000 | 4.400%, 04/01/26 AGC Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 331,779 | |||||||
590,000 | 4.250%, 10/01/22 AGMC Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 613,293 | |||||||
Larue County, Kentucky School | |||||||||
District Finance Corp. | |||||||||
270,000 | 4.500%, 07/01/21 NPFG Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 278,465 | |||||||
470,000 | 4.500%, 07/01/22 NPFG Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 484,735 | |||||||
785,000 | 4.500%, 07/01/23 NPFG Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 809,610 | |||||||
Laurel County, Kentucky School | |||||||||
District Finance Corp. | |||||||||
300,000 | 4.000%, 06/01/16 AGMC Insured | Aa3/NR/NR | 307,062 | ||||||
Magoffin County, Kentucky School | |||||||||
District | |||||||||
375,000 | 4.250%, 08/01/23 AMBAC Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 386,681 | |||||||
475,000 | 4.250%, 08/01/25 AMBAC Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 489,796 | |||||||
Ohio County, Kentucky School | |||||||||
Building Revenue | |||||||||
790,000 | 4.500%, 05/01/24 | Aa3/NR/NR | 851,865 | ||||||
325,000 | 4.500%, 05/01/25 | Aa3/NR/NR | 349,508 |
8 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | |||||||||
SCHEDULE OF INVESTMENTS (continued) | |||||||||
SEPTEMBER 30, 2015 (unaudited) | |||||||||
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
School Building (continued) | |||||||||
Oldham County, Kentucky School | |||||||||
District Finance Corp. | |||||||||
$ | 1,000,000 | 4.500%, 09/01/27 NPFG Insured | Aa3/NR/NR | $ | 1,063,340 | ||||
Owensboro, Kentucky Independent | |||||||||
School District Finance Corp. School | |||||||||
Building Revenue | |||||||||
890,000 | 4.375%, 09/01/24 | Aa3/NR/NR | 961,156 | ||||||
Pendleton County, Kentucky School | |||||||||
District Finance Corp. School | |||||||||
Building Revenue | |||||||||
730,000 | 4.000%, 02/01/23 NPFG Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 764,420 | |||||||
Pike County, Kentucky School Building | |||||||||
Revenue | |||||||||
1,355,000 | 4.375%, 10/01/26 NPFG Insured | Aa3/NR/NR | 1,421,232 | ||||||
Spencer County, Kentucky School | |||||||||
District Finance Corp., School | |||||||||
Building Revenue | |||||||||
1,000,000 | 4.500%, 08/01/27 AGMC Insured | Aa3/NR/NR | 1,055,190 | ||||||
Warren County, Kentucky School | |||||||||
District Finance Corp. | |||||||||
500,000 | 4.375%, 04/01/27 AGMC Insured | Aa3/NR/NR | 532,460 | ||||||
295,000 | 4.125%, 02/01/23 NPFG Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 298,794 | |||||||
Total School Building | 41,155,432 | ||||||||
Turnpike/Highway (10.2%) | |||||||||
Kentucky State Turnpike Authority | |||||||||
3,500,000 | 5.000%, 07/01/25 | Aa2/AA/A+ | 3,998,610 | ||||||
1,000,000 | 5.000%, 07/01/25 | Aa2/AA/A+ | 1,109,800 | ||||||
2,750,000 | 5.000%, 07/01/27 | Aa2/AA/A+ | 3,043,260 | ||||||
1,100,000 | 5.000%, 07/01/28 | Aa2/AA/A+ | 1,216,039 | ||||||
5,000,000 | 5.000%, 07/01/29 Series A | Aa2/AA/A+ | 5,844,950 | ||||||
4,030,000 | 5.000%, 07/01/30 Series A | Aa2/AA/A+ | 4,717,276 | ||||||
1,000,000 | 5.000%, 07/01/30 Series A | Aa2/AA/A+ | 1,165,590 | ||||||
3,000,000 | 4.450%, 07/01/22 Series B†††† | ||||||||
(pre-refunded) | Aa2/AA/A+ | 3,092,940 | |||||||
Total Turnpike/Highway | 24,188,465 |
9 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Utilities (8.3%) | |||||||||
Campbell & Kenton Counties, | |||||||||
Kentucky (Sanitation District) | |||||||||
$ | 2,370,000 | 4.000%, 08/01/27 | Aa2/AA/NR | $ | 2,558,462 | ||||
1,695,000 | 4.300%, 08/01/24 NPFG Insured | Aa2/AA/NR | 1,745,206 | ||||||
300,000 | 4.300%, 08/01/27 NPFG Insured | Aa2/AA/NR | 308,034 | ||||||
1,450,000 | 4.300%, 08/01/28 NPFG Insured | Aa2/AA/NR | 1,487,366 | ||||||
Kentucky State Municipal Power | |||||||||
Agency, Prairie St. Project | |||||||||
1,000,000 | 5.000%, 09/01/23 AGMC Insured | A2/AA/NR | 1,150,090 | ||||||
Louisville & Jefferson County, | |||||||||
Kentucky Metropolitan Sewer | |||||||||
District | |||||||||
500,000 | 5.000%, 05/15/28 Series A | Aa3/AA/AA- | 581,810 | ||||||
1,920,000 | 4.500%, 05/15/30 Series A | Aa3/AA/NR | 2,144,813 | ||||||
Northern Kentucky Water District | |||||||||
1,000,000 | 5.000%, 02/01/26 | Aa3/NR/NR | 1,159,270 | ||||||
1,825,000 | 6.000%, 02/01/28 AGMC Insured | Aa3/NR/NR | 2,075,536 | ||||||
Owensboro, Kentucky Electric, Light | |||||||||
and Power | |||||||||
1,000,000 | 5.000%, 01/01/21 AGMC Insured | A2/AA/NR | 1,132,190 | ||||||
3,500,000 | 5.000%, 01/01/26 AGMC Insured | ||||||||
Series B | A2/AA/NR | 3,923,080 | |||||||
Owensboro, Kentucky Water | |||||||||
Revenue | |||||||||
500,000 | 5.000%, 09/15/27 AGC Insured | A1/NR/NR | 552,200 | ||||||
Owensboro-Daviess County, | |||||||||
Kentucky Regional Water Resource | |||||||||
Agency Wastewater Refunding & | |||||||||
Improvement | |||||||||
930,000 | 4.375%, 01/01/27 Series A Syncora | ||||||||
Guarantee, Inc. Insured | NR/A+/NR | 963,843 | |||||||
Total Utilities | 19,781,900 | ||||||||
Total Revenue Bonds | 227,041,536 | ||||||||
Total Investments (cost $225,642,353 - | |||||||||
note 4) | 99.5% | 236,449,252 | |||||||
Other assets less liabilities | 0.5 | 1,126,632 | |||||||
Net Assets | 100.0% | $ | 237,575,884 |
10 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
SCHEDULE OF INVESTMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Percent of | ||||
Portfolio Distribution By Quality Rating | Investments† | |||
Aaa of Moody’s or AAA of S&P | 1.8 | % | ||
Pre-refunded bonds††/ Escrowed to Maturity bonds | 13.9 | |||
Aa of Moody’s or AA of S&P or Fitch | 58.3 | |||
A of Moody’s or S&P or Fitch | 25.4 | |||
Not Rated* | 0.6 | |||
100.0 | % |
PORTFOLIO ABBREVIATIONS |
AGC - Assured Guaranty Corp. |
AGMC - Assured Guaranty Municipal Corp. |
AMBAC - American Municipal Bond Assurance Corp. |
AMT - Alternative Minimum Tax |
FGIC - Financial Guaranty Insurance Co. |
NPFG - National Public Finance Guarantee |
NR - Not Rated |
* | Any security not rated (“NR”) by any of the Nationally Recognized Statistical Rating Organizations (“NRSRO”) has been determined by the Investment Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a NRSRO. | |
† | Where applicable, calculated using the highest rating of the three NRSROs. | |
†† | Pre-refunded bonds are bonds for which U.S. Government Obligations usually have been placed in escrow to retire the bonds at their earliest call date. |
††† | Security purchased on a delayed delivery or when-issued basis. | |
†††† | Security pledged as collateral for the Fund’s delayed delivery or when-issued commitments. |
See accompanying notes to financial statements.
11 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | |
STATEMENT OF ASSETS AND LIABILITIES | |
SEPTEMBER 30, 2015 (unaudited) |
ASSETS | ||||
Investments at value (cost $225,642,353) | $ | 236,449,252 | ||
Cash | 710,215 | |||
Interest receivable | 2,991,359 | |||
Receivable for Fund shares sold | 132,973 | |||
Other assets | 20,503 | |||
Total assets | 240,304,302 | |||
LIABILITIES | ||||
Payable for investment securities purchased | 2,292,760 | |||
Dividends payable | 196,606 | |||
Management fee payable | 77,825 | |||
Payable for Fund shares redeemed | 56,704 | |||
Accrued expenses payable | 104,523 | |||
Total liabilities | 2,728,418 | |||
NET ASSETS | $ | 237,575,884 | ||
Net Assets consist of: | ||||
Capital Stock - Authorized an unlimited number of shares, | ||||
par value $0.01 per share | $ | 219,648 | ||
Additional paid-in capital | 227,204,034 | |||
Net unrealized appreciation on investments (note 4) | 10,806,899 | |||
Undistributed net investment income | 192,324 | |||
Accumulated net realized loss on investments | (847,021 | ) | ||
CLASS A | $ | 237,575,884 | ||
Net Assets | $ | 186,814,555 | ||
Capital shares outstanding | 17, 272,318 | |||
Net asset value and redemption price per share | $ | 10.82 | ||
Maximum offering price per share (100/96 of $10.82) | $ | 11.27 | ||
CLASS C | ||||
Net Assets | $ | 10,123, 897 | ||
Capital shares outstanding | 936,557 | |||
Net asset value and offering price per share | $ | 10.81 | ||
Redemption price per share (*a charge of 1% is imposed on the | ||||
redemption proceeds, or on the original price, whichever is | ||||
lower, if redeemed during the first 12 months after purchase) | $ | 10.81 | * | |
CLASS I | ||||
Net Assets | $ | 8,238,495 | ||
Capital shares outstanding | 762,048 | |||
Net asset value, offering and redemption price per share | $ | 10.81 | ||
CLASS Y | ||||
Net Assets | $ | 32,398,937 | ||
Capital shares outstanding | 2,993, 839 | |||
Net asset value, offering and redemption price per share | $ | 10.82 |
See accompanying notes to financial statements.
12 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | |
STATEMENT OF OPERATIONS | |
SIX MONTHS ENDED SEPTEMBER 30, 2015 (unaudited) |
Investment Income: | ||||||||
Interest income | $ | 4,463,872 | ||||||
Expenses: | ||||||||
Management fee (note 3) | $ | 475,315 | ||||||
Distribution and service fees (note 3) | 195,618 | |||||||
Transfer and shareholder servicing agent | ||||||||
fees (note 3) | 78,979 | |||||||
Trustees’ fees and expenses (note 8) | 44,570 | |||||||
Legal fees | 26,830 | |||||||
Fund accounting fees | 19,673 | |||||||
Shareholders’ reports | 12,917 | |||||||
Registration fees and dues | 10,656 | |||||||
Auditing and tax fees | 10,364 | |||||||
Custodian fees (note 6) | 8,647 | |||||||
Insurance | 6,072 | |||||||
Chief compliance officer services (note 3) | 3,271 | |||||||
Miscellaneous | 15,879 | |||||||
Total expenses | 908,791 | |||||||
Expenses paid indirectly (note 6) | (295 | ) | ||||||
Net expenses | 908,496 | |||||||
Net investment income | 3,555,376 | |||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||
Net realized gain (loss) from securities | ||||||||
transactions | 230,266 | |||||||
Change in unrealized appreciation on | ||||||||
investments | (2,229,614 | ) | ||||||
Net realized and unrealized gain (loss) on | ||||||||
investments | (1,999,348 | ) | ||||||
Net change in net assets resulting from | ||||||||
operations | $ | 1,556,028 |
See accompanying notes to financial statements.
13 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY | ||
STATEMENTS OF CHANGES IN NET ASSETS |
Six Months Ended | ||||||||
September 30, 2015 | Year Ended | |||||||
(unaudited) | March 31, 2015 | |||||||
OPERATIONS: | ||||||||
Net investment income | $ | 3,555,376 | $ | 7,159,935 | ||||
Net realized gain (loss) from | ||||||||
securities transactions | 230,266 | 427,020 | ||||||
Change in unrealized appreciation | ||||||||
on investments | (2,229,614 | ) | 5,220,423 | |||||
Change in net assets from | ||||||||
operations | 1,556,028 | 12,807,378 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS (note 10): | ||||||||
Class A Shares: | ||||||||
Net investment income | (2,836,380 | ) | (5,681,480 | ) | ||||
Class C Shares: | ||||||||
Net investment income | (111,520 | ) | (218,757 | ) | ||||
Class I Shares: | ||||||||
Net investment income | (116,905 | ) | (222,162 | ) | ||||
Class Y Shares: | ||||||||
Net investment income | (509,960 | ) | (1,002,755 | ) | ||||
Change in net assets from | ||||||||
distributions | (3,574,765 | ) | (7,125,154 | ) | ||||
CAPITAL SHARE TRANSACTIONS (note 7): | ||||||||
Proceeds from shares sold | 14,958,068 | 22,710,346 | ||||||
Reinvested dividends and | ||||||||
distributions | 2,259,940 | 4,295,383 | ||||||
Cost of shares redeemed | (14,779,066 | ) | (30,663,980 | ) | ||||
Change in net assets from capital | ||||||||
share transactions | 2,438,942 | (3,658,251 | ) | |||||
Change in net assets | 420,205 | 2,023,973 | ||||||
NET ASSETS: | ||||||||
Beginning of period | 237,155,679 | 235,131,706 | ||||||
End of period* | $ | 237,575,884 | $ | 237,155,679 | ||||
*Includes undistributed net investment income of: | $ | 192,324 | $ | 211,713 |
See accompanying notes to financial statements.
14 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
NOTES TO FINANCIAL STATEMENTS |
SEPTEMBER 30, 2015 (unaudited) |
1. Organization
Aquila Churchill Tax-Free Fund of Kentucky (the “Fund”), a series of Aquila Municipal Trust (from inception until the close of business on October 11, 2013, the Fund operated under the name Churchill Tax-Free Fund of Kentucky), a non-diversified, open-end investment company, was organized in March, 1987 as a Massachusetts business trust and commenced operations on May 21, 1987. The Fund is authorized to issue an unlimited number of shares. Class A Shares are sold at net asset value plus a sales charge of varying size (depending upon a variety of factors) paid at the time of purchase and bear a distribution fee. Class C Shares are sold at net asset value with no sales charge payable at the time of purchase but with a level charge for service and distribution fees for six years thereafter. Class C Shares automatically convert to Class A Shares after six years. Class Y Shares are sold only through authorized financial institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity and are not offered directly to retail customers. Class Y Shares are sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge (“CDSC”) and no distribution fee. Class I Shares are offered and sold only through financial intermediaries and are not offered directly to retail customers. Class I Shares are sold at net asset value with no sales charge and no redemption fee or CDSC, although a financial intermediary may charge a fee for effecting a purchase or other transaction on behalf of its customers. Class I Shares carry a distribution and a service fee. All classes of shares represent interests in the same portfolio of investments and are identical as to rights and privileges but differ with respect to the effect of sales charges, the distribution and/or service fees borne by each class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America for investment companies.
a) | Portfolio valuation: Municipal securities are valued each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services. In the case of securities for which market quotations are readily available, securities are valued by the pricing service at the mean of bid and asked quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees. |
b) | Fair value measurements: The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy: |
15 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, based on the best information available.
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the valuation inputs, representing 100% of the Fund’s investments, used to value the Fund’s net assets as of September 30, 2015:
Valuation Inputs | Investments in Securities | ||||
Level 1 – Quoted Prices | $ | — | |||
Level 2 – Other Significant Observable | |||||
Inputs — Municipal Bonds* | 236,449,252 | ||||
Level 3 – Significant Unobservable Inputs | — | ||||
Total | $ | 236,449,252 |
* See schedule of investments for a detailed listing of securities.
c) | Subsequent events: In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date these financial statements were issued. |
d) | Securities transactions and related investment income: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. Interest income is recorded daily on the accrual basis and is adjusted for amortization of premium and accretion of original issue and market discount. |
e) | Federal income taxes: It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Fund intends to make distributions of income and securities profits sufficient to relieve it from all, or substantially all, Federal income and excise taxes. |
Management has reviewed the tax positions for each of the open tax years (2012–2014) or expected to be taken in the Fund’s 2015 tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.
16 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
f) | Multiple class allocations: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are also charged directly to such class on a daily basis. |
g) | Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. |
h) | Reclassification of capital accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. On March 31, 2015, the Fund decreased undistributed net investment income by $5,709, and decreased realized loss by $5,709. These reclassifications had no effect on net assets or net asset value per share |
i) | The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 “Financial Services-Investment Companies”. |
3. Fees and Related Party Transactions
a) Management Arrangements:
Aquila Investment Management LLC (the “Manager”), a wholly-owned subsidiary of Aquila Management Corporation, the Fund’s founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. Under the Advisory and Administration Agreement, the Manager provides all investment management and administrative services to the Fund. The Manager’s services include providing the office of the Fund and all related services as well as managing relationships with all of the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, fund accounting agent, auditors and distributor. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.40% on the Fund’s average net assets.
17 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for Chief Compliance Officer related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940.
Specific details as to the nature and extent of the services provided by the Manager are more fully defined in the Fund’s Prospectus and Statement of Additional Information.
b) Distribution and Service Fees:
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 (the “Rule”) under the Investment Company Act of 1940. Under one part of the Plan, with respect to Class A Shares, the Fund is authorized to make distribution fee payments to broker-dealers or others (“Qualified Recipients”) selected by Aquila Distributors, Inc. (the “Distributor”) including, but not limited to, any principal underwriter of the Fund, with which the Distributor has entered into written agreements contemplated by the Rule and which have rendered assistance in the distribution and/or retention of the Fund’s shares or servicing of shareholder accounts. The Fund makes payment of this distribution fee at the annual rate of 0.15% of the Fund’s average net assets represented by Class A Shares. For the six months ended September 30, 2015, distribution fees on Class A Shares amounted to $140,449 of which the Distributor retained $4,398.
Under another part of the Plan, the Fund is authorized to make payments with respect to Class C Shares to Qualified Recipients which have rendered assistance in the distribution and/or retention of the Fund’s Class C shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Fund’s average net assets represented by Class C Shares and for the six months ended September 30, 2015, amounted to $38,344. In addition, under a Shareholder Services Plan, the Fund is authorized to make service fee payments with respect to Class C Shares to Qualified Recipients for providing personal services and/or maintenance of shareholder accounts. These payments are made at the annual rate of 0.25% of the Fund’s average net assets represented by Class C Shares and for the six months ended September 30, 2015, amounted to $12,781. For the six months ended September 30, 2015, the total of these payments with respect to Class C Shares amounted to $51,125 of which the Distributor retained $11,383.
Under another part of the Plan, the Fund is authorized to make payments with respect to Class I Shares to Qualified Recipients. Class I payments, under the Plan, may not exceed for any fiscal year of the Fund a rate (currently 0.10%), set from time to time by the Board of Trustees, of not more than 0.25% of the average annual net assets represented by the Class I Shares. In addition, Class I has a Shareholder Services Plan under which it may pay service fees (currently 0.25%) of not more than 0.25% of the average annual net assets represented by Class I Shares. That is, the total payments under both plans will not exceed 0.50% of such net assets. For the six months ended September 30, 2015, these payments were made at the average annual rate of 0.35% of such net assets and amounted to $14,154 of which $4,044 related to the Plan and $10,110 related to the Shareholder Services Plan.
Specific details about the Plans are more fully defined in the Fund’s Prospectus and Statement of Additional Information.
18 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Under a Distribution Agreement, the Distributor serves as the exclusive distributor of the Fund’s shares. Through agreements between the Distributor and various brokerage and advisory firms (“intermediaries”), the Fund’s shares are sold primarily through the facilities of these intermediaries having offices within Kentucky, with the bulk of any sales commissions inuring to such intermediaries. For the six months ended September 30, 2015, total commissions on sales of Class A Shares amounted to $157,343 of which the Distributor received $13,430.
4. Purchases and Sales of Securities
During the six months ended September 30, 2015, purchases of securities and proceeds from the sales of securities aggregated $16,174,776 and $12,758,122, respectively.
At September 30, 2015, the aggregate tax cost for all securities was $225,470,367. At September 30, 2015, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $11,348,074 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $369,189 for a net unrealized appreciation of $10,978,885.
5. Portfolio Orientation
Since the Fund invests principally and may invest entirely in double tax-free municipal obligations of issuers within Kentucky, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Kentucky and whatever effects these may have upon Kentucky issuers’ ability to meet their obligations.
6. Expenses
The Fund had negotiated an expense offset arrangement with JPMorgan Chase Bank N.A., which served as its custodian until November 2, 2015. Under these arrangements, it received credit toward the reduction of custodian fees and other Fund expenses whenever there were uninvested cash balances. The Statement of Operations reflects the total expenses before any offset, the amount of offset, if any, and the net expenses. Effective November 2, 2015, the Fund no longer receives credits toward the reduction of custody fees from the Fund’s new custodian.
19 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
7. Capital Share Transactions
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended | ||||||||||||||||
September 30, 2015 | Year Ended | |||||||||||||||
(unaudited) | March 31, 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A Shares: | ||||||||||||||||
Proceeds from shares sold | 865,130 | $ | 9,338,398 | 1,359,101 | $ | 14,770,684 | ||||||||||
Reinvested dividends and | ||||||||||||||||
distributions | 183,123 | 1,978,080 | 347,334 | 3,765,021 | ||||||||||||
Cost of shares redeemed | (922,196 | ) | (9,957,935 | ) | (2,240,285 | ) | (24,261,427 | ) | ||||||||
Net change | 126,057 | 1,358,543 | (533,850 | ) | (5,725,722 | ) | ||||||||||
Class C Shares: | ||||||||||||||||
Proceeds from shares sold | 169,870 | 1,833,067 | 170,149 | 1,846,637 | ||||||||||||
Reinvested dividends and | ||||||||||||||||
distributions | 8,129 | 87,772 | 14,989 | 162,440 | ||||||||||||
Cost of shares redeemed | (165,137 | ) | (1,780,932 | ) | (203,289 | ) | (2,199,249 | ) | ||||||||
Net change | 12,862 | 139,907 | (18,151 | ) | (190,172 | ) | ||||||||||
Class I Shares: | ||||||||||||||||
Proceeds from shares sold | 39,001 | 422,067 | 14,770 | 160,531 | ||||||||||||
Reinvested dividends and | ||||||||||||||||
distributions | 8,947 | 96,549 | 19,818 | 214,831 | ||||||||||||
Cost of shares redeemed | (2,655 | ) | (28,579 | ) | (10,429 | ) | (113,707 | ) | ||||||||
Net change | 45,293 | 490,037 | 24,159 | 261,655 | ||||||||||||
Class Y Shares: | ||||||||||||||||
Proceeds from shares sold | 311,024 | 3,364,536 | 547,665 | 5,932,494 | ||||||||||||
Reinvested dividends and | ||||||||||||||||
distributions | 9,028 | 97,539 | 14,088 | 153,091 | ||||||||||||
Cost of shares redeemed | (278,399 | ) | (3,011,620 | ) | (377,461 | ) | (4,089,597 | ) | ||||||||
Net change | 41,653 | 450,455 | 184,292 | 1,995,988 | ||||||||||||
Total transactions in Fund | ||||||||||||||||
shares | 225,865 | $ | 2,438,942 | (343,550 | ) | $ | (3,658,251 | ) |
20 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
8. Trustees’ Fees and Expenses
At September 30, 2015 there were 11 Trustees, one of whom is affiliated with the Manager and is not paid any fees. The total amount of Trustees’ service fees (for carrying out their responsibilities) and attendance fees paid during the six months ended September 30, 2015 was $36,963. Attendance fees are paid to those in attendance at regularly scheduled quarterly Board Meetings and meetings of the independent Trustees held prior to each quarterly Board Meeting, as well as additional meetings (such as Audit, Nominating, Shareholder and special meetings). Trustees are reimbursed for their expenses such as travel, accommodations and meals incurred in connection with attendance at Board Meetings and at the Annual Meeting of Shareholders. For the six months ended September 30, 2015, such meeting-related expenses amounted to $7,607.
9. Securities Traded on a When-Issued Basis
The Fund may purchase or sell securities on a when-issued basis. When-issued transactions arise when securities are purchased or sold by the Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction. Beginning on the date the Fund enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
10. Income Tax Information and Distributions
The Fund declares dividends daily from net investment income and makes payments monthly. Net realized capital gains, if any, are distributed annually and are taxable. Dividends and capital gains distributions are paid in additional shares at the net asset value per share, in cash, or in a combination of both, at the shareholder’s option.
The Fund intends to maintain, to the maximum extent possible, the tax-exempt status of interest payments received from portfolio municipal securities in order to allow dividends paid to shareholders from net investment income to be exempt from regular Federal and Commonwealth of Kentucky income taxes. Due to differences between financial statement reporting and Federal income tax reporting requirements, distributions made by the Fund may not be the same as the Fund’s net investment income, and/or net realized securities gains. Further, a small portion of the dividends may, under some circumstances, be subject to taxes at ordinary income and/or capital gain rates. For certain shareholders, some dividend income may, under some circumstances, be subject to the alternative minimum tax. As a result of the passage of the Regulated Investment Company Modernization Act of 2010 (the “Act”), losses incurred in this fiscal year and beyond retain their character as short-term or long-term, have no expiration date and are utilized before capital losses incurred prior to the enactment of the Act. At March 31, 2015, the Fund had capital loss carryforwards of $1,077,287 of which $112,779 expires in 2016, $175,082 expires in 2017 and $738,846 and $50,580 have no expiration and retain their character of short-term and long-term, respectively.
21 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
The tax character of distributions was as follows:
Year | Year | |||||||
Ended | Ended | |||||||
March 31, 2015 | March 31, 2014 | |||||||
Net tax-exempt income | $ | 7,125,154 | $ | 7,760,895 | ||||
Ordinary Income | – | 11,378 | ||||||
$ | 7,125,154 | $ | 7,772,273 |
As of March 31, 2015, the components of distributable earnings on a tax basis were
Accumulated net realized loss | $ | (1,077,287 | ) | |||||
Unrealized appreciation | 13,248,226 | |||||||
Undistributed tax-exempt income | 149,680 | |||||||
Other temporary differences | (149,680 | ) | ||||||
$ | 12,170,939 |
The difference between book basis and tax basis undistributed income is due to the timing difference in recognizing dividends paid and the tax treatment of market discount amortization.
22 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
FINANCIAL HIGHLIGHTS |
For a share outstanding throughout each period
Class A | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Three Months | Year Ended December 31, | ||||||||||||||||||||||||
9/30/15(unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.91 | $ | 10.65 | $ | 10.97 | $ | 11.07 | $ | 10.84 | $ | 10.26 | $ | 10.51 | ||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.16 | 0.33 | 0.34 | 0.08 | 0.36 | 0.39 | 0.40 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.08 | ) | 0.26 | (0.32 | ) | (0.10 | ) | 0.23 | 0.58 | (0.25 | ) | |||||||||||||||||
Total from investment operations | 0.08 | 0.59 | 0.02 | (0.02 | ) | 0.59 | 0.97 | 0.15 | ||||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.17 | ) | (0.33 | ) | (0.34 | ) | (0.08 | ) | (0.36 | ) | (0.39 | ) | (0.40 | ) | ||||||||||||||
Distributions from capital gains | – | – | – | – | – | – | – | |||||||||||||||||||||
Total distributions | (0.17 | ) | (0.33 | ) | (0.34 | ) | (0.08 | ) | (0.36 | ) | (0.39 | ) | (0.40 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.82 | $ | 10.91 | $ | 10.65 | $ | 10.97 | $ | 11.07 | $ | 10.84 | $ | 10.26 | ||||||||||||||
Total return(not reflecting sales charge) | 0.69 | %(2) | 5.61 | % | 0.21 | % | (0.14 | )%(2) | 5.53 | % | 9.64 | % | 1.38 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 187 | $ | 187 | $ | 188 | $ | 215 | $ | 219 | $ | 199 | $ | 186 | ||||||||||||||
Ratio of expenses to average net assets | 0.74 | %(3) | 0.78 | % | 0.80 | %(4)(5) | 0.77 | %(3) | 0.76 | % | 0.77 | % | 0.75 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 3.01 | %(3) | 3.07 | % | 3.18 | %(4)(5) | 3.11 | %(3) | 3.30 | % | 3.73 | % | 3.80 | % | ||||||||||||||
Portfolio turnover rate | 5 | %(2) | 14 | % | 9 | % | 2 | %(2) | 12 | % | 12 | % | 8 | % | ||||||||||||||
The expense ratios after giving effect to the expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.74 | %(3) | 0.78 | % | 0.80 | %(4) | 0.77 | %(3) | 0.76 | % | 0.77 | % | 0.75 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. |
(5) | Without these expenses, the expense ratio and the net investment income ratio would have been 0.76% and 3.22%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from December 31 to March 31. The information presented is for the period January 1, 2013 to March 31, 2013. |
See accompanying notes to financial statements.
23 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class C | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Three Months | Year Ended December 31, | ||||||||||||||||||||||||
9/30/15(unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.90 | $ | 10.64 | $ | 10.96 | $ | 11.07 | $ | 10.83 | $ | 10.25 | $ | 10.51 | ||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.12 | 0.24 | 0.25 | 0.06 | 0.27 | 0.30 | 0.31 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.09 | ) | 0.26 | (0.32 | ) | (0.11 | ) | 0.24 | 0.58 | (0.26 | ) | |||||||||||||||||
Total from investment operations | 0.03 | 0.50 | (0.07 | ) | (0.05 | ) | 0.51 | 0.88 | 0.05 | |||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.12 | ) | (0.24 | ) | (0.25 | ) | (0.06 | ) | (0.27 | ) | (0.30 | ) | (0.31 | ) | ||||||||||||||
Distributions from capital gains | – | – | – | – | – | – | – | |||||||||||||||||||||
Total distributions | (0.12 | ) | (0.24 | ) | (0.25 | ) | (0.06 | ) | (0.27 | ) | (0.30 | ) | (0.31 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.81 | $ | 10.90 | $ | 10.64 | $ | 10.96 | $ | 11.07 | $ | 10.83 | $ | 10.25 | ||||||||||||||
Total return(not reflecting CDSC) | 0.27 | %(2) | 4.72 | % | (0.64 | )% | (0.44 | )%(2) | 4.73 | % | 8.72 | % | 0.42 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 10 | $ | 10 | $ | 10 | $ | 12 | $ | 13 | $ | 9 | $ | 9 | ||||||||||||||
Ratio of expenses to average net assets | 1.59 | %(3) | 1.63 | % | 1.65 | %(4)(5) | 1.62 | %(3) | 1.61 | % | 1.62 | % | 1.59 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.16 | %(3) | 2.21 | % | 2.33 | %(4)(5) | 2.26 | %(3) | 2.43 | % | 2.87 | % | 2.90 | % | ||||||||||||||
Portfolio turnover rate | 5 | %(2) | 14 | % | 9 | % | 2 | %(2) | 12 | % | 12 | % | 8 | % | ||||||||||||||
The expense ratios after giving effect to the expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.59 | %(3) | 1.63 | % | 1.65 | %(4) | 1.62 | %(3) | 1.61 | % | 1.62 | % | 1.59 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. |
(5) | Without these expenses, the expense ratio and the net investment income ratio would have been 1.61% and 2.37%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from December 31 to March 31. The information presented is for the period January 1, 2013 to March 31, 2013. |
See accompanying notes to financial statements.
24 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class I | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Three Months | Year Ended December 31, | ||||||||||||||||||||||||
9/30/15(unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.90 | $ | 10.64 | $ | 10.97 | $ | 11.07 | $ | 10.83 | $ | 10.25 | $ | 10.51 | ||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.16 | 0.32 | 0.32 | 0.08 | 0.34 | 0.37 | 0.39 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.09 | ) | 0.26 | (0.33 | ) | (0.10 | ) | 0.24 | 0.58 | (0.27 | ) | |||||||||||||||||
Total from investment operations | 0.07 | 0.58 | (0.01 | ) | (0.02 | ) | 0.58 | 0.95 | 0.12 | |||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.16 | ) | (0.32 | ) | (0.32 | ) | (0.08 | ) | (0.34 | ) | (0.37 | ) | (0.38 | ) | ||||||||||||||
Distributions from capital gains | – | – | – | – | – | – | – | |||||||||||||||||||||
Total distributions | (0.16 | ) | (0.32 | ) | (0.32 | ) | (0.08 | ) | (0.34 | ) | (0.37 | ) | (0.38 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.81 | $ | 10.90 | $ | 10.64 | $ | 10.97 | $ | 11.07 | $ | 10.83 | $ | 10.25 | ||||||||||||||
Total return | 0.62 | %(2) | 5.46 | % | (0.05 | )% | (0.18 | )%(2) | 5.47 | % | 9.48 | % | 1.13 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 8 | $ | 8 | $ | 7 | $ | 7 | $ | 7 | $ | 7 | $ | 7 | ||||||||||||||
Ratio of expenses to average net assets | 0.88 | %(3) | 0.92 | % | 0.96 | %(4)(5) | 0.94 | %(3) | 0.91 | % | 0.92 | % | 0.90 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.87 | %(3) | 2.93 | % | 3.02 | %(4)(5) | 2.94 | %(3) | 3.15 | % | 3.58 | % | 3.64 | % | ||||||||||||||
Portfolio turnover rate | 5 | %(2) | 14 | % | 9 | % | 2 | %(2) | 12 | % | 12 | % | 8 | % | ||||||||||||||
The expense ratios after giving effect to the expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.88 | %(3) | 0.92 | % | 0.96 | %(4) | 0.94 | %(3) | 0.91 | % | 0.92 | % | 0.90 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. |
(5) | Without these expenses, the expense ratio and the net investment income ratio would have been 0.92% and 3.06%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from December 31 to March 31. The information presented is for the period January 1, 2013 to March 31, 2013. |
See accompanying notes to financial statements.
25 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY |
FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class Y | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Three Months | Year Ended December 31, | ||||||||||||||||||||||||
9/30/15(unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.91 | $ | 10.65 | $ | 10.98 | $ | 11.08 | $ | 10.84 | $ | 10.26 | $ | 10.52 | ||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.17 | 0.35 | 0.35 | 0.09 | 0.38 | 0.41 | 0.42 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.09 | ) | 0.26 | (0.33 | ) | (0.10 | ) | 0.24 | 0.58 | (0.26 | ) | |||||||||||||||||
Total from investment operations | 0.08 | 0.61 | 0.02 | (0.01 | ) | 0.62 | 0.99 | 0.16 | ||||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.17 | ) | (0.35 | ) | (0.35 | ) | (0.09 | ) | (0.38 | ) | (0.41 | ) | (0.42 | ) | ||||||||||||||
Distributions from capital gains | – | – | – | – | – | – | – | |||||||||||||||||||||
Total distributions | (0.17 | ) | (0.35 | ) | (0.35 | ) | (0.09 | ) | (0.38 | ) | (0.41 | ) | (0.42 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.82 | $ | 10.91 | $ | 10.65 | $ | 10.98 | $ | 11.08 | $ | 10.84 | $ | 10.26 | ||||||||||||||
Total return | 0.77 | %(2) | 5.77 | % | 0.27 | % | (0.10 | )%(2) | 5.78 | % | 9.81 | % | 1.44 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 32 | $ | 32 | $ | 29 | $ | 35 | $ | 34 | $ | 33 | $ | 40 | ||||||||||||||
Ratio of expenses to average net assets | 0.59 | %(3) | 0.63 | % | 0.65 | %(4)(5) | 0.62 | %(3) | 0.61 | % | 0.62 | % | 0.60 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 3.16 | %(3) | 3.21 | % | 3.33 | %(4)(5) | 3.26 | %(3) | 3.45 | % | 3.89 | % | 3.95 | % | ||||||||||||||
Portfolio turnover rate | 5 | %(2) | 14 | % | 9 | % | 2 | %(2) | 12 | % | 12 | % | 8 | % | ||||||||||||||
The expense ratios after giving effect to the expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.59 | %(3) | 0.63 | % | 0.65 | %(4) | 0.62 | %(3) | 0.61 | % | 0.62 | % | 0.60 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. |
(5) | Without these expenses, the expense ratio and the net investment income ratio would have been 0.61% and 3.37%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from December 31 to March 31. The information presented is for the period January 1, 2013 to March 31, 2013. |
See accompanying notes to financial statements.
26 | Aquila Churchill Tax-Free Fund of Kentucky
Additional Information (unaudited)
Renewal of the Advisory and Administration Agreement
Aquila Investment Management LLC (the “Manager”) serves as the investment adviser to the Fund pursuant to an Advisory and Administration Agreement (the “Advisory Agreement”). In order for the Manager to remain the investment adviser of the Fund, the Trustees of the Fund must determine annually whether to renew the Advisory Agreement for the Fund.
In considering whether to approve the renewal of the Advisory Agreement, the Trustees requested and obtained such information as they deemed reasonably necessary. Contract review materials were provided to the Trustees in August, 2015. The independent Trustees met telephonically on September 14, 2015 and in person on September 20, 2015 to review and discuss the contract review materials. The Trustees considered, among other things, information presented by the Manager. They also considered information presented in a report prepared by an independent consultant with respect to the Fund’s fees, expenses and investment performance, which included comparisons of the Fund’s investment performance against peers and the Fund’s benchmark and comparisons of the advisory fee payable under the Advisory Agreement against the advisory fees paid by the Fund’s peers, as well as information regarding the operating margins of certain investment advisory firms (the “Consultant’s Report”). In addition, the Trustees took into account the information related to the Fund provided to the Trustees at each regularly scheduled meeting.
At the meeting held on September 20, 2015, based on their evaluation of the information provided by the Manager and the independent consultant, the Trustees of the Fund, including the independent Trustees voting separately, unanimously approved the renewal of the Advisory Agreement until September 30, 2016. In considering the renewal of the Advisory Agreement, the Trustees considered various factors that they determined were relevant, including the factors described below. The Trustees did not identify any single factor as the controlling factor in determining to approve the renewal of the Advisory Agreement.
The nature, extent, and quality of the services provided by the Manager
The Trustees considered the nature, extent and quality of the services that had been provided by the Manager to the Fund, taking into account the investment objectives and strategies of the Fund. The Trustees reviewed the terms of the Advisory Agreement.
The Trustees reviewed the Manager’s investment approach for the Fund and its research process. The Trustees considered that the Manager had provided all advisory and administrative services to the Fund that the Trustees deemed necessary or appropriate, including the specific services that the Trustees have determined are required for the Fund, given that it seeks to provide shareholders with as high a level of current income exempt from Kentucky state and regular Federal income taxes as is consistent with preservation of capital. The Trustees considered the personnel of the Manager who provide investment management services to the Fund. The Manager has employed Mr. Royden Durham and Mr. Todd Curtis as co-portfolio managers for the Fund and has established facilities and capabilities for credit analysis of the Fund’s portfolio securities. The Trustees noted the extensive experience of the co-portfolio managers. They considered that Mr. Durham is based in Louisville, Kentucky and that he has a comprehensive understanding regarding the economy of the State of Kentucky and the securities in which the Fund invests, including those securities with less than the highest ratings from the rating agencies.
27 | Aquila Churchill Tax-Free Fund of Kentucky
The Manager has additionally provided all administrative services to the Fund and provided the Fund with personnel (including Fund officers) and other resources that are necessary for the Fund’s business management and operations. The Trustees considered the nature and extent of the Manager’s supervision of third-party service providers, including the Fund’s shareholder servicing agent and custodian.
Based on these considerations, the Trustees concluded that the nature, extent and quality of services that had been provided by the Manager to the Fund were satisfactory and consistent with the terms of the Advisory Agreement.
The investment performance of the Fund
The Trustees reviewed the Fund’s performance and compared its performance to the performance of:
• | the funds in the Fund’s peer group (the “Peer Group”), as selected by the independent consultant (four municipal single-state intermediate and municipal single-state long funds, as classified by Morningstar, that are similar to the Fund in size; three of the funds charge a front-end sales charge and one fund is a no-load fund that also is a Kentucky state-specific tax-free municipal bond fund); |
• | the funds in the Fund’s product category for performance (the “Product Category for Performance”) (all funds in the Peer Group and, without duplication, all funds (and all classes) included in the Morningstar Single-State Intermediate Municipal Bond Funds category); and |
• | the Fund’s benchmark index, the Barclays Capital Quality Intermediate Municipal Bond Index. |
The Trustees considered that the materials included in the Consultant’s Report indicated that the Fund’s average annual total return was higher than the average annual total return of the funds in the Peer Group for the one and three year periods but lower than the average annual total return of the funds in the Peer Group for the five and ten year periods ended June 30, 2015. However, the Trustees considered that, as reflected in the Consultant’s Report, the Fund’s average annual total return was higher than the average annual total return of the funds in the Product Category for Performance for each of the one, three, five and ten year periods ended June 30, 2015, as well as the benchmark index for the one, three and five year periods ended June 30, 2015. The Trustees also noted that a no-load fund was included in the Peer Group and considered the impact of the inclusion of such fund in the average annual return of the funds in the Peer Group. The Trustees considered that, as reflected in the Consultant’s Report, the Fund delivered above-average results on a risk-adjusted basis for the three and five year periods ended June 30, 2015 (as evidenced by its Sharpe ratio) when compared to the funds in the Product Category for Performance.
The Trustees discussed the Fund’s performance record with the Manager and considered the Manager’s view that the Fund’s performance, as compared to its peer group, was explained in part by the Fund’s generally higher-quality portfolio and its intermediate maturity structure.
28 | Aquila Churchill Tax-Free Fund of Kentucky
The Trustees noted that, unlike the Fund’s returns, the performance of the benchmark index did not reflect any fees or expenses. The Trustees considered the Fund’s investment performance to be consistent with the investment objectives of the Fund.
The Trustees concluded that the performance of the Fund was competitive, in light of market conditions, the length of its average maturities and its investment objectives. Evaluation of the investment performance of the Fund indicated to the Trustees that renewal of the Advisory Agreement would be appropriate.
Advisory Fees and Fund Expenses
The Trustees reviewed the Fund’s advisory fees and expenses and compared them to the advisory fee and expense data for:
• | the funds in the Peer Group (as defined above); and |
• | the funds in the product category for expenses (the “Product Category for Expenses”) (Morningstar Single-State Intermediate Municipal Bond Funds and Morningstar Single State Long Municipal Bond Funds from states within which 4-7 mutual funds are operating, with similar operating expense structures). |
The Trustees considered that the Fund’s contractual advisory fee was lower than the average and median contractual advisory fees of the funds in the Peer Group (at the Fund’s current asset level) and lower than the asset-weighted average contractual advisory fee of the funds in the Product Category for Expenses (at various asset levels). They also noted that the Fund’s expenses were below the average actual expenses of the funds in both the Product Category for Expenses and the Peer Group, respectively.
The Trustees reviewed management fees charged by the Manager to its other clients. It was noted that the Manager does not have any other clients except for other funds in the Aquila Group of Funds. The Trustees noted that in most instances the fee rates for those clients were comparable to the fees paid to the Manager with respect to the Fund. In evaluating the fees associated with the other funds, the Trustees took into account the respective demands, resources and complexity associated with the Fund and those funds.
The Trustees concluded that the advisory fee and expenses of the Fund were reasonable in relation to the nature and quality of the services provided by the Manager to the Fund.
Profitability
The Trustees received materials from the Manager and the independent consultant related to profitability. The Manager provided information which showed the profitability to the Manager of its services to the Fund, as well as the profitability of Aquila Distributors, Inc. of distribution services provided to the Fund. The independent consultant provided publicly available data regarding the profitability of other asset managers in comparison to the overall profitability of the Manager.
The Trustees considered the information provided by the Manager regarding the profitability of the Manager with respect to the advisory services provided by the Manager to the Fund, including the methodology used by the Manager in allocating certain of its costs to the management of the Fund. The Trustees also considered information regarding the profitability of the Manager provided to the Trustees by the independent consultant. The Trustees concluded that profitability to the Manager with respect to the advisory services provided to the Fund did not argue against approval of the fees to be paid under the Advisory Agreement.
29 | Aquila Churchill Tax-Free Fund of Kentucky
The extent to which economies of scale would be realized as the Fund grows
The Trustees considered the extent to which the Manager may realize economies of scale or other efficiencies in managing the Fund. The Trustees considered that the materials indicated that the Fund’s fees are already generally lower than those of its peers, including those funds with breakpoints. The Trustees noted that the Manager’s profitability also may be an indicator of the availability of any economies of scale. Accordingly, the Trustees concluded that economies of scale, if any, were being appropriately shared with the Fund.
Benefits derived or to be derived by the Manager and its affiliate from the relationship with the Fund
The Trustees observed that, as is generally true of most fund complexes, the Manager and its affiliates, by providing services to a number of funds including the Fund, were able to spread costs as they would otherwise be unable to do. The Trustees noted that while that produces efficiencies and increased profitability for the Manager and its affiliates, it also makes their services available to the Fund at favorable levels of quality and cost which are more advantageous to the Fund than would otherwise have been possible.
30 | Aquila Churchill Tax-Free Fund of Kentucky
Analysis of Expenses (unaudited)
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end sales charges with respect to Class A shares or contingent deferred sales charges (“CDSC”) with respect to Class C shares; and (2) ongoing costs, including management fees; distribution (12b-1) and/or service fees; and other Fund expenses. The table below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The table below is based on an investment of $1,000 invested on April 1, 2015 and held for the six months ended September 30, 2015.
Actual Expenses
This table provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During the Period”.
Six months ended September 30, 2015
Actual | ||||
Total Return | Beginning | Ending | Expenses | |
Without | Account | Account | Paid During | |
Sales Charges(1) | Value | Value | the Period(2) | |
Class A | 0.69% | $1,000.00 | $1,006.90 | $3.72 |
Class C | 0.27% | $1,000.00 | $1,002.70 | $7.98 |
Class I | 0.62% | $1,000.00 | $1,006.20 | $4.43 |
Class Y | 0.77% | $1,000.00 | $1,007.70 | $2.97 |
(1) | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A shares or the applicable CDSC with respect to Class C shares. Total return is not annualized; as such, it may not be representative of the total return for the year. |
(2) | Expenses are equal to the annualized expense ratio of 0.74%, 1.59%, 0.88% and 0.59% for the Fund’s Class A, C, I and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
31 | Aquila Churchill Tax-Free Fund of Kentucky
Analysis of Expenses (unaudited) (continued)
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs with respect to Class A shares. The example does not reflect the deduction of CDSC with respect to Class C shares. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different mutual funds. In addition, if these transaction costs were included, your costs would have been higher
Six months ended September 30, 2015
Hypothetical | ||||
Annualized | Beginning | Ending | Expenses | |
Total | Account | Account | Paid During | |
Return | Value | Value | the Period(1) | |
Class A | 5.00% | $1,000.00 | $1,021.36 | $3.75 |
Class C | 5.00% | $1,000.00 | $1,017.10 | $8.04 |
Class I | 5.00% | $1,000.00 | $1,020.66 | $4.46 |
Class Y | 5.00% | $1,000.00 | $1,022.11 | $2.99 |
(1) | Expenses are equal to the annualized expense ratio of 0.74%, 1.59%, 0.88% and 0.59% for the Fund’s Class A, C, I and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
32 | Aquila Churchill Tax-Free Fund of Kentucky
Information Available (unaudited)
Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent your Fund’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Fund policies, the Manager publicly discloses the complete schedule of the Fund’s portfolio holdings, as of each calendar quarter, generally by the 15th day after the end of each calendar quarter. Such information remains accessible until the next schedule is made publicly available. You may obtain a copy of the Fund’s portfolio holdings schedule for the most recently completed period by visiting the Fund’s website at www.aquilafunds.com. The Fund may also disclose other portfolio holdings as of a specified date (currently the Fund discloses its five largest holdings and/or sector holdings by value as of the close of the last business day of each calendar month in a posting to its website on approximately the 5th business day following the month end). This information remains on the website until the next such posting. Whenever you wish to see a listing of your Fund’s portfolio other than in your shareholder reports, please check our website at www.aquilafunds.com or call us at 1-800-437-1020.
The Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at www.sec.gov. You may also review or, for a fee, copy the forms at the SEC’s Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330.
Proxy Voting Record (unaudited)
During the 12 month period ended June 30, 2015, the Fund did not hold any portfolio securities for which the Fund was entitled to participate in proxy voting. Applicable regulations require us to inform you that the Fund’s proxy voting information is available on the SEC website at www.sec.gov.
Federal Tax Status of Distributions (unaudited)
This information is presented in order to comply with a requirement of the Internal Revenue Code. No action on the part of shareholders is required.
For the fiscal year ended March 31, 2015, $7,125,154 of dividends paid by Aquila Churchill Tax-Free Fund of Kentucky, constituting 100% of total dividends paid, were exempt-interest dividends.
Prior to February 15, 2016, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2015 calendar year.
33 | Aquila Churchill Tax-Free Fund of Kentucky
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Founders
Lacy B. Herrmann (1929-2012)
Aquila Management Corporation, Sponsor
Manager
AQUILA INVESTMENT MANAGEMENT LLC
120 West 45th Street, Suite 3600
New York, New York 10036
Board of Trustees
John C. Lucking, Chair
Diana P. Herrmann, Vice Chair
Ernest Calderón
Thomas A. Christopher
Gary C. Cornia
Grady Gammage, Jr.
Lyle W. Hillyard
Glenn P. O’Flaherty
John J. Partridge
James R. Ramsey
Laureen L. White
Officers
Diana P. Herrmann, President
Charles E. Childs, III, Executive Vice President and Secretary
Marie E. Aro, Senior Vice President
Paul G. O’Brien, Senior Vice President
Todd W. Curtis, Vice President
and Co-Portfolio Manager
Royden P. Durham, Vice President
and Co-Portfolio Manager
Brandon M. Moody, Vice President
Randall S. Fillmore, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer and Treasurer
Distributor
AQUILA DISTRIBUTORS, INC.
120 West 45th Street, Suite 3600
New York, New York 10036
Transfer and Shareholder Servicing Agent
BNY MELLON
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
BNY MELLON
225 Liberty Street
New York, New York 10286
Further information is contained in the Prospectus,
which must precede or accompany this report.
![]() | ||||||||||||||||||||||||||
Semi-Annual Report September 30, 2015 | ||||||||||||||||||||||||||
![]() |
![]() | Aquila Narragansett Tax-Free Income Fund Serving Rhode Island investors since 1992 | ![]() |
November, 2015
Dear Fellow Shareholder:
As you are no doubt aware, the Federal Funds rate (a key short term interest rate between commercial banks, which influences borrowing costs throughout the economy) has been held close to zero since 2008.
With no change in this rate in seven years, the relationship between interest rates and the share value of fixed-income securities, such as those in which the bond funds in the Aquila Group of Funds invest, has attracted limited attention.
Now that it seems probable that interest rates may slowly start to climb, we thought it was a good time to revisit this topic. Management of the Aquila Group of Funds well recognizes that it is much easier to accept variations with your investment when you understand the forces influencing them.
Simply put, interest rates and the share prices of the bond funds in the Aquila Group of Funds are inversely related. When interest rates increase, the share value of your Fund will generally decrease. And, conversely, when interest rates decrease, the share value will generally increase.
Why is this the case?
When a bond is issued, it has a fixed face value and coupon rate (that is usually close to prevailing marketplace interest rates). For example, a $1,000 bond with a 5% coupon rate will pay interest of $50 per year and, at maturity, will repay the bondholder the $1,000 face value. The promise to pay $1,000 at maturity and the $50 per year interest payment doesn’t change. What does change is the bond’s market price.
If interest rates on similar bonds rise to 6%, our example above may no longer be attractive.
For the 5% bond to be attractive, its market price must fall below its $1,000 face value until the $50 per year represents a yield closer to 6%. Conversely, if prevailing interest rates decrease to 4%, people may be willing to pay more than the bond’s $1,000 face value in order to receive the $50 per year interest payments.
Simply put, bond prices fluctuate so that their yield reflects prevailing interest rates in the marketplace.
NOT A PART OF THE SEMI-ANNUAL REPORT
While we cannot control the direction in which interest rates will move, or the resulting effect such changes will have on your Fund’s share price, we do take steps which are designed to minimize (to the extent possible) the volatility of such movement.
We firmly believe that credit quality has an impact on stability. Each of the funds in the Aquila Group of Funds intentionally limits, by prospectus, its investments (at the time of purchase) to Investment Grade bonds - that is to say, bonds that are rated in one of the four highest credit ratings assigned by a nationally recognized statistical rating organization, or if unrated, determined to be of comparable credit quality by the Adviser/Sub-Adviser (as applicable). Investment Grade credit ratings are one of several factors the Adviser/ Sub-Adviser (as applicable) considers in identifying those municipal issues which are most likely to pay interest when due and to return principal at maturity.
Another technique we use in the construction of the overall portfolio in an effort to achieve a stable share price is the laddering of bond maturities. Generally, bonds with short-term maturities tend to have relatively less price fluctuation, and provide a lower yield. Conversely, bonds with long-term maturities may provide a higher yield, and have higher price volatility. This higher price volatility reflects the risks associated with the unpredictability of future events and the potential interest rate changes over the extended life of the municipal bond.
Through utilizing a blend of maturities – both short-term and long-term – your Fund attempts to provide as high a level of current income as is consistent with the preservation of capital. We believe these portfolio management construction techniques are reasonably designed to manage, to the extent possible, share price variations – gaining both a degree of stability from the shorter-term maturities and higher yields from the longer-term maturities.
With more than 30 years of experience utilizing these techniques, with the Aquila Group of Funds, we believe that we have developed a process that helps to mitigate some of the volatility that will inevitably occur in the bond markets with changes in interest rates.
Sincerely,
![](https://capedge.com/proxy/N-CSRS/0000784056-15-000072/dsigb.jpg)
![](https://capedge.com/proxy/N-CSRS/0000784056-15-000072/dsig2b.jpg)
Diana P. Herrmann, Vice Chair and President
NOT A PART OF THE SEMI-ANNUAL REPORT
Mutual fund investing involves risk and loss of principal is possible.
The market prices of the Fund’s securities may rise or decline in value due to general market conditions, such as real or perceived adverse economic or political conditions, inflation, changes in interest rates, lack of liquidity in the bond markets or adverse investor sentiment. When market prices fall, the value of your investment may go down.
The value of your investment may go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term securities. Conversely, when interest rates fall, the value of your investment may rise. Interest rates in the U.S. recently have been historically low and are expected to rise at some point in time.
Investments in the Fund are subject to possible loss due to the financial failure of the issuers of underlying securities and their inability to meet their debt obligations.
The value of municipal securities can be adversely affected by changes in the financial condition of one or more individual municipal issuers or insurers of municipal issuers, regulatory developments, legislative actions, and by uncertainties and public perceptions concerning these and other factors. The Fund may be affected significantly by adverse economic, political or other events affecting state and other municipal issuers in which it invests, and may be more volatile than a more geographically diverse fund.
If interest rates fall, an issuer may exercise its right to prepay its securities, and the Fund could be forced to reinvest prepayment proceeds at a time when yields on securities available in the market are lower than the yield on the prepaid security.
A portion of income may be subject to local, state, Federal and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax.
These risks may result in share price volatility.
Past performance is no guarantee of future results, and there is no guarantee that any market forecasts discussed will be realized.
Any information in this Semi-Annual Report regarding market or economic trends or the factors influencing the Fund’s historical or future performance are statements of opinion as of the date of this report. These statements should not be relied upon for any other purposes.
NOT A PART OF THE SEMI-ANNUAL REPORT
AQUILA NARRAGANSETT TAX-FREE INCOME FUND | |||
SCHEDULE OF INVESTMENTS | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (31.3%) | and Fitch | Value | ||||||
Barrington, Rhode Island | |||||||||
$ | 1,120,000 | 2.500%, 08/01/25 | Aa1/NR/NR | $ | 1,156,254 | ||||
Bristol, Rhode Island | |||||||||
2,200,000 | 4.000%, 02/15/26 AGC Insured | Aa2/AA+/NR | 2,345,992 | ||||||
2,000,000 | 4.375%, 02/15/29 AGC Insured | Aa2/AA+/NR | 2,143,500 | ||||||
Coventry, Rhode Island | |||||||||
500,000 | 3.375%, 11/01/21 AGMC Insured | A1/NR/NR | 539,120 | ||||||
1,605,000 | 3.625%, 03/15/27 MAC Insured | A1/AA/NR | 1,705,971 | ||||||
Cranston, Rhode Island | |||||||||
2,455,000 | 4.625%, 07/01/25 AGMC Insured | A2/AA/NR | 2,663,503 | ||||||
990,000 | 4.750%, 07/01/28 AGMC Insured | A2/AA/NR | 1,073,219 | ||||||
750,000 | 4.300%, 07/01/30 AGMC Insured Series A A2/AA/A | 795,810 | |||||||
1,515,000 | 4.250%, 07/15/24 BAMAC Insured Series B A2/AA/A | 1,715,086 | |||||||
1,570,000 | 4.250%, 07/15/25 BAMAC Insured Series B A2/AA/A | 1,782,186 | |||||||
Cumberland, Rhode Island | |||||||||
1,000,000 | 4.250%, 08/01/17 AGMC Insured | Aa3/AA/NR | 1,063,780 | ||||||
600,000 | 4.250%, 08/01/18 AGMC Insured | Aa3/AA/NR | 648,360 | ||||||
500,000 | 4.250%, 11/01/27 Series 2011 A | NR/AA/NR | 539,930 | ||||||
500,000 | 4.625%, 11/01/31 Series 2011 A | NR/AA/NR | 541,035 | ||||||
East Providence, Rhode Island Refunding | |||||||||
2,500,000 | 4.550%, 05/15/30 AGMC Insured | A2/AA/NR | 2,646,850 | ||||||
Hopkinton, Rhode Island | |||||||||
500,000 | 4.375%, 08/15/31 | Aa3/NR/NR | 532,530 | ||||||
Johnston, Rhode Island | |||||||||
1,020,000 | 3.450%, 06/01/29 Series A | A3/AA-/NR | 1,035,779 | ||||||
1,020,000 | 3.700%, 06/01/33 Series A | A3/AA-/NR | 1,034,249 | ||||||
Lincoln, Rhode Island | |||||||||
1,000,000 | 4.500%, 08/01/24 NPFG Insured | ||||||||
(pre-refunded) | Aa2/NR/AA | 1,034,460 | |||||||
1,775,000 | 4.500%, 08/01/25 NPFG Insured | ||||||||
(pre-refunded) | Aa2/NR/AA | 1,836,166 | |||||||
2,245,000 | 3.500%, 08/01/24 Series A | Aa2/NR/AA | 2,474,035 | ||||||
2,225,000 | 3.500%, 08/01/25 Series A | Aa2/NR/AA | 2,450,259 | ||||||
Narragansett, Rhode Island | |||||||||
1,025,000 | 3.500%, 07/15/28 | Aa2/AA+/NR | 1,120,530 | ||||||
North Kingstown, Rhode Island | |||||||||
1,040,000 | 3.000%, 04/15/24 Series A | Aa2/AA+/NR | 1,102,899 | ||||||
Pawtucket, Rhode Island | |||||||||
1,950,000 | 4.500%, 07/15/26 AGC Insured | A3/NR/NR | 2,127,957 |
1 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
$ | 1,500,000 | 4.750%, 07/15/29 AGC Insured | A3/NR/NR | $ | 1,635,030 | ||||
1,010,000 | 4.000%, 11/01/25 AGMC Insured | A2/AA/NR | 1,095,042 | ||||||
Providence, Rhode Island | |||||||||
1,500,000 | 5.000%, 01/15/23 Series 2010 A | ||||||||
AGMC Insured Refunding | A2/AA/NR | 1,681,920 | |||||||
1,500,000 | 5.000%, 01/15/26 Series 2010 A | ||||||||
AGMC Insured Refunding | A2/AA/NR | 1,674,060 | |||||||
975,000 | 3.625%, 01/15/29 Series A AGMC | ||||||||
Insured | A2/AA/BBB | 970,378 | |||||||
2,510,000 | 3.750%, 01/15/30 Series A AGMC | ||||||||
Insured | A2/AA/BBB | 2,498,906 | |||||||
1,000,000 | 3.750%, 01/15/32 Series A AGMC | ||||||||
Insured | A2/AA/BBB | 986,750 | |||||||
500,000 | 4.000%, 07/15/19 Series A Refunding | Baa1/BBB/NR | 539,800 | ||||||
Rhode Island State & Providence | |||||||||
Plantations Consolidated Capital | |||||||||
Development Loan | |||||||||
2,000,000 | 3.750%, 11/01/23 Series A | Aa2/AA/AA | 2,220,300 | ||||||
2,110,000 | 4.250%, 10/15/25 Series A | Aa2/AA/AA | 2,391,833 | ||||||
1,150,000 | 4.000%, 10/15/24 Series B | Aa2/AA/AA | 1,287,276 | ||||||
1,750,000 | 3.250%, 10/15/31 Series B | Aa2/AA/AA | 1,711,395 | ||||||
1,500,000 | 5.000%, 11/01/34 Series B | Aa2/AA/AA | 1,717,470 | ||||||
2,000,000 | 5.000%, 08/01/23 Series D | Aa2/AA/AA | 2,400,340 | ||||||
2,000,000 | 5.000%, 08/01/24 Series D | Aa2/AA/AA | 2,421,780 | ||||||
Richmond, Rhode Island | |||||||||
1,020,000 | 3.000%, 08/01/24 | Aa3/NR/NR | 1,095,970 | ||||||
Warwick, Rhode Island | |||||||||
1,000,000 | 4.000%, 08/01/16 AGMC Insured | ||||||||
Series 2008 | A1/AA/NR | 1,029,770 | |||||||
1,015,000 | 4.000%, 08/01/17 AGMC Insured | ||||||||
Series 2008 | A1/AA/NR | 1,073,251 | |||||||
2,000,000 | 4.000%, 08/01/22 AGMC Insured | ||||||||
Series 2015 B | NR/AA/NR | 2,236,260 | |||||||
905,000 | 4.250%, 01/15/18 Syncora Guarantee, | ||||||||
Inc. Insured (pre-refunded) | A1/AA-/NR | 915,353 | |||||||
West Greenwich, Rhode Island | |||||||||
1,175,000 | 3.000%, 08/15/26 | NR/AA+/NR | 1,256,827 | ||||||
West Warwick, Rhode Island | |||||||||
1,900,000 | 4.625%, 04/01/26 AGC Insured | A3/NR/NR | 2,069,955 | ||||||
1,000,000 | 4.750%, 04/01/29 AGC Insured | A3/NR/NR | 1,083,430 |
2 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
Westerly, Rhode Island | |||||||||
$ | 900,000 | 4.000%, 07/01/17 NPFG Insured | |||||||
(pre-refunded) | Aa2/AA/NR | $ | 924,894 | ||||||
900,000 | 4.000%, 07/01/18 NPFG Insured | ||||||||
(pre-refunded) | Aa2/AA/NR | 924,894 | |||||||
Total General Obligation Bonds | 73,952,344 | ||||||||
Revenue Bonds (66.3%) | |||||||||
Development (5.7%) | |||||||||
Providence, Rhode Island | |||||||||
Redevelopment Agency Refunding | |||||||||
Public Safety Building Project | |||||||||
1,680,000 | 5.000%, 04/01/26 AGMC Insured | ||||||||
Series A | A2/AA/NR | 1,873,351 | |||||||
Rhode Island Certificates of Participation | |||||||||
(Central Power Plant) | |||||||||
1,000,000 | 4.000%, 10/01/20 Series D AGMC | ||||||||
Insured | Aa3/AA/AA- | 1,054,460 | |||||||
Rhode Island Convention Center | |||||||||
Authority Refunding | |||||||||
8,000,000 | 4.000%, 05/15/23 Series A | Aa3/AA-/AA- | 8,797,760 | ||||||
1,500,000 | 5.500%, 05/15/27 AGC Insured Series A | Aa3/AA/AA- | 1,698,795 | ||||||
Total Development | 13,424,366 | ||||||||
Higher Education (10.4%) | |||||||||
Rhode Island Health and Education | |||||||||
Building Corp., Bryant University | |||||||||
1,115,000 | 4.500%, 12/01/27 Series 2011 | A2/A/NR | 1,210,288 | ||||||
1,455,000 | 4.750%, 12/01/29 Series 2011 | A2/A/NR | 1,595,378 | ||||||
1,000,000 | 5.000%, 12/01/30 Series 2011 | A2/A/NR | 1,115,180 | ||||||
1,425,000 | 5.000%, 12/01/31 Series 2011 | A2/A/NR | 1,579,826 | ||||||
Rhode Island Health and Education | |||||||||
Building Corp., Higher Educational | |||||||||
Facilities | |||||||||
2,500,000 | 5.000%, 09/15/30 AGMC Insured | A2/NR/NR | 2,790,200 | ||||||
Rhode Island Health and Education | |||||||||
Building Corp., Johnson & Wales | |||||||||
University | |||||||||
900,000 | 5.500%, 04/01/16 Series 1999 A NPFG | ||||||||
Insured | NR/AA-/NR | 922,212 | |||||||
785,000 | 5.500%, 04/01/17 Series 1999 A NPFG | ||||||||
Insured | NR/AA-/NR | 839,495 |
3 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND | ||||
SCHEDULE OF INVESTMENTS (continued) | ||||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Higher Education (continued) | |||||||||
Rhode Island Health and Educational | |||||||||
Building Corp., Higher Education | |||||||||
Facility, New England Institute of | |||||||||
Technology | |||||||||
$ | 1,250,000 | 4.750%, 03/01/30 Series 2010 A | NR/A-/A+ | $ | 1,338,013 | ||||
Rhode Island Health and Educational | |||||||||
Building Corp., Higher Education | |||||||||
Facility, Providence College | |||||||||
2,490,000 | 4.000%, 11/01/24 Series 2015 | A2/A/NR | 2,757,351 | ||||||
Rhode Island Health and Educational | |||||||||
Building Corp., Higher Education | |||||||||
Facility, Rhode Island School of Design | |||||||||
1,000,000 | 3.500%, 08/15/30 AGMC Insured | ||||||||
Series B | A1/AA/NR | 997,670 | |||||||
3,000,000 | 3.500%, 06/01/29 Series 2012 | A1/NR/A+ | 3,003,450 | ||||||
2,000,000 | 4.000%, 06/01/31 Series 2012 | A1/NR/A+ | 2,054,060 | ||||||
Rhode Island Health and Educational | |||||||||
Building Corp., Higher Education | |||||||||
Facility, University of Rhode Island | |||||||||
Auxiliary Enterprise | |||||||||
2,000,000 | 5.000%, 09/15/30 Series 2010 B AGMC | ||||||||
Insured | A1/AA/NR | 2,242,040 | |||||||
Rhode Island Health and Educational | |||||||||
Building Corp., University of Rhode | |||||||||
Island | |||||||||
1,000,000 | 4.500%, 09/15/26 Series 2005 G | ||||||||
Refunding AMBAC Insured | Aa3/A+/NR | 1,002,450 | |||||||
Rhode Island Health and Education | |||||||||
Facilities Authority, Providence College | |||||||||
1,000,000 | 4.000%, 11/01/31 | A2/A/NR | 1,040,450 | ||||||
Total Higher Education | 24,488,063 | ||||||||
Hospital (4.3%) | |||||||||
Rhode Island Health & Education | |||||||||
Building Corp., Hospital Financing, | |||||||||
Care New England | |||||||||
500,000 | 5.000%, 09/01/20 Series 2013 A | NR/BBB-/BBB | 543,620 | ||||||
500,000 | 5.000%, 09/01/22 Series 2013 A | NR/BBB-/BBB | 538,960 |
4 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Hospital (continued) | |||||||||
Rhode Island Health & Education | |||||||||
Building Corp., Lifespan Obligation | |||||||||
$ | 1,500,000 | 5.250%, 05/15/26 NPFG Insured | A3/AA-/NR | $ | 1,503,855 | ||||
2,500,000 | 5.000%, 05/15/20 Series A AGMC | ||||||||
Insured | A2/AA/NR | 2,564,800 | |||||||
5,000,000 | 5.000%, 05/15/26 Series A AGMC | ||||||||
Insured | A2/AA/NR | 5,102,250 | |||||||
Total Hospital | 10,253,485 | ||||||||
Housing (6.9%) | |||||||||
Rhode Island Housing & Mortgage | |||||||||
Finance Corp. Home Funding | |||||||||
2,485,000 | 4.000%, 10/01/25 Series 2010 #3 | Aa2/NR/NR | 2,603,535 | ||||||
1,000,000 | 4.100%, 04/01/28 Series 2010 #3 | Aa2/NR/NR | 1,034,180 | ||||||
1,505,000 | 4.050%, 10/01/26 2011 Series 4 | Aa2/NR/NR | 1,572,785 | ||||||
1,250,000 | 3.050%, 10/01/28 Series 5 | Aa2/NR/NR | 1,186,663 | ||||||
985,000 | 3.350%, 10/01/33 Series 5 | Aa2/NR/NR | 957,696 | ||||||
2,185,000 | 3.450%, 04/01/35 Series 5 | Aa2/NR/NR | 2,103,718 | ||||||
Rhode Island Housing & Mortgage | |||||||||
Finance Corp. Multi-Family Housing | |||||||||
2,500,000 | 4.625%, 10/01/25 Series 2010 A | Aaa/NR/NR | 2,651,075 | ||||||
2,000,000 | 5.000%, 10/01/30 Series 2010 A | Aaa/NR/NR | 2,107,880 | ||||||
1,000,000 | 3.250%, 10/01/27 Series 1B | Aa2/NR/NR | 991,170 | ||||||
1,000,000 | 3.400%, 10/01/29 Series 3B | Aa2/NR/NR | 980,860 | ||||||
Total Housing | 16,189,562 | ||||||||
Public School (24.3%) | |||||||||
Providence, Rhode Island Public | |||||||||
Building Authority, School Projects | |||||||||
3,000,000 | 4.500%, 05/15/27 Series 2007 B | ||||||||
AGMC Insured (pre-refunded) | A2/AA/NR | 3,193,800 | |||||||
2,000,000 | 4.500%, 05/15/28 Series 2007 C | ||||||||
AGMC Insured (pre-refunded) | A2/AA/NR | 2,129,200 | |||||||
Rhode Island Certificates of Participation | |||||||||
(School for the Deaf Project) | |||||||||
1,000,000 | 5.500%, 04/01/27 Series C 2009 AGC | ||||||||
Insured | Aa3/AA/AA- | 1,135,100 | |||||||
500,000 | 5.625%, 04/01/29 Series C 2009 AGC | ||||||||
Insured | Aa3/AA/AA- | 567,660 |
5 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Public School (continued) | |||||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program | |||||||||
$ | 1,000,000 | 5.000%, 05/15/17 Series 2006 A | |||||||
AGMC Insured (pre-refunded) | A2/AA/NR | $ | 1,029,420 | ||||||
500,000 | 5.000%, 05/15/20 Series 2007 A | ||||||||
AGMC Insured | Aa3/NR/NR | 533,710 | |||||||
500,000 | 5.000%, 05/15/17 Series 2008 A | ||||||||
AGMC Insured | Aa3/NR/NR | 535,050 | |||||||
1,000,000 | 4.250%, 05/15/21 Series 2007 B | ||||||||
AGMC Insured | A2/AA/NR | 1,050,320 | |||||||
1,125,000 | 5.000%, 05/15/24 Series 2008 B | A1/NR/NR | 1,236,701 | ||||||
1,500,000 | 4.250%, 05/15/21 Series A AGMC | ||||||||
Insured | Aa3/NR/NR | 1,618,050 | |||||||
2,000,000 | 4.375%, 05/15/22 Series A AGMC | ||||||||
Insured | Aa3/NR/NR | 2,161,660 | |||||||
3,000,000 | 4.500%, 05/15/25 Series A AGMC | ||||||||
Insured | Aa3/NR/NR | 3,249,660 | |||||||
2,000,000 | 4.750%, 05/15/29 Series A AGMC | ||||||||
Insured | Aa3/NR/NR | 2,160,460 | |||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, Chariho Regional | |||||||||
School District | |||||||||
1,000,000 | 5.000%, 05/15/26 Series 2011 B | Aa3/NR/NR | 1,159,610 | ||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, Town of Coventry | |||||||||
1,000,000 | 3.750%, 05/15/28 Series 2013 B | ||||||||
AGMC Insured | A1/AA/NR | 1,025,310 | |||||||
1,000,000 | 4.000%, 05/15/33 AGMC Insured | A1/AA/NR | 1,023,910 | ||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, East Greenwich | |||||||||
1,150,000 | 3.125%, 05/15/28 | Aa1/AA+/NR | 1,159,913 | ||||||
1,000,000 | 3.250%, 05/15/29 | Aa1/AA+/NR | 1,010,080 | ||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, East Greenwich | |||||||||
1,000,000 | 3.375%, 05/15/30 | Aa1/AA+/NR | 1,009,140 |
6 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Public School (continued) | |||||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, City of East | |||||||||
Providence | |||||||||
$ | 1,000,000 | 3.625%, 05/15/32 Series B | Aa3/NR/NR | $ | 1,001,430 | ||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, Town of Little | |||||||||
Compton | |||||||||
1,620,000 | 4.000%, 05/15/25 Series 2013 H | NR/AAA/NR | 1,800,484 | ||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, City of Newport | |||||||||
1,000,000 | 4.000%, 05/15/27 Series 2013C | NR/AA+/NR | 1,072,570 | ||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, Town of North | |||||||||
Kingstown | |||||||||
1,500,000 | 3.750%, 05/15/28 Series 2013 A | Aa2/AA+/NR | 1,577,085 | ||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, Town of North | |||||||||
Providence | |||||||||
1,000,000 | 4.000%, 11/15/20 Series 2013 I | A1/A/NR | 1,085,040 | ||||||
1,100,000 | 4.500%, 11/15/22 Series 2013 I | A1/A/NR | 1,235,630 | ||||||
Rhode Island Health and Educational | |||||||||
Building Corp., Public School | |||||||||
Financing Program, City of Cranston | |||||||||
1,170,000 | 4.000%, 05/15/30 BAMAC Insured Series | ||||||||
2015 B | NR/AA/NR | 1,245,886 | |||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, City of Pawtucket | |||||||||
1,570,000 | 4.000%, 05/15/26 Series 2014 C | A1/NR/NR | 1,708,223 | ||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, Providence | |||||||||
Public Buildings Authority | |||||||||
3,000,000 | 3.500%, 05/15/24 AGMC Insured | ||||||||
Series 2015A | A1/AA/NR | 3,145,560 |
7 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Public School (continued) | |||||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, Providence Public | |||||||||
Buildings Authority (continued) | |||||||||
$ | 3,000,000 | 3.750%, 05/15/27 AGMC Insured | |||||||
Series 2015A | A1/AA/NR | $ | 3,125,400 | ||||||
3,000,000 | 4.000%, 05/15/28 AGMC Insured | ||||||||
Series 2015A | A1/AA/NR | 3,159,030 | |||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, Providence | |||||||||
Public Schools | |||||||||
1,000,000 | 5.000%, 05/15/20 AGMC Insured | ||||||||
(pre-refunded) | A2/AA/NR | 1,029,420 | |||||||
2,000,000 | 4.500%, 05/15/22 Series 2013 A | A1/NR/NR | 2,192,460 | ||||||
2,000,000 | 4.500%, 05/15/23 Series 2013 A | A1/NR/NR | 2,192,740 | ||||||
2,000,000 | 4.500%, 05/15/24 Series 2013 A | A1/NR/NR | 2,177,160 | ||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, City of Warwick | |||||||||
800,000 | 3.500%, 05/15/26 Series B MAC Insured | NR/AA/NR | 860,336 | ||||||
Rhode Island Health and Education | |||||||||
Building Corp., Public School | |||||||||
Financing Program, Town of West | |||||||||
Warwick | |||||||||
935,000 | 4.000%, 05/15/21 | A1/NR/NR | 1,013,082 | ||||||
745,000 | 3.000%, 11/15/21 | A1/NR/NR | 765,979 | ||||||
Total Public School | 57,376,269 | ||||||||
Student Loan (0.4%) | |||||||||
State of Rhode Island Student Loan | |||||||||
Authority | |||||||||
1,000,000 | 4.750%, 12/01/23 Senior Series 2010 B | NR/A+/A | 1,049,910 | ||||||
Transportation (7.7%) | |||||||||
Rhode Island State Economic | |||||||||
Development Corp., Airport Revenue | |||||||||
1,000,000 | 5.000%, 07/01/24 Series B | A3/BBB+/BBB+ | 1,128,330 | ||||||
2,000,000 | 4.000%, 07/01/24 Series B | A3/BBB+/BBB+ | 2,110,240 |
8 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Transportation (continued) | |||||||||
Rhode Island State Economic | |||||||||
Development Corp., Airport Revenue | |||||||||
(continued) | |||||||||
$ | 540,000 | 4.625%, 07/01/26 AGC Insured Series B | A3/AA/BBB+ | $ | 577,730 | ||||
1,000,000 | 5.000%, 07/01/18 AGC Insured Series C | A3/AA/BBB+ | 1,085,680 | ||||||
1,500,000 | 5.000%, 07/01/22 NPFG Insured | ||||||||
Series C | A3/AA-/BBB+ | 1,504,425 | |||||||
Rhode Island State Economic | |||||||||
Development Corp., Motor Fuel Tax | |||||||||
(Rhode Island Department of | |||||||||
Transportation) | |||||||||
2,385,000 | 4.700%, 06/15/23 Series 2003 A | ||||||||
AMBAC Insured | A3/A+/A | 2,391,392 | |||||||
1,000,000 | 4.000%, 06/15/18 Series 2006 A | ||||||||
AMBAC Insured | A3/A+/A | 1,021,900 | |||||||
Rhode Island State Economic | |||||||||
Development Corp., (Rhode Island | |||||||||
Airport Corp. Intermodal Facility | |||||||||
Project) | |||||||||
1,000,000 | 4.250%, 07/01/17 CIFG Assurance | ||||||||
North America, Inc. Insured | Baa1/BBB+/NR | 1,026,330 | |||||||
Rhode Island Economic Development | |||||||||
Corp. (Rhode Island Department of | |||||||||
Transportation) | |||||||||
1,500,000 | 5.250%, 06/15/21 AGC Insured | A2/AA/A+ | 1,704,285 | ||||||
Rhode Island State Turnpike & Bridge | |||||||||
Authority | |||||||||
500,000 | 4.125%, 12/01/23 Series 2010 A | NR/A-/A | 543,855 | ||||||
1,600,000 | 4.625%, 12/01/27 Series 2010 A | NR/A-/A | 1,747,264 | ||||||
2,000,000 | 5.125%, 12/01/35 Series 2010 A | NR/A-/A | 2,193,520 | ||||||
1,000,000 | 5.000%, 12/01/35 Series 2010 A | NR/A-/A | 1,088,350 | ||||||
Total Transportation | 18,123,301 | ||||||||
Water and Sewer (6.4%) | |||||||||
Narragansett, Rhode Island Bay | |||||||||
Commission Wastewater System | |||||||||
3,145,000 | 4.000%, 02/01/28 Series A | NR/AA-/NR | 3,391,033 | ||||||
1,000,000 | 5.000%, 02/01/32 Series 2007 A NPFG | ||||||||
Insured (pre-refunded) | NR/AA-/NR | 1,060,320 |
9 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Water and Sewer (continued) | |||||||||
Rhode Island Clean Water Protection | |||||||||
Finance Agency | |||||||||
$ | 1,545,000 | 4.750%, 10/01/18 Series A AMBAC | |||||||
Insured | Aaa/NR/NR | $ | 1,549,851 | ||||||
255,000 | 5.400%, 10/01/15 1993 Series A NPFG | ||||||||
Insured | Aaa/AA-/NR | 255,000 | |||||||
500,000 | 4.750%, 10/01/20 1999 Series A | ||||||||
AMBAC Insured | Aaa/NR/NR | 501,455 | |||||||
Rhode Island Clean Water Finance | |||||||||
Agency, Water Pollution Control Bonds | |||||||||
310,000 | 5.000%, 10/01/18 Series B NPFG | ||||||||
Insured | Aaa/AAA/NR | 311,029 | |||||||
4,765,000 | 4.375%, 10/01/21 Series 2002 B NPFG | ||||||||
Insured | Aaa/AAA/AAA | 4,777,341 | |||||||
Rhode Island Clean Water Protection | |||||||||
Finance Agency Safe Drinking Water | |||||||||
Revolving Fund | |||||||||
1,085,000 | 3.500%, 10/01/25 | NR/AAA/AAA | 1,177,323 | ||||||
1,000,000 | 3.750%, 10/01/33 | NR/AAA/AAA | 1,024,300 | ||||||
1,000,000 | 3.750%, 10/01/34 | NR/AAA/AAA | 1,017,290 | ||||||
Total Water and Sewer | 15,064,942 | ||||||||
Other Revenue (0.2%) | |||||||||
State of Rhode Island Depositors | |||||||||
Economic Protection Corp. | |||||||||
250,000 | 5.750%, 08/01/21 Series A AGMC | ||||||||
Insured ETM | NR/NR/NR* | 306,673 | |||||||
215,000 | 6.375%, 08/01/22 Series A NPFG | ||||||||
Insured ETM | NR/AA-/NR | 276,759 | |||||||
Total Other Revenue | 583,432 | ||||||||
Total Revenue Bonds | 156,553,330 | ||||||||
Total Investments (cost $222,880,097- | |||||||||
note 4) | 97.6% | 230,505,674 | |||||||
Other assets less liabilities | 2.4 | 5,572,872 | |||||||
Net Assets | 100.0% | $ | 236,078,546 |
10 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
SCHEDULE OF INVESTMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Percent of | ||||
Portfolio Distribution by Quality Rating | Investments† | |||
Aaa of Moody’s or AAA of S&P or Fitch | 7.5 | % | ||
Pre-Refunded bonds††/Escrowed to Maturity bonds | 6.4 | |||
Aa of Moody’s or AA of S&P or Fitch | 62.1 | |||
A of Moody’s or S&P or Fitch | 22.9 | |||
Baa of Moody’s or BBB of S&P | 1.1 | |||
100.0 | % |
PORTFOLIO ABBREVIATIONS: |
AGC - Assured Guaranty Corp. |
AGMC - Assured Guaranty Municipal Corp. |
AMBAC - American Municipal Bond Assurance Corp. |
BAMAC - Build America Mutual Assurance Co. |
CIFG - CDC IXIS Financial Guaranty |
ETM - Escrowed to Maturity |
MAC - Municipal Assurance Corp. |
NPFG - National Public Finance Guarantee |
NR - Not Rated |
* | Any security not rated (“NR��) by any of the Nationally Recognized Statistical Rating Organizations (“NRSRO”) has been determined by the Investment Sub-Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a NRSRO. | |
† | Where applicable, calculated using the highest rating of the three NRSROs. | |
†† | Pre-refunded bonds are bonds for which U.S. Government Obligations usually have been placed in escrow to retire the bonds at their earliest call date. |
See accompanying notes to financial statements.
11 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND | ||
STATEMENT OF ASSETS AND LIABILITIES | ||
SEPTEMBER 30, 2015 (unaudited) |
ASSETS | ||||
Investments at value (cost $222,880,097) | $ | 230,505,674 | ||
Cash | 3,021,167 | |||
Interest receivable | 3,048,330 | |||
Receivable for Fund shares sold | 17,155 | |||
Other assets | 19,509 | |||
Total assets | 236, 611,835 | |||
LIABILITIES | ||||
Dividends payable | 286,905 | |||
Payable for Fund shares redeemed | 92,095 | |||
Management fees payable | 80,993 | |||
Accrued expenses payable | 73,296 | |||
Total liabilities | 533,289 | |||
NET ASSETS | $ | 236,078,546 | ||
Net Assets consist of: | ||||
Capital Stock - Authorized an unlimited number of shares, par value | ||||
$0.01 per share | $ | 220,073 | ||
Additional paid-in capital | 229,630, 899 | |||
Net unrealized appreciation on investments (note 4) | 7,625,577 | |||
Accumulated net realized loss on investments | (1,450,299 | ) | ||
Undistributed net investment income | 52,296 | |||
$ | 236,078,546 | |||
CLASS A | ||||
Net Assets | $ | 127,424,064 | ||
Capital shares outstanding | 11,878,880 | |||
Net asset value and redemption price per share | $ | 10.73 | ||
Maximum offering price per share (100/96 of $10.73) | $ | 11.18 | ||
CLASS C | ||||
Net Assets | $ | 14,598,418 | ||
Capital shares outstanding | 1,361,131 | |||
Net asset value and offering price per share | $ | 10.73 | ||
Redemption price per share (*a charge of 1% is imposed on the | ||||
redemption proceeds, or on the original price, whichever is | ||||
lower, if redeemed during the first 12 months after purchase) | $ | 10.73 | * | |
CLASS I | ||||
Net Assets | $ | 233, 942 | ||
Capital shares outstanding | 21,817 | |||
Net asset value, offering and redemption price per share | $ | 10.72 | ||
CLASS Y | ||||
Net Assets | $ | 93,822,122 | ||
Capital shares outstanding | 8,745,424 | |||
Net asset value, offering and redemption price per share | $ | 10.73 |
See accompanying notes to financial statements.
12 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
STATEMENT OF OPERATIONS |
SIX MONTHS ENDED SEPTEMBER 30, 2015 (unaudited) |
Investment Income: | ||||||||
Interest income | $ | 4,241,241 | ||||||
Expenses: | ||||||||
Management fees (note 3) | $ | 585,925 | ||||||
Distribution and service fees (note 3) | 171,924 | |||||||
Transfer and shareholder servicing | ||||||||
agent fees (note 3) | 58,828 | |||||||
Legal fees | 57,194 | |||||||
Trustees’ fees and expenses (note 8) | 41,558 | |||||||
Fund accounting fees | 11,454 | |||||||
Shareholders’ reports | 11,380 | |||||||
Custodian fees (note 6) | 11,166 | |||||||
Auditing and tax fees | 10,536 | |||||||
Registration fees and dues | 7,541 | |||||||
Insurance | 6,052 | |||||||
Chief compliance officer services (note 3) | 3,271 | |||||||
Miscellaneous | 14,617 | |||||||
Total expenses | 991,446 | |||||||
Management fees waived (note 3) | (96,379 | ) | ||||||
Expenses paid indirectly (note 6) | (311 | ) | ||||||
Net expenses | 894,756 | |||||||
Net investment income | 3,346,485 | |||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||
Net realized gain (loss) from securities | ||||||||
transactions | 639,650 | |||||||
Change in unrealized appreciation on | ||||||||
investments | (2,359,423 | ) | ||||||
Net realized and unrealized gain (loss) on | ||||||||
investments | (1,719,773 | ) | ||||||
Net change in net assets resulting from | ||||||||
operations | $ | 1,626,712 |
See accompanying notes to financial statements.
13 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
STATEMENTS OF CHANGES IN NET ASSETS |
Six Months Ended | ||||||||
September 30, 2015 | Year Ended | |||||||
(unaudited) | March 31, 2015 | |||||||
OPERATIONS: | ||||||||
Net investment income | $ | 3,346,485 | $ | 7,012,579 | ||||
Net realized gain (loss) from | ||||||||
securities transactions | 639,650 | 4,250 | ||||||
Change in unrealized appreciation | ||||||||
on investments | (2,359,423 | ) | 6,990,048 | |||||
Change in net assets from | ||||||||
operations | 1,626,712 | 14,006,877 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS (note 10): | ||||||||
Class A Shares: | ||||||||
Net investment income | (1,793,974 | ) | (3,783,094 | ) | ||||
Class C Shares: | ||||||||
Net investment income | (154,765 | ) | (356,829 | ) | ||||
Class I Shares: | ||||||||
Net investment income | (3,148 | ) | (7,718 | ) | ||||
Class Y Shares: | ||||||||
Net investment income | (1,391,053 | ) | (2,854,636 | ) | ||||
Change in net assets from | ||||||||
distributions | (3,342,940 | ) | (7,002,277 | ) | ||||
CAPITAL SHARE TRANSACTIONS (note 7): | ||||||||
Proceeds from shares sold | 12,901,583 | 27,722,713 | ||||||
Reinvested dividends and | ||||||||
distributions | 1,463,772 | 3,099,567 | ||||||
Cost of shares redeemed | (11,122,503 | ) | (24,704,007 | ) | ||||
Change in net assets from | ||||||||
capital share transactions | 3,242,852 | 6,118,273 | ||||||
Change in net assets | 1,526,624 | 13,122,873 | ||||||
NET ASSETS: | ||||||||
Beginning of period | 234,551,922 | 221,429,049 | ||||||
End of period* | $ | 236,078,546 | $ | 234,551,922 | ||||
* Includes undistributed net investment income of: | $ | 52,296 | $ | 48,751 |
See accompanying notes to financial statements.
14 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
NOTES TO FINANCIAL STATEMENTS |
SEPTEMBER 30, 2015 (unaudited) |
1. Organization
Aquila Narragansett Tax-Free Income Fund (the “Fund”), a series of Aquila Municipal Trust and a non-diversified, open-end investment company, was organized on January 22, 1992 as a Massachusetts business trust and commenced operations on September 10, 1992. Class A Shares are sold at net asset value plus a sales charge of varying size (depending upon a variety of factors) paid at the time of purchase and bear a distribution fee. Class C Shares are sold at net asset value with no sales charge payable at the time of purchase but with a level charge for service and distribution fees for six years thereafter. Class C Shares automatically convert to Class A Shares after six years. Class Y Shares are sold only through authorized financial institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity, and are not offered directly to retail customers. Class Y Shares are sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge (“CDSC”) and no distribution fee. Class I Shares are offered and sold only through financial intermediaries and are not offered directly to retail customers. Class I Shares are sold at net asset value with no sales charge and no redemption fee or CDSC, although a financial intermediary may charge a fee for effecting a purchase or other transaction on behalf of its customers. Class I Shares carry a distribution and a service fee. All classes of shares represent interests in the same portfolio of investments and are identical as to rights and privileges but differ with respect to the effect of sales charges, the distribution and/or service fees borne by each class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America for investment companies.
a) | Portfolio valuation: Municipal securities are valued each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services. In the case of securities for which market quotations are readily available, securities are valued by the pricing service at the mean of bid and asked quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees. |
b) | Fair value measurements: The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy: |
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may includequoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
15 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, based on the best information available.
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities
The following is a summary of the valuation inputs, representing 100% of the Fund’s investments, used to value the Fund’s net assets as of September 30, 2015:
Valuation Inputs | Investments in Securities | ||||
Level 1 – Quoted Prices | $ | – | |||
Level 2 – Other Significant Observable | |||||
Inputs – Municipal Bonds* | 230,505,674 | ||||
Level 3 – Significant Unobservable Inputs | – | ||||
Total | $ | 230,505,674 |
*See schedule of investments for a detailed listing of securities.
c) | Subsequent events: In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date these financial statements were issued. |
d) | Securities transactions and related investment income: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. Interest income is recorded daily on the accrual basis and is adjusted for amortization of premium and accretion of original issue and market discount. |
e) | Federal income taxes: It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Fund intends to make distributions of income and securities profits sufficient to relieve it from all, or substantially all, Federal income and excise taxes. |
Management has reviewed the tax positions for each of the open tax years (2012–2014) or expected to be taken in the Fund’s 2015 tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.
f) | Multiple class allocations: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are also charged directly to such class on a daily basis. |
16 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
g) | Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. |
h) | Reclassification of capital accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. On March 31, 2015, the Fund increased additional paid-in capital by $14,445, decreased undistributed net investment income by $14,422 and increased accumulated net realized loss on investments by $23. These reclassifications had no effect on net assets or net asset value per share. |
i) | The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 “Financial Services-Investment Companies”. |
3. Fees and Related Party Transactions
a) Management Arrangements:
Aquila Investment Management LLC (the “Manager”), a wholly-owned subsidiary of Aquila Management Corporation, the Fund’s founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. The portfolio management of the Fund has been delegated to a Sub-Adviser as described below. Under the Advisory and Administration Agreement, the Manager provides all administrative services to the Fund, other than those relating to the day-to-day portfolio management. The Manager’s services include providing the office of the Fund and all related services as well as overseeing the activities of the Sub-Adviser and managing relationships with all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, fund accounting agent, auditor and distributor. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.50% on the Fund’s net assets.
Citizens Investment Advisors (the “Sub-Adviser”), a department of Citizens Bank, N.A., which in turn is a wholly-owned subsidiary of Citizens Financial Group, Inc. (“CFG”) provides the investment program of the Fund, subject to oversight of the Manager and the Board of Trustees of the Fund. Its services include determining the composition of the Fund’s portfolio, arranging for the purchases and sales of portfolio securities, and providing for daily pricing of the Fund’s portfolio. Until recently, CFG was an indirect wholly-owned subsidiary of The Royal Bank of Scotland, PLC (“RBS”). RBS has, however, sold its interest in CFG through a series of public offerings of CFG’s outstanding common stock (the “Divestiture”), the final offering of which was completed on November 3, 2015. Prior to such time, the August 3, 2015 public offering resulted in a transfer of a controlling block of voting securities of CFG and, therefore constituted an “assignment” of the Sub-Advisory Agreement, resulting in its automatic termination as required by law as of August 3, 2015. The Sub-Adviser is currently providing services to the Fund under an Interim Sub-Advisory Agreement which was approved (in anticipation of assignment) by the Trustees of the Fund at an in person meeting on June 14, 2015.
17 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
A special shareholder meeting of the Fund will be held on December 1, 2015. At the special meeting, shareholders will be asked to approve a new Sub-Advisory Agreement between the Manager and the Sub-Adviser which is substantially similar to the prior Sub-Advisory Agreement, under which the Sub-Adviser was entitled to receive a fee for its services from the Manager, payable monthly and computed as of the close of business each day, at the annual rate of 0.23% on the Fund’s net assets.
The Manager has contractually undertaken to waive fees and/or reimburse Fund expenses so that total Fund expenses will not exceed 0.84% for Class A Shares, 1.69% for Class C Shares, 0.99% for Class I Shares and 0.69% for Class Y Shares for the period October 1, 2014 through September 30, 2015 and 0.84% for Class A Shares, 1.69% for Class C Shares, 0.98% for Class I Shares and 0.69% for Class Y Shares through September 30, 2016. The Manager may not terminate the arrangement without the approval of the Board of Trustees. For the six months ended September 30, 2015, the Fund incurred management fees of $585,925 of which $96,379 was waived, which included supplemental fee waivers above and beyond the contractual expense cap.
Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for Chief Compliance Officer related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940.
Specific details as to the nature and extent of the services provided by the Manager and the Sub-Adviser are more fully defined in the Fund’s Prospectus and Statement of Additional Information.
b) Distribution and Service Fees:
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 (the “Rule”) under the Investment Company Act of 1940. Under one part of the Plan, with respect to Class A Shares, the Fund is authorized to make distribution fee payments to broker-dealers or others (“Qualified Recipients”) selected by Aquila Distributors, Inc. (“the Distributor”), including, but not limited to, any principal underwriter of the Fund with which the Distributor has entered into written agreements contemplated by the Rule and which have rendered assistance in the distribution and/or retention of the Fund’s shares or servicing of shareholder accounts. The Fund makes payment of this distribution fee at the annual rate of 0.15% of the Fund’s average net assets represented by Class A Shares. For the six months ended September 30, 2015, distribution fees on Class A Shares amounted to $94,388, of which the Distributor retained $6,458.
Under another part of the Plan, the Fund is authorized to make payments with respect to Class C Shares to Qualified Recipients which have rendered assistance in the distribution and/or retention of the Fund’s Class C Shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Fund’s average net assets represented by Class C Shares and for the six months ended September 30, 2015, amounted to $58,065. In addition, under a Shareholder Services Plan, the Fund is authorized to make service fee payments with respect to Class C Shares to Qualified Recipients for providing personal services and/or maintenance of shareholder accounts. These payments are made at the annual rate of 0.25% of the Fund’s average net assets represented by Class C Shares and for the six months ended September 30, 2015, amounted to $19,355. The total of these payments with respect to Class C Shares amounted to $77,420, of which the Distributor retained $19,492.
18 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Under another part of the Plan, the Fund is authorized to make payments with respect to Class I Shares to Qualified Recipients. Class I payments, under the Plan, may not exceed, for any fiscal year of the Fund a rate (currently 0.10%) set from time to time by the Board of Trustees of not more than 0.25% of the average annual net assets represented by the Class I Shares. In addition, the Fund has a Shareholder Services Plan under which it may pay service fees (currently 0.25%) of not more than 0.25% of the average annual net assets of the Fund represented by Class I Shares. That is, the total payments under both plans will not exceed 0.50% of such net assets. For the six months ended September 30, 2015, these payments were made at the average annual rate of 0.35% of such net assets amounting to $408 of which $116 related to the Plan and $292 related to the Shareholder Services Plan.
Specific details about the Plans are more fully defined in the Fund’s Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive distributor of the Fund’s shares. Through agreements between the Distributor and various brokerage and advisory firms (“intermediaries”), the Fund’s shares are sold primarily through the facilities of these intermediaries having offices within Rhode Island, with the bulk of any sales commissions inuring to such intermediaries. For the six months ended September 30, 2015, total commissions on sales of Class A Shares amounted to $139,579, of which the Distributor received $13,514.
4. Purchases and Sales of Securities
During the six months ended September 30, 2015, purchases of securities and proceeds from the sales of securities aggregated $36,283,209 and $35,222,895, respectively.
At September 30, 2015, the aggregate tax cost for all securities was $222,842,633. At September 30, 2015, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $8,401,082 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $738,041 for a net unrealized appreciation of $7,663,041.
5. Portfolio Orientation
Since the Fund invests principally and may invest entirely in double tax-free municipal obligations of issuers within Rhode Island, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Rhode Island and whatever effects these may have upon Rhode Island issuers’ ability to meet their obligations.
The Fund is also permitted to invest in U.S. territorial municipal obligations meeting comparable quality standards and providing income which is exempt from both regular Federal and Rhode Island income taxes. The general policy of the Fund is to invest in such securities only when comparable securities of Rhode Island issuers are not available in the market. At September 30, 2015, the Fund had all of its net assets invested in the securities of Rhode Island issuers.
6. Expenses
The Fund had negotiated an expense offset arrangement with JPMorgan Chase Bank N.A., which served as its custodian until November 2, 2015. Under these arrangements, it received credit toward the reduction of custodian fees and other Fund expenses whenever there were uninvested cash balances. The Statement of Operations reflects the total expenses before any offset, the amount of offset, if any, and the net expenses. Effective November 2, 2015, the Fund no longer receives credits toward the reduction of custody fees from the Fund’s new custodian.
19 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
7. Capital Share Transactions
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended September 30, 2015 | Year Ended | |||||||||||||||
(unaudited) | March 31, 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A Shares: | ||||||||||||||||
Proceeds from shares sold | 675,777 | $ | 7,222,261 | 986,341 | $ | 10,539,393 | ||||||||||
Reinvested distributions | 100,148 | 1,070,552 | 202,205 | 2,165,832 | ||||||||||||
Cost of shares redeemed | (470,280 | ) | (5,019,775 | ) | (1,012,586 | ) | (10,832,567 | ) | ||||||||
Net change | 305,645 | 3,273,038 | 175,960 | 1,872,658 | ||||||||||||
Class C Shares: | ||||||||||||||||
Proceeds from shares sold | 135,216 | 1,443,939 | 230,654 | 2,470,639 | ||||||||||||
Reinvested distributions | 7,844 | 83,840 | 20,437 | 218,769 | ||||||||||||
Cost of shares redeemed | (288,280 | ) | (3,075,702 | ) | (280,713 | ) | (3,006,413 | ) | ||||||||
Net change | (145,220 | ) | (1,547,923 | ) | (29,622 | ) | (317,005 | ) | ||||||||
Class I Shares: | ||||||||||||||||
Proceeds from shares sold | — | — | — | — | ||||||||||||
Reinvested distributions | 247 | 2,645 | 720 | 7,724 | ||||||||||||
Cost of shares redeemed | (203 | ) | (2,167 | ) | (3,885 | ) | (41,779 | ) | ||||||||
Net change | 44 | 478 | (3,165 | ) | (34,055 | ) | ||||||||||
Class Y Shares: | ||||||||||||||||
Proceeds from shares sold | 396,613 | 4,235,383 | 1,374,910 | 14,712,681 | ||||||||||||
Reinvested distributions | 28,699 | 306,735 | 65,974 | 707,242 | ||||||||||||
Cost of shares redeemed | (282,956 | ) | (3,024,859 | ) | (1,013,297 | ) | (10,823,248 | ) | ||||||||
Net change | 142,356 | 1,517,259 | 427,587 | 4,596,675 | ||||||||||||
Total transactions in Fund | ||||||||||||||||
shares | 302,825 | $ | 3,242,852 | 570,760 | $ | 6,118,273 |
20 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
8. Trustees’ Fees and Expenses
At September 30, 2015 there were 11 Trustees, one of whom is affiliated with the Manager and is not paid any fees. The total amount of Trustees’ service fees (for carrying out their responsibilities) and attendance fees paid during the six months ended September 30, 2015 was $35,467. Attendance fees are paid to those in attendance at regularly scheduled quarterly Board Meetings and meetings of the Independent Trustees held prior to each quarterly Board Meeting, as well as additional meetings (such as Audit, Nominating, Shareholder and special meetings). Trustees are reimbursed for their expenses such as travel, accommodations and meals incurred in connection with attendance at Board Meetings and the Annual Meeting of Shareholders. For the six months ended September 30, 2015, such meeting-related expenses amounted to $6,091.
9. Securities Traded on a When-Issued Basis
The Fund may purchase or sell securities on a when-issued basis. When-issued transactions arise when securities are purchased or sold by the Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction. Beginning on the date the Fund enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
10. Income Tax Information and Distributions
The Fund declares dividends daily from net investment income and makes payments monthly. Net realized capital gains, if any, are distributed annually and are taxable. These distributions are paid in additional shares at the net asset value per share, in cash, or in a combination of both, at the shareholder’s option.
The Fund intends to maintain, to the maximum extent possible, the tax-exempt status of interest payments received from portfolio municipal securities in order to allow dividends paid to shareholders from net investment income to be exempt from regular Federal and State of Rhode Island income taxes. Due to differences between financial statement reporting and Federal income tax reporting requirements, distributions made by the Fund may not be the same as the Fund’s net investment income, and/or net realized securities gains. Further, a small portion of the dividends may, under some circumstances, be subject to taxes at ordinary income rates. As a result of the passage of the Regulated Investment Company Act of 2010 (“the Act”), losses incurred in this fiscal year and beyond retain their character as short-term or long-term, have no expiration date and are utilized before capital losses incurred prior to the enactment of the Act.
At March 31, 2015, the Fund had a capital loss carryover of $2,089,949 of which $73,498 was acquired in the acquisition of Ocean State Tax-Exempt Fund, which expires on June 30, 2016 and $1,443,048 which is short-term and $573,403 is long term and have no expiration. This carryover is available to offset future net realized gains on securities transactions to the extent provided for in the Internal Revenue Code.
21 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
The tax character of distributions was as follows:
Year | Year | |||||||
Ended | Ended | |||||||
March 31, 2015 | March 31, 2014 | |||||||
Net tax-exempt income | $ | 6,990,708 | $ | 7,754,144 | ||||
Ordinary Income | 11,570 | 18,318 | ||||||
$ | 7,002,278 | $ | 7,772,462 |
As of March 31, 2015, the components of distributable earnings on a tax basis were as follows:
Undistributed tax-exempt income | $ | 242,391 | ||||||
Accumulated net realized loss | (2,089,949 | ) | ||||||
Unrealized appreciation | 10,033,749 | |||||||
Other temporary differences | (242,389 | ) | ||||||
$ | 7,943,802 |
The difference between book basis and tax basis unrealized appreciation and undistributed income is due to the timing difference in recognizing dividends paid and the amortization of discount securities.
22 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
FINANCIAL HIGHLIGHTS |
For a share outstanding throughout each period
Class A | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Nine Months | Year Ended June 30, | ||||||||||||||||||||||||
9/30/15 (unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.81 | $ | 10.48 | $ | 10.79 | $ | 10.78 | $ | 10.51 | $ | 10.64 | $ | 10.44 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.15 | 0.33 | 0.35 | 0.26 | 0.37 | 0.39 | 0.39 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.07 | ) | 0.33 | (0.31 | ) | 0.02 | 0.27 | (0.13 | ) | 0.20 | ||||||||||||||||||
Total from investment operations | 0.08 | 0.66 | 0.04 | 0.28 | 0.64 | 0.26 | 0.59 | |||||||||||||||||||||
Less distributions (note 9): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.16 | ) | (0.33 | ) | (0.35 | ) | (0.27 | ) | (0.37 | ) | (0.39 | ) | (0.39 | ) | ||||||||||||||
Distributions from capital gains | – | – | – | – | – | – | – | |||||||||||||||||||||
Total distributions | (0.16 | ) | (0.33 | ) | (0.35 | ) | (0.27 | ) | (0.37 | ) | (0.39 | ) | (0.39 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.73 | $ | 10.81 | $ | 10.48 | $ | 10.79 | $ | 10.78 | $ | 10.51 | $ | 10.64 | ||||||||||||||
Total return(not reflecting sales charge) | 0.69 | %(2) | 6.35 | % | 0.42 | % | 2.53 | %(2) | 6.15 | % | 2.48 | % | 5.71 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 127 | $ | 125 | $ | 119 | $ | 143 | $ | 146 | $ | 150 | $ | 151 | ||||||||||||||
Ratio of expenses to average net assets | 0.77 | %(3) | 0.76 | % | 0.79 | %(4) | 0.77 | %(3) | 0.71 | % | 0.62 | % | 0.59 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.85 | %(3) | 3.07 | % | 3.34 | %(4) | 3.22 | %(3) | 3.45 | % | 3.68 | % | 3.63 | % | ||||||||||||||
Portfolio turnover rate | 15 | %(2) | 8 | % | 15 | % | 8 | %(2) | 11 | % | 9 | % | 3 | % | ||||||||||||||
Expense and net investment income ratios without the effect of the contractual expense cap and additional voluntary fee waivers were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.85 | %(3) | 0.88 | % | 0.92 | %(4)(5) | 0.90 | %(3) | 0.87 | % | 0.84 | % | 0.87 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.77 | %(3) | 2.95 | % | 3.21 | %(4)(5) | 3.09 | %(3) | 3.29 | % | 3.46 | % | 3.35 | % | ||||||||||||||
Expense ratios after giving effect to the contractual expense cap, additional voluntary fee waivers and expense offset for uninvested cash balances were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.77 | %(3) | 0.76 | % | 0.79 | %(4) | 0.77 | %(3) | 0.71 | % | 0.62 | % | 0.59 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. |
(5) | Without these expenses, the expense ratio and the net investment income ratio would have been 0.88% and 3.25%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from June 30 to March 31. The information presented is for the period July 1, 2012 to March 31, 2013. |
See accompanying notes to financial statements.
23 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class C | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Nine Months | Year Ended June 30, | ||||||||||||||||||||||||
9/30/15 (unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.81 | $ | 10.48 | $ | 10.79 | $ | 10.78 | $ | 10.51 | $ | 10.64 | $ | 10.44 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.11 | 0.24 | 0.26 | 0.19 | 0.28 | 0.30 | 0.29 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.08 | ) | 0.33 | (0.31 | ) | 0.02 | 0.27 | (0.13 | ) | 0.21 | ||||||||||||||||||
Total from investment operations | 0.03 | 0.57 | (0.05 | ) | 0.21 | 0.55 | 0.17 | 0.50 | ||||||||||||||||||||
Less distributions (note 9): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.11 | ) | (0.24 | ) | (0.26 | ) | (0.20 | ) | (0.28 | ) | (0.30 | ) | (0.30 | ) | ||||||||||||||
Distributions from capital gains | – | – | – | – | – | – | – | |||||||||||||||||||||
Total distributions | (0.11 | ) | (0.24 | ) | (0.26 | ) | (0.20 | ) | (0.28 | ) | (0.30 | ) | (0.30 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.73 | $ | 10.81 | $ | 10.48 | $ | 10.79 | $ | 10.78 | $ | 10.51 | $ | 10.64 | ||||||||||||||
Total return(not reflecting sales charge) | 0.26 | %(2) | 5.45 | % | (0.43 | )% | 1.88 | %(2) | 5.25 | % | 1.62 | % | 4.81 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 15 | $ | 16 | $ | 16 | $ | 22 | $ | 21 | $ | 24 | $ | 22 | ||||||||||||||
Ratio of expenses to average net assets | 1.62 | %(3) | 1.61 | % | 1.64 | %(4) | 1.62 | %(3) | 1.57 | % | 1.47 | % | 1.44 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.00 | %(3) | 2.22 | % | 2.49 | %(4) | 2.37 | %(3) | 2.60 | % | 2.83 | % | 2.75 | % | ||||||||||||||
Portfolio turnover rate | 15 | %(2) | 8 | % | 15 | % | 8 | %(2) | 11 | % | 9 | % | 3 | % | ||||||||||||||
Expense and net investment income ratios without the effect of the contractual expense cap and additional voluntary fee waivers were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.70 | %(3) | 1.73 | % | 1.77 | %(4)(5) | 1.75 | %(3) | 1.72 | % | 1.69 | % | 1.72 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 1.92 | %(3) | 2.10 | % | 2.36 | %(4)(5) | 2.24 | %(3) | 2.45 | % | 2.61 | % | 2.47 | % | ||||||||||||||
Expense ratios after giving effect to the contractual expense cap, additional voluntary fee waivers and expense offset for uninvested cash balances were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.62 | %(3) | 1.61 | % | 1.64 | %(4) | 1.62 | %(3) | 1.57 | % | 1.47 | % | 1.44 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. |
(5) | Without these expenses, the expense ratio and the net investment income ratio would have been 1.73% and 2.40%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from June 30 to March 31. The information presented is for the period July 1, 2012 to March 31, 2013. |
See accompanying notes to financial statements.
24 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class I | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Nine Months | Year Ended June 30, | ||||||||||||||||||||||||
9/30/15 (unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.80 | $ | 10.47 | $ | 10.79 | $ | 10.78 | $ | 10.51 | $ | 10.63 | $ | 10.44 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.15 | 0.31 | 0.33 | 0.25 | 0.35 | 0.37 | 0.37 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.09 | ) | 0.33 | (0.32 | ) | 0.01 | 0.27 | (0.12 | ) | 0.19 | ||||||||||||||||||
Total from investment operations | 0.06 | 0.64 | 0.01 | 0.26 | 0.62 | 0.25 | 0.56 | |||||||||||||||||||||
Less distributions (note 9): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.14 | ) | (0.31 | ) | (0.33 | ) | (0.25 | ) | (0.35 | ) | (0.37 | ) | (0.37 | ) | ||||||||||||||
Distributions from capital gains | – | – | – | – | – | – | – | |||||||||||||||||||||
Total distributions | (0.14 | ) | (0.31 | ) | (0.33 | ) | (0.25 | ) | (0.35 | ) | (0.37 | ) | (0.37 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.72 | $ | 10.80 | $ | 10.47 | $ | 10.79 | $ | 10.78 | $ | 10.51 | $ | 10.63 | ||||||||||||||
Total return | 0.61 | %(2) | 6.20 | % | 0.17 | % | 2.41 | %(2) | 5.99 | % | 2.42 | % | 5.45 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 0.2 | $ | 0.2 | $ | 0.3 | $ | 0.3 | $ | 0.3 | $ | 0.3 | $ | 0.3 | ||||||||||||||
Ratio of expenses to average net assets | 0.92 | %(3) | 0.90 | % | 0.94 | %(4) | 0.93 | %(3) | 0.87 | % | 0.78 | % | 0.74 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.70 | %(3) | 2.93 | % | 3.18 | %(4) | 3.07 | %(3) | 3.29 | % | 3.25 | % | 3.49 | % | ||||||||||||||
Portfolio turnover rate | 15 | %(2) | 8 | % | 15 | % | 8 | %(2) | 11 | % | 9 | % | 3 | % | ||||||||||||||
Expense and net investment income ratios without the effect of the contractual expense cap and additional voluntary fee waivers were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.00 | %(3) | 1.02 | % | 1.07 | %(4)(5) | 1.06 | %(3) | 1.02 | % | 1.00 | % | 1.02 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.62 | %(3) | 2.81 | % | 3.05 | %(4)(5) | 2.94 | %(3) | 3.14 | % | 3.30 | % | 3.20 | % | ||||||||||||||
Expense ratios after giving effect to the contractual expense cap, additional voluntary fee waivers and expense offset for uninvested cash balances were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.92 | %(3) | 0.90 | % | 0.94 | %(4) | 0.93 | %(3) | 0.87 | % | 0.78 | % | 0.74 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. |
(5) | Without these expenses, the expense ratio and the net investment income ratio would have been 1.03% and 3.09%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from June 30 to March 31. The information presented is for the period July 1, 2012 to March 31, 2013. |
See accompanying notes to financial statements.
25 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND |
FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class Y | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Nine Months | Year Ended June 30, | ||||||||||||||||||||||||
9/30/15 (unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.81 | $ | 10.48 | $ | 10.79 | $ | 10.78 | $ | 10.51 | $ | 10.64 | $ | 10.44 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.16 | 0.34 | 0.36 | 0.28 | 0.38 | 0.40 | 0.40 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.08 | ) | 0.33 | (0.31 | ) | – | 0.27 | (0.13 | ) | 0.20 | ||||||||||||||||||
Total from investment operations | 0.08 | 0.67 | 0.05 | 0.28 | 0.65 | 0.27 | 0.60 | |||||||||||||||||||||
Less distributions (note 9): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.16 | ) | (0.34 | ) | (0.36 | ) | (0.27 | ) | (0.38 | ) | (0.40 | ) | (0.40 | ) | ||||||||||||||
Distributions from capital gains | – | – | – | – | – | – | – | |||||||||||||||||||||
Total distributions | (0.16 | ) | (0.34 | ) | (0.36 | ) | (0.27 | ) | (0.38 | ) | (0.40 | ) | (0.40 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.73 | $ | 10.81 | $ | 10.48 | $ | 10.79 | $ | 10.78 | $ | 10.51 | $ | 10.64 | ||||||||||||||
Total return | 0.76 | %(2) | 6.51 | % | 0.56 | % | 2.65 | %(2) | 6.31 | % | 2.64 | % | 5.86 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 94 | $ | 93 | $ | 86 | $ | 93 | $ | 82 | $ | 67 | $ | 52 | ||||||||||||||
Ratio of expenses to average net assets | 0.62 | %(3) | 0.61 | % | 0.64 | %(4) | 0.62 | %(3) | 0.57 | % | 0.47 | % | 0.44 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 3.00 | %(3) | 3.22 | % | 3.48 | %(4) | 3.37 | %(3) | 3.59 | % | 3.83 | % | 3.78 | % | ||||||||||||||
Portfolio turnover rate | 15 | %(2) | 8 | % | 15 | % | 8 | %(2) | 11 | % | 9 | % | 3 | % | ||||||||||||||
Expense and net investment income ratios without the effect of the contractual expense cap and additional voluntary fee waivers were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.70 | %(3) | 0.73 | % | 0.77 | %(4)(5) | 0.75 | %(3) | 0.72 | % | 0.69 | % | 0.72 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.92 | %(3) | 3.10 | % | 3.35 | %(4)(5) | 3.24 | %(3) | 3.43 | % | 3.61 | % | 3.49 | % | ||||||||||||||
Expense ratios after giving effect to the contractual expense cap, additional voluntary fee waivers and expense offset for uninvested cash balances were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.62 | %(3) | 0.61 | % | 0.64 | %(4) | 0.62 | %(3) | 0.57 | % | 0.47 | % | 0.44 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. |
(5) | Without these expenses, the expense ratio and the net investment income ratio would have been 0.73% and 3.39%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from June 30 to March 31. The information presented is for the period July 1, 2012 to March 31, 2013. |
See accompanying notes to financial statements.
26 | Aquila Narragansett Tax-Free Income Fund
Additional Information (unaudited)
Renewal of the Advisory and Administration Agreement
Aquila Investment Management LLC (the “Manager”) serves as the investment adviser to the Fund pursuant to an Advisory and Administration Agreement (the “Advisory Agreement”). The Manager has retained Citizens Investment Advisors, a department of Citizens Bank, N.A. (formerly known as RBS Citizens, N.A.) (the “Sub-Adviser”) to serve as the sub-adviser. In order for the Manager to continue to serve in its role, the Trustees of the Fund must determine annually whether to renew the Advisory Agreement for the Fund.
In considering whether to approve the renewal of the Advisory Agreement, the Trustees requested and obtained such information as they deemed reasonably necessary. Contract review materials were provided to the Trustees in August, 2015. The independent Trustees met telephonically on September 14, 2015 and in person on September 20, 2015 to review and discuss the contract review materials. The Trustees considered, among other things, information presented by the Manager. They also considered information presented in a report prepared by an independent consultant with respect to the Fund’s fees, expenses and investment performance, which included comparisons of the Fund’s investment performance against peers and the Fund’s benchmark and comparisons of the advisory fee payable by the Fund under the Advisory Agreement against the advisory fees paid by the Fund’s peers, as well as information regarding the operating margins of certain investment advisory firms (the “Consultant’s Report”). In addition, the Trustees took into account the information related to the Fund provided to the Trustees at each regularly scheduled meeting. The Trustees considered the Advisory Agreement to determine its effect on the Fund.
At the meeting held on September 20, 2015, based on their evaluation of the information provided by the Manager and the independent consultant, the Trustees of the Fund, including the independent Trustees voting separately, unanimously approved the renewal of the Advisory Agreement until September 30, 2016. In considering the renewal of the Advisory Agreement, the Trustees considered various factors that they determined were relevant, including the factors described below. The Trustees did not identify any single factor as the controlling factor in determining to approve the renewal of the Advisory Agreement.
The nature, extent, and quality of the services provided by the Manager.
The Trustees considered the nature, extent and quality of the services that had been provided by the Manager to the Fund, taking into account the investment objectives and strategies of the Fund. The Trustees reviewed the terms of the Advisory Agreement.
The Manager has retained the Sub-Adviser to provide investment management of the Fund’s portfolio. The Trustees considered that the Manager supervised and monitored the performance of the Fund’s service providers (including the Sub-Adviser). The Manager has additionally provided all administrative services to the Fund and provided the Fund with personnel (including Fund officers) and other resources that are necessary for the Fund’s business management and operations.
The Trustees considered that the Manager had provided all administrative and advisory services to the Fund that the Trustees deemed necessary or appropriate, including the specific services that the Trustees have determined are required for the Fund, given that it seeks to provide shareholders with as high a level of current income exempt from Rhode Island state and regular Federal income taxes as is consistent with preservation of capital.
27 | Aquila Narragansett Tax-Free Income Fund
Based on these considerations, the Trustees concluded that the nature, extent and quality of services that had been provided by the Manager to the Fund were satisfactory and consistent with the terms of the Advisory Agreement, as applicable.
The investment performance of the Fund.
The Trustees reviewed the Fund’s performance and compared its performance to the performance of:
• | the funds in the Fund’s peer group (the “Peer Group”), as selected by the independent consultant (nine municipal single-state intermediate and municipal single-state long funds, as classified by Morningstar, that are similar to the Fund in size and that charge a front-end sales charge); |
• | the funds in the Fund’s product category for performance (the “Product Category for Performance”) (all funds in the Peer Group and, without duplication, all funds (and all classes) included in the Morningstar Single-State Intermediate Municipal Bond Funds category); and |
• | the Fund’s benchmark index, the Barclays Capital Quality Intermediate Municipal Bond Index. |
The Trustees considered that the materials included in the Consultant’s Report indicated that the Fund’s average annual total return was higher than the average annual total return of the funds in the Peer Group for the one and three year periods but lower than the average annual total return of the funds in the Peer Group for the five and ten year periods ended June 30, 2015. They also considered that the Fund’s average annual total return was higher than the average annual total return of the funds in the Product Category for Performance for the one, three, five and ten year periods ended June 30, 2015. The Trustees noted that the Fund’s average annual return was higher than that of its benchmark index for the one and three year periods but was lower than the average annual return of the benchmark index for the five and ten year periods ended June 30, 2015. The Trustees further considered that, as reflected in the Consultant’s Report, the Fund delivered above-average results on a risk-adjusted basis for the three and five year periods ended June 30, 2015 (as evidenced by its Sharpe ratio) when compared to the funds in the Product Category for Performance.
The Trustees discussed the Fund’s performance record and considered the Manager’s and Sub-Adviser’s view that the Fund’s performance, as compared to the Product Category for Performance and the Peer Group, was explained in part by the Fund’s somewhat higher-quality portfolio and its historical intermediate maturity structure.
The Trustees noted that, unlike the Fund’s returns, the performance of the benchmark index did not reflect any fees, expenses or sales charges. The Trustees also noted that the Fund was the only Rhode Island state-specific tax-free municipal bond fund in the State and considered the economic conditions in the State. The Trustees agreed that they would continue to monitor the performance of the Fund.
Advisory Fees and Fund Expenses.
The Trustees evaluated the fee payable under the Advisory Agreement. They noted that the Manager, and not the Fund, paid the Sub-Adviser. The Trustees evaluated the advisory fee paid under the Advisory Agreement. The Trustees reviewed the Fund’s advisory fees and expenses and compared them to the advisory fee and expense data for:
28 | Aquila Narragansett Tax-Free Income Fund
• | the funds in the Peer Group (as defined above); and |
• | the funds in the product category for expenses (the “Product Category for Expenses”) (Morningstar Single-State Intermediate Municipal Bond Funds and Morningstar Single State Long Municipal Bond Funds from states within which 1-3 mutual funds are operating, with similar operating expense structures). |
The Trustees considered that the Fund’s contractual advisory fee was lower than the average and median contractual advisory fees of the funds in the Peer Group (at the Fund’s current asset level). They also considered that the Fund’s contractual advisory fee was lower than the asset-weighted average contractual advisory fee of the funds in the Product Category for Expenses at the Fund’s current asset level and up to $1 billion in assets, but generally higher than the asset-weighted average contractual advisory fee of funds in the Product Category for Expenses at asset levels in excess of $1 billion. They also noted that the Fund’s expenses were lower than the average actual expenses of the funds in both the Product Category for Expenses and the Peer Group.
The Trustees reviewed management fees charged by the Manager to its other clients. It was noted that the Manager does not have any other clients except for other funds in the Aquila Group of Funds. The Trustees noted that in most instances the fee rates for those clients were comparable to the fees paid to the Manager with respect to the Fund.
The Trustees considered that the Manager and, in turn, the Sub-Adviser was currently waiving a portion of its fees and had been since the Fund’s inception. Additionally, it was noted that the Manager had contractually undertaken to waive fees and/or reimburse Fund expenses so that total Fund expenses will not exceed 0.84% for Class A Shares, 1.69% for Class C Shares, 0.98% for Class I Shares and 0.69% for Class Y Shares for the period through September 30, 2016. The Manager may not terminate these arrangements without the approval of the Trustees. The Manager had indicated that it intended to continue waiving fees as necessary in order that the Fund would remain competitive. The Trustees concluded that the advisory fees were reasonable in relation to the nature and quality of the services provided to the Fund by the Manager and the Sub-Adviser.
Profitability
The Trustees received materials from the Manager and from the independent consultant related to profitability. The Manager provided information which showed the profitability to the Manager of its services to the Fund, as well as the profitability of Aquila Distributors, Inc. of distribution services provided to the Fund. The independent consultant provided publicly available data regarding the profitability of other asset managers in comparison to the overall profitability of the Manager.
The Trustees considered the information provided by the Manager regarding the lack of profitability of the Manager with respect to the advisory services provided by the Manager to the Fund, including the methodology used by the Manager in allocating certain of its costs to the management of the Fund. The Trustees also considered information regarding the profitability of the Manager provided to the Trustees by the independent consultant. The Trustees concluded that profitability to the Manager with respect to advisory services provided to the Fund did not argue against approval of the fees to be paid under the Advisory Agreement.
29 | Aquila Narragansett Tax-Free Income Fund
The extent to which economies of scale would be realized as the Fund grows.
The Trustees considered the extent to which the Manager may realize economies of scale or other efficiencies in managing the Fund. The Trustees considered that the materials indicated that the Fund’s fees, after fee waivers, were generally lower than those of its peers, including those funds with breakpoints in the advisory fee schedule. Additionally, the Trustees noted that the Manager continued to waive a portion of its fees. The Trustees noted that the Manager’s profitability also may be an indicator of the availability of any economies of scale. Accordingly, the Trustees concluded that economies of scale, if any, were being appropriately shared with the Fund.
Benefits derived or to be derived by the Manager and its affiliate from their relationships with the Fund.
The Trustees observed that, as is generally true of most fund complexes, the Manager and its affiliate, by providing services to a number of funds or other investment clients including the Fund, were able to spread costs as they would otherwise be unable to do. The Trustees noted that while that produces efficiencies and increased profitability for the Manager and its affiliate, it also makes their services available to the Fund at favorable levels of quality and cost which are more advantageous to the Fund than would otherwise have been possible.
Approval of Interim and New Sub-Advisory Agreements
The Sub-Adviser is a wholly-owned subsidiary of Citizens Financial Group, Inc. (“CFG”). Until recently, CFG was an indirect wholly-owned subsidiary of The Royal Bank of Scotland, PLC (“RBS”). RBS is in the process of selling its interest in CFG through a series of public offerings of CFG’s outstanding common stock (the “Divestiture”). CFG has advised the Fund that the Divestiture has resulted in a transfer of a controlling block of voting securities of CFG and, therefore constitutes an “assignment” of the Sub-Advisory Agreement for the Fund (the “Prior Sub-Advisory Agreement”), resulting in its automatic termination as required by law as of August 3, 2015.
The Sub-Adviser is currently providing services to the Fund under an interim Sub-Advisory Agreement (the “Interim Sub-Advisory Agreement”). The Trustees met in person on June 14, 2015 and approved the Interim Sub-Advisory Agreement to take effect upon the termination of the prior Sub-Advisory Agreement. After analyzing the Divestiture and its anticipated impact on the Sub-Adviser, the majority of the Trustees, including a majority of the independent Trustees, also voted on June 14, 2015 to approve a new Sub-Advisory Agreement with the Sub-Adviser (the “New Sub-Advisory Agreement”) to enable the Sub-Adviser to continue to provide sub-advisory services to the Fund upon the termination of the Interim Sub-Advisory Agreement. Shareholders are being asked to approve the New Sub-Advisory Agreement.
The Trustees requested and obtained such information as they deemed reasonably necessary to evaluate the Interim and New Sub-Advisory Agreements. The Trustees considered, among other things, information presented by the Manager and Sub-Adviser. They also considered information presented in a report previously provided to the Trustees prepared by an independent consultant in August 2014 with respect to the Fund’s fees, expenses and investment performance, which included comparisons of the Fund’s investment performance against peers and the Fund’s benchmark and comparisons of the advisory fee payable to the Manager against the advisory fees paid by the Fund’s peers, as well as information regarding the operating margins of certain investment advisory firms (the “Report”). In addition, the Trustees took into account the information related to the Fund provided to the Trustees at each regularly scheduled meeting. The Trustees also considered information received in connection with the most recent determination to continue the Prior Sub-Advisory Agreement.
30 | Aquila Narragansett Tax-Free Income Fund
In considering the New Sub-Advisory Agreement, the Trustees considered various factors that they determined were relevant, including the factors described below. The Trustees did not identify any single factor as the controlling factor in determining to approve the New Sub-Advisory Agreement. In considering the Interim Sub-Advisory Agreement, the Trustees considered the same factors discussed below with respect to the New Sub-Advisory Agreement, and reached the same conclusions.
The nature, extent and quality of services provided by the Sub-Adviser.
The Trustees considered the nature, extent and quality of the services that had been provided by the Sub-Adviser to the Fund, taking into account the investment objectives and strategies of the Fund. The Trustees reviewed the terms of the New Sub-Advisory Agreement and considered that the Sub-Adviser would provide the same investment services under the New Sub-Advisory Agreement as had been provided under the Prior Sub-Advisory Agreement. The Trustees considered that the Sub-Adviser advised the Trustees that it does not anticipate any material changes in the professional personnel who currently perform services for the Fund, the compliance program or structure of the Sub-Adviser, or the oversight of compliance with Fund investment restrictions, as a result of the Divestiture. The Trustees considered that the Sub-Adviser advised the Trustees that it anticipates that there will be no diminution in the nature or quality of investment sub-advisory services provided to the Fund as a result of the Divestiture.
The Trustees also reviewed the Sub-Adviser’s investment approach for the Fund and its research process. The Trustees noted the extensive experience of the Sub-Adviser’s portfolio manager, Jeffrey K. Hanna. They considered that Mr. Hanna is based in Providence, Rhode Island and that he has a comprehensive understanding regarding the economy of the State of Rhode Island and the securities in which the Fund invests, including those securities with less than the highest ratings from the rating agencies.
Based on these considerations, the Trustees concluded that the nature, extent and quality of services that the Sub-Adviser would continue to provide to the Fund were satisfactory and consistent with the terms of the New Sub-Advisory Agreement.
The investment performance of the Fund.
The Trustees reviewed the Fund’s performance and compared its performance to the performance of:
• | the funds in the Fund’s peer group (the “Peer Group”), as previously selected by the independent consultant (nine municipal single-state intermediate andmunicipal single-state long funds, as classified by Morningstar, that are similar to the Fund in size and that charge a front-end sales charge); |
31 | Aquila Narragansett Tax-Free Income Fund
• | the funds in the Fund’s product category for performance (the “Product Category for Performance”) (all funds in the Peer Group and, without duplication, all funds (and all classes) included in the Morningstar Single-State Intermediate Municipal Bond Funds category); and |
• | the Fund’s benchmark index, the Barclays Capital Quality Intermediate Municipal Bond Index. |
The Trustees considered that the materials included in the Report indicated that the Fund’s average annual total return was higher than the average annual total return of the funds in the Peer Group for the one year period but lower than the average annual total return of the funds in the Peer Group for the three, five and ten year periods ended June 30, 2014. They also considered that the Fund’s average annual total return was higher than the average annual total return of the funds in the Product Category for Performance for the one, three and ten year periods, but lower than the average annual total return of the funds in the Product Category for Performance for the five year period ended June 30, 2014. The Trustees noted that the Fund’s average annual return was higher than that of its benchmark index for the one year period but was lower than the average annual return of the benchmark index for the three, five and ten year periods ended June 30, 2014.
The Trustees discussed the Fund’s performance record and considered the Manager’s and Sub-Adviser’s view that the Fund’s performance, as compared to the Product Category for Performance and the Peer Group, was explained in part by the Fund’s somewhat higher-quality portfolio and its historical intermediate maturity structure.
The Trustees noted that, unlike the Fund’s returns, the performance of the benchmark index did not reflect any fees, expenses or sales charges. The Trustees also noted that the Fund was the only Rhode Island state-specific tax-free municipal bond fund in the State and considered the economic conditions in the State.
The Trustees noted that the Fund continued to out-perform its index for the first quarter of 2015. They additionally noted the Sub-Adviser’s efforts to position the Fund to protect against the potential for rising interest rates.
The Trustees considered that the Sub-Adviser would continue to manage the Fund’s portfolio in the same manner that it was managed under the Prior Sub-Advisory Agreement and, as noted below, considered the Sub-Adviser’s costs in providing those services. The Trustees considered that the investment performance of the Fund was satisfactory and supported approval of the New Sub-Advisory Agreement.
The cost of the services to be provided and the profits to be realized by the Sub-Adviser from the relationship with the Fund.
The Trustees considered the sub-advisory fees paid to the Sub-Adviser under the Prior Sub-Advisory Agreement and proposed to be paid under the New Sub-Advisory Agreement and noted that the fees are the same. The Trustees also considered that the Manager (and not the Fund) pays the Sub-Adviser from its management fees.
32 | Aquila Narragansett Tax-Free Income Fund
The Trustees reviewed management fees charged by the Sub-Adviser and its affiliate to its other clients. The Trustees noted that in most instances the fee rates for those clients were comparable to the fees paid to the Sub-Adviser with respect to the Fund. In evaluating the fees associated with the client accounts, the Trustees took into account the respective demands, resources and complexity associated with the Fund and those client accounts.
The Trustees considered that the Manager and, in turn, the Sub-Adviser was currently waiving a portion of its fees and had been since the Fund’s inception. Additionally, it was noted that the Manager had contractually undertaken to waive fees and/or reimburse Fund expenses so that total Fund expenses will not exceed 0.84% for Class A Shares, 1.69% for Class C Shares, 0.98% for Class I Shares and 0.69% for Class Y Shares through September 30, 2016. The Manager may not terminate these arrangements without the approval of the Trustees.
In approving the New Sub-Advisory Agreement, the Trustees considered information from the Sub-Adviser regarding the profitability of the Sub-Adviser with respect to the sub-advisory services provided by the Sub-Adviser to the Fund. The Trustees concluded that the profitability of the Sub-Adviser with respect to sub-advisory services provided to the Fund did not argue against approval of the fees to be paid under the New Sub-Advisory Agreement.
Accordingly, the Trustees concluded that the sub-advisory fees payable with respect to the Fund under the New Sub-Advisory Agreement were reasonable in relation to the nature and quality of the services to be provided to the Fund by the Sub-Adviser and supported approval of the New Sub-Advisory Agreement.
The extent to which economies of scale would be realized as the Fund grows.
In approving the New Sub-Advisory Agreement, the Trustees considered the extent to which the Sub-Adviser may realize economies of scale or other efficiencies in connection with providing sub-advisory services for the Fund. The Trustees noted that the Sub-Adviser continued to waive a portion of its fees. The Trustees concluded that economies of scale, if any, were being appropriately shared with the Fund.
Benefits derived or to be derived by the Sub-Adviser from the relationship with the Fund.
In approving the New Sub-Advisory Agreement, the Trustees considered the other benefits to the Sub-Adviser from its relationship with the Fund, including reputational benefits derived from managing the Fund. The Trustees observed that, as is generally true of most fund complexes, the Sub-Adviser and its affiliate, by providing services to a number of investment clients including the Fund, were able to spread costs as they would otherwise be unable to do. The Trustees noted that while that produces efficiencies and increased profitability for the Sub-Adviser and its affiliate, it also makes their services available to the Fund at favorable levels of quality and cost which are more advantageous to the Fund than would otherwise have been possible. The Trustees concluded that the receipt of these benefits was reasonable in the context of the overall relationship between the Sub-Adviser and the Fund.
33 | Aquila Narragansett Tax-Free Income Fund
Analysis of Expenses (unaudited)
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end sales charges with respect to Class A shares or contingent deferred sales charges (“CDSC”) with respect to Class C shares; and (2) ongoing costs, including management fees; distribution (12b-1) and/or service fees; and other Fund expenses. The table below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The table below is based on an investment of $1,000 invested on April 1, 2015 and held for the six months ended September 30, 2015.
Actual Expenses
This table provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During the Period”.
Six months ended September 30, 2015
Actual | ||||
Total Return | Beginning | Ending | Expenses | |
Without | Account | Account | Paid During | |
Sales Charges(1) | Value | Value | the Period(2) | |
Class A | 0.69% | $1,000.00 | $1,006.90 | $3.87 |
Class C | 0.26% | $1,000.00 | $1,002.60 | $8.13 |
Class I | 0.61% | $1,000.00 | $1,006.10 | $4.63 |
Class Y | 0.76% | $1,000.00 | $1,007.60 | $3.12 |
(1) | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A shares or the applicable CDSC with respect to Class C shares. Total return is not annualized; as such, it may not be representative of the total return for the year. |
(2) | Expenses are equal to the annualized expense ratio of 0.77%, 1.62%, 0.92% and 0.62% for the Fund’s Class A, C, I and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
34 | Aquila Narragansett Tax-Free Income Fund
Analysis of Expenses (unaudited) (continued)
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs with respect to Class A shares. The example does not reflect the deduction of CDSC with respect to Class C shares. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different mutual funds. In addition, if these transaction costs were included, your costs would have been higher.
Six months ended September 30, 2015
Hypothetical | ||||
Annualized | Beginning | Ending | Expenses | |
Total | Account | Account | Paid During | |
Return | Value | Value | the Period(1) | |
Class A | 5.00% | $1,000.00 | $1,021.21 | $3.89 |
Class C | 5.00% | $1,000.00 | $1,016.95 | $8.19 |
Class I | 5.00% | $1,000.00 | $1,020.46 | $4.65 |
Class Y | 5.00% | $1,000.00 | $1,021.96 | $3.13 |
(1) | Expenses are equal to the annualized expense ratio of 0.77%, 1.62%, 0.92% and 0.62% for the Trust’s Class A, C, I and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
35 | Aquila Narragansett Tax-Free Income Fund
Information Available (unaudited)
Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent your Fund’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Fund policies, the Manager publicly discloses the complete schedule of the Fund’s portfolio holdings, as of each calendar quarter, generally by the 15th day after the end of each calendar quarter. Such information remains accessible until the next schedule is made publicly available. You may obtain a copy of the Fund’s portfolio holdings schedule for the most recently completed period by visiting the Fund’s website at www.aquilafunds.com. The Fund may also disclose other portfolio holdings as of a specified date (currently the Fund discloses its five largest holdings and/or sector holdings by value as of the close of the last business day of each calendar month in a posting to its website on approximately the 5th business day following the month end). This information remains on the website until the next such posting. Whenever you wish to see a listing of your Fund’s portfolio other than in your shareholder reports, please check our website at www.aquilafunds.com or call us at 1-800-437-1020.
The Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at www.sec.gov. You may also review or, for a fee, copy the forms at the SEC’s Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330.
Proxy Voting Record (unaudited)
During the 12 month period ended June 30, 2015, the Fund did not hold any portfolio securities for which the Fund was entitled to participate in proxy voting. Applicable regulations require us to inform you that the Fund’s proxy voting information is available on the SEC website at www.sec.gov.
Federal Tax Status of Distributions (unaudited)
This information is presented in order to comply with a requirement of the Internal Revenue Code. No action on the part of shareholders is required.
For the fiscal year ended March 31, 2015, $6,990,708 of dividends paid by Aquila Narragansett Tax-Free Income Fund, constituting 99.83% of total dividends paid, were exempt-interest dividends; and the balance was ordinary income.
Prior to February 15, 2016, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2015 calendar year.
36 | Aquila Narragansett Tax-Free Income Fund
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Founders
Lacy B. Herrmann (1929-2012)
Aquila Management Corporation, Sponsor
Manager
AQUILA INVESTMENT MANAGEMENT LLC
120 West 45th Street, Suite 3600
New York, New York 10036
Investment Sub-Adviser
CITIZENS INVESTMENT ADVISORS,
A DEPARTMENT OF CITIZENS BANK, N. A.
One Citizens Plaza
Providence, Rhode Island 02903
Board of Trustees
John C. Lucking, Chair
Diana P. Herrmann, Vice Chair
Ernest Calderón
Thomas A. Christopher
Gary C. Cornia
Grady Gammage, Jr.
Lyle W. Hillyard
Glenn P. O’Flaherty
John J. Partridge
James R. Ramsey
Laureen L. White
Officers
Diana P. Herrmann, President
Charles E. Childs, III, Executive Vice President
and Secretary
Marie E. Aro, Senior Vice President
Stephen J. Caridi, Senior Vice President
Paul G. O’Brien, Senior Vice President
Randall S. Fillmore, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer
and Treasurer
Distributor
AQUILA DISTRIBUTORS, INC.
120 West 45th Street, Suite 3600
New York, New York 10036
Transfer and Shareholder Servicing Agent
BNY MELLON
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
BNY MELLON
225 Liberty Street
New York, New York 10286
Further information is contained in the Prospectus,
which must precede or accompany this report.
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Semi-Annual Report September 30, 2015 | ||||||||||||||||||||||||||
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![]() | Aquila Tax-Free Fund of Colorado Serving Colorado investors since 1987 | ![]() |
November, 2015
Dear Fellow Shareholder:
As you are no doubt aware, the Federal Funds rate (a key short term interest rate between commercial banks, which influences borrowing costs throughout the economy) has been held close to zero since 2008.
With no change in this rate in seven years, the relationship between interest rates and the share value of fixed-income securities, such as those in which the bond funds in the Aquila Group of Funds invest, has attracted limited attention.
Now that it seems probable that interest rates may slowly start to climb, we thought it was a good time to revisit this topic. Management of the Aquila Group of Funds well recognizes that it is much easier to accept variations with your investment when you understand the forces influencing them.
Simply put, interest rates and the share prices of the bond funds in the Aquila Group of Funds are inversely related. When interest rates increase, the share value of your Fund will generally decrease. And, conversely, when interest rates decrease, the share value will generally increase.
Why is this the case?
When a bond is issued, it has a fixed face value and coupon rate (that is usually close to prevailing marketplace interest rates). For example, a $1,000 bond with a 5% coupon rate will pay interest of $50 per year and, at maturity, will repay the bondholder the $1,000 face value. The promise to pay $1,000 at maturity and the $50 per year interest payment doesn’t change. What does change is the bond’s market price.
If interest rates on similar bonds rise to 6%, our example above may no longer be attractive.
For the 5% bond to be attractive, its market price must fall below its $1,000 face value until the $50 per year represents a yield closer to 6%. Conversely, if prevailing interest rates decrease to 4%, people may be willing to pay more than the bond’s $1,000 face value in order to receive the $50 per year interest payments.
Simply put, bond prices fluctuate so that their yield reflects prevailing interest rates in the marketplace.
NOT A PART OF THE SEMI-ANNUAL REPORT
While we cannot control the direction in which interest rates will move, or the resulting effect such changes will have on your Fund’s share price, we do take steps which are designed to minimize (to the extent possible) the volatility of such movement.
We firmly believe that credit quality has an impact on stability. Each of the funds in the Aquila Group of Funds intentionally limits, by prospectus, its investments (at the time of purchase) to Investment Grade bonds - that is to say, bonds that are rated in one of the four highest credit ratings assigned by a nationally recognized statistical rating organization, or if unrated, determined to be of comparable credit quality by the Adviser/Sub-Adviser (as applicable). Investment Grade credit ratings are one of several factors the Adviser/ Sub-Adviser (as applicable) considers in identifying those municipal issues which are most likely to pay interest when due and to return principal at maturity.
Another technique we use in the construction of the overall portfolio in an effort to achieve a stable share price is the laddering of bond maturities. Generally, bonds with short-term maturities tend to have relatively less price fluctuation, and provide a lower yield. Conversely, bonds with long-term maturities may provide a higher yield, and have higher price volatility. This higher price volatility reflects the risks associated with the unpredictability of future events and the potential interest rate changes over the extended life of the municipal bond.
Through utilizing a blend of maturities – both short-term and long-term – your Fund attempts to provide as high a level of current income as is consistent with the preservation of capital. We believe these portfolio management construction techniques are reasonably designed to manage, to the extent possible, share price variations – gaining both a degree of stability from the shorter-term maturities and higher yields from the longer-term maturities.
With more than 30 years of experience utilizing these techniques, with the Aquila Group of Funds, we believe that we have developed a process that helps to mitigate some of the volatility that will inevitably occur in the bond markets with changes in interest rates.
![](https://capedge.com/proxy/N-CSRS/0000784056-15-000072/dsigd.jpg)
![](https://capedge.com/proxy/N-CSRS/0000784056-15-000072/dsig2d.jpg)
Diana P. Herrmann, Vice Chair and President
NOT A PART OF THE SEMI-ANNUAL REPORT
Mutual fund investing involves risk and loss of principal is possible.
The market prices of the Fund’s securities may rise or decline in value due to general market conditions, such as real or perceived adverse economic or political conditions, inflation, changes in interest rates, lack of liquidity in the bond markets or adverse investor sentiment. When market prices fall, the value of your investment may go down.
The value of your investment may go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term securities. Conversely, when interest rates fall, the value of your investment may rise. Interest rates in the U.S. recently have been historically low and are expected to rise at some point in time.
Investments in the Fund are subject to possible loss due to the financial failure of the issuers of underlying securities and their inability to meet their debt obligations.
The value of municipal securities can be adversely affected by changes in the financial condition of one or more individual municipal issuers or insurers of municipal issuers, regulatory developments, legislative actions, and by uncertainties and public perceptions concerning these and other factors. The Fund may be affected significantly by adverse economic, political or other events affecting state and other municipal issuers in which it invests, and may be more volatile than a more geographically diverse fund.
If interest rates fall, an issuer may exercise its right to prepay its securities, and the Fund could be forced to reinvest prepayment proceeds at a time when yields on securities available in the market are lower than the yield on the prepaid security.
A portion of income may be subject to local, state, Federal and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax.
These risks may result in share price volatility.
Past performance is no guarantee of future results, and there is no guarantee that any market forecasts discussed will be realized.
Any information in this Semi-Annual Report regarding market or economic trends or the factors influencing the Fund’s historical or future performance are statements of opinion as of the date of this report. These statements should not be relied upon for any other purposes.
NOT A PART OF THE SEMI-ANNUAL REPORT
AQUILA TAX-FREE FUND OF COLORADO | |||
SCHEDULE OF INVESTMENTS | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (27.1%) | and Fitch | Value | ||||||
Hospital (0.8%) | |||||||||
Rangely, Colorado Hospital District | |||||||||
Refunding | |||||||||
$ | 2,000,000 | 5.500%, 11/01/22 | Baa1/NR/NR | $ | 2,339,720 | ||||
Metropolitan District (5.1%) | |||||||||
Denver, Colorado Urban Renewal | |||||||||
Authority, Tax Increment Revenue, | |||||||||
Stapleton Senior Series A-1 | |||||||||
2,600,000 | 5.000%, 12/01/25 | NR/NR/A- | 3,028,948 | ||||||
Fraser Valley, Colorado Metropolitan | |||||||||
Recreational District | |||||||||
1,875,000 | 5.000%, 12/01/25 (pre-refunded) | NR/A/NR | 2,046,319 | ||||||
Hyland Hills Metro Park & Recreation | |||||||||
District, Colorado | |||||||||
875,000 | 4.375%, 12/15/26 ACA Insured | NR/NR/NR* | 887,294 | ||||||
Meridian Metropolitan District, | |||||||||
Colorado Refunding Series A | |||||||||
1,645,000 | 4.500%, 12/01/23 | NR/A-/A | 1,844,538 | ||||||
North Metro Fire Rescue District, | |||||||||
Colorado | |||||||||
1,200,000 | 4.625%, 12/01/20 AMBAC Insured | NR/AA/NR | 1,258,104 | ||||||
Park Creek Metropolitan District, | |||||||||
Colorado Revenue Refunding & | |||||||||
Improvement - Senior Property Tax | |||||||||
Support | |||||||||
2,000,000 | 5.500%, 12/01/21 AGC Insured | NR/AA/BBB | 2,258,980 | ||||||
Poudre Tech Metropolitan District, | |||||||||
Colorado Unlimited Property Tax | |||||||||
Supported Revenue Refunding & | |||||||||
Improvement, Series B | |||||||||
1,990,000 | 5.000%, 12/01/28 AGMC Insured | NR/AA/NR | 2,221,019 | ||||||
Stonegate Village Metropolitan District, | |||||||||
Colorado Refunding & Improvement | |||||||||
325,000 | 5.000%, 12/01/23 NPFG Insured | ||||||||
(pre-refunded) | A3/AA-/NR | 342,293 | |||||||
175,000 | 5.000%, 12/01/23 NPFG Insured | ||||||||
(pre-refunded) | A3/AA-/NR | 184,312 | |||||||
585,000 | 5.000%, 12/01/24 NPFG Insured | ||||||||
(pre-refunded) | A3/AA-/NR | 616,128 | |||||||
315,000 | 5.000%, 12/01/24 NPFG Insured | ||||||||
(pre-refunded) | A3/AA-/NR | 331,761 | |||||||
Total Metropolitan District | 15,019,696 |
1 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
School Districts (20.7%) | |||||||||
Adams 12 Five Star Schools, Colorado | |||||||||
$ | 3,000,000 | 5.000%, 12/15/25 | Aa2/AA-/NR | $ | 3,690,090 | ||||
1,000,000 | 5.000%, 12/15/25 | Aa2/AA-/NR | 1,252,350 | ||||||
Adams County, Colorado School | |||||||||
District #50 | |||||||||
1,000,000 | 4.000%, 12/01/23 | Aa2/AA-/NR | 1,133,420 | ||||||
3,000,000 | 4.000%, 12/01/24 | Aa2/AA-/NR | 3,378,930 | ||||||
Adams & Arapahoe Counties, Colorado | |||||||||
Joint School District #28J | |||||||||
2,500,000 | 5.500%, 12/01/23 (pre-refunded) | Aa2/AA-/NR | 2,856,950 | ||||||
Adams & Weld Counties, Colorado | |||||||||
School District #27J | |||||||||
1,030,000 | 5.000%, 12/01/22 | Aa2/AA-/NR | 1,236,556 | ||||||
2,000,000 | 5.000%, 12/01/24 | Aa2/AA-/NR | 2,383,420 | ||||||
1,000,000 | 5.000%, 12/01/25 | Aa2/AA-/NR | 1,226,360 | ||||||
1,000,000 | 5.375%, 12/01/26 NPFG Insured | ||||||||
(pre-refunded) | Aa2/AA-/NR | 1,057,530 | |||||||
Arapahoe County, Colorado School | |||||||||
District #001 Englewood | |||||||||
3,235,000 | 5.000%, 12/01/27 | Aa2/NR/NR | 3,808,727 | ||||||
Boulder Larimer & Weld Counties, | |||||||||
Colorado | |||||||||
1,500,000 | 5.000%, 12/15/28 | Aa2/AA/NR | 1,683,615 | ||||||
1,260,000 | 5.000%, 12/15/26 AGMC Insured | ||||||||
(pre-refunded) | Aa2/AA/NR | 1,329,300 | |||||||
Boulder Larimer & Weld Counties, | |||||||||
Colorado Series A | |||||||||
2,000,000 | 5.000%, 12/15/24 | Aa2/AA/NR | 2,476,940 | ||||||
Denver, Colorado City & County | |||||||||
School District No. 1 | |||||||||
3,000,000 | 4.000%, 12/01/26 | Aa2/AA-/AA+ | 3,305,580 | ||||||
3,000,000 | 5.250%, 12/01/27 (pre-refunded) | Aa2/AA-/NR | 3,455,340 | ||||||
Denver, Colorado City & County | |||||||||
School District No. 1 Series B | |||||||||
2,000,000 | 5.000%, 12/01/25 | Aa2/AA-/AA+ | 2,462,020 | ||||||
Eagle County School District, Colorado, | |||||||||
Eagle, Garfield & Routt School | |||||||||
District #50J | |||||||||
1,170,000 | 5.000%, 12/01/25 | Aa2/AA-/NR | 1,425,025 |
2 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
School Districts (continued) | |||||||||
El Paso County, Colorado School | |||||||||
District #20 | |||||||||
$ | 1,500,000 | 4.500%, 12/15/25 AGMC Insured | |||||||
(pre-refunded) | Aa2/NR/NR | $ | 1,624,920 | ||||||
El Paso County, Colorado School | |||||||||
District #20 Refunding | |||||||||
1,945,000 | 4.375%, 12/15/23 | Aa2/NR/NR | 2,222,571 | ||||||
Gunnison Watershed, Colorado School | |||||||||
District | |||||||||
1,025,000 | 5.250%, 12/01/26 (pre-refunded) | Aa2/AA-/NR | 1,163,395 | ||||||
Jefferson County, Colorado School | |||||||||
District #R-001 | |||||||||
3,000,000 | 5.250%, 12/15/25 AGMC Insured | ||||||||
(pre-refunded) | Aa2/AA/NR | 3,173,940 | |||||||
La Plata County, Colorado School | |||||||||
District #9-R Durango Refunding | |||||||||
3,000,000 | 4.500%, 11/01/23 | Aa2/NR/NR | 3,452,730 | ||||||
Larimer County, Colorado School | |||||||||
District No. R 1 Poudre | |||||||||
1,000,000 | 5.000%, 12/15/27 | Aa2/NR/NR | 1,224,720 | ||||||
Larimer, Weld & Boulder Counties, | |||||||||
Colorado School District No. R-2J, | |||||||||
Thompson Refunding | |||||||||
1,500,000 | 4.250%, 12/15/24 | Aa2/NR/NR | 1,701,405 | ||||||
750,000 | 4.500%, 12/01/26 | Aa3/NR/NR | 861,457 | ||||||
Mesa County, Colorado Valley School | |||||||||
District No. 051, Grand Junction | |||||||||
Refunding | |||||||||
3,000,000 | 5.000%, 12/01/23 | Aa2/NR/NR | 3,681,690 | ||||||
San Miguel County, Colorado School | |||||||||
District R-1 Telluride | |||||||||
1,055,000 | 5.000%, 12/01/25 | Aa2/AA/NR | 1,297,734 | ||||||
Summit County, Colorado School | |||||||||
District No. RE 1 Refunding | |||||||||
2,000,000 | 4.000%, 12/01/24 | Aa1/NR/NR | 2,203,720 | ||||||
Weld County, Colorado School | |||||||||
District #2 | |||||||||
90,000 | 5.000%, 12/01/15 AGMC Insured | Aa2/AA/NR | 90,360 | ||||||
Total School Districts | 60,860,795 |
3 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
Water & Sewer (0.5%) | |||||||||
Central Colorado Water Conservancy | |||||||||
District, Adams Morgan & Weld | |||||||||
Counties | |||||||||
$ | 1,185,000 | 5.000%, 12/01/24 | NR/A/NR | $ | 1,406,157 | ||||
Total Water & Sewer | 1,406,157 | ||||||||
Total General Obligation Bonds | 79,626,368 | ||||||||
Revenue Bonds (70.8%) | |||||||||
Airport (3.7%) | |||||||||
Denver, Colorado City & County | |||||||||
Airport Revenue System, Series A | |||||||||
4,340,000 | 5.000%, 11/15/24 | A1/A+/A+ | 5,047,420 | ||||||
1,210,000 | 5.250%, 11/15/28 | A1/A+/A+ | 1,389,189 | ||||||
3,000,000 | 5.250%, 11/15/29 | A1/A+/A+ | 3,432,660 | ||||||
Walker Field, Colorado Public Airport | |||||||||
Authority Airport Revenue | |||||||||
1,000,000 | 5.000%, 12/01/22 | Baa2/NR/NR | 1,060,780 | ||||||
Total Airport | 10,930,049 | ||||||||
Electric (3.9%) | |||||||||
Colorado Springs, Colorado Utilities | |||||||||
Revenue, Refunding Series A | |||||||||
1,000,000 | 5.000%, 11/15/27 ††† | Aa2/AA/AA | 1,220,590 | ||||||
2,000,000 | 4.750%, 11/15/27 | Aa2/AA/AA | 2,253,060 | ||||||
Colorado Springs, Colorado Utilities | |||||||||
Revenue, Refunding Series A-1 | |||||||||
1,000,000 | 4.000%, 11/15/26 | Aa2/AA/AA | 1,094,150 | ||||||
1,000,000 | 4.000%, 11/15/27 | Aa2/AA/AA | 1,085,540 | ||||||
Colorado Springs, Colorado Utilities | |||||||||
Revenue Refunding Series B | |||||||||
1,285,000 | 5.250%, 11/15/23 | Aa2/AA/AA | 1,453,553 | ||||||
2,600,000 | 5.000%, 11/15/23 | Aa2/AA/AA | 3,151,044 | ||||||
Colorado Springs, Colorado Utilities | |||||||||
Revenue, Series C-2 | |||||||||
1,060,000 | 5.000%, 11/15/23 | Aa2/AA/AA | 1,280,724 | ||||||
Total Electric | 11,538,661 | ||||||||
Higher Education (19.6%) | |||||||||
Adams State College, Colorado Auxiliary | |||||||||
Facilities Improvement Series A | |||||||||
1,000,000 | 5.200%, 05/15/27 (pre-refunded) | Aa2/AA-/NR | 1,152,050 |
4 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Higher Education (continued) | |||||||||
Adams State College, Colorado Auxiliary | |||||||||
Facilities Refunding, Series B | |||||||||
$ | 3,000,000 | 4.500%, 05/15/29 | Aa2/AA-/NR | $ | 3,262,170 | ||||
Colorado Educational & Cultural Facility | |||||||||
Authority, Student Housing - Campus | |||||||||
Village Apartments Refunding | |||||||||
2,935,000 | 5.375%, 06/01/28 | NR/A/NR | 3,150,987 | ||||||
Colorado Educational & Cultural Facility | |||||||||
Authority, University Corp. | |||||||||
Atmosphere Project, Refunding | |||||||||
1,700,000 | 5.000%, 09/01/22 | A2/A+/NR | 1,945,701 | ||||||
1,635,000 | 5.000%, 09/01/28 | A2/A+/NR | 1,853,256 | ||||||
Colorado Educational & Cultural Facility | |||||||||
Authority, University of Denver Project | |||||||||
845,000 | 4.000%, 03/01/24 | A1/NR/NR | 935,009 | ||||||
Colorado Educational & Cultural Facility | |||||||||
Authority Refunding, University of | |||||||||
Denver Project | |||||||||
1,000,000 | 5.250%, 03/01/26 NPFG Insured | A1/AA-/NR | 1,236,100 | ||||||
Colorado Educational & Cultural Facility | |||||||||
Authority Refunding, University of | |||||||||
Denver Project, Series B | |||||||||
3,085,000 | 5.000%, 03/01/22 NPFG/ FGIC Insured | ||||||||
(pre-refunded) | A1/AA-/NR | 3,145,898 | |||||||
Colorado Educational & Cultural Facility | |||||||||
Authority, University of Denver | |||||||||
Project, Series B Refunding | |||||||||
3,620,000 | 5.250%, 03/01/23 NPFG Insured | ||||||||
(pre-refunded) | A1/A+/AA | 3,689,395 | |||||||
Colorado School of Mines Enterprise | |||||||||
Refunding & Improvement | |||||||||
1,455,000 | 5.000%, 12/01/24 | Aa2/AA-/NR | 1,633,383 | ||||||
Colorado State Board of Governors | |||||||||
University Enterprise System, Series A | |||||||||
2,300,000 | 5.000%, 03/01/25 | Aa2/AA-/NR | 2,705,306 | ||||||
930,000 | 5.000%, 03/01/28 AGMC Insured | ||||||||
(pre-refunded) | Aa3/AA/NR | 1,024,516 | |||||||
Colorado State Board of Governors | |||||||||
University Enterprise System, Series C | |||||||||
2,905,000 | 5.000%, 03/01/26 | Aa2/AA-/NR | 3,548,428 |
5 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Higher Education (continued) | |||||||||
Colorado State COP University of | |||||||||
Colorado at Denver Health Sciences | |||||||||
Center Fitzsimons Academic Projects | |||||||||
Series B | |||||||||
$ | 3,135,000 | 5.250%, 11/01/25 NPFG (pre-refunded) A3/AA-/NR | $ | 3,146,505 | |||||
Mesa State College, Colorado Auxiliary | |||||||||
Facilities Enterprise | |||||||||
2,000,000 | 5.700%, 05/15/26 (pre-refunded) | NR/AA-/NR | 2,216,320 | ||||||
University of Colorado Enterprise System | |||||||||
1,270,000 | 5.000%, 06/01/25 | Aa2/NR/AA+ | 1,555,559 | ||||||
2,000,000 | 5.000%, 06/01/27 (pre-refunded) | Aa2/NR/AA+ | 2,285,660 | ||||||
University of Colorado Enterprise | |||||||||
System Series A | |||||||||
2,000,000 | 4.750%, 06/01/27 | Aa2/NR/AA+ | 2,284,620 | ||||||
2,620,000 | 5.000%, 06/01/29 | Aa2/NR/AA+ | 3,146,358 | ||||||
1,165,000 | 5.000%, 06/01/26 NPFG Insured | Aa2/NR/AA+ | 1,438,391 | ||||||
University of Colorado Enterprise | |||||||||
System, Refunding, Series B | |||||||||
1,680,000 | 4.000%, 06/01/23 | Aa2/NR/AA+ | 1,828,613 | ||||||
University of Northern Colorado | |||||||||
Greeley Institutional Enterprise | |||||||||
Refunding, SHEIP, Series A | |||||||||
1,000,000 | 5.000%, 06/01/25 | Aa2/AA-/NR | 1,214,280 | ||||||
2,810,000 | 5.000%, 06/01/26 | Aa2/AA-/NR | 3,279,860 | ||||||
2,940,000 | 5.000%, 06/01/28 | Aa2/AA-/NR | 3,404,226 | ||||||
Western State College, Colorado | |||||||||
Institutional Enterprise, SHEIP, Series A | |||||||||
1,160,000 | 5.000%, 05/15/24 | Aa2/AA-/NR | 1,340,218 | ||||||
Western State College, Colorado, SHEIP | |||||||||
1,020,000 | 5.000%, 05/15/27 | Aa2/AA-/NR | 1,150,774 | ||||||
Total Higher Education | 57,573,583 | ||||||||
Hospital (8.1%) | |||||||||
Colorado Health Facility Authority | |||||||||
Hospital Revenue, Adventist | |||||||||
Health/Sunbelt, Refunding | |||||||||
2,500,000 | 5.125%, 11/15/29 (pre-refunded) | Aa2/AA-/AA | 2,635,150 | ||||||
Colorado Health Facility Authority | |||||||||
Hospital Revenue, Catholic Health | |||||||||
1,000,000 | 4.750%, 09/01/25 AGMC Insured | A2/AA/A+ | 1,080,640 |
6 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Hospital (continued) | |||||||||
Colorado Health Facility Authority | |||||||||
Hospital Revenue, Evangelical | |||||||||
Lutheran Project | |||||||||
$ | 1,125,000 | 5.250%, 06/01/19 (pre-refunded) | NR/NR/NR* | $ | 1,161,439 | ||||
710,000 | 5.250%, 06/01/21 (pre-refunded) | NR/NR/NR* | 732,997 | ||||||
1,425,000 | 5.250%, 06/01/24 (pre-refunded) | NR/NR/NR* | 1,471,156 | ||||||
Colorado Health Facility Authority | |||||||||
Hospital Revenue, Evangelical | |||||||||
Lutheran Project | |||||||||
450,000 | 5.250%, 06/01/19 (unrefunded portion) | Baa1/BBB+/NR | 463,334 | ||||||
290,000 | 5.250%, 06/01/21 (unrefunded portion) | Baa1/BBB+/NR | 298,477 | ||||||
575,000 | 5.250%, 06/01/24 (unrefunded portion) | Baa1/BBB+/NR | 591,227 | ||||||
Colorado Health Facility Authority | |||||||||
Hospital Revenue, NCMC, Inc. Project | |||||||||
2,000,000 | 5.250%, 05/15/26 Series A AGMC | ||||||||
Insured | NR/AA/A+ | 2,259,620 | |||||||
Colorado Health Facility Authority | |||||||||
Hospital Revenue, Valley View | |||||||||
Hospital Association, Refunding | |||||||||
1,500,000 | 5.500%, 05/15/28 | NR/A-/NR | 1,647,780 | ||||||
Colorado Health Facility Authority, | |||||||||
Catholic Health Initiatives, Series D | |||||||||
2,000,000 | 5.000%, 10/01/16 | A2/A/A+ | 2,084,800 | ||||||
1,000,000 | 6.000%, 10/01/23 | A2/A/A+ | 1,141,140 | ||||||
Colorado Health Facility Authority, | |||||||||
Sisters Leavenworth, Refunding | |||||||||
3,000,000 | 5.250%, 01/01/25 | Aa3/AA-/AA- | 3,423,120 | ||||||
Denver, Colorado Health & Hospital | |||||||||
Authority Healthcare, Series A | |||||||||
Refunding | |||||||||
2,000,000 | 5.000%, 12/01/18 | NR/BBB/BBB+ | 2,088,100 | ||||||
1,500,000 | 5.000%, 12/01/19 | NR/BBB/BBB+ | 1,564,305 | ||||||
Park Hospital District Larimer County, | |||||||||
Colorado Limited Tax | |||||||||
1,010,000 | 4.500%, 01/01/21 AGC Insured | A3/AA/NR | 1,019,039 | ||||||
Total Hospital | 23,662,324 | ||||||||
Housing (0.6%) | |||||||||
Colorado Housing & Finance Authority, | |||||||||
Single Family Mortgage Class II | |||||||||
5,000 | 5.500%, 11/01/29 | Aaa/AAA/NR | 5,074 |
7 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Housing (continued) | |||||||||
Colorado Housing Finance Authority, | |||||||||
Single Family Mortgage Class III | |||||||||
Series A-5 | |||||||||
$ | 1,500,000 | 5.000%, 11/01/34 | A2/A/NR | $ | 1,535,535 | ||||
Colorado Housing and Finance | |||||||||
Authority, Multi-Family Project C1-II | |||||||||
Series A-2 | |||||||||
320,000 | 5.400%, 10/01/29 | Aa2/AA/NR | 337,382 | ||||||
Total Housing | 1,877,991 | ||||||||
Lease (17.1%) | |||||||||
Adams 12 Five Star Schools, Colorado | |||||||||
COP | |||||||||
1,770,000 | 4.625%, 12/01/24 | Aa3/A+/NR | 1,935,230 | ||||||
500,000 | 5.000%, 12/01/25 | Aa3/A+/NR | 555,035 | ||||||
Adams County, Colorado Corrections | |||||||||
Facility COP, Series B | |||||||||
1,600,000 | 5.000%, 12/01/26 | Aa2/AA/NR | 1,795,104 | ||||||
1,200,000 | 5.125%, 12/01/27 | Aa2/AA/NR | 1,347,780 | ||||||
Aurora, Colorado COP, Refunding | |||||||||
Series A | |||||||||
1,500,000 | 5.000%, 12/01/26 | Aa2/AA-/NR | 1,706,160 | ||||||
Brighton, Colorado COP Refunding | |||||||||
Series A | |||||||||
1,865,000 | 5.000%, 12/01/24 AGMC Insured | A1/AA/NR | 2,143,650 | ||||||
Broomfield, Colorado COP | |||||||||
2,000,000 | 4.500%, 12/01/28 | Aa3/NR/NR | 2,203,500 | ||||||
Colorado Educational & Cultural | |||||||||
Facilities Authority, Ave Maria School | |||||||||
Project Refunding | |||||||||
1,000,000 | 4.850%, 12/01/25 AGC Insured | A3/AA/NR | 1,054,380 | ||||||
Colorado Educational & Cultural | |||||||||
Facilities Authority, Charter School - | |||||||||
James, Refunding & Improvement | |||||||||
3,000,000 | 5.000%, 08/01/27 AGC Insured | ||||||||
(pre-refunded) | NR/AA/NR | 3,242,280 | |||||||
Colorado State BEST COP Series G | |||||||||
3,000,000 | 4.250%, 03/15/23 | Aa2/AA-/NR | 3,305,790 | ||||||
Colorado State BEST COP Series H | |||||||||
3,490,000 | 4.000%, 03/15/26 | Aa2/AA-/NR | 3,788,953 |
8 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Lease (continued) | |||||||||
Colorado State Higher Education | |||||||||
Capital Construction Lease | |||||||||
$ | 3,000,000 | 5.250%, 11/01/23 (pre-refunded) | Aa2/AA-/NR | $ | 3,396,480 | ||||
1,690,000 | 5.000%, 11/01/26 | Aa2/AA-/NR | 2,087,184 | ||||||
Denver, Colorado City and County | |||||||||
COP (Botanical Gardens) | |||||||||
2,015,000 | 5.250%, 12/01/22 | Aa2/AA+/AA+ | 2,274,290 | ||||||
Denver, Colorado City & County COP | |||||||||
(Fire Station & Library Facilities) | |||||||||
1,065,000 | 5.000%, 12/01/25 | Aa1/AA+/AA+ | 1,304,604 | ||||||
Douglas County, Colorado School | |||||||||
District No. RE-1 Douglas & Elbert | |||||||||
Counties COP | |||||||||
3,075,000 | 5.000%, 01/15/29 | Aa2/NR/NR | 3,411,651 | ||||||
El Paso County, Colorado COP (Judicial | |||||||||
Complex Project) Series A | |||||||||
1,820,000 | 4.500%, 12/01/26 AMBAC Insured | NR/AA-/NR | 1,943,378 | ||||||
Garfield County, Colorado COP Public | |||||||||
Library District | |||||||||
1,000,000 | 5.375%, 12/01/27 | NR/A/NR | 1,142,070 | ||||||
Gypsum, Colorado COP | |||||||||
1,050,000 | 5.000%, 12/01/28 | NR/A+/NR | 1,134,399 | ||||||
Pueblo, Colorado COP (Police | |||||||||
Complex Project) | |||||||||
2,170,000 | 5.500%, 08/15/22 AGC Insured | Aa3/AA/NR | 2,419,268 | ||||||
Rangeview Library District Project, | |||||||||
Colorado COP | |||||||||
2,210,000 | 5.000%, 12/15/26 AGC Insured | ||||||||
(pre-refunded) | Aa3/AA/NR | 2,494,670 | |||||||
2,515,000 | 5.000%, 12/15/27 AGMC Insured | Aa3/AA/NR | 2,964,506 | ||||||
1,000,000 | 5.000%, 12/15/28 AGC Insured | ||||||||
(pre-refunded) | Aa3/AA/NR | 1,128,810 | |||||||
Westminster, Colorado COP | |||||||||
1,480,000 | 4.250%, 12/01/22 AGMC Insured | A2/AA/NR | 1,636,199 | ||||||
Total Lease | 50,415,371 | ||||||||
Sales Tax (5.7%) | |||||||||
Boulder, Colorado General Fund | |||||||||
Capital Improvement Projects | |||||||||
2,235,000 | 4.000%, 10/01/25 | Aa1/AA+/NR | 2,506,597 |
9 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Sales Tax (continued) | |||||||||
Castle Rock, Colorado Sales & Use Tax | |||||||||
$ | 1,015,000 | 4.000%, 06/01/25 | Aa3/AA-/NR | $ | 1,112,298 | ||||
Commerce City, Colorado Sales & | |||||||||
Use Tax | |||||||||
1,000,000 | 5.000%, 08/01/21 AMBAC Insured | ||||||||
(pre-refunded) | NR/AA-/NR | 1,038,140 | |||||||
1,000,000 | 5.000%, 08/01/26 BAMAC Insured | A1/AA/NR | 1,208,750 | ||||||
Denver, Colorado City & County | |||||||||
Excise Tax Refunding Series A | |||||||||
4,000,000 | 5.250%, 09/01/19 AGMC Insured | A1/AA/AA- | 4,606,320 | ||||||
Grand Junction, Colorado General Fund | |||||||||
1,900,000 | 5.000%, 03/01/23 | NR/AA/NR | 2,240,328 | ||||||
Park Meadows Business Implementation | |||||||||
District, Colorado Shared Sales Tax | |||||||||
1,500,000 | 5.300%, 12/01/27 | NR/NR/NR* | 1,565,355 | ||||||
Pueblo, Colorado Urban Renewal | |||||||||
Authority, Refunding & Improvement, | |||||||||
Series B | |||||||||
1,250,000 | 5.250%, 12/01/28 | A2/A/NR | 1,415,212 | ||||||
Westminster, Colorado Economic | |||||||||
Development Authority, Mandalay | |||||||||
Gardens Urban Renewal Project | |||||||||
1,090,000 | 4.000%, 12/01/22 | NR/A/NR | 1,170,595 | ||||||
Total Sales Tax | 16,863,595 | ||||||||
Transportation (0.8%) | |||||||||
Regional Transportation District, | |||||||||
Colorado COP, Series A | |||||||||
2,000,000 | 5.000%, 06/01/26 | Aa3/A/A | 2,377,380 | ||||||
Water & Sewer (10.2%) | |||||||||
Arapahoe, Colorado Water & | |||||||||
Wastewater Public Improvement | |||||||||
District | |||||||||
1,320,000 | 5.000%, 12/01/24 | NR/AA-/NR | 1,633,579 | ||||||
1,020,000 | 5.000%, 12/01/25 | NR/AA-/NR | 1,251,836 | ||||||
Aurora, Colorado Water Improvement | |||||||||
First Lien, Series A | |||||||||
1,250,000 | 5.000%, 08/01/25 AMBAC Insured | Aa2/NR/AA+ | 1,345,713 |
10 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Water & Sewer (continued) | |||||||||
Broomfield, Colorado Sewer and | |||||||||
Waste Water | |||||||||
$ | 1,975,000 | 4.000%, 12/01/21 AGMC Insured | A2/NR/NR | $ | 2,206,312 | ||||
1,550,000 | 5.000%, 12/01/24 AGMC Insured | A2/AA/NR | 1,814,585 | ||||||
Broomfield, Colorado Water Activity | |||||||||
Enterprise | |||||||||
3,385,000 | 5.000%, 12/01/21 | A1/NR/NR | 4,015,592 | ||||||
Colorado Water Resource & Power | |||||||||
Development Authority | |||||||||
925,000 | 5.000%, 09/01/25 | Aaa/AAA/AAA | 1,162,818 | ||||||
2,675,000 | 5.000%, 09/01/16 NPFG Insured | A3/AA-/NR | 2,683,881 | ||||||
1,855,000 | 5.000%, 09/01/17 NPFG Insured | A3/AA-/NR | 1,858,710 | ||||||
Denver, Colorado City and County | |||||||||
Board Water Commissioners Master | |||||||||
Resolution, Refunding, Series B | |||||||||
1,000,000 | 4.000%, 12/15/22 | Aaa/AAA/AAA | 1,109,180 | ||||||
Erie, Colorado Water Enterprise | |||||||||
Revenue, Series A | |||||||||
1,000,000 | 5.000%, 12/01/25 AGMC Insured | A1/NR/NR | 1,085,970 | ||||||
Greeley, Colorado Water Revenue | |||||||||
1,920,000 | 4.200%, 08/01/24 NPFG Insured | NR/AA/NR | 1,971,437 | ||||||
North Weld County, Colorado Water | |||||||||
District Enterprise Revenue Refunding | |||||||||
1,465,000 | 4.000%, 11/01/22 AGMC Insured | NR/AA/NR | 1,659,376 | ||||||
Parker, Colorado Water & Sanitation | |||||||||
District Water & Sewer Enterprise | |||||||||
Refunding | |||||||||
1,000,000 | 5.000%, 11/01/22 AGMC Insured | A2/AA/NR | 1,192,030 | ||||||
Thorton, Colorado Water Enterprise | |||||||||
Revenue, Series 2013 | |||||||||
1,970,000 | 4.000%, 12/01/24 | Aa2/AA/NR | 2,214,576 | ||||||
Woodmoor, Colorado Water & | |||||||||
Sanitation District #1 Enterprise | |||||||||
2,570,000 | 4.500%, 12/01/26 | NR/AA-/NR | 2,894,308 | ||||||
Total Water & Sewer | 30,099,903 | ||||||||
Miscellaneous Revenue (1.1%) | |||||||||
Colorado Educational & Cultural Facility | |||||||||
Authority, Independent School | |||||||||
Revenue Refunding, Kent Denver | |||||||||
School Project | |||||||||
1,000,000 | 5.000%, 10/01/30 | NR/A/NR | 1,123,870 |
11 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
SCHEDULE OF INVESTMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Miscellaneous Revenue (continued) | |||||||||
Colorado Educational & Cultural Facility | |||||||||
Authority, Independent School | |||||||||
Revenue Refunding, Vail Mountain | |||||||||
School Project | |||||||||
$ | 1,820,000 | 6.000%, 05/01/30 | NR/BBB-/NR | $ | 2,008,224 | ||||
Total Miscellaneous Revenue | 3,132,094 | ||||||||
Total Revenue Bonds | 208,470,951 | ||||||||
Total Investments (cost $270,821,525 | |||||||||
– note 4) | 97.9% | 288,097,319 | |||||||
Other assets less liabilities | 2.1 | 6,210,899 | |||||||
Net Assets | 100.0% | $ | 294,308,218 |
Percent of | ||||
Portfolio Distribution by Quality Rating | Investments† | |||
Aaa of Moody’s or AAA of S&P or Fitch | 0.8 | % | ||
Pre-Refunded bonds††/Escrowed to Maturity bonds | 18.1 | |||
Aa of Moody’s or AA of S&P or Fitch | 61.5 | |||
A of Moody’s or S&P or Fitch | 15.2 | |||
Baa of Moody’s or BBB of S&P | 3.6 | |||
Not Rated* | 0.8 | |||
100.0 | % |
PORTFOLIO ABBREVIATIONS: |
ACA - American Capital Assurance Financial Guaranty Corp. |
AGC - Assured Guaranty Corp. |
AGMC - Assured Guaranty Municipal Corp. |
AMBAC - American Municipal Bond Assurance Corp. |
BAMAC - Build America Mutual Assurance Co. |
BEST - Building Excellent Schools Today |
COP - Certificates of Participation |
FGIC - Financial Guaranty Insurance Co. |
NCMC - Northern Colorado Medical Center |
NPFG - National Public Finance Guarantee |
NR - Not Rated |
SHEIP - State Higher Education Intercept Program |
12 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
SCHEDULE OF INVESTMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
* | Any security not rated (“NR”) by any of the Nationally Recognized Statistical Rating Organizations (“NRSRO”) has been determined by the Investment Sub-Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a NRSRO. | |
† | Where applicable, calculated using the highest rating of the three NRSROs. | |
†† | Pre-refunded bonds are bonds for which U.S. Govenment Obligations usually have been placed in escrow to retire the bonds at their earliest call date. | |
††† | Security purchased on a delayed delivery or when-issued basis. |
See accompanying notes to financial statements.
13 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO | |
STATEMENT OF ASSETS AND LIABILITIES | |
SEPTEMBER 30, 2015 (unaudited) |
ASSETS | ||||
Investments at value (cost $270,821,525) | $ | 288,097,319 | ||
Cash | 4,024,917 | |||
Interest receivable | 3,687,232 | |||
Receivable for Fund shares sold | 301, 786 | |||
Other assets | 23,764 | |||
Total assets | 296,135, 018 | |||
LIABILITIES | ||||
Payable for investment securities purchased | 1,198,880 | |||
Dividends payable | 255,822 | |||
Payable for Fund shares redeemed | 144,635 | |||
Management fee payable | 115,401 | |||
Accrued expenses payable | 112,062 | |||
Total liabilities | 1,826,800 | |||
NET ASSETS | $ | 294,308,218 | ||
Net Assets consist of: | ||||
Capital Stock - Authorized an unlimited number of shares, | ||||
par value $0.01 per share | $ | 274,104 | ||
Additional paid-in capital | 278,392,500 | |||
Net unrealized appreciation on investments (note 4) | 17,275,794 | |||
Accumulated net realized loss on investment | (1,695,763 | ) | ||
Undistributed net investment income | 61,583 | |||
$ | 294,308,218 | |||
CLASS A | ||||
Net Assets | $ | 207,108,097 | ||
Capital shares outstanding | 19, 294,946 | |||
Net asset value and redemption price per share | $ | 10.73 | ||
Maximum offering price per share (100/96 of $10.73) | $ | 11.18 | ||
CLASS C | ||||
Net Assets | $ | 24,984,880 | ||
Capital shares outstanding | 2,333,136 | |||
Net asset value and offering price per share | $ | 10.71 | ||
Redemption price per share (*a charge of 1% is imposed on the | ||||
redemption proceeds, or on the original price, whichever is | ||||
lower, if redeemed during the first 12 months after purchase) | $ | 10.71 | * | |
CLASS Y | ||||
Net Assets | $ | 62,215,241 | ||
Capital shares outstanding | 5,782,276 | |||
Net asset value, offering and redemption price per share | $ | 10.76 |
See accompanying notes to financial statements.
14 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO | ||
STATEMENT OF OPERATIONS | ||
SIX MONTHS ENDED SEPTEMBER 30, 2015 (unaudited) |
Investment Income: | ||||||||
Interest income | $ | 5,255,344 | ||||||
Expenses: | ||||||||
Management fees (note 3) | $ | 723,906 | ||||||
Distribution and service fees (note 3) | 181,086 | |||||||
Transfer and shareholder servicing agent fees | 64,636 | |||||||
Trustees’ fees and expenses (note 8) | 52,637 | |||||||
Legal fees | 34,671 | |||||||
Custodian fees (note 6) | 10,778 | |||||||
Auditing and tax fees | 10,662 | |||||||
Registration fees and dues | 9,899 | |||||||
Shareholders’ reports | 9, 076 | |||||||
Insurance | 7,399 | |||||||
Chief compliance officer services (note 3) | 3,271 | |||||||
Miscellaneous | 15,457 | |||||||
Total expenses | 1,123,478 | |||||||
Management fees waived (note 3) | (28,954 | ) | ||||||
Expenses paid indirectly (note 6) | (387 | ) | ||||||
Net expenses | 1,094,137 | |||||||
Net investment income | 4,161,207 | |||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||
Net realized gain (loss) from securities | ||||||||
transactions | 193,212 | |||||||
Change in unrealized appreciation on | ||||||||
investments | (2,002,056 | ) | ||||||
Net realized and unrealized gain (loss) on | ||||||||
investments | (1,808,844 | ) | ||||||
Net change in net assets resulting from | ||||||||
operations | $ | 2,352,363 |
See accompanying notes to financial statements.
15 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
STATEMENTS OF CHANGES IN NET ASSETS |
Six Months Ended | ||||||||
September 30, 2015 | Year Ended | |||||||
(unaudited) | March 31, 2015 | |||||||
OPERATIONS: | ||||||||
Net investment income | $ | 4,161, 207 | $ | 8,428, 649 | ||||
Net realized gain (loss) from | ||||||||
securities transactions | 193,212 | (121,127 | ) | |||||
Change in unrealized | ||||||||
appreciation on investments | (2,002,056 | ) | 9,656,340 | |||||
Change in net assets from | ||||||||
operations | 2,352,363 | 17,963,862 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS (note 10): | ||||||||
Class A Shares: | ||||||||
Net investment income | (2, 983, 278 | ) | (6, 210, 405 | ) | ||||
Class C Shares: | ||||||||
Net investment income | (271,088 | ) | (567,128 | ) | ||||
Class Y Shares: | ||||||||
Net investment income | (901,565 | ) | (1,638,547 | ) | ||||
Change in net assets from | ||||||||
distributions | (4,155,931 | ) | (8,416,080 | ) | ||||
CAPITAL SHARE TRANSACTIONS (note 7): | ||||||||
Proceeds from shares sold | 21, 911,736 | 37, 233,664 | ||||||
Reinvested dividends and | ||||||||
distributions | 3,071, 687 | 6,106, 968 | ||||||
Cost of shares redeemed | (18,406,151 | ) | (45,666,935 | ) | ||||
Change in net assets from | ||||||||
capital share transactions | 6,577,272 | (2,326,303 | ) | |||||
Change in net assets | 4,773,704 | 7,221,479 | ||||||
NET ASSETS: | ||||||||
Beginning of period | 289,534,514 | 282,313,035 | ||||||
End of period* | $ | 294,308, 218 | $ | 289,534, 514 | ||||
*Includes undistributed net investment income of: | $ | 61,583 | $ | 56,307 |
See accompanying notes to financial statements.
16 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
NOTES TO FINANCIAL STATEMENTS |
SEPTEMBER 30, 2015 (unaudited) |
1. Organization
Aquila Tax-Free Fund of Colorado (the “Fund”), a series of Aquila Municipal Trust (from inception until the close of business on October 11, 2013, the Fund operated under the name Tax-Free Fund of Colorado), a non-diversified, open-end investment company, was organized in February, 1987 as a Massachusetts business trust and commenced operations on May 21, 1987. The Fund is authorized to issue an unlimited number of shares. Class A Shares are sold at net asset value plus a sales charge of varying size (depending upon a variety of factors) paid at the time of purchase and bear a distribution fee. Class C Shares are sold at net asset value with no sales charge payable at the time of purchase but with a level charge for service and distribution fees for six years thereafter. Class C Shares automatically convert to Class A Shares after six years. Class Y Shares are sold only through authorized financial institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity, and are not offered directly to retail customers. Class Y Shares are sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge (“CDSC”) and no distribution fee. Class I Shares are offered and sold only through financial intermediaries and are not offered directly to retail customers. Class I Shares are sold at net asset value with no sales charge and no redemption fee or CDSC, although a financial intermediary may charge a fee for effecting a purchase or other transaction on behalf of its customers. Class I Shares carry a distribution and a service fee. As of the report date, there were no Class I Shares outstanding. All classes of shares represent interests in the same portfolio of investments and are identical as to rights and privileges but differ with respect to the effect of sales charges, the distribution and/or service fees borne by each class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America for investment companies.
a) | Portfolio valuation: Municipal securities are valued each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services. In the case of securities for which market quotations are readily available, securities are valued by the pricing service at the mean of bid and asked quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees. |
b) | Fair value measurements: The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy: |
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
17 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, based on the best information available.
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the valuation inputs, representing 100% of the Fund’s investments, used to value the Fund’s net assets as of September 30, 2015:
Valuation Inputs | Investments in Securities | ||||
Level 1 – Quoted Prices | $ | — | |||
Level 2 – Other Significant Observable | |||||
Inputs — Municipal Bonds* | 288,097,319 | ||||
Level 3 – Significant Unobservable Inputs | — | ||||
Total | $ | 288,097,319 |
* See schedule of investments for a detailed listing of securities.
c) | Subsequent events: In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date these financial statements were issued. |
d) | Securities transactions and related investment income: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. Interest income is recorded daily on the accrual basis and is adjusted for amortization of premium and accretion of original issue and market discount. |
e) | Federal income taxes: It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Fund intends to make distributions of income and securities profits sufficient to relieve it from all, or substantially all, Federal income and excise taxes. |
Management has reviewed the tax positions for each of the open tax years (2012–2014) or expected to be taken in the Fund’s 2015 tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.
f) | Multiple class allocations: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are also charged directly to such class on a daily basis. |
18 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
g) | Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. |
h) | Reclassification of capital accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. On March 31, 2015, the Fund decreased undistributed net investment income by $22,869, decreased realized losses by $12,238 and increased additional paid-in capital by $10,631 due primarily to differing book/tax treatment of distributions and bond amortization. These reclassifications had no effect on net assets or net asset value per share. |
i) | The Fund is an investment company and accordingly follows the investment company accounting reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 “Financial Services-Investment Companies”. |
3. Fees and Related Party Transactions
a) Management Arrangements:
Aquila Investment Management LLC (the “Manager”), a wholly-owned subsidiary of Aquila Management Corporation, the Fund’s founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. The portfolio management of the Fund has been delegated to a Sub-Adviser as described below. Under the Advisory and Administration Agreement, the Manager provides all administrative services to the Fund, other than those relating to the day-to-day portfolio management. The Manager’s services include providing the office of the Fund and all related services as well as overseeing the activities of the Sub-Adviser and managing relationships with all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor and additionally maintaining the Fund’s accounting books and records. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.50% of net assets of the Fund. The Manager has contractually agreed to waive fees through September 30, 2016 to the extent necessary in order to pass savings through to the shareholders with respect to the Sub-Advisory Agreement such that its fees are as follows: the annual rate shall be equivalent to 0.48% of net assets of the Fund up to $400 million; 0.46% of the Fund’s net assets above that amount to $1 billion and 0.44% of the Fund’s net assets above $1 billion. For the six months ended September 30, 2015, the Fund incurred management fees of $723,906 of which $28,954 was waived under the contractual fee waiver.
Kirkpatrick Pettis Capital Management (the “Sub-Adviser”) serves as the Investment Sub-Adviser for the Fund under a Sub-Advisory Agreement between the Manager and the Sub-Adviser. Under this agreement, the Sub-Adviser continuously provides, subject to oversight of the Manager and the Board of Trustees of the Fund, the investment program of the Fund and the composition of its portfolio, arranges for the purchases and sales of portfolio securities, and provides for daily pricing of the Fund’s portfolio. For its services, the Sub-Adviser is entitled to receive a fee from the Manager which is payable monthly and computed as of the close of business each day at the annual rate of 0.20%. The Sub-Adviser has contractually agreed to waive its fee through September 30, 2016 such that its annual rate of fees is at 0.18% of net assets of the Fund up to $400 million; 0.16% of net assets above $400 million up to $1 billion; and 0.14% of net assets above $1 billion.
19 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for Chief Compliance Officer related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940.
Specific details as to the nature and extent of the services provided by the Manager and the Sub-Adviser are more fully defined in the Fund’s Prospectus and Statement of Additional Information.
b) Distribution and Service Fees:
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 (the “Rule”) under the Investment Company Act of 1940. Under one part of the Plan, with respect to Class A Shares, the Fund is authorized to make distribution fee payments to broker-dealers or others (“Qualified Recipients”) selected by Aquila Distributors, Inc. (the “Distributor”), including, but not limited to, any principal underwriter of the Fund, with which the Distributor has entered into written agreements contemplated by the Rule and which have rendered assistance in the distribution and/or retention of the Fund’s shares or servicing of shareholder accounts. While the Board of Trustees and shareholders approved an amendment to the Fund’s Distribution Plan applicable to Class A Shares which permits the Fund to make distribution fee payments at the rate of up to 0.15% on the entire net assets represented by Class A Shares, the Fund currently makes payment of this distribution fee at the annual rate of 0.05%. For the six months ended September 30, 2015, distribution fees on Class A Shares amounted to $50,691 of which the Distributor retained $2,245.
Under another part of the Plan, the Fund is authorized to make payments with respect to Class C Shares to Qualified Recipients which have rendered assistance in the distribution and/or retention of the Fund’s Class C shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Fund’s average net assets represented by Class C Shares and for the six months ended September 30, 2015, amounted to $97,796. In addition, under a Shareholder Services Plan, the Fund is authorized to make service fee payments with respect to Class C Shares to Qualified Recipients for providing personal services and/or maintenance of shareholder accounts. These payments are made at the annual rate of 0.25% of the Fund’s average net assets represented by Class C Shares and for the six months ended September 30, 2015, amounted to $32,599. The total of these payments with respect to Class C Shares amounted to $130,395 of which the Distributor retained $31,959.
Specific details about the Plans are more fully defined in the Fund’s Prospectus and Statement of Additional Information.
20 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Under a Distribution Agreement, the Distributor serves as the exclusive distributor of the Fund’s shares. Through agreements between the Distributor and various brokerage and advisory firms (“intermediaries”), the Fund’s shares are sold primarily through the facilities of these intermediaries having offices within Colorado, with the bulk of any sales commissions inuring to such intermediaries. For the six months ended September 30, 2015, total commissions on sales of Class A Shares amounted to $96,498 of which the Distributor received $18,657.
4. Purchases and Sales of Securities
During the six months ended September 30, 2015, purchases of securities and proceeds from the sales of securities aggregated $18,391,438 and $13,552,010, respectively.
At September 30, 2015, the aggregate tax cost for all securities was $270,759,946. At September 30, 2015, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $17,500,973 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $163,600 for a net unrealized appreciation of $17,337,373.
5. Portfolio Orientation
Since the Fund invests principally and may invest entirely in double tax-free municipal obligations of issuers within Colorado, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Colorado and whatever effects these may have upon Colorado issuers’ ability to meet their obligations.
6. Expenses
The Fund had negotiated an expense offset arrangement with JPMorgan Chase Bank N.A., which served as its custodian until November 2, 2015. Under these arrangements, it received credit toward the reduction of custodian fees and other Fund expenses whenever there were uninvested cash balances. The Statement of Operations reflects the total expenses before any offset, the amount of offset, if any, and the net expenses. Effective November 2, 2015, the Fund no longer receives credits toward the reduction of custody fees from the Fund’s new custodian.
21 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
7. Capital Share Transactions
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended | ||||||||||||||||
September 30, 2015 | Year Ended | |||||||||||||||
(unaudited) | March 31, 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A Shares: | ||||||||||||||||
Proceeds from shares sold | 994,297 | $ | 10,620,640 | 1,195,185 | $ | 12,831,147 | ||||||||||
Reinvested dividends and | ||||||||||||||||
distributions | 222,521 | 2,380,121 | 439,302 | 4,698,217 | ||||||||||||
Cost of shares redeemed | (591,354 | ) | (6,326,976 | ) | (2,957,657 | ) | (31,601,712 | ) | ||||||||
Net change | 625,464 | 6,673,785 | (1,323,170 | ) | (14,072,348 | ) | ||||||||||
Class C Shares: | ||||||||||||||||
Proceeds from shares sold | 222,308 | 2,372,859 | 383,529 | 4,094,053 | ||||||||||||
Reinvested dividends and | ||||||||||||||||
distributions | 21,303 | 227,368 | 42,877 | 457,775 | ||||||||||||
Cost of shares redeemed | (352,689 | ) | (3,758,345 | ) | (701,255 | ) | (7,472,754 | ) | ||||||||
Net change | (109,078 | ) | (1,158,118 | ) | (274,849 | ) | (2,920,926 | ) | ||||||||
Class Y Shares: | ||||||||||||||||
Proceeds from shares sold | 832,937 | 8,918,237 | 1,894,868 | 20,308,464 | ||||||||||||
Reinvested dividends and | ||||||||||||||||
distributions | 43,327 | 464,198 | 88,549 | 950,976 | ||||||||||||
Cost of shares redeemed | (774,712 | ) | (8,320,830 | ) | (614,778 | ) | (6,592,469 | ) | ||||||||
Net change | 101,552 | 1,061,605 | 1,368,639 | 14,666,971 | ||||||||||||
Total transactions in Fund | ||||||||||||||||
shares | 617,938 | $ | 6,577,272 | (229,380 | ) | $ | (2,326,303 | ) |
22 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
8. Trustees’ Fees and Expenses
At September 30, 2015 there were 11 Trustees, one of whom is affiliated with the Manager and is not paid any fees. The total amount of Trustees’ service fees (for carrying out their responsibilities) and attendance fees paid during the six months ended September 30, 2015 was $43,242. Attendance fees are paid to those in attendance at regularly scheduled quarterly Board Meetings and meetings of the independent Trustees held prior to each quarterly Board Meeting, as well as additional meetings (such as Audit, Nominating, Shareholder and special meetings). Trustees are reimbursed for their expenses such as travel, accommodations and meals incurred in connection with attendance at Board Meetings and the Annual Meeting of Shareholders. For the six months ended September 30 , 2015, such meeting-related expenses amounted to $9,395.
9. Securities Traded on a When-Issued Basis
The Fund may purchase or sell securities on a when-issued basis. When-issued transactions arise when securities are purchased or sold by the Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction. Beginning on the date the Fund enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
10. Income Tax Information and Distributions
The Fund declares dividends daily from net investment income and makes payments monthly. Net realized capital gains, if any, are distributed annually and are taxable. Dividends and capital gains distributions are paid in additional shares at the net asset value per share, in cash, or in a combination of both, at the shareholder’s option.
The Fund intends to maintain, to the maximum extent possible, the tax-exempt status of interest payments received from portfolio municipal securities in order to allow dividends paid to shareholders from net investment income to be exempt from regular Federal and State of Colorado income taxes. Due to the distribution levels maintained by the Fund and the differences between financial statement reporting and Federal income tax reporting requirements, distributions made by the Fund may not be the same as the Fund’s net investment income, and/or net realized securities gains. As a result of the passage of the Regulated Investment Company Act of 2010 (the “Act”), losses incurred in this fiscal year and beyond retain their character as short-term or long-term, have no expiration date and are utilized before capital losses incurred prior to the enactment of the Act. At March 31, 2015, the Fund had capital loss carry forwards of $1,888,975 of which $55,212 expires in 2017 and $1,784,368 and $49,395 have no expiration and retains their character of short-term and long-term, respectively. This carryover is available to offset future net realized gains on securities transactions to the extent provided for in the Internal Revenue Code.
23 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
The tax character of distributions was as follows:
Year | Year | |||||||
Ended | Ended | |||||||
March 31, 2015 | March 31, 2014 | |||||||
Net tax-exempt income | $ | 8,416,080 | $ | 8,917,219 | ||||
Ordinary income | – | – | ||||||
$ | 8,416,080 | $ | 8,917,219 |
As of March 31, 2015 the components of distributable earnings on a tax basis were as follows:
Undistributed tax-exempt income | $ | 149,977 | ||||||
Unrealized appreciation | 19,334,152 | |||||||
Accumulated net loss on investments | (1,888,975 | ) | ||||||
Other temporary differences | (149,972 | ) | ||||||
$ | 17,445,182 |
The difference between book basis and tax basis undistributed income is due to the timing difference in recognizing dividends paid and the tax treatment of market discount amortization.
24 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
FINANCIAL HIGHLIGHTS |
For a share outstanding throughout each period
Class A | ||||||||||||||||||||||||||||
Six Months | Three | |||||||||||||||||||||||||||
Ended | Year | Year | Months | |||||||||||||||||||||||||
9/30/15 | Ended | Ended | Ended | Year Ended December 31, | ||||||||||||||||||||||||
(unaudited) | 3/31/15 | 3/31/14 | 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.80 | $ | 10.45 | $ | 10.80 | $ | 10.89 | $ | 10.63 | $ | 10.14 | $ | 10.39 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.16 | 0.32 | 0.32 | 0.08 | 0.35 | 0.39 | 0.40 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.07 | ) | 0.35 | (0.35 | ) | (0.09 | ) | 0.26 | 0.49 | (0.25 | ) | |||||||||||||||||
Total from investment operations | 0.09 | 0.67 | (0.03 | ) | (0.01 | ) | 0.61 | 0.88 | 0.15 | |||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.16 | ) | (0.32 | ) | (0.32 | ) | (0.08 | ) | (0.35 | ) | (0.39 | ) | (0.40 | ) | ||||||||||||||
Distributions from capital gains | – | – | – | – | – | – | – | |||||||||||||||||||||
Total distributions | (0.16 | ) | (0.32 | ) | (0.32 | ) | (0.08 | ) | (0.35 | ) | (0.39 | ) | (0.40 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.73 | $ | 10.80 | $ | 10.45 | $ | 10.80 | $ | 10.89 | $ | 10.63 | $ | 10.14 | ||||||||||||||
Total return(not reflecting sales charge) | 0.83 | %(2) | 6.52 | % | (0.20 | )% | (0.10 | )%(2) | 5.85 | % | 8.81 | % | 1.38 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 207 | $ | 202 | $ | 209 | $ | 233 | $ | 240 | $ | 221 | $ | 213 | ||||||||||||||
Ratio of expenses to average net assets | 0.68 | %(3) | 0.73 | % | 0.74 | %(4) | 0.70 | %(3) | 0.71 | % | 0.75 | % | 0.73 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.95 | %(3) | 3.04 | % | 3.09 | %(4) | 2.98 | %(3) | 3.27 | % | 3.75 | % | 3.81 | % | ||||||||||||||
Portfolio turnover rate | 5 | %(2) | 8 | % | 4 | % | 2 | %(2) | 15 | % | 13 | % | 14 | % | ||||||||||||||
Expense and net investment income ratios without the effect of the contractual expense cap were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.70 | %(3) | 0.75 | % | 0.76 | %(4)(5) | 0.72 | %(3) | 0.73 | % | – | – | ||||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.93 | %(3) | 3.02 | % | 3.07 | %(4)(5) | 2.96 | %(3) | 3.26 | % | – | – | ||||||||||||||||
Expense ratios after giving effect to the contractual expense cap and expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.68 | %(3) | 0.73 | % | 0.74 | %(4) | 0.70 | %(3) | 0.71 | % | 0.75 | % | 0.73 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. |
(5) | Without these expenses, the expense ratio and the net investment income ratio would have been 0.72% and 3.11%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from December 31 to March 31. The information presented is for the period January 1, 2013 to March 31, 2013. |
See accompanying notes to financial statements.
25 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class C | ||||||||||||||||||||||||||||
Six Months | Three | |||||||||||||||||||||||||||
Ended | Year | Year | Months | |||||||||||||||||||||||||
9/30/15 | Ended | Ended | Ended | Year Ended December 31, | ||||||||||||||||||||||||
(unaudited) | 3/31/15 | 3/31/14 | 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.78 | $ | 10.43 | $ | 10.78 | $ | 10.87 | $ | 10.61 | $ | 10.12 | $ | 10.37 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.11 | 0.22 | 0.22 | 0.05 | 0.25 | 0.29 | 0.30 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.07 | ) | 0.35 | (0.35 | ) | (0.09 | ) | 0.26 | 0.49 | (0.25 | ) | |||||||||||||||||
Total from investment operations | 0.04 | 0.57 | (0.13 | ) | (0.04 | ) | 0.51 | 0.78 | 0.05 | |||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.11 | ) | (0.22 | ) | (0.22 | ) | (0.05 | ) | (0.25 | ) | (0.29 | ) | (0.30 | ) | ||||||||||||||
Distributions from capital gains | – | – | – | – | – | – | – | |||||||||||||||||||||
Total distributions | (0.11 | ) | (0.22 | ) | (0.22 | ) | (0.05 | ) | (0.25 | ) | (0.29 | ) | (0.30 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.71 | $ | 10.78 | $ | 10.43 | $ | 10.78 | $ | 10.87 | $ | 10.61 | $ | 10.12 | ||||||||||||||
Total return(not reflecting CDSC) | 0.39 | %(2) | 5.52 | % | (1.15 | )% | (0.33 | )%(2) | 4.86 | % | 7.80 | % | 0.42 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 25 | $ | 26 | $ | 28 | $ | 37 | $ | 38 | $ | 29 | $ | 26 | ||||||||||||||
Ratio of expenses to average net assets | 1.63 | %(3) | 1.68 | % | 1.68 | %(4) | 1.65 | %(3) | 1.66 | % | 1.70 | % | 1.67 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.00 | %(3) | 2.09 | % | 2.14 | %(4) | 2.03 | %(3) | 2.31 | % | 2.79 | % | 2.83 | % | ||||||||||||||
Portfolio turnover rate | 5 | %(2) | 8 | % | 4 | % | 2 | %(2) | 15 | % | 13 | % | 14 | % | ||||||||||||||
Expense and net investment income ratios without the effect of the contractual expense cap were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.65 | %(3) | 1.70 | % | 1.70 | %(4)(5) | 1.67 | %(3) | 1.68 | % | – | – | ||||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 1.98 | %(3) | 2.07 | % | 2.12 | %(4)(5) | 2.01 | %(3) | 2.30 | % | – | – | ||||||||||||||||
Expense ratios after giving effect to the contractual expense cap and expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.63 | %(3) | 1.68 | % | 1.68 | %(4) | 1.65 | %(3) | 1.66 | % | 1.70 | % | 1.67 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. |
(5) | Without these expenses, the expense ratio and the net investment income ratio would have been 1.67% and 2.16%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from December 31 to March 31. The information presented is for the period January 1, 2013 to March 31, 2013. |
See accompanying notes to financial statements.
26 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO |
FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class Y | ||||||||||||||||||||||||||||
Six Months | Three | |||||||||||||||||||||||||||
Ended | Year | Year | Months | |||||||||||||||||||||||||
9/30/15 | Ended | Ended | Ended | Year Ended December 31, | ||||||||||||||||||||||||
(unaudited) | 3/31/15 | 3/31/14 | 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.83 | $ | 10.47 | $ | 10.83 | $ | 10.92 | $ | 10.66 | $ | 10.16 | $ | 10.41 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.16 | 0.33 | 0.33 | 0.08 | 0.36 | 0.39 | 0.40 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.07 | ) | 0.36 | (0.36 | ) | (0.09 | ) | 0.26 | 0.50 | (0.25 | ) | |||||||||||||||||
Total from investment operations | 0.09 | 0.69 | (0.03 | ) | (0.01 | ) | 0.62 | 0.89 | 0.15 | |||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.16 | ) | (0.33 | ) | (0.33 | ) | (0.08 | ) | (0.36 | ) | (0.39 | ) | (0.40 | ) | ||||||||||||||
Distributions from capital gains | – | – | – | – | – | – | – | |||||||||||||||||||||
Total distributions | (0.16 | ) | (0.33 | ) | (0.33 | ) | (0.08 | ) | (0.36 | ) | (0.39 | ) | (0.40 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.76 | $ | 10.83 | $ | 10.47 | $ | 10.83 | $ | 10.92 | $ | 10.66 | $ | 10.16 | ||||||||||||||
Total return | 0.84 | %(2) | 6.66 | % | (0.24 | )% | (0.08 | )%(2) | 5.89 | % | 8.96 | % | 1.44 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 62 | $ | 62 | $ | 45 | $ | 57 | $ | 50 | $ | 37 | $ | 34 | ||||||||||||||
Ratio of expenses to average net assets | 0.63 | %(3) | 0.68 | % | 0.68 | %(4) | 0.65 | %(3) | 0.66 | % | 0.70 | % | 0.67 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 3.00 | %(3) | 3.08 | % | 3.14 | %(4) | 3.03 | %(3) | 3.31 | % | 3.80 | % | 3.85 | % | ||||||||||||||
Portfolio turnover rate | 5 | %(2) | 8 | % | 4 | % | 2 | %(2) | 15 | % | 13 | % | 14 | % | ||||||||||||||
Expense and net investment income ratios without the effect of the contractual expense cap were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.65 | %(3) | 0.70 | % | 0.70 | %(4)(5) | 0.67 | %(3) | 0.68 | % | – | – | ||||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.98 | %(3) | 3.06 | % | 3.12 | %(4)(5) | 3.01 | %(3) | 3.30 | % | – | – | ||||||||||||||||
Expense ratios after giving effect to the contractual expense cap and expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.63 | %(3) | 0.68 | % | 0.68 | %(4) | 0.65 | %(3) | 0.66 | % | 0.70 | % | 0.67 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. |
(5) | Without these expenses, the expense ratio and the net investment income ratio would have been 0.66% and 3.16%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from December 31 to March 31. The information presented is for the period January 1, 2013 to March 31, 2013. |
See accompanying notes to financial statements.
27 | Aquila Tax-Free Fund of Colorado
Additional Information (unaudited)
Renewal of the Advisory and Administration Agreement and the Sub-Advisory Agreement
Aquila Investment Management LLC (the “Manager”) serves as the investment adviser to the Fund pursuant to an Advisory and Administration Agreement (the “Advisory Agreement”). The Manager has retained Davidson Fixed Income Management, Inc., doing business as Kirkpatrick Pettis Capital Management (the “Sub-Adviser”), to serve as the sub-adviser to the Fund pursuant to a Sub-Advisory Agreement between the Manager and the Sub-Adviser (the “Sub-Advisory Agreement”). In order for the Manager and the Sub-Adviser to continue to serve in their respective roles, the Trustees of the Fund must determine annually whether to renew the Advisory Agreement and the Sub-Advisory Agreement for the Fund.
In considering whether to approve the renewal of the Advisory Agreement and the Sub-Advisory Agreement, the Trustees requested and obtained such information as they deemed reasonably necessary. Contract review materials were provided to the Trustees in August, 2015. The independent Trustees met telephonically on September 14, 2015 and in person on September 20, 2015 to review and discuss the contract review materials. The Trustees considered, among other things, information presented by the Manager and the Sub-Adviser. They also considered information presented in a report prepared by an independent consultant with respect to the Fund’s fees, expenses and investment performance, which included comparisons of the Fund’s investment performance against peers and the Fund’s benchmark and comparisons of the advisory fee payable by the Fund under the Advisory Agreement against the advisory fees paid by the Fund’s peers, as well as information regarding the operating margins of certain investment advisory firms (the “Consultant’s Report”). In addition, the Trustees took into account the information related to the Fund provided to the Trustees at each regularly scheduled meeting. The Trustees considered the Advisory Agreement and the Sub-Advisory Agreement separately as well as in conjunction with each other to determine their combined effects on the Fund.
At the meeting held on September 20, 2015, based on their evaluation of the information provided by the Manager, the Sub-Adviser and the independent consultant, the Trustees of the Fund, including the independent Trustees voting separately, unanimously approved the renewal of each of the Advisory Agreement and the Sub-Advisory Agreement until September 30, 2016. In considering the renewal of the Advisory Agreement and the Sub-Advisory Agreement, the Trustees considered various factors that they determined were relevant, including the factors described below. The Trustees did not identify any single factor as the controlling factor in determining to approve the renewal of the Advisory Agreement or the Sub-Advisory Agreement.
The nature, extent, and quality of the services provided by the Manager and the Sub-Adviser
The Trustees considered the nature, extent and quality of the services that had been provided by the Manager and the Sub-Adviser to the Fund, taking into account the investment objectives and strategies of the Fund. The Trustees reviewed the terms of the Advisory Agreement and the Sub-Advisory Agreement.
The Manager has retained the Sub-Adviser to provide investment management of the Fund’s portfolio. The Trustees reviewed the Sub-Adviser’s investment approach for the Fund. The Trustees considered the personnel of the Sub-Adviser who provide investment management services to the Fund. The Trustees noted the extensive experience of the Sub-Adviser’s portfolio manager, Mr. Christopher Johns. They considered that Mr. Johns is based in Denver, Colorado and that he has a comprehensive understanding regarding the economy of the State of Colorado and the securities in which the Fund invests, including those securities with less than the highest ratings from the rating agencies.
28 | Aquila Tax-Free Fund of Colorado
The Trustees considered that the Manager supervised and monitored the performance of the Fund’s service providers (including the Sub-Adviser). The Manager has additionally provided all administrative services to the Fund and provided the Fund with personnel (including Fund officers) and other resources that are necessary for the Fund’s business management and operations.
The Trustees considered that the Manager and the Sub-Adviser had provided all administrative and advisory services to the Fund that the Trustees deemed necessary or appropriate, including the specific services that the Trustees have determined are required for the Fund, given that it seeks to provide shareholders with as high a level of current income exempt from Colorado state and regular Federal income taxes as is consistent with preservation of capital. Based on these considerations, the Trustees concluded that the nature, extent and quality of services that had been provided by the Manager and the Sub-Adviser to the Fund were satisfactory and consistent with the terms of the Advisory Agreement and Sub-Advisory Agreement, as applicable.
The investment performance of the Fund
The Trustees reviewed the Fund’s performance and compared its performance to the performance of:
• | the funds in the Fund’s peer group (the “Peer Group”), as selected by the independent consultant (four municipal single-state intermediate and municipal single-state long funds, as classified by Morningstar, that are similar to the Fund in size and that charge a front-end sales charge); |
• | the funds in the Fund’s product category for performance (the “Product Category for Performance”) (all funds in the Peer Group and, without duplication, all funds (and all classes) included in the Morningstar Single-State Intermediate Municipal Bond Funds category); and |
• | the Fund’s benchmark index, the Barclays Capital Quality Intermediate Municipal Bond Index. |
The Trustees considered that the materials included in the Consultant’s Report indicated that the Fund’s average annual total return was lower than the average annual total return of the funds in the Peer Group for the one, three, five and ten year periods ended June 30, 2015. However, the Trustees considered that the Fund’s average annual total return was higher than the average annual total return of the funds in the Product Category for Performance for the one, three, five and ten year periods ended June 30, 2015 and higher than the average annual return of the benchmark index for the one, three and five year periods ended June 30, 2015. The Trustees considered that, as reflected in the Consultant’s Report, the Fund delivered satisfactory results on a risk-adjusted basis for the three and five year periods ended June 30, 2015 (as evidenced by its Sharpe ratio) when compared to the funds in the Product Category for Performance.
The Trustees discussed the Fund’s performance record with the Manager and the Sub-Adviser and considered the Manager’s and Sub-Adviser’s view that the Fund’s performance, as compared to its peer group, was explained in part by the Fund’s somewhat higher-quality portfolio and its historical intermediate maturity structure.
29 | Aquila Tax-Free Fund of Colorado
The Trustees noted that, unlike the Fund’s returns, the performance of the benchmark index did not reflect any fees, expenses or sales charges. The Trustees considered these results to be consistent with the investment objectives of the Fund. Evaluation of the investment performance of the Fund indicated to the Trustees that renewal of the Advisory Agreement and Sub-Advisory Agreement would be appropriate.
Advisory and Sub-Advisory Fees and Fund Expenses
The Trustees evaluated the fee payable under the Advisory Agreement. They noted that the Manager, and not the Fund, paid the Sub-Adviser under the Sub-Advisory Agreement. The Trustees evaluated both the fee under the Sub-Advisory Agreement and the portion of the advisory fee paid under the Advisory Agreement and retained by the Manager. The Trustees reviewed the Fund’s advisory fees and expenses and compared them to the advisory fee and expense data for:
• | the funds in the Peer Group (as defined above); and |
• | the funds in the product category for expenses (the “Product Category for Expenses”) (Morningstar Single-State Intermediate Municipal Bond Funds and Morningstar Single State Long Municipal Bond Funds from states within which 4-7 mutual funds are operating, with similar operating expense structures). |
The Trustees considered that the Fund’s contractual advisory fee was lower than the average and median contractual advisory fee of the funds in the Peer Group (at the Fund’s current asset level). They also considered that the Fund’s contractual advisory fee was lower than the asset-weighted average contractual advisory fee of the funds in the Product Category for Expenses at the Fund’s current asset level and up to $500 million in assets, but generally higher than the asset-weighted average contractual advisory fee of the funds in the Product Category for Expenses at asset levels in excess of $500 million. They also noted that the Fund’s expenses were lower than the average actual expenses of the funds in both the Product Category for Expenses and the Peer Group.
The Trustees reviewed management fees charged by each of the Manager and the Sub-Adviser to its other clients. It was noted that the Manager does not have any other clients except for other funds in the Aquila Group of Funds. The Trustees noted that, in most instances, the fee rates for those clients were comparable to the fees paid to the Manager by the Fund. With respect to the Sub-Adviser, the Trustees noted that the fee rates for its other clients were generally lower than the fees paid to the Sub-Adviser with respect to the Fund. In evaluating the fees associated with the client accounts, the Trustees took into account the respective demands, resources and complexity associated with the Fund and those client accounts.
The Trustees concluded that the advisory and sub-advisory fees were reasonable in relation to the nature and quality of the services provided to the Fund by the Manager and the Sub-Adviser.
Profitability
The Trustees received materials from the Manager and the independent consultant related to profitability. The Manager provided information which showed the profitability to the Manager of its services to the Fund, as well as the profitability of Aquila Distributors, Inc. of distribution services provided to the Fund. The independent consultant provided publicly available data regarding the profitability of other asset managers in comparison to the overall profitability of the Manager.
30 | Aquila Tax-Free Fund of Colorado
The Trustees considered the information provided by the Manager regarding the profitability of the Manager with respect to the advisory services provided by the Manager to the Fund, including the methodology used by the Manager in allocating certain of its costs to the management of the Fund. The Trustees also considered information regarding the profitability of the Manager provided to the Trustees by the independent consultant. The Trustees concluded that profitability to the Manager with respect to advisory services provided to the Fund did not argue against approval of the fees to be paid under the Advisory Agreement.
The Trustees also considered information provided by the Sub-Adviser regarding the profitability of the Sub-Adviser with respect to the sub-advisory services provided by the Sub-Adviser to the Fund. The Trustees concluded that the profitability of the Sub-Adviser with respect to sub-advisory services provided to the Fund did not argue against approval of the fees to be paid under the Sub-Advisory Agreement.
The extent to which economies of scale would be realized as the Fund grows
The Trustees considered the extent to which the Manager and the Sub-Adviser may realize economies of scale or other efficiencies in managing the Fund. The Trustees noted that the Sub-Adviser has agreed to waive a portion of its sub-advisory fees and to introduce breakpoints in its fee which would be realized as the Fund grows. The Sub-Adviser has contractually agreed to waive its fees as noted below through September 30, 2016. The Manager, in turn, has contractually waived its fees through September 30, 2016 to the extent necessary in order to pass savings through to the shareholders with respect to the Sub-Advisory Agreement. The above arrangement may be amended only with approval of the Board of Trustees. Likewise, as long as the sub-advisory fee waiver arrangement is in effect, the Manager may not terminate its arrangement without the approval of the Board of Trustees. Under the fee waiver agreement, the Manager compensates the Sub-Adviser at the annual rate of 0.18 of 1% on the Fund’s net assets up to $400 million; 0.16% on assets above that amount to $1 billion in net assets and 0.14% on net assets thereafter, rather than the contractual sub-advisory fee at the annual rate of 0.20 of 1%. The Trustees considered that the Manager agreed to similarly waive its advisory fee so long as the Sub-Adviser waives its sub-advisory fees under the fee waiver. Accordingly, the Trustees concluded that economies of scale, if any, were being appropriately shared with the Fund.
Benefits derived or to be derived by the Manager and the Sub-Adviser and their affiliates from their relationships with the Fund
The Trustees observed that, as is generally true of most fund complexes, the Manager and Sub-Adviser and their affiliates, by providing services to a number of funds or other investment clients including the Fund, were able to spread costs as they would otherwise be unable to do. The Trustees noted that while that could produce efficiencies and increased profitability for the Manager and Sub-Adviser and their affiliates, it also makes their services available to the Fund at favorable levels of quality and cost which are more advantageous to the Fund than would otherwise have been possible.
31 | Aquila Tax-Free Fund of Colorado
Analysis of Expenses (unaudited)
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end sales charges with respect to Class A shares or contingent deferred sales charges (“CDSC”) with respect to Class C shares; and (2) ongoing costs, including management fees; distribution (12b-1) and/or service fees; and other Fund expenses. The table below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The table below is based on an investment of $1,000 invested on April 1, 2015 and held for the six months ended September 30, 2015.
Actual Expenses
This table provides information about actual account values and actual expenses You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During the Period”.
Six months ended September 30, 2015
Actual | ||||
Total Return | Beginning | Ending | Expenses | |
Without | Account | Account | Paid During | |
Sales Charges(1) | Value | Value | the Period(2) | |
Class A | 0.83% | $1,000.00 | $1,008.30 | $3.42 |
Class C | 0.39% | $1,000.00 | $1,003.90 | $8.19 |
Class Y | 0.84% | $1,000.00 | $1,008.40 | $3.17 |
(1) | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A shares or the applicable CDSC with respect to Class C shares. Total return is not annualized; as such, it may not be representative of the total return for the year. |
(2) | Expenses are equal to the annualized expense ratio of 0.68%, 1.63% and 0.63% for the Fund’s Class A, C and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
32 | Aquila Tax-Free Fund of Colorado
Analysis of Expenses (unaudited) (continued)
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs with respect to Class A shares. The example does not reflect the deduction of CDSC with respect to Class C shares. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different mutual funds. In addition, if these transaction costs were included, your costs would have been higher.
Six months ended September 30, 2015
Hypothetical | ||||
Annualized | Beginning | Ending | Expenses | |
Total | Account | Account | Paid During | |
Return | Value | Value | the Period(1) | |
Class A | 5.00% | $1,000.00 | $1,021.66 | $3.45 |
Class C | 5.00% | $1,000.00 | $1,016.90 | $8.24 |
Class Y | 5.00% | $1,000.00 | $1,021.91 | $3.19 |
(1) | Expenses are equal to the annualized expense ratio of 0.68%, 1.63% and 0.63% for the Trust’s Class A, C and Y shares, respectively, multiplied by the average by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
33 | Aquila Tax-Free Fund of Colorado
Information Available (unaudited)
Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent your Fund’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Fund policies, the Manager publicly discloses the complete schedule of the Fund’s portfolio holdings, as of each calendar quarter, generally by the 15th day after the end of each calendar quarter. Such information remains accessible until the next schedule is made publicly available. You may obtain a copy of the Fund’s portfolio holdings schedule for the most recently completed period by visiting the Fund’s website at www.aquilafunds.com. The Fund may also disclose other portfolio holdings as of a specified date (currently the Fund discloses its five largest holdings and/or sector holdings by value as of the close of the last business day of each calendar month in a posting to its website on approximately the 5th business day following the month end). This information remains on the website until the next such posting. Whenever you wish to see a listing of your Fund’s portfolio other than in your shareholder reports, please check our website at www.aquilafunds.com or call us at 1-800-437-1020.
The Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarter of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at www.sec.gov. You may also review or, for a fee, copy the forms at the SEC’s Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330.
Proxy Voting Record (unaudited)
During the 12 month period ended June 30, 2015, the Fund did not hold any portfolio securities for which the Fund was entitled to participate in proxy voting. Applicable regulations require us to inform you that the Fund’s proxy voting information is available on the SEC website at www.sec.gov.
Federal Tax Status of Distributions (unaudited)
This information is presented in order to comply with a requirement of the Internal Revenue Code. No action on the part of shareholders is required.
For the fiscal year ended March 31, 2015, $8,416,080 of dividends paid by Aquila Tax-Free Fund of Colorado, constituting 100% of total dividends paid, were exempt-interest dividends.
Prior to February 15, 2016, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2015 calendar year.
34 | Aquila Tax-Free Fund of Colorado
(THIS PAGE INTENTIONALLY LEFT BLANK)
Founders
Lacy B. Herrmann (1929-2012)
Aquila Management Corporation, Sponsor
Manager
AQUILA INVESTMENT MANAGEMENT LLC
120 West 45th Street, Suite 3600
New York, New York 10036
Investment Sub-Adviser
KIRKPATRICK PETTIS CAPITAL MANAGEMENT
1600 Broadway, Suite 1100
Denver, Colorado 80202
Board of Trustees
John C. Lucking, Chair
Diana P. Herrmann, Vice Chair
Ernest Calderón
Thomas A. Christopher
Gary C. Cornia
Grady Gammage, Jr.
Lyle W. Hillyard
Glenn P. O’Flaherty
John J. Partridge
James R. Ramsey
Laureen L. White
Officers
Diana P. Herrmann, President
Charles E. Childs, III, Executive Vice President and Secretary
Marie E. Aro, Senior Vice President
Paul G. O’Brien, Senior Vice President
Craig T. DiRuzzo, Vice President
Randall S. Fillmore, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer
and Treasurer
Distributor
AQUILA DISTRIBUTORS, INC.
120 West 45th Street, Suite 3600
New York, New York 10036
Transfer and Shareholder Servicing Agent
BNY MELLON
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
BNY MELLON
225 Liberty Street
New York, New York 10286
Further information is contained in the Prospectus,
which must precede or accompany this report.
![]() | ||||||||||||||||||||||||||
Semi-Annual Report September 30, 2015 | ||||||||||||||||||||||||||
![]() |
![]() | Aquila Tax-Free Fund For Utah Serving Utah investors since 1992 | ![]() |
November, 2015
Dear Fellow Shareholder:
As you are no doubt aware, the Federal Funds rate (a key short term interest rate between commercial banks, which influences borrowing costs throughout the economy) has been held close to zero since 2008.
With no change in this rate in seven years, the relationship between interest rates and the share value of fixed-income securities, such as those in which the bond funds in the Aquila Group of Funds invest, has attracted limited attention.
Now that it seems probable that interest rates may slowly start to climb, we thought it was a good time to revisit this topic. Management of the Aquila Group of Funds well recognizes that it is much easier to accept variations with your investment when you understand the forces influencing them.
Simply put, interest rates and the share prices of the bond funds in the Aquila Group of Funds are inversely related. When interest rates increase, the share value will generally decrease. And, conversely, when interest rates decrease, the share value of your Fund will generally increase.
Why is this the case?
When a bond is issued, it has a fixed face value and coupon rate (that is usually close to prevailing marketplace interest rates). For example, a $1,000 bond with a 5% coupon rate will pay interest of $50 per year and, at maturity, will repay the bondholder the $1,000 face value. The promise to pay $1,000 at maturity and the $50 per year interest payment doesn’t change. What does change is the bond’s market price.
If interest rates on similar bonds rise to 6%, our example above may no longer be attractive.
For the 5% bond to be attractive, its market price must fall below its $1,000 face value until the $50 per year represents a yield closer to 6%. Conversely, if prevailing interest rates decrease to 4%, people may be willing to pay more than the bond’s $1,000 face value in order to receive the $50 per year interest payments.
Simply put, bond prices fluctuate so that their yield reflects prevailing interest rates in the marketplace.
NOT A PART OF THE SEMI-ANNUAL REPORT
While we cannot control the direction in which interest rates will move, or the resulting effect such changes will have on your Fund’s share price, we do take steps which are designed to minimize (to the extent possible) the volatility of such movement.
We firmly believe that credit quality has an impact on stability. Each of the funds in the Aquila Group of Funds intentionally limits, by prospectus, its investments (at the time of purchase) to Investment Grade bonds – that is to say, bonds that are rated in one of the four highest credit ratings assigned by a nationally recognized statistical rating organization, or if unrated, determined to be of comparable credit quality by the Adviser/Sub-Adviser (as applicable). Investment Grade credit ratings are one of several factors the Adviser/ Sub-Adviser (as applicable) considers in identifying those municipal issues which are most likely to pay interest when due and to return principal at maturity.
Another technique we use in the construction of the overall portfolio in an effort to achieve a stable share price is the laddering of bond maturities. Generally, bonds with short-term maturities tend to have relatively less price fluctuation, and provide a lower yield. Conversely, bonds with long-term maturities may provide a higher yield, and have higher price volatility. This higher price volatility reflects the risks associated with the unpredictability of future events and the potential interest rate changes over the extended life of the municipal bond.
Through utilizing a blend of maturities – both short-term and long-term – your Fund attempts to provide as high a level of current income as is consistent with the preservation of capital. We believe these portfolio management construction techniques are reasonably designed to manage, to the extent possible, share price variations – gaining both a degree of stability from the shorter-term maturities and higher yields from the longer-term maturities.
With more than 30 years of experience utilizing these techniques, with the Aquila Group of Funds, we believe that we have developed a process that helps to mitigate some of the volatility that will inevitably occur in the bond markets with changes in interest rates.
Sincerely,
![](https://capedge.com/proxy/N-CSRS/0000784056-15-000072/dsigc.jpg)
![](https://capedge.com/proxy/N-CSRS/0000784056-15-000072/dsig2c.jpg)
Diana P. Herrmann, Vice Chair and President
NOT A PART OF THE SEMI-ANNUAL REPORT
Mutual fund investing involves risk and loss of principal is possible.
The market prices of the Fund’s securities may rise or decline in value due to general market conditions, such as real or perceived adverse economic or political conditions, inflation, changes in interest rates, lack of liquidity in the bond markets or adverse investor sentiment. When market prices fall, the value of your investment may go down.
The value of your investment may go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term securities. Conversely, when interest rates fall, the value of your investment may rise. Interest rates in the U.S. recently have been historically low and are expected to rise at some point in time.
Investments in the Fund are subject to possible loss due to the financial failure of the issuers of underlying securities and their inability to meet their debt obligations.
The value of municipal securities can be adversely affected by changes in the financial condition of one or more individual municipal issuers or insurers of municipal issuers, regulatory developments, legislative actions, and by uncertainties and public perceptions concerning these and other factors. The Fund may be affected significantly by adverse economic, political or other events affecting state and other municipal issuers in which it invests, and may be more volatile than a more geographically diverse fund.
If interest rates fall, an issuer may exercise its right to prepay its securities, and the Fund could be forced to reinvest prepayment proceeds at a time when yields on securities available in the market are lower than the yield on the prepaid security.
A portion of income may be subject to local, state, Federal and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax.
These risks may result in share price volatility.
Past performance is no guarantee of future results, and there is no guarantee that any market forecasts discussed will be realized.
Any information in this Semi-Annual Report regarding market or economic trends or the factors influencing the Fund’s historical or future performance are statements of opinion as of the date of this report. These statements should not be relied upon for any other purposes.
NOT A PART OF THE SEMI-ANNUAL REPORT
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (16.1%) | and Fitch | Value | ||||||
City, County and State (1.1%) | |||||||||
Coral Canyon, Utah Special Service | |||||||||
District | |||||||||
$ | 25,000 | 4.850%, 07/15/17 (unrefunded balance) NR/NR/NR* | $ | 25,156 | |||||
20,000 | 4.850%, 07/15/17 (pre-refunded) | NR/NR/NR* | 20,706 | ||||||
Houston, Texas Public Improvement | |||||||||
1,000,000 | 5.000%, 03/01/29 | Aa2/AA+/NR | 1,120,720 | ||||||
McKinney, Texas | |||||||||
1,375,000 | 5.000%, 08/15/24 AMBAC Insured | Aa1/AAA/NR | 1,399,722 | ||||||
Washington State Various Purpose | |||||||||
1,405,000 | 5.000%, 07/01/30 Series A | ||||||||
(pre-refunded) | Aa1/AA+/NR | 1,513,297 | |||||||
Total City, County and State | 4,079,601 | ||||||||
Education - Public Schools (1.0%) | |||||||||
Florida State Board of Education Public | |||||||||
Education Capital Outlay | |||||||||
2,000,000 | 4.750%, 06/01/30 2005 Series F | Aa1/AAA/AAA | 2,067,520 | ||||||
Lewis County, Washington School | |||||||||
District No. 302 Chehalis | |||||||||
1,000,000 | 5.000%, 12/01/34 | Aa1/NR/NR | 1,145,780 | ||||||
Wylie, Texas Independent School | |||||||||
District Capital Appreciation | |||||||||
1,000,000 | zero coupon, 08/15/32 PSF Guaranteed | Aaa/NR/NR | 547,280 | ||||||
Total Education - Public Schools | 3,760,580 | ||||||||
Hospital (0.3%) | |||||||||
Skagit County, Washington Public | |||||||||
Hospital District No. 002, Refunding, | |||||||||
Island Hospital | |||||||||
1,120,000 | 0.250%, 12/01/15 | A1/NR/NR | 1,120,056 | ||||||
Total Hospital | 1,120,056 | ||||||||
Local Public Property (6.8%) | |||||||||
Carson City, Nevada | |||||||||
1,000,000 | 5.000%, 05/01/28 | A1/AA-/NR | 1,157,210 | ||||||
Clark County, Nevada, Refunding | |||||||||
2,280,000 | 5.000%, 12/01/29 Series A | Aa1/AA/NR | 2,590,422 | ||||||
1,000,000 | 5.000%, 07/01/23 Series B | Aa1/AA/NR | 1,153,440 | ||||||
2,000,000 | 4.750%, 06/01/30 AGMC Insured | Aa1/AA/NR | 2,056,900 |
1 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
Local Public Property (continued) | |||||||||
Clark County, Nevada, Refunding | |||||||||
(continued) | |||||||||
$ | 2,000,000 | 5.000%, 11/01/28 AGMC/AMBAC | |||||||
Insured | Aa1/AA/AA | $ | 2,095,900 | ||||||
1,000,000 | 4.750%, 11/01/27 NPFG/ FGIC Insured | ||||||||
(pre-refunded) | Aa1/AA/NR | 1,026,120 | |||||||
Henderson, Nevada Refunding Various | |||||||||
Purpose | |||||||||
1,000,000 | 5.000%, 06/01/33 Series B | Aa2/AA/NR | 1,142,470 | ||||||
750,000 | 5.000%, 06/01/30 Series 2014 | Aa2/AA/NR | 878,535 | ||||||
750,000 | 5.000%, 06/01/35 Series 2014 | Aa2/AA/NR | 861,720 | ||||||
Miami-Dade County, Florida Building | |||||||||
Better Communities Program | |||||||||
1,605,000 | 5.625%, 07/01/38 | Aa2/AA/NR | 1,796,685 | ||||||
Miami Gardens, Florida | |||||||||
1,000,000 | 5.000%, 07/01/29 | A1/A+/NR | 1,150,210 | ||||||
Orem, Utah Refunding | |||||||||
690,000 | 0.250%, 12/01/16 | NR/AA/AA+ | 689,048 | ||||||
900,000 | 0.250%, 12/01/17 | NR/AA/AA+ | 890,775 | ||||||
Reno, Nevada, Capital Improvement | |||||||||
Refunding | |||||||||
1,000,000 | 5.000%, 06/01/28 | A1/A-/NR | 1,135,120 | ||||||
San Angelo, Texas Certificates of | |||||||||
Obligation | |||||||||
2,765,000 | 5.000%, 02/15/30 Series A | Aa2/AA/AA+ | 3,148,174 | ||||||
State of Washington | |||||||||
1,500,000 | zero coupon, 01/01/18 Series S-2 | ||||||||
AGMC Insured | Aa1/AA+/AA+ | 1,469,160 | |||||||
Washoe County, Nevada Refunding | |||||||||
Reno Sparks Convention | |||||||||
2,000,000 | 5.000%, 07/01/28 | Aa2/AA/NR | 2,304,960 | ||||||
Total Local Public Property | 25,546,849 | ||||||||
School District (4.1%) | |||||||||
Brownsboro, Texas Independent School | |||||||||
District | |||||||||
490,000 | zero coupon, 08/15/16 PSF Guaranteed | NR/AAA/NR | 485,350 | ||||||
Clark County, Nevada School District | |||||||||
500,000 | 5.000%, 06/15/28 Series A | A1/AA-/A | 547,145 |
2 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
School District (continued) | |||||||||
Davis County, Utah School District | |||||||||
School Board Guaranty Program | |||||||||
$ | 4,395,000 | 4.000%, 06/01/25 Series B | Aaa/NR/NR | $ | 5,055,525 | ||||
Granite School District, Utah, Salt Lake | |||||||||
County School Building School Board | |||||||||
Guaranty Program | |||||||||
1,000,000 | 5.000%, 06/01/31 | Aaa/NR/AAA | 1,161,970 | ||||||
Midlothian, Texas Independent School | |||||||||
District | |||||||||
1,145,000 | zero coupon, 02/15/18 PSF Guaranteed | Aaa/AAA/NR | 1,115,986 | ||||||
Schertz-Cibolo Universal City, Texas | |||||||||
Independent School District | |||||||||
2,325,000 | 5.000%, 02/01/36 PSF Guaranteed | Aaa/NR/AAA | 2,357,550 | ||||||
Spring, Texas Independent School | |||||||||
District | |||||||||
1,000,000 | 5.000%, 08/15/25 BAMI Insured | Aa3/AA/NR | 1,202,860 | ||||||
Uintah County, Utah School District | |||||||||
School Board Guaranty Program | |||||||||
455,000 | 4.250%, 02/01/24 (pre-refunded) | Aaa/NR/NR | 470,129 | ||||||
Wasatch County, Utah School District | |||||||||
School Board Guaranty Program | |||||||||
880,000 | 5.000%, 06/01/25 (pre-refunded) | Aaa/NR/NR | 907,658 | ||||||
Washoe County, Nevada School District | |||||||||
Refunding & School Improvement | |||||||||
2,000,000 | 5.000%, 06/01/30 Series A | Aa3/AA/NR | 2,292,780 | ||||||
Total School District | 15,596,953 | ||||||||
Transportation (0.6%) | |||||||||
Texas State Transportation Commission | |||||||||
Mobility Fund | |||||||||
1,140,000 | 5.000%, 04/01/27 Series A | ||||||||
(pre-refunded) | Aaa/AAA/NR | 1,216,528 | |||||||
1,000,000 | 5.000%, 10/01/31 Series 2015A | Aaa/AAA/AAA | 1,191,500 | ||||||
Total Transportation | 2,408,028 | ||||||||
Utilities (2.2%) | |||||||||
Central Utah Water Conservancy | |||||||||
District Refunding | |||||||||
765,000 | 5.000%, 04/01/28 Series B | NR/AA+/AAA | 885,028 |
3 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
Utilities (continued) | |||||||||
Harris County, Texas Flood Control | |||||||||
District Improvement | |||||||||
$ | 1,000,000 | 4.750%, 10/01/29 | Aaa/AAA/AAA | $ | 1,040,650 | ||||
Las Vegas Valley, Nevada Water | |||||||||
District Refunding | |||||||||
1,000,000 | 5.000%, 06/01/30 Series C | Aa1/AA+/NR | 1,152,710 | ||||||
Las Vegas Valley, Nevada Water District | |||||||||
Refunding & Water Improvement | |||||||||
2,600,000 | 5.000%, 02/01/38 Series A | Aa1/AA+/NR | 2,793,882 | ||||||
Texas State Water Financial Assistance | |||||||||
1,000,000 | 5.000%, 08/01/30 Series E | Aaa/AAA/AAA | 1,195,330 | ||||||
Virgin Valley, Nevada Water District | |||||||||
955,000 | 5.000%, 03/01/34 AGC Insured | ||||||||
(pre-refunded) | A1/NR/NR | 1,053,260 | |||||||
Total Utilities | 8,120,860 | ||||||||
Total General Obligation Bonds | 60,632,927 | ||||||||
Revenue Bonds (82.2%) | |||||||||
Airport (2.1%) | |||||||||
Alaska State International Airport | |||||||||
Revenue | |||||||||
35,000 | 5.000%, 10/01/24 AMBAC Insured AMT | A1/NR/A+ | 35,103 | ||||||
Broward County, Florida Airport System | |||||||||
Revenue Refunding | |||||||||
1,000,000 | 5.375%, 10/01/29 Series O | A1/A+/A | 1,135,350 | ||||||
Clark County, Nevada Passenger | |||||||||
Facilities Charge Revenue Las | |||||||||
Vegas-McCarran International Airport | |||||||||
1,500,000 | 5.000%, 07/01/30 | A1/A+/NR | 1,669,050 | ||||||
Jacksonville, Florida Aviation Authority | |||||||||
1,895,000 | 5.000%, 10/01/26 AMBAC Insured AMT | A2/A/A | 1,971,710 | ||||||
Miami-Dade County, Florida Aviation | |||||||||
Revenue Miami International Airport | |||||||||
1,675,000 | 5.000%, 10/01/22 Series A-1 | A2/A/A | 1,942,665 | ||||||
Reno-Tahoe, Nevada Airport Authority | |||||||||
Revenue Refunding | |||||||||
1,000,000 | 5.000%, 07/01/26 AGMC Insured | A2/NR/A | 1,000,000 | ||||||
Total Airport | 7,753,878 |
4 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Education (10.7%) | |||||||||
Florida Higher Education Facilities | |||||||||
Authority Revenue, Refunding, Rollins | |||||||||
College Project | |||||||||
$ | 1,000,000 | 5.000%, 12/01/37 Series A | A2/NR/NR | $ | 1,112,240 | ||||
Forney, Texas Independent School | |||||||||
District Capital Appreciation Refunding | |||||||||
1,000,000 | zero coupon, 08/15/39 AGMC Insured | NR/AA/NR | 324,400 | ||||||
Hillsborough County, Florida School | |||||||||
Board COP | |||||||||
1,500,000 | 5.000%, 07/01/31 NPFG Insured | ||||||||
(pre-refunded) | Aa2/AA-/AA | 1,550,850 | |||||||
Irving, Texas Independent School | |||||||||
District Capital Appreciation Refunding | |||||||||
845,000 | zero coupon, 02/15/20 PSF | ||||||||
Guaranteed (unrefunded balance) | Aaa/AAA/NR | 689,486 | |||||||
155,000 | zero coupon, 02/15/20 PSF | ||||||||
Guaranteed (pre-refunded) | Aaa/NR/NR | 126,638 | |||||||
Ogden City, Utah Municipal Building | |||||||||
Authority School District Lease | |||||||||
Revenue | |||||||||
1,315,000 | 5.000%, 01/15/31 | Aa3/NR/NR | 1,483,833 | ||||||
Salt Lake County, Utah Westminster | |||||||||
College Project | |||||||||
280,000 | 1.000%, 10/01/17 | NR/BBB/NR | 276,886 | ||||||
685,000 | 5.000%, 10/01/19 | NR/BBB/NR | 753,459 | ||||||
720,000 | 5.000%, 10/01/20 | NR/BBB/NR | 801,432 | ||||||
825,000 | 4.750%, 10/01/20 | NR/BBB/NR | 860,343 | ||||||
870,000 | 4.750%, 10/01/21 | NR/BBB/NR | 905,835 | ||||||
2,300,000 | 5.000%, 10/01/22 (pre-refunded) | NR/BBB/NR | 2,300,000 | ||||||
790,000 | 5.000%, 10/01/22 | NR/BBB/NR | 881,561 | ||||||
600,000 | 5.000%, 10/01/27 | NR/BBB/NR | 620,628 | ||||||
2,025,000 | 5.125%, 10/01/28 (pre-refunded) | NR/BBB/NR | 2,025,000 | ||||||
955,000 | 5.000%, 10/01/28 | NR/BBB/NR | 1,032,918 | ||||||
1,005,000 | 5.000%, 10/01/29 | NR/BBB/NR | 1,079,591 | ||||||
315,000 | 5.125%, 10/01/30 (pre-refunded) | NR/BBB/NR | 315,000 | ||||||
1,055,000 | 5.000%, 10/01/30 | NR/BBB/NR | 1,128,154 | ||||||
Texas State University System Financing | |||||||||
Revenue | |||||||||
2,000,000 | 5.250%, 03/15/25 (pre-refunded) | Aa2/NR/NR | 2,221,200 |
5 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Education (continued) | |||||||||
Tooele County, Utah Municipal | |||||||||
Building Authority School District | |||||||||
Lease Revenue | |||||||||
$ | 1,000,000 | 5.000%, 06/01/28 (pre-refunded) | A1/A+/NR | $ | 1,110,690 | ||||
University of South Florida Financing | |||||||||
Corp., Florida COP Refunding Master | |||||||||
Lease Program | |||||||||
1,000,000 | 5.000%, 07/01/31 Series A | A1/A+/NR | 1,131,660 | ||||||
Utah State Board of Regents | |||||||||
2,980,000 | 4.500%, 04/01/29 | Aa2/AA/NR | 3,238,128 | ||||||
Utah State Board of Regents, Dixie | |||||||||
State University | |||||||||
1,800,000 | 5.000%, 06/01/30 AGMC Insured | NR/AA/NR | 2,104,722 | ||||||
Utah State Board of Regents Lease | |||||||||
Revenue | |||||||||
410,000 | 4.500%, 05/01/20 AMBAC Insured | NR/AA/NR | 419,192 | ||||||
425,000 | 4.500%, 05/01/21 AMBAC Insured | NR/AA/NR | 434,503 | ||||||
450,000 | 4.625%, 05/01/22 AMBAC Insured | NR/AA/NR | 460,328 | ||||||
120,000 | 4.650%, 05/01/23 AMBAC Insured | NR/AA/NR | 122,772 | ||||||
Utah State Board of Regents, Utah, | |||||||||
Valley University Student Center | |||||||||
Building Fee And Unified System | |||||||||
Revenue | |||||||||
3,005,000 | 5.000%, 11/01/28 Series 2012A | NR/AA/NR | 3,525,316 | ||||||
Utah State University Student | |||||||||
Building Fee | |||||||||
1,285,000 | 5.000%, 12/01/29 Series B | NR/AA/NR | 1,467,123 | ||||||
1,355,000 | 5.000%, 12/01/30 Series B | NR/AA/NR | 1,540,079 | ||||||
Warsaw, Indiana Multi-School Building | |||||||||
Corp., First Mortgage | |||||||||
1,800,000 | 5.450%, 01/15/28 Series B | NR/AA+/NR | 1,973,916 | ||||||
Washington State Higher Education | |||||||||
Facilities Authority Revenue, Refunding, | |||||||||
Gonzaga University Project | |||||||||
950,000 | 5.000%, 04/01/24 Series B | A3/NR/NR | 1,062,262 | ||||||
Weber State University, Utah Student | |||||||||
Facilities System | |||||||||
1,275,000 | 5.125%, 04/01/32 NPFG Insured | ||||||||
(pre-refunded) | A3/AA/NR | 1,275,000 | |||||||
Total Education | 40,355,145 |
6 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Education - Charter Schools (10.1%) | |||||||||
Utah County, Utah Charter School | |||||||||
Revenue Renaissance Academy | |||||||||
$ | 100,000 | 5.350%, 07/15/17 Series A 144A | NR/NR/NR* | $ | 101,703 | ||||
Utah County, Utah Charter School | |||||||||
Revenue, Ronald Wilson Reagan | |||||||||
Academy | |||||||||
1,000,000 | 6.000%, 02/15/38 Series A | NR/BB+/NR | 1,018,370 | ||||||
Utah State Charter School Finance | |||||||||
Authority Fast Forward Academy | |||||||||
2,665,700 | 91754TBW2 6.500%, 11/15/37 144A | ||||||||
(pre-refunded) | NR/NR/NR* | 2,676,949 | |||||||
Utah State Charter School Finance | |||||||||
Authority George Washington | |||||||||
Academy | |||||||||
500,000 | 1.000%, 04/15/18 Series 2015 | NR/AA/NR | 497,765 | ||||||
1,000,000 | 6.750%, 07/15/28 (pre-refunded) | NR/BBB-/NR | 1,070,020 | ||||||
1,500,000 | 5.000%, 04/15/35 Series 2015 | NR/AA/NR | 1,644,930 | ||||||
Utah State Charter School Finance | |||||||||
Authority Good Foundations Academy | |||||||||
1,000,000 | 4.750%, 11/15/24 Series A | NR/NR/NR* | 994,840 | ||||||
1,655,000 | 5.550%, 11/15/34 Series A | NR/NR/NR* | 1,64 1,429 | ||||||
3,280,000 | 5.850%, 11/15/44 Series A | NR/NR/NR* | 3,248,086 | ||||||
Utah State Charter School Finance | |||||||||
Authority Hawthorn Academy Project | |||||||||
2,165,000 | 5.000%, 10/15/29 Series 2014 | NR/AA/NR | 2,475,742 | ||||||
Utah State Charter School Finance | |||||||||
Authority Lakeview Academy | |||||||||
1,300,000 | 5.000%, 10/15/35 Series 2015 | NR/AA/NR | 1,453,205 | ||||||
Utah State Charter School Finance | |||||||||
Authority Legacy Preparatory Academy | |||||||||
405,000 | 4.000%, 04/15/22 | NR/AA/NR | 447,286 | ||||||
440,000 | 4.000%, 04/15/24 | NR/AA/NR | 486,486 | ||||||
2,530,000 | 5.000%, 04/15/29 | NR/AA/NR | 2,893,131 | ||||||
1,635,000 | 5.000%, 04/15/34 | NR/AA/NR | 1,822,077 | ||||||
Utah State Charter School Finance | |||||||||
Authority Monticello Academy | |||||||||
(School Board Guaranty Program) | |||||||||
1,000,000 | 5.000%, 04/15/37 Series 2014 | NR/AA/NR | 1,097,390 |
7 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Education - Charter Schools (continued) | |||||||||
Utah State Charter School Finance | |||||||||
Authority Ogden Preparatory Academy | |||||||||
(School Board Guaranty Program) | |||||||||
$ | 475,000 | 4.000%, 10/15/22 | NR/AA/NR | $ | 528,100 | ||||
505,000 | 4.000%, 10/15/23 | NR/AA/NR | 555,934 | ||||||
525,000 | 4.000%, 10/15/24 | NR/AA/NR | 569,819 | ||||||
Utah State Charter School Finance | |||||||||
Authority Providence Hall Elementary | |||||||||
School (School Board Guaranty | |||||||||
Program) | |||||||||
1,000,000 | 5.250%, 10/15/28 Series 2013A | NR/AA/NR | 1,159,460 | ||||||
1,000,000 | 5.000%, 10/15/33 Series 2013A | NR/AA/NR | 1,110,830 | ||||||
Utah State Charter School Finance | |||||||||
Authority, Refunding & Improvement, | |||||||||
Davinci Academy | |||||||||
1,000,000 | 7.050%, 09/15/26 Series 2011A | NR/BBB-/NR | 1,097,620 | ||||||
Utah State Charter School Finance | |||||||||
Authority Ronald Wilson Reagan | |||||||||
Academy | |||||||||
1,000,000 | 5.750%, 02/15/22 Series A | NR/BB+/NR | 1,031,260 | ||||||
Utah State Charter School Finance | |||||||||
Authority Venture Academy | |||||||||
600,000 | 0.500%, 10/15/19 | NR/AA/NR | 585,852 | ||||||
675,000 | 4.000%, 10/15/24 | NR/AA/NR | 739,584 | ||||||
855,000 | 5.000%, 10/15/29 | NR/AA/NR | 977,718 | ||||||
1,095,000 | 5.000%, 10/15/34 | NR/AA/NR | 1,222,086 | ||||||
1,095,000 | 5.000%, 10/15/38 | NR/AA/NR | 1,233,835 | ||||||
2,115,000 | 5.000%, 10/15/44 | NR/AA/NR | 2,315,862 | ||||||
Utah State Charter School Finance | |||||||||
Authority Wasatch Peak Academy | |||||||||
Project, School Board Guaranty | |||||||||
Program | |||||||||
740,000 | 5.000%, 10/15/29 | NR/AA/NR | 830,576 | ||||||
700,000 | 5.000%, 10/15/36 | NR/AA/NR | 766,045 | ||||||
Total Education - Charter Schools | 38,293,990 | ||||||||
Hospital (5.0%) | |||||||||
Brevard County, Florida Health Facilities | |||||||||
Authority Health First Inc. Project | |||||||||
1,815,000 | 5.000%, 04/01/18 | A3/A-/NR | 1,854,204 | ||||||
750,000 | 5.000%, 04/01/30 | A3/A-/NR | 834,915 |
8 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Hospital (continued) | |||||||||
Campbell County, Wyoming Hospital | |||||||||
District, Hospital Revenue, Memorial | |||||||||
Hospital Project | |||||||||
$ | 1,040,000 | 5.000%, 12/01/20 | NR/A-/NR | $ | 1,183,395 | ||||
1,000,000 | 5.500%, 12/01/34 | NR/A-/NR | 1,129,910 | ||||||
Harris County, Texas Health Facilities | |||||||||
Development Corp., Christus Health | |||||||||
540,000 | 4.750%, 07/01/30 AGMC Insured | ||||||||
(unrefunded balance) | NR/AA/NR | 587,909 | |||||||
260,000 | 4.750%, 07/01/30 AGMC Insured | ||||||||
(pre-refunded) | NR/NR/NR* | 301,740 | |||||||
Henderson, Nevada Health Care | |||||||||
Facilities, Catholic Healthcare West | |||||||||
1,350,000 | 5.250%, 07/01/31 Series B | A3/A/A | 1,432,701 | ||||||
Indiana Finance Authority Hospital | |||||||||
Revenue, Parkview Health System | |||||||||
300,000 | 5.875%, 05/01/29 | A1/A+/NR | 300,867 | ||||||
King County, Washington Public | |||||||||
Hospital District No. 002, Refunding, | |||||||||
Evergreen Healthcare | |||||||||
1,000,000 | 5.250%, 12/01/28 | Aa3/A+/NR | 1,158,430 | ||||||
Miami-Dade County, Florida Public | |||||||||
Facilities, Jackson Health System | |||||||||
1,000,000 | 5.000%, 06/01/29 Series A | Aa3/A+/AA- | 1,136,000 | ||||||
Reno, Nevada Hospital Revenue, | |||||||||
Washoe Medical Center | |||||||||
725,000 | 5.000%, 06/01/23 AGMC Insured | A2/AA/NR | 792,396 | ||||||
680,000 | 5.000%, 06/01/23 AGMC Insured | A2/AA/NR | 743,213 | ||||||
Richmond, Indiana Hospital Revenue | |||||||||
205,000 | 5.000%, 01/01/19 ETM | NR/A/A | 220,644 | ||||||
Riverton, Utah Hospital Revenue, | |||||||||
Intermountain Health Care Health | |||||||||
Services, Inc. | |||||||||
940,000 | 5.000%, 08/15/36 | Aa1/AA+/NR | 1,035,062 | ||||||
Tarrant County, Texas Cultural Education | |||||||||
Facilities Finance Corp. Hospital | |||||||||
Refunding, Baylor Healthcare System | |||||||||
930,000 | 5.250%, 08/15/25 (pre-refunded) | AA3/AA-/NR | 1,095,280 | ||||||
70,000 | 5.250%, 08/15/25 (pre-refunded) | NR/NR/NR* | 82,440 |
9 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Hospital (continued) | |||||||||
Utah County, Utah Hospital Revenue, | |||||||||
IHC Health Services, Inc. | |||||||||
$ | 1,205,000 | 5.000%, 05/15/25 | Aa1/AA+/NR | $ | 1,414,815 | ||||
880,000 | 5.000%, 05/15/28 | Aa1/AA+/NR | 1,012,889 | ||||||
500,000 | 5.000%, 05/15/29 | Aa1/AA+/NR | 570,110 | ||||||
Utah State Board of Regents, University | |||||||||
of Utah Hospital Revenue | |||||||||
1,245,000 | 5.000%, 08/01/31 (pre-refunded) | NR/AA/NR | 1,462,800 | ||||||
Washington State Health Care Facilities | |||||||||
Authority Revenue, Refunding, Fred | |||||||||
Hutchinson Cancer | |||||||||
595,000 | 5.000%, 01/01/18 | A3/A/NR | 644,099 | ||||||
Total Hospital | 18,993,819 | ||||||||
Housing (0.7%) | |||||||||
Utah Housing Corporation Single | |||||||||
Family Mortgage | |||||||||
530,000 | 6.100%, 01/01/29 AMT | Aa3/AA-/AA- | 541,316 | ||||||
355,000 | 4.950%, 01/01/32 Series A Class II | Aa2/AA/AA | 368,501 | ||||||
1,125,000 | 4.500%, 01/01/24 Series A Class III | Aa3/AA-/AA- | 1,170,619 | ||||||
180,000 | 4.625%, 07/01/32 Series B-1 Class II | Aa2/AA/AA | 186,572 | ||||||
470,000 | 4.500%, 07/01/23 Series C | Aa3/AA-/AA- | 488,659 | ||||||
Total Housing | 2,755,667 | ||||||||
Local Public Property (16.3%) | |||||||||
Civicventures, Alaska Revenue Refunding, | |||||||||
Anchorage Convention Center | |||||||||
1,000,000 | 5.000%, 09/01/28 | NR/A/AA- | 1,148,080 | ||||||
1,000,000 | 5.000%, 09/01/29 | NR/A/AA- | 1,139,900 | ||||||
1,000,000 | 5.000%, 09/01/30 | NR/A/AA- | 1,131,780 | ||||||
Clark County, Nevada Improvement | |||||||||
District Special Local Improvement | |||||||||
#128 (Summerlin) | |||||||||
500,000 | 5.000%, 02/01/21 Series A | NR/NR/NR* | 475,715 | ||||||
Cottonwood Heights, Utah Sales Tax | |||||||||
Revenue | |||||||||
2,000,000 | 5.000%, 07/01/32 Series 2014 | NR/AA-/NR | 2,277,360 | ||||||
Downtown Redevelopment Authority | |||||||||
Texas Tax Increment Contract Revenue | |||||||||
1,000,000 | 5.000%, 09/01/30 BAM Insured | NR/AA/NR | 1,129,090 |
10 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Local Public Property (continued) | |||||||||
Draper, Utah Sales Tax Revenue | |||||||||
$ | 1,000,000 | 5.000%, 05/01/32 Series A | NR/AA/NR | $ | 1,126,730 | ||||
Eagle Mountain, Utah Special | |||||||||
Assessment Area | |||||||||
670,000 | 5.250%, 05/01/28 Series 2013 | NR/A+/NR | 742,213 | ||||||
Harris County, Texas Sports Refunding | |||||||||
Senior Lien | |||||||||
500,000 | 5.000%, 11/15/30 Series A | A2/A-/NR | 570,200 | ||||||
Herriman, Utah Special Assessment | |||||||||
Towne Center Assessment Area | |||||||||
1,045,000 | 4.875%, 11/01/23 | NR/AA-/NR | 1,19 1,833 | ||||||
1,150,000 | 5.000%, 11/01/25 | NR/AA-/NR | 1,323,362 | ||||||
1,975,000 | 5.000%, 11/01/29 | NR/AA-/NR | 2,024,553 | ||||||
Houston, Texas Hotel Occupancy Tax | |||||||||
and Special Revenue | |||||||||
1,000,000 | 5.000%, 09/01/31 | A2/A-/NR | 1,131,050 | ||||||
Jacksonville, Florida Special Revenue | |||||||||
and Refunding Bonds | |||||||||
1,015,000 | 5.250%, 10/01/32 Series A | Aa3/AA-/AA- | 1,180,861 | ||||||
Miami-Dade County, Florida | |||||||||
Subordinated Special Obligation | |||||||||
Capital Appreciation Bonds | |||||||||
3,000,000 | zero coupon, 10/01/38 NPFG Insured | ||||||||
Series A | A2/AA-/A+ | 911,580 | |||||||
New Albany, Indiana Development | |||||||||
Authority | |||||||||
500,000 | 4.250%, 02/01/22 | NR/A+/NR | 519,000 | ||||||
Orange County, Florida Tourist | |||||||||
Development Tax Revenue Refunding | |||||||||
1,000,000 | 5.000%, 10/01/30 | Aa3/AA-/AA | 1,174,350 | ||||||
Orem, Utah Special Assessment | |||||||||
940,000 | 7.750%, 11/01/25 | NR/NR/NR* | 941,814 | ||||||
Reedy Creek, Florida Improvement | |||||||||
District | |||||||||
1,000,000 | 5.250%, 06/01/29 Series A | Aa3/A+/AA- | 1,180,570 | ||||||
Riverton City, Utah Franchise & Sales | |||||||||
Tax Revenue | |||||||||
1,585,000 | 5.000%, 06/01/31 AMBAC Insured | NR/AA-/AA | 1,683,413 | ||||||
1,000,000 | 5.250%, 12/01/36 | NR/AA-/AA | 1,122,300 |
11 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Local Public Property (continued) | |||||||||
Salt Lake City, Utah Local Building | |||||||||
Authority Lease Revenue | |||||||||
$ | 955,000 | 4.000%, 10/15/23 Series A | Aa1/NR/AA+ | $ | 1,050,977 | ||||
Salt Lake Valley, Utah Fire Service | |||||||||
District Lease Revenue | |||||||||
500,000 | 5.000%, 04/01/22 | Aa2/NR/AA- | 547,485 | ||||||
2,645,000 | 5.200%, 04/01/28 | Aa2/NR/AA- | 2,892,731 | ||||||
1,000,000 | 5.250%, 04/01/30 | Aa2/NR/AA- | 1,094,360 | ||||||
Spanish Fork City, Utah Sales Tax | |||||||||
Revenue Refunding | |||||||||
1,115,000 | 0.750%, 04/15/18 Series 2014 | NR/AA-/NR | 1,108,054 | ||||||
St. Augustine, Florida Capital | |||||||||
Improvement Refunding | |||||||||
500,000 | 5.000%, 10/01/34 | Aa3/A+/A+ | 556,295 | ||||||
St. Lucie County, Florida School Board | |||||||||
COP Master Lease Program | |||||||||
500,000 | 5.000%, 07/01/30 Series A | A1/A/A+ | 570,065 | ||||||
Uintah County, Utah Municipal Building | |||||||||
Authority Lease Revenue | |||||||||
500,000 | 5.000%, 06/01/24 | NR/A+/NR | 546,755 | ||||||
2,000,000 | 5.300%, 06/01/28 | NR/A+/NR | 2,194,340 | ||||||
1,005,000 | 5.500%, 06/01/37 | NR/A+/NR | 1,105,651 | ||||||
1,120,000 | 5.500%, 06/01/40 | NR/A+/NR | 1,230,331 | ||||||
Utah Transit Authority Sales Tax Revenue | |||||||||
1,000,000 | 5.000%, 06/15/31 Series A | Aa2/AAA/AA | 1,189,350 | ||||||
Utah Transit Authority Sales Tax | |||||||||
Revenue Subordinated | |||||||||
5,000,000 | 5.000%, 06/15/34 Series A | A1/A+/A+ | 5,700,100 | ||||||
5,000,000 | 5.000%, 06/15/37 Series A | A1/A+/A+ | 5,655,750 | ||||||
Washington County/St. George | |||||||||
Interlocal Agency, Utah Lease | |||||||||
Revenue Refunding | |||||||||
650,000 | 0.500%, 12/01/15 Series A | A1/A+/NR | 650,286 | ||||||
1,365,000 | 0.500%, 12/01/16 Series A | A1/A+/NR | 1,359,677 | ||||||
Weber County, Utah Special | |||||||||
Assessment Summit Mountain Area | |||||||||
1,595,000 | 5.500%, 01/15/28 | NR/AA-/NR | 1,861,844 | ||||||
4,120,000 | 5.750%, 01/15/33 | NR/AA-/NR | 4,829,176 |
12 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Local Public Property (continued) | |||||||||
West Valley City, Utah Municipal | |||||||||
Building Authority Lease Revenue | |||||||||
Refunding | |||||||||
$ | 1,645,000 | 4.500%, 08/01/22 Series A NPFG/ | |||||||
FGIC Insured | A3/AA-/A+ | $ | 1,693,939 | ||||||
West Valley City, Utah Sales Tax | |||||||||
Revenue Capital Appreciation Bonds, | |||||||||
Refunding | |||||||||
3,500,000 | zero coupon, 07/15/35 | NR/AA+/NR | 1,469,580 | ||||||
Total Local Public Property | 61,432,500 | ||||||||
State Agency (1.8%) | |||||||||
Utah Infrastructure Agency | |||||||||
Telecommunications & Franchise Tax | |||||||||
1,000,000 | 5.500%, 10/15/30 Series A AGMC | ||||||||
Insured | A2/AA/NR | 1,184,710 | |||||||
1,475,000 | 5.250%, 10/15/33 Series A AGMC | ||||||||
Insured | A2/AA/NR | 1,695,321 | |||||||
Utah State Building Ownership | |||||||||
Authority Lease Revenue Refunding | |||||||||
State Facilities Master Lease Program | |||||||||
465,000 | 5.000%, 05/15/21 (pre-refunded) | Aa1/AA+/NR | 478,829 | ||||||
510,000 | 5.000%, 05/15/23 (pre-refunded) | Aa1/AA+/NR | 525,167 | ||||||
1,000,000 | 5.000%, 05/15/24 | Aa1/AA+/NR | 1,218,540 | ||||||
1,575,000 | 5.000%, 05/15/26 (pre-refunded) | Aa1/AA+/NR | 1,803,312 | ||||||
Total State Agency | 6,905,879 | ||||||||
Tax Revenue (2.3%) | |||||||||
Bountiful City, Utah Sales Tax Refunding | |||||||||
Bond | |||||||||
432,000 | 4.000%, 06/01/17 | NR/AA/NR | 446,221 | ||||||
Brigham, Utah Special Assessment | |||||||||
Voluntary Assessment Area | |||||||||
1,140,000 | 5.250%, 08/01/23 | A1/NR/NR | 1,303,225 | ||||||
508,000 | 5.500%, 08/01/29 | A1/NR/NR | 584,424 | ||||||
Henderson, Nevada Local Improvement | |||||||||
District | |||||||||
210,000 | 5.000%, 03/01/16 | NR/NR/NR* | 210,250 | ||||||
Jordanelle, Utah Special Service District | |||||||||
196,000 | 5.100%, 11/15/15 | NR/NR/NR* | 196,143 | ||||||
206,000 | 5.200%, 11/15/16 | NR/NR/NR* | 206,076 |
13 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Tax Revenue (continued) | |||||||||
Jordanelle, Utah Special Service District | |||||||||
(continued) | |||||||||
$ | 216,000 | 5.300%, 11/15/17 | NR/NR/NR* | $ | 216,089 | ||||
228,000 | 5.400%, 11/15/18 | NR/NR/NR* | 228,057 | ||||||
240,000 | 5.500%, 11/15/19 | NR/NR/NR* | 240,017 | ||||||
253,000 | 5.600%, 11/15/20 | NR/NR/NR* | 252,760 | ||||||
268,000 | 5.700%, 11/15/21 | NR/NR/NR* | 266,346 | ||||||
283,000 | 5.800%, 11/15/22 | NR/NR/NR* | 279,581 | ||||||
299,000 | 6.000%, 11/15/23 | NR/NR/NR* | 295,959 | ||||||
Mesquite, Nevada New Special | |||||||||
Improvement District | |||||||||
105,000 | 5.250%, 08/01/17 | NR/NR/NR* | 103,562 | ||||||
230,000 | 5.350%, 08/01/19 | NR/NR/NR* | 219,657 | ||||||
95,000 | 5.400%, 08/01/20 | NR/NR/NR* | 89,450 | ||||||
355,000 | 5.500%, 08/01/25 | NR/NR/NR* | 316,198 | ||||||
Payson City, Utah Sales Tax Revenue | |||||||||
445,000 | 5.000%, 08/01/21 AGMC Insured | ||||||||
(pre-refunded) | A2/AA/NR | 462,351 | |||||||
Riverton City, Utah Franchise & Sales | |||||||||
Tax Revenue | |||||||||
750,000 | 5.000%, 06/01/24 AMBAC Insured | NR/AA-/AA | 801,307 | ||||||
Springville, Utah Special Assessment | |||||||||
Revenue | |||||||||
76,000 | 5.500%, 01/15/17 | NR/NR/NR* | 76,017 | ||||||
81,000 | 5.650%, 01/15/18 | NR/NR/NR* | 81,004 | ||||||
85,000 | 5.800%, 01/15/19 | NR/NR/NR* | 84,994 | ||||||
73,000 | 5.900%, 01/15/20 | NR/NR/NR* | 72,585 | ||||||
West Valley City, Utah Redevelopment | |||||||||
Agency | |||||||||
320,000 | 5.000%, 03/01/22 | NR/A-/NR | 320,835 | ||||||
350,000 | 5.000%, 03/01/23 | NR/A-/NR | 350,910 | ||||||
1,000,000 | 5.000%, 03/01/24 | NR/A-/NR | 1,002,560 | ||||||
Total Tax Revenue | 8,706,578 | ||||||||
Transportation (8.7%) | |||||||||
Central Puget Sound, Washington | |||||||||
Regional Transit Authority Sales & Use | |||||||||
Tax Improvement & Refunding | |||||||||
1,000,000 | 5.000%, 11/01/31 | Aa2/AAA/NR | 1,195,780 |
14 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Transportation (continued) | |||||||||
Dallas, Texas Area Rapid Transit Sales | |||||||||
Tax Revenue Refunding Senior Lien | |||||||||
$ | 1,435,000 | 5.000%, 12/01/36 AMBAC Insured | |||||||
(pre-refunded) | Aa2/NR/NR | $ | 1,511,356 | ||||||
Miami-Dade County, Florida Transit | |||||||||
System Sales Surtax Revenue | |||||||||
1,000,000 | 5.000%, 07/01/34 | A1/AA/AA- | 1,140,560 | ||||||
North Texas Turnpike Authority Revenue | |||||||||
4,070,000 | 6.100%, 01/01/28 | A1/A/NR | 4,691,774 | ||||||
Texas State Transportation Commission | |||||||||
Highway Improvement | |||||||||
1,000,000 | 5.000%, 04/01/29 | Aaa/AAA/AAA | 1,183,430 | ||||||
Utah Transit Authority Sales Tax Revenue | |||||||||
2,000,000 | 5.000%, 06/15/27 Series A | ||||||||
(pre-refunded) | Aa2/AAA/NR | 2,224,580 | |||||||
1,000,000 | 5.000%, 06/15/28 Series A | ||||||||
(pre-refunded) | Aa2/AAA/NR | 1,112,290 | |||||||
6,920,000 | 5.000%, 06/15/36 AGMC Insured | ||||||||
Series A (pre-refunded) | Aa2/AAA/NR | 7,697,047 | |||||||
2,000,000 | 5.000%, 06/15/38 Series A | Aa2/AAA/AA | 2,317,820 | ||||||
Utah Transit Authority Sales Tax Revenue | |||||||||
Capital Appreciation Refunding | |||||||||
2,000,000 | zero coupon, 06/15/29 NPFG Insured | ||||||||
Series A (pre-refunded) | A1/AA-/NR | 1,089,240 | |||||||
Utah Transit Authority Sales Tax | |||||||||
Revenue Refunding | |||||||||
5,185,000 | zero coupon, 06/15/23 Series A NPFG | ||||||||
Insured (pre-refunded) | A1/AA-/NR | 3,824,560 | |||||||
1,000,000 | 5.000%, 06/15/32 | A1/A+/A+ | 1,114,660 | ||||||
Utah Transit Authority Sales Tax & | |||||||||
Transportation Revenue | |||||||||
195,000 | 5.250%, 06/15/32 AGMC Insured | Aa2/AAA/AA | 247,707 | ||||||
Washoe County, Nevada Highway | |||||||||
Revenue Fuel Tax | |||||||||
1,000,000 | 5.500%, 02/01/28 | A1/A+/NR | 1,131,570 | ||||||
1,000,000 | 5.000%, 02/01/32 | A1/A+/NR | 1,097,290 | ||||||
1,000,000 | 5.000%, 02/01/38 | A1/A+/NR | 1,088,190 | ||||||
Total Transportation | 32,667,854 |
15 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Utility (13.4%) | |||||||||
Clark County, Washington Public Utility | |||||||||
District No. 001 Electric Revenue | |||||||||
Refunding | |||||||||
$ | 880,000 | 5.000%, 01/01/30 | A1/A/A+ | $ | 1,010,337 | ||||
Clark County, Washington Public Utility | |||||||||
District No. 001 Generating Refunding | |||||||||
1,000,000 | 5.000%, 01/01/24 | A1/A/A+ | 1,125,220 | ||||||
Consolidated Wyoming Municipalities | |||||||||
Electric Facilities Improvement Lease, | |||||||||
Gillette | |||||||||
1,000,000 | 5.000%, 06/01/31 | A2/A+/NR | 1,130,260 | ||||||
Cowlitz County, Washington Public | |||||||||
Utility District No. 001 | |||||||||
560,000 | 4.500%, 09/01/26 NPFG Insured | ||||||||
(pre-refunded) | A1/NR/NR | 581,515 | |||||||
90,000 | 4.500%, 09/01/26 NPFG Insured | ||||||||
(unrefunded balance) | A1/NR/NR | 92,840 | |||||||
Douglas County, Washington Public | |||||||||
Utility District No. 001 Electric | |||||||||
Distribution System | |||||||||
635,000 | 0.050%, 12/01/15 | Aa3/AA/NR | 634,930 | ||||||
Eagle Mountain, Utah Gas & Electric | |||||||||
325,000 | 5.000%, 06/01/24 AGMC Insured | ||||||||
(pre-refunded) | NR/AA/NR | 387,423 | |||||||
Energy Northwest, Washington Wind | |||||||||
Project | |||||||||
1,000,000 | 4.500%, 07/01/30 Series A AMBAC | ||||||||
Insured (pre-refunded) | A2/A/NR | 1,030,970 | |||||||
Florida State Governmental Utility | |||||||||
Authority Refunding Revenue Bonds | |||||||||
(Lehigh Utility System) | |||||||||
500,000 | 5.000%, 10/01/31 Series 2014 AGMC | ||||||||
Insured | A2/AA/NR | 558,640 | |||||||
Jacksonville Electric Authority, Florida | |||||||||
Electric System Revenue | |||||||||
500,000 | 4.500%, 10/01/32 Series Three 2012A | Aa2/AA-/AA | 539,270 | ||||||
Lower Colorado River Authority, Texas | |||||||||
1,470,000 | 5.250%, 05/15/29 (unrefunded balance) | A2/A/A | 1,647,061 | ||||||
60,000 | 5.250%, 05/15/29 (pre-refunded) | NR/NR/NR* | 69,113 |
16 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Utility (continued) | |||||||||
Lower Colorado River Authority, Texas | |||||||||
(continued) | |||||||||
$ | 5,000 | 5.250%, 05/15/29 (pre-refunded) | NR/NR/NR* | $ | 5,740 | ||||
1,000,000 | 5.000%, 05/15/36 Series A | ||||||||
(unrefunded balance) | A2/A/A | 1,110,860 | |||||||
Lower Colorado River Authority, Texas | |||||||||
Transmission Contract Revenue | |||||||||
1,000,000 | 5.000%, 05/15/30 | NR/A/A+ | 1,146,100 | ||||||
Miami-Dade County, Florida Water and | |||||||||
Sewer Revenue System | |||||||||
1,000,000 | 5.000%, 10/01/26 | Aa3/A+/A+ | 1,202,130 | ||||||
North Slope Borough, Alaska Service | |||||||||
Area 10 Water & Wastewater Facilities | |||||||||
1,000,000 | 5.250%, 06/30/27 | NR/A-/NR | 1,154,430 | ||||||
1,000,000 | 5.250%, 06/30/28 | NR/A-/NR | 1,146,430 | ||||||
1,000,000 | 5.250%, 06/30/34 | NR/A-/NR | 1,112,900 | ||||||
Okaloosa County, Florida Water and | |||||||||
Sewer Revenue | |||||||||
1,000,000 | 5.000%, 07/01/30 | Aa3/NR/AA- | 1,165,940 | ||||||
San Antonio, Texas Electric & Gas | |||||||||
Revenue System | |||||||||
1,000,000 | 5.000%, 02/01/32 | Aa1/AA/AA+ | 1,080,040 | ||||||
San Jacinto, Texas River Authority | |||||||||
Woodlands Waste Disposal | |||||||||
1,000,000 | 5.000%,10/01/30 BAMI Insured | NR/AA/NR | 1,133,540 | ||||||
Santa Clara, Utah Electric Revenue | |||||||||
1,005,000 | 4.250%, 08/01/26 AGC Insured | A3/NR/NR | 1,006,558 | ||||||
Sarasota, Florida Utility System | |||||||||
Revenue Refunding | |||||||||
1,455,000 | 5.000%, 10/01/27 | NR/AA+/AA+ | 1,711,895 | ||||||
St. George, Utah Electric Revenue | |||||||||
3,750,000 | 5.000%, 06/01/38 AGMC Insured | A2/NR/NR | 4,049,587 | ||||||
Southeast Alaska Power Agency Electric | |||||||||
Refunding & Improvement | |||||||||
1,170,000 | 5.250%, 06/01/30 | NR/A-/NR | 1,332,103 | ||||||
Tacoma, Washington Solid Waste Utility | |||||||||
Revenue | |||||||||
1,000,000 | 5.000%, 12/01/23 Syncora Guarantee, | ||||||||
Inc. Insured | A1/AA/AA- | 1,051,660 |
17 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Utility (continued) | |||||||||
Tallahassee, Florida Consolidated | |||||||||
Utility System | |||||||||
$ | 2,910,000 | 5.000%, 10/01/37 | Aa1/AA+/AA+ | $ | 3,113,002 | ||||
Utah Associated Municipal Power | |||||||||
System Revenue, Horse Butte Wind | |||||||||
Project | |||||||||
1,005,000 | 5.000%, 09/01/32 Series A | NR/A-/A- | 1,114,947 | ||||||
Utah Associated Municipal Power | |||||||||
System Revenue Refunding, Payson | |||||||||
Power Project | |||||||||
2,000,000 | 5.000%, 04/01/24 | NR/A-/A | 2,305,340 | ||||||
1,000,000 | 5.000%, 04/01/25 | NR/A-/A | 1,151,460 | ||||||
6,375,000 | 5.000%, 04/01/26 | NR/A-/A | 7,329,019 | ||||||
Utah Associated Municipal Power | |||||||||
System Revenue, Veyo Heat | |||||||||
Recovery Project | |||||||||
795,000 | 5.000%, 03/01/30 | NR/A-/A | 893,230 | ||||||
905,000 | 5.000%, 03/01/32 | NR/A-/A | 1,007,591 | ||||||
745,000 | 5.000%, 03/01/34 | NR/A-/A | 823,188 | ||||||
Utah Infrastructure Agency | |||||||||
Telecommunications & Franchise Tax | |||||||||
1,000,000 | 5.000%, 10/15/33 | A2/AA-/NR | 1,110,090 | ||||||
1,630,000 | 5.250%, 10/15/38 | A2/AA-/NR | 1,816,048 | ||||||
Weber Basin, Utah Water Conservancy | |||||||||
District Refunding | |||||||||
915,000 | 4.000%, 10/01/31 Series A | NR/AA+/AAA | 970,431 | ||||||
Wyoming Municipal Power Agency | |||||||||
Power Supply System Revenue | |||||||||
720,000 | 5.500%, 01/01/28 Series A | A2/A-/NR | 785,160 | ||||||
Total Utility | 50,636,998 | ||||||||
Water and Sewer (11.1%) | |||||||||
Cape Coral, Florida Water & Sewer | |||||||||
Revenue | |||||||||
1,000,000 | 5.000%, 10/01/36 AGMC-AMBAC | ||||||||
Insured | A1/AA/A | 1,035,730 | |||||||
Central Utah Water Conservancy | |||||||||
District Refunding, Jordanelle Hydrant | |||||||||
1,125,000 | 4.500%, 10/01/27 Series A | NR/AA+/AA | 1,268,100 |
18 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Water and Sewer (continued) | |||||||||
Central Weber, Utah Sewer | |||||||||
Improvement District Revenue | |||||||||
Refunding | |||||||||
$ | 1,000,000 | 5.000%, 03/01/28 Series A AGMC | |||||||
Insured | NR/AA/AA | $ | 1,124,990 | ||||||
4,000,000 | 5.000%, 03/01/33 Series A AGMC | ||||||||
Insured | NR/AA/AA | 4,449,960 | |||||||
Davie, Florida Water & Sewer Revenue | |||||||||
1,000,000 | 5.000%, 10/01/32 AGMC Insured | Aa3/AA/NR | 1,129,350 | ||||||
Jordan Valley, Utah Water Conservancy | |||||||||
District Revenue | |||||||||
6,000,000 | 5.000%, 10/01/35 Series B | NR/AA+/AA | 6,804,360 | ||||||
King County, Washington Sewer | |||||||||
Revenue | |||||||||
660,000 | 5.000%, 01/01/33 AGMC Insured | ||||||||
(pre-refunded) | Aa2/AA+/NR | 710,873 | |||||||
Laredo, Texas Waterworks Sewer | |||||||||
System Revenue | |||||||||
1,450,000 | 5.000%, 03/01/24 Series 2010 | A1/AA-/AA- | 1,666,224 | ||||||
Miami-Dade County, Florida Water and | |||||||||
Sewer Revenue System | |||||||||
1,500,000 | 5.000%, 10/01/29 AGC Insured | Aa3/AA/A+ | 1,705,770 | ||||||
1,000,000 | 5.000%, 10/01/31 Series A | Aa3/A+/A+ | 1,143,540 | ||||||
Mountain Regional Water Special | |||||||||
Service District, Utah Water Revenue | |||||||||
Refunding | |||||||||
3,000,000 | 5.000%, 12/15/33 AGMC Insured | NR/AA/A+ | 3,389,220 | ||||||
Ogden City, Utah Sewer & Water | |||||||||
Revenue Bonds | |||||||||
1,160,000 | 5.250%, 06/15/30 Series B | Aa3/AA-/NR | 1,330,369 | ||||||
750,000 | 4.625%, 06/15/38 AGMC Insured | Aa3/NR/NR | 785,257 | ||||||
Ogden City, Utah Storm Drain Revenue | |||||||||
Bonds | |||||||||
500,000 | 5.250%, 06/15/28 | NR/AA/NR | 581,990 | ||||||
Orem, Utah Water & Storm Sewer | |||||||||
Revenue | |||||||||
1,000,000 | 5.000%, 07/15/26 | NR/AA/AA+ | 1,108,420 | ||||||
1,250,000 | 5.250%, 07/15/28 | NR/AA/AA+ | 1,391,150 |
19 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Water and Sewer (continued) | |||||||||
Pleasant Grove City, Utah Water | |||||||||
Revenue | |||||||||
$ | 450,000 | 4.300%, 12/01/20 NPFG Insured | |||||||
(pre-refunded) | A3/AA-/NR | $ | 470,317 | ||||||
1,000,000 | 5.250%, 12/01/29 AGMC Insured | NR/AA/NR | 1,118,750 | ||||||
1,370,000 | 5.000%, 12/01/31 Series B NPFG | ||||||||
Insured (pre-refunded) | A3/AA-/NR | 1,442,898 | |||||||
Salt Lake & Sandy, Utah Metropolitan | |||||||||
Water District, Water Revenue, | |||||||||
Refunding | |||||||||
650,000 | 5.000%, 07/01/31 Series A | NR/AA+/AA+ | 728,370 | ||||||
1,000,000 | 5.000%, 07/01/37 Series A | NR/AA+/AA+ | 1,123,110 | ||||||
South Weber City, Utah Water Revenue | |||||||||
930,000 | 5.000%, 06/01/40 AGMC Insured | NR/AA/NR | 1,032,849 | ||||||
Tampa Bay, Florida Regional Water | |||||||||
Refunding & Improvement | |||||||||
885,000 | 4.750%, 10/01/33 NPFG Insured | ||||||||
(pre-refunded) | Aa1/AA+/AA+ | 922,958 | |||||||
Utah Water Conservancy District | |||||||||
1,400,000 | 5.250%, 01/15/27 | NR/A/NR | 1,566,796 | ||||||
Utah Water Finance Agency Revenue | |||||||||
1,645,000 | 4.500%, 10/01/28 AMBAC Insured | Aa3/NR/NR | 1,746,677 | ||||||
White City, Utah Water Improvement | |||||||||
District Revenue | |||||||||
500,000 | 5.000%, 02/01/23 AGMC Insured | ||||||||
(pre-refunded) | A2/NR/NR | 530,160 | |||||||
700,000 | 5.000%, 02/01/25 AGMC Insured | ||||||||
(pre-refunded) | A2/NR/NR | 742,224 | |||||||
840,000 | 5.000%, 02/01/27 AGMC Insured | ||||||||
(pre-refunded) | A2/NR/NR | 890,669 | |||||||
Total Water and Sewer | 41,941,081 | ||||||||
Total Revenue Bonds | 310,443,389 | ||||||||
Total Investments (cost $354,056,802 | |||||||||
- note 4) | 98.3% | 371,076,316 | |||||||
Other assets less liabilities | 1.7 | 6,348,044 | |||||||
Net Assets | 100.0% | $ | 377,424,360 |
20 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH |
SCHEDULE OF INVESTMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Percent of | ||||
Portfolio Distribution by Quality Rating | Investments† | |||
Aaa of Moody’s or AAA of S&P and Fitch | 7.1 | % | ||
Pre-Refunded bonds††/ ETM bonds | 14.2 | |||
Aa of Moody’s or AA of S&P and Fitch | 48.3 | |||
A of Moody’s or S&P and Fitch | 24.4 | |||
BBB of S&P | 2.5 | |||
BB+ of S&P | 0.6 | |||
Not Rated* | 2.9 | |||
100.0 | % |
PORTFOLIO ABBREVIATIONS: |
AGC - Assured Guaranty Corp. |
AGMC - Assured Guaranty Municipal Corp. |
AMBAC - American Municipal Bond Assurance Corp. |
AMT - Alternative Minimum Tax |
BAMI - Build America Mutual Insurance |
COP - Certificates of Participation |
ETM - Escrowed to Maturity |
FGIC - Financial Guaranty Insurance Co. |
IHC - Intermountain Health Care |
NPFG - National Public Finance Guarantee |
NR - Not Rated |
PSF - Permanent School Fund |
* | Any security not rated (“NR”) by any of the Nationally Recognized Statistical Rating Organizations (“NRSRO”) has been determined by the Investment Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a NRSRO. | |
Note: 144A – Private placement subject to SEC Rule 144A, which modifies a two-year holding period requirement to permit qualified institutional buyers to trade these securities among themselves, thereby significantly improving the liquidity of these securities. | ||
† | Calculated using the highest rating of the three NRSROs. | |
†† | Pre-refunded bonds are bonds for which U.S. Government Obligations usually have been placed in escrow to retire the bonds at their earliest call date. |
See accompanying notes to financial statements.
21 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | |
STATEMENT OF ASSETS AND LIABILITIES | |
SEPTEMBER 30, 2015 (unaudited) |
ASSETS | ||||
Investments at value (cost $354,056,802) | $ | 371,076,316 | ||
Cash | 2,067,637 | |||
Interest receivable | 5,220,343 | |||
Receivable for Fund shares sold | 470,243 | |||
Other assets | 29, 351 | |||
Total assets | 378,863,890 | |||
LIABILITIES | ||||
Payable for Fund shares redeemed | 815,905 | |||
Dividends payable | 348,764 | |||
Management fee payable | 147,791 | |||
Accrued expenses payable | 127,070 | |||
Total liabilities | 1,439,530 | |||
NET ASSETS | $ | 377,424,360 | ||
Net Assets consist of: | ||||
Capital Stock - Authorized an unlimited number of shares, | ||||
par value $0.01per share | $ | 362,033 | ||
Additional paid-in capital | 359,464,697 | |||
Net unrealized appreciation on investments (note 4) | 17,019,514 | |||
Accumulated net realized gain on investments | 349,419 | |||
Undistributed net investment income | 228,697 | |||
$ | 377,424,360 | |||
CLASS | ||||
Net Assets | $ | 208,292,869 | ||
Capital shares outstanding | 19,992,647 | |||
Net asset value and redemption price per share | $ | 10.42 | ||
Maximum offering price per share (100/96 of $10.42) | $ | 10.85 | ||
CLASS C | ||||
Net Assets | $ | 75,333,406 | ||
Capital shares outstanding | 7,234,353 | |||
Net asset value and offering price per share | $ | 10.41 | ||
Redemption price per share (*a charge of 1% is imposed . | ||||
on the redemption proceeds, or on the original price, | ||||
whichever is lower, if redeemed during the first 12 | ||||
months after purchase) | $ | 10.41 | * | |
CLASS Y | ||||
Net Assets | $ | 93,798,085 | ||
Capital shares outstanding | 8,976,277 | |||
Net asset value, offering and redemption price per share | $ | 10.45 |
See accompanying notes to financial statements.
22 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH |
STATEMENT OF OPERATIONS |
SIX MONTHS ENDED SEPTEMBER 30, 2015 (unaudited) |
Investment Income: | ||||||||
Interest income | $ | 7,059,192 | ||||||
Other income | 28,678 | |||||||
7,087,870 | ||||||||
Expenses: | ||||||||
Management fee (note 3) | $ | 950,889 | ||||||
Distribution and service fees (note 3) | 600,913 | |||||||
Transfer and shareholder servicing agent fees . | 108,652 | |||||||
Trustees’ fees and expenses (note 7) | 67,591 | |||||||
Legal fees | 53,510 | |||||||
Shareholders’ reports | 16,275 | |||||||
Fund accounting fees | 15,960 | |||||||
Custodian fees (note 6) | 14,339 | |||||||
Registration fees and dues | 12,478 | |||||||
Auditing and tax fees | 11,292 | |||||||
Insurance | 9,564 | |||||||
Chief compliance officer services (note 3) | 2,782 | |||||||
Miscellaneous | 22,033 | |||||||
Total expenses | 1,886,278 | |||||||
Management fee waived (note 3) | (67,948 | ) | ||||||
Expenses paid indirectly (note 6) | (277 | ) | ||||||
Net expenses | 1,818,053 | |||||||
Net investment income | 5,269,817 | |||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||
Net realized gain (loss) from securities | ||||||||
transactions | 123,826 | |||||||
Change in unrealized appreciation on | ||||||||
investments | (3,212,431 | ) | ||||||
Net realized and unrealized gain (loss) on | ||||||||
investments | (3,088,605 | ) | ||||||
Net change in net assets resulting from operations | $ | 2,181,212 |
See accompanying notes to financial statements.
23 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | ||
STATEMENTS OF CHANGES IN NET ASSETS |
Six Months Ended | ||||||||
September 30, 2015 | Year Ended | |||||||
(unaudited) | March 31, 2015 | |||||||
OPERATIONS: | ||||||||
Net investment income | $ | 5,269,817 | $ | 11,040,195 | ||||
Net realized gain (loss) from | ||||||||
securities transactions | 123,826 | 223,099 | ||||||
Change in unrealized appreciation | ||||||||
on investments | (3,212,431 | ) | 13,945,495 | |||||
Change in net assets from | ||||||||
operations | 2,181,212 | 25,208,789 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS (note 10): | ||||||||
Class A Shares: | ||||||||
Net investment income | (2,960,074 | ) | (6,363,486 | ) | ||||
Net realized gain on investments | — | (152,947 | ) | |||||
Class C Shares: | ||||||||
Net investment income | (821,363 | ) | (1,856,803 | ) | ||||
Net realized gain on investments | — | (59,480 | ) | |||||
Class Y Shares: | ||||||||
Net investment income | (1,461,652 | ) | (2,777,673 | ) | ||||
Net realized gain on investments | — | (66,932 | ) | |||||
Change in net assets from | ||||||||
distributions | (5,243,089 | ) | (11,277,321 | ) | ||||
CAPITAL SHARE TRANSACTIONS (note 8): | ||||||||
Proceeds from shares sold | 37,747,157 | 74,617,712 | ||||||
Reinvested dividends and | ||||||||
distributions | 4,048,055 | 8,766,461 | ||||||
Cost of shares redeemed | (47,433,432 | ) | (67,089,108 | ) | ||||
Change in net assets from | ||||||||
capital share transactions | (5,638,220 | ) | 16,295,065 | |||||
Change in net assets | (8,700,097 | ) | 30,226, 533 | |||||
NET ASSETS: | ||||||||
Beginning of period | 386,124,457 | 355,897,924 | ||||||
End of period* | $ | 377,424,360 | $ | 386,124,457 | ||||
*Includes undistributed net investment income of: | $ | 228,697 | $ | 201,969 |
See accompanying notes to financial statements.
24 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH |
NOTES TO FINANCIAL STATEMENTS |
SEPTEMBER 30, 2015 (unaudited) |
1. Organization
Aquila Tax-Free Fund For Utah (the “Fund”), a series of Aquila Municipal Trust (from inception until the close of business on October 11, 2013, the Fund operated under the name Tax-Free Fund For Utah), a non-diversified, open-end investment company, was organized on December 12, 1990 as a Massachusetts business trust and commenced operations on July 24, 1992. The Fund is authorized to issue an unlimited number of shares. Class A Shares are sold at net asset value plus a sales charge of varying size (depending upon a variety of factors) paid at the time of purchase and bear a distribution fee. Class C Shares are sold at net asset value with no sales charge payable at the time of purchase but with a level charge for service and distribution fees for six years thereafter. Class C Shares automatically convert to Class A Shares after six years. Class Y Shares are sold only through authorized financial institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity, and are not offered directly to retail customers. Class Y Shares are sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge (“CDSC”) and no distribution fee. Class I Shares are offered and sold only through financial intermediaries and are not offered directly to retail customers. Class I Shares are sold at net asset value with no sales charge and no redemption fee or CDSC, although a financial intermediary may charge a fee for effecting a purchase or other transaction on behalf of its customers. Class I Shares carry a distribution and a service fee. As of the report date, there were no Class I Shares outstanding. All classes of shares represent interests in the same portfolio of investments and are identical as to rights and privileges but differ with respect to the effect of sales charges, the distribution and/or service fees borne by each class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America for investment companies.
a) | Portfolio valuation: Municipal securities are valued each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services. In the case of securities for which market quotations are readily available, securities are valued by the pricing service at the mean of bid and asked quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees. |
b) | Fair value measurements: The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy: |
25 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, based on the best information available.
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities
The following is a summary of the valuation inputs, representing 100% of the Fund’s investments, used to value the Fund’s net assets as of September 30, 2015:
Valuation Inputs | Investments in Securities | ||||
Level 1 – Quoted Prices | $ | — | |||
Level 2 – Other Significant Observable | |||||
Inputs — Municipal Bonds* | 371,076,316 | ||||
Level 3 – Significant Unobservable Inputs | — | ||||
Total | $ | 371,076,316 |
*See schedule of investments for a detailed listing of securities.
c) | Subsequent events: In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date these financial statements were issued. |
d) | Securities transactions and related investment income: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. Interest income is recorded daily on the accrual basis and is adjusted for amortization of premium and accretion of original issue and market discount. In connection with certain bonds, fee income is recognized by the Fund on a daily basis over the life of the bonds. |
e) | Federal income taxes: It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Fund intends to make distributions of income and securities profits sufficient to relieve it from all, or substantially all, Federal income and excise taxes. |
Management has reviewed the tax positions for each of the open tax years (2012–2014) or expected to be taken in the Fund’s 2015 tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.
26 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
f) | Multiple class allocations: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are also charged directly to such class on a daily basis. |
g) | Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. |
h) | Reclassification of capital accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. On March 31, 2015, the Fund decreased undistributed net investment income by $3,541, increased additional paid-in capital by $792 and increased net realized gain on investments by $2,749. These reclassifications had no effect on net assets or net asset value per share. |
i) | The Fund is an Investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 “Financial Services-Investment Companies”. |
3. Fees and Related Party Transactions
a) Management Arrangements:
Aquila Investment Management LLC (the “Manager”), a wholly-owned subsidiary of Aquila Management Corporation, the Fund’s founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. Under the Advisory and Administration Agreement, the Manager provides all investment management and administrative services to the Fund. The Manager’s services include providing the office of the Fund and all related services as well as managing relationships with all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, fund accounting agent, auditors and distributor. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.50% on the Fund’s net assets.
The Manager has contractually undertaken to waive fees and/or reimburse Fund expenses so that total Fund expenses will not exceed 0.84% for a Class A Shares, 1.64% for Class C Shares, 0.99% for Class I Shares and 0.64% for Class Y Shares through September 30, 2015 and 0.84% for Class A Shares, 1.64% for Class C Shares, 0.96% for Class I Shares and 0.63% for Class Y Shares through September 30, 2016. The Manager may not terminate the arrangement without the approval of the Board of Trustees. For the six months ended September 30, 2015, the Fund incurred management fees of $950,889 of which $67,948 was waived.
27 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for Chief Compliance Officer related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940.
Specific details as to the nature and extent of the services provided by the Manager are more fully defined in the Fund’s Prospectus and Statement of Additional Information.
b) Distribution and Service Fees:
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 (the “Rule”) under the Investment Company Act of 1940. Under one part of the Plan, with respect to Class A Shares, the Fund is authorized to make distribution fee payments to broker-dealers or others (“Qualified Recipients”) selected by Aquila Distributors, Inc. (the “Distributor”) including, but not limited to, any principal underwriter of the Fund, with which the Distributor has entered into written agreements contemplated by the Rule and which have rendered assistance in the distribution and/or retention of the Fund’s shares or servicing of shareholder accounts. The Fund makes payment of this distribution fee at the annual rate of 0.20% of the Fund’s average net assets represented by Class A Shares. For the six months ended September 30, 2015, distribution fees on Class A Shares amounted to $206,310, of which the Distributor retained $7,558.
Under another part of the Plan, the Fund is authorized to make payments with respect to Class C Shares to Qualified Recipients which have rendered assistance in the distribution and/or retention of the Fund’s Class C shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Fund’s average net assets represented by Class C Shares. For the six months ended September 30, 2015, these payments amounted to $295,952. In addition, under a Shareholder Services Plan, the Fund is authorized to make service fee payments with respect to Class C Shares to Qualified Recipients for providing personal services and/or maintenance of shareholder accounts. These payments are made at the annual rate of 0.25% of the Fund’s average net assets represented by Class C Shares and for the six months ended September 30, 2015, amounted to $98,651. The total of these payments with respect to Class C Shares amounted to $394,603, of which the Distributor retained $94,027.
Specific details about the Plans are more fully defined in the Fund’s Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive distributor of the Fund’s shares. Through agreements between the Distributor and various brokerage and advisory firms (“intermediaries”), the Fund’s shares are sold primarily through the facilities of these intermediaries having offices within Utah, with the bulk of any sales commissions inuring to such intermediaries. For the six months ended September 30, 2015, total commissions on sales of Class A Shares amounted to $124,211, of which the Distributor received $12,324.
28 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
4. Purchases and Sales of Securities
During the six months ended September 30, 2015, purchases of securities and proceeds from the sales of securities aggregated $36,202,837 and $42,521,191, respectively.
At September 30, 2015, the aggregate tax cost for all securities was $353,829,443. At September 30, 2015, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $18,005,053 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $758,180, for a net unrealized appreciation of $17,246,873.
5. Portfolio Orientation
At least 50% of the Fund’s assets will always consist of obligations of Utah-based issuers. At September 30, 2015, the Fund had 60% of its net assets invested in municipal obligations of issuers within Utah. The Fund is also permitted to invest in tax-free municipal obligations of non-Utah-based issuers that are exempt from regular Federal income taxes and, pursuant to an administrative determination of the Utah State Tax Commission issued under statutory authority, the interest on which is currently exempt from Utah individual income taxes. Since the Fund invests principally and may invest entirely in double tax-free municipal obligations of issuers within Utah, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Utah and whatever effects these may have upon Utah issuers’ ability to meet their obligations.
6. Expenses
The Fund had negotiated an expense offset arrangement with JPMorgan Chase Bank N.A., which served as its custodian until November 2, 2015. Under these arrangements, it received credit toward the reduction of custodian fees and other Fund expenses whenever there were uninvested cash balances. The Statement of Operations reflects the total expenses before any offset, the amount of offset, if any, and the net expenses. Effective November 2, 2015, the Fund no longer receives credits toward the reduction of custody fees from the Fund’s new custodian.
7. Trustees’ Fees and Expenses
At September 30, 2015 there were 11 Trustees, one of whom is affiliated with the Manager and is not paid any fees. The total amount of Trustees’ service fees (for carrying out their responsibilities) and attendance fees paid during the six months ended September 30, 2015 was $58,029. Attendance fees are paid to those in attendance at regularly scheduled quarterly Board Meetings and meetings of the Independent Trustees held prior to each quarterly Board Meeting, as well as additional meetings (such as Audit, Nominating, Shareholder and special meetings). Trustees are reimbursed for their expenses such as travel, accommodations and meals incurred in connection with attendance at Board Meetings and the Annual Meeting of Shareholders. For the six months ended September 30, 2015, such meeting-related expenses amounted to $9,562.
29 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH | ||||
NOTES TO FINANCIAL STATEMENTS (continued) | ||||
SEPTEMBER 30, 2015 (unaudited) |
8. Capital Share Transactions
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended | ||||||||||||||||
September 30, 2015 | Year Ended | |||||||||||||||
(unaudited) | March 31, 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A Shares: | ||||||||||||||||
Proceeds from shares sold | 1,780,732 | $ | 18,494,620 | 2,178,526 | $ | 22,632,860 | ||||||||||
Reinvested distributions | 226,766 | 2,356,668 | 490,067 | 5,088,494 | ||||||||||||
Cost of shares redeemed | (1,583,974 | ) | (16,437,824 | ) | (3,249,783 | ) | (33,659,897 | ) | ||||||||
Net change | 423,524 | 4,413,464 | (581,190 | ) | (5,938,543 | ) | ||||||||||
Class C Shares: | ||||||||||||||||
Proceeds from shares sold | 839,442 | 8,720,158 | 1,309,255 | 13,594,718 | ||||||||||||
Reinvested distributions | 65,412 | 678,985 | 144,790 | 1,502,670 | ||||||||||||
Cost of shares redeemed | (1,352,632 | ) | (14,029,779 | ) | (1,833,313 | ) | (18,953,242 | ) | ||||||||
Net change | (447,778 | ) | (4,630,636 | ) | (379,268 | ) | (3,855,854 | ) | ||||||||
Class Y Shares: | ||||||||||||||||
Proceeds from shares sold | 1,010,072 | 10,532,379 | 3,680,229 | 38,390,134 | ||||||||||||
Reinvested distributions | 97,177 | 1,012,402 | 208,481 | 2,175,297 | ||||||||||||
Cost of shares redeemed | (1,626,541 | ) | (16,965,829 | ) | (1,390,637 | ) | (14,475,969 | ) | ||||||||
Net change | (519,292 | ) | (5,421,048 | ) | 2,498,073 | 26,089,462 | ||||||||||
Total transactions in Fund | ||||||||||||||||
shares | (543,546 | ) | $ | (5,638,220 | ) | 1,537,615 | $ | 16,295,065 | ) |
30 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
9. Securities Traded on a When-Issued Basis
The Fund may purchase or sell securities on a when-issued basis. When-issued transactions arise when securities are purchased or sold by the Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction. Beginning on the date the Fund enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
10. Income Tax Information and Distributions
The Fund declares dividends daily from net investment income and makes payments monthly. Net realized capital gains, if any, are distributed annually and are taxable. These distributions are paid in additional shares at the net asset value per share, in cash, or in a combination of both, at the shareholder’s option.
The Fund intends to maintain, to the maximum extent possible, the tax-exempt status of interest payments received from portfolio municipal securities in order to allow dividends paid to shareholders from net investment income to be exempt from regular Federal and State of Utah income taxes. Due to differences between financial statement reporting and Federal income tax reporting requirements, distributions made by the Fund may not be the same as the Fund’s net investment income, and/or net realized securities gains. Further, a small portion of the dividends may, under some circumstances, be subject to taxes at ordinary income rates. For certain shareholders some dividend income may, under some circumstances, be subject to the alternative minimum tax.
The tax character of distributions was as follows:
Year | Year | |||||||
Ended | Ended | |||||||
March 31, 2015 | March 31, 2014 | |||||||
Net tax-exempt income | $ | 10,981,022 | $ | 12,391,442 | ||||
Ordinary Income | 16,940 | 419,559 | ||||||
Capital Gains | 279,359 | 505,374 | ||||||
$ | 11,277,321 | $ | 13,316,375 |
As of March 31, 2015, the components of distributable earnings on a tax basis were:
Undistributed tax-exempt income | $ | 159,625 | ||||||
Accumulated net realized gain | 225,593 | |||||||
Unrealized appreciation | 20,433,914 | |||||||
Other temporary differences | (159,625 | ) | ||||||
$ | 20,659,507 |
The difference between book basis and tax basis unrealized appreciation and undistributed income is due to the timing difference in recognizing dividends paid and market discount.
31 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH |
FINANCIAL HIGHLIGHTS |
For a share outstanding throughout each period
Class A | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Nine Months | Year Ended June 30, | ||||||||||||||||||||||||
9/30/15(unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.50 | $ | 10.10 | $ | 10.37 | $ | 10.27 | $ | 9.74 | $ | 9.80 | $ | 9.35 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.15 | 0.33 | 0.33 | 0.26 | 0.38 | 0.42 | 0.43 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.08 | ) | 0.40 | (0.24 | ) | 0.10 | 0.53 | (0.05 | ) | 0.47 | ||||||||||||||||||
Total from investment operations | 0.07 | 0.73 | 0.09 | 0.36 | 0.91 | 0.37 | 0.90 | |||||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.15 | ) | (0.32 | ) | (0.33 | ) | (0.26 | ) | (0.38 | ) | (0.43 | ) | (0.45 | ) | ||||||||||||||
Distributions from capital gains | – | (0.01 | ) | (0.03 | ) | – | – | – | – | |||||||||||||||||||
Total distributions | (0.15 | ) | (0.33 | ) | (0.36 | ) | (0.26 | ) | (0.38 | ) | (0.43 | ) | (0.45 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.42 | $ | 10.50 | $ | 10.10 | $ | 10.37 | $ | 10.27 | $ | 9.74 | $ | 9.80 | ||||||||||||||
Total return(not reflecting sales charge) | 0.67 | %(2) | 7.34 | % | 0.96 | % | 3.48 | %(2) | 9.49 | % | 3.87 | % | 9.74 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 208 | $ | 205 | $ | 204 | $ | 257 | $ | 255 | $ | 212 | $ | 232 | ||||||||||||||
Ratio of expenses to average net assets | 0.84 | %(3) | 0.84 | % | 0.83 | % | 0.83 | %(3) | 0.83 | % | 0.83 | % | 0.80 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.89 | %(3) | 3.14 | % | 3.33 | % | 3.28 | %(3) | 3.79 | % | 4.31 | % | 4.43 | % | ||||||||||||||
Portfolio turnover rate | 10 | %(2) | 16 | % | 12 | % | 20 | %(2) | 17 | % | 25 | % | 9 | % | ||||||||||||||
Expense and net investment income ratios without the effect of the contractual expense cap were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.88 | %(3) | 0.91 | % | 0.91 | %(4) | 0.88 | %(3) | 0.88 | % | 0.87 | % | 0.87 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.85 | %(3) | 3.07 | % | 3.26 | %(4) | 3.23 | %(3) | 3.74 | % | 4.28 | % | 4.37 | % | ||||||||||||||
Expense ratios after giving effect to the contractual expense cap and expense offset for uninvested cash balances were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.84 | %(3) | 0.84 | % | 0.83 | % | 0.83 | %(3) | 0.83 | % | 0.83 | % | 0.80 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.86% and 3.31%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from June 30 to March 31. The information presented is for the period July 1, 2012 to March 31, 2013. |
See accompanying notes to financial statements.
32 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH |
FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class C | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Nine Months | Year Ended June 30, | ||||||||||||||||||||||||
9/30/15(unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.50 | $ | 10.10 | $ | 10.37 | $ | 10.27 | $ | 9.74 | $ | 9.79 | $ | 9.34 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.11 | 0.24 | 0.25 | 0.19 | 0.30 | 0.34 | 0.35 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.09 | ) | 0.41 | (0.24 | ) | 0.11 | 0.53 | (0.04 | ) | 0.47 | ||||||||||||||||||
Total from investment operations | 0.02 | 0.65 | 0.01 | 0.30 | 0.83 | 0.30 | 0.82 | |||||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.11 | ) | (0.24 | ) | (0.25 | ) | (0.20 | ) | (0.30 | ) | (0.35 | ) | (0.37 | ) | ||||||||||||||
Distributions from capital gains | – | (0.01 | ) | (0.03 | ) | – | – | – | – | |||||||||||||||||||
Total distributions | (0.11 | ) | (0.25 | ) | (0.28 | ) | (0.20 | ) | (0.30 | ) | (0.35 | ) | (0.37 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.41 | $ | 10.50 | $ | 10.10 | $ | 10.37 | $ | 10.27 | $ | 9.74 | $ | 9.79 | ||||||||||||||
Total return(not reflecting CDSC) | 0.18 | %(2) | 6.49 | % | 0.15 | % | 2.86 | %(2) | 8.62 | % | 3.15 | % | 8.87 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 75 | $ | 81 | $ | 81 | $ | 106 | $ | 96 | $ | 83 | $ | 89 | ||||||||||||||
Ratio of expenses to average net assets | 1.64 | %(3) | 1.63 | % | 1.63 | % | 1.63 | %(3) | 1.63 | % | 1.63 | % | 1.60 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.08 | %(3) | 2.34 | % | 2.53 | % | 2.47 | %(3) | 2.98 | % | 3.51 | % | 3.60 | % | ||||||||||||||
Portfolio turnover rate | 10 | %(2) | 16 | % | 12 | % | 20 | %(2) | 17 | % | 25 | % | 9 | % | ||||||||||||||
Expense and net investment income ratios without the effect of the contractual expense cap were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.67 | %(3) | 1.71 | % | 1.70 | %(4) | 1.67 | %(3) | 1.68 | % | 1.67 | % | 1.66 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.05 | %(3) | 2.27 | % | 2.46 | %(4) | 2.42 | %(3) | 2.93 | % | 3.48 | % | 3.54 | % | ||||||||||||||
Expense ratios after giving effect to the contractual expense cap and expense offset for uninvested cash balances were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.64 | %(3) | 1.63 | % | 1.63 | % | 1.63 | %(3) | 1.63 | % | 1.63 | % | 1.60 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 1.66% and 2.50%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from June 30 to March 31. The information presented is for the period July 1, 2012 to March 31, 2013. |
See accompanying notes to financial statements.
33 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH |
FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class Y | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Nine Months | Year Ended June 30, | ||||||||||||||||||||||||
9/30/15 (unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.53 | $ | 10.13 | $ | 10.41 | $ | 10.30 | $ | 9.77 | $ | 9.83 | $ | 9.38 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.16 | 0.35 | 0.36 | 0.27 | 0.40 | 0.44 | 0.45 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.08 | ) | 0.40 | (0.26 | ) | 0.11 | 0.53 | (0.05 | ) | 0.47 | ||||||||||||||||||
Total from investment operations | 0.08 | 0.75 | 0.10 | 0.38 | 0.93 | 0.39 | 0.92 | |||||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.16 | ) | (0.34 | ) | (0.35 | ) | (0.27 | ) | (0.40 | ) | (0.45 | ) | (0.47 | ) | ||||||||||||||
Distributions from capital gains | – | (0.01 | ) | (0.03 | ) | – | – | – | – | |||||||||||||||||||
Total distributions | (0.16 | ) | (0.35 | ) | (0.38 | ) | (0.27 | ) | (0.40 | ) | (0.45 | ) | (0.47 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.45 | $ | 10.53 | $ | 10.13 | $ | 10.41 | $ | 10.30 | $ | 9.77 | $ | 9.83 | ||||||||||||||
Total return | 0.78 | %(2) | 7.54 | % | 1.07 | % | 3.83 | %(2) | 9.69 | % | 4.08 | % | 9.94 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 94 | $ | 100 | $ | 71 | $ | 88 | $ | 76 | $ | 56 | $ | 59 | ||||||||||||||
Ratio of expenses to average net assets | 0.64 | %(3) | 0.63 | % | 0.63 | % | 0.63 | %(3) | 0.63 | % | 0.63 | % | 0.60 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 3.09 | %(3) | 3.33 | % | 3.53 | % | 3.47 | %(3) | 3.98 | % | 4.51 | % | 4.64 | % | ||||||||||||||
Portfolio turnover rate | 10 | %(2) | 16 | % | 12 | % | 20 | %(2) | 17 | % | 25 | % | 9 | % | ||||||||||||||
Expense and net investment income ratios without the effect of the contractual expense cap were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.68 | %(3) | 0.70 | % | 0.70 | %(4) | 0.68 | %(3) | 0.68 | % | 0.67 | % | 0.67 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 3.05 | %(3) | 3.26 | % | 3.46 | %(4) | 3.43 | %(3) | 3.93 | % | 4.47 | % | 4.57 | % | ||||||||||||||
Expense ratios after giving effect to the contractual expense cap and expense offset for uninvested cash balances were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.64 | %(3) | 0.63 | % | 0.63 | % | 0.63 | %(3) | 0.63 | % | 0.63 | % | 0.60 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.66% and 3.50%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from June 30 to March 31. The information presented is for the period July 1, 2012 to March 31, 2013. |
See accompanying notes to financial statements.
34 | Aquila Tax-Free Fund For Utah
Additional Information (unaudited)
Renewal of the Advisory and Administration Agreement
Aquila Investment Management LLC (the “Manager”) serves as the investment adviser to the Fund pursuant to an Advisory and Administration Agreement (the “Advisory Agreement”). In order for the Manager to remain the investment adviser of the Fund, the Trustees of the Fund must determine annually whether to renew the Advisory Agreement for the Fund.
In considering whether to approve the renewal of the Advisory Agreement, the Trustees requested and obtained such information as they deemed reasonably necessary. Contract review materials were provided to the Trustees in August, 2015. The independent Trustees met telephonically on September 14, 2015 and in person on September 20, 2015 to review and discuss the contract review materials. The Trustees considered, among other things, information presented by the Manager. They also considered information presented in a report prepared by an independent consultant with respect to the Fund’s fees, expenses and investment performance, which included comparisons of the Fund’s investment performance against peers and the Fund’s benchmark and comparisons of the advisory fee payable under the Advisory Agreement against the advisory fees paid by the Fund’s peers, as well as information regarding the operating margins of certain investment advisory firms (the “Consultant’s Report”). In addition, the Trustees took into account the information related to the Fund provided to the Trustees at each regularly scheduled meeting.
At the meeting held on September 20, 2015, based on their evaluation of the information provided by the Manager and the independent consultant, the Trustees of the Fund, including the independent Trustees voting separately, unanimously approved the renewal of the Advisory Agreement until September 30, 2016. In considering the renewal of the Advisory Agreement, the Trustees considered various factors that they determined were relevant, including the factors described below. The Trustees did not identify any single factor as the controlling factor in determining to approve the renewal of the Advisory Agreement.
The nature, extent, and quality of the services provided by the Manager
The Trustees considered the nature, extent and quality of the services that had been provided by the Manager to the Fund, taking into account the investment objectives and strategies of the Fund. The Trustees reviewed the terms of the Advisory Agreement.
The Trustees reviewed the Manager’s investment approach for the Fund and its research process. The Trustees considered that the Manager had provided all advisory and administrative services to the Fund that the Trustees deemed necessary or appropriate, including the specific services that the Trustees have determined are required for the Fund, given that it seeks to provide shareholders with as high a level of current income exempt from Utah state and regular Federal income taxes as is consistent with preservation of capital. The Trustees considered the personnel of the Manager who provide investment management services to the Fund. The Manager has employed Mr. James Thompson and Mr. Todd Curtis as co-portfolio managers for the Fund and has established facilities and capabilities for credit analysis of the Fund’s portfolio securities. The Trustees noted the extensive experience of the co-portfolio managers. They considered that Mr. Thompson is based in Salt Lake City, Utah and that he has a comprehensive understanding regarding the economy of the State of Utah and the securities in which the Fund invests, including non-rated securities and those securities with less than the highest ratings from the rating agencies.
35 | Aquila Tax-Free Fund For Utah
The Manager has additionally provided all administrative services to the Fund and provided the Fund with personnel (including Fund officers) and other resources that are necessary for the Fund’s business management and operations. The Trustees considered the nature and extent of the Manager’s supervision of third-party service providers, including the Fund’s shareholder servicing agent and custodian.
Based on these considerations, the Trustees concluded that the nature, extent and quality of services that had been provided by the Manager to the Fund were satisfactory and consistent with the terms of the Advisory Agreement.
The investment performance of the Fund
The Trustees reviewed the Fund’s performance and compared its performance to the performance of:
• | the funds in the Fund’s peer group (the “Peer Group”), as selected by the independent consultant (five municipal single-state intermediate and municipal single-state long funds, as classified by Morningstar, that are similar to the Fund in size and that charge a front-end sales charge); |
• | the funds in the Fund’s product category for performance (the “Product Category for Performance”) (all funds in the Peer Group and, without duplication, all funds (and all classes) included in the Morningstar Single-State Intermediate Municipal Bond Funds category); and |
• | the Fund’s benchmark index, the Barclays Capital Quality Intermediate Municipal Bond Index. |
The Trustees considered that the materials included in the Consultant’s Report indicated that the Fund’s average annual total return was higher than the average annual total return of the funds in the Peer Group and the funds in the Product Category for Performance, in each case for the one, three, five and ten year periods ended June 30, 2015. They also considered that the Fund’s average annual total return was higher than the average annual total return of the benchmark index for each of those periods. The Trustees further considered that, as reflected in the Consultant’s Report, the Fund delivered above-average results on a risk-adjusted basis for the three and five year periods ended June 30, 2015 (as evidenced by its Sharpe ratio) when compared to the funds in the Product Category for Performance. The Trustees noted that the Fund was the only Utah state-specific tax-free municipal bond fund in the State. The Trustees also noted that, unlike the Fund’s returns, the performance of the benchmark index did not reflect any fees or expenses.
The Trustees considered the Fund’s investment performance to be consistent with the investment objectives of the Fund. Evaluation of this factor indicated to the Trustees that renewal of the Advisory Agreement would be appropriate.
36 | Aquila Tax-Free Fund For Utah
Advisory Fees and Fund Expenses
The Trustees reviewed the Fund’s advisory fees and expenses and compared them to the advisory fee and expense data for:
• | the funds in the Peer Group (as defined above); and |
• | the funds in the product category for expenses (the “Product Category for Expenses”) (Morningstar Single-State Intermediate Municipal Bond Funds and Morningstar Single State Long Municipal Bond Funds from states within which 1-3 mutual funds are operating, with similar operating expense structures). |
The Trustees considered that the Fund’s contractual advisory fee was slightly lower than the average and median contractual advisory fees of the funds in the Peer Group (at the Fund’s current asset level). They also considered that the Fund’s contractual advisory fee was lower than the asset-weighted average contractual advisory fee of the funds in the Product Category for Expenses at the Fund’s current asset level and up to $1 billion in assets, but generally higher than the asset-weighted average contractual advisory fee of funds in the Product Category for Expenses at asset levels in excess of $1 billion. They also noted that the Fund’s expenses were less than the average actual expenses of the funds in both the Product Category for Expenses and the Peer Group.
The Trustees reviewed management fees charged by the Manager to its other clients. It was noted that the Manager does not have any other clients except for other funds in the Aquila Group of Funds. The Trustees noted that, in most instances, the fee rates for those clients were comparable to the fees paid to the Manager with respect to the Fund. In evaluating the fees associated with the other funds, the Trustees took into account the respective demands, resources and complexity associated with the Fund and those funds.
The Trustees considered that the Manager was currently waiving a portion of its fees and had been since the Fund’s inception. Additionally, it was noted that the Manager had contractually undertaken to waive fees and/or reimburse Fund expenses so that total Fund expenses would not exceed 0.84% for Class A Shares, 1.64% for Class C Shares, 0.96% for Class I Shares and 0.63% for Class Y Shares for the period through September 30, 2016. The Manager may not terminate these arrangements without the approval of the Trustees. The Manager had indicated that it intended to continue waiving fees as necessary in order that the Fund would remain competitive. The Trustees concluded that the advisory fee was reasonable in relation to the nature and quality of the services provided by the Manager to the Fund.
Profitability
The Trustees received materials from the Manager and the independent consultant related to profitability. The Manager provided information which showed the profitability to the Manager of its services to the Fund, as well as the profitability of Aquila Distributors, Inc. of distribution services provided to the Fund. The independent consultant provided publicly available data regarding the profitability of other asset managers in comparison to the overall profitability of the Manager.
37 | Aquila Tax-Free Fund For Utah
The Trustees considered the information provided by the Manager regarding the profitability of the Manager with respect to the advisory services provided by the Manager to the Fund, including the methodology used by the Manager in allocating certain of its costs to the management of the Fund. The Trustees also considered information regarding the profitability of the Manager provided to the Trustees by the independent consultant The Trustees concluded that profitability to the Manager with respect to the advisory services provided to the Fund did not argue against approval of the fees to be paid under the Advisory Agreement.
The extent to which economies of scale would be realized as the Fund grows
The Trustees considered the extent to which the Manager may realize economies of scale or other efficiencies in managing the Fund. The Trustees considered that the materials indicated that the Fund’s fees, after fee waivers, are comparable to those of its peers, including those funds with breakpoints in the advisory fee schedule. Additionally, the Trustees noted that the Manager continued to waive a portion of its fees. The Trustees noted that the Manager’s profitability also may be an indicator of the availability of any economies of scale. Accordingly, the Trustees concluded that economies of scale, if any, were being appropriately shared with the Fund.
Benefits derived or to be derived by the Manager and its affiliate from the relationship with the Fund
The Trustees observed that, as is generally true of most fund complexes, the Manager and its affiliates, by providing services to a number of funds including the Fund, were able to spread costs as they would otherwise be unable to do. The Trustees noted that while that produces efficiencies and increased profitability for the Manager and its affiliates, also makes their services available to the Fund at favorable levels of quality and cost which are more advantageous to the Fund than would otherwise have been possible.
38 | Aquila Tax-Free Fund For Utah
Analysis of Expenses (unaudited)
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end sales charges with respect to Class A shares or contingent deferred sales charges (“CDSC”) with respect to Class C shares; and (2) ongoing costs, including management fees; distribution (12b-1) and/or service fees; and other Fund expenses. The table below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The table below is based on an investment of $1,000 invested on April 1, 2015 and held for the six months ended September 30, 2015.
Actual Expenses
This table provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During the Period”.
Six months ended September 30, 2015
Actual | ||||
Total Return | Beginning | Ending | Expenses | |
Without | Account | Account | Paid During | |
Sales Charges(1) | Value | Value | the Period(2) | |
Class A | 0.67% | $1,000.00 | $1,006.70 | $4.23 |
Class C | 0.18% | $1,000.00 | $1,001.80 | $8.23 |
Class Y | 0.78% | $1,000.00 | $1,007.80 | $3.22 |
(1) | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A shares or the applicable CDSC with respect to Class C shares. Total return is not annualized; as such, it may not be representative of the total return for the year. |
(2) | Expenses are equal to the annualized expense ratio of 0.84%, 1.64% and 0.64% for the Fund’s Class A, C and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
39 | Aquila Tax-Free Fund For Utah
Analysis of Expenses (unaudited) (continued)
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs with respect to Class A shares. The example does not reflect the deduction of CDSC with respect to Class C shares. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different mutual funds. In addition, if these transaction costs were included, your costs would have been higher.
Six months ended September 30, 2015
Hypothetical | ||||
Annualized | Beginning | Ending | Expenses | |
Total | Account | Account | Paid During | |
Return | Value | Value | the Period(1) | |
Class A | 5.00% | $1,000.00 | $1,020.86 | $4.26 |
Class C | 5.00% | $1,000.00 | $1,016.85 | $8.29 |
Class Y | 5.00% | $1,000.00 | $1,021.86 | $3.24 |
(1) | Expenses are equal to the annualized expense ratio of 0.84%, 1.64% and 0.64% for the Fund’s Class A, C and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
40 | Aquila Tax-Free Fund For Utah
Information Available (unaudited)
Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent your Fund’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Fund policies, the Manager publicly discloses the complete schedule of the Fund’s portfolio holdings, as of each calendar quarter, generally by the 15th day after the end of each calendar quarter. Such information remains accessible until the next schedule is made publicly available. You may obtain a copy of the Fund’s portfolio holdings schedule for the most recently completed period by visiting the Fund’s website at www.aquilafunds.com. The Fund may also disclose other portfolio holdings as of a specified date (currently the Fund discloses its five largest holdings and/or sector holdings by value as of the close of the last business day of each calendar month in a posting to its website on approximately the 5th business day following the month end). This information remains on the website until the next such posting. Whenever you wish to see a listing of your Fund’s portfolio other than in your shareholder reports, please check our website at www.aquilafunds.com or call us at 1-800-437-1020.
The Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at www.sec.gov. You may also review or, for a fee, copy the forms at the SEC’s Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330.
Proxy Voting Record (unaudited)
During the 12 month period ended June 30, 2015, the Fund did not hold any portfolio securities for which the Fund was entitled to participate in proxy voting. Applicable regulations require us to inform you that the Fund’s proxy voting information is available on the SEC website at www.sec.gov.
Federal Tax Status of Distributions (unaudited)
This information is presented in order to comply with a requirement of the Internal Revenue Code. No action on the part of shareholders is required.
For the fiscal year ended March 31, 2015, $10,981,022 of dividends paid by Aquila Tax-Free Fund For Utah, constituting 97.4% of total dividends paid, were exempt-interest dividends; $279,359 of dividends paid by the Fund constituting 2.5% of total dividends paid were capital gains distributions; and the balance was ordinary income.
Prior to February 15, 2016, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2015 calendar year.
41 | Aquila Tax-Free Fund For Utah
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Founders
Lacy B. Herrmann (1929-2012)
Aquila Management Corporation, Sponsor
Manager
AQUILA INVESTMENT MANAGEMENT LLC
120 West 45th Street, Suite 3600
New York, New York 10036
Board of Trustees
John C. Lucking, Chair
Diana P. Herrmann, Vice Chair
Ernest Calderón
Thomas A. Christopher
Gary C. Cornia
Grady Gammage, Jr.
Lyle W. Hillyard
Glenn P. O’Flaherty
John J. Partridge
James R. Ramsey
Laureen L. White
Officers
Diana P. Herrmann, President
Charles E. Childs, III, Executive Vice President
and Secretary
Marie E. Aro, Senior Vice President
Paul G. O’Brien, Senior Vice President
Todd W. Curtis, Vice President
and Co-Portfolio Manager
James T. Thompson, Vice President
and Co-Portfolio Manager
M. Kayleen Willis, Vice President
Randall S. Fillmore, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer
and Treasurer
Distributor
AQUILA DISTRIBUTORS, INC.
120 West 45th Street, Suite 3600
New York, New York 10036
Transfer and Shareholder Servicing Agent
BNY MELLON
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
BNY MELLON
225 Liberty Street
New York, New York 10286
Further information is contained in the Prospectus,
which must precede or accompany this report.
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Semi-Annual Report September 30, 2015 | ||||||||||||||||||||||||||
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![]() | Aquila Tax-Free Trust of Arizona Serving Arizona investors since 1986 | ![]() |
November, 2015
Dear Fellow Shareholder:
As you are no doubt aware, the Federal Funds rate (a key short term interest rate between commercial banks, which influences borrowing costs throughout the economy) has been held close to zero since 2008.
With no change in this rate in seven years, the relationship between interest rates and the share value of fixed-income securities, such as those in which the bond funds in the Aquila Group of Funds invest, has attracted limited attention.
Now that it seems probable that interest rates may slowly start to climb, we thought it was a good time to revisit this topic. Management of the Aquila Group of Funds well recognizes that it is much easier to accept variations with your investment when you understand the forces influencing them.
Simply put, interest rates and the share prices of the bond funds in the Aquila Group of Funds are inversely related. When interest rates increase, the share value of your Fund will generally decrease. And, conversely, when interest rates decrease, the share value will generally increase.
Why is this the case?
When a bond is issued, it has a fixed face value and coupon rate (that is usually close to prevailing marketplace interest rates). For example, a $1,000 bond with a 5% coupon rate will pay interest of $50 per year and, at maturity, will repay the bondholder the $1,000 face value. The promise to pay $1,000 at maturity and the $50 per year interest payment doesn’t change. What does change is the bond’s market price.
If interest rates on similar bonds rise to 6%, our example above may no longer be attractive.
For the 5% bond to be attractive, its market price must fall below its $1,000 face value until the $50 per year represents a yield closer to 6%. Conversely, if prevailing interest rates decrease to 4%, people may be willing to pay more than the bond’s $1,000 face value in order to receive the $50 per year interest payments.
Simply put, bond prices fluctuate so that their yield reflects prevailing interest rates in the marketplace.
While we cannot control the direction in which interest rates will move, or the resulting e ect such changes will have on your Fund’s share price, we do take steps which are designed to minimize (to the extent possible) the volatility of such movement.
NOT A PART OF THE SEMI-ANNUAL REPORT
We firmly believe that credit quality has an impact on stability. Each of the funds in the Aquila Group of Funds intentionally limits, by prospectus, its investments (at the time of purchase) to Investment Grade bonds - that is to say, bonds that are rated in one of the four highest credit ratings assigned by a nationally recognized statistical rating organization, or if unrated, determined to be of comparable credit quality by the Adviser/Sub-Adviser (as applicable). Investment Grade credit ratings are one of several factors the Adviser/ Sub-Adviser (as applicable) considers in identifying those municipal issues which are most likely to pay interest when due and to return principal at maturity.
Another technique we use in the construction of the overall portfolio in an effort to achieve a stable share price is the laddering of bond maturities. Generally, bonds with short-term maturities tend to have relatively less price fluctuation, and provide a lower yield. Conversely, bonds with long-term maturities may provide a higher yield, and have higher price volatility. This higher price volatility reflects the risks associated with the unpredictability of future events and the potential interest rate changes over the extended life of the municipal bond.
Through utilizing a blend of maturities – both short-term and long-term – your Fund attempts to provide as high a level of current income as is consistent with the preservation of capital. We believe these portfolio management construction techniques are reasonably designed to manage, to the extent possible, share price variations – gaining both a degree of stability from the shorter-term maturities and higher yields from the longer-term maturities.
With more than 30 years of experience utilizing these techniques, with the Aquila Group of Funds, we believe that we have developed a process that helps to mitigate some of the volatility that will inevitably occur in the bond markets with changes in interest rates.
![](https://capedge.com/proxy/N-CSRS/0000784056-15-000072/dsige.jpg)
![](https://capedge.com/proxy/N-CSRS/0000784056-15-000072/dsig2e.jpg)
Diana P. Herrmann, Vice Chair and President
NOT A PART OF THE SEMI-ANNUAL REPORT
Mutual fund investing involves risk and loss of principal is possible.
The market prices of the Fund’s securities may rise or decline in value due to general market conditions, such as real or perceived adverse economic or political conditions, inflation, changes in interest rates, lack of liquidity in the bond markets or adverse investor sentiment. When market prices fall, the value of your investment may go down.
The value of your investment may go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term securities. Conversely, when interest rates fall, the value of your investment may rise. Interest rates in the U.S. recently have been historically low and are expected to rise at some point in time.
Investments in the Fund are subject to possible loss due to the financial failure of the issuers of underlying securities and their inability to meet their debt obligations.
The value of municipal securities can be adversely affected by changes in the financial condition of one or more individual municipal issuers or insurers of municipal issuers, regulatory developments, legislative actions, and by uncertainties and public perceptions concerning these and other factors. The Fund may be affected significantly by adverse economic, political or other events affecting state and other municipal issuers in which it invests, and may be more volatile than a more geographically diverse fund.
If interest rates fall, an issuer may exercise its right to prepay its securities, and the Fund could be forced to reinvest prepayment proceeds at a time when yields on securities available in the market are lower than the yield on the prepaid security.
A portion of income may be subject to local, state, Federal and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax.
These risks may result in share price volatility.
Past performance is no guarantee of future results, and there is no guarantee that any market forecasts discussed will be realized.
Any information in this Semi-Annual Report regarding market or economic trends or the factors influencing the Fund’s historical or future performance are statements of opinion as of the date of this report. These statements should not be relied upon for any other purposes.
NOT A PART OF THE SEMI-ANNUAL REPORT
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULESCHEDULE OF INVESTMENTS(continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (22.6%) | and Fitch | Value | ||||||
Buckeye Jackrabbit Trail Sanitary Sewer | |||||||||
Improvement District | |||||||||
$ | 1,406,000 | 6.250%, 01/01/29 | NR/A-/NR | $ | 1,642,025 | ||||
Buckeye Union High School District | |||||||||
No. 201 | |||||||||
1,000,000 | 5.000%, 07/01/33 AGMC Insured | NR/AA/NR | 1,142,350 | ||||||
Chandler, Arizona | |||||||||
1,500,000 | 4.000%, 07/01/25 | Aaa/AAA/AAA | 1,718,685 | ||||||
Coconino & Yavapai Counties Joint | |||||||||
Unified School District No. 9 Sedona | |||||||||
1,000,000 | 5.375%, 07/01/28 (pre-refunded) | Aa2/A+/NR | 1,159,750 | ||||||
Flagstaff Improvement District (Aspen | |||||||||
Place Sawmill) | |||||||||
360,000 | 5.000%, 01/01/32 | Aa3/NR/NR | 360,522 | ||||||
Gila Co. Unified School District No. 10 | |||||||||
(Payson) | |||||||||
400,000 | 5.250%, 07/01/27 AMBAC Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 432,560 | |||||||
1,000,000 | 5.750%, 07/01/28 (pre-refunded) | Aa3/NR/NR | 1,134,410 | ||||||
1,000,000 | 5.000%, 07/01/28 | Aa3/NR/NR | 1,180,500 | ||||||
Gilbert Improvement District No. 19 | |||||||||
235,000 | 5.200%, 01/01/23 | Aa1/A+/NR | 235,564 | ||||||
Gilbert Improvement District No. 20 | |||||||||
635,000 | 5.100%, 01/01/29 | Aa1/A+/NR | 714,839 | ||||||
Glendale Union High School District | |||||||||
No. 205 | |||||||||
525,000 | 5.000%, 07/01/27 BAMAC Insured | NR/AA/NR | 612,391 | ||||||
Goodyear, Arizona Refunding | |||||||||
1,000,000 | 5.000%, 07/01/29 | Aa2/AA/NR | 1,124,440 | ||||||
Goodyear McDowell Road Commercial | |||||||||
Corridor Improvement District | |||||||||
3,000,000 | 5.250%, 01/01/32 AMBAC Insured | A1/A/NR | 3,144,330 | ||||||
Maricopa Co. Elementary School | |||||||||
District No. 3 (Tempe) | |||||||||
250,000 | 4.000%, 07/01/25 | Aa2/NR/NR | 287,358 | ||||||
Maricopa Co. Elementary School | |||||||||
District No. 8 (Osborn) | |||||||||
920,000 | 6.250%, 07/01/22 | NR/A/NR | 976,792 |
1 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
Maricopa Co. Elementary School | |||||||||
District No. 28 (Kyrene Elementary) | |||||||||
$ | 250,000 | 5.500%, 07/01/30 | Aa1/AA/NR | $ | 295,898 | ||||
350,000 | 5.000%, 07/01/34 | Aa1/AA/NR | 405,199 | ||||||
Maricopa Co. High School District | |||||||||
No. 210 (Phoenix) | |||||||||
500,000 | 4.000%, 07/01/26 | Aa2/AA/NR | 555,320 | ||||||
Maricopa Co. Unified School District | |||||||||
No. 11 (Peoria) | |||||||||
1,500,000 | 4.000%, 07/01/25 | A2/AA-/NR | 1,661,265 | ||||||
675,000 | 4.500%, 07/01/33 AGMC Insured | A2/AA/NR | 731,430 | ||||||
Maricopa Co. Unified School District | |||||||||
No. 24 (Gila Bend) | |||||||||
355,000 | 5.500%, 07/01/22 | NR/NR/NR* | 358,120 | ||||||
Maricopa Co. Unified School District | |||||||||
No. 48 (Scottsdale) | |||||||||
500,000 | 4.000%, 07/01/16 | Aa1/AA/NR | 513,755 | ||||||
1,500,000 | 4.750%, 07/01/30 | Aa1/AA/NR | 1,700,790 | ||||||
Maricopa Co. Unified School District | |||||||||
No. 60 (Higley) | |||||||||
1,615,000 | 5.000%, 07/01/29 | A1/A+/NR | 1,885,932 | ||||||
Maricopa Co. Unified School District | |||||||||
No. 69 (Paradise Valley) | |||||||||
1,000,000 | 4.500%, 07/01/30 | Aa2/NR/AA | 1,117,510 | ||||||
Maricopa Co. Unified School District | |||||||||
No. 89 (Dysart) | |||||||||
2,185,000 | 5.500%, 07/01/22 NPFG/FGIC Insured | A3/AA-/NR | 2,632,707 | ||||||
1,300,000 | 5.000%, 07/01/25 Syncora Guarantee, | ||||||||
Inc. Insured (pre-refunded) | NR/A+/NR | 1,345,552 | |||||||
1,500,000 | 6.000%, 07/01/28 (pre-refunded) | NR/A+/NR | 1,709,550 | ||||||
500,000 | 4.000%, 07/01/28 | NR/A+/AA- | 538,170 | ||||||
Maricopa Co. Unified School District | |||||||||
No. 90 (Saddle Mountain) | |||||||||
1,300,000 | 5.125%, 07/01/25 AGMC Insured | A2/AA/NR | 1,497,847 | ||||||
Maricopa Co. Unified School District | |||||||||
No. 95 (Queen Creek) | |||||||||
500,000 | 5.000%, 07/01/27 AGMC Insured | ||||||||
(pre-refunded) | Aa3/NR/NR | 557,060 |
2 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
Mohave Co. Unified School District | |||||||||
No. 20 (Kingman) | |||||||||
$ | 1,175,000 | 5.250%, 07/01/24 AGMC Insured | Aa3/AA/NR | $ | 1,303,157 | ||||
Navajo Co. Unified School District | |||||||||
No. 2 (Joseph City) | |||||||||
1,250,000 | 5.000%, 07/01/18 | A2/NR/NR | 1,357,288 | ||||||
Phoenix, Arizona | |||||||||
1,240,000 | 6.250%, 07/01/17 | Aa1/AA+/NR | 1,361,681 | ||||||
Pima Co. Unified School District No. 1 | |||||||||
(Tucson) | |||||||||
1,500,000 | 5.000%, 07/01/27 AGMC Insured | Aa2/AA/NR | 1,646,280 | ||||||
Pima Co. Unified School District No. 6 | |||||||||
(Marana) | |||||||||
950,000 | 5.250%, 07/01/25 AGMC Insured | NR/AA/NR | 1,121,390 | ||||||
1,250,000 | 5.000%, 07/01/25 | NR/A+/NR | 1,446,450 | ||||||
1,000,000 | 4.250%, 07/01/32 MAC Insured | NR/AA/NR | 1,077,670 | ||||||
Pima Co. Unified School District No. 8 | |||||||||
(Flowing Wells) | |||||||||
1,000,000 | 5.375%, 07/01/29 | NR/A+/NR | 1,148,420 | ||||||
Pima Co. Unified School District No. 10 | |||||||||
(Amphitheater) | |||||||||
700,000 | 5.000%, 07/01/27 | Aa2/A+/NR | 805,924 | ||||||
Pima Co. Unified School District No. 12 | |||||||||
(Sunnyside) | |||||||||
1,050,000 | 4.000%, 07/01/28 BAMAC Insured | NR/AA/NR | 1,102,731 | ||||||
Pinal Co. Elementary School District | |||||||||
No. 4 (Casa Grande) | |||||||||
925,000 | 4.250%, 07/01/18 AGMC Insured | A1/AA/NR | 974,099 | ||||||
Pinal Co. High School District No. 82 | |||||||||
(Casa Grande) | |||||||||
640,000 | 5.000%, 07/01/24 (pre-refunded) | NR/A+/NR | 712,115 | ||||||
Pinal Co. Unified School District No. 1 | |||||||||
(Florence) | |||||||||
1,500,000 | 5.000%, 07/01/27 NPFG/FGIC Insured | ||||||||
(pre-refunded) | A3/AA-/NR | 1,615,620 | |||||||
Queen Creek Improvement District | |||||||||
No. 1 | |||||||||
1,500,000 | 5.000%, 01/01/26 | A3/A-/A- | 1,507,335 | ||||||
1,500,000 | 5.000%, 01/01/32 | A3/A-/A- | 1,505,640 |
3 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
Scottsdale, Arizona | |||||||||
$ | 200,000 | 4.000%, 07/01/28 | Aaa/AAA/AAA | $ | 225,046 | ||||
Tempe, Arizona | |||||||||
2,245,000 | 4.000%, 07/01/22 | Aa1/AAA/AAA | 2,481,241 | ||||||
1,000,000 | 4.500%, 07/01/24 (pre-refunded) | Aa1/AAA/AAA | 1,069,340 | ||||||
1,000,000 | 4.000%, 07/01/24 | Aa1/AAA/AAA | 1,149,230 | ||||||
Tempe High School District No. 213 | |||||||||
650,000 | 4.000%, 07/01/32 | Aa2/AA/NR | 682,188 | ||||||
Tempe Improvement District | |||||||||
(Pier Town Lake) | |||||||||
2,000,000 | 5.000%, 01/01/29 | Aa3/NR/NR | 2,161,800 | ||||||
Tubac Fire District | |||||||||
760,000 | 5.500%, 07/01/28 AGC Insured | A1/NR/NR | 866,544 | ||||||
Western Maricopa Education Center | |||||||||
District No. 402 | |||||||||
1,200,000 | 4.000%, 07/01/28 | NR/AA-/NR | 1,277,160 | ||||||
Yavapai Co. Elementary School District | |||||||||
No. 6 (Cottonwood-Oak Creek) | |||||||||
720,000 | 5.000%, 07/01/34 BAMAC Insured | A2/AA/NR | 816,070 | ||||||
Yuma Co. Free Library District | |||||||||
1,000,000 | 4.000%, 07/01/29 | Aa3/NR/AA- | 1,063,000 | ||||||
Total General Obligation Bonds | 63,850,040 | ||||||||
Revenue Bonds (74.9%) | |||||||||
Airport (2.7%) | |||||||||
Phoenix Civic Improvement Corp. | |||||||||
Airport Bonds | |||||||||
1,000,000 | 5.250%, 07/01/18 AMT | Aa3/AA-/NR | 1,110,500 | ||||||
1,000,000 | 5.250%, 07/01/19 AMT | Aa3/AA-/NR | 1,107,350 | ||||||
2,700,000 | 5.000%, 07/01/32 AMT | Aa3/AA-/NR | 3,007,206 | ||||||
1,000,000 | 5.250%, 07/01/33 | A1/A+/NR | 1,124,990 | ||||||
1,200,000 | 5.000%, 07/01/33 | Aa3/AA-/NR | 1,303,824 | ||||||
Total Airport | 7,653,870 | ||||||||
Excise Tax (14.1%) | |||||||||
Buckeye Excise Tax | |||||||||
1,000,000 | 5.000%, 07/01/43 | NR/AA-/AA- | 1,114,100 | ||||||
Casa Grande Excise Tax | |||||||||
1,435,000 | 5.000%, 04/01/28 | NR/AA/AA | 1,614,475 |
4 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Excise Tax (continued) | |||||||||
Cottonwood Pledged Revenue | |||||||||
Obligations | |||||||||
$ | 500,000 | 5.000%, 07/01/30 AGMC Insured | NR/AA/NR | $ | 576,130 | ||||
El Mirage Pledged Excise Tax | |||||||||
500,000 | 5.000%, 07/01/30 | A2/AA-/NR | 554,100 | ||||||
Gilbert Pledged Revenue Obligations | |||||||||
450,000 | 4.000%, 07/01/35 | Aa2/AA+/AA+ | 472,207 | ||||||
Gilbert Public Facilities Municipal | |||||||||
Property Corp. | |||||||||
850,000 | 5.000%, 07/01/23 | Aa1/AA+/NR | 972,102 | ||||||
1,250,000 | 5.000%, 07/01/24 | Aa1/AA+/NR | 1,429,062 | ||||||
Glendale Municipal Property Corp. | |||||||||
Excise Tax | |||||||||
1,000,000 | 5.000%, 07/01/31 | A3/AA/NR | 1,075,150 | ||||||
Goodyear Public Improvement Corp. | |||||||||
1,500,000 | 5.000%, 07/01/26 | Aa3/AA-/NR | 1,746,345 | ||||||
1,310,000 | 6.000%, 07/01/31 | Aa3/AA-/NR | 1,481,178 | ||||||
Graham Co. Jail District Revenue | |||||||||
Pledged Obligation | |||||||||
1,000,000 | 5.000%, 07/01/35 | NR/A-/NR | 1,086,680 | ||||||
Marana Pledged Excise Tax | |||||||||
275,000 | 4.000%, 07/01/30 | NR/AA/NR | 286,324 | ||||||
1,400,000 | 5.000%, 07/01/33 | NR/AA/NR | 1,565,368 | ||||||
Page Pledged Revenue Refunding | |||||||||
1,080,000 | 5.000%, 07/01/25 | NR/AA-/NR | 1,254,809 | ||||||
Phoenix Civic Improvement Corp. | |||||||||
(Civic Plaza) | |||||||||
1,000,000 | 5.500%, 07/01/23 NPFG/FGIC Insured | Aa2/AA/NR | 1,210,640 | ||||||
2,000,000 | 5.500%, 07/01/27 BHAC/FGIC Insured | Aa1/AA+/NR | 2,502,820 | ||||||
2,000,000 | 5.500%, 07/01/30 BHAC/FGIC Insured | Aa1/AA+/NR | 2,499,500 | ||||||
2,300,000 | 5.500%, 07/01/33 NPFG/FGIC Insured | Aa2/AA/NR | 2,879,508 | ||||||
Phoenix Civic Improvement Corp. | |||||||||
Transit Excise Tax (Light Rail) | |||||||||
2,000,000 | 4.000%, 07/01/20 | Aa2/AA/NR | 2,240,520 | ||||||
Pinal Co. Revenue Obligations | |||||||||
Refunding | |||||||||
1,755,000 | 4.000%, 08/01/17 | NR/AA/NR | 1,862,968 | ||||||
1,500,000 | 5.000%, 08/01/33 | NR/AA-/AA- | 1,707,270 |
5 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Excise Tax (continued) | |||||||||
Scottsdale Municipal Property Corp. | |||||||||
$ | 3,000,000 | 4.500%, 07/01/20 AMBAC Insured | |||||||
(pre-refunded) | Aa1/AAA/AAA | $ | 3,205,320 | ||||||
1,500,000 | 5.000%, 07/01/34 | Aaa1/AAA/AAA | 1,759,965 | ||||||
Scottsdale Municipal Property Corp. | |||||||||
Water & Sewer Project | |||||||||
2,000,000 | 5.000%, 07/01/28 (pre-refunded) | Aa1/AAA/AAA | 2,231,140 | ||||||
Show Low Improvement District No. 6 | |||||||||
385,000 | 6.000%, 01/01/18 ACA Insured | NR/NR/NR* | 386,105 | ||||||
Sierra Vista Municipal Property Corp. | |||||||||
1,000,000 | 4.000%, 01/01/21 | A1/AA/AA- | 1,071,180 | ||||||
Tempe Excise Tax | |||||||||
1,000,000 | 5.000%, 07/01/33 | Aa2/AAA/NR | 1,095,530 | ||||||
Total Excise Tax | 39,880,496 | ||||||||
Higher Education (7.0%) | |||||||||
Arizona Board of Regents - Arizona | |||||||||
State University System | |||||||||
1,000,000 | 5.000%, 07/01/32 | Aa3/AA/NR | 1,147,440 | ||||||
1,000,000 | 5.000%, 07/01/32 | Aa3/AA/NR | 1,137,500 | ||||||
Arizona Board of Regents - Northern | |||||||||
Arizona University System | |||||||||
1,115,000 | 5.000%, 06/01/22 NPFG/FGIC Insured | A1/AA-/NR | 1,189,371 | ||||||
575,000 | 5.000%, 06/01/32 | A1/A+/NR | 652,223 | ||||||
1,000,000 | 5.000%, 06/01/36 BAMAC Insured | A1/AA/NR | 1,120,220 | ||||||
Arizona Board of Regents - University | |||||||||
of Arizona System Speed Stimulus | |||||||||
Plan for Economic & Educational | |||||||||
Development | |||||||||
1,500,000 | 5.000%, 08/01/34 | Aa3/A+/NR | 1,706,040 | ||||||
Arizona Board of Regents (University | |||||||||
of Arizona System) | |||||||||
400,000 | 5.000%, 06/01/29 | Aa2/AA-/NR | 464,208 | ||||||
460,000 | 5.000%, 06/01/31 | Aa2/AA-/NR | 519,257 | ||||||
Arizona State University Speed Stimulus | |||||||||
Plan for Economic & Educational | |||||||||
Development | |||||||||
625,000 | 5.000%, 08/01/34 | A1/AA-/NR | 706,744 |
6 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Higher Education (continued) | |||||||||
Cochise Co. Community College District | |||||||||
$ | 1,825,000 | 5.125%, 07/01/28 AGC Insured | A2/NR/NR | $ | 2,003,375 | ||||
Maricopa Co. Community College | |||||||||
District | |||||||||
2,000,000 | 4.000%, 07/01/21 | Aaa/AAA/AAA | 2,207,220 | ||||||
500,000 | 4.750%, 07/01/23 | Aaa/AAA/AAA | 516,030 | ||||||
500,000 | 4.750%, 07/01/24 | Aaa/AAA/AAA | 515,950 | ||||||
Northern Arizona University Speed | |||||||||
Stimulus Plan for Economic & | |||||||||
Educational Development | |||||||||
1,445,000 | 5.000%, 08/01/38 | A2/A/NR | 1,602,563 | ||||||
Phoenix Industrial Development | |||||||||
Authority (Rowan University Project) | |||||||||
2,000,000 | 5.250%, 06/01/34 | A3/A/NR | 2,197,380 | ||||||
Yavapai Co. Community College District | |||||||||
1,000,000 | 4.875%, 07/01/25 AGMC Insured | A1/AA/NR | 1,138,240 | ||||||
Yuma/ La Paz Counties Community | |||||||||
College District (Arizona Western | |||||||||
College), Refunding | |||||||||
1,000,000 | 4.000%, 07/01/28 2014A | Aa3/A+/NR | 1,081,130 | ||||||
Total Higher Education | 19,904,891 | ||||||||
Hospital (15.0%) | |||||||||
Arizona Health Facilities Authority | |||||||||
(Banner Health) | |||||||||
300,000 | 5.125%, 01/01/29 | NR/AA-/AA- | 321,990 | ||||||
3,100,000 | 5.375%, 01/01/32 | NR/AA-/AA- | 3,333,523 | ||||||
1,000,000 | 5.000%, 01/01/43 | NR/AA-/AA- | 1,092,740 | ||||||
2,500,000 | 5.000%, 01/01/44 | NR/AA-/AA- | 2,753,100 | ||||||
Arizona Health Facilities Authority | |||||||||
(Catholic Healthcare West) | |||||||||
1,500,000 | 5.000%, 07/01/28 | A3/A/A | 1,664,730 | ||||||
2,000,000 | 5.250%, 03/01/39 | A3/A/A | 2,182,260 | ||||||
Arizona Health Facilities Authority | |||||||||
(Phoenix Children’s Hospital) | |||||||||
2,950,000 | 5.000%, 02/01/34 | NR/BBB+/NR | 3,155,703 | ||||||
Arizona Health Facilities Authority | |||||||||
(Samaritan Health) | |||||||||
385,000 | 5.625%, 12/01/15 NPFG Insured ETM | NR/AA-/NR | 388,299 |
7 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Hospital (continued) | |||||||||
Arizona Health Facilities Authority | |||||||||
(Scottsdale Lincoln Hospitals) | |||||||||
$ | 3,000,000 | 5.000%, 12/01/34 | A2/NR/A | $ | 3,312,660 | ||||
1,890,000 | 5.000%, 12/01/42 | A2/NR/A | 2,050,196 | ||||||
Arizona Health Facilities Authority | |||||||||
(Yavapai Regional Medical Center) | |||||||||
1,500,000 | 5.375%, 12/01/30 AGMC Insured | A2/NR/NR | 1,714,395 | ||||||
Flagstaff Industrial Development | |||||||||
Authority (Northern Arizona Senior | |||||||||
Living Center) | |||||||||
1,985,000 | 5.600%, 07/01/25 | NR/NR/NR* | 1,985,060 | ||||||
Glendale Industrial Development | |||||||||
Authority (John C. Lincoln Hospital) | |||||||||
1,400,000 | 5.250%, 12/01/22 (pre-refunded) | NR/NR/NR* | 1,411,074 | ||||||
Maricopa Co. Hospital Revenue | |||||||||
(Sun Health) | |||||||||
1,500,000 | 5.000%, 04/01/25 (pre-refunded) | NR/NR/NR* | 1,782,165 | ||||||
2,125,000 | 5.000%, 04/01/35 (pre-refunded) | NR/NR/NR* | 2,616,725 | ||||||
Maricopa Co. Industrial Development | |||||||||
Authority (Catholic Healthcare | |||||||||
West - St. Joseph’s Hospital) | |||||||||
3,000,000 | 5.250%, 07/01/32 | A3/A/A | 3,180,030 | ||||||
Scottsdale Industrial Development | |||||||||
Authority (Scottsdale Healthcare | |||||||||
System) | |||||||||
1,000,000 | 5.000%, 09/01/18 | A2/NR/A | 1,105,460 | ||||||
750,000 | 5.000%, 09/01/35 AGMC Insured | A2/AA/A | 825,120 | �� | |||||
University Medical Center Hospital | |||||||||
Revenue | |||||||||
910,000 | 6.500%, 07/01/39 (pre-refunded) | NR/NR/NR* | 1,089,124 | ||||||
500,000 | 6.000%, 07/01/39 (pre-refunded) | NR/NR/NR* | 623,265 | ||||||
Yavapai Co. Industrial Development | |||||||||
Authority (Northern Arizona | |||||||||
Healthcare System) | |||||||||
500,000 | 5.250%, 10/01/25 | NR/AA/NR | 594,395 | ||||||
500,000 | 5.250%, 10/01/26 | NR/AA/NR | 591,905 | ||||||
Yavapai Co. Industrial Development | |||||||||
Authority (Yavapai Regional Medical | |||||||||
Center) | |||||||||
1,000,000 | 5.250%, 08/01/33 | Baa1/NR/BBB+ | 1,098,690 | ||||||
1,250,000 | 5.625%, 08/01/37 | Baa1/NR/BBB+ | 1,338,100 |
8 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Hospital (continued) | |||||||||
Yuma Industrial Development Authority | |||||||||
(Yuma Regional Medical Center) | |||||||||
$ | 1,635,000 | 5.000%, 08/01/23 | NR/A-/NR | $ | 1,897,254 | ||||
200,000 | 5.000%, 08/01/32 | NR/A-/NR | 221,152 | ||||||
Total Hospital | 42,329,115 | ||||||||
Lease (7.2%) | |||||||||
Arizona Board of Regents - Northern | |||||||||
Arizona University COP | |||||||||
600,000 | 5.000%, 09/01/27 | A2/A/NR | 681,138 | ||||||
500,000 | 5.000%, 09/01/28 | A2/A/NR | 559,625 | ||||||
1,000,000 | 5.000%, 09/01/29 | A2/A/NR | 1,108,090 | ||||||
Arizona School Facilities Board COP | |||||||||
1,000,000 | 5.125%, 09/01/21 AGC Insured | ||||||||
(pre-refunded) | Aa3/AA/NR | 1,124,580 | |||||||
3,000,000 | 5.500%, 09/01/23 (pre-refunded) | Aa3/AA-/NR | 3,405,990 | ||||||
Arizona State Lottery Bonds | |||||||||
3,000,000 | 5.000%, 07/01/28 AGMC Insured | A1/AA/NR | 3,365,250 | ||||||
Cave Creek COP | |||||||||
290,000 | 5.750%, 07/01/19 | NR/AA/NR | 293,712 | ||||||
Mohave Co. Industrial Development | |||||||||
Authority Correctional Facilities | |||||||||
1,000,000 | 8.000%, 05/01/25 | NR/BBB+/NR | 1,104,370 | ||||||
Pinal Co. Correctional Facilities | |||||||||
1,470,000 | 5.250%, 10/01/21 ACA Insured | NR/BBB/NR | 1,507,779 | ||||||
Pinetop Fire District COP | �� | ||||||||
1,000,000 | 7.500%, 12/15/23 | A3/NR/NR | 1,030,030 | ||||||
Prescott Municipal Property Corp. | |||||||||
500,000 | 5.000%, 07/01/34 | Aa3/AA/NR | 575,105 | ||||||
State of Arizona COP Department | |||||||||
Administration | |||||||||
1,500,000 | 5.250%, 10/01/26 AGMC Insured | Aa3/AA/NR | 1,713,870 | ||||||
670,000 | 5.250%, 10/01/28 AGMC Insured | Aa3/AA/NR | 761,629 | ||||||
State of Arizona COP | |||||||||
2,000,000 | 5.000%, 09/01/26 AGMC Insured | ||||||||
(pre-refunded) | Aa3/AA/NR | 2,203,260 | |||||||
500,000 | 5.000%, 09/01/27 | Aa3/AA-/NR | 595,045 | ||||||
Willcox Municipal Property Corp. | |||||||||
295,000 | 4.625%, 07/01/21 | NR/A+/NR | 303,918 | ||||||
Total Lease | 20,333,391 |
9 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Mortgage (3.4%) | |||||||||
Agua Fria Ranch Community Facilities | |||||||||
District | |||||||||
$ | 600,000 | 5.800%, 07/15/30 144A | NR/NR/NR* | $ | 594,072 | ||||
Goodyear Community Facilities Utilities | |||||||||
District No. 1 | |||||||||
500,000 | 4.000%, 07/15/28 | A1/A-/NR | 528,025 | ||||||
Maricopa Co. Industrial Development | |||||||||
Authority Multi-Family Mortgage | |||||||||
Revenue (National Health Project) | |||||||||
690,000 | 5.500%, 01/01/18 AGMC Insured ETM | A2/AA/NR | 729,337 | ||||||
Maricopa Co. Industrial Development | |||||||||
Authority Single Family Mortgage | |||||||||
Revenue | |||||||||
3,715,000 | zero coupon, 12/31/16 ETM | Aaa/AA+/NR | 3,690,704 | ||||||
Merrill Ranch Community Facilities | |||||||||
District #2 | |||||||||
680,000 | 6.750%, 07/15/38 | NR/BBB-/NR | 746,198 | ||||||
Scottsdale Waterfront Community | |||||||||
Facilities District | |||||||||
530,000 | 6.000%, 07/15/27 144A | NR/NR/NR* | 531,002 | ||||||
930,000 | 6.050%, 07/15/32 144A | NR/NR/NR* | 930,205 | ||||||
Sundance Community Facilities District | |||||||||
655,000 | 5.125%, 07/15/30 | A3/BBB/NR | 655,255 | ||||||
Verrado Community Facilities Utilities | |||||||||
District No. 1 | |||||||||
500,000 | 6.000%, 07/15/33 144A | NR/NR/NR* | 548,375 | ||||||
Vistancia Community Facilities District | |||||||||
540,000 | 5.000%, 07/15/26 | A1/NR/A- | 604,039 | ||||||
Total Mortgage | 9,557,212 | ||||||||
Pollution Control (2.9%) | |||||||||
Apache Co. Industrial Development | |||||||||
Authority, Pollution Control, Tucson | |||||||||
Electric Power Co. | |||||||||
2,700,000 | 4.500%, 03/01/30 | A3/BBB+/BBB+ | 2,892,078 | ||||||
Coconino Co. Pollution Control, | |||||||||
Tucson Electric Power Co. | |||||||||
2,000,000 | 5.125%, 10/01/32 | A3/BBB+/BBB+ | 2,204,520 |
10 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Pollution Control (continued) | |||||||||
Maricopa Co. Pollution Control | |||||||||
(Southern California Edison Co.) | |||||||||
$ | 1,000,000 | 5.000%, 06/01/35 | Aa3/A/NR | $ | 1,106,880 | ||||
Phoenix Industrial Development | |||||||||
Authority Solid Waste Disposal | |||||||||
(Vieste Project) | |||||||||
600,000 | 4.500%, 04/01/33 AMT** | NR/CCC/NR | 360,090 | ||||||
Pima Co. Industrial Development | |||||||||
Authority, Pollution Control, Tucson | |||||||||
Electric Power Co. | |||||||||
1,500,000 | 4.950%, 10/01/20 | A3/BBB+/BBB+ | 1,693,125 | ||||||
Total Pollution Control | 8,256,693 | ||||||||
Transportation (4.6%) | |||||||||
Arizona State Transportation Board | |||||||||
Excise Tax Revenue (Maricopa Co. | |||||||||
Regional Area Road Fund) | |||||||||
500,000 | 5.000%, 07/01/25 | Aa1/AA+/NR | 612,960 | ||||||
Arizona Transportation Board Revenue | |||||||||
1,900,000 | 5.250%, 07/01/24 | Aa2/AA/AA | 2,219,960 | ||||||
1,000,000 | 5.250%, 07/01/24 (pre-refunded) | Aa1/AAA/NR | 1,012,350 | ||||||
2,550,000 | 5.000%, 07/01/28 (pre-refunded) | Aa1/AAA/NR | 2,841,006 | ||||||
550,000 | 5.250%, 07/01/32 | Aa2/AA+/NR | 640,601 | ||||||
3,000,000 | 5.000%, 07/01/33 | Aa1/AAA/NR | 3,495,720 | ||||||
1,500,000 | 5.000%, 07/01/33 (pre-refunded) | Aa1/AAA/NR | 1,671,180 | ||||||
Pima Co. Regional Transportation | |||||||||
Authority Excise Tax | |||||||||
500,000 | 5.000%, 06/01/26 | NR/AA+/AA | 593,865 | ||||||
Total Transportation | 13,087,642 | ||||||||
Utility (11.2%) | |||||||||
Arizona Power Authority (Hoover Dam | |||||||||
Project) | |||||||||
3,500,000 | 5.250%, 10/01/16 | Aa2/AA/NR | 3,669,855 | ||||||
1,220,000 | 5.250%, 10/01/17 | Aa2/AA/NR | 1,327,665 | ||||||
Arizona Water Infrastructure Finance | |||||||||
Authority | |||||||||
3,500,000 | 5.000%, 10/01/28 (pre-refunded) | Aaa/AAA/NR | 3,929,975 |
11 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Utility (continued) | |||||||||
Greater Arizona Development | |||||||||
Authority Revenue | |||||||||
$ | 1,090,000 | 5.000%, 08/01/22 NPFG Insured | A1/AA-/NR | $ | 1,129,545 | ||||
700,000 | 5.000%, 08/01/24 | NR/A/NR | 765,807 | ||||||
500,000 | 5.000%, 08/01/28 AGMC Insured | A1/AA/NR | 574,730 | ||||||
1,200,000 | 5.500%, 08/01/29 | A1/A/NR | 1,202,220 | ||||||
1,200,000 | 5.000%, 08/01/29 | A1/A/NR | 1,337,904 | ||||||
Mesa Utility System | |||||||||
2,100,000 | 5.000%, 07/01/35 | Aa2/AA-/NR | 2,365,818 | ||||||
Pinal Co. Electrical District No. 3, | |||||||||
Electrical System Revenue Refunding | |||||||||
250,000 | 5.250%, 07/01/36 | NR/A/NR | 281,970 | ||||||
Rio Nuevo Facilities District (Tucson) | |||||||||
1,500,000 | 6.500%, 07/15/24 AGC Insured | A2/AA/BBB | 1,714,740 | ||||||
Salt River Project Agricultural | |||||||||
Improvement and Power Revenue | |||||||||
1,000,000 | 5.000%, 12/01/28 | Aa1/AA/NR | 1,176,080 | ||||||
2,000,000 | 5.000%, 12/01/31 | Aa1/AA/NR | 2,327,400 | ||||||
1,975,000 | 5.000%, 01/01/33 | Aa1/AA/NR | 2,129,761 | ||||||
4,205,000 | 5.000%, 01/01/37 (pre-refunded) | Aa1/AA/NR | 4,253,904 | ||||||
Salt Verde Finance Corp. Gas Revenue | |||||||||
3,000,000 | 5.250%, 12/01/28 | Baa1/A-/NR | 3,467,160 | ||||||
Total Utility | 31,654,534 | ||||||||
Water/Sewer (6.8%) | |||||||||
Cottonwood Water Revenue System | |||||||||
260,000 | 5.000%, 07/01/30 Syncora Guarantee, | ||||||||
Inc. Insured | Baa2/BBB+/NR | 264,605 | |||||||
Gilbert Water Resource Municipal | |||||||||
Property Corp. | |||||||||
2,000,000 | 5.000%, 10/01/29 NPFG Insured | A3/AA-/AA | 2,148,520 | ||||||
Glendale Water & Sewer Revenue | |||||||||
1,670,000 | 4.750%, 07/01/24 AGMC Insured | ||||||||
(pre-refunded) | A1/AA/NR | 1,820,751 | |||||||
2,000,000 | 5.000%, 07/01/28 | A1/AA/NR | 2,408,640 | ||||||
500,000 | 5.000%, 07/01/28 | A1/AA/NR | 576,390 | ||||||
Goodyear Water and Sewer Revenue | |||||||||
1,750,000 | 5.375%, 07/01/30 | A2/AA-/NR | 2,024,295 | ||||||
635,000 | 5.250%, 07/01/31 AGMC Insured | A2/AA/NR | 731,463 |
12 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |||
SCHEDULE OF INVESTMENTS (continued) | |||
SEPTEMBER 30, 2015 (unaudited) |
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Water/Sewer (continued) | |||||||||
Lake Havasu City Wastewater System | |||||||||
Revenue | |||||||||
$ | 1,000,000 | 5.000%, 07/01/43 AGMC Insured | A2/AA/NR | $ | 1,116,710 | ||||
Phoenix Civic Improvement Corp. | |||||||||
Wastewater Revenue | |||||||||
1,500,000 | 5.500%, 07/01/24 NPFG/FGIC Insured | Aa2/AAA/NR | 1,918,965 | ||||||
500,000 | 5.000%, 07/01/37 NPFG Insured | Aa2/AA+/NR | 531,965 | ||||||
Pima Co. Sewer Revenue System | |||||||||
2,000,000 | 5.000%, 07/01/26 | NR/AA-/AA- | 2,321,360 | ||||||
Tucson Water Revenue System | |||||||||
1,000,000 | 5.000%, 07/01/32 | Aa2/AA/AA | 1,173,310 | ||||||
Yuma Municipal Property Corp. Utility | |||||||||
System Revenue | |||||||||
700,000 | 5.000%, 07/01/21 Syncora Guarantee, | ||||||||
Inc. Insured | A1/AA-/AA- | 749,147 | |||||||
500,000 | 5.000%, 07/01/22 Syncora Guarantee, | ||||||||
Inc. Insured | A1/A+/AA- | 535,015 | |||||||
1,000,000 | 5.000%, 07/01/24 Syncora Guarantee, | ||||||||
Inc. Insured | A1/A+/AA- | 1,069,850 | |||||||
Total Water/Sewer | 19,390,986 | ||||||||
Total Revenue Bonds | 212,048,830 | ||||||||
Total Investments (cost $257,391,717 – | |||||||||
note 4) | 97.5% | 275,898,870 | |||||||
Other assets less liabilities | 2.5 | 7,162,438 | |||||||
Net Assets | 100.0% | $ | 283,061,308 |
Percent of | ||||
Portfolio Distribution By Quality Rating | Investments† | |||
Aaa of Moody’s or AAA of S&P or Fitch | 6.2 | % | ||
Pre-refunded bonds ††/ETM Bonds | 18.1 | |||
Aa of Moody’s or AA of S&P or Fitch | 48.3 | |||
A of Moody’s or S&P or Fitch | 22.0 | |||
Baa of Moody’s or BBB of S&P or Fitch | 3.4 | |||
CCC of S&P | 0.1 | |||
Not Rated* | 1.9 | |||
100.0 | % |
13 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA |
SCHEDULE OF INVESTMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
PORTFOLIO ABBREVIATIONS |
ACA - American Capital Assurance Financial Guaranty Corp. |
AGC - Assured Guaranty Corp. |
AGMC - Assured Guaranty Municipal Corp. |
AMBAC - American Municipal Bond Assurance Corp. |
AMT - Alternative Minimum Tax |
BAMAC - Build America Mutual Assurance Co. |
BHAC - Berkshire Hathaway Assurance Corp. |
COP - Certificates of Participation |
ETM - Escrowed to Maturity |
FGIC - Financial Guaranty Insurance Co. |
MAC - Municipal Assurance Corp. |
NPFG - National Public Finance Guarantee |
NR - Not Rated |
* | Any security not rated (“NR”) by any of the Nationally Recognized Statistical Rating Organizations (“NRSRO”) has been determined by the Investment Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a NRSRO. | |
** | Illiquid security: This security has been deemed to be illiquid by Aquila Investment Management LLC (“the Manager”) and represents 0.1% of net assets. This same security is also in default and did not make its most recent payment of interest . | |
† | Where applicable, calculated using the highest rating of the three NRSRO. | |
†† | Pre-refunded bonds are bonds for which U.S. Government Obligations usually have been placed in escrow to retire the bonds at their earliest call date. | |
Note: 144A – Private placement subject to SEC Rule 144A, which modifies a two-year holding period requirement to permit qualified institutional buyers to trade these securities among themselves, thereby significantly improving the liquidity of these securities. |
See accompanying notes to financial statements.
14 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | |
STATEMENT OF ASSETS AND LIABILITIES | |
SEPTEMBER 30, 2015 (unaudited) |
ASSETS | ||||
Investments at value (cost $257,391,717) | $ | 275,898,870 | ||
Cash | 3,842,741 | |||
Interest receivable | 3,291,447 | |||
Receivable for investment securities sold | 622,300 | |||
Receivable for Fund shares sold | 60,000 | |||
Other assets | 22,174 | |||
Total assets | 283,737,532 | |||
LIABILITIES | ||||
Payable for Fund shares redeemed | 256,927 | |||
Dividends payable | 227,788 | |||
Management fee payable | 92,640 | |||
Accrued expenses | 98,869 | |||
Total liabilities | 676,224 | |||
NET ASSETS | $ | 283,061,308 | ||
Net Assets consist of: | ||||
Capital Stock - Authorized an unlimited number of | ||||
shares, par value $0.01 per share | $ | 260,313 | ||
Additional paid-in capital | 262,652,539 | |||
Net unrealized appreciation on investments (note 4) | 18,507,153 | |||
Accumulated net realized gain on investments | 879,409 | |||
Undistributed net investment income | 761,894 | |||
$ | 283,061,308 | |||
CLASS A | ||||
Net Assets | $ | 230,260,416 | ||
Capital shares outstanding | 21,179,801 | |||
Net asset value and redemption price per share | $ | 10.87 | ||
Maximum offering price per share (100/96 of $10.87) | $ | 11.32 | ||
CLASS C | ||||
Net Assets | $ | 17,756,107 | ||
Capital shares outstanding | 1,633,492 | |||
Net asset value and offering price per share | $ | 10.87 | ||
Redemption price per share (*a charge of 1% is imposed | ||||
on the redemption proceeds, or on the original price, | ||||
whichever is lower, if redeemed during the first 12 | ||||
months after purchase) | $ | 10.87 | * | |
CLASS Y | ||||
Net Assets | $ | 35,044,785 | ||
Capital shares outstanding | 3,217,990 | |||
Net asset value, offering and redemption price per share | $ | 10.89 |
See accompanying notes to financial statements.
15 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA |
STATEMENT OF OPERATIONS |
SIX MONTHS ENDED SEPTEMBER 30, 2015 (unaudited) |
Investment Income: | ||||||||
Interest income | $ | 5,713, 434 | ||||||
Expenses: | ||||||||
Management fee (note 3) | $ | 557,787 | ||||||
Distribution and service fees (note 3) | 262,564 | |||||||
Transfer and shareholder servicing agent fees | 60,145 | |||||||
Trustees’ fees and expenses (note 8) | 48,780 | |||||||
Legal fees | 40,254 | |||||||
Shareholders’ reports | 13,679 | |||||||
Registration fees and dues | 11,543 | |||||||
Auditing and tax fees | 11,444 | |||||||
Custodian fees (note 6) | 10,206 | |||||||
Insurance | 7,230 | |||||||
Chief compliance officer services (note 3) | 3,271 | |||||||
Miscellaneous | 18,331 | |||||||
Total expenses | 1,045,234 | |||||||
Net investment income | 4,668, 200 | |||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||
Net realized gain (loss) from securities | ||||||||
transactions | 322,440 | |||||||
Change in unrealized appreciation on | ||||||||
investments | (3,187,927 | ) | ||||||
Net realized and unrealized gain (loss) on | ||||||||
investments | (2,865,487 | ) | ||||||
Net change in net assets resulting from | ||||||||
operations | $ | 1,802,713 |
See accompanying notes to financial statements.
16 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA | ||
STATEMENTS OF CHANGES IN NET ASSETS |
Six Months Ended | ||||||||
September 30, 2015 | Year Ended | |||||||
(unaudited) | March 31, 2015 | |||||||
OPERATIONS: | ||||||||
Net investment income | $ | 4,668,200 | $ | 9,415,133 | ||||
Net realized gain (loss) from | ||||||||
securities transactions | 322,440 | 1,043,154 | ||||||
Change in unrealized | ||||||||
appreciation on investments | (3,187,927 | ) | 7,696,825 | |||||
Change in net assets resulting | ||||||||
from operations | 1,802,713 | 18,155,112 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS (note 10): | ||||||||
Class A Shares: | ||||||||
Net investment income | (3,854,031 | ) | (8,048,585 | ) | ||||
Class C Shares: | ||||||||
Net investment income | (224,279 | ) | (441,887 | ) | ||||
Class Y Shares: | ||||||||
Net investment income | (534,720 | ) | (852,666 | ) | ||||
Change in net assets from | ||||||||
distributions | (4,613,030 | ) | (9,343,138 | ) | ||||
CAPITAL SHARE TRANSACTIONS (note 7): | ||||||||
Proceeds from shares sold | 21,201,447 | 27,897,163 | ||||||
Reinvested dividends and | ||||||||
distributions | 3,621,937 | 7,188,132 | ||||||
Cost of shares redeemed | (18,211,129 | ) | (30,614,326 | ) | ||||
Change in net assets from | ||||||||
capital share transactions | 6,612,255 | 4,470,969 | ||||||
Change in net assets | 3,801,938 | 13,282,943 | ||||||
NET ASSETS: | ||||||||
Beginning of period | 279,259,370 | 265,976,427 | ||||||
End of period* | $ | 283,061,308 | $ | 279,259,370 | ||||
*Includes undistributed net investment income of: | $ | 761,894 | $ | 706,724 |
See accompanying notes to financial statements.
17 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA |
NOTES TO FINANCIAL STATEMENTS |
SEPTEMBER 30, 2015 (unaudited) |
1. Organization
Aquila Tax-Free Fund of Arizona (the “Fund”), a series of Aquila Municipal Trust (from inception until the close of business on October 11, 2013, the Fund operated under the name Tax-Free Fund of Arizona), a non-diversified, open-end investment company, was organized on October 17, 1985, as a Massachusetts business Fund and commenced operations on March 13, 1986. The Fund is authorized to issue an unlimited number of shares. Class A Shares are sold at net asset value plus a sales charge of varying size (depending upon a variety of factors) paid at the time of purchase and bear a distribution fee. Class C Shares are sold at net asset value with no sales charge payable at the time of purchase but with a level charge for service and distribution fees for six years thereafter. Class C Shares automatically convert to Class A Shares after six years. Class Y Shares are sold only through authorized financial institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity, and are not offered directly to retail customers. Class Y Shares are sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge (“CDSC”) and no distribution fee. Class I Shares are offered and sold only through financial intermediaries and are not offered directly to retail customers. Class I Shares are sold at net asset value with no sales charge and no redemption fee or CDSC, although a financial intermediary may charge a fee for effecting a purchase or other transaction on behalf of its customers. Class I Shares carry a distribution and a service fee. As of the report date, there were no Class I Shares outstanding. All classes of shares represent interests in the same portfolio of investments and are identical as to rights and privileges but differ with respect to the effect of sales charges, the distribution and/or service fees borne by each class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America for investment companies.
a) | Portfolio valuation: Municipal securities are valued each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services. In the case of securities for which market quotations are readily available, securities are valued by the pricing service at the mean of bid and asked quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees. |
b) | Fair value measurements: The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy: |
18 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, based on the best information available.
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities
The following is a summary of the valuation inputs, representing 100% of the Fund’s investments, used to value the Fund’s net assets as of September 30, 2015:
Valuation Inputs | Investments in Securities | ||||
Level 1 – Quoted Prices | $ | — | |||
Level 2 – Other Significant Observable | |||||
Inputs — Municipal Bonds* | 275,898,870 | ||||
Level 3 – Significant Unobservable Inputs | — | ||||
Total | $ | 275,898,870 |
* See schedule of investments for a detailed listing of securities.
c) | Subsequent events: In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date these financial statements were issued. |
d) | Securities transactions and related investment income: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. Interest income is recorded daily on the accrual basis and is adjusted for amortization of premium and accretion of original issue and market discount. |
e) | Federal income taxes: It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Fund intends to make distributions of income and securities profits sufficient to relieve it from all, or substantially all, Federal income and excise taxes. |
19 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Management has reviewed the tax positions for each of the open tax years (2012–2014) or expected to be taken in the Fund’s 2015 tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.
f) | Multiple Class Allocations: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are also charged directly to such class on a daily basis. |
g) | Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. |
h) | Reclassification of capital accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. On March 31, 2015, the Fund decreased undistributed net investment income by $59,229, and increased additional paid-in capital by $59,229. These reclassifications had no effect on net assets or net asset value per share. |
i) | The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 “Financial Services-Investment Companies”. |
3. Fees and Related Party Transactions
a) Management Arrangements:
Aquila Investment Management LLC (the “Manager”), a wholly-owned subsidiary of Aquila Management Corporation, the Fund’s founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. Under the Advisory and Administration Agreement, the Manager provides all investment management and administrative services to the Fund. The Manager’s services include providing the office of the Fund and all related services as well as managing relationships with all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.40% on the Fund’s net assets.
Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for Chief Compliance Officer related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940.
20 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
Specific details as to the nature and extent of the services provided by the Manager are more fully defined in the Fund’s Prospectus and Statement of Additional Information.
b) Distribution and Service Fees:
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 (the “Rule”) under the Investment Company Act of 1940. Under one part of the Plan, with respect to Class A Shares, the Fund is authorized to make distribution fee payments to broker-dealers or others (“Qualified Recipients”) selected by Aquila Distributors, Inc. (“the Distributor”) including, but not limited to, any principal underwriter of the Fund, with which the Distributor has entered into written agreements contemplated by the Rule and which have rendered assistance in the distribution and/or retention of the Fund’s shares or servicing of shareholder accounts. The Fund makes payment of this distribution fee at the annual rate of 0.15% of the Fund’s average net assets represented by Class A Shares. For the six months ended September 30, 2015, distribution fees on Class A Shares amounted to $172,758, of which the Distributor retained $11,490.
Under another part of the Plan, the Fund is authorized to make payments with respect to Class C Shares to Qualified Recipients which have rendered assistance in the distribution and/or retention of the Fund’s Class C Shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Fund’s average net assets represented by Class C Shares and for the six months ended September 30, 2015, amounted to $67,354. In addition, under a Shareholder Services Plan, the Fund is authorized to make service fee payments with respect to Class C Shares to Qualified Recipients for providing personal services and/or maintenance of shareholder accounts. These payments are made at the annual rate of 0.25% of the Fund’s average net assets represented by Class C Shares and for the six months ended September 30, 2015, these payments amounted to $22,452. The total of these payments with respect to Class C Shares amounted to $89,806, of which the Distributor retained $21,108.
Specific details about the Plans are more fully defined in the Fund’s Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive distributor of the Fund’s shares. Through agreements between the Distributor and various brokerage and advisory firms (“intermediaries”), the Fund’s shares are sold primarily through the facilities of these intermediaries having offices within Arizona, with the bulk of any sales commissions inuring to such intermediaries. For the six months ended September 30, 2015, total commissions on sales of Class A Shares amounted to $163,233, of which the Distributor received $32,202.
4. Purchases and Sales of Securities
During the six months ended September 30, 2015, purchases of securities and proceeds from the sales of securities aggregated $20,251,146 and $17,355,802, respectively.
At September 30, 2015, the aggregate tax cost for all securities was $256,687,964. At September 30, 2015, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $19,815,939 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $605,033 for a net unrealized appreciation of $19,210,906.
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AQUILA TAX-FREE TRUST OF ARIZONA |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
5. Portfolio Orientation
Since the Fund invests principally and may invest entirely in double tax-free municipal obligations of issuers within Arizona, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Arizona and whatever effects these may have upon Arizona issuers’ ability to meet their obligations. The Fund is also permitted to invest in U.S. territorial municipal obligations meeting comparable quality standards and providing income which is exempt from both regular Federal and Arizona income taxes. The general policy of the Fund is to invest in such securities only when comparable securities of Arizona issuers are not available in the market. At September 30, 2015, the Fund had all of its assets invested in the securities of Arizona issuers.
6. Expenses
The Fund had negotiated an expense offset arrangement with JPMorgan Chase Bank N.A., which served as its custodian until November 2, 2015. Under these arrangements, it received credit towards the reduction of custodian fees and other Fund expenses whenever there were uninvested cash balances. The Statement of Operations reflects the total expenses before any offset, the amount of offset, if any, and the net expenses. Effective November 2, 2015, the Fund no longer receives credits toward the reduction of custody fees from the Fund's new custodian.
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AQUILA TAX-FREE TRUST OF ARIZONA |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
7. Capital Share Transactions
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended | ||||||||||||||||
September 30, 2015 | Year Ended | |||||||||||||||
(unaudited) | March 31, 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A Shares: | ||||||||||||||||
Proceeds from shares sold | 879,701 | $ | 9,550,973 | 1,261,894 | $ | 13,749,097 | ||||||||||
Reinvested dividends and | ||||||||||||||||
distributions | 284,606 | 3,089,708 | 572,232 | 6,233,618 | ||||||||||||
Cost of shares redeemed | (1,323,290 | ) | (14,372,397 | ) | (2,075,139 | ) | (22,576,469 | ) | ||||||||
Net change | (158,983 | ) | (1,731,716 | ) | (241,013 | ) | (2,593,754 | ) | ||||||||
Class C Shares: | ||||||||||||||||
Proceeds from shares sold | 209,137 | 2,270,040 | 367,971 | 4,008,775 | ||||||||||||
Reinvested dividends and | ||||||||||||||||
distributions | 17,982 | 195,183 | 36,371 | 396,072 | ||||||||||||
Cost of shares redeemed | (205,898 | ) | (2,231,161 | ) | (333,932 | ) | (3,630,435 | ) | ||||||||
Net change | 21,221 | 234,062 | 70,410 | 774,412 | ||||||||||||
Class Y Shares: | ||||||||||||||||
Proceeds from shares sold | 863,144 | 9,380,434 | 930,007 | 10,139,291 | ||||||||||||
Reinvested dividends and | ||||||||||||||||
distributions | 31,010 | 337,046 | 51,073 | 558,442 | ||||||||||||
Cost of shares redeemed | (147,513 | ) | (1,607, 571 | ) | (403,827 | ) | (4,407,422 | ) | ||||||||
Net change | 746,641 | 8,109,909 | 577,253 | 6,290,311 | ||||||||||||
Total transactions in Fund | ||||||||||||||||
shares | 608,879 | $ | 6,612,255 | 406,650 | $ | 4,470,969 |
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AQUILA TAX-FREE TRUST OF ARIZONA |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
8. Trustees’ Fees and Expenses
At September 30, 2015 there were 11 Trustees, one of whom is affiliated with the Manager and is not paid any fees. The total amount of Trustees’ service fees (for carrying out their responsibilities) and attendance fees paid during the six months ended September 30, 2015 was $40,318. Attendance fees are paid to those in attendance at regularly scheduled quarterly Board Meetings and meetings of the Independent Trustees held prior to each quarterly Board Meeting, as well as additional meetings (such as Audit, Nominating, Shareholder and special meetings). Trustees are reimbursed for their expenses such as travel, accommodations and meals incurred in connection with attendance at Board Meetings and the Annual and Outreach Meetings of Shareholders. For the six months ended September 30, 2015, such meeting-related expenses amounted to $8,462.
9. Securities Traded on a When-Issued Basis
The Fund may purchase or sell securities on a when-issued basis. When-issued transactions arise when securities are purchased or sold by the Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction. Beginning on the date the Fund enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
10. Income Tax Information and Distributions
The Fund declares dividends daily from net investment income and makes payments monthly. Net realized capital gains, if any, are distributed annually and are taxable. These distributions are paid in additional shares at the net asset value per share, in cash, or in a combination of both, at the shareholder’s option.
The Fund intends to maintain, to the maximum extent possible, the tax-exempt status of interest payments received from portfolio municipal securities in order to allow dividends paid to shareholders from net investment income to be exempt from regular Federal and State of Arizona income taxes. Due to differences between financial statement reporting and Federal income tax reporting requirements, distributions made by the Fund may not be the same as the Fund’s net investment income, and/or net realized securities gains. Further, a small portion of the dividends may, under some circumstances, be subject to taxes at ordinary income rates. For certain shareholders, some dividend income may, under some circumstances, be subject to the alternative minimum tax.
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AQUILA TAX-FREE TRUST OF ARIZONA |
NOTES TO FINANCIAL STATEMENTS (continued) |
SEPTEMBER 30, 2015 (unaudited) |
The tax character of distributions was as follows:
Year | Year | |||||||
Ended | Ended | |||||||
March 31, 2015 | March 31, 2014 | |||||||
Net tax-exempt income | $ | 9,294,735 | $ | 9,752,435 | ||||
Ordinary Income | 48,403 | 27,853 | ||||||
Long-term capital gains | – | 209,695 | ||||||
$ | 9,343,138 | $ | 9,989,983 |
As of March 31, 2015, the components of distributable earnings on a tax basis were as follows:
Undistributed tax-exempt income | $ | 131,330 | ||||||
Accumulated net realized loss on investments | 556,969 | |||||||
Unrealized appreciation | 22,401,804 | |||||||
Other temporary differences | (131,330 | ) | ||||||
$ | 22,958,773 |
The difference between book basis and tax unrealized appreciation and undistributed income is due to the timing difference in recognizing dividends paid and the amortization of discount securities.
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AQUILA TAX-FREE TRUST OF ARIZONA |
FINANCIAL HIGHLIGHTS |
For a share outstanding throughout each period
Class A | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Nine Months | Year Ended June 30, | ||||||||||||||||||||||||
9/30/15 (unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.98 | $ | 10.63 | $ | 10.97 | $ | 10.92 | $ | 10.37 | $ | 10.50 | $ | 10.14 | ||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.18 | 0.38 | 0.38 | 0.29 | 0.41 | 0.42 | 0.43 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.10 | ) | 0.35 | (0.34 | ) | 0.05 | 0.54 | (0.13 | ) | 0.36 | ||||||||||||||||||
Total from investment operations | 0.08 | 0.73 | 0.04 | 0.34 | 0.95 | 0.29 | 0.79 | |||||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.19 | ) | (0.38 | ) | (0.37 | ) | 0.29 | (0.40 | ) | (0.42 | ) | (0.43 | ) | |||||||||||||||
Distributions from capital gains | – | – | (0.01 | ) | – | – | – | – | (2) | |||||||||||||||||||
Total distributions | (0.19 | ) | (0.38 | ) | (0.38 | ) | (0.29 | ) | (0.40 | ) | (0.42 | ) | (0.43 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.87 | $ | 10.98 | $ | 10.63 | $ | 10.97 | $ | 10.92 | $ | 10.37 | $ | 10.50 | ||||||||||||||
Total return(not reflecting sales charge) | 0.67 | %(3) | 6.92 | % | 0.49 | % | 3.08 | %(3) | 9.29 | % | 2.80 | % | 7.87 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 230 | $ | 234 | $ | 229 | $ | 265 | $ | 274 | $ | 260 | $ | 295 | ||||||||||||||
Ratio of expenses to average net assets | 0.71 | %(4) | 0.73 | % | 0.78 | %(5)(6) | 0.73 | %(4) | 0.73 | % | 0.73 | % | 0.74 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 3.39 | %(4) | 3.49 | % | 3.59 | %(5)(6) | 3.50 | %(4) | 3.78 | % | 4.07 | % | 4.08 | % | ||||||||||||||
Portfolio turnover rate | 6 | %(3) | 14 | % | 10 | % | 8 | %(3) | 17 | % | 12 | % | 14 | % | ||||||||||||||
Expense ratios after giving effect to the expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.71 | %(4) | 0.73 | % | 0.78 | %(5) | 0.73 | %(4) | 0.73 | % | 0.73 | % | 0.74 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Amount represents less than $0.01. |
(3) | Not annualized. (4) Annualized. |
(5) | Includes expenses incurred in connection with the reorganization of the Trust into a series of Aquila Municipal Trust. |
(6) | Without these expenses, the expense ratio and the net investment income ratio would have been 0.73% and 3.64%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from June 30 to March 31. The information presented is for the period July 1, 2012 to March 31, 2013. |
See accompanying notes to financial statements.
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AQUILA TAX-FREE TRUST OF ARIZONA |
FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class C | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Nine Months | Year Ended June 30, | ||||||||||||||||||||||||
9/30/15(unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.98 | $ | 10.63 | $ | 10.97 | $ | 10.92 | $ | 10.37 | $ | 10.50 | $ | 10.14 | ||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.14 | 0.29 | 0.29 | 0.22 | 0.31 | 0.33 | 0.33 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.11 | ) | 0.34 | (0.34 | ) | 0.05 | 0.55 | (0.13 | ) | 0.37 | ||||||||||||||||||
Total from investment operations | 0.03 | 0.63 | (0.05 | ) | 0.27 | 0.86 | 0.20 | 0.70 | ||||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.14 | ) | (0.28 | ) | (0.28 | ) | (0.22 | ) | (0.31 | ) | (0.33 | ) | (0.34 | ) | ||||||||||||||
Distributions from capital gains | – | – | (0.01 | ) | – | – | – | – | (2) | |||||||||||||||||||
Total distributions | (0.14 | ) | (0.28 | ) | (0.29 | ) | (0.22 | ) | (0.31 | ) | (0.33 | ) | (0.34 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.87 | $ | 10.98 | $ | 10.63 | $ | 10.97 | $ | 10.92 | $ | 10.37 | $ | 10.50 | ||||||||||||||
Total return(not reflecting CDSC) | 0.25 | %(3) | 6.02 | % | (0.36 | )% | 2.43 | %(3) | 8.36 | % | 1.93 | % | 6.95 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 18 | $ | 18 | $ | 16 | $ | 24 | $ | 21 | $ | 15 | $ | 14 | ||||||||||||||
Ratio of expenses to average net assets | 1.56 | %(4) | 1.58 | % | 1.63 | %(5)(6) | 1.57 | %(4) | 1.58 | % | 1.57 | % | 1.58 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.53 | %(4) | 2.63 | % | 2.74 | %(5)(6) | 2.64 | %(4) | 2.91 | % | 3.21 | % | 3.19 | % | ||||||||||||||
Portfolio turnover rate | 6 | %(3) | 14 | % | 10 | % | 8 | %(3) | 17 | % | 12 | % | 14 | % | ||||||||||||||
Expense ratios after giving effect to the expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.56 | %(4) | 1.58 | % | 1.63 | %(5) | 1.57 | %(4) | 1.58 | % | 1.57 | % | 1.58 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Amount represents less than $0.01. |
(3) | Not annualized. |
(4) | Annualized. |
(5) | Includes expenses incurred in connection with the reorganization of the Trust into a series of Aquila Municipal Trust. |
(6) | Without these expenses, the expense ratio and the net investment income ratio would have been 1.58% and 2.79%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from June 30 to March 31. The information presented is for the period July 1, 2012 to March 31, 2013. |
See accompanying notes to financial statements.
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AQUILA TAX-FREE TRUST OF ARIZONA |
FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class Y | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Year | Year | Nine Months | Year Ended June 30, | ||||||||||||||||||||||||
9/30/15(unaudited) | Ended 3/31/15 | Ended 3/31/14 | Ended 3/31/13† | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.00 | $ | 10.65 | $ | 10.99 | $ | 10.94 | $ | 10.39 | $ | 10.52 | $ | 10.16 | ||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.19 | 0.40 | 0.40 | 0.30 | 0.42 | 0.44 | 0.44 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | ( 0.11 | ) | 0.34 | (0.34 | ) | 0.05 | 0.55 | (0.14 | ) | 0.36 | ||||||||||||||||||
Total from investment operations | 0.08 | 0.74 | 0.06 | 0.35 | 0.97 | 0.30 | 0.80 | |||||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.19 | ) | (0.39 | ) | (0.39 | ) | (0.30 | ) | (0.42 | ) | (0.43 | ) | (0.44 | ) | ||||||||||||||
Distributions from capital gains | – | – | (0.01 | ) | – | – | – | – | (2) | |||||||||||||||||||
Total distributions | (0.19 | ) | (0.39 | ) | (0.40 | ) | (0.30 | ) | (0.42 | ) | (0.43 | ) | (0.44 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.89 | $ | 11.00 | $ | 10.65 | $ | 10.99 | $ | 10.94 | $ | 10.39 | $ | 10.52 | ||||||||||||||
Total return | 0.75 | %(3) | 7.07 | % | 0.64 | % | 3.20 | %(3) | 9.44 | % | 2.95 | % | 8.02 | % | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 35 | $ | 27 | $ | 20 | $ | 24 | $ | 16 | $ | 11 | $ | 13 | ||||||||||||||
Ratio of expenses to average net assets | 0.56 | %(4) | 0.58 | % | 0.63 | %(5)(6) | 0.58 | %(4) | 0.58 | % | 0.58 | % | 0.59 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 3.52 | %(4) | 3.63 | % | 3.74 | %(5)(6) | 3.64 | %(4) | 3.92 | % | 4.22 | % | 4.22 | % | ||||||||||||||
Portfolio turnover rate | 6 | %(3) | 14 | % | 10 | % | 8 | %(3) | 17 | % | 12 | % | 14 | % | ||||||||||||||
Expense ratios after giving effect to the expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.56 | %(4) | 0.58 | % | 0.63 | %(5) | 0.58 | %(4) | 0.58 | % | 0.58 | % | 0.59 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Amount represents less than $0.01. |
(3) | Not annualized. |
(4) | Annualized. |
(5) | Includes expenses incurred in connection with the reorganization of the Trust into a series of Aquila Municipal Trust. |
(6) | Without these expenses, the expense ratio and the net investment income ratio would have been 0.58% and 3.79%, respectively, for the year ended March 31, 2014. |
† | Effective December 1, 2012, the Fund changed its fiscal year end from June 30 to March 31. The information presented is for the period July 1, 2012 to March 31, 2013. |
See accompanying notes to financial statements.
28 | Aquila Tax-Free Trust of Arizona
Additional Information (unaudited)
Renewal of the Advisory and Administration Agreement
Aquila Investment Management LLC (the “Manager”) serves as the investment adviser to the Trust pursuant to an Advisory and Administration Agreement (the “Advisory Agreement”). In order for the Manager to remain the investment adviser of the Trust [Aquila Tax-Free Trust of Arizona], the Trustees of the Trust must determine annually whether to renew the Advisory Agreement for the Trust.
In considering whether to approve the renewal of the Advisory Agreement, the Trustees requested and obtained such information as they deemed reasonably necessary. Contract review materials were provided to the Trustees in August, 2015. The independent Trustees met telephonically on September 14, 2015 and in person on September 20, 2015 to review and discuss the contract review materials. The Trustees considered, among other things, information presented by the Manager. They also considered information presented in a report prepared by an independent consultant with respect to the Trust’s fees, expenses and investment performance, which included comparisons of the Trust’s investment performance against peers and the Trust’s benchmark and comparisons of the advisory fee payable under the Advisory Agreement against the advisory fees paid by the Trust’s peers, as well as information regarding the operating margins of certain investment advisory firms (the “Consultant’s Report”). In addition, the Trustees took into account the information related to the Trust provided to the Trustees at each regularly scheduled meeting.
At the meeting held on September 20, 2015, based on their evaluation of the information provided by the Manager and the independent consultant, the Trustees of the Trust, including the independent Trustees voting separately, unanimously approved the renewal of the Advisory Agreement until September 30, 2016. In considering the renewal of the Advisory Agreement, the Trustees considered various factors that they determined were relevant, including the factors described below. The Trustees did not identify any single factor as the controlling factor in determining to approve the renewal of the Advisory Agreement.
The nature, extent, and quality of the services provided by the Manager
The Trustees considered the nature, extent and quality of the services that had been provided by the Manager to the Trust, taking into account the investment objectives and strategies of the Trust. The Trustees reviewed the terms of the Advisory Agreement.
The Trustees reviewed the Manager’s investment approach for the Trust and its research process. The Trustees considered that the Manager had provided all advisory and administrative services to the Trust that the Trustees deemed necessary or appropriate, including the specific services that the Trustees have determined are required for the Trust, given that it seeks to provide shareholders with as high a level of current income exempt from Arizona state and regular Federal income taxes as is consistent with preservation of capital. The Trustees considered the personnel of the Manager who provide investment management services to the Trust. The Manager has employed Mr. Todd Curtis as portfolio manager for the Trust and has established facilities and capabilities for credit analysis of the Trust’s portfolio securities. The Trustees noted the extensive experience of the portfolio manager. They considered that Mr. Curtis is based in Phoenix, Arizona and that he has a comprehensive understanding regarding the economy of the State of Arizona and the securities in which the Trust invests, including those securities with less than the highest ratings from the rating agencies.
29 | Aquila Tax-Free Trust of Arizona
The Manager has additionally provided all administrative services to the Trust and provided the Trust with personnel (including Trust officers) and other resources that are necessary for the Trust’s business management and operations. The Trustees considered the nature and extent of the Manager’s supervision of third-party service providers, including the Trust’s shareholder servicing agent and custodian.
Based on these considerations, the Trustees concluded that the nature, extent and quality of services that had been provided by the Manager to the Trust were satisfactory and consistent with the terms of the Advisory Agreement.
The investment performance of the Trust
The Trustees reviewed the Trust’s performance and compared its performance to the performance of:
• | the funds in the Trust’s peer group (the “Peer Group”), as selected by the independent consultant (seven municipal single-state intermediate and municipal single-state long funds, as classified by Morningstar, that are similar to the Trust in size and that charge a front-end sales charge); |
• | the funds in the Trust’s product category for performance (the “Product Category for Performance”) (all funds in the Peer Group and, without duplication, all funds (and all classes) included in the Morningstar Single-State Intermediate Municipal Bond Funds category); and |
• | the Trust’s benchmark index, the Barclays Capital Quality Intermediate Municipal Bond Index. |
The Trustees considered that the materials included in the Consultant’s Report indicated that the Trust’s average annual total return was higher than the average annual total return of the funds in the Peer Group for the one, three and ten year periods but 0.03% lower than the average for the five year period ended June 30, 2015. However, the Trustees considered that, as reflected in the Consultant’s Report, the Trust’s average annual total return was higher than the average annual total return of the funds in the Product Category for Performance for the one, three, five and ten year periods ended June 30, 2015, as well as the benchmark index for each of the one, three and five year periods ended June 30, 2015. The Trustees considered that, as reflected in the Consultant’s Report, the Trust delivered above-average results on a risk-adjusted basis for the three and five year periods ended June 30, 2015 (as evidenced by its Sharpe ratio) when compared to the funds in the Product Category for Performance.
Evaluation of the investment performance of the Trust indicated to the Trustees that renewal of the Advisory Agreement would be appropriate.
Advisory Fees and Trust Expenses
The Trustees reviewed the Trust’s advisory fees and expenses and compared them to the advisory fee and expense data for:
• | the funds in the Peer Group (as defined above); and |
• | the funds in the product category for expenses (the “Product Category for Expenses”) (Morningstar Single-State Intermediate Municipal Bond Funds and Morningstar Single State Long Municipal Bond Funds from states within which eight or more mutual funds are operating, with similar operating expense structures). |
30 | Aquila Tax-Free Trust of Arizona
The Trustees considered that the Trust’s contractual advisory fee was lower than the average and median contractual advisory fee of the funds in the Peer Group (at the Trust’s current asset level) and lower than the asset-weighted average contractual advisory fee of the funds in the Product Category for Expenses (at various asset levels). They also noted that the Trust’s expenses were less than the average actual expenses of the funds in both the Product Category for Expenses and the Peer Group.
The Trustees reviewed management fees charged by the Manager to its other clients. It was noted that the Manager does not have any other clients except for other funds in the Aquila Group of Funds. The Trustees noted that, in most instances, the fee rates for those clients were comparable to the fees paid to the Manager with respect to the Trust. In evaluating the fees associated with the other funds, the Trustees took into account the respective demands, resources and complexity associated with the Trust and those funds.
The Trustees concluded that the advisory fee and expenses of the Trust were reasonable in relation to the nature and quality of the services provided by the Manager to the Trust.
Profitability
The Trustees received materials from each of the Manager and the independent consultant related to profitability. The Manager provided information which showed the profitability to the Manager of its services to the Trust, as well as the profitability of Aquila Distributors, Inc. of distribution services provided to the Trust. The independent consultant provided publicly available data regarding the profitability of other asset managers in comparison to the overall profitability of the Manager.
The Trustees considered the information provided by the Manager regarding the profitability of the Manager with respect to the advisory services provided by the Manager to the Trust, including the methodology used by the Manager in allocating certain of its costs to the management of the Trust. The Trustees also considered information regarding the profitability of the Manager provided to the Trustees by the independent consultant. The Trustees concluded that profitability to the Manager with respect to the advisory services provided to the Trust did not argue against approval of the fees to be paid under the Advisory Agreement.
The extent to which economies of scale would be realized as the Trust grows
The Trustees considered the extent to which the Manager may realize economies of scale or other efficiencies in managing the Trust. The Trustees considered that the materials indicated that the Trust’s fees are already generally lower than those of its peers, including those with breakpoints. The Trustees noted that the Manager’s profitability also may be an indicator of the availability of any economies of scale. Accordingly, the Trustees concluded that economies of scale, if any, were being appropriately shared with the Trust.
Benefits derived or to be derived by the Manager and its affiliate from the relationship with the Trust
The Trustees observed that, as is generally true of most fund complexes, the Manager and its affiliate, by providing services to a number of funds including the Trust, were able to spread costs as they would otherwise be unable to do. The Trustees noted that while that produces efficiencies and increased profitability for the Manager and its affiliate, it also makes their services available to the Trust at favorable levels of quality and cost which are more advantageous to the Trust than would otherwise have been possible.
31 | Aquila Tax-Free Trust of Arizona
Analysis of Expenses (unaudited)
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end sales charges with respect to Class A shares or contingent deferred sales charges (“CDSC”) with respect to Class C shares; and (2) ongoing costs, including management fees; distribution (12b-1) and/or service fees; and other Fund expenses. The table below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The table below is based on an investment of $1,000 invested on April 1, 2015 and held for the six months ended September 30, 2015.
Actual Expenses
This table provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During the Period”.
Six months ended September 30, 2015
Actual | ||||
Total Return | Beginning | Ending | Expenses | |
Without | Account | Account | Paid During | |
Sales Charges(1) | Value | Value | the Period(2) | |
Class A | 0.67% | $1,000.00 | $1,006.70 | $3.57 |
Class C | 0.25% | $1,000.00 | $1,002.50 | $7.83 |
Class Y | 0.75% | $1,000.00 | $1,007.50 | $2.82 |
(1) | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A shares or the applicable CDSC with respect to Class C shares. Total return is not annualized; as such, it may not be representative of the total return for the year. |
(2) | Expenses are equal to the annualized expense ratio of 0.71%, 1.56% and 0.56% for the Fund’s Class A, C and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
32 | Aquila Tax-Free Trust of Arizona
Analysis of Expenses (unaudited) (continued)
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs with respect to Class A shares. The example does not reflect the deduction of CDSC with respect to Class C shares. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different mutual funds. In addition, if these transaction costs were included, your costs would have been higher.
Six months ended September 30, 2015
Hypothetical | ||||
Annualized | Beginning | Ending | Expenses | |
Total | Account | Account | Paid During | |
Return | Value | Value | the Period(1) | |
Class A | 5.00% | $1,000.00 | $1,021. 51 | $3.60 |
Class C | 5.00% | $1,000.00 | $1,017. 25 | $7.89 |
Class Y | 5.00% | $1,000.00 | $1,022. 26 | $2.84 |
(1) | Expenses are equal to the annualized expense ratio of 0.71%, 1.56% and 0.56% for the Fund’s Class A, C and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
33 | Aquila Tax-Free Trust of Arizona
Information Available (unaudited)
Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent your Fund’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Fund policies, the Fund publicly discloses the complete schedule of the Fund’s portfolio holdings, as of each calendar quarter, generally by the 15th day after the end of each calendar quarter. Such information remains accessible until the next schedule is made publicly available. You may obtain a copy of the Fund’s portfolio holdings schedule for the most recently completed period by visiting the Fund’s website at www.aquilafunds.com. The Fund may also disclose other portfolio holdings as of a specified date (currently the Fund discloses its five largest holdings and/or sector holdings by value as of the close of the last business day of each calendar month in a posting to its website on approximately the 5th business day following the month end). This information remains on the website until the next such posting. Whenever you wish to see a listing of your Fund’s portfolio other than in your shareholder reports, please check our website at www.aquilafunds.com or call us at 1-800-437-1020.
The Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarter ends of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at www.sec.gov. You may also review or, for a fee, copy the forms at the SEC’s Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330.
Proxy Voting Record (unaudited)
During the 12 month period ended June 30, 2015, the Fund did not hold any portfolio securities for which the Fund was entitled to participate in proxy voting. Applicable regulations require us to inform you that the Fund’s proxy voting information is available on the SEC website at www.sec.gov.
Federal Tax Status of Distributions (unaudited)
This information is presented in order to comply with a requirement of the Internal Revenue Code. No action on the part of shareholders is required.
For the fiscal year ended March 31, 2015, $9,294,735 of dividends paid by Aquila Tax-Free Trust of Arizona, constituting 99.48% of total dividends paid, were exempt-interest dividends; and the balance was ordinary dividend income.
Prior to February 15, 2016, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2015 calendar year.
34 | Aquila Tax-Free Trust of Arizona
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Founders
Lacy B. Herrmann (1929-2012)
Aquila Management Corporation, Sponsor
Manager
AQUILA INVESTMENT MANAGEMENT LLC
120 West 45th Street, Suite 3600
New York, New York 10036
Board of Trustees
John C. Lucking, Chair
Diana P. Herrmann, Vice Chair
Ernest Calderón
Thomas A. Christopher
Gary C. Cornia
Grady Gammage, Jr.
Lyle W. Hillyard
Glenn P. O’Flaherty
John J. Partridge
James R. Ramsey
Laureen L. White
Officers
Diana P. Herrmann, President
Charles E. Childs, III, Executive Vice President
and Secretary
Todd W. Curtis, Senior Vice President and
Portfolio Manager
Marie E. Aro, Senior Vice President
Paul G. O’Brien, Senior Vice President
Craig T. DiRuzzo, Vice President
Randall S. Fillmore, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer
and Treasurer
Distributor
AQUILA DISTRIBUTORS, INC.
120 West 45th Street, Suite 3600
New York, New York 10036
Transfer and Shareholder Servicing Agent
BNY MELLON
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
BNY MELLON
225 Liberty Street
New York, New York 10286
Further information is contained in the Prospectus,
which must precede or accompany this report.
ITEM 2. | CODE OF ETHICS. |
Not applicable.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Not applicable.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Included in Item 1 above
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
The Board of Directors of the Registrant has adopted a Nominating Committee Charter which provides that the Nominating Committee (the 'Committee') may consider and evaluate nominee candidates properly submitted by shareholders if a vacancy among the Independent Trustees of the Registrant occurs and if, based on the Board's then current size, composition and structure, the Committee determines that the vacancy should be filled. The Committee will consider candidates submitted by shareholders on the same basis as it considers and evaluates candidates recommended by other sources. A copy of the qualifications and procedures that must be met or followed by shareholders to properly submit a nominee candidate to the Committee may be obtained by submitting a request in writing to the Secretary of the Registrant.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) as of a date within 90 days of the filing of this report, the registrant's chief financial and executive officers have concluded that the disclosure controls and procedures of the registrant are appropriately designed to ensure that information required to be disclosed in the registrant's reports that are filed under the Securities Exchange Act of 1934 are accumulated and communicated to registrant's management, including its principal executive officer(s) and principal financial officer(s), to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the Securities and Exchange Commission.
(b) There have been no significant changes in registrant's internal controls or in other factors that could significantly affect registrant's internal controls subsequent to the date of the most recent evaluation, including no significant deficiencies or material weaknesses that required corrective action.
ITEM 12. EXHIBITS.
(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AQUILA MUNICIPAL TRUST
By: | /s/ Diana P. Herrmann | |
Vice Chair, President and Trustee December 7, 2015 | ||
By: | /s/ Joseph P. DiMaggio | |
December 7, 2015 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Diana P. Herrmann | |
Diana P. Herrmann Vice Chair, President and Trustee December 7, 2015 | ||
By: | /s/ Joseph P. DiMaggio | |
Joseph P. DiMaggio Chief Financial Officer and Treasurer December 7, 2015 |
AQUILA MUNICIPAL TRUST
EXHIBIT INDEX
(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(b) Certification of chief executive officer and chief financial officer as required by Rule 30a-2(b) of the Investment Company Act of 1940.