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: 03/31/22
Date of reporting period: 09/30/22
FORM N-CSRS
ITEM 1. REPORTS TO STOCKHOLDERS.
Semi-Annual Report September 30, 2022
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![]() | Aquila Churchill Tax-Free Fund of Kentucky Keeping an Optimistic
Serving Kentucky investors since 1987 | ![]() |
November, 2022
Dear Fellow Shareholder:
The fixed income markets have experienced significant volatility and downward pressure for much of 2022, driven primarily by several key economic factors, including continued high inflation, rising interest rates, and uncertainty about the direction of the U.S. economy. While these factors aren’t necessarily new or unique, they nonetheless have presented challenges for rate-sensitive investments — and, in the process, have made the majority of investors increasingly skittish. While we understand investors’ concerns, we remain optimistic about the municipal bond market.
Despite its inevitable ups and downs, the municipal bond market has historically demonstrated remarkable resiliency across multiple market cycles. We believe today’s market appears reasonably sound at its core in terms of continuing credit fundamentals and current relative valuations. The municipal market’s underpinnings remain deeply rooted in the need and demand for municipal bonds given the important role they play in financing vital local projects, such as schools, hospitals, and roadways that contribute to improving the quality of life for residents of the issuing municipalities.
It’s important to understand what’s driving the current market and maintain perspective. Let’s explore further.
Understanding the Factors Impacting Municipal Bonds
The primary driver of bond yields, prices, and relative performance is interest rates. Since the Federal Reserve (the “Fed”) introduced a change in its monetary policy in March of this year to help combat inflation, interest rates began a steady upward climb. This was spurred by the Fed raising the Federal Funds rate (the interest rate that banks charge one another to borrow or lend excess reserves overnight), the first such increase since 2018. To date, through 11/02/2022, the Fed has implemented six rate hikes, totaling 3.75%, bringing the stated target range for the Fed Funds rate to 3.75% – 4.00%. And, Federal Reserve Chairman Jerome Powell has indicated that additional increases may be deemed necessary going forward, dependent upon the status of the U.S. economy and data driven analytics. Mr. Powell and his colleagues have stated that the Fed will remain vigilant in its efforts to manage inflation, which has topped levels not seen in more than 40 years (as measured by the Consumer Price Index).
In reaction to the Federal Reserve’s aggressive monetary policy stance, year to date interest rates have experienced a significant increase. As you may know, bond prices generally move in the opposite direction of rate changes. Therefore, while rising interest rates generally translate to higher yields for bond investments, bond prices or values usually fall. This changing yield/price landscape has created two shifts in the market — a shift for issuers of bonds (who may now be reluctant to issue new debt at increased costs), along with a shift in investor sentiment. For investors, on the one hand, higher yields mean greater income, which is a welcome development for those who during the recent
NOT A PART OF THE SEMI-ANNUAL REPORT
low-yield environment sought opportunities to earn more attractive income levels. On the other hand, investors who are mindful of capital preservation have become wary as they have seen bond prices decline.
When investing in bonds, we believe that generating an attractive risk-adjusted return is a careful balance of the two factors— income and stability of capital. Your Fund’s investment objective, in fact, seeks to provide as high a level of current income exempt (from state and regular federal income taxes) as is consistent with preservation of capital. So, how has the rise in interest rates affected municipal bonds?
Assessing the Current Market Cycle
It’s important, in our view, to evaluate financial markets, performance, and valuations on a relative basis. This is true not only within the municipal bond market, but with and relative to other asset classes as well.
Municipal bonds are oftentimes viewed in comparison with U.S. Treasuries. Let’s take a look at yield curves and the relative Municipal-to-Treasury relationship. During 2022, yields of U.S. Treasury securities have generally risen across the maturity spectrum, but the overall slope of the curve flattened, particularly during the third quarter of 2022. Specifically, there was a greater increase in interest rates on the short-end of the U.S. Treasury curve (shorter maturities) which exceeded increases on the longer-end. Given economic uncertainty and fears of a possible recession, some market participants are concerned that this change in the U.S. Treasury yield curve may signal an impending economic slump. Meanwhile, the municipal bond yield curve has been more positively sloped (with longer term maturities yielding more) throughout the year, in particular, steepening between 10- and 30-year maturities during the third quarter — which may be viewed positively by municipal investors.
The Municipal-to-Treasury relationship (based on the yield of AAA municipal securities as a percentage of the yield of U.S. Treasuries of the same maturity) has fluctuated over the past year, but generally in our view continued to trade in line with historical relationship norms. The chart below illustrates what we believe to be an indication of improved relative valuations for municipal obligations, whereby municipal yields represent a greater percentage in comparison to U.S. Treasury yields. As one would usually anticipate in a rising rate environment, such as now, the relationship ratio compares somewhat favorably for longer maturity municipal bonds (specifically, in the 30-year maturity range) which were yielding greater than U.S. Treasury securities as of September 30th.
January 3, 2022 Municipal % of U.S. Treasury | September 30, 2022 Municipal % of U.S. Treasury | |||
5-Year | 44.1% | 77.6% | ||
10-year | 63.8% | 87.0% | ||
30-year | 74.3% | 104.0% | ||
Source: Bloomberg |
Credit spreads among municipal bond issues have begun to widen during the year. (Credit spread is the difference in yield between securities of the same maturity with different credit ratings.) Wider credit spreads generally favor higher-quality issuers in a rising rate environment due to concerns related to lower quality issues during periods of slowing economic growth. This scenario may be viewed as a benefit to higher quality, shorter duration portfolios vis-à-vis lower quality, longer duration holdings. (Duration is
NOT A PART OF THE SEMI-ANNUAL REPORT
a measurement of a bond’s sensitivity or risk to changes in interest rates; shorter duration generally means less risk.) This assumes interest rates continue to rise, as the Fed seems to have signaled in recent press releases. Overall, we view municipal credit fundamentals to be relatively strong, while credit defaults as tracked by the Nationally Recognized Statistical Rating Agencies (such as Moody’s and Standard & Poor’s) generally remain relatively low, particularly among higher quality issues.
At a local level, many state and local economies continue to show signs of improvement and sustained growth. Despite recession risk, local municipalities and governments appear to us to be well-positioned to manage economic challenges. Higher employment, increasing wages, and rising property values in many jurisdictions throughout the country are among key contributors toward bolstering state and local revenue and tax receipts.
Looking Forward
We remain cautiously optimistic about the direction of the municipal bond market. In addition to many of the positive conditions and trends stated above — including what we believe to be potential opportunities for greater income than in recent years, improving relative valuations, strong credit fundamentals, expanding local economies, and sustained investor demand — keep in mind the attractive benefits that municipal bonds offer, such as a high level of current income exempt from state and regular federal income taxes. Although no one can reasonably predict the impact of continued inflation or future Fed actions to curb such inflation, on a tax-equivalent basis, the municipal income benefit may be attractive compared to taxable investments for certain investors.
Remember, too, the Aquila difference. Your portfolio management team is locally-based, which provides them with an up-close perspective on the economy and bond issuers within local municipalities, cities, counties, and across the state. Our investment professionals draw upon their wealth of experience in analyzing securities, navigating market and economic cycles, and seeking to identify both opportunities and risks. The current market cycle is no exception. Our team employs an active portfolio management strategy, with a goal to maintain broadly diversified investment grade municipal portfolios, generally with an intermediate average maturity, to help deliver attractive risk-adjusted returns.
As always, we encourage you to consult with your financial professional to evaluate whether the investment choices you make are aligned with your individual financial goals and risk tolerances.
Thank you for your continued confidence in Aquila Group of Funds.
Sincerely, | ||
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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, political or regulatory conditions, recessions, inflation, changes in interest rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues, armed conflict including Russia’s military invasion of Ukraine, sanctions against Russia, other nations or individuals or companies and possible countermeasures, market disruptions caused by tariffs, trade disputes or other factors, or adverse investor sentiment. When market prices fall, the value of your investment may go down. In the past several years, financial markets have experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. These conditions may continue, recur, worsen or spread.
Rates of inflation have recently risen. The value of assets or income from an investment may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline as can the value of the Fund’s distributions.
The global pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s invasion of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or markets could be similarly affected by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the economy and securities markets, may not be known for some time.
The value of your investment will generally go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term or longer duration securities. In recent years, interest rates and credit spreads in the U.S. have been at historic lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain interest rates. A general rise in interest rates may cause investors to move out of fixed income securities on a large scale and could also result in increased redemptions from the Fund.
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. The municipal bond market can be susceptible to unusual volatility, particularly for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic conditions or credit tightening. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Unfavorable conditions and developments relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. Municipal securities may be more susceptible to downgrades or defaults during a recession or similar periods of economic stress. Financial difficulties of municipal issuers may continue or get worse, particularly in the event of economic or market turmoil or a recession.
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.
Any information in this Shareholder Letter 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. Past performance is no guarantee of future results, and there is no guarantee that any market forecasts discussed will be realized.
NOT A PART OF THE SEMI-ANNUAL REPORT
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (5.7%) | Ratings Moody’s, S&P and Fitch | Value | |||
Bowling Green, Kentucky | ||||||
$ 1,605,000 | 2.000%, 09/01/44 Series 2021A | Aa1/NR/NR | $ 920,981 | |||
Lexington-Fayette Urban County, Kentucky | ||||||
3,600,000 | 4.000%, 09/01/29 | Aa2/AA/NR | 3,650,400 | |||
Louisville/Jefferson County, Kentucky Metro Government | ||||||
2,000,000 | 4.000%, 04/01/35 Series 2022A | Aa1/NR/AAA | 1,996,060 | |||
Newport, Kentucky | ||||||
620,000 | 2.000%, 02/01/38 Series 2021 AGMC Insured | NR/AA/NR | 414,073 | |||
Rowan County, Kentucky | ||||||
835,000 | 4.000%, 06/01/30 AGMC Insured | A1/AA/NR | 855,224 | |||
865,000 | 4.000%, 06/01/31 AGMC Insured | A1/AA/NR | 883,035 | |||
Warren County, Kentucky | ||||||
695,000 | 1.750%, 12/01/35 Series 2020 | Aa1/NR/NR | 475,602 | |||
Total General Obligation Bonds | 9,195,375 | |||||
Revenue Bonds (88.4%) | ||||||
State Agency (27.3%) | ||||||
Kentucky Asset & Liability Commission Federal Highway Notes | ||||||
2,000,000 | 5.250%, 09/01/25 Series A | A2/AA/A+ | 2,032,480 | |||
2,000,000 | 5.000%, 09/01/26 Series A | A2/AA/A+ | 2,055,480 | |||
1,000,000 | 5.000%, 09/01/27 Series A | A2/AA/A+ | 1,037,960 | |||
Kentucky Rural Water Finance Corp. | ||||||
240,000 | 4.500%, 08/01/23 NPFG Insured | Baa2/A+/NR | 240,194 | |||
255,000 | 4.500%, 08/01/24 NPFG Insured | Baa2/A+/NR | 255,194 | |||
290,000 | 4.500%, 08/01/27 NPFG Insured | Baa2/A+/NR | 290,188 | |||
245,000 | 4.600%, 08/01/28 NPFG Insured | Baa2/A+/NR | 245,162 | |||
315,000 | 4.625%, 08/01/29 NPFG Insured | Baa2/A+/NR | 315,208 | |||
175,000 | 4.000%, 02/01/28 Series 2012C | NR/A+/NR | 175,056 | |||
100,000 | 4.000%, 02/01/29 Series 2012C | NR/A+/NR | 100,030 | |||
120,000 | 4.000%, 02/01/26 Series 2012F | NR/A+/NR | 120,044 | |||
125,000 | 4.000%, 02/01/27 Series 2012F | NR/A+/NR | 125,043 | |||
130,000 | 4.000%, 02/01/28 Series 2012F | NR/A+/NR | 130,042 | |||
140,000 | 4.000%, 02/01/29 Series 2012F | NR/A+/NR | 140,042 |
1 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
State Agency (continued) | ||||||
Kentucky Rural Water Finance Corp. (continued) | ||||||
$ 265,000 | 2.000%, 02/01/35 Series 2020I | NR/A+/NR | $ 193,681 | |||
475,000 | 2.000%, 02/01/36 Series 2020I | NR/A+/NR | 335,397 | |||
280,000 | 2.000%, 02/01/37 Series 2020I | NR/A+/NR | 190,560 | |||
615,000 | 3.000%, 08/01/31 Series 2021D | NR/A+/NR | 549,103 | |||
625,000 | 3.000%, 08/01/32 Series 2021D | NR/A+/NR | 547,762 | |||
580,000 | 3.000%, 08/01/33 Series 2021D | NR/A+/NR | 496,909 | |||
Kentucky State Office Building COP | ||||||
2,250,000 | 4.000%, 04/15/27 | A1/NR/NR | 2,290,342 | |||
1,640,000 | 5.000%, 06/15/34 | A1/NR/NR | 1,700,631 | |||
Kentucky State Property and Buildings Commission | ||||||
625,000 | 4.000%, 04/01/26 Project 105 | A1/A-/A+ | 627,131 | |||
655,000 | 4.000%, 04/01/27 Project 105 | A1/A-/A+ | 657,135 | |||
770,000 | 5.000%, 08/01/23 Project 108 | A1/A-/A+ | 780,811 | |||
3,000,000 | 5.000%, 08/01/33 Project 108 | A1/A-/A+ | 3,096,180 | |||
5,000,000 | 5.000%, 08/01/32 Project 110 | A1/A-/A+ | 5,163,000 | |||
2,040,000 | 5.000%, 11/01/27 Project 112 | A1/A-/A+ | 2,153,465 | |||
1,425,000 | 5.000%, 11/01/28 Project 112 | A1/A-/A+ | 1,499,271 | |||
2,500,000 | 5.000%, 02/01/31 Project 112 | A1/A-/A+ | 2,597,550 | |||
1,400,000 | 4.000%, 10/01/30 Project 114 | A1/A-/A+ | 1,415,176 | |||
1,000,000 | 5.000%, 04/01/23 Project 115 | A1/A-/A+ | 1,009,010 | |||
1,000,000 | 5.000%, 04/01/29 Project 115 | A1/A-/A+ | 1,058,830 | |||
2,000,000 | 5.000%, 05/01/30 Project 117 | A1/NR/A+ | 2,116,560 | |||
500,000 | 5.000%, 05/01/36 Project 117 | A1/NR/A+ | 521,385 | |||
1,490,000 | 5.000%, 05/01/24 Project 119 | A1/A-/A+ | 1,527,548 | |||
1,015,000 | 5.000%, 05/01/25 Project 119 | A1/A-/A+ | 1,053,265 | |||
1,000,000 | 5.000%, 02/01/28 Project 121 | A1/NR/A+ | 1,066,330 | |||
1,000,000 | 5.000%, 05/01/33 Project 126 | A1/NR/A+ | 1,079,460 | |||
3,000,000 | 5.000%, 06/01/33 Project 127A | A1/NR/A+ | 3,236,130 | |||
Total State Agency | 44,224,745 | |||||
2 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Airports (3.9%) | ||||||
Louisville, Kentucky Regional Airport Authority | ||||||
$ 2,070,000 | 5.000%, 07/01/23 AMT | NR/A+/A+ | $ 2,091,839 | |||
2,325,000 | 5.000%, 07/01/26 AMT | NR/A+/A+ | 2,358,247 | |||
1,895,000 | 5.000%, 07/01/27 Series A AMT | NR/A+/A+ | 1,921,625 | |||
Total Airports | 6,371,711 | |||||
City (1.1%) | ||||||
River City Parking Authority of River City, Inc., Kentucky First Mortgage Refunding | ||||||
780,000 | 2.000%, 12/01/33 Series 2021A | Aa3/AA-/NR | 582,036 | |||
800,000 | 2.000%, 12/01/34 Series 2021A | Aa3/AA-/NR | 576,296 | |||
810,000 | 2.000%, 12/01/35 Series 2021A | Aa3/AA-/NR | 565,485 | |||
Total City | 1,723,817 | |||||
City & County (0.5%) | ||||||
Louisville & Jefferson County Visitors & Convention Commission (Kentucky International Convention Center Expansion Project) | ||||||
1,000,000 | 3.125%, 06/01/41 Series 2016 | Aa3/A/NR | 763,270 | |||
Excise Tax (1.0%) | ||||||
Kentucky Bond Development Corp. Transient Room Tax Revenue (Lexington Center Corporation) Subordinate | ||||||
1,585,000 | 5.000%, 09/01/27 Series 2018B | A3/NR/NR | 1,672,746 | |||
Healthcare (6.3%) | ||||||
City of Ashland, Kentucky, Medical Center (King's Daughter) | ||||||
460,000 | 5.000%, 02/01/31 Series 2019 | Baa1/BBB+/A- | 470,405 | |||
450,000 | 5.000%, 02/01/32 Series 2019 | Baa1/BBB+/A- | 458,330 | |||
2,600,000 | 3.000%, 02/01/40 Series 2019 AGMC Insured | A1/AA/A- | 1,927,718 |
3 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Healthcare (continued) | ||||||
Louisville & Jefferson County, Kentucky Metropolitan Government Health System, Norton Healthcare, Inc. | ||||||
$ 2,710,000 | 5.000%, 10/01/27 Series A | NR/A/A+ | $ 2,736,260 | |||
3,500,000 | 5.000%, 10/01/31 Series A | NR/A/A+ | 3,575,005 | |||
Louisville & Jefferson County, Kentucky Metropolitan Government, Louisville Medical Center, Laundry Facility Project | ||||||
355,000 | 4.250%, 05/01/23 Series 2012 | NR/BBB+/NR | 356,384 | |||
Warren County, Kentucky, Warren County Community Hospital Corp. | ||||||
680,000 | 4.000%, 10/01/29 | NR/AA-/NR | 674,023 | |||
Total Healthcare | 10,198,125 | |||||
Higher Education (13.4%) | ||||||
Boyle County, Kentucky Educational Facilities Refunding (Centre College) | ||||||
2,050,000 | 5.000%, 06/01/28 Series 2017 | A3/A/NR | 2,149,404 | |||
1,000,000 | 5.000%, 06/01/29 Series 2017 | A3/A/NR | 1,048,030 | |||
Eastern Kentucky University General Receipts | ||||||
1,230,000 | 5.000%, 10/01/30 Series A | A1/NR/NR | 1,314,538 | |||
870,000 | 4.500%, 04/01/32 Series A | A1/NR/NR | 882,798 | |||
Kentucky Bond Development Corp. Educational Facilities, City of Danville (Centre College) | ||||||
305,000 | 4.000%, 06/01/34 Series 2021 | A3/A/NR | 281,213 | |||
Kentucky Bond Development Corp. Educational Facilities Revenue Refunding, City of Stamping Ground (Transylvania University Project) | ||||||
645,000 | 3.000%, 03/01/38 Series 2021A | NR/A-/NR | 485,395 |
4 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Higher Education (continued) | ||||||
Kentucky Bond Development Corp. Industrial Building Revenue, City of Stamping Ground (Transylvania University Project) | ||||||
$ 510,000 | 4.000%, 03/01/33 Series 2019B | NR/A-/NR | $ 484,495 | |||
610,000 | 4.000%, 03/01/34 Series 2019B | NR/A-/NR | 567,141 | |||
Kentucky State University COP | ||||||
300,000 | 4.000%, 11/01/34 Series 2021 BAMI Insured | NR/AA/NR | 298,461 | |||
310,000 | 4.000%, 11/01/36 Series 2021 BAMI Insured | NR/AA/NR | 301,060 | |||
740,000 | 4.000%, 11/01/38 Series 2021 BAMI Insured | NR/AA/NR | 703,111 | |||
Louisville & Jefferson County, Kentucky Metropolitan Government College Improvement (Bellarmine University Project) | ||||||
2,270,000 | 5.000%, 05/01/33 | Ba1/NR/NR | 2,189,937 | |||
Morehead State University, Kentucky General Receipts | ||||||
1,000,000 | 5.000%, 04/01/29 Series A | A1/NR/NR | 1,033,450 | |||
1,000,000 | 4.000%, 04/01/31 Series A | A1/NR/NR | 1,009,370 | |||
Murray State University Project, Kentucky General Receipts | ||||||
1,850,000 | 4.500%, 03/01/30 Series A | A1/NR/NR | 1,892,180 | |||
1,230,000 | 3.000%, 09/01/35 Series 2022A | A1/NR/NR | 1,018,502 | |||
Northern Kentucky University, Kentucky General Receipts | ||||||
990,000 | 3.000%, 09/01/40 Series A AGMC Insured | A1/AA/NR | 735,085 | |||
University of Kentucky COP | ||||||
1,000,000 | 4.000%, 05/01/39 2011 Series 2019A | Aa3/AA/NR | 957,540 | |||
University of Kentucky, Kentucky General Receipts | ||||||
2,715,000 | 3.000%, 04/01/39 Series A | Aa2/AA+/NR | 2,189,756 |
5 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Higher Education (continued) | ||||||
University of Louisville, Kentucky General Receipts | ||||||
$ 1,235,000 | 3.000%, 09/01/32 Series 2021B BAMI Insured | A1/AA/NR | $ 1,087,800 | |||
1,275,000 | 3.000%, 09/01/33 Series 2021B BAMI Insured | A1/AA/NR | 1,097,635 | |||
Total Higher Education | 21,726,901 | |||||
Housing (0.6%) | ||||||
Kentucky Housing Multifamily Mortgage Revenue | ||||||
1,035,000 | 5.000%, 06/01/35 AMT (mandatory put 6/01/23) | NR/NR/NR* | 1,036,242 | |||
Local Public Property (6.4%) | ||||||
Jefferson County, Kentucky Capital Projects | ||||||
1,950,000 | 4.375%, 06/01/24 AGMC Insured | A1/NR/AA+ | 1,951,657 | |||
1,640,000 | 4.375%, 06/01/28 AGMC Insured | A1/NR/AA+ | 1,641,050 | |||
1,070,000 | 4.375%, 06/01/27 Series A AGMC Insured | A1/NR/AA+ | 1,070,760 | |||
Kentucky Association of Counties Finance Corp. Financing Program | ||||||
515,000 | 4.000%, 02/01/25 | NR/AA-/NR | 515,273 | |||
30,000 | 4.250%, 02/01/24 Series A | NR/AA-/NR | 30,016 | |||
345,000 | 5.000%, 02/01/24 Series B | NR/AA-/NR | 351,696 | |||
365,000 | 5.000%, 02/01/25 Series B | NR/AA-/NR | 377,505 | |||
385,000 | 5.000%, 02/01/26 Series B | NR/AA-/NR | 402,106 | |||
380,000 | 3.000%, 02/01/30 Series C | NR/AA-/NR | 353,218 | |||
460,000 | 3.000%, 02/01/32 Series D | NR/AA-/NR | 409,156 | |||
470,000 | 3.000%, 02/01/33 Series D | NR/AA-/NR | 408,228 | |||
1,210,000 | 3.000%, 02/01/38 Series E | NR/AA-/NR | 946,656 |
6 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Local Public Property (continued) | ||||||
Kentucky Bond Corp. Financing Program | ||||||
$ 575,000 | 2.000%, 02/01/37 First Series A | NR/AA-/NR | $ 416,409 | |||
590,000 | 2.000%, 02/01/38 First Series A | NR/AA-/NR | 417,537 | |||
600,000 | 2.000%, 02/01/39 First Series A | NR/AA-/NR | 415,398 | |||
730,000 | 3.000%, 02/01/41 Series F | NR/AA-/NR | 552,209 | |||
Total Local Public Property | 10,258,874 | |||||
School Building (16.1%) | ||||||
Beechwood, Kentucky Independent School District Finance Corp. | ||||||
645,000 | 4.000%, 08/01/31 Series 2022 | A1/NR/NR | 645,264 | |||
Bullitt County, Kentucky School District Finance Corp. | ||||||
970,000 | 1.875%, 12/01/36 Series 2020 | A1/NR/NR | 674,422 | |||
Fayette County, Kentucky School District Finance Corp. | ||||||
3,000,000 | 5.000%, 08/01/31 | Aa3/AA-/NR | 3,123,960 | |||
Franklin County, Kentucky School District Finance Corp. | ||||||
1,135,000 | 4.000%, 04/01/24 Second Series | A1/NR/NR | 1,144,988 | |||
Hopkins County, Kentucky School District Finance Corp. | ||||||
1,500,000 | 2.000%, 02/01/39 Series 2021 | A1/NR/NR | 978,150 | |||
Jefferson County, Kentucky School District Finance Corp. | ||||||
805,000 | 5.000%, 04/01/28 Series A | Aa3/AA-/NR | 834,060 | |||
1,075,000 | 4.500%, 04/01/32 Series A | Aa3/AA-/NR | 1,096,941 | |||
4,000,000 | 4.000%, 07/01/26 Series B | Aa3/AA-/NR | 4,018,760 | |||
1,655,000 | 4.000%, 11/01/29 Series C | Aa3/AA-/NR | 1,667,892 | |||
Kenton County, Kentucky School District Finance Corp. | ||||||
2,040,000 | 3.000%, 02/01/31 Series 2022 | �� | A1/NR/NR | 1,849,586 | ||
Lewis County, Kentucky School District Finance Corp. | ||||||
1,600,000 | 2.000%, 02/01/39 Series 2021 | A1/NR/NR | 1,080,544 |
7 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School Building (continued) | ||||||
Logan County, Kentucky School District Finance Corp., Energy Conservation Revenue Bonds | ||||||
$ 575,000 | 4.000%, 04/01/33 Series 2016 | A1/NR/NR | $ 575,765 | |||
615,000 | 4.000%, 04/01/34 Series 2016 | A1/NR/NR | 615,258 | |||
Scott County, Kentucky School District Finance Corp. School Building | ||||||
2,000,000 | 4.000%, 02/01/32 | Aa3/NR/NR | 2,017,420 | |||
Shelby County, Kentucky School District Finance Corp. School Building | ||||||
3,200,000 | 4.000%, 02/01/28 | A1/NR/NR | 3,255,648 | |||
2,440,000 | 4.000%, 02/01/29 | A1/NR/NR | 2,477,137 | |||
Total School Building | 26,055,795 | |||||
Student Loan (2.3%) | ||||||
Kentucky Higher Education Student Loan | ||||||
400,000 | 5.000%, 06/01/24 Senior Series A AMT | NR/A/A | 407,332 | |||
600,000 | 5.000%, 06/01/26 Senior Series A AMT | NR/A/A | 619,476 | |||
500,000 | 4.000%, 06/01/34 Senior Series A AMT | NR/A/A | 448,115 | |||
750,000 | 5.000%, 06/01/28 Senior Series 2019A-1 AMT | NR/A/A | 773,730 | |||
1,000,000 | 5.000%, 06/01/28 Senior Series 2021A-1 AMT | NR/A/A | 1,031,640 | |||
350,000 | 5.000%, 06/01/31 Senior Series 2021A-1 AMT | NR/A/A | 361,781 | |||
Total Student Loan | 3,642,074 | |||||
Turnpike/Highway (7.0%) | ||||||
Kentucky State Turnpike Authority | ||||||
4,030,000 | 5.000%, 07/01/30 Series A | Aa3/A-/A+ | 4,180,198 | |||
1,200,000 | 5.000%, 07/01/31 Series A | Aa3/NR/NR | 1,318,284 | |||
1,715,000 | 5.000%, 07/01/31 Series B | Aa3/A-/NR | 1,798,452 | |||
2,925,000 | 5.000%, 07/01/33 Series B | Aa3/A-/NR | 3,064,201 | |||
900,000 | 5.000%, 07/01/28 Series 2022B | Aa3/NR/NR | 970,452 | |||
Total Turnpike/Highway | 11,331,587 | |||||
8 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Utilities (2.5%) | ||||||
Boone County, Kentucky Pollution Control | ||||||
$ 1,000,000 | 3.700%, 08/01/27 Series 2008A | Baa1/BBB+/NR | $ 965,070 | |||
Louisville & Jefferson County, Kentucky Metropolitan Sewer District | ||||||
1,920,000 | 4.500%, 05/15/30 Series A | Aa3/AA/NR | 1,961,549 | |||
Murray, Kentucky Electric Plant Board | ||||||
1,380,000 | 3.000%, 12/01/35 Series 2021 AGMC Insured | A1/AA/NR | 1,141,246 | |||
Total Utilities | 4,067,865 | |||||
Total Revenue Bonds | 143,073,752 | |||||
Pre-Refunded\Escrowed to Maturity Bonds (6.7%)†† | ||||||
Pre-Refunded Revenue Bonds\Escrowed to Maturity Bonds (6.7%) | ||||||
State Agency (1.6%) | ||||||
Kentucky State Property and Buildings Commission | ||||||
1,000,000 | 5.000%, 10/01/25 | A1/A-/A+ | 1,018,480 | |||
1,500,000 | 5.000%, 10/01/29 Project 106 | A1/A-/A+ | 1,527,720 | |||
Total State Agency | 2,546,200 | |||||
City (0.6%) | ||||||
River City Parking Authority of River City, Inc., Kentucky First Mortgage | ||||||
1,000,000 | 4.750%, 06/01/27 2013 Series B | Aa3/AA-/NR | 1,010,670 | |||
Healthcare (3.9%) | ||||||
Hardin County, Kentucky, Hardin Memorial Hospital | ||||||
675,000 | 5.500%, 08/01/23 AGMC Insured ETM | A1/AA/NR | 687,258 | |||
500,000 | 5.250%, 08/01/24 AGMC Insured | A1/AA/NR | 508,070 | |||
Warren County, Kentucky, Warren County Community Hospital Corp. | ||||||
4,975,000 | 5.000%, 04/01/28 | NR/AA-/NR | 5,022,511 | |||
Total Healthcare | 6,217,839 | |||||
9 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Pre-Refunded\Escrowed to Maturity Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School Building (0.6%) | ||||||
Fayette County, Kentucky School District Finance Corp. | ||||||
$ 1,000,000 | 5.000%, 10/01/27 Series A | Aa3/AA-/NR | $ 1,018,280 | |||
Total Pre-Refunded\Escrowed to Maturity Bonds | 10,792,989 | |||||
Total Municipal Bonds (cost $175,415,932) | 163,062,116 | |||||
Shares | Short-Term Investment (1.1%) | |||||
1,776,310 | Dreyfus Treasury Obligations Cash Management - Institutional Shares, 2.85%** (cost $1,776,310) | Aaa-mf/AAAm/NR | 1,776,310 | |||
Total Investments (cost $177,192,242 - note 4) | 101.9% | 164,838,426 | ||||
Other assets less liabilities | (1.9) | (3,079,088) | ||||
Net Assets | 100.0% | $ 161,759,338 |
Portfolio Distribution By Quality Rating | Percentage of Investments† | |
AAA of Fitch | 1.2% | |
Pre-refunded bonds\ETM bonds†† | 6.6 | |
Aa of Moody's or AA of S&P or Fitch | 38.2 | |
A of Moody's or S&P or Fitch | 51.2 | |
Baa of Moody's or BBB of S&P | 0.8 | |
Ba1 of Moody's | 1.4 | |
Not Rated* | 0.6 | |
100.0% |
10 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
PORTFOLIO ABBREVIATIONS |
AGMC - Assured Guaranty Municipal Corp. AMT - Alternative Minimum Tax BAMI - Build America Mutual Insurance COP - Certificates of Participation ETM - Escrowed to Maturity 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. |
** | The rate is an annualized seven-day yield at period end. |
† | Where applicable, calculated using the highest rating of the three NRSRO. Percentages in this table do not include the Short-Term Investment. |
†† | 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. Escrowed to Maturity bonds are bonds where money has been placed in the escrow account which is used to pay principal and interest through the bond’s originally scheduled maturity date. Escrowed to Maturity are shown as ETM. All other securities in the category are pre-refunded. |
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, 2022 (unaudited) |
ASSETS | |||
Investments at value (cost $177,192,242) | $ | 164,838,426 | |
Interest receivable | 2,082,004 | ||
Receivable for Fund shares sold | 6,233 | ||
Other assets | 20,003 | ||
Total assets | 166,946,666 | ||
LIABILITIES | |||
Payable for investment securities purchased | 4,341,678 | ||
Payable for Fund shares redeemed | 636,319 | ||
Dividends payable | 57,078 | ||
Management fee payable | 55,474 | ||
Distribution and service fees payable | 58 | ||
Accrued expenses payable | 96,721 | ||
Total liabilities | 5,187,328 | ||
NET ASSETS | $ | 161,759,338 | |
Net Assets consist of: | |||
Capital Stock – Authorized an unlimited number of shares, par value $0.01 per share | $ | 168,163 | |
Additional paid-in capital | 174,521,003 | ||
Total distributable earnings (losses) | (12,929,828) | ||
$ | 161,759,338 | ||
CLASS A | |||
Net Assets | $ | 112,003,445 | |
Capital shares outstanding | 11,644,984 | ||
Net asset value and redemption price per share | $ | 9.62 | |
Maximum offering price per share (100/97 of $9.62) | $ | 9.92 | |
CLASS C | |||
Net Assets | $ | 2,913,234 | |
Capital shares outstanding | 302,964 | ||
Net asset value and offering price per share | $ | 9.62 | |
CLASS I | |||
Net Assets | $ | 5,953,388 | |
Capital shares outstanding | 619,142 | ||
Net asset value, offering and redemption price per share | $ | 9.62 | |
CLASS Y | |||
Net Assets | $ | 40,889,271 | |
Capital shares outstanding | 4,249,176 | ||
Net asset value, offering and redemption price per share | $ | 9.62 |
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, 2022 (unaudited) |
Investment Income | ||||||
Interest income | $ | 2,561,354 | ||||
Expenses | ||||||
Management fee (note 3) | $ | 346,616 | ||||
Distribution and service fee (note 3) | 108,585 | |||||
Transfer and shareholder servicing agent fees (note 3) | 52,106 | |||||
Fund accounting fees | 31,418 | |||||
Trustees’ fees and expenses (note 7) | 27,634 | |||||
Legal fees | 20,203 | |||||
Auditing and tax fees | 11,281 | |||||
Compliance services (note 3) | 4,690 | |||||
Insurance | 4,622 | |||||
Shareholders’ reports | 4,558 | |||||
Registration fees and dues | 4,183 | |||||
Credit facility fees (note 10) | 2,223 | |||||
Custodian fees | 1,836 | |||||
Miscellaneous | 11,424 | |||||
Total expenses | 631,379 | |||||
Net investment income | 1,929,975 | |||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||
Net realized gain (loss) from securities transactions | (665,771) | |||||
Change in unrealized appreciation (depreciation) on investments | (10,302,471) | |||||
Net realized and unrealized gain (loss) on investments | (10,968,242) | |||||
Net change in net assets resulting from operations | $ | (9,038,267) |
See accompanying notes to financial statements.
13 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENT OF CHANGES IN NET ASSETS |
Six Months Ended September 30, 2022 (unaudited) | Year Ended March 31, 2022 | |||||
OPERATIONS | ||||||
Net investment income | $ | 1,929,975 | $ | 3,778,341 | ||
Realized gain (loss) from securities transactions | (665,771) | (5,762) | ||||
Change in unrealized appreciation (depreciation) on investments | (10,302,471) | (11,699,561) | ||||
Change in net assets resulting from operations | (9,038,267) | (7,926,982) | ||||
DISTRIBUTIONS TO SHAREHOLDERS (note 9): | ||||||
Class A Shares | (1,308,728) | (2,777,064) | ||||
Class C Shares | (22,673) | (56,656) | ||||
Class I Shares | (64,035) | (129,140) | ||||
Class Y Shares | (534,717) | (986,166) | ||||
Change in net assets from distributions | (1,930,153) | (3,949,026) | ||||
CAPITAL SHARE TRANSACTIONS (note 6): | ||||||
Proceeds from shares sold | 9,415,983 | 23,209,081 | ||||
Reinvested dividends and distributions | 1,577,687 | 3,208,855 | ||||
Cost of shares redeemed | (17,171,812) | (22,813,782) | ||||
Change in net assets from capital share transactions | (6,178,142) | 3,604,154 | ||||
Change in net assets | (17,146,562) | (8,271,854) | ||||
NET ASSETS: | ||||||
Beginning of period | 178,905,900 | 187,177,754 | ||||
End of period | $ | 161,759,338 | $ | 178,905,900 |
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, 2022 (unaudited) |
1. Organization
Aquila Churchill Tax-Free Fund of Kentucky (the “Fund”) is one of six series of Aquila Municipal Trust, a Massachusetts business trust registered under the Investment Company Act of 1940 (the “1940 Act”) as a non-diversified, open-end management investment company. The Fund, which commenced operations on October 12, 2013, is the successor to Churchill Tax-Free Fund of Kentucky. Churchill Tax-Free Fund of Kentucky transferred all of its assets and liabilities in exchange for shares of the Fund on October 11, 2013 pursuant to an agreement and plan of reorganization (the “reorganization”). The reorganization was approved by shareholders of Churchill Tax-Free Fund of Kentucky on September 17, 2013. The reorganization was accomplished by exchanging the assets and liabilities of the predecessor fund for shares of the Fund. Shareowners holding shares of Churchill Tax-Free Fund of Kentucky received corresponding shares of the Fund in a one-to-one exchange ratio in the reorganization. Accordingly, the reorganization, which was a tax-free exchange, had no effect on the Fund’s operations. 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 date of this report, there were no Class F 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 ask quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued using other fair value methods. Aquila Investment Management LLC, the Fund’s investment manager, has |
15 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
been designated as the Fund’s valuation designee, with responsibility for fair valuation subject to oversight by the Fund’s 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 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, 2022:
Valuation Inputs* | Investments in Securities | |||
Level 1 – Quoted Prices — Short-Term Investment | $ | 1,776,310 | ||
Level 2 – Other Significant Observable Inputs – Municipal Bonds* | 163,062,116 | |||
Level 3 – Significant Unobservable Inputs | — | |||
Total | $ | 164,838,426 | ||
* 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 |
16 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
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 (2019 – 2021) or expected to be taken in the Fund’s 2022 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. These reclassifications had no effect on net assets or net asset value per share. For the year ended March 31, 2022, there were no items identified that have been reclassified among components of net assets. |
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 transfer and 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 compliance related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940, as amended (the “1940 Act”).
17 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (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 1940 Act. 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 LLC (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, 2022, distribution fees on Class A Shares amounted to $88,777 of which the Distributor retained $4,861.
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, 2022, amounted to $12,527. 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, 2022, amounted to $4,176. For the six months ended September 30, 2022, the total of these payments with respect to Class C Shares amounted to $16,703 of which the Distributor retained $4,656.
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, 2022, these payments were made at the average annual rate of 0.35% of such net assets and amounted to $10,866 of which $3,105 related to the Plan and $7,761 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 (“financial intermediaries”), the Fund’s shares are sold primarily through the facilities of these financial intermediaries having offices within Kentucky, with the bulk of
18 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
any sales commissions inuring to such financial intermediaries. For the six months ended September 30, 2022, total commissions on sales of Class A Shares amounted to $9,500 of which the Distributor received $2,277.
c) | Transfer and shareholder servicing fees: |
The Fund occasionally compensates financial intermediaries in connection with the sub-transfer agency related services provided by such entities in connection with their respective Fund shareholders so long as the fees are deemed by the Board of Trustees to be reasonable in relation to (i) the value of the services and the benefits received by the Fund and certain shareholders; and (ii) the payments that the Fund would make to another entity to perform similar ongoing services to existing shareholders.
4. Purchases and Sales of Securities
During the six months ended September 30, 2022, purchases of securities and proceeds from the sales of securities aggregated $11,671,704 and $13,026,274, respectively.
At September 30, 2022, the aggregate tax cost for all securities was $177,192,242. At September 30, 2022, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $59,727 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $12,413,543 for a net unrealized depreciation of $12,353,816.
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. At September 30, 2022, the Fund had all of its long-term portfolio holdings invested in municipal obligations of issuers within Kentucky.
19 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
6. Capital Share Transactions
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended September 30, 2022 (unaudited) | Year Ended March 31, 2022 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Class A Shares | ||||||||||
Proceeds from shares sold | 292,447 | $ | 2,927,641 | 649,893 | $ | 7,077,451 | ||||
Reinvested dividends and distributions | 118,747 | 1,182,729 | 229,741 | 2,480,053 | ||||||
Cost of shares redeemed | (813,881) | (8,108,168) | (1,193,302) | (12,856,736) | ||||||
Net change | (402,687) | (3,997,798) | (313,668) | (3,299,232) | ||||||
Class C Shares | ||||||||||
Proceeds from shares sold | 832 | 8,383 | 25,109 | 270,493 | ||||||
Reinvested dividends and distributions | 2,139 | 21,314 | 4,988 | 53,912 | ||||||
Cost of shares redeemed | (73,545) | (736,765) | (147,776) | (1,602,993) | ||||||
Net change | (70,574) | (707,068) | (117,679) | (1,278,588) | ||||||
Class I Shares | ||||||||||
Proceeds from shares sold | — | — | — | — | ||||||
Reinvested dividends and distributions | 6,433 | 64,035 | 11,967 | 129,139 | ||||||
Cost of shares redeemed | (6,596) | (65,659) | (12,282) | (132,542) | ||||||
Net change | (163) | (1,624) | (315) | (3,403) | ||||||
Class Y Shares | ||||||||||
Proceeds from shares sold | 648,067 | 6,479,959 | 1,464,106 | 15,861,137 | ||||||
Reinvested dividends and distributions | 31,082 | 309,609 | 50,592 | 545,751 | ||||||
Cost of shares redeemed | (835,324) | (8,261,220) | (764,925) | (8,221,511) | ||||||
Net change | (156,175) | (1,471,652) | 749,773 | 8,185,377 | ||||||
Total transactions in Fund shares | (629,599) | $ | (6,178,142) | 318,111 | $ | 3,604,154 |
7. Trustees’ Fees and Expenses
At September 30, 2022, there were 9 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, 2022 was $26,529. 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
20 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
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, 2022, due to the COVID-19 pandemic, such meeting-related expenses were reduced and amounted to $1,105.
8. 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. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
9. 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 or in cash, 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.
The tax character of distributions was as follows:
Year Ended March 31, 2022 | Year Ended March 31, 2021 | ||||||
Net tax-exempt income | $ | 3,777,511 | $ | 3,845,721 | |||
Ordinary Income | 329 | 479 | |||||
Capital Gains | 171,186 | — | |||||
$ | 3,949,026 | $ | 3,846,200 |
21 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
As of March 31, 2022, the components of distributable earnings on a tax basis were:
Unrealized depreciation | $ | (2,040,154) | ||
Accumulated net realized loss on investments | (5,762) | |||
Undistributed tax-exempt income | 143,011 | |||
Other temporary differences | (58,503) | |||
$ | (1,961,408) |
The difference between book basis and tax basis undistributed income is due to the timing difference, and other temporary differences, in recognizing dividends paid and the tax treatment of market discount amortization and the deduction of distributions payable.
10. Credit Facility
Since August 30, 2017, Bank of New York Mellon and the Aquila Group of Funds (comprised of nine funds) have been parties to a $40 million credit agreement, which currently terminates on August 23, 2023 (per the August 24, 2022 amendment). In accordance with the Aquila Group of Funds Guidelines for Allocation of Committed Line of Credit, each fund is responsible for payment of its proportionate share of
a) | a 0.17% per annum commitment fee; and, |
b) | interest on amounts borrowed for temporary or emergency purposes by the fund (at the applicable per annum rate selected by the Aquila Group of Funds at the time of the borrowing of either (i) the adjusted daily simple Secured Overnight Financing Rate (“SOFR”) plus 1% or (ii) the sum of the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate, or (c) the adjusted daily simple Secured Overnight Financing Rate (“SOFR”) plus 1%). |
There were no borrowings under the credit agreement during the six months ended September 30, 2022.
11. Risks
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, political or regulatory conditions, recessions, inflation, changes in interest rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues, armed conflict including Russia’s military invasion of Ukraine, sanctions against Russia, other nations or individuals or companies and possible countermeasures, market disruptions caused by tariffs, trade disputes or other factors, or adverse investor sentiment. When market prices fall, the value of your investment may go down. In the past several years, financial markets have experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. These conditions may continue, recur, worsen or spread.
22 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Rates of inflation have recently risen. The value of assets or income from an investment may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline as can the value of the Fund’s distributions.
The global pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s invasion of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or markets could be similarly affected by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the economy and securities markets, may not be known for some time.
The value of your investment will generally go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term or longer duration securities. In recent years, interest rates and credit spreads in the U.S. have been at historic lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain interest rates. A general rise in interest rates may cause investors to move out of fixed income securities on a large scale and could also result in increased redemptions from the Fund.
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. The municipal bond market can be susceptible to unusual volatility, particularly for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic conditions or credit tightening. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of
23 | Aquila Churchill Tax-Free Fund of Kentucky
AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
federal programs providing financial support. Unfavorable conditions and developments relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. Municipal securities may be more susceptible to downgrades or defaults during a recession or similar periods of economic stress. Financial difficulties of municipal issuers may continue or get worse, particularly in the event of economic or market turmoil or a recession.
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.
24 | 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 | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.25 | $10.93 | $10.79 | $10.64 | $10.48 | $10.55 | ||||||
Income from investment operations: | ||||||||||||
Net investment income(1) | 0.11 | 0.22 | 0.23 | 0.24 | 0.25 | 0.26 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.63) | (0.67) | 0.14 | 0.15 | 0.18 | (0.06) | ||||||
Total from investment operations | (0.52) | (0.45) | 0.37 | 0.39 | 0.43 | 0.20 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.11) | (0.22) | (0.23) | (0.24) | (0.25) | (0.26) | ||||||
Distributions from capital gains | — | (0.01) | — | — | (0.02) | (0.01) | ||||||
Total distributions | (0.11) | (0.23) | (0.23) | (0.24) | (0.27) | (0.27) | ||||||
Net asset value, end of period | $9.62 | $10.25 | $10.93 | $10.79 | $10.64 | $10.48 | ||||||
Total return (not reflecting sales charge) | (5.10)%(2) | (4.25)% | 3.48% | 3.72% | 4.10% | 1.89% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $112 | $124 | $135 | $142 | $144 | $160 | ||||||
Ratio of expenses to average net assets | 0.75%(3) | 0.75% | 0.77% | 0.80% | 0.79% | 0.75% | ||||||
Ratio of net investment income to average net assets | 2.21%(3) | 1.99% | 2.14% | 2.26% | 2.36% | 2.48% | ||||||
Portfolio turnover rate | 7%(2) | 7% | 7% | 6% | 6% | 9% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
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 C | ||||||||||||
Six | ||||||||||||
Months | ||||||||||||
Ended | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.25 | $10.93 | $10.78 | $10.64 | $10.47 | $10.54 | ||||||
Income from investment operations: | ||||||||||||
Net investment income(1) | 0.07 | 0.12 | 0.14 | 0.15 | 0.16 | 0.17 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.63) | (0.67) | 0.15 | 0.14 | 0.19 | (0.06) | ||||||
Total from investment operations | (0.56) | (0.55) | 0.29 | 0.29 | 0.35 | 0.11 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.07) | (0.12) | (0.14) | (0.15) | (0.16) | (0.17) | ||||||
Distributions from capital gains | — | (0.01) | — | — | (0.02) | (0.01) | ||||||
Total distributions | (0.07) | (0.13) | (0.14) | (0.15) | (0.18) | (0.18) | ||||||
Net asset value, end of period | $9.62 | $10.25 | $10.93 | $10.78 | $10.64 | $10.47 | ||||||
Total return (not reflecting CDSC) | (5.50)%(2) | (5.06%) | 2.70% | 2.75% | 3.32% | 1.03% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $3 | $4 | $5 | $6 | $7 | $9 | ||||||
Ratio of expenses to average net assets | 1.60%(3) | 1.60% | 1.62% | 1.65% | 1.64% | 1.60% | ||||||
Ratio of net investment income to average net assets | 1.36%(3) | 1.13% | 1.29% | 1.41% | 1.50% | 1.63% | ||||||
Portfolio turnover rate | 7%(2) | 7% | 7% | 6% | 6% | 9% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
26 | 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 | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.25 | $10.92 | $10.78 | $10.64 | $10.47 | $10.54 | ||||||
Income from investment operations: | ||||||||||||
Net investment income(1) | 0.10 | 0.20 | 0.22 | 0.23 | 0.23 | 0.25 | ||||||
Net gain on securities (both realized and unrealized) | (0.63) | (0.66) | 0.14 | 0.14 | 0.19 | (0.07) | ||||||
Total from investment operations | (0.53) | (0.46) | 0.36 | 0.37 | 0.42 | 0.18 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.10) | (0.20) | (0.22) | (0.23) | (0.23) | (0.24) | ||||||
Distributions from capital gains | — | (0.01) | — | — | (0.02) | (0.01) | ||||||
Total distributions | (0.10) | (0.21) | (0.22) | (0.23) | (0.25) | (0.25) | ||||||
Net asset value, end of period | $9.62 | $10.25 | $10.92 | $10.78 | $10.64 | $10.47 | ||||||
Total return | (5.17)%(2) | (4.31)% | 3.33% | 3.48% | 4.04% | 1.74% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $6 | $6 | $7 | $7 | $7 | $7 | ||||||
Ratio of expenses to average net assets | 0.89%(3) | 0.91% | 0.92% | 0.93% | 0.94% | 0.90% | ||||||
Ratio of net investment income to average net assets | 2.06%(3) | 1.84% | 1.99% | 2.12% | 2.20% | 2.33% | ||||||
Portfolio turnover rate | 7%(2) | 7% | 7% | 6% | 6% | 9% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
27 | 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 | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.26 | $10.93 | $10.79 | $10.65 | $10.48 | $10.55 | ||||||
Income from investment operations: | ||||||||||||
Net investment income(1) | 0.12 | 0.23 | 0.25 | 0.26 | 0.26 | 0.28 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.64) | (0.66) | 0.14 | 0.14 | 0.19 | (0.06) | ||||||
Total from investment operations | (0.52) | (0.43) | 0.39 | 0.40 | 0.45 | 0.22 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.12) | (0.23) | (0.25) | (0.26) | (0.26) | (0.28) | ||||||
Distributions from capital gains | — | (0.01) | — | — | (0.02) | (0.01) | ||||||
Total distributions | (0.12) | (0.24) | (0.25) | (0.26) | (0.28) | (0.29) | ||||||
Net asset value, end of period | $9.62 | $10.26 | $10.93 | $10.79 | $10.65 | $10.48 | ||||||
Total return | (5.12)%(2) | (4.01)% | 3.64% | 3.78% | 4.35% | 2.04% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $41 | $45 | $40 | $27 | $30 | $43 | ||||||
Ratio of expenses to average net assets | 0.60%(3) | 0.60% | 0.62% | 0.65% | 0.64% | 0.60% | ||||||
Ratio of net investment income to average net assets | 2.36%(3) | 2.14% | 2.28% | 2.41% | 2.50% | 2.63% | ||||||
Portfolio turnover rate | 7%(2) | 7% | 7% | 6% | 6% | 9% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
28 | Aquila Churchill Tax-Free Fund of Kentucky
Additional Information:
Statement Regarding Liquidity Risk Management Program
Rule 22e-4 under the Investment Company Act of 1940, as amended, requires open-end management investment companies to adopt and implement written liquidity risk management programs that are reasonably designed to assess and manage liquidity risk. Liquidity risk is defined in the rule as the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund. In accordance with Rule 22e-4, Aquila Municipal Trust (“AMT”) has adopted a Liquidity Risk Management (“LRM”) program (the “program”). AMT’s Board of Trustees (the “Board”) has designated an LRM Committee consisting of employees of Aquila Investment Management LLC as the administrator of the program (the “Committee”).
The Board met on June 17, 2022 to review the program. At the meeting, the Committee provided the Board with a report that addressed the operation of the program and assessed its adequacy and effectiveness of implementation, and any material changes to the program (the “Report”). The Report covered the period from May 1, 2021 through April 30, 2022 (the “Reporting Period”).
During the Reporting Period, the Committee reviewed whether each Fund’s strategy is appropriate for an open-end fund structure taking into account less liquid and illiquid assets.
The Committee reviewed each Fund’s short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions. In classifying and reviewing each Fund’s investments, the Committee considered whether trading varying portions of a position in a particular portfolio investment or asset class in sizes the Fund would reasonably anticipate trading, would be reasonably expected to significantly affect liquidity. The Committee considered the following information when determining the sizes in which each Fund would reasonably anticipate trading: historical net redemption activity, the Fund’s concentration in an issuer, shareholder concentration, Fund performance, Fund size, and distribution channels.
The Committee considered each Fund’s holdings of cash and cash equivalents, as well as borrowing arrangements. The Committee considered the terms of the credit facility applicable to the Funds, the financial health of the institution providing the facility and the fact that the credit facility is shared among multiple Funds. The Committee also considered other types of borrowing available to the Funds, such as the ability to use interfund lending arrangements.
The Committee also performed an analysis to determine whether a Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”), and determined that the requirement to maintain an HLIM was inapplicable to the Funds because each Fund primarily holds highly liquid investments.
There were no material changes to the program during the Reporting Period. The Report provided to the Board stated that the Committee concluded that the program is reasonably designed and operated effectively throughout the Review Period.
29 | 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. The independent Trustees met via video conference on August 25, 2022 and in person on September 10, 2022 to review and discuss the contract review materials that were provided in advance of the August 25, 2022 meeting. 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 (the “Consultant’s Report”). In addition, the Trustees took into account the performance and other information related to the Fund provided to the Trustees at each regularly scheduled meeting. The Trustees also discussed the memorandum provided by Fund counsel that summarized the legal standards and other considerations that are relevant to the Trustees in their deliberations regarding the renewal of the Advisory Agreement.
At the meeting held on September 10, 2022, 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, 2023. 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 Messrs. Royden Durham,
30 | Aquila Churchill Tax-Free Fund of Kentucky
Tony Tanner and James Thompson as portfolio managers for the Fund and has established facilities and capabilities for credit analysis of the Fund’s portfolio securities. They considered that Mr. Durham, the Fund’s lead portfolio manager, 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.
The Trustees noted that 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 fund accountant, 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 (Class A shares) and compared its performance to the performance of:
· | the funds in the Municipal Single State Intermediate-Term Bond category as assigned by Morningstar, Inc. (the “Morningstar Category”); and |
· | the Fund’s benchmark index, the Bloomberg Municipal Bond: Quality Intermediate Total Return Index Unhedged USD. |
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 Morningstar Category for the one, three, five and ten-year periods ended June 30, 2022. They noted that the Fund’s return for each of the six months and the one, three and five-year periods ended June 30, 2022 was in the second quintile, in each case relative to the funds in the Morningstar Category for the same periods. (Each quintile represents one-fifth of the peer group and first quintile is most favorable to the Fund’s shareholders.) The Trustees further considered that the Fund underperformed its benchmark index for the one, three, five and ten-year periods ended June 30, 2022. They further noted, as reflected in the Consultant’s Report, that the Fund’s total return for 2021 outperformed both the average annual total return of the funds in the Morningstar Category and the annual return of its benchmark index for 2021.
The Trustees noted that the Fund invests primarily in municipal obligations issued by the Commonwealth of Kentucky, its counties and various other local authorities, while the funds in the Morningstar Category invest in, and the Fund’s benchmark index includes, municipal bonds of issuers throughout the United States and that approximately 1% of the benchmark index consists of Kentucky bonds. 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 the investment performance of the Fund indicated to the Trustees that renewal of the Advisory Agreement would be appropriate.
31 | Aquila Churchill Tax-Free Fund of Kentucky
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 21 funds in the Fund’s expense group (the “Expense Group”), as selected by the independent consultant (the Fund and 14 other Municipal Single-State Intermediate-Term Bond Funds, one Municipal Massachusetts Bond fund, one Municipal Minnesota Bond fund, three Municipal New Jersey Bond funds, and one Municipal Pennsylvania Bond fund, each categorized by Morningstar, Inc. with portfolio assets ranging between $93 million and $457 million). Only front-end load and retail no-load funds were considered for inclusion in the Expense Group. In addition, peer selection focused on municipal bond funds with an intermediate duration across comparable categories. The Trustees also compared the Fund’s advisory fees and expenses to advisory fee data for the Fund’s Morningstar Category (as defined above). Certain of the peer group comparisons referred to below are organized in quintiles. Each quintile represents one-fifth of the peer group. In all peer group comparisons referred to below, first quintile is most favorable to the Fund’s shareholders.
The Trustees considered that the Fund’s net management fee for its most recent fiscal year was in the second quintile relative to the management fees paid by the other funds in its Expense Group for the comparable period (after giving effect to fee waivers in effect for those funds). They also considered that the Fund’s contractual advisory fee was lower than the average and median contractual advisory fees of the funds in the Morningstar Category (at the Fund’s current asset level and at various asset levels up to $10 billion).
The Trustees considered that the Fund’s net total expenses for the most recent fiscal year were in the second quintile relative to the net total expenses of the other funds in its Expense Group for the comparable period (after giving effect to fee waivers in effect for those funds).
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 elated 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 LLC of distribution services provided to the Fund. The Manager also provided other financial information to the members of the financial review committee of the Fund and the other funds in the Aquila Group of Funds.
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
32 | Aquila Churchill Tax-Free Fund of Kentucky
costs to the management of the Fund. 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 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.
33 | Aquila Churchill Tax-Free Fund of Kentucky
Your Fund’s Expenses (unaudited)
As a Fund shareholder, 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 assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The 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 that 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”.
Hypothetical Example for Comparison with Other Funds
Under the heading, “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
Actual | Hypothetical | ||||||
(actual return after expenses) | (5% annual return before expenses) | ||||||
Share Class | Beginning Account Value 4/1/22 | Ending(1) Account | Expenses(2) Paid During Period 4/1/22 – 9/30/22 | Ending Account Value 9/30/22 | Expenses(2) Paid During Period 4/1/22 – 9/30/22 | Net Annualized Expense Ratio | |
A | $1,000 | $ 949.00 | $3.66 | $1,021.31 | $3.80 | 0.75% | |
C | $1,000 | $ 945.00 | $7.80 | $1,017.05 | $8.09 | 1.60% | |
I | $1,000 | $ 948.30 | $4.35 | $1,020.61 | $4.51 | 0.89% | |
Y | $1,000 | $ 948.80 | $2.93 | $1,022.06 | $3.04 | 0.60% |
(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 or the applicable CDSC with respect to Class C shares. Total return is not annualized and as such, it may not be representative of the total return for the year. |
(2) | Expenses are equal to the annualized expense ratio for the six-month period as indicated above - in the far right column - multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period. |
34 | Aquila Churchill Tax-Free Fund of Kentucky
Information Available (unaudited) Annual and Semi-Annual Reports and Complete Portfolio Holding Schedules Your Fund’s Annual and Semi-Annual Reports are filed with the SEC twice a year. Each Report contains a complete Schedule of Portfolio Holdings, along with full financial statements and other important financial statement disclosures. Additionally, your Fund files a complete Schedule of Portfolio Holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its Reports on Form N-PORT. Your Fund’s Annual and Semi-Annual Reports and N-PORT reports 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. In addition, your Fund’s Annual and Semi-Annual Reports and complete Portfolio Holdings Schedules for each fiscal quarter end are also available, free of charge, on your Fund’s website, www.aquilafunds.com (under the prospectuses & reports tab) or by calling us at 1-800-437-1000. Portfolio Holdings Reports In accordance with your Fund’s Portfolio Holdings Disclosure Policy, the Manager also prepares a Portfolio Holdings Report as of each quarter end, which is typically posted to your Fund’s individual page at www.aquilafunds.com by the 15th day after the end of each calendar quarter. Such information will remain accessible until the next Portfolio Holdings Report is made publicly available by being posted to www.aquilafunds.com. The quarterly Portfolio Holdings Report may be accessed, free of charge, by visiting www.aquilafunds.com or calling us at 1-800-437-1000. |
Proxy Voting Record (unaudited) During the 12 month period ended June 30, 2022, there were no proxies related to any portfolio instruments held by the Fund. As such, the Fund did not vote any proxies. 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, 2022, $3,777,511 of dividends paid by Aquila Churchill Tax-Free Fund of Kentucky, constituting 95.6% of total dividends paid, were exempt-interest dividends; $171,186 of dividends paid by the Fund constituting 4.3% of total dividends paid were capital gains distributions and the balance was ordinary income. Prior to February 15, 2023, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2022 calendar year. |
35 | Aquila Churchill Tax-Free Fund of Kentucky
|
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
Thomas A. Christopher, Chair
Diana P. Herrmann, Vice Chair
Ernest Calderón
Gary C. Cornia
Grady Gammage, Jr.
Patricia L. Moss
Glenn P. O’Flaherty
Heather R. Overby
Laureen L. White
Officers
Diana P. Herrmann, President
Paul G. O’Brien, Senior Vice President
Royden P. Durham, Vice President
and Lead Portfolio Manager
Anthony A. Tanner, Vice President
and Portfolio Manager
James T. Thompson, Vice President and
Portfolio Manager
Troy Miller, Vice President
Randall S. Fillmore, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer and Treasurer
Anita Albano, Secretary
Distributor
AQUILA DISTRIBUTORS LLC
120 West 45th Street, Suite 3600
New York, New York 10036
Transfer and Shareholder Servicing Agent
BNY MELLON INVESTMENT SERVICING (US) INC.
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
THE BANK OF NEW YORK MELLON
240 Greenwich Street
New York, New York 10286
Further information is contained in the Prospectus,
which must precede or accompany this report.
AQL-KYSAR-1122
|
Semi-Annual Report September 30, 2022
| ||||||||||||||||||||||||||
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![]() | Aquila Narragansett Tax-Free Income Fund Keeping an Optimistic
Serving Rhode Island investors since 1992 | ![]() |
November, 2022
Dear Fellow Shareholder:
The fixed income markets have experienced significant volatility and downward pressure for much of 2022, driven primarily by several key economic factors, including continued high inflation, rising interest rates, and uncertainty about the direction of the U.S. economy. While these factors aren’t necessarily new or unique, they nonetheless have presented challenges for rate-sensitive investments — and, in the process, have made the majority of investors increasingly skittish. While we understand investors’ concerns, we remain optimistic about the municipal bond market.
Despite its inevitable ups and downs, the municipal bond market has historically demonstrated remarkable resiliency across multiple market cycles. We believe today’s market appears reasonably sound at its core in terms of continuing credit fundamentals and current relative valuations. The municipal market’s underpinnings remain deeply rooted in the need and demand for municipal bonds given the important role they play in financing vital local projects, such as schools, hospitals, and roadways that contribute to improving the quality of life for residents of the issuing municipalities.
It’s important to understand what’s driving the current market and maintain perspective. Let’s explore further.
Understanding the Factors Impacting Municipal Bonds
The primary driver of bond yields, prices, and relative performance is interest rates. Since the Federal Reserve (the “Fed”) introduced a change in its monetary policy in March of this year to help combat inflation, interest rates began a steady upward climb. This was spurred by the Fed raising the Federal Funds rate (the interest rate that banks charge one another to borrow or lend excess reserves overnight), the first such increase since 2018. To date, through 11/02/2022, the Fed has implemented six rate hikes, totaling 3.75%, bringing the stated target range for the Fed Funds rate to 3.75% – 4.00%. And, Federal Reserve Chairman Jerome Powell has indicated that additional increases may be deemed necessary going forward, dependent upon the status of the U.S. economy and data driven analytics. Mr. Powell and his colleagues have stated that the Fed will remain vigilant in its efforts to manage inflation, which has topped levels not seen in more than 40 years (as measured by the Consumer Price Index).
In reaction to the Federal Reserve’s aggressive monetary policy stance, year to date interest rates have experienced a significant increase. As you may know, bond prices generally move in the opposite direction of rate changes. Therefore, while rising interest rates generally translate to higher yields for bond investments, bond prices or values usually fall. This changing yield/price landscape has created two shifts in the market — a shift for issuers of bonds (who may now be reluctant to issue new debt at increased costs), along with a shift in investor sentiment. For investors, on the one hand, higher yields mean greater income, which is a welcome development for those who during the recent
NOT A PART OF THE SEMI-ANNUAL REPORT
low-yield environment sought opportunities to earn more attractive income levels. On the other hand, investors who are mindful of capital preservation have become wary as they have seen bond prices decline.
When investing in bonds, we believe that generating an attractive risk-adjusted return is a careful balance of the two factors— income and stability of capital. Your Fund’s investment objective, in fact, seeks to provide as high a level of current income exempt (from state and regular federal income taxes) as is consistent with preservation of capital. So, how has the rise in interest rates affected municipal bonds?
Assessing the Current Market Cycle
It’s important, in our view, to evaluate financial markets, performance, and valuations on a relative basis. This is true not only within the municipal bond market, but with and relative to other asset classes as well.
Municipal bonds are oftentimes viewed in comparison with U.S. Treasuries. Let’s take a look at yield curves and the relative Municipal-to-Treasury relationship. During 2022, yields of U.S. Treasury securities have generally risen across the maturity spectrum, but the overall slope of the curve flattened, particularly during the third quarter of 2022. Specifically, there was a greater increase in interest rates on the short-end of the U.S. Treasury curve (shorter maturities) which exceeded increases on the longer-end. Given economic uncertainty and fears of a possible recession, some market participants are concerned that this change in the U.S. Treasury yield curve may signal an impending economic slump. Meanwhile, the municipal bond yield curve has been more positively sloped (with longer term maturities yielding more) throughout the year, in particular, steepening between 10- and 30-year maturities during the third quarter — which may be viewed positively by municipal investors.
The Municipal-to-Treasury relationship (based on the yield of AAA municipal securities as a percentage of the yield of U.S. Treasuries of the same maturity) has fluctuated over the past year, but generally in our view continued to trade in line with historical relationship norms. The chart below illustrates what we believe to be an indication of improved relative valuations for municipal obligations, whereby municipal yields represent a greater percentage in comparison to U.S. Treasury yields. As one would usually anticipate in a rising rate environment, such as now, the relationship ratio compares somewhat favorably for longer maturity municipal bonds (specifically, in the 30-year maturity range) which were yielding greater than U.S. Treasury securities as of September 30th.
January 3, 2022 Municipal % of U.S. Treasury | September 30, 2022 Municipal % of U.S. Treasury | |||
5-Year | 44.1% | 77.6% | ||
10-year | 63.8% | 87.0% | ||
30-year | 74.3% | 104.0% | ||
Source: Bloomberg |
Credit spreads among municipal bond issues have begun to widen during the year. (Credit spread is the difference in yield between securities of the same maturity with different credit ratings.) Wider credit spreads generally favor higher-quality issuers in a rising rate environment due to concerns related to lower quality issues during periods of slowing economic growth. This scenario may be viewed as a benefit to higher quality, shorter duration portfolios vis-à-vis lower quality, longer duration holdings. (Duration is
NOT A PART OF THE SEMI-ANNUAL REPORT
a measurement of a bond’s sensitivity or risk to changes in interest rates; shorter duration generally means less risk.) This assumes interest rates continue to rise, as the Fed seems to have signaled in recent press releases. Overall, we view municipal credit fundamentals to be relatively strong, while credit defaults as tracked by the Nationally Recognized Statistical Rating Agencies (such as Moody’s and Standard & Poor’s) generally remain relatively low, particularly among higher quality issues.
At a local level, many state and local economies continue to show signs of improvement and sustained growth. Despite recession risk, local municipalities and governments appear to us to be well-positioned to manage economic challenges. Higher employment, increasing wages, and rising property values in many jurisdictions throughout the country are among key contributors toward bolstering state and local revenue and tax receipts.
Looking Forward
We remain cautiously optimistic about the direction of the municipal bond market. In addition to many of the positive conditions and trends stated above — including what we believe to be potential opportunities for greater income than in recent years, improving relative valuations, strong credit fundamentals, expanding local economies, and sustained investor demand — keep in mind the attractive benefits that municipal bonds offer, such as a high level of current income exempt from state and regular federal income taxes. Although no one can reasonably predict the impact of continued inflation or future Fed actions to curb such inflation, on a tax-equivalent basis, the municipal income benefit may be attractive compared to taxable investments for certain investors.
Remember, too, the Aquila difference. Your portfolio management team is locally-based, which provides them with an up-close perspective on the economy and bond issuers within local municipalities, cities, counties, and across the state. Our investment professionals draw upon their wealth of experience in analyzing securities, navigating market and economic cycles, and seeking to identify both opportunities and risks. The current market cycle is no exception. Our team employs an active portfolio management strategy, with a goal to maintain broadly diversified investment grade municipal portfolios, generally with an intermediate average maturity, to help deliver attractive risk-adjusted returns.
As always, we encourage you to consult with your financial professional to evaluate whether the investment choices you make are aligned with your individual financial goals and risk tolerances.
Thank you for your continued confidence in Aquila Group of Funds.
Sincerely, | ||
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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, political or regulatory conditions, recessions, inflation, changes in interest rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues, armed conflict including Russia’s military invasion of Ukraine, sanctions against Russia, other nations or individuals or companies and possible countermeasures, market disruptions caused by tariffs, trade disputes or other factors, or adverse investor sentiment. When market prices fall, the value of your investment may go down. In the past several years, financial markets have experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. These conditions may continue, recur, worsen or spread.
Rates of inflation have recently risen. The value of assets or income from an investment may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline as can the value of the Fund’s distributions.
The global pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s invasion of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or markets could be similarly affected by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the economy and securities markets, may not be known for some time.
The value of your investment will generally go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term or longer duration securities. In recent years, interest rates and credit spreads in the U.S. have been at historic lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain interest rates. A general rise in interest rates may cause investors to move out of fixed income securities on a large scale and could also result in increased redemptions from the Fund.
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. The municipal bond market can be susceptible to unusual volatility, particularly for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic conditions or credit tightening. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Unfavorable conditions and developments relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. Municipal securities may be more susceptible to downgrades or defaults during a recession or similar periods of economic stress. Financial difficulties of municipal issuers may continue or get worse, particularly in the event of economic or market turmoil or a recession.
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.
Any information in this Shareholder Letter 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. Past performance is no guarantee of future results, and there is no guarantee that any market forecasts discussed will be realized.
NOT A PART OF THE SEMI-ANNUAL REPORT
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (26.1%) | Ratings Moody’s, S&P and Fitch | Value | |||
Barrington, Rhode Island | ||||||
$ 840,000 | 2.500%, 08/01/25 | Aa1/NR/NR | $ 812,927 | |||
Bristol, Rhode Island | ||||||
865,000 | 3.500%, 08/01/31 | NR/AA+/NR | 852,890 | |||
1,900,000 | 3.000%, 08/01/38 Series 2021A | NR/AA+/NR | 1,515,288 | |||
Coventry, Rhode Island | ||||||
1,605,000 | 3.625%, 03/15/27 AGMC Insured | A1/AA/NR | 1,608,258 | |||
Cranston, Rhode Island | ||||||
1,325,000 | 4.000%, 07/01/28 | A1/AA-/AA+ | 1,358,787 | |||
1,170,000 | 5.000%, 08/01/32 Series 2018 A | A1/AA-/AA+ | 1,268,420 | |||
1,000,000 | 4.000%, 08/01/33 Series 2019 A BAMI Insured | A1/AA/AA+ | 1,008,880 | |||
615,000 | 4.000%, 08/01/35 Series 2019 A BAMI Insured | A1/AA/AA+ | 615,646 | |||
860,000 | 4.000%, 08/15/34 Series 2021 A | NR/AA-/AA+ | 845,552 | |||
455,000 | 4.000%, 08/15/35 Series 2021 A | NR/AA-/AA+ | 444,330 | |||
475,000 | 4.000%, 08/15/36 Series 2021 A | NR/AA-/AA+ | 460,185 | |||
1,515,000 | 4.250%, 07/15/24 Series B BAMI Insured | A1/AA/AA+ | 1,542,800 | |||
1,000,000 | 4.250%, 07/15/25 Series B BAMI Insured | A1/AA/AA+ | 1,027,750 | |||
Cumberland, Rhode Island | ||||||
500,000 | 4.250%, 11/01/27 Series 2011 A | NR/AA+/NR | 500,375 | |||
500,000 | 4.625%, 11/01/31 Series 2011 A | NR/AA+/NR | 500,465 | |||
700,000 | 4.500%, 03/15/32 Series 2018 A | NR/AA+/NR | 734,636 | |||
Hopkinton, Rhode Island | ||||||
450,000 | 4.375%, 08/15/31 | Aa3/NR/NR | 450,274 | |||
Johnston, Rhode Island | ||||||
1,020,000 | 3.450%, 06/01/29 Series A | A1/AA/NR | 1,020,541 | |||
1,020,000 | 3.700%, 06/01/33 Series A | A1/AA/NR | 980,954 | |||
Lincoln, Rhode Island | ||||||
1,500,000 | 3.500%, 08/01/24 Series A | Aa2/NR/AAA | 1,503,435 | |||
2,225,000 | 3.500%, 08/01/25 Series A | Aa2/NR/AAA | 2,232,409 | |||
Middleton, Rhode Island | ||||||
435,000 | 4.000%, 02/01/31 Series 2021A | Aa1/NR/NR | 452,126 | |||
Narragansett, Rhode Island | ||||||
1,025,000 | 3.500%, 07/15/28 | Aa2/AA+/NR | 1,027,542 |
1 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
North Kingstown, Rhode Island | ||||||
$ 375,000 | 3.000%, 04/15/24 Series A | Aa2/AA+/NR | $ 372,990 | |||
1,500,000 | 3.500%, 04/01/37 Series 2021 A | NR/AA+/NR | 1,293,090 | |||
North Smithfield, Rhode Island | ||||||
825,000 | 3.000%, 06/15/26 Series A | Aa2/NR/NR | 803,616 | |||
1,075,000 | 3.500%, 05/15/34 | Aa2/NR/NR | 986,871 | |||
Pawtucket, Rhode Island | ||||||
1,010,000 | 4.000%, 11/01/25 AGMC Insured | A1/AA/A+ | 1,022,090 | |||
890,000 | 4.500%, 07/15/33 Series C AGMC Insured | A1/AA/NR | 935,880 | |||
935,000 | 4.500%, 07/15/34 Series C AGMC Insured | A1/AA/NR | 978,122 | |||
975,000 | 4.500%, 07/15/35 Series C AGMC Insured | A1/AA/NR | 1,005,118 | |||
Portsmouth, Rhode Island | ||||||
1,140,000 | 3.750%, 02/01/31 Series A | Aa2/AAA/NR | 1,132,955 | |||
Providence, Rhode Island | ||||||
975,000 | 3.625%, 01/15/29 Series A AGMC Insured | A1/AA/A- | 975,478 | |||
2,010,000 | 3.750%, 01/15/30 Series A AGMC Insured | A1/AA/A- | 2,011,166 | |||
1,000,000 | 3.750%, 01/15/32 Series A AGMC Insured | A1/AA/A- | 1,000,060 | |||
Richmond, Rhode Island | ||||||
525,000 | 3.000%, 08/01/24 | Aa3/NR/NR | 524,055 | |||
State of Rhode Island | ||||||
2,000,000 | 3.750%, 11/01/23 Series A | Aa2/AA/AA | 2,012,000 | |||
2,000,000 | 3.000%, 05/01/31 Series A | Aa2/AA/AA | 1,853,500 | |||
2,500,000 | 4.000%, 04/01/32 Series A | Aa2/AA/AA | 2,580,825 | |||
2,000,000 | 3.000%, 05/01/32 Series A | Aa2/AA/AA | 1,814,300 | |||
1,500,000 | 3.000%, 05/01/36 Series A | Aa2/AA/AA | 1,273,365 | |||
2,000,000 | 5.000%, 08/01/23 Series D | Aa2/AA/AA | 2,029,720 | |||
2,000,000 | 5.000%, 08/01/24 Series D | Aa2/AA/AA | 2,063,220 | |||
2,260,000 | 4.000%, 08/01/30 Series 2021C | Aa2/AA/AA | 2,378,899 | |||
1,000,000 | 4.000%, 08/01/33 Series 2021E | Aa2/AA/AA | 1,009,090 | |||
Warren, Rhode Island | ||||||
1,170,000 | 4.000%, 02/15/33 Series 2018 A | Aa3/NR/NR | 1,180,507 |
2 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
West Greenwich, Rhode Island | ||||||
$ 1,175,000 | 3.000%, 08/15/26 | NR/AA+/NR | $ 1,156,670 | |||
West Warwick, Rhode Island | ||||||
795,000 | 5.000%, 10/01/32 Series A BAMI Insured | A3/AA/NR | 828,970 | |||
Westerly, Rhode Island | ||||||
345,000 | 5.000%, 11/15/31 Series 2021 A | NR/AA/NR | 382,357 | |||
Total General Obligation Bonds | 56,369,384 | |||||
Revenue Bonds (67.7%) | ||||||
Development (6.2%) | ||||||
Providence, Rhode Island Public Building Authority (Capital Improvement Program Projects) | ||||||
3,000,000 | 4.000%, 09/15/34 Series A AGMC Insured | A1/AA/NR | 3,002,940 | |||
3,500,000 | 4.000%, 09/15/35 Series A AGMC Insured | A1/AA/NR | 3,413,095 | |||
Providence, Rhode Island Redevelopment Agency Refunding Public Safety Building Project | ||||||
1,680,000 | 5.000%, 04/01/26 Series A AGMC Insured | A1/AA/NR | 1,747,166 | |||
Rhode Island Infrastructure Bank Municipal Road and Bridge Revolving Fund | ||||||
935,000 | 4.000%, 10/01/33 Series 2019 A | NR/AA/NR | 943,368 | |||
845,000 | 4.000%, 10/01/34 Series 2019 A | NR/AA/NR | 846,301 | |||
1,010,000 | 4.000%, 10/01/35 Series 2019 A | NR/AA/NR | 987,184 | |||
Rhode Island Infrastructure Bank Efficient Buildings Fund, Green Bonds | ||||||
1,110,000 | 4.000%, 10/01/29 Series 2018 A | NR/AA/NR | 1,140,736 | |||
1,555,000 | 3.000%, 10/01/37 Series 2020 A | NR/AA/NR | 1,288,831 | |||
Total Development | 13,369,621 | |||||
3 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Healthcare (3.2%) | ||||||
Rhode Island Health & Education Building Corp., Hospital Financing, Lifespan Obligated Group | ||||||
$ 875,000 | 5.000%, 05/15/28 Series 2016 | NR/BBB+/BBB+ | $ 890,234 | |||
1,000,000 | 5.000%, 05/15/31 Series 2016 | NR/BBB+/BBB+ | 1,013,730 | |||
1,000,000 | 5.000%, 05/15/33 Series 2016 | NR/BBB+/BBB+ | 1,009,630 | |||
1,250,000 | 5.000%, 05/15/34 Series 2016 | NR/BBB+/BBB+ | 1,260,000 | |||
1,750,000 | 5.000%, 05/15/39 Series 2016 | NR/BBB+/BBB+ | 1,746,973 | |||
Rhode Island State & Providence Plantations Lease COP (Eleanor Slater Hospital Project) | ||||||
1,000,000 | 4.000%, 11/01/32 Series B | Aa3/AA-/AA- | 1,026,290 | |||
Total Healthcare | 6,946,857 | |||||
Higher Education (5.4%) | ||||||
Rhode Island Health and Education Building Corp., Higher Educational Facility | ||||||
2,500,000 | 5.000%, 09/15/30 Series 2010 A AGMC Insured | Aa3/NR/NR | 2,503,575 | |||
Rhode Island Health and Educational Building Corp., Higher Education Facility, Brown University | ||||||
2,000,000 | 4.000%, 09/01/37 Series 2017 | Aa1/AA+/NR | 1,932,200 | |||
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 | 2,521,772 | |||
250,000 | 4.000%, 11/01/37 Series 2021B | A2/A/NR | 230,030 | |||
250,000 | 4.000%, 11/01/38 Series 2021B | A2/A/NR | 228,180 | |||
Rhode Island Health and Educational Building Corp., Higher Education Facility, University of Rhode Island | ||||||
1,000,000 | 4.250%, 09/15/31 Series A | Aa3/A+/NR | 1,029,980 |
4 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Higher Education (continued) | ||||||
Rhode Island Health and Educational Building Corp., Higher Education Facility, University of Rhode Island Auxiliary Enterprise | ||||||
$ 500,000 | 4.000%, 09/15/31 Series 2016 B | A1/A+/NR | $ 506,430 | |||
2,000,000 | 4.000%, 09/15/42 Series 2017 A | A1/A+/NR | 1,772,760 | |||
1,000,000 | 4.000%, 09/15/32 Series 2017 B | A1/A+/NR | 1,002,240 | |||
Total Higher Education | 11,727,167 | |||||
Housing (6.2%) | ||||||
Rhode Island Housing & Mortgage Finance Corp. Homeownership Opportunity | ||||||
155,000 | 3.000%, 10/01/39 Series 71 | Aa1/AA+/NR | 128,813 | |||
2,000,000 | 2.100%, 10/01/35 Series 73 A | Aa1/AA+/NR | 1,522,640 | |||
2,000,000 | 2.300%, 10/01/40 Series 73 A | Aa1/AA+/NR | 1,410,340 | |||
2,000,000 | 2.050%, 10/01/36 Series 75 A | Aa1/AA+/NR | 1,481,920 | |||
750,000 | 2.350%, 10/01/36 Series 76 A | Aa1/AA+/NR | 568,987 | |||
Rhode Island Housing & Mortgage Finance Corp. Multi-Family Development Sustainability | ||||||
770,000 | 2.750%, 10/01/34 Series 1-B | Aa2/NR/NR | 641,333 | |||
1,000,000 | 3.100%, 10/01/44 Series 1-B | Aa2/NR/NR | 750,500 | |||
Rhode Island Housing & Mortgage Finance Corp. Multi-Family Development Sustainability | ||||||
1,125,000 | 0.450%**, 10/01/40 Series 2021 1-A (Mandatory Tender Date 10/01/23) | Aa2/NR/NR | 1,083,667 | |||
Rhode Island Housing & Mortgage Finance Corp. Multi-Family Housing | ||||||
1,400,000 | 4.625%, 10/01/25 Series 2010 A | Aaa/NR/NR | 1,400,980 | |||
1,260,000 | 5.000%, 10/01/30 Series 2010 A | Aaa/NR/NR | 1,262,218 | |||
1,255,000 | 3.450%, 10/01/36 Series 2016 1B | Aa2/NR/NR | 1,104,024 | |||
1,000,000 | 3.250%, 10/01/27 Series 1B | Aa2/NR/NR | 966,150 | |||
1,000,000 | 3.400%, 10/01/29 Series 3B | Aa2/NR/NR | 971,080 | |||
Total Housing | 13,292,652 | |||||
5 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Public School (33.0%) | ||||||
Rhode Island Health and Education Building Corp., Public Schools Financing Program | ||||||
$ 795,000 | 5.000%, 05/15/27 Series 2015 C | Aa2/NR/NR | $ 828,207 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Town of Burrillville | ||||||
730,000 | 5.000%, 05/15/35 Series 2022D | NR/AA/NR | 786,933 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Chariho Regional School District | ||||||
1,520,000 | 4.000%, 05/15/31 Series 2017 J-2 B | Aa3/NR/NR | 1,544,001 | |||
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 | Aa3/AA/NR | 1,000,170 | |||
1,000,000 | 4.000%, 05/15/33 AGMC Insured | Aa3/AA/NR | 1,000,120 | |||
Rhode Island Health and Educational Building Corp., Public School Financing Program, City of Cranston | ||||||
1,170,000 | 4.000%, 05/15/30 Series 2015 B BAMI Insured | NR/AA/NR | 1,191,844 | |||
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 | 985,770 | |||
2,000,000 | 4.000%, 05/15/37 Series 2021F | NR/AA/NR | 1,893,360 | |||
3,000,000 | 4.000%, 05/15/38 Series 2021F | NR/AA/NR | 2,780,640 | |||
2,000,000 | 4.000%, 05/15/41 Series 2021F | NR/AA/NR | 1,818,960 | |||
Rhode Island Health and Education Building Corp., Exeter-West Greenwich Regional School District | ||||||
1,455,000 | 3.500%, 05/15/37 Series 2021 G | Aa3/NR/NR | 1,256,931 | |||
2,100,000 | 4.000%, 05/15/41 Series 2021 G | Aa3/NR/NR | 1,909,908 |
6 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Public School (continued) | ||||||
Rhode Island Health and Education Building Corp., Public School Financing Program, Town of Jamestown | ||||||
$ 1,020,000 | 3.000%, 05/15/35 Series 2019 C | Aa1/NR/NR | $ 876,292 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Town of Johnston | ||||||
1,045,000 | 5.000%, 05/15/34 Series 2022F | NR/AA/NR | 1,135,069 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Town of Lincoln | ||||||
3,245,000 | 5.000%, 05/15/33 Series 2020 B | Aa2/NR/AAA | 3,543,832 | |||
1,610,000 | 4.000%, 05/15/35 Series 2020 B | Aa2/NR/AAA | 1,572,696 | |||
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 | 1,630,465 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, City of Newport | ||||||
2,000,000 | 4.000%, 05/15/36 Series 2022C | NR/AA+/NR | 1,946,880 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Town of North Kingston | ||||||
370,000 | 4.000%, 05/15/29 Series 2021 A | NR/AA+/NR | 382,776 | |||
405,000 | 4.000%, 05/15/30 Series 2021 A | NR/AA+/NR | 418,470 | |||
355,000 | 3.000%, 05/15/33 Series 2021 A | NR/AA+/NR | 318,836 | |||
415,000 | 3.000%, 05/15/34 Series 2021 A | NR/AA+/NR | 363,519 |
7 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Public School (continued) | ||||||
Rhode Island Health and Education Building Corp., Public School Financing Program, Town of North Providence | ||||||
$ 1,100,000 | 4.500%, 11/15/22 Series 2013 I | Aa3/AA-/NR | $ 1,101,859 | |||
750,000 | 5.000%, 05/15/31 Series 2017 G AGMC Insured | Aa3/AA/NR | 801,082 | |||
500,000 | 5.000%, 05/15/32 Series 2019 A AGMC Insured | Aa3/AA/NR | 540,135 | |||
500,000 | 5.000%, 05/15/33 Series 2019 A AGMC Insured | Aa3/AA/NR | 538,250 | |||
500,000 | 5.000%, 05/15/34 Series 2019 A AGMC Insured | Aa3/AA/NR | 536,140 | |||
500,000 | 4.000%, 05/15/37 Series 2019 A AGMC Insured | Aa3/AA/NR | 478,960 | |||
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 | Aa3/NR/NR | 1,583,800 | |||
1,000,000 | 4.250%, 05/15/29 Series 2017 E BAMI Insured | Aa3/AA/NR | 1,038,280 | |||
1,045,000 | 4.000%, 05/15/31 Series 2018 B | Aa3/NR/NR | 1,063,664 | |||
1,090,000 | 4.000%, 05/15/32 Series 2018 B | Aa3/NR/NR | 1,106,187 | |||
1,455,000 | 4.000%, 05/15/35 Series 2022A | Aa3/NR/NR | 1,412,980 | |||
1,000,000 | 4.000%, 05/15/36 Series 2022A | Aa3/NR/NR | 949,250 | |||
1,635,000 | 4.000%, 05/15/38 Series 2022A | Aa3/NR/NR | 1,519,602 | |||
500,000 | 4.000%, 05/15/42 Series 2022A | Aa3/NR/NR | 452,740 | |||
2,350,000 | 3.000%, 05/15/39 Series 2019 B | Aa3/NR/NR | 1,785,577 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Town of Portsmouth | ||||||
500,000 | 5.000%, 05/15/32 Series 2022E | NR/AAA/NR | 562,780 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, City of Providence | ||||||
2,250,000 | 4.000%, 05/15/37 Series 2021D BAMI Insured | Aa3/AA/NR | 2,135,700 |
8 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Public School (continued) | ||||||
Rhode Island Health and Education Building Corp., Public School Financing Program, Town of Scituate | ||||||
$ 1,285,000 | 4.500%, 05/15/33 Series 2018 A | NR/AA/NR | $ 1,321,957 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Town of Smithfield | ||||||
1,000,000 | 3.000%, 05/15/37 Series 2021H | NR/AA/NR | 800,300 | |||
1,000,000 | 3.000%, 05/15/38 Series 2021H | NR/AA/NR | 780,180 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Town of Tiverton | ||||||
1,630,000 | 5.000%, 05/15/27 Series 2015 D | A1/NR/NR | 1,696,015 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, City of Warwick | ||||||
1,000,000 | 4.000%, 05/15/36 Series 2022B | NR/AA/NR | 969,030 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Town of Westerly | ||||||
500,000 | 4.000%, 05/15/30 Series 2021E | NR/AA/NR | 511,210 | |||
500,000 | 4.000%, 05/15/31 Series 2021E | NR/AA/NR | 509,030 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Pooled Issue | ||||||
445,000 | 5.000%, 05/15/35 Series 2019 A AGMC Insured | Aa3/AA/NR | 476,123 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Pooled Issue - Tiverton, Foster-Glocester, Cranston, East Greenwich | ||||||
3,000,000 | 4.000%, 05/15/28 Series A | Aa3/NR/NR | 3,053,940 |
9 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Public School (continued) | ||||||
Rhode Island Health and Education Building Corp., Public School Financing Program, Pooled Issue - Narragansett & Scituate | ||||||
$ 1,665,000 | 4.250%, 05/15/28 Series 2017 B | Aa2/NR/NR | $ 1,718,064 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Providence Public Buildings Authority | ||||||
1,500,000 | 3.750%, 05/15/27 Series 2015 A AGMC Insured | Aa3/AA/NR | 1,512,135 | |||
1,500,000 | 4.000%, 05/15/28 Series 2015 A AGMC Insured | Aa3/AA/NR | 1,524,570 | |||
2,000,000 | 4.000%, 05/15/30 Series 2015 B AGMC Insured | Aa3/AA/NR | 2,023,300 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, Providence Public Schools | ||||||
2,000,000 | 4.500%, 05/15/24 Series 2013 A | Aa3/NR/NR | 2,013,260 | |||
1,000,000 | 4.000%, 05/15/35 Series 2019 A AGMC Insured | Aa3/AA/NR | 992,270 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, City of Warwick | ||||||
1,000,000 | 4.000%, 05/15/32 Series 2017 I | NR/AA/NR | 1,017,520 | |||
1,340,000 | 4.000%, 05/15/35 Series 2019 D | NR/AA/NR | 1,323,129 | |||
Rhode Island Health and Education Building Corp., Public School Financing Program, City of Woonsocket | ||||||
500,000 | 5.000%, 05/15/27 Series 2017 A AGMC Insured | Aa3/AA/NR | 538,535 | |||
500,000 | 5.000%, 05/15/28 Series 2017 A AGMC Insured | Aa3/AA/NR | 535,615 | |||
500,000 | 5.000%, 05/15/29 Series 2017 A AGMC Insured | Aa3/AA/NR | 533,175 |
10 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Public School (continued) | ||||||
Rhode Island Health and Education Building Corp., Public School Financing Program, Town of South Kingstown | ||||||
$ 780,000 | 3.500%, 05/15/34 Series 2020A | Aa1/NR/NR | $ 733,387 | |||
Total Public School | 71,375,410 | |||||
Secondary Education (1.1%) | ||||||
Rhode Island Health and Educational Building Corp., Educational Institution, St. George's School | ||||||
600,000 | 4.000%, 10/01/36 Series 2021 | NR/AA-/NR | 566,346 | |||
600,000 | 4.000%, 10/01/37 Series 2021 | NR/AA-/NR | 561,342 | |||
1,265,000 | 4.000%, 10/01/38 Series 2021 | NR/AA-/NR | 1,171,048 | |||
Total Secondary Education | 2,298,736 | |||||
Transportation (7.1%) | ||||||
Rhode Island Commerce Corp., Airport | ||||||
635,000 | 5.000%, 07/01/36 2016 Series D | Baa1/A-/BBB+ | 649,694 | |||
1,015,000 | 5.000%, 07/01/37 2016 Series D | Baa1/A-/BBB+ | 1,035,371 | |||
Rhode Island Commerce Corp., First Lien Special Facility Refunding Bonds (Rhode Island Airport Corporation Intermodal Facility Project) | ||||||
1,425,000 | 5.000%, 07/01/24 Series 2018 | Baa1/BBB+/NR | 1,456,421 | |||
1,500,000 | 5.000%, 07/01/30 Series 2018 | Baa1/BBB+/NR | 1,575,030 | |||
Rhode Island Commerce Corp., Grant Anticipation Refunding Bonds (Rhode Island Department of Transportation) | ||||||
1,850,000 | 4.000%, 06/15/24 Series 2016 A | A2/AA-/NR | 1,863,616 | |||
1,000,000 | 5.000%, 06/15/31 Series 2016 B | A2/AA-/NR | 1,048,150 | |||
Rhode Island State Economic Development Corp., Airport | ||||||
1,000,000 | 5.000%, 07/01/24 Series B | Baa1/A-/BBB+ | 1,010,480 | |||
2,000,000 | 4.000%, 07/01/24 Series B | Baa1/A-/BBB+ | 2,007,200 |
11 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Transportation (continued) | ||||||
Rhode Island State Turnpike & Bridge Authority, Motor Fuel Tax | ||||||
$ 1,240,000 | 4.000%, 10/01/27 Series 2016 A | NR/A+/A | $ 1,261,278 | |||
1,500,000 | 4.000%, 10/01/34 Series 2016 A | NR/A+/A | 1,469,175 | |||
1,000,000 | 4.000%, 10/01/36 Series 2016 A | NR/A+/A | 953,680 | |||
300,000 | 4.000%, 10/01/33 Series 2019 A | NR/A+/A | 294,660 | |||
300,000 | 4.000%, 10/01/34 Series 2019 A | NR/A+/A | 293,007 | |||
495,000 | 4.000%, 10/01/35 Series 2019 A | NR/A+/A | 481,071 | |||
Total Transportation | 15,398,833 | |||||
Water and Sewer (4.5%) | ||||||
Narragansett, Rhode Island Bay Commission Wastewater System | ||||||
3,145,000 | 4.000%, 02/01/28 Series A | NR/AA-/NR | 3,193,559 | |||
Rhode Island Clean Water Protection Finance Agency Safe Drinking Water Revolving Fund | ||||||
1,085,000 | 3.500%, 10/01/25 | NR/AAA/AAA | 1,087,615 | |||
Rhode Island Infrastructure Bank Water, City of Pawtucket | ||||||
1,730,000 | 5.000%, 10/01/28 Series 2015 NPFG Insured | Baa2/A+/NR | 1,774,219 | |||
Rhode Island Infrastructure Bank Water, Pollution Control | ||||||
2,575,000 | 4.000%, 10/01/29 Series A | NR/AAA/AAA | 2,638,783 | |||
500,000 | 4.000%, 10/01/32 Series A | NR/AAA/AAA | 506,215 | |||
Rhode Island Infrastructure Bank Water, Safe Drinking Water | ||||||
500,000 | 3.000%, 10/01/31 Series A | NR/AAA/AAA | 473,205 | |||
Total Water and Sewer | 9,673,596 | |||||
12 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Other Revenue (1.0%) | ||||||
Providence, Rhode Island Public Building Authority (Capital Improvement Program Projects) | ||||||
$ 2,000,000 | 5.000%, 09/15/31 Series A AGMC Insured | A1/AA/NR | $ 2,136,500 | |||
Total Revenue Bonds | 146,219,372 | |||||
Pre-Refunded\Escrowed to Maturity Bonds (3.6%)†† | ||||||
Pre-Refunded General Obligation Bonds (1.7%) | ||||||
Rhode Island State & Providence Plantations Consolidated Capital Development Loan | ||||||
2,110,000 | 4.250%, 10/15/25 Series A | Aa2/AA/AA | 2,133,484 | |||
1,500,000 | 5.000%, 11/01/34 Series B | Aa2/AA/AA | 1,555,365 | |||
Total Pre-Refunded General Obligation Bonds | 3,688,849 | |||||
Pre-Refunded\Escrowed to Maturity Revenue Bonds (1.9%) | ||||||
Development (0.5%) | ||||||
Rhode Island Convention Center Authority Refunding | ||||||
1,000,000 | 4.000%, 05/15/23 Series A ETM | A1/AA-/AA- | 1,004,530 | |||
Higher Education (0.5%) | ||||||
Rhode Island Health and Educational Building Corp., Higher Education Facility, Bryant University | ||||||
1,000,000 | 5.000%, 06/01/32 Series 2014 | A2/NR/NR | 1,029,050 | |||
13 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Pre-Refunded\Escrowed to Maturity Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Water and Sewer (0.9%) | ||||||
Rhode Island Clean Water Protection Finance Agency Safe Drinking Water Revolving Fund | ||||||
$ 1,000,000 | 3.750%, 10/01/33 | NR/AAA/AAA | $ 1,005,190 | |||
1,000,000 | 3.750%, 10/01/34 | NR/AAA/AAA | 1,005,190 | |||
Total Water and Sewer | 2,010,380 | |||||
Total Pre-Refunded\Escrowed to Maturity Revenue Bonds | 4,043,960 | |||||
Total Pre-Refunded\Escrowed to Maturity Bonds | 7,732,809 | |||||
Total Municipal Bonds (cost $229,374,121) | 210,321,565 | |||||
Shares | Short-Term Investment (1.5%) | |||||
3,315,461 | Dreyfus Treasury Obligations Cash Management - Institutional Shares, 2.85%* (cost $3,315,461) | Aaa-mf/AAAm/NR | 3,315,461 | |||
Total Investments (cost $232,689,582 - note 4) | 98.9% | 213,637,026 | ||||
Other assets less liabilities | 1.1 | 2,414,138 | ||||
Net Assets | 100.0% | $ 216,051,164 |
Portfolio Distribution By Quality Rating | Percentage of Investments† | |
Aaa of Moody's or AAA of S&P or Fitch | 9.3% | |
Pre-refunded bonds\ETM bonds†† | 3.7 | |
Aa of Moody's or AA of S&P or Fitch | 73.6 | |
A of Moody's or S&P or Fitch | 9.1 | |
Baa of Moody’s or BBB of S&P or Fitch | 4.3 | |
100.0% |
14 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
PORTFOLIO ABBREVIATIONS |
AGMC - Assured Guaranty Municipal Corp. BAMI - Build America Mutual Insurance COP - Certificates of Participation ETM - Escrowed to Maturity NPFG - National Public Finance Guarantee NR - Not Rated |
* | The rate is an annualized seven-day yield at period end. |
** | Variable rate. |
† | Where applicable, calculated using the highest rating of the three NRSRO. Percentages in this table do not include the Short-Term Investment. |
†† | 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. Escrowed to Maturity bonds are bonds where money has been placed in the escrow account which is used to pay principal and interest through the bond’s originally scheduled maturity date. Escrowed to Maturity are shown as ETM. All other securities in the category are pre-refunded. |
See accompanying notes to financial statements.
15 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2022 (unaudited) |
ASSETS | |||
Investments at value (cost $232,689,582) | $ | 213,637,026 | |
Interest receivable | 2,818,321 | ||
Receivable for Fund shares sold | 328,656 | ||
Other assets | 19,466 | ||
Total assets | 216,803,469 | ||
LIABILITIES | |||
Payable for Fund shares redeemed | 408,514 | ||
Dividends payable | 167,740 | ||
Management fees payable | 86,979 | ||
Distribution and service fees payable | 449 | ||
Accrued expenses payable | 88,623 | ||
Total liabilities | 752,305 | ||
NET ASSETS | $ | 216,051,164 | |
Net Assets consist of: | |||
Capital Stock – Authorized an unlimited number of shares, par value $0.01 per share | $ | 223,182 | |
Additional paid-in capital | 235,959,411 | ||
Total distributable earnings (losses) | (20,131,429) | ||
$ | 216,051,164 | ||
CLASS A | |||
Net Assets | $ | 102,088,410 | |
Capital shares outstanding | 10,544,992 | ||
Net asset value and redemption price per share | $ | 9.68 | |
Maximum offering price per share (100/97 of $9.68) | $ | 9.98 | |
CLASS C | |||
Net Assets | $ | 1,250,362 | |
Capital shares outstanding | 129,137 | ||
Net asset value and offering price per share | $ | 9.68 | |
CLASS F | |||
Net Assets | $ | 4,712,477 | |
Capital shares outstanding | 487,834 | ||
Net asset value, offering and redemption price per share | $ | 9.66 | |
CLASS I | |||
Net Assets | $ | 290,072 | |
Capital shares outstanding | 29,944 | ||
Net asset value, offering and redemption price per share | $ | 9.69 | |
CLASS Y | |||
Net Assets | $ | 107,709,843 | |
Capital shares outstanding | 11,126,248 | ||
Net asset value, offering and redemption price per share | $ | 9.68 |
See accompanying notes to financial statements.
16 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND STATEMENT OF OPERATIONS SIX MONTHS ENDED SEPTEMBER 30, 2022 (unaudited) |
Investment Income | ||||||
Interest income | $ | 3,190,218 | ||||
Expenses | ||||||
Management fee (note 3) | $ | 584,254 | ||||
Distribution and service fee (note 3) | 90,210 | |||||
Transfer and shareholder servicing agent fees | 70,021 | |||||
Legal fees | 43,626 | |||||
Trustees’ fees and expenses (note 7) | 37,026 | |||||
Fund accounting fees | 32,003 | |||||
Registration fees and dues | 21,609 | |||||
Auditing and tax fees | 12,100 | |||||
Shareholders’ reports | 7,601 | |||||
Insurance | 6,484 | |||||
Compliance services (note 3) | 4,690 | |||||
Custodian fees | 4,575 | |||||
Credit facility fees (note 10) | 3,051 | |||||
Miscellaneous | 13,406 | |||||
Total expenses | 930,656 | |||||
Management fee waived (note 3) | (87,638) | |||||
Net expenses | 843,018 | |||||
Net investment income | 2,347,200 | |||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||
Net realized gain (loss) from securities transactions | (455,669) | |||||
Change in unrealized appreciation (depreciation) on investments | (15,138,174) | |||||
Net realized and unrealized gain (loss) on investments | (15,593,843) | |||||
Net change in net assets resulting from operations | $ | (13,246,643) |
See accompanying notes to financial statements.
17 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND STATEMENT OF CHANGES IN NET ASSETS |
Six Months Ended September 30, 2022 (unaudited) | Year Ended March 31, 2022 | |||||
OPERATIONS | ||||||
Net investment income | $ | 2,347,200 | $ | 5,004,659 | ||
Net realized gain (loss) from securities transactions | (455,669) | 308,280 | ||||
Change in unrealized appreciation (depreciation) on investments | (15,138,174) | (16,421,738) | ||||
Change in net assets resulting from operations | (13,246,643) | (11,108,799) | ||||
DISTRIBUTIONS TO SHAREHOLDERS (note 9): | ||||||
Class A Shares | (1,059,564) | (2,295,832) | ||||
Class C Shares | (8,722) | (25,202) | ||||
Class F Shares | (51,372) | (65,977) | ||||
Class I Shares | (2,778) | (5,562) | ||||
Class Y Shares | (1,224,761) | (2,612,075) | ||||
Change in net assets from distributions | (2,347,197) | (5,004,648) | ||||
CAPITAL SHARE TRANSACTIONS (note 6): | ||||||
Proceeds from shares sold | 14,076,085 | 38,048,274 | ||||
Reinvested dividends and distributions | 1,269,190 | 2,685,054 | ||||
Cost of shares redeemed | (33,041,482) | (32,139,187) | ||||
Change in net assets from capital share transactions | (17,696,207) | 8,594,141 | ||||
Change in net assets | (33,290,047) | (7,519,306) | ||||
NET ASSETS: | ||||||
Beginning of period | 249,341,211 | 256,860,517 | ||||
End of period | $ | 216,051,164 | $ | 249,341,211 |
See accompanying notes to financial statements.
18 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2022 (unaudited) |
1. Organization
Aquila Narragansett Tax-Free Income Fund (the “Fund”) is one of six series of Aquila Municipal Trust, a Massachusetts business trust registered under the Investment Company Act of 1940 (the “1940 Act”) as a non-diversified, open-end management investment company. The Fund, which commenced operations on October 12, 2013, is the successor to Narragansett Tax-Free Income Fund. Narragansett Tax-Free Income Fund transferred all of its assets and liabilities in exchange for shares of the Fund on October 11, 2013 pursuant to an agreement and plan of reorganization (the “reorganization”). The reorganization was approved by shareholders of Narragansett Tax-Free Income Fund on September 17, 2013. The reorganization was accomplished by exchanging the assets and liabilities of the predecessor fund for shares of the Fund. Shareowners holding shares of Narragansett Tax-Free Income Fund received corresponding shares of the Fund in a one-to-one exchange ratio in the reorganization. Accordingly, the reorganization, which was a tax-free exchange, had no effect on the Fund’s operations. 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 F Shares and 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 F Shares and 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 ask quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued using other fair value methods. Aquila Investment Management LLC, the Fund’s investment manager, has been designated as the Fund’s valuation designee, with responsibility for fair valuation subject to oversight by the Fund’s Board of Trustees. |
19 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
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 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, 2022:
Valuation Inputs* | Investments in Securities | |||
Level 1 – Quoted Prices – Short-Term Investment | $ | 3,315,461 | ||
Level 2 – Other Significant Observable Inputs – Municipal Bonds* | 210,321,565 | |||
Level 3 – Significant Unobservable Inputs | — | |||
Total | $ | 213,637,026 | ||
* 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. |
20 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Management has reviewed the tax positions for each of the open tax years (2019 – 2021) or expected to be taken in the Fund’s 2022 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. These reclassifications had no effect on net assets or net asset value per share. For the year ended March 31, 2022, there were no items identified that have been reclassified among components of net assets. |
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 transfer and 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.
Clarfeld Financial Advisors, LLC, a wholly-owned subsidiary of Citizens Bank, N.A. (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 the six months ended September 30, 2022 for its services,
21 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
the Sub-Adviser was 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 0.23% on the Fund’s net assets. The Sub-Advisor has contractually agreed to waive its fee through September 30, 2023 such that its annual rate shall be equivalent to 0.175% on the Fund’s net assets.
The Manager has contractually undertaken to waive its fees so that management fees are equivalent to 0.48 of 1% of net assets of the Fund up to $400,000,000; 0.46 of 1% of net assets above $400,000,000 up to $1,000,000,000; and 0.44 of 1% of net assets above $1,000,000,000. This contractual undertaking is in effect until September 30, 2023. The Manager may not terminate the arrangement without the approval of the Board of Trustees. For the six months ended September 30, 2022, the Fund incurred management fees of $584,254 of which $87,638 was waived, which included supplemental fee waivers of $64,268 above and beyond the contractual expense cap. These waivers are not reimbursable.
Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for compliance related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940, as amended (the “1940 Act”).
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 1940 Act. 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 LLC (“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, 2022, distribution fees on Class A Shares amounted to $81,975, of which the Distributor retained $5,589.
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, 2022, amounted to $6,060. 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, 2022, amounted to $2,020. The total of these payments with respect to Class C Shares amounted to $8,080, of which the Distributor retained $2,310.
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,
22 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
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, 2022, these payments were made at the average annual rate of 0.35% of such net assets amounting to $542 of which $155 related to the Plan and $387 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 (“financial intermediaries”), the Fund’s shares are sold primarily through the facilities of these financial intermediaries having offices within Rhode Island, with the bulk of any sales commissions inuring to such financial intermediaries. For the six months ended September 30, 2022, total commissions on sales of Class A Shares amounted to $12,327, of which the Distributor received $3,501.
c) | Transfer and shareholder servicing fees: |
The Fund occasionally compensates financial intermediaries in connection with the sub-transfer agency related services provided by such entities in connection with their respective Fund shareholders so long as the fees are deemed by the Board of Trustees to be reasonable in relation to (i) the value of the services and the benefits received by the Fund and certain shareholders; and (ii) the payments that the Fund would make to another entity to perform similar ongoing services to existing shareholders.
4. Purchases and Sales of Securities
During the six months ended September 30, 2022, purchases of securities and proceeds from the sales of securities aggregated $3,661,804 and $19,184,754, respectively.
At September 30, 2022, the aggregate tax cost for all securities was $232,689,528. At September 30, 2022, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $91,703 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $19,144,259 for a net unrealized depreciation of $19,052,556.
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, 2022, the Fund had all of its long-term portfolio holdings invested in the securities of Rhode Island issuers.
23 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
6. Capital Share Transactions
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended September 30, 2022 (unaudited) | Year Ended March 31, 2022 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Class A Shares | ||||||||||
Proceeds from shares sold | 327,921 | $ | 3,294,139 | 1,048,369 | $ | 11,565,836 | ||||
Reinvested dividends and distributions | 75,651 | 760,289 | 154,577 | 1,689,451 | ||||||
Cost of shares redeemed | (1,135,766) | (11,452,295) | (1,306,729) | (14,281,994) | ||||||
Net change | (732,194) | (7,397,867) | (103,783) | (1,026,707) | ||||||
Class C Shares | ||||||||||
Proceeds from shares sold | 5,407 | 54,255 | 18,043 | 199,732 | ||||||
Reinvested dividends and distributions | 653 | 6,576 | 1,633 | 17,857 | ||||||
Cost of shares redeemed | (69,632) | (699,873) | (95,456) | (1,045,867) | ||||||
Net change | (63,572) | (639,042) | (75,780) | (828,278) | ||||||
Class F Shares | ||||||||||
Proceeds from shares sold | 186,514 | 1,872,752 | 302,732 | 3,309,773 | ||||||
Reinvested dividends and distributions | 5,122 | 51,372 | 6,072 | 65,977 | ||||||
Cost of shares redeemed | (107,936) | (1,087,912) | (97,357) | (1,055,187) | ||||||
Net change | 83,700 | 836,212 | 211,447 | 2,320,563 | ||||||
Class I Shares | ||||||||||
Proceeds from shares sold | 1 | 13 | 4,733 | 51,977 | ||||||
Reinvested dividends and distributions | 250 | 2,514 | 461 | 5,038 | ||||||
Cost of shares redeemed | (899) | (8,879) | (4,947) | (54,223) | ||||||
Net change | (648) | (6,352) | 247 | 2,792 | ||||||
Class Y Shares | ||||||||||
Proceeds from shares sold | 877,356 | 8,854,926 | 2,084,899 | 22,920,956 | ||||||
Reinvested dividends and distributions | 44,626 | 448,439 | 83,039 | 906,731 | ||||||
Cost of shares redeemed | (1,960,683) | (19,792,523) | (1,443,311) | (15,701,916) | ||||||
Net change | (1,038,701) | (10,489,158) | 724,627 | 8,125,771 | ||||||
Total transactions in Fund shares | (1,751,415) | $ | (17,696,207) | 756,758 | $ | 8,594,141 |
24 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
7. Trustees’ Fees and Expenses
At September 30, 2022, there were 9 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, 2022 was $34,644. 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, 2022, due to the COVID-19 pandemic, such meeting-related expenses were reduced and amounted to $2,382.
8. 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. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
9. 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 or in cash, 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, 2022, the Fund had capital loss carry forwards of $680,357 where the $680,357 retains its character of short-term and has 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.
25 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
The tax character of distributions was as follows:
Year Ended March 31, 2022 | Year Ended March 31, 2021 | ||||||
Net tax-exempt income | $ | 5,004,124 | $ | 5,211,017 | |||
Ordinary Income | 524 | 2,755 | |||||
$ | 5,004,648 | $ | 5,213,772 |
As of March 31, 2022, the components of distributable earnings on a tax basis were:
Undistributed tax-exempt income | 248,368 | |||
Accumulated net realized loss | (680,357) | |||
Unrealized depreciation | (3,914,170) | |||
Other temporary differences | (191,430) | |||
$ | (4,537,589) |
The difference between book basis and tax basis undistributed income is due to the timing difference, and other temporary differences, in recognizing dividends paid and the tax treatment of market discount amortization and the deduction of distributions payable.
10. Credit Facility
Since August 30, 2017, Bank of New York Mellon and the Aquila Group of Funds (comprised of nine funds) have been parties to a $40 million credit agreement, which currently terminates on August 23, 2023 (per the August 24, 2022 amendment). In accordance with the Aquila Group of Funds Guidelines for Allocation of Committed Line of Credit, each fund is responsible for payment of its proportionate share of
a) | a 0.17% per annum commitment fee; and, |
b) | interest on amounts borrowed for temporary or emergency purposes by the fund (at the applicable per annum rate selected by the Aquila Group of Funds at the time of the borrowing of either (i) the adjusted daily simple Secured Overnight Financing Rate (“SOFR”) plus 1% or (ii) the sum of the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate, or (c) the adjusted daily simple Secured Overnight Financing Rate (“SOFR”) plus 1%). |
There were no borrowings under the credit agreement during the six months ended September 30, 2022.
11. Risks
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, political or regulatory conditions, recessions, inflation, changes in interest rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues, armed conflict including Russia’s military invasion of Ukraine, sanctions against Russia, other nations
26 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
or individuals or companies and possible countermeasures, market disruptions caused by tariffs, trade disputes or other factors, or adverse investor sentiment. When market prices fall, the value of your investment may go down. In the past several years, financial markets have experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. These conditions may continue, recur, worsen or spread.
Rates of inflation have recently risen. The value of assets or income from an investment may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline as can the value of the Fund’s distributions.
The global pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s invasion of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or markets could be similarly affected by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the economy and securities markets, may not be known for some time.
The value of your investment will generally go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term or longer duration securities. In recent years, interest rates and credit spreads in the U.S. have been at historic lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain interest rates. A general rise in interest rates may cause investors to move out of fixed income securities on a large scale and could also result in increased redemptions from the Fund.
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. The municipal bond market can be susceptible to unusual volatility, particularly for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic conditions or credit tightening. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Unfavorable conditions and developments
27 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. Municipal securities may be more susceptible to downgrades or defaults during a recession or similar periods of economic stress. Financial difficulties of municipal issuers may continue or get worse, particularly in the event of economic or market turmoil or a recession.
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.
28 | 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 | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.36 | $11.02 | $10.91 | $10.74 | $10.57 | $10.61 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.10 | 0.20 | 0.23 | 0.25 | 0.26 | 0.27 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.68) | (0.66) | 0.11 | 0.17 | 0.17 | (0.04) | ||||||
Total from investment operations | (0.58) | (0.46) | 0.34 | 0.42 | 0.43 | 0.23 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.10) | (0.20) | (0.23) | (0.25) | (0.26) | (0.27) | ||||||
Distributions from capital gains | — | — | — | — | — | — | ||||||
Total distributions | (0.10) | (0.20) | (0.23) | (0.25) | (0.26) | (0.27) | ||||||
Net asset value, end of period | $9.68 | $10.36 | $11.02 | $10.91 | $10.74 | $10.57 | ||||||
Total return (not reflecting sales charge) | (5.65)%(2) | (4.26)% | 3.09% | 3.89% | 4.18% | 2.18% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $102 | $117 | $125 | $120 | $115 | $116 | ||||||
Ratio of expenses to average net assets | 0.79%(3) | 0.76% | 0.78% | 0.79% | 0.79% | 0.76% | ||||||
Ratio of net investment income to average net assets | 1.94%(3) | 1.82% | 2.04% | 2.25% | 2.51% | 2.53% | ||||||
Portfolio turnover rate | 2%(2) | 12% | 7% | 6% | 9% | 4% |
Expense and net investment income ratios without the effect of the contractual expense cap and/or contractual fee waiver, as well as additional voluntary fee waivers were (note 3):
Ratio of expenses to average net assets | 0.87%(3) | 0.84% | 0.86% | 0.87% | 0.86% | 0.84% | ||||||
Ratio of net investment income to average net assets | 1.86%(3) | 1.75% | 1.96% | 2.17% | 2.43% | 2.45% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
29 | 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 | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.36 | $11.02 | $10.91 | $10.74 | $10.57 | $10.61 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.05 | 0.11 | 0.13 | 0.15 | 0.17 | 0.18 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.68) | (0.66) | 0.11 | 0.17 | 0.17 | (0.04) | ||||||
Total from investment operations | (0.63) | (0.55) | 0.24 | 0.32 | 0.34 | 0.14 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.05) | (0.11) | (0.13) | (0.15) | (0.17) | (0.18) | ||||||
Distributions from capital gains | — | — | –– | — | — | — | ||||||
Total distributions | (0.05) | (0.11) | (0.13) | (0.15) | (0.17) | (0.18) | ||||||
Net asset value, end of period | $9.68 | $10.36 | $11.02 | $10.91 | $10.74 | $10.57 | ||||||
Total return (not reflecting sales charge) | (6.05)%(2) | (5.07)% | 2.21% | 3.01% | 3.30% | 1.31% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $1 | $2 | $3 | $5 | $7 | $9 | ||||||
Ratio of expenses to average net assets | 1.64%(3) | 1.61% | 1.64% | 1.65% | 1.63% | 1.61% | ||||||
Ratio of net investment income to average net assets | 1.08%(3) | 0.97% | 1.20% | 1.41% | 1.66% | 1.68% | ||||||
Portfolio turnover rate | 2%(2) | 12% | 7% | 6% | 9% | 4% |
Expense and net investment income ratios without the effect of the contractual expense cap and/or contractual fee waiver, as well as additional voluntary fee waivers were (note 3):
Ratio of expenses to average net assets | 1.72%(3) | 1.69% | 1.71% | 1.73% | 1.71% | 1.69% | ||||||
Ratio of net investment income to average net assets | 1.00%(3) | 0.90% | 1.13% | 1.33% | 1.58% | 1.60% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
30 | Aquila Narragansett Tax-Free Income Fund
AQUILA NARRAGANSETT TAX-FREE INCOME FUND FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class F | ||||||||||
For the | ||||||||||
Period | ||||||||||
Six | November 30, | |||||||||
Months | 2018* | |||||||||
Ended | through | |||||||||
9/30/22 | Year Ended March 31, | March 31, | ||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | ||||||
Net asset value, beginning of period | $10.34 | $11.00 | $10.89 | $10.72 | $10.48 | |||||
Income (loss) from investment operations: | ||||||||||
Net investment income(1) | 0.11 | 0.22 | 0.24 | 0.26 | 0.09 | |||||
Net gain (loss) on securities (both realized and unrealized) | (0.68) | (0.66) | 0.11 | 0.17 | 0.24 | |||||
Total from investment operations | (0.57) | (0.44) | 0.35 | 0.43 | 0.33 | |||||
Less distributions (note 9): | ||||||||||
Dividends from net investment income | (0.11) | (0.22) | (0.24) | (0.26) | (0.09) | |||||
Distributions from capital gains | — | — | — | — | — | |||||
Total distributions | (0.11) | (0.22) | (0.24) | (0.26) | (0.09) | |||||
Net asset value, end of period | $9.66 | $10.34 | $11.00 | $10.89 | $10.72 | |||||
Total return | (5.57)%(2) | (4.10)% | 3.27% | 4.08% | 3.18%(2) | |||||
Ratios/supplemental data | ||||||||||
Net assets, end of period (in millions) | $5 | $4 | $2 | $1.5 | $0.6 | |||||
Ratio of expenses to average net assets | 0.61%(3) | 0.58% | 0.60% | 0.61% | 0.63%(3) | |||||
Ratio of net investment income to average net assets | 2.12%(3) | 1.99% | 2.21% | 2.41% | 2.58%(3) | |||||
Portfolio turnover rate | 2%(2) | 12% | 7% | 6% | 9%(3) |
Expense and net investment income ratios without the effect of the contractual fee waiver, as well as additional voluntary fee waivers were (note 3):
Ratio of expenses to average net assets | 0.68%(3) | 0.66% | 0.68% | 0.69% | 0.71%(3) | |||||
Ratio of net investment income to average net assets | 2.05%(3) | 1.92% | 2.13% | 2.33% | 2.50%(3) |
* Commencement of operations.
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
31 | 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 | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.37 | $11.03 | $10.91 | $10.74 | $10.56 | $10.61 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.09 | 0.18 | 0.21 | 0.23 | 0.26 | 0.26 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.68) | (0.66) | 0.12 | 0.17 | 0.18 | (0.05) | ||||||
Total from investment operations | (0.59) | (0.48) | 0.33 | 0.40 | 0.44 | 0.21 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.09) | (0.18) | (0.21) | (0.23) | (0.26) | (0.26) | ||||||
Distributions from capital gains | — | — | –– | — | — | — | ||||||
Total distributions | (0.09) | (0.18) | (0.21) | (0.23) | (0.26) | (0.26) | ||||||
Net asset value, end of period | $9.69 | $10.37 | $11.03 | $10.91 | $10.74 | $10.56 | ||||||
Total return | (5.71)%(2) | (4.39)% | 3.03% | 3.74% | 4.24% | 1.95% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $0.3 | $0.3 | $0.3 | $0.2 | $0.2 | $0.1 | ||||||
Ratio of expenses to average net assets | 0.93%(3) | 0.91% | 0.93% | 0.94% | 0.83% | 0.89% | ||||||
Ratio of net investment income to average net assets | 1.80%(3) | 1.67% | 1.89% | 2.10% | 2.47% | 2.41% | ||||||
Portfolio turnover rate | 2%(2) | 12% | 7% | 6% | 9% | 4% |
Expense and net investment income ratios without the effect of the contractual expense cap and/or contractual fee waiver, as well as additional voluntary fee waivers were (note 3):
Ratio of expenses to average net assets | 1.01%(3) | 0.99% | 1.00% | 1.02% | 0.91% | 0.97% | ||||||
Ratio of net investment income to average net assets | 1.72%(3) | 1.60% | 1.81% | 2.02% | 2.39% | 2.33% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
32 | 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 | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.36 | $11.02 | $10.91 | $10.74 | $10.57 | $10.61 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.11 | 0.22 | 0.24 | 0.26 | 0.28 | 0.29 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.68) | (0.66) | 0.11 | 0.17 | 0.17 | (0.04) | ||||||
Total from investment operations | (0.57) | (0.44) | 0.35 | 0.43 | 0.45 | 0.25 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.11) | (0.22) | (0.24) | (0.26) | (0.28) | (0.29) | ||||||
Distributions from capital gains | — | — | –– | — | — | — | ||||||
Total distributions | (0.11) | (0.22) | (0.24) | (0.26) | (0.28) | (0.29) | ||||||
Net asset value, end of period | $9.68 | $10.36 | $11.02 | $10.91 | $10.74 | $10.57 | ||||||
Total return | (5.58)%(2) | (4.11)% | 3.24% | 4.05% | 4.34% | 2.34% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $108 | $126 | $126 | $117 | $105 | $106 | ||||||
Ratio of expenses to average net assets | 0.64%(3) | 0.61% | 0.63% | 0.64% | 0.64% | 0.61% | ||||||
Ratio of net investment income to average net assets | 2.09%(3) | 1.97% | 2.19% | 2.40% | 2.66% | 2.69% | ||||||
Portfolio turnover rate | 2%(2) | 12% | 7% | 6% | 9% | 4% |
Expense and net investment income ratios without the effect of the contractual expense cap and/or contractual fee waiver, as well as additional voluntary fee waivers were (note 3):
Ratio of expenses to average net assets | 0.72%(3) | 0.69% | 0.71% | 0.72% | 0.72% | 0.69% | ||||||
Ratio of net investment income to average net assets | 2.01%(3) | 1.90% | 2.11% | 2.32% | 2.58% | 2.61% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
33 | Aquila Narragansett Tax-Free Income Fund
Additional Information:
Statement Regarding Liquidity Risk Management Program
Rule 22e-4 under the Investment Company Act of 1940, as amended, requires open-end management investment companies to adopt and implement written liquidity risk management programs that are reasonably designed to assess and manage liquidity risk. Liquidity risk is defined in the rule as the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund. In accordance with Rule 22e-4, Aquila Municipal Trust (“AMT”) has adopted a Liquidity Risk Management (“LRM”) program (the “program”). AMT’s Board of Trustees (the “Board”) has designated an LRM Committee consisting of employees of Aquila Investment Management LLC as the administrator of the program (the “Committee”).
The Board met on June 17, 2022 to review the program. At the meeting, the Committee provided the Board with a report that addressed the operation of the program and assessed its adequacy and effectiveness of implementation, and any material changes to the program (the “Report”). The Report covered the period from May 1, 2021 through April 30, 2022 (the “Reporting Period”).
During the Reporting Period, the Committee reviewed whether each Fund’s strategy is appropriate for an open-end fund structure taking into account less liquid and illiquid assets.
The Committee reviewed each Fund’s short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions. In classifying and reviewing each Fund’s investments, the Committee considered whether trading varying portions of a position in a particular portfolio investment or asset class in sizes the Fund would reasonably anticipate trading, would be reasonably expected to significantly affect liquidity. The Committee considered the following information when determining the sizes in which each Fund would reasonably anticipate trading: historical net redemption activity, the Fund’s concentration in an issuer, shareholder concentration, Fund performance, Fund size, and distribution channels.
The Committee considered each Fund’s holdings of cash and cash equivalents, as well as borrowing arrangements. The Committee considered the terms of the credit facility applicable to the Funds, the financial health of the institution providing the facility and the fact that the credit facility is shared among multiple Funds. The Committee also considered other types of borrowing available to the Funds, such as the ability to use interfund lending arrangements.
The Committee also performed an analysis to determine whether a Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”), and determined that the requirement to maintain an HLIM was inapplicable to the Funds because each Fund primarily holds highly liquid investments.
There were no material changes to the program during the Reporting Period. The Report provided to the Board stated that the Committee concluded that the program is reasonably designed and operated effectively throughout the Review Period.
34 | Aquila Narragansett Tax-Free Income Fund
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 Clarfeld Financial Advisors, LLC, a wholly-owned subsidiary of Citizens Bank, N.A. (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. The independent Trustees met via video conference on August 25, 2022 and in person on September 10, 2022 to review and discuss the contract review materials that were provided in advance of the August 25, 2022 meeting. 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 (the “Consultant’s Report”). In addition, the Trustees took into account the performance and other 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. The Trustees also discussed the memorandum provided by Fund counsel that summarized the legal standards and other considerations that are relevant to the Trustees in their deliberations regarding the renewal of the Advisory and Sub-Advisory Agreements.
At the meeting held on September 10, 2022, based on their evaluation of the information provided by the Manager, the Sub-Adviser and the independent consultant, the Trustees of the Fund present at the meeting, including the independent Trustees voting separately, unanimously approved the renewal of each of the Advisory Agreement and the Sub-Advisory Agreement until September 30, 2023.
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.
35 | Aquila Narragansett Tax-Free Income Fund
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. Jeffrey 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.
The Trustees considered that the Manager supervised and monitored the performance of the Sub-Adviser. The Trustees also considered that the Manager and the Sub-Adviser had provided all 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.
The Trustees also noted that 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 fund accountant, 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 and the Sub-Adviser to the Fund were satisfactory and consistent with the terms of the Advisory Agreement and Sub-Advisory Agreement, respectively.
The investment performance of the Fund
The Trustees reviewed the Fund’s performance (Class A shares) and compared its performance to the performance of:
· | the funds in the Municipal Single State Intermediate-Term Bond category as assigned by Morningstar, Inc. (the “Morningstar Category”); and |
· | the Fund’s benchmark index, the Bloomberg Municipal Bond: Quality Intermediate Total Return Index Unhedged US. |
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 Morningstar Category for the three, five, and ten-year periods ended June 30, 2022, but lower than the average annual return of the funds in the Morningstar Category for the one-year period ended June 30, 2022. They noted that the Fund’s return for each of the one, three and five-year periods and six months ended June 30, 2022 was in the third quintile, in each case relative to the funds in the Morningstar Category for the same periods. (Each quintile represents one-fifth of the peer group and first quintile is most favorable to the Fund’s shareholders.) The Trustees further considered that the Fund’s average annual return was lower than that of its benchmark index for the one, three and five-year periods ended June 30, 2022, and equal to the benchmark index for the ten-year period ended June 30, 2022. The Trustees further noted, as reflected in
36 | Aquila Narragansett Tax-Free Income Fund
the Consultant’s Report, that the Fund’s total return for 2021 was lower than the average total return of the funds in the Morningstar Category but higher than the total return of its benchmark index for 2021.
The Trustees noted that the Fund invests primarily in municipal obligations issued by the State of Rhode Island, its counties and various other local authorities, while the funds in the Morningstar Category invest in, and the Fund’s benchmark index includes, municipal bonds of issuers throughout the United States. They noted that only 0.16% of the benchmark index consists of Rhode Island bonds and that none of the funds in the Morningstar Category invests primarily in Rhode Island municipal obligations. They further 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 the Fund’s investment performance 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 Fees 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 21 funds in the Fund’s expense group (the “Expense Group”), as selected by the independent consultant (the Fund and 13 other Municipal Single-State Intermediate-Term Bond funds, two Municipal Massachusetts Bond funds, two Municipal Minnesota Bond funds, two Municipal New Jersey Bond funds, and one Municipal Pennsylvania Bond fund, each categorized by Morningstar, Inc. with portfolio assets ranging between $130 million and $692 million). Only front-end load and retail no-load funds were considered for inclusion in the Expense Group. In addition, peer selection focused on municipal bond funds with an intermediate duration across comparable categories. The Trustees also compared the Fund’s advisory fees and expenses to advisory fee data for the Fund’s Morningstar Category (as defined above). Certain of the peer group comparisons referred to below are organized in quintiles. Each quintile represents one-fifth of the peer group. In all peer group comparisons referred to below, first quintile is most favorable to the Fund’s shareholders.
The Trustees considered that the Fund’s net management fee for its most recent fiscal year was in the third quintile relative to the management fees paid by the other funds in its Expense Group for the comparable period and was equal to the median actual net management fee of the funds in the Expense Group (after giving effect to fee waivers in effect for those funds). They also considered that the Fund’s contractual advisory fee was higher than the average and median contractual advisory fees of the funds in the Morningstar Category (at the Fund’s current asset level and all asset levels up to $10 billion).
The Trustees considered that the Fund’s net total expenses (for Class A shares), after giving effect to fee waivers and expense reimbursements, for the most recent fiscal year were in the third quintile relative to the net total expenses of the other funds in its Expense
37 | Aquila Narragansett Tax-Free Income Fund
Group for the comparable period and lower than the median net total expenses of the funds in the Expense Group (after giving effect to fee waivers and expense reimbursements in effect for those funds).
The Trustees further noted that the Manager has contractually undertaken to waive its fees so that management fees are equivalent to 0.48 of 1% of net assets of the Fund up to $400,000,000; 0.46 of 1% of net assets above $400,000,000 up to $1,000,000,000; and 0.44 of 1% of net assets above $1,000,000,000. This contractual undertaking is in effect until September 30, 2023. The Manager may not terminate these arrangements without the approval of the Board of Trustees.
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 considered that the Manager and, in turn, the Sub-Adviser was currently voluntarily waiving a portion of its fees and had been since the Fund’s inception. Additionally, it was noted that the Manager had indicated that it intended to continue to voluntarily waive fees as necessary for the Fund to remain competitive.
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 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 LLC of distribution services provided to the Fund. The Manager also provided other financial information to the members of the financial review committee of the Fund and the other funds in the Aquila Group of Funds.
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 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.
38 | 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 and the Sub-Adviser may realize economies of scale or other efficiencies in managing the Fund. They noted that the Manager has agreed, through a contractual advisory fee waiver, to include breakpoints in its advisory fee schedule based on the size of the Fund. 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 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.
39 | Aquila Narragansett Tax-Free Income Fund
Your Fund’s Expenses (unaudited)
As a Fund shareholder, 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 assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The 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 that 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”.
Hypothetical Example for Comparison with Other Funds
Under the heading, “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
Actual | Hypothetical | ||||||
(actual return after expenses) | (5% annual return before expenses) | ||||||
Share Class | Beginning Account Value 4/1/22 | Ending(1) Account | Expenses(2) Paid During Period 4/1/22 – 9/30/22 | Ending Account Value 9/30/22 | Expenses(2) Paid During Period 4/1/22 – 9/30/22 | Net Annualized Expense Ratio | |
A | $1,000 | $ 943.50 | $3.85 | $1,021.11 | $4.00 | 0.79% | |
C | $1,000 | $ 939.50 | $7.97 | $1,016.85 | $8.29 | 1.64% | |
F | $1,000 | $ 944.30 | $2.97 | $1,022.01 | $3.09 | 0.61% | |
I | $1,000 | $ 942.90 | $4.53 | $1,020.41 | $4.71 | 0.93% | |
Y | $1,000 | $ 944.20 | $3.12 | $1,021.86 | $3.24 | 0.64% |
(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 or the applicable CDSC with respect to Class C shares. Total return is not annualized and as such, it may not be representative of the total return for the year. |
(2) | Expenses are equal to the annualized expense ratio for the six-month period as indicated above - in the far right column - multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period. |
40 | Aquila Narragansett Tax-Free Income Fund
Information Available (unaudited) Annual and Semi-Annual Reports and Complete Portfolio Holding Schedules Your Fund’s Annual and Semi-Annual Reports are filed with the SEC twice a year. Each Report contains a complete Schedule of Portfolio Holdings, along with full financial statements and other important financial statement disclosures. Additionally, your Fund files a complete Schedule of Portfolio Holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its Reports on Form N-PORT. Your Fund’s Annual and Semi-Annual Reports and N-PORT reports 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. In addition, your Fund’s Annual and Semi-Annual Reports and complete Portfolio Holdings Schedules for each fiscal quarter end are also available, free of charge, on your Fund’s website, www.aquilafunds.com (under the prospectuses & reports tab) or by calling us at 1-800-437-1000. Portfolio Holdings Reports In accordance with your Fund’s Portfolio Holdings Disclosure Policy, the Manager also prepares a Portfolio Holdings Report as of each quarter end, which is typically posted to your Fund’s individual page at www.aquilafunds.com by the 15th day after the end of each calendar quarter. Such information will remain accessible until the next Portfolio Holdings Report is made publicly available by being posted to www.aquilafunds.com. The quarterly Portfolio Holdings Report may be accessed, free of charge, by visiting www.aquilafunds.com or calling us at 1-800-437-1000. |
Proxy Voting Record (unaudited) During the 12 month period ended June 30, 2022, there were no proxies related to any portfolio instruments held by the Fund. As such, the Fund did not vote any proxies. 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, 2022, $5,004,124 of dividends paid by Aquila Narragansett Tax-Free Income Fund, constituting 99.9% of total dividends paid, were exempt-interest dividends; and the balance was ordinary income. Prior to February 15, 2023, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2022 calendar year. |
41 | Aquila Narragansett Tax-Free Income Fund
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
CLARFELD FINANCIAL ADVISORS, LLC
One Citizens Plaza
Providence, Rhode Island 02903
Board of Trustees
Thomas A. Christopher, Chair
Diana P. Herrmann, Vice Chair
Ernest Calderón
Gary C. Cornia
Grady Gammage, Jr.
Patricia L. Moss
Glenn P. O’Flaherty
Heather R. Overby
Laureen L. White
Officers
Diana P. Herrmann, 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
Anita Albano, Secretary
Distributor
AQUILA DISTRIBUTORS LLC
120 West 45th Street, Suite 3600
New York, New York 10036
Transfer and Shareholder Servicing Agent
BNY MELLON INVESTMENT SERVICING (US) INC.
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
THE BANK OF NEW YORK MELLON
240 Greenwich Street
New York, New York 10286
Further information is contained in the Prospectus,
which must precede or accompany this report.
AQL-RISAR-1122
�� | ||||||||||||||||||||||||||
Semi-Annual Report September 30, 2022
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![]() | Aquila Tax-Free Fund of Colorado Keeping an Optimistic
Serving Colorado investors since 1987 | ![]() |
November, 2022
Dear Fellow Shareholder:
The fixed income markets have experienced significant volatility and downward pressure for much of 2022, driven primarily by several key economic factors, including continued high inflation, rising interest rates, and uncertainty about the direction of the U.S. economy. While these factors aren’t necessarily new or unique, they nonetheless have presented challenges for rate-sensitive investments — and, in the process, have made the majority of investors increasingly skittish. While we understand investors’ concerns, we remain optimistic about the municipal bond market.
Despite its inevitable ups and downs, the municipal bond market has historically demonstrated remarkable resiliency across multiple market cycles. We believe today’s market appears reasonably sound at its core in terms of continuing credit fundamentals and current relative valuations. The municipal market’s underpinnings remain deeply rooted in the need and demand for municipal bonds given the important role they play in financing vital local projects, such as schools, hospitals, and roadways that contribute to improving the quality of life for residents of the issuing municipalities.
It’s important to understand what’s driving the current market and maintain perspective. Let’s explore further.
Understanding the Factors Impacting Municipal Bonds
The primary driver of bond yields, prices, and relative performance is interest rates. Since the Federal Reserve (the “Fed”) introduced a change in its monetary policy in March of this year to help combat inflation, interest rates began a steady upward climb. This was spurred by the Fed raising the Federal Funds rate (the interest rate that banks charge one another to borrow or lend excess reserves overnight), the first such increase since 2018. To date, through 11/02/2022, the Fed has implemented six rate hikes, totaling 3.75%, bringing the stated target range for the Fed Funds rate to 3.75% – 4.00%. And, Federal Reserve Chairman Jerome Powell has indicated that additional increases may be deemed necessary going forward, dependent upon the status of the U.S. economy and data driven analytics. Mr. Powell and his colleagues have stated that the Fed will remain vigilant in its efforts to manage inflation, which has topped levels not seen in more than 40 years (as measured by the Consumer Price Index).
In reaction to the Federal Reserve’s aggressive monetary policy stance, year to date interest rates have experienced a significant increase. As you may know, bond prices generally move in the opposite direction of rate changes. Therefore, while rising interest rates generally translate to higher yields for bond investments, bond prices or values usually fall. This changing yield/price landscape has created two shifts in the market — a shift for issuers of bonds (who may now be reluctant to issue new debt at increased costs), along with a shift in investor sentiment. For investors, on the one hand, higher yields mean greater income, which is a welcome development for those who during the recent
NOT A PART OF THE SEMI-ANNUAL REPORT
low-yield environment sought opportunities to earn more attractive income levels. On the other hand, investors who are mindful of capital preservation have become wary as they have seen bond prices decline.
When investing in bonds, we believe that generating an attractive risk-adjusted return is a careful balance of the two factors— income and stability of capital. Your Fund’s investment objective, in fact, seeks to provide as high a level of current income exempt (from state and regular federal income taxes) as is consistent with preservation of capital. So, how has the rise in interest rates affected municipal bonds?
Assessing the Current Market Cycle
It’s important, in our view, to evaluate financial markets, performance, and valuations on a relative basis. This is true not only within the municipal bond market, but with and relative to other asset classes as well.
Municipal bonds are oftentimes viewed in comparison with U.S. Treasuries. Let’s take a look at yield curves and the relative Municipal-to-Treasury relationship. During 2022, yields of U.S. Treasury securities have generally risen across the maturity spectrum, but the overall slope of the curve flattened, particularly during the third quarter of 2022. Specifically, there was a greater increase in interest rates on the short-end of the U.S. Treasury curve (shorter maturities) which exceeded increases on the longer-end. Given economic uncertainty and fears of a possible recession, some market participants are concerned that this change in the U.S. Treasury yield curve may signal an impending economic slump. Meanwhile, the municipal bond yield curve has been more positively sloped (with longer term maturities yielding more) throughout the year, in particular, steepening between 10- and 30-year maturities during the third quarter — which may be viewed positively by municipal investors.
The Municipal-to-Treasury relationship (based on the yield of AAA municipal securities as a percentage of the yield of U.S. Treasuries of the same maturity) has fluctuated over the past year, but generally in our view continued to trade in line with historical relationship norms. The chart below illustrates what we believe to be an indication of improved relative valuations for municipal obligations, whereby municipal yields represent a greater percentage in comparison to U.S. Treasury yields. As one would usually anticipate in a rising rate environment, such as now, the relationship ratio compares somewhat favorably for longer maturity municipal bonds (specifically, in the 30-year maturity range) which were yielding greater than U.S. Treasury securities as of September 30th.
January 3, 2022 Municipal % of U.S. Treasury | September 30, 2022 Municipal % of U.S. Treasury | |||
5-Year | 44.1% | 77.6% | ||
10-year | 63.8% | 87.0% | ||
30-year | 74.3% | 104.0% | ||
Source: Bloomberg |
Credit spreads among municipal bond issues have begun to widen during the year. (Credit spread is the difference in yield between securities of the same maturity with different credit ratings.) Wider credit spreads generally favor higher-quality issuers in a rising rate environment due to concerns related to lower quality issues during periods of slowing economic growth. This scenario may be viewed as a benefit to higher quality, shorter duration portfolios vis-à-vis lower quality, longer duration holdings. (Duration is
NOT A PART OF THE SEMI-ANNUAL REPORT
a measurement of a bond’s sensitivity or risk to changes in interest rates; shorter duration generally means less risk.) This assumes interest rates continue to rise, as the Fed seems to have signaled in recent press releases. Overall, we view municipal credit fundamentals to be relatively strong, while credit defaults as tracked by the Nationally Recognized Statistical Rating Agencies (such as Moody’s and Standard & Poor’s) generally remain relatively low, particularly among higher quality issues.
At a local level, many state and local economies continue to show signs of improvement and sustained growth. Despite recession risk, local municipalities and governments appear to us to be well-positioned to manage economic challenges. Higher employment, increasing wages, and rising property values in many jurisdictions throughout the country are among key contributors toward bolstering state and local revenue and tax receipts.
Looking Forward
We remain cautiously optimistic about the direction of the municipal bond market. In addition to many of the positive conditions and trends stated above — including what we believe to be potential opportunities for greater income than in recent years, improving relative valuations, strong credit fundamentals, expanding local economies, and sustained investor demand — keep in mind the attractive benefits that municipal bonds offer, such as a high level of current income exempt from state and regular federal income taxes. Although no one can reasonably predict the impact of continued inflation or future Fed actions to curb such inflation, on a tax-equivalent basis, the municipal income benefit may be attractive compared to taxable investments for certain investors.
Remember, too, the Aquila difference. Your portfolio management team is locally-based, which provides them with an up-close perspective on the economy and bond issuers within local municipalities, cities, counties, and across the state. Our investment professionals draw upon their wealth of experience in analyzing securities, navigating market and economic cycles, and seeking to identify both opportunities and risks. The current market cycle is no exception. Our team employs an active portfolio management strategy, with a goal to maintain broadly diversified investment grade municipal portfolios, generally with an intermediate average maturity, to help deliver attractive risk-adjusted returns.
As always, we encourage you to consult with your financial professional to evaluate whether the investment choices you make are aligned with your individual financial goals and risk tolerances.
Thank you for your continued confidence in Aquila Group of Funds.
Sincerely, | ||
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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, political or regulatory conditions, recessions, inflation, changes in interest rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues, armed conflict including Russia’s military invasion of Ukraine, sanctions against Russia, other nations or individuals or companies and possible countermeasures, market disruptions caused by tariffs, trade disputes or other factors, or adverse investor sentiment. When market prices fall, the value of your investment may go down. In the past several years, financial markets have experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. These conditions may continue, recur, worsen or spread.
Rates of inflation have recently risen. The value of assets or income from an investment may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline as can the value of the Fund’s distributions.
The global pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s invasion of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or markets could be similarly affected by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the economy and securities markets, may not be known for some time.
The value of your investment will generally go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term or longer duration securities. In recent years, interest rates and credit spreads in the U.S. have been at historic lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain interest rates. A general rise in interest rates may cause investors to move out of fixed income securities on a large scale and could also result in increased redemptions from the Fund.
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. The municipal bond market can be susceptible to unusual volatility, particularly for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic conditions or credit tightening. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Unfavorable conditions and developments relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. Municipal securities may be more susceptible to downgrades or defaults during a recession or similar periods of economic stress. Financial difficulties of municipal issuers may continue or get worse, particularly in the event of economic or market turmoil or a recession.
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.
Any information in this Shareholder Letter 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. Past performance is no guarantee of future results, and there is no guarantee that any market forecasts discussed will be realized.
NOT A PART OF THE SEMI-ANNUAL REPORT
AQUILA TAX-FREE FUND OF COLORADO SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (41.8%) | Ratings Moody’s, S&P and Fitch | Value | |||
City & County (2.9%) | ||||||
Crested Butte, Colorado Fire Protection District | ||||||
$ 1,040,000 | 4.000%, 12/01/36 Series 2022 | A1/NR/NR | $ 987,844 | |||
Denver, Colorado City & County Elevate | ||||||
2,000,000 | 5.000%, 08/01/33 Series 2022A | Aaa/AAA/AAA | 2,245,880 | |||
Englewood, Colorado | ||||||
1,000,000 | 5.000%, 12/01/30 | NR/AA+/NR | 1,071,330 | |||
Wheat Ridge, Colorado Urban Renewal Authority Tax Increment | ||||||
1,270,000 | 5.000%, 12/01/31 | NR/AA-/NR | 1,391,209 | |||
Total City & County | 5,696,263 | |||||
Lease (0.5%) | ||||||
Colorado State Rural COP | ||||||
1,000,000 | 4.000%, 12/15/35 Series 2020A | Aa2/AA-/NR | 948,980 | |||
Metropolitan District (3.1%) | ||||||
Denver, Colorado Urban Renewal Authority, Tax Increment Revenue, Stapleton Senior | ||||||
2,600,000 | 5.000%, 12/01/25 Series A-1 | NR/NR/AA- | 2,604,758 | |||
Denver, Colorado Urban Renewal Authority, Tax Increment Revenue, Stapleton Senior | ||||||
1,000,000 | 5.000%, 12/01/25 Series B-1 | Aa3/NR/NR | 1,048,210 | |||
Midcities Metropolitan District No.2 Colorado, Special Revenue | ||||||
2,365,000 | 5.000%, 12/01/31 Series 2022 AGMC Insured | A1/AA/NR | 2,552,663 | |||
Total Metropolitan District | 6,205,631 | |||||
School Districts (34.7%) | ||||||
Adams 12 Five Star Schools, Colorado | ||||||
3,000,000 | 5.000%, 12/15/25 | Aa1/AA/NR | 3,114,870 | |||
1,000,000 | 5.000%, 12/15/25 | Aa1/AA/NR | 1,054,960 | |||
1,435,000 | 5.000%, 12/15/29 | Aa1/AA/NR | 1,524,386 | |||
1,000,000 | 5.500%, 12/15/31 | Aa1/AA/NR | 1,116,980 |
1 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School Districts (continued) | ||||||
Adams & Arapahoe Counties, Colorado Joint School District #28J | ||||||
$ 4,125,000 | 5.000%, 12/01/30 | Aa1/NR/AA | $ 4,369,984 | |||
Adams & Weld Counties, Colorado School District #27J | ||||||
1,030,000 | 5.000%, 12/01/22 | Aa2/AA/NR | 1,033,286 | |||
2,000,000 | 5.000%, 12/01/24 | Aa2/AA/NR | 2,006,000 | |||
1,000,000 | 5.000%, 12/01/25 | Aa2/AA/NR | 1,037,230 | |||
1,060,000 | 5.000%, 12/01/28 | Aa2/AA/NR | 1,110,456 | |||
3,895,000 | 5.000%, 12/01/29 | Aa2/AA/NR | 4,069,691 | |||
1,150,000 | 5.000%, 12/01/29 | Aa2/AA/NR | 1,235,399 | |||
Arapahoe County, Colorado School District #001 Englewood | ||||||
1,465,000 | 5.000%, 12/01/27 | Aa2/NR/NR | 1,537,869 | |||
Arapahoe County, Colorado School District #006 Littleton | ||||||
1,000,000 | 5.000%, 12/01/27 | Aa1/NR/NR | 1,060,740 | |||
Boulder, Larimer & Weld Counties, Colorado Series A | ||||||
2,000,000 | 5.000%, 12/15/24 | Aa1/AA+/NR | 2,077,440 | |||
Boulder, Larimer & Weld Counties, Colorado Series C | ||||||
2,000,000 | 5.000%, 12/15/28 | Aa1/AA+/NR | 2,132,640 | |||
Boulder, Larimer & Weld Counties, Colorado, St. Vrain Valley School District RE-1J | ||||||
1,000,000 | 5.000%, 12/15/29 Series C | Aa1/AA+/NR | 1,063,500 | |||
Costilla County, Colorado School District No. R-30 Sierra Grande | ||||||
2,180,000 | 5.000%, 12/01/32 | Aa2/NR/NR | 2,368,744 | |||
Denver, Colorado City & County School District No. 1 | ||||||
2,000,000 | 5.000%, 12/01/29 | Aa1/AA+/AA+ | 2,125,960 | |||
1,000,000 | 5.000%, 12/01/34 Series 2022A | Aa1/AA+/AA+ | 1,097,840 | |||
Denver, Colorado City & County School District No. 1 | ||||||
2,000,000 | 5.000%, 12/01/25 Series B | Aa1/AA+/AA+ | 2,077,440 | |||
4,000,000 | 5.000%, 12/01/27 Series B | Aa1/AA+/AA+ | 4,149,760 |
2 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School Districts (continued) | ||||||
Eagle County School District, Colorado, Eagle, Garfield & Routt School District #50J | ||||||
$ 1,000,000 | 5.000%, 12/01/29 | Aa1/AA/NR | $ 1,062,980 | |||
El Paso County, Colorado School District #2, Harrison | ||||||
2,000,000 | 5.000%, 12/01/31 | Aa2/AA/NR | 2,175,440 | |||
El Paso County, Colorado School District #20 Refunding | ||||||
2,255,000 | 5.000%, 12/15/29 | Aa1/NR/NR | 2,392,735 | |||
1,250,000 | 5.000%, 12/15/31 | Aa1/NR/NR | 1,320,337 | |||
Jefferson County, Colorado School District #R-1 Refunding | ||||||
2,225,000 | 5.000%, 12/15/30 | Aa1/AA/NR | 2,388,026 | |||
1,500,000 | 5.000%, 12/15/30 | Aa1/AA/NR | 1,638,075 | |||
2,600,000 | 5.000%, 12/15/31 | Aa1/AA/NR | 2,809,404 | |||
La Plata County, Colorado School District #9-R Durango Refunding | ||||||
3,000,000 | 4.500%, 11/01/23 | Aa2/NR/NR | 3,003,060 | |||
Larimer County, Colorado School District No. R 1 Poudre | ||||||
1,000,000 | 5.000%, 12/15/30 | Aa1/NR/AA+ | 1,094,980 | |||
800,000 | 5.000%, 12/15/30 | Aa1/NR/NR | 875,984 | |||
Larimer, Weld & Boulder Counties, Colorado School District No. R-2J, Thompson Refunding | ||||||
1,500,000 | 4.250%, 12/15/24 | Aa2/NR/NR | 1,503,150 | |||
Mesa County, Colorado Valley School District No. 051, Grand Junction | ||||||
3,000,000 | 5.000%, 12/01/23 | Aa2/NR/NR | 3,063,930 | |||
Pueblo County, Colorado School District No. 70 | ||||||
1,390,000 | 4.000%, 12/01/32 Series 2021A | Aa2/AA/NR | 1,425,084 | |||
Summit County, Colorado School District No. RE 1 Refunding | ||||||
2,000,000 | 5.000%, 12/01/28 | Aaa/NR/NR | 2,133,960 | |||
Total School Districts | 68,252,320 | |||||
3 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Water & Sewer (0.6%) | ||||||
Central Colorado Water Conservancy District, Adams Morgan & Weld Counties | ||||||
$ 1,185,000 | 5.000%, 12/01/24 | NR/A/NR | $ 1,207,539 | |||
Total General Obligation Bonds | 82,310,733 | |||||
Revenue Bonds (50.1%) | ||||||
City & County (1.4%) | ||||||
Denver, Colorado City & County COP, Convention Center Expansion Project | ||||||
1,500,000 | 5.000%, 06/01/30 Series 2018A | Aa2/AA+/AA+ | 1,575,765 | |||
Grand Junction, Colorado COP | ||||||
1,000,000 | 5.000%, 12/01/31 | NR/AA-/NR | 1,087,090 | |||
Total City & County | 2,662,855 | |||||
Electric (1.8%) | ||||||
Colorado Springs, Colorado Utilities Revenue, Refunding | ||||||
1,000,000 | 5.000%, 11/15/27 Series A | Aa2/AA+/AA | 1,054,260 | |||
Colorado Springs, Colorado Utilities Revenue Refunding | ||||||
450,000 | 5.000%, 11/15/33 Series 2022B | Aa2/AA+/NR | 499,887 | |||
450,000 | 5.000%, 11/15/34 Series 2022B | Aa2/AA+/NR | 497,781 | |||
Estes Park, Colorado Power & Communications Enterprise Revenue Refunding & Improvement | ||||||
1,310,000 | 5.000%, 11/01/30 Series 2019A | NR/A+/NR | 1,437,882 | |||
Total Electric | 3,489,810 | |||||
Higher Education (15.2%) | ||||||
Colorado Educational & Cultural Facility Authority, University of Denver Project | ||||||
845,000 | 4.000%, 03/01/24 | A1/NR/NR | 847,560 | |||
7,000,000 | 5.250%, 03/01/25 NPFG Insured | A1/A+/NR | 7,214,900 | |||
Colorado Educational & Cultural Facility Authority Refunding, University of Denver Project | ||||||
1,000,000 | 5.250%, 03/01/26 NPFG Insured | A1/A+/NR | 1,058,670 |
4 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Higher Education (continued) | ||||||
Colorado Mountain College COP | ||||||
$ 685,000 | 4.000%, 12/01/33 Series 2021 | Aa3/NR/NR | $ 672,999 | |||
Colorado School of Mines Institutional Enterprise | ||||||
1,845,000 | 5.000%, 12/01/29 Series B | A1/A+/NR | 1,980,386 | |||
Colorado State Board Community Colleges & Occupational Education, Refunding & Improvement, Arapahoe Community College | ||||||
1,000,000 | 5.000%, 11/01/30 Series 2017A | Aa3/NR/NR | 1,067,560 | |||
Colorado State Board Community Colleges & Occupational Education, Refunding & Improvement, System Wide Refunding | ||||||
1,110,000 | 5.000%, 11/01/30 Series 2019A | Aa3/NR/NR | 1,215,439 | |||
1,710,000 | 5.000%, 11/01/32 Series 2019A | Aa3/NR/NR | 1,857,180 | |||
835,000 | 5.000%, 11/01/33 Series 2019A | Aa3/NR/NR | 903,370 | |||
Colorado State Board of Governors University Enterprise System | ||||||
2,905,000 | 5.000%, 03/01/26 Series C SHEIPInsured | Aa2/AA/NR | 3,016,755 | |||
1,250,000 | 5.000%, 03/01/28 Series C SHEIP Insured | Aa2/AA/NR | 1,343,825 | |||
2,100,000 | 5.000%, 03/01/29 Series C SHEIP Insured | Aa2/AA/NR | 2,256,576 | |||
University of Colorado Enterprise System | ||||||
1,165,000 | 5.000%, 06/01/26 Series A NPFG Insured | Aa1/NR/AA+ | 1,236,170 | |||
University of Colorado Enterprise System | ||||||
2,000,000 | 5.000%, 06/01/28 Series A-1 | Aa1/NR/AA+ | 2,173,900 | |||
University of Colorado Enterprise System | ||||||
1,000,000 | 5.000%, 06/01/32 Series 2019B | Aa1/NR/AA+ | 1,081,200 | |||
1,000,000 | 5.000%, 06/01/33 Series 2019B | Aa1/NR/AA+ | 1,077,380 | |||
University of Northern Colorado Greeley Institutional Enterprise Refunding | ||||||
1,000,000 | 5.000%, 06/01/25 Series A SHEIP Insured | Aa2/AA/NR | 1,025,460 | |||
Total Higher Education | 30,029,330 | |||||
5 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Hospital (1.7%) | ||||||
Colorado Health Facilities Authority, Sanford | ||||||
$ 1,000,000 | 5.000%, 11/01/32 Series 2019A | NR/A+/AA- | $ 1,035,480 | |||
2,165,000 | 5.000%, 11/01/34 Series 2019A | NR/A+/AA- | 2,219,558 | |||
Total Hospital | 3,255,038 | |||||
Lease (12.7%) | ||||||
Arapahoe County, Colorado School District No. 5 Cherry Creek COP | ||||||
2,295,000 | 5.000%, 12/15/33 Series 2022 | NR/AA/NR | 2,539,899 | |||
Arvada, Colorado COP | ||||||
1,190,000 | 4.000%, 12/01/29 | NR/AA+/NR | 1,216,751 | |||
Colorado State BEST COP | ||||||
3,500,000 | 5.000%, 03/15/30 Series K | Aa2/AA-/NR | 3,704,470 | |||
2,500,000 | 5.000%, 03/15/31 Series K | Aa2/AA-/NR | 2,638,675 | |||
Colorado State BEST COP | ||||||
2,000,000 | 5.000%, 03/15/31 Series M | Aa2/AA-/NR | 2,146,540 | |||
Colorado State Higher Education Capital Construction Lease | ||||||
1,690,000 | 5.000%, 11/01/26 | Aa2/AA-/NR | 1,803,179 | |||
Denver, Colorado City & County COP (Fire Station & Library Facilities) | ||||||
1,065,000 | 5.000%, 12/01/25 | Aa1/AA+/AA+ | 1,119,603 | |||
Douglas County, Colorado COP (Libraries) | ||||||
1,570,000 | 5.000%, 12/01/27 | Aa2/NR/NR | 1,620,491 | |||
Foothills Park and Recreation District, Colorado COP | ||||||
1,405,000 | 4.000%, 12/01/35 Series 2021 | NR/AA-/NR | 1,400,729 | |||
Foothills Park and Recreation District, Colorado COP Refunding & Improvement | ||||||
1,380,000 | 5.000%, 12/01/26 AGMC Insured | NR/AA/NR | 1,447,799 | |||
Jefferson County, Colorado School District No. R-1 COP | ||||||
1,000,000 | 5.000%, 12/15/27 | Aa3/AA-/NR | 1,047,820 |
6 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Lease (continued) | ||||||
South Suburban Park and Recreation District, Colorado COP | ||||||
$ 1,000,000 | 5.000%, 12/15/31 | NR/AA-/NR | $ 1,079,390 | |||
1,010,000 | 4.000%, 12/15/35 Series 2021 | NR/AA-/NR | 999,486 | |||
Thompson School District No R2-J (Larimer, Weld And Boulder Counties, Colorado COP | ||||||
750,000 | 4.500%, 12/01/26 Series 2014 | A1/NR/NR | 764,910 | |||
Westminster, Colorado COP | ||||||
1,480,000 | 4.250%, 12/01/22 AGMC Insured | A1/AA/NR | 1,481,184 | |||
Total Lease | 25,010,926 | |||||
Sales Tax (3.3%) | ||||||
Broomfield, Colorado Sales & Use Tax | ||||||
1,000,000 | 5.000%, 12/01/30 | Aa3/NR/NR | 1,070,840 | |||
City of Fruita, Colorado Sales & Use Tax | ||||||
1,110,000 | 4.000%, 10/01/33 | NR/AA-/NR | 1,124,985 | |||
Commerce City, Colorado Sales & Use Tax | ||||||
1,000,000 | 5.000%, 08/01/26 BAMAC Insured | Aa3/AA/NR | 1,045,160 | |||
Denver, Colorado City & County Dedicated Tax Revenue | ||||||
1,165,000 | 4.000%, 08/01/33 Series 2021A | Aa3/AA-/AA- | 1,196,653 | |||
1,000,000 | 4.000%, 08/01/35 Series 2021A | Aa3/AA-/AA- | 1,002,790 | |||
Westminster, Colorado Economic Development Authority, Mandalay Gardens Urban Renewal Project | ||||||
1,090,000 | 4.000%, 12/01/22 | NR/AA-/NR | 1,091,722 | |||
Total Sales Tax | 6,532,150 | |||||
Tax Increment (0.9%) | ||||||
Park Creek, Colorado Metropolitan District Senior Limited Property Tax Supported | ||||||
1,850,000 | 4.000%, 12/01/34 AGMC Insured | NR/AA/A | 1,852,553 | |||
7 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Transportation (4.5%) | ||||||
E-470 Public Highway Authority, Colorado Senior Revenue | ||||||
$ 1,265,000 | 5.000%, 09/01/36 | A2/A/NR | $ 1,347,744 | |||
1,250,000 | 5.000%, 09/01/35 Series 2020A | A2/A/NR | 1,333,825 | |||
Regional Transportation District, Colorado COP | ||||||
2,000,000 | 5.000%, 06/01/26 Series A | A1/AA/AA- | 2,079,160 | |||
Regional Transportation District, Colorado Sales Tax Refunding, Fastracks Project | ||||||
3,000,000 | 5.000%, 11/01/32 Series 2013A | Aa2/AA+/AA | 3,362,940 | |||
Roaring Fork Transportation Authority Property Tax Revenue | ||||||
650,000 | 4.000%, 12/01/34 Series 2021A | NR/AA-/NR | 658,691 | |||
Total Transportation | 8,782,360 | |||||
Water & Sewer (8.6%) | ||||||
Arapahoe, Colorado Water & Wastewater Public Improvement District | ||||||
1,320,000 | 5.000%, 12/01/24 | NR/AA-/NR | 1,370,266 | |||
1,020,000 | 5.000%, 12/01/25 | NR/AA-/NR | 1,057,332 | |||
Broomfield, Colorado Sewer and Waste Water | ||||||
1,550,000 | 5.000%, 12/01/24 AGMC Insured | Aa3/AA/NR | 1,554,696 | |||
Central Weld County, Colorado Water District | ||||||
200,000 | 4.000%, 12/01/33 AGMC Insured | NR/AA/NR | 203,088 | |||
Colorado Water Resource & Power Development Authority | ||||||
925,000 | 5.000%, 09/01/25 | Aaa/AAA/AAA | 970,279 | |||
Denver, Colorado City and County Board Water Commissioners Master Resolution, Refunding | ||||||
1,000,000 | 4.000%, 12/15/22 Series B | Aaa/AAA/AAA | 1,000,760 | |||
Denver, Colorado City and County Board Water Commissioners | ||||||
850,000 | 5.000%, 09/15/29 Series B | Aaa/AAA/AAA | 917,286 | |||
Firestone, Colorado Water Enterprise | ||||||
750,000 | 5.000%, 12/01/32 Series 2020 BAMAC Insured | NR/AA/NR | 819,990 |
8 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Water & Sewer (continued) | ||||||
Greeley, Colorado Water Revenue | ||||||
$ 1,705,000 | 5.000%, 08/01/28 | Aa2/AA+/NR | $ 1,805,885 | |||
North Weld County, Colorado Water District Enterprise Revenue Refunding | ||||||
1,465,000 | 4.000%, 11/01/22 AGMC Insured | NR/AA/NR | 1,466,128 | |||
Parker, Colorado Water & Sanitation District Water & Sewer Enterprise Refunding | ||||||
1,000,000 | 4.000%, 11/01/33 | NR/AA+/NR | 1,016,960 | |||
Parker, Colorado Water & Sanitation District Water & Sewer Enterprise Refunding & Improvement | ||||||
500,000 | 5.000%, 11/01/33 Series 2022 | NR/AA+/NR | 555,365 | |||
865,000 | 5.000%, 11/01/34 Series 2022 | NR/AA+/NR | 956,655 | |||
St. Vrain, Colorado Sanitation District Wastewater Revenue Refunding and Improvement Bonds | ||||||
800,000 | 4.000%, 12/01/31 Series 2020 | NR/AA/NR | 818,928 | |||
Thornton, Colorado Water Enterprise Revenue | ||||||
1,970,000 | 4.000%, 12/01/24 Series 2013 | Aa2/AA/NR | 1,992,517 | |||
Upper Eagle Regional Water Authority, Eagle County, Colorado Refunding and Improvement | ||||||
500,000 | 4.000%, 12/01/32 AGMC Insured | NR/AA/NR | 511,810 | |||
Total Water & Sewer | 17,017,945 | |||||
Total Revenue Bonds | 98,632,967 | |||||
Pre-Refunded Bonds (5.6%)†† | ||||||
Pre-Refunded General Obligation Bonds (1.1%) | ||||||
School Districts (1.1%) | ||||||
Larimer County, Colorado School District No. R 1 Poudre | ||||||
1,000,000 | 5.000%, 12/15/27 | Aa1/NR/NR | 1,053,730 | |||
San Miguel County, Colorado School District R-1 Telluride | ||||||
1,055,000 | 5.000%, 12/01/25 | Aa1/AA/NR | 1,095,396 | |||
Total Pre-Refunded General Obligation Bonds | 2,149,126 | |||||
9 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Pre-Refunded Revenue Bonds (4.5%) | Ratings Moody’s, S&P and Fitch | Value | |||
Electric (1.3%) | ||||||
Colorado Springs, Colorado Utilities Revenue Refunding | ||||||
$ 2,600,000 | 5.000%, 11/15/23 Series B | Aa2/AA+/AA | $ 2,605,590 | |||
Higher Education (1.4%) | ||||||
University of Colorado Enterprise System, Series A | ||||||
2,620,000 | 5.000%, 06/01/29 | Aa1/NR/AA+ | 2,742,040 | |||
Lease (1.3%) | ||||||
Rangeview Library District Project, Colorado COP | ||||||
2,515,000 | 5.000%, 12/15/27 AGMC Insured | Aa2/AA/NR | 2,646,233 | |||
Sales Tax (0.5%) | ||||||
Castle Rock, Colorado Sales & Use Tax | ||||||
1,015,000 | 4.000%, 06/01/25 | Aa3/AA/NR | 1,020,917 | |||
Total Pre-Refunded Revenue Bonds | 9,014,780 | |||||
Total Pre-Refunded Bonds | 11,163,906 | |||||
Total Municipal Bonds (cost $201,585,158) | 192,107,606 | |||||
Shares | Short-Term Investment (1.9%) | |||||
3,764,468 | Dreyfus Treasury Obligations Cash Management - Institutional Shares, 2.85%* (cost $3,764,468) | Aaa-mf/AAAm/NR | 3,764,468 | |||
Total Investments (cost $205,349,626 - note 4) | 99.4% | 195,872,074 | ||||
Other assets less liabilities | 0.6 | 1,086,570 | ||||
Net Assets | 100.0% | $ 196,958,644 | ||||
10 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Portfolio Distribution By Quality Rating | Percentage of Investments† | |
Aaa of Moody's or AAA of S&P or Fitch | 3.8% | |
Prerefunded bonds\ETM bonds †† | 5.8 | |
Aa of Moody's or AA of S&P or Fitch | 80.9 | |
A of Moody's or S&P | 9.5 | |
100.0% |
PORTFOLIO ABBREVIATIONS |
AGMC - Assured Guaranty Municipal Corp. BAMAC - Build America Mutual Assurance Company BEST - Building Excellent Schools Today COP - Certificates of Participation NPFG - National Public Finance Guarantee NR - Not Rated SHEIP - State Higher Education Intercept Program |
* | The rate is an annualized seven-day yield at period end. |
† | Where applicable, calculated using the highest rating of the three NRSRO. Percentages in this table do not include the Short-Term Investment. |
†† | 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 Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2022 (unaudited) |
ASSETS | |||
Investments at value (cost $205,349,626) | $ | 195,872,074 | |
Interest receivable | 2,613,166 | ||
Receivable for Fund shares sold | 94,549 | ||
Other assets | 23,356 | ||
Total assets | 198,603,145 | ||
LIABILITIES | |||
Payable for investment securities purchased | 1,036,512 | ||
Payable for Fund shares redeemed | 396,827 | ||
Management fee payable | 79,738 | ||
Dividends payable | 52,211 | ||
Distribution and service fees payable | 364 | ||
Accrued expenses payable | 78,849 | ||
Total liabilities | 1,644,501 | ||
NET ASSETS | $ | 196,958,644 | |
Net Assets consist of: | |||
Capital Stock – Authorized an unlimited number of shares, par value $0.01 per share | $ | 206,946 | |
Additional paid-in capital | 212,004,782 | ||
Total distributable earnings (losses) | (15,253,084) | ||
$ | 196,958,644 | ||
CLASS A | |||
Net Assets | $ | 137,764,273 | |
Capital shares outstanding | 14,483,299 | ||
Net asset value and redemption price per share | $ | 9.51 | |
Maximum offering price per share (100/97 of $9.51) | $ | 9.80 | |
CLASS C | |||
Net Assets | $ | 3,048,042 | |
Capital shares outstanding | 321,222 | ||
Net asset value and offering price per share | $ | 9.49 | |
CLASS Y | |||
Net Assets | $ | 56,146,329 | |
Capital shares outstanding | 5,890,034 | ||
Net asset value, offering and redemption price per share | $ | 9.53 |
See accompanying notes to financial statements.
12 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO STATEMENT OF OPERATIONS SIX MONTHS ENDED SEPTEMBER 30, 2022 (unaudited) |
Investment Income | ||||||
Interest income | $ | 2,639,463 | ||||
Expenses | ||||||
Management fees (note 3) | $ | 537,402 | ||||
Distribution and service fees (note 3) | 58,440 | |||||
Transfer and shareholder servicing agent fees | 49,581 | |||||
Trustees’ fees and expenses (note 7) | 33,855 | |||||
Legal fees | 33,079 | |||||
Auditing and tax fees | 12,133 | |||||
Registration fees and dues | 11,269 | |||||
Shareholders’ reports | 7,113 | |||||
Insurance | 6,623 | |||||
Compliance services (note 3) | 4,690 | |||||
Custodian fees | 3,442 | |||||
Credit facility fees (note 10) | 2,840 | |||||
Miscellaneous | 20,964 | |||||
Total Expenses | 781,431 | |||||
Management fee waived (note 3) | (21,496) | |||||
Net expenses | 759,935 | |||||
Net investment income | 1,879,528 | |||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||
Net realized gain (loss) from securities transactions | (2,826,543) | |||||
Change in unrealized appreciation (depreciation) on investments | (7,529,196) | |||||
Net realized and unrealized gain (loss) on investments | (10,355,739) | |||||
Net change in net assets resulting from operations | $ | (8,476,211) |
See accompanying notes to financial statements.
13 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO STATEMENT OF CHANGES IN NET ASSETS |
Six Months Ended September 30, 2022 (unaudited) | Year Ended March 31, 2022 | |||||
OPERATIONS | ||||||
Net investment income | $ | 1,879,528 | $ | 4,105,552 | ||
Realized gain (loss) from securities transactions | (2,826,543) | (1,051,297) | ||||
Change in unrealized appreciation (depreciation) on investments | (7,529,196) | (14,794,591) | ||||
Change in net assets resulting from operations | (8,476,211) | (11,740,336) | ||||
DISTRIBUTIONS TO SHAREHOLDERS (note 9): | ||||||
Class A Shares | (1,285,555) | (2,612,113) | ||||
Class C Shares | (14,562) | (31,867) | ||||
Class Y Shares | (579,953) | (1,455,510) | ||||
Change in net assets from distributions | (1,880,070) | (4,099,490) | ||||
CAPITAL SHARE TRANSACTIONS (note 6): | ||||||
Proceeds from shares sold | 12,423,946 | 20,695,264 | ||||
Reinvested dividends and distributions | 1,536,129 | 3,295,515 | ||||
Cost of shares redeemed | (41,769,865) | (54,699,699) | ||||
Change in net assets from capital share transactions | (27,809,790) | (30,708,920) | ||||
Change in net assets | (38,166,071) | (46,548,746) | ||||
NET ASSETS: | ||||||
Beginning of period | 235,124,715 | 281,673,461 | ||||
End of period | $ | 196,958,644 | $ | 235,124,715 |
See accompanying notes to financial statements.
14 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2022 (unaudited) |
1. Organization
Aquila Tax-Free Fund of Colorado (the “Fund”) is one of six series of Aquila Municipal Trust, a Massachusetts business trust registered under the Investment Company Act of 1940 (the “1940 Act“) as a non-diversified, open-end management investment company. The Fund, which commenced operations on October 12, 2013, is the successor to Tax-Free Fund of Colorado. Tax-Free Fund of Colorado transferred all of its assets and liabilities in exchange for shares of the Fund on October 11, 2013 pursuant to an agreement and plan of reorganization (the “reorganization”). The reorganization was approved by shareholders of Tax-Free Fund of Colorado on September 17, 2013. The reorganization was accomplished by exchanging the assets and liabilities of the predecessor fund for shares of the Fund. Shareowners holding shares of Tax-Free Fund of Colorado received corresponding shares of the Fund in a one-to-one exchange ratio in the reorganization. Accordingly, the reorganization, which was a tax-free exchange, had no effect on the Fund’s operations. 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. As of the date of this report, there were no Class F 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 ask quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued using other fair value methods. Aquila Investment Management LLC, the Fund’s investment manager, has been designated as the Fund’s valuation designee, with responsibility for fair valuation subject to oversight by the Fund’s 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 Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (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, 2022:
Valuation Inputs* | Investments in Securities | |||
Level 1 – Quoted Prices | $ | 3,764,468 | ||
Level 2 – Other Significant Observable Inputs – Municipal Bonds* | 192,107,606 | |||
Level 3 – Significant Unobservable Inputs | — | |||
Total | $ | 195,872,074 | ||
* 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 (2019 – 2021) or expected to be taken in the Fund’s 2022 tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.
16 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (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. These reclassifications had no effect on net assets or net asset value per share. For the year ended March 31, 2022, there were no items identified that have been reclassified among components of net assets. |
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 transfer and 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, 2023 to the extent necessary in order to pass savings through to the shareholders with respect to the Sub-Adviser’s contractual fee waiver 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. The Manager may not terminate the arrangement without the approval of the Board
17 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
of Trustees. For the six months ended September 30, 2022, the Fund incurred management fees of $537,402 of which $21,496 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, 2023 such that its annual rate of fees is at 0.16% of net assets of the Fund up to $400 million; 0.14% of net assets above $400 million up to $1 billion; and 0.12% of net assets above $1 billion.
Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for compliance related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940, as amended (the “1940 Act”).
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 1940 Act. 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 LLC (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 Fund’s Distribution Plan applicable to Class A Shares 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 0.075%. For the six months ended September 30, 2022, distribution fees on Class A Shares amounted to $40,156 of which the Distributor retained $2,784.
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, 2022, amounted to $13,713. 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
18 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
net assets represented by Class C Shares and for the six months ended September 30, 2022, amounted to $4,571. The total of these payments with respect to Class C Shares amounted to $18,284 of which the Distributor retained $4,642.
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 (“financial intermediaries”), the Fund’s shares are sold primarily through the facilities of these financial intermediaries having offices within Colorado, with the bulk of any sales commissions inuring to such financial intermediaries. For the six months ended September 30, 2022, total commissions on sales of Class A Shares amounted to $2,417 of which the Distributor received $2,335.
c) | Transfer and shareholder servicing fees: |
The Fund occasionally compensates financial intermediaries in connection with the sub-transfer agency related services provided by such entities in connection with their respective Fund shareholders so long as the fees are deemed by the Board of Trustees to be reasonable in relation to (i) the value of the services and the benefits received by the Fund and certain shareholders; and (ii) the payments that the Fund would make to another entity to perform similar ongoing services to existing shareholders.
4. Purchases and Sales of Securities
During the six months ended September 30, 2022, purchases of securities and proceeds from the sales of securities aggregated $12,501,976 and $38,929,966, respectively.
At September 30, 2022, the aggregate tax cost for all securities was $205,312,928. At September 30, 2022, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $194,421 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $9,635,275 for a net unrealized depreciation of $9,440,854.
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. At September 30, 2022, the Fund had all of its long-term portfolio holdings invested in the securities of Colorado issuers.
19 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
6. Capital Share Transactions
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended September 30, 2022 (unaudited) | Year Ended March 31, 2022 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Class A Shares | ||||||||||
Proceeds from shares sold | 489,908 | $ | 4,805,940 | 479,420 | $ | 5,095,327 | ||||
Reinvested dividends and distributions | 113,750 | 1,113,738 | 213,994 | 2,253,402 | ||||||
Cost of shares redeemed | (1,490,520) | (14,637,405) | (2,151,069) | (22,641,448) | ||||||
Net change | (886,862) | (8,717,727) | (1,457,655) | (15,292,719) | ||||||
Class C Shares | ||||||||||
Proceeds from shares sold | 8,852 | 87,382 | 40,472 | 425,735 | ||||||
Reinvested dividends and distributions | 1,449 | 14,161 | 2,916 | 30,683 | ||||||
Cost of shares redeemed | (137,200) | (1,347,110) | (224,188) | (2,374,944) | ||||||
Net change | (126,899) | (1,245,567) | (180,800) | (1,918,526) | ||||||
Class Y Shares | ||||||||||
Proceeds from shares sold | 765,275 | 7,530,624 | 1,432,179 | 15,174,202 | ||||||
Reinvested dividends and distributions | 41,607 | 408,230 | 95,758 | 1,011,430 | ||||||
Cost of shares redeemed | (2,621,940) | (25,785,350) | (2,815,439) | (29,683,307) | ||||||
Net change | (1,815,058) | (17,846,496) | (1,287,502) | (13,497,675) | ||||||
Total transactions in Fund shares | (2,828,819) | $ | (27,809,790) | (2,925,957) | $ | (30,708,920) |
7. Trustees’ Fees and Expenses
At September 30, 2022, there were 9 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, 2022 was $32,554. 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, 2022, due to the COVID-19 pandemic, such meeting-related expenses were reduced and amounted to $1,301.
20 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
8. 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. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
9. 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 or in cash, 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, 2022, the Fund had capital loss carry forwards of $1,919,671 of which $1,752,283 retains its character of short-term and $167,388 retains its character of long-term; both 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. As of March 31, 2022, the Fund had post-October losses of $1,057,379, which is deferred until fiscal 2023 for tax purposes.
The tax character of distributions was as follows:
Year Ended March 31, 2022 | Year Ended March 31, 2021 | ||||||
Net tax-exempt income | $ | 4,099,490 | $ | 4,680,747 | |||
Ordinary Income | — | 1,367 | |||||
$ | 4,099,490 | $ | 4,682,114 |
21 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
As of March 31, 2022, the components of distributable earnings on a tax basis were:
Undistributed tax-exempt income | 57,923 | |||
Unrealized depreciation | (1,913,549) | |||
Accumulated net realized loss | (1,919,671) | |||
Post October losses | (1,057,379) | |||
Other temporary differences | (64,127) | |||
$ | (4,896,803) |
The difference between book basis and tax basis undistributed income is due to the timing difference, and other temporary differences, in recognizing dividends paid and the tax treatment of market discount amortization and the deduction of distributions payable.
10. Credit Facility
Since August 30, 2017, Bank of New York Mellon and the Aquila Group of Funds (comprised of nine funds) have been parties to a $40 million credit agreement, which currently terminates on August 23, 2023 (per the August 24, 2022 amendment). In accordance with the Aquila Group of Funds Guidelines for Allocation of Committed Line of Credit, each fund is responsible for payment of its proportionate share of
a) | a 0.17% per annum commitment fee; and, |
b) | interest on amounts borrowed for temporary or emergency purposes by the fund (at the applicable per annum rate selected by the Aquila Group of Funds at the time of the borrowing of either (i) the adjusted daily simple Secured Overnight Financing Rate (“SOFR”) plus 1% or (ii) the sum of the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate, or (c) the adjusted daily simple Secured Overnight Financing Rate (“SOFR”) plus 1%). |
There were no borrowings under the credit agreement during the six months ended September 30, 2022.
11. Risks
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, political or regulatory conditions, recessions, inflation, changes in interest rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues, armed conflict including Russia’s military invasion of Ukraine, sanctions against Russia, other nations or individuals or companies and possible countermeasures, market disruptions caused by tariffs, trade disputes or other factors, or adverse investor sentiment. When market prices fall, the value of your investment may go down. In the past several years, financial markets have experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. These conditions may continue, recur, worsen or spread.
22 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Rates of inflation have recently risen. The value of assets or income from an investment may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline as can the value of the Fund’s distributions.
The global pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s invasion of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or markets could be similarly affected by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the economy and securities markets, may not be known for some time.
The value of your investment will generally go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term or longer duration securities. In recent years, interest rates and credit spreads in the U.S. have been at historic lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain interest rates. A general rise in interest rates may cause investors to move out of fixed income securities on a large scale and could also result in increased redemptions from the Fund.
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. The municipal bond market can be susceptible to unusual volatility, particularly for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic conditions or credit tightening. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Unfavorable conditions and developments
23 | Aquila Tax-Free Fund of Colorado
AQUILA TAX-FREE FUND OF COLORADO NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. Municipal securities may be more susceptible to downgrades or defaults during a recession or similar periods of economic stress. Financial difficulties of municipal issuers may continue or get worse, particularly in the event of economic or market turmoil or a recession.
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.
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 | ||||||||||||
Ended | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $9.99 | $10.64 | $10.56 | $10.46 | $10.31 | $10.51 | ||||||
Income from investment operations: | ||||||||||||
Net investment income(1) | 0.09 | 0.16 | 0.18 | 0.22 | 0.24 | 0.26 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.48) | (0.65) | 0.08 | 0.10 | 0.15 | (0.20) | ||||||
Total from investment operations | (0.39) | (0.49) | 0.26 | 0.32 | 0.39 | 0.06 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.09) | (0.16) | (0.18) | (0.22) | (0.24) | (0.26) | ||||||
Distributions from capital gains | — | — | — | — | — | — | ||||||
Total distributions | (0.09) | (0.16) | (0.18) | (0.22) | (0.24) | (0.26) | ||||||
Net asset value, end of period | $9.51 | $9.99 | $10.64 | $10.56 | $10.46 | $10.31 | ||||||
Total return (not reflecting sales charge) | (3.97)%(2) | (4.67)% | 2.48% | 3.03% | 3.86% | 0.55% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $138 | $154 | $179 | $186 | $188 | $196 | ||||||
Ratio of expenses to average net assets | 0.71%(3) | 0.69% | 0.69% | 0.71% | 0.70% | 0.68% | ||||||
Ratio of net investment income to average net assets | 1.75%(3) | 1.52% | 1.69% | 2.04% | 2.35% | 2.47% | ||||||
Portfolio turnover rate | 6%(2) | 14% | 7% | 13% | 7% | 9% |
Expense and net investment income ratios without the effect of the contractual fee waiver were (note 3):
Ratio of expenses to average net assets | 0.73%(3) | 0.71% | 0.71% | 0.73% | 0.72% | 0.70% | ||||||
Ratio of net investment income to average net assets | 1.73%(3) | 1.50% | 1.67% | 2.02% | 2.33% | 2.45% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
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 | ||||||||||||
Ended | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $9.97 | $10.62 | $10.54 | $10.44 | $10.29 | $10.49 | ||||||
Income from investment operations: | ||||||||||||
Net investment income(1) | 0.04 | 0.06 | 0.08 | 0.12 | 0.14 | 0.16 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.48) | (0.65) | 0.08 | 0.10 | 0.15 | (0.20) | ||||||
Total from investment operations | (0.44) | (0.59) | 0.16 | 0.22 | 0.29 | (0.04) | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.04) | (0.06) | (0.08) | (0.12) | (0.14) | (0.16) | ||||||
Distributions from capital gains | — | — | –– | –– | –– | — | ||||||
Total distributions | (0.04) | (0.06) | (0.08) | (0.12) | (0.14) | (0.16) | ||||||
Net asset value, end of period | $9.49 | $9.97 | $10.62 | $10.54 | $10.44 | $10.29 | ||||||
Total return (not reflecting CDSC) | (4.43)%(2) | (5.58)% | 1.51% | 2.06% | 2.88% | (0.41)% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $3 | $4 | $7 | $8 | $9 | $15 | ||||||
Ratio of expenses to average net assets | 1.65%(3) | 1.63% | 1.64% | 1.66% | 1.65% | 1.63% | ||||||
Ratio of net investment income to average net assets | 0.80%(3) | 0.58% | 0.75% | 1.09% | 1.40% | 1.52% | ||||||
Portfolio turnover rate | 6%(2) | 14% | 7% | 13% | 7% | 9% |
Expense and net investment income ratios without the effect of the contractual fee waiver were (note 3):
Ratio of expenses to average net assets | 1.67%(3) | 1.65% | 1.66% | 1.68% | 1.67% | 1.65% | ||||||
Ratio of net investment income to average net assets | 0.78%(3) | 0.56% | 0.73% | 1.07% | 1.38% | 1.50% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
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 | ||||||||||||
Ended | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.01 | $10.66 | $10.58 | $10.49 | $10.34 | $10.54 | ||||||
Income from investment operations: | ||||||||||||
Net investment income(1) | 0.09 | 0.17 | 0.19 | 0.22 | 0.25 | 0.27 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.48) | (0.65) | 0.08 | 0.09 | 0.15 | (0.20) | ||||||
Total from investment operations | (0.39) | (0.48) | 0.27 | 0.31 | 0.40 | 0.07 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.09) | (0.17) | (0.19) | (0.22) | (0.25) | (0.27) | ||||||
Distributions from capital gains | — | — | –– | –– | –– | — | ||||||
Total distributions | (0.09) | (0.17) | (0.19) | (0.22) | (0.25) | (0.27) | ||||||
Net asset value, end of period | $9.53 | $10.01 | $10.66 | $10.58 | $10.49 | $10.34 | ||||||
Total return | (3.93)%(2) | (4.60)% | 2.53% | 2.98% | 3.90% | 0.61% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $56 | $77 | $96 | $72 | $70 | $76 | ||||||
Ratio of expenses to average net assets | 0.65%(3) | 0.63% | 0.64% | 0.66% | 0.65% | 0.63% | ||||||
Ratio of net investment income to average net assets | 1.80%(3) | 1.58% | 1.74% | 2.09% | 2.40% | 2.52% | ||||||
Portfolio turnover rate | 6%(2) | 14% | 7% | 13% | 7% | 9% |
Expense and net investment income ratios without the effect of the contractual fee waiver were (note 3):
Ratio of expenses to average net assets | 0.67%(3) | 0.65% | 0.66% | 0.68% | 0.67% | 0.65% | ||||||
Ratio of net investment income to average net assets | 1.78%(3) | 1.56% | 1.72% | 2.07% | 2.38% | 2.50% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
27 | Aquila Tax-Free Fund of Colorado
Additional Information:
Statement Regarding Liquidity Risk Management Program
Rule 22e-4 under the Investment Company Act of 1940, as amended, requires open-end management investment companies to adopt and implement written liquidity risk management programs that are reasonably designed to assess and manage liquidity risk. Liquidity risk is defined in the rule as the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund. In accordance with Rule 22e-4, Aquila Municipal Trust (“AMT”) has adopted a Liquidity Risk Management (“LRM”) program (the “program”). AMT’s Board of Trustees (the “Board”) has designated an LRM Committee consisting of employees of Aquila Investment Management LLC as the administrator of the program (the “Committee”).
The Board met on June 17, 2022 to review the program. At the meeting, the Committee provided the Board with a report that addressed the operation of the program and assessed its adequacy and effectiveness of implementation, and any material changes to the program (the “Report”). The Report covered the period from May 1, 2021 through April 30, 2022 (the “Reporting Period”).
During the Reporting Period, the Committee reviewed whether each Fund’s strategy is appropriate for an open-end fund structure taking into account less liquid and illiquid assets.
The Committee reviewed each Fund’s short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions. In classifying and reviewing each Fund’s investments, the Committee considered whether trading varying portions of a position in a particular portfolio investment or asset class in sizes the Fund would reasonably anticipate trading, would be reasonably expected to significantly affect liquidity. The Committee considered the following information when determining the sizes in which each Fund would reasonably anticipate trading: historical net redemption activity, the Fund’s concentration in an issuer, shareholder concentration, Fund performance, Fund size, and distribution channels.
The Committee considered each Fund’s holdings of cash and cash equivalents, as well as borrowing arrangements. The Committee considered the terms of the credit facility applicable to the Funds, the financial health of the institution providing the facility and the fact that the credit facility is shared among multiple Funds. The Committee also considered other types of borrowing available to the Funds, such as the ability to use interfund lending arrangements.
The Committee also performed an analysis to determine whether a Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”), and determined that the requirement to maintain an HLIM was inapplicable to the Funds because each Fund primarily holds highly liquid investments.
There were no material changes to the program during the Reporting Period. The Report provided to the Board stated that the Committee concluded that the program is reasonably designed and operated effectively throughout the Review Period.
28 | 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. The independent Trustees met via video conference on August 25, 2022 and in person on September 10, 2022 to review and discuss the contract review materials that were provided in advance of the August 25, 2022 meeting. 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 (the “Consultant’s Report”). In addition, the Trustees took into account the performance and other 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. The Trustees also discussed the memorandum provided by Fund counsel that summarized the legal standards and other considerations that are relevant to the Trustees in their deliberations regarding the renewal of the Advisory and Sub-Advisory Agreements.
At the meeting held on September 10, 2022, based on their evaluation of the information provided by the Manager, the Sub-Adviser and the independent consultant, the Trustees of the Fund present at the meeting, including the independent Trustees voting separately, unanimously approved the renewal of each of the Advisory Agreement and the Sub-Advisory Agreement until September 30, 2023. 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.
29 | Aquila Tax-Free Fund of Colorado
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.
The Trustees considered that the Manager supervised and monitored the performance of the Sub-Adviser. The Trustees also considered that the Manager and the Sub-Adviser had provided all 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.
The Trustees also noted that 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 fund accountant, 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 and the Sub-Adviser to the Fund were satisfactory and consistent with the terms of the Advisory Agreement and Sub-Advisory Agreement, respectively.
The investment performance of the Fund
The Trustees reviewed the Fund’s performance (Class A Shares) and compared its performance to the performance of:
· | the funds in the Municipal Single State Intermediate-Term Bond category as assigned by Morningstar, Inc. (the “Morningstar Category”); and |
· | the Fund’s benchmark index, the Bloomberg Municipal Bond: Quality Intermediate Total Return Index Unhedged USD. |
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 Morningstar Category for the three, five and ten-year periods ended June 30, 2022, but higher than average annual total return of the funds in the Morningstar Category for Performance for the one-year period ended June 30, 2022. They noted that the Fund’s return for each of the one-year period and six months ended June 30, 2022 was in the first quintile and that its average annual return for each of the three and five-year periods ended June 30, 2022 was in the fourth quintile, in each case relative to the funds in the Morningstar Category for the same periods. (Each quintile represents one-fifth of the peer group and first quintile is most favorable to the Fund’s shareholders.) The Trustees further considered that the Fund’s average annual return was lower than the average annual total return of the benchmark index for the one, three, five
30 | Aquila Tax-Free Fund of Colorado
and ten-year periods ended June 30, 2022. The Trustees further noted, as reflected in the Consultant’s Report, that the Fund’s total return for 2021 was lower than both the average annual total return of the funds in the Morningstar Category and the total return of its benchmark index for 2021.
The Trustees considered that the Fund invests primarily in municipal obligations issued by the State of Colorado, its counties and various other local authorities, while the funds in the Morningstar Category invest in, and the Fund’s benchmark index includes, municipal bonds of issuers throughout the United States and that less than 2% of the benchmark index consists of Colorado bonds. 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 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 lower duration. The Trustees also considered the steps taken by the Sub-Adviser in recent months in an effort to improve the Fund’s investment performance.
The Trustees considered the Fund’s investment performance 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 21 funds in the Fund’s expense group (the “Expense Group”), as selected by the independent consultant (the Fund and 13 other Municipal Single-State Intermediate-Term Bond funds, two Municipal Massachusetts Bond funds, two Municipal Minnesota Bond funds, two Municipal New Jersey Bond funds, and one Municipal Pennsylvania Bond fund, each categorized by Morningstar, Inc. with portfolio assets ranging between $130 million and $692 million). Only front-end load and retail no-load funds were considered for inclusion in the Expense Group. In addition, peer selection for the Expense Group focused on municipal bond funds with an intermediate duration across comparable categories. The Trustees also compared the Fund’s advisory fees and expenses to advisory fee data for the Fund’s Morningstar Category (as defined above). Certain of the peer group comparisons referred to below are organized in quintiles. Each quintile represents one-fifth of the peer group. In all peer group comparisons referred to below, first quintile is most favorable to the Fund’s shareholders.
The Trustees considered that the Fund’s net management fee (after giving effect to the fee waiver) for its most recent fiscal year was in the fourth quintile relative to the management fees paid by the other funds in its Expense Group for the comparable period (after giving effect to fee waivers in effect for those funds). They also considered that the Fund’s contractual advisory fee was higher than the average and median contractual
31 | Aquila Tax-Free Fund of Colorado
advisory fee of the funds in the Morningstar Category (at the Fund’s current asset level and all asset levels up to $10 billion).
The Trustees considered that the Fund’s net total expenses (for Class A shares), after giving effect to fee waivers and expense reimbursements, for the most recent fiscal year were in the second quintile relative to the net total expenses of the other funds in its Expense Group for the comparable period (after giving effect to fee waivers and expense reimbursements in effect for those funds).
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 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 LLC of distribution services provided to the Fund. The Manager also provided other financial information to the members of the financial review committee of the Fund and the other funds in the Aquila Group of Funds.
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 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. They noted that the Sub-Adviser has agreed, through a contractual waiver of its sub-advisory fees, to include breakpoints in its fee schedule based on the size of the Fund. In addition, it was noted
32 | Aquila Tax-Free Fund of Colorado
that the Manager had contractually agreed to waive its fees to the extent necessary in order to pass the benefits of the breakpoints in the Sub-Adviser’s fee waiver under the Sub-Advisory Agreement to the shareholders of the Fund. 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.
33 | Aquila Tax-Free Fund of Colorado
Your Fund’s Expenses (unaudited)
As a Fund shareholder, 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 assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The 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 that 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”.
Hypothetical Example for Comparison with Other Funds
Under the heading, “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
Actual | Hypothetical | ||||||
(actual return after expenses) | (5% annual return before expenses) | ||||||
Share Class | Beginning Account Value 4/1/22 | Ending(1) Account | Expenses(2) Paid During Period 4/1/22 – 9/30/22 | Ending Account Value 9/30/22 | Expenses(2) Paid During Period 4/1/22 – 9/30/22 | Net Annualized Expense Ratio | |
A | $1,000 | $ 960.30 | $3.49 | $1,021.51 | $3.60 | 0.71% | |
C | $1,000 | $ 955.70 | $8.09 | $1,016.80 | $8.34 | 1.65% | |
Y | $1,000 | $ 960.70 | $3.19 | $1,021.81 | $3.29 | 0.65% |
(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 or the applicable CDSC with respect to Class C shares. Total return is not annualized and as such, it may not be representative of the total return for the year. |
(2) | Expenses are equal to the annualized expense ratio for the six-month period as indicated above - in the far right column - multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period. |
34 | Aquila Tax-Free Fund of Colorado
Information Available (unaudited) Annual and Semi-Annual Reports and Complete Portfolio Holding Schedules Your Fund’s Annual and Semi-Annual Reports are filed with the SEC twice a year. Each Report contains a complete Schedule of Portfolio Holdings, along with full financial statements and other important financial statement disclosures. Additionally, your Fund files a complete Schedule of Portfolio Holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its Reports on Form N-PORT. Your Fund’s Annual and Semi-Annual Reports and N-PORT reports 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. In addition, your Fund’s Annual and Semi-Annual Reports and complete Portfolio Holdings Schedules for each fiscal quarter end are also available, free of charge, on your Fund’s website, www.aquilafunds.com (under the prospectuses & reports tab) or by calling us at 1-800-437-1000. Portfolio Holdings Reports In accordance with your Fund’s Portfolio Holdings Disclosure Policy, the Manager also prepares a Portfolio Holdings Report as of each quarter end, which is typically posted to your Fund’s individual page at www.aquilafunds.com by the 15th day after the end of each calendar quarter. Such information will remain accessible until the next Portfolio Holdings Report is made publicly available by being posted to www.aquilafunds.com. The quarterly Portfolio Holdings Report may be accessed, free of charge, by visiting www.aquilafunds.com or calling us at 1-800-437-1000. |
Proxy Voting Record (unaudited) During the 12 month period ended June 30, 2022, there were no proxies related to any portfolio instruments held by the Fund. As such, the Fund did not vote any proxies. 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, 2022, $4,099,490 of dividends paid by Aquila Tax-Free Fund of Colorado, constituting 100% of total dividends paid, were exempt-interest dividends. Prior to February 15, 2023, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2022 calendar year. |
35 | Aquila Tax-Free Fund of Colorado
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
1550 Market Street, Suite 300
Denver, Colorado 80202
Board of Trustees
Thomas A. Christopher, Chair
Diana P. Herrmann, Vice Chair
Ernest Calderón
Gary C. Cornia
Grady Gammage, Jr.
Patricia L. Moss
Glenn P. O’Flaherty
Heather R. Overby
Laureen L. White
Officers
Diana P. Herrmann, 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
Anita Albano, Secretary
Distributor
AQUILA DISTRIBUTORS LLC
120 West 45th Street, Suite 3600
New York, New York 10036
Transfer and Shareholder Servicing Agent
BNY MELLON INVESTMENT SERVICING (US) INC.
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
THE BANK OF NEW YORK MELLON
240 Greenwich Street
New York, New York 10286
Further information is contained in the Prospectus,
which must precede or accompany this report.
AQL-COSAR-1122
Semi-Annual Report September 30, 2022
| ||||||||||||||||||||||||||
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![]() | Aquila Tax-Free Fund for Utah Keeping an Optimistic
Serving Utah investors since 1992 | ![]() |
November, 2022
Dear Fellow Shareholder:
The fixed income markets have experienced significant volatility and downward pressure for much of 2022, driven primarily by several key economic factors, including continued high inflation, rising interest rates, and uncertainty about the direction of the U.S. economy. While these factors aren’t necessarily new or unique, they nonetheless have presented challenges for rate-sensitive investments — and, in the process, have made the majority of investors increasingly skittish. While we understand investors’ concerns, we remain optimistic about the municipal bond market.
Despite its inevitable ups and downs, the municipal bond market has historically demonstrated remarkable resiliency across multiple market cycles. We believe today’s market appears reasonably sound at its core in terms of continuing credit fundamentals and current relative valuations. The municipal market’s underpinnings remain deeply rooted in the need and demand for municipal bonds given the important role they play in financing vital local projects, such as schools, hospitals, and roadways that contribute to improving the quality of life for residents of the issuing municipalities.
It’s important to understand what’s driving the current market and maintain perspective. Let’s explore further.
Understanding the Factors Impacting Municipal Bonds
The primary driver of bond yields, prices, and relative performance is interest rates. Since the Federal Reserve (the “Fed”) introduced a change in its monetary policy in March of this year to help combat inflation, interest rates began a steady upward climb. This was spurred by the Fed raising the Federal Funds rate (the interest rate that banks charge one another to borrow or lend excess reserves overnight), the first such increase since 2018. To date, through 11/02/2022, the Fed has implemented six rate hikes, totaling 3.75%, bringing the stated target range for the Fed Funds rate to 3.75% – 4.00%. And, Federal Reserve Chairman Jerome Powell has indicated that additional increases may be deemed necessary going forward, dependent upon the status of the U.S. economy and data driven analytics. Mr. Powell and his colleagues have stated that the Fed will remain vigilant in its efforts to manage inflation, which has topped levels not seen in more than 40 years (as measured by the Consumer Price Index).
In reaction to the Federal Reserve’s aggressive monetary policy stance, year to date interest rates have experienced a significant increase. As you may know, bond prices generally move in the opposite direction of rate changes. Therefore, while rising interest rates generally translate to higher yields for bond investments, bond prices or values usually fall. This changing yield/price landscape has created two shifts in the market — a shift for issuers of bonds (who may now be reluctant to issue new debt at increased costs), along with a shift in investor sentiment. For investors, on the one hand, higher yields mean greater income, which is a welcome development for those who during the recent
NOT A PART OF THE SEMI-ANNUAL REPORT
low-yield environment sought opportunities to earn more attractive income levels. On the other hand, investors who are mindful of capital preservation have become wary as they have seen bond prices decline.
When investing in bonds, we believe that generating an attractive risk-adjusted return is a careful balance of the two factors— income and stability of capital. Your Fund’s investment objective, in fact, seeks to provide as high a level of current income exempt (from state and regular federal income taxes) as is consistent with preservation of capital. So, how has the rise in interest rates affected municipal bonds?
Assessing the Current Market Cycle
It’s important, in our view, to evaluate financial markets, performance, and valuations on a relative basis. This is true not only within the municipal bond market, but with and relative to other asset classes as well.
Municipal bonds are oftentimes viewed in comparison with U.S. Treasuries. Let’s take a look at yield curves and the relative Municipal-to-Treasury relationship. During 2022, yields of U.S. Treasury securities have generally risen across the maturity spectrum, but the overall slope of the curve flattened, particularly during the third quarter of 2022. Specifically, there was a greater increase in interest rates on the short-end of the U.S. Treasury curve (shorter maturities) which exceeded increases on the longer-end. Given economic uncertainty and fears of a possible recession, some market participants are concerned that this change in the U.S. Treasury yield curve may signal an impending economic slump. Meanwhile, the municipal bond yield curve has been more positively sloped (with longer term maturities yielding more) throughout the year, in particular, steepening between 10- and 30-year maturities during the third quarter — which may be viewed positively by municipal investors.
The Municipal-to-Treasury relationship (based on the yield of AAA municipal securities as a percentage of the yield of U.S. Treasuries of the same maturity) has fluctuated over the past year, but generally in our view continued to trade in line with historical relationship norms. The chart below illustrates what we believe to be an indication of improved relative valuations for municipal obligations, whereby municipal yields represent a greater percentage in comparison to U.S. Treasury yields. As one would usually anticipate in a rising rate environment, such as now, the relationship ratio compares somewhat favorably for longer maturity municipal bonds (specifically, in the 30-year maturity range) which were yielding greater than U.S. Treasury securities as of September 30th.
January 3, 2022 Municipal % of U.S. Treasury | September 30, 2022 Municipal % of U.S. Treasury | |||
5-Year | 44.1% | 77.6% | ||
10-year | 63.8% | 87.0% | ||
30-year | 74.3% | 104.0% | ||
Source: Bloomberg |
Credit spreads among municipal bond issues have begun to widen during the year. (Credit spread is the difference in yield between securities of the same maturity with different credit ratings.) Wider credit spreads generally favor higher-quality issuers in a rising rate environment due to concerns related to lower quality issues during periods of slowing economic growth. This scenario may be viewed as a benefit to higher quality, shorter duration portfolios vis-à-vis lower quality, longer duration holdings. (Duration is
NOT A PART OF THE SEMI-ANNUAL REPORT
a measurement of a bond’s sensitivity or risk to changes in interest rates; shorter duration generally means less risk.) This assumes interest rates continue to rise, as the Fed seems to have signaled in recent press releases. Overall, we view municipal credit fundamentals to be relatively strong, while credit defaults as tracked by the Nationally Recognized Statistical Rating Agencies (such as Moody’s and Standard & Poor’s) generally remain relatively low, particularly among higher quality issues.
At a local level, many state and local economies continue to show signs of improvement and sustained growth. Despite recession risk, local municipalities and governments appear to us to be well-positioned to manage economic challenges. Higher employment, increasing wages, and rising property values in many jurisdictions throughout the country are among key contributors toward bolstering state and local revenue and tax receipts.
Looking Forward
We remain cautiously optimistic about the direction of the municipal bond market. In addition to many of the positive conditions and trends stated above — including what we believe to be potential opportunities for greater income than in recent years, improving relative valuations, strong credit fundamentals, expanding local economies, and sustained investor demand — keep in mind the attractive benefits that municipal bonds offer, such as a high level of current income exempt from state and regular federal income taxes. Although no one can reasonably predict the impact of continued inflation or future Fed actions to curb such inflation, on a tax-equivalent basis, the municipal income benefit may be attractive compared to taxable investments for certain investors.
Remember, too, the Aquila difference. Your portfolio management team is locally-based, which provides them with an up-close perspective on the economy and bond issuers within local municipalities, cities, counties, and across the state. Our investment professionals draw upon their wealth of experience in analyzing securities, navigating market and economic cycles, and seeking to identify both opportunities and risks. The current market cycle is no exception. Our team employs an active portfolio management strategy, with a goal to maintain broadly diversified investment grade municipal portfolios, generally with an intermediate average maturity, to help deliver attractive risk-adjusted returns.
As always, we encourage you to consult with your financial professional to evaluate whether the investment choices you make are aligned with your individual financial goals and risk tolerances.
Thank you for your continued confidence in Aquila Group of Funds.
Sincerely, | ||
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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, political or regulatory conditions, recessions, inflation, changes in interest rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues, armed conflict including Russia’s military invasion of Ukraine, sanctions against Russia, other nations or individuals or companies and possible countermeasures, market disruptions caused by tariffs, trade disputes or other factors, or adverse investor sentiment. When market prices fall, the value of your investment may go down. In the past several years, financial markets have experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. These conditions may continue, recur, worsen or spread.
Rates of inflation have recently risen. The value of assets or income from an investment may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline as can the value of the Fund’s distributions.
The global pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s invasion of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or markets could be similarly affected by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the economy and securities markets, may not be known for some time.
The value of your investment will generally go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term or longer duration securities. In recent years, interest rates and credit spreads in the U.S. have been at historic lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain interest rates. A general rise in interest rates may cause investors to move out of fixed income securities on a large scale and could also result in increased redemptions from the Fund.
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. The municipal bond market can be susceptible to unusual volatility, particularly for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic conditions or credit tightening. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Unfavorable conditions and developments relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. Municipal securities may be more susceptible to downgrades or defaults during a recession or similar periods of economic stress. Financial difficulties of municipal issuers may continue or get worse, particularly in the event of economic or market turmoil or a recession.
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.
Any information in this Shareholder Letter 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. Past performance is no guarantee of future results, and there is no guarantee that any market forecasts discussed will be realized.
NOT A PART OF THE SEMI-ANNUAL REPORT
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (9.9%) | Ratings Moody’s, S&P and Fitch | Value | |||
City and County (3.4%) | ||||||
Brownsville, Texas Combination Tax | ||||||
$ 500,000 | 5.000%, 02/15/26 Series 2022 | Aa3/AA/NR | $ 525,205 | |||
Carson City, Nevada | ||||||
1,000,000 | 5.000%, 05/01/28 | Aa3/AA/NR | 1,037,200 | |||
Clark County, Nevada, Refunding | ||||||
1,000,000 | 4.000%, 06/01/37 Series 2019 | Aa1/AA+/NR | 939,760 | |||
1,000,000 | 3.000%, 06/01/38 Series 2019 | Aa1/AA+/NR | 816,520 | |||
Corsicana, Texas Combination Tax COP | ||||||
410,000 | 4.000%, 02/15/29 Series 2022 | NR/AA-/NR | 422,558 | |||
Houston, Texas Public Improvement | ||||||
1,000,000 | 5.000%, 03/01/35 Series A | Aa3/AA/NR | 1,039,680 | |||
Mission, Texas Combination Tax & Revenue Certificates of Obligation | ||||||
500,000 | 4.000%, 02/15/32 Series 2021 BAMI Insured | NR/AA/NR | 507,360 | |||
North Las Vegas, Nevada Limited Tax | ||||||
1,000,000 | 5.000%, 06/01/31 Series 2018 AGMC Insured | A1/AA/NR | 1,075,020 | |||
Port of Olympia, Washington Limited Tax | ||||||
1,385,000 | 5.000%, 12/01/31 AMT Series B | Aa2/NR/NR | 1,479,748 | |||
Port of Vancouver, Washington Limited Tax | ||||||
555,000 | 5.000%, 12/01/33 AMT Series 2022A | Aa2/NR/NR | 577,422 | |||
Reno, Nevada Capital Improvement Refunding | ||||||
1,000,000 | 5.000%, 06/01/28 | A1/AA-/NR | 1,010,070 | |||
Rio Grande City, Texas Combination Tax Certificates of Obligation | ||||||
855,000 | 4.000%, 02/15/33 Series 2020 AGMC Insured | NR/AA/NR | 857,385 | |||
Washoe County, Nevada Limited Tax | ||||||
1,500,000 | 4.000%, 07/01/32 Series 2021 | Aa2/AA/NR | 1,543,710 | |||
West University Place City, Texas Certificates of Obligation | ||||||
535,000 | 5.000%, 02/01/26 Series 2022 | NR/AAA/NR | 563,612 | |||
Total City and County | 12,395,250 | |||||
1 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Healthcare (0.3%) | ||||||
King County, Washington Public Hospital District No. 001, Refunding, Valley Medical Center | ||||||
$ 1,000,000 | 5.000%, 12/01/28 | A2/NR/NR | $ 1,078,550 | |||
Public Schools (4.8%) | ||||||
Alvin, Texas Independent School District | ||||||
1,000,000 | 4.000%, 02/15/34 PSF Guaranteed | Aaa/NR/AAA | 1,011,080 | |||
Bushland, Texas Independent School District Unlimited Tax | ||||||
900,000 | 5.000%, 02/15/29 Series 2022 | NR/AAA/NR | 985,554 | |||
Canyons School District Utah (School Board Guaranty Program) | ||||||
1,000,000 | 5.000%, 06/15/31 Series 2022 | Aaa/NR/AAA | 1,119,710 | |||
Clark County, Nevada School District Limited Tax | ||||||
80,000 | 5.000%, 06/15/29 Series B | A1/A+/NR | 86,638 | |||
1,000,000 | 5.000%, 06/15/35 Series B | A1/A+/NR | 1,056,960 | |||
1,500,000 | 3.000%, 06/15/37 Series B AGMC Insured | A1/AA/NR | 1,188,675 | |||
1,645,000 | 5.000%, 06/15/28 Series D | A1/A+/NR | 1,720,604 | |||
2,000,000 | 4.000%, 06/15/30 Series D | A1/A+/NR | 2,021,200 | |||
Deuel, South Dakota School District 19-4 Limited Tax COP | ||||||
1,375,000 | 2.000%, 08/01/29 Series 2022 | NR/AA+/NR | 1,216,572 | |||
Grant County, Washington School District No. 161 Moses Lake (School Board Guaranty Program) | ||||||
500,000 | 4.000%, 12/01/35 | Aaa/NR/NR | 497,040 | |||
Lewis County, Washington School District No. 302 Chehalis (School Board Guaranty Program) | ||||||
1,000,000 | 5.000%, 12/01/34 | Aaa/NR/NR | 1,034,690 |
2 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Public Schools (continued) | �� | |||||
Lewis & Thurston Counties, Washington School District No. 401 Centalia (School Board Guaranty Program) | ||||||
$ 1,230,000 | 5.000%, 12/01/35 | Aaa/NR/NR | $ 1,288,474 | |||
Minnehaha County, South Dakota COP Limited Tax | ||||||
900,000 | 3.000%, 12/01/29 Series 2022A | Aa1/NR/NR | 869,076 | |||
Port Arthur, Texas Independent School District Unlimited Tax | ||||||
1,000,000 | 4.000%, 02/15/35 Series 2021 AGMC Insured | NR/AA/A+ | 992,240 | |||
Washoe County, Nevada School District Limited Tax Improvement | ||||||
1,000,000 | 4.000%, 10/01/34 Series 2020A | Aa3/AA/NR | 1,008,330 | |||
Weatherford, Texas Independent School District Unlimited Tax Refunding | ||||||
365,000 | zero coupon, 02/15/23 Series 2019 PSF Guaranteed | Aaa/NR/NR | 361,007 | |||
530,000 | zero coupon, 02/15/28 Series 2019 PSF Guaranteed | Aaa/NR/NR | 438,867 | |||
Wink-Loving, Texas Independent School District Unlimited Tax | ||||||
300,000 | 5.000%, 02/15/25 Series 2022 PSF Guaranteed | Aaa/NR/NR | 301,986 | |||
Total Public Schools | 17,198,703 | |||||
State (1.2%) | ||||||
Texas State Transportation Commission Mobility Fund | ||||||
1,000,000 | 5.000%, 10/01/31 Series 2015A | Aaa/AAA/AAA | 1,045,620 | |||
Texas State Water Financial Assistance | ||||||
1,000,000 | 5.000%, 08/01/30 Series E | Aaa/AAA/AAA | 1,045,430 | |||
Utah State | ||||||
1,000,000 | 5.000%, 07/01/28 | Aaa/AAA/AAA | 1,080,330 | |||
1,000,000 | 5.000%, 07/01/29 | Aaa/AAA/AAA | 1,079,870 | |||
Total State | 4,251,250 | |||||
3 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Water and Sewer (0.2%) | ||||||
Central Utah Water Conservancy District Limited Tax | ||||||
$ 700,000 | 5.000%, 04/01/34 Series 2022A | NR/AA+/AA+ | $ 781,214 | |||
Total General Obligation Bonds | 35,704,967 | |||||
Revenue Bonds (84.0%) | ||||||
Airport (7.5%) | ||||||
Broward County, Florida Port Facilities | ||||||
1,000,000 | 4.000%, 09/01/38 AMT Series B | A1/A/NR | 917,850 | |||
Brownsville, Texas Combination Tax and Airport, Certificates of Obligation | ||||||
500,000 | 5.000%, 02/15/28 AMT Series 2018 | Aa3/AA/NR | 525,065 | |||
Clark County, Nevada Airport System Junior Subordinate Lien | ||||||
745,000 | 5.000%, 07/01/26 AMT Series 2021 B | A1/NR/A+ | 768,862 | |||
Greater Orlando, Florida Aviation Authority Airport Facilities | ||||||
675,000 | 5.000%, 10/01/31 AMT Series 2022A | Aa3/AA-/AA- | 709,999 | |||
Hillsborough County, Florida Aviation Authority Airport, Tampa International Airport | ||||||
1,500,000 | 5.000%, 10/01/28 AMT Series 2022A | Aa3/NR/AA- | 1,573,890 | |||
Houston, Texas Airport System Subordinate Lien Refunding | ||||||
1,000,000 | 5.000%, 07/01/29 AMT Series C | A1/NR/A+ | 1,041,760 | |||
Metropolitan Washington District of Columbia Airport Authority System, Revenue Refunding | ||||||
1,000,000 | 5.000%, 10/01/38 AMT Series 2019A | Aa3/AA-/AA- | 1,014,330 |
4 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Airport (continued) | ||||||
Salt Lake City, Utah Airport Revenue, Salt Lake City International Airport | ||||||
$ 1,000,000 | 5.000%, 07/01/26 AMT Series A | A2/A/NR | $ 1,032,030 | |||
3,750,000 | 5.000%, 07/01/27 AMT Series A | A2/A/NR | 3,885,450 | |||
1,000,000 | 5.000%, 07/01/27 AMT Series A | A2/A/NR | 1,036,120 | |||
1,000,000 | 5.000%, 07/01/28 AMT Series A | A2/A/NR | 1,042,310 | |||
1,000,000 | 5.000%, 07/01/29 AMT Series A | A2/A/NR | 1,041,760 | |||
1,000,000 | 5.000%, 07/01/29 AMT Series A | A2/A/NR | 1,044,500 | |||
3,100,000 | 5.000%, 07/01/30 AMT Series A | A2/A/NR | 3,190,024 | |||
40,000 | 5.000%, 07/01/32 AMT Series A | A2/A/NR | 41,516 | |||
410,000 | 5.000%, 07/01/34 AMT Series A | A2/A/NR | 414,932 | |||
1,000,000 | 5.000%, 07/01/47 AMT Series A | A2/A/NR | 1,000,040 | |||
1,240,000 | 5.000%, 07/01/30 Series B | A2/A/NR | 1,311,957 | |||
850,000 | 5.000%, 07/01/31 Series B | A2/A/NR | 896,435 | |||
500,000 | 5.000%, 07/01/31 Series B | A2/A/NR | 532,495 | |||
1,525,000 | 5.000%, 07/01/37 Series B | A2/A/NR | 1,563,003 | |||
Williston City, North Dakota Airport Revenue Infrastructure Sales Tax | ||||||
2,365,000 | 4.000%, 11/01/28 | NR/A+/NR | 2,375,784 | |||
Total Airport | 26,960,112 | |||||
Charter Schools (9.9%) | ||||||
Utah State Charter School Finance Authority Entheos Academy (School Board Guaranty Program) | ||||||
1,375,000 | 4.000%, 10/15/30 Series 2020A | Aa2/NR/NR | 1,373,116 | |||
Utah State Charter School Finance Authority George Washington Academy | ||||||
1,500,000 | 5.000%, 04/15/35 Series 2015 | NR/AA/NR | 1,518,225 | |||
Utah State Charter School Finance Authority Good Foundations Academy | ||||||
345,000 | 4.750%, 11/15/24 Series A 144A | NR/NR/NR* | 341,640 | |||
1,655,000 | 5.550%, 11/15/34 Series A 144A | NR/NR/NR* | 1,655,099 | |||
3,280,000 | 5.850%, 11/15/44 Series A 144A | NR/NR/NR* | 3,279,934 |
5 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Charter Schools (continued) | ||||||
Utah State Charter School Finance Authority Hawthorn Academy Project | ||||||
$ 1,865,000 | 5.000%, 10/15/29 Series 2014 | NR/AA/NR | $ 1,907,336 | |||
Utah State Charter School Finance Authority Lakeview Academy | ||||||
1,300,000 | 5.000%, 10/15/35 Series 2015 | NR/AA/NR | 1,328,392 | |||
Utah State Charter School Finance Authority Legacy Preparatory Academy | ||||||
300,000 | 4.000%, 04/15/24 | NR/AA/NR | 301,143 | |||
1,710,000 | 5.000%, 04/15/29 | NR/AA/NR | 1,749,826 | |||
1,000,000 | 4.000%, 04/15/32 Series 2022 | NR/AA/NR | 961,130 | |||
1,000,000 | 4.000%, 04/15/37 Series 2022 | NR/AA/NR | 917,510 | |||
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 | 1,010,970 | |||
Utah State Charter School Finance Authority Ogden Preparatory Academy (School Board Guaranty Program) | ||||||
190,000 | 4.000%, 10/15/22 | NR/AA/NR | 190,044 | |||
150,000 | 4.000%, 10/15/23 | NR/AA/NR | 150,042 | |||
260,000 | 4.000%, 10/15/24 | NR/AA/NR | 260,031 | |||
Utah State Charter School Finance Authority Providence Hall | ||||||
1,000,000 | 4.000%, 10/15/46 Series 2021A | Aa2/NR/NR | 839,620 | |||
Utah State Charter School Finance Authority Quest Academy | ||||||
500,000 | 5.000%, 04/15/37 | NR/AA/NR | 511,955 | |||
Utah State Charter School Finance Authority Salt Lake Arts Academy (School Board Guaranty Program) | ||||||
1,000,000 | 3.000%, 04/15/40 Series 2020A | NR/AA/NR | 759,370 | |||
Utah State Charter School Finance Authority Spectrum Academy | ||||||
625,000 | 4.000%, 04/15/33 Series 2020 | Aa2/NR/NR | 580,631 | |||
655,000 | 4.000%, 04/15/34 Series 2020 | Aa2/NR/NR | 604,703 |
6 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Charter Schools (continued) | ||||||
Utah State Charter School Finance Authority Utah Charter Academies | ||||||
$ 500,000 | 5.000%, 10/15/25 Series 2018 | NR/AA/NR | $ 518,115 | |||
500,000 | 5.000%, 10/15/27 Series 2018 | NR/AA/NR | 527,110 | |||
475,000 | 5.000%, 10/15/28 Series 2018 | NR/AA/NR | 499,425 | |||
Utah State Charter School Finance Authority Venture Academy | ||||||
420,000 | 4.000%, 10/15/24 | NR/AA/NR | 421,042 | |||
855,000 | 5.000%, 10/15/29 | NR/AA/NR | 874,409 | |||
1,095,000 | 5.000%, 10/15/34 | NR/AA/NR | 1,113,221 | |||
1,095,000 | 5.000%, 10/15/38 | NR/AA/NR | 1,110,867 | |||
Utah State Charter School Finance Authority Vista School | ||||||
1,080,000 | 4.000%, 10/15/35 | Aa2/NR/NR | 1,005,966 | |||
Utah State Charter School Finance Authority Voyage Academy | ||||||
820,000 | 5.000%, 03/15/27 144A | NR/NR/NR* | 820,098 | |||
2,440,000 | 5.500%, 03/15/37 144A | NR/NR/NR* | 2,440,195 | |||
4,785,000 | 5.600%, 03/15/47 144A | NR/NR/NR* | 4,784,904 | |||
Utah State Charter School Finance Authority Wasatch Peak Academy Project (School Board Guaranty Program) | ||||||
740,000 | 5.000%, 10/15/29 | NR/AA/NR | 744,470 | |||
700,000 | 5.000%, 10/15/36 | NR/AA/NR | 703,129 | |||
Total Charter Schools | 35,803,668 | |||||
Electric (5.1%) | ||||||
Consolidated Wyoming Municipalities Electric Facilities Improvement Lease, Gillette | ||||||
1,000,000 | 5.000%, 06/01/31 | A1/AA-/NR | 1,020,110 | |||
Heber Light & Power Co., Utah Electric Revenue Refunding | ||||||
500,000 | 4.000%, 12/15/36 Series 2019 AGMC Insured | A1/AA/AA- | 490,405 |
7 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Electric (continued) | ||||||
Heber Light & Power Co., Utah Electric Revenue Refunding (continued) | ||||||
$ 645,000 | 4.000%, 12/15/38 Series 2019 AGMC Insured | A1/AA/AA- | $ 603,501 | |||
Intermountain Power Agency, Utah Power Supply Revenue | ||||||
250,000 | 5.000%, 07/01/30 | Aa3/NR/AA- | 277,647 | |||
375,000 | 5.000%, 07/01/33 | Aa3/NR/AA- | 414,836 | |||
375,000 | 5.000%, 07/01/35 | Aa3/NR/AA- | 411,484 | |||
Lehi, Utah Electric Utility Revenue | ||||||
520,000 | 5.000%, 06/01/29 | NR/A+/NR | 561,855 | |||
850,000 | 5.000%, 06/01/31 | NR/A+/NR | 913,767 | |||
Lower Colorado River Authority, Texas Revenue Refunding | ||||||
1,000,000 | 5.000%, 05/15/36 Series 2020 | NR/A/AA- | 1,055,720 | |||
Lower Colorado River Authority, Texas Transmission Contract Revenue | ||||||
1,000,000 | 5.000%, 05/15/30 | NR/A/A+ | 1,038,430 | |||
San Antonio, Texas Electric & Gas Revenue System | ||||||
1,250,000 | 4.000%, 02/01/33 | Aa2/AA-/AA- | 1,261,700 | |||
Southeast Alaska Power Agency Electric Refunding & Improvement | ||||||
1,170,000 | 5.250%, 06/01/30 | NR/A/NR | 1,209,218 | |||
St. George, Utah Electric Revenue | ||||||
1,620,000 | 4.000%, 06/01/32 AGMC Insured | A1/AA/NR | 1,638,711 | |||
Utah Associated Municipal Power System Revenue, Horse Butte Wind Project | ||||||
750,000 | 5.000%, 09/01/24 Series A | NR/A-/AA- | 773,325 | |||
445,000 | 5.000%, 09/01/25 Series A | NR/A-/AA- | 464,896 | |||
375,000 | 5.000%, 09/01/30 Series 2017B | NR/A-/AA- | 400,136 | |||
Utah Associated Municipal Power System Revenue, Veyo Heat Recovery Project | ||||||
795,000 | 5.000%, 03/01/30 | NR/A/AA- | 817,220 | |||
905,000 | 5.000%, 03/01/32 | NR/A/AA- | 927,779 | |||
745,000 | 5.000%, 03/01/34 | NR/A/AA- | 763,066 |
8 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Electric (continued) | ||||||
Utah State Municipal Power Agency Power Supply System Revenue | ||||||
$ 330,000 | 5.000%, 07/01/23 | NR/A+/AA- | $ 334,330 | |||
3,000,000 | 5.000%, 07/01/38 Series B | NR/A+/AA- | 3,111,930 | |||
Total Electric | 18,490,066 | |||||
Healthcare (0.5%) | ||||||
Hale Center, Texas Educational Facilities Corporation, Wayland Baptist University | ||||||
700,000 | 5.000%, 03/01/29 Series 2022 | NR/BBB+/NR | 713,034 | |||
Miami-Dade County, Florida Public Facilities, Jackson Health System | ||||||
1,000,000 | 5.000%, 06/01/29 Series A | Aa3/A+/AA- | 1,037,140 | |||
Total Healthcare | 1,750,174 | |||||
Higher Education (7.8%) | ||||||
Salt Lake County, Utah Westminster College Project | ||||||
790,000 | 5.000%, 10/01/22 | NR/BBB/NR | 790,000 | |||
1,970,000 | 5.000%, 10/01/25 | NR/BBB/NR | 2,009,755 | |||
955,000 | 5.000%, 10/01/28 | NR/BBB/NR | 976,172 | |||
1,845,000 | 5.000%, 10/01/29 | NR/BBB/NR | 1,892,859 | |||
1,005,000 | 5.000%, 10/01/29 | NR/BBB/NR | 1,026,788 | |||
1,055,000 | 5.000%, 10/01/30 | NR/BBB/NR | 1,075,330 | |||
South Dakota Board of Regents, Housing & Auxiliary Facilities System | ||||||
500,000 | 5.000%, 04/01/28 | A1/NR/NR | 526,930 | |||
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 | 1,036,690 | |||
Utah State Board of Higher Education, University of Utah Green Bond | ||||||
1,000,000 | 5.000%, 08/01/39 Series 2022B | Aa1/AA+/NR | 1,071,710 |
9 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Higher Education (continued) | ||||||
Utah State Board of Regents, Dixie State University | ||||||
$ 1,800,000 | 5.000%, 06/01/30 AGMC Insured | NR/AA/NR | $ 1,861,524 | |||
660,000 | 5.000%, 06/01/35 Series B AGMC Insured | NR/AA/NR | 695,653 | |||
690,000 | 5.000%, 06/01/36 Series B AGMC Insured | NR/AA/NR | 726,529 | |||
1,375,000 | 3.000%, 06/01/36 Series 2019 | NR/AA/NR | 1,116,693 | |||
Utah State Board of Regents Lease Revenue | ||||||
120,000 | 4.650%, 05/01/23 AMBAC Insured | NR/AA/NR | 120,128 | |||
Utah State Board of Regents, Student Building Fee, Salt Lake Community College | ||||||
1,295,000 | 5.000%, 03/01/26 Series 2018 | NR/AA/NR | 1,346,036 | |||
1,000,000 | 5.000%, 03/01/27 Series 2018 | NR/AA/NR | 1,037,770 | |||
Utah State Board of Regents, Student Facilities System Revenue, Weber State University | ||||||
750,000 | 5.000%, 04/01/29 AGMC Insured | NR/AA/NR | 802,650 | |||
200,000 | 5.000%, 04/01/30 AGMC Insured | NR/AA/NR | 215,494 | |||
1,000,000 | 3.000%, 04/01/35 Series 2021 BAMAC Insured | NR/AA/NR | 836,310 | |||
Utah State Board of Regents, University of Utah | ||||||
500,000 | 5.000%, 08/01/29 Series A | Aa1/AA+/NR | 537,280 | |||
480,000 | 5.000%, 08/01/33 Series A | Aa1/AA+/NR | 495,778 | |||
600,000 | 5.000%, 08/01/35 Series A | Aa1/AA+/NR | 617,940 | |||
500,000 | 4.000%, 08/01/36 Series A | Aa1/AA+/NR | 480,750 | |||
1,000,000 | 5.000%, 08/01/35 Series B-1 | Aa1/AA+/NR | 1,041,640 | |||
1,500,000 | 5.000%, 08/01/36 Series B-1 | Aa1/AA+/NR | 1,561,380 | |||
Utah State Board of Regents, Utah State University | ||||||
1,105,000 | 4.000%, 12/01/30 Series B | NR/AA/NR | 1,115,486 | |||
2,055,000 | 3.000%, 12/01/36 Series B | NR/AA/NR | 1,676,942 |
10 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Higher Education (continued) | ||||||
Washington State Higher Education Facilities Authority Revenue, Whitman College Project | ||||||
$ 1,345,000 | 5.000%, 01/01/32 | Aa3/NR/NR | $ 1,394,214 | |||
Total Higher Education | 28,086,431 | |||||
Housing (2.5%) | ||||||
King County, Washington Housing Authority Pooled Refunding | ||||||
1,760,000 | 4.000%, 11/01/34 Series 2019 | NR/AA/NR | 1,682,067 | |||
910,000 | 4.000%, 11/01/36 Series 2019 | NR/AAA/NR | 883,228 | |||
500,000 | 4.000%, 06/01/35 Series 2020 | NR/AA/NR | 469,375 | |||
North Dakota Housing Finance Agency, Home Mortgage Finance Program | ||||||
400,000 | 3.000%, 07/01/27 Series A | Aa1/NR/NR | 395,824 | |||
775,000 | 3.000%, 01/01/30 Series 2022A | Aa1/NR/NR | 720,223 | |||
South Dakota Housing Development Authority Homeownership Mortgage | ||||||
250,000 | 1.000%, 05/01/26 Series 2020C | Aaa/AAA/NR | 226,150 | |||
500,000 | 1.350%, 05/01/28 Series 2020C | Aaa/AAA/NR | 434,120 | |||
500,000 | 1.400%, 11/01/28 Series 2020C | Aaa/AAA/NR | 430,100 | |||
Utah Housing Corporation Single Family Mortgage | ||||||
5,000 | 4.950%, 01/01/32 Series A Class II | Aa2/AA+/AA | 5,002 | |||
10,000 | 4.500%, 01/01/24 Series A Class III | Aa3/AA/AA | 10,002 | |||
640,000 | 4.600%, 07/01/34 Series B-1 Class I | Aaa/AAA/AAA | 640,166 | |||
25,000 | 4.625%, 07/01/32 Series B-1 Class II | Aa2/AA+/AA | 25,011 | |||
5,000 | 4.500%, 07/01/23 Series C | Aa3/AA/AA | 5,002 | |||
1,930,000 | 3.850%, 01/01/31 AMT Series D Class III FHA Insured | Aa3/AA-/AA | 1,893,909 | |||
480,000 | 4.000%, 01/01/36 Series D FHA Insured | Aa3/AA-/AA | 474,226 |
11 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Housing (continued) | ||||||
Vancouver, Washington Housing Authority, Anthem Park and Columbia House Projects | ||||||
$ 500,000 | 4.000%, 06/01/35 Series 2020 | NR/AA/NR | $ 467,100 | |||
500,000 | 3.000%, 06/01/38 Series 2020 | NR/AA/NR | 397,115 | |||
Total Housing | 9,158,620 | |||||
Local Public Property (18.0%) | ||||||
Alaska State Municipal Bond Bank | ||||||
540,000 | 5.000%, 02/01/30 AMT | NR/A+/A | 564,764 | |||
565,000 | 5.000%, 02/01/31 AMT | NR/A+/A | 589,035 | |||
590,000 | 5.000%, 02/01/32 AMT | NR/A+/A | 613,211 | |||
770,000 | 4.000%, 12/01/33 | A1/A+/NR | 773,088 | |||
Bluffdale, Utah Local Building Authority Lease Revenue | ||||||
1,215,000 | 4.000%, 03/01/35 | A1/NR/NR | 1,202,328 | |||
Broward County, Florida Convention Center Hotel First Tier | ||||||
1,750,000 | 5.000%, 01/01/32 Series 2022 | Aa1/AAA/AA+ | 1,926,225 | |||
City of Cape Coral, Florida Special Obligation Refunding Revenue | ||||||
1,000,000 | 5.000%, 10/01/37 Series 2017 | Aa3/AA/NR | 1,052,220 | |||
CIVICVentures, Alaska Revenue Refunding, Anchorage Convention Center | ||||||
1,000,000 | 5.000%, 09/01/28 | NR/A+/AA- | 1,007,700 | |||
1,000,000 | 5.000%, 09/01/29 | NR/A+/AA- | 1,006,080 | |||
1,000,000 | 5.000%, 09/01/30 | NR/A+/AA- | 1,004,190 | |||
Downtown Redevelopment Authority, Texas Tax Increment Contract Revenue | ||||||
1,000,000 | 5.000%, 09/01/30 BAMI Insured | NR/AA/NR | 1,041,860 | |||
Eagle Mountain, Utah Special Assessment Area | ||||||
165,000 | 5.250%, 05/01/28 Series 2013 | NR/AA-/NR | 166,302 | |||
Harris County, Texas Sports Refunding Senior Lien | ||||||
500,000 | 5.000%, 11/15/30 Series A | A3/BBB/NR | 510,155 |
12 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Local Public Property (continued) | ||||||
Jacksonville, Florida Special Revenue Bonds | ||||||
$ 1,000,000 | 5.250%, 10/01/37 Series 2022C | NR/AA/AA- | $ 1,079,850 | |||
Jacksonville, Florida Special Revenue and Refunding Bonds | ||||||
1,015,000 | 5.250%, 10/01/32 Series A | Aa3/AA/AA- | 1,029,352 | |||
Manatee County, Florida Revenue Improvement & Refunding | ||||||
500,000 | 5.250%, 10/01/34 Series 2022C | Aa1/NR/AA+ | 561,310 | |||
Matanuska-Susitna Borough, Alaska Lease Revenue Refunding, Goose Creek Correctional Center | ||||||
1,085,000 | 5.000%, 09/01/32 Series 2015 | A1/A+/A | 1,116,215 | |||
Mesquite, Nevada New Special Improvement District | ||||||
100,000 | 5.500%, 08/01/25 | NR/NR/NR* | 100,281 | |||
Midvale, Utah Redevelopment Agency Tax Increment & Sales Tax Revenue Refunding | ||||||
750,000 | 5.000%, 05/01/28 | NR/AA+/NR | 799,477 | |||
1,230,000 | 5.000%, 05/01/31 | NR/AA+/AA | 1,327,908 | |||
1,000,000 | 5.000%, 05/01/32 | NR/AA+/NR | 1,048,260 | |||
Murray City, Utah Municipal Building Authority Lease Revenue | ||||||
380,000 | 4.000%, 12/01/30 Series 2020 | Aa3/NR/NR | 391,297 | |||
480,000 | 4.000%, 12/01/31 Series 2020 | Aa3/NR/NR | 490,675 | |||
300,000 | 4.000%, 12/01/32 Series 2020 | Aa3/NR/NR | 303,339 | |||
North Davis, Utah Fire District Local Building Authority Lease Revenue | ||||||
765,000 | 3.000%, 04/01/37 BAMI Insured | A1/AA/NR | 624,737 | |||
Old Spanish Trail/Almeda Corridors Redevelopment Authority, Texas Tax Increment Contract Revenue | ||||||
1,000,000 | 4.000%, 09/01/35 BAMI Insured | NR/AA/NR | 1,004,430 |
13 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Local Public Property (continued) | ||||||
Orange County, Florida Tourist Development Tax Revenue Refunding | ||||||
$ 1,000,000 | 5.000%, 10/01/30 | Aa2/AA-/AA | $ 1,040,010 | |||
Saint George Place, Texas Redevelopment Authority Tax Increment Contract | ||||||
605,000 | 4.000%, 09/01/30 AGMC Insured | A1/AA/NR | 616,023 | |||
Salt Lake City, Utah Local Building Authority Lease Revenue | ||||||
650,000 | 4.000%, 10/15/23 Series A | Aa1/NR/AA+ | 653,185 | |||
600,000 | 5.000%, 04/15/32 Series A | Aa1/NR/NR | 632,292 | |||
395,000 | 4.000%, 04/15/32 Series A | Aa1/NR/NR | 399,159 | |||
425,000 | 4.000%, 04/15/34 Series A | Aa1/NR/NR | 427,214 | |||
1,075,000 | 5.000%, 04/15/35 Series A | Aa1/NR/NR | 1,127,374 | |||
460,000 | 4.000%, 04/15/36 Series A | Aa1/NR/NR | 447,474 | |||
Salt Lake City, Utah Mosquito Abatement District Local Building Authority Lease Revenue | ||||||
730,000 | 5.000%, 02/15/29 | Aa3/NR/NR | 781,275 | |||
810,000 | 5.000%, 02/15/31 | Aa3/NR/NR | 870,126 | |||
Salt Lake City, Utah Municipal Building Authority Lease Revenue | ||||||
975,000 | 4.000%, 01/15/34 | NR/AA+/AA+ | 989,567 | |||
South Jordan, Utah Special Assessment (Daybreak Assessment Area No. 1) | ||||||
985,000 | 4.000%, 11/01/27 | NR/AA+/NR | 1,008,965 | |||
1,240,000 | 4.000%, 11/01/28 | NR/AA+/NR | 1,269,673 | |||
1,070,000 | 4.000%, 11/01/30 | NR/AA+/NR | 1,092,844 | |||
South Salt Lake, Utah Redevelopment Agency Excise Tax & Tax Increment Revenue Refunding | ||||||
1,000,000 | 4.000%, 11/01/28 Series 2020 | NR/AA/NR | 1,015,050 | |||
1,035,000 | 4.000%, 11/01/29 Series 2020 | NR/AA/NR | 1,052,305 | |||
1,080,000 | 4.000%, 11/01/30 Series 2020 | NR/AA/NR | 1,096,070 | |||
St. Augustine, Florida Capital Improvement Refunding | ||||||
500,000 | 5.000%, 10/01/34 | Aa3/AA/AA- | 508,700 |
14 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Local Public Property (continued) | ||||||
St. Lucie County, Florida School Board COP Master Lease Program | ||||||
$ 500,000 | 5.000%, 07/01/30 Series A | A1/A/A+ | $ 505,860 | |||
Tooele County, Utah Municipal Building Authority Lease Revenue Cross-Over | ||||||
850,000 | 4.000%, 12/15/28 | NR/AA-/NR | 876,384 | |||
885,000 | 4.000%, 12/15/29 | NR/AA-/NR | 909,125 | |||
920,000 | 4.000%, 12/15/30 | NR/AA-/NR | 941,675 | |||
Unified Utah Fire Service Area Local Building Authority Lease Revenue | ||||||
1,800,000 | 4.000%, 04/01/31 | Aa2/NR/NR | 1,856,646 | |||
2,350,000 | 4.000%, 04/01/32 | Aa2/NR/NR | 2,384,051 | |||
1,875,000 | 4.000%, 04/01/32 | Aa2/NR/NR | 1,926,581 | |||
Vineyard Redevelopment Agency, Utah Tax Increment Revenue And Refunding Bonds | ||||||
750,000 | 5.000%, 05/01/25 Series 2021 AGMC Insured | NR/AA/NR | 779,963 | |||
350,000 | 4.000%, 05/01/33 Series 2021 AGMC Insured | NR/AA/NR | 350,998 | |||
Wasatch County, Utah Municipal Building Authority Lease Revenue | ||||||
560,000 | 4.000%, 12/01/28 Series 2021 | NR/AA-/NR | 576,402 | |||
585,000 | 4.000%, 12/01/29 Series 2021 | NR/AA-/NR | 603,931 | |||
605,000 | 4.000%, 12/01/30 Series 2021 | NR/AA-/NR | 624,572 | |||
Washington County, Utah Municipal Building Authority Lease Revenue | ||||||
500,000 | 5.000%, 10/01/32 | Aa3/NR/NR | 524,650 | |||
500,000 | 5.000%, 10/01/37 | Aa3/NR/NR | 521,065 | |||
Weber County, Utah Special Assessment Summit Mountain Area | ||||||
1,520,000 | 5.500%, 01/15/28 | NR/AA/NR | 1,529,637 | |||
3,935,000 | 5.750%, 01/15/33 | NR/AA/NR | 3,959,791 | |||
West Jordan, Utah Municipal Building Authority Lease Revenue | ||||||
1,000,000 | 5.000%, 10/01/29 | Aa3/NR/NR | 1,055,010 | |||
1,000,000 | 5.000%, 10/01/34 | Aa3/NR/NR | 1,046,280 |
15 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Local Public Property (continued) | ||||||
West Palm Beach, Florida Community Redevelopment Agency Tax Increment Revenue Refunding | ||||||
$ 1,500,000 | 5.250%, 03/01/31 | NR/A/AA- | $ 1,574,400 | |||
West Valley City, Utah Municipal Building Authority Lease Revenue Refunding | ||||||
900,000 | 4.000%, 02/01/33 AGMC Insured | NR/AA/AA- | 903,942 | |||
1,000,000 | 5.000%, 02/01/34 AGMC Insured | NR/AA/AA- | 1,040,280 | |||
300,000 | 5.000%, 02/01/34 AGMC Insured | NR/AA/AA- | 318,519 | |||
1,000,000 | 5.000%, 02/01/37 AGMC Insured | NR/AA/NR | 1,049,310 | |||
810,000 | 4.000%, 02/01/38 AGMC Insured | NR/AA/AA- | 761,635 | |||
West Valley City, Utah Redevelopment Agency Revenue Refunding | ||||||
1,885,000 | 5.000%, 11/01/36 | NR/AA/NR | 1,970,164 | |||
Total Local Public Property | 64,952,466 | |||||
Public Schools (3.2%) | ||||||
Alpine, Utah Local Building Authority School District Lease Revenue | ||||||
985,000 | 4.000%, 03/15/28 | Aa1/NR/NR | 1,011,250 | |||
Canyons School District Utah, Local Building Authority Lease | ||||||
725,000 | 4.000%, 06/15/33 Series 2021 | Aa1/NR/NR | 727,559 | |||
750,000 | 4.000%, 06/15/34 Series 2021 | Aa1/NR/NR | 745,822 | |||
Davis County, Utah Municipal Building Authority Crossover Refunding Lease Revenue | ||||||
1,085,000 | 4.000%, 11/01/32 Series 2020 | NR/AA/NR | 1,107,969 | |||
Duchesne School District Utah, Municipal Building Authority Lease | ||||||
750,000 | 5.000%, 06/01/36 Series 2022 | A2/NR/NR | 763,132 | |||
750,000 | 4.000%, 06/01/38 Series 2022 | A2/NR/NR | 656,767 | |||
Grand City, Utah Local Building Authority School District Lease Revenue | ||||||
1,665,000 | 5.000%, 12/15/34 AGMC Insured | A1/AA/NR | 1,715,566 |
16 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Public Schools (continued) | ||||||
Ogden City, Utah Municipal Building Authority School District Lease Revenue | ||||||
$ 1,125,000 | 5.000%, 01/15/30 | A1/NR/NR | $ 1,197,787 | |||
1,315,000 | 5.000%, 01/15/31 | A1/NR/NR | 1,335,738 | |||
500,000 | 5.000%, 01/15/32 Series 2018 | A1/NR/NR | 526,845 | |||
Provo City, Utah Municipal Building Authority School District Lease Revenue | ||||||
1,500,000 | 5.000%, 03/15/33 Series 2022 | Aa3/NR/NR | 1,656,195 | |||
Total Public Schools | 11,444,630 | |||||
Sales Tax (14.2%) | ||||||
Draper, Utah Sales Tax Revenue | ||||||
765,000 | 4.000%, 11/15/39 Series 2022 | NR/AAA/NR | 683,451 | |||
Eagle Mountain, Utah Sales Tax Revenue | ||||||
200,000 | 5.000%, 02/01/29 Series 2022 | NR/AA+/NR | 217,248 | |||
Herriman City, Utah Sales & Franchise Tax Revenue Refunding | ||||||
1,080,000 | 4.000%, 08/01/25 Series B | NR/AA+/NR | 1,087,236 | |||
2,135,000 | 4.000%, 08/01/30 Series B | NR/AA+/NR | 2,179,600 | |||
1,515,000 | 5.000%, 08/01/33 Series B | NR/AA+/NR | 1,569,328 | |||
Holladay, Utah Sales Tax Revenue | ||||||
965,000 | 5.000%, 11/15/29 Series 2022 | NR/AA+/NR | 1,059,724 | |||
1,000,000 | 5.000%, 11/15/33 Series 2022 | NR/AA+/NR | 1,088,810 | |||
865,000 | 5.000%, 11/15/37 Series 2022 | NR/AA+/NR | 930,351 | |||
Lehi, Utah Franchise & Sales Tax Revenue (Broadband Project) | ||||||
985,000 | 5.000%, 02/01/27 Series 2021 AGMC Insured | NR/AA/NR | 1,052,108 | |||
1,000,000 | 4.000%, 02/01/32 Series 2021 AGMC Insured | NR/AA/NR | 1,023,770 | |||
1,000,000 | 4.000%, 02/01/33 Series 2021 AGMC Insured | NR/AA/NR | 1,019,820 | |||
500,000 | 4.000%, 02/01/34 Series 2021 AGMC Insured | NR/AA/NR | 505,660 | |||
500,000 | 4.000%, 02/01/35 Series 2021 AGMC Insured | NR/AA/NR | 502,150 |
17 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Sales Tax (continued) | ||||||
Lehi, Utah Sales Tax Revenue | ||||||
$ 1,220,000 | 4.000%, 06/01/35 Series 2019 | NR/AA+/NR | $ 1,229,492 | |||
420,000 | 4.000%, 06/01/36 Series 2019 | NR/AA+/NR | 410,474 | |||
Mapleton City, Utah Municipal Energy Sales & Sales Tax & Telecommunications Fee | ||||||
1,085,000 | 3.000%, 06/15/31 Series 2021 | NR/A/NR | 972,312 | |||
780,000 | 3.000%, 06/15/33 Series 2021 | NR/A/NR | 672,961 | |||
1,255,000 | 3.000%, 06/15/36 Series 2021 | NR/A/NR | 1,015,910 | |||
Miami-Dade County, Florida Transit System Sales Surtax Revenue | ||||||
1,000,000 | 5.000%, 07/01/34 | A1/AA/AA | 1,038,060 | |||
Ogden City, Utah Franchise Tax Revenue | ||||||
1,625,000 | 3.000%, 01/15/31 | NR/AA/NR | 1,524,071 | |||
Providence City, Utah Franchise & Sales Tax Revenue | ||||||
1,270,000 | 3.000%, 03/01/29 Series 2021 | NR/A-/NR | 1,170,470 | |||
Reno, Nevada Sales Tax Revenue, First Lien, ReTRAC-Reno Transportation Rail Access Corridor Project | ||||||
500,000 | 5.000%, 06/01/26 | A3/NR/NR | 514,515 | |||
Riverton City, Utah Franchise & Sales Tax Revenue | ||||||
750,000 | 4.000%, 06/01/30 | NR/AA+/AAA | 764,760 | |||
Salt Lake County, Utah Sales Tax Revenue | ||||||
525,000 | 5.000%, 02/01/24 Series 2012A | NR/AAA/AAA | 525,724 | |||
1,655,000 | 4.000%, 02/01/34 Series B | NR/AAA/AAA | 1,675,357 | |||
South Jordan, Utah Redevelopment Agency Subordinated Sales Tax & Tax Increment Revenue | ||||||
1,000,000 | 5.000%, 04/01/29 | NR/AA/AAA | 1,039,250 | |||
Spearfish, South Dakota Sales Tax Revenue | ||||||
975,000 | 4.000%, 12/15/29 Series 2022 | A1/NR/NR | 1,011,055 |
18 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Sales Tax (continued) | ||||||
Summit County, Utah Transportation Sales Tax Revenue | ||||||
$ 1,200,000 | 4.000%, 12/15/28 Series 2018 | NR/AA/NR | $ 1,230,492 | |||
1,450,000 | 4.000%, 12/15/29 Series 2018 | NR/AA/NR | 1,485,916 | |||
Utah County, Utah Excise Tax Revenue Refunding | ||||||
1,690,000 | 4.000%, 12/01/36 Series 2020 | NR/AA+/NR | 1,648,308 | |||
Utah County, Utah Transportation Sales Tax Revenue Refunding | ||||||
3,315,000 | 4.000%, 12/01/35 Series 2021 | NR/AA-/NR | 3,242,501 | |||
Utah Transit Authority Sales Tax Revenue | ||||||
2,950,000 | 4.000%, 12/15/34 Series A | Aa2/AA/AA | 2,952,921 | |||
3,440,000 | 4.000%, 12/15/37 Series A | Aa2/AA/AA | 3,252,073 | |||
3,580,000 | 4.000%, 12/15/38 Series A | Aa2/AA/AA | 3,359,078 | |||
Utah Transit Authority Sales Tax Revenue Subordinated | ||||||
1,000,000 | 5.000%, 12/15/32 | Aa3/AA-/AA | 1,075,850 | |||
Utah Transit Authority Sales Tax Revenue Subordinated, Capital Appreciation | ||||||
3,000,000 | zero coupon, 12/15/32 | Aa3/AA-/AA | 1,890,840 | |||
Watertown, South Dakota Sales Tax Revenue | ||||||
1,110,000 | 3.000%, 12/01/34 Series 2021 | NR/A/NR | 954,145 | |||
215,000 | 5.000%, 12/01/23 Series 2022A BAMI Insured | NR/AA/NR | 219,113 | |||
335,000 | 5.000%, 12/01/24 Series 2022A BAMI Insured | NR/AA/NR | 346,692 | |||
350,000 | 5.000%, 12/01/25 Series 2022A BAMI Insured | NR/AA/NR | 366,874 | |||
825,000 | 4.000%, 12/01/33 Series 2022C BAMI Insured | NR/AA/NR | 829,513 | |||
West Valley City, Utah Sales Tax Revenue Capital Appreciation Bonds, Refunding | ||||||
3,500,000 | zero coupon, 07/15/35 | NR/AA+/NR | 1,785,980 | |||
Total Sales Tax | 51,123,963 | |||||
19 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
State Agency (4.1%) | ||||||
Utah Infrastructure Agency Telecommunications, Franchise & Sales Tax, Cedar Hills Project | ||||||
$ 1,230,000 | 4.000%, 10/15/32 Series 2022 | NR/A+/NR | $ 1,210,960 | |||
905,000 | 4.000%, 10/15/37 Series 2022 | NR/A+/NR | 837,478 | |||
1,125,000 | 4.250%, 10/15/42 Series 2022 | NR/A+/NR | 1,022,378 | |||
Utah Infrastructure Agency Telecommunications & Franchise Tax, Clearfield City | ||||||
315,000 | 5.000%, 10/15/25 Series 2020 | NR/A+/NR | 327,329 | |||
335,000 | 5.000%, 10/15/26 Series 2020 | NR/A+/NR | 351,911 | |||
350,000 | 5.000%, 10/15/27 Series 2020 | NR/A+/NR | 370,622 | |||
Utah Infrastructure Agency Telecommunications & Franchise Tax, Layton City | ||||||
500,000 | 5.000%, 10/15/30 Series 2018 | NR/A+/NR | 531,215 | |||
Utah Infrastructure Agency Telecommunications & Franchise Tax, Payson City | ||||||
485,000 | 5.000%, 10/01/29 Series 2019 | NR/A+/NR | 512,010 | |||
640,000 | 4.000%, 10/01/34 Series 2019 | NR/A+/NR | 611,571 | |||
Utah Infrastructure Agency Telecommunications, Franchise & Sales Tax, Santa Clara Project | ||||||
1,180,000 | 4.000%, 10/15/32 Series 2022 | NR/A/NR | 1,160,790 | |||
1,010,000 | 4.000%, 10/15/37 Series 2022 | NR/A/NR | 942,179 | |||
Utah Infrastructure Agency Telecommunications, Franchise & Sales Tax, Syracuse City Project | ||||||
1,000,000 | 4.000%, 10/15/30 Series 2021 | NR/AA-/NR | 1,025,720 | |||
Utah Infrastructure Agency Telecommunications Revenue & Refunding Bonds | ||||||
640,000 | 5.000%, 10/15/22 Series A | NR/NR/BBB- | 640,083 | |||
750,000 | 4.000%, 10/15/22 Series A | NR/NR/BBB- | 749,873 |
20 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
State Agency (continued) | ||||||
Utah State Building Ownership Authority Lease Revenue Refunding State Facilities Master Lease Program | ||||||
$ 1,000,000 | 5.000%, 05/15/24 | Aa1/AA+/NR | $ 1,029,590 | |||
905,000 | 4.000%, 05/15/29 | Aa1/AA+/NR | 931,471 | |||
1,775,000 | 3.000%, 05/15/29 | Aa1/AA+/NR | 1,690,031 | |||
940,000 | 4.000%, 05/15/30 | Aa1/AA+/NR | 963,660 | |||
Total State Agency | 14,908,871 | |||||
Transportation (0.8%) | ||||||
Clark County, Nevada Highway Improvement Revenue Indexed Fuel Tax & Subordinate Motor Vehicle Fuel Tax | ||||||
500,000 | 5.000%, 07/01/36 | Aa3/AA-/NR | 522,660 | |||
Pharr, Texas International Toll Bridge System Revenue | ||||||
1,000,000 | 4.000%, 08/15/35 Series 2021 | A2/A/NR | 923,930 | |||
Salt Lake County, Utah Excise Tax Road Revenue | ||||||
1,000,000 | 4.000%, 08/15/31 Series 2017 | NR/AAA/AAA | 1,023,510 | |||
Utah Transit Authority Sales Tax & Transportation Revenue | ||||||
195,000 | 5.250%, 06/15/32 AGMC Insured | Aa2/AA/AA | 218,316 | |||
Total Transportation | 2,688,416 | |||||
Water and Sewer (10.4%) | ||||||
Brian Head, Utah Water Revenue Refunding | ||||||
720,000 | 3.000%, 04/01/36 Series 2021 AGMC Insured | NR/AA/NR | 596,369 | |||
Central Utah Water Conservancy District Refunding | ||||||
1,785,000 | 5.000%, 10/01/37 Series 2020D | NR/AA+/AA+ | 1,928,835 | |||
1,000,000 | 4.000%, 10/01/38 Series 2020D | NR/AA+/AA+ | 945,220 |
21 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Water and Sewer (continued) | ||||||
Central Valley, Utah Water Reclamation Facility, Green Bond | ||||||
$ 1,215,000 | 3.000%, 03/01/32 Series 2021B | NR/AA/AA | $ 1,118,116 | |||
1,255,000 | 3.000%, 03/01/33 Series 2021B | NR/AA/AA | 1,130,680 | |||
1,090,000 | 3.000%, 03/01/34 Series 2021B | NR/AA/AA | 962,230 | |||
1,080,000 | 3.000%, 03/01/35 Series 2021B | NR/AA/AA | 929,038 | |||
Eagle Mountain, Utah Water & Sewer Revenue Refunding | ||||||
420,000 | 4.000%, 11/15/24 Series A BAMI Insured | NR/AA/NR | 426,733 | |||
El Paso, Texas Water & Sewer Revenue Refunding | ||||||
1,000,000 | 4.500%, 03/01/31 Series C | NR/AA+/AA+ | 1,026,200 | |||
Fairview City, Utah Water & Sewer Revenue Refunding | ||||||
725,000 | 4.000%, 06/15/46 Series 2022 | NR/BBB/NR | 574,091 | |||
Florida State Governmental Utility Authority Refunding Revenue Bonds (Lehigh Utility System) | ||||||
500,000 | 5.000%, 10/01/31 Series 2014 AGMC Insured | A1/AA/NR | 516,000 | |||
Herriman City, Utah Water Revenue Refunding | ||||||
450,000 | 4.000%, 01/01/35 Series 2021 AGMC Insured | NR/AA/NR | 445,522 | |||
Hooper, Utah Water Improvement District Revenue Refunding | ||||||
1,000,000 | 4.000%, 06/15/34 Series 2019 | NR/AA-/NR | 985,390 | |||
220,000 | 4.000%, 06/15/39 Series 2019 | NR/AA-/NR | 203,511 | |||
Jordan Valley, Utah Water Conservancy District Revenue | ||||||
1,000,000 | 5.000%, 10/01/26 Series B | NR/AA+/AA+ | 1,066,910 | |||
1,000,000 | 4.000%, 10/01/32 Series B | NR/AA+/AA+ | 1,017,910 | |||
1,145,000 | 4.000%, 10/01/32 Series 2021A | NR/AA+/AA+ | 1,170,659 | |||
Jordanelle, Utah Special Service District | ||||||
283,000 | 5.800%, 11/15/22 | NR/NR/NR* | 282,485 | |||
299,000 | 6.000%, 11/15/23 | NR/NR/NR* | 295,134 |
22 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Water and Sewer (continued) | ||||||
Lakewood, Washington Water District, Pierce County | ||||||
$ 750,000 | 4.000%, 12/01/37 Series 2019A AMT | NR/AA/NR | $ 736,477 | |||
Okaloosa County, Florida Water and Sewer Revenue | ||||||
1,000,000 | 5.000%, 07/01/30 | Aa3/NR/AA+ | 1,040,990 | |||
Orem, Utah Water, Sewer and Storm Sewer | ||||||
540,000 | 4.000%, 07/15/34 Series 2021A | NR/AA+/AAA | 547,398 | |||
Park City, Utah Water Revenue Green Bonds | ||||||
1,000,000 | 3.000%, 12/15/33 Series 2020 | Aa2/AA/NR | 876,950 | |||
Pleasant Grove City, Utah Storm Water Revenue Refunding | ||||||
205,000 | 4.000%, 07/15/27 Series 2020 BAMI Insured | NR/AA/NR | 210,906 | |||
370,000 | 4.000%, 07/15/28 Series 2020 BAMI Insured | NR/AA/NR | 381,289 | |||
485,000 | 4.000%, 07/15/29 Series 2020 BAMI Insured | NR/AA/NR | 501,766 | |||
510,000 | 4.000%, 07/15/30 Series 2020 BAMI Insured | NR/AA/NR | 528,385 | |||
525,000 | 4.000%, 07/15/31 Series 2020 BAMI Insured | NR/AA/NR | 534,340 | |||
Salt Lake City, Utah Public Utilities Revenue | ||||||
1,000,000 | 5.000%, 02/01/32 | Aa1/AAA/NR | 1,043,790 | |||
1,400,000 | 5.000%, 02/01/33 | Aa1/AAA/NR | 1,458,184 | |||
1,000,000 | 5.000%, 02/01/35 | Aa1/AAA/NR | 1,037,440 | |||
500,000 | 4.000%, 02/01/37 | Aa1/AAA/NR | 476,495 | |||
500,000 | 4.000%, 02/01/38 | Aa1/AAA/NR | 473,220 | |||
San Jacinto, Texas River Authority Woodlands Waste Disposal | ||||||
1,000,000 | 5.000%, 10/01/30 BAMI Insured | NR/AA/NR | 1,011,630 | |||
Texas Water Development Board | ||||||
5,000,000 | 4.000%, 08/01/35 Series 2021 | NR/AAA/AAA | 4,911,350 |
23 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Water and Sewer (continued) | ||||||
Utah Water Finance Agency Revenue | ||||||
$ 950,000 | 4.000%, 03/01/33 | NR/AA/AA+ | $ 963,120 | |||
1,000,000 | 4.000%, 03/01/34 | NR/AA/AA | 1,014,320 | |||
1,000,000 | 5.000%, 03/01/35 | NR/AA/AA | 1,045,080 | |||
1,295,000 | 5.000%, 03/01/38 | NR/AA/AA | 1,376,805 | |||
Weber Basin, Utah Water Conservancy District Refunding | ||||||
915,000 | 4.000%, 10/01/31 Series A | NR/AA+/AAA | 922,933 | |||
West Harris County, Texas Regional Water Authority | ||||||
815,000 | 5.000%, 12/15/26 Series A | A1/AA-/A+ | 851,789 | |||
Total Water and Sewer | 37,565,690 | |||||
Total Revenue Bonds | 302,933,107 | |||||
Pre-Refunded Bonds\Escrowed to Maturity Bonds (4.6%)†† | ||||||
Pre-Refunded General Obligation Bonds (0.7%) | ||||||
City and County (0.3%) | ||||||
Miami Gardens, Florida | ||||||
1,000,000 | 5.000%, 07/01/29 | A1/A+/NR | 1,029,560 | |||
Public Schools (0.4%) | ||||||
Leander Independent School District, Texas (Williamson & Travis Counties) Unlimited Tax School Building | ||||||
2,035,000 | zero coupon, 08/15/47 Series 2014 C PSF Guaranteed | NR/NR/NR* | 543,019 | |||
Wylie, Texas Independent School District Capital Appreciation | ||||||
1,000,000 | zero coupon, 08/15/32 PSF Guaranteed | Aaa/NR/NR | 695,680 | |||
Total Public Schools | 1,238,699 | |||||
Total Pre-Refunded General Obligation Bonds | 2,268,259 | |||||
24 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Pre-Refunded\Escrowed to Maturity Revenue Bonds (3.9%) | Ratings Moody’s, S&P and Fitch | Value | |||
Charter Schools (0.5%) | ||||||
Utah State Charter School Finance Authority Legacy Preparatory Academy | ||||||
$ 140,000 | 4.000%, 04/15/24 ETM | NR/NR/NR* | $ 141,806 | |||
820,000 | 5.000%, 04/15/29 | NR/NR/NR* | 849,668 | |||
Utah State Charter School Finance Authority Ogden Preparatory Academy (School Board Guaranty Program) | ||||||
285,000 | 4.000%, 10/15/22 ETM | NR/NR/NR* | 285,077 | |||
355,000 | 4.000%, 10/15/23 | NR/NR/NR* | 355,092 | |||
265,000 | 4.000%, 10/15/24 | NR/NR/NR* | 265,069 | |||
Total Charter Schools | 1,896,712 | |||||
Electric (0.2%) | ||||||
Wyoming Municipal Power Agency Power Supply System Revenue | ||||||
665,000 | 5.000%, 01/01/27 Series A BAMI Insured ETM | NR/NR/NR* | 710,885 | |||
Healthcare (0.2%) | ||||||
Brevard County, Florida Health Facilities Authority Health First Inc. Project | ||||||
750,000 | 5.000%, 04/01/30 | A2/A/NR | 767,528 | |||
Higher Education (1.0%) | ||||||
Florida Higher Education Facilities Authority Revenue, Refunding, Rollins College Project | ||||||
1,000,000 | 5.000%, 12/01/37 Series A | A2/NR/NR | 1,003,060 | |||
Utah State University Student Building Fee | ||||||
1,285,000 | 5.000%, 12/01/29 Series B | NR/AA/NR | 1,301,050 | |||
1,355,000 | 5.000%, 12/01/30 Series B | NR/AA/NR | 1,371,924 | |||
Total Higher Education | 3,676,034 | |||||
25 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Pre-Refunded\Escrowed to Maturity Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Sales Tax (0.7%) | ||||||
Riverton City, Utah Franchise & Sales Tax Revenue | ||||||
$ 1,000,000 | 5.250%, 12/01/36 | NR/AA+/NR | $ 1,014,100 | |||
Utah Transit Authority Sales Tax Revenue | ||||||
1,560,000 | 5.000%, 06/15/37 Series A | Aa3/AA-/NR | 1,633,679 | |||
Total Sales Tax | 2,647,779 | |||||
State Agency (0.8%) | ||||||
Utah Infrastructure Agency Telecommunications & Franchise Tax | ||||||
1,000,000 | 5.000%, 10/15/33 | A2/NR/NR | 1,015,920 | |||
1,630,000 | 5.250%, 10/15/38 | A2/NR/NR | 1,660,041 | |||
Total State Agency | 2,675,961 | |||||
Water and Sewer (0.5%) | ||||||
Ogden City, Utah Sewer & Water Revenue Bonds | ||||||
1,160,000 | 5.250%, 06/15/30 Series B | Aa3/AA-/NR | 1,177,307 | |||
Ogden City, Utah Storm Drain Revenue Bonds | ||||||
500,000 | 5.250%, 06/15/28 | NR/NR/NR* | 507,115 | |||
Total Water and Sewer | 1,684,422 | |||||
Total Pre-Refunded\Escrowed to Maturity Revenue Bonds | 14,059,321 | |||||
Total Pre-Refunded\Escrowed to Maturity Bonds | 16,327,580 | |||||
Total Municipal Bonds (cost $380,167,964) | 354,965,654 | |||||
26 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Shares | Short-Term Investment (0.4%) | Ratings Moody’s, S&P and Fitch | Value | |||
1,475,785 | Dreyfus Treasury Obligations Cash Management - Institutional Shares, 2.85%** (cost $1,475,785) | Aaa-mf/AAAm/NR | $ 1,475,785 | |||
Total Investments (cost $381,643,749 - note 4) | 98.9% | 356,441,439 | ||||
Other assets less liabilities | 1.1 | 4,074,397 | ||||
Net Assets | 100.0% | $ 360,515,836 |
Portfolio Distribution By Quality Rating | Percentage of Investments† | |
Aaa of Moody's or AAA of S&P and Fitch | 9.3% | |
Pre-refunded bonds\ETM bonds†† | 4.6 | |
Aa of Moody's or AA of S&P and Fitch | 62.4 | |
A of Moody's or S&P and Fitch | 16.9 | |
BBB of S&P and Fitch | 2.9 | |
Not Rated* | 3.9 | |
100.0% |
PORTFOLIO ABBREVIATIONS |
AGMC - Assured Guaranty Municipal Corp. AMBAC - American Municipal Bond Assurance Corp. AMT - Alternative Minimum Tax BAMAC - Build America Mutual Assurance Co. BAMI - Build America Mutual Insurance COP - Certificates of Participation ETM - Escrowed to Maturity FHA - Federal Housing Administration NR - Not Rated PSF - Permanent School Fund |
27 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
* | 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. |
** | The rate is an annualized seven-day yield at period end. |
† | Where applicable, calculated using the highest rating of the three NRSRO. Percentages in this table do not include the Short-Term Investment. |
†† | 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. Escrowed to Maturity bonds are bonds where money has been placed in the escrow account which is used to pay principal and interest through the bond’s originally scheduled maturity date. Escrowed to Maturity are shown as ETM. All other securities in the category are pre-refunded. |
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.
28 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2022 (unaudited) |
ASSETS | |||
Investments at value (cost $381,643,749) | $ | 356,441,439 | |
Interest receivable | 4,746,017 | ||
Receivable for investment securities sold | 1,131,305 | ||
Receivable for Fund Shares sold | 420,161 | ||
Other assets | 29,618 | ||
Total assets | 362,768,540 | ||
LIABILITIES | |||
Payable for Fund shares redeemed | 1,308,036 | ||
Payable for investment securities purchased | 564,446 | ||
Management fee payable | 147,159 | ||
Dividends payable | 87,571 | ||
Distribution and service fees payable | 990 | ||
Accrued expenses payable | 144,502 | ||
Total liabilities | 2,252,704 | ||
NET ASSETS | $ | 360,515,836 | |
Net Assets consist of: | |||
Capital Stock – Authorized an unlimited number of shares, par value $0.01 per share | $ | 385,836 | |
Additional paid-in capital | 393,250,180 | ||
Total distributable earnings (losses) | (33,120,180) | ||
$ | 360,515,836 | ||
CLASS A | |||
Net Assets | $ | 188,742,803 | |
Capital shares outstanding | 20,223,488 | ||
Net asset value and redemption price per share | $ | 9.33 | |
Maximum offering price per share (100/97 of $9.33) | $ | 9.62 | |
CLASS C | |||
Net Assets | $ | 11,502,965 | |
Capital shares outstanding | 1,232,746 | ||
Net asset value and offering price per share | $ | 9.33 | |
CLASS F | |||
Net Assets | $ | 9,178,109 | |
Capital shares outstanding | 977,871 | ||
Net asset value, offering and redemption price per share | $ | 9.39 | |
CLASS Y | |||
Net Assets | $ | 151,091,959 | |
Capital shares outstanding | 16,149,483 | ||
Net asset value, offering and redemption price per share | $ | 9.36 |
See accompanying notes to financial statements.
29 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH STATEMENT OF OPERATIONS SIX MONTHS ENDED SEPTEMBER 30, 2022 (unaudited) |
Investment Income | ||||||
Interest income | $ | 5,672,418 | ||||
Expenses | ||||||
Management fee (note 3) | $ | 993,589 | ||||
Distribution and service fee (note 3) | 277,468 | |||||
Transfer and shareholder servicing agent fees | 103,692 | |||||
Trustees’ fees and expenses (note 6) | 58,367 | |||||
Legal fees | 54,253 | |||||
Fund accounting fees | 47,393 | |||||
Registration fees and dues | 20,571 | |||||
Auditing and tax fees | 14,300 | |||||
Insurance | 11,652 | |||||
Shareholders’ reports | 10,248 | |||||
Custodian fees | 7,638 | |||||
Compliance services (note 3) | 5,247 | |||||
Credit facility fees (note 10) | 4,687 | |||||
Miscellaneous | 13,736 | |||||
Total expenses | 1,622,841 | |||||
Management fee waived (note 3) | (40,251) | |||||
Net expenses | 1,582,590 | |||||
Net investment income | 4,089,828 | |||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||
Net realized gain (loss) from securities transactions | (3,366,505) | |||||
Change in unrealized appreciation (depreciation) on investments | (21,589,933) | |||||
Net realized and unrealized gain (loss) on investments | (24,956,438) | |||||
Net change in net assets resulting from operations | $ | (20,866,610) |
See accompanying notes to financial statements.
30 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH STATEMENT OF CHANGES IN NET ASSETS |
Six Months Ended September 30, 2022 (unaudited) | Year Ended March 31, 2022 | |||||
OPERATIONS | ||||||
Net investment income | $ | 4,089,828 | $ | 8,552,781 | ||
Realized gain (loss) from securities transactions | (3,366,505) | (2,624,580) | ||||
Change in unrealized appreciation (depreciation) on investments | (21,589,933) | (26,740,268) | ||||
Change in net assets resulting from operations | (20,866,610) | (20,812,067) | ||||
DISTRIBUTIONS TO SHAREHOLDERS (note 9): | ||||||
Class A Shares | (2,082,709) | (4,259,623) | ||||
Class C Shares | (82,500) | (210,585) | ||||
Class F Shares | (107,163) | (134,309) | ||||
Class Y Shares | (1,817,481) | (3,948,171) | ||||
Change in net assets from distributions | (4,089,853) | (8,552,688) | ||||
CAPITAL SHARE TRANSACTIONS (note 7): | ||||||
Proceeds from shares sold | 44,880,590 | 106,208,547 | ||||
Reinvested dividends and distributions | 3,542,053 | 7,420,222 | ||||
Cost of shares redeemed | (100,036,113) | (126,549,085) | ||||
Change in net assets from capital share transactions | (51,613,470) | (12,920,316) | ||||
Change in net assets | (76,569,933) | (42,285,071) | ||||
NET ASSETS: | ||||||
Beginning of period | 437,085,769 | 479,370,840 | ||||
End of period | $ | 360,515,836 | $ | 437,085,769 |
See accompanying notes to financial statements.
31 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2022 (unaudited) |
1. Organization
Aquila Tax-Free Fund For Utah (the “Fund”) is one of six series of Aquila Municipal Trust, a Massachusetts business trust registered under the Investment Company Act of 1940 (the “1940 Act”) as a non-diversified, open-end management investment company. The Fund, which commenced operations on October 12, 2013, is the successor to Tax-Free Fund For Utah. Tax-Free Fund For Utah transferred all of its assets and liabilities in exchange for shares of the Fund on October 11, 2013 pursuant to an agreement and plan of reorganization (the “reorganization”). The reorganization was approved by shareholders of Tax-Free Fund For Utah on September 17, 2013. The reorganization was accomplished by exchanging the assets and liabilities of the predecessor fund for shares of the Fund. Shareowners holding shares of Tax-Free Fund For Utah received corresponding shares of the Fund in a one-to-one exchange ratio in the reorganization. Accordingly, the reorganization, which was a tax-free exchange, had no effect on the Fund’s operations. 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 F Shares and 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 F Shares and 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. 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 ask quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued using other fair value methods. Aquila Investment Management LLC, the Fund’s investment manager, has been designated as the Fund’s valuation designee, with responsibility for fair valuation subject to oversight by the Fund’s 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 |
32 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
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 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, 2022:
Valuation Inputs* | Investments in Securities | |||
Level 1 – Quoted Prices – Short-Term Investment | $ | 1,475,785 | ||
Level 2 – Other Significant Observable Inputs – Municipal Bonds* | 354,965,654 | |||
Level 3 – Significant Unobservable Inputs | — | |||
Total | $ | 356,441,439 | ||
* 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. |
33 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Management has reviewed the tax positions for each of the open tax years (2019 – 2021) or expected to be taken in the Fund’s 2022 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. These reclassifications had no effect on net assets or net asset value per share. For the year ended March 31, 2022, there were no items identified that have been reclassified among components of net assets. |
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 transfer and 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 its fees so that management fees are equivalent to 0.48 of 1% of net assets of the Fund up to $400,000,000; 0.46 of 1% of net assets above $400,000,000 up to $1,000,000,000; and 0.44 of 1% of net assets above $1,000,000,000. This contractual undertaking is currently in effect until
34 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
September 30, 2023. The Manager may not terminate the arrangement without the approval of the Board of Trustees. For the six months ended September 30, 2022, the Fund incurred management fees of $993,589 of which $40,251 was waived.
Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for compliance related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940, as amended (the “1940 Act”).
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 1940 Act. 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 LLC (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, 2022, distribution fees on Class A Shares amounted to $208,338, of which the Distributor retained $9,663.
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, 2022, these payments amounted to $51,847. 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, 2022, amounted to $17,283. The total of these payments with respect to Class C Shares amounted to $69,130, of which the Distributor retained $16,894.
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 (“financial intermediaries”), the Fund’s shares are sold primarily through the facilities of these financial intermediaries having offices within Utah, with the bulk of any sales commissions inuring to such financial intermediaries. For the six months ended September 30, 2022, total commissions on sales of Class A Shares amounted to $22,378, of which the Distributor received $8,864.
35 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
c) | Transfer and shareholder servicing fees: |
The Fund occasionally compensates financial intermediaries in connection with the sub-transfer agency related services provided by such entities in connection with their respective Fund shareholders so long as the fees are deemed by the Board of Trustees to be reasonable in relation to (i) the value of the services and the benefits received by the Fund and certain shareholders; and (ii) the payments that the Fund would make to another entity to perform similar ongoing services to existing shareholders.
4. Purchases and Sales of Securities
During the six months ended September 30, 2022, purchases of securities and proceeds from the sales of securities aggregated $27,236,751 and $72,222,127, respectively.
At September 30, 2022, the aggregate tax cost for all securities was $381,643,749. At September 30, 2022, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $250,050 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $25,452,360, for a net unrealized depreciation of $25,202,310.
5. Portfolio Orientation
At least 50% of the Fund’s assets will always consist of obligations of Utah-based issuers. At September 30, 2022, the Fund had 72% of its portfolio holdings 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 Utah statutory authority, the interest on which is currently exempt from Utah individual income taxes. There can be no certainty as to the ongoing exemption from Utah individual income tax of the interest of non-Utah-based issuers. 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. Trustees’ Fees and Expenses
At September 30, 2022, there were 9 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, 2022 was $56,276. 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, 2022, due to the COVID-19 pandemic, such meeting-related expenses were reduced and amounted to $2,091.
36 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
7. Capital Share Transactions
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended September 30, 2022 (unaudited) | Year Ended March 31, 2022 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Class A Shares | ||||||||||
Proceeds from shares sold | 1,730,484 | $ | 16,811,255 | 2,830,581 | $ | 29,901,292 | ||||
Reinvested dividends and distributions | 185,789 | 1,797,414 | 352,591 | 3,706,334 | ||||||
Cost of shares redeemed | (4,175,413) | (40,486,574) | (4,467,167) | (46,921,757) | ||||||
Net change | (2,259,140) | (21,877,905) | (1,283,995) | (13,314,131) | ||||||
Class C Shares | ||||||||||
Proceeds from shares sold | 81,028 | 782,663 | 217,099 | 2,297,467 | ||||||
Reinvested dividends and distributions | 8,034 | 77,728 | 18,341 | 193,168 | ||||||
Cost of shares redeemed | (498,792) | (4,844,831) | (1,158,889) | (12,230,928) | ||||||
Net change | (409,730) | (3,984,440) | (923,449) | (9,740,293) | ||||||
Class F Shares | ||||||||||
Proceeds from shares sold | 263,537 | 2,576,101 | 802,416 | 8,244,770 | ||||||
Reinvested dividends and distributions | 11,017 | 107,163 | 12,746 | 134,253 | ||||||
Cost of shares redeemed | (406,943) | (4,004,066) | (201,626) | (2,095,592) | ||||||
Net change | (132,389) | (1,320,802) | 613,536 | 6,283,431 | ||||||
Class Y Shares | ||||||||||
Proceeds from shares sold | 2,543,751 | 24,710,571 | 6,217,767 | 65,765,018 | ||||||
Reinvested dividends and distributions | 160,830 | 1,559,748 | 321,349 | 3,386,467 | ||||||
Cost of shares redeemed | (5,219,612) | (50,700,642) | (6,198,834) | (65,300,808) | ||||||
Net change | (2,515,031) | (24,430,323) | 340,282 | 3,850,677 | ||||||
Total transactions in Fund shares | (5,316,290) | $ | (51,613,470) | (1,253,626) | $ | (12,920,316) |
8. 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. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
37 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
9. 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 or in cash, 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. 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 and are utilized before capital losses incurred prior to the enactment of the Act. At March 31, 2022, the Fund had capital loss carry forwards of $2,483,446 of which $1,681,431 retains its character of short-term and $802,015 retains its character of long-term; both have no expiration. As of March 31, 2022, the Fund had post-October losses of $2,299,054, which is deferred until fiscal 2023 for tax purposes.
The tax character of distributions was as follows:
Year Ended March 31, 2022 | Year Ended March 31, 2021 | ||||||
Net tax-exempt income | $ | 8,551,851 | $ | 8,901,506 | |||
Ordinary Income | 837 | 5,769 | |||||
$ | 8,552,688 | $ | 8,907,275 |
As of March 31, 2022, the components of distributable earnings on a tax basis were:
Undistributed tax-exempt income | $ | 325,726 | ||
Accumulated net realized loss on investments | (2,483,446) | |||
Unrealized depreciation | (3,611,808) | |||
Post October Losses | (2,299,054) | |||
Other temporary differences | (95,135) | |||
$ | (8,163,717) |
The difference between book basis and tax basis unrealized appreciation and undistributed income is due to the timing difference, and other temporary differences, in recognizing dividends paid, the tax treatment of market discount amortization, and the deduction of distributions payable.
38 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
10. Credit Facility
Since August 30, 2017, Bank of New York Mellon and the Aquila Group of Funds (comprised of nine funds) have been parties to a $40 million credit agreement, which currently terminates on August 23, 2023 (per the August 24, 2022 amendment). In accordance with the Aquila Group of Funds Guidelines for Allocation of Committed Line of Credit, each fund is responsible for payment of its proportionate share of
a) | a 0.17% per annum commitment fee; and, |
b) | interest on amounts borrowed for temporary or emergency purposes by the fund (at the applicable per annum rate selected by the Aquila Group of Funds at the time of the borrowing of either (i) the adjusted daily simple Secured Overnight Financing Rate (“SOFR”) plus 1% or (ii) the sum of the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate, or (c) the adjusted daily simple Secured Overnight Financing Rate (“SOFR”) plus 1%). |
There were no borrowings under the credit agreement during the six months ended September 30, 2022.
11. Risks
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, political or regulatory conditions, recessions, inflation, changes in interest rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues, armed conflict including Russia’s military invasion of Ukraine, sanctions against Russia, other nations or individuals or companies and possible countermeasures, market disruptions caused by tariffs, trade disputes or other factors, or adverse investor sentiment. When market prices fall, the value of your investment may go down. In the past several years, financial markets have experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. These conditions may continue, recur, worsen or spread.
Rates of inflation have recently risen. The value of assets or income from an investment may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline as can the value of the Fund’s distributions.
The global pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s invasion of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or
39 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
markets could be similarly affected by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the economy and securities markets, may not be known for some time.
The value of your investment will generally go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term or longer duration securities. In recent years, interest rates and credit spreads in the U.S. have been at historic lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain interest rates. A general rise in interest rates may cause investors to move out of fixed income securities on a large scale and could also result in increased redemptions from the Fund.
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. The municipal bond market can be susceptible to unusual volatility, particularly for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic conditions or credit tightening. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Unfavorable conditions and developments relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. Municipal securities may be more susceptible to downgrades or defaults during a recession or similar periods of economic stress. Financial difficulties of municipal issuers may continue or get worse, particularly in the event of economic or market turmoil or a recession.
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.
40 | 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 | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $9.94 | $10.60 | $10.50 | $10.36 | $10.18 | $10.26 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.10 | 0.18 | 0.21 | 0.24 | 0.26 | 0.27 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.61) | (0.66) | 0.10 | 0.14 | 0.18 | (0.08) | ||||||
Total from investment operations | (0.51) | (0.48) | 0.31 | 0.38 | 0.44 | 0.19 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.10) | (0.18) | (0.21) | (0.24) | (0.26) | (0.27) | ||||||
Distributions from capital gains | — | — | — | — | — | — | ||||||
Total distributions | (0.10) | (0.18) | (0.21) | (0.24) | (0.26) | (0.27) | ||||||
Net asset value, end of period | $9.33 | $9.94 | $10.60 | $10.50 | $10.36 | $10.18 | ||||||
Total return (not reflecting sales charge) | (5.19)%(2) | (4.58)% | 2.93% | 3.72% | 4.36% | 1.84% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $189 | $224 | $252 | $229 | $204 | $213 | ||||||
Ratio of expenses to average net assets | 0.86%(3) | 0.82% | 0.85% | 0.88% | 0.86% | 0.84% | ||||||
Ratio of net investment income to average net assets | 2.00%(3) | 1.73% | 1.94% | 2.31% | 2.52% | 2.61% | ||||||
Portfolio turnover rate | 7%(2) | 19% | 6% | 8% | 14% | 15% |
Expense and net investment income ratios without the effect of the contractual expense cap and/or fee waiver were (note 3):
Ratio of expenses to average net assets | 0.88%(3) | 0.84% | 0.87% | 0.90% | 0.89% | 0.87% | ||||||
Ratio of net investment income to average net assets | 1.98%(3) | 1.71% | 1.92% | 2.29% | 2.49% | 2.58% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
41 | 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 | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $9.94 | $10.60 | $10.49 | $10.35 | $10.17 | $10.25 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.06 | 0.10 | 0.12 | 0.16 | 0.17 | 0.19 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.61) | (0.66) | 0.11 | 0.14 | 0.19 | (0.08) | ||||||
Total from investment operations | (0.55) | (0.56) | 0.23 | 0.30 | 0.36 | 0.11 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.06) | (0.10) | (0.12) | (0.16) | (0.18) | (0.19) | ||||||
Distributions from capital gains | — | — | –– | — | — | — | ||||||
Total distributions | (0.06) | (0.10) | (0.12) | (0.16) | (0.18) | (0.19) | ||||||
Net asset value, end of period | $9.33 | $9.94 | $10.60 | $10.49 | $10.35 | $10.17 | ||||||
Total return (not reflecting CDSC) | (5.57)%(2) | (5.35)% | 2.21% | 2.90% | 3.53% | 1.03% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $12 | $16 | $27 | $31 | $37 | $58 | ||||||
Ratio of expenses to average net assets | 1.66%(3) | 1.62% | 1.65% | 1.68% | 1.65% | 1.64% | ||||||
Ratio of net investment income to average net assets | 1.19%(3) | 0.93% | 1.14% | 1.52% | 1.72% | 1.81% | ||||||
Portfolio turnover rate | 7%(2) | 19% | 6% | 8% | 14% | 15% |
Expense and net investment income ratios without the effect of the contractual expense cap and/or fee waiver were (note 3):
Ratio of expenses to average net assets | 1.68%(3) | 1.64% | 1.67% | 1.70% | 1.68% | 1.66% | ||||||
Ratio of net investment income to average net assets | 1.17%(3) | 0.90% | 1.12% | 1.50% | 1.69% | 1.78% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
42 | Aquila Tax-Free Fund For Utah
AQUILA TAX-FREE FUND FOR UTAH FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class F | ||||||||||
For the | ||||||||||
Period | ||||||||||
Six | November 30, | |||||||||
Months | 2018* | |||||||||
Ended | through | |||||||||
9/30/22 | Year Ended March 31, | March 31, | ||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | ||||||
Net asset value, beginning of period | $10.00 | $10.65 | $10.54 | $10.39 | $10.12 | |||||
Income (loss) from investment operations: | ||||||||||
Net investment income(1) | 0.11 | 0.21 | 0.23 | 0.26 | 0.09 | |||||
Net gain (loss) on securities (both realized and unrealized) | (0.61) | (0.65) | 0.11 | 0.16 | 0.27 | |||||
Total from investment operations | (0.50) | (0.44) | 0.34 | 0.42 | 0.36 | |||||
Less distributions (note 9): | ||||||||||
Dividends from net investment income | (0.11) | (0.21) | (0.23) | (0.27) | (0.09) | |||||
Distributions from capital gains | — | — | — | — | — | |||||
Total distributions | (0.11) | (0.21) | (0.23) | (0.27) | (0.09) | |||||
Net asset value, end of period | $9.39 | $10.00 | $10.65 | $10.54 | $10.39 | |||||
Total return (not reflecting sales charge) | (5.04)%(2) | (4.24)% | 3.26% | 4.05% | 3.58%(2) | |||||
Ratios/supplemental data | ||||||||||
Net assets, end of period (in millions) | $9 | $11 | $5.3 | $2.0 | $0.7 | |||||
Ratio of expenses to average net assets | 0.63%(3) | 0.59% | 0.61% | 0.65% | 0.65%(3) | |||||
Ratio of net investment income to average net assets | 2.23%(3) | 1.96% | 2.15% | 2.51% | 2.71%(3) | |||||
Portfolio turnover rate | 7%(2) | 19% | 6% | 8% | 14%(3) |
Expense and net investment income ratios without the effect of the contractual expense cap and/or fee waiver were (note 3):
Ratio of expenses to average net assets | 0.65%(3) | 0.61% | 0.63% | 0.67% | 0.68%(3) | |||||
Ratio of net investment income to average net assets | 2.21%(3) | 1.93% | 2.12% | 2.49% | 2.68%(3) |
* Commencement of operations.
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
43 | 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 | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $9.97 | $10.63 | $10.52 | $10.39 | $10.22 | $10.29 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.11 | 0.20 | 0.23 | 0.26 | 0.28 | 0.29 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.61) | (0.66) | 0.11 | 0.14 | 0.17 | (0.07) | ||||||
Total from investment operations | (0.50) | (0.46) | 0.34 | 0.40 | 0.45 | 0.22 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.11) | (0.20) | (0.23) | (0.27) | (0.28) | (0.29) | ||||||
Distributions from capital gains | — | — | –– | — | — | — | ||||||
Total distributions | (0.11) | (0.20) | (0.23) | (0.27) | (0.28) | (0.29) | ||||||
Net asset value, end of period | $9.36 | $9.97 | $10.63 | $10.52 | $10.39 | $10.22 | ||||||
Total return (not reflecting sales charge) | (5.08)%(2) | (4.38)% | 3.23% | 3.82% | 4.46% | 2.15% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $151 | $186 | $195 | $154 | $136 | $129 | ||||||
Ratio of expenses to average net assets | 0.66%(3) | 0.62% | 0.65% | 0.68% | 0.66% | 0.64% | ||||||
Ratio of net investment income to average net assets | 2.20%(3) | 1.93% | 2.14% | 2.51% | 2.72% | 2.81% | ||||||
Portfolio turnover rate | 7%(2) | 19% | 6% | 8% | 14% | 15% |
Expense and net investment income ratios without the effect of the contractual expense cap and/or fee waiver were (note 3):
Ratio of expenses to average net assets | 0.68%(3) | 0.64% | 0.67% | 0.70% | 0.69% | 0.67% | ||||||
Ratio of net investment income to average net assets | 2.18%(3) | 1.91% | 2.11% | 2.49% | 2.69% | 2.78% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
44 | Aquila Tax-Free Fund For Utah
Additional Information:
Statement Regarding Liquidity Risk Management Program
Rule 22e-4 under the Investment Company Act of 1940, as amended, requires open-end management investment companies to adopt and implement written liquidity risk management programs that are reasonably designed to assess and manage liquidity risk. Liquidity risk is defined in the rule as the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund. In accordance with Rule 22e-4, Aquila Municipal Trust (“AMT”) has adopted a Liquidity Risk Management (“LRM”) program (the “program”). AMT’s Board of Trustees (the “Board”) has designated an LRM Committee consisting of employees of Aquila Investment Management LLC as the administrator of the program (the “Committee”).
The Board met on June 17, 2022 to review the program. At the meeting, the Committee provided the Board with a report that addressed the operation of the program and assessed its adequacy and effectiveness of implementation, and any material changes to the program (the “Report”). The Report covered the period from May 1, 2021 through April 30, 2022 (the “Reporting Period”).
During the Reporting Period, the Committee reviewed whether each Fund’s strategy is appropriate for an open-end fund structure taking into account less liquid and illiquid assets.
The Committee reviewed each Fund’s short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions. In classifying and reviewing each Fund’s investments, the Committee considered whether trading varying portions of a position in a particular portfolio investment or asset class in sizes the Fund would reasonably anticipate trading, would be reasonably expected to significantly affect liquidity. The Committee considered the following information when determining the sizes in which each Fund would reasonably anticipate trading: historical net redemption activity, the Fund’s concentration in an issuer, shareholder concentration, Fund performance, Fund size, and distribution channels.
The Committee considered each Fund’s holdings of cash and cash equivalents, as well as borrowing arrangements. The Committee considered the terms of the credit facility applicable to the Funds, the financial health of the institution providing the facility and the fact that the credit facility is shared among multiple Funds. The Committee also considered other types of borrowing available to the Funds, such as the ability to use interfund lending arrangements.
The Committee also performed an analysis to determine whether a Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”), and determined that the requirement to maintain an HLIM was inapplicable to the Funds because each Fund primarily holds highly liquid investments.
There were no material changes to the program during the Reporting Period. The Report provided to the Board stated that the Committee concluded that the program is reasonably designed and operated effectively throughout the Review Period.
45 | 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. The independent Trustees met via video conference on August 25, 2022 and in person on September 10, 2022 to review and discuss the contract review materials that were provided in advance of the August 25, 2022 meeting. 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 (the “Consultant’s Report”). In addition, the Trustees took into account the performance and other information related to the Fund provided to the Trustees at each regularly scheduled meeting. The Trustees also discussed the memorandum provided by Fund counsel that summarized the legal standards and other considerations that are relevant to the Trustees in their deliberations regarding the renewal of the Advisory Agreement.
At the meeting held on September 10, 2022, based on their evaluation of the information provided by the Manager and the independent consultant, the Trustees of the Fund present at the meeting, including the independent Trustees voting separately, unanimously approved the renewal of the Advisory Agreement until September 30, 2023.
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 Messrs. James Thompson,
46 | Aquila Tax-Free Fund For Utah
Tony Tanner and Royden Durham as portfolio managers for the Fund and has established facilities and capabilities for credit analysis of the Fund’s portfolio securities. They considered that Mr. Thompson, the Fund’s lead portfolio manager, 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.
The Trustees noted that 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 fund accountant, 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 (Class A shares) and compared its performance to the performance of:
· | the funds in the Municipal Single State Intermediate-Term Bond category as assigned by Morningstar, Inc. (the “Morningstar Category”); and |
· | the Fund’s benchmark index, the Bloomberg Municipal Bond: Quality Intermediate Total Return Index Unhedged USD. |
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 Morningstar Category for the five and ten-year periods ended June 30, 2022, but lower than the average annual total return of the funds in the Morningstar Category for the one and three-year periods ended June 30, 2022. They noted that the Fund’s return for each of the one, three and five-year periods and six months ended June 30, 2022 was in the third quintile, in each case relative to the funds in the Morningstar Category for the same periods. (Each quintile represents one-fifth of the peer group and first quintile is most favorable to the Fund’s shareholders.) The Trustees further considered that the Fund outperformed its benchmark index for ten-year period ended June 30, 2022, but underperformed its benchmark index for each of the one, three and five-year periods ended June 30, 2022. The Trustees further noted, as reflected in the Consultant’s Report, that the Fund’s total return for 2021 was higher than the average total return of the funds in the Morningstar Category for 2021, but underperformed the benchmark index for 2021.
The Trustees noted that the Fund invests primarily in municipal obligations issued by the State of Utah, its counties and various other local authorities, while the funds in the Morningstar Category invest in, and the Fund’s benchmark index includes, municipal bonds of issuers throughout the United States and that less than 1% of the benchmark index consists of Utah bonds. The Trustees noted that, unlike the Fund’s returns, the performance of the benchmark index did not reflect any fees or expenses.
47 | Aquila Tax-Free Fund For Utah
The Trustees considered the Fund’s investment performance 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 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 21 funds in the Fund’s expense group (the “Expense Group”), as selected by the independent consultant (the Fund and 13 other Municipal Single-State Intermediate-Term Bond funds, one Massachusetts Municipal Bond fund, three Municipal Minnesota Bond funds, two Municipal New Jersey Bond funds and one Pennsylvania Municipal Bond fund, each categorized by Morningstar, Inc. with portfolio assets ranging between $157 million and $987 million). Only front-end load and retail no-load funds were considered for inclusion in the Expense Group. In addition, peer selection focused on municipal bond funds with an intermediate duration across comparable categories. The Trustees also compared the Fund’s advisory fees and expenses to advisory fee data for the Fund’s Morningstar Category (as defined above). Certain of the peer group comparisons referred to below are organized in quintiles. Each quintile represents one-fifth of the peer group. In all peer group comparisons referred to below, first quintile is most favorable to the Fund’s shareholders.
The Trustees considered that the Fund���s net management fee (after giving effect to the fee waiver) for its most recent fiscal year was in the fourth quintile relative to the management fees paid by the other funds in its Expense Group for the comparable period and higher than the median net management fee of the funds in the Expense Group (after giving effect to fee waivers in effect for those funds). They also considered that the Fund’s contractual advisory fee was higher than the average and median contractual advisory fee of the funds in the Morningstar Category (at the Fund’s current asset level and all asset levels up to $10 billion).
The Trustees considered that the Fund’s net total expenses (for Class A shares), after giving effect to fee waivers and expense reimbursements, for the most recent fiscal year were in the fourth quintile relative to the net total expenses of the other funds in its Expense Group for the comparable period and higher than the median net total expenses of the funds in Expense Group (after giving effect to fee waivers and expense reimbursements in effect for those funds).
The Trustees further noted that the Manager has contractually undertaken to waive its fees so that management fees are equivalent to 0.48 of 1% of net assets of the Fund up to $400,000,000; 0.46 of 1% of net assets above $400,000,000 up to $1,000,000,000; and 0.44 of 1% of net assets above $1,000,000,000. This contractual undertaking is in effect until September 30, 2023. The Manager may not terminate these arrangements without the approval of the Board of Trustees.
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.
48 | Aquila Tax-Free Fund For Utah
The Trustees considered that the Manager was currently voluntarily waiving a portion of its fees and had been since the Fund’s inception. Additionally, it was noted that the Manager had indicated that it intended to continue to voluntarily waive fees as necessary for the Fund to 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 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 LLC of distribution services provided to the Fund. The Manager also provided other financial information to the members of the financial review committee of the Fund and the other funds in the Aquila Group of Funds.
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 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. They noted that the Manager has agreed, through a contractual advisory fee waiver, to include breakpoints in its fee schedule based on the size of the Fund. 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.
49 | Aquila Tax-Free Fund For Utah
Your Fund’s Expenses (unaudited)
As a Fund shareholder, 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 assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The 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 that 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”.
Hypothetical Example for Comparison with Other Funds
Under the heading, “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
Actual | Hypothetical | ||||||
(actual return after expenses) | (5% annual return before expenses) | ||||||
Share Class | Beginning Account Value 4/1/22 | Ending(1) Account | Expenses(2) Paid During Period 4/1/22 – 9/30/22 | Ending Account Value 9/30/22 | Expenses(2) Paid During Period 4/1/22 – 9/30/22 | Net Annualized Expense Ratio | |
A | $1,000 | $948.10 | $4.20 | $1,020.76 | $4.36 | 0.86% | |
C | $1,000 | $944.30 | $8.09 | $1,016.75 | $8.39 | 1.66% | |
F | $1,000 | $949.60 | $3.08 | $1,021.91 | $3.19 | 0.63% | |
Y | $1,000 | $949.20 | $3.22 | $1,021.76 | $3.35 | 0.66% |
(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 or the applicable CDSC with respect to Class C shares. Total return is not annualized and as such, it may not be representative of the total return for the year. |
(2) | Expenses are equal to the annualized expense ratio for the six-month period as indicated above - in the far right column - multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period. |
50 | Aquila Tax-Free Fund For Utah
Information Available (unaudited) Annual and Semi-Annual Reports and Complete Portfolio Holding Schedules Your Fund’s Annual and Semi-Annual Reports are filed with the SEC twice a year. Each Report contains a complete Schedule of Portfolio Holdings, along with full financial statements and other important financial statement disclosures. Additionally, your Fund files a complete Schedule of Portfolio Holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its Reports on Form N-PORT. Your Fund’s Annual and Semi-Annual Reports and N-PORT reports 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. In addition, your Fund’s Annual and Semi-Annual Reports and complete Portfolio Holdings Schedules for each fiscal quarter end are also available, free of charge, on your Fund’s website, www.aquilafunds.com (under the prospectuses & reports tab) or by calling us at 1-800-437-1000. Portfolio Holdings Reports In accordance with your Fund’s Portfolio Holdings Disclosure Policy, the Manager also prepares a Portfolio Holdings Report as of each quarter end, which is typically posted to your Fund’s individual page at www.aquilafunds.com by the 15th day after the end of each calendar quarter. Such information will remain accessible until the next Portfolio Holdings Report is made publicly available by being posted to www.aquilafunds.com. The quarterly Portfolio Holdings Report may be accessed, free of charge, by visiting www.aquilafunds.com or calling us at 1-800-437-1000. |
Proxy Voting Record (unaudited) During the 12 month period ended June 30, 2022, there were no proxies related to any portfolio instruments held by the Fund. As such, the Fund did not vote any proxies. 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, 2022, $8,551,851 of dividends paid by Aquila Tax-Free Fund For Utah, constituting 99.9% of total dividends paid, were exempt-interest dividends; and the balance was ordinary income. Prior to February 15, 2023, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2022 calendar year. |
51 | Aquila Tax-Free Fund For Utah
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
Thomas A. Christopher, Chair
Diana P. Herrmann, Vice Chair
Ernest Calderón
Gary C. Cornia
Grady Gammage, Jr.
Patricia L. Moss
Glenn P. O’Flaherty
Heather R. Overby
Laureen L. White
Officers
Diana P. Herrmann, President
Paul G. O’Brien, Senior Vice President
James T. Thompson, Vice President
and Lead Portfolio Manager
Royden P. Durham, Vice President
and Portfolio Manager
Anthony A. Tanner, Vice President
and Portfolio Manager
M. Kayleen Willis, Vice President
Randall S. Fillmore, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer
and Treasurer
Anita Albano, Secretary
Distributor
AQUILA DISTRIBUTORS LLC
120 West 45th Street, Suite 3600
New York, New York 10036
Transfer and Shareholder Servicing Agent
BNY MELLON INVESTMENT SERVICING (US) INC.
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
THE BANK OF NEW YORK MELLON
240 Greenwich Street
New York, New York 10286
Further information is contained in the Prospectus,
which must precede or accompany this report.
AQL-UTSAR-1122
Semi-Annual Report September 30, 2022
| ||||||||||||||||||||||||||
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![]() | Aquila Tax-Free Trust of Arizona Keeping an Optimistic
Serving Arizona investors since 1986 | ![]() |
November, 2022
Dear Fellow Shareholder:
The fixed income markets have experienced significant volatility and downward pressure for much of 2022, driven primarily by several key economic factors, including continued high inflation, rising interest rates, and uncertainty about the direction of the U.S. economy. While these factors aren’t necessarily new or unique, they nonetheless have presented challenges for rate-sensitive investments — and, in the process, have made the majority of investors increasingly skittish. While we understand investors’ concerns, we remain optimistic about the municipal bond market.
Despite its inevitable ups and downs, the municipal bond market has historically demonstrated remarkable resiliency across multiple market cycles. We believe today’s market appears reasonably sound at its core in terms of continuing credit fundamentals and current relative valuations. The municipal market’s underpinnings remain deeply rooted in the need and demand for municipal bonds given the important role they play in financing vital local projects, such as schools, hospitals, and roadways that contribute to improving the quality of life for residents of the issuing municipalities.
It’s important to understand what’s driving the current market and maintain perspective. Let’s explore further.
Understanding the Factors Impacting Municipal Bonds
The primary driver of bond yields, prices, and relative performance is interest rates. Since the Federal Reserve (the “Fed”) introduced a change in its monetary policy in March of this year to help combat inflation, interest rates began a steady upward climb. This was spurred by the Fed raising the Federal Funds rate (the interest rate that banks charge one another to borrow or lend excess reserves overnight), the first such increase since 2018. To date, through 11/02/2022, the Fed has implemented six rate hikes, totaling 3.75%, bringing the stated target range for the Fed Funds rate to 3.75% – 4.00%. And, Federal Reserve Chairman Jerome Powell has indicated that additional increases may be deemed necessary going forward, dependent upon the status of the U.S. economy and data driven analytics. Mr. Powell and his colleagues have stated that the Fed will remain vigilant in its efforts to manage inflation, which has topped levels not seen in more than 40 years (as measured by the Consumer Price Index).
In reaction to the Federal Reserve’s aggressive monetary policy stance, year to date interest rates have experienced a significant increase. As you may know, bond prices generally move in the opposite direction of rate changes. Therefore, while rising interest rates generally translate to higher yields for bond investments, bond prices or values usually fall. This changing yield/price landscape has created two shifts in the market — a shift for issuers of bonds (who may now be reluctant to issue new debt at increased costs), along with a shift in investor sentiment. For investors, on the one hand, higher yields mean greater income, which is a welcome development for those who during the recent
NOT A PART OF THE SEMI-ANNUAL REPORT
low-yield environment sought opportunities to earn more attractive income levels. On the other hand, investors who are mindful of capital preservation have become wary as they have seen bond prices decline.
When investing in bonds, we believe that generating an attractive risk-adjusted return is a careful balance of the two factors— income and stability of capital. Your Fund’s investment objective, in fact, seeks to provide as high a level of current income exempt (from state and regular federal income taxes) as is consistent with preservation of capital. So, how has the rise in interest rates affected municipal bonds?
Assessing the Current Market Cycle
It’s important, in our view, to evaluate financial markets, performance, and valuations on a relative basis. This is true not only within the municipal bond market, but with and relative to other asset classes as well.
Municipal bonds are oftentimes viewed in comparison with U.S. Treasuries. Let’s take a look at yield curves and the relative Municipal-to-Treasury relationship. During 2022, yields of U.S. Treasury securities have generally risen across the maturity spectrum, but the overall slope of the curve flattened, particularly during the third quarter of 2022. Specifically, there was a greater increase in interest rates on the short-end of the U.S. Treasury curve (shorter maturities) which exceeded increases on the longer-end. Given economic uncertainty and fears of a possible recession, some market participants are concerned that this change in the U.S. Treasury yield curve may signal an impending economic slump. Meanwhile, the municipal bond yield curve has been more positively sloped (with longer term maturities yielding more) throughout the year, in particular, steepening between 10- and 30-year maturities during the third quarter — which may be viewed positively by municipal investors.
The Municipal-to-Treasury relationship (based on the yield of AAA municipal securities as a percentage of the yield of U.S. Treasuries of the same maturity) has fluctuated over the past year, but generally in our view continued to trade in line with historical relationship norms. The chart below illustrates what we believe to be an indication of improved relative valuations for municipal obligations, whereby municipal yields represent a greater percentage in comparison to U.S. Treasury yields. As one would usually anticipate in a rising rate environment, such as now, the relationship ratio compares somewhat favorably for longer maturity municipal bonds (specifically, in the 30-year maturity range) which were yielding greater than U.S. Treasury securities as of September 30th.
January 3, 2022 Municipal % of U.S. Treasury | September 30, 2022 Municipal % of U.S. Treasury | |||
5-Year | 44.1% | 77.6% | ||
10-year | 63.8% | 87.0% | ||
30-year | 74.3% | 104.0% | ||
Source: Bloomberg |
Credit spreads among municipal bond issues have begun to widen during the year. (Credit spread is the difference in yield between securities of the same maturity with different credit ratings.) Wider credit spreads generally favor higher-quality issuers in a rising rate environment due to concerns related to lower quality issues during periods of slowing economic growth. This scenario may be viewed as a benefit to higher quality, shorter duration portfolios vis-à-vis lower quality, longer duration holdings. (Duration is
NOT A PART OF THE SEMI-ANNUAL REPORT
a measurement of a bond’s sensitivity or risk to changes in interest rates; shorter duration generally means less risk.) This assumes interest rates continue to rise, as the Fed seems to have signaled in recent press releases. Overall, we view municipal credit fundamentals to be relatively strong, while credit defaults as tracked by the Nationally Recognized Statistical Rating Agencies (such as Moody’s and Standard & Poor’s) generally remain relatively low, particularly among higher quality issues.
At a local level, many state and local economies continue to show signs of improvement and sustained growth. Despite recession risk, local municipalities and governments appear to us to be well-positioned to manage economic challenges. Higher employment, increasing wages, and rising property values in many jurisdictions throughout the country are among key contributors toward bolstering state and local revenue and tax receipts.
Looking Forward
We remain cautiously optimistic about the direction of the municipal bond market. In addition to many of the positive conditions and trends stated above — including what we believe to be potential opportunities for greater income than in recent years, improving relative valuations, strong credit fundamentals, expanding local economies, and sustained investor demand — keep in mind the attractive benefits that municipal bonds offer, such as a high level of current income exempt from state and regular federal income taxes. Although no one can reasonably predict the impact of continued inflation or future Fed actions to curb such inflation, on a tax-equivalent basis, the municipal income benefit may be attractive compared to taxable investments for certain investors.
Remember, too, the Aquila difference. Your portfolio management team is locally-based, which provides them with an up-close perspective on the economy and bond issuers within local municipalities, cities, counties, and across the state. Our investment professionals draw upon their wealth of experience in analyzing securities, navigating market and economic cycles, and seeking to identify both opportunities and risks. The current market cycle is no exception. Our team employs an active portfolio management strategy, with a goal to maintain broadly diversified investment grade municipal portfolios, generally with an intermediate average maturity, to help deliver attractive risk-adjusted returns.
As always, we encourage you to consult with your financial professional to evaluate whether the investment choices you make are aligned with your individual financial goals and risk tolerances.
Thank you for your continued confidence in Aquila Group of Funds.
Sincerely, | ||
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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, political or regulatory conditions, recessions, inflation, changes in interest rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues, armed conflict including Russia’s military invasion of Ukraine, sanctions against Russia, other nations or individuals or companies and possible countermeasures, market disruptions caused by tariffs, trade disputes or other factors, or adverse investor sentiment. When market prices fall, the value of your investment may go down. In the past several years, financial markets have experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. These conditions may continue, recur, worsen or spread.
Rates of inflation have recently risen. The value of assets or income from an investment may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline as can the value of the Fund’s distributions.
The global pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s invasion of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or markets could be similarly affected by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the economy and securities markets, may not be known for some time.
The value of your investment will generally go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term or longer duration securities. In recent years, interest rates and credit spreads in the U.S. have been at historic lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain interest rates. A general rise in interest rates may cause investors to move out of fixed income securities on a large scale and could also result in increased redemptions from the Fund.
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. The municipal bond market can be susceptible to unusual volatility, particularly for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic conditions or credit tightening. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Unfavorable conditions and developments relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. Municipal securities may be more susceptible to downgrades or defaults during a recession or similar periods of economic stress. Financial difficulties of municipal issuers may continue or get worse, particularly in the event of economic or market turmoil or a recession.
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.
Any information in this Shareholder Letter 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. Past performance is no guarantee of future results, and there is no guarantee that any market forecasts discussed will be realized.
NOT A PART OF THE SEMI-ANNUAL REPORT
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (37.6%) | Ratings Moody’s, S&P and Fitch | Value | |||
City (5.3%) | ||||||
Buckeye Jackrabbit Trail Sanitary Sewer Improvement District | ||||||
$ 199,000 | 6.250%, 01/01/29 | NR/A-/NR | $ 200,512 | |||
Gilbert Improvement District No. 20 | ||||||
460,000 | 5.100%, 01/01/29 | Aa1/AA-/NR | 462,401 | |||
Goodyear McDowell Road Commercial Corridor Improvement District | ||||||
840,000 | 3.250%, 01/01/27 BAMAC Insured | Aa2/AA/NR | 837,673 | |||
Mesa, Arizona | ||||||
425,000 | 4.000%, 07/01/32 | Aa2/AA/AAA | 429,382 | |||
425,000 | 4.000%, 07/01/33 | Aa2/AA/AAA | 428,030 | |||
Phoenix, Arizona | ||||||
3,000,000 | 5.000%, 07/01/27 | Aa1/AA+/AAA | 3,228,660 | |||
Scottsdale, Arizona | ||||||
500,000 | 4.000%, 07/01/34 | Aaa/AAA/AAA | 506,185 | |||
Tempe Improvement District (Pier Town Lake) | ||||||
1,000,000 | 5.000%, 01/01/29 | Aa2/NR/NR | 1,013,850 | |||
Tolleson, Arizona | ||||||
1,000,000 | 4.000%, 07/01/38 | NR/AA/AAA | 939,700 | |||
Tucson, Arizona | ||||||
3,000,000 | 5.000%, 07/01/24 | Aa3/AA/AA+ | 3,092,280 | |||
Total City | 11,138,673 | |||||
Community College (1.1%) | ||||||
Pinal Co. Community College District | ||||||
500,000 | 4.000%, 07/01/33 | NR/AA-/NR | 510,385 | |||
1,000,000 | 3.000%, 07/01/34 | NR/AA-/NR | 876,930 | |||
Yuma/ La Paz Counties Community College District (Arizona Western College), Refunding | ||||||
1,000,000 | 4.000%, 07/01/28 2014A | Aa3/A+/NR | 1,007,800 | |||
Total Community College | 2,395,115 | |||||
1 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
County (7.7%) | ||||||
Maricopa Co. Daisy Mountain Fire District | ||||||
$ 340,000 | 4.000%, 07/01/27 AGMC Insured | NR/AA/NR | $ 348,282 | |||
Maricopa Co. Special Health Care District | ||||||
2,500,000 | 5.000%, 07/01/25 | Aa3/NR/AA- | 2,612,475 | |||
3,000,000 | 5.000%, 07/01/32 | Aa3/NR/AA- | 3,209,430 | |||
1,500,000 | 5.000%, 07/01/34 | Aa3/NR/AA- | 1,591,020 | |||
4,345,000 | 5.000%, 07/01/34 | Aa3/NR/AA- | 4,658,622 | |||
Yavapai Co. Jail District | ||||||
1,180,000 | 5.000%, 07/01/30 BAMAC Insured | NR/AA/AA | 1,284,324 | |||
1,650,000 | 4.000%, 07/01/33 BAMAC Insured | NR/AA/AA | 1,658,696 | |||
Yuma Co. Free Library District | ||||||
1,000,000 | 4.000%, 07/01/29 | Aa3/NR/AAA | 1,019,190 | |||
Total County | 16,382,039 | |||||
School District (21.2%) | ||||||
Buckeye Union High School District No. 201 | ||||||
1,000,000 | 5.000%, 07/01/33 AGMC Insured | NR/AA/NR | 1,033,830 | |||
500,000 | 5.000%, 07/01/36 BAMAC Insured | NR/AA/NR | 525,085 | |||
Gila Co. Unified School District No. 10 (Payson) | ||||||
1,000,000 | 5.000%, 07/01/28 | Aa2/NR/NR | 1,027,500 | |||
Glendale Union High School District No. 205 | ||||||
525,000 | 5.000%, 07/01/27 BAMAC Insured | NR/AA/NR | 531,814 | |||
Maricopa Co. Elementary School District No. 1 (Phoenix) | ||||||
500,000 | 4.000%, 07/01/31 BAMAC Insured | NR/AA/NR | 508,290 | |||
460,000 | 4.000%, 07/01/32 BAMAC Insured | NR/AA/NR | 465,778 | |||
Maricopa Co. Elementary School District No. 2 (Riverside) | ||||||
1,000,000 | 5.000%, 07/01/30 BAMAC Insured | NR/AA/NR | 1,082,170 | |||
Maricopa Co. Elementary School District No. 3 (Tempe) | ||||||
500,000 | 5.000%, 07/01/30 | Aa1/NR/NR | 532,675 | |||
5,615,000 | 5.000%, 07/01/31 | Aa1/NR/NR | 6,055,160 |
2 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School District (continued) | ||||||
Maricopa Co. Elementary School District No. 8 (Osborn) | ||||||
$ 500,000 | 5.000%, 07/01/31 AGMC Insured | NR/AA/NR | $ 528,640 | |||
Maricopa Co. Elementary School District No. 25 (Liberty) | ||||||
350,000 | 4.000%, 07/01/35 AGMC Insured | NR/AA/NR | 351,040 | |||
300,000 | 4.000%, 07/01/36 AGMC Insured | NR/AA/NR | 300,435 | |||
375,000 | 4.000%, 07/01/37 AGMC Insured | NR/AA/NR | 372,360 | |||
Maricopa Co. Elementary School District No. 40 (Glendale) | ||||||
2,050,000 | 2.000%, 07/01/35 AGMC Insured | NR/AA/AA+ | 1,504,556 | |||
Maricopa Co. Elementary School District No. 62 (Union) | ||||||
315,000 | 4.000%, 07/01/29 BAMAC Insured | NR/AA/NR | 324,129 | |||
580,000 | 4.000%, 07/01/32 BAMAC Insured | NR/AA/NR | 594,059 | |||
300,000 | 4.000%, 07/01/33 BAMAC Insured | NR/AA/NR | 306,441 | |||
375,000 | 4.000%, 07/01/34 BAMAC Insured | NR/AA/NR | 382,091 | |||
Maricopa Co. Elementary School District No. 65 (Littleton) | ||||||
125,000 | 3.000%, 07/01/35 BAMAC Insured | Aa3/AA/NR | 102,031 | |||
Maricopa Co. High School District No. 210 (Phoenix) | ||||||
500,000 | 4.000%, 07/01/26 | Aa1/AA/AAA | 510,575 | |||
Maricopa Co. High School District No. 214 (Tolleson) | ||||||
200,000 | 3.000%, 07/01/35 | Aaa/AA/NR | 169,834 | |||
Maricopa Co. Unified School District No. 4 (Mesa) | ||||||
4,000,000 | 5.000%, 07/01/29 | Aa2/AA-/NR | 4,417,160 | |||
Maricopa Co. Unified School District No. 11 (Peoria) | ||||||
1,490,000 | 4.000%, 07/01/25 | Aa3/AA-/NR | 1,490,909 | |||
675,000 | 4.500%, 07/01/33 AGMC Insured | Aa3/AA/NR | 688,621 | |||
Maricopa Co. Unified School District No. 41 (Gilbert) | ||||||
3,000,000 | 5.000%, 07/01/26 | Aa1/AA-/NR | 3,179,430 |
3 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School District (continued) | ||||||
Maricopa Co. Unified School District No. 60 (Higley) | ||||||
$ 1,615,000 | 5.000%, 07/01/29 | Aa2/AA-/NR | $ 1,657,491 | |||
Maricopa Co. Unified School District No. 66 (Roosevelt) | ||||||
910,000 | 4.000%, 07/01/31 BAMAC Insured | A1/AA/NR | 928,273 | |||
Maricopa Co. Unified School District No. 69 (Paradise Valley) | ||||||
1,500,000 | 5.000%, 07/01/27 | Aa1/NR/AAA | 1,607,505 | |||
425,000 | 4.000%, 07/01/35 | Aa1/NR/AAA | 425,340 | |||
Maricopa Co. Unified School District No. 80 (Chandler) | ||||||
545,000 | 4.000%, 07/01/36 | Aaa/AA/NR | 548,542 | |||
Maricopa Co. Unified School District No. 89 (Dysart) | ||||||
500,000 | 4.000%, 07/01/28 | NR/A+/AAA | 504,560 | |||
Maricopa Co. Unified School District No. 90 (Saddle Mountain) | ||||||
1,350,000 | 5.000%, 07/01/28 AGMC Insured | NR/AA/NR | 1,464,467 | |||
Mohave Co. Unified School District No. 1 (Lake Havasu) | ||||||
500,000 | 5.000%, 07/01/35 | Aa1/NR/NR | 525,530 | |||
Navajo Co. Unified School District No. 10 (Show Low) | ||||||
500,000 | 4.000%, 07/01/31 AGMC Insured | NR/AA/NR | 507,855 | |||
Navajo Co. Unified School District No. 32 (Blue Ridge) | ||||||
400,000 | 5.000%, 07/01/29 AGMC Insured | NR/AA/NR | 425,060 | |||
Pima Co. Unified School District No. 6 (Marana) | ||||||
955,000 | 5.000%, 07/01/25 | NR/A/NR | 959,765 | |||
950,000 | 5.250%, 07/01/25 AGMC Insured | NR/AA/NR | 955,301 | |||
1,000,000 | 4.250%, 07/01/32 AGMC Insured | NR/AA/NR | 1,018,870 | |||
1,000,000 | 4.000%, 07/01/37 AGMC Insured | NR/AA/NR | 992,960 |
4 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School District (continued) | ||||||
Pima Co. Unified School District No. 8 (Flowing Wells) | ||||||
$ 1,000,000 | 4.500%, 07/01/37 AGMC Insured | NR/AA/NR | $ 1,027,280 | |||
250,000 | 4.000%, 07/01/28 BAMAC Insured | NR/AA/NR | 255,958 | |||
250,000 | 4.000%, 07/01/29 BAMAC Insured | NR/AA/NR | 256,403 | |||
Pima Co. Unified School District No. 12 (Sunnyside) | ||||||
1,050,000 | 4.000%, 07/01/28 BAMAC Insured | NR/AA/NR | 1,056,668 | |||
Pima Co. Unified School District No. 20 (Vail) | ||||||
700,000 | 5.000%, 07/01/28 AGMC Insured | NR/AA/NR | 755,559 | |||
Santa Cruz Co. Unified School District No. 35 (Santa Cruz Valley) | ||||||
300,000 | 3.000%, 07/01/36 AGMC Insured | NR/AA/NR | 259,095 | |||
Western Maricopa Education Center District No. 402 | ||||||
1,200,000 | 4.000%, 07/01/28 | NR/AA-/NR | 1,205,952 | |||
Yavapai Co. Elementary School District No. 6 (Cottonwood-Oak Creek) | ||||||
720,000 | 5.000%, 07/01/34 BAMAC Insured | A2/AA/NR | 743,407 | |||
Total School District | 45,066,454 | |||||
Special District (2.3%) | ||||||
Eastmark Community Facilities District No. 1 | ||||||
345,000 | 4.000%, 07/15/33 AGMC Insured | NR/AA/NR | 347,129 | |||
360,000 | 4.000%, 07/15/34 AGMC Insured | NR/AA/NR | 361,314 | |||
Estrella Mountain Ranch Community Facilities District | ||||||
155,000 | 5.000%, 07/15/32 AGMC Insured | NR/AA/NR | 163,455 | |||
Festival Ranch Community Facilities District | ||||||
950,000 | 5.000%, 07/15/37 BAMAC Insured | NR/AA/NR | 982,120 | |||
Goodyear Community Facilities Utilities District No. 1 | ||||||
500,000 | 4.000%, 07/15/28 | A1/A-/NR | 502,165 | |||
460,000 | 4.000%, 07/15/32 | A1/A-/NR | 462,190 |
5 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Special District (continued) | ||||||
Merrill Ranch Community Facilities District #2 | ||||||
$ 680,000 | 6.750%, 07/15/38 | NR/BBB/NR | $ 695,409 | |||
Verrado Community Facilities Utilities District No. 1 | ||||||
500,000 | 6.000%, 07/15/33 144A | NR/NR/NR* | 495,260 | |||
Vistancia Community Facilities District | ||||||
850,000 | 4.000%, 07/15/25 BAMAC Insured | A1/AA/NR | 864,119 | |||
Total Special District | 4,873,161 | |||||
Total General Obligation Bonds | 79,855,442 | |||||
Revenue Bonds (56.4%) | ||||||
Airport (6.5%) | ||||||
Phoenix Civic Improvement Corp. Airport Bonds | ||||||
4,000,000 | 4.000%, 07/01/40 | A1/A/NR | 3,693,880 | |||
2,595,000 | 5.000%, 07/01/27 AMT | Aa3/A+/NR | 2,709,180 | |||
185,000 | 5.000%, 07/01/30 AMT | Aa3/A+/NR | 191,495 | |||
3,850,000 | 5.000%, 07/01/31 AMT | Aa3/A+/NR | 3,967,425 | |||
2,900,000 | 5.000%, 07/01/31 AMT | Aa3/A+/NR | 3,004,980 | |||
200,000 | 5.000%, 07/01/33 AMT | Aa3/A+/NR | 205,468 | |||
Total Airport | 13,772,428 | |||||
Charter Schools (3.5%) | ||||||
Arizona Industrial Development Authority (Basis Schools) | ||||||
240,000 | 5.000%, 07/01/37 State Enhanced | NR/AA-/NR | 245,671 | |||
Arizona Industrial Development Authority (Candeo Schools) | ||||||
500,000 | 3.375%, 07/01/41 State Enhanced | NR/AA-/NR | 405,325 | |||
Arizona Industrial Development Authority (Equitable Schools) | ||||||
1,000,000 | 4.000%, 11/01/36 | NR/A/NR | 918,770 | |||
2,000,000 | 4.000%, 11/01/38 | NR/A/NR | 1,799,920 | |||
2,000,000 | 4.000%, 11/01/40 | NR/A/NR | 1,768,760 |
6 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Charter Schools (continued) | ||||||
Arizona Industrial Development Authority (Greathearts Academies) | ||||||
$ 1,000,000 | 3.000%, 07/01/37 State Enhanced | NR/AA-/NR | $ 809,440 | |||
Maricopa Co. Industrial Development Authority (Great Hearts Arizona Projects) | ||||||
250,000 | 5.000%, 07/01/26 State Enhanced | NR/AA-/NR | 259,767 | |||
315,000 | 5.000%, 07/01/37 State Enhanced | NR/AA-/NR | 321,902 | |||
Phoenix Industrial Development Authority (Macombs Facility Project) | ||||||
315,000 | 5.000%, 07/01/33 | NR/BBB-/NR | 314,880 | |||
325,000 | 4.000%, 07/01/34 | NR/BBB-/NR | 290,180 | |||
315,000 | 4.000%, 07/01/35 | NR/BBB-/NR | 278,268 | |||
Total Charter Schools | 7,412,883 | |||||
Excise Tax (9.5%) | ||||||
Buckeye Excise Tax | ||||||
400,000 | 4.000%, 07/01/36 | NR/AA/AA | 402,268 | |||
Buckeye Roosevelt Street Improvement District | ||||||
85,000 | 4.000%, 01/01/32 | NR/A-/NR | 85,056 | |||
Cottonwood Pledged Revenue Obligations | ||||||
500,000 | 5.000%, 07/01/30 AGMC Insured | NR/AA/NR | 521,160 | |||
Flagstaff Pledged Revenue | ||||||
1,395,000 | 4.250%, 07/01/33 | NR/AA/NR | 1,425,941 | |||
Gila Co. Pledged Revenue Obligations | ||||||
555,000 | 4.000%, 07/01/30 | NR/AA/NR | 567,621 | |||
Graham Co. Jail District Revenue Pledged Obligation | ||||||
1,000,000 | 5.000%, 07/01/35 | NR/A-/NR | 1,023,860 | |||
Marana Pledged Excise Tax | ||||||
275,000 | 4.000%, 07/01/30 | NR/AA/NR | 277,161 | |||
1,400,000 | 5.000%, 07/01/33 | NR/AA/NR | 1,414,770 | |||
Phoenix Civic Improvement Corp. | ||||||
3,490,000 | 5.000%, 07/01/42 | Aa2/AAA/AA+ | 3,734,370 |
7 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Excise Tax (continued) | ||||||
Phoenix Civic Improvement Corp. (Civic Plaza) | ||||||
$ 2,000,000 | 5.500%, 07/01/27 BHAC/FGIC Insured | Aa1/AA+/NR | $ 2,182,260 | |||
2,000,000 | 5.500%, 07/01/30 BHAC/FGIC Insured | Aa1/AA+/NR | 2,245,340 | |||
1,000,000 | 5.500%, 07/01/23 NPFG/FGIC Insured | Aa2/AA/NR | 1,016,750 | |||
2,300,000 | 5.500%, 07/01/33 NPFG/FGIC Insured | Aa2/AA/NR | 2,597,919 | |||
Santa Cruz Co. Jail District | ||||||
1,655,000 | 5.000%, 07/01/28 AGMC Insured | NR/AA/NR | 1,746,124 | |||
885,000 | 5.000%, 07/01/31 AGMC Insured | NR/AA/NR | 925,887 | |||
Total Excise Tax | 20,166,487 | |||||
Healthcare (6.2%) | ||||||
Arizona Health Facilities Authority (Scottsdale Lincoln Hospitals) | ||||||
1,360,000 | 5.000%, 12/01/26 | A2/NR/A+ | 1,397,903 | |||
Maricopa Co. Industrial Development Authority (Banner Health) | ||||||
1,600,000 | 5.000%, 01/01/38 | NR/AA-/AA- | 1,643,120 | |||
500,000 | 4.000%, 01/01/48 | NR/AA-/AA- | 432,785 | |||
Maricopa Co. Industrial Development Authority (HonorHealth) | ||||||
2,250,000 | 4.125%, 09/01/38 | A2/NR/A+ | 2,079,517 | |||
Phoenix Industrial Development Authority (Mayo Clinic) VRDO*** | ||||||
2,650,000 | 2.720%, 11/15/52 | Aa2/AA/NR | 2,650,000 | |||
Pima Co. Industrial Development Authority (Tucson Medical Center) | ||||||
1,150,000 | 5.000%, 04/01/33 | NR/A/NR | 1,195,356 | |||
880,000 | 4.000%, 04/01/37 | NR/A/NR | 800,756 | |||
250,000 | 3.000%, 04/01/51 | NR/A/NR | 162,975 | |||
Yavapai Co. Industrial Development Authority (Yavapai Regional Medical Center) | ||||||
1,000,000 | 5.250%, 08/01/33 | A2/NR/A+ | 1,009,540 |
8 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Healthcare (continued) | ||||||
Yuma Industrial Development Authority (Yuma Regional Medical Center) | ||||||
$ 1,635,000 | 5.000%, 08/01/23 | NR/A/NR | $ 1,653,950 | |||
200,000 | 5.000%, 08/01/32 | NR/A/NR | 202,086 | |||
Total Healthcare | 13,227,988 | |||||
Higher Education (7.2%) | ||||||
Arizona Board of Regents (Arizona State University System) Green Bonds | ||||||
1,500,000 | 5.000%, 07/01/36 | Aa2/AA/NR | 1,614,720 | |||
Arizona Board of Regents (Arizona State University System) VRDO*** | ||||||
4,175,000 | 2.500%, 07/01/34 | Aa2/AA/NR | 4,175,000 | |||
Arizona Board of Regents (Northern Arizona University) Speed Stimulus Plan for Economic & Educational Development | ||||||
2,090,000 | 5.000%, 08/01/29 AGMC Insured | A1/AA/NR | 2,270,283 | |||
Arizona Board of Regents (University of Arizona System) Speed Stimulus Plan for Economic & Educational Development | ||||||
1,000,000 | 3.125%, 08/01/39 | Aa3/A+/NR | 780,470 | |||
Arizona Board of Regents (University of Arizona System) | ||||||
400,000 | 5.000%, 06/01/29 | Aa2/AA-/NR | 409,272 | |||
105,000 | 4.000%, 06/01/38 | Aa2/AA-/NR | 99,306 | |||
Arizona Industrial Development Authority (North Carolina Central University Student Housing) | ||||||
250,000 | 4.000%, 06/01/34 BAMAC Insured | Baa3/AA/NR | 240,267 | |||
700,000 | 4.000%, 06/01/39 BAMAC Insured | Baa3/AA/NR | 640,584 | |||
Phoenix Industrial Development Authority (Downtown Phoenix Student Housing) | ||||||
200,000 | 5.000%, 07/01/26 | Baa3/NR/NR | 202,914 | |||
400,000 | 5.000%, 07/01/33 | Baa3/NR/NR | 393,124 | |||
1,250,000 | 5.000%, 07/01/42 | Baa3/NR/NR | 1,159,575 |
9 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Higher Education (continued) | ||||||
Phoenix Industrial Development Authority (Downtown Phoenix Student Housing II) | ||||||
$ 100,000 | 5.000%, 07/01/26 | Baa3/NR/NR | $ 101,457 | |||
250,000 | 5.000%, 07/01/27 | Baa3/NR/NR | 253,560 | |||
150,000 | 5.000%, 07/01/28 | Baa3/NR/NR | 151,554 | |||
200,000 | 5.000%, 07/01/30 | Baa3/NR/NR | 200,438 | |||
300,000 | 5.000%, 07/01/32 | Baa3/NR/NR | 297,243 | |||
Pima Co. Community College District | ||||||
1,075,000 | 5.000%, 07/01/36 | Aa3/NR/AA- | 1,142,542 | |||
750,000 | 4.000%, 07/01/37 | Aa3/NR/AA- | 734,123 | |||
500,000 | 4.000%, 07/01/38 | Aa3/NR/AA- | 471,810 | |||
Total Higher Education | 15,338,242 | |||||
Housing (1.7%) | ||||||
Arizona Industrial Development Authority Green Bond MTEB (Chandler Village Apartments Project) | ||||||
4,837,104 | 2.120%, 07/01/37 FNMA Insured Series 2020 | Aaa/NR/NR | 3,617,041 | |||
Lease (2.6%) | ||||||
Arizona Board of Regents (Northern Arizona University) COP | ||||||
600,000 | 5.000%, 09/01/27 | A2/A/NR | 600,798 | |||
Nogales Municipal Development Authority, Inc. | ||||||
845,000 | 4.000%, 06/01/36 | NR/AA-/NR | 855,182 | |||
615,000 | 5.000%, 06/01/28 AGMC Insured | NR/AA/NR | 645,885 | |||
810,000 | 4.000%, 06/01/33 AGMC Insured | NR/AA/NR | 814,253 | |||
2,000,000 | 4.000%, 06/01/39 AGMC Insured | NR/AA/NR | 1,871,420 | |||
Prescott Municipal Property Corp. | ||||||
500,000 | 5.000%, 07/01/34 | Aa3/AA+/NR | 512,815 | |||
State of Arizona COP | ||||||
100,000 | 5.000%, 09/01/27 | Aa2/AA-/NR | 104,527 | |||
Total Lease | 5,404,880 | |||||
10 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Pollution Control (0.6%) | ||||||
Maricopa Co. Pollution Control (El Paso Electric Co.) | ||||||
$ 375,000 | 3.600%, 02/01/40 | Baa2/NR/BBB+ | $ 307,492 | |||
250,000 | 3.600%, 04/01/40 | Baa2/NR/BBB+ | 204,740 | |||
Maricopa Co. Pollution Control (Southern California Edison Co.) | ||||||
1,000,000 | 2.400%, 06/01/35 | A3/A-/BBB+ | 746,150 | |||
Total Pollution Control | 1,258,382 | |||||
Resource Recovery (2.9%) | ||||||
Chandler Industrial Development Authority (Intel Corporation Project) | ||||||
4,250,000 | 2.700%, 12/01/37 AMT (Mandatory Put Date 8/14/23) | A1/A+/NR | 4,197,555 | |||
Maricopa Co. Industrial Development Authority, (Waste Management Inc. Project) | ||||||
1,500,000 | 3.375%, 12/01/31 AMT (Mandatory Put Date 6/03/24) | NR/A-/NR | 1,489,530 | |||
Yavapai Co. Industrial Development Authority, (Waste Management Inc. Project) | ||||||
520,000 | 2.200%, 03/01/28 AMT (Mandatory Put Date 06/03/24) | NR/A-/NR | 505,388 | |||
Total Resource Recovery | 6,192,473 | |||||
Sales Tax (3.0%) | ||||||
Arizona Sports & Tourism Authority (Multipurpose Stadium Facility Project) | ||||||
6,000,000 | 5.000%, 07/01/30 BAMAC Insured | A1/AA/A | 6,418,500 |
11 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Senior Living Facilities (1.1%) | ||||||
Arizona Industrial Development Authority, Second Tier (Great Lakes Senior Living Communities) | ||||||
$ 620,000 | 5.000%, 01/01/28 | NR/CCC+/NR | $ 513,062 | |||
555,000 | 5.000%, 01/01/29 | NR/CCC+/NR | 445,621 | |||
1,205,000 | 5.000%, 01/01/30 | NR/CCC+/NR | 940,430 | |||
655,000 | 4.000%, 01/01/33 | NR/CCC+/NR | 431,409 | |||
Total Senior Living Facilities | 2,330,522 | |||||
Transportation (0.2%) | ||||||
Pima Co. Regional Transportation Authority Excise Tax | ||||||
500,000 | 5.000%, 06/01/26 | NR/AA+/AA+ | 505,885 | |||
Utility (7.2%) | ||||||
Greater Arizona Development Authority Revenue | ||||||
500,000 | 5.000%, 08/01/28 AGMC Insured | A1/AA/NR | 510,030 | |||
Mesa Utility System | ||||||
1,500,000 | 4.000%, 07/01/32 | Aa2/AA-/NR | 1,511,475 | |||
3,310,000 | 4.000%, 07/01/35 | Aa2/AA-/NR | 3,261,575 | |||
5,000,000 | 5.000%, 07/01/36 | Aa3/A+/NR | 5,484,550 | |||
Salt Verde Finance Corp. Gas Revenue | ||||||
3,000,000 | 5.250%, 12/01/28 | A3/BBB+/NR | 3,103,830 | |||
Surprise Utility System Senior Lien Obligations | ||||||
470,000 | 5.000%, 07/01/33 | NR/AA+/NR | 505,504 | |||
Yuma Utility System | ||||||
1,000,000 | 4.000%, 07/01/34 BAMAC Insured | NR/AA/AA- | 983,300 | |||
Total Utility | 15,360,264 | |||||
Water/Sewer (4.2%) | ||||||
Gilbert Water Resource Municipal Property Corp. | ||||||
1,190,000 | 4.000%, 07/01/34 | NR/AAA/AAA | 1,201,817 |
12 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Water/Sewer (continued) | ||||||
Glendale Water & Sewer Revenue Refunding Senior Lien | ||||||
$ 6,120,000 | 3.000%, 07/01/24 | A1/AA/NR | $ 6,088,788 | |||
Phoenix Civic Improvement Corp. Wastewater Revenue | ||||||
1,500,000 | 5.500%, 07/01/24 NPFG/FGIC Insured | Aa2/AAA/NR | 1,559,265 | |||
Total Water/Sewer | 8,849,870 | |||||
Total Revenue Bonds | 119,855,845 | |||||
Pre-Refunded Bonds (4.1%)†† | ||||||
Pre-Refunded General Obligation Bonds (0.7%) | ||||||
City (0.1%) | ||||||
Glendale, Arizona | ||||||
200,000 | 5.000%, 07/01/33 | NR/AA/AAA | 218,488 | |||
School District (0.1%) | ||||||
Maricopa Co. Elementary School District No. 28 (Kyrene Elementary) | ||||||
250,000 | 5.500%, 07/01/30 | Aaa/AA/NR | 254,393 | |||
Special District (0.5%) | ||||||
Estrella Mountain Ranch Community Facilities District | ||||||
845,000 | 5.000%, 07/15/32 AGMC Insured | NR/AA/NR | 907,953 | |||
Goodyear Community Facilities Utilities District No. 1 | ||||||
40,000 | 4.000%, 07/15/32 | NR/NR/NR* | 40,962 | |||
Total Special District | 948,915 | |||||
Total Pre-Refunded General Obligation Bonds | 1,421,796 | |||||
Pre-Refunded Revenue Bonds (3.4%) | ||||||
Excise Tax (0.2%) | ||||||
Scottsdale Municipal Property Corp. | ||||||
375,000 | 5.000%, 07/01/34 | Aa1/AAA/AA+ | 392,978 | |||
13 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Pre-Refunded Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Healthcare (2.3%) | ||||||
Arizona Health Facilities Authority (Banner Health) | ||||||
$ 2,000,000 | 5.000%, 01/01/44 | NR/AA-/AA- | $ 2,044,080 | |||
Maricopa Co. Hospital Revenue (Sun Health) | ||||||
705,000 | 5.000%, 04/01/25 | NR/NR/NR* | 717,859 | |||
2,125,000 | 5.000%, 04/01/35 | NR/NR/NR* | 2,182,481 | |||
Total Healthcare | 4,944,420 | |||||
Higher Education (0.7%) | ||||||
Northern Arizona University Speed Stimulus Plan for Economic & Educational Development | ||||||
1,445,000 | 5.000%, 08/01/38 | A2/A/NR | 1,466,588 | |||
Lease (0.2%) | ||||||
State of Arizona COP | ||||||
400,000 | 5.000%, 09/01/27 | NR/NR/NR* | 419,128 | |||
Total Pre-Refunded Revenue Bonds | 7,223,114 | |||||
Total Pre-Refunded Bonds | 8,644,910 | |||||
Total Municipal Bonds (cost $222,655,453) | 208,356,197 | |||||
Shares | Short-Term Investment (1.9%) | |||||
3,992,233 | Dreyfus Treasury Obligations Cash Management - Institutional Shares, 2.85%** (cost $3,992,233) | Aaa-mf/AAAm/NR | 3,992,233 | |||
Total Investments (cost $226,647,686 - note 4) | 100.0% | 212,348,430 | ||||
Other assets less liabilities | (0.0) | (46,762) | ||||
Net Assets | 100.0% | $ 212,301,668 |
14 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Portfolio Distribution By Quality Rating | Percentage of Investments† | |
Aaa of Moody's or AAA of S&P or Fitch | 9.8% | |
Pre-refunded bonds†† | 4.2 | |
Aa of Moody's or AA of S&P or Fitch | 67.7 | |
A of Moody's or S&P or Fitch | 14.7 | |
Baa of Moody's or BBB of S&P or Fitch | 2.3 | |
CCC of S&P | 1.1 | |
Not Rated* | 0.2 | |
100.0% |
PORTFOLIO ABBREVIATIONS |
AGMC - Assured Guaranty Municipal Corp. AMT - Alternative Minimum Tax BAMAC - Build America Mutual Assurance Co. BHAC - Berkshire Hathaway Assurance Corp. COP- Certificates of Participation FGIC - Financial Guaranty Insurance Co. FNMA - Federal National Mortgage Association MTEB - Multifamily Tax-Exempt Mortgage-Backed Bonds NPFG - National Public Finance Guarantee NR - Not Rated VRDO – Variable Rate Demand Obligation |
* | 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. |
** | The rate is an annualized seven-day yield at period end. |
*** | Variable rate demand obligations (“VRDOs”) are payable upon demand within the same day for securities with daily liquidity or seven days for securities with weekly liquidity. |
† | Where applicable, calculated using the highest rating of the three NRSRO. Percentages in this table do not include the Short-Term Investment. |
†† | 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.
15 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2022 (unaudited) |
ASSETS | |||
Investments at value (cost $226,647,686) | $ | 212,348,430 | |
Interest receivable | 2,319,684 | ||
Receivable for investment securities sold | 835,488 | ||
Receivable for Fund Shares sold | 282,421 | ||
Other assets | 22,001 | ||
Total assets | 215,808,024 | ||
LIABILITIES | |||
Payable for investment securities purchased | 3,130,643 | ||
Payable for Fund shares redeemed | 143,784 | ||
Management fee payable | 72,049 | ||
Dividends payable | 71,318 | ||
Distribution and service fees payable | 404 | ||
Accrued expenses | 88,158 | ||
Total liabilities | 3,506,356 | ||
NET ASSETS | $ | 212,301,668 | |
Net Assets consist of: | |||
Capital Stock – Authorized an unlimited number of shares, par value $0.01 per share | $ | 223,631 | |
Additional paid-in capital | 228,039,406 | ||
Total distributable earnings (losses) | (15,961,369) | ||
$ | 212,301,668 | ||
CLASS A | |||
Net Assets | $ | 155,962,323 | |
Capital shares outstanding | 16,433,333 | ||
Net asset value and redemption price per share | $ | 9.49 | |
Maximum offering price per share (100/97 of $9.49) | $ | 9.78 | |
CLASS C | |||
Net Assets | $ | 2,832,338 | |
Capital shares outstanding | 298,739 | ||
Net asset value and offering price per share | $ | 9.48 | |
CLASS Y | |||
Net Assets | $ | 53,507,007 | |
Capital shares outstanding | 5,631,010 | ||
Net asset value, offering and redemption price per share | $ | 9.50 |
See accompanying notes to financial statements.
16 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA STATEMENT OF OPERATIONS SIX MONTHS ENDED SEPTEMBER 30, 2022 (unaudited) |
Investment Income | ||||||
Interest income | $ | 3,319,530 | ||||
Expenses | ||||||
Investment Adviser fee (note 3) | $ | $ 459,794 | ||||
Distribution and service fee (note 3) | 146,776 | |||||
Transfer and shareholder servicing agent fees | 48,912 | |||||
Legal fees | 43,233 | |||||
Trustees’ fees and expenses (note 7) | 35,682 | |||||
Registration fees and dues | 16,576 | |||||
Auditing and tax fees | 12,284 | |||||
Shareholders’ reports | 9,070 | |||||
Insurance | 6,984 | |||||
Custodian fees | 4,790 | |||||
Compliance services (note 3) | 4,690 | |||||
Credit facility fees (note 10) | 3,017 | |||||
Miscellaneous | 20,377 | |||||
Total expenses | 812,185 | |||||
Net investment income | 2,507,345 | |||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||
Net realized gain (loss) from securities transactions | (1,423,269) | |||||
Change in unrealized appreciation (depreciation) on investments | (13,631,008) | |||||
Net realized and unrealized gain (loss) on investments | (15,054,277) | |||||
Net change in net assets resulting from operations | $ | (12,546,932) |
See accompanying notes to financial statements.
17 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA STATEMENT OF CHANGES IN NET ASSETS |
Six Months Ended September 30, 2022 (unaudited) | Year Ended March 31, 2022 | |||||
OPERATIONS | ||||||
Net investment income | $ | 2,507,345 | $ | 5,984,239 | ||
Realized gain (loss) from securities transactions | (1,423,269) | (514,009) | ||||
Change in unrealized appreciation (depreciation) on investments | (13,631,008) | (17,057,872) | ||||
Change in net assets resulting from operations | (12,546,932) | (11,587,642) | ||||
DISTRIBUTIONS TO SHAREHOLDERS (note 9): | ||||||
Class A Shares | (1,778,894) | (4,083,825) | ||||
Class C Shares | (26,857) | (79,168) | ||||
Class Y Shares | (660,491) | (1,732,704) | ||||
Change in net assets from distributions | (2,466,242) | (5,895,697) | ||||
CAPITAL SHARE TRANSACTIONS (note 6): | ||||||
Proceeds from shares sold | 15,928,749 | 41,773,669 | ||||
Reinvested dividends and distributions | 2,012,459 | 4,869,901 | ||||
Cost of shares redeemed | (39,053,992) | (61,735,189) | ||||
Change in net assets from capital share transactions | (21,112,784) | (15,091,619) | ||||
Change in net assets | (36,125,958) | (32,574,958) | ||||
NET ASSETS: | ||||||
Beginning of period | 248,427,626 | 281,002,584 | ||||
End of period | $ | 212,301,668 | $ | 248,427,626 |
See accompanying notes to financial statements.
18 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2022 (unaudited) |
1. Organization
Aquila Tax-Free Trust of Arizona (the “Fund”), one of six series of Aquila Municipal Trust (prior to October 12, 2013, the Fund operated under the name Tax-Free Trust of Arizona), a non-diversified, open-end investment company, was organized on October 17, 1985, as a Massachusetts business Trust 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. As of the date of this report, there were no Class F 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 ask quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued using other fair value methods. Aquila Investment Management LLC, the Fund’s investment manager, has been designated as the Fund’s valuation designee, with responsibility for fair valuation subject to oversight by the Fund’s 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 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.
19 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (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, 2022:
Valuation Inputs* | Investments in Securities | |||
Level 1 – Quoted Prices – Short-Term Investment | $ | 3,992,233 | ||
Level 2 – Other Significant Observable Inputs – Municipal Bonds* | 208,356,197 | |||
Level 3 – Significant Unobservable Inputs | — | |||
Total | $ | 212,348,430 | ||
* 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 (2019 – 2021) or expected to be taken in the Fund’s 2022 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. |
20 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (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. These reclassifications had no effect on net assets or net asset value per share. For the year ended March 31, 2022, there were no items identified that have been reclassified among components of net assets. |
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 transfer and 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 compliance related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940, as amended (the “1940 Act).
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 1940 Act. 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 LLC (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, 2022, distribution fees on Class A Shares amounted to $125,587, of which the Distributor retained $14,360.
21 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
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, 2022, amounted to $15,892. 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, 2022, these payments amounted to $5,297. The total of these payments with respect to Class C Shares amounted to $21,189, of which the Distributor retained $5,247.
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 (“financial intermediaries”), the Fund’s shares are sold primarily through the facilities of these financial intermediaries having offices within Arizona, with the bulk of any sales commissions inuring to such financial intermediaries. For the six months ended September 30, 2022, total commissions on sales of Class A Shares amounted to $9,197, of which the Distributor received $1,995.
c) | Transfer and shareholder servicing fees: |
The Fund occasionally compensates financial intermediaries in connection with the sub-transfer agency related services provided by such entities in connection with their respective Fund shareholders so long as the fees are deemed by the Board of Trustees to be reasonable in relation to (i) the value of the services and the benefits received by the Fund and certain shareholders; and (ii) the payments that the Fund would make to another entity to perform similar ongoing services to existing shareholders.
4. Purchases and Sales of Securities
During the six months ended September 30, 2022, purchases of securities and proceeds from the sales of securities aggregated $29,498,327 and $46,128,489, respectively.
At September 30, 2022, the aggregate tax cost for all securities was $226,168,441. At September 30, 2022, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $1,461,489 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $15,281,500 for a net unrealized depreciation of $13,820,011.
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 general policy of the Fund is to invest in such
22 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
securities only when comparable securities of Arizona issuers are not available in the market. At September 30, 2022, the Fund had all of its long-term portfolio holdings invested in the securities of Arizona issuers.
6. Capital Share Transactions
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended September 30, 2022 (unaudited) | Year Ended March 31, 2022 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Class A Shares | ||||||||||
Proceeds from shares sold | 435,834 | $ | 4,300,851 | 1,386,842 | $ | 15,045,831 | ||||
Reinvested dividends and distributions | 148,184 | 1,457,425 | 313,418 | 3,364,280 | ||||||
Cost of shares redeemed | (1,784,209) | (17,595,846) | (2,402,082) | (25,790,639) | ||||||
Net change | (1,200,191) | (11,837,570) | (701,822) | (7,380,528) | ||||||
Class C Shares | ||||||||||
Proceeds from shares sold | 16,157 | 161,082 | 33,684 | 364,928 | ||||||
Reinvested dividends and distributions | 2,437 | 23,992 | 6,725 | 72,248 | ||||||
Cost of shares redeemed | (228,502) | (2,244,247) | (214,642) | (2,310,543) | ||||||
Net change | (209,908) | (2,059,173) | (174,233) | (1,873,367) | ||||||
Class Y Shares | ||||||||||
Proceeds from shares sold | 1,162,675 | 11,466,816 | 2,438,440 | 26,362,910 | ||||||
Reinvested dividends and distributions | 53,920 | 531,042 | 133,270 | 1,433,373 | ||||||
Cost of shares redeemed | (1,942,690) | (19,213,899) | (3,154,359) | (33,634,007) | ||||||
Net change | (726,095) | (7,216,041) | (582,649) | (5,837,724) | ||||||
Total transactions in Fund shares | (2,136,194) | $ | (21,112,784) | (1,458,704) | $ | (15,091,619) |
7. Trustees’ Fees and Expenses
At September 30, 2022, there were 9 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, 2022 was $34,324. 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, 2022, due to the COVID-19 pandemic, such meeting-related expenses were reduced and amounted to $1,358.
23 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
8. 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. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
9. 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 or in cash, 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. 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 and are utilized before capital losses incurred prior to the enactment of the Act. At March 31, 2022, the Fund had capital loss carry forwards of $326,866, $258,915 is short-term and $67,951 is long-term. Both have no expiration date. As of March 31, 2022, the Fund had post-October losses of $553,142, which is deferred until fiscal 2023 for tax purposes.
The tax character of distributions was as follows:
Year Ended March 31, 2022 | Year Ended March 31, 2021 | ||||||
Net tax-exempt income | $ | 5,844,296 | $ | 6,190,196 | |||
Ordinary Income | 51,401 | — | |||||
$ | 5,895,697 | $ | 6,190,196 |
24 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
As of March 31, 2022, the components of distributable earnings on a tax basis were:
Undistributed tax-exempt income | $ | 153,512 | ||
Undistributed net realized loss on investments | (326,866) | |||
Unrealized depreciation | (140,130) | |||
Post October losses | (553,142) | |||
Other temporary differences | (81,569 | |||
$ | (948,195) |
The difference between book basis and tax basis unrealized appreciation and undistributed income is due to the timing difference, and other temporary differences, in recognizing dividends paid, the tax treatment of market discount amortization, and the deduction of distributions payable.
10. Credit Facility
Since August 30, 2017, Bank of New York Mellon and the Aquila Group of Funds (comprised of nine funds) have been parties to a $40 million credit agreement, which currently terminates on August 23, 2023 (per the August 24, 2022 amendment). In accordance with the Aquila Group of Funds Guidelines for Allocation of Committed Line of Credit, each fund is responsible for payment of its proportionate share of
a) | a 0.17% per annum commitment fee; and, |
b) | interest on amounts borrowed for temporary or emergency purposes by the fund (at the applicable per annum rate selected by the Aquila Group of Funds at the time of the borrowing of either (i) the adjusted daily simple Secured Overnight Financing Rate (“SOFR”) plus 1% or (ii) the sum of the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate, or (c) the adjusted daily simple Secured Overnight Financing Rate (“SOFR”) plus 1%). |
There were no borrowings under the credit agreement during the six months ended September 30, 2022.
11. Risks
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, political or regulatory conditions, recessions, inflation, changes in interest rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues, armed conflict including Russia’s military invasion of Ukraine, sanctions against Russia, other nations or individuals or companies and possible countermeasures, market disruptions caused by tariffs, trade disputes or other factors, or adverse investor sentiment. When market prices fall, the value of your investment may go down. In the past several years, financial markets have experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. These conditions may continue, recur, worsen or spread.
25 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Rates of inflation have recently risen. The value of assets or income from an investment may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline as can the value of the Fund’s distributions.
The global pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s invasion of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or markets could be similarly affected by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the economy and securities markets, may not be known for some time.
The value of your investment will generally go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term or longer duration securities. In recent years, interest rates and credit spreads in the U.S. have been at historic lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain interest rates. A general rise in interest rates may cause investors to move out of fixed income securities on a large scale and could also result in increased redemptions from the Fund.
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. The municipal bond market can be susceptible to unusual volatility, particularly for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic conditions or credit tightening. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Unfavorable conditions and
26 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
developments relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. Municipal securities may be more susceptible to downgrades or defaults during a recession or similar periods of economic stress. Financial difficulties of municipal issuers may continue or get worse, particularly in the event of economic or market turmoil or a recession.
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.
27 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA FINANCIAL HIGHLIGHTS |
For a share outstanding throughout each period
Class A | ||||||||||||
Six | ||||||||||||
Months | ||||||||||||
Ended | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.14 | $10.82 | $10.68 | $10.61 | $10.47 | $10.58 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.11 | 0.23 | 0.25 | 0.27 | 0.29 | 0.30 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.65) | (0.69) | 0.14 | 0.07 | 0.16 | (0.10) | ||||||
Total from investment operations | (0.54) | (0.46) | 0.39 | 0.34 | 0.45 | 0.20 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.11) | (0.22) | (0.25) | (0.27) | (0.29) | (0.29) | ||||||
Distributions from capital gains | — | — | — | — | (0.02) | (0.02) | ||||||
Total distributions | (0.11) | (0.22) | (0.25) | (0.27) | (0.31) | (0.31) | ||||||
Net asset value, end of period | $9.49 | $10.14 | $10.82 | $10.68 | $10.61 | $10.47 | ||||||
Total return (not reflecting sales charge) | (5.41)%(2) | (4.32)% | 3.63% | 3.16% | 4.37% | 1.93% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $156 | $179 | $198 | $199 | $204 | $218 | ||||||
Ratio of expenses to average net assets | 0.73%(3) | 0.69% | 0.71% | 0.74% | 0.73% | 0.69% | ||||||
Ratio of net investment income to average net assets | 2.16%(3) | 2.11% | 2.30% | 2.49% | 2.74% | 2.77% | ||||||
Portfolio turnover rate | 13%(2) | 35% | 11% | 21% | 34% | 16% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
28 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class C | ||||||||||||
Six | ||||||||||||
Months | ||||||||||||
Ended | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.13 | $10.81 | $10.67 | $10.61 | $10.47 | $10.58 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.06 | 0.14 | 0.16 | 0.18 | 0.20 | 0.20 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.65) | (0.69) | 0.13 | 0.05 | 0.15 | (0.09) | ||||||
Total from investment operations | (0.59) | (0.55) | 0.29 | 0.23 | 0.35 | 0.11 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.06) | (0.13) | (0.15) | (0.17) | (0.19) | (0.20) | ||||||
Distributions from capital gains | — | — | — | — | (0.02) | (0.02) | ||||||
Total distributions | (0.06) | (0.13) | (0.15) | (0.17) | (0.21) | (0.22) | ||||||
Net asset value, end of period | $9.48 | $10.13 | $10.81 | $10.67 | $10.61 | $10.47 | ||||||
Total return (not reflecting sales charge) | (5.82)%(2) | (5.13)% | 2.76% | 2.20% | 3.49% | 1.06% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $3 | $5 | $7 | $8 | $9 | $14 | ||||||
Ratio of expenses to average net assets | 1.58%(3) | 1.54% | 1.56% | 1.59% | 1.58% | 1.54% | ||||||
Ratio of net investment income to average net assets | 1.30%(3) | 1.26% | 1.45% | 1.65% | 1.88% | 1.92% | ||||||
Portfolio turnover rate | 13%(2) | 35% | 11% | 21% | 34% | 16% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
29 | Aquila Tax-Free Trust of Arizona
AQUILA TAX-FREE TRUST OF ARIZONA FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class Y | ||||||||||||
Six | ||||||||||||
Months | ||||||||||||
Ended | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.15 | $10.84 | $10.69 | $10.63 | $10.49 | $10.60 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.11 | 0.24 | 0.26 | 0.28 | 0.30 | 0.31 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.65) | (0.69) | 0.15 | 0.06 | 0.16 | (0.09) | ||||||
Total from investment operations | (0.54) | (0.45) | 0.41 | 0.34 | 0.46 | 0.22 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.11) | (0.24) | (0.26) | (0.28) | (0.30) | (0.31) | ||||||
Distributions from capital gains | — | — | — | — | (0.02) | (0.02) | ||||||
Total distributions | (0.11) | (0.24) | (0.26) | (0.28) | (0.32) | (0.33) | ||||||
Net asset value, end of period | $9.50 | $10.15 | $10.84 | $10.69 | $10.63 | $10.49 | ||||||
Total return (not reflecting sales charge) | (5.33)%(2) | (4.26)% | 3.88% | 3.21% | 4.51% | 2.08% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $54 | $65 | $75 | $53 | $40 | $41 | ||||||
Ratio of expenses to average net assets | 0.58%(3) | 0.54% | 0.56% | 0.60% | 0.59% | 0.55% | ||||||
Ratio of net investment income to average net assets | 2.31%(3) | 2.26% | 2.44% | 2.62% | 2.88% | 2.92% | ||||||
Portfolio turnover rate | 13%(2) | 35% | 11% | 21% | 34% | 16% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
30 | Aquila Tax-Free Trust of Arizona
Additional Information:
Statement Regarding Liquidity Risk Management Program
Rule 22e-4 under the Investment Company Act of 1940, as amended, requires open-end management investment companies to adopt and implement written liquidity risk management programs that are reasonably designed to assess and manage liquidity risk. Liquidity risk is defined in the rule as the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund. In accordance with Rule 22e-4, Aquila Municipal Trust (“AMT”) has adopted a Liquidity Risk Management (“LRM”) program (the “program”). AMT’s Board of Trustees (the “Board”) has designated an LRM Committee consisting of employees of Aquila Investment Management LLC as the administrator of the program (the “Committee”).
The Board met on June 17, 2022 to review the program. At the meeting, the Committee provided the Board with a report that addressed the operation of the program and assessed its adequacy and effectiveness of implementation, and any material changes to the program (the “Report”). The Report covered the period from May 1, 2021 through April 30, 2022 (the “Reporting Period”).
During the Reporting Period, the Committee reviewed whether each Fund’s strategy is appropriate for an open-end fund structure taking into account less liquid and illiquid assets.
The Committee reviewed each Fund’s short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions. In classifying and reviewing each Fund’s investments, the Committee considered whether trading varying portions of a position in a particular portfolio investment or asset class in sizes the Fund would reasonably anticipate trading, would be reasonably expected to significantly affect liquidity. The Committee considered the following information when determining the sizes in which each Fund would reasonably anticipate trading: historical net redemption activity, the Fund’s concentration in an issuer, shareholder concentration, Fund performance, Fund size, and distribution channels.
The Committee considered each Fund’s holdings of cash and cash equivalents, as well as borrowing arrangements. The Committee considered the terms of the credit facility applicable to the Funds, the financial health of the institution providing the facility and the fact that the credit facility is shared among multiple Funds. The Committee also considered other types of borrowing available to the Funds, such as the ability to use interfund lending arrangements.
The Committee also performed an analysis to determine whether a Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”), and determined that the requirement to maintain an HLIM was inapplicable to the Funds because each Fund primarily holds highly liquid investments.
There were no material changes to the program during the Reporting Period. The Report provided to the Board stated that the Committee concluded that the program is reasonably designed and operated effectively throughout the Review Period.
31 | 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 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. The independent Trustees met via video conference on August 25, 2022 and in person on September 10, 2022 to review and discuss the contract review materials that were provided in advance of the August 25, 2022 meeting. 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 (the “Consultant’s Report”). In addition, the Trustees took into account the performance and other information related to the Fund provided to the Trustees at each regularly scheduled meeting. The Trustees also discussed the memorandum provided by Fund counsel that summarized the legal standards and other considerations that are relevant to the Trustees in their deliberations regarding the renewal of the Advisory Agreement.
At the meeting held on September 10, 2022, 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, 2023. 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 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
32 | Aquila Tax-Free Trust of Arizona
management services to the Fund. The Manager has employed Messrs. Tony Tanner, James Thompson and Royden Durham as portfolio managers for the Fund and has established facilities and capabilities for credit analysis of the Fund’s portfolio securities. They considered that Mr. Tanner, the Fund’s lead portfolio manager, 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 Fund invests, including those securities with less than the highest ratings from the rating agencies.
The Trustees noted that 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 fund accountant, 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 (Class A shares) and compared its performance to the performance of:
· | the funds in the Municipal Single State Intermediate-Term Bond category as assigned by Morningstar, Inc. (the “Morningstar Category”); and |
· | the Fund’s benchmark index, the Bloomberg Municipal Bond: Quality Intermediate Total Return Index Unhedged USD. |
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 Morningstar Category for the one and three-year periods, but was higher than the average annual total return of the funds in the Morningstar Category for the five and ten-year periods ended June 30, 2022. They noted that the Fund’s return for each of the one-year period and six months ended June 30, 2022 was in the fourth quintile and that its average annual return for each of the three and five-year periods ended June 30, 2022 was in the third quintile, in each case relative to the funds in the Morningstar Category for the same periods. (Each quintile represents one-fifth of the peer group and first quintile is most favorable to the Fund’s shareholders.) The Trustees further considered that the Fund outperformed its benchmark index for the ten-year period, but underperformed its benchmark index for the one, three and five-year periods, all as of June 30, 2022. They further noted, as reflected in the Consultant’s Report, that the Fund’s total return for 2021 outperformed both the average annual total return of the funds in the Morningstar Category and the annual return of its benchmark index for 2021.
The Trustees noted that the Fund invests primarily in municipal obligations issued by the State of Arizona, its counties and various other local authorities, while the funds in the Morningstar Category invest in, and the Fund’s benchmark index includes, municipal bonds of issuers throughout the United States and that less than 2% of the benchmark index consists of Arizona bonds. The Trustees also noted that, unlike the Fund’s returns, the performance of the benchmark index did not reflect any fees or expenses.
33 | Aquila Tax-Free Trust of Arizona
The Trustees considered the Fund’s investment performance 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 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 21 funds in the Fund’s expense group (the “Expense Group”), as selected by the independent consultant (the Fund and 13 other Municipal Single-State Intermediate-Term Bond funds, two Municipal Massachusetts Bond funds, two Municipal Minnesota Bond funds, two Municipal New Jersey Bond funds, and one Municipal Pennsylvania Bond fund, each categorized by Morningstar, Inc. with portfolio assets ranging between $130 million and $692 million). Only front-end load and retail no-load funds were considered for inclusion in the Expense Group. In addition, peer selection for the Expense Group focused on municipal bond funds with an intermediate duration across comparable categories. The Trustees also compared the Fund’s advisory fees and expenses to advisory fee data for the Fund’s Morningstar Category (as defined above). Certain of the peer group comparisons referred to below are organized in quintiles. Each quintile represents one-fifth of the peer group. In all peer group comparisons referred to below, first quintile is most favorable to the Fund’s shareholders.
The Trustees considered that the Fund’s net management fee for its most recent fiscal year was in the third quintile relative to the management fees paid by the other funds in its Expense Group for the comparable period and lower than the median net management fee of the funds in the Expense Group (after giving effect to fee waivers in effect for those funds). They also considered that the Fund’s contractual advisory fee was lower than the average and median contractual advisory fee of the funds in the Morningstar Category (at the Fund’s current asset level and at various asset levels up to $10 billion).
The Trustees considered that the Fund’s net total expenses for the most recent fiscal year were in the second quintile relative the net total expenses of the other funds in its Expense Group for the comparable period (after giving effect to fee waivers in effect for those funds).
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 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 LLC of distribution services provided to the Fund. The Manager also provided other financial information to the members of the financial review committee of the Fund and the other funds in the Aquila Group of Funds.
34 | Aquila Tax-Free Trust of Arizona
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 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 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 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 affiliate, 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 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.
35 | Aquila Tax-Free Trust of Arizona
Your Fund’s Expenses (unaudited)
As a Fund shareholder, 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 assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The 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 that 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”.
Hypothetical Example for Comparison with Other Funds
Under the heading, “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
Actual | Hypothetical | ||||||
(actual return after expenses) | (5% annual return before expenses) | ||||||
Share Class | Beginning Account Value 4/1/22 | Ending(1) Account | Expenses(2) Paid During Period 4/1/22 – 9/30/22 | Ending Account Value 9/30/22 | Expenses(2) Paid During Period 4/1/22 – 9/30/22 | Net Annualized Expense Ratio | |
A | $1,000 | $945.90 | $3.56 | $1,021.41 | $3.70 | 0.73% | |
C | $1,000 | $941.80 | $7.69 | $1,017.15 | $7.99 | 1.58% | |
Y | $1,000 | $946.70 | $2.83 | $1,022.16 | $2.94 | 0.58% |
(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 or the applicable CDSC with respect to Class C shares. Total return is not annualized and as such, it may not be representative of the total return for the year. |
(2) | Expenses are equal to the annualized expense ratio for the six-month period as indicated above - in the far right column - multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period. |
36 | Aquila Tax-Free Trust of Arizona
Information Available (unaudited) Annual and Semi-Annual Reports and Complete Portfolio Holding Schedules Your Fund’s Annual and Semi-Annual Reports are filed with the SEC twice a year. Each Report contains a complete Schedule of Portfolio Holdings, along with full financial statements and other important financial statement disclosures. Additionally, your Fund files a complete Schedule of Portfolio Holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its Reports on Form N-PORT. Your Fund’s Annual and Semi-Annual Reports and N-PORT reports 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. In addition, your Fund’s Annual and Semi-Annual Reports and complete Portfolio Holdings Schedules for each fiscal quarter end are also available, free of charge, on your Fund’s website, www.aquilafunds.com (under the prospectuses & reports tab) or by calling us at 1-800-437-1000. Portfolio Holdings Reports In accordance with your Fund’s Portfolio Holdings Disclosure Policy, the Manager also prepares a Portfolio Holdings Report as of each quarter end, which is typically posted to your Fund’s individual page at www.aquilafunds.com by the 15th day after the end of each calendar quarter. Such information will remain accessible until the next Portfolio Holdings Report is made publicly available by being posted to www.aquilafunds.com. The quarterly Portfolio Holdings Report may be accessed, free of charge, by visiting www.aquilafunds.com or calling us at 1-800-437-1000. |
Proxy Voting Record (unaudited) During the 12 month period ended June 30, 2022, there were no proxies related to any portfolio instruments held by the Fund. As such, the Fund did not vote any proxies. 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, 2022, $5,844,296 of dividends paid by Aquila Tax-Free Trust of Arizona, constituting 99% of total dividends paid were exempt-interest dividends; and the balance was ordinary income. Prior to February 15, 2023, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2022 calendar year. |
37 | Aquila Tax-Free Trust of Arizona
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
Thomas A. Christopher, Chair
Diana P. Herrmann, Vice Chair
Ernest Calderón
Gary C. Cornia
Grady Gammage, Jr.
Patricia L. Moss
Glenn P. O’Flaherty
Heather R. Overby
Laureen L. White
Officers
Diana P. Herrmann, President
Paul G. O’Brien, Senior Vice President
Anthony A. Tanner, Vice President and
Lead Portfolio Manager
Royden P. Durham, Vice President and
Portfolio Manager
James T. Thompson, Vice President and
Portfolio Manager
Robert C. Arnold, Vice President
Randall S. Fillmore, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer
and Treasurer
Anita Albano, Secretary
Distributor
AQUILA DISTRIBUTORS LLC
120 West 45th Street, Suite 3600
New York, New York 10036
Transfer and Shareholder Servicing Agent
BNY MELLON INVESTMENT SERVICING (US) INC.
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
THE BANK OF NEW YORK MELLON
240 Greenwich Street
New York, New York 10286
Further information is contained in the Prospectus,
which must precede or accompany this report.
AQL-AZSAR-1122
Semi-Annual Report September 30, 2022
| ||||||||||||||||||||||||||
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![]() | Aquila Tax-Free Trust of Oregon Keeping an Optimistic
Serving Oregon investors since 1986 | ![]() |
November, 2022
Dear Fellow Shareholder:
The fixed income markets have experienced significant volatility and downward pressure for much of 2022, driven primarily by several key economic factors, including continued high inflation, rising interest rates, and uncertainty about the direction of the U.S. economy. While these factors aren’t necessarily new or unique, they nonetheless have presented challenges for rate-sensitive investments — and, in the process, have made the majority of investors increasingly skittish. While we understand investors’ concerns, we remain optimistic about the municipal bond market.
Despite its inevitable ups and downs, the municipal bond market has historically demonstrated remarkable resiliency across multiple market cycles. We believe today’s market appears reasonably sound at its core in terms of continuing credit fundamentals and current relative valuations. The municipal market’s underpinnings remain deeply rooted in the need and demand for municipal bonds given the important role they play in financing vital local projects, such as schools, hospitals, and roadways that contribute to improving the quality of life for residents of the issuing municipalities.
It’s important to understand what’s driving the current market and maintain perspective. Let’s explore further.
Understanding the Factors Impacting Municipal Bonds
The primary driver of bond yields, prices, and relative performance is interest rates. Since the Federal Reserve (the “Fed”) introduced a change in its monetary policy in March of this year to help combat inflation, interest rates began a steady upward climb. This was spurred by the Fed raising the Federal Funds rate (the interest rate that banks charge one another to borrow or lend excess reserves overnight), the first such increase since 2018. To date, through 11/02/2022, the Fed has implemented six rate hikes, totaling 3.75%, bringing the stated target range for the Fed Funds rate to 3.75% – 4.00%. And, Federal Reserve Chairman Jerome Powell has indicated that additional increases may be deemed necessary going forward, dependent upon the status of the U.S. economy and data driven analytics. Mr. Powell and his colleagues have stated that the Fed will remain vigilant in its efforts to manage inflation, which has topped levels not seen in more than 40 years (as measured by the Consumer Price Index).
In reaction to the Federal Reserve’s aggressive monetary policy stance, year to date interest rates have experienced a significant increase. As you may know, bond prices generally move in the opposite direction of rate changes. Therefore, while rising interest rates generally translate to higher yields for bond investments, bond prices or values usually fall. This changing yield/price landscape has created two shifts in the market — a shift for issuers of bonds (who may now be reluctant to issue new debt at increased costs), along with a shift in investor sentiment. For investors, on the one hand, higher yields mean greater income, which is a welcome development for those who during the recent
NOT A PART OF THE SEMI-ANNUAL REPORT
low-yield environment sought opportunities to earn more attractive income levels. On the other hand, investors who are mindful of capital preservation have become wary as they have seen bond prices decline.
When investing in bonds, we believe that generating an attractive risk-adjusted return is a careful balance of the two factors— income and stability of capital. Your Fund’s investment objective, in fact, seeks to provide as high a level of current income exempt (from state and regular federal income taxes) as is consistent with preservation of capital. So, how has the rise in interest rates affected municipal bonds?
Assessing the Current Market Cycle
It’s important, in our view, to evaluate financial markets, performance, and valuations on a relative basis. This is true not only within the municipal bond market, but with and relative to other asset classes as well.
Municipal bonds are oftentimes viewed in comparison with U.S. Treasuries. Let’s take a look at yield curves and the relative Municipal-to-Treasury relationship. During 2022, yields of U.S. Treasury securities have generally risen across the maturity spectrum, but the overall slope of the curve flattened, particularly during the third quarter of 2022. Specifically, there was a greater increase in interest rates on the short-end of the U.S. Treasury curve (shorter maturities) which exceeded increases on the longer-end. Given economic uncertainty and fears of a possible recession, some market participants are concerned that this change in the U.S. Treasury yield curve may signal an impending economic slump. Meanwhile, the municipal bond yield curve has been more positively sloped (with longer term maturities yielding more) throughout the year, in particular, steepening between 10- and 30-year maturities during the third quarter — which may be viewed positively by municipal investors.
The Municipal-to-Treasury relationship (based on the yield of AAA municipal securities as a percentage of the yield of U.S. Treasuries of the same maturity) has fluctuated over the past year, but generally in our view continued to trade in line with historical relationship norms. The chart below illustrates what we believe to be an indication of improved relative valuations for municipal obligations, whereby municipal yields represent a greater percentage in comparison to U.S. Treasury yields. As one would usually anticipate in a rising rate environment, such as now, the relationship ratio compares somewhat favorably for longer maturity municipal bonds (specifically, in the 30-year maturity range) which were yielding greater than U.S. Treasury securities as of September 30th.
January 3, 2022 Municipal % of U.S. Treasury | September 30, 2022 Municipal % of U.S. Treasury | |||
5-Year | 44.1% | 77.6% | ||
10-year | 63.8% | 87.0% | ||
30-year | 74.3% | 104.0% | ||
Source: Bloomberg |
Credit spreads among municipal bond issues have begun to widen during the year. (Credit spread is the difference in yield between securities of the same maturity with different credit ratings.) Wider credit spreads generally favor higher-quality issuers in a rising rate environment due to concerns related to lower quality issues during periods of slowing economic growth. This scenario may be viewed as a benefit to higher quality, shorter duration portfolios vis-à-vis lower quality, longer duration holdings. (Duration is
NOT A PART OF THE SEMI-ANNUAL REPORT
a measurement of a bond’s sensitivity or risk to changes in interest rates; shorter duration generally means less risk.) This assumes interest rates continue to rise, as the Fed seems to have signaled in recent press releases. Overall, we view municipal credit fundamentals to be relatively strong, while credit defaults as tracked by the Nationally Recognized Statistical Rating Agencies (such as Moody’s and Standard & Poor’s) generally remain relatively low, particularly among higher quality issues.
At a local level, many state and local economies continue to show signs of improvement and sustained growth. Despite recession risk, local municipalities and governments appear to us to be well-positioned to manage economic challenges. Higher employment, increasing wages, and rising property values in many jurisdictions throughout the country are among key contributors toward bolstering state and local revenue and tax receipts.
Looking Forward
We remain cautiously optimistic about the direction of the municipal bond market. In addition to many of the positive conditions and trends stated above — including what we believe to be potential opportunities for greater income than in recent years, improving relative valuations, strong credit fundamentals, expanding local economies, and sustained investor demand — keep in mind the attractive benefits that municipal bonds offer, such as a high level of current income exempt from state and regular federal income taxes. Although no one can reasonably predict the impact of continued inflation or future Fed actions to curb such inflation, on a tax-equivalent basis, the municipal income benefit may be attractive compared to taxable investments for certain investors.
Remember, too, the Aquila difference. Your portfolio management team is locally-based, which provides them with an up-close perspective on the economy and bond issuers within local municipalities, cities, counties, and across the state. Our investment professionals draw upon their wealth of experience in analyzing securities, navigating market and economic cycles, and seeking to identify both opportunities and risks. The current market cycle is no exception. Our team employs an active portfolio management strategy, with a goal to maintain broadly diversified investment grade municipal portfolios, generally with an intermediate average maturity, to help deliver attractive risk-adjusted returns.
As always, we encourage you to consult with your financial professional to evaluate whether the investment choices you make are aligned with your individual financial goals and risk tolerances.
Thank you for your continued confidence in Aquila Group of Funds.
Sincerely, | ||
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![]() | ||
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, political or regulatory conditions, recessions, inflation, changes in interest rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues, armed conflict including Russia’s military invasion of Ukraine, sanctions against Russia, other nations or individuals or companies and possible countermeasures, market disruptions caused by tariffs, trade disputes or other factors, or adverse investor sentiment. When market prices fall, the value of your investment may go down. In the past several years, financial markets have experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. These conditions may continue, recur, worsen or spread.
Rates of inflation have recently risen. The value of assets or income from an investment may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline as can the value of the Fund’s distributions.
The global pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s invasion of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or markets could be similarly affected by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the economy and securities markets, may not be known for some time.
The value of your investment will generally go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term or longer duration securities. In recent years, interest rates and credit spreads in the U.S. have been at historic lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain interest rates. A general rise in interest rates may cause investors to move out of fixed income securities on a large scale and could also result in increased redemptions from the Fund.
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. The municipal bond market can be susceptible to unusual volatility, particularly for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic conditions or credit tightening. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Unfavorable conditions and developments relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. Municipal securities may be more susceptible to downgrades or defaults during a recession or similar periods of economic stress. Financial difficulties of municipal issuers may continue or get worse, particularly in the event of economic or market turmoil or a recession.
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.
Any information in this Shareholder Letter 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. Past performance is no guarantee of future results, and there is no guarantee that any market forecasts discussed will be realized.
NOT A PART OF THE SEMI-ANNUAL REPORT
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (62.9%) | Ratings Moody’s, S&P and Fitch | Value | |||
City & County (6.7%) | ||||||
Bend, Oregon | ||||||
$ 2,690,000 | 5.000%, 06/01/32 | NR/AA+/NR | $ 2,984,582 | |||
Boardman, Oregon Green Bond | ||||||
1,000,000 | 4.000%, 06/15/33 Series 2021 BAMAC Insured | NR/AA/NR | 1,013,800 | |||
Clackamas County, Oregon Refunding | ||||||
1,135,000 | 4.000%, 06/01/24 | Aaa/NR/NR | 1,135,443 | |||
Clackamas County, Oregon (Tax-Exempt) | ||||||
1,485,000 | 5.000%, 06/01/25 Series 2016B | Aaa/NR/NR | 1,553,013 | |||
Clatsop County, Oregon | ||||||
1,000,000 | 5.000%, 06/15/32 | Aa2/NR/NR | 1,089,540 | |||
Deschutes, Oregon Public Library District | ||||||
1,000,000 | 4.000%, 06/01/31 Series 2021 | Aa2/NR/NR | 1,040,950 | |||
Gresham, Oregon Full Faith and Credit Refunding and Project Obligations | ||||||
1,545,000 | 5.000%, 05/01/23 | Aa2/NR/NR | 1,561,532 | |||
Hermiston, Oregon Full Faith and Credit Refunding Obligations | ||||||
780,000 | 4.000%, 06/01/32 Series 2020 | NR/A+/NR | 787,691 | |||
City of Hillsboro, Washington County Oregon Full Faith and Credit Bonds | ||||||
465,000 | 5.000%, 06/01/30 | Aa1/NR/NR | 511,584 | |||
Lake Oswego, Oregon Refunding | ||||||
3,140,000 | 4.000%, 12/01/30 | Aaa/AAA/NR | 3,237,434 | |||
Lebanon, Oregon Refunding | ||||||
1,050,000 | 5.000%, 06/01/24 | A1/NR/NR | 1,063,576 | |||
1,165,000 | 5.000%, 06/01/25 | A1/NR/NR | 1,210,505 | |||
McMinnville, Oregon Refunding | ||||||
2,075,000 | 5.000%, 02/01/27 | Aa3/NR/NR | 2,151,256 | |||
Multnomah County, Oregon | ||||||
3,000,000 | 5.000%, 06/01/30 | Aaa/AAA/NR | 3,202,350 | |||
Portland, Oregon Limited Tax, Build Portland & Fuel Stations Projects | ||||||
1,210,000 | 5.000%, 04/01/36 2017 Series 2022D | Aaa/NR/NR | 1,333,323 |
1 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
City & County (continued) | ||||||
Portland, Oregon Limited Tax, Sellwood Bridge & Archive Space Projects | ||||||
$ 1,640,000 | 4.000%, 04/01/29 2017 Series A | Aaa/NR/NR | $ 1,690,971 | |||
1,710,000 | 4.000%, 04/01/30 2017 Series A | Aaa/NR/NR | 1,760,890 | |||
1,775,000 | 4.000%, 04/01/31 2017 Series A | Aaa/NR/NR | 1,818,026 | |||
Portland, Oregon Public Safety | ||||||
1,345,000 | 5.000%, 06/15/25 Series A | Aaa/NR/NR | 1,409,923 | |||
Redmond, Oregon Full Faith and Credit Bonds | ||||||
1,140,000 | 5.000%, 06/01/34 Series B-1 | Aa2/NR/NR | 1,230,185 | |||
Troutdale, Oregon Refunding | ||||||
475,000 | 4.000%, 06/01/30 Series 2021 | Aa2/NR/NR | 494,370 | |||
Total City & County | 32,280,944 | |||||
Community College (4.1%) | ||||||
Blue Mountain Community College District Umatilla, Oregon Morrow and Baker Counties Oregon (Umatilla and Morrow Counties Service Area) | ||||||
970,000 | 4.000%, 06/15/27 Series 2015 | NR/AA+/NR | 988,585 | |||
Chemeketa, Oregon Community College District | ||||||
2,000,000 | 5.000%, 06/15/25 | NR/AA+/NR | 2,059,700 | |||
Clackamas, Oregon Community College District | ||||||
1,405,000 | 5.000%, 06/15/27 Series A | Aa1/AA+/NR | 1,468,000 | |||
Columbia Gorge, Oregon Community College District, Refunding | ||||||
1,000,000 | 4.000%, 06/15/24 | Aa1/NR/NR | 1,000,390 | |||
Lane, Oregon Community College | ||||||
1,840,000 | 5.000%, 06/15/24 | NR/AA+/NR | 1,842,116 | |||
1,750,000 | 4.000%, 06/15/24 | Aa1/NR/NR | 1,774,430 | |||
1,735,000 | 4.000%, 06/15/32 Series 2020A | Aa1/NR/NR | 1,776,727 | |||
1,070,000 | 4.000%, 06/15/34 Series 2020A | Aa1/NR/NR | 1,079,865 | |||
Linn Benton, Oregon Community College | ||||||
1,520,000 | 5.000%, 06/01/27 | NR/AA+/NR | 1,587,245 |
2 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Community College (continued) | ||||||
Mount Hood, Oregon Community College District Refunding | ||||||
$ 1,865,000 | 5.000%, 06/01/27 | Aa2/NR/NR | $ 1,977,627 | |||
1,000,000 | 5.000%, 06/01/29 | Aa2/NR/NR | 1,056,140 | |||
Oregon Coast Community College District State | ||||||
1,770,000 | 5.000%, 06/15/25 | Aa1/NR/NR | 1,771,558 | |||
Rogue, Oregon Community College District | ||||||
1,375,000 | 4.000%, 06/15/29 Series B | Aa1/NR/NR | 1,407,574 | |||
Total Community College | 19,789,957 | |||||
Hospital (1.0%) | ||||||
Pacific Communities Health District, Oregon | ||||||
1,220,000 | 5.000%, 06/01/29 | A1/NR/NR | 1,276,925 | |||
1,060,000 | 5.000%, 06/01/30 | A1/NR/NR | 1,106,131 | |||
1,000,000 | 5.000%, 06/01/31 | A1/NR/NR | 1,041,440 | |||
1,200,000 | 5.000%, 06/01/32 | A1/NR/NR | 1,248,060 | |||
Total Hospital | 4,672,556 | |||||
School District (33.9%) | ||||||
Benton & Linn Counties, Oregon School District #509J (Corvallis) | ||||||
2,000,000 | 5.000%, 06/15/31 Series B | Aa1/AA+/NR | 2,172,160 | |||
1,615,000 | 5.000%, 06/15/32 Series B | Aa1/AA+/NR | 1,744,410 | |||
Clackamas County, Oregon School District #12 (North Clackamas) | ||||||
1,165,000 | 5.000%, 06/15/25 | Aa1/AA+/NR | 1,218,462 | |||
3,205,000 | 5.000%, 06/15/30 | Aa1/AA+/NR | 3,415,601 | |||
4,725,000 | 5.000%, 06/15/31 | Aa1/AA+/NR | 5,022,817 | |||
1,100,000 | 5.000%, 06/15/32 | Aa1/NR/NR | 1,185,195 | |||
2,160,000 | 5.000%, 06/15/29 Series B | Aa1/AA+/NR | 2,308,694 | |||
3,000,000 | 5.000%, 06/15/34 Series B | Aa1/AA+/NR | 3,165,150 | |||
Clackamas County, Oregon School District #62 (Oregon City) | ||||||
1,310,000 | 5.000%, 06/15/31 Series B | Aa1/AA+/NR | 1,419,228 |
3 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School District (continued) | ||||||
Clackamas County, Oregon School District #86 (Canby) | ||||||
$ 1,660,000 | 4.000%, 06/15/34 Series 2020 A | Aa1/NR/NR | $ 1,644,662 | |||
Clackamas & Washington Counties, Oregon School District No. 3JT (West Linn-Wilsonville) | ||||||
3,500,000 | 5.000%, 06/15/26 | Aa1/AA+/NR | 3,657,850 | |||
5,500,000 | 5.000%, 06/15/27 | Aa1/AA+/NR | 5,746,620 | |||
1,115,000 | 5.000%, 06/15/28 | Aa1/AA+/NR | 1,163,826 | |||
Clatsop County, Oregon School District #1C (Astoria) | ||||||
1,080,000 | 5.000%, 06/15/31 Series B | Aa1/NR/NR | 1,184,166 | |||
1,215,000 | 5.000%, 06/15/32 Series B | Aa1/NR/NR | 1,320,012 | |||
Clatsop County, Oregon School District #10 (Seaside) | ||||||
1,000,000 | 5.000%, 06/15/29 Series B | Aa1/AA+/NR | 1,070,630 | |||
Clatsop County, Oregon School District #30 (Warrenton-Hammond) | ||||||
1,590,000 | 5.000%, 06/15/31 Series B | Aa1/NR/NR | 1,743,356 | |||
1,145,000 | 5.000%, 06/15/32 Series B | Aa1/NR/NR | 1,243,962 | |||
1,690,000 | 5.000%, 06/15/34 Series B | Aa1/NR/NR | 1,818,170 | |||
Columbia County, Oregon School District #502 (St. Helens) | ||||||
1,000,000 | 5.000%, 06/15/34 | Aa1/NR/NR | 1,049,330 | |||
Columbia & Clatsop Counties, Oregon School District #6J (Clatskanie) | ||||||
665,000 | 4.000%, 06/15/35 Series 2021 | NR/AA+/NR | 660,910 | |||
Coos County, Oregon School District #9 (Coos Bay) | ||||||
1,035,000 | 5.000%, 06/15/32 | NR/AA+/NR | 1,117,935 | |||
Deschutes County, Oregon Administrative School District #1 (Bend - La Pine) | ||||||
740,000 | 5.000%, 06/15/30 | Aa1/NR/NR | 814,414 | |||
3,000,000 | 4.000%, 06/15/30 | Aa1/AA+/NR | 3,088,920 | |||
2,150,000 | 5.000%, 06/15/31 | Aa1/NR/NR | 2,364,119 | |||
1,470,000 | 4.000%, 06/15/32 | Aa1/NR/NR | 1,504,383 |
4 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School District (continued) | ||||||
Deschutes and Jefferson Counties, Oregon School District #02J (Redmond) | ||||||
$ 1,025,000 | zero coupon, 06/15/23 | Aa1/NR/NR | $ 1,001,179 | |||
Deschutes and Jefferson Counties, Oregon School District #6 (Sisters) | ||||||
750,000 | 4.000, 06/15/33 Series 2021 | Aa1/NR/NR | 760,935 | |||
Greater Albany School District #8J (Linn & Benton Counties) | ||||||
1,000,000 | 5.000%, 06/15/30 | Aa1/AA+/NR | 1,065,260 | |||
Hood River County, Oregon School District | ||||||
2,260,000 | 4.000%, 06/15/30 | NR/AA+/NR | 2,310,398 | |||
2,400,000 | 4.000%, 06/15/31 | NR/AA+/NR | 2,449,704 | |||
Jackson County, Oregon School District #5 (Ashland) | ||||||
1,385,000 | 5.000%, 06/15/28 | Aa1/AA+/NR | 1,505,398 | |||
1,000,000 | 5.000%, 06/15/34 | Aa1/AA+/NR | 1,072,770 | |||
1,620,000 | 5.000%, 06/15/33 Series 2019 | Aa1/AA+/NR | 1,743,736 | |||
Jackson County, Oregon School District #6 (Central Point) | ||||||
2,665,000 | 5.000%, 06/15/31 | Aa1/NR/NR | 2,922,039 | |||
Jackson County, Oregon School District #549C (Medford) | ||||||
750,000 | 4.000%, 12/15/33 Series 2021 | Aa3/NR/NR | 764,093 | |||
570,000 | 4.000%, 12/15/34 Series 2021 | Aa3/NR/NR | 578,214 | |||
Lane County, Oregon School District #4J (Eugene) Refunding | ||||||
3,300,000 | 5.000%, 06/15/33 | Aa1/NR/NR | 3,660,657 | |||
1,105,000 | 4.000%, 06/15/35 | Aa1/NR/NR | 1,108,691 | |||
Lane County, Oregon School District #19 (Springfield) | ||||||
1,000,000 | 5.000%, 06/15/25 | Aa1/AA+/NR | 1,045,630 | |||
Lane County, Oregon School District #69 (Junction City) | ||||||
630,000 | 5.000%, 06/15/25 | Aa1/NR/NR | 658,747 |
5 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School District (continued) | ||||||
Lane & Douglas Counties, Oregon School District #45J3 | ||||||
$ 2,665,000 | 4.000%, 06/15/27 Series B | Aa1/NR/NR | $ 2,738,607 | |||
Lincoln County, Oregon School District | ||||||
2,370,000 | 4.000%, 06/15/24 Series A | Aa1/NR/NR | 2,370,924 | |||
Linn & Marion Counties, Oregon School District #129J (Santiam Canyon) | ||||||
750,000 | 5.000%, 06/15/34 | NR/AA+/NR | 806,880 | |||
Marion & Polk Counties, Oregon School District #24J (Salem-Keizer) | ||||||
5,000,000 | 5.000%, 06/15/30 | Aa1/AA+/NR | 5,445,400 | |||
5,525,000 | 5.000%, 06/15/31 | Aa1/AA+/NR | 5,982,691 | |||
1,135,000 | 5.000%, 06/15/32 Series 2020B | Aa1/AA+/NR | 1,249,896 | |||
7,600,000 | 5.000%, 06/15/33 Series 2020B | Aa1/AA+/NR | 8,298,212 | |||
1,000,000 | 5.000%, 06/15/34 Series 2020B | Aa1/AA+/NR | 1,085,650 | |||
Multnomah County, Oregon School District #1J (Portland) | ||||||
2,970,000 | 5.000%, 06/15/26 Series B | Aa1/AA+/NR | 3,104,719 | |||
Multnomah County, Oregon School District #7 (Reynolds) | ||||||
5,680,000 | 5.000%, 06/15/26 Series A | Aa1/NR/NR | 5,936,168 | |||
1,500,000 | 5.000%, 06/15/27 Series A | Aa1/NR/NR | 1,567,260 | |||
1,825,000 | 5.000%, 06/15/28 Series A | Aa1/NR/NR | 1,904,917 | |||
Multnomah County, Oregon School District #40 (David Douglas) | ||||||
1,500,000 | 5.000%, 06/15/23 Series A | NR/AA+/NR | 1,501,305 | |||
Multnomah and Clackamas Counties, Oregon School District #10 (Gresham-Barlow) | ||||||
1,535,000 | 5.000%, 06/15/29 | Aa1/NR/NR | 1,693,212 | |||
1,175,000 | 5.000%, 06/15/31 | Aa1/AA+/NR | 1,245,406 | |||
2,500,000 | 5.000%, 06/15/29 Series B | Aa1/AA+/NR | 2,673,225 |
6 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School District (continued) | ||||||
Multnomah and Clackamas Counties, Oregon School District #28JT (Centennial) | ||||||
$ 1,260,000 | 5.000%, 06/15/34 Series 2020 | Aa1/NR/NR | $ 1,363,534 | |||
715,000 | 5.000%, 06/15/35 Series 2020 | Aa1/NR/NR | 771,957 | |||
Polk, Marion & Benton Counties, Oregon School District #13J (Central) | ||||||
1,515,000 | 4.000%, 02/01/28 | NR/AA+/NR | 1,539,907 | |||
Tillamook & Yamhill Counties, Oregon School District #101 (Nestucca Valley) | ||||||
1,275,000 | 5.000%, 06/15/31 | NR/AA+/NR | 1,384,752 | |||
Umatilla County, Oregon School District #8 (Hermiston) | ||||||
2,750,000 | 5.000%, 06/15/30 | NR/AA+/NR | 3,058,935 | |||
Washington County, Oregon School District #48J (Beaverton) | ||||||
1,500,000 | 5.000%, 06/15/27 Series C | Aa1/AA+/NR | 1,616,760 | |||
2,400,000 | 5.000%, 06/15/35 Series C | Aa1/AA+/NR | 2,519,448 | |||
Washington & Clackamas Counties, Oregon School District #23J (Tigard) | ||||||
2,405,000 | 5.000%, 06/15/30 | Aa1/AA+/NR | 2,558,728 | |||
1,000,000 | 5.000%, 06/15/31 Series A | Aa1/AA+/NR | 1,096,450 | |||
1,000,000 | 5.000%, 06/15/32 Series A | Aa1/AA+/NR | 1,086,430 | |||
Washington, Clackamas & Yamhill Counties, Oregon School District #88J | ||||||
2,785,000 | 5.000%, 06/15/29 Series B | Aa1/AA+/NR | 2,971,734 | |||
2,000,000 | 5.000%, 06/15/29 Series B | Aa1/AA+/NR | 2,178,120 | |||
Washington, Multnomah & Yamhill Counties, Oregon School District #1J (Hillsboro) | ||||||
3,105,000 | 5.000%, 06/15/30 | Aa1/NR/NR | 3,310,396 | |||
2,110,000 | 5.000%, 06/15/31 | Aa1/NR/NR | 2,236,431 | |||
1,750,000 | 4.000%, 06/15/32 | Aa1/NR/NR | 1,786,190 | |||
2,175,000 | 4.000%, 06/15/33 | Aa1/NR/NR | 2,203,558 |
7 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School District (continued) | ||||||
Yamhill, Clackamas & Washington Counties, Oregon School District #29J (Newberg) | ||||||
$ 1,000,000 | 4.000%, 06/15/32 | Aa1/NR/NR | $ 1,017,750 | |||
3,685,000 | 4.000%, 06/15/35 Series 2021B | Aa1/NR/NR | 3,668,123 | |||
Yamhill County, Oregon School District #8 (Dayton) | ||||||
1,045,000 | 5.000%, 06/15/32 | NR/AA+/NR | 1,132,080 | |||
1,080,000 | 5.000%, 06/15/33 | NR/AA+/NR | 1,165,817 | |||
900,000 | 5.000%, 06/15/34 | NR/AA+/NR | 965,493 | |||
Yamhill County, Oregon School District #40 (McMinnville) | ||||||
1,000,000 | 4.000%, 06/15/29 | Aa1/AA+/NR | 1,025,090 | |||
1,000,000 | 4.000%, 06/15/30 | Aa1/AA+/NR | 1,023,700 | |||
Total School District | 164,778,288 | |||||
Special District (5.6%) | ||||||
Bend, Oregon Metropolitan Park & Recreational District | ||||||
1,430,000 | 4.000%, 06/01/27 | Aa2/NR/NR | 1,437,622 | |||
Clackamas County, Oregon Fire District No. 1 | ||||||
1,020,000 | 4.000%, 06/01/30 | NR/AA/NR | 1,046,969 | |||
2,705,000 | 4.000%, 06/01/31 | NR/AA/NR | 2,766,295 | |||
Metro, Oregon | ||||||
4,000,000 | 4.000%, 06/01/26 Series A | Aaa/AAA/NR | 4,001,520 | |||
5,050,000 | 4.000%, 06/01/33 Series 2020 A | Aaa/AAA/NR | 5,130,396 | |||
1,400,000 | 4.000%, 06/01/34 Series 2020 A | Aaa/AAA/NR | 1,414,924 | |||
Tualatin Hills, Oregon Park & Recreational District | ||||||
3,480,000 | 5.000%, 06/01/23 | Aa1/NR/NR | 3,524,370 | |||
4,725,000 | 5.000%, 06/01/24 | Aa1/NR/NR | 4,861,458 | |||
2,775,000 | 5.000%, 06/01/26 | Aa1/NR/NR | 2,903,538 | |||
Total Special District | 27,087,092 |
8 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
State (10.3%) | ||||||
State of Oregon | ||||||
$ 750,000 | 5.000%, 05/01/25 Series A | Aa1/AA+/AA+ | $ 771,578 | |||
2,000,000 | 5.000%, 05/01/33 Series 2022A | Aa1/AA+/AA+ | 2,226,260 | |||
State of Oregon Article XI-F(1) University Project | ||||||
835,000 | 4.000%, 08/01/35 Series H | Aa1/AA+/AA+ | 838,073 | |||
1,250,000 | 5.000%, 08/01/31 Series I | Aa1/AA+/AA+ | 1,338,687 | |||
State of Oregon Article XI-G Higher Education | ||||||
500,000 | 5.000%, 08/01/25 Series O | Aa1/AA+/AA+ | 524,510 | |||
State of Oregon Article XI-M Seismic Projects | ||||||
1,000,000 | 5.000%, 06/01/30 | Aa1/AA+/AA+ | 1,056,490 | |||
State of Oregon Article XI-M and XI-N Seismic Projects | ||||||
765,000 | 5.000%, 06/01/33 Series E | Aa1/AA+/AA+ | 838,868 | |||
1,125,000 | 5.000%, 06/01/34 Series E | Aa1/AA+/AA+ | 1,228,961 | |||
State of Oregon Article XI-Q State Projects | ||||||
2,140,000 | 5.000%, 11/01/28 | Aa1/AA+/AA+ | 2,265,853 | |||
1,000,000 | 5.000%, 11/01/30 | Aa1/AA+/AA+ | 1,053,970 | |||
2,000,000 | 5.000%, 11/01/31 | Aa1/AA+/AA+ | 2,102,420 | |||
1,800,000 | 5.000%, 05/01/25 Series A | Aa1/AA+/AA+ | 1,880,964 | |||
2,920,000 | 5.000%, 05/01/31 Series A | Aa1/AA+/AA+ | 3,198,685 | |||
4,000,000 | 5.000%, 05/01/32 Series A | Aa1/AA+/AA+ | 4,354,160 | |||
1,195,000 | 5.000%, 05/01/28 Series D | Aa1/AA+/AA+ | 1,266,521 | |||
1,255,000 | 5.000%, 05/01/29 Series D | Aa1/AA+/AA+ | 1,327,062 | |||
1,000,000 | 5.000%, 05/01/30 Series D | Aa1/AA+/AA+ | 1,055,350 | |||
2,300,000 | 5.000%, 05/01/28 Series F | Aa1/AA+/AA+ | 2,400,556 | |||
1,500,000 | 5.000%, 05/01/33 Series N | Aa1/AA+/AA+ | 1,635,690 | |||
State of Oregon Article XI-Q State Projects | ||||||
2,340,000 | 5.000%, 11/01/33 Series 2021K | Aa1/AA+/AA+ | 2,596,487 | |||
1,410,000 | 5.000%, 11/01/35 Series 2021K | Aa1/AA+/AA+ | 1,549,463 |
9 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
State (continued) | ||||||
State of Oregon Higher Education | ||||||
$ 1,000,000 | 5.000%, 08/01/28 Series A | Aa1/AA+/AA+ | $ 1,047,360 | |||
1,390,000 | 5.000%, 08/01/31 Series G | Aa1/AA+/AA+ | 1,525,553 | |||
1,920,000 | 5.000%, 08/01/32 Series G | Aa1/AA+/AA+ | 2,093,990 | |||
3,000,000 | 5.000%, 08/01/33 Series G | Aa1/AA+/AA+ | 3,259,740 | |||
1,900,000 | 5.000%, 08/01/34 Series G | Aa1/AA+/AA+ | 2,057,605 | |||
1,250,000 | 5.000%, 08/01/30 Series L | Aa1/AA+/AA+ | 1,342,712 | |||
1,300,000 | 5.000%, 08/01/32 Series L | Aa1/AA+/AA+ | 1,385,670 | |||
State of Oregon Veteran's Welfare | ||||||
450,000 | 1.950%, 06/01/31 Series 2020 I | Aa1/AA+/AA+ | 381,110 | |||
2,000,000 | 2.150%, 12/01/34 Series 2020 I | Aa1/AA+/AA+ | 1,599,280 | |||
Total State | 50,203,628 | |||||
Transportation (1.3%) | ||||||
Oregon State Department Transportation Highway Usertax (Senior Lien) | ||||||
5,000,000 | 5.000%, 11/15/29 Series B | Aa1/AAA/AA+ | 5,341,050 | |||
State of Oregon ODOT Projects | ||||||
1,020,000 | 5.000%, 11/15/30 Series M | Aa1/AA+/AA+ | 1,091,828 | |||
Total Transportation | 6,432,878 | |||||
Total General Obligation Bonds | 305,245,343 | |||||
Revenue Bonds (25.0%) | ||||||
City & County (0.2%) | ||||||
Beaverton, Oregon Special Revenue Bonds | ||||||
200,000 | 5.000%, 06/01/32 Series 2020A | Aa3/NR/NR | 218,784 | |||
500,000 | 5.000%, 06/01/33 Series 2020A | Aa3/NR/NR | 544,780 | |||
400,000 | 5.000%, 06/01/34 Series 2020A | Aa3/NR/NR | 434,180 | |||
Total City & County | 1,197,744 | |||||
Electric (1.9%) | ||||||
Eugene, Oregon Electric Utility Refunding System | ||||||
2,875,000 | 5.000%, 08/01/29 Series A | Aa2/AA-/AA- | 3,038,760 | |||
4,030,000 | 5.000%, 08/01/30 Series A | Aa2/AA-/AA- | 4,244,759 |
10 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Electric (continued) | ||||||
Warm Springs Reservation, Oregon Confederated Tribes, Hydroelectric Revenue, Tribal Economic Development, Pelton Round Butte Project (Green Bonds) | ||||||
$ 500,000 | 5.000%, 11/01/32 Series 2019B144A | A3/NR/NR | $ 533,400 | |||
1,000,000 | 5.000%, 11/01/33 Series 2019B144A | A3/NR/NR | 1,062,950 | |||
500,000 | 5.000%, 11/01/34 Series 2019B144A | A3/NR/NR | 529,875 | |||
Total Electric | 9,409,744 | |||||
Hospital (3.2%) | ||||||
Oregon Health Sciences University | ||||||
500,000 | 5.000%, 07/01/30 Series A | Aa3/AA-/AA- | 542,430 | |||
250,000 | 5.000%, 07/01/31 Series A | Aa3/AA-/AA- | 270,122 | |||
1,250,000 | 5.000%, 07/01/28 Series B | Aa3/AA-/AA- | 1,310,388 | |||
1,000,000 | 5.000%, 07/01/33 Series B | Aa3/AA-/AA- | 1,039,070 | |||
Oregon Health Sciences University (Green Bonds) | ||||||
1,000,000 | 5.000%, 07/01/33 Series 2021A | Aa3/AA-/AA- | 1,085,120 | |||
1,000,000 | 5.000%, 07/01/34 Series 2021A | Aa3/AA-/AA- | 1,080,410 | |||
1,000,000 | 5.000%, 07/01/35 Series 2021A | Aa3/AA-/AA- | 1,075,190 | |||
Oregon Health Sciences University | ||||||
5,500,000 | 5.000%, 07/01/46 Series 2021B-2 (Mandatory Put Date 02/01/32) | Aa3/AA-/AA- | 5,823,345 | |||
Oregon State Facilities Authority (Legacy Health Project) | ||||||
2,000,000 | 5.000%, 06/01/30 Series 2022B | A1/A+/NR | 2,137,460 | |||
Union County, Oregon Hospital Facility Authority (Grande Ronde Hospital Project) | ||||||
135,000 | 5.000%, 07/01/28 Series 2022 | NR/BBB/BBB- | 138,766 | |||
175,000 | 5.000%, 07/01/29 Series 2022 | NR/BBB/BBB- | 179,790 | |||
200,000 | 5.000%, 07/01/30 Series 2022 | NR/BBB/BBB- | 205,348 | |||
325,000 | 5.000%, 07/01/31 Series 2022 | NR/BBB/BBB- | 330,947 | |||
500,000 | 5.000%, 07/01/32 Series 2022 | NR/BBB/BBB- | 506,870 | |||
Total Hospital | 15,725,256 | |||||
11 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Housing (0.3%) | ||||||
Clackamas County, Oregon Housing Authority Multifamily Housing Revenue (Easton Ridge Apartments Project) | ||||||
$ 1,310,000 | 4.000%, 09/01/27 Series A | Aa2/NR/NR | $ 1,311,114 | |||
Lottery (4.2%) | ||||||
Oregon State Department of Administration Services (Lottery Revenue) | ||||||
2,000,000 | 5.000%, 04/01/32 Series A | Aa2/AAA/NR | 2,179,320 | |||
1,000,000 | 5.000%, 04/01/33 Series A | Aa2/AAA/NR | 1,085,990 | |||
1,500,000 | 5.000%, 04/01/35 Series A | Aa2/AAA/NR | 1,632,315 | |||
1,000,000 | 5.000%, 04/01/25 Series B | Aa2/AAA/NR | 1,026,160 | |||
4,000,000 | 5.000%, 04/01/30 Series C | Aa2/AAA/NR | 4,247,720 | |||
5,000,000 | 5.000%, 04/01/26 Series D | Aa2/AAA/NR | 5,212,100 | |||
4,000,000 | 5.000%, 04/01/28 Series D | Aa2/AAA/NR | 4,164,800 | |||
1,000,000 | 5.000%, 04/01/29 Series D | Aa2/AAA/NR | 1,040,960 | |||
Total Lottery | 20,589,365 | |||||
Sales Tax (0.2%) | ||||||
Metro, Oregon Dedicated Tax Revenue (Oregon Convention Center Hotel) | ||||||
750,000 | 5.000%, 06/15/31 | Aa3/NR/NR | 793,942 | |||
Transportation (4.0%) | ||||||
Oregon State Department Transportation Highway Usertax (Subordinate Lien) | ||||||
2,250,000 | 5.000%, 11/15/35 Series 2020A | Aa2/AA+/AA+ | 2,435,737 | |||
Port Portland, Oregon Airport Revenue Refunding, Portland International Airport Series Twenty Three | ||||||
2,525,000 | 5.000%, 07/01/26 | NR/AA-/NR | 2,630,671 | |||
1,000,000 | 5.000%, 07/01/28 | NR/AA-/NR | 1,039,830 | |||
2,390,000 | 5.000%, 07/01/29 | NR/AA-/NR | 2,478,167 |
12 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Transportation (continued) | ||||||
Tri-County Metropolitan Transportation District, Oregon Capital Grant Receipt | ||||||
$ 1,100,000 | 5.000%, 10/01/27 Series A | A3/A/NR | $ 1,175,240 | |||
2,000,000 | 5.000%, 10/01/30 Series A | A3/A/NR | 2,121,240 | |||
3,000,000 | 5.000%, 10/01/31 Series 2018A | A3/A/NR | 3,163,440 | |||
Tri-County Metropolitan Transportation District, Oregon (Senior Lien Payroll Tax) | ||||||
1,000,000 | 5.000%, 09/01/25 Series A | Aaa/AAA/NR | 1,050,370 | |||
1,890,000 | 5.000%, 09/01/28 Series A | Aaa/AAA/NR | 2,005,460 | |||
Tri-County Metropolitan Transportation District, Oregon (Senior Lien Payroll Tax Green Bond) | ||||||
1,000,000 | 5.000%, 09/01/35 Series 2021A | Aaa/AAA/NR | 1,093,740 | |||
Total Transportation | 19,193,895 | |||||
Water and Sewer (11.0%) | ||||||
Beaverton, Oregon Water Revenue | ||||||
1,000,000 | 5.000%, 04/01/32 Series 2020 | NR/AA+/NR | 1,092,820 | |||
Bend, Oregon Water Revenue, Bridge Creek Project | ||||||
695,000 | 5.000%, 12/01/30 | Aa2/AA/NR | 731,077 | |||
Clackamas County, Oregon Service District No. 1 | ||||||
2,240,000 | 5.000%, 12/01/26 | NR/AAA/NR | 2,395,434 | |||
Clean Water Services, Oregon Refunding (Senior Lien) | ||||||
1,510,000 | 5.000%, 10/01/27 | Aa1/AAA/NR | 1,634,847 | |||
Eugene, Oregon Water Utility System | ||||||
115,000 | 5.000%, 08/01/28 | Aa2/AA/AA+ | 121,762 | |||
450,000 | 5.000%, 08/01/29 | Aa2/AA/AA+ | 475,632 | |||
Grants Pass, Oregon | ||||||
680,000 | 4.000%, 12/01/23 | NR/AA/NR | 680,932 | |||
Hillsboro, Oregon Water System | ||||||
1,630,000 | 5.000%, 06/01/31 | Aa2/NR/NR | 1,786,708 | |||
1,710,000 | 5.000%, 06/01/32 | Aa2/NR/NR | 1,862,583 |
13 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Revenue Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
Water and Sewer (continued) | ||||||
Portland, Oregon Sewer System (Second Lien) | ||||||
$ 5,405,000 | 4.500%, 05/01/31 Series A | Aa2/AA/NR | $ 5,559,151 | |||
6,355,000 | 5.000%, 03/01/32 Series A | Aa2/AA/NR | 6,946,714 | |||
2,000,000 | 5.000%, 10/01/25 Series B | Aa2/AA/NR | 2,070,260 | |||
2,000,000 | 5.000%, 06/01/26 Series B | Aa2/AA/NR | 2,092,120 | |||
2,000,000 | 5.000%, 06/01/27 Series B | Aa2/AA/NR | 2,091,600 | |||
5,000,000 | 4.000%, 03/01/34 Series 2020A | Aa2/AA/NR | 5,037,750 | |||
Portland, Oregon Water System (First Lien) | ||||||
3,230,000 | 5.000%, 05/01/27 Series A | Aa1/NR/NR | 3,318,405 | |||
3,500,000 | 5.000%, 06/01/28 Series A | Aa1/AA+/NR | 3,651,200 | |||
Portland, Oregon Water System (Second Lien) | ||||||
2,590,000 | 5.000%, 05/01/31 Series A | Aa2/NR/NR | 2,845,322 | |||
2,000,000 | 5.000%, 05/01/32 Series A | Aa2/NR/NR | 2,188,980 | |||
2,000,000 | 5.000%, 05/01/33 Series A | Aa2/NR/NR | 2,174,400 | |||
2,230,000 | 5.000%, 05/01/35 Series 2019A | Aa2/NR/NR | 2,402,825 | |||
Portland, Oregon Water System Revenue Refunding (Junior Lien) | ||||||
2,000,000 | 5.000%, 10/01/23 | Aa2/NR/NR | 2,018,160 | |||
Total Water and Sewer | 53,178,682 | |||||
Total Revenue Bonds | 121,399,742 | |||||
Pre-Refunded\Escrowed to Maturity Bonds (9.1%)†��� | ||||||
Pre-Refunded General Obligation Bonds (4.6%) | ||||||
Higher Education (0.8%) | ||||||
Oregon State Higher Education | ||||||
1,000,000 | 5.000%, 08/01/25 Series C | Aa1/AA+/AA+ | 1,032,690 | |||
1,795,000 | 5.000%, 08/01/27 Series C | Aa1/AA+/AA+ | 1,853,679 | |||
Oregon State, Oregon University System | ||||||
1,090,000 | 5.000%, 08/01/25 Series N | Aa1/AA+/AA+ | 1,106,732 | |||
Total Higher Education | 3,993,101 | |||||
14 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Pre-Refunded General Obligation Bonds (continued) | Ratings Moody’s, S&P and Fitch | Value | |||
School District (3.1%) | ||||||
Clackamas County, Oregon School District #62 (Oregon City) | ||||||
$ 440,000 | 5.000%, 06/01/29 AGMC Insured | NR/AA/NR | $ 452,782 | |||
560,000 | 5.000%, 06/01/29 AGMC Insured | A1/AA/NR | 576,727 | |||
Jefferson County, Oregon School District #509J | ||||||
1,400,000 | 5.000%, 06/15/25 | Aa1/NR/NR | 1,417,528 | |||
Klamath County, Oregon School District | ||||||
1,250,000 | 5.000%, 06/15/24 | NR/AA+/NR | 1,266,088 | |||
Lane County, Oregon School District #4J (Eugene) Refunding | ||||||
2,000,000 | 5.000%, 06/15/26 | Aa1/NR/NR | 2,061,080 | |||
Lane County, Oregon School District #19 (Springfield) | ||||||
1,735,000 | 5.000%, 06/15/27 | Aa1/AA+/NR | 1,814,654 | |||
Marion County, Oregon School District #103 (Woodburn) | ||||||
2,140,000 | 5.000%, 06/15/27 | Aa1/NR/NR | 2,235,423 | |||
2,260,000 | 5.000%, 06/15/28 | Aa1/NR/NR | 2,360,773 | |||
Union County, Oregon School District #1 (La Grande) | ||||||
1,000,000 | 5.000%, 06/15/27 | Aa1/NR/NR | 1,047,230 | |||
Washington County, Oregon School District #48J (Beaverton) | ||||||
1,845,000 | 5.000%, 06/15/29 Series 2014B | Aa1/AA+/NR | 1,901,346 | |||
Total School District | 15,133,631 | |||||
State (0.7%) | ||||||
State of Oregon Article XI-G Community College Projects | ||||||
$ 1,160,000 | 5.000%, 08/01/27 Series J | Aa1/AA+/AA+ | $ 1,217,176 | |||
State of Oregon Article XI-G Higher Education | ||||||
1,000,000 | 5.000%, 08/01/26 Series O | Aa1/AA+/AA+ | 1,049,290 | |||
1,000,000 | 5.000%, 08/01/27 Series O | Aa1/AA+/AA+ | 1,049,290 | |||
Total State | 3,315,756 | |||||
Total Pre-Refunded General Obligation Bonds | 22,442,488 | |||||
15 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Principal Amount | Pre-Refunded\Escrowed to Maturity Revenue Bonds (4.5%) | Ratings Moody’s, S&P and Fitch | Value | |||
Higher Education (0.6%) | ||||||
Oregon State Facilities Authority (Linfield College Project) | ||||||
$ 1,000,000 | 5.000%, 10/01/23 Series A ETM | Baa2/NR/NR | $ 1,015,340 | |||
Oregon State Facilities Authority (Reed College Project) | ||||||
500,000 | 5.000%, 07/01/30 Series A | Aa2/AA-/NR | 533,575 | |||
1,135,000 | 4.000%, 07/01/31 Series A | Aa2/AA-/NR | 1,160,481 | |||
Total Higher Education | 2,709,396 | |||||
Transportation (3.8%) | ||||||
Oregon State Department Transportation Highway Usertax (Senior Lien) | ||||||
625,000 | 5.000%, 11/15/25 Series A | Aa1/AAA/AA+ | 626,419 | |||
1,000,000 | 5.000%, 11/15/26 Series A | Aa1/AAA/AA+ | 1,020,430 | |||
1,040,000 | 5.000%, 11/15/26 Series A | Aa1/AAA/AA+ | 1,079,073 | |||
8,000,000 | 5.000%, 11/15/28 Series A | Aa1/AAA/AA+ | 8,300,560 | |||
Tri-County Metropolitan Transportation District, Oregon (Senior Lien Payroll Tax) | ||||||
3,975,000 | 5.000%, 09/01/30 Series A | Aaa/AAA/NR | 4,237,350 | |||
1,000,000 | 5.000%, 09/01/31 Series A | Aaa/AAA/NR | 1,080,960 | |||
Tri-County Metropolitan Transportation District, Oregon (Senior Lien Payroll Tax) | ||||||
2,010,000 | 5.000%, 09/01/29 Series B | Aaa/AAA/NR | 2,111,827 | |||
Total Transportation | 18,456,619 | |||||
Water and Sewer (0.1%) | ||||||
Madras, Oregon | ||||||
725,000 | 4.500%, 02/15/27 | A3/NR/NR | 728,690 | |||
Total Pre-Refunded\Escrowed to Maturity Revenue Bonds | 21,894,705 | |||||
Total Pre-Refunded\Escrowed to Maturity Bonds | 44,337,193 | |||||
Total Municipal Bonds (cost $498,400,930) | 470,982,278 | |||||
16 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
Shares | Short-Term Investment (1.8%) | Ratings Moody’s, S&P and Fitch | Value | |||
8,558,507 | Dreyfus Treasury Obligations Cash Management - Institutional Shares, 2.85%* (cost $8,558,507) | Aaa-mf/AAAm/NR | $ 8,558,507 | |||
Total Investments (cost $506,959,437 - note 4) | 98.8% | 479,540,785 | ||||
Other assets less liabilities | 1.2 | 5,928,149 | ||||
Net Assets | 100.0% | $ 485,468,934 |
Portfolio Distribution By Quality Rating | Percentage of Investments† | |
Aaa of Moody's or AAA of S&P | 13.1% | |
Pre-refunded bonds\ ETM bonds†† | 9.4 | |
Aa of Moody's or AA of S&P or Fitch | 73.3 | |
A of Moody's or S&P | 3.9 | |
Baa of Moody's | 0.3 | |
100.0% |
PORTFOLIO ABBREVIATIONS |
AGMC - Assured Guaranty Municipal Corp. BAMAC - Build America Mutual Assurance Co. ETM - Escrowed to Maturity NR - Not Rated ODOT - Oregon Department of Transportation |
* | The rate is an annualized seven-day yield at period end. |
† | Where applicable, calculated using the highest rating of the three NRSRO. Percentages in this table do not include the Short-Term Investment. |
†† | 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. Escrowed to Maturity bonds are bonds where money has been placed in the escrow account which is used to pay principal and interest through the bond’s originally scheduled maturity date. Escrowed to Maturity are shown as ETM. All other securities in the category are pre-refunded. |
Note: 144A – Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. |
See accompanying notes to financial statements.
17 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2022 (unaudited) |
ASSETS | |||
Investments at value (cost $506,959,437) | $ | 479,540,785 | |
Interest receivable | 6,770,185 | ||
Receivable for Fund shares sold | 1,207,852 | ||
Other assets | 38,265 | ||
Total assets | 487,557,087 | ||
LIABILITIES | |||
Payable for Fund shares redeemed | 1,642,490 | ||
Management fee payable | 161,454 | ||
Dividends payable | 124,925 | ||
Distribution and service fees payable | 1,367 | ||
Accrued expenses payable | 157,917 | ||
Total liabilities | 2,088,153 | ||
NET ASSETS | $ | 485,468,934 | |
Net Assets consist of: | |||
Capital Stock – Authorized an unlimited number of shares, par value $0.01 per share | $ | 484,363 | |
Additional paid-in capital | 524,392,961 | ||
Total distributable earnings (losses) | (39,408,390) | ||
$ | 485,468,934 | ||
CLASS A | |||
Net Assets | $ | 299,724,767 | |
Capital shares outstanding | 29,895,852 | ||
Net asset value and redemption price per share | $ | 10.03 | |
Maximum offering price per share (100/97 of $10.03) | $ | 10.34 | |
CLASS C | |||
Net Assets | $ | 5,030,569 | |
Capital shares outstanding | 502,351 | ||
Net asset value and offering price per share | $ | 10.01 | |
CLASS F | |||
Net Assets | $ | 5,396,224 | |
Capital shares outstanding | 538,988 | ||
Net asset value and offering price per share | $ | 10.01 | |
CLASS Y | |||
Net Assets | $ | 175,317,374 | |
Capital shares outstanding | 17,499,126 | ||
Net asset value, offering and redemption price per share | $ | 10.02 |
See accompanying notes to financial statements.
18 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON STATEMENT OF OPERATIONS SIX MONTHS ENDED SEPTEMBER 30, 2022 (unaudited) |
Investment income | ||||||
Interest income | $ | 6,112,536 | ||||
Expenses | ||||||
Management fee (note 3) | $ | 1,047,307 | ||||
Distribution and service fee (note 3) | 270,869 | |||||
Transfer and shareholder servicing agent fees | 114,817 | |||||
Legal fees | 85,637 | |||||
Trustees’ fees and expenses (note 6) | 75,813 | |||||
Registration fees and dues | 27,644 | |||||
Insurance | 16,441 | |||||
Auditing and tax fees | 16,395 | |||||
Custodian fees | 9,597 | |||||
Credit facility fees (note 10) | 6,960 | |||||
Shareholders’ reports and proxy statements | 5,570 | |||||
Compliance services (note 3) | 4,690 | |||||
Miscellaneous | 26,844 | |||||
Total expenses | 1,708,584 | |||||
Management fee waived (note 3) | (12,256) | |||||
Net expenses | 1,696,328 | |||||
Net investment income | 4,416,208 | |||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||
Net realized gain (loss) from securities transactions | (7,713,944) | |||||
Change in unrealized appreciation (depreciation) on investments | (19,645,271) | |||||
Net realized and unrealized gain (loss) on investments | (27,359,215) | |||||
Net change in net assets resulting from operations | $ | (22,943,007) |
See accompanying notes to financial statements.
19 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON STATEMENT OF CHANGES IN NET ASSETS |
Six Months Ended September 30, 2022 (unaudited) | Year Ended March 31, 2022 | |||||
OPERATIONS | ||||||
Net investment income | $ | 4,416,208 | $ | 9,770,546 | ||
Net realized gain (loss) from securities transactions | (7,713,944) | (2,663,848) | ||||
Change in unrealized appreciation (depreciation) on investments | (19,645,271) | (37,953,616) | ||||
Change in net assets resulting from operations | (22,943,007) | (30,846,918) | ||||
DISTRIBUTIONS TO SHAREHOLDERS (note 9): | ||||||
Class A Shares | (2,642,333) | (5,282,819) | ||||
Class C Shares | (23,349) | (62,320) | ||||
Class F Shares | (46,840) | (70,431) | ||||
Class Y Shares | (1,703,710) | (4,354,961) | ||||
Change in net assets from distributions | (4,416,232) | (9,770,531) | ||||
CAPITAL SHARE TRANSACTIONS (note 7): | ||||||
Proceeds from shares sold | 61,620,515 | 103,699,412 | ||||
Reinvested dividends and distributions | 3,627,509 | 7,651,616 | ||||
Cost of shares redeemed | (144,102,165) | (156,794,397) | ||||
Change in net assets from capital share transactions | (78,854,141) | (45,443,369) | ||||
Change in net assets | (106,213,380) | (86,060,818) | ||||
NET ASSETS: | ||||||
Beginning of period | 591,682,314 | 677,743,132 | ||||
End of period | $ | 485,468,934 | $ | 591,682,314 |
See accompanying notes to financial statements.
20 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2022 (unaudited) |
1. Organization
Aquila Tax-Free Trust of Oregon (the “Fund”) is one of six series of Aquila Municipal Trust, a Massachusetts business trust registered under the Investment Company Act of 1940 (the “1940 Act”) as a non-diversified, open-end management investment company. The Fund, which commenced operations on June 27, 2020, is the successor to Aquila Tax-Free Trust of Oregon. Aquila Tax-Free Trust of Oregon transferred all of its assets and liabilities in exchange for shares of the Fund on June 26, 2020 pursuant to an agreement and plan of reorganization (the “reorganization”). The reorganization was approved by shareholders of Aquila Tax-Free Trust of Oregon on May 29, 2020. The reorganization was accomplished by exchanging the assets and liabilities of the predecessor fund for shares of the Fund. Shareowners holding shares of Aquila Tax-Free Trust of Oregon received corresponding shares of the Fund in a one-to-one exchange ratio in the reorganization. Accordingly, the reorganization, which was a tax-free exchange, had no effect on the Fund’s operations. 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 F Shares and 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 F Shares and 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. 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 ask quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued using other fair value methods. Aquila Investment Management LLC, the Fund’s investment manager, has been designated as the Fund’s valuation designee, with responsibility for fair valuation subject to oversight by the Fund’s 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: |
21 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (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, 2022:
Valuation Inputs* | Investments in Securities | |||
Level 1 – Quoted Prices | $ | 8,558,507 | ||
Level 2 – Other Significant Observable Inputs – Municipal Bonds* | 470,982,278 | |||
Level 3 – Significant Unobservable Inputs | — | |||
Total | $ | 479,540,785 | ||
* 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 (2019 – 2021) or expected to be taken in the Fund’s 2022 tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.
22 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (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. These reclassifications had no effect on net assets or net asset value per share. For the year ended March 31, 2022, there were no items identified that have been reclassified among components of net assets. |
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 Administrative 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 transfer and 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 0.40% of net assets of the Fund. The Manager has contractually agreed to waive its fees through September 30, 2023 to the extent necessary in order to pass savings through to the shareholders recognized under the Sub-Advisory Agreement (as described below) such that its fees are as follows: the annual rate shall be equivalent to 0.40% of net assets of the Fund up to $400 million; 0.38% of the Fund’s net assets above that amount to $1 billion and 0.36% of the Fund’s net assets above $1 billion. The Manager may not terminate the arrangement without the approval of the Board of Trustees. For the six months ended September 30, 2022, the Fund incurred management fees of $1,047,307, of which $12,256 was waived.
23 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
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 has contractually agreed to waive its fee through September 30, 2023 such that its annual rate of fees is at 0.16% of net assets of the Fund up to $400 million; 0.14% of net assets above $400 million up to $1 billion; and 0.12% of net assets above $1 billion.
Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for compliance related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940, as amended (the “1940 Act”).
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 1940 Act. 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 LLC (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, 2022, distribution fees on Class A Shares amounted to $241,166 of which the Distributor retained $10,847.
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, 2022, amounted to $22,277. 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, 2022, amounted to $7,426. The total of these payments made with respect to Class C Shares amounted to $29,703 of which the Distributor retained $7,974.
Specific details about the Plans are more fully defined in the Fund’s Prospectus and Statement of Additional Information.
24 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (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 (“financial intermediaries”), the Fund’s shares are sold primarily through the facilities of these financial intermediaries having offices within Oregon, with the bulk of any sales commissions inuring to such financial intermediaries. For the six months ended September 30, 2022, total commissions on sales of Class A Shares amounted to $10,692 of which the Distributor received $6,704.
c) | Transfer and shareholder servicing fees: |
The Fund occasionally compensates financial intermediaries in connection with the sub-transfer agency related services provided by such entities in connection with their respective Fund shareholders so long as the fees are deemed by the Board of Trustees to be reasonable in relation to (i) the value of the services and the benefits received by the Fund and certain shareholders; and (ii) the payments that the Fund would make to another entity to perform similar ongoing services to existing shareholders.
4. Purchases and Sales of Securities
During the six months ended September 30, 2022, purchases of securities and proceeds from the sales of securities aggregated $39,837,606 and $121,422,854, respectively.
At September 30, 2022, the aggregate tax cost for all securities was $506,959,437. At September 30, 2022, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $38,675 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $27,457,327 for a net unrealized depreciation of $27,418,652.
5. Portfolio Orientation
Since the Fund invests principally and may invest entirely in double tax-free municipal obligations of issuers within Oregon, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Oregon and whatever effects these may have upon Oregon issuers’ ability to meet their obligations. For example, Measure 5, a 1990 amendment to the Oregon Constitution, as well as Measures 47 and 50, limit the taxing and spending authority of certain Oregon governmental entities. These amendments could have an adverse effect on the general financial condition of certain municipal entities that would impair the ability of certain Oregon issuers to pay interest and principal on their obligations. At September 30, 2022, the Fund had 100% of its long-term portfolio holdings invested in municipal obligations of issuers within Oregon.
6. Trustees’ Fees and Expenses
At September 30, 2022, there were 9 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, 2022 was $73,184. Attendance fees are paid to those in attendance at regularly scheduled quarterly Board Meetings and meetings of the Independent Trustees
25 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
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, 2022, due to the COVID-19 pandemic, such meeting-related expenses were reduced and amounted to $2,629.
7. Capital Share Transactions
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended September 30, 2022 (unaudited) | Year Ended March 31, 2022 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Class A Shares | ||||||||||
Proceeds from shares sold | 982,687 | $ | 10,177,372 | 2,849,050 | $ | 32,003,648 | ||||
Reinvested dividends and distributions | 234,418 | 2,420,388 | 436,389 | 4,856,209 | ||||||
Cost of shares redeemed | (3,620,864) | (37,404,087) | (4,714,915) | (52,445,823) | ||||||
Net change | (2,403,759) | (24,806,327) | (1,429,476) | (15,585,966) | ||||||
Class C Shares | ||||||||||
Proceeds from shares sold | 29,027 | 299,965 | 72,129 | 806,800 | ||||||
Reinvested dividends and distributions | 2,178 | 22,457 | 5,366 | 59,758 | ||||||
Cost of shares redeemed | (230,704) | (2,379,435) | (575,145) | (6,364,928) | ||||||
Net change | (199,499) | (2,057,013) | (497,650) | (5,498,370) | ||||||
Class F Shares | ||||||||||
Proceeds from shares sold | 147,741 | 1,523,896 | 216,501 | 2,407,035 | ||||||
Reinvested dividends and distributions | 4,545 | 46,823 | 6,357 | 70,430 | ||||||
Cost of shares redeemed | (90,901) | (938,765) | (73,736) | (812,675) | ||||||
Net change | 61,385 | 631,954 | 149,122 | 1,664,790 | ||||||
Class Y Shares | ||||||||||
Proceeds from shares sold | 4,814,574 | 49,619,282 | 6,126,394 | 68,481,929 | ||||||
Reinvested dividends and distributions | 110,277 | 1,137,841 | 239,590 | 2,665,219 | ||||||
Cost of shares redeemed | (10,024,852) | (103,379,878) | (8,798,435) | (97,170,971) | ||||||
Net change | (5,100,001) | (52,622,755) | (2,432,451) | (26,023,823) | ||||||
Total transactions in Fund shares | (7,641,874) | $ | (78,854,141) | (4,210,455) | $ | (45,443,369) |
26 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
8. 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. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
9. Income Tax Information and Distributions
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 Oregon 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 portion of the dividends may, under some circumstances, be subject to taxes at ordinary income and/or capital gain 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, 2022, the Fund had capital loss carry forwards of $1,929,323 of which $736,170 retains its character of short-term and $1,193,153 retains its character of long-term; both have no expiration. As of March 31, 2022, the Fund had post-October losses of $2,671,933, which is deferred until fiscal 2023 for tax purposes.
The tax character of distributions was as follows:
Year Ended March 31, 2022 | Year Ended March 31, 2021 | ||||||
Net tax-exempt income | $ | 9,769,437 | $ | 10,674,155 | |||
Ordinary Income | 1,094 | 4,272 | |||||
$ | 9,770,531 | $ | 10,678,427 |
As of March 31, 2022, the components of distributable earnings on a tax basis were:
Unrealized depreciation | $ | (7,759,079) | ||
Undistributed tax-exempt income | 485,885 | |||
Accumulated net loss on investments | (1,929,323) | |||
Post October losses | (2,671,993) | |||
Other temporary differences | (174,641) | |||
$ | (12,049,151) |
27 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
The difference between book basis and tax basis undistributed income is due to the timing difference, post October losses, and other temporary differences, in recognizing dividends paid and the tax treatment of market discount amortization and the deduction of distributions payable.
10. Credit Facility
Since August 30, 2017, Bank of New York Mellon and the Aquila Group of Funds (comprised of nine funds) have been parties to a $40 million credit agreement, which currently terminates on August 23, 2023 (per the August 24, 2022 amendment). In accordance with the Aquila Group of Funds Guidelines for Allocation of Committed Line of Credit, each fund is responsible for payment of its proportionate share of
a) | a 0.17% per annum commitment fee; and, |
b) | interest on amounts borrowed for temporary or emergency purposes by the fund (at the applicable per annum rate selected by the Aquila Group of Funds at the time of the borrowing of either (i) the adjusted daily simple Secured Overnight Financing Rate (“SOFR”) plus 1% or (ii) the sum of the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate, or (c) the adjusted daily simple Secured Overnight Financing Rate (“SOFR”) plus 1%). |
There were no borrowings under the credit agreement during the six months ended September 30, 2022.
11. Risks
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, political or regulatory conditions, recessions, inflation, changes in interest rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues, armed conflict including Russia’s military invasion of Ukraine, sanctions against Russia, other nations or individuals or companies and possible countermeasures, market disruptions caused by tariffs, trade disputes or other factors, or adverse investor sentiment. When market prices fall, the value of your investment may go down. In the past several years, financial markets have experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. These conditions may continue, recur, worsen or spread.
Rates of inflation have recently risen. The value of assets or income from an investment may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline as can the value of the Fund’s distributions.
The global pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity for many
28 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON NOTES TO FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2022 (unaudited) |
instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s invasion of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or markets could be similarly affected by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the economy and securities markets, may not be known for some time.
The value of your investment will generally go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term or longer duration securities. In recent years, interest rates and credit spreads in the U.S. have been at historic lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain interest rates. A general rise in interest rates may cause investors to move out of fixed income securities on a large scale and could also result in increased redemptions from the Fund.
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. The municipal bond market can be susceptible to unusual volatility, particularly for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic conditions or credit tightening. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Unfavorable conditions and developments relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. Municipal securities may be more susceptible to downgrades or defaults during a recession or similar periods of economic stress. Financial difficulties of municipal issuers may continue or get worse, particularly in the event of economic or market turmoil or a recession.
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.
29 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON FINANCIAL HIGHLIGHTS |
For a share outstanding throughout each period
Class A | ||||||||||||
Six | ||||||||||||
Months | ||||||||||||
Ended | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.55 | $11.25 | $11.13 | $10.98 | $10.81 | $10.99 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.09 | 0.16 | 0.18 | 0.21 | 0.24 | 0.26 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.52) | (0.70) | 0.12 | 0.15 | 0.17 | (0.18) | ||||||
Total from investment operations | (0.43) | (0.54) | 0.30 | 0.36 | 0.41 | 0.08 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.09) | (0.16) | (0.18) | (0.21) | (0.24) | (0.26) | ||||||
Distributions from capital gains | –– | –– | –– | — | — | — | ||||||
Total distributions | (0.09) | (0.16) | (0.18) | (0.21) | (0.24) | (0.26) | ||||||
Net asset value, end of period | $10.03 | $10.55 | $11.25 | $11.13 | $10.98 | $10.81 | ||||||
Total return (not reflecting sales charge) | (4.14)%(2) | (4.89)% | 2.68% | 3.30% | 3.90% | 0.68% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $300 | $341 | $379 | $375 | $368 | $390 | ||||||
Ratio of expenses to average net assets | 0.69%(3) | 0.66% | 0.71% | 0.71% | 0.70% | 0.71% | ||||||
Ratio of net investment income to average net assets | 1.64%(3) | 1.41% | 1.57% | 1.90% | 2.27% | 2.35% | ||||||
Portfolio turnover rate | 8%(2) | 13% | 5% | 12% | 10% | 8% |
Expense and net investment income ratios without the effect of the contractual fee waiver were (note 3):
Ratio of expenses to average net assets | 0.70%(3) | 0.67% | 0.72% | 0.72% | 0.70% | 0.72% | ||||||
Ratio of net investment income to average net assets | 1.64%(3) | 1.40% | 1.56% | 1.89% | 2.26% | 2.34% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
30 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class C | ||||||||||||
Six | ||||||||||||
Months | ||||||||||||
Ended | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.54 | $11.23 | $11.12 | $10.97 | $10.80 | $10.98 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.04 | 0.06 | 0.08 | 0.12 | 0.15 | 0.16 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.53) | (0.69) | 0.11 | 0.15 | 0.17 | (0.18) | ||||||
Total from investment operations | (0.49) | (0.63) | 0.19 | 0.27 | 0.32 | (0.02) | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.04) | (0.06) | (0.08) | (0.12) | (0.15) | (0.16) | ||||||
Distributions from capital gains | –– | –– | –– | — | — | — | ||||||
Total distributions | (0.04) | (0.06) | (0.08) | (0.12) | (0.15) | (0.16) | ||||||
Net asset value, end of period | $10.01 | $10.54 | $11.23 | $11.12 | $10.97 | $10.80 | ||||||
Total return (not reflecting CDSC) | (4.65)%(2) | (5.62)% | 1.72% | 2.43% | 3.02% | (0.18)% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $5 | $7 | $13 | $16 | $20 | $28 | ||||||
Ratio of expenses to average net assets | 1.54%(3) | 1.51% | 1.56% | 1.56% | 1.54% | 1.56% | ||||||
Ratio of net investment income to average net assets | 0.79%(3) | 0.56% | 0.73% | 1.05% | 1.42% | 1.49% | ||||||
Portfolio turnover rate | 8%(2) | 13% | 5% | 12% | 10% | 8% |
Expense and net investment income ratios without the effect of the contractual fee waiver were (note 3):
Ratio of expenses to average net assets | 1.55%(3) | 1.52% | 1.57% | 1.57% | 1.55% | 1.57% | ||||||
Ratio of net investment income to average net assets | 0.78%(3) | 0.55% | 0.72% | 1.04% | 1.42% | 1.49% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
31 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class F | ||||||||||
For the | ||||||||||
Period | ||||||||||
Six | November 30, | |||||||||
Months | 2018* | |||||||||
Ended | through | |||||||||
9/30/22 | Year Ended March 31, | March 31, | ||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | ||||||
Net asset value, beginning of period | $10.53 | $11.22 | $11.11 | $10.95 | $10.71 | |||||
Income (loss) from investment operations: | ||||||||||
Net investment income(1) | 0.09 | 0.18 | 0.20 | 0.23 | 0.08 | |||||
Net gain (loss) on securities (both realized and unrealized) | (0.52) | (0.69) | 0.11 | 0.16 | 0.24 | |||||
Total from investment operations | (0.43) | (0.51) | 0.31 | 0.39 | 0.32 | |||||
Less distributions (note 9): | ||||||||||
Dividends from net investment income | (0.09) | (0.18) | (0.20) | (0.23) | (0.08) | |||||
Distributions from capital gains | — | — | — | — | — | |||||
Total distributions | (0.09) | (0.18) | (0.20) | (0.23) | (0.08) | |||||
Net asset value, end of period | $10.01 | $10.53 | $11.22 | $11.11 | $10.95 | |||||
Total return | (4.06)%(2) | (4.64)% | 2.77% | 3.58% | 3.03%(2) | |||||
Ratios/supplemental data | ||||||||||
Net assets, end of period (in millions) | $5 | $5 | $4 | $2 | $1 | |||||
Ratio of expenses to average net assets | 0.52%(3) | 0.48% | 0.53% | 0.53% | 0.54%(3) | |||||
Ratio of net investment income to average net assets | 1.82%(3) | 1.59% | 1.73% | 2.05% | 2.36%(3) | |||||
Portfolio turnover rate | 8%(2) | 13% | 5% | 12% | 10%(3) |
Expense and net investment income ratios without the effect of the contractual fee waiver were (note 3):
Ratio of expenses to average net assets | 0.52%(3) | 0.49% | 0.54% | 0.54% | 0.55%(3) | |||||
Ratio of net investment income to average net assets | 1.82%(3) | 1.58% | 1.72% | 2.04% | 2.35%(3) |
* Commencement of operations.
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
32 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON FINANCIAL HIGHLIGHTS (continued) |
For a share outstanding throughout each period
Class Y | ||||||||||||
Six | ||||||||||||
Months | ||||||||||||
Ended | ||||||||||||
9/30/22 | Year Ended March 31, | |||||||||||
(unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
Net asset value, beginning of period | $10.55 | $11.24 | $11.12 | $10.97 | $10.80 | $10.98 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income(1) | 0.09 | 0.17 | 0.19 | 0.23 | 0.26 | 0.27 | ||||||
Net gain (loss) on securities (both realized and unrealized) | (0.53) | (0.69) | 0.13 | 0.15 | 0.17 | (0.18) | ||||||
Total from investment operations | (0.44) | (0.52) | 0.32 | 0.38 | 0.43 | 0.09 | ||||||
Less distributions (note 9): | ||||||||||||
Dividends from net investment income | (0.09) | (0.17) | (0.20) | (0.23) | (0.26) | (0.27) | ||||||
Distributions from capital gains | –– | –– | — | — | — | — | ||||||
Total distributions | (0.09) | (0.17) | (0.20) | (0.23) | (0.26) | (0.27) | ||||||
Net asset value, end of period | $10.02 | $10.55 | $11.24 | $11.12 | $10.97 | $10.80 | ||||||
Total return | (4.16)%(2) | (4.66)% | 2.83% | 3.46% | 4.05% | 0.83% | ||||||
Ratios/supplemental data | ||||||||||||
Net assets, end of period (in millions) | $175 | $238 | $281 | $235 | $213 | $209 | ||||||
Ratio of expenses to average net assets | 0.54%(3) | 0.51% | 0.56% | 0.56% | 0.55% | 0.56% | ||||||
Ratio of net investment income to average net assets | 1.79%(3) | 1.56% | 1.71% | 2.04% | 2.42% | 2.50% | ||||||
Portfolio turnover rate | 8%(2) | 13% | 5% | 12% | 10% | 8% |
Expense and net investment income ratios without the effect of the contractual fee waiver were (note 3):
Ratio of expenses to average net assets | 0.55%(3) | 0.52% | 0.57% | 0.57% | 0.55% | 0.57% | ||||||
Ratio of net investment income to average net assets | 1.78%(3) | 1.55% | 1.71% | 2.03% | 2.41% | 2.49% |
(1) Per share amounts have been calculated using the daily average shares method.
(2) Not annualized.
(3) Annualized.
See accompanying notes to financial statements.
33 | Aquila Tax-Free Trust of Oregon
Additional Information:
Statement Regarding Liquidity Risk Management Program
Rule 22e-4 under the Investment Company Act of 1940, as amended, requires open-end management investment companies to adopt and implement written liquidity risk management programs that are reasonably designed to assess and manage liquidity risk. Liquidity risk is defined in the rule as the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund. In accordance with Rule 22e-4, Aquila Municipal Trust (“AMT”) has adopted a Liquidity Risk Management (“LRM”) program (the “program”). AMT’s Board of Trustees (the “Board”) has designated an LRM Committee consisting of employees of Aquila Investment Management LLC as the administrator of the program (the “Committee”).
The Board met on June 17, 2022 to review the program. At the meeting, the Committee provided the Board with a report that addressed the operation of the program and assessed its adequacy and effectiveness of implementation, and any material changes to the program (the “Report”). The Report covered the period from May 1, 2021 through April 30, 2022 (the “Reporting Period”).
During the Reporting Period, the Committee reviewed whether each Fund’s strategy is appropriate for an open-end fund structure taking into account less liquid and illiquid assets.
The Committee reviewed each Fund’s short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions. In classifying and reviewing each Fund’s investments, the Committee considered whether trading varying portions of a position in a particular portfolio investment or asset class in sizes the Fund would reasonably anticipate trading, would be reasonably expected to significantly affect liquidity. The Committee considered the following information when determining the sizes in which each Fund would reasonably anticipate trading: historical net redemption activity, the Fund’s concentration in an issuer, shareholder concentration, Fund performance, Fund size, and distribution channels.
The Committee considered each Fund’s holdings of cash and cash equivalents, as well as borrowing arrangements. The Committee considered the terms of the credit facility applicable to the Funds, the financial health of the institution providing the facility and the fact that the credit facility is shared among multiple Funds. The Committee also considered other types of borrowing available to the Funds, such as the ability to use interfund lending arrangements.
The Committee also performed an analysis to determine whether a Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”), and determined that the requirement to maintain an HLIM was inapplicable to the Funds because each Fund primarily holds highly liquid investments.
There were no material changes to the program during the Reporting Period. The Report provided to the Board stated that the Committee concluded that the program is reasonably designed and operated effectively throughout the Review Period.
34 | Aquila Tax-Free Trust of Oregon
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”). Davidson Fixed Income Management, Inc., doing business as Kirkpatrick Pettis Capital Management (the “Sub-Adviser”), serves 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. The independent Trustees met via video conference on August 25, 2022 and in person on September 10, 2022 to review and discuss the contract review materials that were provided in advance of the August 25, 2022 meeting. The Trustees considered, among other things, information presented by the Manager and 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 (the “Consultant’s Report”). In addition, the Trustees took into account the performance and other 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. The Trustees also discussed the memorandum provided by Fund counsel that summarized the legal standards and other considerations that are relevant to the Trustees in their deliberations regarding the renewal of the Advisory and Sub-Advisory Agreements.
At the meeting held on September 10, 2022, 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, 2023.
In considering the renewal of the Advisory Agreement and the Sub-Advisory Agreement, the Trustees considered various factors, 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.
35 | Aquila Tax-Free Trust of Oregon
At the direction of the Trustees, 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 managers, Messrs. Christopher Johns and Timothy Iltz, and their comprehensive understanding regarding the economy of the State of Oregon and the securities in which the Fund invests. The Trustees also considered the Sub-Adviser’s credit analysis of the securities in which the Fund invests. The Trustees noted that, compared to other Oregon state-specific municipal bond-funds, the portfolio of the Fund generally was of higher quality, and that the Fund did not hold any securities subject to the alternative minimum tax or any securities issued by a U.S. territory.
The Trustees considered that the Manager and the Sub-Adviser had provided all 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 Oregon state and regular Federal income taxes as is consistent with preservation of capital.
The Trustees also noted that 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 fund accountant, 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 and the Sub-Adviser to the Fund were satisfactory and consistent with the terms of the Advisory Agreement and Sub-Advisory Agreement, respectively.
The investment performance of the Fund
The Trustees reviewed the Fund’s performance (Class A shares) and compared its performance to the performance of:
· | the funds in the Municipal Single State Intermediate-Term Bond category as assigned by Morningstar, Inc. (the “Morningstar Category”); and |
· | the Fund’s benchmark index, the Bloomberg Municipal Bond: Quality Intermediate Total Return Index Unhedged USD. |
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 Morningstar Category for the three, five, and ten-year periods ended June 30, 2022, but higher than average annual total return of the funds in the Morningstar Category for the one-year period ended June 30, 2022. They noted that the Fund’s return for each of the one-year period and six months ended June 30, 2022 was in the second quintile and that its average annual return for each of the three and five-year periods ended June 30, 2022 was in the fourth quintile, in each case relative to the funds in the Morningstar Category for the same periods. (Each quintile represents one-fifth of the peer group and first quintile is most favorable to the Fund’s shareholders.) The Trustees further considered that the Fund’s average annual return was lower than the
36 | Aquila Tax-Free Trust of Oregon
average annual return of the benchmark index for the one, three, five and ten-year periods ended June 30, 2022. The Trustees further noted, as reflected in the Consultant’s Report, that the Fund’s total return for 2021 was lower than both the average total return of the funds in the Morningstar Category and the total return of its benchmark index for 2021.
The Trustees noted that the Fund invests primarily in municipal obligations issued by the State of Oregon, its counties and various other local authorities, while the funds in the Morningstar Category invest in, and the Fund’s benchmark index includes, municipal bonds of issuers throughout the United States and its territories and that only 1.2% of the benchmark index consists of Oregon bonds. The Trustees noted that, unlike the Fund’s returns, the performance of the benchmark index did not reflect any fees or expenses.
The Trustees discussed the Fund’s performance record with the Manager and the Sub-Adviser and considered the Manager’s and the Sub-Adviser’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 lower duration. The Trustees also considered the steps taken by the Sub-Adviser in recent months in an effort to improve the Fund’s investment performance.
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 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 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 21 funds in the Fund’s expense group (the “Expense Group”), as selected by the independent consultant (the Fund and 15 other Municipal Single-State Intermediate-Term Bond funds, three Municipal Minnesota Bond funds and two Municipal New Jersey Bond funds, each categorized by Morningstar, Inc. with portfolio assets ranging between $157 million and $987 million). Only front-end load and retail no-load funds were considered for inclusion in the Expense Group. In addition, peer selection focused on municipal bond funds with an intermediate duration across comparable categories. The Trustees also compared the Fund’s advisory fees and expenses to advisory fee data for the Fund’s Morningstar Category (as defined above). Certain of the peer group comparisons referred to below are organized in quintiles. Each quintile represents one-fifth of the peer group. In all peer group comparisons referred to below, first quintile is most favorable to the Fund’s shareholders.
The Trustees considered that the Fund’s net management fee (after giving effect to fee waivers) for its most recent fiscal year was in the second quintile relative to the management fees paid by the other funds in its Expense Group for the comparable period (after giving effect to fee waivers in effect for those funds). They also considered that the Fund’s contractual advisory fee was lower than the average and median contractual advisory fee of the funds in the Morningstar Category (at the Fund’s current asset level and all asset levels up to $10 billion).
37 | Aquila Tax-Free Trust of Oregon
The Trustees considered that the Fund’s net total expenses (for Class A Shares), after giving effect to fee waivers and expense reimbursements, for the most recent fiscal year were in the second quintile relative to the net total expenses of the other funds in its Expense Group for the comparable period (after giving effect to fee waivers in effect for those funds).
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 the fee rates for those clients were not lower than the contractual fee rate for the Fund. With respect to the Sub-Adviser, the Trustees noted that the fee rates for its separately managed account clients were generally lower than the fees paid to the Sub-Adviser with respect to the Fund. In evaluating the fees associated with the separately managed 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 each of the Manager and the Sub-Adviser 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 LLC of distribution services provided to the Fund. The Manager also provided other financial information to the members of the financial review committee of the Fund and the other funds in the Aquila Group of Funds.
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 services provided to the Fund, as well as the other financial information provided to the financial review committee. 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 supported the renewal of 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. They noted that the Fund has in place breakpoints in the sub-advisory fee schedule based on the size of the Fund. In addition, it was noted that the Manager has contractually agreed to waive fees to the extent necessary so that the annual rate payable under the Advisory
38 | Aquila Tax-Free Trust of Oregon
Agreement shall be equivalent to 0.40% on the Fund’s net assets up to $400 million; 0.38% on assets above that amount to $1 billion in net assets and 0.36% on net assets thereafter. 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.
39 | Aquila Tax-Free Trust of Oregon
Your Fund’s Expenses (unaudited)
As a Fund shareholder, 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 assumes a $1,000 investment held for the six months indicated.
Actual Expenses
The 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 that 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”.
Hypothetical Example for Comparison with Other Funds
Under the heading, “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
Actual | Hypothetical | ||||||
(actual return after expenses) | (5% annual return before expenses) | ||||||
Share Class | Beginning Account Value 4/1/22 | Ending(1) Account | Expenses(2) Paid During Period 4/1/22 – 9/30/22 | Ending Account Value 9/30/22 | Expenses(2) Paid During Period 4/1/22 – 9/30/22 | Net Annualized Expense Ratio | |
A | $1,000 | $ 958.60 | $3.39 | $1,021.61 | $3.50 | 0.69% | |
C | $1,000 | $ 953.50 | $7.54 | $1,017.35 | $7.79 | 1.54% | |
F | $1,000 | $ 959.40 | $2.55 | $1,022.46 | $2.64 | 0.52% | |
Y | $1,000 | $ 958.40 | $2.65 | $1,022.36 | $2.74 | 0.54% |
(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 or the applicable CDSC with respect to Class C shares. Total return is not annualized and as such, it may not be representative of the total return for the year. |
(2) | Expenses are equal to the annualized expense ratio for the six-month period as indicated above - in the far right column - multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period. |
40 | Aquila Tax-Free Trust of Oregon
Information Available (unaudited) Annual and Semi-Annual Reports and Complete Portfolio Holding Schedules Your Fund’s Annual and Semi-Annual Reports are filed with the SEC twice a year. Each Report contains a complete Schedule of Portfolio Holdings, along with full financial statements and other important financial statement disclosures. Additionally, your Fund files a complete Schedule of Portfolio Holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its Reports on Form N-PORT. Your Fund’s Annual and Semi-Annual Reports and N-PORT reports 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. In addition, your Fund’s Annual and Semi-Annual Reports and complete Portfolio Holdings Schedules for each fiscal quarter end are also available, free of charge, on your Fund’s website, www.aquilafunds.com (under the prospectuses & reports tab) or by calling us at 1-800-437-1000. Portfolio Holdings Reports In accordance with your Fund’s Portfolio Holdings Disclosure Policy, the Manager also prepares a Portfolio Holdings Report as of each quarter end, which is typically posted to your Fund’s individual page at www.aquilafunds.com by the 15th day after the end of each calendar quarter. Such information will remain accessible until the next Portfolio Holdings Report is made publicly available by being posted to www.aquilafunds.com. The quarterly Portfolio Holdings Report may be accessed, free of charge, by visiting www.aquilafunds.com or calling us at 1-800-437-1000. |
Proxy Voting Record (unaudited) During the 12 month period ended June 30, 2022, there were no proxies related to any portfolio instruments held by the Fund. As such, the Fund did not vote any proxies. 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, 2022, $9,769,437 of dividends paid by Aquila Tax-Free Trust of Oregon, constituting 99.9% of total dividends paid during the fiscal year ended March 31, 2022, were exempt-interest dividends; and the balance was ordinary income. Prior to February 15, 2023, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2022 calendar year. |
41 | Aquila Tax-Free Trust of Oregon
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
222 SW Columbia Street, Suite 1400
Portland, Oregon 97201
Board of Trustees
Thomas A. Christopher, Chair
Diana P. Herrmann, Vice Chair
Ernest Calderón
Gary C. Cornia
Grady Gammage, Jr.
Patricia L. Moss
Glenn P. O’Flaherty
Heather R. Overby
Laureen L. White
Officers
Diana P. Herrmann, President
Paul G. O’Brien, Senior Vice President
Christine L. Neimeth, Vice President
Randall S. Fillmore, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer and Treasurer
Anita Albano, Secretary
Distributor
AQUILA DISTRIBUTORS LLC
120 West 45th Street, Suite 3600
New York, New York 10036
Transfer and Shareholder Servicing Agent
BNY MELLON INVESTMENT SERVICING (US) INC.
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
THE BANK OF NEW YORK MELLON
240 Greenwich Street
New York, New York 10286
Further information is contained in the Prospectus,
which must precede or accompany this report.
AQL-ORSAR-1122
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. INVESTMENTS
(a) Schedule I – 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 Trustees 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) | Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. |
Within 90 days prior to the filing date of this Shareholder Report on Form N-CSRS, the Registrant has carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.
(b) | Change in Internal Controls. There have been no significant changes in Registrant's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect the internal control over financial reporting. |
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 13. EXHIBITS
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
Diana P. Herrmann
Vice Chair, Trustee and President
December 2, 2022
By: /s/ Joseph P. DiMaggio
Chief Financial Officer and Treasurer
December 2, 2022
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, Trustee and President
December 2, 2022
By: /s/ Joseph P. DiMaggio
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
December 2, 2022