N-CSRS 1 e618092_ncsrs-amt.htm AQUILA MUNICIPAL TRUST 9/30/2018 FORM N-CSRS

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM N-CSRS

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

 

Investment Company Act file number 811-4503

 

AQUILA MUNICIPAL TRUST

(Exact name of Registrant as specified in charter)

 

120 West 45th Street, Suite 3600

New York, New York 10036

(Address of principal executive offices) (Zip code)

 

Joseph P. DiMaggio

120 West 45th Street, Suite 3600

New York, New York 10036

(Name and address of agent for service)

 

Registrant's telephone number, including area code: (212) 697-6666

 

Date of fiscal year end: 3/31/18

 

Date of reporting period: 9/30/18

 

FORM N-CSRS

 

ITEM 1. REPORTS TO STOCKHOLDERS.

 

 

                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                 

Semi-Annual

Report

September 30, 2018

                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   

  

 

 

Please Save the Date for Your 2019 Shareholder Meeting

 

Wednesday, April 17, 2019

 

The Olmstead, Louisville

 

Details will be available on our website:

 

www.aquilafunds.com

 

You may also contact your financial professional.

 

 

ii | Aquila Churchill Tax-Free Fund of Kentucky

 

  

Aquila Churchill Tax-Free

Fund of Kentucky

 

“Proper Asset Allocation

–A Strategy For All Seasons”

 

Serving Kentucky investors since 1987

  

 

November, 2018

 

Dear Fellow Shareholder:

 

     Financial news, and the often resulting market volatility, can cause even the most seasoned investor to ask, “What should I do now?”

 

     We believe you will generally be in a better position to weather changing economic situations, if your portfolio is built with a strong foundation. In short, is your portfolio properly allocated based on your specific needs? And, have you periodically revisited your portfolio structure to make sure that your allocation remains in line with your investment goals, given changing market conditions and changes in your personal circumstances, including current risk tolerance?

 

     Asset allocation is an investment  strategy that strives to balance risk and reward by  diversifying assets according to your specific needs. In developing this strategy, your considerations should include:

 

•investment time horizon (specifically your age and retirement objectives);

 

•risk threshold (how much of your investment capital you are willing to lose during a given time frame);

 

•financial situation (your wealth, income, expenses, tax bracket, liquidity needs, etc.); and

 

•goals (the financial goals you and your family would like to achieve).

 

     Since the three main asset classes - equities, fixed-income, and cash/cash equivalents -have different levels of risk and return, each is expected to behave differently over time. The objective of asset allocation is to create a diversified portfolio with an acceptable level of risk and the highest possible return given that level of risk.

 

     Although there is no simple formula that can find the right asset allocation for every individual, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make.

 

     The way you allocate your investment portfolio among stocks, bonds, and cash/cash equivalents will be the principal determinants of your investment results – secondary to your selection of individual securities.

 

NOT A PART OF THE SEMI-ANNUAL REPORT

 

 

     Once you and your financial professional have developed an appropriate asset allocation for your portfolio, we believe that changes should be made based on changing needs, not on headlines.

 

     A properly constructed portfolio based on sound asset allocation may generally help you weather all seasons.

 

Sincerely,

 

 

Mutual fund investing involves risk and loss of principal is possible.

 

The market prices of the Fund’s securities may rise or decline in value due to general market conditions, such as real or perceived adverse economic or political conditions, inflation, changes in interest rates, lack of liquidity in the bond markets or adverse investor sentiment. When market prices fall, the value of your investment may go down. 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.

 

The value of your investment may go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term securities. Conversely, when interest rates fall, the value of your investment may rise. Interest rates in the U.S. recently have been historically low, so the Fund faces a heightened risk that interest rates may rise. A general rise in interest rates may cause investors to move out of fixed income securities 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.

 

If interest rates fall, an issuer may exercise its right to prepay its securities, and the Fund could be forced to reinvest prepayment proceeds at a time when yields on securities available in the market are lower than the yield on the prepaid security.

 

A portion of income may be subject to local, state, Federal and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax.

 

These risks may result in share price volatility.

 

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, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (4.5%)  and Fitch  Value
          
     Henderson County, Kentucky        
$330,000   3.000%, 11/01/20  Aa3/NR/NR  $335,607 
     Lexington-Fayette Urban County,        
     Kentucky        
 3,600,000   4.000%, 09/01/29  Aa2/AA/NR   3,793,680 
 570,000   4.000%, 08/01/21 Series B  Aa2/AA/NR   599,919 
     Rowan County, Kentucky        
 400,000   3.000%, 06/01/21 AGMC Insured  A1/AA/NR   407,188 
 835,000   4.000%, 06/01/30 AGMC Insured  A1/AA/NR   871,965 
 865,000   4.000%, 06/01/31 AGMC Insured  A1/AA/NR   899,133 
     Warren County, Kentucky        
 615,000   4.000%, 06/01/25  Aa2/NR/NR   642,337 
 635,000   4.000%, 06/01/26  Aa2/NR/NR   661,886 
 660,000   4.000%, 06/01/27  Aa2/NR/NR   686,037 
     Total General Obligation Bonds      8,897,752 
              
     Revenue Bonds (91.3%)        
     State Agency (25.1%)        
     Kentucky Asset & Liability Commission        
     Federal Highway Notes        
 1,000,000   5.000%, 09/01/22 Series A  A2/AA/A+   1,050,830 
 2,000,000   5.250%, 09/01/25 Series A  A2/AA/A+   2,244,920 
 2,000,000   5.000%, 09/01/26 Series A  A2/AA/A+   2,248,660 
 1,000,000   5.000%, 09/01/27 Series A  A2/AA/A+   1,138,740 
     Kentucky Rural Water Finance Corp.        
 355,000   4.600%, 02/01/25  NR/A+/NR   355,604 
 205,000   4.250%, 08/01/19 NPFG Insured  Baa2/A+/NR   205,287 
 210,000   4.250%, 08/01/20 NPFG Insured  Baa2/A+/NR   210,302 
 200,000   4.375%, 08/01/22 NPFG Insured  Baa2/A+/NR   200,336 
 240,000   4.500%, 08/01/23 NPFG Insured  Baa2/A+/NR   240,418 
 255,000   4.500%, 08/01/24 NPFG Insured  Baa2/A+/NR   255,434 
 290,000   4.500%, 08/01/27 NPFG Insured  Baa2/A+/NR   287,277 
 245,000   4.600%, 08/01/28 NPFG Insured  Baa2/A+/NR   245,417 
 315,000   4.625%, 08/01/29 NPFG Insured  Baa2/A+/NR   315,539 

 

1 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
   State Agency (continued)      
     Kentucky Rural Water Finance Corp.        
     (continued)        
$375,000   4.000%, 02/01/28 Series 2012C  NR/A+/NR  $383,198 
 305,000   4.000%, 02/01/29 Series 2012C  NR/A+/NR   310,978 
 435,000   4.000%, 02/01/26 Series 2012F  NR/A+/NR   452,178 
 450,000   4.000%, 02/01/27 Series 2012F  NR/A+/NR   466,173 
 465,000   4.000%, 02/01/28 Series 2012F  NR/A+/NR   480,066 
 490,000   4.000%, 02/01/29 Series 2012F  NR/A+/NR   503,524 
     Kentucky State Office Building COP        
 2,250,000   4.000%, 04/15/27  A1/NR/NR   2,378,340 
 1,640,000   5.000%, 06/15/34  A1/NR/NR   1,798,080 
     Kentucky State Property and Buildings        
     Commission        
 1,000,000   5.000%, 10/01/25  A1/A-/A+   1,107,830 
 625,000   4.000%, 04/01/26 Project 105  A2/A-/A+   653,256 
 655,000   4.000%, 04/01/27 Project 105  A2/A-/A+   681,528 
 1,500,000   5.000%, 10/01/29 Project 106  A1/A-/A+   1,649,220 
 770,000   5.000%, 08/01/23 Project 108  A1/A-/A+   851,882 
 3,000,000   5.000%, 08/01/33 Project 108  A1/A-/A+   3,315,270 
 5,000,000   5.000%, 08/01/32 Project 110  A1/A-/A+   5,535,150 
 2,040,000   5.000%, 11/01/27 Project 112  A1/A-/A+   2,310,463 
 1,425,000   5.000%, 11/01/28 Project 112  A1/A-/A+   1,605,248 
 2,500,000   5.000%, 02/01/31 Project 112  A1/A-/A+   2,759,200 
 895,000   3.000%, 04/01/22 Project 113  A2/A-/A+   908,094 
 1,055,000   2.500%, 10/01/21 Project 114  Aa3/A-/A+   1,058,028 
 1,510,000   3.000%, 10/01/22 Project 114  Aa3/A-/A+   1,539,128 
 1,400,000   4.000%, 10/01/30 Project 114  Aa3/A-/A+   1,449,448 
 1,000,000   5.000%, 04/01/23 Project 115  A1/A-/A+   1,101,240 
 1,000,000   5.000%, 04/01/29 Project 115  A1/A-/A+   1,119,570 
 2,000,000   5.000%, 05/01/30 Project 117  A1/NR/A+   2,237,940 
 500,000   5.000%, 05/01/36 Project 117  A1/NR/A+   547,785 
 1,490,000   5.000%, 05/01/24 Project 119  A1/A-/A+   1,658,236 
 1,015,000   5.000%, 05/01/25 Project 119  A1/A-/A+   1,139,246 

 

2 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     State Agency (continued)        
     Kentucky State Property and Buildings        
     Commission (continued)        
$320,000   5.250%, 02/01/28 AGC Insured  NR/AA/NR  $323,427 
 340,000   5.000%, 02/01/29 AGC Insured  NR/AA/NR   343,308 
     Total State Agency      49,665,798 
              
     Airports (7.1%)        
     Lexington-Fayette Urban County        
     Airport Board, Kentucky        
 1,555,000   5.000%, 07/01/28 2012 Series A AMT  Aa2/AA/NR   1,683,319 
 400,000   5.000%, 07/01/29 2012 Series A AMT  Aa2/AA/NR   432,860 
 1,350,000   5.000%, 07/01/30 2012 Series A AMT  Aa2/AA/NR   1,460,403 
 750,000   5.000%, 07/01/31 2012 Series A AMT  Aa2/AA/NR   811,058 
 260,000   5.000%, 07/01/29 2016 Series B AMT  Aa2/AA/NR   276,645 
 275,000   5.000%, 07/01/30 2016 Series B AMT  Aa2/AA/NR   292,454 
 300,000   5.000%, 07/01/32 2016 Series B AMT  Aa2/AA/NR   318,714 
 330,000   5.000%, 07/01/34 2016 Series B AMT  Aa2/AA/NR   350,315 
 365,000   5.000%, 07/01/36 2016 Series B AMT  Aa2/AA/NR   387,269 
     Louisville, Kentucky Regional Airport        
     Authority        
 2,070,000   5.000%, 07/01/23 AMT  NR/A+/A+   2,286,543 
 2,325,000   5.000%, 07/01/26 AMT  NR/A+/A+   2,555,803 
 2,895,000   5.000%, 07/01/27 Series A AMT  NR/A+/A+   3,166,435 
     Total Airports      14,021,818 
              
     Higher Education (10.0%)        
     Boyle County, Kentucky College        
     Refunding & Improvement        
 2,050,000   5.000%, 06/01/28  A3/A/NR   2,327,201 
 1,000,000   5.000%, 06/01/29  A3/A/NR   1,127,960 
     Eastern Kentucky University General        
     Receipts        
 1,250,000   4.000%, 10/01/27  A1/A-/NR   1,290,287 
 1,230,000   5.000%, 10/01/30 Series A  A1/NR/NR   1,391,634 
 870,000   4.500%, 04/01/32 Series A  A1/NR/NR   927,455 

 

3 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Higher Education (continued)        
     Kentucky Bond Development        
     Corp. Industrial Building        
     Revenue Refunding, City of Paris        
     (Transylvania University Project)        
$380,000   3.000%, 03/01/20 Series D  NR/A-/NR  $383,887 
 390,000   3.000%, 03/01/21 Series D  NR/A-/NR   394,992 
 400,000   3.000%, 03/01/22 Series D  NR/A-/NR   404,464 
     Lexington-Fayette, Kentucky Urban        
     County Government (Transylvania        
     University Project)        
 1,390,000   4.500%, 03/01/29  NR/A-/NR   1,440,137 
     Louisville & Jefferson County,        
     Kentucky Metropolitan Government        
     College Improvement (Bellarmine        
     University Project)        
 2,270,000   5.000%, 05/01/33  Baa3/NR/NR   2,450,533 
     Morehead State University, Kentucky        
     General Receipts        
 1,000,000   5.000%, 04/01/29 Series A  A1/NR/NR   1,109,790 
 1,000,000   4.000%, 04/01/31 Series A  A1/NR/NR   1,037,080 
     Murray State University Project,        
     Kentucky General Receipts        
 1,850,000   4.500%, 03/01/30 Series A  A1/NR/NR   1,976,244 
     Northern Kentucky University General        
     Receipts        
 1,095,000   4.000%, 09/01/21 Series B  A1/NR/NR   1,146,837 
 1,190,000   4.000%, 09/01/22 Series B  A1/NR/NR   1,261,162 
     University of Louisville, Kentucky        
     General Receipts        
 1,000,000   5.000%, 09/01/30 2011 Series A  A3/A+/NR   1,070,980 
     Total Higher Education      19,740,643 
              
     Hospital (14.0%)        
     City of Ashland, Kentucky, Medical        
     Center (Ashland Hospital Corp.)        
 2,000,000   5.000%, 02/01/22 Series B  Baa2/BBB-/BBB-   2,057,000 
 2,535,000   5.000%, 02/01/23 Series B  Baa2/BBB-/BBB-   2,605,574 
 805,000   4.000%, 02/01/32 Series 2016A  Baa2/BBB-/BBB-   809,033 
 1,035,000   4.000%, 02/01/36 Series 2016A  Baa2/BBB-/BBB-   1,022,207 

 

4 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Hospital (continued)        
     Hardin County, Kentucky, Hardin        
     Memorial Hospital        
$735,000   5.500%, 08/01/22 AGMC Insured  A2/AA/NR  $820,458 
 675,000   5.500%, 08/01/23 AGMC Insured  A2/AA/NR   770,870 
 500,000   5.250%, 08/01/24 AGMC Insured  A2/AA/NR   562,185 
     Kentucky Economic Development        
     Finance Authority, Kings Daughter        
     Medical Center        
 1,000,000   5.000%, 02/01/30  Baa2/BBB-/BBB-   1,022,430 
     Louisville & Jefferson County,        
     Kentucky Metropolitan Government        
     Health System, Norton Healthcare,        
     Inc.        
 2,710,000   5.000%, 10/01/27 Series A  NR/A-/A+   2,978,263 
 3,500,000   5.000%, 10/01/31 Series A  NR/A-/A+   3,915,240 
     Louisville & Jefferson County, Kentucky        
     Metropolitan Government,        
     Louisville Medical Center, Laundry        
     Facility Project        
 695,000   4.250%, 05/01/23 Series 2012  NR/BBB+/NR   732,586 
     Louisville & Jefferson County, Kentucky        
     Metropolitan Government,        
     Louisville Medical Center, Steam &        
     Chilled Water Plant Project        
 915,000   4.250%, 05/01/22 Series 2012A  NR/BBB+/NR   959,249 
     Russell, Kentucky Bon Secours Health        
     System        
 3,100,000   5.000%, 11/01/26 Series 2013  A2/A/A   3,389,974 
     Warren County, Kentucky, Warren        
     County Community Hospital Corp.        
 4,975,000   5.000%, 04/01/28  NR/A+/NR   5,421,307 
 680,000   4.000%, 10/01/29  NR/A+/NR   700,257 
     Total Hospital      27,766,633 
              
     Housing (0.6%)        
     Kentucky Housing Multifamily        
     Mortgage Revenue        
 1,230,000   5.000%, 06/01/35 AMT  NR/NR/NR*   1,231,673 

 

5 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Local Public Property (7.0%)        
     Boyd County, Kentucky Capital        
     Projects Corp., Revenue Refunding,        
     First Mortgage, Court Facilities        
     Project        
$655,000   3.000%, 08/01/21  A1/NR/NR  $666,764 
     Jefferson County, Kentucky Capital        
     Projects        
 1,575,000   4.250%, 06/01/23 AGMC Insured  A1/NR/AA+   1,577,977 
 1,950,000   4.375%, 06/01/24 AGMC Insured  A1/NR/AA+   1,953,880 
 1,640,000   4.375%, 06/01/28 AGMC Insured  A1/NR/AA+   1,643,050 
 2,060,000   4.375%, 06/01/26 Series A AGMC        
     Insured  A1/NR/AA+   2,063,955 
 1,070,000   4.375%, 06/01/27 Series A AGMC        
     Insured  A1/NR/AA+   1,072,044 
     Kentucky Association of Counties        
     Finance Corp. Financing Program        
 515,000   4.000%, 02/01/25  NR/AA-/NR   537,511 
 100,000   5.375%, 02/01/27 Series A  NR/AA-/NR   107,550 
 100,000   5.375%, 02/01/28 Series A  NR/AA-/NR   107,550 
 100,000   4.250%, 02/01/24 Series A        
     Unrefunded Balance  NR/AA-/NR   103,546 
 315,000   3.000%, 02/01/21 Series B  NR/AA-/NR   320,402 
 350,000   4.000%, 02/01/22 Series B  NR/AA-/NR   367,927 
 345,000   5.000%, 02/01/24 Series B  NR/AA-/NR   385,410 
 365,000   5.000%, 02/01/25 Series B  NR/AA-/NR   413,085 
 385,000   5.000%, 02/01/26 Series B  NR/AA-/NR   439,397 
     Kentucky Bond Corp. Financing        
     Program        
 915,000   5.125%, 02/01/28  NR/AA-/NR   979,553 
     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   1,084,210 
     Total Local Public Property      13,823,811 
              
     School Building (12.8%)        
     Caldwell County, Kentucky School        
     District Finance Corp.        
 530,000   4.250%, 04/01/30  A1/NR/NR   550,749 

 

6 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     School Building (continued)        
     Campbell County, Kentucky School        
     District Finance Corp.        
$340,000   3.500%, 08/01/22  A1/NR/NR  $349,697 
     Fayette County, Kentucky School        
     District Finance Corp.        
 3,000,000   5.000%, 08/01/31  Aa3/AA-/NR   3,348,330 
 1,000,000   5.000%, 10/01/27 Series A  Aa3/AA-/NR   1,117,750 
 750,000   4.250%, 06/01/29 Series A  Aa3/AA-/NR   781,822 
     Franklin County, Kentucky School        
     District Finance Corp.        
 1,560,000   4.000%, 06/01/29  A1/NR/NR   1,609,858 
 1,135,000   4.000%, 04/01/24 Second Series  A1/NR/NR   1,214,109 
     Jefferson County, Kentucky School        
     District Finance Corp.        
 1,000,000   3.000%, 07/01/22 Series A  Aa3/AA-/NR   1,022,800 
 805,000   5.000%, 04/01/28 Series A  Aa3/AA-/NR   903,951 
 1,075,000   4.500%, 04/01/32 Series A  Aa3/AA-/NR   1,140,199 
 4,000,000   4.000%, 07/01/26 Series B  Aa3/AA-/NR   4,215,480 
 1,655,000   4.000%, 11/01/29 Series C  Aa3/AA-/NR   1,719,744 
     Logan County, Kentucky School        
     District Finance Corp., Energy        
     Conservation Revenue Bonds        
 575,000   4.000%, 04/01/33 Series 2016  A1/NR/NR   594,584 
 615,000   4.000%, 04/01/34 Series 2016  A1/NR/NR   633,487 
     Shelby County, Kentucky School District        
     Finance Corp. School Building        
 3,200,000   4.000%, 02/01/28  A1/NR/NR   3,419,616 
 2,440,000   4.000%, 02/01/29  A1/NR/NR   2,585,326 
     Total School Building      25,207,502 
              
     Student Loan (1.9%)        
     Kentucky Higher Education Student Loan        
 1,440,000   5.000%, 06/01/22 Senior Series A AMT  NR/A/A   1,535,558 
 400,000   5.000%, 06/01/24 Senior Series A AMT  NR/A/A   434,204 
 600,000   5.000%, 06/01/26 Senior Series A AMT  NR/A/A   659,592 
 235,000   3.750%, 06/01/26 Senior Series A AMT  NR/A/A   236,382 
 810,000   3.000%, 06/01/29 Senior Series A AMT  NR/A/A   806,209 
     Total Student Loan      3,671,945 

 

7 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Turnpike/Highway (8.2%)        
     Kentucky State Turnpike Authority        
$5,000,000   5.000%, 07/01/29 Series A  Aa3/A-/A+  $5,438,700 
 4,030,000   5.000%, 07/01/30 Series A  Aa3/A-/A+   4,547,694 
 1,000,000   5.000%, 07/01/30 Series A  Aa3/A-/A+   1,086,990 
 1,715,000   5.000%, 07/01/31 Series B  Aa3/A-/NR   1,934,040 
 2,925,000   5.000%, 07/01/33 Series B  Aa3/A-/NR   3,279,335 
     Total Turnpike/Highway      16,286,759 
              
     Utilities (4.6%)        
     Campbell & Kenton Counties,        
     Kentucky (Sanitation District)        
 2,370,000   4.000%, 08/01/27  Aa3/AA/NR   2,418,632 
     Kentucky State Municipal Power        
     Agency, Prairie St. Project        
 1,000,000   5.000%, 09/01/23 AGMC Insured  A2/AA/NR   1,050,250 
     Louisville & Jefferson County,        
     Kentucky Metropolitan Sewer        
     District        
 500,000   5.000%, 05/15/28 Series A  Aa3/AA/AA-   539,460 
 1,920,000   4.500%, 05/15/30 Series A  Aa3/AA/NR   2,060,966 
     Northern Kentucky Water District        
 1,000,000   5.000%, 02/01/26  Aa3/NR/NR   1,080,050 
     Owensboro, Kentucky Electric, Light        
     and Power        
 1,805,000   5.000%, 01/01/26 AGMC Insured        
     Series B  A2/AA/NR   1,862,706 
     Total Utilities      9,012,064 
     Total Revenue Bonds      180,428,646 

 

8 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Pre-RefundedObligationBonds (2.4%)††  and Fitch  Value
              
     Pre-Refunded Revenue Bonds (2.4%)        
     State Agency (0.1%)        
     Kentucky State Property and Buildings        
     Commission        
$170,000   5.375%, 11/01/23  A1/A-/NR  $170,491 
 85,000   5.500%, 11/01/28  A1/A-/NR   85,254 
     Total State Agency      255,745 
              
     Hospital (1.0%)        
     Louisville & Jefferson County, Kentucky        
     Metropolitan Government Revenue,        
     Catholic Health Initiatives        
 1,715,000   5.000%, 12/01/35  NR/NR/NR*   1,887,546 
              
     Local Public Property (0.3%)        
     Kentucky Association of Counties        
     Finance Corp. Financing Program        
 215,000   5.375%, 02/01/27 Series A  NR/NR/NR*   231,233 
 230,000   5.375%, 02/01/28 Series A  NR/NR/NR*   247,365 
     Total Local Public Property      478,598 
              
     Turnpike/Highway (0.5%)        
     Kentucky State Turnpike Authority        
 1,000,000   5.000%, 07/01/25  Aa3/A-/A+   1,022,340 
              
     Utilities (0.5%)        
     Owensboro, Kentucky Electric, Light        
     and Power        
 1,000,000   5.000%, 01/01/21 AGMC Insured  A2/AA/NR   1,037,750 
     Total Pre-Refunded Revenue Bonds      4,681,979 
     Total Pre-Refunded Bonds      4,681,979 
     Total Municipal Bonds (cost $193,638,243)      194,008,377 

 

9 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
      Moody's, S&P   
Shares  Short-Term Investment (0.8%)  and Fitch  Value
          
     Dreyfus Treasury & Agency Cash          
     Management - Institutional Shares,          
 1,516,929   1.96%** (cost $1,516,929)   Aaa-mf/AAAm/NR   $1,516,929 
     Total Investments          
     (cost $195,155,172-note 4)   99.0%   195,525,306 
     Other assets less liabilities   1.0    2,020,156 
     Net Assets   100.0%  $197,545,462 

 

   Percentage of
Portfolio Distribution By Quality Rating  Investments†
Pre-refunded bonds††   2.4%
Aa of Moody's or AA of S&P or Fitch   41.9 
A of Moody's or S&P or Fitch   49.1 
Baa of Moody's or BBB of S&P   6.0 
Not Rated*   0.6 
    100.0%

 

 PORTFOLIO ABBREVIATIONS
AGC - Assured Guaranty Corp.
AGMC - Assured Guaranty Municipal Corp.
AMT - Alternative Minimum Tax
COP - Certificates of Participation
NPFG - National Public Finance Guarantee
NR - Not Rated

 

10 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (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 NRSROs. 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 inescrow to retire the bonds at their earliest call date.

  

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, 2018 (unaudited)

 

ASSETS     
Investments at value (cost $195,155,172)  $195,525,306 
Interest recievable   2,429,772 
Receivable for Fund Shares sold   61,348 
Other assets   15,689 
Total assets   198,032,115 
      
LIABILITIES     
Payable for fund shares redeemed   283,405 
Dividends payable   99,626 
Management fee payable   65,511 
Distribution and service fees payable   1,309 
Accrued expenses payable   36,802 
Total liabilities   486,653 
      
NET ASSETS .  $197,545,462 
Net Assets consist of:     
Capital Stock – Authorized an unlimited number of shares,     
par value $0.01 per share  $189,954 
Additional paid-in capital   196,586,906 
Net unrealized appreciation on investments (note 4)   370,134 
Accumulated net realized gain on investments   327,840 
Undistributed net investment income   70,628 
   $197,545,462 
CLASS A     
Net Assets  $149,605,578 
Capital shares outstanding   14,386,452 
Net asset value and redemption price per share  $10.40 
Maximum offering price per share (100/96 of $10.40)  $10.83 
CLASS C     
Net Assets  $7,887,847 
Capital shares outstanding   758,902 
Net asset value and offering price per share  $10.39 
Redemption price per share (*a charge of 1% is imposed on the     
redemption proceeds, or on the original price, whichever is     
lower, if redeemed during the first 12 months after purchase)  $10.39*
CLASS I     
Net Assets  $6,556,866 
Capital shares outstanding   630,788 
Net asset value, offering and redemption price per share  $10.39 
CLASS Y     
Net Assets  $33,495,171 
Capital shares outstanding   3,219,269 
Net asset value, offering and redemption price per share  $10.40 

 

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, 2018 (unaudited)

 

Investment Income      
Interest income      $3,270,621 
Expenses          
Management fee (note 3)  $420,071      
Distribution and service fee (note 3)   162,834      
Legal fees   51,220      
Transfer and shareholder servicing agent fees (note 3)   49,667      
Trustees’ fees and expenses (note 7)   38,356      
Fund accounting fees   21,793      
Shareholders’ reports   16,061      
Registration fees and dues   14,920      
Auditing and tax fees   10,910      
Chief compliance officer services (note 3)   5,572      
Custodian fees   5,312      
Insurance   4,864      
Miscellaneous   30,858      
Total expenses        832,438 
Net investment income        2,438,183 
           
Realized and Unrealized Gain (Loss) on Investments:          
Net realized gain (loss) from securities          
transactions   34,867      
Change in unrealized appreciation on          
investments   (1,546,804)     
           
Net realized and unrealized gain (loss)          
on investments        (1,511,937)
Net change in net assets resulting from operations       $926,246 

 

See accompanying notes to financial statements.

 

13 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

STATEMENTS OF CHANGES IN NET ASSETS

 

   Six Months Ended   
   September 30, 2018  Year Ended
   (unaudited)  March 31, 2018
OPERATIONS:          
Net investment income  $2,438,183   $5,990,401 
Realized gain (loss) from securities transactions   34,867    321,862 
Change in unrealized appreciation on          
investments   (1,546,804)   (1,436,966)
Change in net assets resulting from operations   926,246    4,875,297 
           
DISTRIBUTIONS TO SHAREHOLDERS (note 9):          
Class A Shares:          
Net investment income   (1,816,148)   (4,384,286)
Net realized gain on investments   —    (104,842)
           
Class C Shares:          
Net investment income   (63,639)   (153,215)
Net realized gain on investments   —    (6,009)
           
Class I Shares:          
Net investment income   (79,158)   (186,457)
Net realized gain on investments   —    (4,557)
           
Class Y Shares:          
Net investment income   (476,389)   (1,258,038)
Net realized gain on investments   —    (28,264)
Change in net assets from distributions   (2,435,334)   (6,125,668)
           
CAPITAL SHARE TRANSACTIONS (note 6):          
Proceeds from shares sold   5,276,549    16,092,109 
Reinvested dividends and distributions   1,739,774    4,113,013 
Cost of shares redeemed   (28,202,078)   (52,039,775)
Change in net assets from capital share          
transactions   (21,185,755)   (31,834,653)
           
Change in net assets   (22,694,843)   (33,085,024)
           
NET ASSETS:          
Beginning of period   220,240,305    253,325,329 
End of period*  $197,545,462   $220,240,305 
           
*Includes undistributed net investment of:  $70,628   $67,779 

 

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, 2018 (unaudited)

 

1. Organization

 

     Aquila Churchill Tax-Free Fund of Kentucky (the “Fund”), a series of Aquila Municipal Trust (prior to October 12, 2013, the Fund operated under the name Churchill Tax-Free Fund of Kentucky), a non-diversified, open-end investment company, was organized in March, 1987 as a Massachusetts business trust and commenced operations on May 21, 1987. The Fund is authorized to issue an unlimited number of shares. Class A Shares are sold at net asset value plus a sales charge of varying size (depending upon a variety of factors) paid at the time of purchase and bear a distribution fee. Class C Shares are sold at net asset value with no sales charge payable at the time of purchase but with a level charge for service and distribution fees for six years thereafter. Class C Shares automatically convert to Class A Shares after six years. Class Y Shares are sold only through authorized financial institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity and are not offered directly to retail customers. Class Y Shares are sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge (“CDSC”) and no distribution fee. Class I Shares are offered and sold only through financial intermediaries and are not offered directly to retail customers. Class I Shares are sold at net asset value with no sales charge and no redemption fee or CDSC, although a financial intermediary may charge a fee for effecting a purchase or other transaction on behalf of its customers. Class I Shares carry a distribution and a service fee. As of the date of this report, there were no Class F Shares or Class T 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 at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees.

 

b)Fair value measurements: The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

 

15 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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, 2018:

 

Valuation Inputs*  Investments in Securities
Level 1 – Quoted Prices — Short-Term Investment  $1,516,929 
Level 2 – Other Significant Observable     
Inputs — Municipal Bonds   194,008,377 
Level 3 – Significant Unobservable Inputs   — 
Total  $195,525,306 

 

* 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 (2015 –2017) or expected to be taken in the Fund’s 2018 tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.

 

16 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

f)Multiple Class Allocations: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are also charged directly to such class on a daily basis.

 

g)Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

 

h)Reclassification of capital accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. On March 31, 2018, the Fund increased additional paid-in capital by $19,794, increased undistributed net investment income by $9,049, and decreased accumulated realized gain by $28,843. These reclassifications had no effect on net assets or net asset value per share.

 

i)The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services-Investment Companies”.

 

3. Fees and Related Party Transactions

 

a) Management Arrangements:

 

     Aquila Investment Management LLC (the “Manager”), a wholly-owned subsidiary of Aquila Management Corporation, the Fund’s founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. Under the Advisory and Administration Agreement, the Manager provides all investment management and administrative services to the Fund. The Manager’s services include providing the office of the Fund and all related services as well as managing relationships with all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.40% on the Fund’s net assets.

 

     Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for Chief Compliance Officer related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940, 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, 2018 (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, 2018, distribution fees on Class A Shares amounted to $116,294 of which the Distributor retained $4,172.

 

     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, 2018, amounted to $32,169. 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, 2018, amounted to $10,723. For the six months ended September 30, 2018, the total of these payments with respect to Class C Shares amounted to $42,892 of which the Distributor retained $10,184.

 

     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, 2018, these payments were made at the average annual rate of 0.35% of such net assets and amounted to $12,768 of which $3,648 related to the Plan and $9,120 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 any sales commissions inuring to such financial intermediaries. For the six months ended September 30, 2018, total commissions on sales of Class A Shares amounted to $22,568 of which the Distributor received $2,190.

 

18 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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, 2018, purchases of securities and proceeds from the sales of securities aggregated $9,336,905 and $30,129,131, respectively.

 

     At September 30, 2018, the aggregate tax cost for all securities was $195,155,172. At September 30, 2018, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $2,035,231 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $1,665,097 for a net unrealized appreciation of $370,134.

 

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, 2018, the Fund had all of its net assets 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, 2018 (unaudited)

 

6. Capital Share Transactions

 

Transactions in Capital Shares of the Fund were as follows:

 

   Six Months Ended   
   September 30, 2018  Year Ended
   (unaudited)  March 31, 2018
   Shares  Amount  Shares  Amount
Class A Shares                    
Proceeds from shares sold   192,922   $2,017,706    781,073   $8,316,149 
Reinvested dividends and                    
distributions   132,137    1,381,543    320,995    3,411,806 
Cost of shares redeemed   (1,251,961)   (13,097,303)   (3,312,373)   (35,245,019)
Net change   (926,902)   (9,698,054)   (2,210,305)   (23,517,064)
Class C Shares:                    
Proceeds from shares sold   34,357    358,164    209,351    2,220,473 
Reinvested dividends and                    
distributions   5,359    55,981    13,314    141,387 
Cost of shares redeemed   (164,153)   (1,714,580)   (205,544)   (2,175,228)
Net change   (124,437)   (1,300,435)   17,121    186,632 
Class I Shares:                    
Proceeds from shares sold   1,912    20,000    8,186    86,410 
Reinvested dividends and                    
distributions   7,415    77,469    17,836    189,349 
Cost of shares redeemed   (78,552)   (816,611)   (122,315)   (1,307,934)
Net change   (69,225)   (719,142)   (96,293)   (1,032,175)
Class Y Shares:                    
Proceeds from shares sold.   276,073    2,880,679    513,865    5,469,077 
Reinvested dividends and                    
distributions   21,495    224,781    34,917    370,471 
Cost of shares redeemed   (1,200,985)   (12,573,584)   (1,251,604)   (13,311,594)
Net change   (903,417)   (9,468,124)   (702,822)   (7,472,046)
Total transactions in Fund                    
shares   (2,023,981)  $(21,185,755)   (2,992,299)  $(31,834,653)

 

7. Trustees’ Fees and Expenses

 

     At September 30, 2018, there were 8 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, 2018 was $32,435. 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, 2018, such meeting-related expenses amounted to $5,921.

 

20 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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. Beginning on the date the Fund enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.

 

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.

 

21 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

     The tax character of distributions was as follows:

 

   Year Ended  Year Ended
   March 31, 2018  March 31, 2017
Net tax-exempt income  $5,934,332   $6,914,503 
Ordinary Income   47,664    25,821 
Capital gains   143,672    — 
   $6,125,668   $6,940,324 

 

     As of March 31, 2018, the components of distributable earnings on a tax basis were:

 

Accumulated net realized gain      $292,973 
Unrealized appreciation        1,921,821 
Undistributed tax-exempt income        204,180 
Other temporary differences        (141,284)
        $2,277,690 

 

     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

 

     The Bank of New York Mellon and the Aquila Group of Funds have been parties to a $40 million credit agreement, which currently terminates on August 28, 2019 (per the August 29, 2018 amendment).  In accordance with the Aquila Group of Funds Guidelines for Allocation of Committed Line of Credit (the Aquila Group of Funds is comprised of nine funds), 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 rate selected by the Aquila Group of Funds at the time of the borrowing of either (i) the one-month Eurodollar Rate or (ii) a rate equal to the greater of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day, or (c) the Overnight Eurodollar Rate in effect on such day).

 

     There were no borrowings under the credit agreement for the six months ended September 30, 2018.

 

22 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

FINANCIAL HIGHLIGHTS

 

For a share outstanding throughout each period

 

   Class A
   Six Months  Year Ended March 31,
   Ended               
   9/30/18               
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.48   $10.55   $10.88   $10.91   $10.65   $10.97 
Income from investment operations:                              
Net investment income(1)    0.12    0.26    0.29    0.32    0.33    0.34 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.08)   (0.06)   (0.33)   (0.03)   0.26    (0.32)
Total from investment operations   0.04    0.20    (0.04)   0.29    0.59    0.02 
Less distributions (note 9):                              
Dividends from net investment income   (0.12)   (0.26)   (0.29)   (0.32)   (0.33)   (0.34)
Distributions from capital gains   —    (0.01)   —    —    —    — 
Total distributions   (0.12)   (0.27)   (0.29)   (0.32)   (0.33)   (0.34)
Net asset value, end of period  $10.40   $10.48   $10.55   $10.88   $10.91   $10.65 
Total return (not reflecting sales charge)   0.40%(3)   1.89%   (0.40)%   2.75%   5.61%   0.21%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $150   $160   $185   $189   $187   $188 
Ratio of expenses to average net assets   0.78%(4)   0.75%   0.73%   0.73%   0.78%   0.80%(2)
Ratio of net investment income to                              
average net assets   2.33%(4)   2.48%   2.69%   3.00%   3.07%   3.18%(2)
Portfolio turnover rate   5%(3)   9%   27%   7%   14%   9%

_______________________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.76% and 3.22%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

23 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

FINANCIAL HIGHLIGHTS (continued)

 

For a share outstanding throughout each period

 

   Class C
   Six Months  Year Ended March 31,
   Ended               
   9/30/18               
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.47   $10.54   $10.87   $10.90   $10.64   $10.96 
Income from investment operations:                              
Net investment income(1)    0.08    0.17    0.20    0.23    0.24    0.25 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.08)   (0.06)   (0.33)   (0.03)   0.26    (0.32)
Total from investment operations   —    0.11    (0.13)   0.20    0.50    (0.07)
Less distributions (note 9):                              
Dividends from net investment income   (0.08)   (0.17)   (0.20)   (0.23)   (0.24)   (0.25)
Distributions from capital gains   —    (0.01)   —    —    —    — 
Total distributions   (0.08)   (0.18)   (0.20)   (0.23)   (0.24)   (0.25)
Net asset value, end of period  $10.39   $10.47   $10.54   $10.87   $10.90   $10.64 
Total return (not reflecting CDSC)   (0.02)%(3)   1.03%   (1.24)%   1.88%   4.72%   (0.64)%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $8   $9   $9   $10   $10   $10 
Ratio of expenses to average net assets   1.63%(4)   1.60%   1.58%   1.58%   1.63%   1.65%(2)
Ratio of net investment income to                              
average net assets   1.48%(4)   1.63%   1.84%   2.14%   2.21%   2.33%(2)
Portfolio turnover rate   5%(3)   9%   27%   7%   14%   9%

_______________________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 1.61% and 2.37%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

24 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

AQUILA CHURCHILL TAX-FREE FUND OF KENTUCKY

FINANCIAL HIGHLIGHTS (continued)

 

For a share outstanding throughout each period

 

   Class I
   Six Months  Year Ended March 31,
   Ended               
   9/30/18               
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.47   $10.54   $10.87   $10.90   $10.64   $10.97 
Income from investment operations:                              
Net investment income(1)    0.11    0.25    0.27    0.31    0.32    0.32 
Net gain on securities                              
(both realized and unrealized)   (0.08)   (0.07)   (0.33)   (0.03)   0.26    (0.33)
Total from investment operations   0.03    0.18    (0.06)   0.28    0.58    (0.01)
Less distributions (note 9):                              
Dividends from net investment income   (0.11)   (0.24)   (0.27)   (0.31)   (0.32)   (0.32)
Distributions from capital gains   —    (0.01)   —    —    —    — 
Total distributions   (0.11)   (0.25)   (0.27)   (0.31)   (0.32)   (0.32)
Net asset value, end of period  $10.39   $10.47   $10.54   $10.87   $10.90   $10.64 
Total return   0.32%(3)   1.74%   (0.55)%   2.61%   5.46%   (0.05)%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $7   $7   $8   $9   $8   $7 
Ratio of expenses to average net assets   0.94%(4)   0.90%   0.87%   0.87%   0.92%   0.96%(2)
Ratio of net investment income to                              
average net assets   2.17%(4)   2.33%   2.54%   2.86%   2.93%   3.02%(2)
Portfolio turnover rate   5%(3)   9%   27%   7%   14%   9%

_______________________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.92% and 3.06%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)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 Y
   Six Months  Year Ended March 31,
   Ended               
   9/30/18               
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.48   $10.55   $10.88   $10.91   $10.65   $10.98 
Income from investment operations:                              
Net investment income(1)    0.13    0.28    0.31    0.34    0.35    0.35 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.08)   (0.06)   (0.34)   (0.03)   0.26    (0.33)
Total from investment operations   0.05    0.22    (0.03)   0.31    0.61    0.02 
Less distributions (note 9):                              
Dividends from net investment income   (0.13)   (0.28)   (0.30)   (0.34)   (0.35)   (0.35)
Distributions from capital gains   —    (0.01)   —    —    —    — 
Total distributions   (0.13)   (0.29)   (0.30)   (0.34)   (0.35)   (0.35)
Net asset value, end of period  $10.40   $10.48   $10.55   $10.88   $10.91   $10.65 
Total return   0.48%(3)   2.04%   (0.25)%   2.92%   5.77%   0.27%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $33   $43   $51   $47   $32   $29 
Ratio of expenses to average net assets   0.63%(4)   0.60%   0.58%   0.58%   0.63%   0.65%(2)
Ratio of net investment income to                              
average net assets   2.49%(4)   2.63%   2.84%   3.15%   3.21%   3.33%(2)
Portfolio turnover rate   5%(3)   9%   27%   7%   14%   9%

_______________________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.61% and 3.37%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

26 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

Additional Information (unaudited)

 

Renewal of the Advisory and Administration Agreement

 

     Aquila Investment Management LLC (the “Manager”) serves as the investment adviser to the Fund pursuant to an Advisory and Administration Agreement (the “Advisory Agreement”). In order for the Manager to remain the investment adviser of the Fund, the Trustees of the Fund must determine annually whether to renew the Advisory Agreement for the Fund.

 

     In considering whether to approve the renewal of the Advisory Agreement, the Trustees requested and obtained such information as they deemed reasonably necessary. Contract review materials were provided to the Trustees in August, 2018. The independent Trustees met telephonically on August 13, 2018 and in person on September 15, 2018 to review and discuss the contract review materials. The Trustees considered, among other things, information presented by the Manager. They also considered information presented in a report prepared by an independent consultant with respect to the Fund’s fees, expenses and investment performance, which included comparisons of the Fund’s investment performance against peers and the Fund’s benchmark and comparisons of the advisory fee payable under the Advisory Agreement against the advisory fees paid by the Fund’s peers, as well as information regarding the operating margins of certain investment advisory firms (the “Consultant’s Report”).  In addition, the Trustees took into account the information related to the Fund provided to the Trustees at each regularly scheduled meeting. 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 15, 2018, 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, 2019. 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, 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. The Trustees noted that Mr. Tanner replaced Mr. Todd Curtis, as a portfolio manager, upon Mr. Curtis’ retirement effective April 30, 2018, and further noted that Mr. Tanner is a 30-year veteran in the financial services industry. 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.

 

27 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

     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 Fund’s peer group (the “Peer Group”), as selected by the independent consultant (four Kentucky intermediate and long municipal bond funds, as classified by Morningstar; three of the funds charge a front-end sales charge and one fund is a no-load fund);

 

•the funds in the Fund’s product category for performance (the “Product Category for Performance”) (all funds (and all classes) included in the Morningstar Single-State Intermediate Municipal Bond Funds category); and

 

•the Fund’s benchmark index, the Bloomberg Barclays Quality Intermediate Municipal Bond Index.

 

     The Trustees considered that the materials included in the Consultant’s Report indicated that the Fund’s average annual total return was higher than the average annual total return of the funds in the Peer Group for each of the one and ten-year periods ended June 30, 2018, but lower than the average annual total return of the funds in the Peer Group for the three and five-year period ended June 30, 2018. The Trustees also considered that, as reflected in the Consultant’s Report, the Fund’s average annual total return was higher than the average annual total return of the funds in the Product Category for Performance for each of the one, three, five and ten-year periods ended June 30, 2018. The Trustees further considered that the Fund outperformed its benchmark index for the one, five and ten year-periods but underperformed its benchmark index for the three-year period, all as of June 30, 2018. The Trustees noted that a no-load fund was included in the Peer Group and considered the impact of the inclusion of such fund in the average annual return of the funds in the Peer Group. The Trustees also considered 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 Product Category for Performance invest in, and the Fund’s benchmark index includes, municipal bonds of issuers throughout the United States. The Trustees also noted that, unlike the Fund’s returns, the performance of the benchmark index did not reflect any fees or expenses.

 

28 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

     In addition, the Trustees considered that, as reflected in the Consultant’s Report, the Fund’s standard deviation, a measure of volatility, was in the first quintile relative to the funds in the Product Category for Performance for the three and five-year periods ended June 30, 2018. The Trustees further noted that the Fund’s Sharpe ratio was in the second quintile for the three-year period and first quintile for the five-year period, both ended June 30, 2018, when compared to the funds in the Product Category for Performance. A Sharpe ratio is a measure for calculating risk-adjusted return. The higher the Sharpe ratio, the better the fund’s historical risk-adjusted 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 would be appropriate.

 

Advisory Fees and Fund Expenses

 

     The Trustees reviewed the Fund’s advisory fees and expenses and compared them to the advisory fee and expense data for:

 

•the funds in the Peer Group (as defined above); and

 

•the funds in the product category for expenses (the “Product Category for Expenses”) (Morningstar Single-State Intermediate Municipal Bond Funds and Morningstar Single-State Long Municipal Bond Funds from states within which 4-7 mutual funds are operating, with similar operating expense structures).

 

     The Trustees considered that the Fund’s contractual advisory fee was less than the average and median contractual advisory fees of the funds in the Peer Group (at the Fund’s current asset level) and lower than the asset-weighted average contractual advisory fee of the funds in the Product Category for Expenses (at various asset levels up to $5 billion). They also noted that the Fund’s actual management fee and expenses (for Class A shares) were lower than the average actual management fee and expenses, respectively, of the funds in both the Product Category for Expenses and the Peer Group, respectively (after giving effect to fee waivers and expense reimbursements 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 and the independent consultant related to profitability. The Manager provided information which showed the profitability to the Manager of its services to the Fund, as well as the profitability of Aquila Distributors LLC of distribution services provided to the Fund. The independent consultant provided publicly available data regarding the profitability of other asset managers in comparison to the overall profitability of the Manager.

 

29 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

     The Trustees considered the information provided by the Manager regarding the profitability of the Manager with respect to the advisory services provided by the Manager to the Fund, including the methodology used by the Manager in allocating certain of its costs to the management of the Fund. The Trustees also considered information regarding the profitability of the Manager provided to the Trustees by the independent consultant. The Trustees concluded that profitability to the Manager with respect to the advisory services provided to the Fund did not argue against approval of the fees to be paid under the Advisory Agreement.

 

The extent to which economies of scale would be realized as the Fund grows

 

     The Trustees considered the extent to which the Manager may realize economies of scale or other efficiencies in managing the Fund. The Trustees considered that the materials indicated that the Fund’s fees are already generally lower than those of its peers, including those funds with breakpoints. The Trustees noted that the Manager’s profitability also may be an indicator of the availability of any economies of scale. Accordingly, the Trustees concluded that economies of scale, if any, were being appropriately shared with the Fund.

 

Benefits derived or to be derived by the Manager and its affiliate from the relationship with the Fund

 

     The Trustees observed that, as is generally true of most fund complexes, the Manager and its affiliates, by providing services to a number of funds including the Fund, were able to spread costs as they would otherwise be unable to do. The Trustees noted that while that produces efficiencies and increased profitability for the Manager and its affiliates, it also makes their services available to the Fund at favorable levels of quality and cost which are more advantageous to the Fund than would otherwise have been possible.

 

30 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

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)
      Expenses(2)   Expenses(2)  
  Beginning Ending(1) Paid During Ending Paid During Net
  Account Account Period Account Period Annualized
Share Value Value 4/1/18 – Value 4/1/18 – Expense
Class 4/1/18 9/30/18 9/30/18 9/30/18 9/30/18 Ratio
A $1,000 $1,004.00 $3.92 $1,021.16 $3.95 0.78%
C $1,000 $ 999.80 $8.17 $1,016.90 $8.24 1.63%
I $1,000 $1,003.20 $4.72 $1,020.36 $4.76 0.94%
Y $1,000 $1,004.80 $3.17 $1,021.91 $3.19 0.63%

(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.

 

31 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

Information Available (unaudited)

 

     Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent your Fund’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Fund policies, the Manager publicly discloses the complete schedule of the Fund’s portfolio holdings, as of each calendar quarter, generally by the 15th day after the end of each calendar quarter. Such information remains accessible until the next schedule is made publicly available. You may obtain a copy of the Fund’s portfolio holdings schedule for the most recently completed period by visiting the Fund’s website at www.aquilafunds. com. Whenever you wish to see a listing of your Fund’s portfolio other than in your shareholder reports, please check our website at www.aquilafunds.com or call us at 1-800-437-1000.

 

     The Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarter ends of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at www.sec.gov. You may also review or, for a fee, copy the forms at the SEC’s Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330.

 

 

Proxy Voting Record (unaudited)

 

     During the 12 month period ended June 30, 2018, 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, 2018, $5,934,332 of dividends paid by Aquila Churchill Tax-Free Fund of Kentucky, constituting 96.9% of total dividends paid, were exempt-interest dividends; $143,672 of dividends paid by the Fund constituting 2.3% of total dividends paid were capital gains distributions and the balance was ordinary income.

 

     Prior to February 15, 2019, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2018 calendar year.

 

32 | Aquila Churchill Tax-Free Fund of Kentucky 

 

 

 

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Founders

     Lacy B. Herrmann (1929-2012)

Aquila Management Corporation, Sponsor

 

Manager

AQUILA INVESTMENT MANAGEMENT LLC

120 West 45th Street, Suite 3600

New York, New York 10036

 

Board of Trustees

Thomas A. Christopher, Chair

Diana P. Herrmann, Vice Chair

Ernest Calderón

Gary C. Cornia

Grady Gammage, Jr.

Glenn P. O’Flaherty

James R. Ramsey

Laureen L. White

 

Officers

Diana P. Herrmann, President

Charles E. Childs, III, Executive Vice President and Secretary

Marie E. Aro, Senior Vice President

Paul G. O’Brien, Senior Vice President

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

Brandon M. Moody, Vice President

Randall S. Fillmore, Chief Compliance Officer

Joseph P. DiMaggio, Chief Financial Officer and Treasurer

 

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

225 Liberty Street

New York, New York 10286

 

Further information is contained in the Prospectus,

which must precede or accompany this report.

 

 

                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                 

Semi-Annual

Report

September 30, 2018

                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   

  

 

  

Please Save the Date for Your 2019 Shareholder Meeting

 

Tuesday, March 19, 2019

 

Rhode Island Convention Center

 

Details will be available on our website as the date approaches:

 

www.aquilafunds.com

 

You may also contact your financial professional.

 

 

ii | Aquila Narragansett Tax-Free Income Fund

 

 

Aquila Narragansett

Tax-Free Income Fund

 

“Proper Asset Allocation

–A Strategy For All Seasons”

 

Serving Rhode Island investors since 1992

  

  

November, 2018

 

Dear Fellow Shareholder:

 

     Financial news, and the often resulting market volatility, can cause even the most seasoned investor to ask, “What should I do now?”

 

     We believe you will generally be in a better position to weather changing economic situations, if your portfolio is built with a strong foundation. In short, is your portfolio properly allocated based on your specific needs? And, have you periodically revisited your portfolio structure to make sure that your allocation remains in line with your investment goals, given changing market conditions and changes in your personal circumstances, including current risk tolerance?

 

     Asset allocation is an investment  strategy that strives to balance risk and reward by  diversifying assets according to your specific needs. In developing this strategy, your considerations should include:

 

•investment time horizon (specifically your age and retirement objectives);

 

•risk threshold (how much of your investment capital you are willing to lose during a given time frame);

 

•financial situation (your wealth, income, expenses, tax bracket, liquidity needs, etc.); and

 

•goals (the financial goals you and your family would like to achieve).

 

     Since the three main asset classes - equities, fixed-income, and cash/cash equivalents -have different levels of risk and return, each is expected to behave differently over time. The objective of asset allocation is to create a diversified portfolio with an acceptable level of risk and the highest possible return given that level of risk.

 

     Although there is no simple formula that can find the right asset allocation for every individual, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make.

 

     The way you allocate your investment portfolio among stocks, bonds, and cash/cash equivalents will be the principal determinants of your investment results – secondary to your selection of individual securities.

 

NOT A PART OF THE SEMI-ANNUAL REPORT

 

 

     Once you and your financial professional have developed an appropriate asset allocation for your portfolio, we believe that changes should be made based on changing needs, not on headlines.

 

     A properly constructed portfolio based on sound asset allocation may generally help you weather all seasons.

 

Sincerely,

 

 

Mutual fund investing involves risk and loss of principal is possible.

 

The market prices of the Fund’s securities may rise or decline in value due to general market conditions, such as real or perceived adverse economic or political conditions, inflation, changes in interest rates, lack of liquidity in the bond markets or adverse investor sentiment. When market prices fall, the value of your investment may go down. 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.

 

The value of your investment may go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term securities. Interest rates in the U.S. have begun to rise after having been at historical lows for some time, so the Fund faces a heightened risk that interest rates may continue to rise. A general rise in interest rates may cause investors to move out of fixed income securities 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.

 

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, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (28.1%)  and Fitch  Value
          
     Barrington, Rhode Island        
$1,120,000   2.500%, 08/01/25  Aa1/NR/NR  $1,115,789 
     Bristol, Rhode Island        
 865,000   3.500%, 08/01/31  NR/AA+/NR   888,926 
     Coventry, Rhode Island        
 1,605,000   3.625%, 03/15/27 MAC Insured  A1/AA/NR   1,676,856 
     Cranston, Rhode Island        
 1,325,000   4.000%, 07/01/28  A1/AA-/AA+   1,409,336 
 750,000   4.300%, 07/01/30 Series 2010 A        
     AGMC Insured  A1/AA/AA+   766,057 
 1,170,000   5.000%, 08/01/32 Series 2018 A  A1/AA-/AA+   1,345,313 
 1,515,000   4.250%, 07/15/24 Series B BAMI        
     Insured  A1/AA/AA+   1,642,502 
 1,000,000   4.250%, 07/15/25 Series B BAMI        
     Insured  A1/AA/AA+   1,092,250 
     Cumberland, Rhode Island        
 500,000   4.250%, 11/01/27 Series 2011 A  NR/AA+/NR   527,455 
 500,000   4.625%, 11/01/31 Series 2011 A  NR/AA+/NR   531,000 
 700,000   4.500%, 03/15/32 Series 2018 A  NR/AA+/NR   780,976 
     East Providence, Rhode Island        
     Refunding        
 2,500,000   4.550%, 05/15/30 AGMC Insured  A2/AA/NR   2,567,525 
     Hopkinton, Rhode Island        
 500,000   4.375%, 08/15/31  Aa3/NR/NR   522,540 
     Johnston, Rhode Island        
 1,020,000   3.450%, 06/01/29 Series A  A3/AA-/NR   1,030,057 
 1,020,000   3.700%, 06/01/33 Series A  A3/AA-/NR   1,032,617 
     Lincoln, Rhode Island        
 1,500,000   3.500%, 08/01/24 Series A  Aa2/NR/AAA   1,578,375 
 2,225,000   3.500%, 08/01/25 Series A  Aa2/NR/AAA   2,340,967 
     Narragansett, Rhode Island        
 1,025,000   3.500%, 07/15/28  Aa2/AA+/NR   1,069,741 
     North Kingstown, Rhode Island        
 1,040,000   3.000%, 04/15/24 Series A  Aa2/AA+/NR   1,059,136 
     North Smithfield, Rhode Island        
 825,000   3.000%, 06/15/26 Series A  Aa2/NR/NR   842,663 

 

1 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (continued)  and Fitch  Value
          
     Pawtucket, Rhode Island        
$1,950,000   4.500%, 07/15/26 AGC Insured  A3/AA/NR  $1,979,191 
 1,500,000   4.750%, 07/15/29 AGC Insured  A3/AA/NR   1,524,885 
 1,010,000   4.000%, 11/01/25 AGMC Insured  A2/AA/NR   1,071,681 
     Portsmouth, Rhode Island        
 1,140,000   3.750%, 02/01/31 Series A  Aa2/AAA/NR   1,196,567 
     Providence, Rhode Island        
 1,500,000   5.000%, 01/15/23 Series 2010 A        
     AGMC Insured Refunding  A2/AA/NR   1,576,950 
 1,500,000   5.000%, 01/15/26 Series 2010 A        
     AGMC Insured Refunding  A2/AA/NR   1,569,465 
 975,000   3.625%, 01/15/29 Series A AGMC        
     Insured  A2/AA/A-   980,548 
 2,510,000   3.750%, 01/15/30 Series A AGMC        
     Insured  A2/AA/A-   2,527,695 
 1,000,000   3.750%, 01/15/32 Series A AGMC        
     Insured  A2/AA/A-   1,001,920 
     Rhode Island State & Providence        
     Plantations Consolidated Capital        
     Development Loan        
 2,000,000   3.750%, 11/01/23 Series A  Aa2/AA/AA   2,130,360 
 2,110,000   4.250%, 10/15/25 Series A  Aa2/AA/AA   2,293,064 
 2,000,000   3.000%, 05/01/31 Series A  Aa2/AA/AA   1,874,340 
 2,000,000   4.000%, 04/01/32 Series A  Aa2/AA/AA   2,110,000 
 2,000,000   3.000%, 05/01/32 Series A  Aa2/AA/AA   1,867,800 
 1,150,000   4.000%, 10/15/24 Series B  Aa2/AA/AA   1,220,828 
 1,750,000   3.250%, 10/15/31 Series B  Aa2/AA/AA   1,709,890 
 1,500,000   5.000%, 11/01/34 Series B  Aa2/AA/AA   1,671,750 
 2,000,000   5.000%, 08/01/23 Series D  Aa2/AA/AA   2,244,520 
 2,000,000   5.000%, 08/01/24 Series D  Aa2/AA/AA   2,278,960 
     Richmond, Rhode Island        
 1,020,000   3.000%, 08/01/24  Aa3/NR/NR   1,050,345 
     Warren, Rhode Island        
 1,170,000   4.000%, 02/15/33 Series 2018 A  Aa3/NR/NR   1,239,381 
     Warwick, Rhode Island        
 2,000,000   4.000%, 08/01/22 Series 2015 B        
     AGMC Insured  NR/AA/NR   2,111,140 

 

2 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (continued)  and Fitch  Value
          
     West Greenwich, Rhode Island        
$1,175,000   3.000%, 08/15/26  NR/AA+/NR  $1,210,356 
     West Warwick, Rhode Island        
 795,000   5.000%, 10/01/32 Series A BAMI        
     Insured  Baa2/AA/NR   891,489 
     Total General Obligation Bonds      63,153,206 
              
     Revenue Bonds (61.7%)        
     Development (4.6%)        
     Providence, Rhode Island        
     Redevelopment Agency Refunding        
     Public Safety Building Project        
 1,680,000   5.000%, 04/01/26 Series A AGMC        
     Insured  A2/AA/NR   1,867,589 
     Rhode Island Convention Center        
     Authority Refunding        
 8,000,000   4.000%, 05/15/23 Series A  A1/AA-/AA-   8,520,240 
     Total Development      10,387,829 
              
     Higher Education (8.6%)        
     Rhode Island Health and Education        
     Building Corp., Bryant University        
 1,115,000   4.500%, 12/01/27 Series 2011  A2/A/NR   1,179,603 
 1,455,000   4.750%, 12/01/29 Series 2011  A2/A/NR   1,542,998 
 1,000,000   5.000%, 12/01/30 Series 2011  A2/A/NR   1,071,460 
 1,425,000   5.000%, 12/01/31 Series 2011  A2/A/NR   1,525,933 
     Rhode Island Health and Education        
     Building Corp., Higher Educational        
     Facilities        
 2,500,000   5.000%, 09/15/30 AGMC Insured  Aa3/NR/NR   2,602,800 
     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   2,684,843 

 

3 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Higher Education (continued)        
     Rhode Island Health and Educational        
     Building Corp., Higher Education        
     Facility, Rhode Island School of        
     Design        
$3,000,000   3.500%, 06/01/29 Series 2012  A1/NR/A+  $3,025,620 
 2,000,000   4.000%, 06/01/31 Series 2012  A1/NR/A+   2,048,560 
 1,000,000   3.500%, 08/15/30 Series B AGMC        
     Insured  A1/AA/NR   1,009,360 
     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   517,920 
 1,000,000   4.000%, 09/15/32 Series 2017 B  A1/A+/NR   1,032,690 
     Rhode Island Health and Education        
     Facilities Authority, Providence        
     College        
 1,000,000   4.000%, 11/01/31  A2/A/NR   1,019,730 
     Total Higher Education      19,261,517 
              
              
     Hospital (2.7%)        
     Rhode Island Health & Education        
     Building Corp., Hospital Financing        
     (Care New England)        
 500,000   5.000%, 09/01/23 Series 2016 B  NR/BB-/BB   531,950 
     Rhode Island Health & Education        
     Building Corp., Hospital Financing,        
     Lifespan Obligated Group        
 1,000,000   5.000%, 05/15/31 Series 2016  NR/BBB+/BBB+   1,102,340 
 1,000,000   5.000%, 05/15/33 Series 2016  NR/BBB+/BBB+   1,096,720 
 1,250,000   5.000%, 05/15/34 Series 2016  NR/BBB+/BBB+   1,363,050 
 1,750,000   5.000%, 05/15/39 Series 2016  NR/BBB+/BBB+   1,882,930 
     Total Hospital      5,976,990 

 

4 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Housing (4.9%)        
     Rhode Island Housing & Mortgage        
     Finance Corp. Home Funding        
$535,000   4.000%, 10/01/25 Series 2010 #3  Aa2/NR/NR  $544,352 
 1,500,000   3.450%, 04/01/35 Series 5  Aa2/NR/NR   1,466,700 
     Rhode Island Housing & Mortgage        
     Finance Corp. Homeownership        
     Opportunity        
 1,000,000   3.350%, 10/01/41 Series 68-C  Aa1/AA+/NR   943,150 
     Rhode Island Housing & Mortgage        
     Finance Corp. Multi-Family Housing        
 2,500,000   4.625%, 10/01/25 Series 2010 A  Aaa/NR/NR   2,586,175 
 2,000,000   5.000%, 10/01/30 Series 2010 A  Aaa/NR/NR   2,091,400 
 1,405,000   3.450%, 10/01/36 Series 2016 1B  Aa2/NR/NR   1,353,760 
 1,000,000   3.250%, 10/01/27 Series 1B  Aa2/NR/NR   1,006,720 
 1,000,000   3.400%, 10/01/29 Series 3B  Aa2/NR/NR   1,000,460 
     Total Housing      10,992,717 
              
     Public School (24.1%)        
     Rhode Island Health and Education        
     Building Corp., Public School        
     Financing Program        
 795,000   5.000%, 05/15/27 Series 2015 C  Aa2/NR/NR   907,206 
 1,630,000   5.000%, 05/15/27 Series 2015 D  A1/NR/NR   1,849,463 
     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   1,591,075 
     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   1,021,720 
 1,000,000   4.000%, 05/15/33 AGMC Insured  Aa3/AA/NR   1,019,560 
     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   1,225,400 

 

5 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
   Public School (continued)      
     Rhode Island Health and Education        
     Building Corp., Public School        
     Financing Program, East Greenwich        
$1,150,000   3.125%, 05/15/28  Aa1/AA+/NR  $1,154,474 
 1,000,000   3.250%, 05/15/29  Aa1/AA+/NR   1,004,050 
 1,000,000   3.375%, 05/15/30  Aa1/AA+/NR   1,002,510 
     Rhode Island Health and Education        
     Building Corp., Public School        
     Financing Program, City of East        
     Providence        
 1,000,000   3.625%, 05/15/32 Series B  Aa3/NR/NR   1,001,490 
     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   1,737,061 
     Rhode Island Health and Education        
     Building Corp., Public School        
     Financing Program, City of Newport        
 1,000,000   4.000%, 05/15/27 Series 2013 C  NR/AA+/NR   1,039,610 
     Rhode Island Health and Education        
     Building Corp., Public School        
     Financing Program, Town of North        
     Kingstown        
 1,500,000   3.750%, 05/15/28 Series 2013 A  Aa2/AA+/NR   1,540,350 
     Rhode Island Health and Education        
     Building Corp., Public School        
     Financing Program, Town of North        
     Providence        
 750,000   5.000%, 05/15/31 Series 2017 G        
     AGMC Insured  Aa3/AA/NR   850,965 
 1,000,000   4.000%, 11/15/20 Series 2013 I  Aa3/AA-/NR   1,036,000 
 1,100,000   4.500%, 11/15/22 Series 2013 I  Aa3/AA-/NR   1,184,689 
     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   1,662,269 
 1,000,000   4.250%, 05/15/29 Series 2017 E BAMI        
     Insured  Aa3/AA/NR   1,080,090 
 1,045,000   4.000%, 05/15/31 Series 2018 B  Aa3/NR/NR   1,090,802 
 1,090,000   4.000%, 05/15/32 Series 2018 B  Aa3/NR/NR   1,132,347 

 

6 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
   Public School (continued)      
     Rhode Island Health and Education        
     Building Corp., Public School        
     Financing Program, Town of Scituate        
$1,285,000   4.500%, 05/15/33 Series 2018 A  NR/AA/NR  $1,418,974 
     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   3,179,820 
     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   1,820,678 
     Rhode Island Health and Education        
     Building Corp., Public School        
     Financing Program, Providence        
     Public Buildings Authority        
 3,000,000   3.500%, 05/15/24 Series 2015 A        
     AGMC Insured  Aa3/AA/NR   3,122,700 
 3,000,000   3.750%, 05/15/27 Series 2015 A        
     AGMC Insured  Aa3/AA/NR   3,099,450 
 3,000,000   4.000%, 05/15/28 Series 2015 A        
     AGMC Insured  Aa3/AA/NR   3,149,370 
 2,760,000   4.000%, 05/15/30 Series 2015 B        
     AGMC Insured  Aa3/AA/NR   2,860,657 
     Rhode Island Health and Education        
     Building Corp., Public School        
     Financing Program, Providence        
     Public Schools        
 1,000,000   4.250%, 05/15/21 Series 2007 B        
     AGMC Insured  A2/AA/NR   1,001,380 
 2,000,000   4.500%, 05/15/22 Series 2013 A  Aa3/NR/NR   2,136,120 
 2,000,000   4.500%, 05/15/23 Series 2013 A  Aa3/NR/NR   2,159,820 
 2,000,000   4.500%, 05/15/24 Series 2013 A  Aa3/NR/NR   2,150,800 
     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   1,046,000 
 800,000   3.500%, 05/15/26 Series B MAC        
     Insured  NR/AA/NR   837,832 

 

7 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Public School (continued)        
     Rhode Island Health and Education        
     Building Corp., Public School        
     Financing Program, City of        
     Woonsocket        
$500,000   5.000%, 05/15/27 Series 2017 A        
     AGMC Insured  Aa3/AA/NR  $567,715 
 500,000   5.000%, 05/15/28 Series 2017 A        
     AGMC Insured  Aa3/AA/NR   564,900 
 500,000   5.000%, 05/15/29 Series 2017 A        
     AGMC Insured  Aa3/AA/NR   562,100 
 500,000   3.500%, 05/15/30 Series 2017 A        
     AGMC Insured  Aa3/AA/NR   493,870 
     Total Public School      54,303,317 
              
     Transportation (4.6%)        
     Rhode Island Commerce Corp.,        
     Airport        
 635,000   5.000%, 07/01/36 Series D  Baa1/BBB+/BBB+   697,757 
 1,015,000   5.000%, 07/01/37 Series D  Baa1/BBB+/BBB+   1,108,837 
 1,500,000   5.000%, 07/01/30 Series 2018  Baa1/BBB+/NR   1,693,635 
     Rhode Island Commerce Corp.,        
     Grant Anticipation (Rhode Island        
     Department of Transportation)        
 1,850,000   4.000%, 06/15/24  A2/AA-/NR   1,989,453 
 1,000,000   5.000%, 06/15/31  A2/AA-/NR   1,132,190 
     Rhode Island State Economic        
     Development Corp., Airport        
 1,000,000   5.000%, 07/01/24 Series B  Baa1/BBB+/BBB+   1,085,070 
 2,000,000   4.000%, 07/01/24 Series B  Baa1/BBB+/BBB+   2,104,100 
 540,000   4.625%, 07/01/26 Series B AGC        
     Insured  A3/AA/BBB+   541,075 
     Total Transportation      10,352,117 
              
     Turnpike/Highway (4.1%)        
     Rhode Island State Turnpike & Bridge        
     Authority        
 500,000   4.125%, 12/01/23 Series 2010 A  NR/A-/A   516,140 
 1,600,000   4.625%, 12/01/27 Series 2010 A  NR/A-/A   1,670,096 
 2,000,000   5.125%, 12/01/35 Series 2010 A  NR/A-/A   2,105,080 
 1,000,000   5.000%, 12/01/35 Series 2010 A  NR/A-/A   1,049,930 

 

8 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Turnpike/Highway (continued)        
     Rhode Island State Turnpike & Bridge        
     Authority, Motor Fuel Tax        
$1,240,000   4.000%, 10/01/27 Series 2016 A  NR/A+/A  $1,310,742 
 1,500,000   4.000%, 10/01/34 Series 2016 A  NR/A+/A   1,543,095 
 1,000,000   4.000%, 10/01/36 Series 2016 A  NR/A+/A   1,021,460 
     Total Turnpike/Highway      9,216,543 
              
     Water and Sewer (7.1%)        
     Narragansett, Rhode Island Bay        
     Commission Wastewater System        
 3,145,000   4.000%, 02/01/28 Series A  NR/AA-/NR   3,321,277 
     Rhode Island Clean Water Protection        
     Finance Agency        
 500,000   4.750%, 10/01/20 1999 Series A        
     AMBAC Insured  Aaa/NR/NR   501,150 
     Rhode Island Clean Water Finance        
     Agency, Water Pollution Control        
     Bonds        
 3,000,000   4.375%, 10/01/21 Series 2002 B NPFG        
     Insured  Aaa/AAA/AAA   3,197,250 
     Rhode Island Clean Water Protection        
     Finance Agency Safe Drinking Water        
     Revolving Fund        
 1,085,000   3.500%, 10/01/25  NR/AAA/AAA   1,146,324 
 1,000,000   3.750%, 10/01/33  NR/AAA/AAA   1,019,190 
 1,000,000   3.750%, 10/01/34  NR/AAA/AAA   1,015,040 
     Rhode Island Infrastructure Bank Water,        
     City of Pawtucket        
 1,730,000   5.000%, 10/01/28 Series 2015 NPFG        
     Insured  Baa2/A/NR   1,948,084 
     Rhode Island Infrastructure Bank Water,        
     Pollution Control        
 2,575,000   4.000%, 10/01/29 Series A  NR/AAA/AAA   2,776,906 
 500,000   4.000%, 10/01/32 Series A  NR/AAA/AAA   530,255 
     Rhode Island Infrastructure Bank Water,        
     Safe Drinking Water        
 500,000   3.000%, 10/01/31 Series A  NR/AAA/AAA   484,765 
     Total Water and Sewer      15,940,241 

 

9 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  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  A2/AA/NR  $2,263,320 
     Total Revenue Bonds      138,694,591 
              
     Pre-Refunded\ Escrowed to Maturity        
     Bonds (7.9%)††        
     Pre-Refunded General Obligation        
     Bonds (3.2%)        
     Bristol, Rhode Island        
 2,200,000   4.000%, 02/15/26 AGC Insured  Aa2/AA+/NR   2,217,842 
 2,000,000   4.375%, 02/15/29 AGC Insured  Aa2/AA+/NR   2,018,980 
     West Warwick, Rhode Island        
 1,900,000   4.625%, 04/01/26 AGC Insured  A3/AA/NR   1,925,593 
 1,000,000   4.750%, 04/01/29 AGC Insured  A3/AA/NR   1,014,090 
     Total Pre-Refunded General Obligation        
     Bonds      7,176,505 
              
     Pre-Refunded\ Escrowed to Maturity        
     Revenue Bonds (4.7%)        
     Development (0.7%)        
     Rhode Island Convention Center        
     Authority Refunding        
 1,500,000   5.500%, 05/15/27 Series A AGC        
     Insured  A1/AA/AA-   1,533,525 
              
     Higher Education (1.5%)        
     Rhode Island Health and Educational        
     Building Corp., Higher Education        
     Facility, New England Institute of        
     Technology        
 1,250,000   4.750%, 03/01/30 Series 2010 A  NR/A-/NR   1,296,238 

 

10 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Pre-Refunded Bonds (continued)  and Fitch  Value
          
     Pre-Refunded\ Escrowed to Maturity        
     Revenue Bonds (continued)        
     Higher Education (continued)        
     Rhode Island Health and Educational        
     Building Corp., Higher Education        
     Facility, University of Rhode Island        
     Auxiliary Enterprise        
$2,000,000   5.000%, 09/15/30 Series 2010 B AGMC        
     Insured  A1/AA/NR  $2,113,140 
     Total Higher Education      3,409,378 
              
     Hospital (0.5%)        
     Rhode Island Health & Education        
     Building Corp., Hospital Financing        
     (Care New England)        
 500,000   5.000%, 09/01/20 Series 2013 A ETM  NR/BB-/NR   527,245 
 500,000   5.000%, 09/01/22 Series 2013 A ETM  NR/BB-/NR   551,625 
     Total Hospital      1,078,870 
              
     Public School (1.1%)        
     Rhode Island Certificates of Participation        
     (School for the Deaf Project)        
 1,000,000   5.500%, 04/01/27 Series C 2009 AGC        
     Insured  Aa3/AA/AA-   1,018,030 
 500,000   5.625%, 04/01/29 Series C 2009 AGC        
     Insured  Aa3/AA/AA-   509,325 
     Rhode Island Health and Education        
     Building Corp., Public School        
     Financing Program, Chariho Regional        
     School District        
 1,000,000   5.000%, 05/15/26 Series 2011 B  Aa3/NR/NR   1,076,170 
     Total Public School      2,603,525 
              
     Transportation (0.7%)        
     Rhode Island Economic Development        
     Corp. (Rhode Island Department of        
     Transportation)        
 1,500,000   5.250%, 06/15/21 AGC Insured  A2/AA/NR   1,535,295 

 

11 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  Pre-Refunded Bonds (continued)  and Fitch  Value
          
     Pre-Refunded\ Escrowed to Maturity          
     Revenue Bonds (continued)          
     Other Revenue (0.2%)          
     State of Rhode Island Depositors          
     Economic Protection Corp.          
$250,000   5.750%, 08/01/21 Series A AGMC          
     Insured ETM   NR/NR/NR*   $274,795 
 215,000   6.375%, 08/01/22 Series A NPFG          
     Insured ETM   NR/NR/NR*    247,708 
     Total Other Revenue        522,503 
     Total Pre-Refunded\ Escrowed to          
     Maturity Revenue Bonds        10,683,096 
     Total Pre-Refunded\ Escrowed to          
     Maturity Bonds        17,859,601 
     Total Municipal Bonds          
     (cost $218,764,394)        219,707,398 
                
 Shares   Short-Term Investment (1.4%)          
     Dreyfus Treasury & Agency Cash          
     Management - Institutional Shares,          
 3,179,691   1.96%** (cost $3,179,691)   Aaa-mf/AAAm/NR    3,179,691 
     Total Investments          
     (cost $221,944,085-note 4)   99.1%   222,887,089 
     Other assets less liabilities   0.9    1,972,901 
     Net Assets   100.0%  $224,859,990 

 

12 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

   Percentage of
Portfolio Distribution By Quality Rating  Investments†
Aaa of Moody's or AAA of S&P or Fitch   10.1%
Pre-refunded bonds\ ETM bonds††   8.1 
Aa of Moody's or AA of S&P or Fitch   63.0 
A of Moody's or S&P or Fitch   13.1 
Baa of Moody's or BBB of S&P or Fitch   5.5 
BB of S&P or Fitch   0.2 
    100.0%
 
PORTFOLIO ABBREVIATIONS
AGC - Assured Guaranty Corp.
AGMC - Assured Guaranty Municipal Corp.
AMBAC - American Municipal Bond Assurance Corp.
BAMI - Build America Mutual Insurance
ETM - Escrowed to Maturity
MAC - Municipal Assurance Corp.
NPFG - National Public Finance Guarantee
NR - Not Rated

 

*   Any security not rated (“NR”) by any of the Nationally Recognized Statistical Rating Organizations (“NRSRO”) has been determined by the Investment Sub-Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a NRSRO.
     
**   The rate is an annualized seven-day yield at period end.
     
†    Where applicable, calculated using the highest rating of the three NRSROs. 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. All other securities in the category are pre-refunded.

 

See accompanying notes to financial statements.

 

13 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

STATEMENT OF ASSETS AND LIABILITIES

SEPTEMBER 30, 2018 (unaudited)

 

ASSETS   
Investments at value (cost $221,944,085)  $222,887,089 
Interest recievable   2,899,972 
Receivable for Fund shares sold   199,113 
Other assets   14,744 
Total assets   226,000,918 
      
LIABILITIES     
Payable for Fund shares redeemed   760,748 
Dividends payable   250,225 
Management fees payable   77,991 
Distribution and service fees payable   477 
Accrued expenses payable   51,487 
Total liabilities   1,140,928 
NET ASSETS  $224,859,990 
Net Assets consist of:     
Capital Stock – Authorized an unlimited number of shares, par value     
$0.01 per share  $214,838 
Additional paid-in capital   224,600,182 
Net unrealized appreciation on investments (note 4)   943,004 
Accumulated net realized loss on investments   (955,010)
Undistributed net investment income   56,976 
   $224,859,990 
CLASS A     
Net Assets  $112,492,064 
Capital shares outstanding   10,748,345 
Net asset value and redemption price per share  $10.47 
Maximum offering price per share (100/96 of $10.47)  $10.91 
      
CLASS C     
Net Assets  $7,563,858 
Capital shares outstanding   722,682 
Net asset value and offering price per share  $10.47 
Redemption price per share (*a charge of 1% is imposed on the     
redemption proceeds, or on the original price, whichever is lower, if     
redeemed during the first 12 months after purchase)  $10.47*
      
CLASS I     
Net Assets  $204,748 
Capital shares outstanding   19,566 
Net asset value, offering and redemption price per share  $10.46 
      
CLASS Y     
Net Assets  $104,599,320 
Capital shares outstanding   9,993,214 
Net asset value, offering and redemption price per share  $10.47 

 

See accompanying notes to financial statements.

 

14 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

STATEMENT OF OPERATIONS

SIX MONTHS ENDED SEPTEMBER, 30, 2018 (unaudited)

 

Investment Income          
Interest income      $3,761,016 
Expenses          
Management fee (note 3)  $571,779      
Distribution and service fee (note 3)   126,947      
Transfer and shareholder servicing agent fees   45,928      
Trustees’ fees and expenses (note 7)   43,553      
Legal fees   41,273      
Fund accounting fees   22,464      
Registration fees and dues   12,477      
Shareholders’ reports   11,746      
Auditing and tax fees   11,141      
Chief compliance officer services (note 3)   5,572      
Custodian fees   5,125      
Insurance   5,007      
Miscellaneous   29,483      
Total expenses   932,495      
           
Management fee waived (note 3)   (91,485)     
Net expenses        841,010 
Net investment income        2,920,006 
           
Realized and Unrealized Gain (Loss) on Investments:          
Net realized gain (loss) from securities transactions   (159,731)     
Change in unrealized appreciation on investments   (1,985,055)     
Net realized and unrealized gain (loss) on investments        (2,144,786)
Net change in net assets resulting from operations       $775,220 

 

See accompanying notes to financial statements.

 

15 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

STATEMENTS OF CHANGES IN NET ASSETS

 

   Six Months Ended   
   September 30, 2018  Year Ended
   (unaudited)  March 31, 2018
OPERATIONS          
Net investment income  $2,920,006   $6,198,299 
Net realized gain (loss) from securities transactions   (159,731)   268,282 
Change in unrealized appreciation on investments   (1,985,055)   (1,190,321)
Change in net assets resulting from operations   775,220    5,276,260 
           
DISTRIBUTIONS TO SHAREHOLDERS (note 9):          
Class A Shares:          
Net investment income   (1,436,964)   (3,112,987)
           
Class C Shares:          
Net investment income   (68,679)   (179,152)
           
Class I Shares:          
Net investment income   (2,080)   (3,220)
           
Class Y Shares:          
Net investment income   (1,412,194)   (2,898,922)
Change in net assets from distributions   (2,919,917)   (6,194,281)
           
CAPITAL SHARE TRANSACTIONS (note 6):          
Proceeds from shares sold   11,800,677    29,178,190 
Reinvested dividends and distributions   1,366,591    3,020,286 
Cost of shares redeemed   (17,789,611)   (43,358,401)
Change in net assets from capital share transactions   (4,622,343)   (11,159,925)
           
Change in net assets   (6,767,040)   (12,077,946)
           
NET ASSETS:          
Beginning of period   231,627,030    243,704,976 
End of period*  $224,859,990   $231,627,030 
           
*Includes undistributed net investment of:  $56,976   $56,887 

 

See accompanying notes to financial statements.

 

16 | Aquila Narragansett Tax-Free Income Fund 

 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 (unaudited)

 

1. Organization

 

     Aquila Narragansett Tax-Free Income Fund (the “Fund”), a series of Aquila Municipal Trust and a non-diversified, open-end investment company, was organized on January 22, 1992 as a Massachusetts business trust and commenced operations on September 10, 1992. Class A Shares are sold at net asset value plus a sales charge of varying size (depending upon a variety of factors) paid at the time of purchase and bear a distribution fee. Class C Shares are sold at net asset value with no sales charge payable at the time of purchase but with a level charge for service and distribution fees for six years thereafter. Class C Shares automatically convert to Class A Shares after six years. Class Y Shares are sold only through authorized financial institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity, and are not offered directly to retail customers. Class Y Shares are sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge (“CDSC”) and no distribution fee. Class I Shares are offered and sold only through financial intermediaries and are not offered directly to retail customers. Class I Shares are sold at net asset value with no sales charge and no redemption fee or CDSC, although a financial intermediary may charge a fee for effecting a purchase or other transaction on behalf of its customers. Class I Shares carry a distribution and a service fee. As of the date of this report, there were no Class F Shares or Class T 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 at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees.

 

b)Fair value measurements: The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

 

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.

 

Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may 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.

 

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AQUILA NARRAGANSETT TAX-FREE INCOME FUND

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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, 2018:

 

Valuation Inputs*  Investments in Securities
Level 1 – Quoted Prices - Short-Term Investment  $3,179,691 
Level 2 – Other Significant Observable     
Inputs - Municipal Bonds*   219,707,398 
Level 3 – Significant Unobservable Inputs   — 
Total  $222,887,089 

 

* 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 (2015 –2017) or expected to be taken in the Fund’s 2018 tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.

 

f)Multiple Class Allocations: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are also charged directly to such class on a daily basis.

 

18 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

g)Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

 

h)Reclassification of capital accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. On March 31, 2018, the Fund increased additional paid-in capital by $5,494, increased accumulated net realized loss on investments by $34,365 and increased undistributed net investment income by $28,871. These reclassifications had no effect on net assets or net asset value per share.

 

i)The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services-Investment Companies”.

 

3. Fees and Related Party Transactions

 

a) Management Arrangements:

 

     Aquila Investment Management LLC (the “Manager”), a wholly-owned subsidiary of Aquila Management Corporation, the Fund’s founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. The portfolio management of the Fund has been delegated to a Sub-Adviser as described below. Under the Advisory and Administration Agreement, the Manager provides all administrative services to the Fund, other than those relating to the day-to-day portfolio management. The Manager’s services include providing the office of the Fund and all related services as well as overseeing the activities of the Sub-Adviser and managing relationships with all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, fund accounting agent, auditor and distributor. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.50% on the Fund’s net assets.

 

     Citizens Investment Advisors, a department 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 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 0.23% on the Fund’s net assets.

 

19 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

     The Manager had contractually undertaken to waive fees and/or reimburse Fund expenses so that total Fund expenses would not exceed 0.84% for Class A Shares, 1.68% for Class C Shares, 1.02% for Class I Shares and 0.69% for Class Y Shares through September 30, 2018. For the six months ended September 30, 2018, the Fund incurred management fees of $571,779 of which $91,485 was waived, which included supplemental fee waivers above and beyond the contractual expense cap.

 

     Beginning October 1, 2018, 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, 2019. The Manager may not terminate the arrangement without the approval of the Board of Trustees.

 

     Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for Chief Compliance Officer related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940, 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, 2018, distribution fees on Class A Shares amounted to $85,545, of which the Distributor retained $6,057.

 

     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, 2018, amounted to $30,985. 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, 2018, amounted to $10,329. The total of these payments with respect to Class C Shares amounted to $41,314, of which the Distributor retained $10,736.

 

20 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

     Under another part of the Plan, the Fund is authorized to make payments with respect to Class I Shares to Qualified Recipients. Class I payments, under the Plan, may not exceed, for any fiscal year of the Fund a rate (currently 0.10%) set from time to time by the Board of Trustees of not more than 0.25% of the average annual net assets represented by the Class I Shares. In addition, the Fund has a Shareholder Services Plan under which it may pay service fees (currently 0.25%) of not more than 0.25% of the average annual net assets of the Fund represented by Class I Shares. That is, the total payments under both plans will not exceed 0.50% of such net assets. For the six months ended September 30, 2018, these payments were made at the average annual rate of 0.35% of such net assets amounting to $309 of which $88 related to the Plan and $221 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, 2018, total commissions on sales of Class A Shares amounted to $60,452, of which the Distributor received $6,295.

 

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, 2018, purchases of securities and proceeds from the sales of securities aggregated $9,932,922 and $15,097,686, respectively.

 

     At September 30, 2018, the aggregate tax cost for all securities was $221,944,085. At September 30, 2018, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $3,098,281 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $2,155,277 for a net unrealized appreciation of $943,004.

 

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.

 

21 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

     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, 2018, the Fund had all of its net assets invested in the securities of Rhode Island issuers.

 

6. Capital Share Transactions

 

Transactions in Capital Shares of the Fund were as follows:

 

   Six Months Ended      
   September 30, 2018  Year Ended
   (unaudited)  March 31, 2018
   Shares  Amount  Shares  Amount
Class A Shares:            
Proceeds from shares sold   541,144   $5,705,927    918,280   $9,852,667 
Reinvested dividends and                    
distributions   94,295    992,808    197,704    2,118,372 
Cost of shares redeemed   (875,817)   (9,227,344)   (2,118,666)   (22,758,789)
Net change   (240,378)   (2,528,609)   (1,002,682)   (10,787,750)
Class C Shares:                    
Proceeds from shares sold   12,582    132,641    81,382    873,299 
Reinvested dividends and                    
distributions   2,897    30,503    8,029    86,057 
Cost of shares redeemed   (172,613)   (1,818,943)   (325,827)   (3,491,182)
Net change   (157,134)   (1,655,799)   (236,416)   (2,531,826)
Class I Shares:                    
Proceeds from shares sold   11,079    116,767    —    — 
Reinvested dividends and                    
distributions   198    2,081    300    3,220 
Cost of shares redeemed   (368)   (3,877)   (4,478)   (47,267)
Net change   10,909    114,971    (4,178)   (44,047)
Class Y Shares:                    
Proceeds from shares sold   554,813    5,845,342    1,717,950    18,452,224 
Reinvested dividends and                    
distributions   32,407    341,199    75,886    812,637 
Cost of shares redeemed   (639,372)   (6,739,447)   (1,593,864)   (17,061,163)
Net change   (52,152)   (552,906)   199,972    2,203,698 
Total transactions in Fund                    
shares   (438,755)  $(4,622,343)   (1,043,304)  $(11,159,925)

 

22 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

7. Trustees’ Fees and Expenses

 

     At September 30, 2018, there were 8 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, 2018 was $34,690. 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, 2018, such meeting-related expenses amounted to $8,863.

 

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. Beginning on the date the Fund enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.

 

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, 2018, the Fund had a capital loss carryover of $795,279 which is 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.

 

23 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

     The tax character of distributions was as follows:

 

   Year Ended  Year Ended
   March 31, 2018  March 31, 2017
Net tax-exempt income  $6,142,535   $6,539,793 
Ordinary Income   51,746    8,027 
   $6,194,281   $6,547,820 

 

     As of March 31, 2018, the components of distributable earnings on a tax basis were:

 

Undistributed tax-exempt income      $325,211 
Accumulated net realized loss        (795,279)
Unrealized appreciation        2,928,059 
Other temporary differences        (268,324)
        $2,189,667 

 

     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

 

     The Bank of New York Mellon and the Aquila Group of Funds have been parties to a $40 million credit agreement, which currently terminates on August 28, 2019 (per the August 29, 2018 amendment).  In accordance with the Aquila Group of Funds Guidelines for Allocation of Committed Line of Credit (the Aquila Group of Funds is comprised of nine funds), 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 rate selected by the Aquila Group of Funds at the time of the borrowing of either (i) the one-month Eurodollar Rate or (ii) a rate equal to the greater of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day, or (c) the Overnight Eurodollar Rate in effect on such day).

 

     There were no borrowings under the credit agreement for the six months ended September 30, 2018.

 

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AQUILA NARRAGANSETT TAX-FREE INCOME FUND

FINANCIAL HIGHLIGHTS (continued)

 

For a share outstanding throughout each period

 

   Class A
   Six Months  Year Ended March 31,
   Ended               
   9/30/18               
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.57   $10.61   $10.92   $10.81   $10.48   $10.79 
Income (loss) from investment operations:                              
Net investment income(1)    0.13    0.27    0.28    0.30    0.33    0.35 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.10)   (0.04)   (0.31)   0.11    0.33    (0.31)
Total from investment operations   0.03    0.23    (0.03)   0.41    0.66    0.04 
Less distributions (note 9):                              
Dividends from net investment income   (0.13)   (0.27)   (0.28)   (0.30)   (0.33)   0.35 
Distributions from capital gains   —    —    —    —    —    — 
Total distributions   (0.13)   (0.27)   (0.28)   (0.30)   (0.33)   (0.35)
Net asset value, end of period  $10.47   $10.57   $10.61   $10.92   $10.81   $10.48 
Total return (not reflecting sales charge)   0.31%(3)   2.18%   (0.30)%   3.85%   6.35%   0.42%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $112   $116   $127   $133   $125   $119 
Ratio of expenses to average net assets   0.77%(4)   0.76%   0.77%   0.77%   0.76%   0.79%(2)
Ratio of net investment income to                              
average net assets   2.51%(4)   2.53%   2.58%   2.78%   3.07%   3.34%(2)
Portfolio turnover rate   4%(3)   4%   12%   19%   8%   15%
                               
Expense and net investment income ratios without the effect of the contractual expense cap and additional voluntary fee waivers were (note 3):
                               
Ratio of expenses to average net assets   0.85%(4)   0.84%   0.85%   0.85%   0.88%   0.92%(2)
Ratio of net investment income to                              
average net assets   2.45%(4)   2.45%   2.50%   2.70%   2.95%   3.21%(2)

_______________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.88% and 3.25%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

25 | Aquila Narragansett Tax-Free Income Fund 

 

 

AQUILA NARRAGANSETT TAX-FREE INCOME FUND

FINANCIAL HIGHLIGHTS (continued)

 

For a share outstanding throughout each period

 

   Class C
   Six Months  Year Ended March 31,
   Ended               
   9/30/18               
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.57   $10.61   $10.92   $10.81   $10.48   $10.79 
Income (loss) from investment operations:                              
Net investment income(1)    0.09    0.18    0.19    0.21    0.24    0.26 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.10)   (0.04)   (0.31)   0.11    0.33    (0.31)
Total from investment operations   (0.01)   0.14    (0.12)   0.32    0.57    (0.05)
Less distributions (note 9):                              
Dividends from net investment income   (0.09)   (0.18)   (0.19)   (0.21)   (0.24)   (0.26)
Distributions from capital gains   —    —    —    —    —    — 
Total distributions   (0.09)   (0.18)   (0.19)   (0.21)   (0.24)   (0.26)
Net asset value, end of period  $10.47   $10.57   $10.61   $10.92   $10.81   $10.48 
Total return (not reflecting sales charge)   (0.12)%(3)   1.31%   (1.14)%   2.97%   5.45%   (0.43)%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $8   $9   $12   $14   $16   $16 
Ratio of expenses to average net assets   1.62%(4)   1.61%   1.61%   1.62%   1.61%   1.64%(2)
Ratio of net investment income to                              
average net assets   1.66%(4)   1.68%   1.72%   1.93%   2.22%   2.49%(2)
Portfolio turnover rate   4%(3)   4%   12%   19%   8%   15%
                               
Expense and net investment income ratios without the effect of the contractual expense cap and additional voluntary fee waivers were (note 3):
                               
Ratio of expenses to average net assets   1.70%(4)   1.69%   1.69%   1.70%   1.73%   1.77%(2)
Ratio of net investment income to                              
average net assets   1.58%(4)   1.60%   1.64%   1.85%   2.10%   2.36%(2)

_______________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 1.73% and 2.40%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

26 | 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  Year Ended March 31,
   Ended               
   9/30/18               
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.56   $10.61   $10.92   $10.80   $10.47   $10.79 
Income (loss) from investment operations:                              
Net investment income(1)    0.12    0.26    0.26    0.28    0.31    0.33 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.09)   (0.05)   (0.31)   0.12    0.33    (0.32)
Total from investment operations   0.03    0.21    (0.05)   0.40    0.64    0.01 
Less distributions (note 9):                              
Dividends from net investment income   (0.13)   (0.26)   (0.26)   (0.28)   (0.31)   (0.33)
Distributions from capital gains   —    —    —    —    —    — 
Total distributions   (0.13)   (0.26)   (0.26)   (0.28)   (0.31)   (0.33)
Net asset value, end of period  $10.46   $10.56   $10.61   $10.92   $10.80   $10.47 
Total return   0.24%(3)   1.95%   (0.45)%   3.80%   6.20%   0.17%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $0.2   $0.1   $0.1   $0.2   $0.2   $0.3 
Ratio of expenses to average net assets   0.94%(4)   0.89%   0.90%   0.92%   0.90%   0.94%(2)
Ratio of net investment income to                              
average net assets   2.36%(4)   2.41%   2.43%   2.63%   2.93%   3.18%
Portfolio turnover rate   4%(3)   4%   12%   19%   8%   15%
                               
Expense and net investment income ratios without the effect of the contractual expense cap and additional voluntary fee waivers were (note 3):
                               
Ratio of expenses to average net assets   1.02%(4)   0.97%   0.98%   1.00%   1.02%   1.07%(2)
Ratio of net investment income to                              
average net assets   2.28%(4)   2.33%   2.35%   2.55%   2.81%   3.05%(2)

_______________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 1.03% and 3.09%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

27 | 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  Year Ended March 31,
   Ended               
   9/30/18               
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.57   $10.61   $10.92   $10.81   $10.48   $10.79 
Income (loss) from investment operations:                              
Net investment income(1)    0.14    0.29    0.30    0.31    0.34    0.36 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.10)   (0.04)   (0.31)   0.11    0.33    (0.31)
Total from investment operations   0.04    0.25    (0.01)   0.42    0.67    0.05 
Less distributions (note 9):                              
Dividends from net investment income   (0.14)   (0.29)   (0.30)   (0.31)   (0.34)   (0.36)
Distributions from capital gains   —    —    —    —    —    — 
Total distributions   (0.14)   (0.29)   (0.30)   (0.31)   (0.34)   (0.36)
Net asset value, end of period  $10.47   $10.57   $10.61   $10.92   $10.81   $10.48 
Total return   0.38%(3)   2.34%   (0.15)%   4.01%   6.51%   0.56%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $105   $106   $104   $101   $93   $86 
Ratio of expenses to average net assets   0.62%(4)   0.61%   0.62%   0.62%   0.61%   0.64%(2)
Ratio of net investment income to                              
average net assets   2.66%(4)   2.69%   2.73%   2.92%   3.22%   3.48%(2)
Portfolio turnover rate   4%(3)   4%   12%   19%   8%   15%
                               
Expense and net investment income ratios without the effect of the contractual expense cap and additional voluntary fee waivers were (note 3):
                               
Ratio of expenses to average net assets   0.70%(4)   0.69%   0.70%   0.70%   0.73%   0.77%(2)
Ratio of net investment income to                              
average net assets   2.58%(4)   2.61%   2.65%   2.84%   3.10%   3.35%(2)

_______________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.73% and 3.39%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

28 | 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 Citizens Investment Advisors, a department 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. Contract review materials were provided to the Trustees in August, 2018. The independent Trustees met telephonically on August 13, 2018 and in person on September 15, 2018 to review and discuss the contract review materials.  The Trustees considered, among other things, information presented by the Manager and the Sub-Adviser. They also considered information presented in a report prepared by an independent consultant with respect to the Fund’s fees, expenses and investment performance, which included comparisons of the Fund’s investment performance against peers and the Fund’s benchmark and comparisons of the advisory fee payable by the Fund under the Advisory Agreement against the advisory fees paid by the Fund’s peers, as well as information regarding the operating margins of certain investment advisory firms (the “Consultant’s Report”).   In addition, the Trustees took into account the information related to the Fund provided to the Trustees at each regularly scheduled meeting. The Trustees considered the Advisory Agreement and the Sub-Advisory Agreement separately as well as in conjunction with each other to determine their combined effects on the Fund. 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 15, 2018, 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, 2019. In considering the renewal of the Advisory Agreement and the Sub-Advisory Agreement, the Trustees considered various factors that they determined were relevant, including the factors described below. The Trustees did not identify any single factor as the controlling factor in determining to approve the renewal of the Advisory Agreement or the Sub-Advisory Agreement.

 

The nature, extent, and quality of the services provided by the Manager and the Sub-Adviser.

 

     The Trustees considered the nature, extent and quality of the services that had been provided by the Manager and the Sub-Adviser to the Fund, taking into account the investment objectives and strategies of the Fund. The Trustees reviewed the terms of the Advisory Agreement and the Sub-Advisory Agreement.

 

     The Manager has retained the Sub-Adviser to provide investment management of the Fund’s portfolio. The Trustees reviewed the Sub-Adviser’s investment approach for the Fund. The Trustees considered the personnel of the Sub-Adviser who provide investment management services to the Fund. The Trustees noted the extensive experience of the Sub-Adviser’s portfolio manager, Mr. 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.

 

29 | Aquila Narragansett Tax-Free Income Fund 

 

 

     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 Fund’s peer group (the “Peer Group”), as selected by the independent consultant (seven single-state intermediate and single-state long municipal bond funds, as classified by Morningstar, that are similar to the Fund in size and that charge a front-end sales charge);

 

•the funds in the Fund’s product category for performance (the “Product Category for Performance”) (all funds (and all classes) included in the Morningstar Single-State Intermediate Municipal Bond Funds category); and

 

•the Fund’s benchmark index, the Bloomberg Barclays Quality Intermediate Municipal Bond Index.

 

     The Trustees considered that the materials included in the Consultant’s Report indicated that the Fund’s average annual total return was higher than the average annual total return of the funds in the Peer Group for the three and five-year periods ended June 30, 2018, but lower than the average annual total return of the funds in the Peer Group for one and ten-year periods ended June 30, 2018. They also considered that the Fund’s average annual total return was higher than the average annual total return of the funds in the Product Category for Performance for the one, three, five and ten-year periods ended June 30, 2018. The Trustees noted that the Fund’s average annual return was higher than that of its benchmark index for the one, three and five-year periods but was lower than the average annual return of the benchmark index for the ten-year period ended June 30, 2018.

 

     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 Product Category for Performance invest in, and the Fund’s benchmark index includes, municipal bonds of issuers throughout the United States. They also noted that none of the funds in the Peer Group invests primarily in Rhode Island municipal obligations. They noted that, unlike the Fund’s returns, the performance of the benchmark index did not reflect any fees, expenses or sales charges.

 

30 | Aquila Narragansett Tax-Free Income Fund 

 

 

     In addition, the Trustees considered that, as reflected in the Consultant’s Report, the Fund’s standard deviation, a measure of volatility, was in the fourth quintile relative to the funds in the Product Category for Performance for the three and five-year periods ended June 30, 2018. The Trustees further noted that the Fund’s Sharpe ratio was in the first quintile for the three and five-year periods ended June 30, 2018, when compared to the funds in the Product Category for Performance. A Sharpe ratio is a measure for calculating risk-adjusted return. The higher the Sharpe ratio, the better the fund’s historical risk-adjusted performance. The Trustees noted that the Fund was the only Rhode Island state-specific tax-free municipal bond fund in the State.

 

     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 funds in the Peer Group (as defined above); and

 

•the funds in the product category for expenses (the “Product Category for Expenses”) (Morningstar Single-State Intermediate Municipal Bond Funds and Morningstar Single-State Long Municipal Bond Funds from states within which 1-3 mutual funds are operating, with similar operating expense structures).

 

     The Trustees considered that the Fund’s contractual advisory fee was higher than the average and median contractual advisory fees of the funds in the Peer Group (at the Fund’s current asset level) and higher than the asset-weighted average contractual advisory fee of the funds in the Product Category for Expenses (at the Fund’s current asset level and various asset levels up to $5 billion). The Trustees noted that the Fund’s actual management fee was higher than the average actual management fee of the funds in both the Peer Group and Product Category for Expenses (after giving effect to fee waivers in effect for those funds), but noted, however, that the Fund’s actual expenses (for Class A shares) were lower than the average actual expenses of the funds in both the Product Category for Expenses and the Peer Group (after giving effect to fee waivers and expense reimbursements in effect for those funds).

 

     The Trustees further noted that beginning October 1, 2018, 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, 2019. 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.

 

31 | Aquila Narragansett Tax-Free Income Fund 

 

 

     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 and from the independent consultant related to profitability. The Manager provided information which showed the profitability to the Manager of its services to the Fund, as well as the profitability of Aquila Distributors LLC of distribution services provided to the Fund. The independent consultant provided publicly available data regarding the profitability of other asset managers in comparison to the overall profitability of the Manager.

 

     The Trustees considered the information provided by the Manager regarding the profitability of the Manager with respect to the advisory services provided by the Manager to the Fund, including the methodology used by the Manager in allocating certain of its costs to the management of the Fund. The Trustees also considered information regarding the profitability of the Manager provided to the Trustees by the independent consultant. The Trustees concluded that profitability to the Manager with respect to 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 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.

 

32 | 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)
      Expenses(2)   Expenses(2)  
  Beginning Ending(1) Paid During Ending Paid During Net
  Account Account Period Account Period Annualized
Share Value Value 4/1/18 – Value 4/1/18 – Expense
Class 4/1/18 9/30/18 9/30/18 9/30/18 9/30/18 Ratio
A $1,000 $1,003.10 $3.87 $1,021.21 $3.90 0.77%
C $1,000 $ 998.80 $8.12 $1,016.95 $8.19 1.62%
I $1,000 $1,002.40 $4.72 $1,020.36 $4.76 0.94%
Y $1,000 $1,003.80 $3.11 $1,021.96 $3.14 0.62%
(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.

 

33 | Aquila Narragansett Tax-Free Income Fund 

 

 

Information Available (unaudited)

 

     Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent your Fund’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Fund policies, the Manager publicly discloses the complete schedule of the Fund’s portfolio holdings, as of each calendar quarter, generally by the 15th day after the end of each calendar quarter. Such information remains accessible until the next schedule is made publicly available. You may obtain a copy of the Fund’s portfolio holdings schedule for the most recently completed period by visiting the Fund’s website at www.aquilafunds.com. Whenever you wish to see a listing of your Fund’s portfolio other than in your shareholder reports, please check our website at www.aquilafunds.com or call us at 1-800-437-1000.

 

     The Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarter ends of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at www.sec.gov. You may also review or, for a fee, copy the forms at the SEC’s Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330.

 

 

Proxy Voting Record (unaudited)

 

     During the 12 month period ended June 30, 2018, 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, 2018, $6,142,535 of dividends paid by Aquila Narragansett Tax-Free Income Fund, constituting 99.2% of total dividends paid, were exempt-interest dividends; and the balance was ordinary income.

 

     Prior to February 15, 2019, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2018 calendar year.

 

34 | Aquila Narragansett Tax-Free Income Fund 

 

 

 

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Founders

     Lacy B. Herrmann (1929-2012)

Aquila Management Corporation, Sponsor

 

Manager

AQUILA INVESTMENT MANAGEMENT LLC 120

West 45th Street, Suite 3600

New York, New York 10036

 

Investment Sub-Adviser

     CITIZENS INVESTMENT ADVISORS,

A DEPARTMENT OF CITIZENS BANK, N. A.

     One Citizens Plaza

Providence, Rhode Island 02903

 

Board of Trustees

Thomas A. Christopher, Chair

Diana P. Herrmann, Vice Chair

Ernest Calderón

Gary C. Cornia

Grady Gammage, Jr.

Glenn P. O’Flaherty

James R. Ramsey

Laureen L. White

 

Officers

     Diana P. Herrmann, President

Charles E. Childs, III, Executive Vice President

and Secretary

Marie E. Aro, Senior Vice President

Stephen J. Caridi, Senior Vice President

Paul G. O’Brien, Senior Vice President

Randall S. Fillmore, Chief Compliance Officer

Joseph P. DiMaggio, Chief Financial Officer

and Treasurer

 

Distributor

AQUILA DISTRIBUTORS 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

225 Liberty Street

New York, New York 10286

 

Further information is contained in the Prospectus,

which must precede or accompany this report.

 

 

                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                 

Semi-Annual

Report

September 30, 2018

                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   

  

 

     

Please Save the Date for Your 2019 Shareholder Meeting

 

Thursday, May 16, 2019

 

Wellshire Event Center, Denver

 

Details will be available on our website as the date approaches:

 

www.aquilafunds.com

 

You may also contact your financial professional.

 

 

ii  | Aquila Tax-Free Fund of Colorado

 

 

Aquila Tax-Free

Fund of Colorado

 

“Proper Asset Allocation

–A Strategy For All Seasons”

 

Serving Colorado investors since 1987

  

 

November, 2018

 

Dear Fellow Shareholder:

 

     Financial news, and the often resulting market volatility, can cause even the most seasoned investor to ask, “What should I do now?”

 

     We believe you will generally be in a better position to weather changing economic situations, if your portfolio is built with a strong foundation. In short, is your portfolio properly allocated based on your specific needs? And, have you periodically revisited your portfolio structure to make sure that your allocation remains in line with your investment goals, given changing market conditions and changes in your personal circumstances, including current risk tolerance?

 

     Asset allocation is an investment strategy that strives to balance risk and reward by  diversifying assets according to your specific needs. In developing this strategy, your considerations should include:

 

•investment time horizon (specifically your age and retirement objectives);

 

•risk threshold (how much of your investment capital you are willing to lose during a given time frame);

 

•financial situation (your wealth, income, expenses, tax bracket, liquidity needs, etc.); and

 

•goals (the financial goals you and your family would like to achieve).

 

      Since the three main asset classes - equities, fixed-income, and cash/cash equivalents - have different levels of risk and return, each is expected to behave differently over time. The objective of asset allocation is to create a diversified portfolio with an acceptable level of risk and the highest possible return given that level of risk.

 

     Although there is no simple formula that can find the right asset allocation for every individual, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make.

 

     The way you allocate your investment portfolio among stocks, bonds, and cash/ cash equivalents will be the principal determinants of your investment results –secondary to your selection of individual securities.

 

NOT A PART OF THE SEMI- ANNUAL REPORT

 

 

     Once you and your financial professional have developed an appropriate asset allocation for your portfolio, we believe that changes should be made based on changing needs, not on headlines.

 

     A properly constructed portfolio based on sound asset allocation may generally help you weather all seasons.

 

Sincerely,

 

 

 

Mutual fund investing involves risk and loss of principal is possible.

 

The market prices of the Fund’s securities may rise or decline in value due to general market conditions, such as real or perceived adverse economic or political conditions, inflation, changes in interest rates, lack of liquidity in the bond markets or adverse investor sentiment. When market prices fall, the value of your investment may go down. 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.

 

The value of your investment may go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term securities. Conversely, when interest rates fall, the value of your investment may rise. Interest rates in the U.S. recently have been historically low, so the Fund faces a heightened risk that interest rates may rise. A general rise in interest rates may cause investors to move out of fixed income securities 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.

 

If interest rates fall, an issuer may exercise its right to prepay its securities, and the Fund could be forced to reinvest prepayment proceeds at a time when yields on securities available in the market are lower than the yield on the prepaid security.

 

A portion of income may be subject to local, state, Federal and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax.

 

These risks may result in share price volatility.

 

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, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (30.6%)  and Fitch  Value
          
     City & County (0.4%)        
     Englewood, Colorado        
$1,000,000   5.000%, 12/01/30  NR/AA+/NR  $1,167,890 
              
     Metropolitan District (2.9%)        
     Denver, Colorado Urban Renewal        
     Authority, Tax Increment Revenue,        
     Stapleton Senior Series A-1        
 2,600,000   5.000%, 12/01/25  NR/NR/AA-   2,856,516 
     Denver, Colorado Urban Renewal        
     Authority, Tax Increment Revenue,        
     Stapleton Senior Series B-1        
 1,000,000   5.000%, 12/01/25  Aa3/NR/NR   1,153,800 
     Meridian Metropolitan District,        
     Colorado Refunding Series A        
 1,645,000   4.500%, 12/01/23  NR/A-/A   1,742,894 
     Poudre Tech Metropolitan District,        
     Colorado Unlimited Property Tax        
     Supported Revenue Refunding &        
     Improvement, Series B        
 1,990,000   5.000%, 12/01/28 AGMC Insured  NR/AA/NR   2,075,252 
     Total Metropolitan District      7,828,462 
              
     School Districts (26.8%)        
     Adams 12 Five Star Schools, Colorado        
 3,000,000   5.000%, 12/15/25  Aa2/AA/NR   3,452,550 
 1,000,000   5.000%, 12/15/25  Aa2/AA/NR   1,164,530 
 1,435,000   5.000%, 12/15/29  Aa2/AA/NR   1,670,598 
     Adams County, Colorado School        
     District #50        
 1,000,000   4.000%, 12/01/23  Aa2/AA/NR   1,069,570 
 3,000,000   4.000%, 12/01/24  Aa2/AA/NR   3,200,100 
     Adams & Arapahoe Counties,        
     Colorado Joint School District #28J        
 1,000,000   5.000%, 12/01/30  Aa2/NR/AA   1,157,950 

 

1 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (continued)  and Fitch  Value
          
   School Districts (continued)      
     Adams & Weld Counties, Colorado        
     School District #27J        
$1,030,000   5.000%, 12/01/22  Aa2/AA/NR  $1,144,989 
 2,000,000   5.000%, 12/01/24  Aa2/AA/NR   2,215,700 
 1,000,000   5.000%, 12/01/25  Aa2/AA/NR   1,148,730 
 1,060,000   5.000%, 12/01/28  Aa2/AA/NR   1,226,770 
 3,895,000   5.000%, 12/01/29  Aa2/AA/NR   4,483,067 
 1,150,000   5.000%, 12/01/29  Aa2/AA/NR   1,348,133 
     Arapahoe County, Colorado School        
     District #001 Englewood        
 1,465,000   5.000%, 12/01/27  Aa2/NR/NR   1,692,383 
     Arapahoe County, Colorado School        
     District #006 Littleton        
 1,000,000   5.000%, 12/01/27  Aa1/NR/NR   1,160,480 
     Boulder, Larimer & Weld Counties,        
     Colorado Series A        
 2,000,000   5.000%, 12/15/24  Aa2/AA+/NR   2,296,720 
     Boulder, Larimer & Weld Counties,        
     Colorado Series C        
 2,000,000   5.000%, 12/15/28  Aa2/AA+/NR   2,339,560 
     Boulder, Larimer & Weld Counties,        
     Colorado, St. Vrain Valley School        
     District RE-1J Series C        
 1,000,000   5.000%, 12/15/29  Aa2/AA+/NR   1,160,200 
     Denver, Colorado City & County        
     School District No. 1        
 3,000,000   4.000%, 12/01/26  Aa1/AA+/AA+   3,154,710 
 2,000,000   4.000%, 12/01/27  Aa1/AA+/AA+   2,165,560 
 2,000,000   5.000%, 12/01/29  Aa1/AA+/AA+   2,334,940 
     Denver, Colorado City & County        
     School District No. 1 Series B        
 2,000,000   5.000%, 12/01/25  Aa1/AA+/AA+   2,296,220 
 4,000,000   5.000%, 12/01/27  Aa1/AA+/AA+   4,567,840 
     Eagle County School District,        
     Colorado, Eagle, Garfield & Routt        
     School District #50J        
 1,170,000   5.000%, 12/01/25  Aa2/AA/NR   1,319,304 
 1,000,000   5.000%, 12/01/29  Aa2/AA/NR   1,161,900 

 

2 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (continued)  and Fitch  Value
          
     School Districts (continued)        
     El Paso County, Colorado School        
     District #20 Refunding        
$1,945,000   4.375%, 12/15/23  Aa2/NR/NR  $2,075,082 
 1,000,000   5.000%, 12/15/29  Aa2/NR/NR   1,165,780 
     Garfield, Pitkin, & Eagle Counties,        
     Colorado School District #RE-1        
     Roaring Fork        
 1,600,000   5.000%, 12/15/27  Aa2/NR/NR   1,850,688 
     Jefferson County, Colorado School        
     District #R-1 Refunding        
 2,225,000   5.000%, 12/15/30  Aa2/AA/NR   2,615,665 
     La Plata County, Colorado School        
     District #9-R Durango Refunding        
 3,000,000   4.500%, 11/01/23  Aa2/NR/NR   3,208,080 
     Larimer County, Colorado School        
     District No. R 1 Poudre        
 1,000,000   5.000%, 12/15/27  Aa2/NR/NR   1,156,680 
 1,000,000   5.000%, 12/15/30  Aa2/NR/AA+   1,189,140 
     Larimer, Weld & Boulder Counties,        
     Colorado School District No. R-2J,        
     Thompson Refunding        
 1,500,000   4.250%, 12/15/24  Aa2/NR/NR   1,614,000 
     Mesa County, Colorado Valley School        
     District No. 051, Grand Junction        
     Refunding        
 3,000,000   5.000%, 12/01/23  Aa2/NR/NR   3,393,750 
     San Miguel County, Colorado School        
     District R-1 Telluride        
 1,055,000   5.000%, 12/01/25  Aa2/AA/NR   1,208,007 
     Summit County, Colorado School        
     District No. RE 1 Refunding        
 2,000,000   4.000%, 12/01/24  Aa1/NR/NR   2,102,500 
 2,000,000   5.000%, 12/01/28  Aa1/NR/NR   2,338,140 
     Total School Districts      72,850,016 

 

3 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (continued)  and Fitch  Value
          
     Water & Sewer (0.5%)        
     Central Colorado Water Conservancy        
     District, Adams Morgan & Weld        
     Counties        
$1,185,000   5.000%, 12/01/24  NR/A/NR  $1,317,317 
     Total General Obligation Bonds      83,163,685 
              
     Revenue Bonds (45.7%)        
     Airport (3.3%)        
     Denver, Colorado City & County        
     Airport Revenue System, Series A        
 4,340,000   5.000%, 11/15/24  A1/A+/AA-   4,586,469 
 1,210,000   5.250%, 11/15/28  A1/A+/AA-   1,252,882 
 3,000,000   5.250%, 11/15/29  A1/A+/AA-   3,105,630 
     Total Airport      8,944,981 
              
     Electric (2.2%)        
     Colorado Springs, Colorado Utilities        
     Revenue, Refunding Series A        
 1,000,000   5.000%, 11/15/27  Aa2/AA/AA   1,155,040 
 295,000   4.750%, 11/15/27  Aa2/AA/NR   303,531 
     Colorado Springs, Colorado Utilities        
     Revenue, Refunding Series A-1        
 835,000   4.000%, 11/15/26  Aa2/AA/AA   864,359 
 840,000   4.000%, 11/15/27  Aa2/AA/AA   866,359 
     Colorado Springs, Colorado Utilities        
     Revenue Refunding Series B        
 2,600,000   5.000%, 11/15/23  Aa2/AA/AA   2,884,076 
     Total Electric      6,073,365 

 

4 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
   Higher Education (13.8%)      
     Colorado Educational & Cultural        
     Facility Authority, University Corp.        
     Atmosphere Project, Refunding        
$935,000   5.000%, 09/01/22  A2/A+/NR  $982,348 
     Colorado Educational & Cultural        
     Facility Authority, University of        
     Denver Project        
 845,000   4.000%, 03/01/24  A1/NR/NR   896,553 
 7,000,000   5.250%, 03/01/25 NPFG Insured  A1/A+/NR   7,975,590 
     Colorado Educational & Cultural        
     Facility Authority Refunding,        
     University of Denver Project        
 1,000,000   5.250%, 03/01/26 NPFG Insured  A1/A+/NR   1,170,270 
     Colorado School of Mines Institutional        
     Enterprise, Series B        
 1,845,000   5.000%, 12/01/29  A1/A+/NR   2,146,694 
     Colorado State Board Community        
     Colleges & Occupational        
     Education, Refunding &        
     Improvement, Araphoe Community        
     College, Series 2017A        
 1,000,000   5.000%, 11/01/30 SHEIP Insured  Aa3/NR/NR   1,154,480 
     Colorado State Board of Governors        
     University Enterprise System, Series C        
 2,905,000   5.000%, 03/01/26 SHEIP Insured  Aa2/AA/NR   3,334,708 
 1,250,000   5.000%, 03/01/28 SHEIP Insured  Aa2/AA/NR   1,476,387 
 2,100,000   5.000%, 03/01/29 SHEIP Insured  Aa2/AA/NR   2,460,360 
     University of Colorado Enterprise        
     System, Series A        
 2,620,000   5.000%, 06/01/29  Aa1/NR/AA+   3,014,467 
 1,165,000   5.000%, 06/01/26 NPFG Insured  Aa1/NR/AA+   1,372,277 
     University of Colorado Enterprise        
     System, Series A-1        
 2,000,000   5.000%, 06/01/28  Aa1/NR/AA+   2,396,440 
     University of Colorado Enterprise        
     System, Refunding, Series B        
 1,680,000   4.000%, 06/01/23  Aa1/NR/AA+   1,731,895 

 

5 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Higher Education (continued)        
     University of Northern Colorado        
     Greeley Institutional Enterprise        
     Refunding, SHEIP, Series A        
$1,000,000   5.000%, 06/01/25 SHEIP Insured  Aa2/AA/NR  $1,128,980 
 2,810,000   5.000%, 06/01/26 SHEIP Insured  Aa2/AA/NR   3,004,873 
 2,940,000   5.000%, 06/01/28 SHEIP Insured  Aa2/AA/NR   3,143,889 
     Total Higher Education      37,390,211 
              
     Hospital (1.5%)        
     Colorado Health Facility Authority,        
     Catholic Health Initiatives, Series D        
 1,000,000   6.000%, 10/01/23  Baa1/BBB+/BBB+   1,002,810 
     Colorado Health Facility Authority,        
     Sisters Leavenworth, Refunding        
 3,000,000   5.250%, 01/01/25  Aa3/AA-/AA-   3,112,980 
     Total Hospital      4,115,790 
              
     Lease (11.5%)        
     Arvada, Colorado COP        
 1,190,000   4.000%, 12/01/29  NR/AA+/NR   1,266,684 
     Aurora, Colorado COP, Refunding        
     Series A        
 1,500,000   5.000%, 12/01/26  Aa2/AA/NR   1,550,415 
     Brighton, Colorado COP Refunding        
     Series A        
 1,865,000   5.000%, 12/01/24 AGMC Insured  Aa3/AA/NR   1,966,195 
     Colorado State BEST COP Series H        
 3,490,000   4.000%, 03/15/26  Aa2/AA-/NR   3,658,567 
     Colorado State BEST COP Series K        
 2,500,000   5.000%, 03/15/30  Aa2/AA-/NR   2,886,975 
 2,500,000   5.000%, 03/15/31  Aa2/AA-/NR   2,874,850 
     Colorado State BEST COP Series M        
 2,000,000   5.000%, 03/15/31  Aa2/AA-/NR   2,330,660 
     Colorado State Higher Education        
     Capital Construction Lease        
 1,690,000   5.000%, 11/01/26  Aa2/AA-/NR   1,963,797 

 

6 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Lease (continued)        
     Denver, Colorado City & County COP,        
     Convention Center Expansion        
     Project Series 2018A        
$1,500,000   5.000%, 06/01/30  Aa2/AA+/AA+  $1,715,025 
     Denver, Colorado City & County COP        
     (Fire Station & Library Facilities)        
 1,065,000   5.000%, 12/01/25  Aa1/AA+/AA+   1,240,885 
     Douglas County, Colorado COP        
     (Libraries)        
 1,570,000   5.000%, 12/01/27  Aa2/NR/NR   1,783,269 
     Foothills Park and Recreation District,        
     Colorado COP Refunding &        
     Improvement        
 1,380,000   5.000%, 12/01/26 AGMC Insured  NR/AA/NR   1,577,713 
     Jefferson County, Colorado School        
     District No. R-1 COP        
 1,000,000   5.000%, 12/15/27  Aa3/AA-/NR   1,142,560 
     Rangeview Library District Project,        
     Colorado COP        
 2,515,000   5.000%, 12/15/27 AGMC Insured  Aa2/AA/NR   2,887,698 
     Thompson School District No R2-J        
     (Larimer, Weld And Boulder        
     Counties, Colorado COP, Series        
     2014        
 750,000   4.500%, 12/01/26  Aa3/NR/NR   823,927 
     Westminster, Colorado COP        
 1,480,000   4.250%, 12/01/22 AGMC Insured  A2/AA/NR   1,542,782 
     Total Lease      31,212,002 
              
     Sales Tax (4.2%)        
     Boulder, Colorado General Fund        
     Capital Improvement Projects        
 2,235,000   4.000%, 10/01/25  Aa1/AAA/NR   2,361,769 
     Broomfield, Colorado Sales & Use Tax        
 1,000,000   5.000%, 12/01/30  Aa3/NR/NR   1,165,270 
     Castle Rock, Colorado Sales & Use Tax        
 1,015,000   4.000%, 06/01/25  Aa3/AA/NR   1,084,375 

 

7 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Sales Tax (continued)        
     Commerce City, Colorado Sales & Use        
     Tax        
$500,000   5.000%, 08/01/28 AGMC Insured  A2/AA/NR  $574,195 
 500,000   5.000%, 08/01/29 AGMC Insured  A2/AA/NR   569,680 
 1,000,000   5.000%, 08/01/26 BAMAC Insured  A1/AA/NR   1,139,210 
     Grand Junction, Colorado General Fund        
 1,900,000   5.000%, 03/01/23  NR/AA/NR   2,052,114 
     Pueblo, Colorado Urban Renewal        
     Authority, Refunding &        
     Improvement, Series B        
 1,250,000   5.250%, 12/01/28  A2/A/NR   1,354,300 
     Westminster, Colorado Economic        
     Development Authority, Mandalay        
     Gardens Urban Renewal Project        
 1,090,000   4.000%, 12/01/22  NR/A+/NR   1,148,500 
     Total Sales Tax      11,449,413 
              
     Transportation (0.8%)        
     Regional Transportation District,        
     Colorado COP, Series A        
 2,000,000   5.000%, 06/01/26  Aa3/A/AA-   2,285,300 
              
     Water & Sewer (8.4%)        
     Arapahoe, Colorado Water &        
     Wastewater Public Improvement        
     District        
 1,320,000   5.000%, 12/01/24  NR/AA-/NR   1,510,634 
 1,020,000   5.000%, 12/01/25  NR/AA-/NR   1,156,068 
     Broomfield, Colorado Sewer and Waste        
     Water        
 1,975,000   4.000%, 12/01/21 AGMC Insured  A2/NR/NR   2,077,463 
 1,550,000   5.000%, 12/01/24 AGMC Insured  A2/AA/NR   1,701,001 
     Broomfield, Colorado Water Activity        
     Enterprise        
 3,385,000   5.000%, 12/01/21  A1/NR/NR   3,674,113 

 

8 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Water & Sewer (continued)        
     Colorado Water Resource & Power        
     Development Authority        
$925,000   5.000%, 09/01/25  Aaa/AAA/AAA  $1,077,357 
     Denver, Colorado City and County        
     Board Water Commissioners Master        
     Resolution, Refunding, Series B        
 1,000,000   4.000%, 12/15/22  Aaa/AAA/AAA   1,059,490 
     Denver, Colorado City and County Board        
     Water Commissioners, Series B        
 850,000   5.000%, 09/15/29  Aaa/AAA/AAA   1,006,774 
     Greeley, Colorado Water Revenue        
 1,705,000   5.000%, 08/01/28  Aa2/AA+/NR   1,983,972 
     North Weld County, Colorado Water        
     District Enterprise Revenue        
     Refunding        
 1,465,000   4.000%, 11/01/22 AGMC Insured  NR/AA/NR   1,564,986 
     Parker, Colorado Water & Sanitation        
     District Water & Sewer Enterprise        
     Refunding        
 1,000,000   5.000%, 11/01/22 AGMC Insured  A2/AA+/NR   1,086,530 
     Thornton, Colorado Water Enterprise        
     Revenue, Series 2013        
 1,970,000   4.000%, 12/01/24  Aa2/AA/NR   2,128,152 
     Woodmoor, Colorado Water &        
     Sanitation District #1 Enterprise        
 2,570,000   4.500%, 12/01/26  NR/AA-/NR   2,728,569 
     Total Water & Sewer      22,755,109 
     Total Revenue Bonds      124,226,171 

 

9 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

     Ratings   
Principal  Pre-Refunded Bonds\Escrowed to  Moody's, S&P   
Amount  Maturity (21.5%)††  and Fitch  Value
     Pre-Refunded General Obligation        
     Bonds (4.1%)        
     Metropolitan District (0.8%)        
     Park Creek Metropolitan District,        
     Colorado Revenue Refunding &        
     Improvement - Senior Property Tax        
     Support        
$2,000,000   5.500%, 12/01/21 AGC Insured  NR/AA/NR  $2,081,020 
              
     School Districts (3.3%)        
     Arapahoe County, Colorado School        
     District #001 Englewood        
 3,235,000   5.000%, 12/01/27  Aa2/NR/NR   3,525,826 
     Boulder, Larimer & Weld Counties,        
     Colorado        
 1,500,000   5.000%, 12/15/28  Aa2/AA/NR   1,509,765 
     Denver, Colorado City & County School        
     District No. 1        
 3,000,000   5.250%, 12/01/27  Aa2/AA+/NR   3,065,700 
     Gunnison Watershed, Colorado School        
     District        
 1,025,000   5.250%, 12/01/26  Aa2/AA/NR   1,030,812 
     Total School Districts      9,132,103 
     Total Pre-Refunded General Obligation        
     Bonds      11,213,123 
              
     Pre-Refunded\ Escrowed to Maturity        
     Revenue Bonds (17.4%)        
     Electric (1.7%)        
     Colorado Springs, Colorado Utilities        
     Revenue, Refunding Series A        
 1,705,000   4.750%, 11/15/27  NR/NR/NR*   1,756,423 
     Colorado Springs, Colorado Utilities        
     Revenue, Refunding Series A-1        
 165,000   4.000%, 11/15/26  NR/NR/NR*   171,498 
 160,000   4.000%, 11/15/27  NR/NR/NR*   166,301 
     Colorado Springs, Colorado Utilities        
     Revenue Refunding Series B        
 865,000   5.250%, 11/15/23  NR/NR/NR*   868,581 
 420,000   5.250%, 11/15/23  Aa2/AA/NR   421,714 

 

10 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal  Pre-Refunded Bonds\Escrowed to  Moody's, S&P   
Amount  Maturity (continued)  and Fitch  Value
     Pre-Refunded\ Escrowed to Maturity        
     Revenue Bonds (continued)        
     Electric (continued)        
     Colorado Springs, Colorado Utilities        
     Revenue, Series C-2        
$1,060,000   5.000%, 11/15/23  Aa2/AA/AA  $1,178,900 
     Total Electric      4,563,417 
              
     Higher Education (5.7%)        
     Adams State College, Colorado        
     Auxiliary Facilities Improvement        
     Series A        
 1,000,000   5.200%, 05/15/27 SHEIP Insured  Aa2/AA/NR   1,020,200 
     Colorado Educational & Cultural        
     Facility Authority, University Corp.        
     Atmosphere Project, Refunding        
 765,000   5.000%, 09/01/22  NR/NR/NR*   806,685 
 1,635,000   5.000%, 09/01/28  A2/A+/NR   1,724,091 
     Colorado School of Mines Enterprise        
     Refunding & Improvement        
 1,455,000   5.000%, 12/01/24 SHEIP Insured  Aa2/AA/NR   1,462,653 
     Colorado State Board of Governors        
     University Enterprise System, Series A        
 2,300,000   5.000%, 03/01/25 SHEIP Insured  Aa2/AA/NR   2,521,766 
     University of Colorado Enterprise        
     System        
 1,270,000   5.000%, 06/01/25  Aa1/NR/AA+   1,448,905 
 2,000,000   5.000%, 06/01/27  Aa1/NR/AA+   2,040,520 
     University of Colorado Enterprise        
     System, Series A        
 2,000,000   4.750%, 06/01/27  Aa1/NR/AA+   2,141,400 
     Western State College, Colorado        
     Institutional Enterprise, Series A        
 1,160,000   5.000%, 05/15/24 SHEIP Insured  Aa2/AA/NR   1,215,344 
     Western State College, Colorado        
 1,020,000   5.000%, 05/15/27 SHEIP Insured  Aa2/AA/NR   1,039,360 
     Total Higher Education      15,420,924 

 

11 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal  Pre-Refunded Bonds\Escrowed to  Moody's, S&P   
Amount  Maturity (continued)  and Fitch  Value
     Pre-Refunded\ Escrowed to Maturity        
     Revenue Bonds (continued)        
     Hospital (0.8%)        
     Colorado Health Facility Authority        
     Hospital Revenue, NCMC, Inc.        
     Project, Series A        
$2,000,000   5.250%, 05/15/26 AGMC Insured  NR/AA/NR  $2,041,020 
              
     Lease (6.6%)        
     Adams 12 Five Star Schools, Colorado        
     COP        
 500,000   5.000%, 12/01/25  Aa3/A/NR   502,630 
     Adams County, Colorado Corrections        
     Facility COP, Series B        
 1,600,000   5.000%, 12/01/26  Aa2/AA/NR   1,608,288 
 1,200,000   5.125%, 12/01/27  Aa2/AA/NR   1,206,456 
     Broomfield, Colorado COP        
 2,000,000   4.500%, 12/01/28  Aa3/NR/NR   2,105,760 
     Colorado State BEST COP Series G        
 3,000,000   4.250%, 03/15/23  Aa2/AA-/NR   3,161,490 
     Colorado State Higher Education        
     Capital Construction Lease        
 2,000,000   5.250%, 11/01/23  Aa2/AA-/NR   2,005,580 
     Douglas County, Colorado School        
     District No. RE-1 Douglas & Elbert        
     Counties COP        
 3,075,000   5.000%, 01/15/29  Aa2/NR/NR   3,102,737 
     Garfield County, Colorado COP Public        
     Library District        
 1,000,000   5.375%, 12/01/27  NR/A/NR   1,039,080 
     Rangeview Library District Project,        
     Colorado COP        
 2,210,000   5.000%, 12/15/26 AGC Insured  Aa2/AA/NR   2,224,387 
 1,000,000   5.000%, 12/15/28 AGC Insured  Aa2/AA/NR   1,006,510 
     Total Lease      17,962,918 

 

12 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal  Pre-Refunded Bonds\Escrowed to  Moody's, S&P   
Amount  Maturity (continued)  and Fitch  Value
     Pre-Refunded\ Escrowed to Maturity          
     Revenue Bonds (continued)          
     Sales Tax (1.5%)          
     Denver, Colorado City & County Excise          
     Tax Refunding Series A          
$4,000,000   5.250%, 09/01/19 AGMC Insured ETM   NR/AA/NR   $4,120,400 
                
     Miscellaneous Revenue (1.1%)          
     Colorado Educational & Cultural          
     Facility Authority, Independent          
     School Revenue Refunding, Kent          
     Denver School Project          
 1,000,000   5.000%, 10/01/30   NR/A/NR    1,029,370 
     Colorado Educational & Cultural          
     Facility Authority, Independent          
     School Revenue Refunding, Vail          
     Mountain School Project          
 1,820,000   6.000%, 05/01/30   NR/BBB-/NR    1,931,493 
     Total Miscellaneous Revenue        2,960,863 
     Total Pre-Refunded\ Escrowed to          
     Maturity Revenue Bonds        47,069,542 
     Total Pre-Refunded\ Escrowed to          
     Maturity Bonds        58,282,665 
     Total Investments (cost $263,397,003-          
     note 4)   97.8%   265,672,521 
     Other assets less liabilities   2.2    5,965,143 
     Net Assets   100.0%  $271,637,664 

 

13 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

   Percentage of
Portfolio Distribution By Quality Rating  Investments†
Aaa of Moody's or AAA of S&P or Fitch   2.1%
Prerefunded bonds\ ETM bonds ††   21.9 
Aa of Moody's or AA of S&P or Fitch   66.4 
A of Moody's or S&P or Fitch   9.2 
Baa of Moody's or BBB of S&P or Fitch   0.4 
    100.0%

 

PORTFOLIO ABBREVIATIONS
AGC - Assured Guaranty Corp.
AGMC - Assured Guaranty Municipal Corp.
BAMAC -Build America Mutual Assurance Company
BEST - Building Excellent Schools Today
COP - Certificates of Participation
ETM - Escrowed to Maturity
NCMC - Northern Colorado Medical Center
NPFG - National Public Finance Guarantee
NR - Not Rated
SHEIP - State Higher Education Intercept Program

 

  * Any security not rated (“NR”) by any of the Nationally Recognized Statistical Rating Organizations (“NRSRO”) has been determined by the Investment Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a NRSRO.  
       
  † Where applicable, calculated using the highest rating of the three NRSROs. 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 inescrow to retire the bonds at their earliest call date.  

 

See accompanying notes to financial statements.

 

14 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

STATEMENT OF ASSETS AND LIABILITIES

SEPTEMBER 30, 2018 (unaudited)

 

ASSETS   
Investments at value (cost $263,397,003)  $265,672,521 
Cash   2,983,721 
Interest receivable   3,384,729 
Receivable for Fund shares sold   97,156 
Other assets   18,970 
Total assets   272,157,097 
LIABILITIES     
Payable for Fund shares redeemed   309,450 
Management fee payable   107,451 
Dividends payable   64,391 
Distribution and service fees payable   182 
Accrued expenses payable   37,959 
Total liabilities   519,433 
      
NET ASSETS  $271,637,664 
Net Assets consist of:     
Capital Stock – Authorized an unlimited number of shares,     
par value $0.01 per share  $265,683 
Additional paid-in capital   270,953,012 
Net unrealized appreciation on investments (note 4)   2,275,518 
Accumulated net realized loss on investments   (1,871,639)
Undistributed net investment income   15,090 
   $271,637,664 
CLASS A     
Net Assets  $190,026,502 
Capital shares outstanding   18,595,828 
Net asset value and redemption price per share  $10.22 
Maximum offering price per share (100/96 of $10.22)  $10.65 
CLASS C     
Net Assets  $12,948,075 
Capital shares outstanding   1,270,091 
Net asset value and offering price per share  $10.19 
Redemption price per share (*a charge of 1% is imposed on the     
redemption proceeds, or on the original price, whichever is     
lower, if redeemed during the first 12 months after purchase)  $10.19*
      
CLASS Y     
Net Assets  $68,663,087 
Capital shares outstanding   6,702,408 
Net asset value, offering and redemption price per share  $10.24 

 

See accompanying notes to financial statements.

 

15 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

STATEMENT OF OPERATIONS

SIX MONTHS ENDED SEPTEMBER, 30, 2018 (unaudited)

 

Investment Income      
Interest income       $4,305,224 
Expenses          
Management fee (note 3)  $697,882      
Distribution and service fees (note 3)   119,076      
Transfer and shareholder servicing agent fees   52,355      
Trustees’ fees and expenses (note 7)   50,034     
Legal fees   43,863      
Registration fees and dues   15,627      
Shareholders’ reports   11,889      
Auditing and tax fees   11,505      
Insurance   6,331      
Chief compliance officer services (note 3)   5,572      
Custodian fees   5,250      
Miscellaneous   28,911      
Total Expenses   1,048,295      
           
Management fees waived (note 3)   (27,915)     
Net expenses        1,020,380 
Net investment income        3,284,844 
           
Realized and Unrealized Gain (Loss) on Investments:          
Net realized gain (loss) from securities          
transactions   (133,254)     
Change in unrealized appreciation on          
investments   (2,296,840)     
Net realized and unrealized gain (loss)          
on investments        (2,430,094)
Net change in net assets resulting from operations     $854,750 

 

See accompanying notes to financial statements.

 

16 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

STATEMENTS OF CHANGES IN NET ASSETS

 

   Six Months Ended   
   September 30, 2018  Year Ended
   (unaudited)  March 31, 2018
OPERATIONS:          
Net investment income  $3,284,844   $7,492,654 
Realized gain (loss) from securities transactions   (133,254)   191,227 
Change in unrealized appreciation on          
investments   (2,296,840)   (5,950,101)
Change in net assets resulting from operations   854,750    1,733,780 
           
DISTRIBUTIONS TO SHAREHOLDERS (note 9):          
Class A Shares:          
Net investment income   (2,326,243)   (5,097,512)
           
Class C Shares:          
Net investment income   (101,418)   (281,609)
           
Class Y Shares:          
Net investment income   (855,574)   (2,103,049)
Change in net assets from distributions   (3,283,235)   (7,482,170)
           
CAPITAL SHARE TRANSACTIONS (note 6):          
Proceeds from shares sold   16,534,890    44,409,789 
Reinvested dividends and distributions   2,569,874    5,801,919 
Cost of shares redeemed   (32,205,172)   (69,526,366)
Change in net assets from capital share          
transactions   (13,100,408)   (19,314,658)
Change in net assets   (15,528,893)   (25,063,048)
           
NET ASSETS:          
Beginning of period   287,166,557    312,229,605 
End of period*  $271,637,664   $287,166,557 
           
*Includes undistributed net investment of:  $15,090   $13,481 

 

See accompanying notes to financial statements.

 

17 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OFCOLORADO

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 (unaudited)

 

1. Organization

 

     Aquila Tax-Free Fund of Colorado (the “Fund”), a series of Aquila Municipal Trust (prior to October 12, 2013, the Fund operated under the name Tax-Free Fund of Colorado), a non-diversified, open-end investment company, was organized in February, 1987 as a Massachusetts business trust and commenced operations on May 21, 1987. The Fund is authorized to issue an unlimited number of shares. Class A Shares are sold at net asset value plus a sales charge of varying size (depending upon a variety of factors) paid at the time of purchase and bear a distribution fee. Class C Shares are sold at net asset value with no sales charge payable at the time of purchase but with a level charge for service and distribution fees for six years thereafter. Class C Shares automatically convert to Class A Shares after six years. Class Y Shares are sold only through authorized financial institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity, and are not offered directly to retail customers. Class Y Shares are sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge (“CDSC”) and no distribution fee. As of the date of this report, there were no Class F Shares or Class T 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 at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees.

 

b)Fair value measurements: The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

 

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.

 

Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may 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.

 

18 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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, 2018:

 

Valuation Inputs*   Investments in Securities 
Level 1 – Quoted Prices  $— 
Level 2 – Other Significant Observable     
Inputs — Municipal Bonds*   265,672,521 
Level 3 – Significant Unobservable Inputs   — 
Total  $265,672,521 

 

*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 (2015 –2017) or expected to be taken in the Fund’s 2018 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.

 

19 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

g)Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

 

h)Reclassification of capital accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. On March 31, 2018, the Fund increased additional paid-in capital by $19,794, increased undistributed net investment income by $9,049, and decreased accumulated realized gain by $28,843. These reclassifications had no effect on net assets or net asset value per share.

 

i)The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services-Investment Companies”.

 

3. Fees and Related Party Transactions

 

a) Management Arrangements:

 

     Aquila Investment Management LLC (the “Manager”), a wholly-owned subsidiary of Aquila Management Corporation, the Fund’s founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. The portfolio management of the Fund has been delegated to a Sub-Adviser as described below. Under the Advisory and Administration Agreement, the Manager provides all administrative services to the Fund, other than those relating to the day-today portfolio management. The Manager’s services include providing the office of the Fund and all related services as well as overseeing the activities of the Sub-Adviser and managing relationships with all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor and additionally maintaining the Fund’s accounting books and records. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.50% of net assets of the Fund. The Manager has contractually agreed to waive fees through September 30, 2019 to the extent necessary in order to pass savings through to the shareholders with respect to the Sub-Advisory Agreement such that its fees are as follows: the annual rate shall be equivalent to 0.48% of net assets of the Fund up to $400 million; 0.46% of the Fund’s net assets above that amount to $1 billion and 0.44% of the Fund’s net assets above $1 billion. For the six months ended September 30, 2018, the Fund incurred management fees of $697,882 of which $27,915 was waived under the contractual fee waiver.

 

20 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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 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, 2018 such that its annual rate of fees is at 0.18% of net assets of the Fund up to $400 million; 0.16% of net assets above $400 million up to $1 billion; and 0.14% of net assets above $1 billion.

 

     Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for Chief Compliance Officer related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940, 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 0.05%. For the six months ended September 30, 2018, distribution fees on Class A Shares amounted to $48,497 of which the Distributor retained $2,542.

 

     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, 2018, amounted to $52,934. 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, 2018, amounted to $17,645. The total of these payments with respect to Class C Shares amounted to $70,579 of which the Distributor retained $17,493.

 

21 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

     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, 2018, total commissions on sales of Class A Shares amounted to $10,477of which the Distributor received $2,200.

 

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, 2018, purchases of securities and proceeds from the sales of securities aggregated $6,709,841 and $17,450,789, respectively.

 

     At September 30, 2018, the aggregate tax cost for all securities was $263,374,077. At September 30, 2018, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to 4,054,107 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $1,755,663 for a net unrealized appreciation of $2,298,444.

 

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, 2018, the Fund had all of its net assets invested in the securities of Colorado issuers.

 

22 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

6. Capital Share Transactions

 

Transactions in Capital Shares of the Fund were as follows:

 

   Six Months Ended   
   September 30, 2018  Year Ended
   (unaudited)  March 31, 2018
   Shares  Amount  Shares  Amount
Class A Shares            
Proceeds from shares sold   597,205   $6,140,521    1,596,193   $16,824,779 
Reinvested dividends and                    
distributions   184,224    1,894,692    397,825    4,185,070 
Cost of shares redeemed   (1,160,886)   (11,941,305)   (2,843,641)   (29,894,097)
Net change   (379,457)   (3,906,092)   (849,623)   (8,884,248)
Class C Shares:                    
Proceeds from shares sold   128,544    1,318,931    162,833    1,710,084 
Reinvested dividends and                    
distributions   8,607    88,290    23,664    248,550 
Cost of shares redeemed   (354,469)   (3,637,024)   (672,183)   (7,056,082)
Net change   (217,318)   (2,229,803)   (485,686)   (5,097,448)
Class Y Shares:                    
Proceeds from shares sold   880,068    9,075,438    2,450,461    25,874,926 
Reinvested dividends and                    
distributions   56,941    586,892    129,863    1,368,299 
Cost of shares redeemed   (1,611,123)   (16,626,843)   (3,093,046)   (32,576,187)
Net change   (674,114)   (6,964,513)   (512,722)   (5,332,962)
Total transactions in Fund                    
shares   (1,270,889)  $(13,100,408)   (1,848,031)  $(19,314,658)

 

7. Trustees’ Fees and Expenses

 

     At September 30, 2018, there were 8 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, 2018 was $41,727. 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, 2018, such meeting-related expenses amounted to $8,307.

 

23 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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. Beginning on the date the Fund enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.

 

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, 2018, the Fund had capital loss carryover of $1,738,385 which is 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. During the fiscal year ended March 31, 2018, the Fund utilized $191,227 of capital loss carry forward.

 

24 | Aquila Tax-Free Fund of Colorado 

 

AQUILA TAX-FREE FUND OF COLORADO

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

     The tax character of distributions was as follows:

 

   Year Ended  Year Ended
   March 31, 2018  March 31, 2017
Net tax-exempt income  $7,473,480   $8,130,528 
Ordinary Income   8,690    — 
   $7,482,170   $8,130,528 

 

     As of March 31, 2018, the components of distributable earnings on a tax basis were:

 

Undistributed tax-exempt income  $143,918 
Unrealized appreciation   4,575,628 
Accumulated net realized gain   (1,738,385)
Other temporary differences   (133,707)
   $2,847,454 

 

     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

 

     The Bank of New York Mellon and the Aquila Group of Funds have been parties to a $40 million credit agreement, which currently terminates on August 28, 2019 (per the August 29, 2018 amendment).  In accordance with the Aquila Group of Funds Guidelines for Allocation of Committed Line of Credit (the Aquila Group of Funds is comprised of nine funds), 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 rate selected by the Aquila Group of Funds at the time of the borrowing of either (i) the one-month Eurodollar Rate or (ii) a rate equal to the greater of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day, or (c) the Overnight Eurodollar Rate in effect on such day).

 

     There were no borrowings under the credit agreement for the six months ended September 30, 2018.

 

25 | 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  Year Ended March 31,
   Ended               
   9/30/18                         
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.31   $10.51   $10.83   $10.80   $10.45   $10.80 
Income from investment operations:                              
Net investment income(1)   0.12    0.26    0.28    0.31    0.32    0.32 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.09)   (0.20)   (0.33)   0.03    0.35    (0.35)
Total from investment operations   0.03    0.06    (0.05)   0.34    0.67    (0.03)
Less distributions (note 9):                              
Dividends from net investment income   (0.12)   (0.26)   (0.27)   (0.31)   (0.32)   (0.32)
Distributions from capital gains   —    —    —    —    —    — 
Total distributions   (0.12)   (0.26)   (0.27)   (0.31)   (0.32)   (0.32)
Net asset value, end of period  $10.22   $10.31   $10.51   $10.83   $10.80   $10.45 
Total return (not reflecting sales charge)   0.32%(3)   0.55%   (0.44)%   3.20%   6.52%   (0.20)%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $190   $196   $208   $220   $202   $209 
Ratio of expenses to average net assets   0.70%(4)   0.68%   0.68%   0.67%   0.73%   0.74%(2)
Ratio of net investment income to                              
average net assets   2.39%(4)   2.47%   2.57%   2.89%   3.04%   3.09%(2)
Portfolio turnover rate   2%(3)   9%   11%   10%   8%   4%
                               
Expense and net investment income ratios without the effect of the contractual expense cap were (note 3):    
                               
Ratio of expenses to average net assets   0.72%(4)   0.70%   0.70%   0.69%   0.75%   0.76%(2)
Ratio of net investment income to                              
average net assets   2.37%(4)   2.45%   2.55%   2.87%   3.02%   3.07%(2)

_____________________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.72% and 3.11%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)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 C
                   
   Six Months  Year Ended March 31,
   Ended               
   9/30/18                         
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.29   $10.49   $10.80   $10.78   $10.43   $10.78 
Income from investment operations:                              
Net investment income(1)    0.07    0.16    0.17    0.21    0.22    0.22 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.10)   (0.20)   (0.31)   0.02    0.35    (0.35)
Total from investment operations   (0.03)   (0.04)   (0.14)   0.23    0.57    (0.13)
Less distributions (note 9):                              
Dividends from net investment income   (0.07)   (0.16)   (0.17)   (0.21)   (0.22)   (0.22)
Distributions from capital gains   —    —    —    —    —    — 
Total distributions   (0.07)   (0.16)   (0.17)   (0.21)   (0.22)   (0.22)
Net asset value, end of period  $10.19   $10.29   $10.49   $10.80   $10.78   $10.43 
Total return (not reflecting CDSC)   (0.26)%(3)   (0.41)%   (1.29)%   2.18%   5.52%   (1.15)%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $13   $15   $21   $24   $26   $28 
Ratio of expenses to average net assets   1.65%(4)   1.63%   1.62%   1.62%   1.68%   1.68%(2)
Ratio of net investment income to                              
average net assets   1.44%(4)   1.52%   1.62%   1.94%   2.09%   2.14%(2)
Portfolio turnover rate   2%(3)   9%   11%   10%   8%   4%
                               
Expense and net investment income ratios without the effect of the contractual expense cap were (note 3):    
                               
Ratio of expenses to average net assets   1.66%(4)   1.65%   1.64%   1.64%   1.70%   1.70%(2)
Ratio of net investment income to                               
average net assets   1.42%(4)   1.50%   1.60%   1.92%   2.07%   2.12%(2)

_____________________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 1.67% and 2.16%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

27 | 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  Year Ended March 31,
   Ended               
   9/30/18                         
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.34   $10.54   $10.86   $10.83   $10.47   $10.83 
Income from investment operations:                              
Net investment income(1)   0.13    0.27    0.28    0.32    0.33    0.33 
Net gain on securities                              
(both realized and unrealized)   (0.10)   (0.20)   (0.32)   0.02    0.36    (0.36)
Total from investment operations   0.03    0.07    (0.04)   0.34    0.69    (0.03)
Less distributions (note 9):                              
Dividends from net investment income   (0.13)   (0.27)   (0.28)   (0.31)   (0.33)   (0.33)
Distributions from capital gains   —    —    —    —    —    — 
Total distributions   (0.13)   (0.27)   (0.28)   (0.31)   (0.33)   (0.33)
Net asset value, end of period  $10.24   $10.34   $10.54   $10.86   $10.83   $10.47 
Total return   0.25%(3)   0.61%   (0.38)%   3.24%   6.66%   (0.24)%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $69   $76   $83   $79   $62   $45 
Ratio of expenses to average net assets   0.65%(4)   0.63%   0.63%   0.62%   0.68%   0.68%(2)
Ratio of net investment income to                              
average net assets   2.44%(4)   2.52%   2.62%   2.94%   3.08%   3.14%(2)
Portfolio turnover rate   2%(3)   9%   11%   10%   8%   4%
                               
Expense and net investment income ratios without the effect of the contractual expense cap were (note 3):
                               
Ratio of expenses to average net assets   0.67%(4)   0.65%   0.65%   0.64%   0.70%   0.70%(2)
Ratio of net investment income to                              
average net assets   2.42%(4)   2.50%   2.60%   2.92%   3.06%   3.12%(2)

_____________________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.66% and 3.16%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

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. Contract review materials were provided to the Trustees in August, 2018. The independent Trustees met telephonically on August 13, 2018 and in person on September 15, 2018 to review and discuss the contract review materials. The Trustees considered, among other things, information presented by the Manager and the Sub-Adviser. They also considered information presented in a report prepared by an independent consultant with respect to the Fund’s fees, expenses and investment performance, which included comparisons of the Fund’s investment performance against peers and the Fund’s benchmark and comparisons of the advisory fee payable by the Fund under the Advisory Agreement against the advisory fees paid by the Fund’s peers, as well as information regarding the operating margins of certain investment advisory firms (the “Consultant’s Report”). In addition, the Trustees took into account the information related to the Fund provided to the Trustees at each regularly scheduled meeting. The Trustees considered the Advisory Agreement and the Sub-Advisory Agreement separately as well as in conjunction with each other to determine their combined effects on the Fund. 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 15, 2018, 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, 2019. 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 also noted that the Fund did not own any Puerto Rico municipal bonds during the review period.

 

     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 Fund’s peer group (the “Peer Group”), as selected by the independent consultant (one Colorado intermediate and four long municipal bond funds, as classified by Morningstar, that charge a front-end sales charge);

 

•the funds in the Fund’s product category for performance (the “Product Category for Performance”) (all funds (and all classes) included in the Morningstar Single-State Intermediate Municipal Bond Funds category); and

 

•the Fund’s benchmark index, the Bloomberg Barclays Quality Intermediate Municipal Bond Index.

 

     The Trustees considered that the materials included in the Consultant’s Report indicated that the Fund’s average annual total return was lower than the average annual total return of the funds in the Peer Group for the one, three, five and ten-year periods ended June 30, 2018. The Trustees also considered that the Fund’s average annual total return was higher than the average annual total return of the funds in the Product Category for Performance for the five and ten-year periods ended June 30, 2018, but lower than the average annual return of the funds in the Product Category for Performance for the one and three-year periods ended June 30, 2018. The Trustees further noted that the Fund’s average annual return was higher than the average annual total return of the benchmark index for the five-year period ended June 30, 2018, but lower than the average annual total return of the benchmark index for the one, three and ten-year periods ended June 30, 2018. 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 Product Category for Performance invest in, and the Fund’s benchmark index includes, municipal bonds of issuers throughout the United States. The Trustees noted that, unlike the Fund’s returns, the performance of the benchmark index did not reflect any fees, expenses or sales charges.

 

30 | Aquila Tax-Free Fund of Colorado 

 

     In addition, the Trustees considered that, as reflected in the Consultant’s Report, the Fund’s standard deviation, a measure of volatility, was in the first and second quintile relative to the funds in the Product Category for Performance for the three and five-year periods ended June 30, 2018, respectively. The Trustees further noted that the Fund’s Sharpe ratio was in the fourth and second quintile for the three and five-year periods ended June 30, 2018, respectively, when compared to the funds in the Product Category for Performance. A Sharpe ratio is a measure for calculating risk-adjusted return. The higher the Sharpe ratio, the better the fund’s historical risk-adjusted performance.

 

     The Trustees discussed the Fund’s performance record with the Manager and the Sub-Adviser and considered the Manager’s and Sub-Adviser’s view that the Fund’s performance, as compared to its peer group, was explained in part by the Fund’s somewhat higher-quality portfolio and lower duration.

 

     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 funds in the Peer Group (as defined above); and

 

•the funds in the product category for expenses (the “Product Category for Expenses”) (Morningstar Single-State Intermediate Municipal Bond Funds and Morningstar Single-State Long Municipal Bond Funds from states within which 4-7 mutual funds are operating, with similar operating expense structures).

 

     The Trustees considered that the Fund’s contractual advisory fee was only 0.003% higher than the average, and equal to the median, contractual advisory fee of the funds in the Peer Group (at the Fund’s current asset level) and 0.011% higher than the asset-weighted average contractual advisory fee of the funds in the Product Category for Expenses (at the Fund’s current asset level). The Trustees noted that the Fund’s actual management fee (after giving effect to the fee waiver) was higher than the average actual management fee of the funds in both the Product Category for Expenses and the Peer Group (after giving effect to fee waivers in effect for those funds). They noted, however, that the Fund’s actual expenses (for Class A shares), after giving effect to fee waivers and expense reimbursements) were lower than the average actual expenses of the funds in both the Product Category for Expenses and the Peer Group (after giving effect to fee waivers and expense reimbursements in effect for those funds).

 

31 | Aquila Tax-Free Fund of Colorado 

 

     The Trustees reviewed management fees charged by each of the Manager and the Sub-Adviser to its other clients. It was noted that the Manager does not have any other clients except for other funds in the Aquila Group of Funds. The Trustees noted that, in most instances, the fee rates for those clients were comparable to the fees paid to the Manager by the Fund. With respect to the Sub-Adviser, the Trustees noted that the fee rates for its other clients were generally lower than the fees paid to the Sub-Adviser with respect to the Fund. In evaluating the fees associated with the client accounts, the Trustees took into account the respective demands, resources and complexity associated with the Fund and those client accounts.

 

     The Trustees concluded that the advisory and sub-advisory fees were reasonable in relation to the nature and quality of the services provided to the Fund by the Manager and the Sub-Adviser.

 

Profitability

 

     The Trustees received materials from the Manager and the independent consultant related to profitability. The Manager provided information which showed the profitability to the Manager of its services to the Fund, as well as the profitability of Aquila Distributors LLC of distribution services provided to the Fund. The independent consultant provided publicly available data regarding the profitability of other asset managers in comparison to the overall profitability of the Manager.

 

     The Trustees considered the information provided by the Manager regarding the profitability of the Manager with respect to the advisory services provided by the Manager to the Fund, including the methodology used by the Manager in allocating certain of its costs to the management of the Fund. The Trustees also considered information regarding the profitability of the Manager provided to the Trustees by the independent consultant. The Trustees concluded that profitability to the Manager with respect to 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 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-advisory fee schedule and 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.

 

32 | Aquila Tax-Free Fund of Colorado 

 

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)
      Expenses(2)   Expenses(2)  
  Beginning Ending(1) Paid During Ending Paid During Net
  Account Account Period Account Period Annualized
Share Value Value 4/1/18 – Value 4/1/18 – Expense
Class 4/1/18 9/30/18 9/30/18 9/30/18 9/30/18 Ratio
A $1,000 $1,003.20 $3.52 $1,021.56 $3.55 0.70%
C $1,000 $ 997.40 $8.26 $1,016.80 $8.34 1.65%
Y $1,000 $1,002.50 $3.26 $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)

 

     Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent your Fund’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Fund policies, the Manager publicly discloses the complete schedule of the Fund’s portfolio holdings, as of each calendar quarter, generally by the 15th day after the end of each calendar quarter. Such information remains accessible until the next schedule is made publicly available. You may obtain a copy of the Fund’s portfolio holdings schedule for the most recently completed period by visiting the Fund’s website at www.aquilafunds. com. Whenever you wish to see a listing of your Fund’s portfolio other than in your shareholder reports, please check our website at www.aquilafunds.com or call us at 1-800-437-1000.

 

     The Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarter ends of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at www.sec.gov. You may also review or, for a fee, copy the forms at the SEC’s Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330.

 

 

Proxy Voting Record (unaudited)

 

     During the 12 month period ended June 30, 2018, 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, 2018, $7,473,480 of dividends paid by Aquila Tax-Free Fund of Colorado, constituting 99.9% of total dividends paid, were exempt-interest dividends; and the balance was ordinary income.

 

     Prior to February 15, 2019, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2018 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.

Glenn P. O’Flaherty

James R. Ramsey

Laureen L. White

 

Officers

Diana P. Herrmann, President

Charles E. Childs, III, Executive Vice President and Secretary

Marie E. Aro, Senior Vice President

Paul G. O’Brien, Senior Vice President

Craig T. DiRuzzo, Vice President

Randall S. Fillmore, Chief Compliance Officer

Joseph P. DiMaggio, Chief Financial Officer

and Treasurer

 

Distributor

AQUILA DISTRIBUTORS 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

225 Liberty Street

New York, New York 10286

 

Further information is contained in the Prospectus,

which must precede or accompany this report.

 

 

                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                 

Semi-Annual

Report

September 30, 2018

                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   

 

 

 

Aquila Tax-Free

Fund For Utah

 

“Proper Asset Allocation

–A Strategy For All Seasons”

 

Serving Utah investors since 1992


  

 

November, 2018

 

Dear Fellow Shareholder:

 

     Financial news, and the often resulting market volatility, can cause even the most seasoned investor to ask, “What should I do now?”

 

     We believe you will generally be in a better position to weather changing economic situations, if your portfolio is built with a strong foundation. In short, is your portfolio properly allocated based on your specific needs? And, have you periodically revisited your portfolio structure to make sure that your allocation remains in line with your investment goals, given changing market conditions and changes in your personal circumstances, including current risk tolerance?

 

     Asset allocation is an investment strategy that strives to balance risk and reward by  diversifying assets according to your specific needs. In developing this strategy, your considerations should include:

 

•investment time horizon (specifically your age and retirement objectives);

 

•risk threshold (how much of your investment capital you are willing to lose during a given time frame);

 

•financial situation (your wealth, income, expenses, tax bracket, liquidity needs, etc.); and

 

•goals (the financial goals you and your family would like to achieve).

 

      Since the three main asset classes - equities, fixed-income, and cash/cash equivalents - have different levels of risk and return, each is expected to behave differently over time. The objective of asset allocation is to create a diversified portfolio with an acceptable level of risk and the highest possible return given that level of risk.

 

     Although there is no simple formula that can find the right asset allocation for every individual, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make.

 

     The way you allocate your investment portfolio among stocks, bonds, and cash/ cash equivalents will be the principal determinants of your investment results –secondary to your selection of individual securities.

 

NOT A PART OF THE SEMI- ANNUAL REPORT

 

 

     Once you and your financial professional have developed an appropriate asset allocation for your portfolio, we believe that changes should be made based on changing needs, not on headlines.

 

     A properly constructed portfolio based on sound asset allocation may generally help you weather all seasons.

 

Sincerely,

 

 

Mutual fund investing involves risk and loss of principal is possible.

 

The market prices of the Fund’s securities may rise or decline in value due to general market conditions, such as real or perceived adverse economic or political conditions, inflation, changes in interest rates, lack of liquidity in the bond markets or adverse investor sentiment. When market prices fall, the value of your investment may go down. 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.

 

The value of your investment may go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term securities. Interest rates in the U.S. have begun to rise after having been at historical lows for some time, so the Fund faces a heightened risk that interest rates may continue to rise. A general rise in interest rates may cause investors to move out of fixed income securities 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.

 

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, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (15.4%)  and Fitch  Value
          
     City and County (5.8%)        
     Carson City, Nevada        
$1,000,000   5.000%, 05/01/28  A1/AA-/NR  $1,131,360 
     Clark County, Nevada, Refunding        
 2,280,000   5.000%, 12/01/29 Series A  Aa1/AA+/NR   2,355,833 
 1,000,000   5.000%, 07/01/23 Series B  Aa1/AA+/NR   1,035,990 
     Henderson, Nevada Refunding Various        
     Purpose        
 1,000,000   5.000%, 06/01/33 Series B  Aa2/AA+/NR   1,101,040 
 750,000   5.000%, 06/01/30 Series 2014  Aa2/AA+/NR   840,427 
 750,000   5.000%, 06/01/35 Series 2014  Aa2/AA+/NR   832,935 
     Miami Gardens, Florida        
 1,000,000   5.000%, 07/01/29  A1/A+/NR   1,113,750 
     North Las Vegas, Nevada Limited Tax        
 1,000,000   5.000%, 06/01/31 Series 2018 AGMC        
     Insured  A2/AA/NR   1,140,530 
     Port Houston Authority, Texas Harris        
     County        
 1,000,000   5.000%, 10/01/29 AMT Series A  Aaa/AAA/NR   1,173,530 
     Port of Olympia, Washington Limited        
     Tax        
 1,385,000   5.000%, 12/01/31 AMT Series B  Aa2/NR/NR   1,563,984 
     Provo City, Utah        
 760,000   4.000%, 01/01/22  Aa1/AA+/NR   805,326 
 1,825,000   4.000%, 01/01/23  Aa1/AA+/NR   1,958,991 
     Reedy Creek, Florida Improvement        
     District        
 1,000,000   5.250%, 06/01/29 Series A  Aa3/AA-/AA-   1,126,890 
     Reno, Nevada Capital Improvement        
     Refunding        
 1,000,000   5.000%, 06/01/28  A1/A+/NR   1,100,580 
     Salt Lake City, Utah        
 1,000,000   5.000%, 06/15/22  Aaa/NR/AAA   1,103,510 
     Salt Lake County, Utah        
 1,875,000   5.000%, 12/15/23 Series B  Aaa/AAA/AAA   2,126,756 
     Washoe County, Nevada Refunding        
     Reno Sparks Convention        
 2,000,000   5.000%, 07/01/28  Aa2/AA/NR   2,148,420 
     Total City and County      22,659,852 

 

1  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (continued)  and Fitch  Value
          
     Hospital (0.3%)        
     King County, Washington Public        
     Hospital District No. 002,        
     Refunding, Evergreen Healthcare        
$1,000,000   5.250%, 12/01/28  Aa3/A/NR  $1,061,670 
              
     Local Public Property (0.3%)        
     Houston, Texas Public Improvement        
 1,000,000   5.000%, 03/01/35 Series A  Aa3/AA/NR   1,121,440 
              
     Public Schools (5.7%)        
     Clark County, Nevada School District        
     Limited Tax        
 1,645,000   5.000%, 06/15/28 Series D  A1/A+/NR   1,852,089 
 2,000,000   4.000%, 06/15/30 Series D  A1/A+/NR   2,078,600 
     Davis County, Utah School District        
     (School Board Guaranty Program)        
 4,395,000   4.000%, 06/01/25 Series B  Aaa/NR/NR   4,785,056 
     Granite School District, Utah, Salt        
     Lake County (School Board        
     Guaranty Program)        
 1,000,000   5.000%, 06/01/26 Series B  Aaa/NR/AAA   1,175,630 
     Lewis County, Washington School        
     District No. 302 Chehalis (School        
     Board Guaranty Program)        
 1,000,000   5.000%, 12/01/34  Aa1/NR/NR   1,130,910 
     Lewis & Thurston Counties,        
     Washington School District No.        
     401 Centalia (School Board        
     Guaranty Program)        
 1,230,000   5.000%, 12/01/35  Aa1/NR/NR   1,394,525 
     Nebo School District, Utah County,        
     Utah (School Board Guaranty        
     Program)        
 2,000,000   5.000%, 07/01/25 Series C  Aaa/NR/AAA   2,318,020 
     Washington County, Utah School District        
     (School Board Guaranty Program)        
 2,880,000   5.000%, 03/01/30 Series B  Aaa/NR/AAA   3,347,280 
 3,020,000   5.000%, 03/01/31 Series B  Aaa/NR/AAA   3,495,288 

 

2  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (continued)  and Fitch  Value
          
     Public Schools (continued)        
     Wylie, Texas Independent School        
     District Capital Appreciation        
$1,000,000   zero coupon, 08/15/32 PSF Guaranteed.  Aaa/NR/NR  $600,580 
     Total Public Schools      22,177,978 
              
     State (2.1%)        
     Texas State Transportation Commission        
     Highway Improvement        
 1,000,000   5.000%, 04/01/29  Aaa/AAA/AAA   1,124,380 
     Texas State Transportation Commission        
     Mobility Fund        
 1,000,000   5.000%, 10/01/31 Series 2015A  Aaa/AAA/AAA   1,138,240 
     Texas State Water Financial Assistance        
 1,000,000   5.000%, 08/01/30 Series E  Aaa/AAA/AAA   1,139,210 
     Utah State        
 1,000,000   5.000%, 07/01/27  Aaa/AAA/AAA   1,195,290 
 1,000,000   5.000%, 07/01/28  Aaa/AAA/AAA   1,190,100 
 1,000,000   5.000%, 07/01/29  Aaa/AAA/AAA   1,184,080 
 1,000,000   4.000%, 07/01/30  Aaa/AAA/AAA   1,077,850 
     Total State      8,049,150 
              
     Water and Sewer (1.2%)        
     Central Utah Water Conservancy        
     District Refunding        
 1,300,000   5.000%, 04/01/29 Series A  NR/AA+/AA+   1,385,683 
 765,000   5.000%, 04/01/28 Series B  NR/AA+/AA+   815,811 
     Las Vegas Valley, Nevada Water        
     District Refunding        
 1,200,000   5.000%, 06/01/30 Series C  Aa1/AA+/NR   1,283,544 
     Magna Water District, Utah        
 540,000   4.000%, 06/01/21  NR/AA/NR   567,151 
 490,000   4.000%, 06/01/22  NR/AA/NR   522,119 
     Total Water and Sewer      4,574,308 
     Total General Obligation Bonds      59,644,398 

 

3  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (68.4%)  and Fitch  Value
          
     Airport (4.7%)        
     Brownsville, Texas Combination        
     Tax and Airport, Certificates of        
     Obligation        
$500,000   5.000%, 02/15/28 AMT Series 2018†††  Aa3/AA/NR  $558,305 
     Broward County, Florida Airport        
     System Refunding        
 1,000,000   5.375%, 10/01/29 Series O  A1/A+/A+   1,032,150 
     Clark County, Nevada Passenger        
     Facilities Charge Las Vegas-        
     McCarran International Airport        
 1,500,000   5.000%, 07/01/30  Aa3/A+/NR   1,550,775 
     Dallas/Fort Worth, Texas International        
     Airport        
 1,600,000   5.000%, 11/01/30 Series B  A1/A+/A+   1,679,248 
     Houston, Texas Airport System        
     Subordinate Lien Refunding        
 1,000,000   5.000%, 07/01/29 AMT Series C  A1/NR/A   1,156,910 
     Miami-Dade County, Florida Aviation        
     Miami International Airport        
 1,675,000   5.000%, 10/01/22 Series A-1  A2/A/A   1,764,797 
     Salt Lake City, Utah Airport Revenue,        
     Salt Lake City International Airport        
 3,750,000   5.000%, 07/01/27 AMT Series A  A2/A+/NR   4,316,887 
 2,100,000   5.000%, 07/01/30 AMT Series A  A2/A+/NR   2,381,169 
 1,240,000   5.000%, 07/01/30 Series B  A2/A+/NR   1,431,568 
 500,000   5.000%, 07/01/31 Series B  A2/A+/NR   575,170 
 1,525,000   5.000%, 07/01/37 Series B  A2/A+/NR   1,719,270 
     Total Airport      18,166,249 
              
     Charter Schools (9.3%)        
     Utah State Charter School Finance        
     Authority George Washington        
     Academy        
 1,500,000   5.000%, 04/15/35 Series 2015  NR/AA/NR   1,613,895 
     Utah State Charter School Finance        
     Authority Good Foundations        
     Academy        
 740,000   4.750%, 11/15/24 Series A 144A.  NR/NR/NR*   739,985 
 1,655,000   5.550%, 11/15/34 Series A 144A.  NR/NR/NR*   1,654,901 
 3,280,000   5.850%, 11/15/44 Series A 144A.  NR/NR/NR*   3,279,639 

 

4  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
   Charter Schools (continued)      
     Utah State Charter School Finance        
     Authority Hawthorn Academy        
     Project        
$2,165,000   5.000%, 10/15/29 Series 2014  NR/AA/NR  $2,369,874 
     Utah State Charter School Finance        
     Authority Lakeview Academy        
 1,300,000   5.000%, 10/15/35 Series 2015  NR/AA/NR   1,424,059 
     Utah State Charter School Finance        
     Authority Legacy Preparatory        
     Academy        
 405,000   4.000%, 04/15/22  NR/AA/NR   423,197 
 440,000   4.000%, 04/15/24  NR/AA/NR   465,973 
 2,530,000   5.000%, 04/15/29  NR/AA/NR   2,765,062 
     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   1,067,620 
     Utah State Charter School Finance        
     Authority Ogden Preparatory        
     Academy (School Board Guaranty        
     Program)        
 475,000   4.000%, 10/15/22  NR/AA/NR   498,090 
 505,000   4.000%, 10/15/23  NR/AA/NR   528,957 
 525,000   4.000%, 10/15/24  NR/AA/NR   546,840 
     Utah State Charter School Finance        
     Authority Providence Hall        
     Elementary School (School Board        
     Guaranty Program)        
 1,000,000   5.250%, 10/15/28 Series 2013A  NR/AA/NR   1,098,540 
 1,000,000   5.000%, 10/15/33 Series 2013A  NR/AA/NR   1,075,390 
     Utah State Charter School Finance        
     Authority Quest Academy        
 500,000   5.000%, 04/15/37  NR/AA/NR   544,460 
     Utah State Charter School Finance        
     Authority Utah Charter Academies        
 500,000   5.000%, 10/15/25 Series 2018  NR/AA/NR   563,675 
 500,000   5.000%, 10/15/27 Series 2018  NR/AA/NR   573,940 
 475,000   5.000%, 10/15/28 Series 2018  NR/AA/NR   542,830 

 

5  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Charter Schools (continued)        
     Utah State Charter School Finance        
     Authority Venture Academy        
$240,000   0.500%, 10/15/19  NR/AA/NR  $235,649 
 675,000   4.000%, 10/15/24  NR/AA/NR   708,892 
 855,000   5.000%, 10/15/29  NR/AA/NR   926,162 
 1,095,000   5.000%, 10/15/34  NR/AA/NR   1,185,513 
 1,095,000   5.000%, 10/15/38  NR/AA/NR   1,171,968 
     Utah State Charter School Finance        
     Authority Voyage Academy        
 1,350,000   5.000%, 03/15/27 144A  NR/NR/NR*   1,356,723 
 2,440,000   5.500%, 03/15/37 144A  NR/NR/NR*   2,444,636 
 4,785,000   5.600%, 03/15/47 144A  NR/NR/NR*   4,751,170 
     Utah State Charter School Finance        
     Authority Wasatch Peak Academy        
     Project (School Board Guaranty        
     Program)        
 740,000   5.000%, 10/15/29  NR/AA/NR   801,672 
 700,000   5.000%, 10/15/36  NR/AA/NR   746,095 
     Total Charter Schools      36,105,407 
              
     Electric (7.7%)        
     Consolidated Wyoming Municipalities        
     Electric Facilities Improvement        
     Lease, Gillette        
 1,000,000   5.000%, 06/01/31  A1/A+/NR   1,100,690 
     Jacksonville Electric Authority, Florida        
     Electric System Revenue        
 35,000   4.500%, 10/01/32 Series Three 2012A  Aa2/A+/NR   36,486 
     Unrefunded Balance        
     Lehi, Utah Electric Utility Revenue        
 520,000   5.000%, 06/01/29  NR/A+/NR   600,059 
 850,000   5.000%, 06/01/31  NR/A+/NR   972,485 
 1,000,000   5.000%, 06/01/35  NR/A+/NR   1,128,170 
     Lower Colorado River Authority, Texas        
 1,470,000   5.250%, 05/15/29  A2/A/A   1,498,959 
     Lower Colorado River Authority, Texas        
     Transmission Contract Revenue        
 1,000,000   5.000%, 05/15/30  NR/A/A+   1,116,690 

 

6  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Electric (continued)        
     San Antonio, Texas Electric & Gas        
     Revenue System        
$1,250,000   4.000%, 02/01/33  Aa1/AA/AA+  $1,304,862 
     Southeast Alaska Power        
     Agency Electric Refunding &        
     Improvement        
 1,170,000   5.250%, 06/01/30  NR/A-/NR   1,314,986 
     St. George, Utah Electric Revenue        
 1,620,000   4.000%, 06/01/32 AGMC Insured  A2/AA/NR   1,692,835 
     Utah Associated Municipal Power        
     System Revenue, Horse Butte Wind        
     Project        
 750,000   5.000%, 09/01/24 Series A  NR/A/A   850,702 
 445,000   5.000%, 09/01/25 Series A  NR/A/A   510,357 
 375,000   5.000%, 09/01/30 Series 2017B  NR/A/A   429,810 
     Utah Associated Municipal Power        
     System Revenue Refunding, Payson        
     Power Project        
 2,000,000   5.000%, 04/01/24  NR/A-/A   2,153,120 
 1,000,000   5.000%, 04/01/25  NR/A-/A   1,075,360 
 6,375,000   5.000%, 04/01/26  NR/A-/A   6,847,770 
     Utah Associated Municipal Power        
     System Revenue, Veyo Heat        
     Recovery Project        
 795,000   5.000%, 03/01/30  NR/A/A   886,139 
 905,000   5.000%, 03/01/32  NR/A/A   1,003,183 
 745,000   5.000%, 03/01/34  NR/A/A   821,728 
     Utah State Municipal Power        
     Agency Power Supply System        
     Revenue        
 330,000   5.000%, 07/01/23  NR/A+/A+   368,739 
 3,000,000   5.000%, 07/01/38 Series B  NR/A+/A+   3,330,840 
     Wyoming Municipal Power Agency        
     Power Supply System Revenue        
 665,000   5.000%, 01/01/27 Series A BAMI        
     Insured  A2/AA/NR   763,074 
     Total Electric      29,807,044 

 

7  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
   Higher Education (8.9%)      
     Florida Higher Education Facilities        
     Authority Revenue, Refunding,        
     Rollins College Project        
$1,000,000   5.000%, 12/01/37 Series A  A2/NR/NR  $1,081,770 
     Salt Lake County, Utah Westminster        
     College Project        
 685,000   5.000%, 10/01/19  NR/BBB/NR   702,241 
 720,000   5.000%, 10/01/20  NR/BBB/NR   753,278 
 555,000   5.000%, 10/01/21  NR/BBB/NR   590,365 
 790,000   5.000%, 10/01/22  NR/BBB/NR   851,881 
 1,970,000   5.000%, 10/01/25  NR/BBB/NR   2,168,418 
 955,000   5.000%, 10/01/28  NR/BBB/NR   1,035,296 
 1,845,000   5.000%, 10/01/29  NR/BBB/NR   2,019,094 
 1,005,000   5.000%, 10/01/29  NR/BBB/NR   1,084,053 
 1,055,000   5.000%, 10/01/30  NR/BBB/NR   1,134,832 
     South Dakota Board of Regents,        
     Housing & Auxiliary Facilities        
     System        
 500,000   5.000%, 04/01/28  Aa3/NR/NR   572,545 
     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   1,113,540 
     University of Wyoming Facilities        
 500,000   4.000%, 06/01/31  Aa2/NR/NR   523,165 
     Utah State Board of Regents, Dixie        
     State University        
 1,800,000   5.000%, 06/01/30 AGMC Insured  NR/AA/NR   2,043,828 
 660,000   5.000%, 06/01/35 Series B AGMC        
     Insured  NR/AA/NR   744,454 
 690,000   5.000%, 06/01/36 Series B AGMC        
     Insured  NR/AA/NR   775,526 
     Utah State Board of Regents Lease        
     Revenue        
 410,000   4.500%, 05/01/20 AMBAC Insured  NR/AA/NR   410,808 
 425,000   4.500%, 05/01/21 AMBAC Insured  NR/AA/NR   425,854 
 450,000   4.625%, 05/01/22 AMBAC Insured  NR/AA/NR   450,972 
 120,000   4.650%, 05/01/23 AMBAC Insured  NR/AA/NR   120,257 

 

8  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Higher Education (continued)        
     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  $1,484,899 
 1,000,000   5.000%, 03/01/27 Series 2018  NR/AA/NR   1,141,550 
     Utah State Board of Regents, Student        
     Facilities System Revenue, Weber        
     State University        
 750,000   5.000%, 04/01/29 AGMC Insured  NR/AA/NR   893,903 
 200,000   5.000%, 04/01/30 AGMC Insured  NR/AA/NR   239,300 
     Utah State Board of Regents,        
     University of Utah        
 500,000   5.000%, 08/01/29 Series A  Aa1/AA+/NR   590,660 
 530,000   5.000%, 08/01/33 Series A  Aa1/AA+/NR   602,016 
 600,000   5.000%, 08/01/35 Series A  Aa1/AA+/NR   677,544 
 500,000   4.000%, 08/01/36 Series A  Aa1/AA+/NR   519,680 
 1,000,000   5.000%, 08/01/35 Series B-1  Aa1/AA+/NR   1,134,880 
 1,500,000   5.000%, 08/01/36 Series B-1  Aa1/AA+/NR   1,694,520 
     Utah State Board of Regents, Utah        
     State University        
 1,105,000   4.000%, 12/01/30 Series B  NR/AA/NR   1,160,438 
     Utah State Board of Regents, Utah        
     Valley University Student Center        
     Building Fee And Unified System        
     Revenue        
 3,005,000   5.000%, 11/01/28 Series 2012A  NR/AA/NR   3,311,841 
     Washington State Higher Education        
     Facilities Authority Revenue,        
     Whitman College Project        
 2,070,000   5.000%, 01/01/32  Aa3/NR/NR   2,300,722 
     Total Higher Education      34,354,130 
              
     Hospital (1.4%)        
     Brevard County, Florida Health        
     Facilities Authority Health First Inc.        
     Project        
 750,000   5.000%, 04/01/30  A2/A/NR   825,097 

 

9  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Hospital (continued)        
     Harris County, Texas Health Facilities        
     Development Corp., Christus        
     Health        
$540,000   4.750%, 07/01/30 AGMC Insured  A1/AA/NR  $557,717 
     Miami-Dade County, Florida Public        
     Facilities, Jackson Health System        
 1,000,000   5.000%, 06/01/29 Series A  Aa3/A+/AA-   1,116,750 
     Utah County, Utah Hospital Revenue,        
     IHC Health Services, Inc.        
 1,205,000   5.000%, 05/15/25  Aa1/AA+/NR   1,299,351 
 880,000   5.000%, 05/15/28  Aa1/AA+/NR   947,496 
 500,000   5.000%, 05/15/29  Aa1/AA+/NR   538,085 
     Total Hospital      5,284,496 
              
     Housing (1.0%)        
     North Dakota Housing Finance        
     Agency, Home Mortgage Finance        
     Program        
 400,000   3.000%, 07/01/27 Series A  Aa1/NR/NR   400,296 
     Utah Housing Corporation Single        
     Family Mortgage        
 45,000   4.950%, 01/01/32 Series A Class II  Aa2/AA/AA   44,998 
 265,000   4.500%, 01/01/24 Series A Class III  Aa3/AA-/AA-   267,231 
 75,000   4.625%, 07/01/32 Series B-1 Class II  Aa2/AA/AA   75,263 
 160,000   4.500%, 07/01/23 Series C  Aa3/AA-/AA-   160,627 
 1,010,000   4.000%, 01/01/36 Series D FHA        
     Insured  Aa3/AA-/AA-   1,015,515 
     Wyoming Community Development        
     Authority Housing Revenue        
 820,000   2.550%, 12/01/23 Series 1  Aa1/AA+/NR   819,590 
 500,000   3.000%, 12/01/27 Series 1  Aa1/AA+/NR   494,845 
 400,000   2.450%, 06/01/26 Series 5  Aa1/AA+/NR   382,176 
     Total Housing      3,660,541 
              
     Local Public Property (12.7%)        
     Brigham, Utah Special Assessment        
     Voluntary Assessment Area        
 975,000   5.250%, 08/01/23  A1/NR/NR   999,151 
 90,000   5.500%, 08/01/29  A1/NR/NR   92,413 

 

10  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
   Local Public Property (continued)      
     Civicventures, Alaska Revenue        
     Refunding, Anchorage Convention        
     Center        
$1,000,000   5.000%, 09/01/28  NR/A/AA-  $1,116,080 
 1,000,000   5.000%, 09/01/29  NR/A/AA-   1,112,140 
 1,000,000   5.000%, 09/01/30  NR/A/AA-   1,109,520 
     Clark County, Nevada Improvement        
     District Special Local Improvement        
     #128 (Summerlin)        
 490,000   5.000%, 02/01/21 Series A  NR/NR/NR*   493,474 
     Downtown Redevelopment Authority,        
     Texas Tax Increment Contract        
     Revenue        
 1,000,000   5.000%, 09/01/30 BAMI Insured  NR/AA/NR   1,125,350 
     Eagle Mountain, Utah Special        
     Assessment Area        
 345,000   5.250%, 05/01/28 Series 2013  NR/A+/NR   373,069 
     Harris County, Texas Sports Refunding        
     Senior Lien        
 500,000   5.000%, 11/15/30 Series A  A2/A-/NR   553,450 
     Houston, Texas Hotel Occupancy Tax        
     and Special Revenue        
 1,000,000   5.000%, 09/01/31  A2/A-/NR   1,100,220 
     Jacksonville, Florida Special Revenue        
     and Refunding Bonds        
 1,015,000   5.250%, 10/01/32 Series A  Aa3/AA/AA-   1,137,754 
     Mesquite, Nevada New Special        
     Improvement District        
 180,000   5.350%, 08/01/19  NR/NR/NR*   181,004 
 75,000   5.400%, 08/01/20  NR/NR/NR*   75,385 
 270,000   5.500%, 08/01/25  NR/NR/NR*   270,683 
     Midvale, Utah Redevelopment Agency        
     Tax Increment & Sales Tax Revenue        
     Refunding        
 750,000   5.000%, 05/01/28  NR/AA-/NR   865,170 
 1,000,000   5.000%, 05/01/32  NR/AA-/NR   1,135,710 
     Orange County, Florida Tourist        
     Development Tax Revenue        
     Refunding        
 1,000,000   5.000%, 10/01/30  Aa3/AA-/AA   1,131,450 

 

11  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
   Local Public Property (continued)      
     Orem, Utah Special Assessment        
$140,000   7.750%, 11/01/25  NR/NR/NR*  $140,253 
     Salt Lake City, Utah Local Building        
     Authority Lease Revenue        
 955,000   4.000%, 10/15/23 Series A  Aa1/NR/AA+   1,016,063 
 600,000   5.000%, 04/15/32 Series A  Aa1/NR/NR   688,314 
 395,000   4.000%, 04/15/32 Series A  Aa1/NR/NR   416,551 
 425,000   4.000%, 04/15/34 Series A  Aa1/NR/NR   442,395 
 1,075,000   5.000%, 04/15/35 Series A  Aa1/NR/NR   1,220,243 
 460,000   4.000%, 04/15/36 Series A  Aa1/NR/NR   475,732 
     Salt Lake City, Utah Mosquito        
     Abatement District Local Building        
     Authority Lease Revenue        
 730,000   5.000%, 02/15/29  Aa3/NR/NR   849,654 
 810,000   5.000%, 02/15/31  Aa3/NR/NR   935,574 
     South Jordan, Utah Special Assessment        
     (Daybreak Assessment Area No. 1)        
 1,335,000   4.000%, 11/01/27  NR/AA+/NR   1,423,230 
 1,690,000   4.000%, 11/01/28  NR/AA+/NR   1,794,222 
 1,460,000   4.000%, 11/01/30  NR/AA+/NR   1,531,934 
     St. Augustine, Florida Capital        
     Improvement Refunding        
 500,000   5.000%, 10/01/34  Aa3/AA/A+   550,475 
     St. Lucie County, Florida School Board        
     COP Master Lease Program        
 500,000   5.000%, 07/01/30 Series A  A1/A/A+   545,305 
     Tooele County, Utah Municipal        
     Building Authority Lease Revenue        
     Cross-Over        
 850,000   4.000%, 12/15/28  NR/AA-/NR   912,220 
 885,000   4.000%, 12/15/29  NR/AA-/NR   941,020 
 920,000   4.000%, 12/15/30  NR/AA-/NR   970,720 
     Unified Utah Fire Service Area Local        
     Building Authority Lease Revenue        
 2,350,000   4.000%, 04/01/32  Aa2/NR/NR   2,462,518 
 2,450,000   4.000%, 04/01/33  Aa2/NR/NR   2,551,700 

 

12  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Local Public Property (continued)        
     Washington County, Utah Municipal        
     Building Authority Lease Revenue        
$500,000   5.000%, 10/01/32  Aa3/NR/NR  $560,810 
 500,000   5.000%, 10/01/37  Aa3/NR/NR   551,555 
     Weber County, Utah Special        
     Assessment Summit Mountain Area        
 1,585,000   5.500%, 01/15/28  NR/AA-/NR   1,786,691 
 4,110,000   5.750%, 01/15/33  NR/AA-/NR   4,653,137 
     West Jordan, Utah Municipal Building        
     Authority Lease Revenue        
 1,000,000   5.000%, 10/01/29  Aa3/NR/NR   1,130,640 
 1,000,000   5.000%, 10/01/34  Aa3/NR/NR   1,112,690 
     West Palm Beach, Florida Community        
     Redevelopment Agency Tax        
     Increment Revenue Refunding        
 1,500,000   5.250%, 03/01/31  NR/A/AA-   1,703,265 
     West Valley City, Utah Municipal        
     Building Authority Lease Revenue        
     Refunding        
 900,000   4.000%, 02/01/33 AGMC Insured  NR/AA/AA-   930,015 
 1,000,000   5.000%, 02/01/34 AGMC Insured  NR/AA/AA-   1,128,330 
 810,000   4.000%, 02/01/38 AGMC Insured  NR/AA/AA-   824,402 
     West Valley City, Utah Redevelopment        
     Agency Revenue Refunding        
 1,885,000   5.000%, 11/01/36  NR/AA-/NR   2,092,275 
     Total Local Public Property      49,213,956 
              
     Public Schools (1.3%)        
     Alpine, Utah Local Building Authority        
     School District Lease Revenue        
 985,000   4.000%, 03/15/28  Aa2/NR/NR   1,065,701 
     Ogden City, Utah Municipal Building        
     Authority School District Lease        
     Revenue        
 1,125,000   5.000%, 01/15/30†††  A1/NR/NR   1,290,330 
 1,315,000   5.000%, 01/15/31  A1/NR/NR   1,442,621 

 

13  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Public Schools (continued)        
     Uintah County, Utah School District        
     Municipal Building Authority Lease        
     Revenue Refunding        
$1,351,000   2.000%, 08/01/22  NR/NR/NR*  $1,325,669 
     Total Public Schools      5,124,321 
              
     Sales Tax (6.3%)        
     Central Puget Sound, Washington        
     Regional Transit Authority Sales &        
     Use Tax Improvement & Refunding        
 1,000,000   5.000%, 11/01/31  Aa1/AAA/NR   1,137,640 
     Cottonwood Heights, Utah Sales Tax        
     Revenue        
 2,000,000   5.000%, 07/01/32 Series 2014  NR/AA-/NR   2,217,440 
     Herriman City, Utah Sales & Franchise        
     Tax Revenue Refunding        
 2,040,000   4.000%, 08/01/25 Series B  NR/AA-/NR   2,172,518 
 2,135,000   4.000%, 08/01/30 Series B  NR/AA-/NR   2,253,749 
 1,515,000   5.000%, 08/01/33 Series B  NR/AA-/NR   1,694,861 
     Miami-Dade County, Florida Transit        
     System Sales Surtax Revenue        
 1,000,000   5.000%, 07/01/34  A1/AA/AA   1,112,900 
     Reno, Nevada Sales Tax Revenue, First        
     Lien, ReTRAC-Reno Transportation        
     Rail Access Corridor Project        
 500,000   5.000%, 06/01/26  A3/NR/NR   570,935 
     Riverton City, Utah Franchise & Sales        
     Tax Revenue        
 750,000   4.000%, 06/01/30  NR/AA-/AAA   784,350 
 1,000,000   5.250%, 12/01/36  NR/AA-/AAA   1,111,010 
     Salt Lake County, Utah Sales Tax        
     Revenue        
 2,000,000   5.000%, 02/01/24 Series A  NR/AAA/AAA   2,178,160 
 1,655,000   4.000%, 02/01/34 Series B  NR/AAA/AAA   1,741,192 
     South Jordan, Utah Redevelopment        
     Agency Subordinated Sales Tax & Tax        
     Increment Revenue        
 1,000,000   5.000%, 04/01/29  NR/AA-/AAA   1,127,330 

 

14  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Sales Tax (continued)        
     Summit County, Utah Transportation        
     Sales Tax Revenue        
$1,450,000   4.000%, 12/15/29 Series 2018  NR/AA-/NR  $1,554,168 
     Utah Transit Authority Sales Tax        
     Revenue Subordinated        
 1,000,000   4.000%, 12/15/30  A1/A+/AA   1,054,200 
 1,000,000   5.000%, 12/15/32  A1/A+/AA   1,150,880 
     Utah Transit Authority Sales Tax        
     Revenue Subordinated, Capital        
     Appreciation        
 1,000,000   zero coupon, 12/15/32  A1/A+/AA   577,450 
     West Valley City, Utah Sales Tax        
     Revenue Capital Appreciation        
     Bonds, Refunding        
 3,500,000   zero coupon, 07/15/35  NR/AA+/NR   1,699,145 
     Total Sales Tax      24,137,928 
              
     State Agency (1.7%)        
     Utah Infrastructure Agency Layton City        
     Telecommunications & Franchise Tax        
 500,000   5.000%, 10/15/30 Series 2018  NR/A+/NR   577,195 
     Utah Infrastructure Agency        
     Telecommunications & Franchise Tax        
 1,660,000   3.000%, 10/15/20 Series A  NR/NR/BBB-   1,675,704 
 610,000   5.000%, 10/15/21 Series A  NR/NR/BBB-   650,998 
 640,000   5.000%, 10/15/22 Series A  NR/NR/BBB-   692,864 
     Utah State Building Ownership        
     Authority Lease Revenue Refunding        
     State Facilities Master Lease        
     Program        
 1,000,000   5.000%, 05/15/24  Aa1/AA+/NR   1,138,710 
 905,000   4.000%, 05/15/29  Aa1/AA+/NR   989,563 
 940,000   4.000%, 05/15/30  Aa1/AA+/NR   1,019,956 
     Total State Agency      6,744,990 

 

15  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Transportation (5.5%)        
     Clark County, Nevada Highway        
     Improvement Revenue Indexed Fuel        
     Tax & Subordinate Motor Vehicle        
     Fuel Tax        
$2,000,000   5.000%, 07/01/31  Aa3/AA-/NR  $2,245,200 
 500,000   5.000%, 07/01/36  Aa3/AA-/NR   564,915 
     North Texas Tollway Authority, Texas        
 755,000   6.100%, 01/01/28 Series A  A1/A+/NR   762,195 
     Salt Lake County, Utah Excise Tax Road        
     Revenue        
 1,000,000   5.000%, 08/15/29 Series 2017  NR/AAA/AAA   1,176,850 
 1,000,000   4.000%, 08/15/31 Series 2017  NR/AAA/AAA   1,070,100 
     Utah Transit Authority Sales Tax        
     Revenue        
 1,000,000   5.000%, 06/15/31 Series A  Aa2/AAA/AA   1,138,150 
     Utah Transit Authority Sales Tax        
     Revenue Subordinated        
 5,000,000   5.000%, 06/15/34 Series A  A1/A+/AA   5,573,950 
 5,000,000   5.000%, 06/15/37 Series A  A1/A+/AA   5,522,950 
     Utah Transit Authority Sales Tax &        
     Transportation Revenue        
 195,000   5.250%, 06/15/32 AGMC Insured  Aa2/AAA/AA   239,300 
     Washoe County, Nevada Highway        
     Revenue Fuel Tax        
 1,000,000   5.500%, 02/01/28  A1/A+/NR   1,011,200 
 1,000,000   5.000%, 02/01/32  A1/A+/NR   1,008,790 
 1,000,000   5.000%, 02/01/38  A1/A+/NR   1,008,590 
     Total Transportation      21,322,190 
              
     Water and Sewer (7.9%)        
     Central Utah Water Conservancy        
     District Refunding, Jordanelle        
     Hydrant        
 1,125,000   4.500%, 10/01/27 Series A  NR/AA/AA+   1,192,590 
     Davie, Florida Water & Sewer Revenue        
 1,000,000   5.000%, 10/01/32 AGMC Insured  A1/AA/NR   1,073,560 

 

16  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
   Water and Sewer (continued)      
     Eagle Mountain, Utah Water & Sewer        
     Revenue Refunding        
$420,000   4.000%, 11/15/24 Series A BAMI Insured  NR/AA/NR  $454,045 
     El Paso, Texas Water & Sewer Revenue        
     Refunding        
 1,000,000   4.500%, 03/01/31 Series C  NR/AA+/AA+   1,086,900 
     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   558,585 
     Jordan Valley, Utah Water Conservancy        
     District Revenue        
 1,000,000   5.000%, 10/01/26 Series B  NR/AA+/AA+   1,177,020 
 1,000,000   4.000%, 10/01/32 Series B  NR/AA+/AA+   1,059,700 
     Jordanelle, Utah Special Service District        
 228,000   5.400%, 11/15/18  NR/NR/NR*   228,007 
 240,000   5.500%, 11/15/19  NR/NR/NR*   239,974 
 253,000   5.600%, 11/15/20  NR/NR/NR*   252,185 
 268,000   5.700%, 11/15/21  NR/NR/NR*   266,547 
 283,000   5.800%, 11/15/22  NR/NR/NR*   279,321 
 299,000   6.000%, 11/15/23  NR/NR/NR*   294,204 
     Miami-Dade County, Florida Water and        
     Sewer Revenue System        
 1,000,000   5.000%, 10/01/26  Aa3/A+/A+   1,151,950 
 1,000,000   5.000%, 10/01/31 Series A  Aa3/A+/A+   1,091,750 
     Mountain Regional Water Special        
     Service District, Utah Water Revenue        
     Refunding        
 3,000,000   5.000%, 12/15/33 AGMC Insured  NR/AA/A+   3,226,470 
     Ogden City, Utah Sewer & Water        
     Revenue Bonds        
 1,160,000   5.250%, 06/15/30 Series B  Aa3/AA-/NR   1,290,860 
     Ogden City, Utah Storm Drain Revenue        
     Bonds        
 500,000   5.250%, 06/15/28  NR/AA/NR   561,105 
     Okaloosa County, Florida Water and        
     Sewer Revenue        
 1,000,000   5.000%, 07/01/30  Aa3/NR/AA   1,129,770 

 

17  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Water and Sewer (continued)        
     Pleasant Grove City, Utah Water        
     Revenue        
$1,000,000   5.250%, 12/01/29 AGMC Insured  NR/AA/NR  $1,005,490 
     Salt Lake & Sandy, Utah Metropolitan        
     Water District, Water Revenue,        
     Refunding        
 1,100,000   5.000%, 07/01/37 Series A  NR/AA+/AA+   1,192,411 
     Salt Lake City, Utah Public Utilities        
     Revenue        
 1,000,000   5.000%, 02/01/32  Aa1/AAA/NR   1,142,710 
 1,400,000   5.000%, 02/01/33  Aa1/AAA/NR   1,594,824 
 1,000,000   5.000%, 02/01/35  Aa1/AAA/NR   1,132,100 
     San Jacinto, Texas River Authority        
     Woodlands Waste Disposal        
 1,000,000   5.000%,10/01/30 BAMI Insured  NR/AA/NR   1,108,330 
     Sarasota, Florida Utility System Revenue        
     Refunding        
 1,455,000   5.000%, 10/01/27  NR/AA+/AA+   1,570,338 
     Texas Water Development Board        
 1,000,000   4.000%, 08/01/19 Series 2018  NR/AAA/AAA   1,017,450 
 1,000,000   5.000%, 10/15/28 Series 2018 A  NR/AAA/AAA   1,190,370 
     Utah Water Finance Agency Revenue        
 1,000,000   5.000%, 03/01/35  NR/AA-/AA   1,137,360 
     Weber Basin, Utah Water Conservancy        
     District Refunding        
 915,000   4.000%, 10/01/31 Series A  NR/AA+/AAA   952,103 
     West Harris County, Texas Regional        
     Water Authority        
 815,000   5.000%, 12/15/26 Series A  A1/AA-/A+   931,757 
     Total Water and Sewer      30,589,786 
     Total Revenue Bonds      264,511,038 

 

18  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Pre-Refunded Bonds (14.5%) ††  and Fitch  Value
          
     Pre-Refunded General Obligation        
     Bonds (1.8%)        
     Local Public Property (1.0%)        
     Houston, Texas Public Improvement        
$895,000   5.000%, 03/01/29  NR/NR/NR*  $906,143 
     San Angelo, Texas Certificates of        
     Obligation        
 2,765,000   5.000%, 02/15/30 Series A  Aa2/AA/AA+   2,877,204 
     Total Local Public Property      3,783,347 
              
     Public Schools (0.8%)        
     Granite School District, Utah, Salt Lake        
     County School Building (School        
     Board Guaranty Program)        
 1,000,000   5.000%, 06/01/31  Aaa/NR/AAA   1,077,150 
     Washoe County, Nevada School District        
     Refunding & School Improvement        
 2,000,000   5.000%, 06/01/30 Series A  A1/AA/NR   2,151,600 
     Total Public Schools      3,228,750 
     Total Pre-Refunded General Obligation        
     Bonds      7,012,097 
              
     Pre-Refunded Revenue Bonds (12.7%)        
     Charter Schools (0.3%)        
     Utah State Charter School Finance        
     Authority Davinci Academy,        
     Refunding & Improvement        
 1,000,000   7.050%, 09/15/26 Series 2011A  NR/BBB-/NR   1,110,260 
              
     Electric (0.8%)        
     Clark County, Washington Public        
     Utility District No. 001 Generating        
     Refunding        
 1,000,000   5.000%, 01/01/24  A1/A/AA-   1,036,490 
     Eagle Mountain, Utah Gas & Electric        
 325,000   5.000%, 06/01/24 AGMC Insured  NR/AA/NR   349,635 

 

19  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal  Pre-Refunded Revenue Bonds  Moody's, S&P   
Amount  (continued)  and Fitch  Value
          
     Electric (continued)        
     Jacksonville Electric Authority, Florida        
     Electric System Revenue        
$465,000   4.500%, 10/01/32 Series Three 2012A  NR/NR/NR*  $493,295 
     Utah Associated Municipal Power        
     System Revenue, Horse Butte Wind        
     Project        
 1,005,000   5.000%, 09/01/32 Series A  NR/A/A   1,108,766 
     Total Electric      2,988,186 
              
     Higher Education (1.3%)        
     Utah State Board of Regents, University        
     of Utah Hospital Revenue        
 1,245,000   5.000%, 08/01/31  Aa2/AA/NR   1,311,085 
     Utah State University Student Building        
     Fee        
 1,285,000   5.000%, 12/01/29 Series B  NR/AA/NR   1,444,828 
 1,355,000   5.000%, 12/01/30 Series B  NR/AA/NR   1,523,535 
     Washington State Higher Education        
     Facilities Authority Revenue,        
     Refunding, Gonzaga University        
     Project        
 950,000   5.000%, 04/01/24 Series B  A3/NR/NR   964,317 
     Total Higher Education      5,243,765 
              
     Hospital (0.9%)        
     Campbell County, Wyoming Hospital        
     District, Hospital Revenue, Memorial        
     Hospital Project        
 1,040,000   5.000%, 12/01/20  NR/NR/NR*   1,075,568 
 1,000,000   5.500%, 12/01/34  NR/NR/NR*   1,039,920 
     Harris County, Texas Health Facilities        
     Development Corp., Christus Health        
 260,000   4.750%, 07/01/30 AGMC Insured  A1/NR/NR   272,119 
     Tarrant County, Texas Cultural Education        
     Facilities Finance Corp. Hospital        
     Refunding, Baylor Healthcare System        
 930,000   5.250%, 08/15/25  AA3/AA-/NR   984,638 
 70,000   5.250%, 08/15/25  NR/NR/NR*   74,046 
     Total Hospital      3,446,291 

 

20  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal  Pre-Refunded Revenue Bonds  Moody's, S&P   
Amount  (continued)  and Fitch  Value
          
     Local Public Property (0.7%)        
     Herriman, Utah Special Assessment        
     Towne Center Assessment Area        
$1,045,000   4.875%, 11/01/23  NR/AA-/NR  $1,092,495 
 1,150,000   5.000%, 11/01/25  NR/AA-/NR   1,204,499 
 245,000   5.000%, 11/01/29  NR/AA-/NR   256,611 
     Total Local Public Property      2,553,605 
              
              
     State Agency (2.5%)        
     Utah Infrastructure Agency        
     Telecommunications &        
     Franchise Tax        
 1,970,000   5.250%, 10/15/30  A2/NR/NR   2,331,475 
 1,000,000   5.000%, 10/15/33  A2/NR/NR   1,131,250 
 1,630,000   5.250%, 10/15/38  A2/NR/NR   1,863,253 
 1,000,000   5.500%, 10/15/30 Series A AGMC        
     Insured  A2/NR/NR   1,101,040 
 1,475,000   5.250%, 10/15/33 Series A AGMC        
     Insured  A2/NR/NR   1,613,237 
     Utah State Building Ownership        
     Authority Lease Revenue        
     Refunding State Facilities Master        
     Lease Program        
 1,575,000   5.000%, 05/15/26  Aa1/AA+/NR   1,604,894 
     Total State Agency      9,645,149 
              
              
     Transportation (1.1%)        
     North Texas Tollway Authority, Texas        
 3,315,000   6.100%, 01/01/28 Series A  NR/NR/NR*   3,348,946 
     Utah Transit Authority Sales Tax        
     Revenue        
 1,000,000   5.000%, 06/15/32  A1/A+/AA   1,103,510 
     Total Transportation      4,452,456 

 

21  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal  Pre-Refunded Revenue Bonds  Moody's, S&P   
Amount  (continued)  and Fitch  Value
          
     Water and Sewer (5.1%)        
     Central Weber, Utah Sewer        
     Improvement District Revenue        
     Refunding        
$1,000,000   5.000%, 03/01/28 Series A AGMC        
     Insured  NR/AA/AA  $1,041,890 
 4,000,000   5.000%, 03/01/33 Series A AGMC        
     Insured  NR/AA/AA   4,167,560 
     Jordan Valley, Utah Water Conservancy        
     District Revenue        
 6,000,000   5.000%, 10/01/35 Series B  NR/AA+/AA+   6,437,880 
     Laredo, Texas Waterworks Sewer System        
     Revenue        
 1,450,000   5.000%, 03/01/24 Series 2010  Aa3/AA-/AA-   1,509,697 
     Miami-Dade County, Florida Water and        
     Sewer Revenue System        
 1,500,000   5.000%, 10/01/29 AGC Insured  Aa3/AA/A+   1,587,975 
     North Slope Borough, Alaska Service        
     Area 10 Water & Wastewater        
     Facilities        
 1,000,000   5.250%, 06/30/27  NR/NR/NR*   1,080,890 
 1,000,000   5.250%, 06/30/28  NR/NR/NR*   1,080,890 
 985,000   5.250%, 06/30/34  NR/NR/NR*   1,064,677 
     Salt Lake & Sandy, Utah Metropolitan        
     Water District, Water Revenue,        
     Refunding        
 650,000   5.000%, 07/01/31 Series A  NR/AA+/AA+   665,009 
     South Weber City, Utah Water Revenue        
 930,000   5.000%, 06/01/40 AGMC Insured  NR/AA/NR   975,412 
     Total Water and Sewer      19,611,880 
     Total Pre-Refunded Revenue Bonds      49,051,592 
     Total Pre-Refunded Bonds.      56,063,689 
     Total Municipal Bonds        
     (cost $375,673,788)      380,219,125 

 

22  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
        Moody's, S&P     
Shares  Short-Term Investment (1.1%)  and Fitch   Value 
              
     Dreyfus Treasury & Agency Cash        
     Management - Institutional Shares,        
 4,150,298   1.96%** (cost $4,150,298)  Aaa-mf/AAAm/NR  $4,150,298 
              
     Total Investments      
     (cost $379,824,086-note 4)  99.4%   384,369,423 
     Other assets less liabilities  0.6   2,339,636 
     Net Assets  100.0%  $386,709,059 

 

   Percentage of
Portfolio Distribution By Quality Rating  Investments†
Aaa of Moody's or AAA of S&P and Fitch   12.3%
Pre-Refunded bonds ††   14.7 
Aa of Moody's or AA of S&P and Fitch   48.2 
A of Moody's or S&P and Fitch   16.5 
BBB of S&P and Fitch   3.5 
Not Rated   4.8 
    100.0%

 

  PORTFOLIO ABBREVIATIONS  
  AGC - Assured Guaranty Corp.  
  AGMC - Assured Guaranty Municipal Corp.  
  AMBAC - American Municipal Bond Assurance Corp.  
  AMT - Alternative Minimum Tax  
  BAMI - Build America Mutual Insurance  
  COP - Certificates of Participation  
  FHA - Federal Housing Administration  
  IHC - Intermountain Health Care  
  NR - Not Rated  
  PSF- Permanent School Fund  

 

23  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (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.
     
    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.
     
  † Where applicable, calculated using the highest rating of the three NRSROs. 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.
     
  ††† Security purchased on a delayed delivery or when-issued basis.

 

See accompanying notes to financial statements.

 

24  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

STATEMENT OF ASSETS AND LIABILITIES

SEPTEMBER 30, 2018 (unaudited)

 

ASSETS   
Investments at value (cost $379,824,086)  $384,369,423 
Interest recievable   5,241,371 
Receivable for Fund Shares sold   1,192,241 
Other assets   24,549 
Total assets   390,827,584 
      
LIABILITIES     
Payable for investment securities purchased   2,984,734 
Payable for Fund shares redeemed   811,148 
Management fee payable   146,008 
Dividends payable   133,026 
Distribution and service fees payable   277 
Accrued expenses payable   43,332 
Total liabilities   4,118,525 
NET ASSETS  $386,709,059 
      
Net Assets consist of:     
Capital Stock – Authorized an unlimited number of shares,     
par value $0.01 per share  $382,984 
Additional paid-in capital   383,111,985 
Net unrealized appreciation on investments (note 4)   4,545,337 
Accumulated net realized loss on investments   (1,561,949)
Undistributed net investment income   230,702 
   $386,709,059 
CLASS A     
Net Assets  $202,596,645 
Capital shares outstanding   20,084,942 
Net asset value and redemption price per share  $10.09 
Maximum offering price per share (100/96 of $10.09)  $10.51 
      
CLASS C     
Net Assets  $46,653,144 
Capital shares outstanding   4,629,473 
Net asset value and offering price per share  $10.08 
Redemption price per share (*a charge of 1% is imposed     
on the redemption proceeds, or on the original price,     
whichever is lower, if redeemed during the first 12     
months after purchase)  $10.08*
      
CLASS Y     
Net Assets  $137,459,270 
Capital shares outstanding   13,584,024 
Net asset value, offering and redemption price per share  $10.12 

 

See accompanying notes to financial statements.

 

25  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

STATEMENT OF OPERATIONS

SIX MONTHS ENDED SEPTEMBER, 30, 2018 (unaudited)

 

Investment Income      
Interest income       $6,612,146 
Expenses          
Management fee (note 3)  $987,358      
Distribution and service fee (note 3)   473,366      
Transfer and shareholder servicing agent fees   88,120     
Trustees’ fees and expenses (note 6)   63,779      
Legal fees   62,409      
Fund accounting fees   27,570      
Shareholders’ reports   18,227      
Registration fees and dues   16,215      
Auditing and tax fees   12,401      
Insurance   8,341      
Custodian fees   7,313      
Chief compliance officer services (note 3)   4,848      
Miscellaneous   32,971      
Total expenses   1,802,918      
           
Management fee waived (note 3)   (65,734)     
Net expenses        1,737,184 
Net investment income        4,874,962 
           
Realized and Unrealized Gain (Loss) on Investments:          
Net realized gain (loss) from securities          
transactions   (113,812)     
Change in unrealized appreciation on          
investments   (3,568,301)     
           
Net realized and unrealized gain (loss)          
on investments        (3,682,113)
Net change in net assets resulting from operations       $1,192,849 

 

See accompanying notes to financial statements.

 

26  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

STATEMENTS OF CHANGES IN NET ASSETS

 

   Six Months Ended   
   September 30, 2018  Year Ended
   (unaudited)  March 31, 2018
       
OPERATIONS:          
Net investment income  $4,874,962   $10,335,860 
Realized gain (loss) from securities transactions   (113,812)   (104,991)
Change in unrealized appreciation on          
investments   (3,568,301)   (2,993,934)
Change in net assets resulting from operations   1,192,849    7,236,935 
           
DISTRIBUTIONS TO SHAREHOLDERS (note 9):          
Class A Shares:          
Net investment income   (2,612,213)   (5,506,631)
           
Class C Shares:          
Net investment income   (452,886)   (1,228,887)
           
Class Y Shares:          
Net investment income   (1,809,594)   (3,598,018)
Change in net assets from distributions   (4,874,693)   (10,333,536)
           
CAPITAL SHARE TRANSACTIONS (note 7):          
Proceeds from shares sold   48,482,260    89,119,382 
Reinvested dividends and distributions   4,054,507    8,666,047 
Cost of shares redeemed   (61,529,879)   (103,190,798)
Change in net assets from capital share transactions   (8,993,112)   (5,405,369)
           
Change in net assets   (12,674,956)   (8,501,970)
           
NET ASSETS:          
Beginning of period   399,384,015    407,885,985 
End of period*  $386,709,059   $399,384,015 
           
*Includes undistributed net investment of:  $230,702   $230,433 

 

See accompanying notes to financial statements.

 

27  | Aquila Tax-Free Fund For Utah

 

AQUILA TAX-FREE FUND FOR UTAH

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 (unaudited)

 

1. Organization

 

     Aquila Tax-Free Fund For Utah (the “Fund”), a series of Aquila Municipal Trust (prior to October 12, 2013, the Fund operated under the name Tax-Free Fund For Utah), a non-diversified, open-end investment company, was organized on December 12, 1990 as a Massachusetts business trust and commenced operations on July 24, 1992. The Fund is authorized to issue an unlimited number of shares. Class A Shares are sold at net asset value plus a sales charge of varying size (depending upon a variety of factors) paid at the time of purchase and bear a distribution fee. Class C Shares are sold at net asset value with no sales charge payable at the time of purchase but with a level charge for service and distribution fees for six years thereafter. Class C Shares automatically convert to Class A Shares after six years. Class Y Shares are sold only through authorized financial institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity, and are not offered directly to retail customers. Class Y Shares are sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge (“CDSC”) and no distribution fee. As of the date of this report, there were no Class F Shares or Class T 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 at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees.

 

b)Fair value measurements: The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

 

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.

 

Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may 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.

 

28  | Aquila Tax-Free Fund For Utah

 

     AQUILA TAX-FREE FUND FOR UTAH

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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, 2018:

 

Valuation Inputs*   Investments in Securities 
Level 1 – Quoted Prices — Short-Term Investment  $4,150,298 
Level 2 – Other Significant Observable   380,219,125 
Inputs — Municipal Bonds*     
Level 3 – Significant Unobservable Inputs   — 
Total  $384,369,423 

 

*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 (2015 – 2017) or expected to be taken in the Fund’s 2018 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.

 

29  | Aquila Tax-Free Fund For Utah

 

     AQUILA TAX-FREE FUND FOR UTAH

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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 have no effect on net assets or net asset value per share. On March 31, 2018, the Fund increased additional paid-in capital by $214, increased undistributed net investment income by $69,457 and increased accumulated net realized loss on investments by $69,671. These reclassifications had no effect on net assets or net asset value per share.

 

i)The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services-Investment Companies”

 

3. Fees and Related Party Transactions

 

a) Management Arrangements:

 

     Aquila Investment Management LLC (the “Manager”), a wholly-owned subsidiary of Aquila Management Corporation, the Fund’s founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. Under the Advisory and Administration Agreement, the Manager provides all investment management and administrative services to the Fund. The Manager’s services include providing the office of the Fund and all related services as well as managing relationships with all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, fund accounting agent, auditors and distributor. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.50% on the Fund’s net assets.

 

     The Manager had contractually undertaken to waive fees and/or reimburse Fund expenses so that total Fund expenses would not exceed 0.84% for Class A Shares, 1.64% for Class C Shares and 0.64% for Class Y Shares through September 30, 2018. For the six months ended September 30, 2018, the Fund incurred management fees of $987,358 of which $65,734 was waived.

 

     Beginning October 1, 2018, 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, 2019. The Manager may not terminate the arrangement without the approval of the Board of Trustees.

 

30  | Aquila Tax-Free Fund For Utah

 

     AQUILA TAX-FREE FUND FOR UTAH

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

     Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for Chief Compliance Officer related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940, 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 Septmeber 30, 2018, distribution fees on Class A Shares amounted to $208,146, of which the Distributor retained $8,197.

 

     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, 2018, these payments amounted to $198,915. 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, 2018, amounted to $66,305. The total of these payments with respect to Class C Shares amounted to $265,220, of which the Distributor retained $64,386.

 

     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, 2018, total commissions on sales of Class A Shares amounted to $55,863, of which the Distributor received $5,629.

 

31  | Aquila Tax-Free Fund For Utah

 

     AQUILA TAX-FREE FUND FOR UTAH

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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, 2018, purchases of securities and proceeds from the sales of securities aggregated $33,457,749 and $40,651,538, respectively.

 

     At September 30, 2018, the aggregate tax cost for all securities was $379,824,086. At September 30, 2018, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $7,073,064 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $2,527,727, for a net unrealized appreciation of $4,545,337.

 

5. Portfolio Orientation

 

     At least 50% of the Fund’s assets will always consist of obligations of Utah-based issuers. At September 30, 2018, the Fund had 70% of its net assets invested in municipal obligations of issuers within Utah. The Fund is also permitted to invest in tax-free municipal obligations of non-Utah-based issuers that are exempt from regular Federal income taxes and, pursuant to an administrative determination of the Utah State Tax Commission issued under statutory authority, the interest on which is currently exempt from Utah individual income taxes. Since the Fund invests principally and may invest entirely in double tax-free municipal obligations of issuers within Utah, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Utah and whatever effects these may have upon Utah issuers’ ability to meet their obligations.

 

6. Trustees’ Fees and Expenses

 

     At September 30, 2018, there were 8 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 Septmeber 30, 2018 was $54,933. 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, 2018, such meeting-related expenses amounted to $8,846.

 

32  | Aquila Tax-Free Fund For Utah

 

     AQUILA TAX-FREE FUND FOR UTAH

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

7. Capital Share Transactions

 

Transactions in Capital Shares of the Fund were as follows:

 

   Six Months Ended   
   September 30, 2018  Year Ended
   (unaudited)  March 31, 2018
   Shares  Amount  Shares  Amount
Class A Shares            
Proceeds from shares sold   1,926,669   $19,531,512    3,390,998   $35,054,736 
Reinvested dividends and                    
distributions   213,437    2,168,319    442,444    4,571,496 
Cost of shares redeemed   (3,005,060)   (30,529,089)   (3,406,909)   (35,255,759)
Net change   (864,954)   (8,829,258)   426,533    4,370,473 
Class C Shares:                    
Proceeds from shares sold   167,810    1,705,540    911,079    9,428,953 
Reinvested dividends and                    
distributions   37,882    384,478    103,008    1,063,919 
Cost of shares redeemed   (1,230,142)   (12,481,858)   (2,446,331)   (25,254,799)
Net change   (1,024,450)   (10,391,840)   (1,432,244)   (14,761,927)
Class Y Shares:                    
Proceeds from shares sold   2,672,529    27,245,208    4,301,947    44,635,693 
Reinvested dividends and                    
distributions   147,396    1,501,710    292,595    3,030,632 
Cost of shares redeemed   (1,817,270)   (18,518,932)   (4,120,264)   (42,680,240)
Net change   1,002,655    10,227,986    474,278    4,986,085 
Total transactions in Fund                    
shares   (886,749)  $(8,993,112)   (531,433)  $(5,405,369)

 

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. Beginning on the date the Fund enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.

 

33  | Aquila Tax-Free Fund For Utah

 

     AQUILA TAX-FREE FUND FOR UTAH

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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. At March 31, 2018, the Fund had a capital loss carryover of $1,258,435 which is short-term and has no expiration.

 

     The tax character of distributions was as follows:

 

   Year Ended  Year Ended
   March 31, 2018  March 31, 2017
Net tax-exempt income  $10,248,470   $10,222,326 
Ordinary Income   85,066    114,924 
Capital gains   —    352,958 
   $10,333,536   $10,690,208 

 

     As of March 31, 2018, the components of distributable earnings on a tax basis were:

 

Undistributed tax-exempt income  $357,331 
Accumulated net realized loss on investments   (1,258,435)
Unrealized appreciation   8,126,713 
Post October losses   (189,702)
Other temporary differences   (139,974)
   $6,895,933 

 

     The difference between book basis and tax basis unrealized appreciation and undistributed income is due to the timing difference, post October losses, and other temporary differences, in recognizing dividends paid, the tax treatment of market discount amortization, and the deduction of distributions payable.

 

34  | Aquila Tax-Free Fund For Utah

 

     AQUILA TAX-FREE FUND FOR UTAH

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

10. Credit Facility

 

     The Bank of New York Mellon and the Aquila Group of Funds have been parties to a $40 million credit agreement, which currently terminates on August 28, 2019 (per the August 29,2018 amendment).  In accordance with the Aquila Group of Funds Guidelines for Allocation of Committed Line of Credit (the Aquila Group of Funds is comprised of nine funds), 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 rate selected by the Aquila Group of Funds at the time of the borrowing of either (i) the one-month Eurodollar Rate or (ii) a rate equal to the greater of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day, or (c) the Overnight Eurodollar Rate in effect on such day).

 

     There were no borrowings under the credit agreement for the six months ended September 30, 2018.

 

35  | 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  Year Ended March 31,
   Ended               
   9/30/18                         
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.18   $10.26   $10.56   $10.50   $10.10   $10.37 
Income (loss) from investment operations:                              
Net investment income(1)    0.13    0.27    0.27    0.29    0.33    0.33 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.09)   (0.08)   (0.30)   0.06    0.40    (0.24)
Total from investment operations   0.04    0.19    (0.03)   0.35    0.73    0.09 
Less distributions (note 9):                              
Dividends from net investment income   (0.13)   (0.27)   (0.26)   (0.28)   (0.32)   (0.33)
Distributions from capital gains   —    —    (0.01)   (0.01)   (0.01)   (0.03)
Total distributions   (0.13)   (0.27)   (0.27)   (0.29)   (0.33)   (0.36)
Net asset value, end of period  $10.09   $10.18   $10.26   $10.56   $10.50   $10.10 
Total return (not reflecting sales charge)   0.37%(3)   1.84%   (0.26)%   3.41%   7.34%   0.96%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $203   $213   $211   $221   $205   $204 
Ratio of expenses to average net assets   0.84%(4)   0.84%   0.84%   0.84%   0.84%   0.83%
Ratio of net investment income to                              
average net assets   2.51%(4)   2.61%   2.54%   2.75%   3.14%   3.33%
Portfolio turnover rate   9%(3)   15%   23%   20%   16%   12%
                               
Expense and net investment income ratios without the effect of the contractual expense cap were (note 3):     
      
Ratio of expenses to average net assets   0.87%(4)   0.87%   0.86%   0.87%   0.91%   0.91%(2)
Ratio of net investment income to                              
average net assets   2.47%(4)   2.58%   2.52%   2.72%   3.07%   3.26%(2)

______________________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.86% and 3.31%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

36  | 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  Year Ended March 31,
   Ended               
   9/30/18                         
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.17   $10.25   $10.55   $10.50   $10.10   $10.37 
Income (loss) from investment operations:                              
Net investment income(1)    0.09    0.19    0.18    0.20    0.24    0.25 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.09)   (0.08)   (0.29)   0.06    0.41    (0.24)
Total from investment operations   —    0.11    (0.11)   0.26    0.65    0.01 
Less distributions (note 9):                              
Dividends from net investment income   (0.09)   (0.19)   (0.18)   (0.20)   (0.24)   (0.25)
Distributions from capital gains   —    —    (0.01)   (0.01)   (0.01)   (0.03)
Total distributions   (0.09)   (0.19)   (0.19)   (0.21)   (0.25)   (0.28)
Net asset value, end of period  $10.08   $10.17   $10.25   $10.55   $10.50   $10.10 
Total return (not reflecting CDSC)   (0.03)%(3)   1.03%   (1.06)%   2.55%   6.49%   0.15%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $47   $58   $73   $75   $81   $81 
Ratio of expenses to average net assets   1.64%(4)   1.64%   1.64%   1.64%   1.63%   1.63%
Ratio of net investment income to                              
average net assets   1.71%(4)   1.81%   1.74%   1.95%   2.34%   2.53%
Portfolio turnover rate   9%(3)   15%   23%   20%   16%   12%
                               
Expense and net investment income ratios without the effect of the contractual expense cap were (note 3):
                               
Ratio of expenses to average net assets   1.67%(4)   1.66%   1.66%   1.67%   1.71%   1.70%(2)
Ratio of net investment income to                              
average net assets   1.67%(4)   1.78%   1.72%   1.92%   2.27%   2.46%(2)

______________________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 1.66% and 2.50%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

37  | 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  Year Ended March 31,
   Ended               
   9/30/18                         
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.22   $10.29   $10.59   $10.53   $10.13   $10.41 
Income (loss) from investment operations:                              
Net investment income(1)    0.14    0.29    0.29    0.31    0.35    0.36 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.10)   (0.07)   (0.29)   0.06    0.40    (0.26)
Total from investment operations   0.04    0.22    —    0.37    0.75    0.10 
Less distributions (note 9):                              
Dividends from net investment income   (0.14)   (0.29)   (0.29)   (0.30)   (0.34)   (0.35)
Distributions from capital gains   —    —    (0.01)   (0.01)   (0.01)   (0.03)
Total distributions   (0.14)   (0.29)   (0.30)   (0.31)   (0.35)   (0.38)
Net asset value, end of period  $10.12   $10.22   $10.29   $10.59   $10.53   $10.13 
Total return (not reflecting sales charge)   0.37%(3)   2.15%   (0.05)%   3.61%   7.54%   1.07%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $137   $129   $125   $112   $100   $71 
Ratio of expenses to average net assets   0.64%(4)   0.64%   0.64%   0.64%   0.63%   0.63%
Ratio of net investment income to                              
average net assets   2.71%(4)   2.81%   2.75%   2.95%   3.33%   3.53%
Portfolio turnover rate   9%(3)   15%   23%   20%   16%   12%
                               
Expense and net investment income ratios without the effect of the contractual expense cap were (note 3): 
                               
Ratio of expenses to average net assets   0.67%(4)   0.67%   0.66%   0.67%   0.70%   0.70%(2)
Ratio of net investment income to                              
average net assets   2.68%(4)   2.78%   2.73%   2.92%   3.26%   3.46%(2)

______________________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.66% and 3.50%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

38  | Aquila Tax-Free Fund For Utah

 

Additional Information (unaudited)

 

Renewal of the Advisory and Administration Agreement

 

     Aquila Investment Management LLC (the “Manager”) serves as the investment adviser to the Fund pursuant to an Advisory and Administration Agreement (the “Advisory Agreement”). In order for the Manager to remain the investment adviser of the Fund, the Trustees of the Fund must determine annually whether to renew the Advisory Agreement for the Fund.

 

     In considering whether to approve the renewal of the Advisory Agreement, the Trustees requested and obtained such information as they deemed reasonably necessary. Contract review materials were provided to the Trustees in August, 2018. The independent Trustees met telephonically on August 13, 2018 and in person on September 15, 2018 to review and discuss the contract review materials.   The Trustees considered, among other things, information presented by the Manager. They also considered information presented in a report prepared by an independent consultant with respect to the Fund’s fees, expenses and investment performance, which included comparisons of the Fund’s investment performance against peers and the Fund’s benchmark and comparisons of the advisory fee payable under the Advisory Agreement against the advisory fees paid by the Fund’s peers, as well as information regarding the operating margins of certain investment advisory firms (the “Consultant’s Report”).   In addition, the Trustees took into account the information related to the Fund provided to the Trustees at each regularly scheduled meeting. 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 15, 2018, 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, 2019. 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, 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. The Trustees noted that Mr. Tanner replaced Mr. Todd Curtis, as a portfolio manager, upon Mr. Curtis’ retirement effective April 30, 2018, and further noted that Mr. Tanner is a 30-year veteran in the financial services industry. 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.

 

39  | Aquila Tax-Free Fund For Utah

 

     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 Fund’s peer group (the “Peer Group”), as selected by the independent consultant (four single-state intermediate and single-state long municipal bond funds, as classified by Morningstar, that are similar to the Fund in size and that charge a front-end sales charge);

 

•the funds in the Fund’s product category for performance (the “Product Category for Performance”) (all funds (and all classes) included in the Morningstar Single-State Intermediate Municipal Bond Funds category); and

 

•the Fund’s benchmark index, the Bloomberg Barclays Quality Intermediate Municipal Bond Index.

 

     The Trustees considered that the materials included in the Consultant’s Report indicated that the Fund’s average annual total return was higher than the average annual total return of the funds in the Peer Group for each of the one, three, five and ten-year periods ended June 30, 2018. The Trustees noted that the Fund’s average annual total return was higher than the average annual total return of the funds in the Product Category for Performance for the one, three, five and ten-year periods ended June 30, 2018. They also considered that the Fund’s average annual total return was higher than the average annual total return of the benchmark index for the one, three, five and ten-year periods ended June 30, 2018.

 

     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 Product Category for Performance invest in, and the Fund’s benchmark index includes, municipal bonds of issuers throughout the United States. They also noted that none of the funds in the Peer Group invests in Utah municipal obligations. The Trustees noted that, unlike the Fund’s returns, the performance of the benchmark index did not reflect any fees or expenses.

 

     In addition, the Trustees considered that, as reflected in the Consultant’s Report, the Fund’s standard deviation, a measure of volatility, was in the fourth quintile relative to the funds in the Product Category for Performance for the three and five-year periods ended June 30, 2018. The Trustees further noted that the Fund’s Sharpe ratio was in the second and first quintile for the three and five-year periods ended June 30, 2018, respectively, when compared to the funds in the Product Category for Performance. A Sharpe ratio is a measure for calculating risk-adjusted return. The higher the Sharpe ratio, the better the fund’s historical risk-adjusted performance. The Trustees noted that the Fund was the only Utah state-specific tax-free municipal bond fund in the State.

 

40  | 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 funds in the Peer Group (as defined above); and

 

•the funds in the product category for expenses (the “Product Category for Expenses”) (Morningstar Single-State Intermediate Municipal Bond Funds and Morningstar Single-State Long Municipal Bond Funds from states within which 1-3 mutual funds are operating, with similar operating expense structures).

 

     The Trustees considered that the Fund’s contractual advisory fee was higher than the average contractual advisory fee, and equal to the median contractual advisory fee, of the funds in the Peer Group (at the Fund’s current asset level) and higher than the asset-weighted average contractual advisory fee of the funds in the Product Category for Expenses (at the Fund’s current asset level and various asset levels up to $5 billion). The Trustees noted that the Fund’s actual management fee (after giving effect to the fee waiver) was higher than the average actual management fee of the funds in both the Product Category for Expenses and the Peer Group (after giving effect to fee waivers in effect for those funds). They noted, however, that the Fund’s actual expenses (for Class A shares), after giving effect to fee waivers and expense reimbursements, were equal to the average actual expenses of the funds in the Product Category for Expenses and only 0.008% higher than the average actual expenses of the funds in the Peer Group (after giving effect to fee waivers and expense reimbursements in effect for those funds).

 

     The Trustees further noted that beginning October 1, 2018, 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, 2019. 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.

 

     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 and the independent consultant related to profitability. The Manager provided information which showed the profitability to the Manager of its services to the Fund, as well as the profitability of Aquila Distributors LLC of distribution services provided to the Fund. The independent consultant provided publicly available data regarding the profitability of other asset managers in comparison to the overall profitability of the Manager.

 

41  | Aquila Tax-Free Fund For Utah

 

     The Trustees considered the information provided by the Manager regarding the profitability of the Manager with respect to the advisory services provided by the Manager to the Fund, including the methodology used by the Manager in allocating certain of its costs to the management of the Fund. The Trustees also considered information regarding the profitability of the Manager provided to the Trustees by the independent consultant. The Trustees concluded that profitability to the Manager with respect to the advisory services provided to the Fund did not argue against approval of the fees to be paid under the Advisory Agreement.

 

The extent to which economies of scale would be realized as the Fund grows

 

     The Trustees considered the extent to which the Manager may realize economies of scale or other efficiencies in managing the Fund. 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.

 

42  | 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)
      Expenses(2)   Expenses(2)  
  Beginning Ending(1) Paid During Ending Paid During Net
  Account Account Period Account Period Annualized
Share Value Value 4/1/18 – Value 4/1/18 – Expense
Class 4/1/18 9/30/18 9/30/18 9/30/18 9/30/18 Ratio
A $1,000 $1,003.70 $4.22 $1,020.86 $4.26 0.84%
C $1,000 $ 999.70 $8.22 $1,016.85 $8.29 1.64%
Y $1,000 $1,003.70 $3.21 $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.

 

43  | Aquila Tax-Free Fund For Utah

 

Information Available (unaudited)

 

     Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent your Fund’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Fund policies, the Manager publicly discloses the complete schedule of the Fund’s portfolio holdings, as of each calendar quarter, generally by the 15th day after the end of each calendar quarter. Such information remains accessible until the next schedule is made publicly available. You may obtain a copy of the Fund’s portfolio holdings schedule for the most recently completed period by visiting the Fund’s website at www.aquilafunds. com. Whenever you wish to see a listing of your Fund’s portfolio other than in your shareholder reports, please check our website at www.aquilafunds.com or call us at 1-800-437-1000.

 

     The Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at www.sec.gov. You may also review or, for a fee, copy the forms at the SEC’s Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330.

 

 

Proxy Voting Record (unaudited)

 

     During the 12 month period ended June 30, 2018, 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, 2018, $10,248,470 of dividends paid by Aquila Tax-Free Fund For Utah, constituting 99.2% of total dividends paid, were exempt-interest dividends; and the balance was ordinary income.

 

     Prior to February 15, 2019, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2018 calendar year.

 

44  | 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.

Glenn P. O’Flaherty

James R. Ramsey

Laureen L. White

 

Officers

     Diana P. Herrmann, President

Charles E. Childs, III, Executive Vice President

and Secretary

Marie E. Aro, Senior Vice President

Paul G. O’Brien, Senior Vice President

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

 

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

225 Liberty Street

New York, New York 10286

 

Further information is contained in the Prospectus,

which must precede or accompany this report.

 

 

                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                 

Semi-Annual

Report

September 30, 2018

                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   
                                                   

 

 

 

Aquila Tax-Free

Trust of Arizona

 

“Proper Asset Allocation –

A Strategy For All Seasons”

 

Serving Arizona investors since 1986

  

 

November, 2018

 

Dear Fellow Shareholder:

 

     Financial news, and the often resulting market volatility, can cause even the most seasoned investor to ask, “What should I do now?”

 

     We believe you will generally be in a better position to weather changing economic situations, if your portfolio is built with a strong foundation. In short, is your portfolio properly allocated based on your specific needs? And, have you periodically revisited your portfolio structure to make sure that your allocation remains in line with your investment goals, given changing market conditions and changes in your personal circumstances, including current risk tolerance?

 

     Asset allocation is an investment strategy that strives to balance risk and reward by diversifying assets according to your specific needs. In developing this strategy, your considerations should include:

 

•investment time horizon (specifically your age and retirement objectives);

 

•risk threshold (how much of your investment capital you are willing to lose during a given time frame);

 

•financial situation (your wealth, income, expenses, tax bracket, liquidity needs, etc.); and

 

•goals (the financial goals you and your family would like to achieve).

 

     Since the three main asset classes  - equities, fixed-income, and cash/cash equivalents - have  different levels of risk and return, each is expected to behave differently over time. The objective of asset allocation is to create a diversified portfolio with an acceptable level of risk and the highest possible return given that level of risk.

 

     Although there is no simple formula that can find the right asset allocation for every individual, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make.

 

NOT A PART OF THE SEMI- ANNUAL REPORT

 

 

     The way you allocate your investment portfolio among stocks, bonds, and cash/ cash equivalents will be the principal determinants of your investment results –secondary to your selection of individual securities.

 

     Once you and your financial professional have developed an appropriate asset allocation for your portfolio, we believe that changes should be made based on changing needs, not on headlines.

 

     A properly constructed portfolio based on sound asset allocation may generally help you weather all seasons.

 

Sincerely,

 

Mutual fund investing involves risk and loss of principal is possible.

 

The market prices of the Fund’s securities may rise or decline in value due to general market conditions, such as real or perceived adverse economic or political conditions, inflation, changes in interest rates, lack of liquidity in the bond markets or adverse investor sentiment. When market prices fall, the value of your investment may go down. 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.

 

The value of your investment may go down when interest rates rise. A rise in interest rates tends to have a greater impact on the prices of longer term securities. Interest rates in the U.S. have begun to rise after having been at historical lows for some time, so the Fund faces a heightened risk that interest rates may continue to rise. A general rise in interest rates may cause investors to move out of fixed income securities 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.

 

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, 2018 (unaudited)

 

      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (18.9%)  and Fitch  Value
 
     City (5.9%)        
     Buckeye Jackrabbit Trail Sanitary        
     Sewer Improvement District        
$1,123,000   6.250%, 01/01/29  NR/A-/NR  $1,176,758 
     Casa Grande, Arizona        
 800,000   4.000%, 08/01/34  NR/AA-/AAA   833,848 
     Gilbert, Arizona        
 1,000,000   5.000%, 07/01/32  Aaa/AA+/AAA   1,171,290 
     Gilbert Improvement District No. 19        
 25,000   5.200%, 01/01/23  Aa1/A+/NR   25,065 
     Gilbert Improvement District No. 20        
 605,000   5.100%, 01/01/29  Aa1/A+/NR   617,911 
     Glendale, Arizona        
 200,000   5.000%, 07/01/33  NR/A+/AAA   231,200 
     Goodyear, Arizona        
 1,000,000   5.000%, 07/01/29  Aa2/AA/NR   1,021,580 
 400,000   4.000%, 07/01/33  Aa2/AA/NR   421,732 
     Goodyear McDowell Road        
     Commercial Corridor Improvement        
     District        
 1,000,000   3.250%, 01/01/27 BAMAC Insured  Aa3/AA/NR   1,013,000 
     Mesa, Arizona        
 425,000   4.000%, 07/01/32  Aa2/AA-/NR   452,162 
 425,000   4.000%, 07/01/33  Aa2/AA-/NR   450,334 
 450,000   4.000%, 07/01/34  Aa2/AA-/NR   474,903 
     Scottsdale, Arizona        
 200,000   4.000%, 07/01/28  Aaa/AAA/AAA   217,090 
 500,000   4.000%, 07/01/34  Aaa/AAA/AAA   527,165 
     Tempe, Arizona        
 2,245,000   4.000%, 07/01/22  Aa1/AAA/AAA   2,320,095 
 470,000   5.000%, 07/01/36  Aa1/AAA/AAA   539,489 
 415,000   5.000%, 07/01/37  Aa1/AAA/AAA   474,303 
     Tempe Improvement District (Pier        
     Town Lake)        
 2,000,000   5.000%, 01/01/29  Aa2/NR/NR   2,004,760 

 

1  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (continued)  and Fitch  Value
          
     City (continued)        
     Tubac Fire District        
$760,000   5.500%, 07/01/28 AGC Insured  A1/AA/NR  $778,400 
     Total City      14,751,085 
              
     County (0.4%)        
     Yuma Co. Free Library District        
 1,000,000   4.000%, 07/01/29  Aa3/NR/AAA   1,052,510 
              
     School District (12.6%)        
     Buckeye Union High School District        
     No. 201        
 1,000,000   5.000%, 07/01/33 AGMC Insured  NR/AA/NR   1,115,480 
 500,000   5.000%, 07/01/36 BAMAC Insured  NR/AA/NR   558,865 
     Gila Co. Unified School District No.        
     10 (Payson)        
 1,000,000   5.000%, 07/01/28  Aa3/NR/NR   1,116,560 
     Glendale Union High School District        
     No. 20        
 525,000   5.000%, 07/01/27 BAMAC Insured  NR/AA/NR   579,427 
     Maricopa Co. Elementary School        
     District No. 3 (Tempe)        
 500,000   5.000%, 07/01/30  Aa2/NR/NR   579,330 
     Maricopa Co. Elementary School        
     District No. 8 (Osborn)        
 500,000   5.000%, 07/01/31 AGMC Insured  NR/AA/NR   576,830 
     Maricopa Co. Elementary School        
     District No. 28 (Kyrene Elementary)        
 350,000   5.000%, 07/01/34  Aa1/AA/NR   393,592 
     Maricopa Co. Elementary School        
     District No. 62 (Union)        
 315,000   4.000%, 07/01/29 BAMAC Insured  NR/AA/NR   343,114 
 580,000   4.000%, 07/01/32 BAMAC Insured  NR/AA/NR   624,776 
 300,000   4.000%, 07/01/33 BAMAC Insured  NR/AA/NR   321,963 
 375,000   4.000%, 07/01/34 BAMAC Insured  NR/AA/NR   400,669 
 500,000   4.000%, 07/01/26  Aa2/AA/AAA   542,080 

 

2  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (continued)  and Fitch  Value
 
     School District (continued)        
     Maricopa Co. Unified School District        
     No. 11 (Peoria)        
$1,500,000   4.000%, 07/01/25  A2/AA-/NR  $1,579,410 
 675,000   4.500%, 07/01/33 AGMC Insured  A2/AA/NR   728,696 
 575,000   5.000%, 07/01/36  NR/AA-/NR   654,338 
     Maricopa Co. Unified School District        
     No. 24 (Gila Bend)        
 200,000   5.500%, 07/01/22  NR/NR/NR*   200,162 
     Maricopa Co. Unified School District        
     No. 60 (Higley)        
 1,615,000   5.000%, 07/01/29  Aa3/A+/NR   1,800,531 
     Maricopa Co. Unified School District        
     No. 66 (Roosevelt)        
 910,000   4.000%, 07/01/31 BAMAC Insured  A3/AA/NR   962,280 
     Maricopa Co. Unified School District        
     No. 69 (Paradise Valley)        
 1,000,000   4.500%, 07/01/30  Aa2/NR/AAA   1,073,200 
     Maricopa Co. Unified School District        
     No. 80 (Chandler)        
 525,000   4.000%, 07/01/33  Aa1/AA/NR   550,651 
     Maricopa Co. Unified School District        
     No. 89 (Dysart)        
 500,000   4.000%, 07/01/28  NR/A+/AAA   524,580 
 2,185,000   5.500%, 07/01/22 NPFG/FGIC Insured  Baa2/A+/NR   2,435,401 
     Maricopa Co. Unified School District        
     No. 90 (Saddle Mountain)        
 1,300,000   5.125%, 07/01/25 AGMC Insured  A2/AA/NR   1,391,442 
     Mohave Co. Unified School District        
     No. 1 (Lake Havasu)        
 500,000   5.000%, 07/01/35  Aa3/NR/NR   564,915 
     Navajo Co. Unified School District        
     No. 10 (Show Low)        
 500,000   4.000%, 07/01/31 AGMC Insured  NR/AA/NR   522,900 
     Pima Co. Unified School District        
     No. 6 (Marana)        
 1,250,000   5.000%, 07/01/25  NR/A/NR   1,332,425 
 950,000   5.250%, 07/01/25 AGMC Insured  NR/AA/NR   1,040,003 
 1,000,000   4.250%, 07/01/32 MAC Insured  NR/AA/NR   1,061,350 
 1,000,000   4.000%, 07/01/37 AGMC Insured  NR/AA/NR   1,034,300 

 

3  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  General Obligation Bonds (continued)  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  $1,079,440 
     Pima Co. Unified School District        
     No. 10 (Amphitheater)        
 700,000   5.000%, 07/01/27  Aa2/A+/NR   749,049 
     Pima Co. Unified School District        
     No. 12 (Sunnyside)        
 500,000   4.000%, 07/01/25 AGMC Insured  NR/AA/NR   523,000 
 1,050,000   4.000%, 07/01/28 BAMAC Insured  NR/AA/NR   1,093,732 
     Pinal Co. Unified School District        
     No. 21 (Coolidge)        
 500,000   4.000%, 07/01/28 AGMC Insured  NR/AA/NR   533,960 
     Tempe High School District No. 213        
 650,000   4.000%, 07/01/32  Aa2/AA/NR   671,840 
     Western Maricopa Education Center        
     District No. 402        
 1,200,000   4.000%, 07/01/28  NR/AA-/NR   1,252,680 
     Yavapai Co. Elementary School District        
     No. 6 (Cottonwood-Oak Creek)        
 720,000   5.000%, 07/01/34 BAMAC Insured  A2/AA/NR   799,898 
     Yuma Co. Elementary School District        
     No. 1        
 625,000   4.000%, 07/01/34 AGMC Insured  NR/AA/NR   655,075 
     Total School District      31,967,944 
     Total General Obligation Bonds      47,771,539 
              
     Revenue Bonds (72.7%)        
     Airport (5.2%)        
     Phoenix Civic Improvement Corp.        
     Airport Bonds        
 1,250,000   5.000%, 07/01/34  A1/A+/NR   1,393,537 
 1,000,000   5.000%, 07/01/36  A1/A+/NR   1,127,390 
 5,000,000   4.000%, 07/01/40  A1/A+/NR   5,099,750 
 1,000,000   5.000%, 07/01/45  A1/A+/NR   1,098,860 
 2,700,000   5.000%, 07/01/32 AMT  Aa3/AA-/NR   2,937,168 
 1,000,000   5.000%, 07/01/37 AMT  Aa3/AA-/NR   1,105,780 

 

4  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
 
     Airport (continued)        
     Phoenix-Mesa Gateway Airport        
     Authority        
$515,000   5.000%, 07/01/38 AMT  A1/AA+/NR  $545,596 
     Total Airport      13,308,081 
              
              
     Charter Schools (1.0%)        
     Arizona Industrial Development        
     Authority (Basis Schools)        
 240,000   5.000%, 07/01/37 State Enhanced  NR/AA-/NR   264,252 
     La Paz Co. Industrial Development        
     Authority (Harmony Public Schools        
     Projects)        
 200,000   5.000%, 02/15/28  NR/BBB/NR   220,330 
     Maricopa Co. Industrial Development        
     Authority (Great Hearts Arizona        
     Projects)        
 250,000   5.000%, 07/01/26 State Enhanced  NR/AA-/NR   285,625 
 315,000   5.000%, 07/01/37 State Enhanced  NR/AA-/NR   349,319 
     Phoenix Industrial Development        
     Authority (Great Hearts Academies        
     Project)        
 500,000   5.000%, 07/01/41  NR/BBB-/NR   525,355 
     Phoenix Industrial Development        
     Authority (Villa Montessori Inc.        
     Project)        
 415,000   5.000%, 07/01/35  NR/BBB-/NR   434,057 
     Phoenix Industrial Development        
     Authority (Vista College Preparatory        
     Projects)        
 430,000   5.000%, 07/01/43 State Enhanced†††  NR/AA-/NR   469,465 
     Total Charter Schools      2,548,403 
              
              
     Excise Tax (13.4%)        
     Buckeye Excise Tax        
 400,000   4.000%, 07/01/36  NR/AA-/AA   411,260 
 1,000,000   5.000%, 07/01/43  NR/AA-/AA   1,098,860 
     Buckeye Roosevelt Street        
     Improvement District        
 100,000   4.000%, 01/01/32  NR/A-/NR   99,182 
 125,000   4.050%, 01/01/33  NR/A-/NR   123,925 

 

5  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
   Excise Tax (continued)      
     Cottonwood Pledged Revenue        
     Obligations        
$500,000   5.000%, 07/01/30 AGMC Insured  NR/AA/NR  $564,230 
     El Mirage Pledged Excise Tax        
 500,000   5.000%, 07/01/30  A1/AA-/NR   522,885 
     Flagstaff Pledged Revenue        
 200,000   4.000%, 07/01/31  NR/AA-/NR   209,634 
 1,395,000   4.250%, 07/01/33  NR/AA-/NR   1,481,950 
     Gilbert Pledged Revenue Obligations        
 450,000   4.000%, 07/01/35  Aa1/AA+/AAA   464,764 
     Glendale Municipal Property Corp.        
 1,250,000   5.000%, 07/01/33  A1/AA+/NR   1,365,112 
     Goodyear Public Improvement Corp.        
 500,000   5.250%, 07/01/24  Aa3/AA-/NR   551,700 
 1,500,000   5.000%, 07/01/26  Aa3/AA-/NR   1,634,415 
     Graham Co. Jail District Revenue        
     Pledged Obligation        
 1,000,000   5.000%, 07/01/35  NR/A-/NR   1,096,960 
     Marana Pledged Excise Tax        
 275,000   4.000%, 07/01/30  NR/AA/NR   284,853 
 1,400,000   5.000%, 07/01/33  NR/AA/NR   1,543,164 
     Mesa Excise Tax        
 250,000   5.000%, 07/01/32  Aa3/AA+/NR   271,187 
     Page Pledged Revenue Refunding        
 1,080,000   5.000%, 07/01/25  NR/AA-/NR   1,156,270 
     Phoenix Civic Improvement Corp.        
     (Civic Plaza)        
 2,000,000   5.500%, 07/01/27 BHAC/FGIC Insured  Aa1/AA+/NR   2,399,120 
 2,000,000   5.500%, 07/01/30 BHAC/FGIC Insured  Aa1/AA+/NR   2,473,940 
 1,000,000   5.500%, 07/01/23 NPFG/FGIC Insured  Aa2/AA/NR   1,132,510 
 2,300,000   5.500%, 07/01/33 NPFG/FGIC Insured  Aa2/AA/NR   2,893,101 
     Phoenix Civic Improvement Corp.        
     Transit Excise Tax (Light Rail)        
 2,000,000   4.000%, 07/01/20  Aa2/AA/NR   2,069,000 

 

6  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Excise Tax (continued)        
     Pinal Co. Revenue Obligations        
     Refunding        
$1,500,000   5.000%, 08/01/33  NR/AA-/AA  $1,670,355 
     Queen Creek Excise Tax & State        
     Shared Revenue        
 250,000   5.000%, 08/01/30  NR/AA/AA   277,182 
     Santa Cruz Co. Jail District        
 1,655,000   5.000%, 07/01/28 AGMC Insured  NR/AA/NR   1,899,692 
 500,000   5.000%, 07/01/31 AGMC Insured  NR/AA/NR   564,505 
     Scottsdale Municipal Property Corp.        
 1,500,000   5.000%, 07/01/34  Aaa1/AAA/AAA   1,689,750 
 1,000,000   5.000%, 07/01/36 Sedona Excise Tax  Aaa1/AAA/AAA   1,150,340 
 2,605,000   4.500%, 07/01/26 AGMC Insured  NR/AA/NR   2,808,581 
     Total Excise Tax      33,908,427 
              
     Higher Education (7.7%)        
     Arizona Board of Regents (Arizona        
     State University System)        
 300,000   5.000%, 07/01/28  Aa2/AA/NR   343,683 
 480,000   5.000%, 07/01/31  Aa2/AA/NR   546,394 
 285,000   5.000%, 07/01/32  Aa2/AA/NR   310,753 
 115,000   5.000%, 07/01/32  Aa2/AA/NR   125,391 
 500,000   5.000%, 07/01/36  Aa2/AA/NR   558,280 
     Arizona Board of Regents (Arizona        
     State University System) Green Bonds        
 750,000   5.000%, 07/01/34  Aa2/AA/NR   845,370 
 1,975,000   5.000%, 07/01/38  Aa2/AA/NR   2,217,135 
     Arizona Board of Regents (Northern        
     Arizona University System)        
 575,000   5.000%, 06/01/32  A1/A+/NR   637,313 
     Arizona Board of Regents (University        
     of Arizona System) Speed Stimulus        
     Plan for Economic & Educational        
     Development        
 500,000   5.000%, 08/01/27  Aa3/A+/NR   561,640 
 1,500,000   5.000%, 08/01/34  Aa3/A+/NR   1,656,780 

 

7  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
   Higher Education (continued)      
     Arizona Board of Regents (University        
     of Arizona System)        
$400,000   5.000%, 06/01/29  Aa2/AA-/NR  $452,040 
 460,000   5.000%, 06/01/31  Aa2/AA-/NR   498,999 
     Arizona State University Speed        
     Stimulus Plan for Economic &        
     Educational Development        
 625,000   5.000%, 08/01/34  Aa3/AA-/NR   695,269 
     Cochise Co. Community College        
     District        
 630,000   5.000%, 07/01/31 BAMAC Insured  A2/AA/NR   703,156 
     Glendale Industrial Development        
     Authority (Midwestern University)        
 600,000   5.000%, 05/15/35  NR/A/A+   624,036 
     McAllister Academic Village (Arizona        
     State University Hassayampa)        
 500,000   5.000%, 07/01/38  Aa3/AA-/NR   561,300 
 1,000,000   5.000%, 07/01/39  Aa3/AA-/NR   1,121,140 
     Northern Arizona University Speed        
     Stimulus Plan for Economic &        
     Educational Development        
 1,445,000   5.000%, 08/01/38  A2/A/NR   1,567,233 
     Phoenix Industrial Development        
     Authority (Downtown Phoenix        
     Student Housing)        
 200,000   5.000%, 07/01/26  Baa3/NR/NR   224,082 
 400,000   5.000%, 07/01/33  Baa3/NR/NR   442,896 
     Phoenix Industrial Development        
     Authority (Eastern Kentucky        
     University Project)        
 500,000   5.000%, 10/01/36  A2/BBB+/NR   541,760 
     Phoenix Industrial Development        
     Authority (Rowan University Project)        
 2,000,000   5.250%, 06/01/34  A3/A/NR   2,152,800 
     Yavapai Co. Community College        
     District        
 1,000,000   4.875%, 07/01/25 AGMC Insured  A1/AA/NR   1,063,460 

 

8  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
 
     Higher Education (continued)        
     Yuma/ La Paz Counties Community        
     College District (Arizona Western        
     College), Refunding        
$1,000,000   4.000%, 07/01/28 2014A  Aa3/A+/NR  $1,052,390 
     Total Higher Education      19,503,300 
              
              
     Hospital (11.0%)        
     Arizona Health Facilities Authority        
     (Banner Health)        
 2,000,000   5.000%, 01/01/44  NR/AA-/AA-   2,165,500 
     Arizona Health Facilities Authority        
     (Dignity Health)        
 1,500,000   5.000%, 07/01/28  A3/A/A-   1,526,640 
 2,175,000   5.250%, 03/01/39  A3/A/A-   2,305,283 
     Arizona Health Facilities Authority        
     (Phoenix Children's Hospital)        
 1,000,000   5.000%, 02/01/27  NR/A-/A+   1,074,410 
 775,000   5.000%, 02/01/30  NR/A-/A+   829,343 
 6,035,000   5.000%, 02/01/34  NR/A-/A+   6,442,302 
     Arizona Health Facilities Authority        
     (Scottsdale Lincoln Hospitals)        
 3,000,000   5.000%, 12/01/34  A2/NR/A   3,298,020 
 1,500,000   5.000%, 12/01/42  A2/NR/A   1,631,505 
     Maricopa Co. Industrial Development        
     Authority (Banner Health)        
 2,000,000   5.000%, 01/01/38  NR/AA-/AA-   2,228,360 
     Scottsdale Industrial Development        
     Authority (Scottsdale Healthcare        
     System)        
 1,300,000   5.000%, 09/01/35 AGMC Insured  A2/AA/A   1,361,334 
     Yavapai Co. Industrial Development        
     Authority (Northern Arizona        
     Healthcare System)        
 500,000   5.250%, 10/01/25  NR/AA/NR   540,070 
 500,000   5.250%, 10/01/26  NR/AA/NR   539,320 
     Yavapai Co. Industrial Development        
     Authority (Yavapai Regional        
     Medical Center)        
 1,000,000   5.250%, 08/01/33  A3/NR/A   1,088,230 
 675,000   5.000%, 08/01/34  A3/NR/A   740,401 

 

9  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Hospital (continued)        
     Yuma Industrial Development        
     Authority (Yuma Regional Medical        
     Center)        
$1,635,000   5.000%, 08/01/23  NR/A-/NR  $1,808,081 
 200,000   5.000%, 08/01/32  NR/A-/NR   221,920 
     Total Hospital      27,800,719 
              
     Lease (4.1%)        
     Arizona Board of Regents (Northern        
     Arizona University) COP        
 600,000   5.000%, 09/01/27  A2/A/NR   650,220 
 500,000   5.000%, 09/01/28  A2/A/NR   541,850 
 1,000,000   5.000%, 09/01/29  A2/A/NR   1,082,150 
     Arizona State Lottery Bonds        
 3,000,000   5.000%, 07/01/28 AGMC Insured  A1/AA+/NR   3,103,440 
     Cave Creek COP        
 85,000   5.750%, 07/01/19  NR/AA/NR   85,825 
     Pinal Co. Correctional Facilities        
 1,470,000   5.250%, 10/01/21 ACA Insured  NR/BBB/NR   1,471,235 
     Prescott Municipal Property Corp.        
 500,000   5.000%, 07/01/34  Aa3/AA/NR   557,155 
     State of Arizona COP Department        
     Administration        
 1,500,000   5.250%, 10/01/26 AGMC Insured  Aa3/AA/NR   1,545,030 
 670,000   5.250%, 10/01/28 AGMC Insured  Aa3/AA/NR   690,113 
     State of Arizona COP        
 500,000   5.000%, 09/01/27  Aa3/AA-/NR   571,400 
     Total Lease      10,298,418 
              
     Mortgage (4.9%)        
     Eastmark Community Facilities        
     District No. 1        
 345,000   4.000%, 07/15/33 AGMC Insured  NR/AA/NR   357,938 
 360,000   4.000%, 07/15/34 AGMC Insured  NR/AA/NR   372,121 

 

10  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Mortgage (continued)        
     Estrella Mountain Ranch Community        
     Facilities District        
$1,000,000   5.000%, 07/15/32 AGMC Insured  NR/AA/NR  $1,106,190 
     Festival Ranch Community Facilities        
     District        
 1,000,000   4.000%, 07/15/36 BAMAC Insured  NR/AA/NR   1,025,540 
 950,000   5.000%, 07/15/37 BAMAC Insured  NR/AA/NR   1,043,366 
 750,000   5.000%, 07/15/38 BAMAC Insured  NR/AA/NR   834,420 
     Goodyear Community Facilities        
     Utilities District No. 1        
 500,000   4.000%, 07/15/28  A1/A-/NR   524,730 
 500,000   4.000%, 07/15/32  A1/A-/NR   521,045 
     Maricopa Co. Industrial Development        
     Authority (Christian Care        
     Retirement Apartments)        
 1,000,000   5.000%, 01/01/30  NR/A/NR   1,111,520 
     Marley Park Community Facilities        
     District        
 535,000   4.000%, 07/15/34 BAMAC Insured  NR/AA/NR   551,965 
     Merrill Ranch Community Facilities        
     District #2        
 680,000   6.750%, 07/15/38  NR/BBB/NR   780,443 
     Pima Co. Industrial Development        
     Authority (Christian Care Senior        
     Living Facility)        
 1,000,000   5.000%, 12/15/32  NR/A-/NR   1,100,930 
     Scottsdale Waterfront Community        
     Facilities District        
 530,000   6.000%, 07/15/27 144A  NR/NR/NR*   529,989 
 930,000   6.050%, 07/15/32 144A  NR/NR/NR*   929,926 
     Sundance Community Facilities        
     District        
 655,000   5.125%, 07/15/30  A3/BBB/NR   655,164 
     Verrado Community Facilities Utilities        
     District No. 1        
 500,000   6.000%, 07/15/33 144A  NR/NR/NR*   526,655 
     Vistancia Community Facilities District        
 540,000   5.000%, 07/15/26  A1/NR/A+   563,803 
     Total Mortgage      12,535,745 

 

11  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Pollution Control (2.7%)        
     Apache Co. Industrial Development        
     Authority, Pollution Control, Tucson        
     Electric Power Co.        
$2,955,000   4.500%, 03/01/30  A3/A-/NR  $3,125,326 
     Coconino Co. Pollution Control,        
     Tucson Electric Power Co.        
 2,000,000   5.125%, 10/01/32  A3/A-/NR   2,056,780 
     Maricopa Co. Pollution Control        
     (Southern California Edison Co.)        
 1,500,000   5.000%, 06/01/35  A1/A/NR   1,561,440 
     Total Pollution Control      6,743,546 
              
              
     Resource Recovery (2.4%)        
     Chandler Industrial Development        
     Authority (Intel Corporation Project)        
 3,000,000   2.700%, 12/01/37 AMT (Mandatory        
     Put Date 8/14/23)  A1/A+/NR   2,986,380 
     Maracopa 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   1,510,815 
     Yavapai Co. Industrial Development        
     Authority, (Waste Management Inc.        
     Project)        
 1,500,000   2.800%, 06/01/27 AMT (Mandatory        
     Put Date 06/01/21)  NR/A-/NR   1,506,495 
     Total Resource Recovery      6,003,690 
              
              
     Transportation (2.2%)        
     Arizona Transportation Board Revenue        
 1,545,000   5.000%, 07/01/27  Aa2/AA+/NR   1,692,733 
 2,900,000   5.000%, 07/01/33  Aa1/AAA/NR   3,257,686 
     Pima Co. Regional Transportation        
     Authority Excise Tax        
 500,000   5.000%, 06/01/26  NR/AA+/AA   556,790 
     Total Transportation      5,507,209 

 

12  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Utility (11.2%)        
     Central Arizona Water Conservation        
     District Water Delivery (Central        
     Arizona Project)        
$750,000   5.000%, 01/01/33  Aa2/AA+/AA  $850,673 
 750,000   5.000%, 01/01/34  Aa2/AA+/AA   848,063 
     Greater Arizona Development        
     Authority Revenue        
 1,200,000   5.000%, 08/01/29  A1/A/NR   1,226,964 
 500,000   5.000%, 08/01/28 AGMC Insured  A1/AA/NR   553,840 
     Mesa Utility System        
 1,500,000   4.000%, 07/01/32  Aa2/AA-/NR   1,583,820 
 2,100,000   5.000%, 07/01/35  Aa2/AA-/NR   2,261,091 
     Pinal Co. Electrical District No. 3,        
     Electrical System Revenue        
 305,000   4.750%, 07/01/31  NR/A/NR   321,272 
     Salt River Project Agricultural        
     Improvement and Power Revenue        
 4,280,000   5.000%, 12/01/28  Aa1/AA/NR   4,637,380 
 3,250,000   5.000%, 12/01/30  Aa1/AA/NR   3,539,803 
 5,210,000   5.000%, 12/01/31  Aa1/AA/NR   5,665,041 
 500,000   5.000%, 12/01/32  Aa1/AA/NR   567,405 
 1,000,000   5.000%, 01/01/33  Aa1/AA/NR   1,153,010 
 1,105,000   5.000%, 12/01/36  Aa1/AA/NR   1,239,666 
     Salt Verde Finance Corp. Gas Revenue        
 3,000,000   5.250%, 12/01/28  Baa1/BBB+/NR   3,493,080 
     Surprise Utility System Senior Lien        
     Obligations        
 470,000   5.000%, 07/01/33  NR/AA+/NR   550,215 
     Total Utility      28,491,323 
              
     Water/Sewer (6.9%)        
     Gilbert Water Resource Municipal        
     Property Corp.        
 1,190,000   4.000%, 07/01/34  NR/AAA/AAA   1,248,143 
 820,000   4.000%, 07/01/35  NR/AAA/AAA   857,212 

 

13  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Revenue Bonds (continued)  and Fitch  Value
          
     Water/Sewer (continued)        
     Glendale Water & Sewer Revenue        
$2,000,000   5.000%, 07/01/28  A1/AA/NR  $2,263,480 
 500,000   5.000%, 07/01/28  A1/AA/NR   545,555 
     Goodyear Water and Sewer Revenue        
 1,750,000   5.375%, 07/01/30  Aa3/A+/NR   1,843,730 
 635,000   5.250%, 07/01/31 AGMC Insured  Aa3/AA/NR   684,219 
     Lake Havasu City Wastewater System        
     Revenue        
 1,000,000   5.000%, 07/01/43 AGMC Insured  A2/AA/NR   1,095,690 
     Phoenix Civic Improvement Corp.        
     Wastewater Revenue        
 500,000   5.000%, 07/01/35  Aa2/AA+/NR   569,390 
 1,500,000   5.500%, 07/01/24 NPFG/FGIC Insured  Aa2/AAA/NR   1,756,980 
     Phoenix Civic Improvement Corp.        
     Water System Revenue        
 1,100,000   5.000%, 07/01/38  Aa2/AAA/NR   1,241,295 
     Pima Co. Sewer Revenue System        
 1,335,000   5.000%, 07/01/26  NR/AA/AA-   1,460,143 
 865,000   5.000%, 07/01/27  NR/AA/AA-   946,085 
     Tucson Water Revenue System        
 1,000,000   5.000%, 07/01/32  Aa2/AA/AA   1,136,340 
     Yuma Municipal Property Corp. Utility        
     System        
 1,700,000   5.000%, 07/01/28  A1/A+/AA-   1,926,185 
     Total Water/Sewer      17,574,447 
     Total Revenue Bonds      184,223,308 
              
     Pre-Refunded Bonds (7.3%)††        
     Pre-Refunded General Obligation        
     Bonds (2.4%)        
     County (0.8%)        
     Maricopa Co. Community College        
     District        
 2,000,000   4.000%, 07/01/21  Aaa/AAA/AAA   2,031,420 

 

14  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal     Moody's, S&P   
Amount  Pre-Refunded Bonds (continued)  and Fitch  Value
          
     Pre-Refunded General Obligation        
     Bonds (continued)        
     School District (1.6%)        
     Coconino & Yavapai Counties Joint        
     Unified School District No. 9 Sedona        
$1,000,000   5.375%, 07/01/28  Aa2/A+/NR  $1,025,480 
     Maricopa Co. Elementary School        
     District No. 28 (Kyrene Elementary)        
 250,000   5.500%, 07/01/30  Aa1/AA/NR   287,108 
     Maricopa Co. Unified School District        
     No. 48 (Scottsdale)        
 1,500,000   4.750%, 07/01/30  Aa1/AA/NR   1,609,275 
     Pima Co. Unified School District No. 8        
     (Flowing Wells)        
 1,000,000   5.375%, 07/01/29  NR/A+/NR   1,057,280 
     Total School District      3,979,143 
     Total Pre-Refunded        
     General Obligation Bonds      6,010,563 
              
     Pre-Refunded Revenue Bonds (4.9%)        
     Excise Tax (1.4%)        
     Casa Grande Excise Tax        
 1,435,000   5.000%, 04/01/28  NR/AA/AA   1,456,984 
     Gilbert Public Facilities Municipal        
     Property Corp.        
 850,000   5.000%, 07/01/23  Aa1/AA+/NR   869,627 
 1,250,000   5.000%, 07/01/24  Aa1/AA+/NR   1,278,863 
     Total Excise Tax      3,605,474 
              
     Hospital (2.6%)        
     Arizona Health Facilities Authority        
     (Yavapai Regional Medical Center)        
 1,500,000   5.375%, 12/01/30 AGMC Insured  A2/NR/NR   1,556,850 
     Maricopa Co. Hospital Revenue (Sun        
     Health)        
 1,500,000   5.000%, 04/01/25  NR/NR/NR*   1,630,920 
 2,125,000   5.000%, 04/01/35  NR/NR/NR*   2,412,640 
     University Medical Center        
     Hospital Revenue        
 910,000   6.500%, 07/01/39  NR/NR/NR*   940,394 
     Total Hospital      6,540,804 

 

15  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

          
      Ratings   
Principal  Pre-Refunded Revenue Bonds  Moody's, S&P   
Amount  (continued)  and Fitch  Value
          
     Utility (0.1%)          
     Pinal Co. Electrical District No. 3,          
     Electrical System Revenue          
     Refunding          
$250,000   5.250%, 07/01/36   NR/A/NR   $271,188 
                
     Water/Sewer (0.8%)          
     Pima Co. Sewer Revenue System          
 2,000,000   5.000%, 07/01/26   NR/AA/AA-    2,156,200 
     Total Pre-Refunded Revenue Bonds        12,573,666 
     Total Pre-Refunded Bonds        18,584,229 
     Total Municipal Bonds (cost          
     $245,462,630)        250,579,076 
                
 Shares   Short-Term Investment (1.0%)          
                
     Dreyfus Treasury & Agency Cash          
     Management - Institutional Shares,          
 2,527,983   1.96%** (cost $2,527,983)   Aaa-mf/AAAm/NR    2,527,983 
                
     Total Investments (cost $247,990,613          
     note 4)   99.9%   253,107,059 
     Other assets less liabilities   0.1    348,098 
     Net Assets   100.0%  $253,455,157 

 

16  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

   Percentage of
Portfolio Distribution By Quality Rating  Investments †
Aaa of Moody's or AAA of S&P or Fitch   8.4%
Pre-refunded bonds††   7.4 
Aa of Moody's or AA of S&P or Fitch   55.3 
A of Moody's or S&P or Fitch   25.0 
Baa of Moody's or BBB of S&P   3.0 
Not Rated*   0.9 
    100.0%

 

  PORTFOLIO ABBREVIATIONS  
  ACA - American Capital Assurance Financial Guaranty Corp.  
  AGC - Assured Guaranty Corp.  
  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.  
  MAC - Municipal Assurance Corp.  
  NPFG - National Public Finance Guarantee  
  NR - Not Rated  

 

17  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

SCHEDULE OF INVESTMENTS (continued)

SEPTEMBER 30, 2018 (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 NRSROs. Percentages in this table do not include the Short-Term Investment.
     
  †† Pre-refunded bonds are bonds secured by an escrow account, comprised of U.S. Government Obligations (unless otherwise noted), 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.
     
  ††† Security purchased on a delayed delivery or when-issued basis.
     
  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.

 

18  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

STATEMENT OF ASSETS AND LIABILITIES

SEPTEMBER 30, 2018 (unaudited)

 

ASSET   
Investments at value (cost $247,990,613)  $253,107,059 
Interest recievable   2,900,973 
Receivable for Fund Shares sold   553,426 
Other assets   17,360 
Total assets   256,578,818 
      
LIABILITIES     
Payable for Trust shares redeemed   2,395,113 
Payable for investment securities purchased   466,916 
Dividends payable   145,480 
Management fee payable   84,613 
Distribution and service fees payable   465 
Accrued expenses   31,074 
Total liabilities   3,123,661 
NET ASSETS  $253,455,157 
      
Net Assets consist of:     
Capital Stock – Authorized an unlimited number of shares,     
par value $0.01 per share  $244,419 
Additional paid-in capital   247,250,721 
Net unrealized appreciation on investments (note 4)   5,116,446 
Accumulated net realized gain on investments   446,567 
Undistributed net investment income   397,004 
   $253,455,157 
CLASS A     
Net Assets  $205,841,386 
Capital shares outstanding   19,854,820 
Net asset value and redemption price per share  $10.37 
Maximum offering price per share (100/96 of $10.37)  $10.80 
      
CLASS C     
Net Assets  $10,762,024 
Capital shares outstanding   1,038,340 
Net asset value and offering price per share  $10.36 
Redemption price per share (*a charge of 1% is imposed     
on the redemption proceeds, or on the original price,     
whichever is lower, if redeemed during the first 12     
months after purchase)  $10.36*
      
CLASS Y     
Net Assets  $36,851,747 
Capital shares outstanding   3,548,724 
Net asset value, offering and redemption price per share  $10.38 

 

See accompanying notes to financial statements.

 

19  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

STATEMENT OF OPERATIONS

SIX MONTHS ENDED SEPTEMBER, 30, 2018 (unaudited)

 

Investment Income      
Interest income      $4,591,587 
Expenses        
Investment Adviser fee (note 3)  $532,932      
Distribution and service fee (note 3)   220,454      
Legal fees   49,741      
Transfer and shareholder servicing agent fees   47,833      
Trustees’ fees and expenses (note 7)   44,469     
Registration fees and dues   17,113      
Shareholders’ reports   15,377      
Auditing and tax fees   11,494      
Insurance   5,887      
Custodian fees   5,818      
Chief compliance officer services (note 3)   5,572      
Miscellaneous   31,432      
Total expenses        988,122 
Net investment income        3,603,465 
           
           
Realized and Unrealized Gain (Loss) on Investments:          
Net realized gain (loss) from securities         
transactions   (86,473)     
Change in unrealized appreciation on          
investments   (2,459,437)     
           
Net realized and unrealized gain          
on investments        (2,545,910)
Net change in net assets resulting from          
operations       $1,057,555 

 

See accompanying notes to financial statements.

 

20  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

STATEMENTS OF CHANGES IN NET ASSETS

 

       
   Six Months Ended   
   September 30, 2018  Year Ended
   (unaudited)  March 31, 2018
       
OPERATIONS          
Net investment income  $3,603,465   $7,878,832 
Realized gain (loss) from securities transactions   (86,473)   548,020 
Change in unrealized appreciation on investments   (2,459,437)   (3,059,562)
Change in net assets resulting from operations   1,057,555    5,367,290 
           
DISTRIBUTIONS TO SHAREHOLDERS (note 9):          
Class A Shares:          
Net investment income   (2,892,008)   (6,207,823)
Net realized gain on investments   —    (488,819)
           
Class C Shares:          
Net investment income   (118,469)   (311,088)
Net realized gain on investments   —    (33,758)
           
Class Y Shares:          
Net investment income   (561,390)   (1,263,636)
Net realized gain on investments   —    (95,432)
Change in net assets from distributions   (3,571,867)   (8,400,556)
           
CAPITAL SHARE TRANSACTIONS (note 6):          
Proceeds from shares sold   16,965,019    35,644,624 
Reinvested dividends and distributions   2,712,864    6,952,908 
Cost of shares redeemed   (37,041,999)   (53,987,586)
Change in net assets from capital share          
transactions   (17,364,116)   (11,390,054)
           
Change in net assets   (19,878,428)   (14,423,320)
           
NET ASSETS:          
Beginning of period   273,333,585    287,756,905 
End of period*  $253,455,157   $273,333,585 
           
*Includes undistributed net investment of:  $397,004   $365,406 

 

See accompanying notes to financial statements.

 

21  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 (unaudited)

 

1. Organization

 

     Aquila Tax-Free Trust of Arizona (the “Fund”), a 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 or Class T 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 at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees.

 

b)Fair value measurements: The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

 

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.

 

Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may 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.

 

22  | Aquila Tax-Free Fund of Arizona

 

     AQUILA TAX-FREE TRUST OF ARIZONA

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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, 2018:

 

    
Valuation Inputs*   Investments in Securities 
Level 1 – Quoted Prices — Short-Term Investment  $2,527,983 
Level 2 – Other Significant Observable   250,579,076 
Inputs — Municipal Bonds*     
Level 3 – Significant Unobservable Inputs   — 
Total  $253,107,059 

 

*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 (2015 –2017) or expected to be taken in the Fund’s 2018 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.

 

23  | Aquila Tax-Free Fund of Arizona

 

     AQUILA TAX-FREE TRUST OF ARIZONA

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

g)Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

 

h)Reclassification of capital accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. On March 31, 2018, the Fund decreased accumulated net realized gain on investments $14,952 and increased undistributed net investment income by $14,952. These reclassifications had no effect on net assets or net asset value per share.

 

i)The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services-Investment Companies”.

 

3. Fees and Related Party Transactions

 

a) Management Arrangements:

 

     Aquila Investment Management LLC (the “Manager”), a wholly-owned subsidiary of Aquila Management Corporation, the Fund’s founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. Under the Advisory and Administration Agreement, the Manager provides all investment management and administrative services to the Fund. The Manager’s services include providing the office of the Fund and all related services as well as managing relationships with all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.40% on the Fund’s net assets.

 

     Under a Compliance Agreement with the Manager, the Manager is compensated by the Fund for Chief Compliance Officer related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940, 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, 2018, distribution fees on Class A Shares amounted to $156,416, of which the Distributor retained $16,813.

 

24  | Aquila Tax-Free Fund of Arizona

 

     AQUILA TAX-FREE TRUST OF ARIZONA

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (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, 2018, amounted to $48,029. 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, 2018, these payments amounted to $16,009. The total of these payments with respect to Class C Shares amounted to $64,038, of which the Distributor retained $15,899.

 

     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, 2018, total commissions on sales of Class A Shares amounted to $30,945, of which the Distributor received $6,778.

 

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, 2018, purchases of securities and proceeds from the sales of securities aggregated $42,191,373 and $56,933,246, respectively.

 

     At September 30, 2018, the aggregate tax cost for all securities was $247,625,091. At September 30, 2018, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $6,987,670 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $1,505,702 for a net unrealized appreciation of $5,481,968.

 

25  | Aquila Tax-Free Fund of Arizona

 

     AQUILA TAX-FREE TRUST OF ARIZONA

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

5. Portfolio Orientation

 

     Since the Fund invests principally and may invest entirely in double tax-free municipal obligations of issuers within Arizona, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Arizona and whatever effects these may have upon Arizona issuers’ ability to meet their obligations. The Fund is also permitted to invest in U.S. territorial municipal obligations meeting comparable quality standards and providing income which is exempt from both regular Federal and Arizona income taxes. The general policy of the Fund is to invest in such securities only when comparable securities of Arizona issuers are not available in the market. At September 30, 2018, the Fund had all of its assets invested in the securities of Arizona issuers.

 

6. Capital Share Transactions

 

Transactions in Capital Shares of the Trust were as follows:

 

   Six Months Ended   
   September 30, 2018  Year Ended
   (unaudited)  March 31, 2018
   Shares  Amount  Shares  Amount
Class A Shares            
Proceeds from shares sold   881,683   $9,200,253    1,997,792   $21,297,733 
Reinvested dividends and                    
distributions   206,947    2,159,749    522,596    5,562,124 
Cost of shares redeemed   (2,099,903)   (21,902,379)   (3,244,027)   (34,525,446)
Net change   (1,011,273)   (10,542,377)   (723,639)   (7,665,589)
Class C Shares:                    
Proceeds from shares sold   122,711    1,280,845    153,696    1,638,103 
Reinvested dividends and                    
distributions   10,019    104,513    28,709    305,576 
Cost of shares redeemed   (436,126)   (4,546,678)   (461,728)   (4,913,281)
Net change   (303,396)   (3,161,320)   (279,323)   (2,969,602)
Class Y Shares:                    
Proceeds from shares sold   620,466    6,483,921    1,191,712    12,708,788 
Reinvested dividends and                    
distributions   42,922    448,602    101,862    1,085,208 
Cost of shares redeemed   (1,012,100)   (10,592,942)   (1,367,022)   (14,548,859)
Net change   (348,712)   (3,660,419)   (73,448)   (754,863)
Total transactions in Trust                    
shares   (1,663,381)  $(17,364,116)   (1,076,410)  $(11,390,054)

 

26  | Aquila Tax-Free Fund of Arizona

 

     AQUILA TAX-FREE TRUST OF ARIZONA

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

7. Trustees’ Fees and Expenses

 

     At September 30, 2018, there were 8 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, 2018 was $38,155. 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, 2018, such meeting-related expenses amounted to $6,314.

 

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. Beginning on the date the Fund enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.

 

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.

 

     The tax character of distributions was as follows:

 

   Year Ended  Year Ended
   March 31, 2018  March 31, 2017
Net tax-exempt income  $7,663,672   $8,712,215 
Ordinary Income   118,875    12,032 
Long-term capital gains   618,009    414,172 
   $8,400,556   $9,138,419 

 

27  | Aquila Tax-Free Fund of Arizona

 

     AQUILA TAX-FREE TRUST OF ARIZONA

NOTES TO FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2018 (unaudited)

 

     As of March 31, 2018, the components of distributable earnings on a tax basis were:

 

Undistributed tax-exempt income  $432,085 
Undistributed net realized gain on investments   602,393 
Unrealized appreciation   7,636,449 
Post October losses   (69,352)
Other temporary differences   (127,246)
   $8,474,329 

 

     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

 

     The Bank of New York Mellon and the Aquila Group of Funds have been parties to a $40 million credit agreement, which currently terminates on August 28, 2019 (per the August 29, 2018 amendment). In accordance with the Aquila Group of Funds Guidelines for Allocation of Committed Line of Credit (the Aquila Group of Funds is comprised of nine funds), 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 rate selected by the Aquila Group of Funds at the time of the borrowing of either (i) the one-month Eurodollar Rate or (ii) a rate equal to the greater of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day, or (c) the Overnight Eurodollar Rate in effect on such day).

 

     There were no borrowings under the credit agreement for the six months ended September 30, 2018.

 

28  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

FINANCIAL HIGHLIGHTS

 

For a share outstanding throughout each period

 

   Class A
    
   Six Months  Year Ended March 31,
   Ended               
   9/30/18                         
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.47   $10.58   $10.95   $10.98   $10.63   $10.97 
Income (loss) from investment operations:                              
Net investment income(1)    0.14    0.30    0.32    0.37    0.38    0.38 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.10)   (0.10)   (0.36)   (0.03)   0.35    (0.34)
Total from investment operations   0.04    0.20    (0.04)   0.34    0.73    0.04 
Less distributions (note 9):                              
Dividends from net investment income   (0.14)   (0.29)   (0.32)   (0.35)   (0.38)   (0.37)
Distributions from capital gains   —    (0.02)   (0.01)   (0.02)   —    (0.01)
Total distributions   (0.14)   (0.31)   (0.33)   (0.37)   (0.38)   (0.38)
Net asset value, end of period  $10.37   $10.47   $10.58   $10.95   $10.98   $10.63 
Total return (not reflecting sales charge)   0.39%(3)   1.93%   (0.42)%   3.20%   6.92%   0.49%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $206   $218   $229   $242   $234   $229 
Ratio of expenses to average net assets   0.72%(4)   0.69%   0.70%   0.71%   0.73%   0.78%(2)
Ratio of net investment income to                              
average net assets   2.72%(4)   2.77%   2.96%   3.36%   3.49%   0.59%(2)
Portfolio turnover rate   16%(3)   16%   19%   10%   14%   10%

_____________________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.73% and 3.64%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

29  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

FINANCIAL HIGHLIGHTS (continued)

 

For a share outstanding throughout each period

 

   Class C
 
   Six Months  Year Ended March 31,
   Ended               
   9/30/18                         
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.47   $10.58   $10.95   $10.98   $10.63   $10.97 
Income (loss) from investment operations:                              
Net investment income(1)    0.10    0.20    0.23    0.28    0.29    0.29 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.11)   (0.09)   (0.37)   (0.03)   0.34    (0.34)
Total from investment operations   (0.01)   0.11    (0.14)   0.25    0.63    (0.05)
Less distributions (note 9):                              
Dividends from net investment income   (0.10)   (0.20)   (0.22)   (0.26)   (0.28)   (0.28)
Distributions from capital gains   —    (0.02)   (0.01)   (0.02)   —    (0.01)
Total distributions   (0.10)   (0.22)   (0.23)   (0.28)   (0.28)   (0.29)
Net asset value, end of period  $10.36   $10.47   $10.58   $10.95   $10.98   $10.63 
Total return (not reflecting sales charge)   (0.13)%(3)   1.06%   (1.26)%   2.34%   6.02%   (0.36)%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $11   $14   $17   $18   $18   $16 
Ratio of expenses to average net assets   1.57%(4)   1.54%   1.55%   1.56%   1.58%   1.63%(2)
Ratio of net investment income to                              
average net assets   1.87%(4)   1.92%   2.11%   2.51%   2.63%   2.74%(2)
Portfolio turnover rate   16%(3)   16%   19%   10%   14%   10%

_____________________

(1)Per share amounts have been calculated using the daily average shares method.

(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 1.58% and 2.79%, respectively, for the year ended March 31, 2014.
(3)Not annualized.
(4)Annualized.

 

See accompanying notes to financial statements.

 

30  | Aquila Tax-Free Fund of Arizona

 

AQUILA TAX-FREE TRUST OF ARIZONA

FINANCIAL HIGHLIGHTS (continued)

 

For a share outstanding throughout each period

 

   Class Y
 
   Six Months  Year Ended March 31,
   Ended               
   9/30/18                         
   (unaudited)  2018  2017  2016  2015  2014
Net asset value, beginning of period  $10.49   $10.60   $10.97   $11.00   $10.65   $10.99 
Income (loss) from investment operations:                              
Net investment income(1)    0.15    0.31    0.34    0.38    0.40    0.40 
Net gain (loss) on securities                              
(both realized and unrealized)   (0.11)   (0.09)   (0.37)   (0.02)   0.34    (0.34)
Total from investment operations   0.04    0.22    (0.03)   0.36    0.74    0.06 
Less distributions (note 9):                              
Dividends from net investment income   (0.15)   (0.31)   (0.33)   (0.37)   (0.39)   (0.39)
Distributions from capital gains   —    (0.02)   (0.01)   (0.02)   —    (0.01)
Total distributions   (0.15)   (0.33)   (0.34)   (0.39)   (0.39)   (0.40)
Net asset value, end of period  $10.38   $10.49   $10.60   $10.97   $11.00   $10.65 
Total return (not reflecting sales charge)   0.37%(3)   2.08%   (0.26)%   3.38%   7.07%   0.64%
Ratios/supplemental data                              
Net assets, end of period (in millions)  $37   $41   $42   $41   $27   $20 
Ratio of expenses to average net assets   0.58%(4)   0.55%   0.55%   0.56%   0.58%   0.63%(2)
Ratio of net investment income to                              
average net assets   2.87%(4)   2.92%   3.11%   3.49%   3.63%   3.74%(2)
Portfolio turnover rate   16%(3)   16%   19%   10%   14%   10%

_____________________

(1)Per share amounts have been calculated using the daily average shares method.
(2)Includes expenses incurred in connection with the reorganization of the Fund into a series of Aquila Municipal Trust. Without these expenses, the expense ratio and the net investment income ratio would have been 0.58% and 3.79%, respectively, for the year ended March 31, 2014.
(2)Not annualized.
(3)Annualized.

 

See accompanying notes to financial statements.

 

31  | Aquila Tax-Free Fund of Arizona

 

Additional Information (unaudited)

 

Renewal of the Advisory and Administration Agreement

 

     Aquila Investment Management LLC (the “Manager”) serves as the investment adviser to the Trust pursuant to an Advisory and Administration Agreement (the “Advisory Agreement”). In order for the Manager to remain the investment adviser of the Trust, the Trustees of the Trust must determine annually whether to renew the Advisory Agreement for the Trust.

 

     In considering whether to approve the renewal of the Advisory Agreement, the Trustees requested and obtained such information as they deemed reasonably necessary. Contract review materials were provided to the Trustees in August, 2018. The independent Trustees met telephonically on August 13, 2018 and in person on September 15, 2018 to review and discuss the contract review materials.  The Trustees considered, among other things, information presented by the Manager. They also considered information presented in a report prepared by an independent consultant with respect to the Trust’s fees, expenses and investment performance, which included comparisons of the Trust’s investment performance against peers and the Trust’s benchmark and comparisons of the advisory fee payable under the Advisory Agreement against the advisory fees paid by the Trust’s peers, as well as information regarding the operating margins of certain investment advisory firms (the “Consultant’s Report”). In addition, the Trustees took into account the information related to the Trust provided to the Trustees at each regularly scheduled meeting. The Trustees also discussed the memorandum provided by Trust 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 15, 2018, based on their evaluation of the information provided by the Manager and the independent consultant, the Trustees of the Trust present at the meeting, including the independent Trustees voting separately, unanimously approved the renewal of the Advisory Agreement until September 30, 2019. In considering the renewal of the Advisory Agreement, the Trustees considered various factors that they determined were relevant, including the factors described below. The Trustees did not identify any single factor as the controlling factor in determining to approve the renewal of the Advisory Agreement.

 

The nature, extent, and quality of the services provided by the Manager

 

     The Trustees considered the nature, extent and quality of the services that had been provided by the Manager to the Trust, taking into account the investment objectives and strategies of the Trust. The Trustees reviewed the terms of the Advisory Agreement.

 

     The Trustees reviewed the Manager’s investment approach for the Trust and its research process. The Trustees considered that the Manager had provided all advisory and administrative services to the Trust that the Trustees deemed necessary or appropriate, including the specific services that the Trustees have determined are required for the Trust, given that it seeks to provide shareholders with as high a level of current income exempt from Arizona state and regular Federal income taxes as is consistent with preservation of capital. The Trustees considered the personnel of the Manager who provide investment management services to the Trust. The Manager has employed Messrs. Tony Tanner, James Thompson and Royden Durham as portfolio managers for the Trust and has established facilities and capabilities for credit analysis of the Trust’s portfolio securities. The Trustees noted that Mr. Tanner replaced Mr. Todd Curtis, as the Trust’s lead portfolio manager, upon Mr. Curtis’ retirement, effective April 30, 2018, and further noted that Mr. Tanner, a 30-year veteran in the financial services industry, has worked in the Arizona wealth community for the past 15 years. They considered that Mr. Tanner, the Trust’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 Trust invests, including those securities with less than the highest ratings from the rating agencies.

 

32  | Aquila Tax-Free Fund of Arizona

 

     The Trustees noted that the Manager has additionally provided all administrative services to the Trust and provided the Trust with personnel (including Trust officers) and other resources that are necessary for the Trust’s business management and operations. The Trustees considered the nature and extent of the Manager’s supervision of third-party service providers, including the Trust’s 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 Trust were satisfactory and consistent with the terms of the Advisory Agreement.

 

The investment performance of the Trust

 

     The Trustees reviewed the Trust’s performance (Class A shares) and compared its performance to the performance of:

 

•the funds in the Trust’s peer group (the “Peer Group”), as selected by the independent consultant (five Arizona intermediate and long municipal bond funds, as classified by Morningstar, that charge a front-end sales charge);

 

•the funds in the Trust’s product category for performance (the “Product Category for Performance”) (all funds (and all classes) included in the Morningstar Single-State Intermediate Municipal Bond Funds category); and

 

•the Trust’s benchmark index, the Bloomberg Barclays Quality Intermediate Municipal Bond Index.

 

     The Trustees considered that the materials included in the Consultant’s Report indicated that the Trust’s average annual total return was lower than the average annual total return of the funds in the Peer Group for each of the one, three, five and ten-year periods ended June 30, 2018. The Trustees also considered that, as reflected in the Consultant’s Report, the Trust’s average annual total return was higher than the average annual total return of the funds in the Product Category for Performance for the one, three, five and ten-year periods ended June 30, 2018, as well as the benchmark index for each of the one, three, five and ten-year periods ended June 30, 2018. The Trustees noted that the Trust invests primarily in municipal obligations issued by the State of Arizona, its counties and various other local authorities, while the funds in the Product Category for Performance invest in, and the Trust’s benchmark index includes, municipal bonds of issuers throughout the United States. The Trustees also noted that, unlike the Trust’s returns, the performance of the benchmark index did not reflect any fees or expenses.

 

     In addition, the Trustees considered that, as reflected in the Consultant’s Report, the Trust’s standard deviation, a measure of volatility, was in the third quintile relative to the funds in the Product Category for Performance for the three and five-year periods ended June 30, 2018. The Trustees further noted that the Trust’s Sharpe ratio was in the second quintile for the three-year period and the first quintile for the five-year period, both ended June 30, 2018, when compared to the funds in the Product Category for Performance. A Sharpe ratio is a measure for calculating risk-adjusted return. The higher the Sharpe ratio, the better the fund’s historical risk-adjusted performance.

 

33  | Aquila Tax-Free Fund of Arizona

 

     The Trustees considered the Trust’s investment performance to be consistent with the investment objectives of the Trust. Evaluation of the investment performance of the Trust indicated to the Trustees that renewal of the Advisory Agreement would be appropriate.

 

Advisory Fees and Trust Expenses

 

     The Trustees reviewed the Trust’s advisory fees and expenses and compared them to the advisory fee and expense data for:

 

•the funds in the Peer Group (as defined above); and

 

•the funds in the product category for expenses (the “Product Category for Expenses”) (Morningstar Single-State Intermediate Municipal Bond Funds and Morningstar Single-State Long Municipal Bond Funds from states within which 4-7 mutual funds are operating, with similar operating expense structures).

 

     The Trustees considered that the Trust’s contractual advisory fee was lower than the average and median contractual advisory fee of the funds in the Peer Group (at the Trust’s current asset level) and lower than the asset-weighted average contractual advisory fee of the funds in the Product Category for Expenses (at various asset levels up to $5 billion).

 

     The Trustees noted that the Trust’s actual management fee was only 0.01% higher than the average actual management fee of the funds in the Peer Group (after giving effect to fee waivers in effect for those funds) but lower than the average actual management fee of the funds in the Product Category for Expenses (after giving effect to fee waivers in effect for those funds). They noted that the Trust’s expenses were less than the average actual expenses of the funds in both the Product Category for Expenses and the Peer Group (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 Trust. In evaluating the fees associated with the other funds, the Trustees took into account the respective demands, resources and complexity associated with the Trust and those funds.

 

     The Trustees concluded that the advisory fee and expenses of the Trust were reasonable in relation to the nature and quality of the services provided by the Manager to the Trust.

 

Profitability

 

     The Trustees received materials from each of the Manager and the independent consultant related to profitability. The Manager provided information which showed the profitability to the Manager of its services to the Trust, as well as the profitability of Aquila Distributors LLC of distribution services provided to the Trust. The independent consultant provided publicly available data regarding the profitability of other asset managers in comparison to the overall profitability of the Manager.

 

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     The Trustees considered the information provided by the Manager regarding the profitability of the Manager with respect to the advisory services provided by the Manager to the Trust, including the methodology used by the Manager in allocating certain of its costs to the management of the Trust. The Trustees also considered information regarding the profitability of the Manager provided to the Trustees by the independent consultant. TheTrustees concluded that profitability to the Manager with respect to the advisory services provided to the Trust did not argue against approval of the fees to be paid under the Advisory Agreement.

 

The extent to which economies of scale would be realized as the Trust grows

 

     The Trustees considered the extent to which the Manager may realize economies of scale or other efficiencies in managing theTrust. TheTrustees considered that the materials indicated that the Trust’s fees are already generally lower than those of its peers, including those with breakpoints. The Trustees noted that the Manager’s profitability also may be an indicator of the availability of any economies of scale. Accordingly, the Trustees concluded that economies of scale, if any, were being appropriately shared with the Trust.

 

Benefits derived or to be derived by the Manager and its affiliate from the relationship with the Trust

 

     The Trustees observed that, as is generally true of most fund complexes, the Manager and its affiliate, by providing services to a number of funds including the Trust, were able to spread costs as they would otherwise be unable to do. The Trustees noted that while that produces efficiencies and increased profitability for the Manager and its affiliate, it also makes their services available to the Trust at favorable levels of quality and cost which are more advantageous to the Trust than would otherwise have been possible.

 

35  | Aquila Tax-Free Fund 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)
      Expenses(2)   Expenses(2)  
  Beginning Ending(1) Paid During Ending Paid During Net
  Account Account Period Account Period Annualized
Share Value Value 4/1/18 – Value 4/1/18 – Expense
Class 4/1/18 9/30/18 9/30/18 9/30/18 9/30/18 Ratio
A $1,000 $1,003.90 $3.62 $1,021.46 $3.65 0.72%
C $1,000 $ 998.70 $7.87 $1,017.20 $7.94 1.57%
Y $1,000 $1,003.70 $2.91 $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 Fund of Arizona

 

Information Available (unaudited)

 

     Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent your Fund’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Fund policies, the Fund publicly discloses the complete schedule of the Fund’s portfolio holdings, as of each calendar quarter, generally by the 15th day after the end of each calendar quarter. Such information remains accessible until the next schedule is made publicly available. You may obtain a copy of the Fund’s portfolio holdings schedule for the most recently completed period by visiting the Fund’s website at www.aquilafunds.com. Whenever you wish to see a listing of your Fund’s portfolio other than in your shareholder reports, please check our website at www.aquilafunds.com or call us at 1-800-437-1000.

 

     The Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarter ends of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at www.sec.gov. You may also review or, for a fee, copy the forms at the SEC’s Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330.

 

 

Proxy Voting Record (unaudited)

 

     During the 12 month period ended June 30, 2018, 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, 2018, $7,663,672 of dividends paid by Aquila Tax-Free Trust of Arizona, constituting 91.2% of total dividends paid, were exempt-interest dividends, and $618,009 of dividends paid by the Fund constituting 7.4% of total dividends paid were capital gains; and the balance was ordinary income.

 

     Prior to February 15, 2019, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2018 calendar year.

 

37  | Aquila Tax-Free Fund of Arizona

 

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Founders

     Lacy B. Herrmann (1929-2012)

Aquila Management Corporation, Sponsor

 

Manager

AQUILA INVESTMENT MANAGEMENT LLC

120 West 45th Street, Suite 3600

New York, New York 10036

 

Board of Trustees

Thomas A. Christopher, Chair

Diana P. Herrmann, Vice Chair

Ernest Calderón

Gary C. Cornia

Grady Gammage, Jr.

Glenn P. O’Flaherty

James R. Ramsey

Laureen L. White

 

Officers

     Diana P. Herrmann, President

Charles E. Childs, III, Executive Vice President

and Secretary

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

Marie E. Aro, Senior Vice President

Paul G. O’Brien, Senior Vice President

Randall S. Fillmore, Chief Compliance Officer

Joseph P. DiMaggio, Chief Financial Officer

and Treasurer

 

Distributor

AQUILA DISTRIBUTORS 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

225 Liberty Street

New York, New York 10286

 

Further information is contained in the Prospectus,

which must precede or accompany this report.

 

 

ITEM 2. CODE OF ETHICS.

 

Not applicable.

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

 

Not applicable.

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Not applicable.

 

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

 

Not applicable.

 

ITEM 6. SCHEDULE OF INVESTMENTS.

 

Included in Item 1 above

 

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

 

Not applicable.

 

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

 

Not applicable.

 

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

 

Not applicable.

 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

The Board of Directors of the Registrant has adopted a Nominating Committee Charter which provides that the Nominating Committee (the 'Committee') may consider and evaluate nominee candidates properly submitted by shareholders if a vacancy among the Independent Trustees of the Registrant occurs and if, based on the Board's then current size, composition and structure, the Committee determines that the vacancy should be filled. The Committee will consider candidates submitted by shareholders on the same basis as it considers and evaluates candidates recommended by other sources. A copy of the qualifications and procedures that must be met or followed by shareholders to properly submit a nominee candidate to the Committee may be obtained by submitting a request in writing to the Secretary of the Registrant.

 

 

ITEM 11. CONTROLS AND PROCEDURES.

 

(a) Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) as of a date within 90 days of the filing of this report, the registrant's chief financial and executive officers have concluded that the disclosure controls and procedures of the registrant are appropriately designed to ensure that information required to be disclosed in the registrant's reports that are filed under the Securities Exchange Act of 1934 are accumulated and communicated to registrant's management, including its principal executive officer(s) and principal financial officer(s), to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the Securities and Exchange Commission.

 

(b) There have been no significant changes in registrant's internal controls or in other factors that could significantly affect registrant's internal controls subsequent to the date of the most recent evaluation, including no significant deficiencies or material weaknesses that required corrective action.

 

ITEM 12. EXHIBITS.

 

(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.

 

(b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940.

 

 
SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

AQUILA MUNICIPAL TRUST  
     
By: /s/ Diana P. Herrmann  
Vice Chair, President and Trustee  
  December 10, 2018  
     
By: /s/ Joseph P. DiMaggio  
  December 10, 2018  

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By: /s/ Diana P. Herrmann  
  Diana P. Herrmann  
  Vice Chair, President and Trustee  
  December 10, 2018  
     
By: /s/ Joseph P. DiMaggio  
  Joseph P. DiMaggio  
  Chief Financial Officer and Treasurer  
  December 10, 2018  

 

 

AQUILA MUNICIPAL TRUST

 

EXHIBIT INDEX

 

(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.

 

(b) Certification of chief executive officer and chief financial officer as required by Rule 30a-2(b) of the Investment Company Act of 1940.