Armed with the success of tax-free investment funds in five other states, Aquila Management Corp., New York City, has created the Tax Free Fund for Utah, with several locals serving as officers.
The fund was created on July 24, a day when Utahns have a great deal of pride in their state, said Lacy B. Herrmann, president of Aquila and also president of the Tax Free Fund for Utah. He was in Salt Lake City to meet with Kimball L. Young, and Jerry G. McGrew, vice presidents of the Utah fund, who have an office at 139 E. South Temple.Herrmann said the Utah fund is designed to attract Utah investors who have a great deal of pride in their state since the pooled money in the fund will go toward purchasing bonds issued by municipalities and other entities. The money raised by issuing the bonds usually goes to build vital items like libraries, water systems and sewage systems.
He said the Utah fund is designed to attract investors with smaller amounts of money. Usually it takes $5,000 to invest in a tax-free fund, Herrmann said, but people can get into the Utah fund for only $1,000 initially and then add any amounts later.
The best part is that the returns on investments from the fund are free from state and federal income taxes, Herrmann said, something allowed by law.
Already the fund is being sold through five brokerage firms, and the goal is to have it sold through all major brokerage firms in the state in a few weeks. Herrmann said there will be an advertising campaign starting Sept. 8 in all types of media.
Young said already the fund has collected more than $500,000, which has been used to purchase the bonds of 20 different issuers. The money has gone for libraries, natural gas transmission lines and other projects of municipalities and the Intermountain Power Project, Intermountain Health Care and redevelopment agencies.
Herrmann said municipal bonds rank second in safety only behind federal government bonds and the Tax Free Fund of Utah is purchasing only those bonds with the ratings AAA, AA, A and BAA, the four highest. "We want people to sleep at night knowing their money is safe," said Herrmann.
With Aquila's guidance, the five other state funds have a combined 31,000 shareholders. The 71/2-year-old Hawaiian Tax-Free Trust has a $504 million investment followed by The Tax-Free Trust of Arizona, $236 million; The Tax-Free Trust of Oregon, $233 million; the Churchill Tax-Free Trust of Kentucky, $149 million; and the Tax-Free Fund of Colorado, $154 million.
The Utah fund has hired First Security Management Investment Inc., Salt Lake City, a subsidiary of First Security Investment Services Inc., which is a wholly owned subsidiary of First Security Corp, as the investment adviser.
Herrmann said Aquila will oversee all aspects of the fund from legal counsel, distributors and investment advisers to auditors.
Although the fund is currently giving a 6.24 percent return to investors, fund officers are distributing a brochure that says the fund doesn't have a fixed rate of return. The rate of return will vary according to the composition of the fund's portfolio and current market conditions.
Herrmann said the rate of return on the fund's investments is directly related to the safety of the bonds being issued. Therefore, the rate of return to the fund's investors won't be as high as other investments, but safety should be considered.