Zions Bank Friday relinquished its role as manager of the Tax Free Fund of Utah, but the fund's New York-based parent company, Aquila Management Corp., said the 1,100 Utahns who own shares have no reason for concern.
"Those shareholders don't have to worry about their money," said Diana Herman, Aquila's president and chief operating officer. "We have portfolio management in-house, and we are also looking at other possibilities for a new outside manager, so anyone who owns shares in the fund can rest assured."
Zions has managed the portfolio of municipal bonds issued by Utah governmental entities since 1998, but it decided to step aside when it was criticized for supporting HB158, a bill that would make only bonds issued in Utah exempt from state taxes.
Currently, the state affords that status to bonds issued by any state, one of only two states (Indiana is the other) to be so generous with its tax exemptions.
The bill is being studied by the staff of Gov. Mike Leavitt, who has until Tuesday to sign it into law, veto it or let it become law without his signature. The governor's office said last week that it was examining the bill's ramifications carefully since it had been receiving numerous calls from investors opposed to it.
Kimball L. Young, senior vice president of the Tax Free Fund for Utah, based in Salt Lake City, said that with Zions' resignation as manager, or "sub-advisor," the fund will now conduct an "orderly transition" to in-house management of the fund, although Herman told the Deseret News that they also would explore other options to managing it themselves.
Aquila Group, founded in 1985, has seven single-state municipal bond funds, two regional stock funds and five money market funds, all of which are sold through brokers, financial planners and other securities dealers. Aquila is ranked in the top 13 percent in asset size for municipal bond mutual funds.
Herman said Zions' stepping down may be a blessing in disguise.
"I think that in the long run it could be good for us overall," she said. "But (HB158) is wonderful for Utah residents, and I'm very surprised at the negative press it has received since it was supported by numerous organizations, including the Utah Taxpayers Association, Utah League of Cities and Towns, Intermountain Power Project and many others."
As it now stands, Herman said she believes there is a disincentive for Utahns to buy local bonds since they can get the same tax-free benefits from any bond issued anywhere.