UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4083
Aquila Equity Fund
(Exact name of Registrant as specified in charter)
380 Madison Avenue
New York, New York 10017
(Address of principal executive offices) (Zip code)
Joseph P. DiMaggio
380 Madison Avenue
New York, New York 10017
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 697-6666
Date of fiscal year end: 12/31
Date of reporting period: 12/31/03
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
Annual Report
December 31, 2003
Aquila Equity Fund
PRIVACY NOTICE (unaudited)
Our Privacy Policy. In providing services to you as an individual who owns or is
considering investing in shares of a fund of the Aquila SM Group of Funds, we
collect certain nonpublic personal information about you. Our policy is to keep
this information strictly safeguarded and confidential, and to use or disclose
it only as necessary to provide services to you or as otherwise permitted by
law. Our privacy policy applies equally to former shareholders and personal
information" is personally identifiable financial information about you as an
individual or your family. The kinds of nonpublic personal information we have
about you may include the information you provide us on your share purchase
application or in telephone calls or correspondence with us, and information
about your fund transactions and holdings, how you voted your shares and the
account where your shares are held.
Information We Disclose. We disclose nonpublic personal information about you to
companies that provide necessary services to your fund, such as the fund's
transfer agent, distributor, investment adviser or sub-adviser and to our
affiliates, as permitted or required by law, or as authorized by you. We also
may disclose this information to another fund of the Aquilasm Group of Funds or
its distributor, or to the broker-dealer that holds your fund shares, under
agreements that permit them to use the information only to provide you
information about your fund, other funds in the Aquilasm Group of Funds or new
services we are offering which may be of interest to you. Any other use is
strictly prohibited. We do not sell information about you or any of our fund
shareholders to anyone.
How We Safeguard Your Information. We restrict access to nonpublic personal
information about you to only those persons who need it to provide services to
you or who are permitted by law to receive it. We maintain physical, electronic
and procedural safeguards to protect the confidentiality of all nonpublic
personal information we have about you.
If you have any questions regarding our Privacy Policy, please contact us at
1-800-437-1020.
Independent Auditors' Report
To the Board of Trustees and Shareholder of
Aquila Equity Fund:
We have audited the accompanying statement of net assets of the Aquila Equity
Fund (formerly Aquila Cascadia Equity Fund) as of December 31, 2003, and the
related statement of operations for the year then ended, the statements of
changes in net assets for the two year period then ended, and the financial
highlights for the two year period ended December 31, 2003, the nine-month
period ended December 31, 2001 and the three year period ended March 31, 2001.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. An audit also
includes assessing the accounting principles used, and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Aquila
Equity Fund as of December 31, 2003, results of its operations, changes in its
net assets, and financial highlights for each of the periods referred to above,
in conformity with accounting principles generally accepted in the United States
of America. .
KPMG LLP
New York, New York
February 13, 2004
AQUILA EQUITY FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 2003
ASSETS
Cash and Net Assets - 100.0%
$ 1,002
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares
par value $.01 per share .................................. $ 1
Additional paid-in capital ................................... 119,130
Accumulated net realized loss on investments ................. (118,129)
-----------
$ 1,002
===========
CLASS A
Net Assets ................................................... $ 1,002
===========
Capital shares outstanding ................................... 86.473
===========
Net asset value and redemption price per share ............... $ 11.59
===========
Offering price per share (100/95.75 of $11.59 adjusted to
nearest cent) ................ $ 12.10
===========
See accompanying notes to financial statements.
AQUILA EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
The Fund had no operations during the year.
AQUILA EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER, 31 2002
----------------- -----------------
OPERATIONS:
Net investment loss ........................................ $ - $ (67,206)
Net realized gain (loss) from securities transactions ...... - 74,034
Change in unrealized appreciation on investments ........... - (2,356,012)
------------ ------------
Change in net assets from operations .................... - (2,349,184)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .................................. - 89,012
Reinvested distributions ................................... - -
Cost of shares redeemed .................................... - (9,693,260)
------------ ------------
Change in net assets from capital share transactions .... - (9,604,248)
------------ ------------
Change in net assets .................................... - (11,953,432)
NET ASSETS:
Beginning of period ........................................ 1,002 11,954,434
------------ ------------
End of period .............................................. $ 1,002 $ 1,002
============ ============
See accompanying notes to financial statements.
AQUILA EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
Note A - Aquila Equity Fund (the "Fund"), is a diversified open-end investment
company organized as a Massachusetts business trust. On September 24, 2003
Aquila Cascadia Equity Fund changed its name to Aquila Equity Fund. The Fund
began its investment operations as a capital appreciation fund on September 9,
1996. The Fund is authorized to issue an unlimited number of shares and began
offering Class A, Class C and Class Y shares on August 13, 1996. Class A shares
are sold with a front-payment sales charge and bear an annual service fee. Class
C shares are sold with a level-payment sales charge with no payment at time of
purchase but level service and distribution fees from date of purchase through a
period of six years thereafter. A contingent deferred sales charge of 1% is
assessed to any Class C shareholder who redeems shares of this class within one
year from the date of purchase. The Class Y shares are only offered to
institutions acting for an investor in a fiduciary, advisory, agency, custodian
or similar capacity and are not offered directly to retail investors. Class Y
shares are sold at net asset value without any sales charge, redemption fees,
contingent deferred sales charge or distribution or service fees. On July 31,
2000, the Fund established Class I shares, which are offered and sold only
through financial intermediaries and are not offered directly to retail
investors. 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. On May 7,
2001, the Board of Trustees approved a change in the Fund's fiscal year end from
March 31 to December 31. On June 9, 2002, the Trustees unanimously determined
that in the best interest of the Fund's shareholders the Fund should be closed,
pending shareholder approval. On August 15, 2002, shareholders of record as of
June 14, 2002 voted to close the Fund. All of the Fund's shares were redeemed
with the exception of Aquila Management Corporation's holdings in the Fund.
Aquila Management Corporation currently owns 100% of the shares outstanding.
Although the Fund is not conducting a public offering of its shares, it will
continue to exist as a Massachusetts Business Trust and maintain its
registration as an investment company.
Note B - Since inception the Fund has qualified as a regulated investment
company by complying with the provisions of the Internal Revenue Code applicable
to certain investment companies. The Trust made distributions of income and
security profits sufficient to relieve it from all, or substantially all,
Federal income and excise taxes
Note C-Subsequent Event: Effective January 1, 2004, Aquila Management
Corporation, founder of the Fund, assigned its Advisory and Administration
Agreement to its wholly-owned subsidiary, Aquila Investment Management LLC,
which will continue the management of the Fund. The transfer was made for
reasons of corporate and tax planning and will have no effect on the management
of the Fund or the fees paid once, and if the Fund once again commences
operations.
AQUILA EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class A
---------------------------------------------------------------
Year Ended Dec. 31, Period(1) Year Ended March 31,
------------------- Ended --------------------------------
2003** 2002 12/31/01 2001 2000 1999
-------- --------- -------- ------ ------ ------
Net asset value, beginning of period ......... $11.59 $15.07 $15.45 $22.72 $16.46 $16.89
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss ....................... - (0.21) (0.06) (0.14) (0.10) -
Net gain (loss) on securities
(both realized and unrealized) ......... - (3.27) (0.06) (6.81) 7.05 (0.43)
------ ------ ------ ------ ------ ------
Total from investment operations .......... - (3.48) (0.12) (6.95) 6.95 (0.43)
------ ------ ------ ------ ------ ------
Less distributions:
Distributions from capital gains .......... - - (0.26) (0.32) (0.69) -
------ ------ ------ ------ ------ ------
Net asset value, end of period ............... $11.59 $11.59 $15.07 $15.45 $22.72 $16.46
===== ====== ====== ====== ====== ======
Total return (not reflecting sales charge) ... - (30.03)% (0.76)%+ (30.78)% 43.07% (2.55)%
Ratios/supplemental data
Net assets, end of period
(in thousands) ......................... $1 $1 $1,561 $1,675 $1,893 $2,119
Ratio of expenses to average
net assets ............................. - 2.63% 1.79%* 1.66% 1.67% 1.92%
Ratio of net investment loss
to average net assets .................. - (1.57)% (0.69)%* (0.75)% (0.53)% (0.25)%
Portfolio turnover rate ................... - 15.36% 21.23%+ 28.77% 37.46% 26.62%
The expense and net investment loss ratios without the effect of the Adviser's
and Sub-Adviser's voluntary waiver of fees were:
Ratio of expenses to average
net assets .................. .......... - 3.83% 2.79%* 2.61% 2.44% 2.37%
Ratio of net investment loss to
average net assets ..................... - (2.77) (1.69)%* (1.70)% (1.30)% (0.70)%
The expense ratios after giving effect to the waivers and expense offset for uninvested cash balances were:
Ratio of expenses to average
net assets ............................. - 2.53% 1.60%* 1.63% 1.65% 1.80%
(1) For the period April 1, 2001 through December 31, 2001.
+ Not annualized.
* Annualized
** The Fund had no operations during the year.
See accompanying notes to financial statements.
Additional Information (Unaudited)
Trustees
and Officers
Number of
Positions Held Portfolios in
with Fund Complex
Fund Overseen by
Name, Address(1) and and Length of Principal Occupation(s) Trustee Other Directorships
Date of Birth Service(2) During Past 5 Years Held by Trustee
Interested Trustees(3)
Lacy B. Herrmann Chairman of Founder and Chairman of the Board, 11 Director or trustee, Pimco Advisors
New York, NY the Board of Aquila Management Corporation, the VIT, Oppenheimer Quest Value Funds
(05/12/29) Trustees and sponsoring organization and parent of Group, Oppenheimer Small Cap Value
President since the Manager or Administrator and/or Fund, Oppenheimer Midcap Fund, and
1996 Adviser or Sub-Adviser to each fund of Oppenheimer Rochester Group of Funds.
the Aquilasm Group of Funds,(4)
Chairman and Chief Executive Officer
and Manager of the Manager or
Administrator and/or Advisor or
Sub-Adviser to each since 2003, and
Founder, Chairman of the Board of
Trustees and (currently or until 1998)
President of each since its
establishment, beginning in 1984;
Director of the Distributor since 1981
and formerly Vice President or
Secretary, 1981-1998; Trustee
Emeritus, Brown University and the
Hopkins School; active in university,
school and charitable organizations.
Non-Interested Trustees
Paul Y. Clinton Trustee since Principal, Clinton Management 1 Director or trustee Pimco Advisors
Osterville, MA 2002 Associates, a financial and venture VIT, Oppenheimer Quest Value Funds
and Naples, FL capital consulting firm. Group, Oppenheimer Small Cap Value
(02/14/31) Fund, Oppenheimer Midcap Fund, and
Oppenheimer Rochester Group of
Funds.
Theodore T. Mason Trustee since Executive Director, East Wind Power 6 Trustee, Pimco Advisors VIT.
New York, NY 2002 Partners LTD since 1994 and Louisiana
(11/24/35) Power Partners, LLC since 1999;
President, Alumni Association of SUNY
Maritime College since 2002 (First
Vice President, 2000-2001, Second Vice
President, 1998-2000) and director of
the same organization since 1997;
Director, STCM Management Company,
Inc., since 1973; twice national
officer of Naval Reserve Association,
commanding officer of four naval
reserve units and Captain, USNR (Ret);
director, The Navy League of the
United States New York Council since
2002; trustee, The Maritime Industry
Museum at Fort Schuyler and the
Maritime College at Fort Schuyler
Foundation, Inc. since 2000.
Officers
Diana P. Herrmann Vice President Vice Chair of Aquila Management N/A N/A
New York, NY since 1997 Corporation, Founder of the
(02/25/58) Aquilasm Group of Funds and
parent of the Administrator since
2004, President and Chief
Operating Officer since 1997, a
Director since 1984, Secretary
since 1986 and previously its
Executive Vice President, Senior
Vice President or Vice President,
1986-1997; Vice Chair since 2004
and President, Chief Operating
Officer and Manager of the
Administrator since 2003; Vice
Chair, President, Senior Vice
President or Executive Vice
President of funds in the
Aquilasm Group of Funds since
1986; Director of the Distributor
since 1997; trustee, Reserve
Money-Market Funds, 1999-2000 and
Reserve Private Equity Series,
1998-2000; active in mutual fund
and trade organizations and in
charitable and volunteer
organizations.
Joseph P. DiMaggio Chief Financial Chief Financial Officer of the N/A N/A
New York, NY Officer since Aquilasm Group of Funds since
(11/06/56) 2003 and 2003 and Treasurer since 2000;
Treasurer since Controller, Van Eck Global Funds,
2000 1993-2000.
Edward M. W. Hines Secretary since Partner, Hollyer Brady Smith & N/A N/A
New York, NY 1996 Hines LLP, legal counsel to the
(12/16/39) Fund, since 1989; Secretary of
the Aquilasm Group of Funds.
John M. Herndon Assistant Assistant Secretary of the N/A N/A
New York, NY (12/17/39) Secretary since Aquilasm Group of Funds since
1996 1995 and Vice President of the
three Aquila Money-Market Funds
since 1990; Vice President of the
Administrator or its predecessor
and current parent since 1990.
(1) The mailing address of each Trustee and officer is c/o Aquila Equity Fund,
380 Madison Avenue, New York, NY 10017
(2) Because the Fund does not hold annual meetings, each Trustee holds office
for an indeterminate term. The term of office of each officer is one year.
(3) Mr. Herrmann is an interested person of the Fund, as that term is defined in
the 1940 Act, as an officer of the Fund and a director, officer and shareholder
of the Administrator's corporate parent, as an officer and Manager of the
Administrator, and as a shareholder and director of the Distributor.
(4) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S.
Government Securities Cash Assets Trust and Pacific Capital Tax-Free Cash Assets
Trust, each of which is a money-market fund, are called the "Aquila Money-Market
Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of
Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky,
Narragansett Insured Tax-Free Income Fund and Tax-Free Fund For Utah, each of
which is a tax-free municipal bond fund, are called the "Aquila Bond Funds";
Aquila Rocky Mountain Equity Fund is an equity fund; considered together, these
11 funds are called the "Aquilasm Group of Funds."
ITEM 2. CODE OF ETHICS.
(a) As of December 31, 2003 (the end of the reporting period) the
Trust has adopted a code of ethics that applies to the Fund's
principal executive officer(s)and principal financial officer(s)
and persons performing similar functions ("Covered Officers") as
defined in the Aquila Group of Funds Code of Ethics for Principal
Executive and Senior Financial Officers under Section 406 of the
Sarbanes-Oxley Act of 2002.;
(f)(1) Pursuant to Item 10(a)(1), a copy of the Fund's Code of
Ethics that applies to the Trust's principal executive officer(s)
and principal financial officer(s) and persons performing similar
functions is included as an exhibit to its annual report on this
Form N-CSR;
(f)(2) The text of the Fund's Code of Ethics that applies to the
Fund's principal executive officer(s) and principal financial
officer(s) and persons performing similar functions has been
posted on its Internet website which can be found at the Fund's
Internet address at aquilafunds.com.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1)(ii) The Board of Trustees of the Fund has determined that
it does not have at least one audit committee financial expert
serving on its audit committee. The Fund does not have such a
person serving on the audit committee because none of the persons
currently serving as Trustees happens to have the technical
accounting and auditing expertise included in the definition of
"audit committee financial expert" recently adopted by the Securities
and Exchange Commission in connection with this Form N-CSR, and the
Board has not heretofore deemed it necessary to seek such a person
for election to the Board.
The primary mission of the Board, which is that of oversight over
the operations and affairs of the Fund, confronts the Trustees with
a wide and expanding range of issues and responsibilities. The
Trustees believe that, accordingly, it is essential that the Board's
membership consist of persons with as extensive experience as possible
in fulfilling the duties and responsibilities of mutual fund directors
and audit committee members and, ideally, with extensive experience
and background relating to the economic and financial sectors and
securities in which the Fund invests, including exposure to the
financial and accounting matters commonly encountered with respect
to those sectors and securities. The Board believes that its current
membership satisfies those criteria. It recognizes that it would
also be helpful to have a member with the relatively focused accounting
and auditing expertise reflected in the applicable definition of
"audit committee financial expert," just as additional members with
similarly focused technical expertise in other areas relevant to
the Fund's operations and affairs would also contribute added value.
However, the Board believes that the Fund is better served, and its
assets better employed, by a policy of hiring experts in various
areas, including the specialized area of technical accounting and
auditing matters, if and as the Board identifies the need, rather
than by seeking to expand its numbers by adding technical experts
in the areas constituting its domain of responsibility. The Fund's
Audit Committee Charter explicitly authorizes the Committee to
retain such experts as it deems necessary in fulfilling its duties
under the Charter.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
a) Audit Fees - The aggregate fees billed for professional services rendered
By the principal accountant for the audit of the Registrant's annual
financial statements were $0 in 2003 and $8,500 in 2002.
b) Audit Related Fees - There were no amounts billed for audit-related
fees over the
past two years.
c) Tax Fees - The Registrant was billed by the principal accountant $0
and $6,650 in 2003 and 2002, respectively, for return preparation.
d) All Other Fees - There were no additional fees plaid for audit and non-
audit services other than those disclsed in a) thorough c) above.
e)(1) Currently, the audit committee of the Registrant pre-approves audit
services and fees on an engagement-by-engagement basis
e)(2) None of the services described in b) through d) above were approved
by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation
S-X, all were pre-approved on an engagement-by-engagement basis.
f) No applicable.
g) There were no non-audit services fees billed by the Registrant's accountant
to the Registrant's investment adviser or distributor over the past two years.
h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
ITEM 8. [RESERVED]
ITEM 9. 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 fling 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 10. EXHIBITS.
(a)(1) (a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and
Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act of 2002.
(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 EQUITY FUND
By: /s/ Lacy B. Herrmann
- ---------------------------------
Chairman of the Board
March 8, 2004
By: /s/ Diana P. Herrmann
- ---------------------------------
Vice President
March 8, 2004
By: /s/ Joseph P. DiMaggio
- -----------------------------------
Chief Financial Officer
March 8, 2004
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/ Lacy B. Herrmann
- ---------------------------------
Lacy B. Herrmann
Chairman of the Board
March 8, 2004
By: /s/ Diana P. Herrmann
- ---------------------------------
Diana P. Herrmann
Vice President
March 8, 2004
By: /s/ Joseph P. DiMaggio
- -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer
March 8, 2004
AQUILA EQUITY FUND
EXHIBIT INDEX
(a)(1) Aquila Group of Funds Code of Ethics for Principal Executive
and Senior Financial Officers under Section 406 of the Sarbanes-Oxley
Act of 2002.
(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.