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 811-6186
Aquila Rocky Mountain 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.
[Logo of Aquila Rocky Mountain Equity Fund: a rectangle with a drawing of two
mountains and the words "Aquila Rocky Mountain Equity Fund"]
AQUILA ROCKY MOUNTAIN EQUITY FUND
ANNUAL REPORT
MANAGEMENT DISCUSSION
Aquila Rocky Mountain Equity Fund's Class A shares had a total return of
40.47% without sales charges for the year ended December 31, 2003. This compares
to the S&P 500 with a total return of 28.68% and the Russell 2000 with a total
return of 47.29%. The Lipper median for U.S. equity mutual funds that invest in
different sized companies using a core style (multi-cap core) was 28.89% for
2003.
For the five years cumulatively ending December 31, 2003, Aquila Rocky
Mountain A Shares wthout sales charges had a total return of 53.43% compared to
- -2.81% for the S&P 500 and 41.64% for the Russell 2000.
We continued to use our growth at a reasonable price (GARP) or core
investment style during 2003. We look for good growth companies that are selling
at a reasonable price relative to their growth rates. We do not have a perfect
benchmark or performance comparison for the fund since we invest in companies in
a specific region rather than a specific size. At year-end 2003, 19.6% of the
fund was invested in companies with a market capitalization over $10 billion
(large cap companies), 21.9% of the fund was invested in companies with a market
capitalization between $3 billion and $10 billion (mid-cap) and 58.5% of the
fund was invested in small and micro-cap companies (below $3 billion).
At year-end, we had holdings of 55 companies in the portfolio across a
number of industries. We work to hold our individual position sizes to 5% or
less of the portfolio and try to diversify the fund across industries. We
believe this helps to control specific security risk as well as industry risk.
We have included a graph below that shows our industry representation at
December 31, 2003. You should recognize that this sector representation can and
will change over time.
[Graphic of a pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY MARKET SECTOR
Basic Industry 10.91%
Business Services 3.46%
Capital Spending 3.86%
Consumer Cyclicals 2.14%
Consumer Services 20.06%
Consumer Staples 1%
Energy 3.79%
Financial 11.56%
Health Care 13.1%
Other 8.36%
Technology 17.59%
Utilities 4.17%
The five best performers in the fund during 2003 were from different
industries and states. SpectraLink based in Boulder, Colorado had a total return
of 167.3%. SpectraLink produces communication equipment and systems in the
wireless space. Phoenix, Arizona-based Phelps Dodge had a total return of 140.4%
during 2003, as copper prices rose from about $0.73 to $1.05 per pound during
this past year. Our third best performer was Longmont, Colorado based Intrado
with a total return of 124.0%. Intrado provides 911 emergency location services
to telecom companies as well as emergency notification systems. Avnet, based in
Tempe, Arizona had a total return of 100.0%. We believe this electronics
distribution company is benefiting from trends that increase outsourcing as well
as improve supply chain management. Merit Medical, based in South Jordan, Utah
had a total return of 98.7%. Merit provides med-tech products to the health care
industry that improve patient care. With the aging of the baby boomers, we
believe that health care demand will increase over the next ten to twenty years.
Our three worst performers were also from different industries. Myriad
Genetics (MYGN), based in Salt Lake City, was down 11.9%. MYGN is a
developmental stage biotech company that is not yet producing earnings but has
an Alzheimer's drug in phase II clinical trials. Albertson's, based in Boise,
Idaho was up only 1.8%. The company is facing tough competition from Wal-Mart.
However, a new management team has been working to reduce costs and improve
their merchandising. Viad Corp, based in Phoenix, Arizona, was up only 11.9%.
Viad's convention service business has been hit hard by reduced corporate travel
over the past 12 months.
We continue to work to invest the fund strategically since we believe that
trading and transaction costs do matter. The portfolio turnover rate was 1.8% in
2002 and 3.01% in 2003. Our portfolio turnover is low in part due to the strong
cash flow we are seeing coming into the fund. This allows us to buy new ideas
without having to sell other holdings. However, when we do make a purchase, we
are looking for companies that we can own for two to five years or even longer.
During 2003, we acquired the stock of JD Edwards, based in Denver,
Colorado. During the year, we eliminated four companies from the portfolio
because we were disappointed with management performance. Often we will start
with a small position in a company and monitor management closely. We continue
to look for the best management teams in the Rocky Mountain region to invest in
for our shareholders. It is always disappointing when management execution does
not meet our expectations.
We also continue to work to harvest trading losses when we can to offset
capital gains. In both 2002 and 2003 we did not distribute any capital gains to
our shareholders. As we go into 2004, we have some losses banked that we can use
to offset some of the gains that we take in 2004. With lower tax rates on
capital gains, paying out capital gains may become less of an issue. However,
some financial publications have suggested that many investors may end up paying
higher taxes on capital gains due to the increasing reach of the alternative
minimum tax (AMT). We will be watching this issue closely.
During 2003 we had four companies with stock splits and two companies that
paid stock dividends. Merit Medical actually split their shares twice in 2003,
once on August 14th, with a 4 for 3 split, and again on December 2nd, with
another 4 for 3 split. International Game Technology split their shares 4 for 1
on July 2nd and Coldwater Creek split their shares 3 for 2 on September 9th.
Evergreen Resources split their shares 2 for 1 on September 16th. Glacier
Bancorp paid a 10% stock dividend on May 9th and MDC Holdings paid a 10% stock
dividend on May 27th. While stock splits and stock dividends are really just an
accounting adjustment, they often attract investor attention.
During 2003, small cap stocks as measured by the Russell 2000 outperformed
large cap stocks as measured by the S&P 500 for the fifth straight year. While
market leadership for 2004 is still to be determined, we believe small cap
outperformance could continue. We find the current period similar to the
1974-1983 period when small caps as measured by the Russell 2000 outperformed
every year. Both periods were preceded by a period in which valuations of large
capitalization stocks reached an extreme level. In 1973, it was the "Nifty 50"
and in 1999, it was the "Technology Bubble."
We believe that 2004 could be quite a different year from 2003. We also
believe that we may see more market volatility coming from changes in interest
rates and possibly currencies. We believe that it will be important to monitor
and use valuation disciplines closely. Entry and exit points will matter more.
We may also see more trading opportunities. In line with other election years, a
fair amount of stimulation has been applied to the economy in the form of lower
interest and tax rates. We feel it will also be important to watch economic
developments closely.
PERFORMANCE REPORT
The graph below illustrates the value of $10,000 invested in Class A Shares
of Aquila Rocky Mountain Equity Fund (the "Fund") since its inception on July
22, 1994 and maintaining this investment through the Fund's latest fiscal
year-end, December 31, 2003 as compared with a hypothetical similar-size
investment in the Russell 2000 Stock Index (the "Index") over the same period.
The Fund was originally managed to provide capital appreciation through
selection of equity-oriented securities primarily on a value-basis. It was
reoriented to a growth at a reasonable price style as of July, 1999. The Fund's
universe of companies are primarily within the eight-state Rocky Mountain
region.
The performance of each of the other classes is not shown in the graph, but
is included in the table below. It should be noted that the Index does not
include operating expenses nor sales charges but does reflect reinvestment of
dividends. It should also be noted that the Index is nationally-oriented and
consisted, over the period covered by the graph, of an unmanaged group of 2000
equity securities throughout the United States, mostly of companies having
relatively small capitalization. However, the Fund's investment portfolio
consisted over the same period of a significant lesser number of equity
securities primarily of companies domiciled in the eight-state Rocky Mountain
region of our country.
The market prices and behavior of the individual securities in the Fund's
investment portfolio can be affected by local and regional factors which might
well result in variances from the market action of the securities in the Index.
Furthermore, whatever the difference in the performance in the Index versus the
Fund may also be attributed to the lack of application of annual operating
expenses and sales charges to the Index.
[Graphic of a line chart with the following information:]
Russell 2000 With Sales Without Sales
Stock Index Charge Charge
----------- ------ ------
7/94 $10,000 $9,525 $10,000
12/94 $10,325 $9,217 $9,676
12/95 $13,262 $11,031 $11,581
12/96 $15,440 $13,091 $13,744
12/97 $18,893 $16,103 $16,906
12/98 $18,413 $15,248 $16,009
12/99 $22,344 $18,383 $19,300
12/00 $21,693 $18,282 $19,194
12/01 $22,258 $19,695 $20,677
12/02 $17,701 $16,669 $17,501
12/03 $26,701 $23,416 $24,584
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2003
-----------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION
------ ------- ---------
Class A (7/22/94)
With Sales Charge.............. 34.48% 8.02% 9.42%
Without Sales Charge........... 40.47% 8.96% 9.99%
Class C (5/1/96)
With CDSC...................... 38.50% 8.15% 8.09%
Without CDSC................... 39.50% 8.15% 8.09%
Class Y (5/1/96)
No Sales Charge................ 40.90% 9.22% 9.02%
Russell 2000 Stock Index.......... 47.29% 7.20% 10.70% (Class A)
7.80% (Class C&Y)
Total return figures shown for the Fund reflect any change in price and assume
all distributions within the period were invested in additional shares. Returns
for Class A shares are calculated with and without the effect of the initial
4.25% maximum sales charge. Returns for Class C shares are calculated with and
without the effect of the 1% contingent deferred sales charge (CDSC), imposed on
redemptions made within the first 12 months after purchase. Class Y shares are
sold without any sales charge. The rates of return will vary and the principal
value of an investment will fluctuate with market conditions. Shares, if
redeemed, may be worth more or less than their original cost. Past performance
is not predictive of future investment results.
[Logo of KPMG LLP: four solid rectangles with the letters KPMG in front of them]
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Aquila Rocky Mountain Equity Fund:
We have audited the accompanying statement of assets and liabilities of
Aquila Rocky Mountain Equity Fund, including the statement of investments, as of
December 31, 2003, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. 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. Our procedures
included confirmation of securities owned as of December 31, 2003, by
correspondence with the custodian. As to securities purchased or sold but not
yet received or delivered, we performed other appropriate auditing procedures.
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 Rocky Mountain Equity Fund as of December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
New York, New York
February 13, 2004
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF INVESTMENTS
DECEMBER 31, 2003
MARKET
SHARES COMMON STOCKS - 91.6% VALUE
- ---------- --------------------------------------------------- ------------
BASIC INDUSTRY - 10.9%
---------------------------------------------------
16,000 Allied Waste Industries, Inc.+ .................... $ 222,080
3,500 Ball Corp. ........................................ 208,495
7,000 Boise Cascade Corp. ............................... 230,020
8,000 Knight Transportation, Inc.+ ...................... 205,200
5,000 Newmont Mining Corp. .............................. 243,050
3,000 Phelps Dodge Corp.+ ............................... 228,270
8,000 SkyWest, Inc. ..................................... 144,560
------------
1,481,675
------------
BUSINESS SERVICES - 3.4%
---------------------------------------------------
10,000 Intrado, Inc. + ................................... 219,500
10,000 Viad Corp. ........................................ 250,000
------------
469,500
------------
CAPITAL SPENDING - 3.9%
---------------------------------------------------
2,000 Advanced Energy Industries, Inc. + ................ 52,100
18,000 Mity Enterprises, Inc. + .......................... 315,000
8,000 Mobile Mini, Inc.+ ................................ 157,760
------------
524,860
------------
CONSUMER CYCLICALS - 2.1%
---------------------------------------------------
4,500 M.D.C. Holdings, Inc. ............................. 290,250
------------
CONSUMER SERVICES - 20.1%
---------------------------------------------------
4,000 Action Performance Companies, Inc. ................ 78,400
4,000 Apollo Group, Inc. (Class A)+ ..................... 271,240
22,500 Coldwater Creek, Inc.+ ............................ 247,500
3,400 Comcast Corp. (Special Class A)+ .................. 106,386
10,000 Echostar Communications Corp. (Class A)+ .......... 339,900
15,000 International Game Technology ..................... 535,500
22,000 Liberty Media Corp. (Class A)+ .................... 261,580
6,000 MGM MIRAGE+ ....................................... 225,660
3,000 PETsMART, Inc. .................................... 71,400
4,000 P.F. Chang's China Bistro, Inc.+ .................. 203,520
4,000 Shuffle Master, Inc. + ............................ 138,480
8,000 Station Casinos, Inc. ............................. 245,040
------------
2,724,606
------------
CONSUMER STAPLES - 1.0%
---------------------------------------------------
6,000 Albertson's, Inc. ................................. $ 135,900
------------
ENERGY - 3.8%
---------------------------------------------------
5,000 Evergreen Resources, Inc.+ ........................ 162,550
10,000 Prima Energy Corp. + .............................. 351,600
------------
514,150
------------
FINANCIAL - 11.5%
---------------------------------------------------
12,000 First State Bancorporation ........................ 417,000
10,000 Glacier Bancorp, Inc. ............................. 324,700
10,000 Janus Capital Group, Inc. ......................... 164,100
4,500 Wells Fargo & Company ............................. 265,005
6,500 Zions Bancorporation .............................. 398,710
------------
1,569,515
------------
HEALTH CARE - 13.1%
---------------------------------------------------
9,000 Atrix Laboratories, Inc.+ ......................... 216,360
6,000 Medicis Pharmaceutical (Class A) .................. 427,800
27,111 Merit Medical Systems, Inc.+ ................... 603,483
10,000 Myriad Genetics, Inc. + ........................... 128,600
4,000 NPS Pharmaceuticals, Inc. + ....................... 122,720
19,000 Sonic Innovations, Inc.+ .......................... 122,550
4,000 Ventana Medical Systems, Inc.+ .................... 157,600
------------
1,779,113
------------
TECHNOLOGY - 17.6%
---------------------------------------------------
2,000 Altiris, Inc. + ................................... 72,960
10,000 Avnet, Inc.+ ...................................... 216,600
16,000 CIBER, Inc.+ ...................................... 138,560
10,000 First Data Corp. .................................. 410,900
5,000 Inter-Tel, Inc. ................................... 124,900
10,000 JDA Software Group, Inc. + ........................ 165,100
9,000 McData Corp. (Class A)+ ........................... 85,770
17,000 Microchip Technology, Inc. ........................ 567,290
14,000 Micron Technology, Inc.+ .......................... 188,580
14,000 SBS Technologies, Inc.+ ........................... $ 206,640
11,000 SpectraLink Corp. ................................. 210,870
------------
2,388,170
------------
UTILITIES - 4.2%
---------------------------------------------------
4,000 Kinder Morgan, Inc. ............................... 236,400
2,000 Pinnacle West Capital Corp. ....................... 80,040
5,000 Questar Corp. ..................................... 175,750
3,000 UniSource Energy Corp. ............................ 73,980
------------
566,170
------------
Total Common Stocks (cost $8,153,262) ........ 12,443,909
------------
FACE
AMOUNT SHORT-TERM INVESTMENTS - 7.2%
- ------------ ---------------------------------------------------
$ 500,000 AIM S-T Invest. Co. Prime Port. Inst. Cl.
Money Market Fund ............................... 500,000
475,000 One Group Prime Money Market Fund ................. 475,000
------------
Total Short-Term Investments (cost $975,000) .. 975,000
------------
Total Investments (cost $9,128,262*) ... 98.8% 13,418,909
Other assets less liabilities .......... 1.2 160,409
------- ------------
Net Assets ............................. 100.0% $ 13,579,318
======= ============
* Cost for Federal tax purposes is identical.
+ Non-income producing security.
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
ASSETS
Investments at market value (cost $9,128,262) .......................................... $ 13,418,909
Cash ................................................................................... 153,828
Receivable for Fund shares sold ........................................................ 85,373
Receivable for investment securities sold .............................................. 5,917
Dividends and interest receivable ...................................................... 3,827
------------
Total assets ........................................................................ 13,667,854
------------
LIABILITIES
Payable for investment securities purchased ............................................ 53,770
Distribution fees payable .............................................................. 7,538
Payable for Fund shares redeemed ....................................................... 170
Accrued expenses ....................................................................... 27,058
------------
Total liabilities ................................................................... 88,536
------------
NET ASSETS ................................................................................ $ 13,579,318
============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $.01 per share ..... $ 5,479
Additional paid-in capital ............................................................. 9,530,933
Net unrealized appreciation on investments (note 4) .................................... 4,290,647
Accumulated net realized loss on investments ........................................... (247,741)
------------
$ 13,579,318
============
CLASS A
Net Assets ............................................................................. $ 10,344,559
============
Capital shares outstanding ............................................................. 415,078
============
Net asset value and redemption price per share ......................................... $ 24.92
============
Offering price per share (100/95.75 of $24.92 adjusted to nearest cent) ................ $ 26.03
============
CLASS C
Net Assets ............................................................................. $ 1,834,683
============
Capital shares outstanding ............................................................. 77,558
============
Net asset value and offering price per share ........................................... $ 23.66
============
Redemption price per share (*a charge of 1% is imposed on the redemption
proceeds of the shares, or on the original price, whichever is lower, if redeemed
during the first 12 months after purchase) .......................................... $ 23.66*
============
CLASS Y
Net Assets ............................................................................. $ 1,400,076
============
Capital shares outstanding ............................................................. 55,289
============
Net asset value, offering and redemption price per share ............................... $ 25.32
============
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
INVESTMENT INCOME:
Dividends ................................................. $ 61,577
Interest .................................................. 5,398
-----------
$ 66,975
Expenses:
Management fee (note 3) ................................... 136,670
Legal fees ................................................ 28,894
Distribution and service fees (note 3) .................... 28,593
Registration fees and dues ................................ 25,274
Trustees' fees and expenses ............................... 19,923
Transfer and shareholder servicing agent fees ............. 19,842
Shareholders' reports ..................................... 17,168
Auditing and tax fees ..................................... 14,167
Custodian fees ............................................ 3,148
Miscellaneous ............................................. 11,207
-----------
Total expenses ............................................ 304,886
Management fee waived (note 3) ............................ (136,670)
Reimbursement of expenses by Manager (note 3) ............. (25,089)
Expenses paid indirectly (note 5) ......................... (1,534)
-----------
Net expenses .............................................. 141,593
-----------
Net investment loss ....................................... (74,618)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ..... (114,744)
Change in unrealized appreciation on investments .......... 3,577,919
-----------
Net realized and unrealized gain (loss) on investments .... 3,463,175
-----------
Net change in net assets resulting from operations ........ $ 3,388,557
===========
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
OPERATIONS:
Net investment loss ....................................... $ (74,618) $ (42,947)
Net realized gain (loss) from securities transactions ..... (114,744) (131,345)
Change in unrealized appreciation on investments .......... 3,577,919 (655,823)
------------ -----------
Change in net assets from operations ................... 3,388,557 (830,115)
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 8):
Class A Shares:
Net realized gain on investments .......................... - -
Class C Shares:
Net realized gain on investments .......................... - -
Class Y Shares:
Net realized gain on investments .......................... - -
------------ -----------
Change in net assets from distributions ................ - -
------------ -----------
CAPITAL SHARE TRANSACTIONS (NOTE 7):
Proceeds from shares sold ................................. 5,175,850 4,565,600
Reinvested dividends and distributions .................... - -
Cost of shares redeemed ................................... (1,002,631) (1,532,058)
------------ -----------
Change in net assets from capital share transactions ... 4,173,219 3,033,542
------------ -----------
Change in net assets ................................... 7,561,776 2,203,427
NET ASSETS:
Beginning of period ....................................... 6,017,542 3,814,115
------------ -----------
End of period ............................................. $ 13,579,318 $ 6,017,542
============ ===========
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Aquila Rocky Mountain Equity Fund (the "Fund"), a diversified, open-end
investment company, was organized on November 3, 1993 as a Massachusetts
business trust and commenced operations on July 22, 1994. The Fund is authorized
to issue an unlimited number of shares and, since its inception to May 1, 1996,
offered only one class of shares. On that date, the Fund began offering two
additional classes of shares, Class C and Class Y shares. All shares outstanding
prior to that date were designated as Class A shares and are sold with a
front-payment sales charge and bear an annual distribution 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. Class C Shares, together with a pro rata portion of all
Class C Shares acquired through reinvestment of dividends or other distributions
paid in additional Class C Shares, automatically convert to Class A Shares after
6 years. 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 April 30, 1998 the Fund established
Class I shares, which are offered and sold only through financial intermediaries
and are not offered directly to retail investors. As of the report date, there
were no Class I 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: Securities listed on a national securities exchange or
designated as national market system securities are valued at the last sale
price on such exchanges or market system or, if there has been no sale that
day, at the bid price. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith by
or at the direction of the Board of Trustees. Short-term investments
maturing in 60 days or less are valued at amortized cost.
b) 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. Dividend
income is recorded on the ex-dividend date. Interest income is recorded
daily on the accrual basis.
c) FEDERAL INCOME TAXES: It is the policy of the Fund 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.
d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses, 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 charged directly to such class.
e) 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.
f) SHORT-TERM TRADING (REDEMPTION) FEE: The Fund and the Distributor may
reject any order for the purchase of shares, on a temporary or permanent
basis, from investors exhibiting a pattern of frequent or short-term
trading in Fund shares. In addition, the Fund imposes a redemption fee of
2.00% of the shares' redemption value on any redemption of Class A Shares
on which a sales charge is not imposed or of Class Y Shares, if the
redemption occurs within 120 days of purchase. The fee will be paid to the
Fund and is designed to offset the costs to the Fund caused by short-term
trading in Fund shares. The fee will not apply to shares sold under an
Automatic Withdrawal Plan, or sold due to the shareholder's death or
disability. For the year ended December 31, 2003 the Fund did not receive
any such fees.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
The Fund has a Sub-Advisory and Administration Agreement with Aquila
Management Corporation (the "Manager"), the Fund's founder and sponsor. Refer to
Note 9 for Subsequent Event footnote. Under this agreement, the Manager
supervises the investments 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. Besides its sub-advisory services, it
also provides all administrative services. This includes providing the office of
the Fund and all related services as well as overseeing the activities of 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 on the net assets of the Fund at the following
annual rates; 1.50% on the first $15 million; 1.20% on the next $35 million and
0.90 of 1% on the excess over $50 million.
For the year ended December 31, 2003, the Fund incurred Management fees of
$136,670, which were waived. Additionally, during this period the Manager
reimbursed the Fund for other expenses in the amount of $25,089. The Manager had
contractually undertaken to waive fees and/or reimburse Fund expenses during the
period January 1, 2003 through December 31, 2003 so that total Fund expenses
would not exceed 1.50% for Class A Shares, 2.25% for Class C Shares or 1.25% for
Class Y Shares.
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 Investment Company Act of 1940. Under one part of
the Plan, with respect to Class A Shares, the Fund is authorized to make service
fee payments to broker-dealers or others ("Qualified Recipients") selected by
Aquila Distributors, Inc. (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 service fee at
the annual rate of 0.25% of the Fund's average net assets represented by Class A
Shares. For the year ended December 31, 2003, distribution fees on Class A
Shares amounted to $17,210 of which the Distributor retained $2,054.
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
year ended December 31, 2003, amounted to $8,537. 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 year ended December 31, 2003, amounted to $2,846. The total
of these payments with respect to Class C Shares amounted to $11,383 of which
the Distributor retained $2,622.
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 broker-dealer firms ("dealers"), the Fund's shares are sold primarily
through the facilities of these dealers having offices within the general Rocky
Mountain region, with the bulk of sales commissions inuring to such dealers. For
the year ended December 31, 2003, total commissions on sales of Class A Shares
amounted to $35,137 of which $3,416 was received by the Distributor.
c) OTHER RELATED PARTY TRANSACTIONS:
For the year ended December 31, 2003 the Fund incurred $28,545 of legal
fees allocable to Hollyer Brady Smith & Hines LLP, counsel to the Fund, for
legal services in conjunction with the Fund's ongoing operations. The Secretary
of the Fund is a Partner of Hollyer Brady Smith & Hines LLP.
4. PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 2003, purchases of securities and
proceeds from the sales of securities (excluding short-term investments)
aggregated $3,712,872 and $252,045, respectively.
At December 31, 2003, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted to
$4,485,105 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value amounted to $194,458 for
a net unrealized appreciation of $4,290,647.
5. EXPENSES
The Fund has negotiated an expense offset arrangement with its custodian
wherein it receives credit toward the reduction of custodian fees and other Fund
expenses whenever there are uninvested cash balances. The Statement of
Operations reflects the total expenses before any offset, the amount of offset
and the net expenses. It is the general intention of the Fund to invest, to the
extent practicable, some or all of cash balances in equity securities rather
than leave cash on deposit.
6. PORTFOLIO ORIENTATION
The Fund's investments are primarily invested in the securities of
companies within the eight state Rocky Mountain region consisting of Colorado,
Arizona, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming and therefore are
subject to economic and other conditions affecting the various states which
comprise the region. Accordingly, the investment performance of the Fund might
not be comparable with that of a broader universe of companies.
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
CLASS A SHARES:
Proceeds from shares sold ... 212,420 $ 4,259,877 151,875 $ 2,955,206
Reinvested dividends and
distributions ............ - - - -
Cost of shares redeemed ..... (36,483) (759,051) (27,374) (522,773)
----------- ----------- ----------- -----------
Net change ............... 175,937 3,500,826 124,501 2,432,433
----------- ----------- ----------- -----------
CLASS C SHARES:
Proceeds from shares sold ... 37,062 786,448 35,899 632,556
Reinvested dividends and
distributions ............ - - - -
Cost of shares redeemed ..... (10,082) (207,947) (3,734) (64,736)
----------- ----------- ----------- -----------
Net change ............... 26,980 578,501 32,165 567,820
----------- ----------- ----------- -----------
CLASS Y SHARES:
Proceeds from shares sold ... 6,061 129,525 47,243 977,838
Reinvested dividends and
distributions ............ - - - -
Cost of shares redeemed ..... (1,841) (35,633) (45,224) (944,549)
----------- ----------- ----------- -----------
Net change ............... 4,220 93,892 2,019 33,289
----------- ----------- ----------- -----------
Total transactions in Fund
shares ...................... 207,137 $ 4,173,219 158,685 $ 3,033,542
=========== =========== =========== ===========
8. DISTRIBUTIONS
The Fund declares annual distributions to shareholders from net investment
income, if any, and from net realized capital gains, if any. Distributions are
recorded by the Fund on the ex-dividend date and paid in additional shares at
the net asset value per share, in cash, or in a combination of both, at the
shareholder's option. Dividends from net investment income and distributions
from realized gains from investment transactions are determined in accordance
with Federal income tax regulations, which may differ from investment income and
realized gains determined under generally accepted accounting principles. These
"book/tax" differences are either considered temporary or permanent in nature.
To the extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes, but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in capital. As of December 31, 2003 due to a net investment loss, Aquila
Rocky Mountain Equity Fund reclassified $74,618 from accumulated undistributed
net investment loss to paid-in capital. Net assets were not affected by these
changes.
At December 31, 2003, the Fund had a capital loss carryover of
approximately $247,741, $1,652 of which expires on December 31, 2009 and $21,063
which expires on December 31, 2010 and $225,026 which expires on December 31,
2011. This carryover is available to offset future net gains on securities
transactions to the extent provided for in the Internal Revenue Code and it is
probable the gain so offset will not be distributed.
As of December 31, 2003, the components of distributable earnings on a tax
basis were as follows:
Accumulated net realized loss $ (247,741)
Unrealized appreciation 4,290,647
-----------
$ 4,042,906
===========
9. SUBSEQUENT EVENT
Effective January 1, 2004, Aquila Management Corporation assigned its
Sub-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 being paid.
AQUILA ROCKY MOUNTAIN EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
Net asset value, beginning of period ................. $17.74 $20.96 $19.64 $19.96 $16.76
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) + .................... (0.16) (0.15) (0.07) (0.03) (0.04)
Net gain (loss) on securities (both
realized and unrealized) ....................... 7.34 (3.07) 1.58 (0.09) 3.48
------ ------ ------ ------ ------
Total from investment operations .................. 7.18 (3.22) 1.51 (0.12) 3.44
------ ------ ------ ------ ------
Less distributions (note 8):
Dividends from net investment income .............. - - - - -
Distributions from capital gains .................. - - (0.19) (0.20) (0.24)
------ ------ ------ ------ ------
Total distributions ............................... - - (0.19) (0.20) (0.24)
------ ------ ------ ------ ------
Net asset value, end of period ....................... $24.92 $17.74 $20.96 $19.64 $19.96
====== ====== ====== ====== ======
Total return (not reflecting sales charge) ........... 40.47% (15.36)% 7.73% (0.55)% 20.56%
Ratios/supplemental data
Net assets, end of period (in thousands) .......... $10,345 $4,242 $2,403 $2,109 $1,363
Ratio of expenses to average net assets ........... 1.50% 1.52% 1.60% 1.57% 1.55%
Ratio of net investment loss to average
net assets ..................................... (0.77)% (0.82)% (0.44)% (0.20)% (0.27)%
Portfolio turnover rate ........................... 3.01% 1.81% 28.54% 29.27% 6.45%
The expense and net investment income ratios without the effect of the voluntary waiver of fees and the voluntary expense
reimbursement were:
Ratio of expenses to average net assets ........... 3.25% 4.15% 4.81% 5.57% 5.86%
Ratio of net investment loss to average
net assets ..................................... (2.51)% (3.45)% (3.66)% (4.20)% (4.59)%
The expense ratios after giving effect to the waivers, reimbursements and expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ........... 1.48% 1.50% 1.50% 1.51% 1.51%
- ----------
Note: Effective July 28, 1999, Aquila Management Corporation assumed the role of
Investment Adviser, replacing KPM Investment Management, Inc.
+ Per share amounts have been calculated using the monthly average shares
method.
See accompanying notes to financial statements.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
Net asset value, beginning of period .......... $16.96 $20.19 $19.07 $19.53 $16.53
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) + ............. (0.30) (0.28) (0.21) (0.17) (0.19)
Net gain (loss) on securities
(both realized and unrealized) ........... 7.00 (2.95) 1.52 (0.09) 3.43
------ ------ ------ ------ ------
Total from investment operations ........... 6.70 (3.23) 1.31 (0.26) 3.24
------ ------ ------ ------ ------
Less distributions (note 8):
Distributions from net investment income ... - - - - -
Distributions from capital gains ........... - - (0.19) (0.20) (0.24)
------ ------ ------ ------ ------
Total distributions ........................ - - (0.19) (0.20) (0.24)
------ ------ ------ ------ ------
Net asset value, end of period ................ $23.66 $16.96 $20.19 $19.07 $19.53
====== ====== ====== ====== ======
Total return (not reflecting sales charge) .... 39.50% (16.00)% 6.91% (1.28)% 19.63%
Ratios/supplemental data
Net assets, end of period
(in thousands) ........................... $1,835 $858 $372 $242 $185
Ratio of expenses to average net assets .... 2.26% 2.26% 2.34% 2.29% 2.34%
Ratio of net investment income (loss)
to average net assets .................... (1.53)% (1.56)% (1.23)% (0.94)% (1.10)%
Portfolio turnover rate .................... 3.01% 1.81% 28.54% 29.27% 6.45%
The expense and net investment income ratios without the effect of the voluntary waiver of fees and the voluntary expense
reimbursement were:
Ratio of expenses to average net assets .... 4.02% 4.95% 5.52% 6.32% 6.59%
Ratio of net investment loss to
average net assets ....................... (3.29)% (4.25)% (4.40)% (4.97)% (5.35)%
The expense ratios after giving effect to the waivers, reimbursements and expense offset for uninvested cash balances were:
Ratio of expenses to average net assets .... 2.24% 2.25% 2.25% 2.23% 2.30%
CLASS Y
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2003 2002 2001 2000 1999
------- ------ ------ ------ ------
Net asset value, beginning of period .......... $17.97 $21.19 $19.81 $20.07 $16.82
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) + ............. (0.10) (0.10) (0.02) 0.03 (0.01)
Net gain (loss) on securities
(both realized and unrealized) ........... 7.45 (3.12) 1.59 (0.09) 3.50
------ ------ ------ ------ ------
Total from investment operations ........... 7.35 (3.22) 1.57 (0.06) 3.49
------ ------ ------ ------ ------
Less distributions (note 8):
Distributions from net investment income ... - - - - -
Distributions from capital gains ........... - - (0.19) (0.20) (0.24)
------ ------ ------ ------ ------
Total distributions ........................ - - (0.19) (0.20) (0.24)
------ ------ ------ ------ ------
Net asset value, end of period ................ $25.32 $17.97 $21.19 $19.81 $20.07
====== ====== ====== ====== ======
Total return (not reflecting sales charge) .... 40.90% (15.20)% 7.97% (0.25)% 20.78%
Ratios/supplemental data
Net assets, end of period
(in thousands) ........................... $1,400 $918 $1,040 $962 $922
Ratio of expenses to average net assets .... 1.25% 1.26% 1.35% 1.29% 1.33%
Ratio of net investment income (loss)
to average net assets .................... (0.51)% 0.56% (0.18)% 0.06% (0.09)%
Portfolio turnover rate .................... 3.01% 1.81% 28.54% 29.27% 6.45%
The expense and net investment income ratios without the effect of the voluntary waiver of fees and the voluntary expense
reimbursement were:
Ratio of expenses to average net assets .... 3.05% 3.87% 4.59% 5.32% 5.60%
Ratio of net investment loss to
average net assets ....................... (2.32)% (3.16)% (3.42)% (3.96)% (4.36)%
The expense ratios after giving effect to the waivers, reimbursements and expense offset for uninvested cash balances were:
Ratio of expenses to average net assets .... 1.23% 1.25% 1.25% 1.23% 1.30%
- ----------
Note: Effective July 28, 1999, Aquila Management Corporation assumed the role of
investment adviser, replacing KPM Investment Management, Inc.
+ Per share amounts have been calculated using the monthly average shares
method.See accompanying notes to financial statements.
See accompanying notes to financial statements.
ADDITIONAL INFORMATION (UNAUDITED)
TRUSTEES(1)
AND OFFICERS
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
INTERESTED TRUSTEES(4)
Lacy B. Herrmann Chairman of Founder and Chairman of the Board, Aquila 11 Director or trustee,
New York, NY the Board of Management Corporation, the sponsoring Pimco Advisors VIT,
(05/12/29) Trustees since organization and parent of the Manager or Oppenheimer Quest Value
1993 Administrator and/or Adviser or Sub-Adviser to Funds Group, Oppenheimer
each fund of the Aquila(sm) Group of Funds,(5) Small Cap Value Fund,
Chairman and Chief Executive Officer and Manager Oppenheimer Midcap Fund,
of the Manager or Administrator and/or Advisor or and Oppenheimer Rochester
Sub-Adviser to each since 2003, and Founder, Group of Funds.
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.
Diana P. Herrmann Trustee since Vice Chair of Aquila Management Corporation, 6 None
New York, NY 1997, President Founder of the Aquila(sm) Group of Funds and parent
(02/25/58) since 2002, of the Manager, since 2004, President and Chief
and Vice Chair Operating Officer since 1997, a Director since
since 2004 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 Manager since 2003; Vice Chair, President,
Senior Vice President or Executive Vice President
of funds in the Aquila(sm) 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.
NON-INTERESTED TRUSTEES
Tucker Hart Adams Trustee since President, The Adams Group, Inc., an economic 2 Director, Touch America,
Colorado Springs, CO 1993 consulting firm, since 1989; formerly Chief Colorado Health Facilities
(01/11/38) Economist, United Banks of Colorado; currently or Authority, Avista
formerly active with numerous professional and Laboratories, Inc. and
community organizations. Mortgage Analysis Computer
Corp.
Arthur K. Carlson Trustee since Retired; formerly Senior Vice President and 2 Advisory director of the
Paradise Valley, AZ 1993 Manager, Trust Division of the Valley National Renaissance Companies
(01/08/22) Bank of Arizona; past President, New York Society
of Security Analysts; member, Phoenix Society of
Security Analysts; former director, Financial
Analysts Federation; director, Northern Arizona
University Foundation; currently or formerly
active with various other professional and
community organizations.
Gary C. Cornia Trustee since Professor, Marriott School of Management, Brigham 4 None
Orem, UT 2002 Young University, 1980 - present; President, the
(06/24/48) National Tax Association; Chair of the Executive
Committee, the International Center for Land
Policy Studies and Training Institute, Taipei,
Taiwan; formerly Senior Visiting Fellow, Lincoln
Institute of Land Policy, 2003; Associate Dean,
Marriott School of Management, Brigham Young
University, 1991-2000; Chair, Utah Governor's Tax
Review Committee, 1993-2002; member, Governor's
Tax Review Committee since 2003; Faculty
Associate, the Land Reform Training Institute,
Taipei, Taiwan and The Lincoln Institute of Land
Policy, Cambridge, Massachusetts.
Cornelius T. Ryan Trustee since Founder and General Partner, Oxford Ventures 2 Director of Neuberger &
Sun Valley, ID and 1996 Partners, a group of investment venture capital Berman Equity Funds.
Westport, CT partnerships, since 1981 and Founder and General
(11/14/31) Partner, Oxford Bioscience Partners, a group of
venture capital partnerships focused on life
sciences, genomics, healthcare information
technology and medical devices, since 1991.
OFFICERS
Charles E. Childs, III Executive Vice Executive Vice President of all Funds since 2003; N/A N/A
New York, NY President since Senior Vice President, corporate development,
(04/01/57) 2003 formerly Vice President, Assistant Vice President
and Associate of the Manager's parent since 1987;
Senior Vice President, Vice President or Assistant
Vice President of the Money-Market Funds since
1988.
Marie E. Aro Senior Vice Senior Vice President, Aquila Rocky Mountain N/A N/A
Denver, CO President since Equity Fund, since 2004; Vice President, INVESCO
(02/10/55) 2004 Funds Group, 1998-2003; Vice President, Tax-Free
Fund of Colorado, 1993-1997.
James M. McCullough Senior Vice Senior Vice President or Vice President of Aquila N/A N/A
Portland, OR President since Rocky Mountain Equity Fund and four Aquila Bond
(06/11/45) 1999 Funds; Senior Vice President of the Distributor
since 2000; Director of Fixed Income Institutional
Sales, CIBC Oppenheimer & Co. Inc., Seattle, WA,
1995-1999.
Jerry G. McGrew Senior Vice President of the Distributor since 1998, N/A N/A
New York, NY President since Registered Principal since 1993, Senior Vice
(06/18/44) 1996 President, 1997-1998 and Vice President,
1993-1997; Senior Vice President, Aquila Rocky
Mountain Equity Fund and five Aquila Bond Funds
since 1995; Vice President, Churchill Cash
Reserves Trust, 1995-2001.
Barbara S. Walchli Senior Vice Senior Vice President of the Manager since 1999; N/A N/A
Phoenix, AZ President since Fund Co-manager, One Group Large Company Growth
(09/24/52) 1999 Fund and One Group Income Equity Fund, Banc One
Investment Advisors, 1996-1997; Director of
Research, Senior Vice President, First Interstate
Capital Management, 1995-1996; Investment
Committee, Arizona Community Foundation since
1986; member, Institute of Chartered Financial
Analysts, Association for Investment Management
and Research and the Phoenix Society of Financial
Analysts; formerly Senior Analyst, Banc One
Investment Advisors and Director of Research,
Valley National Bank.
Kimball L. Young Senior Vice Co-portfolio manager, Tax-Free Fund For Utah since N/A N/A
Salt Lake City, UT President since 2001; Co-founder, Lewis Young Robertson &
(08/07/46) 1999 Burningham, Inc., a NASD licensed broker/ dealer
providing public finance services to Utah local
governments, 1995-2001; Senior Vice President of
two Aquila Bond Funds and Aquila Rocky Mountain
Equity Fund; formerly Senior Vice President-Public
Finance, Kemper Securities Inc., Salt Lake City,
Utah.
Christine L. Neimeth Vice President Vice President of Aquila Rocky Mountain Equity N/A N/A
Portland, OR since 1999 Fund and Tax-Free Trust of Oregon; Management
(02/10/64) Information Systems consultant, Hillcrest Ski and
Sport, 1997; Institutional Municipal Bond
Salesperson, Pacific Crest Securities, 1996;
active in college alumni and volunteer
organizations.
Emily T. Rae Vice President Vice President of Aquila Rocky Mountain Equity N/A N/A
Aurora, CO since 2002 Fund and Tax-Free Fund of Colorado since 2002;
(03/02/74) investment analyst, Colorado State Bank and Trust,
2001-02; financial analyst, J.P. Morgan, 2000-01,
senior registered associate, Kirkpatrick Pettis,
1998-2000; registered associate, FBS Investments
(now U.S. Bancorp Piper Jaffray), 1997-98.
Alan R. Stockman Vice President Senior Vice President, Tax-Free Trust of Arizona N/A N/A
Scottsdale, AZ since 1999 since 2001, Vice President, 1999-2001; Vice
(07/31/54) President, Aquila Rocky Mountain Equity Fund since
1999; Bank One, Commercial Client Services
representative, 1997-1999; Trader and Financial
Consultant, National Bank of Arizona (Zions
Investment Securities Inc.), Phoenix, Arizona
1996-1997.
Joseph P. DiMaggio Chief Financial Chief Financial Officer of the Aquila(sm) Group of N/A N/A
New York, NY Officer since Funds since 2003 and Treasurer since 2000;
(11/06/56) 2003 and Controller, Van Eck Global Funds, 1993-2000.
Treasurer since
2000
Edward M. W. Hines Secretary since Partner, Hollyer Brady Smith & Hines LLP, legal N/A N/A
New York, NY 1993 counsel to the Fund, since 1989; Secretary of the
(12/16/39) Aquila(sm) Group of Funds.
Robert W. Anderson Assistant Compliance Officer of the Manager or its N/A N/A
New York, NY Secretary since predecessor and current parent since 1998 and
(08/23/40) 2000 Assistant Secretary of the Aquila(sm) Group of Funds
since 2000; trustee, Alpha Strategies Fund since
July, 2002; Consultant, The Wadsworth Group,
1995-1998.
John M. Herndon Assistant Assistant Secretary of the Aquila(sm) Group of Funds N/A N/A
New York, NY Secretary since since 1995 and Vice President of the three Aquila
(12/17/39) 1995 Money-Market Funds since 1990; Vice President of
the Manager or its predecessor and current parent
since 1990.
Lori A. Vindigni Assistant Assistant Treasurer of the Aquila(sm) Group of Funds N/A N/A
New York, NY Treasurer since since 2000; Assistant Vice President of the
(11/02/66) 2000 Manager or its predecessor and current parent
since 1998; Fund Accountant for the Aquila(sm) Group
of Funds, 1995-1998.
- ----------
(1) The Fund's Statement of Additional Information includes additional
information about the Trustees and is available, without charge, upon
request by calling 800-437-1020 (toll free).
(2) The mailing address of each Trustee and officer is c/o Aquila Rocky
Mountain Equity Fund, 380 Madison Avenue, New York, NY 10017.
(3) 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.
(4) Mr. Herrmann is an interested person of the Trust as that term is defined
in the 1940 Act as an officer of the Trust and a director, officer and
shareholder of the Manager's corporate parent, as an officer and Manager
of the Manager, and as a shareholder and director of the Distributor. Ms.
Herrmann is an interested person of the Trust as an officer of the Trust,
as a director, officer and shareholder of the Manager's corporate parent,
as an officer and Manager of the Manager, and as a shareholder and
director of the Distributor. Each is also an interested person as a member
of the immediate family of the other.
(5) 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 "Aquila(sm) Group
of Funds."
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 persons who
inquire about a fund.
INFORMATION WE COLLECT. "Nonpublic 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 Aquila(SM) 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 Aquila(SM) 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.
INFORMATION AVAILABLE (UNAUDITED)
Much of the information that the funds in the Aquila(sm) Group of Funds
produce is automatically sent to you and all other shareholders. Specifically,
you are routinely sent the entire list of portfolio of securities of your fund
twice a year in the semi-annual and annual reports you receive. You should know,
however, that we prepare, and have available, portfolio listings at the end of
each quarter.
Whenever you may be interested in seeing a listing of your trust's
portfolio other than in your shareholder reports, please check our website
(www.aquilafunds.com) or call us at 1-800-437-1020.
FOUNDER
AQUILA MANAGEMENT CORPORATION
MANAGER
AQUILA INVESTMENT MANAGEMENT LLC
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Tucker Hart Adams
Arthur K. Carlson
Gary C. Cornia
Diana P. Herrmann
Cornelius T. Ryan
OFFICERS
Diana P. Herrmann, Vice Chair and President
Barbara S. Walchli, Senior Vice President and Portfolio Manager
Marie E. Aro, Senior Vice President
James M. McCullough, Senior Vice President
Kimball L. Young, Senior Vice President
Christine L. Neimeth, Vice President
Emily T. Rae, Vice President
Alan R. Stockman, Vice President
Joseph P. DiMaggio, Chief Financial Officer
and Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
760 Moore Road
King of Prussia, Pennsylvania 19406
INDEPENDENT AUDITORS
KPMG LLP
757 Third Avenue
New York, New York 10017
Further information is contained in the Prospectus, which must precede or
accompany this report.
ANNUAL
REPORT
DECEMBER 31, 2003
[Logo of Aquila Rocky Mountain Equity Fund: a rectangle with a drawing of two
mountains and the words "Aquila Rocky Mountain Equity Fund"](R)
AN INVESTMENT DESIGNED
FOR GROWTH AT A REASONABLE PRICE
[Logo of the Aquila Group of Funds: an eagle's head]
ONE OF 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 $8,800 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 45,542
and $6,500 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 ROCKY MOUNTAIN 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 ROCKY MOUNTAIN 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.