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 811-8168
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: 12/31/05
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL
REPORT
DECEMBER 31, 2005
[LOGO OF AQUILA ROCKY MOUNTAIN EQUITY FUND:
A RECTANGLE WITH A DRAWING OF TWO MOUNTAINS AND THE WORDS
"AQUILA ROCKY MOUNTAIN EQUITY FUND]
AN INVESTMENT DESIGNED
FOR GROWTH AT A REASONABLE PRICE
[LOGO OF THE AQUILA
GROUP OF FUNDS: ONE OF THE
AN EAGLE'S HEAD] AQUILA(SM) GROUP OF FUNDS
[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
"THE ROCKY MOUNTAIN REGION CONTINUES TO BE ATTRACTIVE"
February, 2006
Dear Fellow Shareholder:
The fiscal year ended December 31, 2005 turned out to be a rather
lackluster one for equity funds in general. Nevertheless, your investment in
Aquila Rocky Mountain Equity Fund continued to experience appreciation of a
reasonably respectable nature over the 12-month period.
As you are aware, it is our objective with this Fund to produce total
returns that are of an absolute nature. For this 12-month period, the total
return of the Class A shares of the Fund was 5.44%. On a longer-term basis, if a
person invested $10,000 in the Class A shares at the launch time of Aquila Rocky
Mountain Equity Fund on July 25, 1994, their monies would have grown to $29,053.
This would equate to absolute average annual total returns in the Class A
shares for 3 years, 5 years and since inception of the Fund of:
3 years 18.41%
5 years 8.63%
Since inception 9.76%
The Class C and Class Y shares experienced similar appreciation for the
same periods of time.
Still, it is always desirable to have capital appreciation be equal to or
better than some sort of benchmark in the area of equities. However, with Aquila
Rocky Mountain Equity Fund, it is difficult to have a specific benchmark because
we are the only such fund of its kind devoted to the Rocky Mountain region.
In the table below, you will see just how Aquila Rocky Mountain Equity
Fund performed in comparison with various well-known indices: the Dow Jones
Industrial Average (DJIA), Standard & Poor's 500 (S&P 500), NASDAQ Composite
Index (NASDAQ), and the Russell 2000. The total returns for the 12-month period
ended December 31, 2005 were as follows:
AQUILA
ROCKY
MOUNTAIN
EQUITY FUND* S&P500 Russell 2000 NASDAQ DJIA
12 months ended 12/31/05 5.44% 4.91% 4.63% 1.72% 2.13%
NOT A PART OF THE ANNUAL REPORT
For further information, the Fund's relative return for 1 year and for the last
5 years has exceeded the S&P 500.
As you are aware, the objective of Aquila Rocky Mountain Equity Fund is to
seek capital appreciation through investment in securities (primarily common
stock or other equity securities) of companies having a significant business
presence in the general Rocky Mountain region of our country.
The primary approach in the management of the Fund is to seek out
securities which possess growth at a reasonable price. This applies to those
companies which have large capitalization down to those which have a micro
capitalization in their number of shares. The Fund does not want to be
identified as having companies of only one particular size in its portfolio.
Rather, it desires to have the flexibility of seeking those securities which
have the overall characteristics of growth regardless of their capitalization.
The overall Rocky Mountain region is a very substantial geographic area of
our country. It also possesses, on a composite basis, a gross state product
which in dollar terms would be equal to the 10th largest economic area of the
world. Consequently, even though the year 2005 did not produce outstanding
returns for equity investments, we remain very positive concerning our stock
selections in the Rocky Mountain region.
The Rocky Mountain region is one that attracts people who are seeking new
opportunities for themselves in their careers and personal lives. This has
resulted in a growing number of entrepreneurial ventures within the 8 states of
the region.
[MAP]
NOT A PART OF THE ANNUAL REPORT
We will discuss individual investment ventures about which we are excited
in the comments recorded in the management section of this report.
We appreciate the confidence you have shown in your investment in Aquila
Rocky Mountain Equity Fund. We remain excited about the potential of this region
and believe that you and other investors should share this excitement.
Sincerely,
/s/ Barbara S. Walchli /s/ Lacy B. Herrmann
Barbara S. Walchli Lacy B. Herrmann
Senior Vice President and Chairman, Board of Trustees
Portfolio Manager
*In keeping with industry standards, total return figures do not include sales
charges, but do reflect reinvestment of dividends and capital gains. Different
classes of shares are offered by the Fund and their performance will vary
because of differences in sales charges and fees paid by shareholders investing
in these different classes. The performance shown represents that of Class A
shares, adjusted to reflect the absence of sales charges, which is currently a
maximum amount of 4.25% for this Class. From time to time, management fees and
other expenses have been waived or absorbed by Aquila Investment Management LLC,
Manager of the Fund. Returns would be less if sales charges, waived management
fees, and absorbed expenses, were applied. Share price (net asset value) and
investment return fluctuate so that upon redemption an investor may receive more
or less than their original investment. The indices noted above are not
available for direct investment. Therefore, their performance does not reflect
the expenses associated with the active management of an actual portfolio. The
prospectus of the Fund, which contains more complete information, including
management fees and expenses and which discusses the special risk considerations
of the geographic concentration strategy of the Fund, should, of course, be
carefully reviewed before investing. Past performance does not guarantee future
results.
NOT A PART OF THE ANNUAL REPORT
[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
5.44%, without provision for sales charges but reflecting contractually waived
fund expenses, for the twelve months ended December 31, 2005. This compares to
the S&P 500 with a total return of 4.91% and the Russell 2000 Index with a total
return of 4.63%.
For the five years cumulatively ending December 31, 2005, Aquila Rocky
Mountain Equity Fund's Class A shares, before provision for sales charges, had a
total return of 51.34% compared to 2.74% for the S&P 500 and 48.94% for the
Russell 2000 Index.
We do not have a perfect benchmark or performance comparison for the Fund
since we invest in companies in a specific region. At year-end 2005, 22.2% of
the equity investments in the Fund were in companies with a market
capitalization of over $10 billion (large cap companies), 34.1% were in
companies with a market capitalization between $2 billion and $10 billion (mid
cap) and 37.0% were in companies with market capitalizations between $300
million and $2 billion (small cap). In addition, 6.7% of the equity investments
in the Fund were in companies with market capitalizations below $300 million
(micro cap).
At year-end, we had holdings of 59 companies in the portfolio across a
number of industries. We work to hold our individual position sizes to around 5%
or less of the portfolio and try to diversify the Fund across industries. We
believe this diversification helps to control specific security risk as well as
industry risk. Our largest individual position size on December 31 was Coldwater
Creek at 4.46% of the portfolio.
We continue to invest the Fund strategically since we believe that trading
and transaction costs do matter. We prefer to do our own research, focusing on
the two to five year time frame. We continue to look for the best businesses and
management teams in the Rocky Mountain region to invest in for our shareholders.
Portfolio turnover for the past three years has averaged under 10%.
During 2005, the five best performing stocks in the Fund came from four
states and four industries. Intrado, based in Longmont, Colorado, was up 90.25%.
Intrado provides support services for telecom companies and the government in
the form of 9-1-1 data and emergency notification services. Intrado can notify
residents about emergencies such as Amber Alerts, forest fires and floods using
automated telephone notification. Many state and local governments are
contracting with Intrado for their services. Rocky Mountain Chocolate Factory,
based in Durango, Colorado advanced 58.08% in price for the year. Rocky Mountain
Chocolate Factory owns and franchises chocolate stores and manufactures its own
line of chocolates. Phelps Dodge had a total
return of 53.11% for 2005, mining copper and molybdenum. Over the past four
years copper prices have risen from around $0.60 a pound to over $2.00 a pound.
Questar was the fourth best performing stock in the fund in 2005, with a
total return of 50.64%. Questar is based in Salt Lake City, Utah. Approximately
75% of Questar's earnings come from oil and gas production in the Rocky Mountain
region. Questar has a very high producing property in the Pinedale Anticline
region of Wyoming. Coldwater Creek, based in Sandpoint, Idaho advanced 48.35% in
2005, benefiting from the continued expansion of its retail chain for women age
45-60.
The three worst performing stocks in the fund in 2005 came from three
states and two industries. Ciber, based in Greenwood Village, Colorado declined
31.54% in price in 2005. Ciber is a computer systems integrator and its earnings
slowed in the second half of 2005 as customers slowed technology spending,
waiting for new 64 bit computers. SBS Technologies, based in Albuquerque, New
Mexico had a decline of 27.87% in its stock price in 2005 also due to customers
waiting for new 64 bit computers. SBS Technologies designs and builds
specialized computers for communications, commercial, medical imaging, space and
military applications. SBS's computers are in products from the Space Station to
rides at Disneyland. PetsMart, based in Phoenix, Arizona had a total return of
- -27.45% in 2005. Earnings growth slowed in the second half of 2005 as customer
spending was pressured by higher gasoline and heating costs, rising credit card
payments and rising interest rates.
We continue to harvest short term trading losses to offset capital gains
from takeovers and our sales of stocks. During 2005, Noble Energy acquired one
of our holdings, Denver-based Patina Oil and Gas. For the fourth year in a row,
we did not have to distribute capital gains to our shareholders. Although this
may not be possible every year, we are working to optimize after tax returns for
our investors.
During 2005 we had a number of companies with stock splits and stock
dividends. While stock splits and stock dividends are really just an accounting
adjustment, they do reflect price action and often attract investor attention.
During March, First State Bancorporation of New Mexico split their shares 2 for
1, Coldwater Creek split their shares 3 for 2 and Ventana Medical split their
shares 2 for 1. Glacier Bancorp of Montana split their shares 5 for 4 on May 5
and MGM Mirage split their shares 2 for 1 on May 19. During June, Rocky Mountain
Chocolate Factory split their shares 4 for 3. Finally, Knight Transportation
split their shares 3 for 2 on December 27.
We are also pleased to have seen some strong dividend growth from the
companies in the Aquila Rocky Mountain Equity Fund. Dividend growth is often a
reflection that profitability and cash flow generation for the company are
strong. Microchip Technologies has increased their dividend eleven times since
it started paying a dividend in 2002. Five year dividend growth has also been
very strong for MDC Holdings at 43.2%, Newmont Mining at 27.2% and Ball Corp. at
21.7%. Ball Corp. participated in the very successful NASA Deep Impact comet
project in July
2005. In our research process we specifically look for companies that are
disciplined in their spending and, therefore, should be strong cash flow
generators.
During 2006 our focus will continue to be to invest in what we deem to be
the best businesses in the region for the intermediate to longer term. The Fed
has been raising interest rates for over eighteen months to slow the economy so
that the economic cycle can last longer. We may see some short term earnings
disappointments as the economy slows. However, we are pleased with the quality
of the businesses that we are finding in the Rocky Mountain region. The smaller
and mid-size companies we own may be able to be more nimble in a slowing
economy.
As the economy slows, investors may become more interested in growth
stocks that show consistent results. These stocks may be from such sectors as
health care and media. We may also see a fair amount of interest in technology
stocks this year due to several trends including 1) a shift from 32 bit to 64
bit computing, 2) a shift to high definition TV's, 3) new software that will
integrate home computing and home entertainment, and 4) more government spending
on computers and communication systems.
PERFORMANCE REPORT
The graph below illustrates the value of $10,000 invested in Class A
Shares of Aquila Rocky Mountain Equity Fund (the "Fund") for the 10-year period
ended December 31, 2005 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:]
Rocky Mountain Equity Fund
Without With
Russell 2000 Sales Sales
Month/Year Stock Index Charge Charge
- ----------- ------- ------- ------
December-95 10,000 10,000 9,523
December-96 11,655 11,832 11,267
December-97 14,247 14,554 13,860
December-98 13,928 13,782 13,124
December-99 16,902 16,615 15,822
December-00 16,408 16,523 15,735
December-01 16,835 17,801 16,951
December-02 13,390 15,066 14,347
December-03 19,723 21,164 20,154
December-04 23,359 23,720 22,588
December-05 24,441 25,011 23,817
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2005
-----------------------------------
SINCE
CLASS AND INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
------ ------- -------- ---------
Class A (7/22/94)
With Sales Charge ......... 0.96% 7.70% 9.07% 9.30%
Without Sales Charge ...... 5.44% 8.63% 9.60% 9.76%
Class C (5/01/96)
With CDSC ................. 3.68% 7.83% N/A 8.04%
Without CDSC .............. 4.68% 7.83% N/A 8.04%
Class Y (5/01/96)
No Sales Charge ........... 5.73% 8.91% N/A 9.01%
Class I (12/01/05)
No Sales Charge ........... N/A N/A N/A (2.64)%*
COMPARATIVE INDEX
Russell 2000 Stock Index .... 4.63% 8.28% 9.34% 10.75% (Class A)
9.68% (Class C&Y)
(2.32)%* (Class I)
* For the period 12/01/05 (commencement of operations) to December 31, 2005
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.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
Aquila Rocky Mountain Equity Fund:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Aquila Rocky Mountain Equity Fund, as
of December 31, 2005 and the related statement of operations, statement of
changes in net assets, and the financial highlights for the year 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 audit. The statement
of changes in net assets for the year ended December 31, 2004 and the financial
highlights for each of the years in the four year period ended December 31, 2004
have been audited by other auditors, whose report dated February 18, 2005
expressed an unqualified opinion on such financial statement and financial
highlights.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 2005, by correspondence with the custodian and brokers.
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 audit provides 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 the
Aquila Rocky Mountain Equity Fund as of December 31, 2005, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 16, 2006
- --------------------------------------------------------------------------------
AQUILA ROCKY MOUNTAIN EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
MARKET
SHARES COMMON STOCKS - (88.1%) VALUE
- ------------ ---------------------------------------------------------------- -------------
BASIC INDUSTRY - (11.1%)
20,000 Allied Waste Industries, Inc.+ ................................. $ 174,800
12,000 Ball Corp. ..................................................... 476,640
30,000 Knight Transportation, Inc. .................................... 621,900
6,000 Newmont Mining Corp. ........................................... 320,400
3,500 Phelps Dodge Corp. ............................................. 503,545
12,000 SkyWest, Inc. .................................................. 322,320
-------------
2,419,605
-------------
BUSINESS SERVICES - (3.1%)
10,000 Insight Enterprises, Inc.+ ..................................... 196,100
12,000 Intrado, Inc.+ ................................................. 276,480
3,000 OfficeMax, Inc. ................................................ 76,080
4,000 Viad Corp. ..................................................... 117,320
-------------
665,980
-------------
CAPITAL SPENDING - (4.6%)
29,000 Mity Enterprises, Inc.+ ........................................ 516,780
8,000 Mobile Mini, Inc.+ ............................................. 379,200
10,000 Semitool, Inc.+ ................................................ 108,800
-------------
1,004,780
-------------
CONSUMER CYCLICALS - (1.4%)
5,000 M.D.C. Holdings, Inc. .......................................... 309,900
-------------
CONSUMER SERVICES - (18.7%)
7,000 Apollo Group, Inc. (Class A)+ .................................. 423,220
31,000 Coldwater Creek, Inc.+ ......................................... 946,430
3,400 Comcast Corp. (Special Class A)+ ............................... 87,312
15,000 Echostar Communications Corp. (Class A)+ ....................... 407,700
14,000 International Game Technology .................................. 430,920
1,100 Liberty Global, Inc. Series A+ ................................. 24,750
1,100 Liberty Global, Inc. Series C+ ................................. 23,320
25,000 Liberty Media Corp. (Class A)+ ................................. 196,750
12,000 MGM Mirage+ .................................................... 440,040
9,000 PETsMART, Inc. ................................................. 230,940
12,000 Shuffle Master, Inc.+ .......................................... 301,680
8,000 Station Casinos, Inc. .......................................... 542,400
-------------
4,055,462
-------------
MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- ------------ ---------------------------------------------------------------- -------------
CONSUMER STAPLES - (3.8%)
8,000 Albertson's, Inc. .............................................. $ 170,800
14,000 Discovery Holding Co. (Class A+) ............................... 212,100
7,000 P.F. Chang's China Bistro, Inc.+ ............................... 347,620
6,000 Rocky Mountain Chocolate Factory, Inc. ......................... 97,656
-------------
828,176
-------------
ENERGY - (5.7%)
7,000 Bill Barrett Corp.+ ............................................ 270,270
4,000 Cimarex Energy Co. ............................................. 172,040
12,000 Headwaters, Inc.+ .............................................. 425,280
5,000 Questar Corp. .................................................. 378,500
-------------
1,246,090
-------------
FINANCIAL - (11.4%)
25,000 First State Bancorporation ..................................... 599,750
17,000 Glacier Bancorp, Inc. .......................................... 510,850
11,000 Janus Capital Group, Inc. ...................................... 204,930
9,000 MoneyGram International, Inc. .................................. 234,720
5,000 Wells Fargo & Company .......................................... 314,150
8,000 Zions Bancorporation ........................................... 604,800
-------------
2,469,200
-------------
HEALTH CARE - (10.2%)
18,000 Medicis Pharmaceutical Corp. (Class A) ......................... 576,900
40,000 Merit Medical Systems, Inc.+ ................................... 485,600
18,000 Myriad Genetics, Inc.+ ......................................... 374,400
19,000 Sonic Innovations, Inc.+ ....................................... 80,370
14,000 Spectranetics Corp.+ ........................................... 157,360
5,000 USANA Health Services, Inc.+ ................................... 191,800
8,000 Ventana Medical Systems, Inc.+ ................................. 338,800
-------------
2,205,230
-------------
TECHNOLOGY - (15.1%)
20,000 Avnet, Inc.+ ................................................... 478,800
26,000 CIBER, Inc.+ ................................................... 171,600
17,000 First Data Corp. ............................................... 731,170
5,000 Inter-Tel, Inc. ................................................ 97,850
10,000 JDA Software Group, Inc.+ ...................................... 170,200
27,000 Microchip Technology, Inc. ..................................... 868,050
MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- ------------ ----------------------------------------------------------------- -------------
TECHNOLOGY (CONTINUED)
26,000 Micron Technology, Inc.+ ........................................ $ 346,060
23,000 SBS Technologies, Inc.+ ......................................... 231,610
16,000 SpectraLink Corp. ............................................... 190,400
-------------
3,285,740
-------------
UTILITIES - (3.0%)
4,000 Kinder Morgan, Inc. ............................................. 367,800
4,000 Pinnacle West Capital Corp. ..................................... 165,400
4,000 UniSource Energy Corp. .......................................... 124,800
-------------
658,000
-------------
Total Common Stocks (cost $12,090,510) ....................... 19,148,163
-------------
FACE
AMOUNT SHORT-TERM INVESTMENTS - (9.5%)
- ------------ ----------------------------------------------------------------- -------------
$ 1,035,000 AIM Short-Term Investment Co. Prime Portfolio Institutional Class
Money Market Fund ............................................ 1,035,000
1,035,000 JP Morgan Liquid Assets Money Market Fund ....................... 1,035,000
-------------
Total Short-Term Investments (cost $2,070,000) ............... 2,070,000
-------------
Total Investments (cost $14,160,510*) .............. 97.6% 21,218,163
Other assets less liabilities ...................... 2.4 527,247
------ -------------
Net Assets ......................................... 100.0% $ 21,745,410
====== =============
PERCENT OF
PORTFOLIO DISTRIBUTION (UNAUDITED) PORTFOLIO
---------------------------------- ---------
Arizona 27.4%
California 1.5
Colorado 20.0
Idaho 6.9
Illinois 0.4
Minnesota 1.1
Montana 2.9
Nevada 8.1%
New Mexico 3.9
Pennsylvania 0.4
Texas 1.7
Utah 15.9
Short-Term Investments 9.8
------
100.0%
======
* Cost for Federal income tax and financial 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, 2005
ASSETS
Investments at market value (cost $14,160,510) ................................... $21,218,163
Cash ............................................................................. 582,900
Receivable for investment securities sold ........................................ 84,529
Receivable for Fund shares sold .................................................. 32,927
Dividends and interest receivable ................................................ 12,258
Other assets ..................................................................... 5,318
-----------
Total assets ................................................................. 21,936,095
-----------
LIABILITIES
Payable for investment securities purchased ........................................ 97,319
Payable for Fund shares redeemed ................................................... 62,268
Distribution and service fees payable .............................................. 11,607
Payable to Manager ................................................................. 4,419
Accrued expenses ................................................................... 15,072
-----------
Total liabilities ............................................................... 190,685
-----------
NET ASSETS ............................................................................ $21,745,410
===========
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share $ 7,435
Additional paid-in capital ......................................................... 14,677,535
Net unrealized appreciation on investments (note 4) ................................ 7,057,653
Accumulated net realized gain on investments ....................................... 2,787
-----------
$21,745,410
===========
CLASS A
Net Assets ......................................................................... $17,684,104
===========
Capital shares outstanding ......................................................... 600,486
===========
Net asset value and redemption price per share ..................................... $ 29.45
===========
Offering price per share (100/95.75 of $29.45 adjusted to nearest cent) ............ $ 30.76
===========
CLASS C
Net Assets ......................................................................... $ 2,607,287
===========
Capital shares outstanding ......................................................... 94,670
===========
Net asset value and offering price per share ....................................... $ 27.54
===========
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) ...................................... $ 27.54*
===========
CLASS I
Net Assets ......................................................................... $ 24,418
===========
Capital shares outstanding ......................................................... 829
===========
Net asset value, offering and redemption price per share ........................... $ 29.46
===========
CLASS Y
Net Assets ......................................................................... $ 1,429,601
===========
Capital shares outstanding ......................................................... 47,533
===========
Net asset value, offering and redemption price per share ........................... $ 30.08
===========
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005
INVESTMENT INCOME:
Dividends ........................................................ $ 204,665
Expenses:
Management fee (note 3) .......................................... $ 265,755
Distribution and service fees (note 3) ........................... 58,813
Trustees' fees and expenses ...................................... 78,621
Legal fees (note 3) .............................................. 52,919
Registration fees and dues ....................................... 51,746
Transfer and shareholder servicing agent fees .................... 32,659
Shareholders' reports ............................................ 19,396
Auditing and tax fees ............................................ 14,570
Custodian fees ................................................... 13,762
Chief compliance officer (note 3) ................................ 4,544
Insurance ........................................................ 1,058
Miscellaneous .................................................... 30,294
-------------
Total expenses ................................................... 624,137
Management fee waived (note 3) ................................... (265,755)
Reimbursement of expenses by Manager (note 3) .................... (52,235)
Expenses paid indirectly (note 5) ................................ (16,764)
-------------
Net expenses ..................................................... 289,383
-----------
Net investment loss .............................................. (84,718)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ............ 5,203
Change in unrealized appreciation on investments ................. 1,095,067
-------------
Net realized and unrealized gain (loss) on investments ........... 1,100,270
-----------
Net change in net assets resulting from operations ............... $ 1,015,552
===========
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
OPERATIONS:
Net investment loss ................................... $ (84,718) $ (115,803)
Net realized gain (loss) from securities transactions . 5,203 245,325
Change in unrealized appreciation on investments ...... 1,095,067 1,671,939
------------ ------------
Change in net assets from operations ............... 1,015,552 1,801,461
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 8):
Class A Shares:
Net realized gain on investments ...................... -- --
Class C Shares:
Net realized gain on investments ...................... -- --
Class I 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 ............................. 8,593,036 4,941,240
Short-term trading redemption fee ..................... 3,662 1,476
Reinvested dividends and distributions ................ -- --
Cost of shares redeemed ............................... (5,481,191) (2,709,144)
------------ ------------
Change in net assets from capital share transactions 3,115,507 2,233,572
------------ ------------
Change in net assets ............................... 4,131,059 4,035,033
NET ASSETS:
Beginning of period ................................... 17,614,351 13,579,318
------------ ------------
End of period ......................................... $ 21,745,410 $ 17,614,351
============ ============
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
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. Class I Shares are sold at net
asset value without any sales charge, redemption fees, or contingent deferred
sales charge. Class I Shares carry a distribution fee and service fee. 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. Class I shares commenced
operations on December 1, 2005.
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) MULTIPLE CLASS ALLOCATIONS: All income, expenses (other than
class-specific expenses), and realized and unrealized gains or losses are
allocated daily to each class of shares based on the relative net assets
of each class. Class-specific expenses, which include distribution and
service fees and any other items that are specifically attributed to a
particular class, are 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) RECLASSIFICATION OF CAPITAL ACCOUNTS: Accounting principles generally
accepted in the United States of America require that certain components
of net assets relating to permanent differences be reclassified between
financial and tax reporting. These reclassifications have no effect on net
assets or net asset value per share. On December 31, 2005 the Fund
decreased undistributed net investment loss by $84,718, and decreased
capital stock by $84,718.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
The Fund has a Sub-Advisory and Administration Agreement with Aquila
Investment Management LLC (the "Manager"), a wholly-owned subsidiary of Aquila
Management Corporation, the Fund's founder and sponsor. 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 managing
relationships with all the various support organizations to the Fund such as the
shareholder servicing agent, custodian, legal counsel, auditors and distributor
and additionally maintaining the Fund's accounting books and records. For its
services, the Manager is entitled to receive a fee which is payable monthly and
computed as of the close of business each
day 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% on the excess over
$50 million.
For the year ended December 31, 2005, the Fund incurred Management fees of
$265,755, of which all were waived. Additionally, during this period the Manager
reimbursed the Fund for other expenses in the amount of $52,235. All of which
was paid prior to December 31, 2005. The Manager contractually waived fees and
reimbursed Fund expenses during the period January 1, 2005 through December 31,
2005 so that total Fund expenses would not exceed 1.50% for Class A Shares,
2.25% for Class C Shares, 1.40% for Class I Shares or 1.25% for Class Y Shares.
Under a Compliance Agreement with the Manager, the Manager is compensated
for Chief Compliance Officer related services provided to enable the Fund to
comply with Rule 38a-1 of the Investment Company Act of 1940.
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, 2005, distribution fees on Class A
Shares amounted to $36,209 of which the Distributor retained $3,192.
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, 2005, amounted to $16,951. 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, 2005, amounted to $5,651. The total
of these payments with respect to Class C Shares amounted to $22,602 of which
the Distributor retained $4,820.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class I Shares to Qualified Recipients. Class I payments, under
the Plan, may not exceed, for any fiscal year of the Fund a rate (currently
0.15%) set from time to time by the Board of Trustees of not more than 0.25% of
the average annual net assets represented by the Class I Shares. In addition,
the Fund has a Shareholder Services Plan under which it may pay service fees
(currently 0.20%) of not more than 0.25% of the average annual net assets of the
Fund represented by Class I Shares. That is, the total payments under both plans
will not exceed 0.50% of such net assets. For the period ended December 31,
2005, these payments were made at the average annual rate of 0.20% of such net
assets amounting to $6 of which $3 related to the Plan and $3 related to the
Shareholder Services Plan.
Specific details about the Plans are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive
distributor of the Fund's shares. Through agreements between the Distributor and
various 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, 2005, total commissions on sales of Class AShares
amounted to $178,771 of which $18,836 was received by the Distributor.
c) OTHER RELATED PARTY TRANSACTIONS:
For the year ended December 31, 2005, the Fund incurred $46,853 of legal
fees allocable to Hollyer Brady Barrett & 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 in that firm.
4. PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 2005, purchases of securities and
proceeds from the sales of securities (excluding short-term investments)
aggregated $4,137,986 and $1,590,476, respectively.
At December 31, 2005, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted to
$7,139,541 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value amounted to $81,888 for a
net unrealized appreciation of $7,057,653.
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
a) Transactions in Capital Shares of the Fund were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
CLASS A SHARES:
Proceeds from shares sold 208,097 $ 5,903,039 154,717 $ 3,972,093
Reinvested dividends and
distributions ......... -- -- -- --
Cost of shares redeemed . (98,862) (2,766,914) (78,544) (1,999,023)
----------- ----------- ----------- -----------
Net change ............ 109,235 3,136,125 76,173 1,973,070
----------- ----------- ----------- -----------
CLASS C SHARES:
Proceeds from shares sold 31,026 829,837 32,243 783,083
Reinvested dividends and
distributions ......... -- -- -- --
Cost of shares redeemed .. (21,295) (557,251) (24,862) (605,856)
----------- ----------- ----------- -----------
Net change ............ 9,731 272,586 7,381 177,227
----------- ----------- ----------- -----------
CLASS I SHARES:
Proceeds from shares sold 829 25,000
Reinvested dividends and
distributions ......... -- --
Cost of shares redeemed .. -- --
----------- -----------
Net change ............ 829* 25,000*
----------- -----------
CLASS Y SHARES:
Proceeds from shares sold 64,758 1,835,160 7,124 186,064
Reinvested dividends and
distributions ......... -- -- -- --
Cost of shares redeemed .. (75,635) (2,157,026) (4,003) (104,265)
----------- ----------- ----------- -----------
Net change ............ (10,877) (321,866) 3,121 81,799
----------- ----------- ----------- -----------
Total transactions in Fund
shares ................... 108,918 $ 3,111,845 86,675 $ 2,232,096
=========== =========== =========== ===========
* Commenced operations on December 1, 2005.
b) 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, 2005, fees collected did not have a material
effect on the financial highlights.
8. INCOME TAX INFORMATION AND 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, 2005, the components of distributable earnings on a tax
basis were as follows:
Accumulated net realized gain .................... $ 2,787
Unrealized appreciation .......................... 7,057,653
----------
$7,060,440
==========
11. CHANGE IN PRINCIPAL ACCOUNTANTS
KPMG LLP was previously the principal accountants for the Aquila Rocky
Mountain Equity Fund (the "Fund"). On July 27, 2005 KPMG LLP resigned as the
principal accountants of the Fund and Tait, Weller and Baker LLP was engaged as
the principal accountants to audit the Fund's financial statements for the
fiscal year of 2005. The decision was made by the Audit Committee of the Board
of Trustees.
The audit reports of KPMG LLP on the Fund's financial statements as of and
for the years ended December 31, 2004 and 2003 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope, or accounting principles.
In connection with the audits of the two fiscal years ended December 31,
2004 and 2003 and the subsequent interim period through July 27, 2005, there
were no reportable events or disagreements with KPMG LLP on any matter of
accounting principles of practices, financial statement disclosure, or auditing
scope or procedures, which disagreements if not resolved to the satisfaction of
KPMG LLP would have caused them to make reference in connection with their
opinion to the subject matter of the disagreements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class A Class I
------------------------------------------------------------------ ------------
Year Ended December 31,
------------------------------------------------------------------ Period Ended
2005 2004 2003 2002 2001 12/31/05 (1)
------- ------- ------- ------- ------- ------------
Net asset value, beginning of period ...... $ 27.93 $ 24.92 $ 17.74 $ 20.96 $ 19.64 $ 30.26
------- ------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)+ .......... (0.11) (0.17) (0.16) (0.15) (0.07) (0.02)
Net gain (loss) on securities (both
realized and unrealized) ............ 1.63 3.18 7.34 (3.07) 1.58 (0.78)
------- ------- ------- ------- ------- -------
Total from investment operations ....... 1.52 3.01 7.18 (3.22) 1.51 (0.80)
------- ------- ------- ------- ------- -------
Less distributions (note 8):
Dividends from net investment income ... -- -- -- -- -- --
Distributions from capital gains ....... -- -- -- -- (0.19) --
------- ------- ------- ------- ------- -------
Total distributions .................... -- -- -- -- (0.19) --
------- ------- ------- ------- ------- -------
Net asset value, end of period ............ $ 29.45 $ 27.93 $ 24.92 $ 17.74 $ 20.96 $ 29.46
======= ======= ======= ======= ======= =======
Total return (not reflecting sales charge) 5.44% 12.08% 40.47% (15.36)% 7.73% (2.64)%*
Ratios/supplemental data
Net assets, end of period (in thousands) $17,684 $13,718 $10,345 $ 4,242 $ 2,403 $ 24
Ratio of expenses to average net assets 1.59% 1.54% 1.50% 1.52% 1.60% 1.43%**
Ratio of net investment loss to average
net assets .......................... (0.48)% (0.72)% (0.77)% (0.82)% (0.44)% (0.64)%**
Portfolio turnover rate ................ 9.78% 8.38% 3.01% 1.81% 28.54% 9.78%*
The expense and net investment income ratios without the effect of the waiver of fees and the expense reimbursement were:
Ratio of expenses to average net assets 3.23% 2.82% 3.25% 4.15% 4.81% 2.67%**
Ratio of net investment loss to average
net assets .......................... (2.11)% (1.99)% (2.51)% (3.45)% (3.66)% (1.89)%**
The expense ratios after giving effect to the waivers, reimbursements and expense offset for uninvested cash balances were (note 3):
Ratio of expenses to average net assets 1.50% 1.50% 1.48% 1.50% 1.50% 1.42%**
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
* Not Annualized
** Annualized
(1) For the period December 1, 2005 to December 31, 2005.
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class C
--------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------
2005 2004 2003 2002 2001
------- ------- ------- ------- -------
Net asset value, beginning of period ...... $ 26.31 $ 23.66 $ 16.96 $ 20.19 $ 19.07
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)+ .......... (0.30) (0.35) (0.30) (0.28) (0.21)
Net gain (loss) on securities
(both realized and unrealized) ....... 1.53 3.00 7.00 (2.95) 1.52
------- ------- ------- ------- -------
Total from investment operations ....... 1.23 2.65 6.70 (3.23) 1.31
------- ------- ------- ------- -------
Less distributions (note 8):
Distributions from net investment income -- -- -- -- --
Distributions from capital gains ....... -- -- -- -- (0.19)
------- ------- ------- ------- -------
Total distributions .................... -- -- -- -- (0.19)
------- ------- ------- ------- -------
Net asset value, end of period ............ $ 27.54 $ 26.31 $ 23.66 $ 16.96 $ 20.19
======= ======= ======= ======= =======
Total return (not reflecting sales charge) 4.68% 11.20% 39.50% (16.00)% 6.91%
Ratios/supplemental data
Net assets, end of period
(in thousands) ....................... $ 2,607 $ 2,235 $ 1,835 $ 858 $ 372
Ratio of expenses to average net assets 2.34% 2.29% 2.26% 2.26% 2.34%
Ratio of net investment income (loss)
to average net assets ................ (1.24)% (1.47)% (1.53)% (1.56)% (1.23)%
Portfolio turnover rate ................ 9.78% 8.38% 3.01% 1.81% 28.54%
The expense and net investment income ratios without the effect of the waiver of fees and the expense reimbursement were (note 3):
Ratio of expenses to average net assets 3.98% 3.56% 4.02% 4.95% 5.52%
Ratio of net investment loss to
average net assets ................... (2.87)% (2.74)% (3.29)% (4.25)% (4.40)%
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 2.25% 2.25% 2.24% 2.25% 2.25%
Class Y
--------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------
2005 2004 2003 2002 2001
------- ------- ------- ------- -------
Net asset value, beginning of period ...... $ 28.45 $ 25.32 $ 17.97 $ 21.19 $ 19.81
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)+ .......... (0.05) (0.11) (0.10) (0.10) (0.02)
Net gain (loss) on securities
(both realized and unrealized) ....... 1.68 3.24 7.45 (3.12) 1.59
------- ------- ------- ------- -------
Total from investment operations ....... 1.63 3.13 7.35 (3.22) 1.57
------- ------- ------- ------- -------
Less distributions (note 8):
Distributions from net investment income -- -- -- -- --
Distributions from capital gains ....... -- -- -- -- (0.19)
------- ------- ------- ------- -------
Total distributions .................... -- -- -- -- (0.19)
------- ------- ------- ------- -------
Net asset value, end of period ............ $ 30.08 $ 28.45 $ 25.32 $ 17.97 $ 21.19
======= ======= ======= ======= =======
Total return (not reflecting sales charge) 5.73% 12.36% 40.90% (15.20)% 7.97%
Ratios/supplemental data
Net assets, end of period
(in thousands) ....................... $ 1,430 $ 1,661 $ 1,400 $ 918 $ 1,040
Ratio of expenses to average net assets 1.34% 1.29% 1.25% 1.26% 1.35%
Ratio of net investment income (loss)
to average net assets ................ (0.26)% (0.47)% (0.51)% (0.56%) (0.18)%
Portfolio turnover rate ................ 9.78% 8.38% 3.01% 1.81% 28.54%
The expense and net investment income ratios without the effect of the waiver of fees and the expense reimbursement were (note 3):
Ratio of expenses to average net assets 2.99% 2.56% 3.05% 3.87% 4.59%
Ratio of net investment loss to
average net assets ................... (1.91)% (1.75)% (2.32)% (3.16)% (3.42)%
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 1.25% 1.25% 1.23% 1.25% 1.25%
+ Per share amounts have been calculated using the monthly average shares
method.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED)
As a shareholder of the Fund, you may incur two types of costs: (1)
transaction costs, including front-end sales charges with respect to Class A
shares or contingent deferred sales charges ("CDSC") with respect to Class C
shares; and (2) ongoing costs, including management fees; distribution and/or
service (12b-1) fees; and other Fund expenses. The tables below are intended to
help you understand your ongoing costs (in dollars) of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The tables below are based on an investment of $1,000 invested on July 1,
2005 and held for the six months ended December 31, 2005.
ACTUAL EXPENSES
This table provides information about actual account values and actual
expenses. You may use the information provided in this table, together with the
amount you invested, to estimate the expenses that you paid over the period. To
estimate the expenses you paid on your account, divide your ending account value
by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During the Period".
FOR THE SIX MONTHS ENDED DECEMBER 31, 2005
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A 6.36% $1,000.00 $1,063.60 $ 7.85
- --------------------------------------------------------------------------------
Class C 5.92% $1,000.00 $1,059.20 $ 11.68
- --------------------------------------------------------------------------------
Class I (2.64)%* $1,000.00 $ 973.60* $ 7.01*
- --------------------------------------------------------------------------------
Class Y 6.48% $1,000.00 $1,064.80 $ 6.45
- --------------------------------------------------------------------------------
* For the period December 1, 2005 (commencement of operations) to December 31,
2005.
(1) ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, IF
ANY, AT NET ASSET VALUE AND DOES NOT REFLECT THE DEDUCTION OF THE
APPLICABLE SALES CHARGES WITH RESPECT TO CLASS A SHARES OR THE APPLICABLE
CONTINGENT DEFERRED SALES CHARGES ("CDSC") WITH RESPECT TO CLASS C SHARES.
TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE
TOTAL RETURN FOR THE YEAR.
(2) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 1.51%, 2.25%, 1.41%
AND 1.24% FOR THE FUND'S CLASS A, C, I AND Y SHARES, RESPECTIVELY,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio and an assumed rate of
return of 5.00% per year before expenses, which is not the Fund's actual return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
the information provided in this table to compare the ongoing costs of investing
in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical
example relating to the Fund with the 5.00% hypothetical examples that appear in
the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to
highlight your ongoing costs only and do not reflect any transactional costs,
with respect to Class A shares. The example does not reflect the deduction of
contingent deferred sales charges ("CDSC") with respect to Class C shares.
Therefore, the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different mutual funds. In
addition, if these transaction costs were included, your costs would have been
higher.
FOR THE SIX MONTHS ENDED DECEMBER 31, 2005
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,017.59 $ 7.68
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,013.86 $ 11.42
- --------------------------------------------------------------------------------
Class I 5.00% $1,000.00 $1,018.10* $ 7.17*
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,018.95 $ 6.31
- --------------------------------------------------------------------------------
* For the period December 1, 2005 (commencement of operations) to December 31,
2005.
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 1.51%, 2.25%, 1.41%
AND 1.24% FOR THE FUND'S CLASS A, C , I AND Y SHARES, RESPECTIVELY,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
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)
Diana P. Herrmann Trustee Vice Chair and Chief Executive Officer 11 None
New York, NY since 1997 of Aquila Management Corporation,
(02/25/58) and President Founder of the Aquila(SM) Group of
since 2002 Funds(5) and parent of Aquila Investment
Management LLC, Manager, 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;
Chief Executive Officer and Vice Chair
since 2004 and President, Chief
Operating Officer and Manager of the
Manager since 2003; Vice Chair,
President, Executive Vice President or
Senior 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; Governor, Investment
Company Institute and head of its Small
Funds Committee since 2004; active in
charitable and volunteer organizations.
NON-INTERESTED TRUSTEES
Tucker Hart Adams Chair of the President, The Adams Group, Inc., an 2 Director, Colorado
Colorado Springs, CO Board of Trustees economic consulting firm, since 1989; Health Facilities
(01/11/38) since 2005 formerly Chief Economist, United Banks Authority and Mortgage
and Trustee of Colorado; currently or formerly Analysis Computer Corp.
since 1993 active with numerous professional and
community organizations.
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
Gary C. Cornia Trustee Director, Romney Institute of Public 4 None
Orem, UT since 2002 Management, Marriott School of
(06/24/48) Management, Brigham Young University,
2004 - present; Professor, Marriott
School of Management, 1980 - present;
Past President, the National Tax
Association; Fellow, Lincoln Institute
of Land Policy, 2002-2003; Associate
Dean, Marriott School of Management,
Brigham Young University, 1991-2000;
Utah Governor's Tax Review Committee
since 1993.
Grady Gammage, Jr. Trustee Founding partner, Gammage & Burnham, 2 None
Phoenix, AZ since 2004 PLC, a law firm, Phoenix, Arizona, since
(10/01/51) 1983; director, Central Arizona Water
Conservation District, 1992-2004;
director, Arizona State University
Foundation since 1998.
OTHER INDIVIDUALS
CHAIRMAN EMERITUS(6)
Lacy B. Herrmann Founder and Founder and Chairman of the Board, N/A N/A
New York, NY Chairman Aquila Management Corporation, the
(05/12/29) Emeritus sponsoring organization and parent of
since 2006, the Manager or Administrator and/or
Chairman of Adviser or Sub-Adviser to each fund of
the Board the Aquila(SM) Group of Funds; Chairman
of Trustees, of the Manager or Administrator and/or
1993-2005 Adviser or Sub-Adviser to each since
2004; Founder and Chairman Emeritus of
Hawaiian Tax-Free Trust, Pacific Capital
Cash Assets Trust, Pacific Capital
Tax-Free Cash Securities Cash Assets
Trust, Tax-Free Fund of Colorado,
Churchill Tax-Free Fund of Kentucky,
Narragansett Insured Tax-Free Income
Fund, Tax-Free Trust of Arizona,
Tax-Free Trust of Oregon, Tax-Free Fund
For Utah and Aquila Rocky Mountain
Equity Fund; previously Chairman and a
Trustee of each fund in the Aquila(SM)
Group of Funds since its establishment
until 2004 or 2005; 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.
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
OFFICERS
Charles E. Childs, III Executive Vice Executive Vice President of all funds in N/A N/A
New York, NY President the Aquila(SM) Group of Funds and
(04/01/57) since 2003 Manager and the Manager's parent since
2003; formerly Senior Vice President,
corporate development, 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 Aquila
Money-Market Funds, 1988-2003.
Arthur K. Carlson Executive Executive Vice President - Advisor to N/A N/A
Paradise Valley, AZ Vice President - the Trust, Tax-Free Trust of Arizona
(01/08/22) Advisor to since 2005, Trustee, 1987-2005;
the Fund Executive Vice President - Advisor to
since 2006 the Fund, Aquila Rocky Mountain Equity
Fund since 2006, Trustee, 1993-2005;
formerly Senior Vice President and
Manager, Trust Division of the Valley
National 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;
advisory director of the Renaissance
Companies; currently or formerly active
with various other professional and
community organizations.
Marie E. Aro Senior Vice Senior Vice President, Aquila Rocky N/A N/A
Denver, CO President Mountain Equity Fund, and Vice
(02/10/55) since 2004 President, Tax-Free Trust of Arizona,
since 2004; Vice President, INVESCO
Funds Group, 1998-2003; Vice President,
Aquila Distributors, Inc., 1993-1997.
Jerry G. McGrew Senior Vice President of the Distributor since 1998, N/A N/A
New York, NY President Registered Principal since 1993, Senior
(06/18/44) since 1996 Vice 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.
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
James M. McCullough Senior Vice Senior Vice President or Vice President N/A N/A
Portland, OR President of Aquila Rocky Mountain Equity Fund and
(06/11/45) since 1999 one Aquila Bond Fund ; Senior Vice
President of the Distributor since 2000;
Director of Fixed Income Institutional
Sales, CIBC Oppenheimer & Co. Inc.,
Seattle, WA, 1995-1999.
Barbara S. Walchli Senior Vice Senior Vice President and Portfolio N/A N/A
Phoenix, AZ President Manager of Aquila Rocky Mountain Equity
(09/24/52) since 1999 Fund since 1999; Fund Co-manager, One
Group Large Company Growth 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 N/A N/A
Salt Lake City, UT President Utah since 2001; Co-founder, Lewis Young
(08/07/46) since 1999 Robertson & 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 N/A N/A
Portland, OR since 1999 Equity Fund and Tax-Free Trust of
(02/10/64) Oregon; Management Information Systems
consultant, Hillcrest Ski and Sport,
1997; Institutional Municipal Bond
Salesperson, Pacific Crest Securities,
1996; active in college alumni and
volunteer organizations.
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
Emily T. Rae Vice President Vice President of Aquila Rocky Mountain N/A N/A
Aurora, CO since 2002 Equity Fund and Tax-Free Fund of
(03/02/74) Colorado since 2002; 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 N/A N/A
Scottsdale, AZ since 1999 Arizona since 2001, Vice President,
(07/31/54) 1999-2001; Vice 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.
M. Kayleen Willis Vice President Vice President, Tax-Free Fund For Utah N/A N/A
Salt Lake City, UT since 2004 since September 2003, Assistant Vice
(06/11/63) President, 2002-2003; Vice President,
Aquila Rocky Mountain Equity Fund, since
2004; various securities positions:
Paine Webber, Inc., Salt Lake City,
1999-2002, Dean Witter Reynolds, Inc.,
Salt Lake City, 1996-1998.
Robert W. Anderson Chief Compliance Chief Compliance Officer of the Trust, N/A N/A
New York, NY Officer since 2004 the Manager and the Distributor since
(08/23/40) and Assistant 2004, Compliance Officer of the Manager
Secretary or its predecessor and current parent
since 2000 since 1998 and Assistant Secretary of
the Aquila(SM) Group of Funds since
2000.
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
Joseph P. DiMaggio Chief Financial Chief Financial Officer of the N/A N/A
New York, NY Officer since 2003 Aquila(SM) Group of Funds since 2003 and
(11/06/56) and Treasurer Treasurer since 2000.
since 2000
Edward M. W. Hines Secretary Partner, Hollyer Brady Barrett & Hines N/A N/A
New York, NY since 1993 LLP, legal counsel to the Fund, since
(12/16/39) 1989; Secretary of the Aquila(SM) Group
of Funds.
John M. Herndon Assistant Assistant Secretary of the Aquila(SM) N/A N/A
New York, NY Secretary Group of Funds since 1995 and Vice
(12/17/39) since 1995 President of the three Aquila
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) N/A N/A
New York, NY Treasurer Group of Funds since 2000; Assistant
(11/02/66) since 2000 Vice President of the 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) Ms. Herrmann is an interested person of the Fund as an officer of the
Fund, 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.
(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."
(6) The Chairman Emeritus may attend Board meetings but has no voting power.
- --------------------------------------------------------------------------------
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 securities of your Fund
twice a year in the semi-annual and annual reports you receive. Additionally, we
prepare, and have available, portfolio listings at the end of each quarter.
Whenever you may be interested in seeing a listing of your Fund's portfolio
other than in your shareholder reports, please check our website
http://www.aquilafunds.com or call us at 1-800-437-1020.
The Fund additionally files a complete list of its portfolio holdings with
the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms
N-Q are available free of charge on the SEC website at http://www.sec.gov. You
may also review or, for a fee, copy the forms at the SEC's Public Reference Room
in Washington, DC or by calling 800-SEC-0330.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Proxy Voting and Procedures of the Fund are available without charge, upon
request, by calling our toll free number (1-800-437-1020). This information is
also available at http://www.aquilafunds.com/EquityFunds/armef/armefmain.htm or
on the SEC's Web site - http://www.sec.gov
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIVACY NOTICE (unaudited)
AQUILA ROCKY MOUNTAIN EQUITY FUND
OUR PRIVACY POLICY. In providing services to you as an individual who owns or is
considering investing in shares of the Fund 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 us, such as the Fund's transfer
agent, distributor or investment adviser or sub-adviser, as permitted or
required by law, or as authorized by 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.
AQUILA DISTRIBUTORS, INC.
AQUILA INVESTMENT MANAGEMENT LLC
This Privacy Policy also has been adopted by Aquila Distributors, Inc. and
Aquila Investment Management LLC and applies to all nonpublic information about
you that each of these companies may obtain in connection with services provided
to the Fund or to you as a shareholder of the Fund.
- --------------------------------------------------------------------------------
(THIS PAGE INTENTIONALLY LEFT BLANK)
(THIS PAGE INTENTIONALLY LEFT BLANK)
FOUNDERS
Lacy B. Herrmann, Chairman Emeritus
AQUILA MANAGEMENT CORPORATION
MANAGER
AQUILA INVESTMENT MANAGEMENT LLC
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Tucker Hart Adams, Chair
Gary C. Cornia
Grady Gammage, Jr.
Diana P. Herrmann
OFFICERS
Diana P. Herrmann, President
Arthur K. Carlson, Executive Vice 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
M. Kayleen Willis, Vice President
Robert W. Anderson, Chief Compliance Officer
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.
101 Sabin Street
Pawtuckett, RI 02860
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Further information is contained in the Prospectus, which must precede or
accompany this report.
ITEM 2. CODE OF ETHICS.
(a) As of December 31, 2005 (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
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 each of the last two
fiscal years for professional services rendered by the principal
accountant for the audit of the Registrant's annual financial statements
or services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements were $10,000 in 2005
and $9,680 in 2004.
b) Audit Related Fees - There were no amounts billed for audit-related
fees over the past two years other than stated above.
c) Tax Fees - The Registrant was billed by the principal accountant
$3,000 and $5,542 in 2005 and 2004, respectively, for tax return
preparation, tax compliance and tax planning.
d) All Other Fees - There were no additional fees paid for audit and non-
audit services other than those disclosed 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.
905: Not applicable.
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 filing of this report, the registrant's
chief financial and executive officers have concluded that the disclosure
controls and procedures of the registrant are appropriately designed to ensure
that information required to be disclosed in the registrant's reports that are
filed under the Securities Exchange Act of 1934 are accumulated and communicated
to registrant's management, including its principal executive officer(s) and
principal financial officer(s), to allow timely decisions regarding required
disclosure and is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms adopted by the Securities and Exchange
Commission.
(b) There have been no significant changes in registrant's internal controls or
in other factors that could significantly affect registrant's internal controls
subsequent to the date of the most recent evaluation, including no significant
deficiencies or material weaknesses that required corrective action.
ITEM 10. EXHIBITS.
(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/ Diana P. Herrmann
- - - ---------------------------------
President and Trustee
March 9, 2006
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Chief Financial Officer and Treasurer
March 9, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ Diana P. Herrmann
- - - ---------------------------------
Diana P. Herrmann
President and Trustee
March 9, 2006
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
March 9, 2006
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.