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: 12/31/07
FORM N-CSR/A
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL
REPORT
DECEMBER 31, 2007
[LOGO OF AQUILA ROCKY MOUNTAIN EQUITY FUND:
A RECTANGLE WITH A DRAWING OF TWO MOUNTAINS AND WORDS
"AQUILA ROCKY MOUNTAIN EQUITY FUND"(R)]
AN INVESTMENT DESIGNED
FOR GROWTH AT A REASONABLE PRICE
[LOGO OF THE AQUILA
GROUP OF FUNDS: ONE OF THE
AN EAGLE'S HEAD] AQUILA GROUP OF FUNDS(R)
[LOGO OF AQUILA ROCKY MOUNTAIN
EQUITY FUND: A RECTANGLE WITH A
DRAWING OF TWO MOUNTAINS AND WORDS
"AQUILA ROCKY MOUNTAIN EQUITY FUND"(R)]
AQUILA ROCKY MOUNTAIN EQUITY FUND
"ENTREPRENEURIAL ENERGY IN THE ROCKIES"
February, 2008
Dear Fellow Shareholder:
The past six months have been nerve wracking for most investors. Market
conditions have hurt the performance of the smaller companies in which we
invest. Problems with sophisticated mortgage instruments have hurt many of the
large lenders in the U.S. as well as globally and we are seeing a global
slowdown due to reduced credit availability.
The Federal Reserve ("Fed") has taken aggressive action to reduce interest
rates and provide liquidity to the larger banks and brokerage firms. While it
may take several months for the Fed's actions to have an impact on the economy,
we would note that the stock market often begins to anticipate economic recovery
by as much as six months.
We continue to like our strategic position and investment approach in the
Rocky Mountain region. With a slowdown in the U.S. and global economies, we
think smaller companies with higher earnings growth rates may receive increased
investor attention. We have worked to identify a number of these small, emerging
growth stocks of an entrepreneurial nature in the Rocky Mountain region.
We are particularly impressed with the entrepreneurial activity of health
care companies in the Rocky Mountain region. Twenty years ago there were almost
no health care companies in the Rocky Mountain region. Today, with the Internet,
medical researchers can live and work wherever they want. Now medical companies
in the Rocky Mountain region are producing leading edge, innovative products.
For example, Spectranetics, in Colorado Springs, produces lasers which
vaporize blood clots and blockages in blood vessels. They currently have two
clinical trials studying whether their lasers are effective in cleaning out
blood vessels that have developed blockages after a stent has been installed.
Myriad Genetics, headquartered in Salt Lake City, will conclude in March a
Phase III clinical trial for a drug to treat Alzheimer's. If it is effective, it
will be one of the first drugs that treat the disease rather than just the
symptoms. AspenBio Pharma, based in Castle Rock, Colorado is applying for FDA
approval for an appendicitis blood test that can be used in hospital emergency
rooms.
Merit Medical, headquartered in South Jordan, Utah, has had four new
products approved by the FDA in the last two months. Providence Service Corp.,
headquartered in Tucson, Arizona is providing outsourced social work services
for many state and county governments.
NOT A PART OF THE ANNUAL REPORT
In December, the U.S. Census Bureau released estimated population growth
for all fifty states for the period July 1, 2006 to July 1, 2007. Even though
growth moderated in the Rocky Mountain Region, the region appears to be
maintaining its leadership position. Six out of the eight states made the top 10
in population growth:
RANK STATE % CHANGE
---- ----- --------
#1 Nevada 2.9%
2 Arizona 2.8
3 Utah 2.6
4 Idaho 2.4
8 Colorado 2.0
9 Wyoming 2.0
The total population for the Rocky Mountain region is estimated at
approximately 21.4 million, only 7% of the 303.1 million estimated for the
country as a whole on January 1, 2008. Wyoming still has the smallest population
of any state at 522,830. We think the Rocky Mountain region is a longer term
story.
Two recent studies highlighted the attractiveness of the Rocky Mountain
region. The American Legislative Exchange Council recently announced its State
Economic Competitiveness Index, a measure of the different states' economic and
fiscal policies and their effect on the business environment for each state. Six
of the Rocky Mountain States made the top eleven, including Utah (#1), Arizona
(#2), Wyoming (#4), Colorado (#7), Idaho (#9) and Nevada (#11). An additional
study on competitiveness done by the Beacon Hill Institute think tank at Suffolk
University in Boston ranked Utah #1, Colorado #3 and Idaho #5. It is interesting
to note that Utah ranked #1 in both studies.
We are looking forward to less volatile and more rewarding times ahead. We
appreciate your commitment to Aquila Rocky Mountain Equity Fund. We will
continue to strive to merit your trust.
Sincerely,
/s/ Barbara S. Walchli /s/ Lacy B. Herrmann
Barbara S. Walchli Lacy B. Herrmann
Senior Vice President and Portfolio Manager Founder and Chairman Emeritus
NOT A PART OF THE ANNUAL REPORT
[LOGO OF AQUILA ROCKY MOUNTAIN
EQUITY FUND: A RECTANGLE WITH A
DRAWING OF TWO MOUNTAINS AND 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
- -1.34% in 2007 without provision for sales charges but reflecting contractually
waived fund expenses, for the twelve months ended December 31, 2007. This
compares to the Russell 2000 with a total return of -1.56% and the S&P 500 with
a return of 5.49%.
For the five years cumulatively ending December 31, 2007, Aquila Rocky
Mountain Equity Fund's Class A shares before provisions for sales charges had a
total return of 82.69% compared to 112.81% for the Russell 2000 and 82.85% for
the S&P 500.
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 2007, 22.3% of
the equity investments in the Fund were in companies with a market
capitalization over $10 billion (large cap companies), 33.0% of the equity
investments in the Fund were in companies with a market capitalization between
$2 billion and $10 billion (mid-cap) and 37.3% of the equity investments in the
Fund were in companies with market capitalizations between $300 million and $2
billion (small cap). In addition, 7.4% of the equity investments in the Fund
were in companies with market capitalizations below $300 million (micro-cap).
While performance was disappointing in 2007 we would note that worries in
financial markets about rising risk about the economy and large financial
companies hurt small and micro-cap stocks. Market volatility hurts them more
since they have fewer shares outstanding so they are impacted more when
investors sell or when quantitative investors are running programs to capture
spreads. The Russell Microcap Index declined by 8.0% in 2007. While this
negatively impacted our 2007 performance, it also created buying opportunities
for us and more potential for the intermediate to longer term. As the U.S.
economy stabilizes in 2008, we believe investors will return to the less liquid
stocks. The average earnings growth rate of the companies in the Fund is 17-18%.
Over time we should participate in the growth of the companies.
During 2007, we also experienced the takeover of seven companies in the
Fund. After five or six years of outperformance of value stocks, growth stocks
in 2007 were undervalued. Seven of our companies were taken private or taken
over by opportunistic investors and several did not pay much of a premium. It is
disappointing that the long term promise of these companies was not recognized
and instead sizeable capital gains were generated. Takeovers in 2007 were:
Kinder Morgan First Data
Mity Enterprises SpectraLink
Phelps Dodge Station Casinos
Inter-Tel
We believe we will see fewer takeovers in 2008 since conditions in
financial markets are currently making it difficult for companies to raise money
for companies in order to go private.
MANAGEMENT DISCUSSION (CONTINUED)
We continue to invest the Fund strategically and at year-end had holdings
of 56 companies in the portfolio across various industries. We work to hold our
individual position sizes to around 5% of the portfolio and try to diversify the
Fund across industries. We believe this helps to control specific security risk
as well as industry risk. Our largest individual position size on December 31
was Ventana Medical at 4.79% of the portfolio. The European medical company,
Roche, has expressed an interest in acquiring Ventana.
We have added several new companies to the Fund during 2007 including
AspenBio Pharma, American Ecology, IHS and Pinnacle Entertainment. We continue
to look for what we believe to be the best businesses and management teams in
the Rocky Mountain region to invest in for our shareholders when we can obtain
them at a reasonable price. We are pleased with the quality of the businesses we
are finding in the Rocky Mountain region. We are seeing a number of companies
going public in the region and have added several of them to the Fund.
During 2007 the best performing stocks came from two states and five
industries. Dynamic Materials, headquartered in Boulder, Colorado, had a total
return of 110.5% in 2007, benefiting from the global capital spending boom.
Ventana Medical based in Tucson, Arizona was up 102.7%, reflecting a takeover
offer from Roche. So far, management has indicated that they believe than can
achieve more value for shareholders as an independent company and have resisted
a takeover.
The Discovery Channel, headquartered in Englewood, Colorado was up 56.3%,
reflecting a management change and a new emphasis on "green" programming. Bill
Barrett Corp. was the fourth best performer with a total return of 53.9%,
reflecting a successful year of oil drilling in the Rockies. Janus was the fifth
best performing company with a total return of 52.4%, reflecting a return to
growth investing in the stock market.
The worst performing stocks in 2007 came from two states and three
industries. Coldwater Creek, headquartered in Sandpoint, Idaho, was down 72.7%
in 2007 after rising energy and mortgage costs impacted the consumer.
Shufflemaster was down 54.2% due to management problems. Boise based Micron was
down 48.1% due to overcapacity in the memory market. Although we had taken
profits or reduced our position sizes in these companies throughout the year, at
year-end we still had small position sizes (below 1%) because we believe they
each have significant intermediate to long term potential.
Companies in the Rocky Mountain region continue to work to achieve full
recognition for their value. Over the past year or two, Echostar's CEO, Charlie
Ergan had expressed dissatisfaction that investors were not recognizing the
value of the company's satellite holdings. On January 1 he spun them off to
shareholders as a new company. John Malone who put the Liberty Media complex
together is working to divide Liberty Capital into a new Liberty Capital and
Liberty Entertainment tracking stocks. Liberty Entertainment will include Starz
and DirecTV.
While the U.S. economy appears to be slowing and we will most likely
experience several quarters of slow to no growth, we do not currently expect a
recession. We do expect growth stocks or those stocks with predictable earnings
growth to continue to lead the market. As the economy levels out we would expect
investors to develop more confidence and for the growth leadership to expand to
emerging or microcap stocks.
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, 2007 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:]
Fund Class A Shares Fund Class A Shares Russell 2000
no sales charge with sales charge Stock Index
12/97 10,000 9,577 10,000
12/98 9,469 9,069 9,776
12/99 11,416 10,933 11,863
12/00 11,353 10,873 11,517
12/01 12,231 11,713 11,816
12/02 10,352 9,914 9,399
12/03 14,541 13,926 13,843
12/04 16,298 15,609 16,396
12/05 17,185 16,458 17,156
12/06 19,169 18,358 20,320
12/07 18,911 18,112 20,003
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2007
----------------------------------------------
SINCE
CLASS AND INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ----------------------------------------- ------ ------- -------- ---------
Class A (commenced operations on 7/22/94)
With Sales Charge ..................... (5.53)% 11.83% 6.12% 8.63%
Without Sales Charge .................. (1.34)% 12.81% 6.58% 9.02%
Class C (commenced operations on 5/01/96)
With CDSC ............................. (3.06)% 11.97% 5.78% 7.36%
Without CDSC .......................... (2.08)% 11.97% 5.78% 7.36%
Class Y (commenced operations on 5/01/96)
No Sales Charge ....................... (1.07)% 13.11% 6.84% 8.35%
Class I (commenced operations on 12/01/05)
No Sales Charge ....................... (0.87)% N/A N/A 3.65%
Russell 2000 Stock Index ................ (1.55)% 16.30% 7.17% 10.34% (Class A)
7.49% (Class C&Y)
6.45% (Class I)
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, 2007 and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for each of the years in the two 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 highlights.
We conducted our audits 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.
The Fund is not required to have, nor were we engaged to perform, an audit of
the Fund's internal control over financial reporting. Our audits 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, 2007, by correspondence with
the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Aquila Rocky Mountain Equity Fund as of December 31, 2007, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the three years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 28, 2008
- --------------------------------------------------------------------------------
AQUILA ROCKY MOUNTAIN EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2007
MARKET
SHARES COMMON STOCKS (93.4%) VALUE
- -------------- -------------------------------------------------------------------- ------------
BASIC INDUSTRY (12.1%)
30,000 Allied Waste Industries, Inc.+ ..................................... $ 330,600
7,000 American Ecology Corp. ............................................. 164,360
16,000 Ball Corp. ......................................................... 720,000
3,000 Freeport-McMoRan Copper & Gold, Inc. ............................... 307,320
38,000 Knight Transportation, Inc. ........................................ 562,780
11,000 Newmont Mining Corp. ............................................... 537,130
17,000 SkyWest, Inc. ...................................................... 456,450
------------
3,078,640
------------
BUSINESS SERVICES (2.7%)
5,000 IHS, Inc. (Class A)+ ............................................... 302,800
14,000 Insight Enterprises, Inc.+ ......................................... 255,360
4,000 Viad Corp. ......................................................... 126,320
------------
684,480
------------
CAPITAL SPENDING (4.3%)
5,000 Dynamic Materials Corp. ............................................ 294,500
16,000 Mobile Mini, Inc.+ ................................................. 296,640
24,000 Radyne Corp.+ ...................................................... 220,800
32,000 Semitool, Inc.+ .................................................... 277,760
------------
1,089,700
------------
CONSUMER CYCLICALS (0.7%)
5,000 M.D.C. Holdings, Inc. .............................................. 185,650
------------
CONSUMER SERVICES (18.4%)
36,000 Coldwater Creek, Inc.+ ............................................. 240,840
5,000 Comcast Corp. (Special Class A)+ ................................... 90,600
18,000 EchoStar Communications Corp. (Class A)+ ........................... 678,960
16,000 International Game Technology ...................................... 702,880
8,000 Las Vegas Sands Corp.+ ............................................. 824,400
3,000 Liberty Global, Inc. Series A+ ..................................... 117,570
2,000 Liberty Media Capital Series A+ .................................... 232,980
7,000 Liberty Media Interactive Series A+ ................................ 133,560
11,000 MGM Mirage+ ........................................................ 924,220
14,000 PetSmart, Inc. ..................................................... 329,420
10,000 Pinnacle Entertainment, Inc.+ ...................................... 235,600
16,000 Shuffle Master, Inc.+ .............................................. 191,840
------------
4,702,870
------------
MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- -------------- -------------------------------------------------------------------- ------------
CONSUMER STAPLES (2.3%)
18,000 Discovery Holding Co. Class A+ ..................................... $ 452,520
8,400 Rocky Mountain Chocolate Factory, Inc. ............................. 133,392
------------
585,912
------------
ENERGY (6.8%)
12,000 Bill Barrett Corp.+ ................................................ 502,440
14,000 Cimarex Energy Co. ................................................. 595,420
12,000 Questar Corp. ...................................................... 649,200
------------
1,747,060
------------
FINANCIAL (10.9%)
24,000 First State Bancorporation ......................................... 333,600
25,500 Glacier Bancorp, Inc. .............................................. 477,870
28,000 Janus Capital Group, Inc. .......................................... 919,800
9,000 Wells Fargo & Company .............................................. 271,710
20,000 Western Union Co. .................................................. 485,600
6,000 Zions Bancorporation ............................................... 280,140
------------
2,768,720
------------
HEALTH CARE (23.6%)
22,000 Array BioPharma, Inc.+ ............................................. 185,240
15,000 AspenBio Pharma, Inc.+ ............................................. 130,800
24,000 Medicis Pharmaceutical Corp. (Class A) ............................. 623,280
64,000 Merit Medical Systems, Inc.+ ....................................... 889,600
20,000 Myriad Genetics, Inc.+ ............................................. 928,400
31,000 NightHawk Radiology Holdings, Inc.+ ................................ 652,550
18,000 Providence Service Corp.+ .......................................... 506,520
20,000 Sonic Innovations, Inc.+ ........................................... 154,400
30,000 Spectranetics Corp.+ ............................................... 459,900
7,000 USANA Health Services, Inc.+ ....................................... 259,560
14,000 Ventana Medical Systems, Inc.+ ..................................... 1,221,220
------------
6,011,470
------------
TECHNOLOGY (11.1%)
24,000 Avnet, Inc.+ 839,280
46,000 CIBER, Inc.+ 281,060
MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- -------------- -------------------------------------------------------------------- ------------
TECHNOLOGY (CONTINUED)
14,000 JDA Software Group, Inc.+ .......................................... $ 286,440
32,000 Microchip Technology, Inc. ......................................... 1,005,440
30,000 Micron Technology, Inc.+ ........................................... 217,500
12,000 RightNow Technologies, Inc.+ ....................................... 190,200
------------
2,819,920
------------
UTILITIES (0.5%)
4,000 UniSource Energy Corp. ............................................. 126,200
------------
Total Common Stocks (cost $16,123,680) ............................. 23,800,622
------------
INVESTMENT COMPANIES (6.1%)
-------------------------------------------------------------------- -------
700,000 Goldman Sachs Institutional Liquid Assets Treasury Instruments
Portfolio Institutional Class ................................... 700,000
850,000 JPMorgan 100% U.S. Treasury Securities Money Market Fund
Premier Share Class ............................................. 850,000
------------
Total Investment companies (cost $1,550,000) ....................... 1,550,000
------------
Total Investments (cost $17,673,680*) 99.5% 25,350,622
Other assets less liabilities 0.5 122,484
------ ------------
Net Assets 100.0% $ 25,473,106
====== ============
PERCENT OF
PORTFOLIO DISTRIBUTION (UNAUDITED) PORTFOLIO
---------------------------------- ---------
ROCKY MOUNTAIN REGION
Arizona 27.8%
Colorado 29.0
Idaho 5.0
Montana 3.7
Nevada 11.4
New Mexico 1.3
Utah 14.3
-----
92.5
-----
Other Investments 7.5
-----
100.0%
=====
* Cost for Federal income tax and financial reporting 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, 2007
ASSETS
Investments at market value (cost $17,673,680) ................................... $25,350,622
Receivable for investment securities sold ........................................ 167,538
Receivable for Fund shares sold .................................................. 17,992
Dividends receivable ............................................................. 8,889
Prepaid expenses ................................................................. 8,420
-----------
Total assets ................................................................. 25,553,461
-----------
LIABILITIES
Cash overdraft ..................................................................... 1,156
Payable for investment securities purchased ........................................ 28,125
Payable for Fund shares redeemed ................................................... 13,403
Distribution and service fees payable .............................................. 7,147
Accrued expenses ................................................................... 30,524
-----------
Total liabilities ............................................................... 80,355
-----------
NET ASSETS ............................................................................ $25,473,106
===========
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share $ 8,453
Additional paid-in capital ......................................................... 17,538,498
Net unrealized appreciation on investments (note 4) ................................ 7,676,942
Accumulated net realized gain on investments ....................................... 249,213
-----------
$25,473,106
===========
CLASS A
Net Assets ......................................................................... $20,950,202
===========
Capital shares outstanding ......................................................... 689,403
===========
Net asset value and redemption price per share ..................................... $ 30.39
===========
Offering price per share (100/95.75 of $30.39 adjusted to nearest cent) ............ $ 31.74
===========
CLASS C
Net Assets ......................................................................... $ 2,845,141
===========
Capital shares outstanding ......................................................... 102,197
===========
Net asset value and offering price per share ....................................... $ 27.84
===========
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) ...................................... $ 27.84*
===========
CLASS I
Net Assets ......................................................................... $ 10,855
===========
Capital shares outstanding ......................................................... 355
===========
Net asset value, offering and redemption price per share ........................... $ 30.58
===========
CLASS Y
Net Assets ......................................................................... $ 1,666,908
===========
Capital shares outstanding ......................................................... 53,343
===========
Net asset value, offering and redemption price per share ........................... $ 31.25
===========
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2007
INVESTMENT INCOME:
Dividends $ 260,061
Expenses:
Management fee (note 3) $ 389,891
Distribution and service fees (note 3) 93,252
Trustees' fees and expenses 78,955
Transfer and shareholder servicing agent fees (note 3) 75,373
Registration fees and dues 46,417
Legal fees (note 3) 31,071
Shareholders' reports 19,689
Auditing and tax fees 13,000
Chief compliance officer (note 3) 4,544
Custodian fees 3,895
Insurance 1,536
Miscellaneous 59,218
------------
Total expenses 816,841
Management fee waived (note 3) (352,549)
Expenses paid indirectly (note 5) (11,801)
------------
Net expenses 452,491
-----------
Net investment loss (192,430)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions 1,592,136
Change in unrealized appreciation on investments (1,682,733)
------------
Net realized and unrealized gain (loss) on investments (90,597)
-----------
Net change in net assets resulting from operations $ (283,027)
===========
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
OPERATIONS:
Net investment loss ................................... $ (192,430) $ (107,116)
Net realized gain (loss) from securities transactions . 1,592,136 507,092
Change in unrealized appreciation on investments ...... (1,682,733) 2,302,022
------------ ------------
Change in net assets from operations ............... (283,027) 2,701,998
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (note 8):
Class A Shares:
Net realized gain on investments ...................... (1,116,865) (267,498)
Class C Shares:
Net realized gain on investments ...................... (164,465) (42,980)
Class I Shares:
Net realized gain on investments ...................... (569) (326)
Class Y Shares:
Net realized gain on investments ...................... (85,526) (18,167)
------------ ------------
Change in net assets from distributions ............ (1,367,425) (328,971)
------------ ------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold ............................. 3,603,028 7,902,368
Short-term trading redemption fee ..................... 1,003 849
Reinvested distributions .............................. 901,815 217,492
Cost of shares redeemed ............................... (5,597,062) (4,024,372)
------------ ------------
Change in net assets from capital share transactions (1,091,216) 4,096,337
------------ ------------
Change in net assets ............................... (2,741,668) 6,469,364
NET ASSETS:
Beginning of period ................................... 28,214,774 21,745,410
------------ ------------
End of period ......................................... $ 25,473,106 $ 28,214,774
============ ============
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007
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 commenced
operations on December 1, 2005. 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.
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. Securities listed only on
NASDAQ are valued in accordance with the NASDAQ Official Closing 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.
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48") was adopted on June 29, 2007. Management has reviewed the tax
positions for each of the open tax years (2004-2007) and has determined
that the implementation of FIN 48 did not have a material impact on the
Fund's financial statements.
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 were due to a net
investment loss and use of equalization for tax and have no effect on net
assets or net asset value per share. On December 31, 2007 the Fund
decreased undistributed net investment loss by $192,430, decreased
accumulated net realized gain on investments by $156,406 and decreased
additional paid-in capital by $36,024.
g) ACCOUNTING PRONOUNCEMENT: In September 2006, FASB issued FASB Statement
No. 157, "Fair Value Measurement" ("SFAS 157"), which defines fair value,
establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Fund believes adoption of SFAS 157 will have no material impact
on the Fund's financial statements.
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, 2007, the Fund incurred management fees of
$389,891, of which $352,549 was waived. The Manager contractually undertook to
waive fees and/or reimburse Fund expenses during the period January 1, 2007
through December 31, 2007 so that total Fund expenses would not exceed 1.50% for
Class A Shares, 2.25% for Class C Shares, 1.52% for Class I Shares or 1.25% for
Class Y Shares. Comparable expense limitations are in place for fiscal 2008.
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, 2007, distribution fees on Class A
Shares amounted to $58,853 of which the Distributor retained $6,692.
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, 2007, amounted to $25,758. 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, 2007, amounted to
$8,586. The total of these payments with respect to Class C Shares amounted to
$34,344 of which the Distributor retained $8,020.
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
0.20%) 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 0.15%) 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 year ended December 31, 2007,
these payments were made at the average annual rate of 0.35% of such net assets
and amounted to $97 of which $55 related to the Plan and $42 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. The Fund's shares are sold primarily through
agreements between the Distributor and various brokerage and advisory firms,
with the bulk of sales commissions inuring to such brokerage and advisory firms.
For the year ended December 31, 2007, total commissions on sales of Class A
Shares amounted to $52,487 of which the Distributor received $5,265.
c) OTHER RELATED PARTY TRANSACTIONS:
For the year ended December 31, 2007, the Fund incurred $15,908 of legal
fees allocable to Hollyer Brady Barrett & Hines LLP ("Hollyer Brady") and
$20,627 to its successor, Butzel Long PC, counsel to the Fund, for legal
services in conjunction with the Fund's ongoing operations. The Secretary of the
Fund was a partner at Hollyer Brady and is a shareholder of its successor.
4. PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 2007, purchases of securities and
proceeds from the sales of securities (excluding short-term investments)
aggregated $4,388,788 and $5,287,946, respectively.
At December 31, 2007, the aggregate tax cost for all securities was
$17,673,680. At December 31, 2007, the aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax cost
amounted to $8,269,445 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
$592,503 for a net unrealized appreciation of $7,676,942.
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.
6. PORTFOLIO ORIENTATION
The Fund's investments are primarily invested in the securities of
companies within the eight state Rocky Mountain region consisting of Arizona,
Colorado, 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, 2007 DECEMBER 31, 2006
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
CLASS A SHARES:
Proceeds from shares sold 72,259 $ 2,409,367 184,088 $ 5,717,458
Reinvested distributions 24,498 765,555 5,662 183,463
Cost of shares redeemed . (119,460) (4,007,015)(a) (78,130) (2,412,241)(a)
----------- ----------- ----------- -----------
Net change ........... (22,703) (832,093) 111,620 3,488,680
----------- ----------- ----------- -----------
CLASS C SHARES:
Proceeds from shares sold 20,256 622,641 44,766 1,305,452
Reinvested distributions 2,651 75,912 705 21,199
Cost of shares redeemed . (35,248) (1,101,248) (25,603) (739,232)
----------- ----------- ----------- -----------
Net change ........... (12,341) (402,695) 19,868 587,419
----------- ----------- ----------- -----------
CLASS I SHARES:
Proceeds from shares sold 13 450 32 1,000
Reinvested distributions 18 569 10 326
Cost of shares redeemed . (547) (17,466)(b) -- --(b)
----------- ----------- ----------- -----------
Net change ........... (516) (16,447) 42 1,326
----------- ----------- ----------- -----------
CLASS Y SHARES:
Proceeds from shares sold 16,522 570,570 27,839 878,458
Reinvested distributions 1,861 59,779 377 12,504
Cost of shares redeemed . (13,655) (470,330)(c) (27,134) (872,899)(c)
----------- ----------- ----------- -----------
Net change ........... 4,728 160,019 1,082 18,063
----------- ----------- ----------- -----------
Total transactions in Fund
shares .................. (30,832) $(1,091,216) 132,612 $ 4,095,488
=========== =========== =========== ===========
(a) Net of short-term trading redemption fees of $263 and $308, respectively.
(b) Net of short-term trading redemption fees of $4 and $0, respectively.
(c) Net of short-term trading redemption fees of $736 and $541, respectively.
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 I and Class Y Shares, if the
redemption occurs within 90 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, 2007, 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 from
paid-in capital.
The tax character of distributions:
Year Ended December 31,
2007 2006
----------- ----------
Long-term capital gain ........... $ 1,367,425 $ 328,971
As of December 31, 2007, the components of distributable earnings on a tax
basis were as follows:
Accumulated net realized gain .... $ 249,213
Unrealized appreciation .......... 7,676,942
-----------
$ 7,926,155
===========
AQUILA ROCKY MOUNTAIN EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class A
-----------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------
2007 2006 2005 2004 2003
-------- -------- -------- -------- --------
Net asset value, beginning of period ..... $ 32.47 $ 29.45 $ 27.93 $ 24.92 $ 17.74
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) ........... (0.20)++ (0.11)+ (0.11)+ (0.17)+ (0.16)+
Net gain (loss) on securities (both
realized and unrealized) ............. (0.19) 3.51 1.63 3.18 7.34
-------- -------- -------- -------- --------
Total from investment operations ....... (0.39) 3.40 1.52 3.01 7.18
-------- -------- -------- -------- --------
Less distributions (note 8):
Distributions from capital gains ....... (1.69) (0.38) -- -- --
-------- -------- -------- -------- --------
Net asset value, end of period ........... $ 30.39 $ 32.47 $ 29.45 $ 27.93 $ 24.92
======== ======== ======== ======== ========
Total return (not reflecting sales charge) (1.34)% 11.54% 5.44% 12.08% 40.47%
Ratios/supplemental data
Net assets, end of period
(in thousands) ....................... $ 20,950 $ 23,121 $ 17,684 $ 13,718 $ 10,345
Ratio of expenses to average net assets 1.54% 1.72% 1.59% 1.54% 1.50%
Ratio of net investment loss to average
net assets ........................... (0.64)% (0.57)% (0.48)% (0.72)% (0.77)%
Portfolio turnover rate ................ 16.81% 13.31% 9.78% 8.38% 3.01%
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 2.73% 2.70% 3.23% 2.82% 3.25%
Ratio of net investment loss to average
net assets ........................... (1.82)% (1.55)% (2.11)% (1.99)% (2.51)%
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% 1.50% 1.50% 1.48%
Class C
-----------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------
2007 2006 2005 2004 2003
-------- -------- -------- -------- --------
Net asset value, beginning of period ..... $ 30.11 $ 27.54 $ 26.31 $ 23.66 $ 16.96
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) ........... (0.42)++ (0.32)+ (0.30)+ (0.35)+ (0.30)+
Net gain (loss) on securities (both
realized and unrealized) ............. (0.16) 3.27 1.53 3.00 7.00
-------- -------- -------- -------- --------
Total from investment operations ....... (0.58) 2.95 1.23 2.65 6.70
-------- -------- -------- -------- --------
Less distributions (note 8):
Distributions from capital gains ....... (1.69) (0.38) -- -- --
-------- -------- -------- -------- --------
Net asset value, end of period ........... $ 27.84 $ 30.11 $ 27.54 $ 26.31 $ 23.66
======== ======== ======== ======== ========
Total return (not reflecting sales charge) (2.08)% 10.71% 4.68% 11.20% 39.50%
Ratios/supplemental data
Net assets, end of period
(in thousands) ....................... $ 2,845 $ 3,449 $ 2,607 $ 2,235 $ 1,835
Ratio of expenses to average net assets 2.29% 2.47% 2.34% 2.29% 2.26%
Ratio of net investment loss to average
net assets ........................... (1.38)% (1.32)% (1.24)% (1.47)% (1.53)%
Portfolio turnover rate ................ 16.81% 13.31% 9.78% 8.38% 3.01%
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 3.47% 3.45% 3.98% 3.56% 4.02%
Ratio of net investment loss to average
net assets ........................... (2.56)% (2.30)% (2.87)% (2.74)% (3.29)%
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 2.25% 2.25% 2.25% 2.25% 2.24%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily average shares
method.
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class I Class Y
-------------------------------- -------------------------------------------------
Year Ended
December 31, Period Year Ended December 31,
------------------ Ended -------------------------------------------------
2007 2006 12/31/05(1) 2007 2006 2005 2004 2003
------ ------ ----------- ------ ------ ------ ------ ------
Net asset value, beginning of period ..... $32.51 $29.46 $30.26 $33.25 $30.08 $28.45 $25.32 $17.97
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) ........... (0.14)++ (0.08)+ (0.02)+ (0.12)++ (0.03)+ (0.05)+ (0.11)+ (0.10)+
Net gain (loss) on securities
(both realized and unrealized) ....... (0.10) 3.51 (0.78) (0.19) 3.58 1.68 3.24 7.45
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations ....... (0.24) 3.43 (0.80) (0.31) 3.55 1.63 3.13 7.35
------ ------ ------ ------ ------ ------ ------ ------
Less distributions (note 8):
Distributions from capital gains ....... (1.69) (0.38) -- (1.69) (0.38) -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period ........... $30.58 $32.51 $29.46 $31.25 $33.25 $30.08 $28.45 $25.32
====== ====== ====== ====== ====== ====== ====== ======
Total return (not reflecting sales charge) (0.87)% 11.64% (2.64)%* (1.07)% 11.80% 5.73% 12.36% 40.90%
Ratios/supplemental data
Net assets, end of period
(in thousands) ....................... $ 11 $ 28 $ 24 $1,667 $1,616 $1,430 $1,661 $1,400
Ratio of expenses to average net assets 1.38% 1.64% 1.43%** 1.29% 1.47% 1.34% 1.29% 1.25%
Ratio of net investment income (loss)
to average net assets ................ (0.46)% (0.48)% (0.64)%** (0.39)% (0.31)% (0.26)% (0.47)% (0.51)%
Portfolio turnover rate ................ 16.81% 13.31% 9.78%* 16.81% 13.31% 9.78% 8.38% 3.01%
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 2.55% 2.69% 2.67%** 2.48% 2.45% 2.99% 2.56% 3.05%
Ratio of net investment loss to
average net assets ................... (1.63)% (1.53)% (1.89)%** (1.59)% (1.30)% (1.91)% (1.75)% (2.32)%
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 1.34% 1.42% 1.42%** 1.25% 1.25% 1.25% 1.25% 1.23%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily average shares
method.
* Not Annualized
** Annualized
(1) Commenced operations on December 1, 2005.
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 table below is 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 table below is based on an investment of $1,000 invested on July 1,
2007 and held for the six months ended December 31, 2007.
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".
SIX MONTHS ENDED DECEMBER 31, 2007
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A (6.66)% $1,000.00 $933.40 $ 7.31
Class C (6.99)% $1,000.00 $930.10 $ 10.95
Class I (6.23)% $1,000.00 $937.70 $ 6.06
Class Y (6.50)% $1,000.00 $935.00 $ 6.10
(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 1.50%, 2.25%, 1.24%
AND 1.25% 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.
SIX MONTHS ENDED DECEMBER 31, 2007
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,017.64 $ 7.63
Class C 5.00% $1,000.00 $1,013.86 $ 11.42
Class I 5.00% $1,000.00 $1,018.95 $ 6.31
Class Y 5.00% $1,000.00 $1,018.90 $ 6.36
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 1.50%, 2.25%, 1.24%
AND 1.25% 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).
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INFORMATION AVAILABLE (UNAUDITED)
Much of the information that the funds in the Aquila Group of Funds(R)
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 1-800-SEC-0330.
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PROXY VOTING RECORD (UNAUDITED)
Proxy Voting Guidelines 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/armef/armefproxy.htm
or on the SEC's Web site - http://www.sec.gov
- --------------------------------------------------------------------------------
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FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
For the calendar year ended December 31, 2007, 100% of the amount
distributed by Aquila Rocky Mountain Equity Fund qualified as net long-term
capital gains.
Prior to January 31, 2008, shareholders were mailed IRS Form 1099-DIV
which contains information on the status of distributions paid for the 2007
calendar year.
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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 TRUSTEE(4)
Diana P. Herrmann Trustee since Vice Chair and Chief Executive Officer of 12 ICI Mutual Insurance
New York, NY 1997 and Aquila Management Corporation, Founder of the Company
(02/25/58) President Aquila Group of Funds(R)(5) and parent of
since 2002 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; Chair, Vice
Chair, President, Executive Vice President or
Senior Vice President of funds in the Aquila
Group of Funds(R) 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 (a trade
organization for the U.S. fund industry
dedicated to protecting shareholder interests
and educating the public about investing) 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 economic 3 Director, Colorado Health
Colorado Springs, CO Board of consulting firm, since 1989; formerly Chief Facilities Authority
(01/11/38) Trustees since Economist, United Banks of Colorado; currently
2005 and or formerly active with numerous professional
Trustee since and community organizations.
1993
Gary C. Cornia Trustee since Director, Romney Institute of Public 4 Lincoln Institute of Land
Orem, UT 2002 Management, Marriott School of Management, Policy, Cambridge, MA
(06/24/48) 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 - present; Associate Dean,
Marriott School of Management, Brigham Young
University, 1991-2000; Utah Governor's Tax
Review Committee since 1993.
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
Grady Gammage, Jr. Trustee since Founding partner, Gammage & Burnham, PLC, a 2 None
Phoenix, AZ 2004 law firm, Phoenix, Arizona, since 1983;
(10/01/51) director, Central Arizona Water Conservation
District, 1992-2004; director, Arizona State
University Foundation since 1998; Manicopa
Partnership for Arts & Culture; Public
Architecture; Arizona Historical Foundation.
Glenn P. O'Flaherty Trustee since Co-Founder, Chief Financial Officer and Chief 2 None
Denver, CO 2007 Compliance Officer of Three Peaks Capital
(08/03/58) Management, LLP, 2003-2005; Vice President -
Investment Accounting, Global Trading and
Trade Operations, Janus Capital Corporation,
and Chief Financial Officer and Treasurer,
Janus Funds, 1991-2002.
OTHER INDIVIDUALS
CHAIRMAN EMERITUS(6)
Lacy B. Herrmann Founder and Founder and Chairman of the Board, Aquila N/A N/A
New York, NY Chairman Management Corporation, the sponsoring
(05/12/29) Emeritus since organization and parent of the Manager or
2006, Chairman Administrator and/or Adviser or Sub-Adviser to
of the Board each fund of the Aquila Group of Funds(R);
of Trustees, Chairman of the Manager or Administrator
1993-2005 and/or Adviser or Sub-Adviser to each since
2004; Founder and Chairman Emeritus of each
fund in the Aquila Group of Funds(R);
previously Chairman and a Trustee of each fund
in the Aquila Group of Funds(R) 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.
OFFICERS
Charles E. Childs, III Executive Vice Executive Vice President of all funds in the N/A N/A
New York, NY President Aquila Group of Funds(R) and the Manager and
(04/01/57) since 2003 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.
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
Marie E. Aro Senior Vice Senior Vice President, Aquila Rocky Mountain N/A N/A
Denver, CO President Equity Fund, and Vice President, Tax-Free
(02/10/55) since 2004 Trust of Arizona, since 2004; Senior Vice
President, Aquila Three Peaks High Income
Fund, since 2006; 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 Vice
(06/18/44) since 1996 President, 1997-1998 and Vice President,
1993-1997; Senior Vice President, Aquila Three
Peaks High Income Fund, Aquila Rocky Mountain
Equity Fund and five Aquila Municipal Bond
Funds; Vice President, Churchill Cash Reserves
Trust, 1995-2001.
James M. McCullough Senior Vice Senior Vice President or Vice President of N/A N/A
Portland, OR President Aquila Rocky Mountain Equity Fund and Tax-Free
(06/11/45) since 1999 Trust of Oregon; 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 Manager of N/A N/A
Phoenix, AZ President Aquila Rocky Mountain Equity Fund since 1999;
(09/24/52) 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 1986-2007; 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.
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
Kimball L. Young Senior Vice Co-portfolio manager, Tax-Free Fund For Utah N/A N/A
Salt Lake City, UT President since 2001; Co-founder, Lewis Young Robertson
(08/07/46) since 1999 & Burningham, Inc., a NASD licensed
broker/dealer providing public finance
services to Utah local governments, 1995-2001;
Senior Vice President of two Aquila Bond Funds
and Aquila Rocky Mountain Equity Fund;
formerly Senior Vice President-Public Finance,
Kemper Securities Inc., Salt Lake City, Utah.
R. Lynn Yturri Senior Vice Senior Vice President Investments, Aquila N/A N/A
Scottsdale, AZ President Investment Management LLC since 2005, Senior
(08/29/42) since 2006 Vice President, Aquila Rocky Mountain Equity
Fund since 2006; Senior Vice President and
equity fund manager, JP Morgan Chase, formerly
One Group, Bank One's mutual fund family,
1992-2004.
Stephen J. Caridi Vice President Vice President of the Distributor since 1995; N/A N/A
New York, NY since 2006 Vice President, Hawaiian Tax-Free Trust since
(05/06/61) 1998; Senior Vice President, Narragansett
Insured Tax-Free Income Fund since 1998, Vice
President 1996-1997; Senior Vice President,
Tax-Free Fund of Colorado since 2004; Vice
President, Aquila Rocky Mountain Equity Fund
since 2006.
Sherri Foster Vice President Senior Vice President, Hawaiian Tax-Free Trust N/A N/A
Lahaina, HI since 2006 since 1993 and formerly Vice President or
(07/27/50) Assistant Vice President; Vice President since
1997 and formerly Assistant Vice President of
the three Aquila Money-Market Funds; Vice
President, Aquila Rocky Mountain Equity Fund
since 2006; Registered Representative of the
Distributor since 1985.
Jason T. McGrew Vice President Vice President, Churchill Tax-Free Fund of N/A N/A
Elizabethtown, KY since 2006 Kentucky since 2001, Assistant Vice President,
(08/14/71) 2000-2001; Vice President, Aquila Rocky
Mountain Equity Fund since 2006; Investment
Broker with Raymond James Financial Services
1999-2000 and with J.C. Bradford and Company
1997-1999; Associate Broker at Prudential
Securities 1996-1997.
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
Christine L. Neimeth Vice President Vice President of Aquila Rocky Mountain Equity N/A N/A
Portland, OR since 1999 Fund and Tax-Free Trust of Oregon; Management
(02/10/64) Information Systems consultant, Hillcrest Ski
and Sport, 1997; Institutional Municipal Bond
Salesperson, Pacific Crest Securities, 1996;
active in college alumni and volunteer
organizations.
Alan R. Stockman Vice President Senior Vice President, Tax-Free Trust of N/A N/A
Glendale, AZ since 1999 Arizona since 2001, Vice President, 1999-2001;
(07/31/54) 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 since N/A N/A
Salt Lake City, UT since 2004 September 2003, Assistant Vice President,
(06/11/63) 2002-2003; Vice President, Aquila Rocky
Mountain Equity Fund, since 2004.
Robert W. Anderson Chief Chief Compliance Officer of the Fund and each N/A N/A
New York, NY Compliance of the other funds in the Aquila Group of
(08/23/40) Officer since Funds(R), the Manager and the Distributor
2004 and since 2004, Compliance Officer of the Manager
Assistant or its predecessor and current parent
Secretary 1998-2004; Assistant Secretary of the Aquila
since 2000 Group of Funds(R) since 2000.
Joseph P. DiMaggio Chief Chief Financial Officer of the Aquila Group of N/A N/A
New York, NY Financial Funds(R) since 2003 and Treasurer since 2000.
(11/06/56) Officer since
2003 and
Treasurer
since 2000
Edward M. W. Hines Secretary Shareholder of Butzel Long, a professional N/A N/A
New York, NY since 1993 corporation, counsel to the Fund, since 2007;
(12/16/39) Partner of Hollyer Brady Barrett & Hines LLP,
its predecessor as counsel, 1989-2007;
Secretary of the Aquila Group of Funds(R).
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
John M. Herndon Assistant Assistant Secretary of the Aquila Group of N/A N/A
New York, NY Secretary Funds(R) since 1995 and Vice President of the
(12/17/39) since 1995 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 Group of N/A N/A
New York, NY Treasurer Funds(R) since 2000; Assistant Vice President
(11/02/66) since 2000 of the Manager or its predecessor and current
parent since 1998; Fund Accountant for the
Aquila Group of Funds(R), 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) or by visiting the EDGAR Database at the SEC's
internet site at www.sec.gov.
(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. Ms. Herrmann is the daughter of Lacy B. Herrmann, the Founder and
Chairman Emeritus of the Fund.
(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 Municipal Bond
Funds"; Aquila Rocky Mountain Equity Fund is an equity fund; Aquila Three Peaks
High Income Fund is a high income corporate bond fund; considered together,
these 12 funds are called the "Aquila Group of Funds(R)."
(6) The Chairman Emeritus may attend Board meetings but has no voting power.
- --------------------------------------------------------------------------------
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 non-public
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 the Fund.
INFORMATION WE COLLECT. "Non-public personal information" is personally
identifiable financial information about you as an individual or your family.
The kinds of non-public 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 non-public personal information about you
to companies that provide necessary services to us, such as the Fund's transfer
agent, distributor, or manager, 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.
NON-CALIFORNIA RESIDENTS: We also may disclose some of this information to
another fund in the Aquila Group of Funds(R) (or its service providers) under
joint marketing agreements that permit the funds to use the information only to
provide you with information about other funds in the Aquila Group of Funds(R)
or new services we are offering that may be of interest to you.
CALIFORNIA RESIDENTS ONLY: In addition, unless you "opt-out" of the following
disclosures using the form that was mailed to you under separate cover, we may
disclose some of this information to another fund in the Aquila Group of
Funds(R) (or its sevice providers) under joint marketing agreements that permit
the funds to use the information only to provide you with information about
other funds in the Aquila Group of Funds(R) or new services we are offering that
may be of interest to you.
HOW WE SAFEGUARD YOUR INFORMATION. We restrict access to non-public 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 non-public
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 non-public 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.
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(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
Glenn P. O'Flaherty
OFFICERS
Diana P. Herrmann, President
Barbara S. Walchli, Senior Vice President and Portfolio Manager
Marie E. Aro, Senior Vice President
Kimball L. Young, Senior Vice President
R. Lynn Yturri, Senior 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
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
101 Sabin Street
Pawtucket, RI 02860
CUSTODIAN
JPMORGAN CHASE BANK, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
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, 2007 (the end of the reporting period) the
Trust has adopted a code of ethics that applies to the Trust'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 Trust'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 Trust's Code of Ethics that applies to the
Trust'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 Trust's
Internet address at aquilafunds.com.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a) (1) (i) The Registrant's board of trustees has determined that
Mr. Glenn O'Flaherty, a member of its audit committee, is an audit
committee financial expert. Mr. O'Flaherty is 'independent' as such
term is defined in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
a) Audit Fees - The aggregate fees billed for professional services
rendered by the principal accountant for the audit of the Registrant's
annual financial statements were $10,000 in 2006 and $10,000 in 2007.
b) Audit Related Fees - There were no amounts billed for audit-related
fees over the past two years.
c) Tax Fees - The Registrant was billed by the principal accountant
$3,000 and $3,000 in 2006 and 2007, respectively, for return preparation
and tax compliance.
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. SCHEDULE OF INVESTMENTS.
Included in Item 1 above
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Directors of the Registrant has adopted a Nominating
Committee Charter which provides that the Nominating Committee (the 'Committee')
may consider and evaluate nominee candidates properly submitted by shareholders
if a vacancy among the Independent Trustees of the Registrant occurs and if,
based on the Board's then current size, composition and structure, the Committee
determines that the vacancy should be filled. The Committee will consider
candidates submitted by shareholders on the same basis as it considers and
evaluates candidates recommended by other sources. A copy of the qualifications
and procedures that must be met or followed by shareholders to properly submit
a nominee candidate to the Committee may be obtained by submitting a request
in writing to the Secretary of the Registrant.
ITEM 11. 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 12. 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 10, 2008
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Chief Financial Officer and Treasurer
March 10, 2008
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 10, 2008
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
March 10, 2008
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.