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: 6/30/08
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMI-ANNUAL
REPORT
JUNE 30, 2008
[LOGO OF AQUILA ROCKY MOUNTAIN EQUITY FUND:
A RECTANGLE WITH A DRAWING OF TWO MOUNTAINS AND 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 GROUP OF FUNDS(SM)
[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
"STAYING THE COURSE"
August, 2008
Dear Fellow Shareholder,
Bear markets are tough psychologically on a day-to-day basis. Higher
levels of volatility, the media's focus on negative developments and downward
earnings revisions can all be discouraging. Above all, negative returns over a
six to twelve-month period are not pleasant. However, focusing on longer-term
positives can help.
1) Ibbotson data shows that over long periods of time, small cap stocks
tend to outperform other major asset classes. An investment of $1.00
in 1925 in small cap stocks grew to $3,822 by 1995. This compares to
that same $1.00 growing to $34 for long-term government bonds and
$1,114 for large cap stocks.
2) If we are in a recession, small caps often outperform as the stock
market recovers. This occurred after recessions in 1982, 1990 and
2000.
3) Recovery years can be powerful after the recession is over. In 2003,
Rocky's Class A shares were up 40.5%.
4) After a slowdown, the stock market begins to look ahead six months
to a recovery.
It also sometimes helps to remember that great investors welcome periods
of adversity. At Berkshire Hathaway's annual meeting this year, Warren Buffett
noted "If a stock (I own) goes down 50%, I'd look forward to it." In a recent
story about the late John Templeton, the WALL STREET JOURNAL reported that he
bought over a hundred companies trading at less than $1 per share as World War
II was breaking out.
Clearly, the last twelve months have been frustrating. Hedge funds have
been forced to deleverage and many small stock holdings have been jettisoned.
Microcap stocks, which over time have provided us with our greatest opportunity,
were down 15.5% for the first half of 2008. Our tailwind became a headwind.
Quantitative investors took a long position in the VIX (the S&P 500 volatility
index) and then ran programs to increase volatility which takes its greatest
toll on smaller stocks. Still, we believe it is important to stay focused on the
intermediate to long-term opportunity. We continue to focus on those companies
with strong new product cycles, expanding margins or innovative business plans
and companies that tend to generate a lot of cash flow.
NOT A PART OF THE SEMI-ANNUAL REPORT
ENERGY STOCKS - POTENTIAL FOR GROWTH
Although energy prices appear to be undergoing a correction as the global
economy slows, we are pleased to note that the Rocky Mountain Region has been
increasing its production profile. With geopolitical risk rising around the
world, U.S. reserves of oil and natural gas are becoming more valuable. With the
price of a barrel of oil rising to a high of $146 and natural gas rising to the
price of $13.65 per million cubic feet in July, a month when energy prices
usually weaken, all of us have become more aware of the importance of securing
our energy future.
The Rocky Mountain Region is likely to play an important role in that
future. The region is home to a number of significant oil and gas reservoirs.
The San Juan Basin is a roughly circular area of sedimentary rock located in
northwestern New Mexico and southwestern Colorado and is one of the most
prolific gas producing areas in the country. Investors are also focusing on the
Piceance (pronounced pee-awnce) and Uinta Basins which straddle Colorado and
Utah.
The state of Wyoming has ten basins including the Powder River Basin, the
Wind River Basin, the Shirley Basin, the Overthrust Belt, the Hanna Basin,
Greater Green River Basin, the Denver-Cheyenne Basin and the Bighorn Basin. The
prolific Pinedale Anticline Field is located in Sublette County.
The Bakken play in Montana and North Dakota has been estimated to hold as
much as 413 billion barrels of oil, more than Saudi Arabia's biggest field. The
oil is about two miles under the surface and is locked in dolomite, a dense
rock. Oil companies are currently working on new technologies to unlock the oil.
The Rocky Mountain Region is also playing a role in development of
alternative energy. Siemens recently announced that they plan to open a wind
research and development facility in Boulder, Colorado. They noted that one of
the attractions of the area was the National Renewable Energy laboratory in
Golden, Colorado. ConocoPhillips also recently purchased a 432-acre property
outside of Boulder for employee training and research exploring renewable
energies and other technologies.
DRUG INDUSTRY
In biotech and med-tech, Merit Medical announced a 62% increase in
earnings for the second quarter. Myriad Genetics announced that their
Alzheimer's drug failed its clinical trial, but has contributed important
information in the fight against Alzheimer's Disease. Spectranetics reported a
31% increase in revenues for the second quarter from its laser products used
against blood vessel and heart disease.
TECHNOLOGY
In technology, we continue to be impressed by Microchip Technologies, a
well-managed electronics company, headquartered in Chandler, Arizona that has
increased its dividend every quarter for the past twenty quarters. Semitool,
headquartered in Kalispell, Montana, recently
NOT A PART OF THE SEMI-ANNUAL REPORT
announced that bookings were up 33% from a year ago. Semitool produces
proprietary production equipment for solar cells and semiconductors.
PORTFOLIO'S OUTLOOK
Looking at the entire portfolio of Aquila Rocky Mountain Equity Fund, the
average earnings two- to five-year growth rate of companies is in the 17-18%
range (versus 9-10% for the S&P 500) with some companies well above that level
and some companies below that level. Over the past few years we have seen price
earnings multiple compression and more recently a cyclical downturn in earnings
growth.
STAYING THE COURSE
At some point over the next several years we would expect a catch-up year
as price earnings multiples expand and investors anticipate an earnings
recovery. Microcap stocks should also begin to contribute again. In 2003 the
Russell Microcap Index was up 66.4%. While the percent of microcaps we own is
below 10%, they do contribute to the overall performance of the portfolio. We
would encourage investors to stay the course, despite near term challenges and
look forward to better market conditions ahead.
Sincerely,
/s/ Barbara S. Walchli /s/ Diana P. Herrmann
Barbara S. Walchli Diana P. Herrmann
Senior Vice President and Portfolio Manager President and Trustee
NOT A PART OF THE SEMI-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
SEMI-ANNUAL REPORT
MANAGEMENT DISCUSSION
Aquila Rocky Mountain Equity Fund's Class A shares had a total return of
- -12.83% without provision for sales charges but reflecting contractually waived
fund expenses, for the six months ended June 30, 2008. This compares to the
Russell 2000 with a total return of -9.37% and the S&P 500 with a total return
of -11.91%. The Russell Microcap Index had a total return of -15.43% for the six
month period.
We do not have a perfect benchmark or performance comparison for the Fund
since we invest in companies in a specific region. At June 30, 19% of the equity
investments in the Fund were in companies with a market capitalization over $10
billion (large cap companies), 45% of the equity investments in the Fund were in
companies with a market capitalization between $2 billion and $10 billion
(mid-cap) and 28% of the equity investments in the Fund were in companies with
market capitalizations between $300 million and $2 billion (small cap). In
addition, 8% of the equity investments in the Fund were in companies with market
capitalizations below $300 million (micro-cap).
While our performance was disappointing during the first half of the year,
we would note that worries about rising risk in the economy and financial sector
hurt small and micro-cap stocks. Market volatility hurts them since they have
fewer shares outstanding so they are impacted more when investors sell or when
quantitative investors are running programs to capture spreads. While this
negatively impacted our year-to-date 2008 performance, it also creates 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% (versus 9-10% for the S&P 500). Over time we should participate
in the growth of these companies.
During the first half of 2008, four companies in the Fund were involved in
takeovers. This suggests to us that smaller companies are selling at attractive
levels. The takeover of Ventana Medical based in Tucson by Roche was completed
in February. Radyne Corp (Phoenix), USANA Health Sciences (Salt Lake City) and
Allied Waste (Scottsdale) also have received takeover offers during the past six
months. Allied Waste received a takeover offer from Republic Industries.
If the takeover of Allied Waste goes through, Republic plans to move their
headquarters from Florida to Arizona. We also saw that occur last year when
Freeport-McMoran Copper & Gold acquired Phelps Dodge and moved their
headquarters from Louisiana to Arizona. Freeport McMoran is now the largest
company in the Rocky Mountain Region with a market capitalization around $37
billion. We believe this reflects the attractiveness of the Rocky Mountain
Region to corporate executives.
We continue to invest the Fund strategically and at mid-year had holdings
of 57 companies in the portfolio across a number of 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 June 30
was Microchip Technology at 5.15% of the portfolio. Microchip has recently
enhanced its business model by adding internal marketing expertise to strengthen
its distribution system.
During the first half of 2008 the best performing stocks came from
companies located in Colorado, Utah and Arizona. Echostar Communications (SATS),
the satellite equipment and services business spun off by DISH Network January
1, rose 65.8%. DISH's CEO Charlie Ergan, has been trying to get investor
recognition for the company's satellite resources and expertise and decided the
best way to do it was to spin it off as a separate business. Satellites are
playing an increasing role in global communications and broadcasting as well as
military intelligence and operations.
Cimarex Energy Co., headquartered in Denver and spun off by Helmerich &
Payne several years ago has been improving its oil and gas production and had a
total return of 64.2% over the past six months. Bill Barrett Group, an oil and
gas exploration company also headquartered in Denver was up 41.9% during the
first half. Bill Barrett is an aggressive company with expertise in horizontal
drilling and sophisticated geological mapping.
Questar, headquartered in Salt Lake City, had a total return of 31.9% in
the first half. The company has recently added 60,000 acres in the Bakken shale
oil play and has the second lowest production costs of the forty U.S.
independent oil and gas companies. Knight Transportation, headquartered in
Phoenix, had a total return of 24.1% in the first half after trucking demand
showed improvement. In an economic downturn, trucking often is one of the first
industries to show increasing demand.
Worst performers came from New Mexico and Nevada. Although we sold some of
our holdings at higher levels for all three of these companies, we did hold
small partial positions in them as of June 30. First State Bancorporation,
headquartered in Albuquerque, NM, was down 59.8%. MGM Mirage was down 59.7% due
to weakness in Las Vegas. Shuffle Master was down 58.8% due to a change in its
business model. The company is leasing rather than selling its shufflers. While
long-term earnings should be more stable, near-term earnings have been impacted.
Gaming stocks have been more severely impacted by the current downturn than in
prior slowdowns. We believe that it is due to high gasoline prices.
As stocks decline in price, we may sell all or part of our position in
order to harvest the short-term trading loss which we can use to offset capital
gains. We can buy the stock back as soon as thirty-one days later or when we see
signs of improving earnings momentum.
Over the next four to six quarters we expect very slow growth in the U.S.,
as the economy is operating at close to recessionary conditions. We may not
actually reach the technical definition of a recession, which is two consecutive
quarters of negative growth in GDP. Still, we have seen a significant slowdown
in growth.
Leadership in the U.S. stock market appears to be shifting towards more
reliable growth industries such as health care and away from those tied to
global growth as we see a slowdown in the global economy. As the economy levels
out, we believe investors could develop more confidence and growth leadership
could expand to emerging small or microcap stocks in the U.S. Forming a stock
market bottom is usually a process with the market looking ahead six months. We
believe the market is currently in the process of attempting to form that
bottom.
AQUILA ROCKY MOUNTAIN EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2008 (UNAUDITED)
MARKET
SHARES COMMON STOCKS (99.6%) VALUE
- -------------- -------------------------------------------------------------------- ------------
BASIC INDUSTRY (17.1%)
30,000 Allied Waste Industries, Inc.+ ..................................... $ 378,600
7,000 American Ecology Corp. ............................................. 206,710
16,000 Ball Corp. ......................................................... 763,840
3,000 Freeport-McMoRan Copper & Gold, Inc. ............................... 351,570
1,000 Intrepid Potash, Inc.+ ............................................. 65,780
38,000 Knight Transportation, Inc. ........................................ 695,400
11,000 Newmont Mining Corp. ............................................... 573,760
17,000 SkyWest, Inc. ...................................................... 215,050
------------
3,250,710
------------
BUSINESS SERVICES (3.2%)
5,000 IHS, Inc. (Class A)+ ............................................... 348,000
14,000 Insight Enterprises, Inc.+ ......................................... 164,220
4,000 Viad Corp. ......................................................... 103,160
------------
615,380
------------
CAPITAL SPENDING (5.3%)
5,000 Dynamic Materials Corp. ............................................ 164,750
16,000 Mobile Mini, Inc.+ ................................................. 320,000
24,000 Radyne Corp.+ ...................................................... 274,320
32,000 Semitool, Inc.+ .................................................... 240,320
------------
999,390
------------
CONSUMER CYCLICALS (1.0%)
5,000 M.D.C. Holdings, Inc. .............................................. 195,300
------------
CONSUMER SERVICES (14.7%)
36,000 Coldwater Creek, Inc.+ ............................................. 190,080
5,000 Comcast Corp. (Special Class A) .................................... 93,800
18,000 Dish Network Corp. - A+ ............................................ 527,040
16,000 International Game Technology ...................................... 399,680
8,000 Las Vegas Sands Corp.+ ............................................. 379,520
3,000 Liberty Global, Inc. Series A+ ..................................... 94,290
2,000 Liberty Media Capital Series A+ .................................... 28,800
8,000 Liberty Media Corp. Entertainment Series A+ ........................ 193,840
7,000 Liberty Media Interactive Series A+ ................................ 103,320
MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- -------------- -------------------------------------------------------------------- ------------
CONSUMER SERVICES (CONTINUED)
9,335 MGM Mirage+ ........................................................ $ 316,363
14,000 PetSmart, Inc. ..................................................... 279,300
10,000 Pinnacle Entertainment, Inc.+ ...................................... 104,900
16,000 Shuffle Master, Inc.+ .............................................. 79,040
------------
2,789,973
------------
CONSUMER STAPLES (2.5%)
18,000 Discovery Holding Co. Class A+ ..................................... 395,280
8,400 Rocky Mountain Chocolate Factory, Inc. ............................. 80,892
------------
476,172
------------
ENERGY (13.4%)
12,000 Bill Barrett Corp.+ ................................................ 712,920
14,000 Cimarex Energy Co. ................................................. 975,380
12,000 Questar Corp. ...................................................... 852,480
------------
2,540,780
------------
FINANCIAL (11.2%)
24,000 First State Bancorporation ......................................... 132,000
25,500 Glacier Bancorp, Inc. .............................................. 407,745
28,000 Janus Capital Group, Inc. .......................................... 741,160
8,000 Wells Fargo & Company .............................................. 190,000
20,000 Western Union Co. .................................................. 494,400
5,000 Zions Bancorporation ............................................... 157,450
------------
2,122,755
------------
HEALTH CARE (16.1%)
22,000 Array BioPharma, Inc.+ ............................................. 103,400
20,000 AspenBio Pharma, Inc.+ ............................................. 127,600
15,000 Medicis Pharmaceutical Corp. (Class A) ............................. 311,700
64,000 Merit Medical Systems, Inc.+ ....................................... 940,800
14,000 Myriad Genetics, Inc.+ ............................................. 637,280
18,000 Providence Service Corp.+ .......................................... 379,980
20,000 Sonic Innovations, Inc.+ ........................................... 66,800
30,000 Spectranetics Corp.+ ............................................... 295,800
7,000 USANA Health Services, Inc.+ ....................................... 188,090
------------
3,051,450
------------
MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- -------------- -------------------------------------------------------------------- ------------
TECHNOLOGY (14.4%)
24,000 Avnet, Inc.+ ....................................................... $ 654,720
46,000 CIBER, Inc.+ ....................................................... 285,660
6,000 EchoStar Corp.+ .................................................... 187,320
14,000 JDA Software Group, Inc.+ .......................................... 253,400
32,000 Microchip Technology, Inc. ......................................... 977,280
34,000 Micron Technology, Inc.+ ........................................... 204,000
12,000 RightNow Technologies, Inc.+ ....................................... 164,040
------------
2,726,420
------------
UTILITIES (0.7%)
4,000 UniSource Energy Corp. ............................................. 124,040
------------
Total Investments (cost $14,887,980*) ................... 99.6% 18,892,370
Other assets less liabilities ........................... 0.4 74,160
------ ------------
Net Assets .............................................. 100.0% $ 18,966,530
====== ============
PERCENT OF
PORTFOLIO DISTRIBUTION PORTFOLIO
---------------------- ---------
ROCKY MOUNTAIN REGION
---------------------
Arizona 27.9%
Colorado 39.4
Idaho 3.2
Montana 4.3
Nevada 6.8
New Mexico 0.7
Utah 16.2
------
98.5
------
Other Investments 1.5
------
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
JUNE 30, 2008 (UNAUDITED)
ASSETS
Investments at market value (cost $14,887,980) ..................................... $ 18,892,370
Receivable for investment securities sold .......................................... 133,317
Receivable for Fund shares sold .................................................... 5,040
Dividends receivable ............................................................... 4,300
Receivable from Manager ............................................................ 3,966
Prepaid expenses ................................................................... 43,787
------------
Total assets .................................................................... 19,082,780
------------
LIABILITIES
Cash overdraft ..................................................................... 28,598
Payable for investment securities purchased ........................................ 64,703
Payable for Fund shares redeemed ................................................... 11,871
Distribution and service fees payable .............................................. 5,321
Accrued expenses ................................................................... 5,757
------------
Total liabilities ............................................................... 116,250
------------
NET ASSETS ............................................................................ $ 18,966,530
============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share $ 7,223
Additional paid-in capital ......................................................... 14,110,074
Net unrealized appreciation on investments (note 4) ................................ 4,004,390
Net investment loss ................................................................ (86,027)
Accumulated net realized gain on investments ....................................... 930,870
------------
$ 18,966,530
============
CLASS A
Net Assets ......................................................................... $ 15,921,836
============
Capital shares outstanding ......................................................... 601,039
============
Net asset value and redemption price per share ..................................... $ 26.49
============
Offering price per share (100/95.75 of $26.49 adjusted to nearest cent) ............ $ 27.67
============
CLASS C
Net Assets ......................................................................... $ 2,043,010
============
Capital shares outstanding ......................................................... 84,499
============
Net asset value and offering price per share ....................................... $ 24.18
============
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) ...................................... $ 24.18*
============
CLASS I
Net Assets ......................................................................... $ 9,467
============
Capital shares outstanding ......................................................... 355
============
Net asset value, offering and redemption price per share ........................... $ 26.67
============
CLASS Y
Net Assets ......................................................................... $ 992,217
============
Capital shares outstanding ......................................................... 36,367
============
Net asset value, offering and redemption price per share ........................... $ 27.28
============
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
INVESTMENT INCOME:
Dividends ............................................ $ 85,963
Expenses:
Management fee (note 3) .............................. $ 154,113
Trustees' fees and expenses .......................... 40,379
Distribution and service fees (note 3) ............... 34,643
Transfer and shareholder servicing agent fees (note 3) 26,950
Legal fees (note 3) .................................. 18,563
Registration fees and dues ........................... 15,326
Shareholders' reports ................................ 8,645
Auditing and tax fees ................................ 5,705
Custodian fees (note 5) .............................. 2,235
Chief compliance officer (note 3) .................... 2,135
Insurance ............................................ 561
Miscellaneous ........................................ 22,025
--------------
Total expenses ....................................... 331,280
Management fee waived (note 3) ....................... (154,113)
Reimbursement of expenses by Manager (note 3) ........ (4,117)
Expenses paid indirectly (note 5) .................... (1,060)
--------------
Net expenses ......................................... 171,990
--------------
Net investment loss .................................. (86,027)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions 681,657
Change in unrealized appreciation on investments ..... (3,672,552)
--------------
Net realized and unrealized gain (loss) on investments (2,990,895)
--------------
Net change in net assets resulting from operations ... $ (3,076,922)
==============
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 2008 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2007
------------- -----------------
OPERATIONS:
Net investment loss ................................... $ (86,027) $ (192,430)
Net realized gain (loss) from securities transactions . 681,657 1,592,136
Change in unrealized appreciation on investments ...... (3,672,552) (1,682,733)
------------ ------------
Change in net assets from operations ............... (3,076,922) (283,027)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (note 8):
Class A Shares:
Net realized gain on investments ...................... -- (1,116,865)
Class C Shares:
Net realized gain on investments ...................... -- (164,465)
Class I Shares:
Net realized gain on investments ...................... -- (569)
Class Y Shares:
Net realized gain on investments ...................... -- (85,526)
------------ ------------
Change in net assets from distributions ............ -- (1,367,425)
------------ ------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold ............................. 1,038,686 3,603,028
Short-term trading redemption fee ..................... 271 1,003
Reinvested distributions .............................. -- 901,815
Cost of shares redeemed ............................... (4,468,611) (5,597,062)
------------ ------------
Change in net assets from capital share transactions (3,429,654) (1,091,216)
------------ ------------
Change in net assets ............................... (6,506,576) (2,741,668)
NET ASSETS:
Beginning of period ................................... 25,473,106 28,214,774
------------ ------------
End of period ......................................... $ 18,966,530 $ 25,473,106
============ ============
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
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) FAIR VALUE MEASUREMENTS: The Fund adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 157 (FAS 157), "Fair
Value Measurements", effective January 1, 2008. FAS 157 established a
three-tier hierarchy of inputs to establish classification of fair value
measurements for disclosure purposes. Inputs may be observable or
unobservable. Observable inputs reflect the assumptions market
participants would use in pricing the asset or liability developed based
on market data obtained from sources independent of the reporting entity.
Unobservable inputs reflect the reporting entity's own assumptions about
the assumptions market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances. The Fund's investments in their entirety are assigned
levels based upon the observability.
The three-tier hierarchy of inputs is summarized below:
Level 1 - quoted prices in active markets for identical securities
Level 2 - other significant observable inputs (including quoted prices for
similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities.
The following is a summary of the valuation inputs, representing 100% of
the Fund's investments, used to value the Fund's net assets as of June 30,
2008:
Valuation Inputs Investments in Securities
Level 1 - Quoted Prices ........................ $ 18,892,370
Level 2 - Other Significant Observable Inputs .. --
Level 3 - Significant Unobservable Inputs ...... --
--------------
Total .......................................... $ 18,892,370
==============
c) 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.
d) 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.
e) 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.
f) 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.
g) 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.
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 six months ended June 30, 2008, the Fund incurred management fees
of $154,113, all of which were waived. Additionally, during this period the
Manager reimbursed the Fund for other expenses in the amount of $4,117. The
Manager has contractually undertaken to waive fees and/or reimburse Fund
expenses during the period January 1, 2008 through December 31, 2008 so that
total Fund expenses will not exceed 1.50% for Class A Shares, 2.25% for Class C
Shares, 1.39% for Class I Shares or 1.25% for Class Y Shares. These contractual
undertakings are expected to continue in 2009.
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 six months ended June 30, 2008, distribution fees on Class A
Shares amounted to $22,915 of which the Distributor retained $2,761.
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 six months ended June 30, 2008, amounted to $8,789. 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 six months ended June 30, 2008, amounted to $2,929. The total
of these payments with respect to Class C Shares amounted to $11,718 of which
the Distributor retained $2,815.
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 six months ended June 30,
2008, these payments were made at the average annual rate of 0.35% of such net
assets and amounted to $17 of which $10 related to the Plan and $7 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 brokerage and advisory firms ("intermediaries"), the Fund's shares are
sold primarily through the facilities of these intermediaries, with the bulk of
sales commissions inuring to such intermediaries. For the six months ended June
30, 2008, total commissions on sales of Class A Shares amounted to $6,665 of
which the Distributor received $1,082.
c) OTHER RELATED PARTY TRANSACTIONS:
For the six months ended June 30, 2008, the Fund incurred $18,450 of legal
fees allocable to Butzel Long PC, counsel to the Fund, for legal services in
conjunction with the Fund's ongoing operations. The Secretary of the Fund is a
shareholder of that firm.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended June 30, 2008, purchases of securities and
proceeds from the sales of securities (excluding short-term investments)
aggregated $294,565 and $2,211,886, respectively.
At June 30, 2008, the aggregate tax cost for all securities was
$14,887,980. At June 30, 2008, the aggregate gross unrealized appreciation for
all securities in which there is an excess of market value over tax cost
amounted to $6,000,501 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
$1,996,111 for a net unrealized appreciation of $4,004,390.
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:
SIX MONTHS ENDED
JUNE 30, 2008 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2007
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
CLASS A SHARES:
Proceeds from shares sold 32,769 $ 925,029 72,259 $ 2,409,367
Reinvested distributions -- -- 24,498 765,555
Cost of shares redeemed . (121,133) (3,411,191)(a) (119,460) (4,007,015)(a)
----------- ----------- ----------- -----------
Net change ........... (88,364) (2,486,162) (22,703) (832,093)
----------- ----------- ----------- -----------
CLASS C SHARES:
Proceeds from shares sold 2,105 55,229 20,256 622,641
Reinvested distributions -- -- 2,651 75,912
Cost of shares redeemed . (19,803) (512,266) (35,248) (1,101,248)
----------- ----------- ----------- -----------
Net change ........... (17,698) (457,037) (12,341) (402,695)
----------- ----------- ----------- -----------
CLASS I SHARES:
Proceeds from shares sold -- -- 13 450
Reinvested distributions -- -- 18 569
Cost of shares redeemed . -- -- (547) (17,466)(b)
----------- ----------- ----------- -----------
Net change ........... -- -- (516) (16,447)
----------- ----------- ----------- -----------
CLASS Y SHARES:
Proceeds from shares sold 2,004 58,428 16,522 570,570
Reinvested distributions -- -- 1,861 59,779
Cost of shares redeemed . (18,980) (544,883)(c) (13,655) (470,330)(c)
----------- ----------- ----------- -----------
Net change ........... (16,976) (486,455) 4,728 160,019
----------- ----------- ----------- -----------
Total transactions in Fund
shares .................. (123,038) $(3,429,654) (30,832) $(1,091,216)
=========== =========== =========== ===========
- ----------
(a) Net of short-term trading redemption fees of $44 and $263, respectively.
(b) Net of short-term trading redemption fees of $0 and $4, respectively.
(c) Net of short-term trading redemption fees of $227 and $736, 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 six months ended
June 30, 2008, 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
----------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/08 -------------------------------------------------------------------
(unaudited) 2007 2006 2005 2004 2003
----------- ---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ........ $ 30.39 $ 32.47 $ 29.45 $ 27.93 $ 24.92 $ 17.74
Income (loss) from investment operations:
Net investment income (loss) ............. (0.10)++ (0.20)++ (0.11)++ (0.11)+ (0.17)+ (0.16)+
Net gain (loss) on securities (both
realized and unrealized) .............. (3.80) (0.19) 3.51 1.63 3.18 7.34
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations ......... (3.90) (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 .............. $ 26.49 $ 30.39 $ 32.47 $ 29.45 $ 27.93 $ 24.92
========== ========== ========== ========== ========== ==========
Total return (not reflecting sales charge) .. (12.83)%* (1.34)% 11.54% 5.44% 12.08% 40.47%
Ratios/supplemental data
Net assets, end of period
(in thousands) ........................ $ 15,922 $ 20,950 $ 23,121 $ 17,684 $ 13,718 $ 10,345
Ratio of expenses to average net assets .. 1.51%** 1.54% 1.72% 1.59% 1.54% 1.50%
Ratio of net investment loss to average
net assets ............................ (0.73)%** (0.64)% (0.57)% (0.48)% (0.72)% (0.77)%
Portfolio turnover rate .................. 1.40%* 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 .. 2.95%** 2.73% 2.70% 3.23% 2.82% 3.25%
Ratio of net investment loss to average
net assets ............................ (2.16)%** (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% 1.50% 1.48%
Class C
----------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/08 ------------------------------------------------------------------
(unaudited) 2007 2006 2005 2004 2003
----------- ---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ........ $ 27.84 $ 30.11 $ 27.54 $ 26.31 $ 23.66 $ 16.96
Income (loss) from investment operations:
Net investment income (loss) ............. (0.19)++ (0.42)++ (0.32)+ (0.30)+ (0.35)+ (0.30)+
Net gain (loss) on securities (both
realized and unrealized) .............. (3.47) (0.16) 3.27 1.53 3.00 7.00
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations ......... (3.66) (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 .............. $ 24.18 $ 27.84 $ 30.11 $ 27.54 $ 26.31 $ 23.66
========== ========== ========== ========== ========== ==========
Total return (not reflecting sales charge) .. (13.15)%* (2.08)% 10.71% 4.68% 11.20% 39.50%
Ratios/supplemental data
Net assets, end of period
(in thousands) ........................ $ 2,043 $ 2,845 $ 3,449 $ 2,607 $ 2,235 $ 1,835
Ratio of expenses to average net assets .. 2.26%** 2.29% 2.47% 2.34% 2.29% 2.26%
Ratio of net investment loss to average
net assets ............................ (1.48)%** (1.38)% (1.32)% (1.24)% (1.47)% (1.53)%
Portfolio turnover rate .................. 1.40%* 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 .. 3.69%** 3.47% 3.45% 3.98% 3.56% 4.02%
Ratio of net investment loss to average
net assets ............................ (2.91)%** (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% 2.25% 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.
* Not annualized.
** Annualized.
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class I
------------------------------------------------------
Six Months Year Ended
Ended December 31, Period
6/30/08 ---------------------- Ended
(unaudited) 2007 2006 12/31/05(1)
----------- -------- -------- -----------
Net asset value, beginning of period ........ $ 30.58 $ 32.51 $ 29.46 $ 30.26
-------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) ................ (0.09)++ (0.14)++ (0.08)+ (0.02)+
Net gain (loss) on securities
(both realized and unrealized) .............. (3.82) 3.51 (0.78) (3.90)
-------- -------- -------- --------
Total from investment operations ............ (3.91) (0.24) 3.43 (0.80)
-------- -------- -------- --------
Less distributions (note 8):
Distributions from capital gains ............ -- (1.69) (0.38) --
-------- -------- -------- --------
Net asset value, end of period .............. $ 26.67 $ 30.58 $ 32.51 $ 29.46
======== ======== ======== ========
Total return (not reflecting sales charge) .. (12.79)%* (0.87)% 11.64% (2.64)%*
Ratios/supplemental data
Net assets, end of period
(in thousands) ............................ $ 9 $ 11 $ 28 $ 24
Ratio of expenses to average net assets ..... 1.40%** 1.38% 1.64% 1.43%**
Ratio of net investment income (loss)
to average net assets ..................... (0.62)%** (0.46)% (0.48)% (0.64)%**
Portfolio turnover rate ..................... 1.40%* 16.81% 13.31% 9.78%*
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 ..... 2.81%** 2.55% 2.69% 2.67%**
Ratio of net investment loss to
average net assets ........................ (2.03)%** (1.63)% (1.53)% (1.89)%**
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 ..... 1.39%** 1.34% 1.42% 1.42%**
Class Y
------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/08 -------------------------------------------------------------
(unaudited) 2007 2006 2005 2004 2003
----------- -------- -------- -------- -------- --------
Net asset value, beginning of period ........ $ 31.25 $ 33.25 $ 30.08 $ 28.45 $ 25.32 $ 17.97
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) ................ (0.07)++ (0.12)++ (0.03)+ (0.05)+ (0.11)+ (0.10)+
Net gain (loss) on securities
(both realized and unrealized) .............. (0.19) 3.58 1.68 3.24 7.45
-------- -------- -------- -------- -------- --------
Total from investment operations ............ (3.97) (0.31) 3.55 1.63 3.13 7.35
-------- -------- -------- -------- -------- --------
Less distributions (note 8):
Distributions from capital gains ............ -- (1.69) (0.38) -- -- -
-------- -------- -------- -------- -------- --------
Net asset value, end of period .............. $ 27.28 $ 31.25 $ 33.25 $ 30.08 $ 28.45 $ 25.32
======== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) .. (12.70)%* (1.07)% 11.80% 5.73% 12.36% 40.90%
Ratios/supplemental data
Net assets, end of period
(in thousands) ............................ $ 992 $ 1,667 $ 1,616 $ 1,430 $ 1,661 $ 1,400
Ratio of expenses to average net assets ..... 1.26%** 1.29% 1.47% 1.34% 1.29% 1.25%
Ratio of net investment income (loss)
to average net assets ..................... (0.47)%** (0.39)% (0.31)% (0.26)% (0.47)% (0.51)%
Portfolio turnover rate ..................... 1.40%* 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 ..... 2.69%** 2.48% 2.45% 2.99% 2.56% 3.05%
Ratio of net investment loss to
average net assets ........................ (1.90)%** (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 ..... 1.25%** 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 January 1,
2008 and held for the six months ended June 30, 2008.
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 JUNE 30, 2008
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A (12.83)% $1,000.00 $871.70 $ 6.98
- --------------------------------------------------------------------------------
Class C (13.15)% $1,000.00 $868.50 $ 10.45
- --------------------------------------------------------------------------------
Class I (12.79)% $1,000.00 $872.10 $ 6.47
- --------------------------------------------------------------------------------
Class Y (12.70)% $1,000.00 $873.00 $ 5.82
- --------------------------------------------------------------------------------
(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%, 1.39%
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
182/366 (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 JUNE 30, 2008
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,017.40 $ 7.52
Class C 5.00% $1,000.00 $1,013.67 $ 11.27
Class I 5.00% $1,000.00 $1,017.95 $ 6.97
Class Y 5.00% $1,000.00 $1,018.65 $ 6.27
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 1.50%, 2.25%, 1.39%
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
182/366 (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
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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ADDITIONAL INFORMATION (UNAUDITED)
RENEWAL OF THE SUB-ADVISORY AND ADMINISTRATION AGREEMENT
Renewal until June 30, 2009 of the Sub-Advisory and Administration
Agreement (the "Sub-Advisory Agreement") between the Fund and the Manager was
approved by the Board of Trustees and the independent Trustees in May, 2008. At
a meeting called and held for that purpose at which the independent Trustees
were present in person, the following materials were considered:
o A copy of the agreement to be renewed;
o A term sheet describing the material terms of the agreement;
o The Annual Report of the Fund for the year ended December 31, 2007;
o A report, prepared by the Manager and provided to the Trustees for
the Trustees' review, containing data about the performance of the
Fund compared to various benchmarks, data about its fees, expenses
and purchases and redemptions of capital stock together with
comparisons of such data with similar data about other comparable
funds, as well as data as to the profitability of the Manager; and
o Quarterly materials reviewed at prior meetings on the Fund's
performance, operations, portfolio and compliance.
The Trustees reviewed materials relevant to, and considered, the following
factors:
THE NATURE, EXTENT, AND QUALITY OF THE SERVICES PROVIDED BY THE MANAGER.
The Manager's portfolio management operation with respect to the Fund's
investment securities is based within the investment region. The Trustees noted
that Ms. Barbara Walchli, whom the Manager employs as portfolio manager for the
Fund, focuses on approximately 300 Rocky Mountain-based companies from which she
selects investments for the Fund's portfolio. Ms. Walchli, based in Phoenix,
Arizona, provides regional information regarding specific holdings in the Fund's
portfolio as well economic and business developments within the region. She has
also been available to and has met with the brokerage and financial planner
community and with investors and prospective investors to provide them with
information generally about the Fund's portfolio, with which to assess the Fund
as an investment opportunity.
The Board considered that the Manager had provided all services the Board
deemed necessary or appropriate, including the specific services that the Board
has determined are required for the Fund, given that its purpose is to provide
shareholders with capital appreciation primarily through investing in equity
securities of companies having a significant business presence in the Rocky
Mountain region.
The Manager has additionally provided all administrative services to the
Fund. The Board considered the nature and extent of the Manager's supervision of
third-party service providers, including the Fund's shareholder servicing agent
and custodian. The Board considered that the Manager had established and
maintained a strong culture of ethical conduct and regulatory compliance.
The Board concluded that the services provided were appropriate and
satisfactory and that the Fund would be well served if they continued.
Evaluation of this factor weighed in favor of renewal of the Sub-Advisory
Agreement.
THE INVESTMENT PERFORMANCE OF THE FUND AND THE MANAGER.
The Board determined it appropriate to consider the Fund's performance.
The Board reviewed each aspect of the Fund's performance and compared its
performance with that of various benchmark indices. It was noted that the
materials provided by the Manager indicated that compared to the indices, the
Fund has had investment performance that is generally comparable to that of the
benchmarks for the period 1998-2007.
The Board noted that the investment style of the Manager was not in favor
during the past year; however, the Board concluded that the performance of the
Fund, in light of market conditions, was satisfactory. Evaluation of this factor
indicated to the Trustees that renewal of the Sub-Advisory Agreement would be
appropriate.
THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
MANAGER AND ITS AFFILIATE FROM THE RELATIONSHIP WITH THE FUND.
The information provided in connection with renewal contained expense data
for the Fund and a peer group selected by a detailed screening process which was
provided to the Trustees for their review and discussion. The materials also
showed the lack of profitability to the Manager of its services to the Fund.
The Board compared the expense and fee data with respect to the Fund to
data about other funds, including those of similar asset size that it found to
be relevant. The Board concluded that the expenses of the Fund and the fees
(after waivers) paid were similar to and were reasonable as compared to those
being paid by the peer group.
The Board noted that a significant portion of the sub-advisory fee had
been waived. Additionally, it was noted that the Manager had contractually
undertaken to waive fees and/or reimburse Fund expenses during the period
January 1, 2008 through December 31, 2008 so that the total Fund expenses did
not exceed 1.50% for Class A Shares, 2.25% for Class C Shares, 1.39% for Class I
Shares and 1.25% for Class Y Shares.
The Board considered that the foregoing indicated the appropriateness of
the costs of the services to the Fund, which was being well managed as indicated
by the factors considered previously.
The Board further concluded that the lack of profitability to the Manager
was consistent with approval of the fees to be paid under the Sub-Advisory
Agreement. (The Board noted that the Distributor did not derive profits from its
relationship with the Fund.)
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS.
The Fund has in place breakpoints in the management fee which would be
realized as the Fund grows. 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.
Evaluation of this factor indicated to the Board that the Sub-Advisory
Agreement should be renewed at this time.
BENEFITS DERIVED OR TO BE DERIVED BY THE MANAGER AND ITS AFFILIATE FROM THE
RELATIONSHIP WITH THE FUND.
The Board observed that, as is generally true of most fund complexes, the
Manager and its affiliate, by providing services to a number of funds including
the Fund, were able to spread costs as it would otherwise be unable to do. The
Board noted that while that produces efficiencies and increased profitability or
in this case decreased losses for the Manager and its affiliate, it also makes
their services available to the Fund at favorable levels of quality and cost
which are more advantageous to the Fund than would otherwise have been possible.
CONSIDERATION OF ADVISORY AND ADMINISTRATION AGREEMENT IN CONNECTION WITH
PROPOSED CHANGES IN OWNERSHIP OF THE PARENT COMPANY OF THE MANAGER
BASIS FOR THE TRUSTEES' APPROVAL OF THE NEW ADVISORY AGREEMENT
At a meeting held on March 2, 2008, the Trustees, including the
independent Trustees, approved the New Advisory Agreement and recommended that
the Shareholders of the Fund approve such New Advisory Agreement. In considering
these actions, the Trustees noted that in connection with their annual review of
the Fund's advisory arrangements (the "Annual Review") on June 11, 2007, they
had approved the Current Advisory Agreement (which is substantially identical to
the New Advisory Agreement) for another one-year term commencing on July 1,
2007. In connection with the Annual Review, the Trustees considered a wide range
of information of the type they regularly consider when determining whether to
continue the Fund's advisory agreement as in effect from year to year. In
approving the New Advisory Agreement, the Trustees considered the information
provided and the factors considered in connection with the Annual Review as well
as such new information (for example, information about the Transaction) as they
considered appropriate. In considering the Advisory Agreements, the Trustees did
not identify any single factor as determinative. Matters considered by the
Trustees, including the independent Trustees, in connection with their review of
the New Advisory Agreement included the following:
THE TRANSACTION AND THE IMPLICATIONS FOR THE FUND.
In evaluating the Transaction, the Trustees considered a wide range of
information, including ensuring, to the maximum extent possible, ongoing and
future continuity of management of the Fund.
THE NATURE, EXTENT AND QUALITY OF THE SERVICES PROVIDED BY THE MANAGER.
The Manager's portfolio management operation with respect to the Fund's
investment securities is based within the investment region. The Trustees noted
that Ms. Walchli, whom the Manager employs as portfolio manager for the Fund,
focuses on approximately 300-400 Rocky Mountain-based companies from which she
selects investments for the Fund's portfolio. Ms. Walchli, based in Phoenix,
Arizona, provides regional information regarding specific holdings in the Fund's
portfolio as well economic and business developments within the region. She has
also been available to and has met
with the brokerage and financial planner community and with investors and
prospective investors to provide them with information generally about the
Fund's portfolio, with which to assess the Fund as an investment opportunity. In
addition, she has been present at all regular meetings of the Board.
The Board considered that the Manager had provided all services the Board
deemed necessary or appropriate, including the specific services that the Board
has determined are required for the Fund, given that its purpose is to provide
shareholders with capital appreciation primarily through investing in equity
securities of companies having a significant business presence in the Rocky
Mountain region.
The Manager has additionally provided all administrative services to the
Fund. The Board considered the nature and extent of the Manager's supervision of
third-party service providers, including the Fund's shareholder servicing agent
and custodian. The Board considered that the Manager had established and
maintained a strong culture of ethical conduct and regulatory compliance.
The Trustees also considered representations by the Manager that the
persons at the Manager involved in providing those services would not change as
a result of the Transaction. The Board concluded that the services provided were
appropriate and satisfactory and that the Fund would be well served if they
continued. Evaluation of this factor weighed in favor of approval of the New
Advisory Agreement.
THE INVESTMENT PERFORMANCE OF THE FUND AND THE MANAGER.
The Board reviewed each aspect of the Fund's performance and compared its
performance with that of its competitors, with national averages and with the
benchmark index. It was noted that the materials provided by the Manager
indicated that compared to the indices, the Fund has had investment performance
that is generally comparable to that of the benchmarks for the period 1998-2007.
The Board considered these results to be consistent with the purposes of the
Fund.
The Trustees also considered representations from the Manager that the
Transaction was not expected to result in any changes to the personnel managing
the Fund's investment portfolio.
The Board concluded that the performance of the Fund, in light of market
conditions, was satisfactory. Evaluation of this factor indicated to the
Trustees that approval of the New Advisory Agreement would be appropriate.
THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
MANAGER FROM ITS RELATIONSHIP WITH THE FUND.
The information provided in connection with renewal contained expense data
for the Fund and a peer group selected by a detailed screening process which was
provided to the Trustees for their review and discussion. The materials also
showed the lack of profitability to the Manager of its services to the Fund.
The Trustees noted that in connection with the Annual Review they had
concluded that the costs of the services to be provided supported the renewal of
the Current Advisory Agreement, and that the Transaction was not expected to
result in any change to the advisory fees paid by the Fund or the Fund's total
expense ratio.
The materials in connection with the Annual Review had shown the
profitability to the Manager of its services to the Fund. The Board noted that
the Manager was currently waiving a portion of its fee and had been since the
Fund's inception. Additionally, it was noted that the Manager had contractually
undertaken to waive fees and/or reimburse Fund expenses during the period
January 1, 2008 through December 31, 2008 so that the total Fund expenses would
not exceed 1.50% for Class A Shares, 2.25% for Class C Shares, 1.39% for Class I
Shares and 1.25% for Class Y Shares. The Manager had indicated that it intended
to continue waiving fees as necessary in order that the Fund would remain
competitive.
The Trustees considered that the profitability to the Manager of its
relationship to the Fund was not expected to change as a result of the
Transaction because the Transaction was not expected to result in a change to
the fees received by the Manager or of the costs of the services to be provided
by the Manager.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS.
The Fund has in place breakpoints in the management fee which would be
realized as the Fund grows. 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.
BENEFITS DERIVED OR TO BE DERIVED BY THE MANAGER AND ITS AFFILIATES FROM THEIR
RELATIONSHIPS WITH THE FUND.
The Board observed that, as is generally true of most fund complexes, the
Manager and its affiliates, by providing services to a number of funds including
the Fund, were able to spread costs as they would otherwise be unable to do. The
Board noted that while that produces efficiencies and increased profitability
for the Manager and its affiliates, it also makes their services available to
the Fund at favorable levels of quality and cost which are more advantageous to
the Fund than would otherwise have been possible.
In addition to considering the factors discussed above, which the Trustees
regularly consider on an annual basis, the Trustees also gave particular
consideration to matters relating to the change of control at AMC including
representations from representatives of AMC and the Manager that the proposed
change of control is not expected to result in a change in the personnel or
operations of the Manager, the investment approach or style of the Manager with
respect to the Fund, or the services provided to the Fund by the Manager.
The Trustees also considered other factors, either in connection with the
Annual Review or with their approval of the New Advisory Agreement. These
factors included but were not limited to whether the Fund has operated in
compliance with its investment objective and the Fund's record of compliance
with its investment restrictions, and the compliance programs of the Fund and
the Manager.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel, the Trustees, including the independent Trustees, concluded
that the New Advisory Agreement should be approved and recommended that the
shareholders of the Fund vote to approve the New Advisory Agreement for an
initial one-year term.
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
PNC Global Investment Servicing
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.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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)(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
September 4, 2008
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Chief Financial Officer and Treasurer
September 4, 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
September 4, 2008
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
September 4, 2008
AQUILA ROCKY MOUNTAIN EQUITY FUND
EXHIBIT INDEX
(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.