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: 12/31/08
Date of reporting period: 12/31/08
FORM N-CSR/A
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL
REPORT
DECEMBER 31, 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 THE WORDS "AQUILA
ROCKY MOUNTAIN EQUITY FUND"]
AQUILA ROCKY MOUNTAIN EQUITY FUND
REFINING OUR APPROACH
February, 2009
Dear Fellow Shareholder:
As noted in the Management Discussion which follows, the past twelve
months have created some of the toughest conditions in the U.S. economy and
financial markets that we have seen in our lifetimes. Staying the course in
equity investments has taken real courage. For those of us that are focused on
the long term promise of the Rocky Mountain Region, it has been a challenging
year with positives and negatives.
WE HAVE BEEN IN A VERY DIFFICULT PERIOD
Many mutual funds of various size and character finished the year with
their equity holdings off 40% or more. Unfortunately, Aquila Rocky Mountain
Equity Fund experienced a similar decline. So, while we were not alone, we do
want to take this opportunity to refine our approach for the future. It is our
hope that our planned adjustments will further lessen any downward future
movement.
In this difficult year we have worked to review our approach to the region
due to the changing economy and to insure that we capture the best of what is
happening in the region. We have reduced the number of companies in the
portfolio and are working through the various microcap, midcap and emerging
growth companies in the region to identify the most promising names for the next
five to ten years.
MORE SELECTIVE FOCUS ON MICROCAP, MIDCAP AND EMERGING GROWTH COMPANIES
In a more challenging economic environment we think it may be important to
be more selective so we have reduced the number of companies in the portfolio to
the 40-50 range from the 50-65 range we had been using. Historically we have
focused on companies that have high return on assets and high free cash flow and
will continue to do so. Companies that have increased their debt loads have been
eliminated or are being closely monitored.
The Rocky Mountain Region tends to hold many growth oriented companies due
to the region's young age. Over the past nine years growth stocks have been out
of favor with value stocks outperforming in eight out of nine years in bigger
companies and in seven out of nine years in small and mid-sized companies.
Slower economic growth is likely to favor growth companies. We are working to
have what we believe to be the best growth companies positioned in the
portfolio.
NOT A PART OF THE ANNUAL REPORT
MICROCAP COMPANIES
In reviewing our results over time, our best performing stocks have often
been microcap stocks or those with a market capitalization (price of stock times
the shares outstanding) below $300 million to $1 billion depending on whose
definition is used. Finding small companies before Wall Street finds them can be
very rewarding. In addition, small and microcap companies often lead the market
out of an economic downturn. The smaller companies are more nimble, can react
faster to a change in economic conditions and tend to be more domestically
oriented. The U.S. economy went into the downturn first and was the first to
lower interest rates and apply stimulus. Smaller U.S. companies are, in our
view, likely to benefit first.
CHANGING CHARACTER
Clearly, the Rocky Mountain region is currently facing some challenges.
Arizona and Nevada are still digesting problems from excessive speculation in
housing during the last cycle. We expect that regional and community banks will
be digesting bad loans during all of 2009 and well into 2010. Population growth
in the region is likely to be slower over the next two to five years due to the
serious national recession. Slower growth may be a longer term positive,
however, giving states an opportunity to work on quality of life issues such as
infrastructure, air and water.
However, we continue to think that the region holds strategic positives
and those include
o a high quality outdoor lifestyle that attracts individuals,
businesses and entrepreneurs
o a younger infrastructure and
o natural resources.
Under an Obama administration we believe the region may also be well
positioned: 1) the region has a relatively small carbon footprint due to access
to hydro, solar and geothermal power and 2) the region is positioned to
encourage smaller entrepreneurial companies through entrepreneurial incubators.
President Obama indicated during his campaign that he wanted to offer
developmental incentives to small technology companies that will create jobs.
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 ANNUAL REPORT
[LOGO OF AQUILA ROCKY MOUNTAIN EQUITY
FUND: A RECTANGLE WITH A DRAWING OF
TWO MOUNTAINS AND THE WORDS "AQUILA
ROCKY MOUNTAIN EQUITY FUND"]
AQUILA ROCKY MOUNTAIN EQUITY FUND
ANNUAL REPORT
MANAGEMENT DISCUSSION
The past twelve months have created some of the toughest conditions in the
U.S. economy and financial markets that we have seen in our lifetimes.
Unfortunately, nearly all equity holdings suffered capital erosion during 2008.
Staying the course with equity investments has taken real courage. The total
return for an equity investment has generally resulted in downward action of
nearly 35 - 40% of investors' money.
Aquila Rocky Mountain Equity Fund's Class A shares had a total return of
- -41.07%, without provision for sales charges but reflecting contractually waived
fund expenses, for the twelve months ended December 31, 2008. This compares to
the Standard & Poor's 500 Index with a total return of -37.00%, and the Russell
Midcap Index with a return of -41.46%. Additionally, the Russell 2000 Index had
a negative total return of -33.79% and the Russell Microcap Index had a negative
total return of -39.78%.
For those of us who have focused on the long-term growth prospects of the
Rocky Mountain region, it has been a challenging year of positive and negatives.
On the positive side, we do see signs that the attractive outdoor
lifestyle of the Rocky Mountain Region continues to be a magnet for individuals,
businesses and entrepreneurs. The Rocky Mountain region continues to have more
growth stocks since it is a younger, less industrialized region.
We continue our efforts to invest the Fund strategically. Our
overweighting in healthcare helped results in 2008. We had fairly large position
sizes in Merit Medical and Myriad Genetics, both of which did well for us. At
year end, the Fund's portfolio had holdings in 50 companies across a number of
industries. In this regard, we added several new companies into the Fund during
2008, including Integrated Potash and First Solar. We continue to look for the
best businesses and management teams in the Rocky Mountain region in which to
invest when we believe we can obtain them at a reasonable price. The economic
downturn and stock market correction have, in our view, created a number of
opportunities which we are currently evaluating.
The Fund's best performing stocks in 2008 were within 4 states and
represented 4 separate issues. Among them were Myriad Genetics headquartered in
Salt Lake City, Utah which was up 42.7% and Merit Medical located in South
Jordan Utah which was up 29.0% due to a strong new product flow.
On the negative side, value stocks outperformed growth stocks at the
mid-size company level and below. Gaming stocks were outperformed badly.
Historically, gaming stocks have held up in downturns because they are strong
cash flow producers. In this particular downturn consumers were hurt by mortgage
problems, high gasoline costs and a weak stock market which had a significant
impact upon gaming in general. In fact, in 2008 the Las Vegas Bloomberg Index
was down 72.7%. Additionally, media stocks were hit unusually hard in this
downturn due to consumer financial stress. The Colorado Bloomberg Index which is
heavily weighted with media stocks declined 50.0% in 2008.
MANAGEMENT DISCUSSION (CONTINUED)
The Fund's worst performing stocks in 2008 included Providence Service
Corp, Sonic Innovations and Liberty Media Interactive which were all down
approximately 80%. We still believe in the management teams of these companies
and their long-term potential. Our greatest challenge and opportunities lie in
working to identify those companies with the greatest long-term potential that
may be currently missed due to market conditions. Microcap growth stocks were
one of the hardest hit parts of the market in 2008, with the Russell Microcap
Growth Index down 44.65%. Small companies with the fewest shares outstanding
have the least liquidity and are often hit the hardest during down markets.
Over time our first priority has been to identify those companies that
have high returns on assets and generate strong free cash flow. Investing in a
number of companies that do not depend on bank financing or other funding from
financial markets has been helpful in the current environment. Some of the
companies in the portfolio have used leverage in terms of borrowed money and we
have eliminated several of these companies from the portfolio as they have
become stressed or have seen their cost of capital rise significantly.
It is now apparent that the U.S. economy has been in a recession for a
year which we believe is likely to continue for another six to nine months.
Historically, the stock market has begun to look six months ahead to an economic
recovery. While we expect fairly slow economic growth over the next few years as
the economy deleverages, we are hopeful that smaller companies that produce
unique products and services in the Rocky Mountain Region will be of increased
interest to investors.
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, 2008 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:]
Aquilla Rocky Mountain Aquilla Rocky Mountain
Equity Fund Equity Fund
Class A Shares Class A Shares Russell 2000
no sales charge with sales charge Stock Index
12/98 10,000 9,577 10,000
12/99 12,056 11,546 12,135
12/00 11,989 11,482 11,781
12/01 12,916 12,370 12,087
12/02 10,932 10,470 9,614
12/03 15,357 14,707 14,161
12/04 17,211 16,484 16,772
12/05 18,148 17,381 17,549
12/06 20,243 19,387 20,785
12/07 19,971 19,127 20,461
12/08 11,768 11,271 13,564
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2008
-----------------------------------
SINCE
CLASS AND INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ------------------------ ------ ------- -------- ---------
Class A (commenced operations on 7/22/94)
With Maximum Sales Charge .............. (43.58)% (6.01)% 1.20% 4.13%
Without Sales Charge ................... (41.07)% (5.18)% 1.64% 4.48%
Class C (commenced operations on 5/01/96)
With CDSC .............................. (42.12)% (5.90)% 0.88% 2.33%
Without CDSC ........................... (41.53)% (5.90)% 0.88% 2.33%
Class I (commenced operations on 12/01/05)
No Sales Charge ........................ (40.92)% N/A N/A (13.62)%
Class Y (commenced operations on 5/01/96)
No Sales Charge ........................ (40.90)% (4.93)% 1.90% 3.29%
Russell 2000 Stock Index ................. (33.79)% (0.88)% 3.07% 6.51% (Class A)
3.47% (Class C&Y)
(8.71)% (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 I and 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, 2008 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 four 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 the year ended December 31, 2004 were
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, 2008, by correspondence with
the custodian. 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, 2008, 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 four 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 26, 2009
- --------------------------------------------------------------------------------
AQUILA ROCKY MOUNTAIN EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2008
MARKET
SHARES COMMON STOCKS (102.0%) VALUE
- ----------- -------------------------------------------------------------------- ------------
BASIC INDUSTRY (22.3%)
7,000 American Ecology Corp. ..................................... $ 141,610
12,000 Ball Corp. ................................................. 499,080
2,000 Freeport-McMoRan Copper & Gold, Inc.+ ...................... 48,880
1,000 Intrepid Potash, Inc.+ ..................................... 20,770
38,000 Knight Transportation, Inc. ................................ 612,560
10,000 Newmont Mining Corp. ....................................... 407,000
12,000 Republic Services, Inc. (Class A) .......................... 297,480
15,000 SkyWest, Inc. .............................................. 279,000
----------
2,306,380
----------
BUSINESS SERVICES (3.4%)
5,000 IHS, Inc. (Class A)+ ....................................... 187,100
10,000 Insight Enterprises, Inc.+ ................................. 69,000
4,000 Viad Corp. ................................................. 98,960
----------
355,060
----------
CAPITAL SPENDING (4.1%)
5,000 Dynamic Materials Corp. .................................... 96,550
16,000 Mobile Mini, Inc.+ ......................................... 230,720
32,000 Semitool, Inc.+ ............................................ 97,600
----------
424,870
----------
CONSUMER CYCLICALS (1.5%)
5,000 M.D.C. Holdings, Inc. ...................................... 151,500
----------
CONSUMER SERVICES (10.4%)
36,000 Coldwater Creek, Inc.+ ..................................... 102,600
14,000 Dish Network Corp. (Series A)+ ............................. 155,260
14,000 International Game Technology .............................. 166,460
8,000 Liberty Media Entertainment (Series A)+ .................... 139,840
7,000 Liberty Media Interactive (Series A)+ ...................... 21,840
8,000 MGM Mirage+ ................................................ 110,080
14,000 PetSmart, Inc. ............................................. 258,300
8,000 Pinnacle Entertainment, Inc.+ .............................. 61,440
12,000 Shuffle Master, Inc.+ ...................................... 59,520
----------
1,075,340
----------
CONSUMER STAPLES (2.0%)
12,000 Discovery Communications, Inc. (Series A)+ ................. 169,920
6,000 Rocky Mountain Chocolate Factory, Inc. ..................... 31,860
----------
201,780
----------
ENERGY (9.5%)
10,000 Bill Barrett Corp.+ ........................................ 211,300
14,000 Cimarex Energy Co. ......................................... 374,920
12,000 Questar Corp. .............................................. 392,280
----------
978,500
----------
FINANCIAL (10.3%)
24,000 Glacier Bancorp, Inc. ...................................... 456,480
28,000 Janus Capital Group, Inc. .................................. 224,840
MARKET
SHARES COMMON STOCKS (continued) VALUE
- ----------- -------------------------------------------------------------------- ------------
FINANCIAL (CONTINUED)
20,000 Western Union Co. .......................................... 286,800
4,000 Zions Bancorporation ....................................... 98,040
-----------
1,066,160
-----------
HEALTH CARE (20.8%)
20,000 Array BioPharma, Inc.+ ..................................... 81,000
20,000 AspenBio Pharma, Inc.+ ..................................... 123,400
10,000 Medicis Pharmaceutical Corp. (Class A) ..................... 139,000
58,000 Merit Medical Systems, Inc.+ ............................... 1,039,940
6,000 Myriad Genetics, Inc.+ ..................................... 397,560
16,000 Providence Service Corp.+ .................................. 23,200
20,000 Sonic Innovations, Inc.+ ................................... 20,000
30,000 Spectranetics Corp.+ ....................................... 78,300
7,000 USANA Health Services, Inc.+ ............................... 239,680
-----------
2,142,080
-----------
TECHNOLOGY (16.6%)
24,000 Avnet, Inc.+ ............................................... 437,040
46,000 CIBER, Inc.+ ............................................... 221,260
4,000 EchoStar Corp.+ ............................................ 59,480
1,000 First Solar, Inc.+ ......................................... 137,960
14,000 JDA Software Group, Inc.+ .................................. 183,820
30,000 Microchip Technology, Inc. ................................. 585,900
12,000 RightNow Technologies, Inc.+ ............................... 92,760
-----------
1,718,220
-----------
UTILITIES (1.1%)
4,000 UniSource Energy Corp. ..................................... 117,440
-----------
Total Investments (cost $11,618,628*) ........... 102.0% 10,537,330
Other assets less liabilities ................... (2.0) (210,752)
----- -----------
Net Assets ...................................... 100.0% $10,326,578
===== ===========
PERCENT OF
PORTFOLIO DISTRIBUTION (UNAUDITED) PORTFOLIO
---------------------------------- ---------
ROCKY MOUNTAIN REGION
Arizona 30.8%
Colorado 33.6
Idaho 2.3
Montana 6.1
Nevada 3.8
Utah 23.4
-----
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, 2008
ASSETS
Investments at market value (cost $11,618,628) .................................................... $ 10,537,330
Cash .............................................................................................. 9,542
Receivable from Manager ........................................................................... 34,392
Receivable for investment securities sold ......................................................... 33,478
Receivable for Fund shares sold ................................................................... 26,730
Dividends receivable .............................................................................. 5,470
Other Assets ...................................................................................... 9,856
------------
Total assets ................................................................................... 10,656,798
------------
LIABILITIES
Payable for Fund shares redeemed .................................................................. 227,386
Capital gains distribution payable ................................................................ 68,031
Distribution and service fees payable ............................................................. 2,635
Accrued expenses .................................................................................. 32,168
------------
Total liabilities .............................................................................. 330,220
------------
NET ASSETS ........................................................................................... $ 10,326,578
============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share ............... $ 5,923
Additional paid-in capital ........................................................................ 11,417,895
Net unrealized depreciation on investments (note 4) ............................................... (1,081,298)
Accumulated net realized loss on investments ...................................................... (15,942)
------------
$ 10,326,578
============
CLASS A
Net Assets ........................................................................................ $ 8,822,323
============
Capital shares outstanding ........................................................................ 502,193
============
Net asset value and redemption price per share .................................................... $ 17.57
============
Maximum offering price per share (100/95.75 of $17.57 adjusted to nearest cent) ................... $ 18.35
============
CLASS C
Net Assets ........................................................................................ $ 939,571
============
Capital shares outstanding ........................................................................ 58,929
============
Net asset value and offering price per share ...................................................... $ 15.94
============
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) ..................................................... $ 15.94*
============
CLASS I
Net Assets ........................................................................................ $ 6,417
============
Capital shares outstanding ........................................................................ 362
============
Net asset value, offering and redemption price per share .......................................... $ 17.73
============
CLASS Y
Net Assets ........................................................................................ $ 558,267
============
Capital shares outstanding ........................................................................ 30,794
============
Net asset value, offering and redemption price per share .......................................... $ 18.13
============
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2008
INVESTMENT INCOME:
Dividends ..................................................................................... $ 152,692
Expenses:
Management fee (note 3) ....................................................................... $ 261,584
Trustees' fees and expenses ................................................................... 87,865
Registration fees and dues .................................................................... 59,980
Transfer and shareholder servicing agent fees (note 3) ........................................ 57,606
Distribution and service fees (note 3) ........................................................ 57,554
Legal fees (note 3) ........................................................................... 50,547
Shareholders' reports ......................................................................... 17,697
Auditing and tax fees ......................................................................... 15,100
Chief compliance officer (note 3) ............................................................. 4,159
Custodian fees (note 5) ....................................................................... 3,607
Insurance ..................................................................................... 1,131
Miscellaneous ................................................................................. 38,447
-----------
Total expenses ................................................................................ 655,277
Management fee waived (note 3) ................................................................ (261,584)
Reimbursement of expenses by Manager (note 3) ................................................. (105,865)
Expenses paid indirectly (note 5) ............................................................. (1,496)
-----------
Net expenses .................................................................................. 286,332
-----------
Net investment loss ........................................................................... (133,640)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ......................................... (15,884)
Change in unrealized appreciation on investments .............................................. (8,758,240)
-----------
Net realized and unrealized gain (loss) on investments ........................................ (8,774,124)
-----------
Net change in net assets resulting from operations ............................................ $(8,907,764)
===========
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2008 DECEMBER 31, 2007
----------------- -----------------
OPERATIONS:
Net investment loss .......................................................... $ (133,640) $ (192,430)
Net realized gain (loss) from securities transactions ........................ (15,884) 1,592,136
Change in unrealized appreciation on investments ............................. (8,758,240) (1,682,733)
------------ ------------
Change in net assets from operations ....................................... (8,907,764) (283,027)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (note 8):
Class A Shares:
Net realized gain on investments ............................................. (167,310) (1,116,865)
Class C Shares:
Net realized gain on investments ............................................. (20,745) (164,465)
Class I Shares:
Net realized gain on investments ............................................. (120) (569)
Class Y Shares:
Net realized gain on investments ............................................. (10,238) (85,526)
------------ ------------
Change in net assets from distributions .................................... (198,413) (1,367,425)
------------ ------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold .................................................... 1,373,163 3,603,028
Short-term trading redemption fee ............................................ 428 1,003
Reinvested distributions ..................................................... 130,284 901,815
Cost of shares redeemed ...................................................... (7,544,226) (5,597,062)
------------ ------------
Change in net assets from capital share transactions ....................... (6,040,351) (1,091,216)
------------ ------------
Change in net assets ....................................................... (15,146,528) (2,741,668)
NET ASSETS:
Beginning of period .......................................................... 25,473,106 28,214,774
------------ ------------
End of period ................................................................ $ 10,326,578 $ 25,473,106
============ ============
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
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, "Fair Value
Measurements" ("SFAS 157"), effective January 1, 2008. SFAS 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 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 December
31, 2008:
VALUATION INPUTS INVESTMENTS IN SECURITIES
---------------- -------------------------
Level 1 - Quoted Prices ....................... $10,537,330
Level 2 - Other Significant Observable Inputs . --
Level 3 - Significant Unobservable Inputs ..... --
-----------
Total ......................................... $10,537,330
===========
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.
The Fund has adopted FASB Interpretation No. 48 "Accounting for
Uncertainty in Income Taxes" ("FIN 48"). Management has reviewed the tax
positions for each of the open tax years (2005-2008) 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 purposes and have no
effect on net assets or net asset value per share. On December 31, 2008
the Fund decreased undistributed net investment loss by $133,640,
decreased accumulated net realized gain on investments by $50,858 and
decreased additional paid-in capital by $82,782.
h) ACCOUNTING PRONOUNCEMENT: In March 2008, Statement of Financial Accounting
Standards No. 161, "Disclosures about Derivative Instruments and Hedging
Activities" ("SFAS 161") was issued and is effective for fiscal years
beginning after November 15, 2008. SFAS 161 is intended to improve
financial reporting for derivative instruments by requiring enhanced
disclosure that enables investors to understand how and why an entity uses
derivatives, how derivatives are accounted for, and how derivative
instruments affect an entity's results of operations and financial
position. Management is currently evaluating the implications of SFAS 161
and its impact, if any, on the Fund's financial statement disclosures.
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, 2008, the Fund incurred management fees of
$261,584, all of which was waived. Additionally, during this period the Manager
reimbursed the Fund for other
expenses in the amount of $105,865. The Manager contractually undertook 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. Similar contractual undertakings have been undertaken for the 2009 and
2010 fiscal years.
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, 2008, distribution fees on Class A
Shares amounted to $38,421 of which the Distributor retained $4,820.
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, 2008, amounted to $14,336. 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, 2008, amounted to $4,779. The total
of these payments with respect to Class C Shares amounted to $19,115 of which
the Distributor retained $4,582.
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, 2008, these payments were made at the average annual rate of
0.35% of such net assets and amounted to $31 of which $18 related to the Plan
and $13 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 intermediaries, with the bulk of sales
commissions inuring to such intermediaries. For the year ended December 31,
2008, total commissions on sales of Class A Shares amounted to $7,913 of which
the Distributor received $1,299.
c) OTHER RELATED PARTY TRANSACTIONS:
For the year ended December 31, 2008, the Fund incurred $50,494 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 year ended December 31, 2008, purchases of securities and
proceeds from the sales of securities (excluding short-term investments)
aggregated $662,025 and $5,151,193, respectively.
At December 31, 2008, the aggregate tax cost for all securities was
$11,618,628. At December 31, 2008, the aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax cost
amounted to $2,271,634 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
$3,352,932 for a net unrealized depreciation of $1,081,298.
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, 2008 DECEMBER 31, 2007
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
Class A Shares:
Proceeds from shares sold ............ 44,105 $ 1,178,222 72,259 $ 2,409,367
Reinvested distributions ............. 6,428 112,969 24,498 765,555
Cost of shares redeemed .............. (237,743) (5,766,961)(a) (119,460) (4,007,015)(a)
----------- ----------- ----------- -----------
Net change ................... (187,210) (4,475,770) (22,703) (832,093)
----------- ----------- ----------- -----------
Class C Shares:
Proceeds from shares sold ............ 3,298 76,334 20,256 622,641
Reinvested distributions ............. 723 11,520 2,651 75,912
Cost of shares redeemed .............. (47,289) (1,036,874) (35,248) (1,101,248)
----------- ----------- ----------- -----------
Net change ................... (43,268) (949,020) (12,341) (402,695)
----------- ----------- ----------- -----------
Class I Shares:
Proceeds from shares sold ............ -- -- 13 450
Reinvested distributions ............. 7 120 18 569
Cost of shares redeemed .............. -- -- (547) (17,466)(b)
----------- ----------- ----------- -----------
Net change ................... 7 120 (516) (16,447)
----------- ----------- ----------- -----------
Class Y Shares:
Proceeds from shares sold ............ 4,824 118,511 16,522 570,570
Reinvested distributions ............. 318 5,771 1,861 59,779
Cost of shares redeemed .............. (27,691) (739,963)(c) (13,655) (470,330)(c)
----------- ----------- ----------- -----------
Net change ................... (22,549) (615,681) 4,728 160,019
----------- ----------- ----------- -----------
Total transactions in Fund
shares ............................... (253,020) $(6,040,351) (30,832) $(1,091,216)
=========== =========== =========== ===========
(a) Net of short-term trading redemption fees of $227 and $263, respectively.
(b) Net of shot-term trading redemption fees of $0 and $4, respectively.
(c) Net of short-term trading redemption fees of $201 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 Fund will retain the fee charged as
paid-in capital and will become part of the Fund's daily NAV calculation.
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, 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. As of December 31, 2008, the Fund had a capital loss carryover
of $13,814 that if not offset by capital gains will expire in 2016. As of
December 31, 2008, there were post October capital loss deferrals of $2,128
which will be recognized in the following year.
The tax character of distributions:
Year Ended December 31,
2008 2007
----------- -----------
Long-term capital gain ............... $ 198,413 $ 1,367,425
As of December 31, 2008, the components of distributable earnings on a tax
basis were as follows:
Capital loss carry forwards .......... $ (13,814)
Deferred post October losses ......... (2,128)
Unrealized depreciation .............. (1,081,298)
-----------
$(1,097,240)
===========
AQUILA ROCKY MOUNTAIN EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class A
----------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------
2008 2007 2006 2005 2004
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ..... $ 30.39 $ 32.47 $ 29.45 $ 27.93 $ 24.92
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) ........... (0.17)++ (0.20)++ (0.11)+ (0.11)+ (0.17)+
Net gain (loss) on securities (both
realized and unrealized) ............. (12.31) (0.19) 3.51 1.63 3.18
---------- ---------- ---------- ---------- ----------
Total from investment operations ....... (12.48) (0.39) 3.40 1.52 3.01
---------- ---------- ---------- ---------- ----------
Less distributions (note 8):
Distributions from capital gains ..... (0.34) (1.69) (0.38) -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........... $ 17.57 $ 30.39 $ 32.47 $ 29.45 $ 27.93
========== ========== ========== ========== ==========
Total return (not reflecting sales charge) (41.07)% (1.34)% 11.54% 5.44% 12.08%
Ratios/supplemental data
Net assets, end of period
(in thousands) ....................... $ 8,822 $ 20,950 $ 23,121 $ 17,684 $ 13,718
Ratio of expenses to average net assets 1.51% 1.54% 1.72% 1.59% 1.54%
Ratio of net investment loss to average
net assets ........................... (0.67)% (0.64)% (0.57)% (0.48)% (0.72)%
Portfolio turnover rate ................ 3.70% 16.81% 13.31% 9.78% 8.38%
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 3.51% 2.73% 2.70% 3.23% 2.82%
Ratio of net investment loss to average
net assets ........................... (2.68)% (1.82)% (1.55)% (2.11)% (1.99)%
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%
Class C
----------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------
2008 2007 2006 2005 2004
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ..... $ 27.84 $ 30.11 $ 27.54 $ 26.31 $ 23.66
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) ........... (0.33)++ (0.42)++ (0.32)+ (0.30)+ (0.35)+
Net gain (loss) on securities (both
realized and unrealized) ............. (11.23) (0.16) 3.27 1.53 3.00
---------- ---------- ---------- ---------- ----------
Total from investment operations ....... (11.56) (0.58) 2.95 1.23 2.65
---------- ---------- ---------- ---------- ----------
Less distributions (note 8):
Distributions from capital gains ..... (0.34) (1.69) (0.38) -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........... $ 15.94 $ 27.84 $ 30.11 $ 27.54 $ 26.31
========== ========== ========== ========== ==========
Total return (not reflecting sales charge) (41.53)% (2.08)% 10.71% 4.68% 11.20%
Ratios/supplemental data
Net assets, end of period
(in thousands) ....................... $ 940 $ 2,845 $ 3,449 $ 2,607 $ 2,235
Ratio of expenses to average net assets 2.26% 2.29% 2.47% 2.34% 2.29%
Ratio of net investment loss to average
net assets ........................... (1.43)% (1.38)% (1.32)% (1.24)% (1.47)%
Portfolio turnover rate ................ 3.70% 16.81% 13.31% 9.78% 8.38%
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 4.22% 3.47% 3.45% 3.98% 3.56%
Ratio of net investment loss to average
net assets ........................... (3.39)% (2.56)% (2.30)% (2.87)% (2.74)%
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%
- ----------
+ 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
--------------------------------------------------------
Year Ended December 31, Period
----------------------------------------- Ended
2008 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) ........... (0.11)++ (0.14)++ (0.08)+ (0.02)+
Net gain (loss) on securities
(both realized and unrealized) ....... (12.40) (0.10) 3.51 (0.78)
--------- --------- --------- ---------
Total from investment operations ....... (12.51) (0.24) 3.43 (0.80)
--------- --------- --------- ---------
Less distributions (note 8):
Distributions from capital gains ....... (0.34) (1.69) (0.38) --
--------- --------- --------- ---------
Net asset value, end of period ........... $ 17.73 $ 30.58 $ 32.51 $ 29.46
========= ========= ========= =========
Total return (not reflecting sales charge) (40.92)% (0.87)% 11.64% (2.64)%*
Ratios/supplemental data
Net assets, end of period
(in thousands) ..................... $ 6 $ 11 $ 28 $ 24
Ratio of expenses to average net assets 1.30% 1.38% 1.64% 1.43%**
Ratio of net investment income (loss)
to average net assets ................ (0.46)% (0.46)% (0.48)% (0.64)%**
Portfolio turnover rate ................ 3.70% 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. 3.37% 2.55% 2.69% 2.67%**
Ratio of net investment loss to
average net assets ................... (2.53)% (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. 1.29% 1.34% 1.42% 1.42%**
Class Y
-----------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------------
2008 2007 2006 2005 2004
--------- --------- --------- --------- ---------
Net asset value, beginning of period ..... $ 31.25 $ 33.25 $ 30.08 $ 28.45 $ 25.32
--------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income (loss) ........... (0.11)++ (0.12)++ (0.03)+ (0.05)+ (0.11)+
Net gain (loss) on securities
(both realized and unrealized) ....... (12.67) (0.19) 3.58 1.68 3.24
--------- --------- --------- --------- ---------
Total from investment operations ....... (12.78) (0.31) 3.55 1.63 3.13
--------- --------- --------- --------- ---------
Less distributions (note 8):
Distributions from capital gains ....... (0.34) (1.69) (0.38) -- --
--------- --------- --------- --------- ---------
Net asset value, end of period ........... $ 18.13 $ 31.25 $ 33.25 $ 30.08 $ 28.45
========= ========= ========= ========= =========
Total return (not reflecting sales charge) (40.90)% (1.07)% 11.80% 5.73% 12.36%
Ratios/supplemental data
Net assets, end of period
(in thousands) ....................... $ 558 $ 1,667 $ 1,616 $ 1,430 $ 1,661
Ratio of expenses to average net assets. 1.26% 1.29% 1.47% 1.34% 1.29%
Ratio of net investment income (loss)
to average net assets ................ (0.43)% (0.39)% (0.31)% (0.26)% (0.47)%
Portfolio turnover rate ................ 3.70% 16.81% 13.31% 9.78% 8.38%
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. 3.21% 2.48% 2.45% 2.99% 2.56%
Ratio of net investment loss to
average net assets ................... (2.38)% (1.59)% (1.30)% (1.91)% (1.75)%
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%
- ----------
+ 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,
2008 and held for the six months ended December 31, 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 DECEMBER 31, 2008
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- -------------------------------------------------------------------------------
Class A (32.40)% $ 1,000.00 $ 676.00 $ 6.32
- -------------------------------------------------------------------------------
Class C (32.68)% $ 1,000.00 $ 673.20 $ 9.46
- -------------------------------------------------------------------------------
Class I (32.26)% $ 1,000.00 $ 677.40 $ 4.89
- -------------------------------------------------------------------------------
Class Y (32.30)% $ 1,000.00 $ 677.00 $ 5.27
- -------------------------------------------------------------------------------
(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%, 1.16%
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
184/366 (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 DECEMBER 31, 2008
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $ 1,000.00 $ 1,017.60 $ 7.61
- --------------------------------------------------------------------------------
Class C 5.00% $ 1,000.00 $ 1,013.77 $ 11.39
- --------------------------------------------------------------------------------
Class I 5.00% $ 1,000.00 $ 1,019.25 $ 5.89
- --------------------------------------------------------------------------------
Class Y 5.00% $ 1,000.00 $ 1,018.85 $ 6.34
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 1.50%, 2.25%, 1.16%
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
184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS (UNAUDITED)
A Special Meeting of Shareholders of Aquila Rocky Mountain Equity Fund
(the "Fund") was held on July 15, 2008. The holders of shares representing 83%
of the total net asset value of the shares entitled to vote were present in
person or by proxy. At the meeting, the following matters were voted upon and
approved by the shareholders (the resulting votes for each matter are presented
below).
1. To elect Trustees.
Dollar Amount of Votes
----------------------
Trustee For Withheld
------- --- --------
Tucker Hart Adams $17,513,469 $85,664
Gary C. Cornia $17,513,469 $85,664
Grady Gammage, Jr. $17,513,469 $85,664
Diana P. Herrmann $17,511,859 $87,273
Glenn O'Flaherty $17,513,469 $85,664
2. To ratify the selection of Tait, Weller & Baker LLP as the Fund's
independent registered public accounting firm.
Dollar Amount of Votes
----------------------
For Against Abstain
--- ------- -------
$17,255,782 $82,167 $261,183
A reconvened Special Meeting of Shareholders of Aquila Rocky Mountain
Equity Fund was held on August 28, 2008. The holders of shares representing 52%
of the total net asset value of the shares entitled to vote were present in
person or by proxy. At the meeting, the following matter was voted upon and
approved by the shareholders (the resulting votes are presented below).
1. To act on an Advisory and Administrative Agreement.
Dollar Amount of Votes
----------------------
For Against Abstain
--- ------- -------
$10,985,920 $62,770 $318,126
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Federal Tax Status of Distributions (unaudited)
For the calendar year ended December 31, 2008, 100% of the amount
distributed by Aquila Rocky Mountain Equity Fund qualified as net long-term
capital gains.
Prior to January 31, 2009, shareholders were mailed the aproppriate tax
form(s) which contained information on the status of distributions paid for the
2008 calendar year.
- --------------------------------------------------------------------------------
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 Vice Chair and Chief Executive Officer of 12 ICI Mutual Insurance Company
New York, NY since 1997 and Aquila Management Corporation, Founder of the
(02/25/58) President Aquila Group of Funds(5) and parent of Aquila
since 2002 Investment Management LLC, Manager, since
2004, President since 1997, Chief Operating
Officer, 1997-2008, 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,
President and Manager of the Manager since
2003, and Chief Operating Officer of the
Manager, 2003-2008; Chair, Vice Chair,
President, Executive Vice President or Senior
Vice President of funds in the Aquila Group
of Funds since 1986; Director of the
Distributor since 1997; Governor, Investment
Company Institute (a trade organization for
the U.S. mutual 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 Griffis/Blessings, Inc.
Colorado Springs, CO Board of consulting firm, since 1989; formerly Chief (commercial property
(01/11/38) Trustees since Economist, United Banks of Colorado; development and
2005 and currently or formerly active with numerous management); Kachi Partners
Trustee since professional and community organizations. (middle market buyouts);
1993 Colorado Health Facilities
Authority
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Gary C. Cornia Trustee Dean, Marriott School of Management, Brigham 4 Lincoln Institute of Land
Orem, UT since 2002 Young University, since 2008; Director, Policy, Cambridge, MA
(06/24/48) Romney Institute of Public Management,
Marriott School of Management, 2004 - 2008;
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; member, Utah
Governor's Tax Review Committee since 1993.
Grady Gammage, Jr. Trustee Founding partner, Gammage & Burnham, PLC, a 2 None
Phoenix, AZ since 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; Maricopa
Partnership for Arts & Culture; Public
Architecture; Arizona Historical Foundation.
Glenn P. O'Flaherty Trustee Chief Financial Officer and Chief Operating 2 None
Denver, CO since 2007 Officer of Lizard Investors, LLC since 2008;
(08/03/58) Co-Founder, Chief Financial Officer and Chief
Compliance Officer of Three Peaks Capital
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.
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
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
of the Board to each fund of the Aquila Group of Funds;
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; previously
Chairman and a Trustee of each fund in the
Aquila Group of Funds since its establishment
until 2004 or 2005; Director of the
Distributor since 1981 and formerly Vice
President or Secretary, 1981-1998; Trustee
Emeritus, Brown University and the Hopkins
School; active in university, school and
charitable organizations.
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 and the Manager and the
(04/01/57) since 2003 Manager's parent since 2003; Executive Vice
President and Chief Operating Officer of the
Manager's parent since 2008; 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.
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.
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
Barbara S. Walchli Senior Vice Senior Vice President and Portfolio Manager N/A N/A
Phoenix, AZ President of Aquila Rocky Mountain Equity Fund since
(09/24/52) since 1999 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.
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 govern-ments,
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.
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
Sherri Foster Vice President Senior Vice President, Hawaiian Tax-Free N/A N/A
Lahaina, HI since 2006 Trust since 1993 and formerly Vice President
(07/27/50) or 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
(08/14/71) President, 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.
Christine L. Neimeth Vice President Vice President of Aquila Rocky Mountain N/A N/A
Portland, OR since 1999 Equity Fund and Tax-Free Trust of Oregon.
(02/10/64)
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,
(07/31/54) 1999-2001; Vice President, Aquila Rocky
Mountain Equity Fund since 1999; Bank One,
Commercial Client Services representative,
1997-1999; Trader and Financial Consultant,
National Bank of Arizona (Zions Investment
Securities Inc.), Phoenix, Arizona 1996-1997.
M. Kayleen Willis Vice President Vice President, Tax-Free Fund For Utah 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, the Manager and the Distributor since
2004 and 2004, Compliance Officer of the Manager or
Assistant its predecessor and current parent 1998-2004;
Secretary Assistant Secretary of the Aquila Group of
since 2000 Funds since 2000.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Joseph P. DiMaggio Chief Financial Chief Financial Officer of the Aquila Group N/A N/A
New York, NY Officer since of Funds since 2003 and Treasurer since 2000.
(11/06/56) 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.
John M. Herndon Assistant Assistant Secretary of the Aquila Group of N/A N/A
New York, NY Secretary Funds 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 since 2000; Assistant Vice President of
(11/02/66) since 2000 the Manager or its predecessor and current
parent since 1998; Fund Accountant for the
Aquila Group of Funds, 1995-1998.
- ----------
(1) The Fund's Statement of Additional Information includes additional
information about the Trustees and is available, without charge, upon request by
calling 800-437-1020 (toll-free) 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, Suite 2300, 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."
(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 (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 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
(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 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.
- --------------------------------------------------------------------------------
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.
(a) As of December 31, 2008 (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, as amended;
(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 2007 and $10,500 in 2008.
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 $3,100 in 2007 and 2008, 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
September 2, 2009
By: /s/ Joseph P. DiMaggio
- -------------------------------------
Chief Financial Officer and Treasurer
September 2, 2009
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 2, 2009
By: /s/ Joseph P. DiMaggio
- -------------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
September 2, 2009
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.