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: 06/30/09
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMI-ANNUAL
REPORT
JUNE 30, 2009
[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
"LOOKING FOR GROWTH
IN A SLOW ENVIRONMENT"
August, 2009
Dear Fellow Shareholder,
In the middle of one of the toughest recessions in over fifty years, we
were impressed that ten companies from the investment portfolio of Aquila Rocky
Mountain Equity Fund could produce revenue growth of 9% or better for the first
quarter of 2009. In contrast, during that quarter Gross Domestic Product (GDP)
growth declined 5.5%.
The ten companies with positive revenue growth of 9% or better included
the following:
COMPANY STATE 1Q REVENUE GROWTH IPO*
------- ----- ----------------- ----
Republic Services Group AZ 164% 1998
First Solar AZ 112 2006
Myriad Genetics UT 42 1995
Mobile Mini AZ 28 1983
Chipotle Mexican Grill CO 16 2006
Spectranetics CO 15 1992
IHS Corp. CO 14 2005
PetSmart AZ 10 1993
Merit Medical UT 9 1990
RightNow Tech. MT 9 2004
* IPO = initial public offering
Given the outlook for slower growth in an economy where consumers are
saving rather than spending, we are hearing a lot about a "new" normal level of
slower growth. Many companies are not able to increase revenues in this
environment because of a loss of pricing power or a loss of demand. Even a
company like General Electric saw revenue decline 9% in the first quarter of
2009.
Several of the companies held in Aquila Rocky Mountain Equity Fund's
portfolio of investments benefitted from acquisitions while others produced
internally generated growth. Among those that made acquisitions, Republic
Services Group acquired Allied Waste in December 2008. The combined companies
have been able to eliminate a lot of expense. Mobile Mini acquired Mobile
Services Group about a year ago and has been able to cut capital spending
significantly by utilizing the combined companies' containers more efficiently.
IHS Corp acquired Global Insight last fall. Global Insight is an economic
consulting firm that is the combination of Data Resources (DRI) and Wharton
Econometric Forecasting.
NOT A PART OF THE SEMI-ANNUAL REPORT
IHS is not only benefitting from demand for its economic services, but
also has a new growth opportunity due to new requirements that companies monitor
approximately 10,000 different carbon emissions. IHS offers an enterprise carbon
accounting service which quantifies carbon emissions for companies.
The other seven companies on the list produced their revenue growth
internally through new products and services. Three are health care companies.
Myriad Genetics produced 42% revenue growth in the first quarter selling its
genetic tests which help predict different health problems including breast,
ovarian and colon cancer. Myriad is working on bringing a new test to market
every six months. Merit Medical hopes to introduce fifteen new medical
technology products this year. Spectranetics has a new lead removal service that
removes leads from old pacemakers that can become infected and cause problems.
In addition, Spectranetics offers a laser treatment that can clean out blood
vessels and improve circulation so limbs do not have to be amputated.
In technology RightNow Technologies, based in Bozeman, Montana, offers
Internet-based customer service to companies like British Airways, Sony and
Nikon. First Solar, based in Tempe, Arizona, produces low cost solar cells.
It is interesting to note that in the list above of faster growing
companies, nine out of the ten names were not public companies before 1990. And,
four of them have gone public or had their initial public offering (IPO) in the
last five years.
Over the next few years in a period of expected slower growth, we believe
that small companies with unique products and services that can produce revenue
and earnings growth may be of increased interest to investors. Over the past few
years the Rocky Mountain Region has produced a number of small companies that
are providing solutions to problems in health care, energy and technology.
Twenty years ago if you lived in the Rocky Mountain Region and had a new
idea that you wanted to develop, you oftentimes had to move to California to
work with venture capitalists. Today, with 154 venture capital offices and 39
entrepreneurial incubators in the Rocky Mountain Region, we believe
entrepreneurs can find enough support to remain in the region. They can enjoy
the quality of life and outdoor lifestyle offered by the region while developing
and producing unique products and services.
Sincerely,
/s/ Barbara S. Walchli /s/ Diana P. Herrmann
Barbara S. Walchli Diana P. Herrmann
Senior Vice President and Portfolio Manager President and Trustee
NOT A PART OF THE SEMI-ANNUAL REPORT
[LOGO OF AQUILA ROCKY MOUNTAIN EQUITY
FUND: A RECTANGLE WITH A DRAWING OF
TWO MOUNTAINS AND THE WORDS "AQUILA
ROCKY MOUNTAIN EQUITY FUND"]
AQUILA ROCKY MOUNTAIN EQUITY FUND
SEMI-ANNUAL REPORT
MANAGEMENT DISCUSSION
Aquila Rocky Mountain Equity Fund's Class A shares had a total return of
6.26% without provision for sales charges but reflecting contractually waived
Fund expenses, for the first six months of 2009 ending June 30, 2009. This
compares to the Russell 2000 with a total return of 2.64% and the S&P 500 with a
return of 3.16%. The Russell Microcap Index had a total return of 5.47% for the
six-month period.
At mid-year, 36% of the Fund was invested in companies headquartered in
Colorado, 33% in Arizona, 18% in Utah, 7% in Montana, 3% in Idaho and 2% in
Nevada. We continue to look at companies that are headquartered in the region as
well as those with a significant presence in the region.
We do not have a perfect benchmark or performance comparison for the Fund
since we invest in companies in a specific region. At June 30th, 7% of the
equity investments in the Fund were in companies with a market capitalization
over $10 billion (large cap companies), 42% of the equity investments in the
Fund were in companies with a market capitalization between $2 billion and $10
billion (mid-cap) and 38% of the equity investments in the Fund were in
companies with market capitalizations between $300 million and $2 billion (small
cap). In addition, 13% of the equity investments in the Fund were in companies
with market capitalizations below $300 million (micro-cap).
Over the past twelve months we have shifted the portfolio somewhat from
large and medium sized companies to small and micro-cap companies. One year ago
large and mid-cap companies represented 63% of the Fund, while at June 30, 2009
large and mid-cap represented 49% of the portfolio. A year ago small and
micro-cap companies represented 36% of the Fund, while on June 30, 2009, small
and micro-cap companies represented 51% of the Fund. Historically, small and
micro-cap companies tend to outperform early in economic recoveries. In
addition, we believe small and microcap stocks can be rewarding if you can
identify them before Wall Street begins investing in them.
We continually seek to invest the Fund strategically and at mid-year had
holdings of 45 companies in the portfolio across a number of industries. We have
reduced the number of names in the portfolio. In an environment of slower
economic growth, we believe we need to be more selective. When price
appreciation moves the percentage weighting of a company over 7%, we work to
reduce the position size so we can control the individual risk of that
particular company in relation to the overall portfolio. We have also worked to
diversify the Fund across industries. We believe this helps to control specific
security risk as well as industry risk. Our largest individual position size on
June 30th was Merit Medical at 7.22% of the portfolio. Merit has recently made
two acquisitions and also intends to introduce about 15 new internally developed
products in 2009.
During the first half of 2009 the best performing stocks came from
Arizona, Idaho and Colorado. Providence Service Corp., based in Tucson, rose
655.2%, rebounding from very depressed levels in 2008. The company provides
social and other support services to state governments. With Federal
MANAGEMENT DISCUSSION (CONTINUED)
Medicaid spending projected to rise 50% in 2009 from 2008 levels, the company
should benefit. Coldwater Creek, based in Sandpoint, Idaho, rose 114.0%, also
rebounding from depressed levels. In its first quarter earnings call the company
indicated that it had reduced its cost structure by $100 million to be better
prepared for a more challenging retail environment. Freeport McMoran Copper and
Gold, based in Phoenix, rose 105.0% after copper prices increased 58.6% in the
six months ended June 30th.
Spectranetics, based in Colorado Springs, moved up 88.9% in the first
half. The company reported revenue growth of 15% in the first quarter due to
strength in its lead removal business and blood clot removal business. When left
in place, old leads from cardiac pacemakers and defibrillators can cause
infections and other problems. Liberty Interactive, based in Denver, which owns
QVC was up 60.6% in the first half as the outlook for retailing improved.
Worst performers came from Colorado and Utah. AspenBio Pharma declined
56.7% after a setback in the development of its appendicitis test early in the
year. However, on June 30th, after repositioning the product, the company filed
a Premarket Notification (510 K) with the FDA for its AppyScore Test, the first
blood-based test designed as an aid in the diagnosis of human appendicitis.
SkyWest Inc. declined 44.8% due to concerns about rising oil prices and slow
traffic. CIBER Inc. declined 35.6% due to dilution caused by selling stock to
reduce debt levels.
In May, Liberty Media announced that it would be merging with DIRECTV
later this year and that Starz Entertainment would be spun off to investors.
John Malone continues to work to maximize value for shareholders of Liberty
Media. In June, Myriad Genetics spun off its pharmaceutical business because
their business models are quite different. Myriad Genetics will focus on
developing predictive genetic tests and Myriad Pharmaceuticals will focus on
developing drugs for Alzheimer's, cancer, viruses and genetics diseases.
During the first half of 2009 we added Chipotle Mexican Grill to the Fund.
Chipotle has an above average return on assets of over 10%, has no debt and is
still in the growth phase of its business.
Additionally, during the second half of 2009 we are hopeful that we will
begin to see some positive Gross Domestic Product (GDP) growth of our economy.
We expect that auto production will increase, more spending from the stimulus
bill should occur and we should start to see a pickup in technology spending as
Microsoft shifts to a new operating system, Windows 7. We expect the recovery to
be modest over the next few years as consumers will be deleveraging.
In a slow growth environment we believe that companies that can still
demonstrate revenue and earnings growth will be rewarded by investors with
increased valuations. Of course, not all companies will do well. Investors will
need to be selective. In this regard, we believe that smaller companies that can
produce unique products and services may have an advantage.
Over the next few months Congress is expected to consider major new
policies including energy and health care that potentially could affect broad
segments of the economy. We are monitoring developments closely so we can
reposition investments if necessary. In a slow growth economy Congress needs, in
our view, to be careful not to burden the economy and debt markets with too many
changes and regulations.
AQUILA ROCKY MOUNTAIN EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2009 (UNAUDITED)
MARKET
SHARES COMMON STOCKS (99.5%) VALUE
- ----------- ------------------------------------------------------------------- ------------
BASIC INDUSTRY (20.6%)
6,000 American Ecology Corp. ........................................... $ 107,520
10,000 Ball Corp. ....................................................... 451,600
2,000 Freeport-McMoRan Copper & Gold, Inc.+ ............................ 100,220
36,000 Knight Transportation, Inc. ...................................... 595,800
8,000 Newmont Mining Corp. ............................................. 326,960
12,000 Republic Services, Inc. (Class A) ................................ 292,920
15,000 SkyWest, Inc. .................................................... 153,000
------------
2,028,020
------------
BUSINESS SERVICES (2.5%)
5,000 IHS, Inc. (Class A)+ ............................................. 249,350
------------
CAPITAL SPENDING (4.9%)
5,000 Dynamic Materials Corp. .......................................... 96,400
16,000 Mobile Mini, Inc.+ ............................................... 234,720
32,000 Semitool, Inc.+ .................................................. 147,840
------------
478,960
------------
CONSUMER CYCLICALS (1.5%)
5,000 M.D.C. Holdings, Inc. ............................................ 150,550
------------
CONSUMER SERVICES (11.0%)
36,000 Coldwater Creek, Inc.+ ........................................... 218,160
10,000 Dish Network Corp. (Series A)+ ................................... 162,100
8,000 Liberty Media Entertainment (Series A)+ .......................... 214,000
7,000 Liberty Media Interactive (Series A)+ ............................ 35,070
14,000 PetSmart, Inc. ................................................... 300,440
8,000 Pinnacle Entertainment, Inc.+ .................................... 74,320
12,000 Shuffle Master, Inc.+ ............................................ 79,320
------------
1,083,410
------------
CONSUMER STAPLES (3.1%)
1,000 Chipotle Mexican Grill, Inc.+ .................................... 80,000
8,000 Discovery Communications, Inc. (Series A)+ ....................... 180,400
6,000 Rocky Mountain Chocolate Factory, Inc. ........................... 46,200
------------
306,600
------------
ENERGY (9.4%)
10,000 Bill Barrett Corp.+ .............................................. 274,600
10,000 Cimarex Energy Co. ............................................... 283,400
12,000 Questar Corp. .................................................... 372,720
------------
930,720
------------
FINANCIAL (10.2%)
24,000 Glacier Bancorp, Inc. ............................................ 354,480
28,000 Janus Capital Group, Inc. ........................................ 319,200
20,000 Western Union Co. ................................................ 328,000
------------
1,001,680
------------
MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- ----------- ------------------------------------------------------------------- ------------
HEALTH CARE (18.9%)
20,000 Array BioPharma, Inc.+ ........................................... $ 62,800
25,000 AspenBio Pharma, Inc.+ ........................................... 66,750
11,000 Medicis Pharmaceutical Corp. (Class A) ........................... 179,520
44,000 Merit Medical Systems, Inc.+ ..................................... 717,200
8,000 Myriad Genetics, Inc.+ ........................................... 285,200
2,000 Myriad Pharmaceuticals, Inc.+ .................................... 9,300
20,000 Otix Global, Inc.+ ............................................... 16,000
16,000 Providence Service Corp.+ ........................................ 175,200
30,000 Spectranetics Corp.+ ............................................. 147,900
7,000 USANA Health Services, Inc.+ ..................................... 208,110
------------
1,867,980
------------
TECHNOLOGY (17.4%)
22,000 Avnet, Inc.+ ..................................................... 462,660
46,000 CIBER, Inc.+ ..................................................... 142,600
4,000 EchoStar Corp.+ .................................................. 63,760
500 First Solar, Inc.+ ............................................... 81,060
14,000 JDA Software Group, Inc.+ ........................................ 209,440
26,000 Microchip Technology, Inc. ....................................... 586,300
14,000 RightNow Technologies, Inc.+ ..................................... 165,200
------------
1,711,020
------------
Total Investments (cost $9,919,562*) .................... 99.5% 9,808,290
Other assets less liabilities ........................... 0.5 47,155
----- ------------
Net Assets .............................................. 100.0% $ 9,855,445
===== ============
PERCENT OF
PORTFOLIO DISTRIBUTION (UNAUDITED) PORTFOLIO
---------------------------------- ---------
ROCKY MOUNTAIN REGION
---------------------
Arizona 32.8%
Colorado 35.7
Idaho 3.3
Montana 6.8
Nevada 1.6
Utah 18.0
-----
98.2
Other Investments 1.8
-----
100.0%
=====
* Cost for Federal income tax and financial reporting purposes is identical.
+ Non-income producing security.
See accompanying notes to financial statemets.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2009 (UNAUDITED)
ASSETS
Investments at market value (cost $9,919,562) ...................................... $ 9,808,290
Cash ............................................................................... 68,101
Receivable from Manager ............................................................ 13,108
Dividends receivable ............................................................... 3,520
Other assets ....................................................................... 14,577
----------------
Total assets ..................................................................... 9,907,596
----------------
LIABILITIES
Payable for Fund shares redeemed ................................................... 15,059
Distribution and service fees payable .............................................. 2,434
Accrued expenses ................................................................... 34,658
----------------
Total liabilities ................................................................ 52,151
----------------
NET ASSETS ............................................................................ $ 9,855,445
================
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share $ 5,315
Additional paid-in capital ......................................................... 10,408,429
Net unrealized depreciation on investments (note 4) ................................ (111,272)
Accumulated net realized loss on investments ....................................... (447,027)
----------------
$ 9,855,445
================
CLASS A
Net Assets ......................................................................... $ 8,503,334
================
Capital shares outstanding ......................................................... 455,487
================
Net asset value and redemption price per share ..................................... $ 18.67
================
Maximum offering price per share (100/95.75 of $18.67 adjusted to nearest cent) .... $ 19.50
================
CLASS C
Net Assets ......................................................................... $ 796,308
================
Capital shares outstanding ......................................................... 47,175
================
Net asset value and offering price per share ....................................... $ 16.88
================
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) ....................................... $ 16.88*
================
CLASS I
Net Assets ......................................................................... $ 6,830
================
Capital shares outstanding ......................................................... 362
================
Net asset value, offering and redemption price per share ........................... $ 18.87
================
CLASS Y
Net Assets ......................................................................... $ 548,973
================
Capital shares outstanding ......................................................... 28,460
================
Net asset value, offering and redemption price per share ........................... $ 19.29
================
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2009 (UNAUDITED)
INVESTMENT INCOME:
Dividends ............................................. $ 52,994
Expenses:
Management fee (note 3) ............................... $ 69,462
Trustees' fees and expenses ........................... 41,324
Legal fees (note 3) ................................... 30,364
Transfer and shareholder servicing agent fees (note 3) 26,998
Registration fees and dues ............................ 26,750
Distribution and service fees (note 3) ................ 13,974
Shareholders' reports ................................. 11,768
Auditing and tax fees ................................. 6,274
Chief compliance officer (note 3) ..................... 2,017
Custodian fees (note 5) ............................... 1,429
Insurance ............................................. 364
Miscellaneous ......................................... 14,362
---------
Total expenses ........................................ 245,086
Management fee waived (note 3) ........................ (69,462)
Reimbursement of expenses by Manager (note 3) ......... (103,678)
Expenses paid indirectly (note 5) ..................... (85)
---------
Net expenses .......................................... 71,861
---------
Net investment loss ................................... (18,867)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions . (431,085)
Change in unrealized depreciation on investments ...... 970,026
---------
Net realized and unrealized gain (loss) on investments. 538,941
---------
Net change in net assets resulting from operations .... $ 520,074
=========
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 2009 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2008
----------------- -----------------
OPERATIONS:
Net investment loss ........................................... $ (18,867) $ (133,640)
Net realized gain (loss) from securities transactions ......... (431,085) (15,884)
Change in unrealized appreciation (depreciation) on investments 970,026 (8,758,240)
----------------- -----------------
Change in net assets from operations ........................ 520,074 (8,907,764)
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 8):
Class A Shares:
Net realized gain on investments .............................. -- (167,310)
Class C Shares:
Net realized gain on investments .............................. -- (20,745)
Class I Shares:
Net realized gain on investments .............................. -- (120)
Class Y Shares:
Net realized gain on investments .............................. -- (10,238)
----------------- -----------------
Change in net assets from distributions ..................... -- (198,413)
----------------- -----------------
CAPITAL SHARE TRANSACTIONS (NOTE 7):
Proceeds from shares sold ..................................... 104,819 1,373,163
Short-term trading redemption fee ............................. 42 428
Reinvested distributions ...................................... -- 130,284
Cost of shares redeemed ....................................... (1,096,068) (7,544,226)
----------------- -----------------
Change in net assets from capital share transactions ........ (991,207) (6,040,351)
----------------- -----------------
Change in net assets ........................................ (471,133) (15,146,528)
NET ASSETS:
Beginning of period ........................................... 10,326,578 25,473,106
----------------- -----------------
End of period ................................................. $ 9,855,445 $ 10,326,578
================= =================
See accompanying notes to financial statements.
AQUILA ROCKY MOUNTAIN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED)
1. ORGANIZATION
Z 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 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 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 (details of which can be found in the schedule of
investments), used to value the Fund's net assets as of June 30, 2009:
VALUATION INPUTS INVESTMENTS IN SECURITIES
---------------- -------------------------
Level 1 - Quoted Prices ........................ $ --
Common Stocks ............................... 9,808,290
Level 2 - Other Significant Observable Inputs .. --
Level 3 - Significant Unobservable Inputs ...... --
----------
Total .......................................... $9,808,290
==========
c) ACCOUNTING PRONOUNCEMENTS: In April 2009, the Financial Accounting
Standards Board ("FASB") issued FASB Staff Position No. 157-4,
"Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly" ("FSP 157-4"). FSP 157-4 provides
additional guidance for estimating fair value in accordance with FASB
Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" ("FAS 157"), when the volume and level of activity for the
asset or liability have significantly decreased as well as guidance on
identifying circumstances that indicate a transaction is not orderly. FSP
157-4 is effective for fiscal years and interim periods ending after June
15, 2009. The adoption of FSP 157-4 did not have an impact on the Fund's
financial statements and the Fund has made the required additional
disclosures.
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" (SFAS No.
165). The Fund adopted SFAS No. 165 which requires an entity to recognize
in the financial statements the effects of all subsequent events that
provide additional evidence about conditions that existed at the date of
the balance sheet. For non-recognized subsequent events that must be
disclosed to keep financial statements from being misleading, an entity is
required to disclose the nature of the event as well as an estimate of its
financial effect, or a statement that such an estimate cannot be made. In
addition, SFAS No. 165 requires an entity to disclose the date through
which
subsequent events have been evaluated. The Fund has evaluated subsequent
events through the issuance of its financial statements on August 28,
2009.
The Fund has adopted the provisions of Statement of Financial Accounting
Standards No. 161, "Disclosures about Derivative Instruments and Hedging
Activities" ("SFAS 161"), effective June 30, 2009. SFAS 161 requires
enhanced disclosures about a fund's derivative and hedging activities,
including how such activities are accounted for and their effect on a
fund's financial position, performance and cash flows. The Fund does not
invest in derivative instruments or engage in hedging activities. As a
result, SFAS 161 did not impact the Fund's financial statements.
d) 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.
e) 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 implementation of FIN 48 did not have a material impact on the Fund's
financial statements.
f) 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.
g) 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.
h) 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.
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, the Manager also provides all administrative services to the Fund.
This includes providing the office of the Fund and all related services as well
as managing relationships with all the various support organizations to the Fund
such as the shareholder servicing agent, custodian, legal counsel, auditors and
distributor and additionally maintaining the Fund's accounting books and
records. For its services, the Manager is entitled to receive a fee which is
payable monthly and computed as of the close of business each day on the net
assets of the Fund at the following annual rates; 1.50% on the first $15
million; 1.20% on the next $35 million and 0.90% on the excess over $50 million.
For the six months ended June 30, 2009, the Fund incurred management fees
of $69,462, all of which was waived. Additionally, during this period the
Manager reimbursed the Fund for other expenses in the amount of $103,678. The
Manager has contractually undertaken to waive fees and/or reimburse Fund
expenses during fiscal years ending December 31, 2009 and December 31, 2010 so
that total Fund expenses will not exceed 1.50% for Class A Shares, 2.25% for
Class C Shares, 1.34% for Class I Shares or 1.25% for Class Y Shares.
Under a Compliance Agreement with the Manager, the Manager is compensated
for Chief Compliance Officer related services provided to enable the Fund to
comply with Rule 38a-1 of the Investment Company Act of 1940.
Specific details as to the nature and extent of the services provided by
the Manager are more fully defined in the Fund's Prospectus and Statement of
Additional Information.
b) DISTRIBUTION AND SERVICE FEES:
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part of
the Plan, with respect to Class A Shares, the Fund is authorized to make
distribution 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 distribution
fee at the annual rate of 0.25% of the Fund's average net assets represented by
Class A Shares. For the six months ended June 30, 2009, distribution fees on
Class A Shares amounted to $9,927 of which the Distributor retained $1,501.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Fund's Class C shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Fund's average net assets represented by Class C Shares and for the
six months ended June 30, 2009, amounted to $3,031. In addition, under a
Shareholder Services Plan, the Fund is
authorized to make service fee payments with respect to Class C Shares to
Qualified Recipients for providing personal services and/or maintenance of
shareholder accounts. These payments are made at the annual rate of 0.25% of the
Fund's average net assets represented by Class C Shares and for the six months
ended June 30, 2009, amounted to $1,010. The total of these payments with
respect to Class C Shares amounted to $4,041 of which the Distributor retained
$946.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class I Shares to Qualified Recipients. Class I payments, under
the Plan, may not exceed, for any fiscal year of the Fund a rate (currently
0.20%) set from time to time by the Board of Trustees of not more than 0.25% of
the average annual net assets represented by the Class I Shares. In addition,
the Fund has a Shareholder Services Plan under which it may pay service fees
(currently 0.15%) of not more than 0.25% of the average annual net assets of the
Fund represented by Class I Shares. That is, the total payments under both plans
will not exceed 0.50% of such net assets. For the six months ended June 30,
2009, these payments were made at the average annual rate of 0.35% of such net
assets and amounted to $11 of which $6 related to the Plan and $5 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 six months ended June 30,
2009, total commissions on sales of Class A Shares amounted to $1,091 of which
the Distributor received $308.
c) OTHER RELATED PARTY TRANSACTIONS:
For the six months ended June 30, 2009, the Fund incurred $30,361 of legal
fees allocable to Butzel Long PC, counsel to the Fund, for legal services in
conjunction with the Fund's ongoing operations. The Secretary of the Fund is a
shareholder of that firm.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended June 30, 2009, purchases of securities and
proceeds from the sales of securities (excluding short-term investments)
aggregated $105,715 and $1,373,697, respectively.
At June 30, 2009, the aggregate tax cost for all securities was
$9,919,562. At June 30, 2009, the aggregate gross unrealized appreciation for
all securities in which there is an excess of market value over tax cost
amounted to $2,210,942 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
$2,322,214 for a net unrealized depreciation of $111,272.
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 primarily invests in the securities of companies based or with
significant operations within the eight state Rocky Mountain region consisting
of Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming.
These securities therefore are subject to economic and other conditions
affecting the various states which comprise the region. Accordingly, the
investment performance of the Fund might not be comparable with that of a
broader universe of companies.
7. CAPITAL SHARE TRANSACTIONS
a) TRANSACTIONS IN CAPITAL SHARES OF THE FUND WERE AS FOLLOWS:
Six Months Ended
June 30, 2009 Year Ended
(Unaudited) December 31, 2008
--------------------------- ---------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
CLASS A SHARES:
Proceeds from shares sold 4,287 $ 72,049 44,105 $ 1,178,222
Reinvested distributions -- -- 6,428 112,969
Cost of shares redeemed . (50,993) (848,356)(a) (237,743) (5,766,961)(a)
----------- ----------- ----------- -----------
Net change ............ (46,706) (776,307) (187,210) (4,475,770)
----------- ----------- ----------- -----------
CLASS C SHARES:
Proceeds from shares sold 302 4,535 3,298 76,334
Reinvested distributions -- -- 723 11,520
Cost of shares redeemed . (12,056) (182,745) (47,289) (1,036,874)
----------- ----------- ----------- -----------
Net change ............ (11,754) (178,210) (43,268) (949,020)
----------- ----------- ----------- -----------
CLASS I SHARES:
Proceeds from shares sold -- -- -- --
Reinvested distributions -- -- 7 120
Cost of shares redeemed . -- -- -- --
----------- ----------- ----------- -----------
Net change ............ -- -- 7 120
----------- ----------- ----------- -----------
CLASS Y SHARES:
Proceeds from shares sold 1,551 28,235 4,824 118,511
Reinvested distributions -- -- 318 5,771
Cost of shares redeemed . (3,885) (64,925) (27,691) (739,963)(b)
----------- ----------- ----------- -----------
Net change ............ (2,334) (36,690) (22,549) (615,681)
----------- ----------- ----------- -----------
Total transactions in Fund
shares .................. (60,794) $ (991,207) (253,020) $(6,040,351)
=========== =========== =========== ===========
(a) Net of short-term trading redemption fees of $42 and $227, respectively.
(b) Net of short-term trading redemption fees of $201.
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 is paid to the Fund
and is designed to offset the costs to the Fund caused by short-term
trading in Fund shares. The Fund retains the fee charged as paid-in
capital which becomes part of the Fund's daily net asset value (NAV)
calculation. The fee does not apply to shares sold under an Automatic
Withdrawal Plan, or sold due to the shareholder's death or disability. For
the six months ended June 30, 2009, 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
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
6/30/09 ------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
----------- -------- -------- -------- -------- --------
Net asset value, beginning of period ...... $ 17.57 $ 30.39 $ 32.47 $ 29.45 $ 27.93 $ 24.92
----------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) .......... (0.03) (0.17)++ (0.20)++ (0.11)+ (0.11)+ (0.17)+
Net gain (loss) on securities (both
realized and unrealized) ............ 1.13 (12.31) (0.19) 3.51 1.63 3.18
----------- -------- -------- -------- -------- --------
Total from investment operations ...... 1.10 (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 ............ $ 18.67 $ 17.57 $ 30.39 $ 32.47 $ 29.45 $ 27.93
=========== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) 6.26%* (41.07)% (1.34)% 11.54% 5.44% 12.08%
Ratios/supplemental data
Net assets, end of period
(in thousands) ...................... $ 8,503 $ 8,822 $ 20,950 $ 23,121 $ 17,684 $ 13,718
Ratio of expenses to average net assets 1.50%** 1.51% 1.54% 1.72% 1.59% 1.54%
Ratio of net investment loss to average
net assets .......................... (0.36)%** (0.67)% (0.64)% (0.57)% (0.48)% (0.72)%
Portfolio turnover rate ............... 1.14%* 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 5.24%** 3.51% 2.73% 2.70% 3.23% 2.82%
Ratio of net investment loss to average
net assets .......................... (4.09)%** (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% 1.50%
CLASS C
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
6/30/09 ------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
----------- -------- -------- -------- -------- --------
Net asset value, beginning of period ...... $ 15.94 $ 27.84 $ 30.11 $ 27.54 $ 26.31 $ 23.66
----------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) .......... (0.08) (0.33)++ (0.42)++ (0.32)+ (0.30)+ (0.35)+
Net gain (loss) on securities (both
realized and unrealized) ............ 1.02 (11.23) (0.16) 3.27 1.53 3.00
----------- -------- -------- -------- -------- --------
Total from investment operations ...... 0.94 (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 ............ $ 16.88 $ 15.94 $ 27.84 $ 30.11 $ 27.54 $ 26.31
=========== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) 5.90%* (41.53)% (2.08)% 10.71% 4.68% 11.20%
Ratios/supplemental data
Net assets, end of period
(in thousands) ...................... $ 796 $ 940 $ 2,845 $ 3,449 $ 2,607 $ 2,235
Ratio of expenses to average net assets 2.25%** 2.26% 2.29% 2.47% 2.34% 2.29%
Ratio of net investment loss to average
net assets .......................... (1.11)%** (1.43)% (1.38)% (1.32)% (1.24)% (1.47)%
Portfolio turnover rate ............... 1.14%* 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 6.01%** 4.22% 3.47% 3.45% 3.98% 3.56%
Ratio of net investment loss to average
net assets .......................... (4.86)%** (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% 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.
* Not annualized.
** Annualized.
See accompanying notes to financial statements.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS I
------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, PERIOD
6/30/09 -------------------------------------- ENDED
(UNAUDITED) 2008 2007 2006 12/31/05(1)
----------- -------- -------- -------- --------
Net asset value, beginning of period ..... $ 17.73 $ 30.58 $ 32.51 $ 29.46 $ 30.26
----------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) ............. 0.01 (0.11)++ (0.14)++ (0.08)+ (0.02)+
Net gain (loss) on securities
(both realized and unrealized) ......... 1.13 (12.40) (0.10) 3.51 (0.78)
----------- -------- -------- -------- --------
Total from investment operations ......... 1.14 (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 ........... $ 18.87 $ 17.73 $ 30.58 $ 32.51 $ 29.46
=========== ======== ======== ======== ========
Total return (not reflecting sales charge) 6.43%* (40.92)% (0.87)% 11.64% (2.64)%*
Ratios/supplemental data
Net assets, end of period
(in thousands) ......................... $ 7 $ 6 $ 11 $ 28 $ 24
Ratio of expenses to average net assets .. 1.08%** 1.30% 1.38% 1.64% 1.43%**
Ratio of net investment income (loss)
to average net assets .................. 0.07%** (0.46)% (0.46)% (0.48)% (0.64)%**
Portfolio turnover rate .................. 1.14%* 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 .. 4.75%** 3.37% 2.55% 2.69% 2.67%**
Ratio of net investment loss to
average net assets ..................... (3.60)%** (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 .. 1.08%** 1.29% 1.34% 1.42% 1.42%**
CLASS Y
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
6/30/09 ------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
----------- -------- -------- -------- -------- --------
Net asset value, beginning of period ..... $ 18.13 $ 31.25 $ 33.25 $ 30.08 $ 28.45 $ 25.32
----------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) ............. (0.01) (0.11)++ (0.12)++ (0.03)+ (0.05)+ (0.11)+
Net gain (loss) on securities
(both realized and unrealized) ......... 1.17 (12.67) (0.19) 3.58 1.68 3.24
----------- -------- -------- -------- -------- --------
Total from investment operations ......... 1.16 (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 ........... $ 19.29 $ 18.13 $ 31.25 $ 33.25 $ 30.08 $ 28.45
=========== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) 6.40%* (40.90)% (1.07)% 11.80% 5.73% 12.36%
Ratios/supplemental data
Net assets, end of period
(in thousands) ......................... $ 549 $ 558 $ 1,667 $ 1,616 $ 1,430 $ 1,661
Ratio of expenses to average net assets .. 1.25%** 1.26% 1.29% 1.47% 1.34% 1.29%
Ratio of net investment income (loss)
to average net assets .................. (0.11)%** (0.43)% (0.39)% (0.31)% (0.26)% (0.47)%
Portfolio turnover rate .................. 1.14%* 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 .. 4.99%** 3.21% 2.48% 2.45% 2.99% 2.56%
Ratio of net investment loss to
average net assets ..................... (3.84)%** (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% 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 January 1,
2009 and held for the six months ended June 30, 2009.
ACTUAL EXPENSES
This table provides information about actual account values and actual
expenses. You may use the information provided in this table, together with the
amount you invested, to estimate the expenses that you paid over the period. To
estimate the expenses you paid on your account, divide your ending account value
by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During the Period".
SIX MONTHS ENDED JUNE 30, 2009
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A 6.26% $1,000.00 $1,062.60 $ 7.67
- --------------------------------------------------------------------------------
Class C 5.90% $1,000.00 $1,059.00 $11.49
- --------------------------------------------------------------------------------
Class I 6.43% $1,000.00 $1,064.30 $ 5.53
- --------------------------------------------------------------------------------
Class Y 6.40% $1,000.00 $1,064.00 $ 6.40
- --------------------------------------------------------------------------------
(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%, 1.08%
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
181/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio and an assumed rate of
return of 5.00% per year before expenses, which is not the Fund's actual return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
the information provided in this table to compare the ongoing costs of investing
in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical
example relating to the Fund with the 5.00% hypothetical examples that appear in
the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to
highlight your ongoing costs only and do not reflect any transactional costs
with respect to Class A shares. The example does not reflect the deduction of
contingent deferred sales charges ("CDSC") with respect to Class C shares.
Therefore, the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different mutual funds. In
addition, if these transaction costs were included, your costs would have been
higher.
SIX MONTHS ENDED JUNE 30, 2009
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,017.36 $ 7.50
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,013.64 $11.23
- --------------------------------------------------------------------------------
Class I 5.00% $1,000.00 $1,019.44 $ 5.41
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,018.60 $ 6.26
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 1.50%, 2.25%, 1.08%
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
181/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 your Fund's entire list of portfolio securities twice a
year in the semi-annual and annual reports you receive. Additionally, under Fund
policies, the Manager publicly discloses the complete schedule of the Fund's
portfolio holdings, as of each calendar quarter, no earlier than the first
business day falling 30 days after the quarter's end. Such information remains
accessible until the next schedule is made publicly available. You may obtain a
copy of the Fund's portfolio holding schedule for the most recently completed
period by visiting the Fund's website at www.aquilafunds.com. The Fund also
discloses the five largest holdings by market value as of the close of the last
business day each calendar quarter-end by posting the same to its website on the
5th business day of the month following a calendar quarter-end. Whenever you
wish to see a listing of your Fund's portfolio other than in your shareholder
reports, please check our website (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, D.C. or by calling 1-800-SEC-0330.
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PROXY VOTING RECORD (UNAUDITED)
Proxy Voting Guidelines and Procedures of the Fund are available without
charge, upon request, by calling our toll free number (1-800-437-1020). This
information is also available at http://www.aquilafunds.com/armef/armefproxy.htm
or on the SEC's Web site - http://www.sec.gov.
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ADDITIONAL INFORMATION (UNAUDITED)
RENEWAL OF THE SUB-ADVISORY AND ADMINISTRATION AGREEMENT
Renewal until June 30, 2010 of the Sub-Advisory and Administration
Agreement (the "Sub-Advisory Agreement") between the Fund and the Manager was
approved by the Board of Trustees and the independent Trustees in May, 2009. At
a meeting called and held for the foregoing purpose at which the independent
Trustees were present in person, the following materials were considered:
o Copies of the agreements to be renewed;
o A term sheet describing the material terms of the agreements;
o The Annual Report of the Fund for the year ended December 31, 2008;
o A report, prepared by the Manager containing data about the performance of
the Fund compared to various benchmarks, data about its fees, expenses and
purchases and redemptions together with comparisons of such data with
similar data about other comparable funds, as well as data as to the
profitability of the Manager; and
o Quarterly materials reviewed at prior meetings on the Fund's performance,
operations, portfolio and compliance.
THE NATURE, EXTENT, AND QUALITY OF THE SERVICES PROVIDED BY THE MANAGER.
The Manager's portfolio management operation with respect to the Fund's
investment securities is based within the investment region. The Trustees noted
that Ms. Barbara Walchli, whom the Manager employs as portfolio manager for the
Fund, focuses on approximately 300 Rocky Mountain-based companies from which she
selects investments for the Fund's portfolio. Ms. Walchli, based in Phoenix,
Arizona, provides regional information regarding specific holdings in the Fund's
portfolio as well economic and business developments within the region. She has
also been available to and has met with the brokerage and financial planner
community and with investors and prospective investors to provide them with
information generally about the Fund's portfolio, with which to assess the Fund
as an investment opportunity.
The Board considered that the Manager had provided all services the Board
deemed necessary or appropriate, including the specific services that the Board
has determined are required for the Fund, given that its purpose is to provide
shareholders with capital appreciation primarily through investing in equity
securities of companies having a significant business presence in the Rocky
Mountain region.
The Manager has additionally provided all administrative services to the
Fund. The Board considered the nature and extent of the Manager's supervision of
third-party service providers, including the Fund's shareholder servicing agent
and custodian. The Board considered that the Manager had generally maintained a
culture of ethical conduct and regulatory compliance.
The Board concluded that the services provided were appropriate and
satisfactory and that the Fund would be well served if they continued.
Evaluation of this factor weighed in favor of renewal of the Sub-Advisory
Agreement.
THE INVESTMENT PERFORMANCE OF THE FUND AND THE MANAGER.
The Board determined it appropriate to consider the Fund's performance.
The Board reviewed each aspect of the Fund's performance and compared its
performance with that of various benchmark indices. It was noted that 2008 saw
precipitous declines in the values of equity securities generally and those of
the Fund were no exception. It was noted that the materials provided by the
Manager indicated that
compared to some of the various indices, the Fund has had investment performance
that was not greatly worse than the benchmarks during 2008.
The Board noted that the investment style of the Manager, which tilts
toward growth stocks, had been particularly hard hit during the past year, as
growth stocks declined more than value stocks; however, the Board concluded that
the performance of the Fund, in light of challenging financial market
conditions, was satisfactory. Evaluation of this factor indicated to the
Trustees that renewal of the Sub-Advisory Agreement would be appropriate.
THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
MANAGER AND ITS AFFILIATE FROM THE RELATIONSHIP WITH THE FUND.
The information provided in connection with renewal contained expense data
for the Fund and a peer group was provided to the Trustees for their review and
discussion. The materials also showed the lack of profitability to the Manager
of its services to the Fund because the Manager had waived all fees and had
reimbursed a significant portion of the Fund's expenses in the past year.
The Board compared the expense and fee data with respect to the Fund to
data about other funds, including those of similar asset size that it found to
be relevant. The Board concluded that the expenses of the Fund and the fees
(after waivers) paid were similar to and were reasonable as compared to those
being paid by the peer group.
It was noted that the Manager had contractually undertaken to waive fees
and/or reimburse Fund expenses during the period January 1, 2009 through
December 31, 2010 so that the total Fund expenses did not exceed 1.50% for Class
A Shares, 2.25% for Class C Shares, 1.34% for Class I Shares and 1.25% for Class
Y Shares.
The Board considered that the foregoing indicated the appropriateness of
the costs of the services to the Fund.
The Board further concluded that the lack of profitability to the Manager
was consistent with approval of the fees to be paid under the Sub-Advisory
Agreement. (The Board noted that the Distributor did not derive profits from its
relationship with the Fund.)
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS.
The Fund has in place breakpoints in the management fee which would be
realized as the Fund grows. For its services, the Manager is entitled to receive
a fee which is payable monthly and computed as of the close of business each day
on the net assets of the Fund at the following annual rates; 1.50% on the first
$15 million; 1.20% on the next $35 million and 0.90% on the excess over $50
million. Given the loss of assets during the year, continuing adverse market
conditions and the Fund's current small size, the Board noted that reaching
asset levels where the breakpoints would be relevant would be unlikely in the
foreseeable future. Evaluation of this factor indicated to the Board that the
Sub-Advisory Agreement should be renewed at this time.
BENEFITS DERIVED OR TO BE DERIVED BY THE MANAGER AND ITS AFFILIATE FROM THE
RELATIONSHIP WITH THE FUND.
The Board observed that, as is generally true of most fund complexes, the
Manager and its affiliate, by providing services to a number of funds including
the Fund, were able to spread costs as it would otherwise be unable to do. The
Board noted that while that produces efficiencies and increased profitability or
in this case decreased losses for the Manager and its affiliate, it also makes
their services available to the Fund at favorable levels of quality and cost
which are more advantageous to the Fund than would otherwise have been possible.
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
Maryann Bruce, Senior Vice President
Marie E. Aro, Senior Vice President
R. Lynn Yturri, Senior Vice President
Robert W. Anderson, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer and Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
PNC Global Investment Servicing
101 Sabin Street
Pawtucket, RI 02860
CUSTODIAN
JPMORGAN CHASE BANK, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TAIT, WELLER & BAKER LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Further information is contained in the Prospectus,
which must precede or accompany this report.
ITEM 2. CODE OF ETHICS.
Not applicable
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not appplicable
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included in Item 1 above
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Directors of the Registrant has adopted a Nominating
Committee Charter which provides that the Nominating Committee (the 'Committee')
may consider and evaluate nominee candidates properly submitted by shareholders
if a vacancy among the Independent Trustees of the Registrant occurs and if,
based on the Board's then current size, composition and structure, the Committee
determines that the vacancy should be filled. The Committee will consider
candidates submitted by shareholders on the same basis as it considers and
evaluates candidates recommended by other sources. A copy of the qualifications
and procedures that must be met or followed by shareholders to properly submit
a nominee candidate to the Committee may be obtained by submitting a request
in writing to the Secretary of the Registrant.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing of this report, the registrant's
chief financial and executive officers have concluded that the disclosure
controls and procedures of the registrant are appropriately designed to ensure
that information required to be disclosed in the registrant's reports that are
filed under the Securities Exchange Act of 1934 are accumulated and communicated
to registrant's management, including its principal executive officer(s) and
principal financial officer(s), to allow timely decisions regarding required
disclosure and is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms adopted by the Securities and Exchange
Commission.
(b) There have been no significant changes in registrant's internal controls or
in other factors that could significantly affect registrant's internal controls
subsequent to the date of the most recent evaluation, including no significant
deficiencies or material weaknesses that required corrective action.
ITEM 12. EXHIBITS.
(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act of
1940.
(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934 and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AQUILA ROCKY MOUNTAIN EQUITY FUND
By: /s/ Diana P. Herrmann
- -----------------------------------
President and Trustee
September 3, 2009
By: /s/ Joseph P. DiMaggio
- -------------------------------------
Chief Financial Officer and Treasurer
September 3, 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 3, 2009
By: /s/ Joseph P. DiMaggio
- -------------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
September 3, 2009
AQUILA ROCKY MOUNTAIN EQUITY FUND
EXHIBIT INDEX
(a) (2) Certifications of principal executive officer
and principal financial officer as required by Rule 30a-2(a)
under the Investment Company Act of 1940.
(b) Certification of chief executive officer and chief financial
officer as required by Rule 30a-2(b) of the Investment Company Act
of 1940.