ADVISER AND ADMINISTRATOR
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
FERGUSON, WELLMAN, RUDD,
PURDY & VAN WINKLE, INC.
888 SW Fifth Avenue, Suite 1200
Portland, OR 97204-2026
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Warren C. Coloney
James A. Gardner
Diana P. Herrmann
Ann R. Leven
Raymond H. Lung
Richard C. Ross
OFFICERS
Lacy B. Herrmann, President
Sally Wilson Church, Vice President
Nancy Kayani, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, 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
ADMINISTRATIVE DATA
MANAGEMENT CORP.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must precede or accompany this report.
ANNUAL
REPORT
MARCH 31, 1997
AQUILA
CASCADIA
EQUITY FUND
[Graphic: Small picture of an antique pocket watch in front of a larger
picture of a cascading waterfall]
ONE OF THE
AQUILASM GROUP
OF FUNDS
<PAGE>
AQUILA CASCADIA EQUITY FUND
ANNUAL REPORT
May 1, 1997
Dear Investor:
It is a pleasure to provide you with this first Annual Report of the
Aquila Cascadia Equity Fund. We would like to take the opportunity, through
this report letter, to review for you some of the Fund's key elements.
THE FUND'S INVESTMENT GOAL
The Fund's goal is capital appreciation for your investment. We seek
to achieve this goal primarily through investments in growth-oriented
companies within the seven state investment region of our country we term
"Cascadia" - Oregon, Washington, Idaho, Utah, Nevada, Alaska, and Hawaii.
The Fund's investment portfolio manager, Ferguson, Wellman, Rudd,
Purdy & Van Winkle, Inc., searches for securities which possess inherent
value yet can be acquired by the Fund at prices that are reasonable within
the marketplace. The intent through this approach is to capture upside
potential while limiting downside risks in price movements to the maximum
extent practicable.
THE FUND'S INVESTMENT RETURN
From commencement of investment operation through the partial year of
a little more than six months, the Fund's investment return was a most
respectable 7.92%*, based upon net asset value. A review of total return
figures produced by the Fund since the beginning of 1997 reflects the recent
seesaw pattern of the securities markets. Encouragingly, as of April 30,
1997 the total return of the Fund since commencement of operation had
rebounded to 8.50%.
ABSOLUTE RETURNS AND THE POWER OF COMPOUNDING
The major focus of Aquila Cascadia Equity Fund is to produce credible
ABSOLUTE returns for our investors.
It is always desirable to strive for positive performance relative to
popular market indexes. However, we have found from extensive experience
over the years, that chasing indexes can lead, in many instances, to
short-sightedness as opposed to sticking with one's basic investment
strategy.
One has to maintain the "big picture" gained through longer-term
perspective. In this regard, ABSOLUTE performance over a reasonable length
time period is what counts. ABSOLUTE results, as measured on an average
annual basis, are, after all, what you can take to the bank.
Let us illustrate the power of compounding. An average annual ABSOLUTE
return of 10% doubles one's money in 7 years. A 15% average annual ABSOLUTE
return doubles one's money in about 5 years.
Clearly, management of Aquila Cascadia Equity Fund cannot predict
what level of average annual ABSOLUTE return might be produced for investors
in the Fund over the future. What we can say, however, is that the Fund will
seek to provide a highly acceptable average annual ABSOLUTE return through
participation in the growth prospects of the dynamic "Cascadia" region. A
return that can compound your capital nicely is our goal.
<PAGE>
WHY THE "CASCADIA" REGION
Independent analysis shows that the "Cascadia" investment region has
been experiencing one of the highest economic growth rates of any area in our
country. Projections indicate that such growth rate should continue to be
the case over the foreseeable future.
The U.S. Bureau of the Census projects the percentage increase in
population and employment growth in this region to be greater than the U.S.
as a whole through 2005.
Moreover, Aquila Management Corporation, founder of this Fund, has
witnessed first-hand such growth characteristics as a result of its close
exposure to the economies of Oregon, Utah, and Hawaii through Aquila's
tax-free municipal bond funds in these three key states in the Cascadia
region.
"Cascadia's" industry base has broadened significantly over the past
decade. As a result, the region now offers numerous attractive investment
opportunities with growth-oriented companies of various size.
In creating the Fund, Aquila Management Corporation believes that
there are distinct benefits to investors in having a regionally-located
investment manager. Such regionally-located manager has the greater ability,
through being on-site, to search out and take advantage of investment
opportunities in "Cascadia". That is why the highly reputable firm of
Ferguson Wellman located in Portland, Oregon was chosen as the investment
manager.
It is always exciting and rewarding for the on-site investment
manager to "discover" vibrant companies in the "Cascadia" region whose
securities can possess good appreciation prospects - before they are
uncovered by the marketplace nationally.
Moreover, unlike regional funds that have attracted strong investor
interest in recent years by focusing upon countries in the Far East, Latin
America, and Eastern Europe, the Cascadia Fund is located in the good old
USA. It is not bothered by the complexities of various languages, currencies,
accounting standards, and cultural differences
The Fund's investment selections are focused upon securities of
companies right here in "our own backyard."
HIGHLIGHTS OF THE FUND'S INVESTMENTS
At year-end March 31, 1997, the companies whose securities made up
the 10 largest common stock holdings in the portfolio were:
<TABLE>
<CAPTION>
COMPANY STATE % OF NET ASSETS
<S> <C> <C>
Fred Meyer Oregon 3.3%
Costco Companies Washington 3.0%
Intel Oregon 3.0%
Pacificorp Oregon 2.5%
Nike Oregon 2.4%
Safeco Washington 2.2%
Paccar Washington 2.1%
Microsoft Washington 2.1%
Nabisco Holdings New Jersey 2.0%
Alaska Air Group Washington 2.0%
</TABLE>
<PAGE>
The following chart illustrates the year-end state-by-state
allocation of the investment assets within the Cascadia region.
[Graphic of a pie chart with the following information:]
<TABLE>
<S> <C>
Washington 31.1%
Oregon 27.6%
Utah 9.1%
Nevada 6.9%
Idaho 5.9%
Hawaii 3.5%
Alaska 1.5%
Other 9.0%
Cash and Equivalent 5.4%
</TABLE>
Our objective is to invest a minimum of 65% of the Fund's assets in
companies within the Cascadia investment region. This criteria is defined as
those companies:
* having principal executive offices located in the region, or
* more than half of their assets located in the region; or
* deriving more than half of their revenue or profits from the
region.
IMPORTANCE OF CONSISTENCY AND LONGER-TERM VIEWPOINT
The Fund has adopted a value-oriented approach in selecting its
investments.
Just as fashion changes frequently with ladies' apparel, investment
areas also change frequently within the equity securities marketplace. When
such changes occur, certain investments go out of favor, while others come
into favor.
Experience has shown that it is difficult, and often imprudent, to
switch continuously from one investment style to another just trying to
capture the latest trend in the management of investments.
In our experience, "value will win out" over the longer run. This
tends to be the case whether one talks about clothes, automobiles,
collectibles, or investment securities.
Therefore, we have settled upon a value-oriented approach in focusing
upon capital appreciation opportunities. This may result in the Fund doing
well in certain periods, but, at other times, not necessarily keeping up with
the then "in-vogue" securities.
We, therefore, encourage investors in the Fund to view their
investment over a reasonable length time period - 3 to 5 years - in order to
realize their desired capital appreciation goal.
<PAGE>
THE FUND'S INCOME AND EXPENSES
As indicated, Aquila Cascadia Equity Fund is designed for capital
appreciation. Accordingly, securities in the investment portfolio generally
produce little, if any, income in the form of dividends or interest. (The
non-income producing securities are clearly marked in the following Statement
of Investments.) To date, the Fund's portfolio has generated an average
annual income level of approximately 1.5% of total assets. We hope a
comparable income level might be continued.
Whatever income is produced from the Fund's investments will first be
applied against payment of the Fund's operating expenses. Over time, as the
asset level of the Fund increases, we trust the income level produced by the
various securities in the portfolio might be sufficient to cover operating
expenses. Then, any surplus income, above the level devoted to payment of
the Fund's operating expenses, will be distributed as dividends to the Fund's
shareholders.
Meanwhile, as shown in the "Statement of Operations" of the Annual
Report, the Fund's operating expenses were subsidized by reimbursement from
the Fund's management group. Additionally, since inception, both the
Administrator and Adviser have waived their fees. We anticipate that only a
partial waiving of fees will be necessary during the current fiscal year.
YOUR CONFIDENCE APPRECIATED
Your investment in Aquila Cascadia Equity Fund is greatly
appreciated. We value your trust and will do our best to merit your
continued confidence.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
*In keeping with industry standards, the total return figure indicated above
for Class A shares does not include the initial sales charge. Different
Classes of shares are offered and their performance will vary because of
differences in sales charges and fees paid by shareholders investing in
different Classes. Management fees and certain expenses were subsidized or
waived. The return would have been less if sales charges, management fees,
and expenses were applied. Share net asset value and investment return
fluctuate so that an investor may receive more or less than original
investment cost upon redemption. The prospectus of the Fund, which contains
more complete information, including management fees and expenses and which
discusses the special risk considerations of the geographic concentration
strategy of the Fund, should, of course, be carefully reviewed before
investing.
<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The Aquila Cascadia Equity Fund has been managed, since its
inception, to provide capital appreciation through selection of equity
securities, with a value bias. The Fund's universe of companies are primarily
within the seven state "Cascadia" region.
The graph below illustrates the value of $10,000 invested in Class A
shares of the Fund since the commencement of its investment operations on
September 9, 1996 and maintaining this investment through the Fund's fiscal
year-end, March 31, 1997, as compared with a hypothetical similar size
investment in the Standard &Poor's MidCap 400 Index (the "Index") over that
same period. The total return of the investment in the Fund is shown after
deduction of the maximum sales charge of 4.25% at the time of initial
investment. It also reflects deduction of the Fund's annual operating
expenses and reinvestment of dividends and capital gains distributions, if
any, without sales charge. On the other hand, the Index does not reflect any
sales charge nor operating expenses, but does reflect reinvestment of
dividends. The performance of the Fund's other classes may be greater or
lesser than the Class A shares performance indicated on this graph, depending
on whether greater or lesser sales charges and fees were incurred by
shareholders investing in the other classes.
It should also be noted that the Index is a nationally-oriented,
unmanaged portfolio of 400 equity securities, of mid-capitalization
companies. However, the Fund's investment portfolio consisted over the same
period of a significantly lesser number of equity securities, primarily of
companies domiciled in the seven state, "Cascadia region". The market prices
and behavior of the individual securities in the Fund's investment portfolio
can be affected by local and regional factors which may well result in
variances from the market action of the securities in the nationally-oriented
index.
Consequently, much of the difference in performance of the Index
versus the Fund can be attributed to the fact that there is no initial sales
charge applicable to the Index, nor are there annual operating expenses with
the Index as is the case with the Fund. Additionally, a portion of the
difference in performance can be attributed to the different characteristics
of the regional market of the securities in the Fund's portfolio as compared
with the national orientation of the securities in the Index.
Even with a short investment history, the pattern of the Fund's
results and that of the Index over the period since commencement of the
Fund's investment operations do, however, have a high correlation of return,
even though they are not entirely comparable in character.
[Graphic of line chart with the following information:]
PERFORMANCE COMPARISON
<TABLE>
<CAPTION>
S&P MidCap 400 Index ($) Fund After Sales
Charge and Expenses ($)
<C> <C> <C>
9/9/96 10,000 9,575
9/96 10,444 9,840
10/96 10,474 9,808
11/96 11,064 10,327
12/96 11,076 10,303
1/97 11,492 10,718
2/97 11,397 10,630
3/97 10,912 10,335
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS
Fund's Cumulative Total Return for the period from commencement of investment
operations on 9/9/96 through 3/31/97:
<TABLE>
<S> <C>
Class A Shares 3.35%*
<FN>
*Includes sales charge and expenses
</FN>
</TABLE>
<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE (CONTINUED)
MIDCAP OVERVIEW
It has become more and more obvious that what we are witnessing is a
market of stocks, not a stock market. While the market continues to focus on
larger capitalization companies, the Fund itself primarily focuses on mid-cap
companies. As a consequence, the valuation gap between the large-cap and
mid-cap companies continues to expand. We believe that middle capitalization
stocks, therefore, remain a relative bargain. We would expect that as the
market broadens, mid-capitalization stocks should perform well. From a big
picture perspective, we anticipate the Fund's above average exposure to the
rapidly-growing technology sector will eventually be an important part of the
Fund's longer-term performance.
CASCADIA REGION
During 1996, the Cascadia investment region again contained many of
the nation's most rapidly growing states. Nevada led the country in
population growth with Utah, Idaho, Oregon and Washington not far behind.
This rapid-pace population growth has been eclipsed only by the number of
jobs created. Nevada again led the pack as the nation's employment leader.
With all the number of the jobs created in the region, labor
shortages, particularly in the urban areas, continue to exist. Throughout
the region, employers scramble to find construction workers, general laborers
and workers. In the Puget Sound region, there is grumbling that Boeing "is
like a vacuum cleaner," hiring as many employees as it can. Last year,
Boeing added nearly 21,000 new employees worldwide (a 20% increase) including
nearly 16,000 in Washington state alone.
The continued inflow of people into the Cascadia investment region
has a multiplier effect on the economies throughout this seven-state region.
As impressive as the Boeing statistics are, the growth and economic impact of
the region's "new industries" is even more powerful. For example, a study of
Microsoft's impact on the Washington state economy revealed that each
Microsoft job created 6.7 new jobs in the state compared with a 3.8
multiplier for Boeing.
Tight labor markets and the resulting upward pressure on salaries and
wages are likely to persist in the region. Compared to the nation as a
whole, rising inflation levels and higher interest rates may eventually enter
the picture in the Cascadia investment region, but it will take time for them
to work their way through the regional economy, which remains strong by
almost every measure.
MARKET OVERVIEW
As of this writing, the U.S. equity markets have rebounded sharply
after the popular indices plunged nearly 10% from their highs late in the
first quarter, 1997. We are very pleased to report, however, that Aquila
Cascadia Equity Fund performed well during this very volatile period.
<PAGE>
With the blood now having largely returned to investors' cheeks, a
closer look at stocks that make up the indices reveal that a large proportion
of stocks suffered an even more severe loss of market value than the indices
indicate. Indeed, since the market peaked in mid-February, OVER 55% OF THE
STOCKS TRADED ON THE NASDAQ LOST 20% OR MORE AND OVER 30% OF THE STOCKS LOST
A WHOPPING 40% OR MORE. A LOOK AT THE STANDARD & POOR'S 500 FURTHER REVEALS
THAT APPROXIMATELY ONE-THIRD OF THE STOCKS LOST 20% OR MORE IN VALUE. While
the market could retreat once again from today's high levels, it is important
to realize that with a majority of stocks having already weathered bear
market conditions, this will in all likelihood help to soften any possible
future market declines.
Paradoxically, the markets corrected during the first quarter over
fears of an economy that was expanding too rapidly. Federal Reserve Board
Chairman Alan Greenspan had been concerned with both the surprising strength
of economic growth and what he called "irrational exuberance" (i.e. higher
stock prices). An economy whose rate of expansion was accelerating was
perceived by investors to mean higher levels of inflation in the future.
While on March 25th, the Fed raised short-term interest rates one quarter of
a percent to 5.50% as a"preemptive strike" against inflation, the yield on
the 30-year Treasury Bond has moved up way in excess of that. We believe the
bond market (not necessarily the Fed) will ultimately succeed in slowing the
rate of economic growth. Additionally, the U.S. dollar has risen quite
sharply, which will most assuredly slow exports and in effect, further
curtail economic growth. Ironically, the Dow-Jones Industrial Average is 240
points (4.0%) above the level at which it stood when Greenspan uttered his
now famous warning.
While economic growth has been accelerating, and despite the bond
market's jitters, inflation at the consumer level remains in check. In fact,
the rally we're now experiencing is largely the result of the most recent
Consumer Price Index report, which showed LITTLE OR NO INCREASE IN THE RATE
OF CONSUMER PRICE INFLATION.
As of this writing, earnings reporting season is in full swing.
While many companies have not reported, the early reports are very
encouraging. Most companies are REPORTING EARNINGS PER SHARE (ONCE AGAIN) AT
OR ABOVE EXPECTATIONS.
In summary, share prices have corrected far more sharply beneath the
indices, inflation remains in check, corporate earnings appear to be coming
through better than expected, and we fully anticipate a moderation in
economic growth (but no recession) in the latter part of the year. We
continue to believe that a highly diversified portfolio of stocks will once
again be the key to success in the months ahead.
CONCLUSION
In conclusion, we remain optimistic about the investment
opportunities in the Cascadia region. We will continue to apply our rigorous
disciplines in our search for value within our universe of stocks. We are
confident that 1997 will continue to bring strong economic growth to the
Cascadia region and that these favorable conditions will drive the earnings
prospects of Cascadia companies in a positive direction.
<PAGE>
KPMG PEAT MARWICK LLP
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Aquila Cascadia Equity Fund:
We have audited the accompanying statement of assets and liabilities of
Aquila Cascadia Equity Fund, including the statement of investments as
of March 31, 1997, and the related statement of operations, the statement of
changes in net assets and financial highlights for the period from August
13, 1996 (commencement of operations) through March 31, 1997. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit 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 March 31, 1997, 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 Cascadia Equity Fund as of March 31, 1997, and the
results of its operations, the changes in its net asset and the
financial highlights for the period from August 13, 1996 (commencement of
operations) through March 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
New York, New York
May 9, 1997
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCKS VALUE
<C> <S> <C>
Aerospace/Defense - 1.7%
1,000 Boeing Co. $ 98,625
1,150 Thiokol Corp. 63,537
162,162
Automotive - 2.1%
3,000 PACCAR Inc. 200,250
Building Materials - 2.5%
9,300 BMC West Corp.# 106,950
2,000 Eagle Hardware and Garden# 36,000
4,700 TJ International Inc. 89,300
232,250
Communications - 1.2%
1,300 AT&T Corporation 45,175
1,350 GTE Corp. 62,944
108,119
Computer Products and Services - 10.6%
11,900 Casino Data Systems # 57,268
1,700 Hewlett-Packard Co. 90,525
5,100 In Focus Systems Inc.# 87,975
1,100 Iomega Corp.# 17,875
2,000 Intel Corp. 278,250
4,600 Micron Electronics Inc.# 87,975
2,100 Microsoft Corp.# 192,544
3,700 Novell Inc.# 35,150
6,600 Pragitzer Industries Inc.# 60,225
5,700 Sequent Computer Systems Inc.# 85,500
993,287
<PAGE>
Consumer Products and Services - 15.4%
4,800 Albertsons Inc. 163,200
3,100 American Stores Co. 137,950
10,100 Costco Cos Inc.# 279,013
7,100 Hollywood Entertainment Corp.# 173,062
7,500 Fred Meyer Inc.# 309,375
3,600 Nike Inc. Class B 223,200
2,400 Nordstrom Inc. 90,900
1,700 Quality Food Centers Inc.# 71,400
1,448,100
Electronics - 4.5%
2,500 Electro Scientific Industries Inc.# 63,125
2,200 Fluke Corp. 97,625
900 Lattice Semiconductor Corp.# 41,175
1,600 Merix Corp.# 24,400
2,200 Micron Technology Inc. 89,100
2,050 Tektronix Inc. 103,525
418,950
Financial Services - 12.2%
1,000 Bancorp Hawaii Inc. 42,875
4,600 First Hawaiian Inc. 143,175
3,900 Interwest Bancorp Inc. 125,775
4,300 Klamath First Bancorp Inc. 75,788
1,850 National Bancorp of Alaska Inc. 136,900
5,200 Safeco Corp. 208,000
2,100 US Bancorp 112,350
6,580 Washington Federal Inc. 149,695
3,000 Washington Mutual Inc. 144,937
1,139,495
Food and Beverage - 2.4%
4,600 Nabisco Holdings Corp. 187,450
3,700 Redhook Ale Brewery Inc.# 36,075
223,525
<PAGE>
Healthcare - 1.6%
5,850 Sierra Health Services # 148,444
Hospital Management - 0.5%
5,200 Transitional Hospitals Corp.# 44,850
Household Products - 0.4%
2,200 Paragon Trade Brands Inc.# 36,850
Leisure Time - 1.9%
1,500 Circus Circus Enterprises Inc.# 39,000
1,900 MGM Grand Inc.# 68,875
3,000 Mirage Resorts Inc.# 63,750
2,465 Ride Inc.# 8,936
180,561
Machinery - 1.8%
4,400 Cascade Corp. 67,650
3,850 Esterline Technologies Corp.# 103,950
171,600
Manufacturing - 0.2%
2,000 Flow International Corp. 19,250
Medical Products - 6.6%
1,900 Advanced Technology Labs Inc.# 56,288
6,200 Ballard Medical Products 129,425
1,969 Baxter International Inc. 84,913
5,400 OEC-Medical Systems Inc.# 88,425
5,000 Physio Control International Corp.# 69,375
6,200 Spacelabs Medical Inc.# 124,775
6,000 Utah Medical Products Inc.# 68,250
621,451
<PAGE>
Metal Processing and Mining - 4.5%
700 Freeport McMoran Inc. 20,475
1,100 Northwest Pipe Co.# 18,288
3,200 Oregon Metallurgical Corp.# 57,600
6,900 Oregon Steel Mills Inc. 119,888
3,070 Pegasus Gold Inc.# 24,944
7,100 Schnitzer Steel Industries 181,050
422,245
Natural Gas - 5.3%
1,600 Apache Corp. 53,600
700 Atlantic Richfield Co. 94,500
5,100 Questar Corp. 182,962
3,000 Valero Energy Corp. 109,125
1,200 Williams Companies Inc. 53,400
493,587
Paper And Related Products - 4.4%
400 Boise Cascade Corp. 12,200
3,950 Pope & Talbot Inc. 54,312
4,100 Weyerhaeuser Co. 182,963
2,600 Willamette Industries 162,500
411,975
Pharmaceuticals - 1.0%
3,400 Sonus Pharmaceuticals Inc.# 89,675
Railroad - 0.6%
6,050 Greenbrier Companies Inc. 54,450
Specialized Services - 1.0%
4,400 Franklin Quest Co.# 92,950
<PAGE>
Transportation - 4.6%
2,250 Airborne Freight Corp. 67,500
7,300 Alaska Air Group Inc.# 187,062
2,900 Amerco # 73,950
1,300 Expeditors International Washington Inc. 31,200
5,290 Reno Air Inc.# 35,708
2,400 Skywest Inc. 31,200
426,620
Utilities - 7.6%
4,300 Hawaiian Electric Industries 145,662
5,700 Nevada Power Co. 113,287
10,950 Pacificorp 234,056
7,300 Puget Sound Energy, Inc. 184,325
2,000 Washington Water Power 34,750
712,080
Total Common Stocks
(cost $8,898,581*) 94.6% 8,852,726
Other assets in excess
of liabilities 5.4 506,720
Net Assets 100.0% $ 9,359,446
<FN>
* Cost for Federal tax purposes is identical.
</FN>
<FN>
# Non-income producing security.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments at market value (identified cost $8,898,581) $ 8,852,726
Cash 309,797
Receivable for Fund shares sold 121,407
Deferred organization expenses (note 2) 86,909
Due for reimbursement of expenses 11,480
Dividends receivable 4,139
Total assets 9,386,458
LIABILITIES
Accrued expenses 19,704
Payment for Fund shares redeemed 5,926
Distribution fees payable 1,382
Total liabilities 27,012
NET ASSETS $ 9,359,446
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares,
par value $.01 per share $ 7,224
Additional paid-in capital 9,406,675
Accumulated net loss on investments (8,598)
Net unrealized depreciation on investments (45,855)
$ 9,359,446
CLASS A
Net Assets $ 1,615,458
Capital shares outstanding 124,720
Net asset value and redemption price per share $ 12.95
Offering price per share (100/95.75 of
$12.95 adjusted to nearest cent) $ 13.52
CLASS C
Net Assets $ 350,498
Capital shares outstanding 27,069
Net asset value and offering price per share $ 12.95
Redemption price per share (*) varies by length
of time shares are held) $ *
CLASS Y
Net Assets $ 7,393,490
Capital shares outstanding 570,607
Net asset value, offering and redemption price
per share $ 12.96
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD AUGUST 13, 1996 (COMMENCEMENT OF OPERATIONS)
THROUGH MARCH 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 28,507
Expenses:
Advisory and Administrative fees (note 3) $ 18,520
Sub-Advisory fees (note 3) 16,205
Legal fees 9,828
Registration fees 8,315
Trustees' fees and expenses 7,056
Transfer and shareholder servicing agent fees 14,295
Shareholders' reports 6,964
Audit and accounting fees 5,750
Distribution fees (note 3) 1,749
Custodian fees (note 6) 4,425
Amortization of organization expenses (note 2) 11,478
Miscellaneous 2,281
106,866
Advisory and Administrative fees waived (note 3) (18,520)
Sub-Advisory fees waived (note 3) (16,205)
Reimbursement of expenses (note 3) (40,009)
Expenses paid indirectly (note 6) (3,625)
Net expenses 28,507
Net investment income 0
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss from securities transactions (8,598)
Unrealized depreciation on investments (45,855)
Net realized and unrealized loss on investments (54,453)
Net decrease in net assets resulting from operations $ (54,453)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD AUGUST 13, 1996 (COMMENCEMENT OF OPERATIONS)
THROUGH MARCH 31, 1997
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ -
Net realized loss from securities transactions (8,598)
Unrealized depreciation on investments (45,855)
Change in net assets from operations (54,453)
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 5):
Class A Shares:
Net investment income -
Net realized gain on investments -
Class C Shares:
Net investment income -
Net realized gain on investments -
Class Y Shares:
Net investment income -
Net realized gain on investments -
Change in net assets from distributions -
CAPITAL SHARE TRANSACTIONS (NOTE 7):
Proceeds from shares sold 10,689,463
Reinvested dividends and distributions -
Cost of shares redeemed (1,276,565)
Change in net assets from capital share transactions 9,412,898
Change in net assets 9,358,445
NET ASSETS:
Beginning of period 1,001
End of period $ 9,359,446
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AQUILA CASCADIA EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Aquila Cascadia Equity Fund (the "Fund"), is a diversified open-end
investment company organized as a Massachusetts business trust. The Fund
began its current investment operations as a capital appreciation fund on
September 9, 1996.
The Fund is authorized to issue an unlimited number of shares and began
offering Class A, Class C and Class Y shares on August 13, 1996. Class A
shares are sold with a front-payment sales charge and bear an annual service
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. The Class Y shares
are only offered to institutions acting for an investor in a fiduciary,
advisory, agency, custodian or similar capacity. They are not available to
individual 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. All classes of shares represent interests in
the same portfolio of investments in the Fund and are identical as to rights
and privileges. They differ only with respect to the effect of sales charges,
the distribution and/or service fees borne by the respective 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 generally accepted accounting principles for investment
companies.
a) PORTFOLIO VALUATION: Securities listed on a national securities exchange
or designated as national market system securities are valued at the last
sale price on such exchanges or market system or, if there has been no
sale that day, at the bid price. Securities for which market quotations
are not readily available are valued at fair value as determined in good
faith by or at the direction of the Board of Trustees. Short-term
investments maturing in 60 days or less are valued at amortized cost.
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses
from securities transactions are reported on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is
recorded daily on the accrual basis.
<PAGE>
c) FEDERAL INCOME TAXES: The Fund intends to qualify as a regulated
investment company by complying with the provisions of the Internal
Revenue Code (the "Code") applicable to certain investment companies.
The Fund intends to make distributions of income and securities profits
sufficient to relieve it from all, or substantially all, Federal income
and excise taxes.
d) ORGANIZATION EXPENSES: The Fund's organizational expenses have been
deferred and are being amortized on a straight-line basis over five
years.
e) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses,
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 generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
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.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Management affairs of the Fund are conducted through two separate
management arrangements.
Aquila Management Corporation, the Fund's founder and sponsor, serves as
Adviser and Administrator (the "Adviser") for the Fund under an Advisory and
Administration Agreement. Under this agreement, the Adviser provides such
advisory services to the Fund, in addition to those services provided by the
Sub-Adviser, as the Adviser deems appropriate. Besides its advisory services,
it also provides all administrative services, other than those relating to
its investment portfolio handled by the Sub-Adviser. This includes providing
the office of the Fund and all related services as well as overseeing the
activities of 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 Adviser 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; 0.80 of 1% on the first $15
million; 0.65 of 1% on the next $35 million and 0.50 of 1% on the excess
above $50 million.
The Fund also has an Investment Sub-Advisory Agreement with Ferguson,
Wellman, Rudd, Purdy & Van Winkle, Inc. (the "Sub-Adviser"). Under this
agreement, the Sub-Adviser supervises the investment program of the Fund and
the composition of its portfolio, and provides for daily pricing of the
Fund's portfolio. For its services, the Sub-Adviser is entitled to receive a
fee which
<PAGE>
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; 0.70 of 1%
on the first $15 million; 0.55 of 1% on the next $35 million and 0.40 of 1%
on the excess above $50 million.
For the period from commencement of operations through March 31, 1997,
the Fund incurred fees under the Advisory and Administration Agreement and
Sub-Advisory Agreement of $18,520 and $16,205, respectively. However, all of
these fees were voluntarily waived. Additionally, other direct operating
expenses during this period in the amount of $40,009 were voluntarily
reimbursed, including the $11,480 due at year-end which was paid on April 11,
1997.
Specific details as to the nature and extent of the services provided by
the Adviser and the Sub-Adviser are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
b) DISTRIBUTION AND SERVICING 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 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. From commencement through March 31, 1997, service fees on Class A
Shares amounted to $995, of which the Distributor received $107.
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 net assets represented by Class C Shares and for
the period from commencement through March 31, 1997, amounted to $566, of
which the Distributor received $566.
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
net assets represented by Class C Shares and for the period from commencement
through March 31, 1997, amounted to $188, of which the Distributor received
$188.
Specific details about the Plans are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
<PAGE>
Under a Distribution Agreement, Aquila Distributors, Inc. (the
"Distributor") serves as the exclusive distributor of the Fund's shares.
Through agreements between the Distributor and various broker-dealer firms
("dealers"), the Fund's shares are sold primarily through the facilities of
these dealers having offices within the Fund's general investment region,
with the bulk of sales commissions inuring to such dealers. From commencement
through March 31, 1997, the Distributor received sales commissions in the
amount of $593.
4. PURCHASES AND SALES OF SECURITIES
From commencement through March 31, 1997, purchases of securities and
proceeds from the sales of securities aggregated $9,060,005 and $152,826,
respectively.
At March 31, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $346,757 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value amounted to $392,612,
for a net unrealized depreciation of $45,855.
5. DISTRIBUTIONS
The Fund anticipates that, to the extent necessary, income generated by
its investment portfolio will be used primarily to offset the Fund's
operating expenses. Whatever income that accrues above the level of the
Fund's operating expenses will be distributed annually to shareholders. Net
realized capital gains, if any, will be distributed annually to shareholders.
Distributions are recorded by the Fund on the ex-dividend date and paid
to shareholders in additional shares at the net asset value per share or in
cash, at the shareholder's option. Due to differences between financial
reporting and Federal income tax reporting requirements, distributions made
by the Fund may not be the same as the Fund's net investment income, and/or
net realized securities gains. There were no distributions made by the Fund
during the period covered by this report.
At March 31, 1997 the Fund had a capital loss carryover of approximately
$3,400 which expires at March 31, 2005. This amount is available to offset
future net realized gains on securities transactions to the extent provided
for in the Code and it is probable the gains so offset will not be
distributed.
6. CUSTODIAN FEES
The Fund has negotiated an expense offset arrangement with its custodian
wherein it receives credit toward the reduction of custodian fees whenever
there are uninvested cash balances. During the period from commencement
through March 31, 1997, the Fund's custodian fees amounted to $4,425, of
which $3,625 was offset by such credits. It is the general intention of the
Fund to invest, to the extent practicable, some or all of cash balances in
income-producing assets rather than leave cash on deposit with the custodian.
<PAGE>
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
Period Ended
March 31, 1997*
Shares Amount
<S> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 125,725 $ 1,640,953
Reinvested dividends and distributions - -
Cost of shares redeemed (1,088) (13,804)
Net change 124,637 1,627,149
CLASS C SHARES:
Proceeds from shares sold 27,271 359,661
Reinvested dividends and distributions - -
Cost of shares redeemed (202) (2,743)
Net change 27,069 356,918
CLASS Y SHARES:
Proceeds from shares sold 674,409 8,688,849
Reinvested dividends and distributions - -
Cost of shares redeemed (103,802) (1,260,018)
Net change 570,607 7,428,831
Total transactions in Fund shares 722,313 $ 9,412,898
<FN>
* For the period from August 13, 1996 (commencement of operations) through
March 31, 1997.
</FN>
</TABLE>
<PAGE>
AQUILA CASCADIA EQUITY FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period from
August 13, 1996 (commencement of operations) through March 31, 1997
<TABLE>
<CAPTION>
Class A Class C Class Y
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $12.00 $12.00 $12.00
Income from Investment Operations:
Net investment income - - -
Net gain on securities (both
realized and unrealized) 0.95 0.95 0.96
Total from Investment Operations 0.95 0.95 0.96
Less Distributions (note 5):
Dividends from net investment income - - -
Distributions from capital gains - - -
Total Distributions - - -
Net Asset Value, End of Period $12.95 $12.95 $12.96
Total Return (not reflecting
sales charge) (%) 7.92# 7.92# 8.00#
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 1,615 350 7,393
Ratio of Expenses to Average Net
Assets (%) 1.18* 1.22* 1.24*
Ratio of Net Investment Income to
Average Net Assets (%) 0.00* 0.00* 0.00*
Portfolio Turnover Rate (%) 3.53# 3.53# 3.53#
Average commision rate paid** ($) 0.0672 0.0672 0.0672
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Sub-Adviser's voluntary waiver
of fees, the voluntary expense reimbursement and the expense offset in
custodian fees for uninvested cash balances would have been:
<S> <C> <C> <C>
Net Investment Income ($) - - -
Ratio of Expenses to Average Net
Assets (%) 4.79* 5.55* 4.54*
Ratio of Net Investment Income to
Average Net Assets (%) (3.61)* (4.33)* (3.30)*
<FN>
# Not annualized.
</FN>
<FN>
* Annualized.
</FN>
<FN>
** Represents the average per share broker commission rate paid by the Fund
in connection with the execution of its portfolio transactions in equity
securities on which commissions were charged.
</FN>
</TABLE>
See accompanying notes to financial statements.
