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, Oregon 97204
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Warren C. Coloney
David B. Frohnmayer
James A. Gardner
Diana P. Herrmann
Raymond H. Lung
Richard C. Ross
OFFICERS
Lacy B. Herrmann, President
Sue McCarthy-Jones, Senior Vice President
Diana P. Herrmann, Vice President
Kerry A. Lemert, Vice President
Christine L. Neimeth, 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
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.
SEMI-ANNUAL
REPORT
SEPTEMBER 30, 1998
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
SEMI-ANNUAL REPORT
"A LITTLE PATIENCE CAN GO A LONG WAY"
November 19, 1998
Dear Investor:
We are pleased to provide you with this Semi-Annual Report for
Aquila Cascadia Equity Fund for the six-month period ended September 30,
1998.
A REVIEW OF THE FUND'S INVESTMENT STRATEGY
THE CASCADIA REGION
As you are no doubt aware, Aquila Cascadia Equity Fund searches
out growth-oriented companies having a significant business presence
primarily in the Pacific Northwest region of our country. This region, which
we term "CASCADIA", consists of Oregon, Washington, Idaho, Utah, Nevada,
Alaska and Hawaii. This Cascadia region continues to boast higher than
average projections for employment, population growth, and business
expansion.
Thus, there continues to be a substantial number and diversity of
attractive investment opportunities right here in our "own backyard" of the
Cascadia states, although we are permitted to invest a portion of the Fund's
assets in other locations in our country. In illustration of the investment
character of the Aquila Cascadia Equity Fund, the following charts provide a
breakdown of the Fund's portfolio as to distribution by State and market
sector. (1)
[Graphic of pie chart with the following information:]
<TABLE>
<CAPTION>
PORTFOLIO DISTRIBUTION BY REGION
<S> <C>
Alaska 1.7%
Hawaii 6.6%
Idaho 4.8%
Nevada 5.5%
Oregon 21.0%
Washington 36.6%
Utah 5.0%
Other 18.8%
</TABLE>
[Graphic of pie chart with the following information:]
<TABLE>
<CAPTION>
PORTFOLIO DISTRIBUTION BY MARKET SECTOR
<S> <C>
Basic Materials 5.6%
Capital Goods 5.3%
Communication Services 1.5%
Consumer Cyclicals 21.2%
Consumer Staples 5.7%
Energy 5.4%
Finance 16.9%
Healthcare 6.8%
Technology 10.7%
Transportation 2.7%
Utilities 13.0%
Cash 5.2%
</TABLE>
<PAGE>
VALUE-ORIENTATION
Within this Cascadia region, the Fund's investment management
team searches for securities that it believes to be undervalued in
relationship to their intrinsic value and projected growth rate of the
underlying companies. The Fund then strives to capitalize on these companies
through ownership in the Fund's portfolio prior to recognition of their
potential by the overall marketplace.
Thus, while much of Wall Street focuses on established Fortune
500 companies, Aquila Cascadia Equity Fund seeks out participation in what
we hope to be tomorrow's stars. In addition to investments in established
companies in the Cascadia region, we also strive to get in on the ground
floor with some smaller companies in the area, so that the Fund has a chance
to maximize upside potential and minimize downside risk of its investments.
Following are the top ten holdings of the Fund as of September
30, 1998. (1)
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
PERCENTAGE
COMPANY OF NET ASSETS STATE MARKET SECTOR
<S> <C> <C> <C>
Fred Meyer 7.0% Oregon Consumer Cyclicals
Costco 4.5% Washington Consumer Cyclicals
Washington Federal 3.9% Washington Finance
Microsoft 3.8% Washington Technology
Washington Mutual 3.0% Washington Finance
First Hawaiian 2.9% Hawaii Finance
Safeco 2.9% Washington Finance
Atlantic Richfield 2.8% California Energy
Intel 2.8% California Technology
Albertson's 2.8% Idaho Consumer Staples
</TABLE>
THE VIRTUE OF PATIENCE
We believe that oftentimes the key to success with value-oriented
investing is patience. In many instances, it is really more a question of
WHEN, not IF, securities in the Fund's portfolio will realize the potential
we envision for them.
You could liken an investment in the Fund to the career of a good
actor who struggles for years in bit parts and then gets a hit show and
overnight becomes a success. Once the potential of companies is appreciated
in the marketplace, positive things can happen quickly.
Therefore, investors must learn the virtue of patience, and not
look upon an investment in the Fund as a get-rich-quick scheme. You should
instead look upon your investment as a longer-term capital appreciation
vehicle.
Unfortunately, although we try to buy securities at reasonable
prices, they are still subject to reactions in the marketplace when it goes
down as opposed to up. The recent volatility in the various equity markets
stands as a vivid illustration of this.
<PAGE>
You should be aware of the discipline that we use in the
selection of securities for the Aquila Cascadia Equity Fund. First, we seek
to invest in companies that we believe have solid fundamentals to support
their businesses in good economic times and bad. Then, we pay careful
attention to the price we pay for those companies. We basically look for
companies which, at the time of purchase, are selling for less than their
fair values in terms of their inherent growth prospects. And, we particularly
look for companies with strong underlying growth characteristics for the long
term.
RESULTS IN THE INTERIM
Despite the interruption caused by stock market turbulence over
the recent report period, we believe the Fund has provided credible absolute
returns for investors since its inception.
Although on September 30, 1998, the Class A Shares had a net
asset value of $13.90, which is a decline from the net asset value of $15.94
twelve months earlier on September 30, 1997, the share net asset value of the
Fund has rebounded to $15.63 as of the November 19, 1998 date of this letter.
It is noteworthy that the decline experienced over the 12-month period was
comparable to the stock market asset class benchmarks against which we
measure the Fund. More importantly, the subsequent rebound in share value
demonstrates the resilience of the securities in the Fund's portfolio and the
vitality of the companies involved.
We believe the positive results produced throughout the life of
the Fund bear witness to the fact that there are interesting and profitable
investment opportunities in the Cascadia region of our country.
We will continue our quest to identify attractive investments in
the Cascadia region that we believe will reward our investors with
significant long-term capital appreciation.
YOUR CONFIDENCE APPRECIATED
Your investment in Aquila Cascadia Equity Fund is greatly
appreciated. We value your trust and will continue to do our best to merit
your confidence.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
(1) The portfolio distribution data and top ten holdings were as of
September 30, 1998. They are subject to change and, therefore, are not
necessarily representative of the entire portfolio. The Prospectus of the
Fund discusses the special risk considerations of the geographic
concentration strategy of the Fund.
(2) Different classes of shares are offered by the Fund and their performance
will vary because of differences in sales charges and fees paid by
shareholders investing in these different classes. Such performance
data quoted represents past performance and is not indicative of
future results. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENT OF INVESTMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCKS - 94.8% VALUE
<C> <S> <C>
BASIC MATERIALS - 5.6%
IRON & STEEL - 3.5%
9,100 Northwest Pipe Co.+ $ 168,350
9,400 Oregon Steel Mills Inc. 110,450
12,300 Schnitzer Steel Industries 184,500
463,300
PAPER & FOREST PRODUCTS - 2.1%
3,950 Pope & Talbot Inc. 38,513
4,100 Weyerhaeuser Co. 172,969
2,600 Willamette Industries 74,587
286,069
CAPITAL GOODS - 5.3%
AEROSPACE/DEFENSE - 1.7%
4,000 Boeing 137,250
2,300 Cordant Technologies Inc. 97,319
234,569
MACHINERY (DIVERSE) - 2.0%
9,300 Cascade Corp. 123,806
7,700 Esterline Technology Corp.+ 151,112
274,918
TRUCKS & PARTS - 1.6%
5,130 PACCAR Inc. 211,292
COMMUNICATION SERVICES - 1.5%
LONG DISTANCE/TELEPHONE - 1.5%
3,600 GTE Corp. 198,000
CONSUMER CYCLICALS - 21.2%
AUTO PARTS & EQUIPMENT - 1.0%
4,415 Danaher Corp. 132,450
BUILDING MATERIALS/BUILDING SUPPLY - 4.5%
19,300 Building Materials Holding.+ 253,312
10,400 Eagle Hardware and Garden + 225,550
6,430 TJ International Inc. 120,563
599,425
FOOTWEAR - 0.7%
2,400 Nike Inc. Class B 88,350
<PAGE>
GAMING & LOTTERY - 0.5%
4,400 Mirage Resorts Inc.+ 73,700
RETAIL - GENERAL MERCHANDISE/SPECIALTY - 13.2%
12,800 Costco Cos Inc.+ 606,400
24,058 Fred Meyer Inc.+ 935,255
16,800 Hollywood Entertainment Corp. + 228,900
1,770,555
SPECIALIZED SERVICES - 1.3%
5,400 Franklin Covey Co.+ 105,637
24,000 Seattle FilmWorks, Inc. + 72,000
177,637
CONSUMER STAPLES - 5.7%
FOODS - 0.9%
2,880 Dean Foods Co. 126,720
PERSONAL CARE - 0.4%
3,000 Natures Sunshine Products Inc. 48,000
RESTAURANTS - 1.6%
6,390 Lone Star Steakhouse & Saloon Inc. + 48,724
4,700 Starbucks Corporation + 170,081
218,805
RETAIL - FOOD CHAINS - 2.8%
6,880 Albertsons Inc. 372,380
ENERGY - 5.4%
OIL - DOMESTIC - 2.8%
5,350 Atlantic Richfield Co. 379,516
OIL - EXPLORATION & PRODUCTION/DRILL
& EQUIPMENT - 1.3%
4,200 Apache Corp. 112,612
2,800 Tidewater, Inc. 58,100
170,712
OIL & GAS - REFINING & MARKETING - 1.3%
7,000 Quaker State Corporation 101,937
3,000 Ultramar Diamond Shamrock Corporation 68,250
170,187
<PAGE>
FINANCE - 16.9%
BANKS - MAJOR REGIONAL - 5.7%
11,500 First Hawaiian Inc. 391,000
3,500 Klamath First Bancorp Inc. 60,813
6,600 National Bancorp of Alaska Inc. 216,150
6,000 Pacific Century Financial Corp. 100,125
768,088
INSURANCE - PROPERTY - 3.0%
9,400 SAFECO Corp. 391,863
SAVINGS & LOAN - 8.2%
7,650 Interwest Bancorp Inc. 174,994
20,803 Washington Federal Inc. 520,075
11,775 Washington Mutual Inc. 397,406
1,092,475
HEALTHCARE - 6.8%
DIVERSE - 1.6%
10,725 Sierra Health Services + 211,147
MEDICAL PRODUCTS & SUPPLY/DRUGS - 5.2%
3,800 ATL Ultrasound Inc.+ 191,425
10,500 Ballard Medical Products 210,656
1,266 Sonosight + 8,625
10,000 Spacelabs Medical Inc.+ 155,000
14,000 Theratech + 127,750
693,456
TECHNOLOGY - 10.7%
COMPUTER HARDWARE & SOFTWARE SERVICES - 6.5%
1,890 Hewlett-Packard Co. 100,052
7,940 In Focus Systems Inc.+ 47,640
12,420 Iomega Corp.+ 46,575
6,870 Micron Electronics Inc.+ 120,225
4,680 Microsoft Corp.+ 515,093
5,020 Sequent Computer Systems Inc.+ 43,611
873,196
<PAGE>
ELECTRONICS - 4.2%
4,430 Intel Corp. 379,873
9,300 Mosaix + 44,756
11,230 Pragitzer Industries Inc.+ 89,840
3,375 Tektronix Inc. 52,313
566,782
TRANSPORTATION - 2.7%
AIR FREIGHT/AIRLINES - 1.5%
3,400 Airborne Freight Corporation 58,863
4,150 Alaska Air Group Inc.+ 141,359
200,222
RAILROADS - 1.2%
11,350 Greenbrier Companies Inc. 161,028
UTILITIES - 13.0%
ELECTRIC COMPANIES - 9.4%
8,500 Hawaiian Electric Industries 350,625
8,900 Nevada Power Co. 239,188
13,350 Pacificorp 256,153
3,545 PG&E Corp. 113,218
7,300 Puget Sound Energy, Inc. 202,575
5,200 Washington Water Power 103,025
1,264,784
NATURAL GAS - 3.6%
8,300 Southwest Gas Corporation 169,631
10,900 Williams Companies Inc. 313,375
483,006
Total Common Stocks (cost $12,316,850*) 94.8% 12,702,632
Other assets in exess of liabilities 5.2 699,729
Net Assets 100.0% $13,402,361
<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
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments at market value (cost $12,316,850) $ 12,702,632
Cash 669,866
Deferred organization expenses (note 2) 57,383
Dividends receivable 6,436
Total assets 13,436,317
LIABILITIES
Management fees payable 10,800
Accrued expenses 19,176
Distribution fees payable 3,980
Total liabilities 33,956
NET ASSETS $ 13,402,361
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares
par value $.01 per share $ 9,621
Additional paid-in capital 12,978,610
Accumulated net gain on investments 30,512
Net unrealized appreciation on investments 385,782
Undistributed net investment income (loss) (2,164)
$ 13,402,361
CLASS A
Net Assets $ 1,988,551
Capital shares outstanding 143,058
Net asset value and redemption price per share $ 13.90
Offering price per share (100/95.75 of $13.90 adjusted to
nearest cent) $ 14.52
CLASS C
Net Assets $ 1,019,558
Capital shares outstanding 74,220
Net asset value and offering price per share $ 13.74
Redemption price per share (*generally, a charge of 1% is
imposed on the proceeds of shares redeemed during the
first 12 months after purchase) $ 13.74*
CLASS Y
Net Assets $ 10,394,252
Capital shares outstanding 744,857
Net asset value, offering and redemption price per share $ 13.95
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 120,761
Expenses:
Advisory and Administrative fees (note 3) $ 59,786
Sub-Advisory fees (note 3) 52,269
Legal fees 15,000
Shareholders' reports 12,000
Amortization of organization expenses (note 2) 9,860
Transfer and shareholder servicing agent fees 9,500
Registration fees 9,000
Distribution and service fees (note 3) 8,045
Audit and accounting fees 7,500
Trustees' fees and expenses 4,500
Custodian fees 1,200
Miscellaneous 3,091
191,751
Advisory and Administrative fees waived (note 3) (32,881)
Sub-Advisory fees waived (note 3) (25,364)
Expenses paid indirectly (note 6) (10,581)
Net expenses 122,925
Net investment loss (2,164)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from securities transactions 119,119
Change in unrealized appreciation on investments (2,989,811)
Net realized and unrealized gain (loss) on
investments (2,870,692)
Net decrease in net assets resulting from operations $(2,872,856)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1998 1998
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (2,164) $ -
Net realized gain (loss) from securities transactions 119,119 (80,008)
Change in unrealized appreciation (depreciation) on
investments (2,989,811) 3,421,448
Change in net assets from operations (2,872,856) 3,341,440
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 328,671 3,917,385
Reinvested dividends and distributions - -
Cost of shares redeemed (380,415) (291,310)
Change in net assets from capital share transactions (51,744) 3,626,075
Change in net assets (2,924,600) 6,967,515
NET ASSETS:
Beginning of period 16,326,961 9,359,446
End of period $13,402,361 $16,326,961
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AQUILA CASCADIA EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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.
c) FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as
a regulated investment company by complying with the provisions of the
Internal Revenue Code applicable to certain investment
<PAGE>
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 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.
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
the Fund's 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 is payable monthly and computed as of the close of business each
day on the net assets of the Fund at the
<PAGE>
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 six months ended September 30, 1998, the Fund incurred fees
under the Advisory and Administration Agreement and Sub-Advisory Agreement of
$59,786 and $52,269, respectively, of which amounts $32,881 and $25,364,
respectively, were voluntarily waived.
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 SERVICE FEES:
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part
of the Plan, with respect to Class A Shares, the Fund is authorized to make
service fee payments to broker-dealers or others ("Qualified Recipients")
selected by Aquila Distributors, Inc. (the "Distributor"), including, but not
limited to, any principal underwriter of the Fund, with which the Distributor
has entered into written agreements contemplated by the Rule and which have
rendered assistance in the distribution and/or retention of the Fund's shares
or servicing of shareholder accounts. The Fund makes payment of this service
fee at the annual rate of 0.25% of the Fund's average net assets represented
by Class A Shares. For the six months ended September 30, 1998, service fees
on Class A Shares amounted to $2,869, of which the Distributor received $225.
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 six months ended September 30, 1998, amounted to $3,882. 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 six months ended September 30, 1998, amounted to
$1,294. The total of these payments with respect to Class C Shares amounted
to $5,176, of which the Distributor received $3,610.
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 broker-dealer firms ("dealers"), the Fund's shares are sold
primarily through the facilities of these dealers having offices within the
<PAGE>
Fund's general investment region, with the bulk of sales commissions inuring
to such dealers. For the six months ended September 30, 1998, the Distributor
received commissions of $103 on sales of Class A Shares.
4. PURCHASES AND SALES OF SECURITIES
For the six months ended September 30, 1998, purchases of securities
and proceeds from the sales of securities aggregated $362,605 and $917,459,
respectively.
At September 30, 1998, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $1,948,898 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to
$1,563,116, for a net unrealized appreciation of $385,782.
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
statement 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 six months ended September 30,
1998.
6. 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. 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.
<PAGE>
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 MARCH 31, 1998
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 1,472 $ 23,416 49,363 $ 731,824
Reinvested dividends and
distributions - - - -
Cost of shares redeemed (18,830) (309,223) (13,668) (208,024)
Net change (17,358) (285,807) 35,695 523,800
CLASS C SHARES:
Proceeds from shares sold 18,624 294,091 34,340 527,248
Reinvested dividends and
distributions - - - -
Cost of shares redeemed (2,186) (35,664) (3,627) (56,704)
Net change 16,438 258,427 30,713 470,544
CLASS Y SHARES:
Proceeds from shares sold 684 11,164 177,746 2,658,313
Reinvested dividends and
distributions - - - -
Cost of shares redeemed (2,561) (35,528) (1,618) (26,582)
Net change (1,877) (24,364) 176,128 2,631,731
Total transactions in Fund
shares (2,797) $ (51,744) 242,536 $3,626,075
</TABLE>
<PAGE>
AQUILA CASCADIA EQUITY FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS Y
SIX MONTHS YEAR PERIOD(1) SIX MONTHS YEAR PERIOD(1) SIX MONTHS YEAR PERIOD(1)
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, MARCH 31, MARCH 31, SEPT. 30, MARCH 31, MARCH 31, SEPT. 30, MARCH 31, MARCH 31,
1998 1998 1997 1998 1998 1997 1998 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $16.89 $12.95 $12.00 $16.76 $12.95 $12.00 $16.94 $12.96 $12.00
Income from Investment
Operations:
Net investment income
(loss) (0.01) - - (0.07) - - 0.01 - -
Net gain (loss) on
securities
(both realized and
unrealized) (2.98) 3.94 0.95 (2.95) 3.81 0.95 (3.00) 3.98 0.96
Total from Investment
Operations (2.99) 3.94 0.95 (3.02) 3.81 0.95 (2.99) 3.98 0.96
Less Distributions
(note 5):
Dividends from net
investment income - - - - - - - - -
Distributions from
capital gains - - - - - - - - -
Total Distributions - - - - - - - - -
Net Asset Value, End
of Period $13.90 $16.89 $12.95 $13.74 $16.76 $12.95 $13.95 $16.94 $12.96
Total Return (not
reflecting
sales charge) (%) (17.70)+ 30.42 7.92+ (18.02)+ 29.42 7.92+ (17.65)+ 30.71 8.00+
Ratios/Supplemental Data
Net Assets, End of
Period ($ thousands) 1,989 2,709 1,615 1,020 968 350 10,394 12,649 7,393
Ratio of Expenses to
Average Net Assets
(%) 1.77* 1.75 1.18* 2.54* 2.51 1.22* 1.53* 1.50 1.24*
Ratio of Net Investment
Income to Average Net
Assets (%) (0.16)* (0.16) 0.00* (0.94)* (0.94) 0.00* 0.08* 0.09 0.00*
Portfolio Turnover Rate
(%) 2.91+ 29.38 3.53+ 2.91+ 29.38 3.53+ 2.91+ 29.38 3.53+
<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 for
uninvested cash balances would have been:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income
($) (0.08) (0.18) (0.29) (0.14) (0.30) (0.35) (0.07) (0.14) (0.27)
Ratio of Expenses to
Average Net Assets
(%) 2.69* 2.78 4.79* 3.45* 3.55 5.55* 2.44* 2.53 4.54*
Ratio of Net Investment
Income to Average Net
Assets (%) (1.08)* (1.19) (3.61)* (1.85)* (1.98) (4.33)* (0.84)* (0.94) (3.30)*
<FN> + Not annualized. </FN>
<FN> * Annualized. </FN>
<FN>(1) For the period August 13, 1996 (commencement of operations) through
March 31, 1997. </FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PREPARING FOR YEAR 2000 (UNAUDITED)
The Trustees and officers of the Fund have been monitoring issues
involving preparedness for the turn of the century for some time in an effort
to minimize any potential impact upon the Fund and its shareholders. Our
officers have focussed significant time and effort in order that the various
computerized functions that could affect the Fund at the beginning of the
year 2000 are ready.
The Fund is highly reliant on certain mission-critical suppliers'
services. Each supplier of these services has provided the Fund's officers
with assurances that it is actively addressing potential problems relating to
the year 2000. The officers, in turn, are monitoring the progress of its
suppliers, and currently see no significant cause for alarm with respect to
any of the Fund's suppliers.
Unfortunately, as you can well understand, we cannot guarantee
matters beyond our control, including supplier operations. We assure you,
however, that we recognize a responsibility to inform our shareholders if in
the future we become aware of any developments which would lead us to believe
that the Fund will be significantly affected by year 2000 problems.
We will continue to keep you up-to-date through future
communications.
