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
Nancy Kayani, 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.
ANNUAL
REPORT
MARCH 31, 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
ANNUAL REPORT
May 22, 1998
Dear Investor:
We are very pleased to present you with this Annual Report for
the first full year of operation of Aquila Cascadia Equity Fund. Our first
report to you covered an abbreviated period.
For the period of April 1, 1997 through March 31, 1998, the Class
A Shares of the Fund provided an average annual total return of 30.42%1,
without provision of sales charge.
OUR "OWN BACKYARD"
The investment philosophy of the Fund is to invest in our "own
backyard." In this case, our "own backyard" consists of the seven states of
the basically Pacific Northwest area, which we term the "Cascadia" region -
Oregon, Washington, Idaho, Utah, Nevada, Alaska and Hawaii.
Through our research, we have recognized that the Cascadia region
of the United States is one of the fastest growing parts of our country. This
fast growth encompasses population growth, job growth and diversification
growth in terms of companies - all of which equates to sound economic growth.
And, this in turn, equates to investment opportunities.
What we have determined is that there are sufficiently broad
enough capital appreciation possibilities right here within the Cascadia
region. These capital appreciation opportunities can, in turn, lend
themselves to providing investors with a good level of absolute return for
their invested capital.
Moreover, by investing in our "own backyard" - the Cascadia
region - we are not faced with the problems that can occur and have occurred
in other investment regions. Within the Cascadia region, we do not have
problems with currency, accounting standards, language barriers, and all the
other complexities of investing in other regions of the world. Some of the
problems that are intrinsic to investing in other regions were amply brought
to mind through the difficulties that relatively recently became apparent in
the various countries of Asia.
What has become equally apparent to us is that we have a
substantial number of very good investment opportunities right here in our
"own backyard" of the Cascadia states. Within the Cascadia region, we have a
universe of well over 400 publicly-traded companies in which we can invest.
We can then screen down from this universe a selective number of investment
opportunities that will give us the kind of return we would like to see.
<PAGE>
THE FUND'S INVESTMENTS
As you will note from the pie chart below, we have invested the
Fund's assets primarily in the various states of the Cascadia region. From
the other pie chart below you will notice that there are many market sectors
within the Cascadia region that are represented in the portfolio.
[Graphic of pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY REGION
<TABLE>
<S> <C>
Alaska 2.01%
Hawaii 5.85%
Idaho 5.70%
Oregon 21.49%
Utah 4.58%
Washington 36.30%
Nevada 7.50%
Other 16.57%
</TABLE>
[Graphic of pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY MARKET SECTOR
<TABLE>
<S> <C>
Basic Materials 6.7%
Capital Goods 5.7%
Communication Services 2.8%
Consumer Cyclicals 19.9%
Consumer Staples 4.4%
Energy 8.3%
Finance 17.7%
Healthcare 6.9%
Technology 10.4%
Transportation 4.4%
Utilities 11.6%
Other 1.2%
</TABLE>
There is listed below the top ten holdings of the Fund as of
March 31, 1998.
<TABLE>
<CAPTION>
PERCENTAGE
COMPANY OF NET ASSETS STATE MARKET SECTOR
<S> <C> <C> <C>
Fred Meyer 6.8% Oregon Consumer Cyclicals
Costco 4.2% Washington Consumer Cyclicals
Washington Federal 3.5% Washington Finance
Washington Mutual 3.5% Washington Finance
SAFECO 3.2% Washington Finance
First Hawaiian 2.8% Hawaii Finance
Valero Energy 2.6% Texas Energy
Atlantic Richfield 2.6% California Energy
Microsoft 2.6% Washington Technology
Albertson's 2.2% Idaho Consumer Staples
</TABLE>
While the individual holdings in the Fund and those which make up
the top ten will vary over time, there is a common denominator in their
selection.
This common denominator is one of investing for capital
appreciation. By this we mean that our portfolio management approach focuses
upon individual companies whose securities can be bought at attractive levels
considering their growth rate in earnings and overall prospects for the
future.
<PAGE>
PERFORMANCE RESULTS
As of March 31, 1998, the Aquila Cascadia Equity Fund had been in
operation for a period of a little over 1 1/2 years. As you will note from
the chart below, had a hypothetical investment of $10,000 been made at the
inception of the Fund, it would have grown to $14,075. In other words, the
Fund has produced a very respectable return on investors' capital.
[Graphic of area chart with the following information:]
GROWTH OF $10,000 SINCE INCEPTION (WITHOUT SALES CHARGES)2
<TABLE>
<C> <C>
9/96 $10,000
12/96 10,758
3/97 10,791
6/97 12,158
9/97 13,283
12/97 13,100
3/98 14,075
</TABLE>
Our intent is to continue finding securities which can provide
investors with a highly acceptable absolute return through investing for
capital appreciation in companies in our "own backyard" of the Cascadia
region.
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
1 In keeping with industry standards, the total return figure
indicated above does not include sales charges, but does reflect
reinvestment of dividends and capital gains, if any. 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. The performance shown represents that of Class A shares, adjusted
to reflect the absence of sales charges, which is currently a maximum
amount of 4.25% for this Class. A portion of management fees and certain
other expenses are being absorbed. Returns would be less if sales charges,
management fees, and expenses, were fully 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.
2 Cumulative results of a hypothetical $10,000 investment in Class
A Shares are shown from the period of inception through 3/31/98. The
portfolio of the Fund is subject to change and as a consequense, past
performance does not guarantee future results.
<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 latest fiscal year-end, March 31, 1998, 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
12/96 11,076 10,303
3/97 10,912 10,335
6/97 12,516 11,644
9/97 14,528 12,721
12/97 14,649 12,546
3/98 16,262 13,480
</TABLE>
[Graphic of table with the following information:]
FUND'S AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the Period Ended March 31, 1998 1 Year Life of Fund Since 9/9/96
<S> <C> <C>
Including Sales Charge and Expenses 24.93% 21.15%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS
<PAGE>
EQUITY MARKET OVERVIEW
Falling interest rates, low inflation, surging cash flows and rising
corporate profits provided an exceptional backdrop for equity investments
over the past twelve months. Virtually all of the popular indices finished
the year at record highs. Cascadia was no exception, with the Fund's Class A
shares enjoying a total return of 30.4% over the 12-month period ended March
31, 1998.
How deserving are we U.S. shareholders of this very good fortune? Let the
facts be our guide: the United States created more private-sector jobs in
January than the entire continent of Europe since the early 1980's. After
decades of running huge budget deficits, and issuing billions of bonds to
finance them, we are now running a modest surplus. In all of U.S. financial
history, we have never had a stretch like this one in terms of either profit
margin expansion or profit growth. We're now in our eighth consecutive year
of expansion (with no apparent end in sight, as fourth quarter GDP growth was
a torrid 3.7%), and inflation continues to come in at levels below 2%.
Investor cash flows into equities remain at astounding levels, while mergers
(and mega-mergers of late) continue to reduce shares available for
investment. Finally, there seems to be no let up in the wave of productivity
gains that has boosted corporate margins, and left much of the world in our
dust.
CASCADIA REGION
As has been the case throughout the nation, in 1997, mergers and acquisitions
continued to reshape the face of many industries across our region.
Especially noteworthy was the acquisition of US Bancorp by Minneapolis based
First Bank Systems (though the combined entity elected to retain the US Bank
name). Additional activity included the purchase of McDonnell Douglas by
Boeing, and Fred Meyer's acquisitions of Smith's Foods, Quality Food Centers
and Ralph's Grocery.
We expect continued economic health for the Cascadia region in 1998. The
region that has been a star of the U.S. economy in recent years should grow
at a rate in excess of the nation as a whole, though at a less frenetic pace
than in 1997. Population growth in the region has settled down from the
extraordinarily high rates in the early 1990's and is forecast to give the
region less of a lift than in the past. Similarly, employment growth
decelerated to 3.2% in 1997 and is expected to fall further to approximately
2.5% in the year ahead. Paul Warner, the Economist for the state of Oregon
explained that the region's economy "has just dropped into a lower gear."
The region's slower growth reflects among other factors, California's upturn
(Californians stay put rather than moving), a growing scarcity of labor, and
a fading of the region's cost advantages (cheap land, labor and housing) that
attracted many new industries in the first place.
No economic forecast for the region is complete without an Asian modifier.
Without any doubt, the melt-down that started last spring in Thailand and
spread throughout Asia will affect the rate of growth in the Cascadia region.
Asia, including Japan, accounts for nearly 60% of the Pacific Northwest's
merchandise exports, compared with 30% for the U.S. as a whole. Recently
published McGraw-Hill data revealed that the Northwestern states export three
times as much per-capita to Asia as the U.S. average. Despite diminished
demand from the major developing nations of Southeast Asia, the very same
survey forecasts that Cascadia's aggregate states will once again surpass the
U.S. national growth rate.
The region's marquee companies; Microsoft, Boeing, Intel (Oregon's largest
industrial employer), Micron Technology, constitute a world-class line-up.
These and other companies that call the region home or that have substantial
operations here are likely to play leading roles in the "brain-driven" growth
industries of the 21st century.
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 1998 will
continue to bring strong economic growth to Cascadia and that these favorable
conditions will drive the earnings prospects of the region's constituent
companies.
<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, 1998, the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for the year then ended and 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 audits.
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, 1998, 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, 1998, the results of
its operations for the year then ended, and the changes in its net assets and
the financial highlights for the year then ended and 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 8, 1998
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCKS - 98.8% VALUE
<C> <S> <C>
BASIC MATERIALS - 6.7%
Iron &Steel - 4.3%
9,100 Northwest Pipe Co.+ $ 197,925
9,400 Oregon Steel Mills Inc. 206,800
12,300 Schnitzer Steel Industries 300,581
705,306
Paper & Forest Products - 2.4%
3,950 Pope & Talbot Inc. 59,991
4,100 Weyerhaeuser Co. 231,650
2,600 Williamette Industries 97,662
389,303
CAPITAL GOODS - 5.7%
Aerospace/Defense - 1.9%
4,000 Boeing 208,500
2,300 Thiokol Corp. 111,119
319,619
Machinery (Diverse) - 1.9%
9,300 Cascade Corp. 150,544
3,850 Esterline Technology Corp.+ 162,422
312,966
Trucks &Parts - 1.9%
5,130 PACCAR Inc. 305,556
COMMUNICATION SERVICES - 2.8%
Long Distance/Telephone
3,700 AT&T Corporation 242,812
3,600 GTE Corp. 215,550
458,362
CONSUMER CYCLICALS - 19.9%
Building Materials/Building Supply - 4.0%
19,300 Building Materials Holding+ 262,963
10,400 Eagle Hardware and Garden + 183,300
6,430 TJ International Inc. 205,760
652,023
Specialized Services - 2.1%
5,400 Franklin Covey Co.+ 131,287
24,000 Seattle FilmWorks, Inc. + 219,000
350,287
<PAGE>
Footwear - 0.7%
2,400 Nike Inc. Class B 106,200
Gaming &Lottery - 0.7%
4,400 Mirage Resorts Inc.+ 106,975
Retail - General Merchandise/Specialty - 12.4%
12,800 Costco Cos Inc.+ 683,200
24,058 Fred Meyer Inc.+ 1,111,179
16,800 Hollywood Entertainment Corp. + 235,200
2,029,579
CONSUMER STAPLES - 4.4%
Foods - 0.9%
3,050 Nabisco Holdings Corp. 142,969
Restaurants - 1.3%
4,700 Starbucks Corporation + 212,969
Retail - Food Chains - 2.2%
6,880 Albertsons Inc. 362,060
ENERGY - 8.3%
Oil & Gas - Refining &Marketing - 4.1%
7,000 Quaker State Corporation 131,688
3,000 Ultramar Diamond Shamrock Corporation 105,750
12,800 Valero Energy Corp. 427,200
664,638
Oil - Domestic - 2.5%
5,350 Atlantic Richfield Co. 420,644
Oil - Exploration & Production/Drill
& Equipment - 1.7%
4,200 Apache Corp. 154,350
2,800 Tidewater, Inc. 122,675
277,025
<PAGE>
FINANCE - 17.7%
Banks - Major Regional - 6.2%
11,500 First Hawaiian Inc. 460,000
3,500 Klamath First Bancorp Inc. 80,500
2,150 National Bancorp of Alaska Inc. 326,800
6,000 Pacific Century Financial Corp. 142,875
1,010,175
Insurance - Property - 3.1%
9,400 SAFECO Corp. 513,769
Savings &Loan - 8.4%
5,100 Interwest Bancorp Inc. 230,137
20,803 Washington Federal Inc. 577,283
7,850 Washington Mutual Inc. 562,992
1,370,412
HEALTHCARE - 6.9%
Diverse - 1.8%
7,150 Sierra Health Services + 285,106
Medical Products &Supply/Drugs - 5.1%
3,800 ATL Ultrasound Inc.+ 193,325
10,500 Ballard Medical Products 283,500
10,000 Spacelabs Medical Inc.+ 221,250
14,000 Theratech + 138,250
836,325
TECHNOLOGY - 10.4%
Computer Hardware &Software Services - 5.3%
1,890 Hewlett-Packard Co. 119,779
7,940 In Focus Systems Inc.+ 71,460
12,420 Iomega Corp.+ 85,388
6,870 Micron Electronics Inc.+ 87,163
4,680 Microsoft Corp.+ 418,860
5,020 Sequent Computer Systems Inc.+ 91,615
874,265
Electronics - 5.1%
4,880 Fluke Corp. 116,510
4,430 Intel Corp. 345,817
<PAGE>
Electronics (continued)
9,300 Mosaix + 109,275
11,230 Pragitzer Industries Inc.+ 106,685
3,375 Tektronix Inc. 150,609
828,896
TRANSPORTATION - 4.4%
Air Freight/Airlines - 3.1%
3,400 Airborne Freight Corporation 127,925
4,150 Alaska Air Group Inc.+ 224,878
5,000 Amerco + 153,750
506,553
Railroads- 1.3%
11,850 Greenbrier Companies Inc. 204,412
UTILITIES - 11.6%
Electric Companies - 8.4%
8,500 Hawaiian Electric Industries 352,750
8,900 Nevada Power Co. 238,075
13,350 Pacificorp 328,744
3,545 PG&E Corp. 116,985
7,300 Puget Sound Energy, Inc. 205,769
5,200 Washington Water Power 127,400
1,369,723
Natural Gas - 3.2%
8,300 Southwest Gas Corporation 173,262
10,900 Williams Companies Inc. 348,800
522,062
Total Common Stocks (cost $12,762,586*) 98.8% 16,138,179
Other assets in exess of liabilities 1.2 188,782
Net Assets 100.0% $16,326,961
<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, 1998
<TABLE>
<S> <C>
ASSETS
Investments at market value (identified cost $12,762,586) $ 16,138,179
Cash 209,990
Deferred organization expenses (note 2) 67,232
Dividends receivable 6,679
Receivable for Fund shares sold 530
Total assets 16,422,610
LIABILITIES
Management fees payable 64,556
Accrued expenses 26,886
Distribution fees payable 3,629
Payable for Fund shares redeemed 578
Total liabilities 95,649
NET ASSETS $ 16,326,961
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares
par value $.01 per share $ 9,649
Additional paid-in capital 13,030,325
Accumulated net loss on investments (88,606)
Net unrealized appreciation on investments 3,375,593
$ 16,326,961
CLASS A
Net Assets $ 2,709,443
Capital shares outstanding 160,415
Net asset value and redemption price per share $ 16.89
Offering price per share (100/95.75 of $16.89 adjusted
to nearest cent) $ 17.64
CLASS C
Net Assets $ 968,275
Capital shares outstanding 57,782
Net asset value and offering price per share $ 16.76
Redemption price per share (*generally, a charge of 1%
is imposed on the proceeds of shares redeemed during
the first 12 months after purchase) $ 16.76*
CLASS Y
Net Assets $ 12,649,243
Capital shares outstanding 746,735
Net asset value, offering and redemption price per share $ 16.94
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $208,883
Expenses:
Advisory and Administrative fees (note 3) $105,152
Sub-Advisory fees (note 3) 91,986
Transfer and shareholder servicing agent fees 30,671
Shareholders' reports 24,891
Legal fees 20,863
Amortization of organization expenses (note 2) 19,677
Audit and accounting fees 12,321
Registration fees 12,225
Distribution and service fees (note 3) 11,659
Trustees' fees and expenses 8,877
Custodian fees (note 6) 2,858
Miscellaneous 3,143
344,323
Advisory and Administrative fees waived (note 3) (72,874)
Sub-Advisory fees waived (note 3) (59,708)
Expenses paid indirectly (note 6) (2,858)
Net expenses 208,883
Net investment income 0
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from securities transactions (80,008)
Unrealized appreciation on investments 3,421,448
Net realized and unrealized gain on investments 3,341,440
Net increase in net assets resulting from operations $ 3,341,440
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
MARCH 31, 1998 MARCH 31, 1997*
<S> <C> <C>
OPERATIONS:
Net investment income $ - $ -
Net realized (loss) from securities transactions (80,008) (8,598)
Unrealized appreciation (depreciation) on investments 3,421,448 (45,855)
Change in net assets from operations 3,341,440 (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 3,917,385 10,689,463
Reinvested dividends and distributions - -
Cost of shares redeemed (291,310) (1,276,565)
Change in net assets from capital share transactions 3,626,075 9,412,898
Change in net assets 6,967,515 9,358,445
NET ASSETS:
Beginning of period 9,359,446 1,001
End of period $ 16,326,961 $ 9,359,446
<FN> * For the period August 13, 1996 (commencement of operations) through
March 31, 1997. </FN>
</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.
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 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 year ended March 31, 1998, the Fund incurred fees under the
Advisory and Administration Agreement and Sub-Advisory Agreement of $105,152
and $91,986, respectively, of which amounts $72,874 and $59,708,
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 year ended March 31, 1998, service fees on Class A
Shares amounted to $5,964, of which the Distributor received $430.
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 year ended March 31, 1998, amounted to $4,271. 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 year ended March 31, 1998, amounted to $1,424. The
total of these payments with respect to Class C Shares amounted to $5,695, of
which the Distributor received $3,813.
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 year ended March 31, 1998, the Distributor received
sales commissions in the amount of $3,253.
4. PURCHASES AND SALES OF SECURITIES
For the year ended March 31, 1998, purchases of securities and proceeds
from the sales of securities aggregated $7,506,100 and $3,562,089,
respectively.
At March 31, 1998, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $3,680,072 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to
$304,479, for a net unrealized appreciation of $3,375,593.
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 year ended March 31, 1998.
At March 31, 1998 the Fund had a capital loss carryover of
approximately $11,000 of which $3,400 expires on March 31, 2005 and $7,600
expires on March 31, 2006. 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. For the year ended March 31,
1998, the Fund's custodian fees amounted to $2,858, all of which 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>
Year Ended Period Ended
March 31, 1998 March 31, 1997*
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 49,363 $731,824 125,725 $1,640,953
Reinvested dividends and
distributions - - - -
Cost of shares redeemed (13,668) (208,024) (1,088) (13,804)
Net change 35,695 523,800 124,637 1,627,149
CLASS C SHARES:
Proceeds from shares sold 34,340 527,248 27,271 359,661
Reinvested dividends and
distributions - - - -
Cost of shares redeemed (3,627) (56,704) (202) (2,743)
Net change 30,713 470,544 27,069 356,918
CLASS Y SHARES:
Proceeds from shares sold 177,746 2,658,313 674,409 8,688,849
Reinvested dividends and
distributions - - - -
Cost of shares redeemed (1,618) (26,582) (103,802) (1,260,018)
Net change 176,128 2,631,731 570,607 7,428,831
Total transactions in Fund
shares 242,536 $ 3,626,075 722,313 $ 9,412,898
<FN> * For the period from August 13, 1996 (commencement of operations)
through March 31, 1997. </FN>
</TABLE>
AQUILA CASCADIA EQUITY FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class A Class C Class Y
Year Period(1) Year Period(1) Year Period(1)
Ended Ended Ended Ended Ended Ended
March 31, 1998 March 31, 1997 March 31, 1998 March 31, 1997 March 31, 1998 March 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $12.95 $12.00 $12.95 $12.00 $12.96 $12.00
Income from Investment Operations:
Net investment income (loss) - - - - - -
Net gain on securities (both
realized and unrealized) 3.94 0.95 3.81 0.95 3.98 0.96
Total from Investment Operations 3.94 0.95 3.81 0.95 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 $16.89 $12.95 $16.76 $12.95 $16.94 $12.96
Total Return (not reflecting sales
charge) (%) 30.42 7.92+ 29.42 7.92+ 30.71 8.00+
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 2,709 1,615 968 350 12,649 7,393
Ratio of Expenses to Average Net
Assets (%) 1.75 1.18* 2.51 1.22* 1.50 1.24*
Ratio of Net Investment Income to
Average Net Assets (%) (0.16) 0.00* (0.94) 0.00* 0.09 0.00*
Portfolio Turnover Rate (%) 29.38 3.53+ 29.38 3.53+ 29.38 3.53+
Average Commission Rate Paid** ($) 0.0656 0.0672 0.0656 0.0672 0.0656 0.0672
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Sub-Adviser's voluntary waiver
of fees, the voluntary expense reimbursement and the expense offset in
custodian fees for uninvested cash balances would have been:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income ($) (0.18) (0.29) (0.30) (0.35) (0.14) (0.27)
Ratio of Expenses to Average Net
Assets (%) 2.78 4.79* 3.55 5.55* 2.53 4.54*
Ratio of Net Investment Income to
Average Net Assets (%) (1.19) (3.61)* (1.98) (4.33)* (0.94) (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>
<FN> (1) For the period August 13, 1996 (commencement of operations) through
March 31, 1997. </FN>
See accompanying notes to financial statements.
</TABLE>
