<PAGE>
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
John W. Mitchell
Richard C. Ross
OFFICERS
Lacy B. Herrmann, President
James M. McCullough, Senior Vice President
Sherri Foster, 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 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, 1999
AQUILA
CASCADIA
EQUITY FUND
[Graphic: Small picture of an antique pocketwatch in front of a larger picture
of a cascading waterfall]
[Graphic of The Aquila Group of Funds: an eagle's head in an oval]
ONE OF THE
AQUILASM GROUP OF FUNDS
</PAGE>
<PAGE>
[Graphic: Small picture of an antique pocketwatch in front of a larger picture
of a cascading waterfall]
AQUILA CASCADIA EQUITY FUND
ANNUAL REPORT
"VALUE INVESTING IS STILL WORTHWHILE"
May 17, 1999
Dear Fellow Shareholder:
We are not as pleased as we might be to send you this Annual Report for the
Aquila Cascadia Equity Fund.
The reason for this is that the Fund's share value did not do as well as we
had hoped during this period. During the third quarter of calendar 1998, the
value of the Fund's shares declined, as did the general equity securities
market. However, since that time, the value of the Fund's shares have recovered
significantly, although not to the level we would like to see. This is despite
the good inherent characteristics of most of the companies represented in the
portfolio.
It matters little that a substantial number of the portfolios of
value-oriented funds have suffered a similar fate. It also matters little to us
that many mutual funds of various organizations did not have a good year in
1998, as well as the first part of 1999.
However, our faith continues.
THE CASCADIA REGION CONTINUES TO BE ATTRACTIVE
As you are aware, the investments of the Fund are focused upon what we term
to be the Cascadia region of our country. This consists primarily of the seven
states in the Pacific Northwest area - Oregon, Washington, Idaho, Utah, Nevada,
Alaska, and Hawaii. This region continues to possess some of the most
outstanding characteristics for economic growth within our country. And, its
growth is inherent in a significant number of the companies in the region.
Our investment style, however, is basically to select equity growth
securities on a value basis. This means that we look for companies which have
good growth in earnings, cash flow, strength of balance sheet, and positive
competitor characteristics. But, we try to buy these companies at a reasonable
price/earnings ratio.
Unfortunately, the value-oriented investment approach that we have
employed, and which has been employed by other investment managers in the
country, has tended not to be in favor recently. Instead, we have seen a
popularity of a growth and momentum style come to the fore.
</PAGE>
<PAGE>
It is interesting to note that within the broad-based market index of the
Standard & Poor's 500, only a very limited number of companies - about 20 -
produced the stellar price movement that this Index experienced in its
performance. And, these limited number of companies are currently selling at a
price/earnings ratio of over 40 times. Also, the spectacular nature of internet
stocks which have exploded in their stock price, yet have shown no earnings and
tremendous volatility - has led some people to believe that they can become
instant millionaires overnight.
Comparatively, the average price/earnings ratio of Aquila Cascadia Equity
Fund was only 23.8 times as of March 31, 1999.
This leads one to ask the question, "Is value investing dead?" We can
emphatically say, "No." The ebbs and flow in growth-oriented management and that
of a value approach are part of the nature of the markets. It is hard for us to
judge when the stock market will again favor a value-oriented approach. But, we
do know it will swing back. We will continue to stick to our value-oriented
style of investing because over time it has proven itself as making good sound
sense for favorable investment return.
Rather than chase after highly valued growth stocks, or buying companies
which for the moment are in vogue, we will continue to invest in companies which
have value over the long-term.
THE FUND'S INVESTMENTS
From the charts below you will see the various states represented in the
Cascadia region as well as the market sectors in which the Fund is invested.
(Graphic of a pie chart with the following information:)
PORTFOLIO DISTRIBUTION BY REGION
ALASKA 2%
HAWAII 3%
IDAHO 6%
NEVADA 4%
OREGON 26%
WASHINGTON 36%
UTAH 1%
OTHER 22%
(Graphic of a pie chart with the following information:)
PORTFOLIO DISTRIBUTION BY MARKET SECTOR
BASIC MATERIALS 7.2%
CAPITAL GOODS 5.9%
COMMUNICATION SERVICES 1.4%
CONSUMER CYCLICALS 21.7%
CONSUMER STAPLES 5.9%
ENERGY 3.0%
FINANCE 11.5%
HEALTHCARE 6.2%
TECHNOLOGY 24.1%
TRANSPORTATION 3.9%
UTILITIES 9.2%
</PAGE>
<PAGE>
Below are listed the top ten holdings of the Fund as of March 31, 1999.
While the individual holdings of the Fund and those that make up the top ten
will vary over time, there is a common denominator in their selection. This
common denominator is a factor of what we believe to be value.
TOP TEN HOLDINGS
PERCENTAGE
COMPANY OF NET ASSETS STATE MARKET SECTOR
------------------ ------------- ------------- ------------------
Microsoft 7.6% Washington Technology
Costco Companies 7.5% Washington Consumer Cyclicals
Fred Meyer 6.1% Oregon Consumer Cyclicals
Intel 4.6% California Technology
Immunex 3.2% Washington Healthcare
Albertson's 3.0% Idaho Consumer Staples
Williams Companies 2.7% Oklahoma Utilities
Weyerhaeuser 2.6% Oregon Basic Materials
Atlantic Richfield 2.5% California Energy
Washington Mutual 2.4% Washington Finance
DISCUSSION OF MANAGEMENT APPROACH
We distinctly urge you to read the section of the report entitled
"Management Discussion" to gain a better framework of the Fund's investment
style.
CONFIDENCE IN THE CASCADIA REGION
We strongly want to emphasize to you that we have high confidence in the
growth characteristics of the Cascadia region - despite the recent market
difficulties experienced - as well as in the various companies that make up its
nature. Furthermore, we have confidence in our value-oriented investment
approach toward this area.
YOUR CONFIDENCE IS GRATIFYING
We want you to know that your confidence is especially gratifying during a
period such as we are going through where value investing has been out of style.
We strongly feel this aberration is a temporary one and that good companies will
be appreciated and be rewarding for investors over time.
Sincerely,
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
</PAGE>
<PAGE>
FUND PERFORMANCE COMPARISON
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, 1999, as compared with a hypothetical similar size investment in the
Bloomberg Northwest 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 any dividends and
capital gains distributions. 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 Northwest-oriented, unmanaged
portfolio of 85 equity securities, of companies based in Alaska, Idaho, Oregon
and Washington. However, the Fund's investment portfolio consisted over the same
period with a lesser number of securities, primarily 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 a four state only 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.
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.
Previously, the Fund's performance was compared to the Standard & Poor's
MidCap 400 Index (a nationally oriented, unmanaged portfolio of 400 equity
securities of mid-capitalization companies) rather than the Bloomberg Northwest
Index. A change in the particular index was made by the Fund because it provides
a better basis of comparison inasmuch as the Fund invests primarily in the
securities of companies in that same region of the country. Had the Standard &
Poor's MidCap 400 Index been used at March 31, 1999, the value of a $10,000
investment in that index at inception of the Fund would have been $16,333.
(Line graph with the following information:)
Fund's Class A shares
------------------------------
Bloomberg
Northwest With Without
Index Sales Charge Sales Charge
--------- ------------ ------------
9/9/96 ................... $10,000 $ 9,575 $10,000
9/96 ..................... 10,267 9,840 10,275
3/97 ..................... 10,828 10,335 10,792
9/97 ..................... 14,201 12,721 13,283
3/98 ..................... 15,025 13,480 14,075
9/98 ..................... 11,525 11,093 11,583
3/99 ..................... 14,983 13,136 13,717
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS
FUND'S AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED 1 LIFE OF FUND
MARCH 31, 1999 YEAR SINCE 9/9/96
-------------------- ------ ------------
With Sales Charge -6.69% 11.26%
Without Sales Charge -2.55 13.16%
</PAGE>
<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
FUND PERFORMANCE
For the year ended March 31, 1999, the Aquila Cascadia Equity Fund's Class
A Shares had a total return of -2.55%, while the Bloomberg Northwest Index
posted a total return of -0.28%. However, since its inception on September 9,
1996, the Aquila Cascadia Equity Fund has enjoyed a total return of 37.2%.
The aforementioned results for the Fund's fiscal year are indicative of the
difficult market environment that has been faced by both smaller-capitalization
as well as value-oriented investors. Furthermore, narrow leadership remained the
hallmark of this liquidity-driven market. As an example, only 10 securities in
the S&P 500 accounted for 49% of the return experienced by this index. During
the past twelve months, equity investors intensified their recent preference for
large-capitalization equities, as the returns for such stocks substantially
outpaced returns of smaller-cap stocks. For example, the large-capitalization
S&P 500 Index was up 18.5% while the S&P Small-Cap Index was down a staggering
19.2%. As almost 80% of the companies in the Cascadia region are small or are
mid-capitalization firms, stock selection in this region was particularly
difficult. As portfolio managers, Ferguson Wellman recognized the
big-capitalization tone of the market and tried to position a portion of the
portfolio accordingly. For example, the portfolio's four largest positions are
big-cap stalwarts - Microsoft, Fred Meyer, Costco and Intel. However, the mid
and small-cap stocks in the portfolio unfortunately undermined the total
performance of the fund.
Unfortunately, two market sectors that carry both a small-cap and
value-bias are basic materials and capital goods. In the region, these important
sectors are dominated by paper, forest products and other commodity-based
industries. With inflation nonexistent and excess capacity worldwide, earnings
for these companies were depressed in the past year. As poorly as these
value-oriented stocks have performed, they remain attractive long-term holdings
that provide tremendous leverage to the reacceleration of the world economy.
In direct contrast to the aforementioned cyclical sectors, technology
securities stood out. Led by Triquent, Realnetworks, Microsoft and Mentor
Graphics, the average technology stock in the Cascadia portfolio appreciated by
42% last year. Representing 25% of the fund's total value, the technology sector
remains the largest and most important engine for long-term portfolio growth.
ECONOMIC OVERVIEW
The U.S. economy has never before enjoyed such a long period of economic
growth without inflation. With the unemployment rate at a 29-year low and
inflation below 2%., the economy has grown by more than 4% for two years
running. Amazingly, the U.S. has spent only 8 of the last 196 months in
recession. Despite a recent rise in bond yields, interest rates hover at levels
not seen in 30 years. At 96 months, the current expansion is the second-longest
in history. In only 11 months, it will even surpass the "guns and butter" boom
of the 1960's.
</PAGE>
<PAGE>
CASCADIA REGION
The "Asian Contagion" had a dramatic impact on the Pacific Northwest region
last year, sharply reducing exports and investment from abroad. Thus, this ended
a remarkable run that had pushed the region's states to the top of the nation's
growth charts for much of the last decade. While the Asian flu launched the
region's slowdown, Boeing, the region's largest factory employer, delivered a
further blow with its plan to reduce the work force by 20% over the next two
years.
While we may be headed for slower economic growth in the coming year, we do
not see recession on the horizon. In fact, we expect the collective pace of
economic expansion of Cascadia's seven constituent states to be greater than for
the U.S. as a whole. Unlike the 1980's when high interest rates put the region's
timber-dependent economy in a nose-dive, things are different now. For example,
Oregon's business mix has changed radically. The semiconductor boom of the early
1990's has aligned Oregon's economy much more closely with high-technology
industries which are the main drivers of both U.S. and world economic growth.
Oregon depends much less on a mature industry like forest products. This is as
true of Washington and Idaho as it is of Oregon.
And, what of Boeing's impact on Washington's economy? Boeing now represents
a smaller share of Washington's economy than at any previous peak. Boeing's
high-paying jobs remain important, but the state's industrial base, now larger
and more diverse, depends less on Boeing than in the past. For example, in the
late 1960's, every 10th Washington wage-earner worked at Boeing. At the 1990
peak, it was 1 in 17. Today it is about 1 in 23. Microsoft almost
single-handedly kept Washington's economy out of recession in the early 1990's
when Boeing employment plunged to 71,000 from 100,000. In addition to Microsoft,
there are now many other high-paying employers that can absorb the workers that
may be cut at Boeing.
CONCLUSION/OUTLOOK
The real "surprise" for the equity markets in recent months has been the
strength of corporate earnings. As companies re-engineer themselves, incentivize
employees with stock, restructure, consolidate, merge and invest in new
technologies, there appears to be cause for the expectation of continued
strength. These changes have brought about a productivity boom not seen since
the 1920's. In fact, over the last 3 years, the productivity of U.S. workers has
grown at twice the rate of the previous 25 years.
An environment of strong earnings gains, a stable bond market, a steady
flow of funds into equities, consumers willing to spend and nearly absent
inflation, all continue to provide a remarkable foundation for equities. We
remain in an environment where investors will continue to pay much more for a
dollar of future profits than they did a decade ago. 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 continue to be confident that 1999 and the future will bring economic growth
to drive the valuations of the region's constituent companies.
</PAGE>
<PAGE>
[Logo of KPMG: four rectangles with the letters 'KPMG' in front]
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, 1999, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the years in the two-year
period 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, 1999, 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, 1999, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the two-year period 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 LLP
New York, New York
April 27, 1999
</PAGE>
<PAGE>
<TABLE>
AQUILA CASCADIA EQUITY FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1999
<CAPTION>
MARKET
SHARES COMMON STOCKS - 99.8% VALUE
- --------------- ------------------------------------------------------------------ ----------------
</CAPTION>
<S> <C> <C>
BASIC MATERIALS - 7.2%
IRON & STEEL - 2.5%
9,100 Northwest Pipe Co..+ $ 150,150
9,400 Oregon Steel Mills Inc. 98,112
12,300 Schnitzer Steel Industries 146,063
----------------
394,325
----------------
PAPER & FOREST PRODUCTS - 4.7%
6,250 Boise Cascade Corp. 201,562
3,950 Pope & Talbot Inc. 25,181
7,400 Weyerhaeuser Co. 410,700
2,600 Willamette Industries 98,150
----------------
735,593
----------------
CAPITAL GOODS - 5.9%
AEROSPACE/DEFENSE - 1.4%
4,000 Boeing 136,500
2,300 Cordant Technologies Inc. 91,569
----------------
228,069
----------------
MACHINERY (DIVERSE) - 1.3%
9,300 Cascade Corp. 98,812
7,700 Esterline Technology Corp.+ 99,619
----------------
198,431
----------------
METAL PROCESSING - 1.2%
4,800 Precision Castparts Corp. 193,200
----------------
TRUCKS & PARTS - 2.0%
7,630 PACCAR Inc. 314,261
----------------
COMMUNICATION SERVICES - 1.4%
LONG DISTANCE/TELEPHONE - 1.4%
3,600 GTE Corp. 217,800
----------------
CONSUMER CYCLICALS - 21.6%
AUTO PARTS & EQUIPMENT - 0.8%
8,000 Lithia Motors Inc. Class A + 127,000
----------------
</PAGE>
<PAGE>
BUILDING MATERIALS/BUILDING SUPPLY - 2.3%
5,400 Eagle Hardware and Garden + 206,212
6,430 TJ International Inc. 155,124
----------------
361,336
----------------
FOOTWEAR - 2.3%
6,400 Nike Inc. Class B 369,200
----------------
GAMING & LOTTERY - 0.6%
4,400 Mirage Resorts Inc.+ 93,500
----------------
RETAIL - GENERAL MERCHANDISE/SPECIALTY - 15.6%
12,800 Costco Cos Inc.+ 1,172,000
16,358 Fred Meyer Inc. + 963,077
16,800 Hollywood Entertainment Corp. + 312,900
----------------
2,447,977
----------------
CONSUMER STAPLES - 5.9%
FOODS - 0.7%
2,880 Dean Foods Co. 102,600
----------------
RESTAURANTS - 2.2%
12,400 Starbucks Corporation + 347,975
----------------
RETAIL - FOOD CHAINS - 3.0%
8,680 Albertsons Inc. 471,432
----------------
ENERGY - 3.0%
OIL - DOMESTIC - 2.5%
5,350 Atlantic Richfield Co. 390,550
----------------
OIL & GAS - REFINING & MARKETING - 0.5%
5,742 Pennzoil-Quaker State Co. 71,057
----------------
FINANCE - 11.5%
BANKS - MAJOR REGIONAL - 4.0%
7,300 Banc West Corp. 310,250
15,000 Columbia Bancorp 131,250
6,600 National Bancorp of Alaska Inc. 185,625
----------------
627,125
----------------
</PAGE>
<PAGE>
INSURANCE - PROPERTY - 2.4%
9,400 SAFECO Corp. 380,112
----------------
SAVINGS & LOAN - 5.1%
7,650 Interwest Bancorp Inc. 182,166
11,333 Washington Federal Inc. 237,999
9,375 Washington Mutual Inc. 383,203
----------------
803,368
----------------
HEALTHCARE - 6.2%
DIVERSE - 0.9%
10,725 Sierra Health Services + 139,425
----------------
MEDICAL PRODUCTS & SUPPLY/DRUGS - 5.3%
6,000 Immunex Corp. + 499,500
10,000 Spacelabs Medical Inc.+ 168,125
3,728 Watson Pharmaceuticals + 164,498
----------------
832,123
----------------
TECHNOLOGY - 24.0%
COMPUTER HARDWARE & SOFTWARE SERVICES - 12.0%
4,690 Hewlett-Packard Co. 318,041
6,870 Micron Electronics Inc.+ 80,723
13,360 Microsoft Corp.+ 1,197,390
32,520 Sequent Computer Systems Inc.+ 294,713
----------------
1,890,867
----------------
ELECTRONICS - 10.1%
8,000 Flir System + 145,000
6,030 Intel Corp. 718,324
13,000 Mentor Graphics Corp. + 175,500
11,230 Pragitzer Industries Inc.+ 50,535
7,775 Tektronix Inc. 196,319
16,300 Triquint Semiconductor + 301,550
----------------
1,587,228
----------------
INTERNET SOFTWARE - 1.9%
2,400 Realnetworks Inc. + 293,250
----------------
</PAGE>
<PAGE>
TRANSPORTATION - 3.9%
AIR FREIGHT/AIRLINES - 3.2%
6,800 Airborne Freight Corporation 211,650
6,150 Alaska Air Group Inc.+ 292,125
----------------
503,775
----------------
RAILROADS - 0.7%
11,350 Greenbrier Companies Inc. 107,825
----------------
UTILITIES - 9.2%
ELECTRIC COMPANIES - 5.0%
5,600 Hawaiian Electric Industries 196,350
8,900 Nevada Power Co. 220,275
5,550 Pacificorp 95,738
3,545 PG&E Corp. 110,117
7,300 Puget Sound Energy, Inc. 168,356
----------------
790,836
----------------
NATURAL GAS - 4.2%
8,300 Southwest Gas Corporation 228,250
10,900 Williams Companies Inc. 430,550
----------------
658,800
----------------
</TABLE>
<TABLE>
<S> <C> <C>
Total Common Stocks (cost $12,562,994*) 99.8% 15,679,040
Other assets in exess of liabilities 0.2 37,742
------ ----------------
Net Assets 100.0% $ 15,716,782
====== ================
</TABLE>
* Cost for Federal tax purposes is identical.
+ Non-income producing security.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999
<TABLE>
ASSETS
<S> <C>
Investments at market value (cost $12,562,994) $ 15,679,040
Cash 16,753
Deferred organization expenses (note 2) 47,576
Dividends receivable 7,914
----------------
Total assets 15,751,283
----------------
LIABILITIES
Accrued expenses 15,335
Management fees payable 14,389
Distribution fees payable 4,777
----------------
Total liabilities 34,501
----------------
NET ASSETS $ 15,716,782
================
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares
par value $.01 per share $ 9,524
Additional paid-in capital 12,834,564
Accumulated net loss on investments (243,352)
Net unrealized appreciation on investments 3,116,046
----------------
$ 15,716,782
================
CLASS A
Net Assets $ 2,119,389
================
Capital shares outstanding 128,761
================
Net asset value and redemption price per share $ 16.46
================
Offering price per share (100/95.75 of $16.46 adjusted to nearest cent) $ 17.19
================
CLASS C
Net Assets $ 1,395,662
================
Capital shares outstanding 86,122
================
Net asset value and offering price per share $ 16.21
================
Redemption price per share (*a charge of 1% is imposed on the redemption
proceeds of the shares, or on the original price, whichever is lower, if
redeemed during the first 12 months after purchase) $ 16.21*
================
CLASS Y
Net Assets $ 12,201,731
================
Capital shares outstanding 737,477
================
Net asset value, offering and redemption price per share $ 16.55
================
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
INVESTMENT INCOME:
<S> <C> <C>
Dividends $ 251,121
Expenses:
Advisory and Administrative fees (note 3) $ 120,240
Sub-Advisory fees (note 3) 105,115
Legal fees 19,906
Amortization of organization expenses (note 2) 19,666
Distribution and service fees (note 3) 17,137
Shareholders' reports 15,251
Registration fees 13,789
Audit and accounting fees 13,500
Transfer and shareholder servicing agent fees 11,277
Trustees' fees and expenses 10,415
Custodian fees 2,191
Miscellaneous 5,335
-------------
353,822
Advisory and Administrative fees waived (note 3) (50,196)
Sub-Advisory fees waived (note 3) (35,072)
Expenses paid indirectly (note 6) (17,433)
-------------
Net expenses 251,121
-------------
Net investment income -
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss from securities transactions (154,745)
Change in unrealized appreciation on investments (259,547)
-------------
Net realized and unrealized loss on investments (414,292)
-------------
Net decrease in net assets resulting from operations $ (414,292)
=============
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
AQUILA CASCADIA EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1999 1998
------------- -------------
</CAPTION>
OPERATIONS:
<S> <C> <C>
Net investment income $ - $ -
Net realized loss from securities transactions (154,745) (80,008)
Change in unrealized appreciation (depreciation) on investments (259,547) 3,421,448
------------- -------------
Change in net assets from operations (414,292) 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 1,204,906 3,917,385
Reinvested dividends and distributions - -
Cost of shares redeemed (1,400,793) (291,310)
------------- -------------
Change in net assets from capital share transactions (195,887) 3,626,075
------------- -------------
Change in net assets (610,179) 6,967,515
NET ASSETS:
Beginning of period 16,326,961 9,359,446
------------- -------------
End of period $ 15,716,782 $ 16,326,961
============= =============
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<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 and are not offered directly to retail investors. Class Y
shares are sold at net asset value without any sales charge, redemption fees,
contingent deferred sales charge or distribution or service fees. 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 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.
</PAGE>
<PAGE>
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 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.
</PAGE>
<PAGE>
For the year ended March 31, 1999, the Fund incurred fees under the Advisory
and Administration Agreement and Sub-Advisory Agreement of $120,240 and
$105,115, respectively, of which amounts $50,196 and $35,072, 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, 1999, service fees on Class A Shares amounted to
$5,521, of which the Distributor received $409.
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, 1999, amounted to $8,712. 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, 1999, amounted to $2,904. The total of these payments with
respect to Class C Shares amounted to $11,616, of which the Distributor received
$7,550.
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 Fund's general
investment region, with the bulk of sales commissions inuring to such dealers.
For the year ended March 31, 1999, the Distributor received commissions of $290
on sales of Class A Shares.
</PAGE>
<PAGE>
4. PURCHASES AND SALES OF SECURITIES
For the year ended March 31, 1999, purchases of securities and proceeds from
the sales of securities aggregated $3,949,210 and $3,994,057, respectively.
At March 31, 1999, aggregate gross unrealized appreciation for all securities
in which there is an excess of market value over tax cost amounted to $4,187,697
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over market value amounted to $1,071,651, for a net
unrealized appreciation of $3,116,046.
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, 1999.
At March 31, 1999, the Fund had a capital loss carryover of approximately
$46,000 of which $3,400 expires on March 31, 2005, $7,600 expires on March 31,
2006 and $35,000 expires on March 31, 2007. This amount is available to offset
future net realized gains on securities transactions to the extent provided for
in the Internal Revenue Code and it is probable the gains so offset will not be
distributed.
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>
<PAGE>
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1999 MARCH 31, 1998
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
</CAPTION>
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 6,875 $ 103,021 49,363 $ 731,824
Reinvested dividends and
distributions -- -- -- --
Cost of shares redeemed (38,529) (612,838) (13,668) (208,024)
----------- ----------- ----------- -----------
Net change (31,654) (509,817) 35,695 523,800
----------- ----------- ----------- -----------
CLASS C SHARES:
Proceeds from shares sold 34,110 535,043 34,340 527,248
Reinvested dividends and
distributions -- -- -- --
Cost of shares redeemed (5,770) (94,346) (3,627) (56,704)
----------- ----------- ----------- -----------
Net change 28,340 440,697 30,713 470,544
----------- ----------- ----------- -----------
CLASS Y SHARES:
Proceeds from shares sold 33,127 566,842 177,746 2,658,313
Reinvested dividends and
distributions -- -- -- --
Cost of shares redeemed (42,384) (693,609) (1,618) (26,582)
----------- ----------- ----------- -----------
Net change (9,257) (126,767) 176,128 2,631,731
----------- ----------- ----------- -----------
Total transactions in Fund
shares (12,571) $ (195,887) 242,536 $ 3,626,075
=========== =========== =========== ===========
</TABLE>
</PAGE>
<PAGE>
AQUILA CASCADIA EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS Y
-------------------------- -------------------------- --------------------------
YEAR ENDED PERIOD(1) YEAR ENDED PERIOD(1) YEAR ENDED PERIOD(1)
MARCH 31, ENDED MARCH 31, ENDED MARCH 31, ENDED
---------------- MARCH 31, ---------------- MARCH 31, ---------------- MARCH 31,
1999 1998 1997 1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ ------ ------ ------ ------
</CAPTION>
<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) - - - - - - - - -
Net gain (loss) on securities
(both realized and unrealized) (0.43) 3.94 0.95 (0.55) 3.81 0.95 (0.39) 3.98 0.96
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations (0.43) 3.94 0.95 (0.55) 3.81 0.95 (0.39) 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 $16.46 $16.89 $12.95 $16.21 $16.76 $12.95 $16.55 $16.94 $12.96
====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (not reflecting sales
charge) (%) (2.55) 30.42 7.92+ (3.28) 29.42 7.92+ (2.30) 30.71 8.00+
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 2,119 2,709 1,615 1,396 968 350 12,202 12,649 7,393
Ratio of Expenses to Average
Net Assets (%) 1.92 1.77 1.34* 2.65 2.53 1.38* 1.66 1.52 1.40*
Ratio of Net Investment Income
to Average Net Assets (%) (0.25) (0.18) (0.16)* (1.00) (0.96) (0.16)* - 0.07 (0.16)*
Portfolio Turnover Rate (%) 26.62 29.38 3.53+ 26.62 29.38 3.53+ 26.62 29.38 3.53+
The expense and net investment income ratios without the effect of the Adviser's
and Administrator's voluntary waiver of fees and the Adviser's voluntary expense
reimbursement in the period ended March 31, 1997 were:
Ratio of Expenses to Average
Net Assets (%) 2.37 2.76 4.63* 3.09 3.53 5.39* 2.11 2.51 4.38*
Ratio of Net Investment
Income (Loss) to Average
Net Assets (%) (0.70) (1.17) (3.45)* (1.44) (1.96) (4.17)* (0.45) (0.92) (3.14)*
The expense ratios after giving effect to the waivers, expense reimbursement,
and expense offset for uninvested cash balances were:
Ratio of Expenses to Average
Net Assets (%) 1.80 1.75 1.18* 2.54 2.51 1.22* 1.55 1.50 1.24*
</TABLE>
(1) For the period August 13, 1996 (commencement of operations) through March
31, 1997.
+ Not annualized.
* Annualized.
See accompanying notes to financial statements.
</PAGE>
<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
or eliminate 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 are ready by the beginning of
the year 2000.
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 and will continue to monitor the progress of
its suppliers.
As you can well understand, we cannot directly control our 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.
</PAGE>
