<PAGE>
ADMINISTRATOR AND SUB-ADVISER
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Tucker Hart Adams
Arthur K. Carlson
Diana P. Herrmann
R. Thayne Robson
Cornelius T. Ryan
OFFICERS
Lacy B. Herrmann, President
James M. McCullough, Senior Vice President
Barbara S. Walchli, Senior Vice President
Kimball L. Young, Senior Vice President
Susan A. Cook, Vice President
Jean M. Smith, Vice President
Alan R. Stockman, Vice President
Jessica L. Wiltshire, 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
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC INC.
400 Bellevue Parkway
Wilmington, Delaware 19809
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
DECEMBER 31, 1999
[Logo of the Aquila Rocky Mountain Equity Fund: A black and white drawing of two
mountains with the words "Aquila" above and "Rocky Mountain Equity Fund" below.]
A CAPITAL APPRECIATION INVESTMENT
[Logo of the Aquila Group of Funds: an eagle's head]
ONE OF THE
AQUILAsm GROUP OF FUNDS
</PAGE>
<PAGE>
[Logo of the Aquila Rocky Mountain Equity Fund: A black and white drawing of two
mountains with the words "Aquila" above and "Rocky Mountain Equity Fund" below.]
AQUILA ROCKY MOUNTAIN EQUITY FUND
ANNUAL REPORT
"THE ROCKY MOUNTAIN REGION CONTINUES TO SHINE BRIGHTLY"
February 15, 2000
Dear Fellow Shareholders:
We are pleased to send you the Annual Report for Aquila Rocky Mountain
Equity Fund for the fiscal year ended December 31, 1999. The total return,
exclusive of sales charges, produced by the Fund's Class A Shares over this
period was 20.56%. By way of comparison the Russell 2000 Index, which currently
serves as one benchmark for the Fund, produced a total return of 21.36% over the
same period. And, the Standard & Poor's 500 produced a return of 21.04% during
the year 1999.
THE ROCKY MOUNTAIN REGION CONTINUES TO SHINE BRIGHTLY
As a result of continued economic growth in the various states within the
Rocky Mountain region, together with the dynamic spirit of enterprise that is
intrinsic to the area, we are pleased to report that the Rocky Mountain region
continues to shine as one of the major growth areas of our country.
We think it is important for you to know and appreciate that the Gross
Domestic Product (GDP) of the combined eight-state Rocky Mountain region ranks
this region's gross economy approximately 11th in the whole world slightly
behind Canada and ahead of Mexico.
Just as important as the size of the economy is the character of the area.
Due to the excellent quality of life available in the region, companies are able
to recruit workers at a time when the job market is tight. We believe this
factor is contributing to the entrepreneurial energy and growth potential of the
Rocky Mountain region.
POTENTIAL FOR INVESTMENT
At present, there are over 700 public companies within the Rocky Mountain
region, and thousands of additional private companies. Many of these companies
are rapidly growing and participate in various diverse, interesting and dynamic
industry areas. This gives your portfolio management very exciting potential for
investments. We have the ability, through Aquila Rocky Mountain Equity Fund, to
invest in securities of companies that may not necessarily be as well known as
others in the country, but which are growing at a rate that is highly
attractive.
What we have with the Rocky Mountain region is the opportunity to invest in
"our own backyard." We can do so with great pride and potential for capital
appreciation. And, although we have the ability to invest in an area which would
be one of the largest economies of the world, we can do so without any
accounting differences, language barriers, currency exchange and cultural
problems, or other detracting factors which one finds when investing in various
other areas throughout the world.
</PAGE>
<PAGE>
OUR RECOMMITMENT TO THE FUND
The first five years of the development of Aquila Rocky Mountain Equity
Fund basically represented an incubation period. We felt that the Rocky Mountain
region possessed the basic characteristics for investment of equity securities,
but we wanted to test our theory. But more importantly, we wanted to do so at a
low risk to investors. Therefore, we choose to use a value-oriented approach to
investing.
Because the industry base of the area is broadening considerably from what
it used to be, we have now decided to reorient our investment approach somewhat
to an approach of "growth at a reasonable price." Through this approach, we want
to be able to invest in all kinds of industries at whatever price seems
reasonable for the characteristics of the industries. Yet, we will still pay
careful attention to the element of risk in the selection of any and all
securities in the portfolio. Our intent is to moderate any downside potential
for investment capital that may develop with adverse market conditions.
Additionally, Aquila Management Corporation has taken a significant step to
enhance the potential for capital appreciation over the future. This step
involved bringing the portfolio management of the Fund in-house. In July, 1999,
Barbara Walchli was appointed portfolio manager and Senior Vice President of
Aquila Rocky Mountain Equity Fund. Barbara brings nearly two decades of
analytical investment experience to the Fund, including 12 years developing
short and long-term equity strategy.
We believe that Barbara has brought considerable experience and excitement
to the management of the portfolio of the Fund. Barbara's base in the Rocky
Mountain state of Arizona enables her to maintain a careful watch over each of
the Fund's portfolio investments. She frequently travels throughout the region
to check on current and prospective investments.
TOP TEN HOLDINGS
Listed below are the top ten holdings of the Fund as of December 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. The
common denominator is securities which possess "growth at a reasonable price" at
time of purchase. In addition, we work to identify strong management teams who
also possess an ownership position in their stock.
<TABLE>
<CAPTION>
PERCENT
COMPANY OF NET ASSETS STATE MARKET SECTOR
</CAPTION>
<S> <C> <C> <C>
Liberty Media Group Class A - AT&T 12.11% Colorado Consumer Services
Jones Intercable Inc. Class A 7.86% Colorado Consumer Services
Prima Energy Corp. 6.82% Colorado Energy
Koala Corp. 6.35% Colorado Consumer Cyclicals
First Security Corp. 6.05% Utah Financial Services
Montana Power Co. 5.84% Montana Telecommunications
Mity-Lite, Inc. 5.67% Utah Capital Spending
Navidec Inc. 5.35% Colorado Technology
Avert Inc. 4.93% Colorado Technology
First State Bancorp 4.91% New Mexico Financial Services
</TABLE>
</PAGE>
<PAGE>
RETURN ON INVESTMENT FROM THE FUND
The chart below shows the return on investment that the Fund has produced
since its inception. The illustration is presented without sales charge.
However, the return illustrates the point that, with a moderate degree of risk,
in a little more than 5 years, one would have nearly doubled the level of their
investment.
[Graphic of a mountain chart with the following information:]
GROWTH OF $10,000 SINCE INCEPTION (WITHOUT SALES CHARGE)
Date Value
7/94 $10,000
12/94 9,676
6/95 11,041
12/95 11,581
6/96 13,107
12/96 13,744
6/97 14,794
12/97 16,906
6/98 16,934
12/98 16,009
6/99 18,626
12/99 19,300
We would urge you to review the management discussion which points out the
lower level of risk inherent in our investing as opposed to that of the national
averages.
APPRECIATION
Your confidence in Aquila Rocky Mountain Equity Fund is greatly
appreciated. We value your trust and will continue to do our best to merit your
confidence.
Barbara S. Walchli
Senior Vice President and
Portfolio Manager
Lacy B. Herrmann
President and
Chairman, Board of Trustees
In keeping with industry standards, total return figures indicated above do not
include sales charges, but do reflect reinvestment of dividends and capital
gains. 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 (for the period July 22, 1994 through April 30,
1996, it was 4.75%). Management fees and certain expenses are being absorbed.
Returns would be less if sales charges, management fees, and expenses, were
applied. Share net asset value and investment return fluctuate so that an
investor may receive more or less than original investment upon redemption.
The prospectus of the Fund, which contains more complete information, including
management fees and expenses and which discusses the special risk considerations
of the geographic concentration strategy of the Fund, should, of course, be
carefully reviewed before investing.
</PAGE>
<PAGE>
PERFORMANCE REPORT
The graph below illustrates the value of $10,000 invested in Class A Shares
of Aquila Rocky Mountain Equity Fund (the "Fund") since its inception on July
22, 1994 and maintaining this investment through the Fund's latest fiscal year-
end, December 31, 1999 as compared with a hypothetical similar-size investment
in the Russell 2000 Stock Index (the "Index") over the same period. The Fund
has been managed, since its inception, to provide capital appreciation through
selection of equity-oriented securities primarily on a value-basis, and
reoriented to growth at a reasonable price as of July, 1999. The Fund's universe
of companies are primarily within the eight-state Rocky Mountain region.
The performance of each of the other classes is not shown in the graph, but
is included in the table below. It should be noted that the Index does not
include operating expenses nor sales charges but does reflect reinvestment of
dividends. It should also be noted that the Index is nationally-oriented and
consisted, over the period covered by the graph, of an unmanaged group of 2000
equity securities throughout the United States, mostly of companies having
relatively small capitalization. However, the Fund's investment portfolio
consisted over the same period of a significant lesser number of equity
securities primarily of companies domiciled in the eight-state Rocky Mountain
region of our country.
The market prices and behavior of the individual securities in the Fund's
investment portfolio can be affected by local and regional factors which might
well result in variances from the market action of the securities in the Index.
Furthermore, whatever the difference in the performance in the Index versus the
Fund may also be attributed to the lack of application of annual operating
expenses and sales charges to the Index.
[Graphic of a line chart with the following information:]
RUSSELL
2000 WITH WITHOUT
STOCK SALES SALES
DATE INDEX CHARGE CHARGE
7/94 $10,000 $9,600 $10,000
12/94 10,325 9,263 9,676
6/95 11,813 10,570 11,041
12/95 13,262 11,086 11,581
6/96 14,650 12,547 13,107
12/96 15,440 13,157 13,744
6/97 17,016 14,162 14,794
12/97 18,893 16,184 16,906
6/98 19,824 16,211 16,934
12/98 18,413 15,325 16,009
6/99 20,114 17,830 18,626
12/99 22,344 18,475 19,300
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 1999
SINCE
1 YEAR 5 YEARS INCEPTION
Class A (7/22/94)
With Sales Charge 15.46% 13.70% 11.93%
Without Sales Charge 20.56% 14.81% 12.83%
Class C (5/1/96)
With CDSC 18.62% n/a 11.31%
Without CDSC 19.63% n/a 11.31%
Class Y (5/1/96)
No Sales Charge 20.78% n/a 11.83%
Russell 2000 Stock Index 21.35% 16.70% 15.94% (Class A)
21.35% n/a 12.09% (Class C&Y)
Total return figures shown for the Fund reflect any change in price and
assume all distributions within the period were invested in additional shares.
Returns for Class A shares are calculated with and without the effect of the
initial 4% maximum sales charge. Returns for Class C shares are calculated with
and without the effect of the 1% contingent deferred sales charge (CDSC),
imposed on redemptions made within the first 12 months after purchase. Class Y
shares are sold without any sales charge. The rates of return will vary and the
principal value of an investment will fluctuate with market conditions. Shares,
if redeemed, may be worth more or less than their original cost. Past
performance is not predictive of future investment results.
</PAGE>
<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
Aquila Rocky Mountain Equity Fund's Class A Shares had a total return of
20.56%, without provision for sales charges, for the fiscal year ended December
31, 1999. By way of comparison, the Russell 2000 index posted a total return of
21.36%.
The year was somewhat of a transitional one with a portfolio manager change
and a shift from primarily value to "growth at a reasonable price." Holdings of
slower growing companies in the Fund have been reduced. The average growth rate
of earnings of companies held in the Fund is now at a level of approximately 16%
per annum. This compares to a level of 12.5% per annum for the Standard & Poor's
500. Of course, individual companies represented in the Fund's portfolio or the
Standard & Poor's 500 may have earnings growing at a substantially higher rate
than those of the average. We have shifted to a "growth at a reasonable price"
style in order to deliver more consistent returns over time, without necessarily
increasing the risk level. Using a blend of growth and value disciplines, our
performance should be less influenced by whether growth or value is in style.
For the year ended December 31, 1999, it is interesting to note that three
of our best performers in the Fund were up over 100% including Avert, +178%,
Liberty Media, +147%, and Navidec, +137. We specifically want to point out that
through September, 1999 neither Avert nor Navidec were covered by a single Wall
Street analyst. We believe this illustrates our belief that many companies in
the Rocky Mountain region are not covered well by Wall Street, despite their
excellent growth potential. Yet, these companies offer above average
opportunities to those willing to do their own research.
The three best performers in the Fund are technology related companies,
reflecting the technology driven stock market over the past twelve months. Avert
delivers pre-employment screening to companies over the Internet, while Navidec
is an Internet consulting firm and incubator. Liberty Media has a number of
technology related investments in companies including cable, the Internet and
wireless communication.
Stocks that were down for the year and which had a negative impact on the
portfolio's investment results included Albertson's (-48.6%). We did, however,
sell about a third of this position at a decent price. Other stocks that had a
negative impact upon the Fund were Sierra Health, down 41% when we sold it in
August; New Century Energies (-30%), which has been eliminated from the
portfolio; and Conseco (-21%) which was also eliminated from the Fund in August
and September.
We continue to be quite excited about the prospect for the Rocky Mountain
region and the positive business environment that it provides for the companies
doing business here. Two studies recently released reinforce our optimism. The
first was a recent study by the Census Bureau. For the decade of the 1990's, the
fastest growing states in the U.S. were Nevada, Arizona, Idaho, Utah and
Colorado. All five of these states are located in the Rocky Mountain Region. The
economic growth for the decade ranged from an increase of 50.6% for Nevada to an
increase of 23.1% for Colorado.
The second study was recently released by Cognetics, a Cambridge,
Massachusetts research firm. For the third year in a row, Phoenix, Arizona was
named the number one entrepreneurial hot spot in the country. Salt Lake City was
named number two. The firm bases its decision on five factors: universities, a
skilled labor pool, good airports, an attractive place to live and a positive
entrepreneurial environment. In our travels we have also observed that some of
our country's best growth companies have operations in places like Boulder,
Colorado because of quality of life issues and the ability to attract employees.
</PAGE>
<PAGE>
With our portfolio manager based in the Rocky Mountain region and focused
on the eight state region, we believe in frequent visits to the companies in
which we invest. In most cases, our portfolio manager can be seated in front of
management of each of our investments within several hours. Travel is more
efficient since we are focusing on a specific economic region. Specifically, we
work to find the best management teams within the region. Many of the
managements of the companies in which we invest own a large position of stock in
the companies themselves. We like to see this, since it is a strong indicator
that management is focused on the performance of their stock, just as we are.
We are pleased to note that Prima Energy, one of the holdings in the Fund,
was named by a Colorado publication as the best performing Colorado stock of the
ten-year period of the 1990's, due to its market return of 1,857% as well as its
strong management.
We remain optimistic about the Rocky Mountain region, as well as the
dynamic companies that are based here. We will continue to work to identify the
best investment opportunities in the region. In doing so, we will use our
investment disciplines to put them to work in the Fund. While the overall
investment environment could be choppy in price activity over the next twelve
months, we will work to use to our advantage any price volatility that does
occur. A correction could provide an opportunity to buy some of the best
companies in the region at reasonable prices.
</PAGE>
<PAGE>
[Logo of KPMG LLP: The letters KPMG in front of four rectangles]
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Aquila Rocky Mountain Equity Fund:
We have audited the accompanying statement of assets and liabilities of
Aquila Rocky Mountain Equity Fund, including the statement of investments, as of
December 31, 1999, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. 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
December 31, 1999, by correspondence with the custodian and brokers. 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 Rocky Mountain Equity Fund as of December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
New York, New York
January 31, 2000
</PAGE>
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCKS - 100.1% VALUE
</CAPTION>
<S> <C> <C>
BASIC INDUSTRY - 7.4%
2,000 Barrick Gold Corp. $ 35,375
3,000 Building Materials Holding Corp.+ 30,750
500 Phelps Dodge Corp. 33,563
2,000 Swift Transportation+ 35,250
1,100 Union Pacific 47,988
182,926
BUSINESS SERVICES - 4.5%
4,000 Viad Corporation 111,500
CAPITAL SPENDING - 6.8%
9,000 Mity-Lite, Inc.+ 140,062
3,500 Morrison Knudsen Corp. + 27,344
10 Morrison Knudsen Corp. Warrants + 23
167,429
CONSUMER CYCLICALS - 6.3%
11,200 Koala Corp.+ 156,800
CONSUMER SERVICES - 29.2%
1,000 Albertson's Inc. 32,250
4,000 International Game Technology+ 81,250
2,800 Jones Intercable Inc. Class A+ 194,075
5,268 Liberty Media Group Class A+ 298,959
1,500 Media One Group+ 115,219
721,753
CONSUMER STAPLES - 3.0%
3,000 Dial Corp. 72,937
ENERGY - 8.4%
7,000 Prima Energy Corp.+ 168,438
3,000 Union Pacific Resources, Inc. 38,257
206,695
</PAGE>
<PAGE>
FINANCIAL SERVICES - 13.4%
5,850 First Security Corp. $ 149,357
8,812 First State Bancorp 121,165
4,000 WesterFed Financial Corp. 61,000
331,522
TECHNOLOGY - 11.4%
9,500 Avert Inc.+ 121,719
400 Microchip Technology Inc.+ 27,375
11,000 Navidec Inc.+ 132,000
281,094
TELECOMMUNICATIONS - 5.9%
4,000 Montana Power Co. 144,250
UTILITIES - 3.8%
1,500 Idacorp Inc. 40,219
2,700 Kinder Morgan 54,506
94,725
Total Common Stocks (cost $1,277,412) 2,471,631
FACE
AMOUNT SHORT-TERM INVESTMENTS - 0.8%
$20,000 Churchill Cash Reserves Trust 20,000
Total Short-Term Investments (cost $20,000) 20,000
Total Investments (cost $1,297,412*) 100.9% 2,491,631
Liabilities in excess of other assets (0.9)% (22,461)
Net Assets 100.0% $ 2,469,170
* Cost for Federal tax purposes is identical.
+ Non-income producing security.
See accompanying notes to financial statements
</PAGE>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
</CAPTION>
<S> <C> <C>
ASSETS
Investments at market value (cost $1,297,412) $ 2,491,6312
Cash 7,914
Receivable for investment securities sold 72,587
Dividends and interest receivable 1,170
Other assets 114
Total assets 2,573,416
LIABILITIES
Payable for Fund shares redeemed 79,496
Accrued expenses 23,411
Distribution fees payable 1,339
Total liabilities 104,246
NET ASSETS $ 2,469,170
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares,
par value $.01 per share $ 1,236
Additional paid-in capital 1,294,527
Net unrealized appreciation on investments 1,194,219
Undistributed net realized loss on investments (20,812)
$ 2,469,170
CLASS A
Net Assets $ 1,362,764
Capital shares outstanding 68,276
Net asset value and redemption price per share $ 19.96
Offering price per share (100/95.75 of $19.96 adjusted
to nearest cent) $ 20.85
CLASS C
Net Assets $ 184,883
Capital shares outstanding 9,467
Net asset value and offering price per share $ 19.53
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) $ 19.53*
CLASS Y
Net Assets $ 921,523
Capital shares outstanding 45,905
Net asset value, offering and redemption price per share $ 20.07
See accompanying notes to financial statements
</TABLE>
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
</CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 32,1366
Interest 1,422
$ 33,558
Expenses:
Investment Adviser fees (note 3) $ 18,655
Administrator fees (note 3) 21,320
Legal fees 32,032
Shareholders' reports 18,530
Audit and accounting fees 15,000
Registration fees and dues 12,725
Transfer and shareholder servicing agent fees 10,571
Trustees' fees and expenses 10,172
Distribution and service fees (note 3) 5,808
Amortization of organization expenses (note 2) 4,455
Custodian fees 979
Miscellaneous 5,984
156,231
Investment Adviser fees waived (note 3) (18,655)
Administrator fees waived (note 3) (21,320)
Reimbursement of expenses by Administrator (note 3) (75,517)
Expenses paid indirectly (note 6) (979)
Net expenses 39,760
Net investment loss (6,202)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from securities transactions 21,894
Change in unrealized appreciation on investments 485,535
Net realized and unrealized gain on investments 507,429
Net increase in net assets resulting from operations $ 501,227
See accompanying notes to financial statements
</TABLE>
</PAGE>
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
</CAPTION>
<S> <C> <C>
OPERATIONS:
Net investment loss $ (6,202) $ (391)
Net realized gain from securities transactions 21,894 7,746
Change in unrealized appreciation on investments 485,535 (155,516)
Change in net assets from operations 501,227 (148,161)
DISTRIBUTIONS TO SHAREHOLDERS (note 5):
Class A Shares:
Net investment income - (1,387)
Net realized gain on investments (17,492) (18,386)
Class C Shares:
Net investment income - (120)
Net realized gain on investments (2,297) (1,588)
Class Y Shares:
Net investment income - (574)
Net realized gain on investments (11,061) (7,609)
Change in net assets from distributions (30,850) (29,664)
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold 159,493 475,496
Reinvested dividends and distributions 23,162 31,719
Cost of shares redeemed (1,014,679) (1,444,705)
Change in net assets from capital share transactions (832,024) (937,490)
Change in net assets (361,647) (1,115,315)
NET ASSETS:
Beginning of period 2,830,817 3,946,132
End of period (including distribution in excess of net
investment income of $6,202 and $0 in 1999 and 1998,
respectively) $ 2,469,170 $ 2,830,817
</TABLE>
See accompanying notes to financial statements
</PAGE>
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Aquila Rocky Mountain Equity Fund (the "Fund"), a diversified, open-end
investment company, was organized on November 3, 1993 as a Massachusetts
business trust and commenced operations on July 22, 1994. The Fund is authorized
to issue an unlimited number of shares and, since its inception to May 1, 1996,
offered only one class of shares. On that date, the Fund began offering two
additional classes of shares, Class C and Class Y shares. All shares outstanding
prior to that date were designated as Class A shares and are sold with a
front-payment sales charge and bear an annual 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. On April 30, 1998 the
Fund established Class I shares, which are offered and sold only through
financial intermediaries and are not offered directly to retail investors. At
December 31, 1999 there were no Class I shares outstanding. All classes of
shares represent interests in the same portfolio of investments and are
identical as to rights and privileges but differ with respect to the effect of
sales charges, the distribution and/or service fees borne by each class,
expenses specific to each class, voting rights on matters affecting a single
class and the exchange privileges of each class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
a)PORTFOLIO VALUATION: Securities listed on a national securities exchange or
designated as national market system securities are valued at the last sale
price on such exchanges or market system or, if there has been no sale that
day, at the bid price. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees. Short-term investments maturing in 60 days
or less are valued at amortized cost.
b)SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses from
securities transactions are reported on the identified cost basis. Dividend
income is recorded on the ex-dividend date. Interest income is recorded daily
on the accrual basis.
</PAGE>
<PAGE>
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.
d)ORGANIZATION EXPENSES: The Fund's organizational expenses were deferred
and amortized on a straight-line basis over the five years ended July 1999.
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:
The Fund has a Sub-Advisory and Administration Agreement with Aquila
Management Corporation (the "Administrator"), the Fund's founder and sponsor.
Under this agreement, the Administrator supervises the investments of the Fund
and the composition of its portfolio, arranges for the purchases and sales of
portfolio securities, and provides for daily pricing of the Fund's portfolio.
Besides its sub-advisory services, it also provides all administrative services.
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 Administrator is entitled to receive a fee which
is payable monthly and computed as of the close of business each day on the net
assets of the Fund at the following annual rates; 1.50% on the first $15
million; 1.20% on the next $35 million and 0.90 of 1% on the excess over $50
million.
Prior to July 28, 1999, KPM Investment Management, Inc. performed the
investment management services for the Fund for an advisory fee 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 over $50 million. This advisory fee is now
included in the fee paid to the Administrator for performing these services and
accordingly, the aggregate management fees incurred by the Fund under the new
arrangements remain the same. However, since inception, all advisory and
administrative fees have been waived.
</PAGE>
<PAGE>
The Administrator agrees that the above fees shall be reduced, but not
below zero, by an amount equal to the amount, if any, by which the total
expenses of the Fund in any fiscal year, exclusive of taxes, interest and
brokerage fees, shall exceed the most restrictive expense limitation imposed
upon the Fund in the states in which shares are then eligible for sale. At the
present time none of the states in which the Fund's shares are sold have any
such limitation.
For the year ended December 31, 1999, the Fund incurred fees under the
Advisory Agreement (with the former adviser) and the Sub-Advisory and
Administration Agreement of $18,655 and $21,320, respectively, which were
voluntarily waived. Also, during this period the Administrator reimbursed the
Fund for unamortized deferred organization expenses of $1,506 and voluntarily
agreed to reimburse the Fund for other expenses in the amount of $75,517.
Specific details as to the nature and extent of the services provided by
the Administrator 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 December 31, 1999, service fees on Class A Shares
amounted to $4,097, of which the Distributor received $427.
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 December 31, 1999, amounted to $1,283. 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 December 31, 1999, amounted to $428. The total of these payments with
respect to Class C Shares amounted to $1,711, of which the Distributor received
$786.
</PAGE>
<PAGE>
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 general Rocky
Mountain region, with the bulk of sales commissions inuring to such dealers. For
the year ended December 31, 1999, the Distributor received commissions of $332
on sales of Class A Shares.
4. PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 1999, purchases of securities and
proceeds from the sales of securities (excluding short-term investments)
aggregated $168,450 and $951,282, respectively.
At December 31, 1999, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted to
$1,235,253 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value amounted to $41,034, for
a net unrealized appreciation of $1,194,219.
5. DISTRIBUTIONS
The Fund declares annual distributions to shareholders from net investment
income, if any, and from net realized capital gains, if any. Distributions are
recorded by the Fund on the ex-dividend date and paid in additional shares at
the net asset value per share, in cash, or in a combination of both, at the
shareholder's option. 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.
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 equity securities 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
DECEMBER 31, 1999 DECEMBER 31, 1998
SHARES AMOUNT SHARES AMOUNT
</CAPTION>
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 8,224 $ 148,753 14,054 $ 260,372
Reinvested dividends and
distributions 563 11,161 1,318 21,904
Cost of shares redeemed (52,657) (969,054) (78,986) (1,431,876)
Net change (43,870) (809,140) (63,614) (1,149,600)
CLASS C SHARES:
Proceeds from shares sold 500 9,565 10,043 178,108
Reinvested dividends and
distributions 49 940 101 1,632
Cost of shares redeemed (875) (15,625) (743) (12,829)
Net change (326) (5,120) 9,401 166,911
CLASS Y SHARES:
Proceeds from shares sold 61 1,175 2,035 37,016
Reinvested dividends and
distributions 555 11,061 498 8,183
Cost of shares redeemed (1,640) (30,000)
Net change (1,024) (17,764) 2,533 45,199
Total transactions in Fund
shares (45,220) $ (832,024) (51,680) $ (937,490)
</TABLE>
8. PORTFOLIO ORIENTATION
The Fund's investments are primarily invested in the securities of companies
within the eight state Rocky Mountain region and therefore are subject to
economic and other conditions affecting the various states which comprise the
region. Accordingly, the investment performance of the Fund might not be
comparable with that of a broader universe of companies.
FEDERAL TAX STATUS (UNAUDITED)
The percentage of investment company taxable income eligible for the
dividends recieved deduction available for certain corporate shareholders
with respect to calender year ended December 31, 1999 is 100%.
</PAGE>
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A(1)
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $16.76 $17.89 $15.05 $13.13 $11.06
Income from Investment Operations:
Net investment income (loss) (0.04) 0.01 (0.02) (0.07)
Net gain (loss) on securities (both realized
and unrealized) 3.48 (0.96) 3.44 2.47 2.25
Total from Investment Operations 3.44 (0.96) 3.45 2.45 2.18
Less Distributions (note 5):
Dividends from net investment income (0.01) (0.01)
Distributions from capital gains (0.24) (0.16) (0.61) (0.53) (0.10)
Total Distributions (0.24) (0.17) (0.61) (0.53) (0.11)
Net Asset Value, End of Period $19.96 $16.76 $17.89 $15.05 $13.13
Total Return (not reflecting sales charge) (%) 20.56 (5.31) 23.01 18.68 19.68
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 1,363 1,880 3,144 2,178 1,737
Ratio of Expenses to Average Net Assets (%) 1.55 1.74 1.58 1.55 2.03
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) (0.27) (0.22) (0.03) (0.19) (0.72)
Portfolio Turnover Rate (%) 6.45 19.52 10.39 20.32 15.14
The expense and net investment income ratios without the
effect of the Adviser's and Administrator's voluntary waiver
of fees and the Administrator's voluntary
expense reimbursement were:
Ratio of Expenses to Average Net Assets (%)(2) 5.86 4.74 6.48 8.79 10.36
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) (4.59) (3.22) (4.93) (7.43) (9.05)
The expense ratios after giving effect to the waivers,
reimbursements and expense offset for uninvested
cash balances were:
Ratio of Expenses to Average Net Assets (%) 1.51 1.55 1.50 1.50 1.91
</TABLE>
(1) Designated as Class A Shares on May 1, 1996.
(2) Ratios are based on average net assets of $1,637,715, $2,489,469,
$2,505,548, $1,965,012 and $1,239,752, respectively. In general, as the
Fund's net assets increase, the expense ratio will decrease.
Note: Effective July 28, 1999, Aquila Management Corporation assumed the role of
investment adviser, replacing KPM Investment Management, Inc.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C(1)
PERIOD
YEAR ENDED DECEMBER 31, ENDED
1999 1998 1997 12/31/96
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $16.53 $17.79 $15.07 $14.59
Income from Investment Operations:
Net investment income (0.19) (0.16) (0.11) 0.01
Net gain on securities (both
realized and unrealized) 3.43 (0.93) 3.44 1.00
Total from Investment Operations 3.24 (1.09) 3.33 1.01
Less Distributions (note 5):
Dividends from net investment income - (0.01) - -
Distributions from capital gains (0.24) (0.16) (0.61) (0.53)
Total Distributions (0.24) (0.17) (0.61) (0.53)
Net Asset Value, End of Period $19.53 $16.53 $17.79 $15.07
Total Return (not reflecting sales charge) (%) 19.63 (6.07) 22.18 6.94+
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 185 162 7 4
Ratio of Expenses to Average Net
Assets (%) 2.34 2.53 2.34 1.30*
Ratio of Net Investment Income
(Loss) to Average Net Assets (%) (1.10) (1.07) (0.78) 0.06*
Portfolio Turnover Rate (%) 6.45 19.52 10.39 20.32+
The expense and net investment income ratios without
the effect of the Adviser's and Administrator's
voluntary waiver of fees and the Administrator's
voluntary expense reimbursement were:
Ratio of Expenses to Average
Net Assets (%)(2) 6.59 5.70 7.19 8.54*
Ratio of Net Investment Income
(Loss) to Average Net Assets (%) (5.35) (4.23) (5.63) (7.18)*
The expense ratios after giving effect to the waivers,
reimbursements and expense offset for uninvested
cash balances were:
Ratio of Expenses to Average
Net Assets (%) 2.30 2.33 2.26 1.25*
</TABLE>
(1) New Class of Shares established on May 1, 1996.
(2) Ratios are based on average net assets of $171,273, $153,364, $4,895 and
$542, respectively, for Class C Shares and $855,950, $789,453, $287,294 and
$52,490, respectively, for Class Y Shares. In general, as the Fund's net
assets increase, the expense ratio will decrease.
+ Not annualized.
* Annualized.
Note: Effective July 28, 1999, Aquila Management Corporation assumed the role of
investment adviser, replacing KPM Investment Management, Inc.
See accompanying notes to financial statements
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS Y(1)
PERIOD
YEAR ENDED DECEMBER 31, ENDED
1999 1998 1997 12/31/96
</CAPTION>
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $16.82 $17.91 $15.07 $14.59
Income from Investment Operations:
Net investment income (0.01) 0.03 0.04 0.01
Net gain on securities (both
realized and unrealized) 3.50 (0.95) 3.41 1.00
Total from Investment Operations 3.49 (0.92) 3.45 1.01
Less Distributions (note 5):
Dividends from net investment income (0.01) - -
Distributions from capital gains (0.24) (0.16) (0.61) (0.53)
Total Distributions (0.24) (0.17) (0.61) (0.53)
Net Asset Value, End of Period $20.07 $16.82 $17.91 $15.07
Total Return (not reflecting sales charge) (%) 20.78 (5.08) 22.98 6.94+
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 922 789 795 133
Ratio of Expenses to Average Net
Assets (%) 1.33 1.52 1.34 1.30*
Ratio of Net Investment Income
(Loss) to Average Net Assets (%) (0.09) (0.01) 0.16 0.06*
Portfolio Turnover Rate (%) 6.45 19.52 10.39 20.32+
The expense and net investment income ratios without
the effect of the Adviser's and Administrator's
voluntary waiver of fees and the Administrator's
voluntary expense reimbursement were:
Ratio of Expenses to Average
Net Assets (%)(2) 5.60 4.58 5.34 8.54*
Ratio of Net Investment Income
(Loss) to Average Net Assets (%) (4.36) (3.07) (3.84) (7.18)*
The expense ratios after giving effect to the waivers,
reimbursements and expense offset for uninvested
cash balances were:
Ratio of Expenses to Average
Net Assets (%) 1.30 1.32 1.27 1.25*
</TABLE>
(1) New Class of Shares established on May 1, 1996.
(2) Ratios are based on average net assets of $171,273, $153,364, $4,895 and
$542, respectively, for Class C Shares and $855,950, $789,453, $287,294 and
$52,490, respectively, for Class Y Shares. In general, as the Fund's net
assets increase, the expense ratio will decrease.
+ Not annualized.
* Annualized.
Note: Effective July 28, 1999, Aquila Management Corporation assumed the role of
investment adviser, replacing KPM Investment Management, Inc.
See accompanying notes to financial statements
</PAGE>
