(fund logo)
AQUILA ROCKY MOUNTAIN EQUITY FUND
ANNUAL REPORT
February 22, 1996
Dear Investor:
We are pleased to provide you with this Annual Report for the first
full fiscal year of operation of Aquila Rocky Mountain Equity Fund.
STRONG REGIONAL ECONOMIC GROWTH
The Rocky Mountain region of our country continued to experience
strong economic growth during 1995. While the rate and depth of this growth
varied from state to state within the eight states comprising the Rocky
Mountain area, it still provided a number and variety of excellent investment
opportunities.
The chart below illustrates the allocation of the Fund's assets within
the region.
<TABLE>
<CAPTION>
Percent of Portfolio By State
<S> <C>
Colorado 31.39%
Arizona 22.49%
Utah 22.00%
Nevada 13.52%
Idaho 3.07%
New Mexico 3.02%
Montana 0.97%
Cash & Other Assets 3.54%
</TABLE>
BASIC INVESTMENT PHILOSOPHY
The basic investment philosophy used in the management of the Fund is
to seek out in different industries a variety of attractive growth companies
which have equity-oriented securities that are undervalued in relationship
to their intrinsic value and also the projected growth rate of the company.
The Fund's Investment Adviser, KPM Investment Management, Inc., has
followed this value-oriented investment approach since the Fund's inception
in July, 1994.
<PAGE>
We fully realize that with this value-oriented approach, it is
difficult to put a specific timetable upon when the desired level of capital
appreciation of the securities might occur. However, we are convinced that
pursuit of this discipline will tend to mitigate against significant adverse
price action in uncertain and declining market conditions.
All of us should be aware that equity markets possess a degree of
volatility to them substantially different and greater than the market of
fixed-income securities. We have to live with this situation.
What we seek to do, however, through pursuing a value-oriented
approach in selection of securities for the Fund is to lessen the level of
volatility through the purchase of undervalued securities. The normal
process of selling overvalued securities and replacing them with
undervalued ones should result in lower Fund share price volatility.
Our objective is to produce, over a reasonable length time frame,
highly desirable absolute capital appreciation results.
We recognize that it is commendable to produce good performance
results relative to various indexes or some other form of measurement.
However, what we are striving for with the Fund is achievement of
consistency in absolute capital appreciation. It is absolute
results that one can take to the bank and spend not relative performance.
SECURITY SELECTION
There is a good variety of different type industries within the
Rocky Mountain region. And, a significant number of companies within these
industries many of which are experiencing healthy growth. Our research has
convinced us that there are more than enough alternative investment
opportunities to achieve significant capital appreciation.
Many of the companies whose securities we might select are less
well-known outside of this particular region and may well have smaller
market capitalization than some nationally-known firms. This often times
gives us the chance to secure participation at bargain prices before the
companies are "discovered" by others.
The underlying economic growth characteristics of the Rocky
Mountain region are broad-based. It thus offers the Fund's management good
prospects for you to participate effectively in the thriving and dynamic
character of the Rocky Mountain region.
2
<PAGE>
We have listed below the 10 largest investments held by the Fund
at December 31, 1995 and the Rocky Mountain states in which these companies
are located.
<TABLE>
<S> <C> <C>
Dial Corporation . . . . . . . . . . . . 5.12% Arizona
Prima Energy Corp. . . . . . . . . . . . 4.88% Colorado
American Stores Company . . . . . . . . . 4.62% Utah
Finova Group Inc. . . . . . . . . . . . . 4.45% Arizona
Jackpot Enterprises . . . . . . . . . . . 4.22% Nevada
Novell Inc. . . . . . . . . . . . . . . . 3.86% Utah
Pinnacle West Capital . . . ... . . . . . 3.31% Arizona
Giant Industries, Inc. . . . . . . . . . 3.17% Arizona
International Game Technology . . . . . . 3.13% Nevada
First Security Corp. . . . . . . . . . . 3.10% Utah
</TABLE>
What this means is that there is a premium placed on "doing one's
homework." Having the Fund's portfolio manager based in Denver, the heart of
the Rocky Mountain region, backed-up by an in-depth and experienced KPM
Investment Management team in Omaha, aids immeasurably in uncovering sound
equity security selections.
INVESTMENT RESULTS
Over the course of 1995, the share price of Aquila Rocky Mountain
Equity Fund experienced a total return of 19.7%. While this may not be as
significant as some indices over this same time period, it is still highly
commendable.
Further, it certainly validates the fact that good sound capital
appreciation can be achieved through investments in Rocky Mountain companies.
Since January 1, 1996, the equity markets have continued to advance,
but with a fair amount of fluctuation.
We are pleased to report to you that the Fund has gained an additional
4.6% in price appreciation as of the February 22, 1996 date of this Report
letter.
YOUR INVESTMENT APPRECIATED
We thank you for the confidence you have placed through your
investment in Aquila Rocky Mountain Equity Fund.
Every effort will be expended to merit your continued trust.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
3
<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The graph below illustrates the value of an initial $10,000
investment in Aquila Rocky Mountain Equity Fund at inception of the Fund on
July 22, 1994 and subsequently through the Fund's latest fiscal year-end,
December 31, 1995 as compared with a hypothetical similar size investment
in the Russell 2000 Stock Index (the "Index") over that same period. The
total return of the Fund is shown after deduction of the maximum sales
charge of 4.75% at the time of initial investment, and also reflects
deduction of the Fund's annual operating expenses and reinvestment of
dividends and capital gains distributions without sales charge. On the
other hand, the Index does not reflect any sales charge nor operating
expenses, but does reflect reinvestment of dividends.
It should be specifically noted, that the Index is
nationally-oriented and consisted, over the period covered by the graph,
of an unmanaged group of 2000 equity securities of issuers throughout the
United States, mostly of companies having relatively small capitalizations.
However, the Fund's investment portfolio consisted of a significantly lesser
number of equity securities principally of companies within the eight state
Rocky Mountain region of the country over the same period. 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, a portion of the difference in the performance of the
Fund versus the Index 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 securities in the Index. Additionally,
some 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 as is the case with the
Fund.
The Fund has been managed, since its inception, to provide capital
appreciation through selection of equity-oriented securities on a value
basis.
As can be observed, the pattern of the Fund's results and that of the
Index over the period since inception of the Fund track in a reasonably
similar pattern, even though they are not entirely comparable in character.
4
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE COMPARISON
Russell 2000 Fund After Sales
Stock Index Charge and Expenses
<S> <C> <C>
7/94 $ 10000 $ 9525
9/94 10521 9383
12/94 10325 9217
3/95 10801 9883
6/95 11813 10517
9/95 12981 11083
12/95 13262 11031
</TABLE>
<TABLE>
<CAPTION>
FUND'S AVERAGE ANNUAL TOTAL RETURN
For the Period Ended
December 31, 1995 1 Year Life of Fund Since 7/22/94
<S> <C> <C>
Including Sales Charge
and Expenses 14.01% 7.07%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS
Aquila Rocky Mountain Equity Fund achieved a total return of 19.7%
for the twelve months ended December 31, 1995, while the Russell 2000 Index
returned 28.4%. The relative under performance of the Aquila Rocky Mountain
Equity Fund compared to the Index was the result of several different
factors. One key factor is that while the Index is the closest comparative
measurement tool of the various indices available, it still does not
represent a true correlation with the regional characteristics of equity
securities in the Rocky Mountain region.
The bull market of 1995 was led by large capitalization "Blue
Chip" stocks and technology issues. Large company stocks and indices
generally outperformed small capitalization stocks, as has been widely
reported. This size effect was reflected in the portfolio's under
performance since the average size of Rocky Mountain
domiciled companies is relatively small.
Our overall technology exposure was modest and our results in this
industry were mixed. Our holdings of Novell and Artisoft (both are
manufacturers of networking software) significantly lagged the share price
advances of chip makers, while Clinicom and Megahertz were acquired by
other companies, resulting in significant capital gains.
Oil and gas prices in the Rocky Mountains remained relatively low
throughout 1995, which depressed the earnings of energy exploration
companies. This is reflected in the relative under-performance of the group.
Our holdings include three exploration companies (Prima Energy, Barrett
Resources, Tipperary Corp.), a refiner (Giant Industries) and a service
company (KN Energy). As value managers, we are happy to
continue holding the shares of these energy companies since we believe
they are under-valued in relation to their intrinsic value and the
projected long-term worldwide demand for oil and gas.
Population growth in the Rocky Mountain region has increased the
demand for goods and services which, in turn, contributed to the
success of several industry groups, notably utilities and banks.
Specifically, Pinnacle West and Idaho Power both performed well while U.S.
West's stock
5
<PAGE>
price has benefitted from the issuance of the tracking stock, U.S. West
Media Group. Zions Bancorp and West One both turned in good stock
price results as earnings continued to improve. West One was acquired by
U.S. Bancorp late in the year resulting in a significant price gain, and
we sold our shares. Our shares in Finova, a finance company, also did
well.
The best performing sector of the portfolio in 1995 was healthcare.
In particular, our positions in Utah Medical Products, Ballard Medical
Products, and Research Industries Corp. all turned in impressive price
performances.
In the cable industry, continued legislative uncertainty regarding
deregulation and competing technologies dampened the price returns of TCI,
Jones Intercable, and United International Holding, despite strong growth
prospects for these companies. We are optimistic that the recent
passage of legislation allowing deregulation of cable, telephone, and
long distance should allow these cable companies to compete successfully in
new markets.
We will continue to apply our long-term value criteria to the
universe of Rocky Mountain companies in our search to find securities that
we believe are under-valued in the marketplace. We are optimistic that 1996
will bring continuing economic growth to the Rocky Mountains region; and
that this growth will create new equity investment opportunities.
6
<PAGE>
KPMG Peat Marwick LLP
Certified Public Accountants
INDEDPENDENT 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, 1995, 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 July 22, 1994
(commencement of operations) through December 31, 1994. 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, 1995, 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 Rocky Mountain Equity Fund as of December 31, 1995,
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 July 22, 1994 (commencement of operations) through December 31,
1994 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 2, 1996
7
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
MARKET
SHARES COMMON STOCKS VALUE
<C> <S> <C>
Basic Industry 1.6%
400 Barrick Gold Corp. $10,550
300 Cyprus Amax Minerals Co. 7,838
200 Newmont Mining 9,050
27,438
Consumer Cyclical 14.0%
2,000 BMC West Corp.# 29,500
1,200 Circus Circus Enterprises Inc.# 33,450
5,000 International Game Technology 54,375
6,300 Jackpot Enterprises 73,238
450 Mirage Resorts# 15,525
5,000 Mity Lite, Inc.# 36,875
242,963
Consumer Non-cyclical 32.7%
3,000 American Stores Company 80,250
1,000 Ballard Medical Products 17,875
3,000 Dial Corp. 88,875
2,700 Franklin Quest# 52,650
1,500 Inter-Tel Inc.# 23,156
2,800 Jones Intercable Inc. Class A# 34,650
300 Jones Intercable Inc.# 3,750
500 Liberty Media Group Class A# 13,438
2,500 Rocky Mountain Chocolate Factory# 30,000
1,800 Rural/Metro Corp.# 40,725
1,500 Sierra Health Services Inc.# 47,625
2,000 Tele-Communications Inc. Class A# 39,750
1,400 U.S. West Media Group# 26,600
1,300 United International Holding, Inc.
Class A# 19,175
2,500 Utah Medical Products# 49,531
568,050
Energy 9.3%
300 Barrett Resources Corp.# 8,812
4,500 Giant Industries, Inc. 55,125
6,400 Prima Energy Corp.# 84,800
2,500 Tipperary Corp.# 12,187
160,924
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF INVESTMENTS (continued)
MARKET
SHARES COMMON STOCKS VALUE
<C> <S> <C>
Financial 15.9%
1,600 Finova Group Inc. $77,200
1,400 First Security Corp. 53,900
4,375 First State Bancorp 52,500
900 Guaranty National Corp. 13,837
2,800 Life Partners Group Inc. 38,150
800 Security Bancorp 16,800
300 Zions Bancorp 24,075
276,462
Technology 10.4%
4,000 Analytical Surveys Inc.# 39,000
4,000 Artisoft Inc.# 25,250
480 HBO & Company 36,780
300 Micron Technology 11,887
4,700 Novell Inc.# 66,975
179,892
Transportation 1.3%
1,500 Swift Transportation# 22,875
Utilities 11.3%
400 Idaho Power Co. 12,000
1,800 KN Energy 52,425
2,000 Pinnacle West Capital 57,500
700 Public Service Co. Colorado 24,763
1,400 U.S. West Communications Group 50,050
196,738
Total Common Stocks - 96.5%
(Cost $1,542,759*) 1,675,342
Other assets in excess of
liabilities - 3.5% 61,386
Net Assets - 100% $1,736,728
<FN>
* Cost for Federal tax purposes is identical.
</FN>
<FN>
# Non-income producing security.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<S> <C>
ASSETS
Investments at market value (identified cost - $1,542,759) $1,675,342
Cash 30,177
Deferred organization expenses (note A) 53,356
Due from Administrator for reimbursement of expenses 14,073
Dividends receivable 1,902
Total assets 1,774,850
LIABILITIES
Payable for Fund shares redeemed 20,744
Accrued expenses 16,201
Distribution fees payable 1,177
Total liabilities 38,122
NET ASSETS (equivalent to $13.13 per share on 132,320 shares
outstanding) $1,736,728
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares,
par value $.01 per share $1,323
Additional paid-in capital 1,586,668
Undistributed net realized gain on investments 16,154
Net unrealized appreciation on investments 132,583
$1,736,728
Net Asset Value, redemption price per share $13.13
Offering price per share (100/95.25 of $13.13 adjusted to
nearest cent) $13.78
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<S> <C> <C>
INVESTMENT INCOME:
Dividend income $15,205
Other income 1,035 $16,240
EXPENSES:
Investment Adviser fees (note B) $8,679
Administrator fees (note B) 9,918
Legal fees 20,767
Trustees' fees and expenses 16,947
Registration fees 15,058
Amortization of organization expenses (note A) 15,014
Shareholders' reports and proxy statements 10,785
Transfer and shareholder servicing agent fees 10,677
Audit and accounting fees 9,825
Distribution fees (note B) 3,099
Custodian fees (note E) 1,517
Miscellaneous 7,684
129,970
Investment Adviser fees waived (note B) (8,679)
Administrator fees waived (note B) (9,918)
Reimbursement of expenses by Administrator
(note B) (86,185)
Expenses paid indirectly (note E) (1,448)
Net expenses 23,740
Net investment loss (7,500)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from securities transactions 32,529
Change in unrealized appreciation on investments 149,483
Net realized and unrealized gain on investments 182,012
Net increase in net assets resulting from
operations $174,512
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
Year ended Period ended
December 31, December 31,
1995 1994*
<S> <C> <C>
OPERATIONS:
Net investment loss $(7,500) $ ---
Net realized gain from securities transactions 32,529 314
Unrealized appreciation (depreciation) on
investments 149,483 (16,900)
Net increase (decrease) in net assets
resulting from operations 174,512 (16,586)
DISTRIBUTIONS TO SHAREHOLDERS (note D):
Net investment income ($0.0054 and $-0- per
share, respectively) (721) ---
Net realized gain from securities transactions
($0.1005 and $-0- per share, respectively) (13,420) ---
Total distributions (14,141) ---
Net increase (decrease) from investment
activities 160,371 (16,586)
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS:
Shares
Year ended Period ended
December December
31, 1995 31, 1994*
<S> <C> <C> <C> <C>
Shares sold 106,291 42,183 1,330,661 479,783
Shares issued through
reinvestment of
dividends and
distributions 985 --- 12,828 ---
Shares redeemed (22,898) (2,990) (297,410) (32,919)
Increase in shares
and net assets
derived from Fund
share transactions 84,378 39,193 1,046,079 446,864
Total increase in
net assets 1,206,450 430,278
NET ASSETS:
Beginning of period 530,278 100,000
End of period $1,736,728 $530,278
<FN>
* For the period from July 22, 1994 (commencement of operations) to December
31, 1994.
</FN>
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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, has issued only one class of shares, to which these
financial statements relate. It is anticipated that the Fund will begin
offering two additional classes of shares during the second calendar
quarter of 1996. The shares outstanding at that time will be designated as
Class A shares and, as is the case now, will be sold with a front-end sales
charge and bear a service fee. Class C shares will be sold with no
front-end sales charge but will be assessed a contingent deferred sales
charge if redeemed within 18 months from the time of purchase and a level
charge for service and distribution fees. Class Y shares will be offered
only to institutions acting for investors in a fiduciary, advisory, agency
custodial or similar capacity, and will not be offered directly to retail
customers, and will be sold at net asset value with no sales charge, no
redemption fee, no contingent deferred sales charge and no service or
distribution fees. All classes of shares will have identical rights and
privileges except 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 privilege of each class.
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.
(1) 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.
(2) 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.
(3) 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.
(4) Organization expenses: The Fund's organizational expenses have been
deferred and are being amortized on a straight-line basis over five
years.
13
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
(5) 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.
NOTE B - MANAGEMENT ARRANGEMENTS AND FEES AND OTHER TRANSACTIONS WITH
AFFILIATES:
Management affairs of the Fund are conducted through two
separate management arrangements.
KPM Investment Management, Inc. (the "Adviser"), a wholly owned
subsidiary of Kirkpatrick, Pettis, Smith, Polian Inc., serves as
Investment Adviser to the Fund. Kirkpatrick, Pettis is, in turn, a
subsidiary of the nationally oriented Mutual of Omaha Insurance Company.
In this role, under an Investment Advisory Agreement, the Adviser supervises
the Fund's investments and provides various services to the Fund for which
it 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 over $50 million.
The Fund also has a Sub-Advisory and Administration Agreement with
Aquila Management Corporation (the "Sub-Adviser"), the Fund's founder and
sponsor. Under this Agreement, the Sub-Adviser provides such advisory
services to the Fund, in addition to those services provided by the
Adviser, as the Sub-Adviser deems appropriate. Besides its sub-advisory
services, it also provides all administrative services, other than those
relating to the management of the Fund's investments. 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 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; 0.80 of 1% on the first $15 million; 0.65 of 1% on the next $35
million and 0.50 of 1% on the excess over $50 million.
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.
The Adviser and the Sub-Adviser each agrees that the above fees
shall be reduced, but not below zero, by an amount equal to its pro-rata
portion (determined on the basis of the respective fees computed as
described above) of 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.
14
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
For the year ended December 31, 1995, the Fund incurred fees
under the Advisory Agreement and the Sub-Advisory Agreement of $8,679 and
$9,918, respectively. However, all of these fees were voluntarily waived.
Additionally, the Sub-Adviser voluntarily agreed to reimburse the Fund for
other expenses during this period in the amount of $86,185.
Under a Distribution Agreement, Aquila Distributors, Inc. (the
"Distributor") serves as the exclusive distributor of the Fund's shares.
Through agreements between the Distributor and various broker-dealer firms
("dealers"), the Fund's shares are sold primarily through the facilities
of these dealers having offices within the general Rocky Mountain region,
with the bulk of sales commissions inuring to such dealers. However, for
the year ended December 31, 1995, the Distributor received sales commissions
in the amount of $1,304.
The Fund adopted a Distribution Plan (the "Plan") pursuant to
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940. The
Plan authorizes the Fund to make service fee payments at the rate of 0.25%
of the average annual net assets of the Fund to broker-dealers or others
selected by the Distributor, including, but not limited to, any principal
underwriter of the Fund, with which the Distributor has entered into
written agreements contemplated by the Rule and which have rendered
assistance in the distribution and/or retention of the Fund's shares or
servicing of shareholder accounts. For the year ended December 31, 1995,
service fees totaled $3,099, of which the Distributor received $371.
Specific details about the Plan are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
NOTE C - PURCHASES AND SALES OF SECURITIES:
For the year ended December 31, 1995, purchases of securities and
proceeds from the sales of securities aggregated $1,199,635 and $162,369,
respectively.
At December 31, 1995, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost
amounted to $251,257 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted
to $118,674, for a net unrealized appreciation of $132,583.
NOTE D - 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 or in cash, at the
shareholder's option. Due to differences between financial reporting and
Federal income tax reporting requirements, distributions made by the Fund
may not be the same as the Fund's net investment income, and/or net
realized securities gains.
NOTE E - CUSTODIAN FEES:
The Fund has negotiated an expense offset arrangement with its
custodian wherein it receives credit toward the reduction of custodian fees
whenever there are uninvested cash balances. During
15
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
the year ended December 31, 1995, the Fund's custodian fees amounted
to $1,517, of which $1,448 was offset by such credits. The Fund could
have invested its cash balances in an income-producing asset if it had
not agreed to a reduction in fees under the expense offset arrangement
with the custodian.
16
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY FUND
FINANCIAL HIGHLIGHTS
Year ended Period ended
December 31, December 31,
1995 1994**
For a share outstanding throughout each period
<S> <C> <C>
Net Asset Value, Beginning of Period $11.06 $11.43
Income from Investment Operations:
Net investment income (loss) (0.07) ---
Net gain (loss) on securities (both realized
and unrealized) 2.25 (0.37)
Total from Investment Operations 2.18 (0.37)
Less Distributions (note D):
Dividends from net investment income (.01) ---
Distributions from capital gains (.10) ---
Total Distributions (.11) ---
Net Asset Value, End of Period $13.13 $11.06
Total Return (not reflecting sales load) 19.68% (3.24)%+
Ratios/Supplemental Data
Net Assets, End of Period (in thousands) $1,737 $530
Ratio of Expenses to Average Net Assets 1.91% 1.19%*
Ratio of Net Investment Loss to Average
Net Assets (0.60)% ---
Portfolio Turnover Rate 15.14% 2.95%+
<CAPTION>
Net investment income (loss) per share and the ratios of income and
expenses to average net assets without the Adviser's and Administrator's
voluntary waiver of fees, the Administrator's voluntary expense
reimbursement and the expense offset in custodian fees for uninvested cash
balances would have been:
<S> <C> <C>
Net Investment Income (loss) $(1.12) $ ---
Ratio of Expenses to Average Net Assets # 10.48% 18.20%*
Ratio of Net Investment Income to Average Net
Assets (9.17)% ---
<FN>
+ Not annualized
</FN>
<FN>
* Annualized
</FN>
<FN>
# These ratios were annualized based on average net assets of $1,239,752
and $453,768, respectively. In general, as the Fund's net assets
increase, the expense ratio will decrease.
</FN>
<FN>
** For the period from July 22, 1994 (commencement of operations) to December
31, 1994.
</FN>
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
REPORT ON THE SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)
A Special Meeting of Shareholders of the Fund was held on November
27, 1995. At the meeting, the shareholders voted on and approved an
amendment to the Fund's Declaration of Trust to authorize the creation of
additional classes of shares (votes for: 74,541 (94.3%); votes against:
2,313 (2.9%); abstentions: 2,191 (2.8%); broker non-votes: 0).*
___________
* On the record date for this meeting, 140,687 shares of the Trust were
outstanding and entitled to vote. The holders of 79,045 shares (56.2%)
entitled to vote were present in person or by proxy at the meeting.
FEDERAL TAX STATUS OF 1995 DISTRIBUTIONS (UNAUDITED)
The dividend from net investment income of $0.0054 per share and
the distribution from net realized short-term gain of $0.0392 per share,
paid on December 27, 1995, are taxable to shareholders in 1995 as ordinary
income.
The distribution from net realized long-term gain of $0.0613 per
share, paid on December 27, 1995, is designated as a "capital gain
dividend" and is taxable to shareholders as long-term capital gain.
Prior to January 31, 1996, shareholders were mailed IRS Form
1099-DIV which contained information on the status of distributions paid
for the 1995 CALENDAR YEAR.
18
<PAGE>
INVESTMENT ADVISER
KPM INVESTMENT MANAGEMENT, INC.
A Mutual of Omaha Company
10250 Regency Circle, Suite 200
Omaha, Nebraska 68114
and
One Norwest Center
1700 Lincoln Street
Denver, Colorado 80203
SUB-ADVISER AND ADMINISTRATOR
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
R. Thayne Robson
OFFICERS
Lacy B. Herrmann, President
W. Dennis Cheroutes, Senior Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER
SERVICING AGENT
ADMINISTRATIVE DATA
MANAGEMENT CORP.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must precede or accompany this report.
Annual
Report
December 31, 1995
AQUILA ROCKY MOUNTAIN EQUITY FUND
(logo)
A capital appreciation investment
(picture of eagle>
One of the
AQUILAsm Group of Funds