-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GRjZQTFa6+KBx7IoD30ySwu3BfdjtRkWk3Off0IsWDE4DalCbD7NQtxdZDffisVp aQgTjRuJYHEjgvCp4YsiFA== 0000915402-08-000003.txt : 20080310 0000915402-08-000003.hdr.sgml : 20080310 20080310121204 ACCESSION NUMBER: 0000915402-08-000003 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080310 DATE AS OF CHANGE: 20080310 EFFECTIVENESS DATE: 20080310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AQUILA ROCKY MOUNTAIN EQUITY FUND CENTRAL INDEX KEY: 0000915402 IRS NUMBER: 133753850 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-08168 FILM NUMBER: 08676733 BUSINESS ADDRESS: STREET 1: 380 MADISON AVE STREET 2: SUITE 2300 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126976666 MAIL ADDRESS: STREET 1: 390 MADISON AVENUE STREET 2: SUITE 2300 CITY: NEW YORK STATE: NY ZIP: 10017 0000915402 S000006628 AQUILA ROCKY MOUNTAIN EQUITY FUND C000018099 Class A ROCAX C000018100 Class C ROCCX C000018101 Class I ROCIX C000018102 Class Y ROCYX N-CSR 1 armefncsr.txt AQUILA ROCKY MOUNTAIN EQUITY FUND 12/31/07 NCSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-8168 Aquila Rocky Mountain Equity Fund (Exact name of Registrant as specified in charter) 380 Madison Avenue New York, New York 10017 (Address of principal executive offices) (Zip code) Joseph P. DiMaggio 380 Madison Avenue New York, New York 10017 (Name and address of agent for service) Registrant's telephone number, including area code: (212) 697-6666 Date of fiscal year end: 12/31 Date of reporting period: 12/31/07 FORM N-CSR ITEM 1. REPORTS TO STOCKHOLDERS. ANNUAL REPORT DECEMBER 31, 2007 [LOGO OF AQUILA ROCKY MOUNTAIN EQUITY FUND: A RECTANGLE WITH A DRAWING OF TWO MOUNTAINS AND WORDS "AQUILA ROCKY MOUNTAIN EQUITY FUND"(R)] AN INVESTMENT DESIGNED FOR GROWTH AT A REASONABLE PRICE [LOGO OF THE AQUILA GROUP OF FUNDS: ONE OF THE AN EAGLE'S HEAD] AQUILA GROUP OF FUNDS(R) [LOGO OF AQUILA ROCKY MOUNTAIN EQUITY FUND: A RECTANGLE WITH A DRAWING OF TWO MOUNTAINS AND WORDS "AQUILA ROCKY MOUNTAIN EQUITY FUND"(R)] AQUILA ROCKY MOUNTAIN EQUITY FUND "ENTREPRENEURIAL ENERGY IN THE ROCKIES" February, 2008 Dear Fellow Shareholder: The past six months have been nerve wracking for most investors. Market conditions have hurt the performance of the smaller companies in which we invest. Problems with sophisticated mortgage instruments have hurt many of the large lenders in the U.S. as well as globally and we are seeing a global slowdown due to reduced credit availability. The Federal Reserve ("Fed") has taken aggressive action to reduce interest rates and provide liquidity to the larger banks and brokerage firms. While it may take several months for the Fed's actions to have an impact on the economy, we would note that the stock market often begins to anticipate economic recovery by as much as six months. We continue to like our strategic position and investment approach in the Rocky Mountain region. With a slowdown in the U.S. and global economies, we think smaller companies with higher earnings growth rates may receive increased investor attention. We have worked to identify a number of these small, emerging growth stocks of an entrepreneurial nature in the Rocky Mountain region. We are particularly impressed with the entrepreneurial activity of health care companies in the Rocky Mountain region. Twenty years ago there were almost no health care companies in the Rocky Mountain region. Today, with the Internet, medical researchers can live and work wherever they want. Now medical companies in the Rocky Mountain region are producing leading edge, innovative products. For example, Spectranetics, in Colorado Springs, produces lasers which vaporize blood clots and blockages in blood vessels. They currently have two clinical trials studying whether their lasers are effective in cleaning out blood vessels that have developed blockages after a stent has been installed. Myriad Genetics, headquartered in Salt Lake City, will conclude in March a Phase III clinical trial for a drug to treat Alzheimer's. If it is effective, it will be one of the first drugs that treat the disease rather than just the symptoms. AspenBio Pharma, based in Castle Rock, Colorado is applying for FDA approval for an appendicitis blood test that can be used in hospital emergency rooms. Merit Medical, headquartered in South Jordan, Utah, has had four new products approved by the FDA in the last two months. Providence Service Corp., headquartered in Tucson, Arizona is providing outsourced social work services for many state and county governments. NOT A PART OF THE ANNUAL REPORT In December, the U.S. Census Bureau released estimated population growth for all fifty states for the period July 1, 2006 to July 1, 2007. Even though growth moderated in the Rocky Mountain Region, the region appears to be maintaining its leadership position. Six out of the eight states made the top 10 in population growth: RANK STATE % CHANGE ---- ----- -------- #1 Nevada 2.9% 2 Arizona 2.8 3 Utah 2.6 4 Idaho 2.4 8 Colorado 2.0 9 Wyoming 2.0 The total population for the Rocky Mountain region is estimated at approximately 21.4 million, only 7% of the 303.1 million estimated for the country as a whole on January 1, 2008. Wyoming still has the smallest population of any state at 522,830. We think the Rocky Mountain region is a longer term story. Two recent studies highlighted the attractiveness of the Rocky Mountain region. The American Legislative Exchange Council recently announced its State Economic Competitiveness Index, a measure of the different states' economic and fiscal policies and their effect on the business environment for each state. Six of the Rocky Mountain States made the top eleven, including Utah (#1), Arizona (#2), Wyoming (#4), Colorado (#7), Idaho (#9) and Nevada (#11). An additional study on competitiveness done by the Beacon Hill Institute think tank at Suffolk University in Boston ranked Utah #1, Colorado #3 and Idaho #5. It is interesting to note that Utah ranked #1 in both studies. We are looking forward to less volatile and more rewarding times ahead. We appreciate your commitment to Aquila Rocky Mountain Equity Fund. We will continue to strive to merit your trust. Sincerely, /s/ Barbara S. Walchli /s/ Lacy B. Herrmann Barbara S. Walchli Lacy B. Herrmann Senior Vice President and Portfolio Manager Founder and Chairman Emeritus NOT A PART OF THE ANNUAL REPORT [LOGO OF AQUILA ROCKY MOUNTAIN EQUITY FUND: A RECTANGLE WITH A DRAWING OF TWO MOUNTAINS AND WORDS "AQUILA ROCKY MOUNTAIN EQUITY FUND"] AQUILA ROCKY MOUNTAIN EQUITY FUND ANNUAL REPORT MANAGEMENT DISCUSSION Aquila Rocky Mountain Equity Fund's Class A shares had a total return of - -1.34% in 2007 without provision for sales charges but reflecting contractually waived fund expenses, for the twelve months ended December 31, 2007. This compares to the Russell 2000 with a total return of -1.56% and the S&P 500 with a return of 5.49%. For the five years cumulatively ending December 31, 2007, Aquila Rocky Mountain Equity Fund's Class A shares before provisions for sales charges had a total return of 82.69% compared to 112.81% for the Russell 2000 and 82.85% for the S&P 500. We do not have a perfect benchmark or performance comparison for the Fund since we invest in companies in a specific region. At year-end 2007, 22.3% of the equity investments in the Fund were in companies with a market capitalization over $10 billion (large cap companies), 33.0% of the equity investments in the Fund were in companies with a market capitalization between $2 billion and $10 billion (mid-cap) and 37.3% of the equity investments in the Fund were in companies with market capitalizations between $300 million and $2 billion (small cap). In addition, 7.4% of the equity investments in the Fund were in companies with market capitalizations below $300 million (micro-cap). While performance was disappointing in 2007 we would note that worries in financial markets about rising risk about the economy and large financial companies hurt small and micro-cap stocks. Market volatility hurts them more since they have fewer shares outstanding so they are impacted more when investors sell or when quantitative investors are running programs to capture spreads. The Russell Microcap Index declined by 8.0% in 2007. While this negatively impacted our 2007 performance, it also created buying opportunities for us and more potential for the intermediate to longer term. As the U.S. economy stabilizes in 2008, we believe investors will return to the less liquid stocks. The average earnings growth rate of the companies in the Fund is 17-18%. Over time we should participate in the growth of the companies. During 2007, we also experienced the takeover of seven companies in the Fund. After five or six years of outperformance of value stocks, growth stocks in 2007 were undervalued. Seven of our companies were taken private or taken over by opportunistic investors and several did not pay much of a premium. It is disappointing that the long term promise of these companies was not recognized and instead sizeable capital gains were generated. Takeovers in 2007 were: Kinder Morgan First Data Mity Enterprises SpectraLink Phelps Dodge Station Casinos Inter-Tel We believe we will see fewer takeovers in 2008 since conditions in financial markets are currently making it difficult for companies to raise money for companies in order to go private. MANAGEMENT DISCUSSION (CONTINUED) We continue to invest the Fund strategically and at year-end had holdings of 56 companies in the portfolio across various industries. We work to hold our individual position sizes to around 5% of the portfolio and try to diversify the Fund across industries. We believe this helps to control specific security risk as well as industry risk. Our largest individual position size on December 31 was Ventana Medical at 4.79% of the portfolio. The European medical company, Roche, has expressed an interest in acquiring Ventana. We have added several new companies to the Fund during 2007 including AspenBio Pharma, American Ecology, IHS and Pinnacle Entertainment. We continue to look for what we believe to be the best businesses and management teams in the Rocky Mountain region to invest in for our shareholders when we can obtain them at a reasonable price. We are pleased with the quality of the businesses we are finding in the Rocky Mountain region. We are seeing a number of companies going public in the region and have added several of them to the Fund. During 2007 the best performing stocks came from two states and five industries. Dynamic Materials, headquartered in Boulder, Colorado, had a total return of 110.5% in 2007, benefiting from the global capital spending boom. Ventana Medical based in Tucson, Arizona was up 102.7%, reflecting a takeover offer from Roche. So far, management has indicated that they believe than can achieve more value for shareholders as an independent company and have resisted a takeover. The Discovery Channel, headquartered in Englewood, Colorado was up 56.3%, reflecting a management change and a new emphasis on "green" programming. Bill Barrett Corp. was the fourth best performer with a total return of 53.9%, reflecting a successful year of oil drilling in the Rockies. Janus was the fifth best performing company with a total return of 52.4%, reflecting a return to growth investing in the stock market. The worst performing stocks in 2007 came from two states and three industries. Coldwater Creek, headquartered in Sandpoint, Idaho, was down 72.7% in 2007 after rising energy and mortgage costs impacted the consumer. Shufflemaster was down 54.2% due to management problems. Boise based Micron was down 48.1% due to overcapacity in the memory market. Although we had taken profits or reduced our position sizes in these companies throughout the year, at year-end we still had small position sizes (below 1%) because we believe they each have significant intermediate to long term potential. Companies in the Rocky Mountain region continue to work to achieve full recognition for their value. Over the past year or two, Echostar's CEO, Charlie Ergan had expressed dissatisfaction that investors were not recognizing the value of the company's satellite holdings. On January 1 he spun them off to shareholders as a new company. John Malone who put the Liberty Media complex together is working to divide Liberty Capital into a new Liberty Capital and Liberty Entertainment tracking stocks. Liberty Entertainment will include Starz and DirecTV. While the U.S. economy appears to be slowing and we will most likely experience several quarters of slow to no growth, we do not currently expect a recession. We do expect growth stocks or those stocks with predictable earnings growth to continue to lead the market. As the economy levels out we would expect investors to develop more confidence and for the growth leadership to expand to emerging or microcap stocks. PERFORMANCE REPORT The graph below illustrates the value of $10,000 invested in Class A Shares of Aquila Rocky Mountain Equity Fund (the "Fund") for the 10-year period ended December 31, 2007 as compared with a hypothetical similar-size investment in the Russell 2000 Stock Index (the "Index") over the same period. The Fund was originally managed to provide capital appreciation through selection of equity-oriented securities primarily on a value-basis. It was reoriented to a growth at a reasonable price style 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:] Fund Class A Shares Fund Class A Shares Russell 2000 no sales charge with sales charge Stock Index 12/97 10,000 9,577 10,000 12/98 9,469 9,069 9,776 12/99 11,416 10,933 11,863 12/00 11,353 10,873 11,517 12/01 12,231 11,713 11,816 12/02 10,352 9,914 9,399 12/03 14,541 13,926 13,843 12/04 16,298 15,609 16,396 12/05 17,185 16,458 17,156 12/06 19,169 18,358 20,320 12/07 18,911 18,112 20,003
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 2007 ---------------------------------------------- SINCE CLASS AND INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION - ----------------------------------------- ------ ------- -------- --------- Class A (commenced operations on 7/22/94) With Sales Charge ..................... (5.53)% 11.83% 6.12% 8.63% Without Sales Charge .................. (1.34)% 12.81% 6.58% 9.02% Class C (commenced operations on 5/01/96) With CDSC ............................. (3.06)% 11.97% 5.78% 7.36% Without CDSC .......................... (2.08)% 11.97% 5.78% 7.36% Class Y (commenced operations on 5/01/96) No Sales Charge ....................... (1.07)% 13.11% 6.84% 8.35% Class I (commenced operations on 12/01/05) No Sales Charge ....................... (0.87)% N/A N/A 3.65% Russell 2000 Stock Index ................ (1.55)% 16.30% 7.17% 10.34% (Class A) 7.49% (Class C&Y) 6.45% (Class I)
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 4.25% 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. - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of Aquila Rocky Mountain Equity Fund: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Aquila Rocky Mountain Equity Fund as of December 31, 2007 and 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 three 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. The financial highlights for each of the years in the two year period ended December 31, 2004 have been audited by other auditors, whose report dated February 18, 2005 expressed an unqualified opinion on such financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, 2007, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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, 2007, 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 three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER & BAKER LLP Philadelphia, Pennsylvania February 28, 2008 - -------------------------------------------------------------------------------- AQUILA ROCKY MOUNTAIN EQUITY FUND SCHEDULE OF INVESTMENTS DECEMBER 31, 2007
MARKET SHARES COMMON STOCKS (93.4%) VALUE - -------------- -------------------------------------------------------------------- ------------ BASIC INDUSTRY (12.1%) 30,000 Allied Waste Industries, Inc.+ ..................................... $ 330,600 7,000 American Ecology Corp. ............................................. 164,360 16,000 Ball Corp. ......................................................... 720,000 3,000 Freeport-McMoRan Copper & Gold, Inc. ............................... 307,320 38,000 Knight Transportation, Inc. ........................................ 562,780 11,000 Newmont Mining Corp. ............................................... 537,130 17,000 SkyWest, Inc. ...................................................... 456,450 ------------ 3,078,640 ------------ BUSINESS SERVICES (2.7%) 5,000 IHS, Inc. (Class A)+ ............................................... 302,800 14,000 Insight Enterprises, Inc.+ ......................................... 255,360 4,000 Viad Corp. ......................................................... 126,320 ------------ 684,480 ------------ CAPITAL SPENDING (4.3%) 5,000 Dynamic Materials Corp. ............................................ 294,500 16,000 Mobile Mini, Inc.+ ................................................. 296,640 24,000 Radyne Corp.+ ...................................................... 220,800 32,000 Semitool, Inc.+ .................................................... 277,760 ------------ 1,089,700 ------------ CONSUMER CYCLICALS (0.7%) 5,000 M.D.C. Holdings, Inc. .............................................. 185,650 ------------ CONSUMER SERVICES (18.4%) 36,000 Coldwater Creek, Inc.+ ............................................. 240,840 5,000 Comcast Corp. (Special Class A)+ ................................... 90,600 18,000 EchoStar Communications Corp. (Class A)+ ........................... 678,960 16,000 International Game Technology ...................................... 702,880 8,000 Las Vegas Sands Corp.+ ............................................. 824,400 3,000 Liberty Global, Inc. Series A+ ..................................... 117,570 2,000 Liberty Media Capital Series A+ .................................... 232,980 7,000 Liberty Media Interactive Series A+ ................................ 133,560 11,000 MGM Mirage+ ........................................................ 924,220 14,000 PetSmart, Inc. ..................................................... 329,420 10,000 Pinnacle Entertainment, Inc.+ ...................................... 235,600 16,000 Shuffle Master, Inc.+ .............................................. 191,840 ------------ 4,702,870 ------------
MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------- -------------------------------------------------------------------- ------------ CONSUMER STAPLES (2.3%) 18,000 Discovery Holding Co. Class A+ ..................................... $ 452,520 8,400 Rocky Mountain Chocolate Factory, Inc. ............................. 133,392 ------------ 585,912 ------------ ENERGY (6.8%) 12,000 Bill Barrett Corp.+ ................................................ 502,440 14,000 Cimarex Energy Co. ................................................. 595,420 12,000 Questar Corp. ...................................................... 649,200 ------------ 1,747,060 ------------ FINANCIAL (10.9%) 24,000 First State Bancorporation ......................................... 333,600 25,500 Glacier Bancorp, Inc. .............................................. 477,870 28,000 Janus Capital Group, Inc. .......................................... 919,800 9,000 Wells Fargo & Company .............................................. 271,710 20,000 Western Union Co. .................................................. 485,600 6,000 Zions Bancorporation ............................................... 280,140 ------------ 2,768,720 ------------ HEALTH CARE (23.6%) 22,000 Array BioPharma, Inc.+ ............................................. 185,240 15,000 AspenBio Pharma, Inc.+ ............................................. 130,800 24,000 Medicis Pharmaceutical Corp. (Class A) ............................. 623,280 64,000 Merit Medical Systems, Inc.+ ....................................... 889,600 20,000 Myriad Genetics, Inc.+ ............................................. 928,400 31,000 NightHawk Radiology Holdings, Inc.+ ................................ 652,550 18,000 Providence Service Corp.+ .......................................... 506,520 20,000 Sonic Innovations, Inc.+ ........................................... 154,400 30,000 Spectranetics Corp.+ ............................................... 459,900 7,000 USANA Health Services, Inc.+ ....................................... 259,560 14,000 Ventana Medical Systems, Inc.+ ..................................... 1,221,220 ------------ 6,011,470 ------------ TECHNOLOGY (11.1%) 24,000 Avnet, Inc.+ 839,280 46,000 CIBER, Inc.+ 281,060
MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------- -------------------------------------------------------------------- ------------ TECHNOLOGY (CONTINUED) 14,000 JDA Software Group, Inc.+ .......................................... $ 286,440 32,000 Microchip Technology, Inc. ......................................... 1,005,440 30,000 Micron Technology, Inc.+ ........................................... 217,500 12,000 RightNow Technologies, Inc.+ ....................................... 190,200 ------------ 2,819,920 ------------ UTILITIES (0.5%) 4,000 UniSource Energy Corp. ............................................. 126,200 ------------ Total Common Stocks (cost $16,123,680) ............................. 23,800,622 ------------ INVESTMENT COMPANIES (6.1%) -------------------------------------------------------------------- ------- 700,000 Goldman Sachs Institutional Liquid Assets Treasury Instruments Portfolio Institutional Class ................................... 700,000 850,000 JPMorgan 100% U.S. Treasury Securities Money Market Fund Premier Share Class ............................................. 850,000 ------------ Total Investment companies (cost $1,550,000) ....................... 1,550,000 ------------ Total Investments (cost $17,673,680*) 99.5% 25,350,622 Other assets less liabilities 0.5 122,484 ------ ------------ Net Assets 100.0% $ 25,473,106 ====== ============
PERCENT OF PORTFOLIO DISTRIBUTION (UNAUDITED) PORTFOLIO ---------------------------------- --------- ROCKY MOUNTAIN REGION Arizona 27.8% Colorado 29.0 Idaho 5.0 Montana 3.7 Nevada 11.4 New Mexico 1.3 Utah 14.3 ----- 92.5 ----- Other Investments 7.5 ----- 100.0% ===== * Cost for Federal income tax and financial reporting purposes is identical. + Non-income producing security. See accompanying notes to financial statements. AQUILA ROCKY MOUNTAIN EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2007 ASSETS Investments at market value (cost $17,673,680) ................................... $25,350,622 Receivable for investment securities sold ........................................ 167,538 Receivable for Fund shares sold .................................................. 17,992 Dividends receivable ............................................................. 8,889 Prepaid expenses ................................................................. 8,420 ----------- Total assets ................................................................. 25,553,461 ----------- LIABILITIES Cash overdraft ..................................................................... 1,156 Payable for investment securities purchased ........................................ 28,125 Payable for Fund shares redeemed ................................................... 13,403 Distribution and service fees payable .............................................. 7,147 Accrued expenses ................................................................... 30,524 ----------- Total liabilities ............................................................... 80,355 ----------- NET ASSETS ............................................................................ $25,473,106 =========== Net Assets consist of: Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share $ 8,453 Additional paid-in capital ......................................................... 17,538,498 Net unrealized appreciation on investments (note 4) ................................ 7,676,942 Accumulated net realized gain on investments ....................................... 249,213 ----------- $25,473,106 =========== CLASS A Net Assets ......................................................................... $20,950,202 =========== Capital shares outstanding ......................................................... 689,403 =========== Net asset value and redemption price per share ..................................... $ 30.39 =========== Offering price per share (100/95.75 of $30.39 adjusted to nearest cent) ............ $ 31.74 =========== CLASS C Net Assets ......................................................................... $ 2,845,141 =========== Capital shares outstanding ......................................................... 102,197 =========== Net asset value and offering price per share ....................................... $ 27.84 =========== 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) ...................................... $ 27.84* =========== CLASS I Net Assets ......................................................................... $ 10,855 =========== Capital shares outstanding ......................................................... 355 =========== Net asset value, offering and redemption price per share ........................... $ 30.58 =========== CLASS Y Net Assets ......................................................................... $ 1,666,908 =========== Capital shares outstanding ......................................................... 53,343 =========== Net asset value, offering and redemption price per share ........................... $ 31.25 ===========
See accompanying notes to financial statements. AQUILA ROCKY MOUNTAIN EQUITY FUND STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2007 INVESTMENT INCOME: Dividends $ 260,061 Expenses: Management fee (note 3) $ 389,891 Distribution and service fees (note 3) 93,252 Trustees' fees and expenses 78,955 Transfer and shareholder servicing agent fees (note 3) 75,373 Registration fees and dues 46,417 Legal fees (note 3) 31,071 Shareholders' reports 19,689 Auditing and tax fees 13,000 Chief compliance officer (note 3) 4,544 Custodian fees 3,895 Insurance 1,536 Miscellaneous 59,218 ------------ Total expenses 816,841 Management fee waived (note 3) (352,549) Expenses paid indirectly (note 5) (11,801) ------------ Net expenses 452,491 ----------- Net investment loss (192,430) REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from securities transactions 1,592,136 Change in unrealized appreciation on investments (1,682,733) ------------ Net realized and unrealized gain (loss) on investments (90,597) ----------- Net change in net assets resulting from operations $ (283,027) ===========
See accompanying notes to financial statements. AQUILA ROCKY MOUNTAIN EQUITY FUND STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED DECEMBER 31, 2007 DECEMBER 31, 2006 ----------------- ----------------- OPERATIONS: Net investment loss ................................... $ (192,430) $ (107,116) Net realized gain (loss) from securities transactions . 1,592,136 507,092 Change in unrealized appreciation on investments ...... (1,682,733) 2,302,022 ------------ ------------ Change in net assets from operations ............... (283,027) 2,701,998 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS (note 8): Class A Shares: Net realized gain on investments ...................... (1,116,865) (267,498) Class C Shares: Net realized gain on investments ...................... (164,465) (42,980) Class I Shares: Net realized gain on investments ...................... (569) (326) Class Y Shares: Net realized gain on investments ...................... (85,526) (18,167) ------------ ------------ Change in net assets from distributions ............ (1,367,425) (328,971) ------------ ------------ CAPITAL SHARE TRANSACTIONS (note 7): Proceeds from shares sold ............................. 3,603,028 7,902,368 Short-term trading redemption fee ..................... 1,003 849 Reinvested distributions .............................. 901,815 217,492 Cost of shares redeemed ............................... (5,597,062) (4,024,372) ------------ ------------ Change in net assets from capital share transactions (1,091,216) 4,096,337 ------------ ------------ Change in net assets ............................... (2,741,668) 6,469,364 NET ASSETS: Beginning of period ................................... 28,214,774 21,745,410 ------------ ------------ End of period ......................................... $ 25,473,106 $ 28,214,774 ============ ============
See accompanying notes to financial statements. AQUILA ROCKY MOUNTAIN EQUITY FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007 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 distribution 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. Class C Shares, together with a pro rata portion of all Class C Shares acquired through reinvestment of dividends or other distributions paid in additional Class C Shares, automatically convert to Class A Shares after 6 years. 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. Class I shares commenced operations on December 1, 2005. Class I Shares are sold at net asset value without any sales charge, redemption fees, or contingent deferred sales charge. Class I Shares carry a distribution fee and service fee. 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 accounting principles generally accepted in the United States of America 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. Securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing 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. FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48") was adopted on June 29, 2007. Management has reviewed the tax positions for each of the open tax years (2004-2007) and has determined that the implementation of FIN 48 did not have a material impact on the Fund's financial statements. d) MULTIPLE CLASS ALLOCATIONS: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses 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. e) USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. f) RECLASSIFICATION OF CAPITAL ACCOUNTS: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications were due to a net investment loss and use of equalization for tax and have no effect on net assets or net asset value per share. On December 31, 2007 the Fund decreased undistributed net investment loss by $192,430, decreased accumulated net realized gain on investments by $156,406 and decreased additional paid-in capital by $36,024. g) ACCOUNTING PRONOUNCEMENT: In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement" ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes adoption of SFAS 157 will have no material impact on the Fund's financial statements. 3. FEES AND RELATED PARTY TRANSACTIONS a) MANAGEMENT ARRANGEMENTS: The Fund has a Sub-Advisory and Administration Agreement with Aquila Investment Management LLC (the "Manager"), a wholly-owned subsidiary of Aquila Management Corporation, the Fund's founder and sponsor. Under this agreement, the Manager 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 managing relationships with 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 Manager 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% on the excess over $50 million. For the year ended December 31, 2007, the Fund incurred management fees of $389,891, of which $352,549 was waived. The Manager contractually undertook to waive fees and/or reimburse Fund expenses during the period January 1, 2007 through December 31, 2007 so that total Fund expenses would not exceed 1.50% for Class A Shares, 2.25% for Class C Shares, 1.52% for Class I Shares or 1.25% for Class Y Shares. Comparable expense limitations are in place for fiscal 2008. Under a Compliance Agreement with the Manager, the Manager is compensated for Chief Compliance Officer related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940. Specific details as to the nature and extent of the services provided by the Manager 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, 2007, distribution fees on Class A Shares amounted to $58,853 of which the Distributor retained $6,692. 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 average net assets represented by Class C Shares and for the year ended December 31, 2007, amounted to $25,758. 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 average net assets represented by Class C Shares and for the year ended December 31, 2007, amounted to $8,586. The total of these payments with respect to Class C Shares amounted to $34,344 of which the Distributor retained $8,020. Under another part of the Plan, the Fund is authorized to make payments with respect to Class I Shares to Qualified Recipients. Class I payments, under the Plan, may not exceed, for any fiscal year of the Fund a rate (currently 0.20%) set from time to time by the Board of Trustees of not more than 0.25% of the average annual net assets represented by the Class I Shares. In addition, the Fund has a Shareholder Services Plan under which it may pay service fees (currently 0.15%) of not more than 0.25% of the average annual net assets of the Fund represented by Class I Shares. That is, the total payments under both plans will not exceed 0.50% of such net assets. For the year ended December 31, 2007, these payments were made at the average annual rate of 0.35% of such net assets and amounted to $97 of which $55 related to the Plan and $42 related to the Shareholder Services Plan. 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. The Fund's shares are sold primarily through agreements between the Distributor and various brokerage and advisory firms, with the bulk of sales commissions inuring to such brokerage and advisory firms. For the year ended December 31, 2007, total commissions on sales of Class A Shares amounted to $52,487 of which the Distributor received $5,265. c) OTHER RELATED PARTY TRANSACTIONS: For the year ended December 31, 2007, the Fund incurred $15,908 of legal fees allocable to Hollyer Brady Barrett & Hines LLP ("Hollyer Brady") and $20,627 to its successor, Butzel Long PC, counsel to the Fund, for legal services in conjunction with the Fund's ongoing operations. The Secretary of the Fund was a partner at Hollyer Brady and is a shareholder of its successor. 4. PURCHASES AND SALES OF SECURITIES During the year ended December 31, 2007, purchases of securities and proceeds from the sales of securities (excluding short-term investments) aggregated $4,388,788 and $5,287,946, respectively. At December 31, 2007, the aggregate tax cost for all securities was $17,673,680. At December 31, 2007, the aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost amounted to $8,269,445 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value amounted to $592,503 for a net unrealized appreciation of $7,676,942. 5. 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. 6. PORTFOLIO ORIENTATION The Fund's investments are primarily invested in the securities of companies within the eight state Rocky Mountain region consisting of Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming 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. 7. CAPITAL SHARE TRANSACTIONS a) Transactions in Capital Shares of the Fund were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 2007 DECEMBER 31, 2006 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ----------- CLASS A SHARES: Proceeds from shares sold 72,259 $ 2,409,367 184,088 $ 5,717,458 Reinvested distributions 24,498 765,555 5,662 183,463 Cost of shares redeemed . (119,460) (4,007,015)(a) (78,130) (2,412,241)(a) ----------- ----------- ----------- ----------- Net change ........... (22,703) (832,093) 111,620 3,488,680 ----------- ----------- ----------- ----------- CLASS C SHARES: Proceeds from shares sold 20,256 622,641 44,766 1,305,452 Reinvested distributions 2,651 75,912 705 21,199 Cost of shares redeemed . (35,248) (1,101,248) (25,603) (739,232) ----------- ----------- ----------- ----------- Net change ........... (12,341) (402,695) 19,868 587,419 ----------- ----------- ----------- ----------- CLASS I SHARES: Proceeds from shares sold 13 450 32 1,000 Reinvested distributions 18 569 10 326 Cost of shares redeemed . (547) (17,466)(b) -- --(b) ----------- ----------- ----------- ----------- Net change ........... (516) (16,447) 42 1,326 ----------- ----------- ----------- ----------- CLASS Y SHARES: Proceeds from shares sold 16,522 570,570 27,839 878,458 Reinvested distributions 1,861 59,779 377 12,504 Cost of shares redeemed . (13,655) (470,330)(c) (27,134) (872,899)(c) ----------- ----------- ----------- ----------- Net change ........... 4,728 160,019 1,082 18,063 ----------- ----------- ----------- ----------- Total transactions in Fund shares .................. (30,832) $(1,091,216) 132,612 $ 4,095,488 =========== =========== =========== ===========
(a) Net of short-term trading redemption fees of $263 and $308, respectively. (b) Net of short-term trading redemption fees of $4 and $0, respectively. (c) Net of short-term trading redemption fees of $736 and $541, respectively. b) SHORT-TERM TRADING REDEMPTION FEE: The Fund and the Distributor may reject any order for the purchase of shares, on a temporary or permanent basis, from investors exhibiting a pattern of frequent or short-term trading in Fund shares. In addition, the Fund imposes a redemption fee of 2.00% of the shares' redemption value on any redemption of Class A Shares on which a sales charge is not imposed or of Class I and Class Y Shares, if the redemption occurs within 90 days of purchase. The fee will be paid to the Fund and is designed to offset the costs to the Fund caused by short-term trading in Fund shares. The fee will not apply to shares sold under an Automatic Withdrawal Plan, or sold due to the shareholder's death or disability. For the year ended December 31, 2007, fees collected did not have a material effect on the financial highlights. 8. INCOME TAX INFORMATION AND 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. Dividends from net investment income and distributions from realized gains from investment transactions are determined in accordance with Federal income tax regulations, which may differ from investment income and realized gains determined under generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes, but not for tax purposes, are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions from paid-in capital. The tax character of distributions: Year Ended December 31, 2007 2006 ----------- ---------- Long-term capital gain ........... $ 1,367,425 $ 328,971 As of December 31, 2007, the components of distributable earnings on a tax basis were as follows: Accumulated net realized gain .... $ 249,213 Unrealized appreciation .......... 7,676,942 ----------- $ 7,926,155 =========== AQUILA ROCKY MOUNTAIN EQUITY FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class A ----------------------------------------------------------------- Year Ended December 31, ----------------------------------------------------------------- 2007 2006 2005 2004 2003 -------- -------- -------- -------- -------- Net asset value, beginning of period ..... $ 32.47 $ 29.45 $ 27.93 $ 24.92 $ 17.74 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income (loss) ........... (0.20)++ (0.11)+ (0.11)+ (0.17)+ (0.16)+ Net gain (loss) on securities (both realized and unrealized) ............. (0.19) 3.51 1.63 3.18 7.34 -------- -------- -------- -------- -------- Total from investment operations ....... (0.39) 3.40 1.52 3.01 7.18 -------- -------- -------- -------- -------- Less distributions (note 8): Distributions from capital gains ....... (1.69) (0.38) -- -- -- -------- -------- -------- -------- -------- Net asset value, end of period ........... $ 30.39 $ 32.47 $ 29.45 $ 27.93 $ 24.92 ======== ======== ======== ======== ======== Total return (not reflecting sales charge) (1.34)% 11.54% 5.44% 12.08% 40.47% Ratios/supplemental data Net assets, end of period (in thousands) ....................... $ 20,950 $ 23,121 $ 17,684 $ 13,718 $ 10,345 Ratio of expenses to average net assets 1.54% 1.72% 1.59% 1.54% 1.50% Ratio of net investment loss to average net assets ........................... (0.64)% (0.57)% (0.48)% (0.72)% (0.77)% Portfolio turnover rate ................ 16.81% 13.31% 9.78% 8.38% 3.01% The expense and net investment income ratios without the effect of the waiver of fees and the expense reimbursement were (note 3): Ratio of expenses to average net assets 2.73% 2.70% 3.23% 2.82% 3.25% Ratio of net investment loss to average net assets ........................... (1.82)% (1.55)% (2.11)% (1.99)% (2.51)% The expense ratios after giving effect to the waivers, reimbursements and expense offset for uninvested cash balances were (note 3): Ratio of expenses to average net assets 1.50% 1.50% 1.50% 1.50% 1.48% Class C ----------------------------------------------------------------- Year Ended December 31, ----------------------------------------------------------------- 2007 2006 2005 2004 2003 -------- -------- -------- -------- -------- Net asset value, beginning of period ..... $ 30.11 $ 27.54 $ 26.31 $ 23.66 $ 16.96 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income (loss) ........... (0.42)++ (0.32)+ (0.30)+ (0.35)+ (0.30)+ Net gain (loss) on securities (both realized and unrealized) ............. (0.16) 3.27 1.53 3.00 7.00 -------- -------- -------- -------- -------- Total from investment operations ....... (0.58) 2.95 1.23 2.65 6.70 -------- -------- -------- -------- -------- Less distributions (note 8): Distributions from capital gains ....... (1.69) (0.38) -- -- -- -------- -------- -------- -------- -------- Net asset value, end of period ........... $ 27.84 $ 30.11 $ 27.54 $ 26.31 $ 23.66 ======== ======== ======== ======== ======== Total return (not reflecting sales charge) (2.08)% 10.71% 4.68% 11.20% 39.50% Ratios/supplemental data Net assets, end of period (in thousands) ....................... $ 2,845 $ 3,449 $ 2,607 $ 2,235 $ 1,835 Ratio of expenses to average net assets 2.29% 2.47% 2.34% 2.29% 2.26% Ratio of net investment loss to average net assets ........................... (1.38)% (1.32)% (1.24)% (1.47)% (1.53)% Portfolio turnover rate ................ 16.81% 13.31% 9.78% 8.38% 3.01% The expense and net investment income ratios without the effect of the waiver of fees and the expense reimbursement were (note 3): Ratio of expenses to average net assets 3.47% 3.45% 3.98% 3.56% 4.02% Ratio of net investment loss to average net assets ........................... (2.56)% (2.30)% (2.87)% (2.74)% (3.29)% The expense ratios after giving effect to the waivers, reimbursements and expense offset for uninvested cash balances were (note 3): Ratio of expenses to average net assets 2.25% 2.25% 2.25% 2.25% 2.24%
- ---------- + Per share amounts have been calculated using the monthly average shares method. ++ Per share amounts have been calculated using the daily average shares method. See accompanying notes to financial statements. AQUILA ROCKY MOUNTAIN EQUITY FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class I Class Y -------------------------------- ------------------------------------------------- Year Ended December 31, Period Year Ended December 31, ------------------ Ended ------------------------------------------------- 2007 2006 12/31/05(1) 2007 2006 2005 2004 2003 ------ ------ ----------- ------ ------ ------ ------ ------ Net asset value, beginning of period ..... $32.51 $29.46 $30.26 $33.25 $30.08 $28.45 $25.32 $17.97 ------ ------ ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income (loss) ........... (0.14)++ (0.08)+ (0.02)+ (0.12)++ (0.03)+ (0.05)+ (0.11)+ (0.10)+ Net gain (loss) on securities (both realized and unrealized) ....... (0.10) 3.51 (0.78) (0.19) 3.58 1.68 3.24 7.45 ------ ------ ------ ------ ------ ------ ------ ------ Total from investment operations ....... (0.24) 3.43 (0.80) (0.31) 3.55 1.63 3.13 7.35 ------ ------ ------ ------ ------ ------ ------ ------ Less distributions (note 8): Distributions from capital gains ....... (1.69) (0.38) -- (1.69) (0.38) -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ Net asset value, end of period ........... $30.58 $32.51 $29.46 $31.25 $33.25 $30.08 $28.45 $25.32 ====== ====== ====== ====== ====== ====== ====== ====== Total return (not reflecting sales charge) (0.87)% 11.64% (2.64)%* (1.07)% 11.80% 5.73% 12.36% 40.90% Ratios/supplemental data Net assets, end of period (in thousands) ....................... $ 11 $ 28 $ 24 $1,667 $1,616 $1,430 $1,661 $1,400 Ratio of expenses to average net assets 1.38% 1.64% 1.43%** 1.29% 1.47% 1.34% 1.29% 1.25% Ratio of net investment income (loss) to average net assets ................ (0.46)% (0.48)% (0.64)%** (0.39)% (0.31)% (0.26)% (0.47)% (0.51)% Portfolio turnover rate ................ 16.81% 13.31% 9.78%* 16.81% 13.31% 9.78% 8.38% 3.01% The expense and net investment income ratios without the effect of the waiver of fees and the expense reimbursement were (note 3): Ratio of expenses to average net assets 2.55% 2.69% 2.67%** 2.48% 2.45% 2.99% 2.56% 3.05% Ratio of net investment loss to average net assets ................... (1.63)% (1.53)% (1.89)%** (1.59)% (1.30)% (1.91)% (1.75)% (2.32)% 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 1.34% 1.42% 1.42%** 1.25% 1.25% 1.25% 1.25% 1.23%
- ---------- + Per share amounts have been calculated using the monthly average shares method. ++ Per share amounts have been calculated using the daily average shares method. * Not Annualized ** Annualized (1) Commenced operations on December 1, 2005. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- ANALYSIS OF EXPENSES (UNAUDITED) As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end sales charges with respect to Class A shares or contingent deferred sales charges ("CDSC") with respect to Class C shares; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. The table below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The table below is based on an investment of $1,000 invested on July 1, 2007 and held for the six months ended December 31, 2007. ACTUAL EXPENSES This table provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled "Expenses Paid During the Period". SIX MONTHS ENDED DECEMBER 31, 2007 ACTUAL TOTAL RETURN BEGINNING ENDING EXPENSES WITHOUT ACCOUNT ACCOUNT PAID DURING SALES CHARGES(1) VALUE VALUE THE PERIOD(2) - -------------------------------------------------------------------------------- Class A (6.66)% $1,000.00 $933.40 $ 7.31 Class C (6.99)% $1,000.00 $930.10 $ 10.95 Class I (6.23)% $1,000.00 $937.70 $ 6.06 Class Y (6.50)% $1,000.00 $935.00 $ 6.10 (1) ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, IF ANY, AT NET ASSET VALUE AND DOES NOT REFLECT THE DEDUCTION OF THE APPLICABLE SALES CHARGES WITH RESPECT TO CLASS A SHARES OR THE APPLICABLE CONTINGENT DEFERRED SALES CHARGES ("CDSC") WITH RESPECT TO CLASS C SHARES. TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL RETURN FOR THE YEAR. (2) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 1.50%, 2.25%, 1.24% AND 1.25% FOR THE FUND'S CLASS A, C, I AND Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ANALYSIS OF EXPENSES (UNAUDITED) (CONTINUED) HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of other mutual funds. Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs with respect to Class A shares. The example does not reflect the deduction of contingent deferred sales charges ("CDSC") with respect to Class C shares. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different mutual funds. In addition, if these transaction costs were included, your costs would have been higher. SIX MONTHS ENDED DECEMBER 31, 2007 HYPOTHETICAL ANNUALIZED BEGINNING ENDING EXPENSES TOTAL ACCOUNT ACCOUNT PAID DURING RETURN VALUE VALUE THE PERIOD(1) - -------------------------------------------------------------------------------- Class A 5.00% $1,000.00 $1,017.64 $ 7.63 Class C 5.00% $1,000.00 $1,013.86 $ 11.42 Class I 5.00% $1,000.00 $1,018.95 $ 6.31 Class Y 5.00% $1,000.00 $1,018.90 $ 6.36 (1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 1.50%, 2.25%, 1.24% AND 1.25% FOR THE FUND'S CLASS A, C , I AND Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INFORMATION AVAILABLE (UNAUDITED) Much of the information that the funds in the Aquila Group of Funds(R) produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent the entire list of portfolio securities of your Fund twice a year in the semi-annual and annual reports you receive. Additionally, we prepare, and have available, portfolio listings at the end of each quarter. Whenever you may be interested in seeing a listing of your Fund's portfolio other than in your shareholder reports, please check our website http://www.aquilafunds.com or call us at 1-800-437-1020. The Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at http://www.sec.gov. You may also review or, for a fee, copy the forms at the SEC's Public Reference Room in Washington, DC or by calling 1-800-SEC-0330. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROXY VOTING RECORD (UNAUDITED) Proxy Voting Guidelines and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-437-1020). This information is also available at http://www.aquilafunds.com/armef/armefproxy.htm or on the SEC's Web site - http://www.sec.gov - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED) For the calendar year ended December 31, 2007, 100% of the amount distributed by Aquila Rocky Mountain Equity Fund qualified as net long-term capital gains. Prior to January 31, 2008, shareholders were mailed IRS Form 1099-DIV which contains information on the status of distributions paid for the 2007 calendar year. - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) TRUSTEES(1) AND OFFICERS
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) - ----------------- ---------- ------------------- ---------- --------------------- INTERESTED TRUSTEE(4) Diana P. Herrmann Trustee since Vice Chair and Chief Executive Officer of 12 ICI Mutual Insurance New York, NY 1997 and Aquila Management Corporation, Founder of the Company (02/25/58) President Aquila Group of Funds(R)(5) and parent of since 2002 Aquila Investment Management LLC, Manager, since 2004, President and Chief Operating Officer since 1997, a Director since 1984, Secretary since 1986 and previously its Executive Vice President, Senior Vice President or Vice President, 1986-1997; Chief Executive Officer and Vice Chair since 2004 and President, Chief Operating Officer and Manager of the Manager since 2003; Chair, Vice Chair, President, Executive Vice President or Senior Vice President of funds in the Aquila Group of Funds(R) since 1986; Director of the Distributor since 1997; trustee, Reserve Money-Market Funds, 1999-2000 and Reserve Private Equity Series, 1998-2000; Governor, Investment Company Institute (a trade organization for the U.S. fund industry dedicated to protecting shareholder interests and educating the public about investing) and head of its Small Funds Committee since 2004; active in charitable and volunteer organizations. NON-INTERESTED TRUSTEES Tucker Hart Adams Chair of the President, The Adams Group, Inc., an economic 3 Director, Colorado Health Colorado Springs, CO Board of consulting firm, since 1989; formerly Chief Facilities Authority (01/11/38) Trustees since Economist, United Banks of Colorado; currently 2005 and or formerly active with numerous professional Trustee since and community organizations. 1993 Gary C. Cornia Trustee since Director, Romney Institute of Public 4 Lincoln Institute of Land Orem, UT 2002 Management, Marriott School of Management, Policy, Cambridge, MA (06/24/48) Brigham Young University, 2004 - present; Professor, Marriott School of Management, 1980 - present; Past President, the National Tax Association; Fellow, Lincoln Institute of Land Policy, 2002 - present; Associate Dean, Marriott School of Management, Brigham Young University, 1991-2000; Utah Governor's Tax Review Committee since 1993.
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) - ----------------- ---------- ------------------- ---------- --------------------- Grady Gammage, Jr. Trustee since Founding partner, Gammage & Burnham, PLC, a 2 None Phoenix, AZ 2004 law firm, Phoenix, Arizona, since 1983; (10/01/51) director, Central Arizona Water Conservation District, 1992-2004; director, Arizona State University Foundation since 1998; Manicopa Partnership for Arts & Culture; Public Architecture; Arizona Historical Foundation. Glenn P. O'Flaherty Trustee since Co-Founder, Chief Financial Officer and Chief 2 None Denver, CO 2007 Compliance Officer of Three Peaks Capital (08/03/58) Management, LLP, 2003-2005; Vice President - Investment Accounting, Global Trading and Trade Operations, Janus Capital Corporation, and Chief Financial Officer and Treasurer, Janus Funds, 1991-2002. OTHER INDIVIDUALS CHAIRMAN EMERITUS(6) Lacy B. Herrmann Founder and Founder and Chairman of the Board, Aquila N/A N/A New York, NY Chairman Management Corporation, the sponsoring (05/12/29) Emeritus since organization and parent of the Manager or 2006, Chairman Administrator and/or Adviser or Sub-Adviser to of the Board each fund of the Aquila Group of Funds(R); of Trustees, Chairman of the Manager or Administrator 1993-2005 and/or Adviser or Sub-Adviser to each since 2004; Founder and Chairman Emeritus of each fund in the Aquila Group of Funds(R); previously Chairman and a Trustee of each fund in the Aquila Group of Funds(R) since its establishment until 2004 or 2005; Director of the Distributor since 1981 and formerly Vice President or Secretary, 1981-1998; Trustee Emeritus, Brown University and the Hopkins School; active in university, school and charitable organizations. OFFICERS Charles E. Childs, III Executive Vice Executive Vice President of all funds in the N/A N/A New York, NY President Aquila Group of Funds(R) and the Manager and (04/01/57) since 2003 the Manager's parent since 2003; formerly Senior Vice President, corporate development, Vice President, Assistant Vice President and Associate of the Manager's parent since 1987; Senior Vice President, Vice President or Assistant Vice President of the Aquila Money-Market Funds, 1988-2003.
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) - ----------------- ---------- ------------------- ---------- --------------------- Marie E. Aro Senior Vice Senior Vice President, Aquila Rocky Mountain N/A N/A Denver, CO President Equity Fund, and Vice President, Tax-Free (02/10/55) since 2004 Trust of Arizona, since 2004; Senior Vice President, Aquila Three Peaks High Income Fund, since 2006; Vice President, INVESCO Funds Group, 1998-2003; Vice President, Aquila Distributors, Inc., 1993-1997. Jerry G. McGrew Senior Vice President of the Distributor since 1998, N/A N/A New York, NY President Registered Principal since 1993, Senior Vice (06/18/44) since 1996 President, 1997-1998 and Vice President, 1993-1997; Senior Vice President, Aquila Three Peaks High Income Fund, Aquila Rocky Mountain Equity Fund and five Aquila Municipal Bond Funds; Vice President, Churchill Cash Reserves Trust, 1995-2001. James M. McCullough Senior Vice Senior Vice President or Vice President of N/A N/A Portland, OR President Aquila Rocky Mountain Equity Fund and Tax-Free (06/11/45) since 1999 Trust of Oregon; Senior Vice President of the Distributor since 2000; Director of Fixed Income Institutional Sales, CIBC Oppenheimer & Co. Inc., Seattle, WA, 1995-1999. Barbara S. Walchli Senior Vice Senior Vice President and Portfolio Manager of N/A N/A Phoenix, AZ President Aquila Rocky Mountain Equity Fund since 1999; (09/24/52) since 1999 Fund Co-manager, One Group Large Company Growth Fund and One Group Income Equity Fund, Banc One Investment Advisors, 1996-1997; Director of Research, Senior Vice President, First Interstate Capital Management, 1995-1996; Investment Committee, Arizona Community Foundation 1986-2007; member, Institute of Chartered Financial Analysts, Association for Investment Management and Research and the Phoenix Society of Financial Analysts; formerly Senior Analyst, Banc One Investment Advisors and Director of Research, Valley National Bank.
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) - ----------------- ---------- ------------------- ---------- --------------------- Kimball L. Young Senior Vice Co-portfolio manager, Tax-Free Fund For Utah N/A N/A Salt Lake City, UT President since 2001; Co-founder, Lewis Young Robertson (08/07/46) since 1999 & Burningham, Inc., a NASD licensed broker/dealer providing public finance services to Utah local governments, 1995-2001; Senior Vice President of two Aquila Bond Funds and Aquila Rocky Mountain Equity Fund; formerly Senior Vice President-Public Finance, Kemper Securities Inc., Salt Lake City, Utah. R. Lynn Yturri Senior Vice Senior Vice President Investments, Aquila N/A N/A Scottsdale, AZ President Investment Management LLC since 2005, Senior (08/29/42) since 2006 Vice President, Aquila Rocky Mountain Equity Fund since 2006; Senior Vice President and equity fund manager, JP Morgan Chase, formerly One Group, Bank One's mutual fund family, 1992-2004. Stephen J. Caridi Vice President Vice President of the Distributor since 1995; N/A N/A New York, NY since 2006 Vice President, Hawaiian Tax-Free Trust since (05/06/61) 1998; Senior Vice President, Narragansett Insured Tax-Free Income Fund since 1998, Vice President 1996-1997; Senior Vice President, Tax-Free Fund of Colorado since 2004; Vice President, Aquila Rocky Mountain Equity Fund since 2006. Sherri Foster Vice President Senior Vice President, Hawaiian Tax-Free Trust N/A N/A Lahaina, HI since 2006 since 1993 and formerly Vice President or (07/27/50) Assistant Vice President; Vice President since 1997 and formerly Assistant Vice President of the three Aquila Money-Market Funds; Vice President, Aquila Rocky Mountain Equity Fund since 2006; Registered Representative of the Distributor since 1985. Jason T. McGrew Vice President Vice President, Churchill Tax-Free Fund of N/A N/A Elizabethtown, KY since 2006 Kentucky since 2001, Assistant Vice President, (08/14/71) 2000-2001; Vice President, Aquila Rocky Mountain Equity Fund since 2006; Investment Broker with Raymond James Financial Services 1999-2000 and with J.C. Bradford and Company 1997-1999; Associate Broker at Prudential Securities 1996-1997.
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) - ----------------- ---------- ------------------- ---------- --------------------- Christine L. Neimeth Vice President Vice President of Aquila Rocky Mountain Equity N/A N/A Portland, OR since 1999 Fund and Tax-Free Trust of Oregon; Management (02/10/64) Information Systems consultant, Hillcrest Ski and Sport, 1997; Institutional Municipal Bond Salesperson, Pacific Crest Securities, 1996; active in college alumni and volunteer organizations. Alan R. Stockman Vice President Senior Vice President, Tax-Free Trust of N/A N/A Glendale, AZ since 1999 Arizona since 2001, Vice President, 1999-2001; (07/31/54) Vice President, Aquila Rocky Mountain Equity Fund since 1999; Bank One, Commercial Client Services representative, 1997-1999; Trader and Financial Consultant, National Bank of Arizona (Zions Investment Securities Inc.), Phoenix, Arizona 1996-1997. M. Kayleen Willis Vice President Vice President, Tax-Free Fund For Utah since N/A N/A Salt Lake City, UT since 2004 September 2003, Assistant Vice President, (06/11/63) 2002-2003; Vice President, Aquila Rocky Mountain Equity Fund, since 2004. Robert W. Anderson Chief Chief Compliance Officer of the Fund and each N/A N/A New York, NY Compliance of the other funds in the Aquila Group of (08/23/40) Officer since Funds(R), the Manager and the Distributor 2004 and since 2004, Compliance Officer of the Manager Assistant or its predecessor and current parent Secretary 1998-2004; Assistant Secretary of the Aquila since 2000 Group of Funds(R) since 2000. Joseph P. DiMaggio Chief Chief Financial Officer of the Aquila Group of N/A N/A New York, NY Financial Funds(R) since 2003 and Treasurer since 2000. (11/06/56) Officer since 2003 and Treasurer since 2000 Edward M. W. Hines Secretary Shareholder of Butzel Long, a professional N/A N/A New York, NY since 1993 corporation, counsel to the Fund, since 2007; (12/16/39) Partner of Hollyer Brady Barrett & Hines LLP, its predecessor as counsel, 1989-2007; Secretary of the Aquila Group of Funds(R).
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) - ----------------- ---------- ------------------- ---------- --------------------- John M. Herndon Assistant Assistant Secretary of the Aquila Group of N/A N/A New York, NY Secretary Funds(R) since 1995 and Vice President of the (12/17/39) since 1995 three Aquila Money-Market Funds since 1990; Vice President of the Manager or its predecessor and current parent since 1990. Lori A. Vindigni Assistant Assistant Treasurer of the Aquila Group of N/A N/A New York, NY Treasurer Funds(R) since 2000; Assistant Vice President (11/02/66) since 2000 of the Manager or its predecessor and current parent since 1998; Fund Accountant for the Aquila Group of Funds(R), 1995-1998.
- ---------- (1) The Fund's Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request by calling 800-437-1020 (toll-free) or by visiting the EDGAR Database at the SEC's internet site at www.sec.gov. (2) The mailing address of each Trustee and officer is c/o Aquila Rocky Mountain Equity Fund, 380 Madison Avenue, New York, NY 10017. (3) Because the Fund does not hold annual meetings, each Trustee holds office for an indeterminate term. The term of office of each officer is one year. (4) Ms. Herrmann is an interested person of the Fund as an officer of the Fund, as a director, officer and shareholder of the Manager's corporate parent, as an officer and Manager of the Manager, and as a shareholder and director of the Distributor. Ms. Herrmann is the daughter of Lacy B. Herrmann, the Founder and Chairman Emeritus of the Fund. (5) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S. Government Securities Cash Assets Trust and Pacific Capital Tax-Free Cash Assets Trust, each of which is a money-market fund, are called the "Aquila Money-Market Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky, Narragansett Insured Tax-Free Income Fund and Tax-Free Fund For Utah, each of which is a tax-free municipal bond fund, are called the "Aquila Municipal Bond Funds"; Aquila Rocky Mountain Equity Fund is an equity fund; Aquila Three Peaks High Income Fund is a high income corporate bond fund; considered together, these 12 funds are called the "Aquila Group of Funds(R)." (6) The Chairman Emeritus may attend Board meetings but has no voting power. - -------------------------------------------------------------------------------- PRIVACY NOTICE (UNAUDITED) AQUILA ROCKY MOUNTAIN EQUITY FUND OUR PRIVACY POLICY. In providing services to you as an individual who owns or is considering investing in shares of the Fund, we collect certain non-public personal information about you. Our policy is to keep this information strictly safeguarded and confidential, and to use or disclose it only as necessary to provide services to you or as otherwise permitted by law. Our privacy policy applies equally to former shareholders and persons who inquire about the Fund. INFORMATION WE COLLECT. "Non-public personal information" is personally identifiable financial information about you as an individual or your family. The kinds of non-public personal information we have about you may include the information you provide us on your share purchase application or in telephone calls or correspondence with us, and information about your fund transactions and holdings, how you voted your shares and the account where your shares are held. INFORMATION WE DISCLOSE. We disclose non-public personal information about you to companies that provide necessary services to us, such as the Fund's transfer agent, distributor, or manager, as permitted or required by law, or as authorized by you. Any other use is strictly prohibited. We do not sell information about you or any of our fund shareholders to anyone. NON-CALIFORNIA RESIDENTS: We also may disclose some of this information to another fund in the Aquila Group of Funds(R) (or its service providers) under joint marketing agreements that permit the funds to use the information only to provide you with information about other funds in the Aquila Group of Funds(R) or new services we are offering that may be of interest to you. CALIFORNIA RESIDENTS ONLY: In addition, unless you "opt-out" of the following disclosures using the form that was mailed to you under separate cover, we may disclose some of this information to another fund in the Aquila Group of Funds(R) (or its sevice providers) under joint marketing agreements that permit the funds to use the information only to provide you with information about other funds in the Aquila Group of Funds(R) or new services we are offering that may be of interest to you. HOW WE SAFEGUARD YOUR INFORMATION. We restrict access to non-public personal information about you to only those persons who need it to provide services to you or who are permitted by law to receive it. We maintain physical, electronic and procedural safeguards to protect the confidentiality of all non-public personal information we have about you. If you have any questions regarding our Privacy Policy, please contact us at 1-800-437-1020. AQUILA DISTRIBUTORS, INC. AQUILA INVESTMENT MANAGEMENT LLC This Privacy Policy also has been adopted by Aquila Distributors, Inc. and Aquila Investment Management LLC and applies to all non-public information about you that each of these companies may obtain in connection with services provided to the Fund or to you as a shareholder of the Fund. - -------------------------------------------------------------------------------- (THIS PAGE INTENTIONALLY LEFT BLANK) FOUNDERS Lacy B. Herrmann, Chairman Emeritus Aquila Management Corporation MANAGER AQUILA INVESTMENT MANAGEMENT LLC 380 Madison Avenue, Suite 2300 New York, New York 10017 BOARD OF TRUSTEES Tucker Hart Adams, Chair Gary C. Cornia Grady Gammage, Jr. Diana P. Herrmann Glenn P. O'Flaherty OFFICERS Diana P. Herrmann, President Barbara S. Walchli, Senior Vice President and Portfolio Manager Marie E. Aro, Senior Vice President Kimball L. Young, Senior Vice President R. Lynn Yturri, Senior Vice President Robert W. Anderson, Chief Compliance Officer Joseph P. DiMaggio, Chief Financial Officer and 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. 101 Sabin Street Pawtucket, RI 02860 CUSTODIAN JPMORGAN CHASE BANK, N.A. 1111 Polaris Parkway Columbus, Ohio 43240 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TAIT, WELLER & BAKER LLP 1818 Market Street, Suite 2400 Philadelphia, PA 19103 Further information is contained in the Prospectus, which must precede or accompany this report. ITEM 2. CODE OF ETHICS. (a) As of December 31, 2007 (the end of the reporting period) the Trust has adopted a code of ethics that applies to the Trust's principal executive officer(s)and principal financial officer(s) and persons performing similar functions ("Covered Officers") as defined in the Aquila Group of Funds Code of Ethics for Principal Executive and Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act of 2002; (f)(1) Pursuant to Item 10(a)(1), a copy of the Trust's Code of Ethics that applies to the Trust's principal executive officer(s) and principal financial officer(s) and persons performing similar functions is included as an exhibit to its annual report on this Form N-CSR; (f)(2) The text of the Trust's Code of Ethics that applies to the Trust's principal executive officer(s) and principal financial officer(s) and persons performing similar functions has been posted on its Internet website which can be found at the Trust's Internet address at aquilafunds.com. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1)(ii) The Board of Trustees of the Fund has determined that it does not have at least one audit committee financial expert serving on its audit committee. The Fund does not have such a person serving on the audit committee because none of the persons currently serving as Trustees happens to have the technical accounting and auditing expertise included in the definition of "audit committee financial expert" recently adopted by the Securities and Exchange Commission in connection with this Form N-CSR, and the Board has not heretofore deemed it necessary to seek such a person for election to the Board. The primary mission of the Board, which is that of oversight over the operations and affairs of the Fund, confronts the Trustees with a wide and expanding range of issues and responsibilities. The Trustees believe that, accordingly, it is essential that the Board's membership consist of persons with as extensive experience as possible in fulfilling the duties and responsibilities of mutual fund directors and audit committee members and, ideally, with extensive experience and background relating to the economic and financial sectors and securities in which the Fund invests, including exposure to the financial and accounting matters commonly encountered with respect to those sectors and securities. The Board believes that its current membership satisfies those criteria. It recognizes that it would also be helpful to have a member with the relatively focused accounting and auditing expertise reflected in the applicable definition of "audit committee financial expert," just as additional members with similarly focused technical expertise in other areas relevant to the Fund's operations and affairs would also contribute added value. However, the Board believes that the Fund is better served, and its assets better employed, by a policy of hiring experts in various the specialized area of technical accounting and auditing matters, if and as the Board identifies the need, rather than by seeking to expand its numbers by adding technical experts in the areas constituting its domain of responsibility. The Fund's Audit Committee Charter explicitly authorizes the Committee to retain such experts as it deems necessary in fulfilling its duties ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. a) Audit Fees - The aggregate fees billed for professional services rendered by the principal accountant for the audit of the Registrant's annual financial statements were $10,000 in 2006 and $10,000 in 2007. b) Audit Related Fees - There were no amounts billed for audit-related fees over the past two years. c) Tax Fees - The Registrant was billed by the principal accountant $3,000 and $3,000 in 2006 and 2007, respectively, for return preparation and tax compliance. d) All Other Fees - There were no additional fees paid for audit and non-audit services other than those disclosed in a) thorough c) above. e)(1) Currently, the audit committee of the Registrant pre-approves audit services and fees on an engagement-by-engagement basis e)(2) None of the services described in b) through d) above were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, all were pre-approved on an engagement-by-engagement basis. f) No applicable. g) There were no non-audit services fees billed by the Registrant's accountant to the Registrant's investment adviser or distributor over the past two years h) Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Included in Item 1 above ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Board of Directors of the Registrant has adopted a Nominating Committee Charter which provides that the Nominating Committee (the 'Committee') may consider and evaluate nominee candidates properly submitted by shareholders if a vacancy among the Independent Trustees of the Registrant occurs and if, based on the Board's then current size, composition and structure, the Committee determines that the vacancy should be filled. The Committee will consider candidates submitted by shareholders on the same basis as it considers and evaluates candidates recommended by other sources. A copy of the qualifications and procedures that must be met or followed by shareholders to properly submit a nominee candidate to the Committee may be obtained by submitting a request in writing to the Secretary of the Registrant. ITEM 11. CONTROLS AND PROCEDURES. (a) Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) as of a date within 90 days of the filing of this report, the registrant's chief financial and executive officers have concluded that the disclosure controls and procedures of the registrant are appropriately designed to ensure that information required to be disclosed in the registrant's reports that are filed under the Securities Exchange Act of 1934 are accumulated and communicated to registrant's management, including its principal executive officer(s) and principal financial officer(s), to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the Securities and Exchange Commission. (b) There have been no significant changes in registrant's internal controls or in other factors that could significantly affect registrant's internal controls subsequent to the date of the most recent evaluation, including no significant deficiencies or material weaknesses that required corrective action. ITEM 12. EXHIBITS. (a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act of 2002. (a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. (b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AQUILA ROCKY MOUNTAIN EQUITY FUND By: /s/ Diana P. Herrmann - - - --------------------------------- President and Trustee March 10, 2008 By: /s/ Joseph P. DiMaggio - - - ----------------------------------- Chief Financial Officer and Treasurer March 10, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Diana P. Herrmann - - - --------------------------------- Diana P. Herrmann President and Trustee March 10, 2008 By: /s/ Joseph P. DiMaggio - - - ----------------------------------- Joseph P. DiMaggio Chief Financial Officer and Treasurer March 10, 2008 AQUILA ROCKY MOUNTAIN EQUITY FUND EXHIBIT INDEX (a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act of 2002. (a) (2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. (b) Certification of chief executive officer and chief financial officer as required by Rule 30a-2(b) of the Investment Company Act of 1940. EX-99.CODE ETH 2 sarbanes.txt SARBANES-OXLEY CODE OF ETHICS AQUILA GROUP OF FUNDSsm CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS UNDER SECTION 406 OF THE SARBANES-OXLEY ACT OF 2002 I. Covered Officers/Purpose of the Code This is the code of ethics (the "Code") for the investment companies within the Aquilasm Group of Funds (collectively, "Funds" and each, a "Fund," each of which is detailed in Exhibit A). It applies to the Fund's Principal Executive Officer(s) and Principal Financial Officer(s) (the "Covered Officers," each of whom is listed in Exhibit B), for the purpose of promoting: *honest and ethical conduct, including the ethical handling of actual; *or apparent conflicts of interest between personal and professional relationships; *full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; *compliance with applicable laws and governmental rules and regulations; *the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and *accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest Overview. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his/her service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his/her family, receives improper personal benefits as a result of his/her position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" of the Fund. The Fund's and the investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Fund and the investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the adviser and the Fund. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must: *not use his/her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally to the detriment of the Fund; *not cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the Fund; There are some conflict of interest situations that should always be discussed with the general counsel of the Fund ("General Counsel"), if material. Examples of these include: *service as a director on the board of any public or private company; *the receipt of any non-nominal gifts; *the receipt of any entertainment from any company with which the Fund has current or prospective business dealings unless such entertainment is business- related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; *any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof; *a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. Disclosure and Compliance Each Covered Officer should familiarize himself/herself with the disclosure requirements generally applicable to the Fund; *each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Trustees and auditors, and to governmental regulators and self-regulatory organizations; each Covered Officer should, to the extent appropriate within his/her area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. Reporting and Accountability Each Covered Officer must: *upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he/she has received, read, and understands the Code; *annually thereafter affirm to the Board that he/she has complied with the requirements of the Code; *not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and *notify the Chair of the Audit Committee of the Fund promptly if he/she knows of any violation of this Code. Failure to do so is itself a violation of this Code. *file at least annually a complete and accurate Funds' Trustees and Officers Questionnaire. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any approvals or waivers1 sought by the Chairman of the Board or the President will be considered by the Audit Committee (the "Committee"). The Funds will follow these procedures in investigating and enforcing this Code: *the General Counsel will take all appropriate action to investigate any potential violations reported to him; *if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action; any matter that the General Counsel believes is a violation will be reported to the Committee; * if the Committee concurs that a violation has occurred, it will inform the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; * the Committee will be responsible for granting waivers, as appropriate; and * any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as othe policies or procedures of the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment adviser's and principal underwriter's codes of ethics under Rule 17j-1 under the Investment Company Act and the adviser's more detailed policies and procedures set forth in their respective codes are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. Amendments Any amendments to this Code, other than amendments to Exhibit B, must be approved or ratified by a majority vote of the Board, including a majority of independent Trustees. VII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Board and the General Counsel, and if deemed appropriate by the Board, with other Funds in the complex where the Funds share a common Covered Officer. VIII. Internal Use The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion. Exhibit A Funds Covered by this Code of Ethics - ------------------------------------ Aquila Three Peaks High Income Fund Aquila Rocky Mountain Equity Fund Capital Cash Management Trust Cash Assets Trust series, consisting of Pacific Capital Cash Assets Trust Pacific Capital Tax-Free Cash Assets Trust Pacific Capital U.S. Government Cash Assets Trust Churchill Cash Reserves Trust Churchill Tax-Free Trust Hawaiian Tax-Free Trust Narragansett Insured Tax-Free Income Fund Tax-Free Fund For Utah Tax-Free Fund of Colorado Tax-Free Trust of Arizona Tax-Free Trust of Oregon Exhibit B Persons Covered by this Code of Ethics - -------------------------------------- The following officers of each Fund, and the identities of such officers as of December 31, 2007: Chairman and/or Chairman Emeritus And Founder Lacy B. Herrmann Chair, Vice Chair and/or Trustee and/or President Diana P. Herrmann Chief Financial Officer and Treasurer Joseph P. DiMaggio EX-99.CERT 3 armef306cert.txt SECTION 306 CERTIFICATIONS CERTIFICATIONS I, Diana P. Herrmann, certify that: 1. I have reviewed this report on Form N-CSR of Aquila Rocky Mountain Equity Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report ("Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 10, 2008 /s/ Diana P. Herrmann - ------------------------ Title: President and Trustee I, Joseph P. DiMaggio, certify that: 1. I have reviewed this report on Form N-CSR of Aquila Rocky Mountain Equity Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report ("Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 10, 2008 /s/ Joseph P. DiMaggio - -------------------------- Title: Chief Financial Officer and Treasurer EX-99.906 CERT 4 armef906cert.txt SECTION 906 CERTIFICATIONS CERTIFICATION Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18,United States Code), each of the undersigned officers of Aquila Rocky Mountain Equity Fund, do hereby certify to such officer's knowledge, that: The report on Form N-CSR of Aquila Rocky Mountain Equity Fund for the period ended December 31, 2007, (the "Form N-CSR") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of Aquila Rocky Mountain Equity Fund. Dated: March 10, 2008 /s/ Diana P. Herrmann ---------------------------------- President and Trustee Aquila Rocky Mountain Equity Fund Dated: March 10, 2008 /s/ Joseph P. DiMaggio ---------------------------------- Chief Financial Officer and Treasurer Aquila Rocky Mountain Equity Fund A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Aquila Rocky Mountain Equity Fund and will be retained by Aquila Rocky Mountain Equity Fund and furnished to the Securities and Exchange Commission or its staff upon request. This certification is being furnished solely pursuant to 18 U.S.C. ss. 1350 and is not being filed as part of the Report or as a separate disclosure document. -----END PRIVACY-ENHANCED MESSAGE-----