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NEW YORK EQUITY FUND
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ANNUAL REPORT
March 31, 1999
INVESTMENT ADVISOR ADMINISTRATOR
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PINNACLE ADVISORS LLC COUNTRYWIDE FUND SERVICES, INC.
4605 E. Genesee Street P.O. Box 5354
DeWitt, New York 13214 Cincinnati, Ohio 45201-5354
1.315.251.1101 1.888.899.8344
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<PAGE>
[LOGO]
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New York State
Opportunity Funds
Invest close to home...
May 21, 1999
Dear Shareholders:
Thank you for being an investor in the New York Equity Fund, the first ever
mutual fund that invests primarily in publicly-traded companies headquartered in
the state of New York.
For those of you who have been shareholders since the Fund's inception, you have
seen a total return on your investment (excluding the impact of applicable sales
loads) of over 42%. For twelve months ended March 31, 1999, the Fund returned
13.07%, as compared to 18.46% for its benchmark, the S&P 500 Index. Through the
first three quarters of the fiscal year, the Fund slightly outperformed the S&P
500 Index. However, the Fund's flat performance during the fourth quarter,
resulting from technology holdings that performed below our expectations, led to
the Fund's relative underperformance.
Looking forward, we will continue to attempt to provide shareholders with
positive returns by identifying companies with strong brand names and growth
potential greater than that of their peers. Even more exciting is our belief
that we have an abundance of great companies from which to select. Equity
markets continue to look like they are poised to provide favorable returns in
the coming year, given the attractive interest rate environment and the outlook
for accelerated earnings.
Once again, we appreciate your investment in the Fund and we will remain
diligent in our efforts to provide you, our shareholders, with positive returns.
Sincerely,
/s/ Gregg A. Kidd
Gregg A. Kidd
President
INVESTMENT ADVISOR
Pinnacle Advisors LLC 4505 East Genesee Street Dewitt, NY 13214 800-982-0421
SHAREHOLDER SERVICES
Countrywide Fund Services, Inc. P.O. Box 5354
Cincinnati, OH 45201-5354 888-899-8344
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Comparison of the Change in Value since May 12, 1997 of a $10,000 Investment
in the New York Equity Fund and the Standard & Poor's 500 Index
3/31/99
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New York Equity Fund $13,549
Standard & Poor's 500 Index $15,815
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New York Equity Fund
Average Annual Total Returns
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1 Year Since Inception*
7.70% 17.48%
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Past performance is not predictive of future performance.
*Initial public offering of shares was May 12, 1997.
<PAGE>
NEW YORK EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
ASSETS
Investment securities, at market value (Cost $5,474,134) $6,250,210
Cash 14,697
Dividends receivable 8,388
Receivable for capital shares sold 3,887
Receivable for securities sold 253,116
Due from Advisor (Note 3) 16,742
Organization expenses, net (Note 1) 31,139
Other assets 5,242
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TOTAL ASSETS 6,583,421
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LIABILITIES
Payable for securities purchased 245,835
Payable for capital shares redeemed 29,269
Payable to affiliates (Note 3) 4,000
Other accrued expenses 7,613
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TOTAL LIABILITIES 286,717
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NET ASSETS $6,296,704
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NET ASSETS CONSIST OF:
Paid-in capital $5,492,499
Accumulated net realized gains from security transactions 28,129
Net unrealized appreciation on investments 776,076
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NET ASSETS $6,296,704
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Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 445,010
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Net asset value and redemption price per share (Note 1) $ 14.15
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Maximum offering price per share (Note 1) $ 14.86
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See accompanying notes to financial statements.
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NEW YORK EQUITY FUND
STATEMENT OF OPERATIONS
For the Year ended March 31, 1999
INVESTMENT INCOME
Dividends $ 47,427
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EXPENSES
Investment advisory fees (Note 3) 34,538
Accounting services fees (Note 3) 24,000
Professional fees 16,212
Administrative services fees (Note 3) 12,000
Shareholder services and transfer agent fees (Note 3) 12,000
Insurance expense 11,250
Trustees' fees and expenses 9,608
Amortization of organization expenses (Note 1) 8,719
Postage and supplies 6,188
Custodian fees 5,516
Shareholder reporting costs 5,315
Registration fees 4,726
Distribution expense (Note 3) 4,711
Pricing costs 727
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TOTAL EXPENSES 155,510
Fees waived and expenses reimbursed by the Advisor (Note 3) (87,124)
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NET EXPENSES 68,386
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NET INVESTMENT LOSS (20,959)
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REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 94,447
Net change in unrealized appreciation/
depreciation on investments 525,613
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NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 620,060
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NET INCREASE IN NET ASSETS FROM OPERATIONS $ 599,101
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See accompanying notes to financial statements.
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NEW YORK EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended March 31, 1999 and March 31, 1998
<TABLE>
<CAPTION>
===================================================================================================
Year Period
Ended Ended
March 31, March 31,
1999 1998 (a)
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FROM OPERATIONS:
<S> <C> <C>
Net investment loss $ (20,959) $ (1,492)
Net realized gains (losses) from security transactions 94,447 (15,840)
Net change in unrealized appreciation/depreciation on investments 525,613 250,463
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Net increase in net assets from operations 599,101 233,131
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DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains from security transactions (29,519) --
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FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 4,437,691 1,323,067
Net asset value of shares issued in reinvestment
of distributions to shareholders 18,339 --
Payments for shares redeemed (310,093) (75,013)
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Net increase in net assets from capital share transactions 4,145,937 1,248,054
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TOTAL INCREASE IN NET ASSETS 4,715,519 1,481,185
NET ASSETS:
Beginning of period (Note 1) 1,581,185 100,000
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End of period $ 6,296,704 $ 1,581,185
=========== ===========
CAPITAL SHARE ACTIVITY:
Shares sold 341,457 122,154
Shares issued in reinvestment of distributions to shareholders 1,297 --
Shares redeemed (23,480) (6,418)
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Net increase in shares outstanding 319,274 115,736
Shares outstanding, beginning of period (Note 1) 125,736 10,000
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Shares outstanding, end of period 445,010 125,736
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</TABLE>
(a) Represents the period from the commencement of operations (May 12, 1997)
through March 31, 1998.
See accompanying notes to financial statements.
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NEW YORK EQUITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
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Year Period
Ended Ended
March 31, March 31,
1999 1998 (a)
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<S> <C> <C>
Net asset value at beginning of period $ 12.58 $ 10.00
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Income (loss) from investment operations:
Net investment loss (0.05) (0.01)
Net realized and unrealized gains on investments 1.69 2.59
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Total from investment operations 1.64 2.58
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Less distributions:
Distributions from net realized gains (0.07) --
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Net asset value at end of period $ 14.15 $ 12.58
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Total return (b) 13.07% 25.80%
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Net assets at end of period $ 6,296,704 $ 1,581,185
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Ratio of net expenses to average net assets (c) 1.97% 1.93%(d)
Ratio of net investment loss to average net assets 0.60% 0.20%(d)
Portfolio turnover rate 96% 25%
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</TABLE>
(a) Represents the period from the initial public offering of shares (May 12,
1997) through March 31, 1998.
(b) Total returns shown exclude the effect of applicable sales loads.
(c) Ratios of expenses to average net assets, assuming no waiver of fees and
reimbursement of expenses by the Advisor, would have been 4.49% and
13.85%(d) for the periods ended March 31, 1999 and 1998, respectively (Note
3).
(d) Annualized.
See accompanying notes to financial statements.
<PAGE>
NEW YORK EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
Market
Shares Value
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COMMON STOCKS - 98.6%
CONGLOMERATES - 5.3%
3,000 General Electric Company $ 331,875
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CONSUMER, CYCLICAL - 10.9%
4,800 Tommy Hilfiger Corporation (a) 330,600
5,000 Time Warner, Inc. 355,313
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685,913
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CONSUMER, NON-CYCLICAL - 18.2%
6,000 Bristol-Myers Squibb Company 385,875
2,400 Colgate-Palmolive Company 220,800
3,100 PepsiCo, Inc. 121,481
3,000 Pfizer, Inc. 416,250
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1,144,406
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ENERGY - 1.0%
700 Amerada Hess Corporation 35,219
500 Texaco, Inc. 28,375
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63,594
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FINANCIAL SERVICES - 22.0%
6,000 The Bank of New York Company, Inc. 215,625
2,500 Chase Manhattan Corporation 203,281
2,500 Citigroup, Inc. 159,687
800 Community Bank System, Inc. 19,050
3,600 The Equitable Companies, Inc. 252,000
600 M & T Bank Corporation 287,400
2,000 J.P. Morgan & Company, Inc. 246,750
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1,383,793
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INDUSTRIAL - 9.0%
12,000 Paychex, Inc. 569,250
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NEW YORK EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
Market
Shares Value
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COMMON STOCKS - 98.6% (CONTINUED)
TECHNOLOGY - 22.3%
4,500 Computer Associates International, Inc. $ 160,031
5,500 Corning, Inc. 330,000
3,700 International Business Machines Corporation 655,825
4,800 Xerox Corporation 256,200
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1,402,056
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UTILITIES - 9.9%
4,000 AT&T Corporation 319,250
5,000 Bell Atlantic Corporation 258,438
1,100 Consolidated Edison Company of New York 49,844
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627,532
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TOTAL COMMON STOCKS (COST $5,432,343) $ 6,208,419
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MONEY MARKET FUND - 0.7%
41,791 The Milestone Funds Treasury Obligations
Portfolio - Investor Shares (Cost $41,791) 41,791
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TOTAL INVESTMENT SECURITIES
(COST $5,474,134) - 99.3% $ 6,250,210
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.7% 46,494
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NET ASSETS - 100.0% $ 6,296,704
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(a) Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
NEW YORK EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
The New York Equity Fund (the Fund) is a non-diversified series of The New York
State Opportunity Funds (the Trust). The Trust, registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the 1940 Act), was organized as a Massachusetts business trust on
November 20, 1996. The Fund was capitalized on February 18, 1997, when
affiliates of Pinnacle Advisors LLC (the Advisor) purchased the initial shares
of the Fund at $10 per share. The Fund began the public offering of shares on
May 12, 1997.
The Fund seeks to provide long-term capital growth by investing primarily in
the common stocks and other equity securities of publicly-traded companies
headquartered in the state of New York and those companies having a significant
presence in the state.
The following is a summary of the Fund's significant accounting policies:
SECURITIES VALUATION -- The Fund's portfolio securities are valued as of the
close of business of the regular session of trading on the New York Stock
Exchange (normally 4:00 p.m., Eastern time). Securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the closing bid price.
SHARE VALUATION -- The net asset value per share of the Fund is calculated
daily by dividing the total value of the Fund's assets, less liabilities, by
the number of shares outstanding. The maximum offering price per share is equal
to the net asset value per share plus a sales load equal to 4.99% of the net
asset value (or 4.75% of the offering price). The redemption price per share is
equal to the net asset value per share.
INVESTMENT INCOME AND DISTRIBUTIONS TO SHAREHOLDERS -- Interest income is
accrued as earned. Dividend income is recorded on the ex-dividend date.
ORGANIZATION EXPENSES -- Expenses of organization have been capitalized and are
being amortized on a straight-line basis over five years.
SECURITY TRANSACTIONS -- Security transactions are accounted for on trade date.
Realized gains and losses on security transactions are determined on a specific
identification basis.
ACCOUNTING ESTIMATES -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements. Actual results could
differ from those estimates.
FEDERAL INCOME TAX -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
<PAGE>
NEW YORK EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of
portfolio investments of $5,474,134 as of March 31, 1999:
Gross unrealized appreciation........................ $ 872,704
Gross unrealized depreciation........................ (96,628)
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Net unrealized appreciation.......................... $ 776,076
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Reclassification of capital accounts -- For the year ended March 31, 1999, the
Fund had a net investment loss of $20,959 which was reclassified to paid-in
capital on the Statement of Assets and Liabilities. Such reclassification, the
result of permanent differences between financial statement and income tax
reporting requirements, has no effect on net assets or net asset value per
share.
2. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales and maturities of investment
securities, other than short-term investments, amounted to $7,349,044 and
$3,223,868, respectively, for the year ended March 31, 1999.
3. TRANSACTIONS WITH AFFILIATES
ADVISORY AGREEMENT
The Fund's investments are managed by Pinnacle Advisors LLC (the Advisor) under
the terms of an Advisory Agreement. Under the Advisory Agreement, the Fund pays
the Advisor a fee, which is computed and accrued daily and paid monthly, at an
annual rate of 1.00% of its average daily net assets up to $100 million; 0.95%
of such assets from $100 million to $200 million; and 0.85% of such assets in
excess of $200 million.
The Advisor currently intends to waive its investment advisory fees to the
extent necessary to limit the total operating expenses of the Fund to 1.98% of
average daily net assets. In accordance with the above limitation, the Advisor
voluntarily waived its entire investment advisory fees of $34,539 for the year
ended March 31, 1999 and reimbursed the Fund for $52,585 of other operating
expenses.
Certain trustees and officers of the Trust are also officers of the Advisor.
<PAGE>
NEW YORK EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
ADMINISTRATION AGREEMENT
Under the terms of the Administration Agreement between the Trust and
Countrywide Fund Services, Inc. (CFS), CFS supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services for the Fund. CFS supervises the
preparation of tax returns, reports to shareholders of the Fund, reports to and
filings with the Securities and Exchange Commission and state securities
commissions, and materials for meetings of the Board of Trustees. For the
performance of these administrative services, CFS receives a monthly fee at an
annual rate of .15% of average daily net assets up to $25 million; .125% of
such assets from $25 million to $50 million; and .10% of such assets in excess
of $50 million, subject to a monthly minimum of $1,000.
Certain officers of the Trust are also officers of CFS.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement between the Trust and CFS, CFS maintains the records of
each shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of the Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. CFS receives for its services a monthly fee at an annual
rate of $17.00 per shareholder account, subject to a $1,000 monthly minimum. In
addition, the Fund pays out-of-pocket expenses including, but not limited to,
postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Trust and CFS,
CFS calculates the daily net asset value per share and maintains the financial
books and records of the Fund. For these services, CFS receives a monthly fee
of $2,000 from the Fund.
PORTFOLIO TRANSACTIONS
All of the Fund's portfolio transactions are executed through Pinnacle
Investments, Inc., an affiliate of the Advisor. For the period from April 1,
1998 through October 31, 1998, no brokerage commissions were charged to the
Fund on such transactions. For the period November 1, 1998 through March
31,1999, brokerage commissions of $35,717 were charged to the Fund.
DISTRIBUTION PLAN
The Trust has adopted a Plan of Distribution (the Plan) pursuant to Rule 12b-1
under the 1940 Act. The Plan provides that the Fund may directly incur or
reimburse the Advisor for certain costs related to the distribution of the Fund
shares, not to exceed 0.25% of average daily net assets. For the year ended
March 31, 1999, the Fund incurred $4,711 of such expenses under the Plan.
4. FEDERAL TAX INFORMATION (UNAUDITED)
In accordance with federal tax requirements, the following provides
shareholders with information concerning distributions to shareholders from net
realized gains made by the Fund during the tax year ended March 31, 1999. On
December 31, 1998, the Fund declared and paid a short-term capital gain
distribution of $0.0447 per share and a long-term capital gain distribution of
$0.0300 per share.
<PAGE>
[LOGO] MCGLADREY & PULLEN, LLP RSM
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CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS INTERNATIONAL
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees and Shareholders
New York Equity Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of New York Equity Fund as of March 31, 1999, the
related statements of operations for the year then ended, the statements of
changes in net assets and the financial highlights for the year then ended and
for the period from May 12, 1997 (commencement of operations) to March 31, 1998.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1999, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of New York Equity Fund, as of March 31, 1999, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
April 23, 1999
