Dear Unitholder:
1996 followed on the heels of a strong 1995 with all of the fund peer
group averages posting higher results. The worst performing group,
Government Securities, was up 2.6% while the best performing group,
EnergyNatural Resources, was up 33.8%. The pattern of low inflation growth
and modest economic growth which fueled the strong investment returns of
1995 continued to provide a constructive environment for equity investing
in 1996. Growth in the first half of the year was unexpectedly strong
which penalized the fixed income markets as many market participants
anticipated a rise in wage inflation and thus pushed the yield curve up by
about 70 basis points. As we begin 1997, monetary policy would appear to
be somewhat restrictive on a historical basis. Should this environment
continue or be exacerbated by a tightening of Federal Reserve policy to
curb any real or perceived speculative excesses in the financial markets,
we believe that quarterly reported economic activity will decline on both a
year over year basis and on a sequential basis. This decline in economic
activity should restrain employment activity which will hopefully alleviate
future wage inflation issues.
1996 brought to the forefront of the financial press, the issues
surrounding the growth in popularity of mutual funds and the explosive
growth of assets under management in the mutual fund industry. As the baby
boom generation moves through their peak earnings and peak retirement
savings age group, there will continue to be an ever larger supply of
investment dollars chasing equity investments. In particular, equity
mutual funds have reflected the baby boom era's investment appetite for
both domestic and international equity participation. Ten years ago the
long-term growth peer group was comprised of 247 mutual funds. At the end
of 1996 there were 1,138 long-term growth funds. In 1980 the mutual fund
industry managed $13.5 billion compared with more than $3 trillion today.
Each of the four largest fund families, Fidelity, Vanguard, Merrill Lynch
and American, manages larger asset bases than the industry as a whole did
in 1980. One of the primary driving forces for this growth has been the
popularity of 401 (k) retirement plans which are estimated to have almost
$260 billion in mutual funds.
We are pleased to report that both fund portfolios participated in the
industry wide growth of net shareholder subscriptions during 1996 with the
Equity and Bond funds increasing by 25.86% and 19.52%, respectively.
Coupled with the investment performance for the two funds, the net assets
of the Equity and Bond funds rose 49.94% and 22.73%, respectively. We are
pleased with the growth of the two funds and have received many requests
from current shareholders to open the Funds to accept non-tax qualified
investments. In response to this demand, we are in the midst of changing
the organizational structure such that we will be able to accommodate
taxable as well as tax-qualified investment assets within the next few
months.
As 1997 progresses, we believe that the U.S. economy is of only
average strength considering the past eight quarters of growth have
averaged around 2.1% which is just slightly above the assumed non-
inflationary growth rate of 2.0%. While labor markets remain tight,
productivity would appear to be improving and there has been no evidence
that producers are able to push higher prices on to the consumer which was
reflected in a core consumer price index growth of only 2.6% for 1996.
The "inflation pipeline" as defined by the core intermediate producer
price index was negative last year for the first time since 199 1, when the
U.S. economy was in recession. Further evidence that the domestic economy
is not growing too fast is supported by the December retail sales data
which suggest that the holiday shopping season was not particularly
successful. Sales of vehicles during the fourth quarter were no higher
than the third quarter and single family home sales were down. These
factors coupled with a consumer that would appear to have a fairly high
debt service ratio leads us to believe that there may be some significant
disappointments in terms of companies lowering their earnings and top line
sales guidance to Wall Street, and there will be more earnings
disappointments in 1997 than in either of the past two years. This
environment will make 1997 a considerably more volatile year than either
1995 or 1996. The market as a whole may progress modestly but the real
test for portfolio managers will be to avoid stock positions that turn into
disasters due to earnings or sales disappointments and to find those
companies who may have been unfairly penalized for a perceived
underperformance. Our outlook. therefore, for the equity market is one of
cautious optimism in which investors should maintain realistic expectations
for their investment portfolios and recognize that the past two years were
exceptional in terms of high returns and low volatility.
The inflation environment continues to be supportive with estimates
for 1997 to be generally below 3% and expectations that gross domestic
product will slow over the course of the year to the point that the Federal
Reserve and the markets as a whole may be comfortable with a lower interest
rate environment. The only threat to this outlook would appear to be the
Federal Reserve's concerns about undue speculation or jubilance in the
financial markets. As was evident in 1994, the Fed tightened interest
rates in an effort to remove some of the speculation from the marketplace
and both equities and bonds posted dismal returns for the year. If we can
avoid that scenario, we believe that interest rates will trend downward
which should, in general, support both the fixed income and equity arenas.
THE EQUITY PORTFOLIO
1996 was a good year for the Equity Portfolio. As the accompanying
graph indicates, the Equity Fund led both the S&P 500 and the long-term
growth peer group for ten of the twelve months of the year. Unfortunately,
a severe correction in the telecommunications sector, LCI International
(LCI) and Frontier, a prolonged decline in Paychex, and confusion
surrounding the strength of a recent product announcement from U. S.
Robotics (USRX), led to weak performance in the month of December, which
caused the Fund to underperform the S&P 500 for the year as a whole. We
believe that the market has unfairly depressed the shares of LCI and USRX
and that both positions will be strong performers in 1997.
Although disappointed in the year-end correction in our performance we
were enthusiastic that our 1996 performance placed us roughly in the top
quartile of the long-term growth funds measured by CDA/Wiesenberger. In
addition, we have developed a broad based position in the pharmaceutical
industry which we believe have exciting product pipelines and will continue
to post strong top line sales growth and above market average dividend
yields at reasonable market valuations. The fact that this sector is not
sensitive to the country's economic cycle will prove, we believe, to be an
important distinction as the domestic economic picture becomes more clear.
THE BOND PORTFOLIO
Although 1995 was a spectacular year for the Bond Fund, 1996 provided
more modest results. The Bond Fund underperformed both the Lehman Brothers
Intermediate Government and Corporate Bond Index as well as the Corporate
Bond Fund peer group average. While a disappointing performance for the
year, the Bond Fund's three year investment track record as measured by CDA
/Wiesenberger was ranked number 28 out of 412 funds which places it in the
top decile of performance for corporate bond funds. Performance was
impaired by our decision to alter the composition of the fund to favor
higher credit quality issues such as U. S. Treasury issues from BBB rated
corporate issues. As might be expected, with the improved credit quality
comes a cost of current yield. If we are correct in our assumption that
the economy is slowing and there will be a higher level of earnings
disappointments, we believe that a shift to higher quality components of
the Bond Fund will be rewarded throughout 1997. We also believe that fixed
income funds, in general, will post better returns in 1997 than 1996 due to
a decline in the overall interest rate environment.
Cordially,
Robert J. Craugh
Chairman, Supervisory Committee
Gregory S. MacKay
Treasurer
Robert J. Swartout
Secretary
CANANDAIGUA NATIONAL COLLECTIVE INVESTMENT
FUND FOR QUALIFIED TRUSTS
SUPERVISORY COMMITTEE
Robert J. Craugh, Canandaigua, New York
Chairman
Retired, former Senior Vice President-Operations
The Canandaigua National Bank and Trust Company
Robert N. Coe, Bloomfield, New York
President and co-owner, W.W. Coe and Sons, Inc.
(Independent insurance agency)
Donald C. Greenhouse, Canandaigua, New York
President and Owner, Seneca Point Associates, Inc.
(Business and consulting firm)
Gregory S. MacKay, Canandaigua, New York
Treasurer, Canandaigua National Corporation
Senior Vice President, The Canandaigua National Bank and Trust Company
Robert J. Swartout, Macedon, New York
Vice President and Investment Officer
The Canandaigua National Bank and Trust Company
OFFICERS:
Robert J. Craugh, Chairman
Gregory S. MacKay, Treasurer
Robert J. Swartout, Secretary
OFFICES OF CANANDAIGUA NATIONAL COLLECTIVE INVESTMENT FUND FOR QUALIFIED
TRUSTS:
72 South Main Street
Canandaigua, New York 14424
INVESTMENT ADVISOR AND TRANSFER AGENT OF ASSETS:
The Canandaigua National Bank and Trust Company
72 South Main Street
Canandaigua, New York 14424
CUSTODIAN OF ASSETS:
The Northern Trust Company
50 South La Salle Street
Chicago, Illinois 60675
LEGAL COUNSEL:
Underberg & Kessler LLP
1800 Chase Square
Rochester, New York 14604
INDEPENDENT AUDITORS:
Morga Jones & Hufsmith, P.C.
25 North Street
Canandaigua, New York 14424
<PAGE>
BOND PORTFOLIO SINCE INCEPTION
HOW A $10,000 INVESTMENT HAS GROWN
BOND LEHMAN INTERMEDIATE CDA/WIESENBERGER
PORTFOLIO GOV/CORP CORP. BOND FUND AVG
DEC-92 10,000 10,000 10,000
DEC-93 10,258 10,879 10,952
DEC-94 9,920 10,669 10,609
DEC-95 12,087 12,305 12,273
DEC-96 12,645 12,803 12,764
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
EQUITY PORTFOLIO SINCE INCEPTION
HOW A $10,000 INVESTMENT HAS GROWN
EQUITY S&P 500 CDA/WIESENBERGER
PORTFOLIO COMPOSITE LONG-TERM GROWTH AVG.
DEC-92 10,000 10,000 10,000
DEC-93 10,576 11,006 11,177
DEC-94 10,634 11,145 11,004
DEC-95 13,376 15,319 14,313
DEC-96 16,270 18,819 17,016
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996
TOGETHER WITH INDEPENDENT AUDITORS' REPORT
TABLE OF CONTENTS
Independent Auditors' Report
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Schedule of Portfolio Investments:
- Bond Portfolio
- Equity Portfolio
Notes to Financial Statements
Selected Per-Share Data and Ratios
<PAGE>
INDEPENDENT AUDITORS' REPORT
To: Board of Directors
Canandaigua National Collective Investment
Fund for Qualified Trusts
We have audited the accompanying statement of assets and liabilities of
Canandaigua National Collective Investment Fund for Qualified Trusts including
the schedule of portfolio investments, as of December 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in
net assets for the years ended December 31, 1996 and 1995 and the selected per-
share data and ratios for the years ended December 31, 1996, 1995, 1994, 1993,
and for the period from inception (September 9, 1992) through December 31,
1992. These financial statements and per-share data and ratios are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and per-share data and ratios 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 per-
share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.
In our opinion, the financial statements and selected per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Canandaigua National Collective Investment Fund for Qualified
Trusts as of December 31, 1996, the results of its operations for the year then
ended, the changes in its net assets for the years ended December 1996 and
1995, and the selected per-share data and ratios for the years ended December
31, 1996, 1995, 1994, 1993, and for the period of inception (September 9, 1992)
through December 31, 1992, in conformity with generally accepted accounting
principles.
/S/ MORGA JONES AND HUFSMITH P.C.
Canandaigua, New York
January 24, 1996
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE INVESTMENT FUND
FOR QUALIFIED TRUSTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Portfolio
Bond Equity Total
ASSETS
<S> <C> <C> <C>
INVESTMENT SECURITIES AT MARKET (bond portfolio cost -
$483,520; equity portfolio cost - $11,639,993) $ 476,845 $ 12,419,478 $ 12,896,323
CASH AND CASH EQUIVALENT 16,393 45,652 62,045
RECEIVABLES FOR:
Sale of investments - 815,243 815,243
Dividends and accrued interest 8,658 16,575 25,233
Total assets 501,896 13,296,948 13,798,844
LIABILITIES
PAYABLES FOR:
Purchases of investments - (638,982) (638,982)
Investment management fees (213) (10,799) (11,012)
Professional fees (170) (3,031) (3,201)
Custodial fees (246) (329) (575)
Total liabilities (629) (653,141) (653,770)
NET ASSETS AT DECEMBER 31, 1996: (equivalent to $12.54
per unit for bond portfolio and $16.67 per unit
for equity portfolio, based on 39,981 units and
758,660 units outstanding for bond and equity
portfolios, respectively) $ 501,267 $ 12,643,807 $ 13,145,074
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE INVESTMENT FUND
FOR QUALIFIED TRUSTS
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Portfolio
Bond Equity Total
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 29,045 $ 3,751 $ 32,796
Dividend income 1,330 119,413 120,743
Total investment income 30,375 123,164 153,539
EXPENSES:
Investment management fees (2,442) (108,183) (110,625)
Custodial fees (2,400) (2,921) (5,321)
Professional fees (432) (8,573) (9,005)
Total expenses (5,274) (119,677) (124,951)
Net investment income 25,101 3,487 28,588
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) (789) 1,418,848 1,418,059
Net unrealized gain (loss) (11,226) 608,639 597,413
Net realized and unrealized
gain (loss) on investments (12,015) 2,027,487 2,015,472
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS: $ 13,086 $2,030,974 $2,044,060
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE INVESTMENT FUND
FOR QUALIFIED TRUSTS
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Portfolio
Bond Equity Total
FOR THE YEAR ENDED DECEMBER 31, 1996 -
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 25,101 $ 3,487 $ 28,588
Net realized gain (loss) on investments (789) 1,418,848 1,418,059
Net unrealized gain (loss) on investments (11,226) 608,639 597,413
Net increase in net assets resulting
from operations 13,086 2,030,974 2,044,060
UNIT SHARE TRANSACTIONS:
Proceeds from units sold
(12,951 and 178,976 units in the bond and
equity funds, respectively) 156,277 2,729,159 2,885,436
Cost of units purchased
(6,310 and 35,580 units in the bond and
equity funds, respectively) (76,541) (548,895) (625,436)
Net increase in net assets resulting from
unit transactions 79,736 2,180,264 2,260,000
TOTAL INCREASE IN NET ASSETS 92,822 4,211,238 4,304,060
NET ASSETS - beginning of year 408,445 8,432,569 8,841,014
NET ASSETS - end of year $ 501,267 $ 12,643,807 $ 13,145,074
FOR THE YEAR ENDED DECEMBER 31, 1995 -
OPERATIONS:
Net investment income $ 23,752 $ 23,121 $ 46,873
Net realized gain (loss) on investments (665) 1,254,685 1,254,020
Net unrealized gain on investments 42,615 269,048 311,663
Net increase in net assets resulting from
operations 65,702 1,546,854 1,612,556
UNIT SHARE TRANSACTIONS:
Proceeds from units sold
(7,521 and 130,447 units in the bond and
equity funds, respectively) 91,141 1,664,731 1,755,872
Cost of units purchased
(4,322 and 45,578 units in the bond and
equity funds, respectively) (46,524) (555,722) (602,246)
Net increase in net assets resulting from
unit transactions 44,617 1,109,009 1,153,626
TOTAL INCREASE IN NET ASSETS 110,319 2,655,863 2,766,182
NET ASSETS - beginning of period 298,126 5,776,706 6,074,832
NET ASSETS - end of period $ 408,445 $ 8,432,569 $ 8,841,014
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE INVESTMENT FUND
FOR QUALIFIED TRUSTS
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1996
BOND PORTFOLIO
<TABLE>
<CAPTION>
Cost Market Value
Percentage
Amount of Net Assets
<S> <C> <C> <C>
INVESTMENT SECURITIES
U.S. GOVERNMENT NOTES & BONDS:
20,000 US Treasury Note, 7.000%, July 15, 2006 $ 19,977 $ 20,781 4.15%
10,000 US Treasury Bond, 5.875%, November 15, 2005 9,981 9,647 1.92%
15,000 US Treasury Note, 5.750%, September 30, 1997 14,969 14,991 2.99%
10,000 US Treasury Note, 6.125%, May 15, 1998 9,989 10,022 2.00%
15,000 US Treasury Note, 6.250%, August 31, 2000 14,924 15,056 3.00%
25,000 US Treasury Note, 6.125%, September 30, 2000 24,983 24,984 4.98%
10,000 US Treasury Note, 5.500%, December 31, 2000 19,822 19,538 3.90%
15,000 US Treasury Note, 5.250%, January 31, 2001 14,928 14,544 2.90%
25,000 US Treasury Note, 5.625%, February 15, 2006 24,955 23,664 4.72%
25,000 US Treasury Note, 6.125%, March 31, 1998 24,991 25,055 5.00%
20,000 US Treasury Note, 6.375%, March 31, 2001 19,966 20,131 4.02%
25,000 US Treasury Note, 6.875%, May 15, 2006 24,939 25,773 5.14%
10,000 US Treasury Note, 5.250%, January 31, 2001 9,759 9,691 1.93%
Total U.S. Government Notes and Bonds 234,183 233,877 46.66%
CORPORATE BONDS:
Capital Equipment
Aerospace & Military Technology
15,000 Lockheed Martin Corporation., 6.750%,
March 15, 2003 15,900 14,949 2.98%
Total Capital Equipment 15,900 14,949 2.98%
Consumer Goods
Beverage & Tobacco
20,000 Coca-Cola Company, 6.000%, July 15, 2003 19,962 19,434 3.88%
20,000 R.J.R Nabisco Holdings Corp., 6.700%,
June 15, 2002 19,505 19,718 3.93%
Retail Trading
25,000 Sears Roebuck & Company, 6.250%,
January 15, 2004 23,680 24,121 4.81%
Specialty Chemicals
25,000 Eastman Chemical Company, 6.375%,
January 15, 2004 25,141 24,306 4.85%
Total Consumer Goods 88,288 87,579 17.47%
Finance
Banking
30,000 Citicorp, 6.750%, August 15, 2005 30,854 29,441 5.87%
Financial Services
10,000 Ford Motor Credit Co., 6.850%, August 15, 2000 10,004 10,106 2.02%
20,000 General Electric Capital Corp. 5.500%,
November 1, 2001 19,940 19,114 3.81%
30,000 Merrill Lynch & Company, Inc. 6.250%,
October 15, 2008 29,681 27,898 5.57%
20,000 Salomon Inc., 6.750%, August 15, 2003 19,905 19,453 3.88%
Total Finance 110,384 106,012 21.15%
Services
Telecommunications
20,000 Pacific Bell, 6.250%, March 01, 2005 19,600 19,203 3.83%
Total Services 19,600 19,203 3.83%
Total Corporate Bonds 234,172 227,743 45.43%
PREFERRED STOCK:
Finance
Financial Services
600 The Bear Stearns Companies, Inc., Class B 15,165 15,225 3.04%
Total Preferred Stock 15,165 15,225 3.04%
TOTAL INVESTMENT SECURITIES 483,520 476,845 95.13%
CASH AND CASH EQUIVALENT:
Canandaigua National Bank Collective Fixed Income $ 16,393 $ 16,393 3.27%
EXCESS OF RECEIVABLES OVER PAYABLES 8,029 8,029 1.60%
NET ASSETS $ 507,942 $ 501,267 100.00%
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE INVESTMENT FUND
FOR QUALIFIED TRUSTS
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1996
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
Cost Market Value
Percentage
Amount of Net Assets
<S> <C> <C> <C>
INVESTMENT SECURITIES
COMMON STOCK:
Capital Equipment
Aerospace & Military Technology
4,000 Lockheed Martin Corporation $ 354,151 $ 366,000 2.89%
Electrical & Electronics
3,500 General Electric Co. 338,616 346,063 2.74%
Farm Machinery
22,000 AGCO Corporation 531,811 629,750 4.98%
15,000 Deere & Company 675,086 609,375 4.82%
Semiconductors
4,500 Intel Corporation 585,206 589,219 4.66%
8,500 Vitesse Semiconductor Corporation 309,514 386,750 3.06%*
Industrial Technology
11,000 U.S. Robotics Corp. 511,068 792,000 6.26%*
Total Capital Equipment 3,305,452 3,719,157 29.41%
Consumer Goods
Beverage & Tobacco
6,500 Anheuser Busch Companies, Inc. 265,664 260,000 2.06%
Pharmaceutical
3,500 American Home Products Corp. 207,367 205,188 1.62%
2,500 Bristol-Myers Squibb Co. 269,684 271,875 2.15%
4,500 Merck & Co., Inc. 275,055 356,625 2.82%
4,000 Schering-Plough Corp. 261,989 259,000 2.05%
5,000 Smithkline Beecham, p.l.c. 321,234 340,000 2.69%
4,000 Warner-Lambert Co. 315,489 300,000 2.37%
Total Consumer Goods 1,916,482 1,992,688 15.76%
Software
Software
12,500 ORACLE Corporation 503,697 521,875 4.13%*
20,000 Platinum Technology, Inc. 265,009 272,500 2.16%*
6,000 CISCO Systems, Inc. 349,777 381,750 3.02%*
Total Software 1,118,483 1,176,125 9.30%
Finance
Banking
2,300 Wells Fargo & Co. 638,982 620,425 4.91%
Financial Services
9,000 American Guaranty Corporation 207,009 231,750 1.83%*
15,000 First USA, Inc. 435,581 519,375 4.11%
12,000 MBNA Corporation 358,460 498,000 3.94%
Total Finance 1,640,032 1,869,550 14.79%
Services
Entertainment
4,000 Walt Disney Co. 252,610 278,500 2.20%
Business & Public Services
11,450 Paychex, Inc. 501,117 588,958 4.66%
10,000 First Data Corporation 373,709 365,000 2.89%
Telecommunications
19,000 Frontier Corporation 426,675 429,875 3.40%
29,000 LCI International, Inc. 807,602 623,500 4.93%*
24,000 World Communications, Inc. 511,482 625,500 4.95%*
Transportation
20,000 Southwest Airlines Company 485,436 442,500 3.50%
Total Services 3,358,631 3,353,833 26.53%
Specialty Chemical
Specialty Chemical
2,500 Morton International, Inc. 102,184 101,875 0.81%
Total Specialty Chemical 102,184 101,875 0.81%
Multi-Industry
Multi-Industry
6,000 US Industries Group, Inc. 198,729 206,250 1.63%
Total Multi-Industry 198,729 206,250 1.63%
TOTAL INVESTMENT SECURITIES (COMMON STOCK) $11,639,993 $12,419,478 98.23%
CASH AND CASH EQUIVALENT:
Canandaigua National Bank Collective Equity Fund $ 45,652 $ 45,652 0.36%
EXCESS OF RECEIVABLES OVER PAYABLES 178,677 178,677 1.41%
NET ASSETS $11,864,322 $12,643,807 100.00%
</TABLE>
* Non-income producing securities.
The accompanying notes are an integral part of these financial statements.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION
Canandaigua National Collective Investment Fund for Qualified Trusts (the
Collective Trust) is registered under the Investment Company Act of 1940 as an
open-end, diversified management investment company. The Collective Trust is
designed for the investment of retirement funds held in certain qualified
trusts. The Collective Trust was formed in September, 1992.
The Canandaigua National Bank and Trust Company (the Company) is the trustee of
the Collective Trust (see Note 3).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES -
The financial statements have been prepared in conformity with generally
accepted accounting principlesand as such include amounts based on informed
estimates and judgments of management withconsideration given to materiality.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS -
Interest bearing cash accounts are considered cash equivalents.
VALUATION OF INVESTMENT SECURITIES AND INCOME RECOGNITION -
Investments consist of debt and equity investment securities of the United
States (U.S.) government and of corporations whose securities are traded on
recognized U.S. securities exchanges. Investment securities are stated at
market value based upon closing sales prices reported on recognized securities
exchanges on the last business day of the year or, for listed securities having
no sales reported and for unlisted securities, upon last reported bid prices on
that date. The market value of investment securities is subject to daily
fluctuations. Short-term securities with 60 days or less to maturity are
amortized to maturity based on their cost to the Collective Trust if acquired
within 60 days of maturity or, if already held by the Collective Trust on the
60th day, based on the value determined on the 61st day. Securities for which
quotations are not readily available are valued at fair value as determined in
good faith by the Supervisory Committee of the Collective Trust.
The fair value of receivables for sale of investments and payables for purchase
of investments are based on fair values as of the date of sale or purchase of
the investment security.
The estimated fair value of individual investment securities held at
December 31, 1996 are disclosed inthe accompanying Schedule of
Portfolio Investments.
As is customary in the industry, securities transactions are accounted for on
the date the securities are purchased or sold. Interest income is reported on
the accrual basis. Dividend income is recorded on the ex-dividend date.
INCOME TAXES -
It is the policy of the Collective Trust to comply with applicable requirements
of the Internal Revenue Code. The Collective Trust is exempt from Federal
income tax under Section 408 (e) of the Internal Revenue Code with respect to
interests in the Collective Trust which are attributable to individual
retirement trust accounts maintained in conformity with Section 408 (e) of the
Internal Revenue Code, and exempt from Federal income tax under Section 501 (a)
of the Internal Revenue Code with respect to interests in the Collective Trust
which are attributable to pension or profit-sharing trusts (including those
benefiting self-employed individuals) maintained in conformity with Section 401
(a) of the Internal Revenue Code. The Collective Trust is also not subject to
taxation in New York State. For Federal income tax purposes, income earned by
the Collective Trust is not taxable to participating trusts or participants
until a participant receives a distribution from the Collective Trust.
Withdrawals from the Collective Trust which are paid to participating trusts
can be made at any time by participating trusts without penalty and without the
amount withdrawn being subject to Federal income tax.
VALUATION OF SHARE UNITS -
The Declaration of Trust provides that the Collective Trust may issue an
unlimited number of units of beneficial interest without par value. Currently,
the Collectvie Trust is offering units in a bond and a stock portfolio. The
unit shares are voting, fully paid, non-assessable, and have no preemptive
rights or preferences as to conversion, exchange, dividends, retirement, or
other features. At December 31, 1996, the majority of unit holders are located
in New York State. The net asset value per unit of each portfolio is
determined by dividing the total value of the portfolio's net assets by the
number of outstanding units of the portfolio. The net assets value per unit in
the accompanying financial statements is calculated in consideration of all
purchases and sales transacted during the year.
(3) AGREEMENTS
The Company is the trustee of the Collective Trust under a Declaration of Trust
dated September 9, 1992. Subject to the direction of the Supervisory Committee
of the Collective Trust, which performs the duties and undertakes the
responsibilities of the Board of Directors of an investment company, the
Company manages all of the business and affairs of the Collective Trust.
The Collective Trust has entered into an Investment Management Agreement with
the Company dated October 6, 1992. Under the terms of the agreement, the
Company will manage the investment of the assets of each retirement portfolio
in conformity with the stated objectives and policies of that portfolio. For
these services, the Collective Trust will pay investment management fees to the
Company, at the rate of 1% of assets annually. During 1994 the Supervisory
Committee authorized a reduction of this fee for the bond portfolio to .5%.
In addition, the Company is responsible for certain other expenses incurred in
the administration of the Collective Trust. The Company will reimburse the
Collective Trust for the amount by which the expenses exceed the lower of (1)
1.5% of the average daily value of the Collective Trust's net assets during its
fiscal year or (2) the most restrictive expense limitation applicable to the
Collective Trust imposed by the securities laws of any state in which the units
of the Collective Trust are sold.
The Northern Trust Company acts as custodian of the assets of the Collective
Trust. Custodial fees paid by the Collective Trust are based on an agreed fee
schedule for asset holdings and transactions.
The Collective Trust has entered into an accounting service agreement with
American Data Services, Inc., for a three year period beginning January 1,
1996. Fees are based on monthly average net assets per portfolio. The
agreement calls for an annual increase in fees based on a defined increase in
the Consumer Price Index for the Northeast region. These fees are paid by the
Company as part of its responsibility in the administration of the Collective
Trust.
(4) OTHER DISCLOSURES:
INVESTMENT SECURITIES PURCHASES AND SALES -
During the year ended December 31, 1996, purchases and sales of investment
securities, excluding cash and cash equivalent, amounted to the following:
PORTFOLIO
BOND EQUITY
Purchases $ 248,636 $ 38,237,652
Sales $ 147,827 $ 36,180,749
The following is a summary of investment security activity since June 30, 1996:
PORTFOLIO
BOND EQUITY
Purchases $ 69,511 $ 22,614,191
Sales -
Cost $ 109,091 $ 20,830,965
Gain (loss) (1,077) 1,011,762
Total $ 108,014 $ 21,842,727
UNREALIZED GAINS (LOSSES) ON INVESTMENTS -
Gross unrealized gains (losses) on investments as of December 31, 1996 are as
follows:
PORTFOLIO
BOND EQUITY
Gross unrealized gains $ 756 $ 1,126,130
Gross unrealized (losses) ($ 7,431) ($ 346,645)
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE INVESTMENT FUND
FOR QUALIFIED TRUSTS
SELECTED PER-SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
Portfolio
Bond Equity
1996 1995 1994 1993 1992(a) 1996 1995 1994 1993 1992(a)
(restated) (restated)
PER SHARE INCOME AND
CAPITAL CHANGES
(For a share outstanding
throughout each period):
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income $ 0.75 $ 0.91 $ 0.70 $ 0.53 (b) $ 0.18 $ 0.18 $ 0.19 $ 0.30 (b)
Expenses (0.13) (0.10) (0.08) (0.11) (b) (0.17) (0.14) (0.12) (0.12) (b)
Net investment income 0.62 0.81 0.62 0.42 (b) 0.01 0.04 0.07 0.18 (b)
Net realized and unrealized gain
on investments (0.33) 1.43 (1.09) - (b) 2.95 2.78 (0.03) 0.41 (b)
Net increase (decrease) in
net asset value 0.29 2.24 (0.47) 0.42 (b) 2.96 2.82 0.04 0.59 (b)
Net asset value:
Beginning of period 12.25 10.01 10.48 10.06 - 13.71 10.89 10.85 10.26 -
End of period $12.54 $12.25 $10.01 $10.48 $10.06 $ 16.67 $13.71 $10.89 $10.85 $10.26
RATIOS OF TOTAL EXPENSES TO
AVERAGE NET ASSETS 1.09% 0.89% 0.77% 1.14% (b) 1.12% 1.11% 1.09% 1.18% (b)
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.17% 7.11% 6.16% 4.18% (b) 0.03% 0.32% 0.69% 1.70% (b)
PORTFOLIO TURNOVER 30.46% 14.13% 24.45% 62.96% (b) 337.27% 375.30% 234.81% 165.68% (b)
NUMBER OF SHARES OUTSTANDING
AT END OF PERIOD 39,981 33,340 29,788 52,972 6,008 758,660 615,264 530,395 286,395 9,086
</TABLE>
(a) For the period of inception (September 9, 1992) through December 31, 1992.
(b) Insignificant.
The accompanying notes are an integral part of these financial statements.
