Filed pursuant to Rule 497(c)
File No. 33-53698
and 811-7322
PROSPECTUS
THE CANANDAIGUA FUNDS
72 South Main Street
Canandaigua, New York 14424
Telephone No.: 1-888-693-9276
The Canandaigua Funds is registered with the Securities and Exchange
Commission ("SEC") as an open-end diversified management investment
company. It offers two no-load mutual funds: the Canandaigua Equity Fund
("Equity Fund"), which seeks long term growth of asset values through
capital appreciation and dividend income, and the Canandaigua Bond Fund
("Bond Fund"), which seeks to earn a high level of current income with
consideration also given to safety of principal. These Funds and their
investment objectives are described below. Investors may wish to pursue
more than one investment objective by investing in more than one Fund.
Investing in the Funds involves various investment risks and there can be
no assurance that either Fund will achieve its investment objectives.
This Prospectus gives you information about The Canandaigua Funds that
you should know before investing. Additional information is included in
the Statement of Additional Information dated February 6, 1998, as amended
or supplemented from time to time, filed with the SEC and incorporated by
reference in this Prospectus. For a copy, call 1-888-693-9276, or write to
The Canandaigua Funds, c/o ADS Distributors, Inc., 670 Second Street North,
Suite A, Safety Harbor, Florida 34695. Also, the SEC maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information
as well as other information about The Canandaigua Funds filed
electronically with the SEC. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE.
SHARES OF THE CANANDAIGUA FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 6, 1998
<PAGE>
TABLE OF CONTENTS
Page
Expenses..........................................3
Prospectus Summary................................4
Financial Highlights..............................6
Investment Objectives and Policies................9
Equity Fund..................................9
Bond Fund...................................10
Other Investment Policies...................12
Your Fund Account................................13
How to Purchase Shares......................13
How to Sell Shares..........................14
Management of The Canandaigua Funds..............14
Board of Trustees...........................14
Investment Advisor..........................14
Distributor.................................15
Transfer Agent and Administrator............16
Custodian...................................16
Net Asset Value..................................16
Distribution and Tax Information.................16
Performance Data.................................17
Performance Comparisons..........................17
Organization and Capitalization..................18
Appendix A.......................................19
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION,
AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, OR AN OFFER TO OR A SOLICITATION OF ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL.
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases None
Maximum Deferred Sales Load None
Maximum Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets*)
for the year ended December 31, 1997:
EQUITY FUND BOND FUND
Management Fees 1.00% 0.26%
Rule 12b-1 Fees 0.00% 0.00%
Other Expenses 0.15% 0.51%
Total Fund Operating Expenses 1.15%** 0.77%**
_____________________
* The maximum annual operating expenses which may be charged is 1.5% of
average net assets.
** Based upon expenses incurred in the year ended December 31, 1997, the
most recent fiscal year of the Canandaigua National Collective
Investment Fund for Qualified Trusts (the "Collective Investment
Trust"), the predecessor of The Canandaigua Funds.
Example:
You would pay the following expenses on a $1,000 investment in either the
Equity Fund or the Bond Fund, assuming 5% annual return and a maximum of
1.5% annual expense. The expenses would be the same for each time period
whether or not redemption occurred at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses: $15.75 $48.89 $84.33 $184.13
The Table above is designed to assist you in understanding the direct
and indirect costs and expenses that you will bear as a shareholder. The
Example above shows the amount of expenses you would pay on a $1,000
investment in either of the Funds. These amounts assume the reinvestment of
all dividends and distributions, and payment by the relevant Fund of
operating expenses as shown in the Table under Total Fund Operating
Expenses. The Example is an illustration only and actual expenses may be
greater or less than those shown.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information which appears elsewhere in this Prospectus and in the
Statement of Additional Information.
THE CANANDAIGUA FUNDS
The Canandaigua Funds is a no-load, open-end diversified management
investment company, consisting of two diversified mutual funds, registered
with the SEC under the Investment Company Act of 1940 ("Investment Company
Act"). Each mutual fund represents a separate and distinct series of
shares of beneficial interest in The Canandaigua Funds. See "Organization
and Capitalization."
INVESTMENT OBJECTIVES
The Canandaigua Funds offers two no-load mutual funds: the Equity
Fund and the Bond Fund. These Funds and their investment objectives are
described below. Investing in these Funds involves various investment
risks and there can be no assurance that either Fund will achieve its
investment objective.
EQUITY FUND. The Equity Fund seeks long-term growth of asset value
through capital appreciation and dividend income, by investing in a
diversified group of companies. Primary investment emphasis is on common
stocks.
BOND FUND. The Bond Fund seeks to earn a high level of current income
with consideration also given to safety of principal. Investment emphasis
is on fixed-income securities, primarily debt securities, such as bonds,
notes and debentures, issued by United States corporations, bonds and notes
issued or guaranteed by the United States Government or its agencies or
instrumentalities and preferred stock of United States corporations.
INVESTMENT ADVISOR
The Canandaigua Funds, on behalf of the Equity Fund and the Bond Fund,
has engaged The Canandaigua National Bank and Trust Company ("Advisor") as
investment advisor. The Advisor supervises the portfolio management of
each Fund and administers each Fund's business affairs. See "Management of
The Canandaigua Funds--Investment Advisor."
RISK FACTORS
The Equity Fund will invest in securities whose market values will
fluctuate daily. Further, it is expected that this Fund will have a dollar
weighted volatility somewhat higher than the stock market as a whole.
Although the Advisor will seek to reduce the risks associated with
investing in equity securities through diversification, quality criteria
and other investment policies, there can be no assurance that the Equity
Fund will achieve its objectives. Investors should not consider the Equity
Fund to be a complete investment program. See "Equity Fund Risk Factors."
The value of the Bond Fund's fixed income securities can be expected
to vary inversely with changes in prevailing interest rates. In addition,
lower-rated securities in which this Fund may invest may be lacking certain
protective elements and may be subject to greater investment risk over an
extended period. As a result, investment in the Bond Fund should not be
considered a complete investment program. See "Bond Fund Risk Factors."
HOW TO PURCHASE SHARES
You may purchase shares of each Fund at the net asset value next
determined after receipt and acceptance of your purchase order. The
minimum initial investment in each Fund is $250, except for certain
retirement and pension accounts, which have no minimum initial investment
requirement. See "Your Fund Account--How to Purchase Shares."
HOW TO SELL SHARES
You may redeem shares directly from a Fund at the net asset value per
share next determined after receipt of your redemption request in proper
order. Redemptions may only be made by mail. See "Your Fund Account--How
to Sell Shares."
DISTRIBUTION OPTIONS
Unless you elect to receive income dividends and capital gains in
cash, they will be reinvested in additional shares of the respective
distributing Fund. Dividend and capital gains distributions, if any, are
made at least annually. See "Distribution and Tax Information."
NET ASSET VALUE
The net asset value per share of each Fund is calculated on each day
the New York Stock Exchange is open for trading (normally 4 PM, Eastern
time). Call 1-888-693-9276 for the current day's net asset value of either
Fund. See "Net Asset Value."
TAXATION
Each Fund has qualified and has elected or will elect to be treated as
a regulated investment company for Federal income tax purposes under
Subchapter M of the Internal Revenue Code and intends to continue to
qualify for such treatment. See "Distribution and Tax Information."
SHAREHOLDER COMMUNICATION
Each shareholder will receive annual and semi-annual reports
containing financial statements, a statement confirming each share
transaction and quarterly transaction statements. Financial statements
included in annual reports are audited by the independent certified public
accountants of The Canandaigua Funds.
FINANCIAL HIGHLIGHTS
The financial information of selected per share data and
ratios/supplemental data for the years ended December 31, 1996, 1995, 1994
and 1993 and for the period from inception (September 9, 1992) through
December 31, 1992 in the table below has been audited in conjunction with
the annual audit of the financial statements of the Canandaigua National
Collective Investment Fund for Qualified Trusts (the "Collective Investment
Trust"), the predecessor of The Canandaigua Funds, by Morga, Jones &
Hufsmith P.C., independent auditors. Financial statements for the year
ended December 31, 1996 and the independent auditors' report thereon and
unaudited financial statements for the six months ended June 30, 1997 are
included in the Statement of Additional Information. These Financial
Highlights should be read in conjunction with the financial statements and
notes thereto of the Collective Investment Trust as found in the Statement
of Additional Information. The information presented is for a share
outstanding throughout the periods shown.
<PAGE>
EQUITY FUND
<TABLE>
<CAPTION>
Six Months
ENDED YEAR ENDED DECEMBER 31,
June 30, 1997(a) 1996 1995 1994 1993 1992(b)
PER SHARE DATA (unaudited) (restated)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $16.67 $13.71 $10.89 $10.85 $10.26 (c)
Income from Investment
Operations
Net Investment Income
(d) 0.02 0.01 0.04 0.07 0.18 (c)
Net Realized and
Unrealized Gain (Loss)
on Investment
Transactions 2.57 2.95 2.78 (0.03) 0.41 (c)
Total Income From
Investment Operations 2.59 2.96 2.82 0.04 0.59 (c)
Distributions (e)
From Net Investment
Income (e) NA NA NA NA NA NA
From Net Realized Gains
on Investment
Transactions (e) NA NA NA NA NA NA
In Excess of Net
Realized Gains (e) NA NA NA NA NA NA
Total Distributions (e) NA NA NA NA NA NA
Net Asset Value,
End of Period $19.26 $16.67 $13.71 $10.89 $10.85 $10.26
Total Return (f) 15.54% 21.59% 25.90% 0.37% 5.75% (c)
RATIOS/SUPPLEMENTAL DATA
Net Assets,
End of Period
(000 omitted) $16,411 $12,644 $ 8,433 $ 5,777 $ 3,172 $93
Ratio of Operating
Expenses to
Average Net Assets 0.54% 1.12% 1.11% 1.09% 1.18% (c)
Ratio of Net
Investment Income
to Average
Net Assets 0.12% 0.03% 0.32% 0.69% 1.70% (c)
Portfolio Turnover Rate 205.39% 337.27% 375.30% 234.81% 165.68% (c)
Average Commission
Paid per Investment
Security Traded (g) $0.1017 $0.1204 - - - -
</TABLE>
____________________________
(a) Data for the six months ended June 30, 1997 is not annualized.
(b) For the period from inception (September 9, 1992) through December 31,
1992.
(c) Insignificant.
(d) From April 1994 through June 30, 1997, the investment management fees for
the bond portfolio were reduced from 1% to .5% of assets annually, resulting in
a per share savings of $.03 for the six months ended June 30, 1997 and $.06,
$.06 and $.03 for the years ended December 31, 1996, 1995 and 1994,
respectively. In addition, during the periods presented, administrative
expenses of the funds, other than primarily custodial and audit fees, have been
assumed by the trustee of the funds.
(e) Prior to its reorganization into a Delaware business trust on February 9,
1998, participation in the predecessor Collective Investment Trust was limited
to qualified retirement accounts such as IRAs and retirement and pension
trusts. Consequently, current income earned by such retirement accounts was
not distributed but was reinvested for further accumulation of assets for such
retirement accounts and was reflected in an increase in net asset value per
share. However, as a result of the reorganization, both the Equity Fund and
the Bond Fund will now distribute their investment income to shareholders.
(f) Assumes reinvestment of dividends and capital gains distributions, if any.
(g) Disclosure of average commission paid per share is not required for the
periods prior to 1996. Average commissions paid were not material in the bond
portfolio. Shares traded on a principal basis are excluded. Brokerage
commissions paid on portfolio transactions increase the cost of securities
purchased or reduce the proceeds of securities sold and are not reflected in
the funds' statements of operations.
<PAGE>
BOND FUND
<TABLE>
<CAPTION>
Six Months
ENDED YEAR ENDED DECEMBER 31,
June 30, 1997(a) 1996 1995 1994 1993 1992 (b)
PER SHARE DATA (unaudited) (restated)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $12.54 $12.25 $10.01 $10.48 $10.06 (c)
Income (Loss)
from Investment
Operations
Net Investment
Income (d) 0.33 0.62 0.81 0.62 0.42 (c)
Net Realized and
Unrealized Gain (Loss)
on Investment
Transactions (0.05) (0.33) 1.43 (1.09) - (c)
Total Income (Loss)
From Investment
Operations 0.28 0.29 2.24 (0.47) 0.42 (c)
Distributions (e)
From Net Investment
Income (e) NA NA NA NA NA NA
From Net Realized
Gains on Investment
Transactions (e) NA NA NA NA NA NA
In Excess of Net
Realized Gains (e) NA NA NA NA NA NA
Total Distributions (e) NA NA NA NA NA NA
Net Asset Value,
End of Period $12.82 $12.54 $12.25 $10.01 $10.48 $10.06
Total Return (f) 2.23% 2.37% 22.38% (4.48)% 4.17% (c)
RATIOS/SUPPLEMENTAL DATA
Net Assets,
End of Period
(000 omitted) $598 $501 $408 $298 $555 $61
Ratio of Operating
Expenses to
Average Net Assets 0.52% 1.09% 0.89% 0.77% 1.14% (c)
Ratio of Net Investment
Income to
Average Net Assets 2.63% 5.17% 7.11% 6.16% 4.18% (c)
Portfolio Turnover Rate 3.74% 30.46% 14.13% 24.45% 62.96% (c)
Average Commission Paid
per Investment Security
Traded (g) (c) (c) - - - -
</TABLE>
_____________________
(a) Data for the six months ended June 30, 1997 is not annualized.
(b) For the period from inception (September 9, 1992) through December 31,
1992.
(c) Insignificant.
(d) From April 1994 through June 30, 1997, the investment management fees for
the bond portfolio were reduced from 1% to .5% of assets annually, resulting in
a per share savings of $.03 for the six months ended June 30, 1997 and $.06,
$.06 and $.03 for the years ended December 31, 1996, 1995 and 1994,
respectively. In addition, during the periods presented, administrative
expenses of the funds, other than primarily custodial and audit fees, have been
assumed by the trustee of the funds.
(e) Prior to its reorganization into a Delaware business trust on February 9,
1998, participation in the predecessor Collective Investment Trust was limited
to qualified retirement accounts such as IRAs and retirement and pension
trusts. Consequently, current income earned by such retirement accounts was
not distributed but was reinvested for further accumulation of assets for such
retirement accounts and was reflected in an increase in net asset value per
share. However, as a result of the reorganization, both the Equity Fund and
the Bond Fund will now distribute their investment income to shareholders.
(f) Assumes reinvestment of dividends and capital gains distributions, if any.
(g) Disclosure of average commission paid per share is not required for the
periods prior to 1996. Average commissions paid were not material in the bond
portfolio. Shares traded on a principal basis are excluded. Brokerage
commissions paid on portfolio transactions increase the cost of securities
purchased or reduce the proceeds of securities sold and are not reflected in
the funds' statements of operations.
The 1996 Annual Report to shareholders of the predecessor Collective
Investment Trust contains additional performance information that will be
made available, without charge, upon request by writing The Canandaigua
Funds, c/o American Data Services, Inc., P.O.Box 5536, Hauppauge, New York
11788-0132 or calling 1-888-693-9276.
INVESTMENT OBJECTIVES AND POLICIES
Both the Equity Fund and the Bond Fund have their own respective
investment objectives and policies. Each Fund's investment objective is
fundamental, which means that it may only be changed by a vote of that
Fund's shareholders. The investment policies of each Fund described below
are non-fundamental, which means that they may be changed by The
Canandaigua Funds' Board of Trustees without shareholder approval. The
Canandaigua Funds has adopted certain fundamental investment restrictions
that are enumerated in detail in the Statement of Additional Information
and which may not be changed without shareholder approval.
EQUITY FUND
The Equity Fund seeks long-term growth of asset values, through
capital appreciation and dividend income, by investing in a diversified
group of companies. Primary investment emphasis will be on common stocks.
At least 65% of the value of the total assets of the Equity Fund will,
under normal market conditions, be invested in equity-based securities,
which consist of common stocks as well as debt securities and preferred
stocks which are convertible into common stocks. Normally, investments of
the Equity Fund in cash equivalents will not exceed 35% of its assets.
However, when market conditions dictate a temporary "defensive" investment
strategy, the Advisor may decide to hold a portion of the Equity Fund,
without limitation on amount, in cash equivalents. Such a decision,
although not offering the opportunity for capital appreciation, might be
deemed prudent to protect net asset values. (See "Investment Objectives
and Policies -- Bond Fund," for a definition of "cash equivalents.")
Equity securities of a company will be selected considering such
factors as the sales, growth and profitability prospects for the economic
sector and markets in which the company operates and for the products or
services it provides; the financial condition of the company and its
ability to meet its liabilities and to provide income in the form of
dividends; the prevailing price of the security; how that price compares to
historical price levels of the securities, to current price levels in the
general market, and to the prices of competing companies; projected
earnings estimates and earnings growth rate for the company and the
relation of those figures to the current price. It is expected that the
volatility of the Equity Fund will be slightly greater than that of the
stock market as a whole.
In general, the Equity Fund will not invest in securities that have,
in the judgment of the Advisor, a high level of debt as a percentage of
their total market capitalization. Ratios such as compound annual growth
rate to earnings and sales, market price to current and projected earnings,
market price to book value, market price to cash flow, and price to
earnings will be considered in selecting securities for the Equity Fund.
In addition, factors such as institutional ownership positions and analyst
coverage (each in relation to market ratios) will be considered. In order
to limit the level of risk, the Equity Fund will be invested in different
industries so that the value of its total assets invested in issuers
conducting their principal business activities in the same industry
ordinarily does not exceed 25% of the Equity Fund at the time of the
purchase.
The Equity Fund will not invest in securities of foreign issuers, but
may invest in American Depository Receipts that are traded on a U.S.
securities exchange or on The Nasdaq Stock Market<service-mark>.
The Equity Fund will not invest in puts, calls and other futures
contracts.
EQUITY FUND RISK FACTORS. The Equity Fund will invest in securities
whose market values will fluctuate daily. Further, it is expected that
this Fund will have a dollar weighted volatility somewhat higher than the
stock market as a whole. Although the Advisor will seek to reduce the
risks associated with investing in equity securities through
diversification, quality criteria, and the other investment policies
discussed herein, there can be no assurance that the Equity Fund will
achieve its objectives. Because the Equity Fund will participate in the
equity markets, it may provide greater potential for capital appreciation
and growth of current income over the long term than the Bond Fund.
However, the Equity Fund will generally have a more volatile unit value and
lower current yield than the Bond Fund.
BOND FUND
The Bond Fund seeks to earn a high level of current income with
consideration also given to safety of principal. Investment emphasis is on
fixed-income securities, primarily debt securities, such as bonds, notes
and debentures, issued by United States corporations, bonds and notes
issued or guaranteed by the United States Government or its agencies or
instrumentalities and preferred stock of United States corporations. Debt
obligations issued or guaranteed by the United States Government provide
greater safety of principal but also generally provide lower current income
than debt obligations of corporations. They include issues of the U.S.
Treasury such as bills, notes and bonds and issues of agencies and
instrumentalities of the U.S. Government which are established under the
authorities of an act of Congress. They include securities issued or
guaranteed by the Government National Mortgage Association, the Federal
National Mortgage Association, the Farmers Home Administration, Federal
Farm Credit Banks, Federal Home Loan Banks, the Federal Home Loan Mortgage
Corporation and the Student Loan Marketing Association. Some of these
securities such as debenture obligations of the Farmers Home Administration
and securities of the Government National Mortgage Association are
supported by the full faith and credit of the U.S. Treasury; others such as
obligations of the Federal Home Loan Banks are supported by the right of
the issuer to borrow from the U.S. Treasury; others such as those of the
Federal Farm Credit Banks are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations. Still others
such as those of the Student Loan Marketing Association are supported only
by the credit of the instrumentality. No assurance can be given that the
U.S. Government would provide financial support to any of the foregoing
when not obligated to do so by law. The Bond Fund will invest in debt
securities of United States corporations only if at the time of purchase
they carry a rating of at least "Baa" from Moody's Investors Services, Inc.
or "BBB" from Standard & Poor's Corporation. Debt securities carrying a
rating of "Baa" from Moody's Investor Services Inc. or "BBB" from Standard
& Poor's Corporation have speculative characteristics. See Appendix A for
an explanation of the ratings. A reduction below such rating for any debt
security owned will not require disposition of the security. The Bond
Fund's investments in securities other than debt of United States
corporations and debt obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities (e.g., preferred stock and
all securities of foreign issuers) will be in those securities which, in
the judgment of the Advisor, would be of comparable quality to U.S.
securities in which the Bond Fund may invest, i.e., those securities having
a rating of "Baa" or better by Moody's or "BBB" or better by Standard &
Poor's. This judgment may be based upon such considerations as the
issuer's financial strength, including its historic and current financial
condition, its historic and projected earnings and its present and
anticipated cash flow; the issuer's debt maturity schedules and current and
future borrowing requirements; and the issuer's continuing ability to meet
its future obligations. At least 65% of the value of the total assets of
the Bond Fund will, under normal market conditions, be invested in bonds or
debentures.
The only non-interest paying securities to be held in the Bond Fund
will be (a) zero-coupon obligations of corporations, and (b) obligations
evidencing ownership of future interest and principal payments on United
States Treasury Bonds. Such zero-coupon obligations pay no current
interest. Zero-coupon obligations are sold at prices discounted from par
value, with that par value to be paid to the holder at maturity. The
return on the zero-coupon obligation, when held to maturity, equals the
difference between the par value and the original purchase price. Zero-
coupon obligations may be purchased if the Advisor considers the yield
spread between these obligations and coupon issues of the United States
government and United States corporations to be advantageous, giving
consideration to the differing durations of the zero coupon obligations and
the coupon issues. The Bond Fund will only purchase zero-coupon
obligations if at the time of purchase such investments constitute less
than 5% of the value of the Bond Fund's total assets. Various forms of
obligations exist to evidence future interest or principal payments on
Treasury securities. Typically such obligations take the form of custodial
receipts issued pursuant to a custody agreement which evidence ownership of
future interest and principal payments on treasury securities deposited
with the custodian. The interest and principal payments on the underlying
treasury securities are direct obligations of the United States.
The Bond Fund will not invest in securities of foreign issuers.
The Bond Fund will not invest in puts, calls or other futures
contracts.
A portion of the Bond Fund may be held in "cash equivalents." Except
when the Advisor, as investment manager of the Bond Fund, assumes a
temporary defensive position, the Fund's investment in cash equivalents
will not exceed 35% of the Fund's total assets. Cash equivalents are
short-term, interest-bearing instruments in which funds are invested
temporarily pending longer-term investment or in which funds are invested
when market conditions dictate a "defensive" investment strategy. The
purpose of cash equivalents is to provide income at money market rates
while minimizing the risk of decline in value to the maximum extent
possible. The instruments may include commercial paper, certificates of
deposit, repurchase agreements, bankers' acceptances and United States
Treasury Bills.
The Bond Fund will invest primarily in fixed-income securities with a
maturity in excess of one year. However, fixed-income securities can have
maturities as long as 30 or more years. The average maturity of securities
in the Bond Fund will be based primarily upon the Advisor's expectations
for the future course of interest rates and then prevailing price and yield
levels in the fixed-income market, and it is expected that the dollar
weighted average maturity of the Bond Fund will not exceed ten years. The
limitation of the average maturity of the Fund is expected to provide a
more stable net asset value than would be the case with a longer term fund.
BOND FUND RISK FACTORS. Changes in interest rates will cause the
value of securities held in the Bond Fund to vary inversely to changes in
prevailing interest rates. If, however, a security is held to maturity, no
gain or loss will be realized as a result of changes in prevailing rates.
The value of these securities will also be affected by general market and
economic conditions and by the creditworthiness of the issuer.
Fluctuations in value of the Bond Fund's securities will cause net asset
value per share to fluctuate. By stressing current yield through fixed-
income securities, the Bond Fund may provide greater stability of unit
value than the Equity Fund. However, Bond Fund investments should not be
expected to appreciate in value to the same extent as funds in the Equity
Fund since there will be minimal participation in the general equity
markets.
Because the dollar weighted average maturity of the Bond Fund is not
expected to exceed ten years, and because the volatility of the Equity Fund
is expected to be slightly greater than for the stock market as a whole,
the net asset value of the Bond Fund is likely to be more stable than the
net asset value of the Equity Fund. However, assuming that markets are
efficient in compensating higher risk with higher return, historical
evidence would suggest that a well diversified equity fund with higher than
average volatility might produce a higher total return over an extended
period than a bond fund having an average maturity of less than ten years.
OTHER INVESTMENT POLICIES
The following investment policies are NOT fundamental and may be
changed by the Board of Trustees of The Canandaigua Funds without
shareholder approval.
Both the Equity Fund and the Bond Fund may enter into repurchase
agreements. Under these agreements, a Fund purchases securities from a
bank, broker-dealer, savings and loan association or other recognized
financial institution with a concurrent obligation of the seller to
repurchase them within a specified time at a fixed price (equal to the
purchase price plus interest). Repurchase agreements are considered loans
under the Investment Company Act. Repurchase agreements maturing in more
than seven days will not exceed 10% of the value of the total assets of
either Fund. Repurchase agreements will be entered into only for debt
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities. Certificated securities must be placed in
the physical possession of the custodian of the Fund's assets.
Uncertificated securities, such as Treasury Bills and most agency issues,
which are recorded by book-entry on the records of the Federal Reserve
Banks, must be transferred to the custodian by appropriate entry in the
Federal Reserve Bank's records. If the value of the securities purchased
should decline below the sales price, additional securities sufficient to
make the value of the securities equal to the sales price must be deposited
with the custodian. If the seller defaults, the relevant Fund might incur
a loss if the value of the securities securing the repurchase agreement
declines and might incur disposition costs in connection with liquidating
the securities. In addition, if bankruptcy proceedings are commenced with
respect to the seller, realization upon the securities by the relevant Fund
may be delayed or denied.
Unless shareholder approval is obtained for a higher limit, both the
Equity Fund and the Bond Fund will limit their total respective borrowings
to 5% of that Fund's total net assets. Borrowing by either Fund will be
done only for temporary purposes, and all borrowings by a Fund will be
repaid before additional investments are made by that Fund.
YOUR FUND ACCOUNT
HOW TO PURCHASE SHARES
You can buy shares of either Fund through ADS Distributors, Inc., the
distributor ("Distributor") for The Canandaigua Funds by filling out the
New Account Application and returning it, along with a check drawn on a
U.S. bank and made payable to the Fund in which you are investing, to
American Data Services, Inc., P.O.Box 5536, Hauppauge, New York 11788-0132,
the Transfer Agent ("Transfer Agent") for the Funds. Shares of each Fund
are purchased or sold at the net asset value ("NAV") per share next
calculated after a purchase request is received in good order and accepted.
Each Fund's net asset value per share is calculated after 4 p.m. each
business day that the New York Stock Exchange is open. See "Net Asset
Value" for a discussion of how each Fund computes its NAV. The
Canandaigua Funds and the Transfer Agent may reject any purchase order.
The Funds do not issue share certificates.
You can open an account in either Fund with a minimum initial
investment of $250 and make additional investments of at least $50 at any
time. There is no sales charge on purchases or redemptions of shares in
either Fund. Each Fund reserves the right to redeem all of the shares of
any shareholder, other than a shareholder which is an Individual Retirement
Account ("IRA") or other tax-deferred retirement plan, whose account falls
below $500 due to redemptions. Each Fund will give shareholders 60 days'
prior written notice in which to purchase sufficient additional shares to
avoid such redemption. Each Fund reserves the right to waive the minimum
for certain retirement and employee savings plans or custodial accounts for
the benefit of minors.
Purchases will be processed at the next net asset value calculated
after your purchase order is received and accepted. If your purchase is
received by the close of business of the New York Stock Exchange (normally
4:00 p.m. Eastern time), your account will be credited on the day of
receipt. If your purchase is received after such time, it will be credited
the next business day. Third-party checks will not be honored except in
the case of employer sponsored retirement plans. When making a subsequent
investment, you should include the detachable stub from your confirmation
statement to provide additional information.
RETIREMENT PLANS. Shares of both Funds are available as an investment
for retirement plans, including IRAs, Keogh Plans, corporate pension and
profit-sharing plans, Simplified Employee Pension IRAs, 401(k) Plans and
403(b) Plans. Please contact the Transfer Agent, American Data Services,
Inc., P.O.Box 5536, Hauppauge, New York 11788-0132 or by calling 1-888-693-
9276 to receive the appropriate documents which contain important
information and applications.
HOW TO SELL SHARES
You can sell (redeem) some or all of your shares by mail on any
business day. Your shares will be sold at the next net asset value
calculated after your redemption request is received and accepted by the
Distributor and your payment will be made by check within seven days.
Redemptions may be suspended and payments delayed under certain emergency
circumstances as determined by the SEC. The Transfer Agent will reject any
redemption request made within 15 days after receipt of the purchase check
against which such redemption is requested.
To sell shares in a Fund, you should send a letter of instruction to
the Transfer Agent, American Data Services, Inc., P.O.Box 5536, Hauppauge,
New York 11788-0132, that includes your name, account number, the name of
the Fund from which you are selling shares, the number of shares or dollar
amount you are selling and where you want the money to be sent. The letter
must be signed by all registered owners of the account and the signature(s)
must be guaranteed. The Transfer Agent will accept a signature guarantee
by the following financial institutions: a U.S. bank, trust company,
broker, dealer, municipal securities broker or dealer, government
securities broker or dealer, credit union which is authorized to provide
signature guarantees, national securities exchange, registered securities
association or clearing agency.
RETIREMENT ACCOUNTS. To sell shares in an IRA or other retirement
account, please contact the Transfer Agent, American Data Services, Inc.,
P.O.Box 5536, Hauppauge, New York 11788-0132 or by calling 1-888-693-9276
to request the appropriate distribution form and for additional
instructions.
EXCHANGE PRIVILEGE
Shares in either Fund may be exchanged without cost for shares in the
other Fund. To participate in this program, you must contact the Transfer
Agent, American Data Services, Inc., P.O.Box 5536, Hauppauge, New York
11788-0132 or by calling 1-888-693-9276 to request the appropriate form to
initiate this privilege. Once enrolled, exchanges may be made over the
telephone. Telephone exchanges may only be made between accounts
registered in the same name, address and taxpayer identification number,
and are subject to the requirements for initial and subsequent investments
as in effect from time to time. A telephone exchange is a redemption of
shares in one Fund and a purchase of shares in the other and is therefore a
taxable transaction.
The Transfer Agent uses procedures designed to confirm that
instructions received by telephone are genuine, including requiring certain
identifying information prior to acting on such instructions, recording
telephone instructions and sending written confirmation of telephone
instructions received. To the extent such procedures are reasonably
designed to prevent unauthorized or fraudulent instructions and are
followed, neither The Canandaigua Funds nor the Transfer Agent is
responsible for any loss, expense or cost arising from any such
transaction.
Any exchange will be based on the respective net asset values of the
shares involved next computed after receipt of an exchange order.
Exchanges are subject to determination by the Transfer Agent that the
investment instructions are complete.
MANAGEMENT OF THE CANANDAIGUA FUNDS
BOARD OF TRUSTEES
The Canandaigua Funds is governed by a Board of Trustees which is
responsible for protecting the interests of shareholders under Delaware
law. The Statement of Additional Information contains general background
information about each Trustee and officer of The Canandaigua Funds.
INVESTMENT ADVISOR
Subject to the direction of the Board of Trustees, The Canandaigua
National Bank and Trust Company, 72 South Main Street, Canandaigua, New
York 14424, acts as the Investment Advisor (the "Advisor") to both the
Equity Fund and the Bond Fund. The Advisor is a commercial bank offering a
wide range of banking services to its customers in the Canandaigua, New
York area. As of December 31, 1996, the Advisor had assets of $361
million, loans of $255 million and deposits of $308 million, and provided
personal, corporate and institutional investment management services for
accounts having an aggregate market value of approximately $297 million.
Under its Investment Management Agreement with The Canandaigua Funds,
the Advisor manages the investment of the assets of each Fund in conformity
with the stated objectives and policies of that Fund. It is the
responsibility of the Advisor to make investment decisions for each of the
Funds and to provide continuous supervision of their investment portfolios.
The Advisor makes investment decisions for each Fund, places orders to
purchase and sell securities on behalf of each Fund and selects
broker-dealers that, in its judgment, provide prompt and reliable execution
at favorable prices and reasonable commission rates. The Advisor provides
these services principally through its Investment and Trust Departments.
PORTFOLIO MANAGERS. Gregory S. MacKay and Robert J. Swartout are the
portfolio managers for the Bond Fund and the Equity Fund, respectively, and
have been such since the inception of the predecessor Collective Investment
Trust. Mr. MacKay is a Senior Vice President of the Advisor and Mr.
Swartout is Vice President and Investment Officer of the Advisor. Both Mr.
MacKay and Mr. Swartout have been officers of the Advisor for more than the
past five years.
FEES AND EXPENSES OF THE ADVISOR. As compensation for its services,
The Canandaigua Funds pays the Advisor a management fee computed daily and
paid monthly at the annual rate of 1.00% of the value of the average daily
net assets of each Fund. From 1994 through June 1997, the Board of
Trustees had approved a reduction of the fee for the Bond Fund to 0.50%,
which was further temporarily reduced to 0.00% in July 1997. With respect
to the predecessor Collective Investment Trust, the Advisor's fee included
not only investment advisory services but fiduciary and administrative
services. As a result, the total expenses for the predecessor Collective
Investment Trust for all such services was therefore somewhat lower than
the total of such expenses for most mutual funds.
The Canandaigua Funds pays other expenses related to its daily
operations, such as custodian fees, Trustees' fees, transfer agency fees,
legal and auditing costs. More information about the Investment Management
Agreement and other expenses paid by The Canandaigua Funds is included in
the Statement of Additional Information, which also contains information
about its brokerage policies and practices.
DISTRIBUTOR
ADS Distributors, Inc., 670 Second Street North, Suite A, Safety
Harbor, Florida 34695, serves as the Distributor of each Fund's shares.
The Distributor is a Florida corporation and is a registered broker-dealer.
TRANSFER AGENT AND ADMINISTRATOR
Under separate agreements with the Funds, American Data Services, Inc.
acts as the Transfer Agent and as the Administrator for each Fund.
CUSTODIAN
Northern Trust Company acts as custodian of the assets of each Fund.
NET ASSET VALUE
The price of one share of either the Equity Fund or the Bond Fund is
its respective "net asset value." For each Fund, its net asset value is
computed by adding the value of that Fund's investments plus cash and
other assets, deducting liabilities and then dividing the result by the
number of its shares outstanding. The net asset value of each Fund is
calculated by the Administrator for each Fund on each day the New York
Stock Exchange is open as of the close of business (normally 4:00 p.m.
Eastern time).
DISTRIBUTION AND TAX INFORMATION
DIVIDENDS AND DISTRIBUTIONS
In both the Equity Fund and the Bond Fund, dividends and distributions
will be automatically reinvested on the payment date in additional shares
of that Fund at net asset value, unless an election is made on the New
Account Application to have all dividends and/or distributions paid in
cash. Dividends are declared and paid at least annually. Distributions of
any net realized short-term and long-term capital gains usually will be
made annually prior to the close of the fiscal year in which the gains are
earned.
TAXES
Each Fund intends to qualify and elect to be treated each year as a
"regulated investment company" for federal income tax purposes. A
regulated investment company is not subject to regular income tax on any
income or capital gains distributed to its shareholders if it, among other
things, distributes at least 90 percent of its investment company taxable
income to them within applicable time periods.
For federal income tax purposes, dividends and distributions are
taxable to you whether paid in cash or reinvested in additional shares.
You may also be liable for tax on any gain realized upon the redemption of
shares in either Fund.
Shortly after the close of each calendar year, you will receive a
statement setting forth the dollar amounts of dividends and any
distributions for the prior calendar year and the tax status of the
dividends and distributions for federal income tax purposes. You should
consult your tax adviser to assess the federal, state and local tax
consequences of investing in the Funds. This discussion is not intended to
address the tax consequences of an investment by a nonresident alien.
PERFORMANCE DATA
From time to time The Canandaigua Funds may include the average annual
total return on the Bond Fund and/or the Equity Fund for various specified
time periods in advertisements or information furnished to present or
prospective shareholders. Average annual total return is computed in
accordance with formulas specified by the SEC.
Average annual total return quotations for the specified period will
be computed by finding the average annual compounded rates of return (based
on net investment income and any realized and unrealized capital gains or
losses on Fund investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at the end of
each period. Average annual total return will be computed assuming all
dividends and distributions are reinvested and taking into account all
applicable recurring and nonrecurring expenses.
The Canandaigua Funds also may quote total return and aggregate total
return performance data on the Bond Fund or Equity Fund for various
specified time periods. Such data will be calculated substantially as
described above, except that the rates of return calculated will not be
average annual rates, but rather, actual annual, annualized or aggregate
rates of return. Actual annual or annualized total return data generally
will be lower than average annual total return data since the average
annual rates of return reflect compounding; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of time.
Total return may be expressed either as a percentage or as a dollar amount
in order to illustrate such total return on a hypothetical $1,000
investment at the beginning of each specified period.
Total return figures are based on the historical performance of each
Fund and are not intended to indicate future performance. The total return
on the Bond Fund and the Equity Fund will vary depending on market
conditions, the securities comprising that Fund, that Fund's operating
expenses and the amount of realized and unrealized net capital gains or
losses during the period. The value of an investment in each Fund will
fluctuate and a shareholder's shares, when redeemed, may be worth more or
less than their original cost.
PERFORMANCE COMPARISONS
On occasion, The Canandaigua Funds may compare the performance of the
Bond Fund or Equity Fund to that of the Standard & Poor's 500 Composite
Stock Price Index, the Value Line Composite Index, the Lehman Brothers
Intermediate Government/Corporate Bond Index, the Dow Jones Industrial
Average, or other relevant indices, or to data contained in publications
such as Lipper Analytical Services, Inc., Morningstar Publications, Inc.,
Money Magazine, U.S. News & World Report, Business Week, Forbes, Fortune
and CDA Investment Technology, Inc. As with other performance data,
performance comparisons should not be considered representative of the
relative performance of the Bond Fund or the Equity Fund for any future
period.
ORGANIZATION AND CAPITALIZATION
From its inception in 1992 until February 9, 1998, The Canandaigua
Funds was organized by the Advisor as a Collective Investment Trust under
New York law and the regulations of the U.S. Comptroller of the Currency,
participation in which was limited to qualified retirement accounts such as
IRAs and retirement and pension trusts. On February 9, 1998, the
Collective Investment Trust reorganized as a Delaware business trust. In
connection with this reorganization, the name of the Fund was changed from
the "Canandaigua National Collective Investment Fund for Qualified Trusts"
to "The Canandaigua Funds." The Canandaigua Funds is authorized to issue
an unlimited number of shares. The Trustees of The Canandaigua Funds are
responsible for the overall management and supervision of its affairs.
Each share represents an equal proportionate interest in the Fund to which
it relates with each other share in that Fund. Shares entitle their
holders to one vote per share. Shares have noncumulative voting rights, do
not have preemptive or subscription rights and are transferable. Pursuant
to the Investment Company Act, shareholders of each Fund are required to
approve the adoption of any investment advisory agreement relating to such
Fund and of any changes in fundamental investment restrictions or policies
of such Fund. Shares of a Fund will be voted with respect to that Fund
only, except for the election of Trustees and the ratification of
independent accountants. The Trustees are empowered, without shareholder
approval, by The Canandaigua Funds' Declaration of Trust (the "Declaration
of Trust") and Bylaws to create additional series of shares and to classify
and reclassify any new or existing series of shares into one or more
classes.
As a Delaware business trust, The Canandaigua Funds is not required by
law to hold annual shareholder meetings. It may, however, hold meetings
from time to time on important matters, and shareholders have the right to
call a meeting to remove a Trustee or to take certain other actions as
described in the Declaration of Trust.
<PAGE>
APPENDIX A
Description of Standard & Poor's Corporation's corporate bond ratings of
BBB or better:
AAA - Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only to
a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than for bonds in higher rated categories.
Description of Moody's Investor Service, Inc.'s corporate bond ratings of
Baa or better:
AAA - Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt-edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
AA - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long term risks appear somewhat larger than Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
BAA - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
THE CANANDAIGUA FUNDS
This Statement of Additional Information sets forth certain additional
information about The Canandaigua Funds, an open-end diversified management
investment company.
_____________________________
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THE
INFORMATION HEREIN SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR
THE CANANDAIGUA FUNDS DATED FEBRUARY 6, 1998, A COPY OF WHICH MAY BE
OBTAINED FREE OF CHARGE BY WRITING THE FUNDS' DISTRIBUTOR, ADS
DISTRIBUTORS, INC., 670 SECOND STREET NORTH, SUITE A, SAFETY HARBOR,
FLORIDA 34695, OR BY CALLING 1-888-693-9276.
February 6, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
The Canandaigua Funds.............................3
Investment Restrictions...........................3
Other Investment Policies.........................5
Management of The Canandaigua Funds...............5
Trustees and Officers........................5
Investment Advisor...........................7
Distributor..................................9
Transfer Agent and Administrator.............9
Custodian....................................9
Code of Ethics..............................10
Net Asset Value..................................10
Performance Information..........................11
Portfolio Transactions...........................12
Tax Information..................................13
Organization and Capitalization..................14
Principal Shareholders......................15
Independent Accountants..........................16
Index to Financial Statements...................F-1
Report of Independent Accountants...............F-2
Financial Statements and Notes Thereto..........F-3
<PAGE>
THE CANANDAIGUA FUNDS
The Canandaigua Funds is registered with the SEC as an open-end
diversified management investment company (or mutual fund) consisting of
two separate, diversified series: the Canandaigua Equity Fund (the "Equity
Fund") and the Canandaigua Bond Fund (the "Bond Fund") (individually
referred to as a "Fund" and collectively as the "Funds"). Additional funds
may be created by the Trustees from time to time. The Canandaigua National
Bank and Trust Company, acts as investment advisor to both Funds.
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of The Canandaigua Funds
dated February 6, 1998, as amended or supplemented from time to time. A
copy of the Prospectus may be obtained without charge by calling 1-888-693-
9276 or by writing to the Funds' Distributor, ADS Distributors, Inc., 670
Second Street North, Suite A, Safety Harbor, Florida 34695.
The EQUITY FUND seeks long term growth of asset values through capital
appreciation and dividend income.
The BOND FUND seeks to earn a high level of current income with
consideration also given to safety of principal.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental to both the
Equity Fund and the Bond Fund and cannot be changed for either Fund without
the approval of the holders of a majority of the outstanding shares of the
affected Fund. Under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), a "fundamental" policy may not be changed
without the vote of a "majority of the outstanding voting securities" of a
Fund, which is defined in the Investment Company Act as the lesser of (a)
67%or more of the shares present at a Fund meeting if the holders of more
than 50%of the outstanding shares of that Fund are present or represented
by proxy or (b) more than 50% of the outstanding shares of that Fund. An
investment policy that is not "fundamental" may be changed by vote of a
majority of the Board of Trustees of The Canandaigua Funds at any time.
As a matter of fundamental policy, neither Fund may:
(a) Purchase securities of any issuer (except securities issued or
guaranteed as to principal or interest by the United States Government, its
agencies or instrumentalities) if as a result more than 5% of the value of
the total assets of that Fund would be invested in the securities of such
issuer or both Funds together would own more than 10% of the outstanding
voting securities of such issuer (for purposes of this limitation,
identification of the "issuer" will be based on a determination of the
source of assets and revenues committed to meeting interest and principal
payments of each security);
(b) Invest in companies for the purpose of exercising control;
(c) Borrow money except from banks on a temporary basis for
extraordinary or emergency purposes, provided that a Fund is required to
maintain asset coverage of 300% for all borrowing (except with respect to
cash collateral received as a result of portfolio securities lending);
(d) Pledge, mortgage or hypothecate more than 10% of the total value
of its assets;
(e) Issue senior securities;
(f) Underwrite any issue of securities;
(g) Purchase or sell real estate or real estate mortgage loans (but
this shall not prevent investments in instruments secured by real estate or
interests therein or in marketable securities in real estate operations);
(h) Make loans to other persons, except that either Fund may make
time or demand deposits with banks, may purchase bonds, debentures or
similar obligations that are publicly distributed, may loan its securities
in an amount not in excess of 10% of the total value of its assets and may
enter into repurchase agreements as long as repurchase agreements maturing
in more than seven days do not exceed 10% of the total value of its assets;
(i) Purchase securities on margin or sell securities short;
(j) Purchase or retain securities of an issuer if the members of The
Canandaigua Funds' Board of Trustees, each of whom owns more than 1/2 of 1%
of such securities, together own more than 5% of the securities of such
issuer;
(k) Purchase or sell commodities or commodity contracts;
(l) Invest its assets in securities of other investment companies
except as part of a merger, consolidation, reorganization or purchase of
assets approved by the shareholders of the Fund involved in such
transaction;
(m) Except as may be permitted by clause (k), invest in or sell put,
call, straddle or spread options or interests in oil, gas or other mineral
exploration or development programs;
(n) Purchase any securities that would cause more than 25% of the
value of that Fund's total assets at the time of such purchase to be
invested in the securities of one or more issuers conducting their
principal activities in the same industry (except that there is no
limitation with respect to obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities);
(o) Invest more than 10% of the total value of its assets in
nonmarketable securities (including repurchase agreements and time deposits
maturing in more than seven days but excluding master demand notes and
other securities payable on demand). If through the appreciation of
nonmarketable securities, or the depreciation of marketable securities, a
Fund has more than 10% of its assets invested in nonmarketable securities,
that Fund will reduce its holdings of nonmarketable securities to 10% or
less of its total assets as soon as practicable;
(p) Purchase securities of foreign issuers (except for American
Depository Receipts that are traded on a U.S. securities exchange or on The
Nasdaq Stock Market<service-mark>); or
(q) Purchase puts, calls or engage in other futures contracts.
If a percentage restriction is adhered to at the time of investment, then
except as noted in (o) above, a later increase or decrease in percentage
resulting from a change in values or assets will not constitute a violation
of that restriction.
OTHER INVESTMENT POLICIES
The following investment policies are not fundamental and may be
changed by the Board of Trustees of The Canandaigua Funds without the
approval of the shareholders of the affected Fund:
The Funds will not invest in securities which are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") or which are not
readily marketable, except for master demand notes, other securities
payable upon demand, repurchase agreements and instruments evidencing loans
of securities. Such securities may, however, become a part of a Fund's
assets through a merger, exchange or recapitalization involving securities
already held in a Fund.
Either Fund may, to the extent consistent with its investment
objectives, invest in master demand notes. A master demand note is a
facility, typically maintained by a bank, pursuant to which monies are lent
on a daily basis to a corporate borrower by a group of purchasers in
amounts and at rates negotiated daily. The loan is payable on demand. As
with other debt obligations, there is a risk that the borrower will fail to
repay the obligation.
MANAGEMENT OF THE CANANDAIGUA FUNDS
TRUSTEES AND OFFICERS
Information pertaining to the Trustees, Advisory Trustees and officers
of The Canandaigua Funds, including their principal occupations for the
last five years, is set forth below.
<PAGE>
Principal
NAME, AGE AND Occupation(s) During
ADDRESS POSITION(S) WITH FUND PAST FIVE YEARS
Robert N. Coe, 48 Trustee President and co-owner,
c/o The Canandaigua Funds W.W. Coe & Son, Inc.
72 South Main Street (independentinsurance
Canandaigua, NY 14424 agency) Canandaigua,
New York
Robert J. Craugh, 75 Chairman of the Board Retired since 1987;
c/o The Canandaigua Funds of Trustees prior thereto,
72 South Main Street Senior Vice President-
Canandaigua, NY, 14424 Operations,
Canandaigua National
Bank and Trust Company,
Canandaigua, NY
Donald C. Greenhouse, 62 Trustee President and owner,
c/o The Canandaigua Funds Seneca Point
72 South Main Street Associates, Inc.
Canandaigua, NY 14424 (business consultants)
Canandaigua, New York
Steven H. Swartout, 39 Trustee, Attorney-at-Law,
c/o The Canandaigua Funds Secretary and Treasurer Canandaigua, New York
72 South Main Street
Canandaigua, NY 14424
COMPENSATION OF THE BOARD OF TRUSTEES. Trustees receive $200.00 from
The Canandaigua Funds for each Board and Committee meeting attended,
together with reimbursement of reasonable expenses incurred.
For 1997, the Trustees received the following compensation from The
Canandaigua Funds: Mr. Coe: $1,000.00; Mr. Craugh: $1,000.00; Mr.
Greenhouse: $600.00; and Mr. Swartout: $200.00. (There were no expense
reimbursements necessary for any meetings held during 1997.)
To comply with certain restrictions applicable to the Advisor under
the Glass-Steagall Act ("Glass-Steagall Act"), none of the Trustees or
officers of The Canandaigua Funds are directors, officers or employees of
the Advisor.
As permitted by the regulations of the Federal Reserve Board under the
Glass-Steagall Act and the Bylaws of The Canandaigua Funds, the Board of
Trustees has established an Advisory Board of Trustees. The purpose of the
Advisory Board is to advise the Board of Trustees with respect to
investment policies and related matters. Members of the Advisory Board are
selected for their expertise in investment matters by the Board of
Trustees, are appointed by the Board of Trustees, serve for one-year terms,
have no vote with respect to any matters, and can be removed by the Board
of Trustees at any time.
Information pertaining to the members of the Advisory Board, including
their principal occupations for the last five years, is set forth below.
<PAGE>
NAME, AGE AND Principal Occupation(s) During
ADDRESS POSITION(S) WITH FUND PAST FIVE YEARS
Gregory S. MacKay, 48 Advisory Trustee Treasurer, Canandaigua National
72 South Main Street Corporation (parent holding
Canandaigua, NY 14424 company of the Advisor) and
Senior Vice President of the
Advisor
Robert J. Swartout, 36 Advisory Trustee Vice President and Investment
72 South Main Street Officer of the Advisor
Canandaigua, NY 14424
Advisory Trustees receive no compensation from The Canandaigua Funds
for their service in such capacity.
INVESTMENT ADVISOR
The Canandaigua National Bank and Trust Company, 72 South Main Street,
Canandaigua, New York 14424 is the Investment Advisor ("Advisor") for each
Fund pursuant to an investment advisory agreement (the "Investment Advisory
Agreement") that The Canandaigua Funds has entered into with the Advisor on
behalf of each Fund.
The Investment Advisory Agreement provides that the Advisor will
provide each Fund with investment research, advice and supervision and will
furnish continuously an investment program for that Fund consistent with
the investment objectives and policies of that Fund. The Advisor is
responsible for the payment of the salaries and expenses of all of its
personnel, office rent and the expenses of providing investment advisory,
research and statistical data and related clerical expenses.
Under the terms of the Investment Advisory Agreement, the Advisor
manages the investment of the assets of each Fund in conformity with the
investment objectives and policies of that Fund. It is the responsibility
of the Advisor to make investment decisions for each Fund and to provide
continuous supervision of the investment portfolios of each Fund. The
Advisor has agreed to maintain office facilities for the Funds, furnish the
Funds with statistical and research data, certain clerical, accounting and
bookkeeping services, and certain other services required by each Fund.
The Advisor pays all expenses incurred by it in connection with acting
as investment manager, other than costs (including taxes and brokerage
commissions, if any) of securities purchased for the Funds. Expenses
incurred by the Advisor in connection with acting as investment advisor
include the costs of accounting, data processing, bookkeeping and internal
auditing services (other than costs related to shareholder account
servicing), and rendering periodic and special reports to the Board of
Trustees. The Advisor pays for all employees, office space and facilities
required by it to provide services under the Investment Advisory Agreement,
except for specific items of expense referred to below.
Under the terms of the Investment Advisory Agreement, the Advisor is
obligated to manage each Fund in accordance with applicable laws and
regulations, including the regulations and rulings of the United States
Comptroller of the Currency relating to fiduciary powers of national banks.
In accordance with these regulations, the Advisor will not invest the
Funds' assets in stock or obligations of, or property acquired from, the
Advisor, its affiliates or directors, officers or employees or other
persons with substantial connections with the Advisor, and assets of the
Funds will not be sold or transferred, by loan or otherwise, to the Advisor
or persons connected with the Advisor as described above, except that in
accordance with applicable regulations of the Comptroller of the Currency,
assets of the Funds may be placed in deposits with the Advisor pending
investment or distribution.
For its services under the Investment Advisory Agreement, the Advisor
is paid with respect to each Fund a monthly management fee at the annual
rate of 1.00% of each Fund's average daily net assets. During the fiscal
years ended December 31, 1997, December 31, 1996 and December 31, 1995, the
Equity Portfolio of the predecessor Collective Investment Trust paid the
Advisor a net total of $162,307, $108,183 and $70,750, respectively, in
aggregate advisory fees, which amounted to 1.00%, 1.00% and 0.99%,
respectively, of that Fund's average annual net assets for those periods.
During the fiscal years ended December 31, 1997, December 31, 1996 and
December 31, 1995, the Bond Portfolio of the predecessor Collective
Investment Trust paid the Advisor a net total of $1,535, $2,441 and $1,655,
respectively, in aggregate advisory fees, which amounted to 0.26%, 0.50%
and 0.50%, respectively, of that Fund's average annual net assets for those
periods. Beginning in 1994, the Advisor had in effect a reduction from
1.00% to 0.50% of the advisory fee applicable to the Bond Portfolio, which
the Trustees temporarily reduced to 0.00% during 1997.
Except for the expenses described above which have been assumed by the
Advisor, all expenses incurred in administration of The Canandaigua Funds
will be charged to the Funds or to a particular Fund, as the case may be,
including investment management fees; fees and expenses of the Board of
Trustees; interest charges; taxes; brokerage commissions; expenses of
valuing assets; expenses of continuing registration and qualification of
The Canandaigua Funds and the shares under federal and state law; share
issuance expenses; fees and disbursements of independent accountants and
legal counsel; fees and expenses of custodians, including subcustodians and
securities depositories, transfer agents and shareholder account servicing
organizations; expenses of preparing, printing and mailing prospectuses,
reports, proxies, notices and statements sent to shareholders; expenses of
shareholder meetings; and insurance premiums. The Canandaigua Funds is
also liable for nonrecurring expenses, including litigation to which it may
from time to time be a party. Expenses incurred for the operation of a
particular Fund including the expenses of communications with its
shareholders, are paid by that Fund. Expenses that are general liabilities
of The Canandaigua Funds are allocated to the Equity Fund and the Bond Fund
in proportion to the total net assets of each Fund.
OTHER INFORMATION. The Investment Advisory Agreement remains in
effect initially for a two year term and continues in effect thereafter
only if such continuance is specifically approved at least annually by the
Trustees or by vote of a majority of the outstanding voting securities of
the Funds (as defined in the Investment Company Act) and, in either case,
by a majority of the Trustees who are not interested persons of The
Canandaigua Funds or the Advisor. The Investment Advisory Agreement
provides that the Advisor shall not be liable to a Fund for any error of
judgment by the Advisor or for any loss sustained by the Fund except in the
case of the Advisor's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. The Investment Advisory Agreement also
provides that it shall terminate automatically if assigned and that it may
be terminated without penalty by vote of a majority of the outstanding
voting securities of the Funds or by either party upon 60 days' written
notice. No person other than the Advisor regularly furnishes advice to the
Funds with respect to the desirability of a Fund's investing in, purchasing
or selling securities.
DISTRIBUTOR
ADS Distributors, Inc. (the "Distributor") acts as the principal
underwriter and distributor of each Fund's shares and continually offers
shares of the Funds pursuant to a distribution agreement approved by the
Trustees. The Distributor is a Florida corporation, and a registered
broker-dealer. Among its functions, the Distributor approves and accepts
new account applications, processes subsequent account purchases and
redemptions, and responds to requests for information about the Funds. For
its services, the Distributor will receive an annual fee of $22,750,
payable monthly, plus reimbursement of expenses.
TRANSFER AGENT AND ADMINISTRATOR
Under separate agreements, American Data Services, Inc. acts as the
Transfer Agent (the "Transfer Agent") and as the Administrator (the
"Administrator") for each Fund.
As Transfer Agent, American Data Services, Inc. provides various
recordkeeping services for the Funds, including maintenance of all Fund
share ownership books and records, recording of all purchase and redemption
orders, acting as dividend disbursing agent, generating transaction
confirmation statements and quarterly shareholder statements of account,
and distributing periodic reports and updated Fund Prospectuses to all
shareholders. The Transfer Agency Agreement has been approved by the
Trustees of The Canandaigua Funds.
In its capacity as Administrator of the Funds, American Data Services,
Inc. determines, for each Fund, its daily net asset value per share (see
"Net Asset Value" below), calculates all dividend and capital gain
distributions, maintains the Funds' corporate books and records, prepares
and files required tax returns and reports, and provides general data
processing, accounting and bookkeeping services to the Funds.
The Administrative Services Agreement has been approved by the
Trustees of The Canandaigua Funds. This agreement provides that, for each
Fund, the Administrator will be paid a monthly fee equal to the greater of:
(1) a sliding scale of $1,500 for a Fund with average net assets of under
$5 million to $2,500 for a Fund with average net assets of $20 million or
more; or (2) 1/12th of 0.012% (12 basis points) of the average net assets
of that Fund for the month.
CUSTODIAN
Northern Trust Company, 50 South LaSalle Street, Chicago, Illinois
60675, serves as the custodian ("Custodian") of the assets of each Fund.
The Custodian holds all securities and other assets of the Funds. The
Custodial Agreement with each Fund, which the Trustees have approved,
provides for the general duties of the Custodian, permissible use of
subcustodians, and book entry systems of account.
CODE OF ETHICS
The Board of Trustees has determined that the personnel of The
Canandaigua Funds may engage in personal trading in compliance with general
fiduciary principles which are incorporated into The Canandaigua Fund's
Code of Ethics. This Code of Ethics substantially complies in all respects
with Rule 17j-1 under the Investment Company Act, with the following
exceptions: (1) the disinterested Trustees of The Canandaigua Funds are not
required to pre-clear personal securities transactions, and (2) the
disinterested Trustees are not provided with information about the
portfolio transactions contemplated for a Fund or executed for a Fund for a
period of 15 days before and after such transactions.
NET ASSET VALUE
For each Fund, net asset value ("NAV") per share is determined by
dividing the total value of that Fund's assets, less any liabilities, by
the number of shares of that Fund outstanding.
The net asset value per share of each Fund is determined by the
Administrator as of the close of regular trading on the New York Stock
Exchange (normally 4 p.m., Eastern Time) on each day when the New York
Stock Exchange is open for trading. The New York Stock Exchange is closed
on the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day as observed.
Except for debt securities with remaining maturities of 60 days or
less, assets for which market quotations are available are valued as
follows: (a) each listed security is valued at its closing price obtained
from the respective primary exchange on which the security is listed, or,
if there were no sales on that day, at its last reported current bid price;
(b) each unlisted security is valued at the last current bid price obtained
from the National Association of Securities Dealers Automated Quotation
System; (c) United States Government and agency obligations are valued
based upon bid quotations from the Federal Reserve Bank for identical or
similar obligations; (d) short-term money market instruments (such as
certificates of deposit, bankers' acceptances and commercial paper) are
most often valued by bid quotation or by reference to bid quotations of
available yields for similar instruments of issuers with similar credit
ratings. The Board of Trustees has determined that the values obtained
using the procedures described in (c) and (d) represent the fair values of
the securities valued by such procedures. All of these prices are obtained
by the Administrator from services which collect and disseminate such
market prices. Bid quotations for short-term money market instruments
reported by such a service are the bid quotations reported to it by the
major dealers.
Debt securities with remaining maturities of 60 days or less are
valued on the basis of amortized cost. Under this method of valuation, the
security is initially valued at cost on the date of purchase or, in the
case of securities purchased with more than 60 days remaining to maturity,
the market value on the 61st day prior to maturity. Thereafter the Fund
assumes a constant proportionate amortization in value until maturity of
any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the security, unless the Trustees determine
that amortized cost no longer represents fair value.
When approved by the Trustees, certain securities may be valued on the
basis of valuations provided by an independent pricing service when such
prices the Trustees believe reflect the fair value of such securities.
These securities would normally be those which have no available recent
market value, have few outstanding shares and therefore infrequent trades,
or for which there is a lack of consensus on the value, with quoted prices
covering a wide range. The lack of consensus would result from relatively
unusual circumstances such as no trading in the security for long periods
of time, or a company's involvement in merger or acquisition activity, with
widely varying valuations placed on the company's assets or stock. Prices
provided by an independent pricing service may be determined without
exclusive reliance on quoted prices and may take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data.
In the absence of an ascertainable market value, assets are valued at
their fair value as determined by the Advisor using methods and procedures
reviewed and approved by the Trustees.
The proceeds received by each Fund for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and
proceeds thereof, subject only to the rights of creditors, will be
specifically allocated to such Fund and constitute the underlying assets of
that Fund. The underlying assets of each Fund will be segregated on the
books of account, and will be charged with the liabilities in respect to
such Fund and with a share of the general liabilities of The Canandaigua
Funds. Expenses with respect to both Funds are to be allocated in
proportion to the total net assets of the respective Funds.
PERFORMANCE INFORMATION
The average annual total return of each Fund is determined for a
particular period in accordance with SEC Rule 482 by calculating the actual
dollar amount of the investment return on a $1,000 investment in the Fund
made at the maximum public offering price (I.E., net asset value) at the
beginning of the period, and then calculating the annual compounded rate of
return which would produce that amount. Total return for a period of one
year is equal to the actual return of the Fund during that period. This
calculation assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period.
The average annual total return for the Equity Fund and the Bond Fund
of the predecessor Collective Investment Trust for the one-year period and
since inception to December 31, 1997, was as follows:
Year Ended Inception* to
FUND 12/31/97 12/31/97
Equity Fund 16.31% 13.60%
Bond Fund 7.89% 5.99%
____________
*Inception for both Funds was September 9, 1992
The performance data quoted represents historical performance and the
investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
original cost.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities on a securities exchange are
effected by brokers, and the Funds pay a brokerage commission for this
service. In transactions on stock exchanges these commissions are
negotiated. In the over-the-counter market, securities (e.g., debt
securities) are normally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the securities usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which
includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount.
The primary consideration in placing portfolio security transactions
with broker-dealers for execution is to obtain and maintain the
availability of execution at the most favorable prices and in the most
effective manner possible. The Advisor attempts to achieve this result by
selecting broker-dealers to execute portfolio transactions on behalf of
each Fund on the basis of the broker-dealers' professional capability, the
value and quality of their brokerage services and the level of their
brokerage commissions.
Although commissions paid on every transaction will, in the judgment
of the Advisor, be reasonable in relation to the value of the brokerage
services provided, under each Investment Advisory Agreement and as
permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Advisor may cause a Fund to pay a commission to broker-dealers who provide
brokerage and research services to the Advisor for effecting a securities
transaction for a Fund. Such commission may exceed the amount other
broker-dealers would have charged for the transaction, if the Advisor
determines in good faith that the greater commission is reasonable relative
to the value of the brokerage and the research and investment information
services provided by the executing broker-dealer viewed in terms of either
a particular transaction or the Advisor's overall responsibilities to the
Funds and to its other clients. Such research and investment information
services may include advice as to the value of securities, the advisability
of investing in, purchasing or selling securities, the availability of
securities or of purchasers or sellers of securities, furnishing analyses
and reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy and the performance of accounts, and
effecting securities transactions and performing functions incidental
thereto such as clearance and settlement.
Research provided by brokers is used for the benefit of all of the
clients of the Advisor and not solely or necessarily for the benefit of the
Funds. The Advisor's investment management personnel attempt to evaluate
the quality of research provided by brokers. Results of this effort are
sometimes used by the Advisor as a consideration in the selection of
brokers to execute portfolio transactions.
The investment advisory fees that the Funds pay to the Advisor will
not be reduced as a consequence of the Advisor's receipt of brokerage and
research services. To the extent a Fund's portfolio transactions are used
to obtain such services, the brokerage commissions paid by the Fund will
exceed those that might otherwise be paid, by an amount which cannot be
presently determined. Such services would be useful and of value to the
Adviser in serving both the Funds and other clients and, conversely, such
services obtained by the placement of brokerage business of other clients
would be useful to the Advisor in carrying out its obligations to the
Funds.
Certain investments may be appropriate for the Funds and also for
other clients advised by the Advisor. Investment decisions for the Funds
and other clients are made with a view to achieving their respective
investment objectives and after consideration of such factors as their
current holdings, availability of cash for investment and the size of their
investments generally. To the extent possible, Fund transactions are
traded separately from trades of other clients advised by the Advisor.
Occasionally, a particular security may be bought or sold for one or more
clients in different amounts. In such event, and to the extent permitted
by applicable law and regulations, such transactions will be allocated
among the clients in a manner believed to be equitable to each.
Ordinarily, such allocation will be made on the basis of the weighted
average price of such transactions effected during a trading day, and if
all orders for the same security could be only partially executed during a
trading day, then Fund transactions will take precedence over transactions
for other clients of the Advisor.
Securities owned by the Funds may not be purchased from or sold to the
Advisor or any affiliated person (as defined in the Investment Company Act)
of the Advisor except as may be permitted by the SEC and subject to the
rules and regulations of the Comptroller of the Currency. Affiliated
persons of the Advisor include its parent corporation, Canandaigua National
Corporation, each of their respective subsidiaries, and the officers and
directors of any of such entities.
The aggregate amounts of brokerage commissions paid by the Funds'
predecessor Collective Investment Trust for the years ended December 31,
1997, 1996 and 1995 were $200,755, $168,880 and $132,875, respectively.
As of December 31, 1997, the Bond Fund held the following securities
of brokers or dealers, or their parent organizations, with which it
regularly conducts business: 30,000 Merrill Lynch & Co. 6.25% bonds due
October 15, 2008.
TAX INFORMATION
The following discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax
under such law. Shareholders should consult their own tax advisors as to
the federal, state or local tax consequences of ownership of shares of the
Funds in their particular circumstances.
Each Fund is treated as a separate taxpayer for federal income tax
purposes.
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
If qualified as a regulated investment company, the Fund will pay no
federal income taxes on its investment company taxable income (that is,
taxable income other than net realized capital gains) and its net realized
capital gains that are distributed to shareholders. To qualify under
Subchapter M, each Fund must, among other things distribute to its
shareholders at least 90% of its taxable net investment income and net
realized short-term capital gains. As a regulated investment company,
each Fund will be subject to a 4% non-deductible federal excise tax on
certain amounts not distributed (and not treated as having been
distributed) on a timely basis in accordance with annual minimum
distribution requirements. The Funds intend under normal circumstances to
seek to avoid liability for such tax by satisfying such distribution
requirements.
In general, any gain or loss on the redemption or exchange of a Fund's
shares will be long-term capital gain or loss if held by the shareholder
for more than 18 months, mid-term capital gain or loss if held for more
than one year but not more than 18 months, and short-term capital gain or
loss if held for one year or less. However, if a shareholder receives a
distribution taxable as long-term capital gain with respect to a Fund's
shares, and redeems or exchanges the shares before holding them for more
than six months, any loss on the redemption or exchange up to the amount of
the distribution will be treated as a long-term capital loss to the extent
of the capital gain distribution. For redemptions or exchanges occurring
after December 31, 2000, a holding period of more than five years will
entitle the shareholder to a long-term rate that is lower than the normal
long-term rate.
Dividends of a Fund's investment income and distributions of its
short-term capital gains will be taxable as ordinary income. Distributions
of long-term capital gains (or credited undistributed net capital gains)
will be taxable as such at the appropriate rate, regardless of the length
of time shares of a Fund have been held. Only dividends that reflect a
Fund's income from certain dividend-paying stocks will be eligible for the
federal dividends-received deduction for corporate shareholders.
Provided that a Fund qualifies as a regulated investment company under
the Code, such Fund will be exempt from Delaware corporation income tax.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to fully report dividend or interest income, or fails to
certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to such withholding, then the
shareholder may be subject to a 31 percent "backup withholding tax" with
respect to (i) any taxable dividends and distributions and (ii) any
proceeds of any redemption of Fund shares.
ORGANIZATION AND CAPITALIZATION
The Canandaigua Funds was initially organized by the Advisor in 1992
as a Collective Investment Trust under New York law and the regulations of
the U.S. Comptroller of the Currency, participation in which was limited to
qualified retirement accounts such as IRAs and retirement and pension
trusts. On February 9, 1998, the Collective Investment Trust was
reorganized as a Delaware business trust, pursuant to a Declaration of
Trust (the "Declaration of Trust") dated October 31, 1997.
Unless otherwise required by the Investment Company Act or the
Declaration of Trust, The Canandaigua Funds does not intend to hold annual
meetings of shareholders. Shareholders may remove a Trustee by the
affirmative vote of at least two-thirds of all outstanding shares and the
Trustees shall promptly call a meeting for such purpose when requested to
do so in writing by the record holders of not less than 10% of the
outstanding shares entitled to vote. Shareholders may, under certain
circumstances, communicate with other shareholders in connection with
requesting a special meeting of shareholders. However, at any time that
less than a majority of the Trustees holding office were elected by the
shareholders, the Trustees will call a special meeting of shareholders for
the purpose of electing Trustees.
SHAREHOLDER AND TRUSTEE LIABILITY. The Canandaigua Funds is organized
as a Delaware business trust, and, under Delaware law, the shareholders of
such a trust are not generally subject to liability for the debts or
obligations of the trust. Similarly, Delaware law provides that none of
the Funds will be liable for the debts or obligations of any other Fund.
However, no similar statutory or other authority limiting business trust
shareholder liability exists in many other states. As a result, to the
extent that a Delaware business trust or a shareholder is subject to the
jurisdiction of courts in such other states, the courts may not apply
Delaware law and may thereby subject the Delaware business
trust shareholders to liability. To guard against this risk, the
Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of The Canandaigua Funds. Notice of such
disclaimer will normally be given in each agreement, obligation or
instrument entered into or executed by The Canandaigua Funds or the
Trustees. The Declaration of Trust provides for indemnification by the
relevant Fund for any loss suffered by a shareholder as a result of an
obligation of the Fund. The Declaration of Trust also provides that The
Canandaigua Funds shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of The Canandaigua Funds
and satisfy any judgment thereon. The Trustees believe that, in view of
the above, the risk of personal liability of shareholders is remote.
The Declaration of Trust further provides that the Trustees will not
be liable for errors of judgment or mistakes of fact or law, but nothing in
the Declaration of Trust protects a Trustee against any liability to which
he or she would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in
the conduct of his or her office.
PRINCIPAL SHAREHOLDERS
As of December 31, 1997, no shareholder of record or beneficially
owned more than 5% of the outstanding shares of the Equity Fund. As of the
same date, the following persons owned more than 5% of the outstanding
shares of the Bond Fund:
<PAGE>
Name and Address Percentage of
OF OWNER BOND FUND*
Willard B. Becker 5.9%
3299 West Lake Road
Canandaigua, New York 14424
Ida Mae Sengle 7.1%
18 State Street
Pittsford, New York 14534
Paul H. Simmons 5.1%
5116 North Road
Canandaigua, New York 14424
Esther T. Wilson 8.2%
125 Roseland Lane
Canandaigua, New York 14424
Allied Builders Inc. 9.0%
Prevailing Wage Rate
Retirement Plan
250 State Street
Brockport, New York
__________________
* Figures shown represent percentage of shares owned both of record and
beneficially by the persons indicated.
As of December 31, 1997, the Trustees, Advisory Trustees and officers
of The Canandaigua Funds as a group did not own more than 1% of the
outstanding shares of either Fund, either beneficially or of record.
INDEPENDENT ACCOUNTANTS
Morga Jones & Hufsmith, P.C., 25 North Street, Canandaigua, New York
14424, independent public accountants, have been selected to examine the
annual financial statements of The Canandaigua Funds and render a report
thereon. (The financial statements and notes thereto that follow were
prepared for the predecessor Collective Investment Trust for its fiscal
year ended December 31, 1996 and were audited by Morga Jones & Hufsmith,
P.C., as indicated in their report thereon.)
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
TABLE OF CONTENTS
PAGE
Report of Independent Public Accountants F-2
Statements of Assets and Liabilities as of June 30, 1997
(unaudited) and December 31, 1996 F-3
Statements of Operations for the Six Months Ended June 30, 1997
(unaudited) and the year ended December 31, 1996 F-4
Statements of Changes in Net Assets for the Six Months Ended June
30, 1997 (unaudited) and for the Years Ended December 31, 1996
and 1995 F-5
Schedule of Portfolio Investments as of June 30, 1997 (unaudited)
- Bond Portfolio F-6
- Equity Portfolio F-8
Schedule of Portfolio Investments as of December 31, 1996
- Bond Portfolio F-11
- Equity Portfolio F-13
Notes to Financial Statements F-15
Selected Per-Share Data and Ratios/Supplemental Data F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Canandaigua National Collective Investment
Fund for Qualified Trusts
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of Canandaigua National Collective
Investment Fund for Qualified Trusts (comprising, respectively, the Bond and
Equity portfolios), 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/supplemental data 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/supplemental data 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/supplemental data 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/supplemental data 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 provide a reasonable basis
for our opinion.
In our opinion, the financial statements and selected per-share data and
ratios/supplemental data
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting the Canandaigua
National Collective Investment Fund for Qualified Trusts as of December 31,
1996, the results of their operations for the year then ended, the changes in
their net assets for the years ended December 1996 and 1995, and the selected
per-share data and ratios/supplemental data 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 & Hufsmith, P.C.
Canandaigua, New York
January 24, 1997 (except for the matters discussed
in Note 5 as to which dates are July 9, 1997
and October 31, 1997)
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
June 30, 1997
Portfolio
ASSETS Bond Equity Total
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
INVESTMENT SECURITIES, AT MARKET (bond portfolio cost -
$548,398; equity portfolio cost - $14,908,217) $ 540,457 $16,097,687 $16,638,144
CASH AND CASH EQUIVALENT 42,792 334,664 377,456
RECEIVABLES FOR:
Sales of fund's units 6,000 439 6,439
Dividends and accrued interest 10,018 13,189 23,207
Total receivables 16,018 13,628 29,646
Total assets 599,267 16,445,979 17,045,246
LIABILITIES
PAYABLES FOR:
Repurchases of fund's units - (19,945) (19,945)
Investment management fees (231) (12,815) (13,046)
Professional fees (156) (1,456) (1,612)
Custodial fees (526) (806) (1,332)
Total liabilities (913) (35,022) (35,935)
NET ASSETS AT June 30, 1997: (equivalent to $12.82
per unit for bond portfolio and $19.26 per unit for
equity portfolio, based on 46,677 units and 852,047
units outstanding for bond and equity portfolios,
respectively) $ 598,354 $16,410,957 $17,009,311
December 31, 1996
Portfolio
ASSETS Bond Equity Total
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.
F-3
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
Portfolio
Bond Equity Total
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 15,311 $ 4,810 $ 20,121
Dividend income 887 87,133 88,020
Miscellaneous income 50 40 90
Total investment income 16,248 91,983 108,231
EXPENSES:
Investment management fees (1,274) (70,688) (71,962)
Custodial fees (1,271) (1,404) (2,675)
Professional fees (153) (3,276) (3,429)
Miscellaneous expense - (196) (196)
Total expenses (2,698) (75,564) (78,262)
Net investment income 13,550 16,419 29,969
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) (356) 1,742,347 1,741,991
Net unrealized gain (loss) (1,316) 409,985 408,669
Net realized and unrealized
gain (loss) on investments (1,672) 2,152,332 2,150,660
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS -
for the period $11,878 $2,168,751 $2,180,629
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
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 -
for the year $13,086 $2,030,974 $2,044,060
The accompanying notes are an integral part
of these financial statements.
</TABLE>
F-4
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
Portfolio
Bond Equity Total
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 13,550 $ 16,419 $ 29,969
Net realized gain (loss) on investments (356) 1,742,347 1,741,991
Net unrealized gain (loss) on investments (1,316) 409,985 408,669
Net increase in net assets
resulting from operations 11,878 2,168,751 2,180,629
UNIT SHARE TRANSACTIONS:
Proceeds from units sold (8,399 and
118,551 units in the bond
and equity funds, respectively) 106,707 2,044,417 2,151,124
Cost of units purchased (1,703 and
25,164 units in the bond
and equity funds, respectively) (21,498) (446,018) (467,516)
Net increase in net assets resulting
from unit transactions 85,209 1,598,399 1,683,608
TOTAL INCREASE IN NET ASSETS 97,087 3,767,150 3,864,237
NET ASSETS - beginning of period 501,267 12,643,807 13,145,074
NET ASSETS - end of period $598,354 $16,410,957 $17,009,311
Year Ended December 31, 1996
Portfolio
Bond Equity Total
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 period 408,445 8,432,569 8,841,014
NET ASSETS - end of period $501,267 $12,643,807 $13,145,074
Year Ended December 31, 1995
Portfolio
Bond Equity Total
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 (loss) 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 (3,969
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 year 298,126 5,776,706 6,074,832
NET ASSETS - end of year $408,445 $8,432,569 $8,841,014
The accompanying notes are an integral part
of these financial statements.
</TABLE>
F-5
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
BOND PORTFOLIO
Cost Market Value
Percentage
Amount Amount of Net Assets
(Unaudited) (Unaudited)
<S> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. GOVERNMENT NOTES & BONDS -
30,000 US Treasury Note, 7.000%, July 15, 2006 $30,053 $30,863 5.16%
30,000 US Treasury Bond, 5.875%, November 15, 2005 29,279 28,716 4.80%
15,000 US Treasury Note, 5.750%, September 30, 1997 14,969 15,009 2.51%
20,000 US Treasury Note, 6.125%, May 15, 1998 20,047 20,059 3.35%
25,000 US Treasury Note, 6.250%, August 31, 2000 24,931 24,992 4.18%
25,000 US Treasury Note, 6.125%, September 30, 2000 24,983 24,883 4.16%
30,000 US Treasury Note, 5.500%, December 31, 2000 29,622 29,259 4.89%
15,000 US Treasury Note, 5.250%, January 31, 2001 14,929 14,513 2.43%
25,000 US Treasury Note, 5.625%, February 15, 2006 24,955 23,485 3.92%
25,000 US Treasury Note, 6.125%, March 31, 1998 24,991 25,078 4.19%
30,000 US Treasury Note, 6.375%, March 31, 2001 29,946 30,056 5.02%
40,000 US Treasury Note, 6.875%, May 15, 2006 40,104 40,825 6.82%
10,000 US Treasury Note, 5.250%, January 31, 2001 9,759 9,678 1.62%
Total U.S. Government Notes & Bonds 318,568 317,416 53.05%
CORPORATE BONDS -
Capital Equipment
Aerospace & Military Technology
15,000 Lockheed Martin Corporation, 6.750%,
March 15, 2003 15,900 14,923 2.49%
Total Capital Equipment 15,900 14,923 2.49%
Consumer Goods
Beverage & Tobacco
20,000 Coca-Cola Company, 6.000%, July 15, 2003 19,962 19,297 3.23%
Retail Trading
25,000 Sears Roebuck & Company, 6.250%, January 15, 2004 23,680 24,117 4.03%
Specialty Chemicals
25,000 Eastman Chemical Company, 6.375%, January 15, 2004 25,141 24,208 4.05%
Total Consumer Goods 68,783 67,622 11.30%
Finance
Banking
30,000 Citicorp, 6.750%, August 15, 2005 30,853 29,397 4.91%
Financial Services
10,000 Ford Motor Credit Co., 6.850%, August 15, 2000 10,004 10,052 1.68%
20,000 General Electric Capital Corp. 5.500%,
November 01, 2001 19,939 19,108 3.19%
30,000 Merrill Lynch & Company, Inc. 6.250%,
October 15, 2008 29,681 27,980 4.68%
20,000 Salomon Inc., 6.750%, August 15, 2003 19,905 19,551 3.27%
Total Finance 110,382 106,088 17.73%
F-6
<PAGE>
Services
Telecommunications
20,000 Pacific Bell, 6.250%, March 01, 2005 19,600 19,183 3.21%
Total Services 19,600 19,183 3.21%
Total Corporate Bonds 214,665 207,816 34.73%
PREFERRED STOCK -
Finance
Financial Services
600 The Bear Stearns Companies, Inc., Class B 15,165 15,225 2.54%
Total Preferred Stock 15,165 15,225 2.54%
TOTAL INVESTMENT SECURITIES 548,398 540,457 90.32%
CASH AND CASH EQUIVALENT:
Canandaigua National Bank Collective Fixed Income 42,792 42,792 7.15%
EXCESS OF RECEIVABLES OVER PAYABLES 15,105 15,105 2.52%
NET ASSETS $606,295 $598,354 100.00%
The accompanying notes are an integral part
of these financial statements.
</TABLE>
F-7
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
Cost Market Value
Percentage
Amount Amount of Net Assets
(Unaudited) (Unaudited)
<S> <C> <C> <C>
INVESTMENT SECURITIES:
COMMON STOCK -
Capital Equipment
Farm Machinery
22,000 AGCO Corporation $ 565,862 $ 790,625 4.82%
Medical Devices
15,000 United States Surgical Corporation 475,790 558,750 3.40%
Total Capital Equipment 1,041,652 1,349,375 8.22%
Semiconductors
Semiconductors
5,000 Intel Corporation 738,560 709,063 4.32%
17,000 National Semiconductor Corporation 479,845 520,625 3.17%*
Total Semiconductors 1,218,405 1,229,688 7.49%
Consumer Goods
Beverage & Tobacco
18,000 Anheuser-Busch Companies, Inc. 746,732 754,875 4.60%
Electronics
5,600 Phillips Electronics NV (ADR) 347,080 402,500 2.45%
6,000 Emerson Electric 317,120 330,375 2.02%
Imaging
9,500 Eastman Kodak Co. 739,122 729,125 4.44%
Healthcare
10,000 Johnson & Johnson 548,560 643,750 3.92%
Total Consumer Goods 2,698,614 2,860,625 17.43%
Technology
Technology
6,000 Applied Materials 355,754 424,875 2.59%*
14,000 DuPont Photomasks, Incorporated 591,115 756,000 4.61%*
10,000 PRI Automation, Incorporated 371,770 379,375 2.31%*
15,000 Micron Technology, Inc. 606,565 599,062 3.65%
Information Systems
4,500 HBO & Company, Incorporated 283,970 309,937 1.89%
Total Technology 2,209,174 2,469,249 15.05%
<PAGE>
Finance
Banking
3,000 Wells Fargo & Company $ 816,060 $ 808,500 4.93%
4,000 Chase Manhattan Corporation 376,690 388,250 2.37%
Financial Services
27,000 Amerin Corporation 583,811 654,750 3.99% *
Credit card
14,000 MBNA Corporation 465,648 512,750 3.12%
21,000 Capital One Financial 709,444 792,750 4.83%
Total Finance 2,951,653 3,157,000 19.24%
Pharmaceutical
Pharmaceutical
5,000 American Home Products Corp. 301,915 382,500 2.33%
6,500 Merck & Company, Inc. 594,737 672,750 4.10%
Total Pharmaceutical 896,652 1,055,250 6.43%
Services
Specialty and General Hospitals
9,000 Tenet Healthcare 241,670 266,062 1.62% *
Telecommunications
40,000 Frontier Corporation 781,342 797,500 4.86%
Total Services 1,023,012 1,063,562 6.48%
Specialty Chemical
Specialty Chemical
7,000 Great Lakes Chemical Corporation 315,020 366,625 2.23%
Total Specialty Chemical 315,020 366,625 2.23%
Energy
Utilities
5,000 AES Corporation 359,895 353,750 2.16%
Oil and Gas Exploration
14,000 Unocal Corporation 557,190 543,375 3.31%
Offshore Drilling
6,000 Reading & Bates Corporation 151,370 160,500 0.98%
Natural Gas
13,000 Enron Corporation 524,965 530,563 3.23%
Total Energy 1,593,420 1,588,188 9.68%
<PAGE>
Multi-Industry
Multi-Industry
10,000 U.S. Industries Group, Inc. $ 367,790 $ 356,250 2.17% *
Total Multi-Industry 367,790 356,250 2.17%
Property Casualty Insurance
Casualty Insurance
9,000 Chubb Corporation 592,825 601,875 3.67%
Total Property 592,825 601,875 3.67%
TOTAL INVESTMENT SECURITIES (COMMON STOCK) 14,908,217 16,097,687 98.09%
CASH AND CASH EQUIVALENT:
Canandaigua National Bank Collective Equity Fund 334,664 334,664 2.04%
EXCESS OF PAYABLES OVER RECEIVABLES (21,394) (21,394) - 0.13%
NET ASSETS $15,221,487 $16,410,957 100.00%
* Non-income producing securities
</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
<TABLE>
<CAPTION>
BOND PORTFOLIO
Cost Market Value
Percentage
Amount 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 & 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%
<PAGE>
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 01, 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
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
Cost Market Value
Percentage
Amount 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 and 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 and Tobacco
6,500 Anheuser Busch Companies, Inc. 265,664 260,000 2.06%
Total Consumer Goods 265,664 260,000 2.06%
Pharmaceutical
Pharmaceutical
3,500 American Home Products Corp. 207,367 205,188 1.62%
2,500 Bristol-Meyers 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 Pharmaceutical 1,650,818 1,732,688 13.70%
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%
*Non-income producing securities
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
NOTES TO FINANCIAL STATEMENTS
(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 was designed for the investment of retirement funds held
in certain qualified trusts (see Note 5). The Collective Trust was
formed in September, 1992, and consists of a bond portfolio with an
investment emphasis on fixed-income securities and an equity portfolio
with a primary investment emphasis in common stocks.
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 principles and as such include amounts based on
informed estimates and judgments of management with consideration given
to materiality. Actual results could differ from those estimates. The
interim financial statements, as of June 30, 1997 (unaudited), include
adjustments for the estimated effect of recurring annual accrued charges
which, in the opinion of management, are necessary for the fair
presentation of the interim financial statements.
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 fair value as determined by 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 fair value of individual investment securities held at December 31,
1996 and at June 30, 1997 (unaudited) are disclosed in the accompanying
Schedules 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. There are no significant
differences in financial and tax accounting methods of the Collective
Trust.
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 Collective Trust is offering units in a bond and a stock
portfolio. The unit shares are voting, non-assessable, and have no
preemptive rights or preferences as to conversion, exchange, dividends or
retirement. At June 30, 1997, December 31, 1996 and December 31, 1995,
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 asset values per unit in the accompanying
financial statements were calculated in consideration of all purchases
and sales transacted during the periods. Unit purchases are recorded
when an investor's request for a unit purchase is accepted and unit
distributions are recorded when an investor's request for distribution is
received. Accordingly, accepted unit purchase obligations for which cash
has not yet been received are reflected as sale of fund's units and
approved distribution requests for which cash has not yet been disbursed
are reflected as repurchases of fund's units in the accompanying
statements of assets and liabilities.
(3) AGREEMENTS
The Company is the trustee of the Collective Trust under a Declaration of
Trust. The portfolio investment managers of the Collective Trust are
also officers of the Company. 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. 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 and has paid investment
management fees to the Company, at the rate of 1% of assets annually of
each portfolio. In April 1994, however, the Supervisory
Committee authorized a temporary reduction of this fee for the bond
portfolio to .5%. This rate reduction resulted in savings to the bond
portfolio of $1,274 for the six months ended June 30, 1997 (unaudited)
and $2,442 for the year ended December 31, 1996. On July
9, 1997, the Supervisory Committee authorized a temporary elimination of
this fee for the bond portfolio, effective August 1, 1997.
In addition, the Company has historically assumed
expenses, other than primarily custodial and audit, incurred in the
administration of the Collective Trust. The Company will, if applicable,
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 of
the United States of America. These fees ($5,116 for the six months
ended June 30, 1997 (unaudited) and $9,291 for the year ended December
31, 1996) have historically been paid by the Company.
(4) OTHER DISCLOSURES
INVESTMENT SECURITIES PURCHASES AND SALES -
JUNE 30, 1997 (UNAUDITED)
During the six months ended June 30, 1997, purchases and sales of
investment securities, excluding cash and cash equivalent, amounted to
the following:
PORTFOLIO
BOND EQUITY
(UNAUDITED) (UNAUDITED)
Purchases $ 84,384 $ 31,087,619
Sales $ 19,230 $ 28,922,760
Purchases in the bond portfolio during the period were all of government
securities. All other purchases and sales in the bond and equity
portfolios were of investment securities, excluding government
securities.
DECEMBER 31, 1996
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
Purchases and sales of government securities included in the bond
portfolio amounts were $179,261 and $50,317,
respectively. All other purchases and sales in the bond and equity
portfolios were of investment securities, excluding government
securities.
UNREALIZED GAINS (LOSSES) ON INVESTMENTS -
JUNE 30, 1997 (UNAUDITED)
As of June 30, 1997, gross unrealized gains (losses) on investments with
a cost of $548,398 in the bond portfolio and $14,908,217 in the equity
portfolio are as follows:
PORTFOLIO
BOND EQUITY
(UNAUDITED) (UNAUDITED)
Gross unrealized gains $ 2,412 $ 1,275,528
Gross unrealized (losses) (10,353) (86,058)
Net unrealized gain (loss) $ (7,941) $ 1,189,470
DECEMBER 31, 1996
As of December 31, 1996, gross unrealized gains (losses) on
investments with a cost of $483,520 in the bond portfolio and
$11,908,217 in the equity portfolio are as follows:
PORTFOLIO
BOND EQUITY
Gross unrealized gains $ 756 $ 1,126,130
Gross unrealized (losses) (7,431) (346,645)
Net unrealized gain (loss) $ (6,675) $ 779,485
(5) SUBSEQUENT EVENT
On July 9, 1997, the Supervisory Committee authorized a temporary
suspension, effective August 1, 1997, in the investment management
fee it pays for the bond portfolio (see Note 3).
On October 31, 1997, the Supervisory Committee of the Trust, with the
earlier approval of the unit holders, authorized management to proceed
with the formal regulatory filings to effect a reorganization of the
Trust from a collective investment trust to a Delaware business trust.
Among other things, this change in form will enable the Trust to expand
its unit holders from certain qualified trusts to the general public.
It is anticipated that this reorganization will be tax free.
Management is planning for the reorganization to be effective early in
1998.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
SELECTED PER-SHARE DATA AND RATIOS/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Bond Portfolio
Six Months
Ended For the Years Ended December 31
June 30, 1997(a)1996 1995 1994 1993 1992 (b)
PER-SHARE DATA: (Unaudited) (Restated)
<S> <C> <C> <C> <C> <C> <C>
(For a share outstanding
throughout each period)
Net Asset Value,
beginning of period $12.54 $12.25 $10.01 $10.48 $10.06 (c)
Income (Loss) From
Investment Operations -
Net investment income (d) 0.33 0.62 0.81 0.62 0.42 (c)
Net realized and
unrealized gain (loss)
on investments (0.05) (0.33) 1.43 (1.09) - (c)
Total income (loss)
from investment operations 0.28 0.29 2.24 (0.47) 0.42 (c)
Net Asset Value,
end of period $12.82 $12.54 $12.25 $10.01 $10.48 $10.06
Total Return (e) 2.23% 2.37% 22.38% (4.48%) 4.17% (c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets,
end of period (000 omitted) $598 $501 $408 $298 $555 $ 61
Ratio of Expenses
to Average Net Assets 0.52% 1.09% 0.89% 0.77% 1.14% (c)
Ratio of Net Investment
Income to Average
Net Assets 2.63% 5.17% 7.11% 6.16% 4.18% (c)
Portfolio Turnover Rate 3.74% 30.46% 14.13% 24.45% 62.96% (c)
Equity Portfolio
Six Months
Ended For the Years Ended December 31
June 30, 1997(a)1996 1995 1994 1993 1992 (b)
PER-SHARE DATA: (Unaudited) (Restated)
(For a share outstanding
throughout each period)
Net Asset Value,
beginning of period $16.67 $13.71 $10.89 $10.85 $10.26 (c)
Income (Loss) From
Investment Operations -
Net investment income (d) 0.02 0.01 0.04 0.07 0.18 (c)
Net realized and
unrealized gain (loss)
on investments 2.57 2.95 2.78 (0.03) 0.41 (c)
Total income from
investment operations 2.59 2.96 2.82 0.04 0.59 (c)
Net Asset Value,
end of period $19.26 $16.67 $13.71 $10.89 $10.85 $10.26
Total Return (e) 15.54% 21.59% 25.90% 0.37% 5.75% (c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of
period (000 omitted) $16,411 $12,644 $8,433 $5,777 $3,172 $ 93
Ratio of Expenses
to Average Net Assets 0.54% 1.12% 1.11% 1.09% 1.18% (c)
Ratio of Net Investment
Income to Average
Net Assets 0.12% 0.03% 0.32% 0.69% 1.70% (c)
Portfolio Turnover Rate 205.39% 337.27% 375.30% 234.81% 165.68% (c)
Average Commission Rate
Paid (f) $0.1017 $0.1204 -- -- -- --
</TABLE>
_______________________________
(a) Data for the six months ended June 30, 1997 is not annualized.
(b) For the period from inception (September 9, 1992) through December 31,
1992.
(c) Insignificant.
(d) From April 1994 through June 30, 1997, the investment management fees
for the bond portfolio were reduced from 1% to .5% of assets annually,
resulting in a per share savings of $.03 for the six months ended June
30, 1997 and $.06, $.06 and $.03 for the years ended December 31, 1996,
1995 and 1994, respectively. In addition, during the periods presented,
administrative expenses of the funds, other than primarily custodial and
audit fees, have been assumed by the trustee of the funds.
(e) Assumes reinvestment of dividends and capital gains distributions, if any.
(f) Disclosure of average commissions paid per share is not required for the
periods prior to 1996. Average commissions paid were not material in
the bond portfolio. Shares traded on a principal basis are excluded.
Brokerage commissions paid on portfolio transactions increase the cost
of securities purchased or reduce the proceeds of securities sold and
are not reflected in the funds'statements of operations.
The accompanying notes are an integral part of these financial statements.
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