CANANDAIGUA NATIONAL COLLECTIVE INVESTMENT
FUND FOR QUALIFIED TRUSTS
1997 ANNUAL REPORT
SUPERVISORY COMMITTEE
Robert J. Craugh, Canandaigua, New York
Chairman
Retired, former Senior Vice President-Operations
The Canandaigua National Bank and Trust Company
Robert N. Coe, Bloomfield, New York
President and co-owner, W.W. Coe and Sons, Inc.
(Independent insurance agency)
Donald C. Greenhouse, Canandaigua, New York
President and Owner, Seneca Point Associates, Inc.
(Business and consulting firm)
Steven H. Swartout, Canandaigua, New York
Attorney-at-Law
Canandaigua, New York
OFFICERS:
Robert J. Craugh, Chairman
Steven H. Swartout, Secretary and Treasurer
OFFICES OF CANANDAIGUA NATIONAL COLLECTIVE INVESTMENT FUND FOR QUALIFIED
TRUSTS:
72 South Main Street
Canandaigua, New York 14424
INVESTMENT ADVISOR AND TRANSFER AGENT OF ASSETS:
The Canandaigua National Bank and Trust Company
72 South Main Street
Canandaigua, New York 14424
CUSTODIAN OF ASSETS:
The Northern Trust Company
50 South La Salle Street
Chicago, Illinois 60675
LEGAL COUNSEL:
Underberg & Kessler LLP
1800 Chase Square
Rochester, New York 14604
INDEPENDENT AUDITORS:
Morga Jones & Hufsmith, P.C.
25 North Street
Canandaigua, New York 14424
<PAGE>
Dear Unitholder:
THE EQUITY PORTFOLIO
In 1997 the Equity fund was up 16.31% compared with the S&P 500 and Long-
Term Growth fund peer group, as tracked by CDA/Wiesenberger, which were up
33.4% and 24.5%, respectively. The fourth quarter for the Fund was marred
by the effects of the currency crisis in the Pacific Rim, particularly in
Korea. The value of the Korean won fell by more than 50% during the
quarter and caused many market participants to assume that the Korean
semiconductor manufacturers would be unable to continue their dramatic
growth in the production of semiconductors. The common argument was that
this retrenchment would negatively impact those companies that manufacture
and sell semiconductor capital equipment. Consequently, semiconductor
capital equipment manufacturers such as Applied Materials, PRI Automation,
Asyst Technologies, Teradyne and Credence Systems share prices fell an
average of almost 44% in the fourth quarter alone. Ironically, Korean
orders have not been a historically significant portion of several of these
firms' business and thus, the disintegration of the Korean won should have
had a minimal impact on the fundamental outlook for earnings at these
companies. We believe that as 1998 unfolds and the capital equipment order
rates for American firms such as Intel, Motorola and Texas Instruments are
measured with the growth in Europe and Taiwan, and the investment community
is reassured through positive earnings announcements in this sector, our
decision to buy in the face of adversity in the fourth quarter will be
rewarded. At the time we are writing to you we are pleased to note that
this sector's share price performance has begun to improve and we are
hopeful for continued positive performance particularly through the second
half of 1998 and into 1999.
Management is encouraged by the performance in the pharmaceutical and
telecommunications fields and continues to maintain significant exposure to
these industries. Both groups have very compelling arguments for further
near as well as long-term growth prospects and have both enjoyed short-term
focus due to merger and acquisition activity. In particular, merger
discussions amongst SmithKline-Beecham and American Home Products and then
later Glaxo Wellcome and the record breaking size of the agreed upon merger
of MCI and WorldCom have had positive effects in share price performance in
1998. We believe that we are exceptionally well positioned to take
advantage of continued growth in both of these industries and look forward
to WorldCom completing its acquisition of MCI and becoming one of the most
formidable global competitors in telecommunications.
THE BOND PORTFOLIO
The Bond Portfolio returned 7.89% for 1997. The Lehman Brothers
Government/Corporate Index returned 9.8% and the average and the average
investment grade bond fund as measured by CDA/Wiesenberger earned 8.3%. As
of year-end government issued securities represented 46.65% of the
portfolio, corporate issues 45.43% and cash 3.27%. The weighted average
maturity of the portfolio was 6.2 years. Management anticipates
maintaining a similar weighting and maturity level in 1998. As the Bond
Portfolio continues to be rather small in terms of total net assets, the
Funds Board of Directors authorized a temporary suspension of the
investment advisory fee associated with the management of this portfolio.
We are hopeful that the combination of no advisory fee and the
reorganization to a Delaware Business Trust should provide the opportunity
to grow the assets of the Bond Fund and achieve some economies of scale in
terms of the expenses associated with managing a registered investment
company.
The fixed income markets enjoyed a bull market following the Federal
Reserve's movement to tighten interest rates in March. Throughout the year
economic statistics were released that evidenced a strong economy with a
remarkably low inflation rate. In March housing starts hit the highest
rate in three years; In May consumer confidence was at a 30 year high; The
unemployment rate in November, at 4.7%, was the lowest in thirty years and
in December, interest rates hit a four year low. We continue to maintain
a constructive outlook for interest rates in 1998. Our expectation that
the Fed will, in the worst scenario, maintain their current policy stance
and could potentially reduce the Fed Funds rate by a quarter to half point
from the current 5.5% level. Furthermore, we anticipate very favorable
inflation news on both the consumer and wholesale levels and economic
growth, which will slow somewhat from last year's level but still stay in
positive territory. The favorable inflation environment will become even
better as the United States imports goods made in countries that have
suffered dramatic declines in their local currencies and thus lower the
overall cost of these imports. This phenomenon works both to our advantage
and disadvantage. As the cost of imports declines, the cost of American
made exports to these regions have skyrocketed and may lower the sales
growth for companies relying on customer orders coming, in particular, from
the Pacific Rim. Those American companies that sell predominantly in
Europe will not be penalized as severely as those will with significant
sales in Asia.
OVERVIEW FOR 1998
On February 9, 1998 the funds effectively reorganized as a Delaware
Business Trust. There are three fundamental changes from this
reorganization that you as a unitholder should understand. First, is that
in addition to accepting investments from your IRA and retirement plans,
you and others will be able to invest non-tax qualified money into the same
portfolios that you have become familiar with over the past five years.
Secondly, the fund will be paying out the capital gains, interest and
dividend income to unitholders. Later in the year we will ask you whether
you would like these dividends to be reinvested in the fund or distributed
in cash to your retirement account. We will not be sending you a dividend
payment, as that would represent a taxable event. If you elect to receive
your dividend in cash you should meet with your investment officer and
discuss how you would like to reinvest these cash dividends. Finally, the
Canandaigua Funds hire Canandaigua National Bank to perform the portfolio
management services as well a monitor some of the day-to-day operational
issues of the fund. The current regulatory environment requires the
Canandaigua Funds to hire a distributor, other than Canandaigua National,
to meet some of the responsibilities of day-to-day shareholder activity.
The Funds have selected American Data Services and its sister company ADS
Distributors to meet many of the shareholder servicing, transfer agent and
distribution functions associated with the management of the fund. While
we were initially apprehensive about the regulatory constraints that force
us to introduce a third party to our customers, we have been pleased thus
far with the professionalism and friendly atmosphere presented by our
distributor and encourage you to call their toll free number 1-888-693-9276
or call your regular investment officer should you have any questions about
investment in the Canandaigua Funds.
The investment arena for 1998 should remain constructive for both the stock
and bond markets. However, we believe that the level of volatility in the
equity markets will increase and the penalty that the market imposes for
missing earnings expectations will at times be severe. We believe that
inflation will continue to head lower and that interest rates will also
head lower. If the Federal Reserve maintains their current monetary stance
then real interest rates, measured by subtracting the rate of inflation
from the nominal rate, will be high by all historical standards and should
continue to act as a governor on the pace of overall domestic economic
growth. The Federal government will most likely have a budget surplus this
year, which will continue to add to the already dreamlike economic
environment that we have enjoyed for the past few years.
As always, we encourage you to call us with any of your investment comments
or questions and we look forward to a prosperous 1998.
Sincerely,
Gregory S. MacKay
Bond Fund Portfolio Manager
Senior Vice President
The Canandaigua National Bank and Trust Company
Robert J. Swartout
Equity Fund Portfolio Manager
Vice President
The Canandaigua National Bank and Trust Company
<PAGE>
BOND PORTFOLIO SINCE INCEPTION
HOW A $10,000 INVESTMENT HAS GROWN
CDA/WIESENBERGER
BOND LEHMAN INTERMEDIATE INVESTMENT GRADE
PORTFOLIO GOV/CORP BOND FUND AVG
12/31/92 10,000 10,000 10,000
12/31/93 10,258 10,879 11,365
12/31/94 9,920 10,669 10,805
12/31/95 12,087 12,305 12,841
12/31/96 12,465 12,803 13,226
12/31/97 13,449 13,810 14,400
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97:
ONE YEAR: FIVE YEARS: SINCE INCEPTION (9/9/92):
7.89% 6.11% 5.86%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURNS
AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. WHEN SHARES ARE
REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE FIGURES
SHOWN ASSUME THE REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS.
EQUITY PORTFOLIO SINCE INCEPTION
HOW A $10,000 INVESTMENT HAS GROWN
CDA/WIESENBERGER
EQUITY S&P 500 DOMESTIC GROWTH
PORTFOLIO COMPOSITE MUTUAL FUND AVG.
12/31/92 10,000 10,000 10,000
12/31/93 10,576 11,008 11,187
12/31/94 10,634 11,153 11,026
12/31/95 13,376 15,345 14,463
12/31/96 16,273 18,868 17,257
12/31/97 18,927 25,163 21,484
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97:
ONE YEAR: FIVE YEARS: SINCE INCEPTION (9/9/92):
16.31% 13.61% 13.29%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURNS
AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. WHEN SHARES ARE
REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE FIGURES
SHOWN ASSUME THE REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1997
TOGETHER WITH
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1997
TABLE OF CONTENTS
PAGE
Report of Independent Public Accountants 1
Statements of Assets and Liabilities as of December 31, 1997 2
Statements of Operations for the Years Ended December 31,
1997 and 1996 3
Statements of Changes in Net Assets for the Year Ended
December 31, 1997 and 1996 4
Schedule of Portfolio Investments as of December 31, 1997:
- Bond Portfolio 5-6
- Equity Portfolio 7-10
Notes to Financial Statements 11
Selected Per-Share Data and Ratios/Supplemental Data 14
<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, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended December 31, 1997 and 1996 and the selected per-share data and
ratios/supplemental data for the years ended December 31, 1997, 1996, 1995,
1994 and 1993. 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, 1997, 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, 1997, the results of their operations for the year
then ended, the changes in their net assets for the years ended December 1997
and 1996, and the selected per-share data and ratios/supplemental data for the
years ended December 31, 1997, 1996, 1995, 1994 and 1993, in conformity with
generally accepted accounting principles.
/s/ MORGA JONES & HUFSMITH, P.C.
Canandaigua, New York
January 20, 1998 (except for the matter discussed
in Note 5 as to which date is February 9, 1998)
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
Portfolio
Bond Equity Total
ASSETS
<S> <C> <C> <C>
INVESTMENT SECURITIES, AT MARKET (bond portfolio cost -
$646,381; equity portfolio cost - $18,669,688) $655,713 $17,706,624 $18,362,337
CASH AND CASH EQUIVALENT 862 99,811 100,673
RECEIVABLES FOR:
Dividends and accrued interest 10,748 9,770 20,518
Total assets 667,323 17,816,205 18,483,528
LIABILITIES
PAYABLES FOR:
Investment management fees - (16,175) (16,175)
Professional fees (440) (12,342) (12,782)
Custodial fees (407) (402) (809)
Total payables/liabilities (847) (28,919) (29,766)
NET ASSETS AT DECEMBER 31, 1997: (equivalent to $13.53
per unit for bond portfolio and $19.40 per unit for equity portfolio,
based on 49,250 units and 916,673 units outstanding for bond and
equity portfolios, respectively) $666,476 $17,787,286 $18,453,762
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Portfolio
Bond Equity Total
INVESTMENT INCOME:
<S> <C> <C> <C>
Interest income $35,208 $ 10,958 $ 46,166
Dividend income 1,182 170,375 171,557
Total investment income 36,390 181,333 217,723
EXPENSES:
Investment management fees (1,535) (162,307) (163,842)
Custodial fees (2,374) (2,042) (4,416)
Professional fees (628) (19,136) (19,764)
Total expenses (4,537) (183,485) (188,022)
Net investment income (expense) 31,853 (2,152) 29,701
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) (107) 3,993,077 3,992,970
Net unrealized gain (loss) 16,007 (1,742,549) (1,726,542)
Net realized and unrealized gain on investments 15,900 2,250,528 2,266,428
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $47,753 $2,248,376 $2,296,129
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Portfolio
Bond Equity Total
FOR THE YEAR ENDED DECEMBER 31, 1997 -
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 31,853 $ (2,152) $ 29,701
Net realized gain (loss) on investments (107) 3,993,077 3,992,970
Net unrealized gain (loss) on investments 16,007 (1,742,549) (1,726,542)
Net increase in net assets resulting from operations 47,753 2,248,376 2,296,129
UNIT SHARE TRANSACTIONS:
Proceeds from units sold (15,383 and
212,512 units in the bond and
equity funds, respectively) 198,015 3,943,645 4,141,660
Cost of units purchased (6,114 and
54,499 units in the bond and
equity funds, respectively) (80,559) (1,048,542) (1,129,101)
Net increase in net assets resulting from
unit transactions 117,456 2,895,103 3,012,559
TOTAL INCREASE IN NET ASSETS 165,209 5,143,479 5,308,688
NET ASSETS - beginning of year 501,267 12,643,807 13,145,074
NET ASSETS - end of year $666,476 $ 17,787,286 $18,453,762
FOR THE YEAR ENDED DECEMBER 31, 1996 -
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 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
</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, 1997
BOND PORTFOLIO
<TABLE>
<CAPTION>
Cost Market Value
Percentage
Amount Amount of Net Assets
INVESTMENT SECURITIES:
<S> <C> <C> <C>
U.S. GOVERNMENT NOTES & BONDS -
25,000 US Treasury Note, 6.125%, March 31, 1998 $ 24,991 $ 25,039 3.76%
20,000 US Treasury Note, 6.125%, May 15, 1998 20,047 20,050 3.01%
25,000 US Treasury Note, 6.250%, August, 31, 2000 24,931 25,328 3.80%
25,000 US Treasury Note, 6.125%, September 30, 2000 24,983 25,266 3.79%
30,000 US Treasury Note, 5.500%, December 31, 2000 29,622 29,841 4.48%
25,000 US Treasury Note, 5.250%, January 31, 2001 24,687 24,695 3.71%
30,000 US Treasury Note, 6.375%, March 31, 2001 29,946 30,561 4.58%
30,000 US Treasury Note, 5.875%, November 15, 2005 29,279 30,169 4.53%
25,000 US Treasury Note, 5.625%, February 15, 2006 24,955 24,735 3.71%
40,000 US Treasury Note, 6.875%, May 15, 2006 40,104 42,825 6.42%
30,000 US Treasury Note, 7.000%, July 15, 2006 30,053 32,391 4.86%
Total U.S. Government Notes & Bonds 303,598 310,900 46.65%
CORPORATE BONDS -
Capital Equipment
Aerospace & Military Technology
15,000 Lockheed Martin Corporation, 6.750%,
March 15, 2003 15,900 15,276 2.29%
Construction
25,000 Caterpillar Tractor Company, 6.000%, May 1, 2007 23,863 24,079 3.61%
Total Capital Equipment 39,763 39,355 5.90%
Consumer Goods
Beverage & Tobacco
20,000 Coca-Cola Company, 6.000%, July 15, 2003 19,962 20,025 3.01%
25,000 Anheuser Busch, 6.750%, November 1, 2006 25,143 25,300 3.80%
Retail
25,000 Sears Roebuck & Company, 6.250%, January 15, 2004 23,680 24,882 3.73%
Specialty Chemicals
25,000 Eastman Chemical Company, 6.375%, January 15, 2004 25,141 25,011 3.75%
Total Consumer Goods 93,926 95,218 14.29%
Finance
Banking
30,000 Citicorp, 6.750%, August 15, 2005 30,853 30,402 4.56%
Financial Services
10,000 Ford Motor Credit Co., 6.850%, August 15, 2000 10,004 10,151 1.53%
20,000 General Electric Capital Corp. 5.500%,
November 01, 2001 19,940 19,559 2.93%
30,000 Merrill Lynch & Company, Inc. 6.250%,
October 15, 2008 29,681 29,332 4.40%
20,000 Salomon Inc., 6.750%, August 15, 2003 19,905 20,261 3.04%
Total Finance 110,383 109,705 16.46%
Services
Entertainment
25,000 Walt Disney Co., 5.800%, November 27, 2008 23,200 24,139 3.62%
Lodging
25,000 Marriott International, Inc., 6.750%,
December 15, 2003 25,017 25,371 3.81%
Telecommunications
20,000 Pacific Bell, 6.250%, March 01, 2005 19,600 19,925 2.99%
30,000 LCI International, 7.250%, June 15, 2007 30,894 31,100 4.67%
Total Services 98,711 100,535 15.09%
Total Corporate Bonds 342,783 344,813 51.74%
TOTAL INVESTMENT SECURITIES 646,381 655,713 98.39%
CASH AND CASH EQUIVALENT:
Canandaigua National Bank Collective Fixed Income 862 862 0.13%
EXCESS OF RECEIVABLES OVER PAYABLES 9,901 9,901 1.48%
NET ASSETS $ 657,144 $ 666,476 100.00%
</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, 1997
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
Cost Market Value
Percentage
Amount Amount of Net Assets
<S> <C> <C> <C>
INVESTMENT SECURITIES:
COMMON STOCK -
Capital Equipment
Electrical & Electronics
6,000 General Electric Co. $426,620 $440,250 2.48%
Farm Machinery
28,000 AGCO Corporation 805,215 819,000 4.60%
10,000 Deere & Company 546,645 583,125 3.28%
Total Capital Equipment 1,778,480 1,842,375 10.36%
Consumer Goods
Appliances
8,000 Sunbeam -Oster Company 327,438 337,000 1.89%
Electronics
15,000 Molex, Inc. 475,895 481,875 2.71%
Total Consumer Goods 803,333 818,875 4.60%
Energy
Oil and Gas Exploration
7,000 Cliffs Drilling 401,865 349,125 1.96%*
6,000 Falcon Drilling, Inc. 214,015 210,375 1.18%*
5,000 Schlumberger, LTD 415,716 402,500 2.27%
Utilities
10,000 AES Corporation 392,290 466,250 2.62%*
Total Energy 1,423,886 1,428,250 8.03%
Finance
Banking
6,000 Chase Manhattan Corporation 720,222 657,000 3.69%
1,000 Wells Fargo & Co. 334,432 339,437 1.91%
Credit Card
20,000 MBNA Corporation 529,520 546,250 3.07%
Total Finance 1,584,174 1,542,687 8.67%
Manufacturing
Computers
12,000 Compaq Computer Corporation 750,740 677,250 3.81%*
Total Manufacturing 750,740 677,250 3.81%
Pharmaceutical
Pharmaceutical
7,000 American Home Products Corp. 510,761 535,500 3.01%
8,500 Merck & Co., Inc. 780,958 903,125 5.08%
6,500 Zeneca Group ADR 655,295 702,000 3.95%
Total Pharmaceutical 1,947,014 2,140,625 12.04%
Semiconductors
Semiconductors - Capital Equipment
21,000 Asyst Technologies, Inc. 772,081 456,750 2.57%*
33,000 Credence Systems Corporation 1,232,807 977,625 5.49%*
30,000 Integrated Process Equipment Corporation 649,895 472,500 2.65%*
15,000 Teradyne, Inc. 456,059 480,000 2.70%*
30,000 Applied Materials 1,013,376 903,750 5.08%*
20,000 PRI Automation, Inc. 970,099 577,500 3.25%*
Semiconductors - Parts Production
12,000 Vitesse Semiconductor Corporation 534,178 453,000 2.55%*
Total Semiconductors 5,628,495 4,321,125 24.29%
Services
Business & Public Services
8,000 Paychex, Inc. 329,396 405,000 2.28%
Marketing
6,000 Catalina Marketing Corporation 300,620 277,500 1.56%*
Telecommunications - Network
40,000 Frontier Corporation 781,342 962,500 5.41%
20,000 MCI Communications 843,060 856,250 4.81%
13,000 LCI International, Inc. 373,788 399,750 2.25%*
25,000 World Communications, Inc. 821,290 756,250 4.25%*
Telecommunications - Calling cards
30,000 Boston Communications Group, Inc. 364,915 326,250 1.83%*
30,000 Smartalk Teleservices, Inc. 650,235 682,500 3.84%*
Total Telecommunications 3,834,630 3,983,500 22.39%
Total Services 4,464,646 4,666,000 26.23%
Waste Management
Waste Management
9,000 US Filter Corporation 288,920 269,437 1.52%*
Total Waste Management 288,920 269,437 1.52%
TOTAL INVESTMENT SECURITIES (COMMON STOCK) 18,669,688 17,706,624 99.55%
CASH AND CASH EQUIVALENT:
Canandaigua National Bank Collective Equity Fund 99,811 99,811 0.56%
EXCESS OF PAYABLES OVER RECEIVABLES (19,149) (19,149) (.11%)
NET ASSETS $18,750,350 $17,787,286 100.00%
</TABLE>
*Non-income producing securities
The accompanying notes are an integral part of these financial statements.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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. The Collective Trust was formed in
September, 1992, and consists of a bond portfolio with an investment
emphasis in 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.
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,
1997 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.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 December 31, 1997, 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, any
accepted unit purchase obligations for which cash has not yet been
received are reflected as sale of fund's units and any approved
distribution requests for which cash has not yet been disbursed are
reflected as repurchases of fund's units in the 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%. On July 9, 1997, the Supervisory Committee authorized a temporary
suspension, effective August 1, 1997, in the total investment management
fee it pays for the bond portfolio. These rate reductions resulted in
savings to the bond portfolio of $4,391 for the year ended December 31,
1997.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(3) AGREEMENTS (continued)
In addition, the Company has historically assumed expenses, other than
primarily custodial and audit, incurred in the administration of the
Collective Trust. During 1997, the Company also assumed approximately
$5,000 of audit fees related to the reorganization of the 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, $24,010 for the year ended
December 31, 1997, have historically been paid by the Company.
(4) OTHER DISCLOSURES
INVESTMENT SECURITIES PURCHASES AND SALES -
During the year ended December 31, 1997, purchases and sales of
investment securities, excluding cash and cash equivalent, amounted to
the following:
PORTFOLIO
BOND EQUITY
Purchases $ 212,501 $ 66,756,941
Sales $ 49,532 $ 63,720,323
Purchases and sales of government securities included in the bond
portfolio amounts were $84,384 and $15,000, respectively. All other
purchases and sales in the bond and equity portfolios were of investment
securities, excluding government securities. Transaction fees paid in
1997 to the Company and The Northern Trust Company in the amount of
approximately $4,700 and $3,800, respectively, were recorded as an
adjustment to the basis of the related securities in the amount of
approximately $8,200 in the equity portfolio and $300 in the bond
portfolio.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(4) OTHER DISCLOSURES (continued)
UNREALIZED GAINS (LOSSES) ON INVESTMENTS -
As of December 31, 1997, gross unrealized gains (losses) on investments
with a cost of $646,381 in the bond portfolio and $18,669,688 in the
equity portfolio are as follows:
PORTFOLIO
BOND EQUITY
Gross unrealized gains $ 11,487 $ 720,863
Gross unrealized (losses) (2,155) (1,683,927)
Net unrealized gain (loss) $ 9,332 $ (963,064)
(5) SUBSEQUENT EVENT
Effective February 9, 1998, the Trust was reorganized on a tax free basis
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
intended that the Trust will operate as a qualified regulated investment
company, distributing any of its taxable income within prescribed times
so that the Trust will continue to not be subject to income taxes.
<PAGE>
CANANDAIGUA NATIONAL COLLECTIVE
INVESTMENT FUND FOR QUALIFIED TRUSTS
SELECTED PER-SHARE DATA AND RATIOS/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Bond Portfolio
For the Years Ended December 31
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA: (Restated)
(For a share outstanding throughout each period)
Net Asset Value, beginning of period $12.54 $12.25 $10.01 $10.48 $10.06
Income (Loss) From Investment Operations -
Net investment income (a) 0.70 0.62 0.81 0.62 0.42
Net realized and unrealized gain (loss)
on investments 0.29 (0.33) 1.43 (1.09) -
Total income (loss) from investment operations 0.99 0.29 2.24 (0.47) 0.42
Net Asset Value, end of period $13.53 $12.54 $12.25 $10.01 $10.48
Total Return (b) 7.89% 2.37% 22.38% (4.48%) 4.17%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000 omitted) $ 666 $ 501 $ 408 $ 298 $ 555
Ratio of Expenses to Average Net Assets 0.77% 1.09% 0.89% 0.77% 1.14%
Ratio of Net Investment Income to Average
Net Assets 5.38% 5.17% 7.11% 6.16% 4.18%
Portfolio Turnover Rate 8.44% 30.46% 14.13% 24.45% 62.96%
Equity Portfolio
For the Years Ended December 31
1997 1996 1995 1994 1993
PER-SHARE DATA: (Restated)
(For a share outstanding throughout each period)
Net Asset Value, beginning of period $16.67 $13.71 $10.89 $10.85 $10.26
Income (Loss) From Investment Operations -
Net investment income (expense) (a) - 0.01 0.04 0.07 0.18
Net realized and unrealized gain (loss)
on investments 2.73 2.95 2.78 (0.03) 0.41
Total income from investment operations 2.73 2.96 2.82 0.04 0.59
Net Asset Value, end of period $19.40 $16.67 $13.71 $10.89 $10.85
Total Return (b) 16.38% 21.59% 25.90% 0.37% 5.75%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000 omitted) $17,787 $12,644 $8,433 $5,777 $3,172
Ratio of Expenses to Average Net Assets 1.15% 1.12% 1.11% 1.09% 1.18%
Ratio of Net Investment Income (Expense)
to Average Net Assets 0.00% 0.03% 0.32% 0.69% 1.70%
Portfolio Turnover Rate 398.23% 337.27% 375.30% 234.81% 165.68%
Average Commission Rate Paid (c) $0.1029 $0.1204
</TABLE>
(a) The investment management fees for the bond portfolio were reduced
from 1% to .5% of assets annually from April, 1994 through July, 1997
and to zero from August 1, 1997 through December 31, 1997, resulting in
a per share savings of $.10 , $.06, $.06 and $.03 for the years ended
December 31, 1997, 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.
(b) Assumes reinvestment of dividends and capital gains distribution,
if any.
(c) 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.
