PROSPECTUS
May 3, 1999
THE CANANDAIGUA FUNDS
The Canandaigua Funds are:
The Equity Fund
The Bond Fund
Please read this Prospectus and keep it for future reference. It
contains important information, including information on how The Canandaigua
Funds invest the shareholders' funds and the services they offer to
shareholders.
SHARES OF THE CANANDAIGUA FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF
ANY BANK, AND ARE NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Canandaigua Funds
Canandaigua National Bank and
Trust Company
72 South Main Street
Canandaigua, New York 14424
(716) 394-4260 ext 216
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TABLE OF CONTENTS
Questions Every Investor Should Ask Before Investing
in The Funds..............................................................3
WHAT ARE THE FUNDS' OBJECTIVES?....................................3
WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?...............3
WHAT ARE THE PRINCIPAL RISKS IN INVESTING IN THE FUNDS?............4
HOW HAVE THE FUNDS PERFORMED?......................................5
Fees and Expenses...........................................................7
Management of The Funds.....................................................8
Investment Objectives and Strategies.......................................10
Your Fund Account..........................................................14
THE FUNDS' SHARE PRICE............................................14
HOW TO PURCHASE SHARES............................................14
HOW TO SELL SHARES................................................15
HOW TO EXCHANGE SHARES............................................17
DIVIDENDS, DISTRIBUTIONS AND TAX INFORMATION ON YOUR SHARES.......17
YEAR 2000.........................................................18
Financial Highlights.......................................................19
Additional Information.....................................................22
Appendix A.................................................................23
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION 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.
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QUESTIONS EVERY INVESTOR SHOULD ASK BEFORE
INVESTING IN THE CANANDAIGUA FUNDS
1. WHAT ARE THE FUNDS' OBJECTIVES?
Each of The Equity Fund and The Bond Fund has its own investment
objectives, which are considered fundamental to each respective Fund. The Funds'
Board of Trustees may not change the investment objective of either Fund without
shareholder approval.
THE EQUITY FUND. The Equity Fund seeks long-term growth of
asset value through capital appreciation
and dividend income.
THE BOND FUND. The Bond Fund seeks to earn a high level of
current income while permitting
investors a degree of safety in principal.
2. WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?
Each of The Equity Fund and The Bond Fund has its own respective
investment strategies. The Funds' Board of Trustees may change the investment
strategies of either The Equity Fund or The Bond Fund without shareholder
approval.
THE EQUITY FUND. Generally, the Investment Advisor will
invest nearly the total value of the
assets in equity-based securities, with a
minimal amount in cash equivalents. In
general, the Advisor invests in the common
stock of mid-to-large capital companies,
whose issues are traded on domestic
exchanges. The Advisor practices a
blended approach to investing--the Advisor
does not consistently follow a value,
growth or other formulaic approach.
Rather, considering the factors listed
under "Investment Objectives and
Strategies" the Advisor selects
investments deemed appropriate in the
light of market conditions.
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THE BOND FUND. Generally, the Investment Advisor will
invest nearly the total value of the
assets in bonds and debentures, with a
minimal amount in cash equivalents. The
Advisor will invest primarily in debt
obligations issued or guaranteed by the
United States Government, as well as debt
securities of U.S. corporations and
securities receiving an "investment grade"
rating from Moody's Investment Services or
Standard & Poor's Corporation. It is
expected that the dollar-weighted average
credit quality will be AA (to be discussed
later). In making investments in The Bond
Fund, the Advisor will select fixed-income
securities with a maturity in excess of
one year, but not more than thirty years.
However, it is expected that the
dollar-weighted average maturity of The
Bond Fund will not exceed ten years.
3. WHAT ARE THE PRINCIPAL RISKS IN INVESTING IN THE FUNDS?
Investors in The Canandaigua Funds may lose money. Shares of The
Canandaigua Funds are not bank deposits or obligations of any bank, and are not
guaranteed or insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency. There are risks associated with investments
in the types of securities in which The Funds invest. The most significant risks
include:
THE EQUITY AND BOND FUNDS.
MARKET AND ECONOMIC RISK: The prices of the securities in
which The Funds invest may decline for a number of reasons,
including:
- Actual earnings that do not meet generally accepted
forecasts or estimates of earnings.
- International political changes may alter investors'
future expectations for a company's earnings.
- Changes in the general interest rate environment may
have a negative impact on the valuation of earnings.
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THE EQUITY FUND.
VOLATILITY RISK: The Equity Fund may exhibit more share price
volatility than its benchmark index, the S&P 500. The
volatility is partly a function of the size of The Fund and
the fact that there are substantially less than 500 issues in
the portfolio at any one time. Additionally, the Advisor may
select companies whose anticipated earnings growth rate is
greater than the current price-to-earnings ratio. In the event
of an earnings shortfall, these companies' share price
performance tends to react with substantial downward risk
exposure. In an effort to minimize the downward price
movements in these situations, the Portfolio Managers may, at
their discretion, choose to sell their position and reinvest
the proceeds in a different security. This action will raise
the portfolio turnover rate of The Fund and may or may not
have an impact on the overall capital gains and losses
generated throughout the year.
THE BOND FUND.
INTEREST RATE RISK: In general, the value of bonds and other
debt securities falls when interest rates rise. The longer
term obligations are usually more sensitive to interest rate
changes than shorter term obligations. While bonds and other
debt securities normally fluctuate less in price than common
stocks, there have been extended periods of increases in
interest rates that have caused significant declines in bond
prices.
CREDIT RISK: The issuers of the bonds and other debt
securities held by The Bond Fund may not be able to make
interest or principal payments. Even if these issuers are able
to make interest or principal payments, they may suffer
adverse changes in financial conditions that would lower the
credit quality of the security, leading to decline in the
price of the security.
The Equity Fund will generally have a more volatile unit value and
lower current yield than The Bond Fund. Indeed, by stressing current yields
through fixed-income securities, The Bond Fund may provide greater stability of
unit value than The Equity Fund. However, The Bond Fund investments should not
be expected to appreciate in value to the same extent as investments in The
Equity Fund, since there will be minimal participation in the general equity
markets.
Because of these risks, prospective investors who are uncomfortable
with an investment that may fluctuate in value should not invest in The
Canandaigua Funds.
4. HOW HAVE THE FUNDS PERFORMED?
The bar chart and table that follow provide some indication of the
risks of investing in The Equity Fund and The Bond Fund by showing changes in
each Funds' performance from year to year, beginning in 1993. Please remember
that either Fund's past performance is not necessarily an indication of its
future performance. It may perform better or worse in the future.
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THE CANANDAIGUA FUNDS -
PER SHARE TOTAL RETURN PER CALENDAR YEAR(1)
BAR CHART DELETED HERE. BAR CHART DEPICTS THE PER SHARE TOTAL RETURN PER
CALENDAR YEAR FROM 1993 THROUGH 1998.
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(1) The Equity Fund's best quarterly performance during the 1993-1998
period occured in quarter ended December 31, 1998, with a 25.97% return. The
lowest quarterly performance for The Equity Fund occured in the quarter ended
September 30, 1998, -16.20%. The highest and lowest performing quarters for The
Bond Fund were the quarters ended March 31, 1995, 7.52%, and March 31,1994,
- -2.25%, respectively.
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FEES AND EXPENSES
The tables below describe the fees and expenses that you may pay if you
buy and hold shares of The Canandaigua Funds.
<TABLE>
<CAPTION>
SHAREHOLDER FEES AND EXPENSES
THE EQUITY FUND THE BOND FUND
--------------- -------------
<S> <C> <C>
Maximum Sales Charge (Load) No Charge None
Imposed on Purchases (as a
percentage of the offering price)
Maximum Deferred Sales Charge No Charge No Charge
(Load)
Maximum Sales Charge (Load) No Charge No Charge
Imposed on Reinvested Dividends
and Distributions
Redemption Fee None None
Exchange Fee None None
Maximum Account Fee No Account Fee No Account Fee
1998 ACTUAL FUND OPERATING FEES AND EXPENSES (expenses that are deducted from
Fund assets*)
THE EQUITY FUND THE BOND FUND
--------------- -------------
Management Fees 1.00% 0.26%
Distribution and/or Service Fee (12b-1) 0.00% 0.00%
Other Expenses 0.14% 0.20%
----- -----
Total Fund Operating Expenses 1.14%** 0.46%**
===== =====
</TABLE>
* The maximum annual operating fees and expenses which may be charged for
either Fund is 1.5% of average net assets.
** Each of The Funds had actual fund operating fees and expenses for the most
recent fiscal year that were less than the 1.5% maximum charge.
EXAMPLE
-------
You would pay the following expenses on a $10,000 investment in 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:
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Expenses for
The Equity and
Bond Funds: 150.00 $470.00 $820.00 $1,750.00
The table above is designed to assist you in understanding the direct and
indirect costs and expenses that you will bear as a shareholder of The Funds.
The example above shows the amount of expenses you would pay on a $10,000
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 entitled "1998 Actual Fund Operating Fees and
Expenses." As described above, the example is an illustration only and actual
expenses may be less than those shown.
MANAGEMENT OF THE FUNDS
BOARD OF TRUSTEES
The Canandaigua Funds are governed by a Board of Trustees, which is
responsible for protecting the interests of shareholders under Delaware Law. The
Statement of Additional Information, discussed on Page 23 of this Prospectus,
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 acts as the Investment Advisor to each of the
Canandaigua Funds. The Advisor's address is:
72 South Main Street
Canandaigua, New York 14424.
The Advisor is a commercial bank offering a wide range of banking
services to its customers in the Canandaigua, New York area since 1887. As of
December 31, 1998, the Advisor had assets of $428,047,000, loans of $308,486,000
and deposits of $376,507,000 and provided personal, corporate and institutional
investment management and custodial services for accounts having an aggregate
market value of approximately $423,580,000.
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 strategies 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. In doing so, the Advisor
places orders to purchase and sell securities on behalf of each Fund and selects
broker-dealers that, in the Advisor's judgment, provide prompt and reliable
execution at favorable prices and reasonable commission rates. The Advisor
provides these services principally through the Portfolio Managers, who are
members of the Investment and Trust Departments of the Advisor.
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The Canandaigua Funds pays to the Advisor a management fee computed
daily and paid monthly at the annual rate of one percent (1%) 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 .50
percent, which was further temporarily reduced to .00 percent in August 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, administrative fees, fund
accounting fees, transfer agency fees, legal and auditing costs, which are
subject to reimbursement at the discretion of the Advisor. 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.
PORTFOLIO MANAGERS
Gregory S. MacKay and Robert J. Swartout are the Portfolio Managers for
The Funds 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 a Vice President and Investment Officer of the Advisor. Both Mr.
MacKay and Mr. Swartout have been officers of the Advisor for more than six
years.
DISTRIBUTOR
ADS Distributors, Inc., a Florida corporation and registered
broker-dealer, serves as the Distributor of each Fund's shares. The
Distributor's address is:
670 Second Street North
Suite A
Safety Harbor, Florida 34695.
TRANSFER AGENT AND ADMINISTRATOR
Under separate agreements with The Funds, American Data Services, Inc.
acts as the Transfer Agent, Fund Accounting Agent and as the Administrator of
each Fund. The Transfer Agent, Fund Accounting Agent and Administrator's address
is:
P.O. Box 5536
Hauppauge, New York 11788-0132.
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CUSTODIAN
Northern Trust Company acts as Custodian of the assets of each Fund.
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INVESTMENT OBJECTIVES AND STRATEGIES
The Equity Fund seeks long-term growth of asset value through capital
appreciation and dividend income. The Bond Fund seeks to earn a high level of
current income while permitting investors a degree of safety in principal.
However, please remember that an investment objective is not a guarantee. An
investment in The Canandaigua Funds might not earn income and investors could
lose money.
The investment strategies 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. Still, The Canandaigua Funds has
adopted certain fundamental investment objectives that are enumerated in detail
in the Statement of Additional Information and which may not be changed without
shareholder approval.
THE EQUITY FUND.
As stated earlier, The Equity Fund seeks long-term growth of asset
value through capital appreciation and dividend income. To achieve this growth,
The Equity Fund invests in a diversified group of companies, with an emphasis on
common stocks, but may also include debt securities and preferred stock
convertible into common. In general, the Advisor invests in the common stock of
mid-to-large capital companies (defined as market capitalization of $300,000,000
or more), whose issues are traded on domestic exchanges. The Advisor practices a
blended approach to investing--the Advisor does not consistently follow a value,
growth or other formulaic approach. Rather, considering the factors listed under
"Investment Objectives and Strategies", the Advisor selects investments deemed
appropriate in the light of market conditions.
The Equity Fund portion of the Section entitled "[w]hat are The Funds'
principal investment strategies?" reflects that, under normal market conditions
the assets will be nearly fully invested in equity-based securities. Normally,
investments in The Equity Fund in cash equivalents will be minimal. However, the
Investment Advisor may decide to hold an additional percentage of The Equity
Fund, without limitation on amount, in cash equivalents when market conditions
dictate a temporary "defensive" investment strategy. Such a decision, although
not offering the opportunity for capital appreciation, might be deemed prudent
to protect net asset value. "Cash Equivalents" are short-term, interest-bearing
instruments in which funds are invested temporarily pending longer-term
investment, including commercial paper, certificates of deposit, repurchase
agreements, bankers' agreements and U.S. Treasury Bills.
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The Investment Advisor considers a number of factors in investing the
assets of The Equity Fund in a company's equity-based securities, including:
-- Earnings forecasts and growth rates, and their relationship to the
current and historical price-to-earnings ratio for the company, its
peers and the market as a whole
-- Security analysts' recommendations provided by the brokerage community,
which the Investment Advisor may use to execute security transactions
-- Macroeconomic forecasts and trends, coupled with the Investment
Advisor's interpretation of economic data regarding future prospects of
individual securities and industry segments
-- Sales, growth and profitability prospects for the economic sector and
markets in which the company operates and for the products or services
the company provides
-- The financial condition of the company, including its ability to meet
its liabilities and to provide income in the form of dividends
-- The prevailing price of the security
-- How the prevailing price compares to historical price levels of the
securities, current stock prices in the general market and the stock
prices of competing companies
-- Projected earnings estimates and earnings growth rates for the company
and the relation of those figures to the current stock 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 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 twenty-five percent
(25%) of The Equity Fund's assets at the time of the purchase
In general, The Equity Fund will not invest in securities that have, in
the judgment of the Investment Advisor, a high level of debt as a percentage of
their total market capitalization.
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The Investment Advisor of The Equity Fund engages in more active and
frequent trading of the assets in The Fund. As a result, an investor may realize
increased capital gains taxes. See discussion under "Taxes" below.
The Equity Fund will not invest in securities of foreign issuers, but
may invest in American Depository Receipts for foreign companies that are traded
on a U.S. securities exchange or on The Nasdaq Stock Market.
The Equity Fund will not invest in puts, calls and other futures
contracts.
THE BOND FUND.
As stated earlier, The Bond Fund seeks to earn a high level of current
income while permitting investors a degree of safety in principal. To achieve
this growth, The Bond Fund invests primarily in fixed-income debt securities.
These include debt securities such as:
-- Bonds and notes issued or guaranteed by the United States government or
its agencies.
-- Bonds, notes and preferred stock of United States corporations.
The Bond Fund portion of the Section entitled "[w]hat are The Funds'
principal investment strategies?" reflects that, under normal market conditions,
nearly all the assets will be invested in bonds and debentures, which consist
mainly of 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 the
United States corporations. Normally, investments in The Bond Fund in cash
equivalents will be minimal. However, when market conditions dictate a temporary
"defensive" investment strategy, the Advisor will decide to hold a portion of
The Bond Fund, without limitation on amount, in cash equivalents.
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
authority of an act of Congress. The Advisor will consider investing in
securities issued or guaranteed by the following governmental agencies:
-- Government National Mortgage Association.
-- Federal National Mortgage Association.
-- Farmers Home Administration.
-- Federal Farm Credit Banks.
-- Federal Home Loan Banks.
-- Federal Home Loan Mortgage Corporation.
-- Student Loan Marketing Association.
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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 these and other 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.
The only non-interest paying securities to be held in The Bond Fund
will be obligations evidencing ownership of future interest and principal
payments on United States Treasury Bonds. 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.
In general, in investing the assets of The Bond Fund, the Investment
Advisor will consider the governmental program under which the security was
issued as well as the ratings. The Bond Fund will invest primarily in
fixed-income securities with a maturity in excess of one year. However, the
Advisor may invest in fixed-income securities with maturities of up to thirty
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. This 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. As of December 31, 1998, The Bond Fund's dollar-weighted
average credit quality was AA, as described in Appendix A, and had a
dollar-weighted average maturity of 5.29 years.
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The Bond Fund will not invest in securities of foreign issuers.
The Bond Fund will not invest in puts, calls or other futures
contracts.
Again, The Funds' objectives, stated above, are considered fundamental
and therefore, the Board of Trustees may not revise them. The Funds' strategies,
however, are considered non-fundamental and therefore the trustees may revise
them, as necessary, from time to time.
YOUR FUND ACCOUNT
THE FUNDS' SHARE PRICE
The price at which investors purchase shares of each Fund and at which
shareholders redeem shares of each Fund is called its net asset value. Each Fund
calculates it net asset value as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern Time) on each day the New York Stock
Exchange is open for trading. Each Fund calculates its net asset value based on
the market prices of the securities, computed by adding the value of that Fund's
investment plus cash and other assets, deducting liabilities and then dividing
the results by the number of its shares outstanding. Each Fund will process
purchase orders that it receives in good and proper form and redemption orders
that it receives prior to the close of regular trading on a day in which the New
York Stock Exchange is open at the net asset value determined LATER THAT DAY. It
will process purchase orders that it receives in good and proper form and
redemptions orders that it receives AFTER the close of regular trading at the
net asset value determined at the close of regular trading on the NEXT DAY that
the New York Stock Exchange is open.
HOW TO PURCHASE SHARES
A. READ THIS PROSPECTUS CAREFULLY.
B. DETERMINE HOW MUCH YOU WANT TO INVEST, KEEPING IN MIND THE FOLLOWING
MINIMUMS:
1. New accounts - $250.00
2. Existing accounts - $50.00
C. COMPLETE THE FOLLOWING:
1. For new accounts, the New Account Application accompanying
this Prospectus, carefully following the instructions.
2. For additional investments, prepare a brief letter stating:
-- The registration of your account.
-- The name of the Fund whose shares you want to purchase.
-- Your account number.
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3. Make your check, in the amount of the purchase price of the
shares, payable to "The Equity Fund" or "The Bond Fund."
-- All checks must be drawn on U.S. Banks.
-- Include your account number on your check when you are adding to
an existing account.
-- The Funds will not accept cash or third party checks.
-- The Funds' Transfer Agent will charge a $15.00 fee against a
shareholder's account for any payment check returned for
insufficient funds. The shareholder will also be responsible for
any losses suffered by either Fund as a result.
4. Send the application and check to:
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132.
D. OTHER INFORMATION ABOUT PURCHASING SHARES OF THE FUNDS.
The Funds may reject any share purchase application for any reason. The
Funds do not issue share certificates. The Funds will send investors a written
confirmation for all purchases of shares.
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HOW TO SELL SHARES
A. REQUESTING THE SALE OF SHARES.
1. Prepare a letter of instruction containing:
-- The name of the registered owner(s).
-- The name of the account(s).
-- The name of The Fund(s).
-- The Account number.
-- The amount of money or number of shares being sold.
-- Name and address of person to receive the money.
-- Additional information that The Fund(s) may require for
redemption by corporations, executors, administrators, trustees,
guardians or others who hold shares in a fiduciary or
representative capacity.
Please contact The Funds' Transfer Agent, in advance, at 1-800-628-9403
if you have any questions regarding the sale of shares.
2. Sign the letter of instruction exactly as the shares are
registered. Joint ownership accounts must be signed by all
owners.
3. Have the signatures guaranteed by one of the following
financial institutions:
-- U.S. bank or trust company.
-- Broker, dealer, municipal securities broker or dealer.
-- Government securities broker or dealer.
-- Credit union, authorized to provide signature guarantees.
-- National Securities Exchange.
-- Registered Securities Association or clearing agency.
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A NOTARIZED SIGNATURE IS NOT AN ACCEPTABLE SUBSTITUTE FOR A SIGNATURE
GUARANTEE.
4. Send a letter of instruction to:
The Canandaigua Funds
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132
B. PAYMENT OF REDEMPTION PROCEEDS.
The redemption price per share you receive for a redemption request is
the next determined net asset value after the Transfer Agent receives your
written request in proper form with all required information. The Transfer Agent
will mail a check in the amount of the redemption proceeds no later than the 7th
day after it receives the written request in proper form with all required
information.
C. RETIREMENT ACCOUNTS.
To sell shares in an IRA or other retirement account, please contact
the Advisor at 72 South Main Street, Canandaigua New York 14424 or by calling
collect 1-716-394-4260 ext 216 to request the appropriate distribution form and
for additional instructions.
HOW TO EXCHANGE SHARES
Shares in either Fund may be exchanged, without cost, for shares in the
other Fund. To participate in the program you must do the following:
-- Contact the Transfer Agent by writing P.O. Box 5536, Hauppauge,
New York 11733-0132 or by calling 1-888-693-9276 to request the
appropriate form to enroll in this program, giving you the
option of exchanging shares between Funds.
-- Once enrolled, exchanges may be made over the telephone but only
between Fund accounts registered in the same name, address and
taxpayer identification number and are subject to the
requirements for initial and subsequent investments, provided to
you by the Transfer Agent upon enrollment in the program, as in
effect from time to time.
-- 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 the telephone instructions received. To
the extent such procedures are reasonably designed to prevent
unauthorized or fraudulent instructions and are followed,
neither The Canandaigua Funds, the Investment Advisor nor the
Transfer Agent is responsible for any loss, expense or cost
arising from any such transaction.
-- Any exchange of shares will be based on the 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.
-19-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAX INFORMATION ON YOUR SHARES
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income
and substantially all of its capital gain annually prior to the close of the
fiscal year in which the gains are earned. You have two distribution options:
-- AUTOMATIC REINVESTMENT OPTION - both dividend and capital gains
distribution will be reinvested in additional Fund shares.
-- ALL CASH OPTION - both dividend and capital gains distributions
will be paid in cash.
Unless an election is made on the New Account Application selecting the
All Cash Option, the Automatic Reinvestment Option will be applied to each
account.
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 ninety percent (90%) 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
advisor 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 non-resident alien.
The Advisor will purchase and sell securities with primary concern
being the investment performance of the portfolios rather than tax
considerations for the shareholders.
-20-
<PAGE>
The portfolio turnover rate is a ratio determined by dividing the
lesser of the dollar amount of purchases and sales in the investment portfolio
by the average assets of the portfolio. As The Equity and Bond Funds are both
substantially smaller than the average mutual fund, the denominator in this
ratio will be substantially smaller than other funds and the average turnover
rate may be higher than that of many of The Funds' peers. Historically, The
Funds were limited to tax qualified investments and thus had no exposure to
current tax liability from capital gains generated through portfolio turnover.
After February 9, 1998, The Funds' new organizational structure allows investors
to invest non-tax qualified monies into The Funds and requires The Funds' to
distribute substantially all of the income and capital gains generated to the
shareholders. In years where there are capital gains generated through portfolio
turnover, shareholders holding non-tax qualified investments will likely receive
a capital gains dividend that is currently taxable.
YEAR 2000
The Funds are aware of the "Year 2000" issue. The "Year 2000" issue
stems from the use of a two-digit format to define the year in certain
date-sensitive computer application systems rather than the use of a four-digit
format. As a result, the date-sensitive software program could recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
major systems or process failures or the generation of erroneous data, which
would lead to disruptions in The Funds' business operations.
The Funds have no application systems of their own and are entirely
dependent on their service providers' systems and software. The Funds are
working with their service providers (including the Advisor, Administrator,
Transfer Agent and Custodian) to identify and remedy any Year 2000 issues.
However, The Funds cannot guarantee that all Year 2000 issues will be identified
and remedied. Failure to successfully identify and remedy all Year 2000 issues
could result in an adverse impact on The Funds. Further, issuers of securities
may have Year 2000 issues that may affect the value of The Funds.
FINANCIAL HIGHLIGHTS
The following financial highlight tables are intended to help you
understand each Fund's financial performance for the period of The Fund's
operations. Certain information reflects financial results for a single Fund
share. The total returns in the tables represent the rate that an investor would
have earned or lost on an investment in The Fund (assuming reinvestment of all
dividends and distribution). This information has been audited by Morga, Jones &
Hufsmith, P.C., independent auditors, whose report, along with The Funds'
financial statements, are included in the Annual Report, which is available upon
request.
-21-
<PAGE>
THE CANANDAIGUA FUNDS
CANANDAIGUA EQUITY FUND
SELECTED PER-SHARE DATA AND RATIOS/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- ---------- ---------- ---------- ----------
PER SHARE DATA:
(For a share outstanding throughout
each period)
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of Period $ 19.40 $ 16.67 $ 13.71 $ 10.89 $ 10.85
--------- ---------- ---------- ---------- ----------
Income (Loss) From Investment
Operations --
Net investment income (loss) (a) (0.06) -- 0.01 0.04 0.07
Net realized and unrealized gain (loss) on
investments 3.46 2.73 2.95 2.78 (0.03)
--------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 3.40 2.73 2.96 2.82 0.04
--------- ---------- ---------- ---------- ----------
Less Distributions (b)
Dividends from net investment income --
Distributions from net realized
Gains --
---------
Total distributions --
---------
Net Asset Value, end of period $ 22.80 $ 19.40 $ 16.67 $ 13.71 $ 10.89
========= ========== ========== ========== ==========
Total Return (c) 17.53% 16.38% 21.59% 25.90% 0.37%
========= ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000 omitted) $ 23,568 $ 17,787 $ 12,644 $ 8,433 $ 5,777
Ratio of Net Expenses to Average
Net Assets (a) 1.14% 1.15% 1.12% 1.11% 1.09%
Ratio of Gross Expenses to Average
Net Assets (a) 1.50% 1.44% 1.57% 1.25% 1.27%
Ratio of Net Investment Income
to Average Net Assets (.31%) 0.00% 0.03% 0.32% 0.69%
Portfolio Turnover Rate 314.28% 398.23% 337.27% 375.30% 234.81%
<FN>
(a) During the periods presented, certain administrative expenses of The
Equity Fund, other than primarily custodial and audit fees, have been
assumed by the investment manager of The Equity Fund, resulting in per
share savings of $.08, $.05, $.07, $.02 and $.02 for the years ended
December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
(b) Dividend distributions were not relevant for tax compliance purposes
prior to February 9, 1998 when The Fund operated solely as a collective
investment trust. There have been no Equity Fund dividends declared or
distributed through December 31, 1998.
(c) Assumes reinvestment of the dividends and capital gains distribution, if
any.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
-22-
<PAGE>
THE CANANDAIGUA FUNDS
CANANDAIGUA BOND FUND
SELECTED PER-SHARE DATA AND RATIOS/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
PER SHARE DATA:
(For a share outstanding throughout
each period)
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of Period $ 13.53 $ 12.54 $ 12.25 $ 10.01 $ 10.48
---------- ---------- ---------- ---------- ----------
Income (Loss) From Investment
Operations --
Net investment income (loss) (a) 0.77 0.70 0.62 0.81 0.62
Net realized and unrealized gain (loss) on
investments 0.45 0.29 (0.33) 1.43 (1.09)
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 1.22 0.99 0.29 2.24 (0.47)
---------- ---------- ---------- ---------- ----------
Less Distributions (b)
Dividends from net investment income (0.61)
Distributions from net realized
Gains ----------
Total distributions (0.61)
Net Asset Value, end of period $ 14.14 $ 13.53 $ 12.54 $ 12.25 $ 10.01
========= ========= ========= ========= =========
Total Return (c) 9.05% 7.89% 2.37% 22.38% (4.48%)
========= ========= ========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000 omitted) $ 957 $ 666 $ 501 $ 408 $ 298
Ratio of Net Expenses to Average
Net Assets (a) 0.46% 0.77% 1.09% 0.89% 0.77%
Ratio of Gross Expenses to Average
Net Assets (a) 7.13% 3.19% 4.15% 1.03% 0.95%
Ratio of Net Investment Income
to Average Net Assets 5.47% 5.38% 5.17% 7.11% 6.16%
Portfolio Turnover Rate 9.04% 8.44% 30.46% 14.13% 24.45%
<FN>
(a) The investment management fees for The Bond Fund 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, 1998. In addition, during
the periods presented, certain administrative expenses of The Fund,
other than primarily custodial and audit fees, have been assumed by the
investment manager of The Fund. The resulting per share savings to The
Bond Fund related to these fees and expenses were $.94, $.31, $.37,
$.02 and $.02 for the years ended December 31, 1998, 1997, 1996, 1995
and 1994, respectively.
(b) Dividend distributions were not relevant for tax compliance purposes
prior to February 9, 1998 when The Fund operated solely as a collective
investment trust.
(c) Assumes reinvestment of the dividends and capital gains distribution, if
any.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
-23-
<PAGE>
ADDITIONAL INFORMATION
To learn more about The Canandaigua Funds you may want to read The
Canandaigua Funds' Statement of Additional Information (or "SAI") which contains
additional information about The Canandaigua Funds. The Canandaigua Funds have
incorporated by reference the SAI into the Prospectus. This means that you
should consider the contents of the SAI to be part of this Prospectus.
You also may learn more about The Canandaigua Funds' investments by
reading The Canandaigua Funds' annual and semi-annual reports to shareholders.
The annual report includes a discussion of the market conditions and investment
strategies that significantly affected the performance of The Canandaigua Funds
during the last fiscal year.
The SAI and the annual and semi-annual reports are all available to
shareholders and prospective investors without charge, simply by calling collect
1-716-394-4260 ext. 216.
Prospective investors and shareholders who have questions about The
Canandaigua Funds may also call the following number collect or write to the
following address:
The Canandaigua Funds
The Canandaigua National Bank and Trust Company
72 South Main Street
Canandaigua, New York 14424
716-394-4260 ext. 216
The general public can review and copy information about The
Canandaigua Funds (including the SAI) at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. (please call
1-800-SEC-0330 for information on the operations of the Public Reference Room).
Reports and other information about The Canandaigua Funds are also available at
the Securities and Exchange Commission's Internet Site at http://www.sec.gov and
copies of this information may be obtained, upon payment of a duplicating fee,
by writing to:
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-60090
Please refer to The Canandaigua Funds Investment Company Act File No.
811-7322 when seeking information about The Canandaigua Funds from the
Securities and Exchange Commission.
-24-
<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.
-25-
