UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-10123
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THE NORTH COUNTRY FUNDS
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(Exact name of registrant as specified in charter)
250 GLEN STREET, GLENS FALLS, NY 12801
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(Address of principal executive offices) (Zip code)
GEMINI FUND SERVICES, LLC, 150 MOTOR PARKWAY, SUITE 205, HAUPPAUGE, NY 11788
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(Name and address of agent for service)
Registrant's telephone number, including area code: 631-470-2600
Date of fiscal year end: 11/30
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Date of reporting period: 5/31/03
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ITEM 1. REPORTS TO STOCKHOLDERS.
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THE NORTH COUNTRY FUNDS
EQUITY GROWTH FUND
INTERMEDIATE BOND FUND
NORTH COUNTRY LOGO
Semi-Annual Report
May 31, 2003
(Unaudited)
This report and the financial statements contained herein are submitted for the
general information of shareholders and are not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
Nothing herein contained is to be considered an offer of sale or solicitation of
an offer to buy shares of the North Country Funds. Such offering is made only by
prospectus, which includes details as to offering price and other material
information.
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THE NORTH COUNTRY FUNDS
May 31, 2003
ECONOMIC SUMMARY
----------------
While economic growth was revised up to 1.9% for the first quarter from 1.6%,
recent economic data show that the economic rebound is elusive. Many economists
are forecasting a recovery in the second half of 2003, as fiscal policy and
monetary policy are both highly accommodative and are focused on stimulating
economic activity. The economy continues to struggle, but the rise in consumer
confidence and the recently passed tax package seem to suggest better times
ahead. Interest rates and inflation are at generational lows, monetary and
fiscal policy are supportive, productivity is excellent, profits are recovering,
the dollar is not as overvalued as it once was, and the Iraqi war is all but
over. A strong housing market as a result of historically low interest rates
will continue to support consumer spending and help improve consumer's balance
sheets. However, the lack of recovery in the labor market will hold back the
growth rate in consumer spending, as well as keep confidence in current
conditions under pressure. Consumers cannot continue to drag the economy along
by themselves, especially if employment and wages do not pick up soon. With
personal income growing at its slowest pace in more than thirty years, the
concern is that consumers are spending home equity derived from mortgage
refinancing, another reason why the shopping spree cannot continue. Even though
the overall unemployment rate is historically low at 6%, we now have more than
8.4 million people out of work and more than 20% of those have been unemployed
for more than six months.
Alan Greenspan, in his testimony to Congress on May 21, 2003, conceded that
there was no clear sign of economic growth yet. He implied that current economic
conditions do not suggest a robust recovery and further he introduced a concern
of deflation and its impact on economic growth and profits. With inflation
growth rates at historical lows, and weak economic growth, the market expects
that the Federal Reserve will ease at the end of June. At the same time, the
U.S. dollar has been weaker, which is positive for exporting companies who can
obtain a potential competitive advantage, or possibly raise prices, leading to
higher profit margins. Ordinarily, a sharp decline in the dollar would be
coupled with a rise in Treasury bond yields, as foreign investors dump
U.S.-dollar assets and markets fear enhanced inflation pressure resulting from a
rise in import prices. Combine this with the dramatic rise in Treasury bond
issuance to fund the budget deficit and expectations should be for rising
interest rates. This has not occurred due to the Federal Reserve's concern over
deflation and expectations that interest rates will go lower as the Federal
Reserve attempts to revive the U.S. economy.
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-1-
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We expect a gradual pickup in economic growth over the balance of the year as
the manufacturing sector slowly recovers. Progress will be gradual as capacity
utilization rates are at historical lows, and further layoffs are expected.
However, the recently implemented tax law changes, the rebound in consumer
confidence, lower oil prices, and continuing refinancing will support positive
economic growth.
THE EQUITY GROWTH FUND
----------------------
The equity markets had a wild ride in the first part of 2003 as hopes for an
economic recovery in January gave way to concerns over war in Iraq. The S&P
500(1) rose 5.9% during the first two weeks of the year, followed by a decline
of over 14% for the period January 14th through March 11th. The commencement of
the war in Iraq triggered a rally, with the S&P 500 rising over 20% from March
11 through May 31, 2003. The North Country Equity Growth Fund appreciated 5.43%
for the six months ended May 2003 which compares favorably against the S&P 500
which rose 3.87% over the same time period. As of May 31 2003, The North Country
Equity Growth Fund has outperformed the S&P 500 for the latest 1, 3, and 5 year
periods.(2)
In January of 2003, renewed emphasis on dividends, combined with the
expectations for a strengthening economy led us to overweight the materials
sector relative to the S&P 500. At the same time we raised the weighting in
information technology to match the S&P 500 as we expected the acceleration in
capital spending to be limited to replacement of technology equipment and
software upgrades. Concern over margin compression and credit quality led us to
reduce our weighting in the financial sector to an underweight relative to the
S&P 500. While markets were volatile over the next 3 months, we maintained our
investment strategy as our expectations were for a swift victory in Iraq, with
no interruption in the supply of oil, and an improving domestic economy. The
success in Iraq lead to a sharp drop in the price oil as oil supplies were not
disrupted, and expectations were for improvement in output from Venezuela. In
April, we reduced our weighting in the energy sector to the same level as the
S&P 500 as we expected earnings in oil producing companies to recede from the
high levels reported in the first quarter. At the same time we raised our
weighting in consumer discretionary holdings to match that of the S&P 500 as we
expected lower oil prices to give consumers more disposable income.
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-2-
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First quarter earnings reports came in better than expected, with more than 70%
of reporting companies beating analysts expectations. More encouraging is the
news that close to 60% of reporting companies beat revenue expectations. A
weaker U.S. dollar and cost cutting will continue to help companies post better
results. Based on current estimates of earnings for this year and next, the
equity markets appear to be fairly valued based on historical price to earnings
evaluation. However, given the low level of interest rates, there is a chance
that there could be P/E expansion, as well as rising earnings estimates. The
hopes for better economic growth due to the huge stimulus package, combined with
the preferential tax treatment on dividends and the relative comparisons to
returns in the bond market has led some investors to increase their purchases of
equities. There is a significant amount of money sitting on the sidelines
waiting for investment and equity investors are starting to feel more positive
about the economic recovery.
THE INTERMEDIATE BOND FUND
--------------------------
The general level of interest rates is likely to remain low in the short term
due to an absence of inflationary pressures, modest economic growth and the
Federal Reserve's desire to maintain an accommodative stance to ensure that the
economic recovery currently underway is well entrenched and sustainable.
We believe that in time the combined impact of the federal budget deficit, the
U.S. trade deficit, the fiscal stimulus package and injections of liquidity into
the capital markets by the Federal Reserve, are likely to lead to rising
interest rates as economic growth begins to accelerate.
Anticipating that the current low interest rate environment will give way to
generally rising interest rates and a steepening yield curve, we have shortened
the average maturity of the Fund's holdings. This was accomplished primarily by
liquidating longer-term U.S. Treasury bonds and reinvesting the proceeds in
shorter-term US Agency and Corporate bonds.
Yield spreads between corporate bonds and U.S. Treasury bonds have narrowed due
to diminished geopolitical uncertainty following resolution of the United
States' conflict with Iraq, a more positive economic outlook and the difficult
search for enhanced yields in a low interest rate environment.
With the narrowing of corporate bond credit spreads relative to Treasuries, we
have found U.S. Agency bonds and taxable municipal bonds to be attractive by
comparison. We have recently established positions in taxable municipal bonds
due to their attractive yields relative to corporate bonds, and the relatively
good credit quality of those securities that we purchased.
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The fund's performance for the latest six months ended May 31, 2003 has exceeded
that of the Merrill Lynch Corporate/Government "A" rated or better 1-10 year
index, appreciating 6.30% versus 5.45%(2,3). This relative out performance is
due in part to the North Country Intermediate Bond Fund's more significant
allocation to corporate bonds and, more recently, to the Fund's shorter average
maturity.
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1 The S&P 500 is a market capitalization-weighted index of 500 widely held
common stocks. The index is unmanaged and does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and
fund accounting fees. Investors cannot invest directly in an index,
although they can invest in its underlying securities.
2 Past performance is not an indication of future results.
3 The Merrill Lynch Government/Corporate 1-10 year maturity "A" rated or
better index is widely used as a broad measure of performance of bonds with
maturities of less than 10 years. The index is unmanaged and does not
reflect the deduction of expenses associated with a mutual fund, such as
investment management and fund accounting fees. Investors cannot invest
directly in an index, although they can invest in its underlying
securities.
The views expressed are as of May 31, 2003, and are those of the adviser,
North Country Investment Advisers, Inc. The views are subject to change at
any time in response to changing circumstances in the markets and are not
intended to predict or guarantee the future performance of any individual
security, market sector or the markets generally or the North Country
Funds.
Funds distributed by Orbitex Funds Distributor, Inc. Member NASD/SIPC.
Not FDIC Insured, No Bank Guarantee, May Lose Value.
NCF-07/16/03-29
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THE NORTH COUNTRY FUNDS
EQUITY GROWTH FUND
SCHEDULE OF INVESTMENTS
May 31, 2003
(Unaudited)
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MARKET
SHARES VALUE
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COMMON STOCKS - 96.71%
BANKS - 3.50%
16,800 Fifth Third Bancorp $ 966,000
24,500 Wells Fargo & Co. 1,183,350
-----------
2,149,350
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BEVERAGES - 2.98%
17,200 Anheuser-Busch Companies, Inc. 905,236
21,000 Pepsico, Inc. 928,200
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1,833,436
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BUSINESS SERVICES - 3.64%
28,600 Automatic Data Processing, Inc. 998,140
30,000 First Data Corp. 1,242,600
-----------
2,240,740
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CHEMICALS - 1.88%
7,000 Du Pont (EI) de Nemours & Co. 294,980
16,000 Ecolab, Inc. 860,000
-----------
1,154,980
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COMPUTER/NETWORK PRODUCTS - 7.17%
97,000 +Cisco Systems, Inc. 1,579,160
128,000 +EMC Corp. 1,384,960
74,000 Hewlett - Packard Co. 1,443,000
-----------
4,407,120
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COMPUTER SERVICES - 2.18%
45,000 +Yahoo!, Inc. 1,343,250
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CONGLOMERATES - 3.77%
44,000 General Electric Co. 1,262,800
15,500 United Technologies Corp. 1,057,875
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2,320,675
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CONSUMER PRODUCTS - 4.36%
16,250 Avon Products, Inc. 990,275
23,000 Newell Rubbermaid, Inc. 655,500
11,250 Procter & Gamble Co. 1,032,975
-----------
2,678,750
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DISTRIBUTION & WHOLESALE - 1.30%
24,000 Fastenal Co. 802,320
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MARKET
SHARES VALUE
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DIVERSIFIED FINANCIAL SERVICES - 3.91%
40,000 American Express Co. $ 1,666,400
10,000 Fannie Mae 740,000
-----------
2,406,400
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EDUCATIONAL SERVICES - 2.66%
28,000 +Apollo Group, Inc.- Cl A 1,635,760
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FOOD PRODUCTS - 0.59%
7,700 General Mills, Inc. 360,206
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INDUSTRIAL GASES - 0.63%
6,500 Praxair, Inc. 389,935
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INSURANCE - 8.75%
41,000 Aflac, Inc. 1,349,310
24,500 American International Group, Inc. 1,418,060
28,000 Hartford Financial Services, Inc. 1,305,920
80,822 Travelers Property Casualty Corp.- Cl B 1,306,892
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5,380,182
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INVESTMENT SERVICES - 1.23%
17,500 Merrill Lynch & Co., Inc. 757,750
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MEDICAL - DRUGS - 11.65%
29,500 Abbott Laboratories 1,314,225
26,500 +Amgen, Inc. 1,714,815
33,000 +Forest Labs, Inc. 1,666,500
20,000 Johnson & Johnson 1,087,000
44,500 Pfizer, Inc. 1,380,390
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7,162,930
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MEDICAL - DRUG DISTRIBUTION - 2.63%
28,000 Cardinal Health, Inc. 1,615,880
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MEDICAL EQUIPMENT & SUPPLIES - 2.19%
27,700 Medtronic, Inc. 1,349,821
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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THE NORTH COUNTRY FUNDS
EQUITY GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
May 31, 2003
(Unaudited)
================================================================================
MARKET
SHARES VALUE
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METALS - 1.40%
35,000 Alcoa, Inc. $ 861,350
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MOTORCYCLES - 1.43%
20,800 Harley Davidson, Inc. 876,928
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MULTIMEDIA - 2.22%
17,300 Gannett Co., Inc. 1,366,700
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OIL & GAS PRODUCERS - 3.92%
24,000 Burlington Resources, Inc. 1,278,960
31,000 Exxon Mobil Corp. 1,128,400
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2,407,360
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OIL & GAS SERVICES - 1.98%
18,500 Apache Corp. 1,219,520
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RETAIL - 10.72%
42,000 +Brinker International, Inc. 1,462,860
20,000 Family Dollar Stores, Inc. 729,000
38,500 Home Depot, Inc. 1,250,865
37,500 Target Corp. 1,373,625
29,500 Walgreen Co. 908,305
16,500 Wal-Mart Stores, Inc. 868,065
-----------
6,592,720
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SCIENTIFIC & TECHNICAL INSTRUMENTS - 2.72%
24,950 Danahar Corp. 1,669,654
-----------
SEMICONDUCTORS - 1.60%
27,000 Linear Technology Corp. 981,720
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MARKET
SHARES VALUE
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SOFTWARE & PROGRAMMING - 4.38%
27,000 +Intuit, Inc. $ 1,244,430
50,000 Microsoft Corp. 1,230,500
17,000 +Oracle Corp. 221,170
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2,696,100
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TELECOMMUNICATIONS - 1.32%
21,500 Verizon Communications, Inc. 813,775
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TOTAL COMMON STOCK
(Cost $60,191,199) 59,475,312
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MONEY MARKET FUNDS - 3.25%
1,013,617 BlackRock Provident Institutional Temp Fund 1,013,617
984,889 Goldman Sachs Financial
Square Funds- Prime Obligations Fund 984,889
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TOTAL MONEY MARKET FUNDS
(Cost $1,998,506) 1,998,506
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TOTAL INVESTMENTS
(Cost $62,189,705) 99.96% 61,473,818
CASH AND OTHER ASSETS
LESS LIABILITIES 0.04% 21,819
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TOTAL NET ASSETS 100.00% $61,495,637
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+ Non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
================================================================================
-6-
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THE NORTH COUNTRY FUNDS
INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
May 31, 2003
(Unaudited)
================================================================================
PRINCIPAL MARKET
AMOUNT VALUE
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CORPORATE BONDS - 65.31%
AEROSPACE/DEFENSE - 0.64%
$ 200,000 McDonnell Douglas Corp., 6.875%, due 11/1/06 $ 222,004
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BANKS - 8.60%
500,000 Bank of America Corp., 4.75%, due 10/15/06 540,969
800,000 Chase Manhattan Corp., 6.00%, due 2/15/09 902,394
750,000 Citigroup, Inc., 5.00%, due 3/6/07 816,911
275,000 J.P. Morgan Chase & Co., 6.50%, due 1/15/09 316,561
350,000 Nationsbank Corp., 6.60%, due 5/15/10 411,468
-----------
2,988,303
-----------
BEVERAGES - 1.82%
300,000 Coca-Cola Co., 5.75%, due 3/15/11 344,479
250,000 Pepsico, Inc., 5.70%, due 11/1/08 288,418
-----------
632,897
-----------
BUILDING MATERIALS - 1.61%
500,000 Vulcan Materials Co., 6.00%, due 4/1/09 558,394
-----------
PRINCIPAL MARKET
AMOUNT VALUE
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COMPUTERS - 3.25%
$ 1,000,000 International Business Machines Corp.,
5.375%, due 2/1/09 $ 1,127,709
-----------
COSMETICS & TOILETRIES - 1.58%
500,000 Colgate-Palmolive Co., 5.34%, due 3/27/06 547,312
-----------
DIVERSIFIED FINANCIAL SERVICES - 13.14%
200,000 American General Finance, 6.75%, due 11/15/04 214,475
500,000 Caterpillar Financial Services, 5.60%, due 3/15/06 541,063
490,000 Commercial Credit Co., 7.75%, due 3/1/05 541,387
500,000 First Union Corp., 7.50%, due 7/15/06 583,219
900,000 General Electric Capital Corp., 5.35%, due 3/30/06 979,972
General Motors Acceptance Corp.,
360,000 6.625%, due 1/9/04 369,469
250,000 6.125%, due 1/22/08 259,546
500,000 Household Finance Corp.,
7.875%, due 3/1/07 590,560
200,000 6.375%, due 10/15/11 227,878
250,000 Wells Fargo & Co., 3.50%, due 4/4/08 258,135
-----------
4,565,704
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
================================================================================
-7-
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THE NORTH COUNTRY FUNDS
INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
May 31, 2003
(Unaudited)
================================================================================
PRINCIPAL MARKET
AMOUNT VALUE
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ELECTRIC UTILITIES - 4.21%
$ 500,000 Jersey Central Power & Lighting, 6.85%, due 11/27/06 $ 563,573
500,000 National Rural Utilities, 6.20%, due 2/1/08 569,575
300,000 Potomac Electric Power Co., 6.50%, due 9/15/05 329,394
-----------
1,462,542
-----------
FOODS - 0.78%
250,000 Kraft Foods, Inc., 5.25%, due 6/1/07 269,742
-----------
INVESTMENT SERVICES - 7.81%
Bear Stearns Co., Inc.,
100,000 8.75%, due 3/15/04 105,727
500,000 7.80%, due 8/15/07 602,035
300,000 Goldman Sachs Group, Inc., 6.65%, due 5/15/09 353,150
500,000 Lehman Brothers Holdings, Inc., 7.50%, due 9/1/06 578,221
Merrill Lynch & Co., Inc.,
500,000 5.36%, due 2/1/07 544,374
166,000 6.25%, due 10/15/08 189,401
300,000 6.00%, due 2/17/09 339,805
-----------
2,712,713
-----------
MULTIMEDIA - 3.20%
1,000,000 Gannet Co., Inc., 5.50%, due 4/1/07 1,110,025
-----------
PHARMACEUTICALS - 4.69%
1,000,000 Bristol-Myers Squibb Co., 5.75%, due 10/1/11 1,122,816
500,000 Eli Lilly & Co., 2.90%, due 3/15/08 506,738
-----------
1,629,554
-----------
PRINCIPAL MARKET
AMOUNT VALUE
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RESTAURANTS- 1.30%
$ 400,000 McDonald's Corp., 5.95%, due 1/15/08 $ 452,734
-----------
RETAIL - 1.62%
500,000 Target Corp., 5.40%, due 10/1/08 561,969
-----------
TELECOMMUNICATIONS - 9.46%
565,000 Ameritech, 6.15%, due 1/15/08 639,282
300,000 GTE of California, 6.75%, due 3/15/04 312,931
500,000 GTE Northwest, Inc., 5.55%, due 10/15/08 556,809
500,000 GTE South, Inc., 6.00%, due 2/15/08 561,077
600,000 SBC Communications, Inc., 5.75%, due 5/2/06 662,861
500,000 Southwestern Bell Telephone Co., 6.60%, due 11/15/05 554,360
-----------
3,287,320
-----------
TRANSPORTATION - 1.60%
500,000 Carnival Corp., 6.15%, due 4/15/08 555,691
-----------
TOTAL CORPORATE BONDS
(Cost $20,456,212) 22,684,613
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
================================================================================
-8-
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THE NORTH COUNTRY FUNDS
INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
May 31, 2003
(Unaudited)
================================================================================
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES - 24.45%
GOVERNMENT AGENCIES - 16.95%
Federal Farm Credit Bank,
$ 1,000,000 3.00%, due 11/1/05 $ 1,033,415
200,000 6.52%, due 9/24/07 234,449
Federal Home Loan Bank,
90,000 7.625%, due 5/15/07 108,641
602,790 5.00%, due 8/1/07 625,812
200,000 5.875%, due 11/15/07 229,698
97,479 6.50%, due 11/1/08 102,700
550,000 5.315%, due 12/23/08 625,049
500,000 6.00%, due 1/9/09 502,502
Federal National Mortgage Association,
1,000,000 2.30%, due 3/28/06 1,014,448
106,286 6.50%, due 11/1/08 112,090
400,000 6.42%, due 3/9/09 415,388
300,000 6.25%, due 2/17/11 309,469
500,000 5.375%, due 11/15/11 568,703
Government National Mortgage Association,
4,636 11.00%, due 11/15/15 5,428
-----------
5,887,792
-----------
PRINCIPAL MARKET
AMOUNT/SHARES VALUE
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U.S. TREASURY NOTES - 7.50%
$ 150,000 6.50%, due 8/15/05 $ 166,769
1,000,000 4.625%, due 5/15/06 1,087,812
200,000 6.50%, due 10/15/06 231,039
1,000,000 4.75%, due 11/15/08 1,117,538
-----------
2,603,158
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $8,038,687) 8,490,950
-----------
MONEY MARKET FUNDS - 9.61%
1,680,124 BlackRock Provident Institutional Temp Fund 1,680,124
1,659,194 Goldman Sachs Financial Square Funds- Prime
Obligations Fund 1,659,194
-----------
TOTAL MONEY MARKET FUNDS
(Cost $3,339,318) 3,339,318
-----------
TOTAL INVESTMENTS
(Cost $31,834,217) 99.37% 34,514,881
CASH AND OTHER ASSETS
LESS LIABILITIES 0.63% 219,361
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TOTAL NET ASSETS 100.00% $34,734,242
======= ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
================================================================================
-9-
- --------------------------------------------------------------------------------
THE NORTH COUNTRY FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
May 31, 2003
(Unaudited)
================================================================================
EQUITY INTERMEDIATE
GROWTH FUND BOND FUND
----------- ---------
ASSETS:
Investments in securities, at value (Cost $62,189,705
and $31,834,217, respectively) (Note 2) ................. $ 61,473,818 $ 34,514,881
Dividends and interest receivable ............................ 60,452 331,162
Prepaid expenses and other assets ............................ 12,977 9,146
------------ ------------
Total Assets ................................................. 61,547,247 34,855,189
------------ ------------
LIABILITIES:
Accrued advisory fees (Note 3) ............................... 33,007 14,077
Dividends payable ............................................ -- 92,209
Accrued expenses ............................................. 18,603 14,661
------------ ------------
Total Liabilities ............................................ 51,610 120,947
------------ ------------
Net Assets ................................................... $ 61,495,637 $ 34,734,242
============ ============
NET ASSETS CONSIST OF:
Paid in capital .............................................. $ 77,847,287 $ 31,963,136
Accumulated undistributed net
investment income (loss) ................................ 15,435 132
Accumulated net realized gain (loss) from
investment transactions ................................. (15,651,198) 90,310
Net unrealized appreciation (depreciation)
on investments .......................................... (715,887) 2,680,664
------------ ------------
Net Assets ................................................... $ 61,495,637 $ 34,734,242
============ ============
Shares Outstanding ........................................... 7,729,944 3,157,857
============ ============
Net asset value and redemption price per share ............... $ 7.96 $ 11.00
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
================================================================================
-10-
- --------------------------------------------------------------------------------
THE NORTH COUNTRY FUNDS
STATEMENTS OF OPERATIONS
For the six months ended May 31, 2003
(Unaudited)
================================================================================
EQUITY INTERMEDIATE
GROWTH FUND BOND FUND
INVESTMENT INCOME:
Interest ........................................... $ 9,486 $ 762,482
Dividends .......................................... 311,853 --
----------- -----------
Total investment income ............................ 321,339 762,482
----------- -----------
EXPENSES:
Investment advisory fees (Note 3) .................. 208,518 79,218
Administration fees (Note 3) ....................... 47,655 43,836
Legal fees ......................................... 19,199 11,282
Transfer agency fees (Note 3) ...................... 13,096 10,513
Audit fees ......................................... 7,447 6,951
Custody fees ....................................... 6,809 4,579
Insurance expense .................................. 6,015 2,972
Printing expense ................................... 5,864 2,863
Directors' fees .................................... 4,070 2,249
Registration & filing fees ......................... 3,972 3,921
Miscellaneous expenses ............................. 685 685
----------- -----------
Total expenses ..................................... 323,330 169,069
Less: Expense reimbursement and waivers (Note 3) ... (17,426) --
----------- -----------
Net expenses ....................................... 305,904 169,069
----------- -----------
Net investment income (loss) ....................... 15,435 593,413
----------- -----------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS :
Net realized gain (loss) from investment
transactions .................................. (1,116,061) 92,779
Net change in unrealized appreciation (depreciation)
of investments for the period ................. 4,228,994 1,274,491
----------- -----------
Net realized and unrealized gain (loss)
on investments ................................ 3,112,933 1,367,270
----------- -----------
Net increase (decrease) in net assets resulting
from operations ............................... $ 3,128,368 $ 1,960,683
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
================================================================================
-11-
- --------------------------------------------------------------------------------
THE NORTH COUNTRY FUNDS
EQUITY GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
FOR THE SIX MONTHS FOR THE YEAR
ENDED ENDED
MAY 31, 2003 NOVEMBER 30, 2002
------------ -----------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) ........................ $ 15,435 $ (7,348)
Net realized gain (loss) from investment transactions (1,116,061) (11,714,236)
Net change in unrealized appreciation
(depreciation) for the period .................. 4,228,994 29,945
------------ ------------
Net increase (decrease) in net assets
resulting from operations ........................... 3,128,368 (11,691,639)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.00 and $0.00+ per share, respectively) ..... -- (28,112)
Distributions from net realized gains on investments -- --
------------ ------------
Total distributions to shareholders ................. -- (28,112)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (Note 4) ................ 1,069,672 11,283,525
------------ ------------
Net increase (decrease) in net assets ............... 4,198,040 (436,226)
NET ASSETS:
Beginning of period ................................. 57,297,597 57,733,823
------------ ------------
End of period (including undistributed net investment
income of $15,435 and $0, respectively) ........ $ 61,495,637 $ 57,297,597
============ ============
- -----------
+ Less than $.01 per share.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
================================================================================
-12-
- --------------------------------------------------------------------------------
THE NORTH COUNTRY FUNDS
INTERMEDIATE BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
FOR THE SIX MONTHS FOR THE YEAR
ENDED ENDED
MAY 31, 2003 NOVEMBER 30, 2002
------------ -----------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) ................. $ 593,413 $ 1,167,395
Net realized gain (loss) from
investment transactions ................. 92,779 644
Net change in unrealized appreciation
(depreciation) for the period ........... 1,274,491 844,254
------------ ------------
Net increase (decrease) in net assets
resulting from operations ............... 1,960,683 2,012,293
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.20 and $0.45 per share,
respectively) ........................... (593,637) (1,167,912)
Distributions from net realized
gains on investments .................... 0 0
------------ ------------
Total distributions to shareholders .......... (593,637) (1,167,912)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (Note 4) ......... 3,831,793 4,159,654
------------ ------------
Net increase (decrease) in net assets ........ 5,198,839 5,004,035
NET ASSETS:
Beginning of period .......................... 29,535,403 24,531,368
------------ ------------
End of period (including undistributed
net investment income of $132 and
$356, respectively) ..................... $ 34,734,242 $ 29,535,403
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
================================================================================
-13-
- --------------------------------------------------------------------------------
THE NORTH COUNTRY FUNDS
EQUITY GROWTH FUND
FINANCIAL HIGHLIGHTS
================================================================================
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE FOR THE YEAR MARCH 1, 2001(1)
SIX MONTHS ENDED THROUGH
ENDED NOVEMBER 30, NOVEMBER 30,
MAY 31, 2003 2002 2002
------------ ---- ----
(UNAUDITED)
Net asset value,
beginning of period ............ $ 7.55 $ 9.19 $ 10.00
--------- --------- --------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income (loss) ........ 0.00 0.00+ 0.00
Net realized and unrealized
gains (losses) on investments .. 0.41 (1.64) (0.81)
--------- --------- --------
Total from investment operations .... 0.41 (1.64) (0.81)
--------- --------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income 0.00 0.00+ 0.00
Distributions from net realized
gains from security transactions 0.00 0.00 0.00
--------- --------- --------
Total distributions ................. 0.00 0.00 0.00
--------- --------- --------
Net asset value, end of period ...... $ 7.96 $ 7.55 $ 9.19
========= ========= ========
Total return(2) ..................... 5.43% (17.81)% (8.10)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 61,496 $ 57,298 57,734
Ratios to average net assets(3):
Expenses, before reimbursement ...... 1.16% 1.13% 1.21%
Expenses, including
effect of reimbursement ........ 1.10% 1.10% 1.10%
Net investment income,
before reimbursement ........... (0.01)% (0.04)% (0.06)%
Net investment income,
including effect of
reimbursement .................. 0.05% (0.01)% 0.05%
Portfolio turnover rate ............. 11.55% 38.24% 20.05%
<FN>
- ---------------
(1) Prior to March 1, 2001, the Fund was organized as a Collective Investment
Trust.
(2) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gain distributions, if any.
(3) Annualized for periods less than one year.
+ Less than $.01 per share.
</FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
================================================================================
-14-
- --------------------------------------------------------------------------------
THE NORTH COUNTRY FUNDS
INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
================================================================================
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE FOR THE YEAR MARCH 1, 2001(1)
SIX MONTHS ENDED THROUGH
ENDED NOVEMBER 30, NOVEMBER 30,
MAY 31, 2003 2002 2002
------------ ---- ----
(UNAUDITED)
Net asset value,
beginning of period ............ $ 10.54 $ 10.23 $ 10.00
--------- -------- --------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income (loss) ........ 0.20 0.45 0.33
Net realized and unrealized
gains (losses) on investments .. 0.46 0.31 0.23
--------- -------- --------
Total from investment operations .... 0.66 0.76 0.56
--------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.20) (0.45) (0.33)
Distributions from net realized
gains from security transactions 0.00 0.00 0.00
--------- -------- --------
Total distributions ................. (0.20) (0.45) (0.33)
--------- -------- --------
Net asset value, end of period ...... $ 11.00 $ 10.54 $ 10.23
========= ======== ========
Total return(2) ..................... 6.30% 7.56% 5.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 34,734 $ 29,535 $ 24,531
Ratios to average net assets(3):
Expenses, before reimbursement ...... 1.07% 1.11% 1.27%
Expenses, including
effect of reimbursement ........ 1.07% 1.12%(4) 1.25%
Net investment income,
before reimbursement ........... 3.75% 4.33% 4.43%
Net investment income,
including effect of
reimbursement .................. 3.75% 4.32%(4) 4.45%
Portfolio turnover rate ............. 7.04% 9.56% 20.72%
<FN>
- ------------
(1) Prior to March 1, 2001, the Fund was organized as a Collective Investment
Trust.
(2) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gain distributions, if any.
(3) Annualized for periods less than one year.
(4) Such percentage reflects recapture of prior period expense reimbursement by
advisor.
</FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
================================================================================
-15-
- --------------------------------------------------------------------------------
THE NORTH COUNTRY FUNDS
NOTES TO FINANCIAL STATEMENTS
May 31, 2003
(Unaudited)
================================================================================
NOTE 1. ORGANIZATION
The North Country Funds (the "Trust") was organized as a Massachusetts
business trust on June 1, 2000, and registered under the Investment Company
Act of 1940 as an open-end, diversified, management investment company on
September 11, 2000. The Trust currently offers two series: the North Country
Equity Growth Fund (the "Growth Fund") and the North Country Intermediate
Bond Fund (the "Bond Fund", collectively the "Funds"). The Growth Fund's
principal investment objective is to provide investors with long-term
capital appreciation while the Bond Fund seeks to provide investors with
current income and total return with minimum fluctuations of principal
value. Both Funds commenced operations on March 1, 2001.
The Bond Fund and the Growth Fund were initially organized on March 26, 1984
under New York law as Collective Investment Trusts sponsored by Glens Falls
National Bank & Trust Company. Prior to their conversion to regulated
investment companies (mutual funds) investor participation was limited to
qualified employee benefit plans.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Trust in the preparation of its financial statements. These policies
are in conformity with accounting principles generally accepted in the
United States of America. The preparation of financial statements in
conformity with these generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the period. Actual
results could differ from these estimates.
SECURITY VALUATION - Securities, which are traded on any exchange or on the
NASDAQ over-the-counter market, are valued at the last quoted sale price.
Investments for which no sales are reported are valued at its last bid
price. Securities for which current market quotations are not readily
available, or securities where the last bid price does not accurately
reflect the current value, are valued as determined in good faith under the
procedures established by and under the general supervision of the Trust's
Board of Trustees (the "Board").
================================================================================
-16-
- --------------------------------------------------------------------------------
THE NORTH COUNTRY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2003
(Unaudited)
================================================================================
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
Fixed income securities generally are valued by using market quotations, but
may be valued on the basis of prices furnished by an independent pricing
service which uses prices based upon yields or prices of comparable
securities, indications as to values from dealers, and general market
conditions, when the adviser believes such prices accurately reflect the
fair market value of the security.
Short term investments in fixed income securities with maturities of less
than 60 days when acquired, or which subsequently are within 60 days of
maturity, are valued by using the amortized cost method of valuation, which
the Board has determined represents fair value.
FEDERAL INCOME TAXES - The Trust intends to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its net investment income and any
realized capital gain. Therefore, no federal income tax provision is
required.
DIVIDENDS AND DISTRIBUTIONS - The Bond Fund pays dividends from net
investment income on a monthly basis. The Growth Fund will pay dividends
from net investment income, if any, on an annual basis. Both Funds will
declare and pay distributions from net realized capital gains, if any, at
least annually. Income and capital gain distributions to shareholders are
determined in accordance with income tax regulations, which may differ from
generally accepted accounting principles. Those differences are primarily
due to differing treatments for deferral of wash sale losses and post
October losses.
SECURITY TRANSACTIONS - Securities transactions are recorded no later than
the first business day after the trade date. Realized gains and losses on
sales of securities are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date and interest income is recorded
on an accrual basis. Discount and premium on securities purchased are
amortized over the life of the respective securities.
================================================================================
-17-
- --------------------------------------------------------------------------------
THE NORTH COUNTRY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2003
(Unaudited)
================================================================================
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
The Trust has entered into an investment advisory agreement (the "Advisory
Agreement") with North Country Investment Advisers, Inc. (the "Adviser").
Pursuant to the Advisory Agreement, the Adviser is responsible for
formulating the Trust's investment programs, making day-to-day investment
decisions and engaging in portfolio transactions, subject to the authority
of the Board of Trustees. Under the terms of the agreement, each Fund pays a
fee, calculated daily and paid monthly, at an annual rate of 0.75% and 0.50%
of the average daily net assets of the Equity Fund and Bond Fund,
respectively. For the six months ended May 31, 2003, the Adviser received
advisory fees of $208,518 from the Equity Fund and $79,218 from the Bond
Fund.
The Adviser has voluntarily agreed to waive its advisory fee or, if
necessary, to reimburse the Funds if and to the extent that the total annual
operating expense ratio (excluding brokerage commissions, taxes, and
extraordinary expenses) exceeds 1.10% and 1.25% of the average daily net
assets of the Equity Fund and Bond Fund, respectively, through December 31,
2003. Under the terms of the Advisory Agreement, fees waived or expenses
reimbursed by the Adviser are subject to reimbursement by the Fund up to
five years from the date that the fee or expense was waived or reimbursed.
However, no reimbursement payment will be made by the Fund if it would
result in the Fund exceeding the voluntary expense limitation described
above. For the six months ended May 31, 2003, the Adviser waived fees of
$17,426 from the Equity Fund. As of May 31, 2003, there is $77,219 of
reimbursement from the Equity Fund subject to recapture by the Adviser.
Gemini Fund Services, LLC ("GFS") serves as administrator providing
administration and accounting services to the Funds pursuant to an
Administration and Accounting Agreement. Under the terms of such agreement,
GFS is paid a monthly fee from each Fund that is based on a percentage of
average daily net assets, subject to certain minimums. Each Fund also
reimburses GFS for any out-of-pocket expenses.
GFS also serves as transfer and dividend-disbursing agent to the Funds. For
its services as transfer and dividend-disbursing agent, GFS receives a
monthly fee based upon the total number of accounts serviced, subject to
certain minimums.
Certain officers and/or trustees of the Adviser and Administrator are also
officers/trustees of the Trust.
================================================================================
-18-
- --------------------------------------------------------------------------------
THE NORTH COUNTRY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2003
(Unaudited)
================================================================================
NOTE 4. FUND SHARE TRANSACTIONS
At May 31, 2003, there were an unlimited number of shares authorized with no
par value. Paid in capital for the Equity Fund and Bond Fund amounted to
$77,847,287 and $31,963,136, respectively.
Transactions in capital shares were as follows:
EQUITY GROWTH FUND:
FOR THE FOR THE YEAR
SIX MONTHS ENDED ENDED
MAY 31, 2003 NOVEMBER 30, 2002
------------ -----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
(Unaudited)
Shares sold ........... 868,615 $ 6,279,344 1,879,318 $ 15,647,059
Shares issued for
reinvestment of
dividends ........ -- -- 2 14
Shares redeemed ....... (724,880) (5,209,672) (572,915) (4,363,548)
-------- ------------ --------- ------------
Net increase .......... 143,735 $ 1,069,672 1,306,405 $ 11,283,525
======== ============ ========= ============
INTERMEDIATE BOND FUND:
FOR THE FOR THE YEAR
SIX MONTHS ENDED ENDED
MAY 31, 2003 NOVEMBER 30, 2002
------------ -----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
(Unaudited)
Shares sold ........... 491,491 $ 5,298,402 698,074 $ 7,198,669
Shares issued for
reinvestment of
dividends ........ 2,373 25,613 2,603 26,997
Shares redeemed ....... (138,087) (1,492,222) (295,592) (3,066,012)
-------- ------------ --------- ------------
Net increase .......... 355,777 $ 3,831,793 405,085 $ 4,159,654
======== ============ ========= ============
================================================================================
-19-
- --------------------------------------------------------------------------------
THE NORTH COUNTRY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2003
(Unaudited)
================================================================================
NOTE 5. INVESTMENTS
Investment transactions, excluding short-term securities, for the six months
ended May 31, 2003 were as follows:
EQUITY INTERMEDIATE
GROWTH FUND BOND FUND
----------- ---------
Purchases .......................... $ 6,532,687 $ 3,448,988
Sales .............................. $ 6,296,290 $ 2,106,819
At May 31, 2003, net unrealized appreciation (depreciation) on investment
securities was as follows:
EQUITY INTERMEDIATE
GROWTH FUND BOND FUND
----------- ---------
Aggregate gross unrealized appreciation
for all investments for which there was
an excess of value over cost ........... $ 6,054,774 $ 2,680,664
Aggregate gross unrealized depreciation
for all investments for which there
was an excess of cost over value ....... (6,770,661) --
------------ -----------
Net unrealized appreciation (depreciation) $ (715,887) $ 2,680,664
============ ===========
The aggregate cost of securities for federal income tax purposes at May 31, 2003
is the same as for book purposes for both Funds.
================================================================================
-20-
- --------------------------------------------------------------------------------
THE NORTH COUNTRY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2003
(Unaudited)
================================================================================
NOTE 6. TAX INFORMATION
During the six months ended May 31, 2003, the Intermediate Bond Fund paid
dividends of $593,637 which were characterized as ordinary income
distributions for tax purposes.
As of November 30, 2002, the components of distributable earnings on a tax
basis were as follows:
UNREALIZED
ORDINARY LONG TERM APPRECIATION/
INCOME GAINS DEPRECIATION
------ ----- ------------
Equity Growth Fund .............. $ -- $(14,535,137) $ (4,944,881)
Intermediate Bond Fund .......... $ 356 $ (2,469) $ 1,406,173
As of November 30, 2002, the Funds had available, for federal income tax
purposes, the following unused capital loss carryforwards available to
offset future capital gains expiring on November 30 of the years below:
2009 2010
---- ----
Equity Growth Fund ..................... $2,820,901 $ 11,714,236
Intermediate Bond Fund ................. $ 2,469 $ -
================================================================================
-21-
INVESTMENT ADVISER
North Country Investment Advisers, Inc.
250 Glen Street
Glens Falls, NY 12801
LEGAL COUNSEL
Ropes & Gray
1301 K Street N.W., Suite 800 East
Washington, D.C. 20005
INDEPENDENT AUDITORS
McCurdy & Associates CPA's, Inc.
27955 Clemens Road
Westlake, OH 44145
ADMINISTRATOR AND FUND ACCOUNTANT
Gemini Fund Services, LLC 150 Motor Parkway, Suite
205 Hauppauge, NY 11788
TRANSFER AGENT
Gemini Fund Services, LLC
4020 South 147th Street
Omaha, NE 68137
DISTRIBUTOR
Orbitex Funds Distributor, Inc.
One Station Place
Stamford, CT 06902
CUSTODIAN
Bank of New York
One Wall Street
New York, NY 10286
INVESTOR INFORMATION: (888) 350-2990
ITEM 2. CODE OF ETHICS. Not required at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not required at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not required at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED COMPANIES. Not required at this time.
ITEM 6. RESERVED.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END FUNDS.
Not applicable.
ITEM 8. RESERVED.
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's Principal Executive Officer and Principal Financial Officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) At the date of filing this Form N-CSR, the registrant's Principal Executive
Officer and Principal Financial Officer are aware of no significant changes in
the registrant's internal controls or in other factors that could affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
ITEM 10. EXHIBITS.
(a) Not required at this time.
(b) Separate certifications by the registrant's principal executive officer and
principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2 under the Investment Company Act of 1940, are
attached.
A certification by the registrant's principal executive officer and principal
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is
attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE NORTH COUNTRY FUNDS
By /s/ Michael J. Wagner
---------------------
Michael J. Wagner
PRESIDENT
Date JULY 29, 2003
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Michael J. Wagner
----------------------
Michael J. Wagner
PRESIDENT
Date JULY 29, 2003
-----------------------
By /s/ Andrew Rogers
-----------------
Andrew Rogers
TREASURER
Date JULY 29, 2003
-----------------------