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
--------------------------------------------
THE NORTH COUNTRY FUNDS
- --------------------------------------------------------------------------------
(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
------------
Date of reporting period: 11/30/03
-----------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
THE NORTH COUNTRY FUNDS
EQUITY GROWTH FUND
INTERMEDIATE BOND FUND
Annual Report November 30, 2003
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.
THE NORTH COUNTRY FUNDS
November 30, 2003
ECONOMIC SUMMARY
------------------
Third quarter real Gross Domestic Product ("GDP") was revised up from 7.2% to
8.2%, the best growth rate since early 1994 when the economy was also coming out
of a protracted period of sluggish activity. This revision reflected primarily
higher estimates of inventories and a larger contribution of business spending.
It is expected that consumer spending will slow in the fourth quarter. The
strong consumer performance of the third quarter was boosted by tax cuts and
extra cash from mortgage refinancing. The absence of these factors will dampen
consumer spending in the fourth quarter. Next year it is expected mortgage rates
will rise, leading to slower growth in housing expenditures. This slower pace of
housing spending may be tempered by an improving job market, which may increase
consumer confidence and spending. Even at this expected slower pace, housing
will likely be a significant contributor to Gross Domestic Product growth in
2004. Non-residential construction was flat in the third quarter, and there is
no indication yet that this sector has turned.
Business investment spending is likely to make a positive contribution to real
Gross Domestic Product in the fourth quarter. Equipment and software spending,
which has been slowly recovering, will accelerate further over the next few
quarters. The Institute for Supply Management Manufacturing Index had its
highest reading in November since December 1983. The Production Index rose to
its highest level since December 1983, as did new orders.
The two primary measures of inflation are sending mixed signals. The Producer
Price Index has gradually increased as commodity prices rose due to foreign
demand, especially from China. However, the Consumer Price Index continues to
trend lower. It is expected that the Consumer Price Index will trend higher in
2004, though at a moderate pace.
The U.S. dollar slipped to its lowest foreign exchange level since early 1995.
While the strength in our domestic economy is second only to China on the global
stage, the U.S. dollar continues to weaken as concerns intensify over the
potential for inflation due to the tremendous amount of monetary and fiscal
stimulation. While a weaker dollar is good for domestic manufacturers that
export products, a weaker dollar also creates import inflation. Foreign
investors may need more incentive to purchase our debt if expectations are for
continued weakness in the dollar. This may result in higher U.S. Treasury rates
which could lead to slower economic growth.
After the November Federal Open Market Committee meeting, the Federal Reserve
implied that there is a low probability for a significant increase in inflation
that would derail the economic recovery. Therefore, we expect the Federal
Reserve to keep the Federal Funds target rate at current levels for a
considerable period of time.
- 2 -
THE EQUITY GROWTH FUND
For the year ended November 30, 2003 the North Country Equity Growth Fund had a
total return of 16.42% versus the S&P 500(1) at 15.09%. The Equity Growth Fund
was slightly behind the S&P 500 for the latest three-year period (annualized
returns of -6.85% versus -5.52%), but has outperformed the S&P 500 for the
5-year and 10-year periods with annualized returns of +1.86% versus -.47% and
10.72% versus 10.63% respectively.(2)
During the last six months the economy has strengthened significantly. The
quarter ended September showed real GDP growth of 8.2%. Over the last six months
we made changes to the structure of the portfolio to emphasize more cyclical
sectors over defensive sectors. In July we made the decision to reduce the
weighting in consumer staples to an underweight from a marketweight relative to
the S&P 500. The valuations of these stocks appeared to be historically high,
with increased competition eroding profit margins. During the same month we
became more constructive on consumer discretionary stocks based on improving
labor market indicators and the potential for increases in consumer spending.
Historically, retailing stocks tend to perform well in the early stages of an
economic rebound. We raised the weighting in the consumer discretionary sector
to an overweight from a marketweight relative to the S&P 500. In September we
reduced the weighting in the healthcare sector. We believe long-term demand for
healthcare products and services remains robust. On a short-term basis, we
believe that the major pharmaceutical stocks are in for a period of continued
volatility due to pressure on pricing and patent expiration. In addition,
rotation from this sector to more cyclical sectors was expected due to economic
strength.
The equity markets have enjoyed strong performance recently due to surprising
economic strength. The most economically sensitive sectors have led the charge,
with the materials and industrials sectors significantly outperforming the S&P
500 for the month of November. As has been the case for most of the year, high
quality blue chips took the backseat to more speculative issues for both the
month and year to date. For nearly 400 of the S&P Index's 500 stocks, profits
indicate that bottom line growth during the third quarter advanced 20.5% on a
trailing one-year annualized basis. That is the fastest pace since the second
quarter of 2000. Of the companies reporting, 65% exceeded their average earnings
estimates, and revenues on average were 7.5% higher for the quarter. After
several quarters of cost cutting, companies are positioned to reap magnified
profits with an incremental increase in revenue.
There may be a challenge on the horizon, however. Current market valuations are
based on expectations of ever increasing profits. We have had a lot of good news
in the markets in the last couple of months, and investors are becoming
accustomed to the strength in the stock market indices. Given today's heightened
investor enthusiasm, stocks may not rise unless estimates are beaten. Merely
meeting the estimates is not good enough. As the economy continues to improve,
we expect the market to transition toward higher quality names. A gradually
weakening dollar should favor large cap global issues. We continue to favor
economically sensitive sectors that will benefit from better trade and
continuing momentum in the economy.
1 The S&P 500 is an unmanaged market capitalization-weighted index of common
stocks.
2 Past performance is not indicative of future results.
- 3 -
THE INTERMEDIATE BOND FUND
The long-term downward trend in U.S. interest rates, which had brought rates to
levels not seen in nearly forty-five years, appears to have ended in June of
2003. Since that point in time, interest rates, while fluctuating within a
trading range, have edged slowly higher.
Rates have moved upward due to increasingly clearer evidence of an economic
recovery in the United States that is strong, broadly based and sustainable.
Improvement in the manufacturing sector and an improving employment picture are
the latest pieces of this picture to fall into place.
The economic growth underway, combined with further fiscal stimulus, a weaker
dollar, and evidence of inflation in the form of higher commodity prices, may
prompt the Federal Reserve to raise its target Federal Funds rate at some point
in the future. While the Federal Reserve has indicated that it is willing to
keep rates low for a considerable period of time, the forces noted previously
may overwhelm their stated desire.
We anticipate that the Federal Reserve will begin to raise its target Federal
Funds Rate in mid 2004. With this in mind, we continue to maintain that a short
average maturity for the bond fund is appropriate and remain cautious toward
extending maturities in the fund.
Notably, the slope of the U.S. Treasury yield curve is presently steep. Given
the steep slope of the yield curve we recognize the opportunity costs of
remaining in cash equivalents relative to our benchmark. Therefore, we are
employing cash as market fluctuations present opportunity.
Improving economic conditions have lead to a narrowing of credit spreads. The
yield spread between Treasuries and Corporate Bonds has narrowed significantly
and in many instances U.S. Agency Bond yields are currently more attractive than
are Corporate Bond yields. This has prompted us to raise our weighting in U.S.
Government Agency Securities as we have more recently made purchases of callable
U.S. Agency bonds with maturity dates ranging between 3 to 5 years.
Within the last six months we took action to shorten the average maturity of the
fund's holdings by selling certain longer maturity bonds. With the greater
portion of the proceeds we purchased bonds with maturity dates ranging from 2 to
5 years. Prior to the significant narrowing of the spreads between U.S.
Government Agency Securities and Corporate Bonds, purchases were made of lower
rated investment grade bonds maturing in 2 to 3 years.
During the course of the year, opportunities arose to purchase fairly high
credit quality taxable municipal bonds at relatively attractive credit spreads.
Consequently, we have built a position in these bonds.
- 4 -
The Fund's performance relative to the Merrill Lynch Corporate/Government "A"
Rated or better 1-10 Year Index(3) was positive for the year ending November 30,
2003(4). This relative out-performance was primarily the result of the North
Country Intermediate Bond Fund benefiting more from the tightening of corporate
bond spreads than did the Merrill Lynch Index which had a greater proportion of
its assets invested in U.S. Treasury Securities. Conversely, the Lipper
Corporate Debt Funds "A" Rated Index(5) experienced out-performance relative to
the North Country Intermediate Bond Fund in the same period primarily due to the
Lipper Index's larger proportion of Corporate Bond holdings.
The prospect of a Federal Reserve interest rate hike, a steep yield curve and
relatively tight credit spreads create challenges in managing a fixed income
mutual fund as we pursue the goals of maximizing return while controlling both
interest rate and credit risk. We intend to respond to these challenges by
maintaining portfolio duration shorter than those of our benchmarks, by
investing cash balances as we deem appropriate, and by monitoring credit spreads
in an effort to enhance returns.
- -----------------
3 The Merrill Lynch Corporate/Government "A" rated or better 1-10 year index is
based upon publicly issued intermediate corporate and government debt
securities with maturities ranging between 1 and 10 years.
4 Past performance is not indicative of future results.
5 The Lipper Corporate Debt Funds "A" Rated Index consists of the 30 largest
funds that invest at least 65% of its assets in corporate debt issues rated
"A" or better or government issues.
The views expressed are as of November 30, 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.
Not FDIC Insured, No Bank Guarantee, May Lose Value.
- 5 -
NORTH COUNTRY EQUITY GROWTH FUND
GROWTH OF $10,000 INVESTMENT
THIS CHART ILLUSTRATES A COMPARISON OF A HYPOTHETICAL INVESTMENT OF $10,000 IN
THE NORTH COUNTRY EQUITY GROWTH FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS) VERSUS THE FUND'S BENCHMARK INDEX.
Equity Growth S&P 500 Lipper Large Cap Core
---------------- ------------------ ---------------------
Value Value Value
---------------- ------------------ ---------------------
11/30/1993 10,000 10,000 10,000
11/30/1994 9,995 10,105 10,026
11/30/1995 12,930 13,842 13,134
11/30/1996 15,472 17,698 16,278
11/30/1997 19,325 22,744 20,280
11/30/1998 25,250 28,125 24,577
11/30/1999 31,932 34,001 29,330
11/30/2000 34,248 32,566 28,626
11/30/2001 28,931 28,586 24,973
11/30/2002 23,778 23,868 21,000
11/30/2003 27,683 27,469 23,690
AVERAGE ANNUAL TOTAL RETURNS AS OF NOVEMBER 30, 2003
1 YEAR 5 YEARS 10 YEARS
North County Equity Growth Fund 16.42% 1.86% 10.72%
The quoted performance data for the Fund includes the performance of its
predecessor Collective Investment Trust for periods dating back to 11/30/93 and
prior to the Fund's commencement of operations on 3/1/01, as adjusted to reflect
expenses of the respective successor Fund of the Trust, without giving effect to
fee waivers. The Collective Investment Trust was not registered under the
Investment Company Act of 1940 (the "1940 Act") and therefore was not subject to
certain investment restrictions that are imposed by the 1940 Act. If the
Collective Investment Trust had been registered under the 1940 Act, the
performance of such Collective Investment Trust may have been lower.
The S&P 500 is a market capitalization-weighted index of 500 widely held common
stocks. The Lipper Large Cap Core is a benchmark that includes funds investing
at least 75% of equity assets in large capitalization securities. Indexes and
benchmarks are unmanaged and do 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 or benchmark, although they can
invest in its underlying securities or funds. Past performance is not indicative
of future results. The investment return and NAV will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Total returns are calculated assuming reinvestment of all dividends and
capital gain distributions.
The returns do not reflect the deductions of taxes a shareholder would pay on
the redemption of fund shares or fund distributions.
- 6 -
NORTH COUNTRY INTERMEDIATE BOND FUND
GROWTH OF $10,000 INVESTMENT
THIS CHART ILLUSTRATES A COMPARISON OF A HYPOTHETICAL INVESTMENT OF $10,000 IN
THE NORTH COUNTRY INTERMEDIATE BOND FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS
AND DISTRIBUTIONS) VERSUS THE FUND'S BENCHMARK INDEX.
Intermediate Merrill Lynch Corp/Gov't
Bond 1-10 Year Index
------------------ -------------------------
Value Value
----- -----
11/30/1993 10,000 10,000
11/30/1994 9,724 9,832
11/30/1995 11,047 11,266
11/30/1996 11,569 11,916
11/30/1997 12,143 12,678
11/30/1998 12,955 13,805
11/30/1999 13,052 13,961
11/30/2000 13,805 15,066
11/30/2001 15,081 16,803
11/30/2002 16,221 18,044
11/30/2003 17,050 18,835
AVERAGE ANNUAL TOTAL RETURNS AS OF NOVEMBER 30, 2003
1 YEAR 5 YEARS 10 YEARS
North County Intermediate Bond Fund 5.11% 5.65% 5.48%
The quoted performance data for the Fund includes the performance of its
predecessor Collective Investment Trust for periods dating back to 11/30/93 and
prior to the Fund's commencement of operations on 3/1/01, as adjusted to reflect
expenses of the respective successor Fund of the Trust, without giving effect to
fee waivers. The Collective Investment Trust was not registered under the
Investment Company Act of 1940 (the "1940 Act") and therefore was not subject to
certain investment restrictions that are imposed by the 1940 Act. If the
Collective Investment Trust had been registered under the 1940 Act, the
performance of such Collective Investment Trust may have been lower.
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.
Past performance is not indicative of future results. The investment return and
NAV will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Total returns are calculated assuming
reinvestment of all dividends and capital gain distributions.
The returns do not reflect the deductions of taxes a shareholder would pay on
the redemption of fund shares or fund distributions.
- 7 -
THE NORTH COUNTRY FUNDS
EQUITY GROWTH FUND
SCHEDULE OF INVESTMENTS
November 30, 2003
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
COMMON STOCKS - 95.83%
BANKS - 3.39%
16,800 Fifth Third Bancorp. $ 976,584
24,500 Wells Fargo & Co. 1,404,585
----------
2,381,169
----------
BEVERAGES - 3.07%
22,200 Anheuser-Busch Companies, Inc. 1,150,404
21,000 Pepsico, Inc. 1,010,520
----------
2,160,924
----------
BUSINESS SERVICES - 3.59%
30,000 First Data Corp. 1,135,500
36,000 Paychex, Inc. 1,384,920
----------
2,520,420
----------
CHEMICALS - 1.61%
7,000 Du Pont (EI) de Nemours & Co. 290,220
32,000 Ecolab, Inc. 839,040
----------
1,129,260
----------
COMPUTER/NETWORK PRODUCTS - 7.32%
97,000 + Cisco Systems, Inc. 2,198,020
39,000 + Dell, Inc. 1,345,500
74,000 Hewlett-Packard Co. 1,605,060
----------
5,148,580
----------
COMPUTER SERVICES - 1.83%
30,000 + Yahoo!, Inc. 1,289,400
----------
CONGLOMERATES - 4.54%
44,000 General Electric Co. 1,261,480
22,500 United Technologies Corp. 1,928,250
----------
3,189,730
----------
CONSUMER PRODUCTS - 3.61%
21,250 Avon Products, Inc. 1,455,625
11,250 Procter & Gamble Co. 1,082,700
----------
2,538,325
----------
DISTRIBUTION & WHOLESALE - 1.70%
24,000 Fastenal Co. 1,192,320
----------
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 6.91%
40,000 American Express Co. $ 1,828,400
13,500 Goldman Sachs Group, Inc. 1,297,080
34,000 State Street Corp. 1,732,640
----------
4,858,120
----------
EDUCATIONAL SERVICES - 2.75%
28,000 + Apollo Group, Inc. - Cl. A 1,932,840
----------
FURNITURE & FIXTURES - 1.93%
50,000 Masco Corp. 1,360,000
----------
INDUSTRIAL GASES - 1.07%
10,500 Praxair, Inc. 753,690
----------
INSURANCE - 6.00%
24,500 American International Group, Inc. 1,419,775
28,000 Hartford Financial Services Group, Inc. 1,540,000
80,822 Travelers Property Casualty Corp. - Cl. B 1,260,823
----------
4,220,598
----------
INVESTMENT SERVICES - 1.41%
17,500 Merrill Lynch & Co., Inc. 993,125
----------
MEDICAL - DRUGS - 9.05%
29,500 Abbott Laboratories 1,303,900
23,000 + Amgen, Inc. 1,322,730
23,000 + Forest Labs, Inc. 1,256,720
20,000 Johnson & Johnson 985,800
44,500 Pfizer, Inc. 1,492,975
----------
6,362,125
----------
MEDICAL EQUIPMENT & SUPPLIES - 4.49%
20,000 Guidant Corp. 1,135,400
5,000 + Patterson Dental Co. 340,500
25,500 + Zimmer Holdings, Inc. 1,680,960
----------
3,156,860
----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
- 8 -
THE NORTH COUNTRY FUNDS
EQUITY GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
November 30, 2003
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
METALS - 1.63%
35,000 Alcoa, Inc. $ 1,148,350
----------
MOTORCYCLES - 1.40%
20,800 Harley-Davidson, Inc. 981,136
----------
MULTIMEDIA - 2.75%
22,300 Gannett Co., Inc. 1,931,180
----------
OIL & GAS PRODUCERS - 3.31%
24,000 Burlington Resources, Inc. 1,204,800
31,000 Exxon Mobil Corp. 1,121,270
----------
2,326,070
----------
OIL & GAS SERVICES - 1.89%
18,500 Apache Corp. 1,328,300
----------
RETAIL - 12.11%
47,000 + Brinker International, Inc. 1,530,320
42,000 Family Dollar Stores, Inc. 1,620,360
38,500 Home Depot, Inc. 1,415,260
44,500 Target Corp. 1,723,040
29,500 Walgreen Co. 1,085,895
20,500 Wal-Mart Stores, Inc. 1,140,620
----------
8,515,495
----------
SCIENTIFIC & TECHNICAL
INSTRUMENTS - 2.95%
24,950 Danahar Corp. 2,075,840
----------
SEMICONDUCTORS - 2.69%
38,500 Intel Corp. 1,287,055
14,000 Linear Technology Corp. 603,960
----------
1,891,015
----------
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
SOFTWARE & PROGRAMMING - 1.83%
50,000 Microsoft Corp. $ 1,285,000
----------
TELECOMMUNICATIONS - 1.00%
21,500 Verizon Communications, Inc. 704,555
----------
TOTAL COMMON STOCKS
(Cost $59,566,221) 67,374,427
----------
MONEY MARKET FUNDS - 4.15%
1,472,299 BlackRock Provident
Institutional Temp Fund 1,472,299
1,443,552 Goldman Sachs Financial
Square Funds -
Prime Obligations Fund 1,443,552
----------
TOTAL MONEY MARKET FUNDS
(Cost $2,915,851) 2,915,851
----------
TOTAL INVESTMENTS
(Cost $62,482,072) 99.98% 70,290,278
CASH AND OTHER
ASSETS LESS LIABILITIES 0.02% 14,476
---------- ----------
TOTAL NET ASSETS 100.00% $70,304,754
========== ==========
+ Non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
- 9 -
THE NORTH COUNTRY FUNDS
INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
November 30, 2003
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------
CORPORATE BONDS - 64.60%
AEROSPACE/DEFENSE - 0.58%
$ 200,000 McDonnell Douglas Corp.,
6.875%, due 11/1/06 $ 219,689
----------
BANKS - 7.57%
500,000 Bank of America Corp.,
4.75%, due 10/15/06 524,728
800,000 Chase Manhattan Corp.,
6.00%, due 2/15/09 869,339
750,000 Citigroup, Inc.,
5.00%, due 3/6/07 792,761
275,000 J.P. Morgan Chase & Co.,
6.50%, due 1/15/09 303,346
350,000 Nationsbank Corp.,
6.60%, due 5/15/10 384,551
----------
2,874,725
----------
BEVERAGES - 1.58%
300,000 Coca-Cola Co.,
5.75%, due 3/15/11 324,793
250,000 Pepsico, Inc.,
5.70%, due 11/1/08 274,138
----------
598,931
----------
BUILDING MATERIALS - 1.42%
500,000 Vulcan Materials,
6.00%, due 4/1/09 540,845
----------
BUSINESS SERVICES - 0.65%
250,000 First Data Corp.,
3.375%, due 8/1/08 246,369
----------
COMPUTERS - 2.83%
1,000,000 International Business
Machines Corp.,
5.375%, due 2/1/09 1,072,442
----------
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------
COSMETICS & TOILETRIES - 1.40%
$ 500,000 Colgate-Palmolive Co.,
5.34%, due 3/27/06 $ 531,673
----------
DIVERSIFIED FINANCIAL SERVICES - 13.95%
200,000 American General Finance,
6.75%, due 11/15/04 209,503
500,000 Caterpillar Financial Services,
5.60%, due 3/15/06 527,999
490,000 Commercial Credit Co.,
7.75%, due 3/1/05 526,088
500,000 First Union Corp.,
7.50%, due 7/15/06 562,331
900,000 General Electric Capital Corp.,
5.35%, due 3/30/06 956,196
General Motors Acceptance Corp.,
360,000 6.625%, due 1/9/04 361,688
500,000 4.50%, due 7/15/06 510,603
250,000 6.125%, due 1/22/08 263,179
Household Finance Corp.,
100,000 2.90%, due 11/15/06 98,646
500,000 7.875%, due 3/1/07 568,504
500,000 3.90%, due 10/15/08 491,818
200,000 6.375%, due 10/15/11 219,084
----------
5,295,639
----------
ELECTRIC UTILITIES - 5.37%
500,000 Jersey Central Power & Lighting,
6.85%, due 11/27/06 549,757
115,000 Kansas Energy, Inc.,
6.65%, due 3/1/05 121,449
National Rural Utilities,
500,000 3.25%, due 10/1/07 497,025
500,000 6.20%, due 2/1/08 547,208
300,000 Potomac Electric Power Co.,
6.50%, due 9/15/05 320,728
----------
2,036,167
----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
- 10 -
THE NORTH COUNTRY FUNDS
INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
November 30, 2003
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------
FOODS - 3.09%
$ 250,000 General Mills, Inc.,
2.625%, due 10/24/06 $ 246,343
Kellogg Co.,
175,000 4.875%, due 10/15/05 183,334
500,000 2.875%, due 6/1/08 480,055
250,000 Kraft Foods, Inc.,
5.25%, due 6/1/07 263,781
----------
1,173,513
----------
INSURANCE - 0.26%
100,000 John Hancock Life Insurance,
3.35%, due 11/15/07 98,287
----------
INVESTMENT SERVICES - 8.72%
Bear Stearns Co., Inc.,
500,000 7.80%, due 8/15/07 574,976
300,000 3.90%, due 11/15/08 293,970
500,000 4.50%, due 10/28/10 497,257
300,000 Goldman Sachs Group, Inc.,
6.65%, due 5/15/09 337,120
500,000 Lehman Brothers Holdings, Inc.,
7.50%, due 9/1/06 561,441
Merrill Lynch & Co., Inc.,
500,000 5.36%, due 2/1/07 533,532
166,000 6.25%, due 10/15/08 182,768
300,000 6.00%, due 2/17/09 327,344
----------
3,308,408
----------
MULTIMEDIA - 2.83%
1,000,000 Gannet Co., Inc.,
5.50%, due 4/1/07 1,073,761
----------
PHARMACEUTICALS - 1.29%
500,000 Eli Lilly & Co.,
2.90%, due 3/15/08 487,895
----------
RESTAURANTS - 1.13%
400,000 McDonald's Corp.,
5.95%, due 1/15/08 430,930
----------
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------
RETAIL - 2.94%
$ 195,000 CVS Corp.,
5.625%, due 3/15/06 $ 207,973
Target Corp.,
345,000 5.95%, due 5/15/06 371,575
500,000 5.40%, due 10/1/08 535,022
----------
1,114,570
----------
TELECOMMUNICATIONS - 7.56%
565,000 Ameritech Capital
Funding Corp.,
6.15%, due 1/15/08 618,743
500,000 GTE Northwest, Inc.,
5.55%, due 10/15/08 529,924
500,000 GTE South, Inc.,
6.00%, due 2/15/08 538,400
600,000 SBC Communications, Inc.,
5.75%, due 5/2/06 641,557
500,000 Southwestern Bell
Telephone Co.,
6.60%, due 11/15/05 538,526
----------
2,867,150
----------
TRANSPORTATION - 1.43%
500,000 Carnival Corp.,
6.15%, due 4/15/08 541,610
----------
TOTAL CORPORATE BONDS
(Cost $23,151,910) 24,512,604
----------
TAXABLE MUNICIPAL BONDS - 2.56%
250,000 Kansas State Development
Authority Revenue Bond
Public Employee Retirement
Systems, FSA,
4.40%, due 9/1/09 253,662
250,000 New Jersey State Turnpike
Authority Revenue Bond
Series B, MBIA,
3.14%, due 1/1/09 244,587
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
- 11 -
THE NORTH COUNTRY FUNDS
INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
November 30, 2003
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS (CONTINUED)
$ 500,000 Illinois State Taxable Pension
General Obligation,
2.80%, due 6/1/09 $ 472,795
----------
TOTAL MUNICIPAL BONDS
(Cost $999,436) 971,044
----------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS - 28.48%
GOVERNMENT AGENCIES - 23.35%
Federal Farm Credit Bank,
1,000,000 3.00%, due 11/1/05 1,014,132
200,000 6.52%, due 9/24/07 223,131
Federal Home Loan Bank,
500,000 2.40%, due 4/13/06 498,480
250,000 2.75%, due 11/15/06 248,957
500,000 2.125%, due 1/9/07 487,555
90,000 7.625%, due 5/15/07 103,392
200,000 5.875%, due 11/15/07 218,687
800,000 3.875%, due 8/22/08 806,349
550,000 5.315%, due 12/23/08 590,238
500,000 4.00%, due 2/18/09 502,289
500,000 4.125%, due 8/13/10 495,867
Federal National
Mortgage Association,
1,000,000 2.30%, due 3/28/06 998,580
1,000,000 2.625%, due 11/15/06 994,363
500,000 2.20%, due 12/18/06 490,117
500,000 2.50%, due 6/15/08 479,682
400,000 6.42%, due 3/9/09 405,460
300,000 6.25%, due 2/17/11 302,778
----------
8,860,057
----------
MORTGAGE BACKED SECURITIES - 1.34%
Federal Home Loan Bank,
342,698 5.00%, due 8/1/07 352,586
67,339 6.50%, due 11/1/08 71,227
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES (CONTINUED)
$ 75,673 Federal National
Mortgage Association,
6.50%, due 11/1/08 $ 80,167
4,542 Government National
Mortgage Association,
11.00%, due 11/15/05 5,137
----------
509,117
----------
U.S. TREASURY NOTES - 3.79%
150,000 6.50%, due 8/15/05 161,724
1,000,000 4.625%, due 5/15/06 1,056,055
200,000 6.50%, due 10/15/06 222,125
----------
1,439,904
----------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $10,726,953) 10,809,078
----------
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
MONEY MARKET FUNDS - 3.69%
710,565 BlackRock Provident
Institutional Temp Fund 710,565
689,628 Goldman Sachs Financial
Square Funds - Prime
Obligations Fund 689,628
----------
TOTAL MONEY MARKET FUNDS
(Cost $1,400,193) 1,400,193
----------
TOTAL INVESTMENTS
(Cost $36,278,492) 99.33% 37,692,919
----------
CASH AND OTHER
ASSETS LESS LIABILITIES 0.67% 253,295
------- ----------
TOTAL NET ASSETS 100.00% $37,946,214
======= ==========
FSA - Financial Security Assurance.
MBIA - Municipal Bond Insurance Association.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
- 12 -
THE NORTH COUNTRY FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
November 30, 2003
EQUITY INTERMEDIATE
GROWTH FUND BOND FUND
------------ ------------
ASSETS:
Investments in securities, at value (Cost $62,482,072
and $36,278,492, respectively) .............................. $ 70,290,278 $ 37,692,919
Cash .......................................................... 2,585 899
Receivable for fund shares sold ............................... 24,475 9,188
Dividends and interest receivable ............................. 66,177 388,035
Prepaid expenses and other assets ............................. 4,770 4,372
------------ ------------
Total Assets ................................................ 70,388,285 38,095,413
------------ ------------
LIABILITIES:
Accrued advisory fees ......................................... 43,414 15,419
Dividends payable ............................................. -- 97,473
Redemptions payable ........................................... -- 3,956
Accrued expenses .............................................. 40,117 32,351
------------ ------------
Total Liabilities ........................................... 83,531 149,199
------------ ------------
Net Assets .................................................. $ 70,304,754 $ 37,946,214
============ ============
NET ASSETS CONSIST OF:
Paid in capital ............................................... $ 80,095,459 $ 36,183,369
Accumulated undistributed net investment income ............... 7,180 7
Accumulated net realized gain (loss) from
investment transactions ..................................... (17,606,091) 348,411
Net unrealized appreciation on investments .................... 7,808,206 1,414,427
------------ ------------
Net Assets .................................................. $ 70,304,754 $ 37,946,214
============ ============
Shares Outstanding ............................................ 7,999,755 3,548,018
============ ============
Net asset value and redemption price per share ................ $ 8.79 $ 10.70
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
- 13 -
THE NORTH COUNTRY FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended November 30, 2003
EQUITY INTERMEDIATE
GROWTH FUND BOND FUND
------------ ------------
INVESTMENT INCOME:
Interest ........................................................... $ 19,629 $ 1,540,668
Dividends .......................................................... 657,665 --
------------ ------------
Total investment income .......................................... 677,294 1,540,668
------------ ------------
EXPENSES:
Investment advisory fees ........................................... 456,934 169,542
Administration fees ................................................ 102,900 95,282
Legal fees ......................................................... 36,826 20,933
Transfer agency fees ............................................... 27,164 21,204
Custody fees ....................................................... 14,813 10,697
Audit fees ......................................................... 13,938 12,312
Insurance expense .................................................. 12,323 5,812
Printing expense ................................................... 8,602 5,361
Registration & filing fees ......................................... 8,395 8,335
Director fees ...................................................... 6,461 3,659
------------ ------------
Total expenses ................................................... 688,356 353,137
Less: Expense reimbursement and waivers ............................ (18,242) --
------------ ------------
Net expenses ..................................................... 670,114 353,137
------------ ------------
Net investment income ............................................ 7,180 1,187,531
------------ ------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain (loss) from investment
transactions ..................................................... (3,070,954) 350,880
Net change in unrealized appreciation
of investments for the period .................................... 12,753,087 8,254
------------ ------------
Net realized and unrealized gain
on investments ................................................... 9,682,133 359,134
------------ ------------
Net increase in net assets resulting
from operations .................................................. $ 9,689,313 $ 1,546,665
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
- 14 -
THE NORTH COUNTRY FUNDS
EQUITY GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
2003 2002
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) ................................ $ 7,180 $ (7,348)
Net realized loss from investment transactions .............. (3,070,954) (11,714,236)
Net change in unrealized appreciation for the period ........ 12,753,087 29,945
------------- -------------
Net increase (decrease) in net assets
resulting from operations ................................. 9,689,313 (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) ........................ 3,317,844 11,283,525
------------- -------------
Net increase (decrease) in net assets ....................... 13,007,157 (436,226)
NET ASSETS:
Beginning of period ......................................... 57,297,597 57,733,823
------------- -------------
End of period (including undistributed net investment
income of $7,180 and $0, respectively) .................... $ 70,304,754 $ 57,297,597
============= =============
+ Less than $.01 per share.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
- 15 -
THE NORTH COUNTRY FUNDS
INTERMEDIATE BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
2003 2002
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ......................................... $ 1,187,531 $ 1,167,395
Net realized gain from investment transactions ................ 350,880 644
Net change in unrealized appreciation for the period .......... 8,254 844,254
------------ ------------
Net increase in net assets resulting from operations .......... 1,546,665 2,012,293
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($0.38 and
$0.45 per share, respectively) .............................. (1,187,880) (1,167,912)
Distributions from net realized gains on investments .......... -- --
------------ ------------
Total distributions to shareholders ........................... (1,187,880) (1,167,912)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (Note 4) .......................... 8,052,026 4,159,654
------------ ------------
Net increase in net assets .................................... 8,410,811 5,004,035
NET ASSETS:
Beginning of period ........................................... 29,535,403 24,531,368
------------ ------------
End of period (including undistributed net investment
income of $7 and $356, respectively) .......................... $ 37,946,214 $ 29,535,403
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
- 16 -
THE NORTH COUNTRY FUNDS
EQUITY GROWTH FUND
FINANCIAL HIGHLIGHTS
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE YEAR FOR THE YEAR MARCH 1, 2001(1)
ENDED ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
2003 2002 2001
------------- ------------- -------------
Net asset value, beginning of period ............. $ 7.55 $ 9.19 $ 10.00
------------- ------------- -------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income ............................ 0.00+ 0.00+ 0.00
Net realized and unrealized gains
(losses) on investments ........................ 1.24 (1.64) (0.81)
------------- ------------- -------------
Total from investment operations ................. 1.24 (1.64) (0.81)
------------- ------------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income ............. 0.00 0.00+ 0.00
Distribution 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 ................... $ 8.79 $ 7.55 $ 9.19
============= ============= =============
Total return(2) .................................. 16.42% (17.81)% (8.10)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ............. $ 70,305 $ 57,298 $ 57,734
Ratios to average net assets:(3)
Expenses, before reimbursement ................. 1.13% 1.13% 1.21%
Expenses, including effect
of reimbursement ............................. 1.10% 1.10% 1.10%
Net investment income,
before reimbursement ......................... (0.02)% (0.04)% (0.06)%
Net investment income, including
effect of reimbursement ...................... 0.01% (0.01)% 0.05%
Portfolio turnover rate ........................ 31.53% 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
- 17 -
THE NORTH COUNTRY FUNDS
INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE YEAR FOR THE YEAR MARCH 1, 2001(1)
ENDED ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
2003 2002 2001
------------- ------------- -------------
Net asset value, beginning of period .............. $ 10.54 $ 10.23 $ 10.00
------------- ------------- -------------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income ............................. 0.38 0.45 0.33
Net realized and unrealized gains
on investments .................................... 0.16 0.31 0.23
------------- ------------- -------------
Total from investment operations .................. 0.54 0.76 0.56
------------- ------------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income .............. (0.38) (0.45) (0.33)
Distribution from net realized gains
from security transactions ...................... 0.00 0.00 0.00
------------- ------------- -------------
Total distributions ............................... (0.38) (0.45) (0.33)
------------- ------------- -------------
Net asset value, end of period .................... $ 10.70 $ 10.54 $ 10.23
============= ============= =============
Total return(2) ................................... 5.11% 7.56% 5.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .............. $ 37,946 $ 29,535 $ 24,531
Ratios to average net assets:(3)
Expenses, before reimbursement .................... 1.04% 1.11% 1.27%
Expenses, including effect of
reimbursement ................................... 1.04% 1.12%(4) 1.25%
Net investment income,
before reimbursement ............................ 3.50% 4.33% 4.43%
Net investment income, including
effect of reimbursement ......................... 3.50% 4.32%(4) 4.45%
Portfolio turnover rate ........................... 21.62% 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
adviser.
</FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
- 18 -
THE NORTH COUNTRY FUNDS
NOTES TO FINANCIAL STATEMENTS
November 30, 2003
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 a national securities
exchange are valued at the last quoted sale price. NASDAQ traded securities
are valued using the NASDAQ official closing price (NOCP). 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").
- 19 -
THE NORTH COUNTRY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 2003
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.
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.
- 20 -
THE NORTH COUNTRY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 2003
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 year ended November 30, 2003, the Adviser earned
advisory fees of $456,934 from the Equity Fund and $169,542 from the Bond
Fund. The portion of these advisory fees which were still due to the adviser
at year end were $43,414 and $15,419, respectively.
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 year ended November 30, 2003, the Adviser waived fees of $18,242 from the
Equity Fund. As of November 30, 2003, there was $78,035 of reimbursement from
the Equity Fund subject to recapture by the Adviser through November 30 of
the years below:
2006 2007 2008
-------- -------- ---------
42,130 17,663 18,242
Gemini Fund Services, LLC ("GFS" or the "Administrator") 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.
- 21 -
THE NORTH COUNTRY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 2003
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.
NOTE 4. FUND SHARE TRANSACTIONS
At November 30, 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 $80,095,459 and $36,183,369, respectively.
Transactions in capital shares were as follows:
EQUITY GROWTH FUND:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 2003 NOVEMBER 30, 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
Shares sold ...................... 1,494,306 $11,503,008 1,879,318 $15,647,059
Shares issued for reinvestment
of dividends ................... -- -- 2 14
Shares redeemed .................. (1,080,760) (8,185,164) (572,915) (4,363,548)
----------- ----------- ----------- -----------
Net increase ..................... 413,546 $ 3,317,844 1,306,405 $11,283,525
=========== =========== =========== ===========
INTERMEDIATE BOND FUND:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 2003 NOVEMBER 30, 2002
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
Shares sold ..................... 1,045,713 $11,296,325 698,074 $ 7,198,669
Shares issued for reinvestment
of dividends .................. 6,236 67,345 2,603 26,997
Shares redeemed ................. (306,011) (3,311,644) (295,592) (3,066,012)
----------- ----------- ----------- -----------
Net increase .................... 745,938 $ 8,052,026 405,085 $ 4,159,654
=========== =========== =========== ===========
- 22 -
THE NORTH COUNTRY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 2003
NOTE 5. INVESTMENTS
Investment transactions, excluding short-term securities, for the year ended
November 30, 2003 were as follows:
EQUITY INTERMEDIATE
GROWTH FUND BOND FUND
------------ ------------
Purchases .............. $ 20,077,586 $ 14,396,192
Sales .................. $ 18,510,674 $ 6,876,580
At November 30, 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 $ 10,852,653 $ 1,578,986
Aggregate gross unrealized depreciation
for all investments for which there
was an excess of cost over value (3,044,447) (164,559)
------------ ------------
Net unrealized appreciation $ 7,808,206 $ 1,414,427
============ ============
The aggregate cost of securities for federal income tax purposes at November
30, 2003 is the same as for book purposes for both Funds.
NOTE 6. TAX INFORMATION
During the year ended November 30, 2003, the Intermediate Bond Fund paid
dividends of $1,187,880 which were characterized as ordinary income
distributions for tax purposes.
As of November 30, 2003, the components of distributable earnings on a tax
basis were
ORDINARY LONG TERM UNREALIZED
INCOME GAINS APPRECIATION
------------- ------------- -------------
Equity Growth Fund ...... $ 7,180 $ (17,606,091) $ 7,808,206
Intermediate Bond Fund .. $ 7 $ 348,411 $ 1,414,427
As of November 30, 2003, the Equity Growth Fund had available, for federal
income tax purposes, $17,606,091 in unused capital loss carryforwards available
to offset future capital gains expiring on November 30 of the years below:
2009 2010 2011
---------- ----------- ----------
$2,820,901 $11,714,236 $3,070,954
- 23 -
THE NORTH COUNTRY FUNDS
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Trustees
The North Country Funds:
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of The North Country Funds comprising
the Equity Growth Fund and the Intermediate Bond Fund as of November 30, 2003,
and the related statements of operations for the year then ended, and the
statements of changes in net assets, and the financial highlights for the two
years in the period then ended and for the period from March 1, 2001
(commencement of operations) to November 30, 2001 in the period then ended.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 2003, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds constituting The North Country Funds as of November 30, 2003, and
the results of their operations for the year then ended, and the changes in
their net assets, and their financial highlights for the two years then ended
and for the period from March 1, 2001 (commencement of operations) to November
30, 2001 in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
December 11, 2003
- 24 -
THE NORTH COUNTRY FUNDS
INFORMATION REGARDING TRUSTEES AND OFFICERS (UNAUDITED)
The Trustees and officers of North Country Funds (the "Trust") are listed
below, together with their principal occupations during the past five years. The
term of office for trustees is for the duration of the Trust or until removal,
resignation or retirement; officers are elected annually. Each individual listed
below oversees both portfolios currently existing within the complex.
The following table provides information regarding each Trustee who is an
"interested person" of the Trust, as defined in the Investment Company Act of
1940.
POSITION &
LENGTH OF TIME SERVED WITH THE PRINCIPAL OCCUPATIONS DURING PAST
NAME, ADDRESS AND AGE COMPANY 5 YEARS AND CURRENT DIRECTORSHIPS
Kenneth C. Hopper, M.D.* Trustee since 2001 Chairman & CEO, Northeastern Toxicology
c/o Gemini Fund Services, LLC Laboratory, Inc.; Chairman & CEO, Bay
150 Motor Parkway Optical, Inc. (1972-Present); Chairman, Drug
Hauppauge, NY 11788 Risk Solutions, LLC (1997-Present); President
Age: 65 & CEO, Adirondack Eye Physicians &
Surgeons, P.C. (1970-Present); Director,
North Country Investment Advisers, Inc.
(2000-Present); Director, Arrow Financial
Corp. (1983-Present); Director, Glens Falls
National Bank & Trust Company (1976-
Present)
Thomas L. Hoy* Trustee since 2000 President, CEO & Director, Arrow Financial
c/o Gemini Fund Services, LLC Corp. (1996-Present); President, CEO &
150 Motor Parkway Director, Glens Falls National Bank & Trust
Hauppauge, NY 11788 Company (1995-Present); Director, North
Age: 55 Country Investment Advisers, Inc. (2000-
Present)
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THE NORTH COUNTRY FUNDS
INFORMATION REGARDING
TRUSTEES AND OFFICERS (UNAUDITED) (CONTINUED)
The following table provides information regarding each Trustee who is not
an "interested person" of the Trust, as defined in the Investment Company Act of
1940.
POSITION &
LENGTH OF TIME SERVED WITH THE PRINCIPAL OCCUPATIONS DURING PAST
NAME, ADDRESS AND AGE COMPANY 5 YEARS AND CURRENT DIRECTORSHIPS
George R. Coughlan, III Trustee since 2001 Retired; Vice President & Branch Manager,
c/o Gemini Fund Services, LLC Smith Barney (1974-1998)
150 Motor Parkway
Hauppauge, NY 11788
Age: 65
Alan E. Redeker Trustee since 2000 President, Glens Falls Lehigh Cement (1999-
c/o Gemini Fund Services, LLC Present); Vice President, Roanoke Cement
150 Motor Parkway (1998); Regional Vice President, Southdown
Hauppauge, NY 11788 Corp. (Cement Co.) (1998); Vice President,
Age: 59 Medusa Corporation (Cement Co.) (1995-1998)
Joseph M. Grossi Trustee since 2001 Retired; General Manager-Northeast Region,
c/o Gemini Fund Services, LLC Niagara Mohawk Power Corp. (Gas &
150 Motor Parkway Electric Co.) (1964-1999)
Hauppauge, NY 11788
Age: 64
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THE NORTH COUNTRY FUNDS
INFORMATION REGARDING
TRUSTEES AND OFFICERS (UNAUDITED) (CONTINUED)
The following table provides information regarding each officer who is not
a Trustee of the Trust.
POSITION &
LENGTH OF TIME SERVED WITH THE PRINCIPAL OCCUPATIONS DURING PAST
NAME, ADDRESS AND AGE COMPANY 5 YEARS AND CURRENT DIRECTORSHIPS
Michael J. Wagner President since Chief Operating Officer, Gemini Fund
c/o Gemini Fund Services, LLC 2003 Services, LLC. (2003-Present); Senior Vice
150 Motor Parkway President, Gemini Fund Services, LLC.
Hauppauge, NY 11788 (1998-2003)
Age: 53
Peter J. Lareau Vice President Vice President-Corporate Compliance, Glens
c/o Gemini Fund Services, LLC since 2002 Falls National Bank & Trust Company (1982-
150 Motor Parkway Present); Compliance Officer, North Country
Hauppauge, NY 11788 Investment Advisers, Inc. (2001-Present)
Age: 45
Andrew Rogers Treasurer since Director of Fund Administration, Gemini Fund
c/o Gemini Fund Services, LLC 2002 Services, LLC (2001-Present); Vice President of
150 Motor Parkway Compliance/Accounting, JP Morgan Chase &
Hauppauge, NY 11788 Co. (1999-2001); Financial Reporting
Age: 34 Supervisor, Alliance Capital (1995-1999)
Rose Anne Casaburri Secretary since Paralegal, Gemini Fund Services, LLC (2001-
c/o Gemini Fund Services, LLC 2001 Present); Human Resources Manager,
150 Motor Parkway Federated Department Stores (1996-2001)
Hauppauge, NY 11788
Age: 51
James Colantino Assistant Treasurer Senior Fund Administrator, Gemini Fund
c/o Gemini Fund Services, LLC since 2002 Services, LLC (1996-Present)
150 Motor Parkway
Hauppauge, NY 11788
Age: 34
The Trust's Statement of Additional Information includes additional
information about the Trustees of the Trust and is available, without charge,
upon request by calling 1-888-350-2990.
* Kenneth C. Hopper, M.D. and Thomas L. Hoy are both deemed to be
"interested persons" of North Country Funds, as defined by the 1940 Act.
Each serves as a director of Glens Falls National Bank & Trust Company,
the sponsor of North Country Funds and as a director of the North Country
Funds' investment adviser.
- 27 -
INVESTMENT ADVISER
North Country Investment Advisers, Inc.
250 Glen Street
Glens Falls, NY 12801
LEGAL COUNSEL
Ropes & Gray LLP
One Metro Center
700 12th Street, N.W.,
Suite 900
Washington, DC 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.
(a) As of the end of the period covered by this report, the registrant has
adopted a code of ethics that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party.
(b) For purposes of this item, "code of ethics" means written standards that are
reasonably designed to deter wrongdoing and to promote:
(1) Honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between personal and
professional relationships;
(2) Full, fair, accurate, timely, and understandable disclosure in
reports and documents that a registrant files with, or submits
to, the Commission and in other public communications made by
the registrant;
(3) Compliance with applicable governmental laws, rules, and
regulations;
(4) The prompt internal reporting of violations of the code to an
appropriate person or persons identified in the code; and
(5) Accountability for adherence to the code.
(c) Amendments: During the period covered by the report, there have not been any
amendments to the provisions of the code of ethics.
(d) Waivers: During the period covered by the report, the registrant has not
granted any express or implicit waivers from the provisions of the code of
ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that John C. Olsen,
CPA, CFE, elected as a member of the Audit Committee at a board meeting held on
February 3, 2004, is an independent audit committee financial expert. He
acquired his attributes through education and experience as a public accountant
and auditor.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not required at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED COMPANIES. Not applicable.
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) Based on an evaluation of the registrant's disclosure controls and
procedures as of November 30, 2003, the disclosure controls and procedures are
reasonably designed to ensure that the information required in filings on Forms
N-CSR is recorded, processed, summarized, and reported on a timely basis.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal half-year
that have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Code of Ethics required by Item 2 of Form N-CSR is filed herewith.
(a)(2) Certifications required by Item 10(a)(2) of Form N-CSR are filed
herewith.
(b) Certification required by Item 10(b) of Form N-CSR is filed herewith.
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.
(Registrant) NORTH COUNTRY FUNDS
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By (Signature and Title)
* /S/ MICHAEL J. WAGNER
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Michael J. Wagner, President
Date FEBRUARY 4, 2004
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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 (Signature and Title)
/S/ MICHAEL J. WAGNER
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Michael J. Wagner, President
Date FEBRUARY 4, 2004
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By (Signature and Title)
/S/ ANDREW ROGERS
Andrew Rogers, Treasurer
Date FEBRUARY 4, 2004
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