N-CSR 1 t300446.txt SEMI ANNUAL REPORT 5/31/03 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 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) GEMINI FUND SERVICES, LLC, 150 MOTOR PARKWAY, SUITE 205, HAUPPAUGE, NY 11788 -------------------------------------------------------------------------------- (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: 5/31/03 --------------- ITEM 1. REPORTS TO STOCKHOLDERS. -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- -1- -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- -2- -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- -3- -------------------------------------------------------------------------------- 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. ----------- 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 -------------------------------------------------------------------------------- -4-
-------------------------------------------------------------------------------- THE NORTH COUNTRY FUNDS EQUITY GROWTH FUND SCHEDULE OF INVESTMENTS May 31, 2003 (Unaudited) ================================================================================ MARKET SHARES VALUE -------------------------------------------------------------------------------- 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 ----------- BEVERAGES - 2.98% 17,200 Anheuser-Busch Companies, Inc. 905,236 21,000 Pepsico, Inc. 928,200 ----------- 1,833,436 ----------- BUSINESS SERVICES - 3.64% 28,600 Automatic Data Processing, Inc. 998,140 30,000 First Data Corp. 1,242,600 ----------- 2,240,740 ----------- CHEMICALS - 1.88% 7,000 Du Pont (EI) de Nemours & Co. 294,980 16,000 Ecolab, Inc. 860,000 ----------- 1,154,980 ----------- 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 ----------- COMPUTER SERVICES - 2.18% 45,000 +Yahoo!, Inc. 1,343,250 ----------- CONGLOMERATES - 3.77% 44,000 General Electric Co. 1,262,800 15,500 United Technologies Corp. 1,057,875 ----------- 2,320,675 ----------- 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 ----------- DISTRIBUTION & WHOLESALE - 1.30% 24,000 Fastenal Co. 802,320 ----------- MARKET SHARES VALUE -------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 3.91% 40,000 American Express Co. $ 1,666,400 10,000 Fannie Mae 740,000 ----------- 2,406,400 ----------- EDUCATIONAL SERVICES - 2.66% 28,000 +Apollo Group, Inc.- Cl A 1,635,760 ----------- FOOD PRODUCTS - 0.59% 7,700 General Mills, Inc. 360,206 ----------- INDUSTRIAL GASES - 0.63% 6,500 Praxair, Inc. 389,935 ----------- 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 ----------- 5,380,182 ----------- INVESTMENT SERVICES - 1.23% 17,500 Merrill Lynch & Co., Inc. 757,750 ----------- 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 ----------- 7,162,930 ----------- MEDICAL - DRUG DISTRIBUTION - 2.63% 28,000 Cardinal Health, Inc. 1,615,880 ----------- MEDICAL EQUIPMENT & SUPPLIES - 2.19% 27,700 Medtronic, Inc. 1,349,821 ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS ================================================================================ -5- -------------------------------------------------------------------------------- THE NORTH COUNTRY FUNDS EQUITY GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) May 31, 2003 (Unaudited) ================================================================================ MARKET SHARES VALUE -------------------------------------------------------------------------------- METALS - 1.40% 35,000 Alcoa, Inc. $ 861,350 ----------- MOTORCYCLES - 1.43% 20,800 Harley Davidson, Inc. 876,928 ----------- MULTIMEDIA - 2.22% 17,300 Gannett Co., Inc. 1,366,700 ----------- OIL & GAS PRODUCERS - 3.92% 24,000 Burlington Resources, Inc. 1,278,960 31,000 Exxon Mobil Corp. 1,128,400 ----------- 2,407,360 ----------- OIL & GAS SERVICES - 1.98% 18,500 Apache Corp. 1,219,520 ----------- 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 ----------- SCIENTIFIC & TECHNICAL INSTRUMENTS - 2.72% 24,950 Danahar Corp. 1,669,654 ----------- SEMICONDUCTORS - 1.60% 27,000 Linear Technology Corp. 981,720 ----------- MARKET SHARES VALUE -------------------------------------------------------------------------------- SOFTWARE & PROGRAMMING - 4.38% 27,000 +Intuit, Inc. $ 1,244,430 50,000 Microsoft Corp. 1,230,500 17,000 +Oracle Corp. 221,170 ----------- 2,696,100 ----------- TELECOMMUNICATIONS - 1.32% 21,500 Verizon Communications, Inc. 813,775 ----------- TOTAL COMMON STOCK (Cost $60,191,199) 59,475,312 ----------- 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 ----------- TOTAL MONEY MARKET FUNDS (Cost $1,998,506) 1,998,506 ----------- TOTAL INVESTMENTS (Cost $62,189,705) 99.96% 61,473,818 CASH AND OTHER ASSETS LESS LIABILITIES 0.04% 21,819 ------ ----------- TOTAL NET ASSETS 100.00% $61,495,637 ====== =========== --------- + Non-income producing security. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS ================================================================================ -6- -------------------------------------------------------------------------------- THE NORTH COUNTRY FUNDS INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS May 31, 2003 (Unaudited) ================================================================================ PRINCIPAL MARKET AMOUNT VALUE -------------------------------------------------------------------------------- CORPORATE BONDS - 65.31% AEROSPACE/DEFENSE - 0.64% $ 200,000 McDonnell Douglas Corp., 6.875%, due 11/1/06 $ 222,004 ----------- 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 -------------------------------------------------------------------------------- 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- -------------------------------------------------------------------------------- THE NORTH COUNTRY FUNDS INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS (CONTINUED) May 31, 2003 (Unaudited) ================================================================================ PRINCIPAL MARKET AMOUNT VALUE -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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- -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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 ------- ----------- TOTAL NET ASSETS 100.00% $34,734,242 ======= =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS ================================================================================
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-------------------------------------------------------------------------------- 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 ================================================================================
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-------------------------------------------------------------------------------- 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 ================================================================================
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-------------------------------------------------------------------------------- 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 ================================================================================
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-------------------------------------------------------------------------------- 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 ================================================================================
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-------------------------------------------------------------------------------- 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% --------------- (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. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS ================================================================================
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-------------------------------------------------------------------------------- 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% ------------ (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. 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 -----------------------