Registration No. 333-45664
ICA No. 811-10123
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933: [X]
Pre-Effective Amendment No. 1
Post-Effective Amendment No. ___
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940: [X]
Amendment No. 1
(Check Appropriate Box or Boxes)
THE NORTH COUNTRY FUNDS
-----------------------
(Exact Name of Registrant as Specified in Charter)
c/o American Data Services, Inc.
The Hauppauge Corporate Center
150 Motor Parkway
Hauppauge, New York 11788
-------------------------
(Address of Principal Executive Offices)(Zip Code)
(631) 951-0500
--------------
(Registrant's Telephone Number, Including Area Code)
Michael Miola
American Data Services, Inc.
The Hauppauge Corporate Center
150 Motor Parkway
HAUPPAUGE, NEW YORK 11788
(Name and Address of Agent For Service)
WITH A COPY TO:
--------------
Alan G. Priest
Ropes & Gray
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE
-----------------------------------------------
(Approximate Date of Proposed Public Offering)
SHARES OF BENEFICIAL INTEREST
-----------------------------
(Title of Securities Being Registered)
<PAGE>
It is proposed that this filing will become effective (check
appropriate box):
() immediately upon filing pursuant to paragraph (b).
() on (date) pursuant to paragraph (b).
() 60 days after filing pursuant to paragraph (a)(1).
() on (date) pursuant to paragraph (a)(1).
() 75 days after filing pursuant to paragraph (a)(2).
() on (date) pursuant to paragraph (a)(2) of Rule 485.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a) may
determine.
<PAGE>
THE NORTH COUNTRY EQUITY GROWTH FUND
THE NORTH COUNTRY INTERMEDIATE BOND FUND
EACH A SERIES OF
THE NORTH COUNTRY FUNDS
PROSPECTUS DATED ________, 2000
[THE NORTH COUNTRY FUNDS LOGO]
THE NORTH COUNTRY EQUITY GROWTH FUND (the "Growth Fund"), a series of The North
Country Funds (the "Company"), seeks to provide investors with long-term capital
appreciation by investing primarily in the equity securities of U.S. companies
with mid to large-sized market capitalizations which have demonstrated the
potential for long-term growth.
THE NORTH COUNTRY INTERMEDIATE BOND FUND (the "Bond Fund"), a series of the
Company, seeks to provide investors with total return based primarily on current
income with minimum fluctuation of principal value by investing primarily in
U.S. dollar denominated investment grade corporate and U.S. government bonds and
mortgage-backed securities.
This Prospectus concisely describes the information about each Fund that you
ought to know before investing. Please read it carefully before investing and
retain it for future reference. A Statement of Additional Information ("SAI")
about each Fund, dated ____________, 2000, is available free of charge by
writing the Funds c/o American Data Services, Inc. The Hauppauge Corporate
Center, 150 Motor Parkway, Hauppauge, New York 11788 or by calling (888)
350-2990. The SAI has been filed with the Securities and Exchange Commission and
is incorporated in its entirety by reference into this Prospectus.
AN INVESTMENT IN THE NORTH COUNTRY FUNDS IS NOT A DEPOSIT IN OR GUARANTEED BY
GLENS FALLS NATIONAL BANK & TRUST COMPANY OR ANY OTHER BANK AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY. INVESTMENT IN THE FUNDS INVOLVES THE POSSIBLE LOSS OF
PRINCIPAL INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
RISK RETURN SUMMARY...........................................................3
PERFORMANCE...................................................................5
FEES AND EXPENSES.............................................................6
INVESTMENT STRATEGIES.........................................................8
MAIN RISKS....................................................................9
MANAGEMENT...................................................................11
YOUR ACCOUNT.................................................................13
HOW TO OPEN AN ACCOUNT AND PURCHASE SHARES...................................14
HOW TO SELL (REDEEM) SHARES..................................................17
WHEN AND HOW NAV IS DETERMINED...............................................19
DISTRIBUTIONS................................................................20
FEDERAL TAX CONSIDERATIONS...................................................20
PERFORMANCE COMPARISONS......................................................21
EXCHANGE PRIVILEDGE..........................................................22
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT......................22
COUNSEL AND INDEPENDENT AUDITORS.............................................22
FINANCIAL HIGHLIGHTS.........................................................23
ORGANIZATION.................................................................23
<PAGE>
RISK RETURN SUMMARY
The following discussion describes the investment objective and principal
investment strategies and risks of each Fund. Each investment objective is a
fundamental policy and cannot be changed without the approval of a majority of a
Fund's outstanding shares.
You could lose money on your investment in the Funds, or the Funds may not
perform as well as other possible investments. Neither Fund, independently or
combined, constitutes a balanced or complete investment program and the net
asset value of each Fund's shares will fluctuate based on the value of the
securities held by each Fund. As with any mutual fund, there can be no guarantee
that the investment objective of a Fund will be achieved. An investment in the
Funds is not a deposit in a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency.
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE OF THE GROWTH FUND
The Growth Fund seeks to provide investors with long-term capital
appreciation.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGIES OF THE GROWTH FUND
The Growth Fund seeks to achieve its investment objective by investing
at least 80% of the Growth Fund's net assets in a diversified portfolio of
equity securities of U.S. companies with mid to large-sized market
capitalizations which the Adviser believes have demonstrated fundamental
investment value and favorable growth prospects.
The Adviser utilizes a "growth" approach to investing and selects portfolio
securities based on its analysis of various factors including, price/earnings
ratios, the strength or potential strength of a company's competitive position,
strength of management, marketing prowess and product development capabilities.
Portfolio securities may be sold as a result of various factors such as lack of
performance, change in business direction, or adverse changes in other factors
that were the basis for their purchase.
[GRAPHIC OMITTED] PRINCIPAL RISKS OF INVESTING IN THE GROWTH FUND.
The Growth Fund is subject to the following principal investment risks:
MARKET RISK. The net asset value of this Fund will fluctuate based on changes in
the value of the securities in which the Fund invests. The Fund invests in
equity securities (such as stocks) which are more volatile and carry more risk
than some other forms of investment. The price of equity securities may rise or
fall because of economic or political changes. Stock prices in general may
decline over short or even extended periods of time. Market prices of equity
securities in broad market segments may be adversely affected by a prominent
issuer having experienced losses or by the lack of earnings or such an issuer's
failure to meet the market's expectations with respect to new products or
services, or even by factors wholly unrelated to the value or condition of the
issuer, such as changes in interest rates.
ISSUER SPECIFIC CHANGES. The value of an individual security can be more
volatile, and can perform differently, than the market as a whole. The price of
an individual issuer's securities can rise or fall dramatically in response to
such things as earnings reports, news about the development of a promising
product, or the changing of key management personnel.
-3-
<PAGE>
MANAGER RISK. The Adviser has no prior experience in acting as an investment
adviser to a registered mutual fund. Investment in the Fund involves the risk
that the Advisor's assessment of the growth potential of specific securities may
prove incorrect.
GROWTH INVESTING. "Growth" stocks can perform differently than the market as a
whole and other types of stocks. The prices of growth stocks may increase or
decrease significantly in response to unexpected earnings reports or other news
about the company.
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE OF THE BOND FUND
The investment objective of the Bond Fund is to provide investors with
total return based primarily on current income with minimum fluctuation of
principal value.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGIES OF THE BOND FUND
The Bond Fund seeks to achieve its investment objective by investing
substantially all of its net assets in U.S. dollar denominated investment grade
bonds or debt securities. These may include corporate and U.S. government bonds
and mortgage-backed securities. Portfolio securities shall be rated within the
top four ratings categories by nationally recognized ratings agencies such as
Moody's and Standard & Poor's. The Bond Fund intends to maintain an investment
portfolio with a dollar-weighted average quality of "A" or better and an average
dollar-weighted maturity between 1 and 10 years.
The Bond Fund will invest in corporate bonds without regard to industry or
sector based on the Adviser's analysis of each target security's structural and
repayment features, current pricing and trading opportunities as well as the
credit quality of the issuer.
If the rating on an obligation held by the Bond Fund is reduced below the Bond
Fund's ratings requirements, the Adviser will sell the obligation only when it
is in the best interests of the Bond Fund's shareholders to do so.
[GRAPHIC OMITTED]PRINCIPAL RISKS OF INVESTING IN THE BOND FUND.
The Bond Fund is subject to the following principal investment risks:
FIXED INCOME RISKS. The market value of each of the Bond Fund's investments will
change in response to changes in interest rates and other factors. In general,
the price of a fixed income security can fall when interest rates rise and can
rise when interest rates fall. Securities with longer maturities and mortgage
securities can be more sensitive to interest rate changes although they usually
offer higher yields to compensate investors for the greater risks. The longer
the maturity of the security, the greater the impact a change in interest rates
could have on the security's price. In addition, short-term and long-term
interest rates do not necessarily move in the same amount or the same direction.
Short-term securities tend to react to changes in short-term interest rates and
long-term securities tend to react to changes in long-term interest rates. Also,
it is possible that the issuer of a fixed income security held by the Bond Fund
may default on the interest and principal payments due to the Bond Fund.
-4-
<PAGE>
PREPAYMENT RISK. Certain portfolio securities of the Bond Fund, such as
mortgage-backed securities, are subject to the risk of unscheduled prepayments
resulting from a decline in interest rates. These prepayments would have to be
reinvested at a lower rate of return. As a result, these securities may have
less potential for capital appreciation during periods of declining interest
rates than other securities of comparable maturities, although they may have a
similar risk of decline in market value during periods of rising interest rates.
The Fund may also fail to recover premiums paid for securities, resulting in a
capital loss. Prepayments may also significantly shorten the effective
maturities of these securities, especially during periods of declining interest
rates. Conversely, during periods of rising interest rates, a reduction in
prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of the Bond Fund.
MANAGER RISK. The Adviser has no prior experience in acting as an investment
adviser to a registered mutual fund. Investment in the Fund involves the risk
that the Advisor's assessment of the growth potential of specific securities may
prove incorrect.
PERFORMANCE
THE NORTH COUNTRY FUNDS (1)(2)(3)
The North Country Funds have no operating history as registered mutual funds.
Each series of The North Country Funds was initially organized under New York
law as a Collective Investment Fund sponsored by Glens Falls National Bank &
Trust Company. Prior to the commencement of operations (anticipated for February
1, 2001), each Collective Investment Trust will be converted into a series of
The North Country Funds (the Growth Fund and the Bond Fund). The bar chart and
table that follow provide some indication of the risks of investing in the
Growth Fund and the Bond Fund by showing changes in the performance of the
predecessor Collective Investment Funds from year to year, beginning in 1990(1)
and by showing how each Collective Investment Fund's average annual returns for
1, 5 and 10 years compare with those of a broad measure of market performance.
Accordingly, the performance data quoted below for each Fund is actually the
performance data of each corresponding predecessor Collective Investment Fund
for periods before the Trust's Registration Statement became effective, as
adjusted to reflect estimated expenses of the respective successor fund of the
Trust. Performance figures have been adjusted to reflect the expense levels of
the Funds. Please remember that neither Collective Investment Fund's past
performance is an indication of the Funds' future performance. A Fund may
perform better or worse in the future.
During the periods shown in the bar chart, the Growth Fund's best quarterly
performance was 27.39% (quarter ended December 31, 1998) and its lowest
quarterly performance was -7.52% (quarter ended September 30, 1990). The Bond
Fund's best quarterly performance was 4.86% (quarter ended June 30, 1995) and
its lowest quarterly performance was -1.78% (quarter ended March 31, 1994).
1990 4.30%
7.75%
1991 25.00%
11.85%
1992 4.80%
6.45%
1993 3.10%
4.85%
1994 -2.35%
-0.50%
1995 29.20%
14.75%
1996 16.60%
3.65%
1997 28.70%
6.95%
1998 40.50%
6.57%
1999 24.70%
0.77%
-5-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS AS OF THE PERIODS ENDED DECEMBER 31
----------------------------------------------------------------
(a) The performance of the Growth Fund for the nine months ended September 30,
2000 was 7.7%. (b) The performance of the Bond Fund for the nine months ended
September 30, 2000, was 4.9%. -------------------------- (1) Each series of The
North Country Funds was initially organized under New York law as a Collective
Investment Trust sponsored by Glens Falls National Bank & Trust Company. The
equity portfolio commenced investment operations on March 26, 1984. The fixed
income portfolio commenced investment operations on October 28, 1995.
Participation in each Collective Investment Trust was limited to qualified
employee benefit plans such as IRAs, retirement accounts and pension trusts.
Prior to the commencement of operations (anticipated for February 1, 2001), each
Collective Investment Trust will be converted into a series of The North Country
Funds, thereby becoming subject to the regulation of the Securities & Exchange
Commission.
(2) The quoted performance data for each Fund includes the performance of the
predecessor Collective Investment Trusts for calendar year periods before
the Trust's Registration Statement became effective as adjusted to reflect
estimated expenses of the respective successor fund of the Trust. The
Collective Investment Trusts were not registered under the 1940 Act and
therefore were not subject to certain investment restrictions that are
imposed by the 1940 Act. If the Collective Investment Trusts had been
registered under the 1940 Act, the performance of such Collective
Investment Trusts may have been adversely affected.
(3) The performance of the Funds as indicated above have been adjusted to
reflect the current expense ratios of each Fund.
GROWTH FUND
-----------
(PERIODS ENDED DECEMBER 31)
PAST YEAR PAST 5 YEARS PAST 10 YEARS
-----------------------------------------------
GROWTH FUND 24.70% 27.69% 16.88%
S&P 500 21.04% 28.50% 18.18%
Lipper L/C Core(1) 19.35% 25.30% 16.66%
BOND FUND
---------
(PERIODS ENDED DECEMBER 31)
PAST YEAR PAST 5 YEARS PAST 10 YEARS
--------------------------------------------
BOND FUND 0.77% 6.43% 6.02%
ML C/G 1-10(2) 0.47% 7.07% 7.26%
--------------------------
(1) Lipper Large Cap Core Index
(2) Merrill Lynch Corporate/Government 1-10 year maturity, "A" rated or
better Index
FEES AND EXPENSES
As an investor, you pay certain fees and expenses if you buy and hold shares of
the Funds. These fees and expenses are described in the Fee Table below and are
illustrated in the Example that follows:
-6-
<PAGE>
<TABLE>
<CAPTION>
===================================================== ============ ===========
GROWTH BOND
FUND FUND
----------------------------------------------------- ------------ -----------
SHAREHOLDER TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT):
----------------------------------------------------- ------------ -----------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of the offering price) None None
----------------------------------------------------- ------------ -----------
Maximum Deferred Sales Charge (Load)
Imposed on Purchases
(as a percentage of the offering price) None None
----------------------------------------------------- ------------ -----------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends and other
Distributions (as a percentage of) None None
----------------------------------------------------- ------------ -----------
Redemption Fee (as a percentage of
the amount redeemed, if applicable) None None
----------------------------------------------------- ------------ -----------
Exchange Fee None None
----------------------------------------------------- ------------ -----------
ESTIMATED ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF NET ASSETS)
----------------------------------------------------- ------------ -----------
Management Fees 0.75% 0.50%
----------------------------------------------------- ------------ -----------
Distribution (12b-1) Fees None None
----------------------------------------------------- ------------ -----------
Other Expenses (1) 0.35% (2) 1.06% (3)
----------------------------------------------------- ------------ -----------
Total Estimated Annual Operating Expenses 1.10% (2)(4) 1.56% (3)(5)
===================================================== ============ ===========
<FN>
-------------------------
(1) Other Expenses includes, among other expenses, administrative, custody, and
transfer agency fees.
(2) Other Expenses and Total Estimated Annual Operation Expenses for the Growth
Fund are based on estimated amounts for the current fiscal year assuming
$40 million in average annual net assets.
(3) Other Expenses and Total Estimated Annual Operation Expenses for the Bond
Fund are based on estimated amounts for the current fiscal year assuming
$10 million in average annual net assets.
(4) Actual Total Estimated Annual Operating Expenses of the Growth Fund is
1.08%. The Adviser has voluntarily agreed to limit the Total Annual
Operating Expenses of the Growth Fund so that they do not exceed more than
1.10% of the Growth Fund's average daily net assets on an annualized basis
for the year ending December 31, 2001. This voluntary cap may be terminated
by the Adviser after that date.
(5) The Adviser has voluntarily agreed to limit the Total Annual Operating
Expenses of the Bond fund so that they do not exceed more than 1.25% of the
Bond Fund's average daily net assets on an annualized basis for the year
ending December 31, 2000. This voluntary cap may be terminated by the
Adviser after that date.
</FN>
</TABLE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME
PERIODS INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THESE
PERIODS. THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RATE OF RETURN
EACH YEAR AND THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR
ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COST FOR
THE FUND WOULD BE:
GROWTH FUND
1 YEAR 3 YEARS
------ -------
$112 $350
-7-
<PAGE>
BOND FUND:
1 YEAR 3 YEARS
------ -------
$127 $397
INVESTMENT STRATEGIES
GROWTH FUND
To achieve its investment objective, the Growth Fund invests at least 80% of its
net assets in a diversified portfolio of equity securities of U.S. companies
with mid to large-sized market capitalizations (generally in excess of $5
billion) that have demonstrated fundamental investment value and the potential
for long-term growth. Portfolio securities include common stocks, preferred
stocks, convertible preferred stocks and other securities having the
characteristics of common stocks, such as American Depositary Receipts ("ADRs")
and SPDRs. For liquidity purposes or pending the investment in securities in
furtherance of its investment objective, the Fund may invest up to 20% of its
net assets in U.S. Government securities, repurchase agreements and high quality
short-term debt and money market instruments.
The Adviser selects portfolio securities for investment by the Fund based
primarily on its analysis of various factors which influence the issuer's
fundamental investment value and prospects for long term growth. The Adviser
determines the investment value of each portfolio security by screening certain
financial indicators such as the price-to-earnings ratio, the return on equity,
and cash flow using proprietary quantitative techniques. The Adviser also
considers the strength or potential strength of a company's competitive
position, strength of management, marketing prowess and product development
capabilities in order to evaluate a company's growth prospects.
The Growth Fund will not concentrate in any particular industry. The Adviser
intends to invest the Growth Fund's portfolio among numerous industries in
companies that have consistent operating histories, strong management teams and
favorable growth prospects.
The Fund focuses primarily on traditionally strong market sectors such as Basic
Materials, Health Care, Utilities, Transportation, Technology, Industrial
Cyclicals, Consumer Durables, Consumer Staples, Retail Sales, Capital Goods,
Financial Services and Communications. The Adviser, in its sole discretion,
determines which and to what extent each sector is to be represented in the
Fund's portfolio and will purchase or sell portfolio securities if it believes
that a particular sector should or should not be included in the Fund's
investments. However, the extent to which the Adviser invests in any particular
sector will be governed, to a large degree, by market conditions
The Adviser will utilize a buy and hold approach, generally maintaining its
position in a company's stock without regard to day-to-day fluctuations in the
market. However, the Adviser will frequently re-evaluate portfolio holdings, as
it deems necessary, and will typically sell a stock when the reasons for buying
it no longer apply, such as a lack of performance, change in business direction,
or adverse changes in other factors or when the company begins to show
deteriorating fundamentals.
PORTFOLIO TURNOVER. The frequency of the Growth Fund's portfolio transactions
will vary from year to year. Higher portfolio turnover rates resulting from more
actively traded portfolio securities generally result in higher transaction
costs, including brokerage commissions. However, since the Growth Fund's
investment policies emphasize long-term investment in the securities of
companies with favorable growth prospects, the Adviser does not anticipate
frequent changes in investments and the Growth Fund's portfolio turnover rate is
expected to be relatively low. The Adviser expects that the annual portfolio
turnover rate for the Growth Fund will range between 20% and 50%.
-8-
<PAGE>
BOND FUND
The Bond Fund generally invests substantially all of its net assets, without
regard to market sector or industry, in U.S. dollar denominated investment grade
bonds or debt securities issued by corporate entities or by the U.S. government,
its agencies and instrumentalities, municipalities. These may include certain
mortgage-backed securities.
The Bond Fund uses the Merrill Lynch Corporate/Government A Rated or Better 1-10
Year Bond Index1 as a general guide in structuring the Bond Fund and selecting
its investments with respect to average quality and maturity and manages the
Fund to have interest rate and credit risk characteristics that are similar to
that of the Index. Portfolio securities are rated within the top four ratings
categories by nationally recognized ratings agencies such as Moody's and
Standard & Poor's. The Bond Fund intends to maintain an investment portfolio
with a dollar-weighted average quality of "A" or better and an average
dollar-weighted maturity between 1 and 10 years. In determining a security's
maturity for purposes of calculating the Bond Fund's average maturity, an
estimate of the average time for its principal to be paid may be used. This can
be substantially shorter than its stated maturity.
In buying and selling portfolio securities for the Bond Fund, the Adviser also
considers a security's structural features such as duration, the amount of any
premium or discount, repayment or distribution schedules, and callable dates in
the context of current market conditions and short-term trading opportunities.
The Adviser may sell an obligation held by the Fund when the reasons for buying
it no longer apply. However, the Fund may not necessarily dispose of a security
when its rating is reduced below its rating at the time of purchase, although
the Adviser will consider such reduction in its determination of whether a Fund
should continue to hold the security in its portfolio.
MAIN RISKS
RISKS GENERALLY
INVESTING IN MUTUAL FUNDS. All mutual funds carry a certain amount of risk. You
may lose money on your investment in either of the Funds. The following
describes risks that are particular to each Fund as a result of each Fund's
specific investment objective and strategies as well as risks that are common to
both Funds generally. As all investment securities are subject to inherent
market risks and fluctuations in value due to earnings, economic and political
conditions and other factors, neither Fund can give any assurance that its
investment objective will be achieved.
ISSUER SPECIFIC CHANGES. Changes in the financial condition of an issuer,
changes in the specific economic or political conditions that affect a
particular type of security or issuer, and changes in general economic or
political conditions can affect the credit quality or value of an issuer's
securities. Lower-quality debt securities tend to be more sensitive to these
changes than higher-quality debt securities.
ILLIQUID SECURITIES. Each Fund may invest up to 15% of its respective net assets
in illiquid securities. Illiquid securities may offer a higher yield than
securities which are more readily marketable, but they may not always be
marketable on advantageous terms. The sale of illiquid securities often requires
more time and results in higher brokerage charges or dealer discounts than does
the sale of securities eligible for trading on national securities exchanges or
in the over-the-counter markets. A domestically traded security that is not
registered under the Securities Act of 1933 will not be considered illiquid if
the Adviser determines that an adequate investment trading market exists for
that security. However, there can be no assurance that a liquid market will
exist for any security at a particular time.
----------
(1) The Fund is neither affiliated with nor endorsed by Merrill Lynch.
-9-
<PAGE>
RISKS SPECIFIC TO THE GROWTH FUND
STOCK MARKET VOLATILITY. Stock markets can be volatile. In other words, the
prices of stocks can rise or fall rapidly in response to developments affecting
a specific company or industry, or to changing economic, political or market
conditions. The Growth Fund is subject to the general risk that the value of the
Growth Fund's investments may decline if the stock markets perform poorly. There
is also a risk that the Growth Fund's investments will underperform either the
securities markets generally or particular segments of the securities markets.
RISKS SPECIFIC TO THE BOND FUND
INTEREST RATE RISK. Debt securities have varying levels of sensitivity to
changes in interest rates. In general, the price of a debt security can fall
when interest rates rise and can rise when interest rates fall. Securities with
longer maturities and mortgage securities can be more sensitive to interest rate
changes although they usually offer higher yields to compensate investors for
the greater risks. The longer the maturity of the security, the greater the
impact a change in interest rates could have on the security's price. In
addition, short-term and long-term interest rates do not necessarily move in the
same amount or the same direction. Short-term securities tend to react to
changes in short-term interest rates and long-term securities tend to react to
changes in long-term interest rates.
CREDIT RISKS. Fixed income securities rated in the fourth classification by
Moody's (Baa) and S&P (BBB) may be purchased by the Bond Fund. These securities
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of those issuers to
make principal or interest payments, as compared to issuers of more highly rated
securities.
EXTENSION RISK. The Bond Fund is subject to the risk that an issuer will
exercise its right to pay principal on an obligation held by the Bond Fund (such
as mortgage-backed securities) later than expected. This may happen when there
is a rise in interest rates. These events may lengthen the duration (i.e.
interest rate sensitivity) and potentially reduce the value of these securities.
PREPAYMENT RISK. Certain types of debt securities, such as mortgage-backed
securities, have yield and maturity characteristics corresponding to underlying
assets. Unlike traditional debt securities, which may pay a fixed rate of
interest until maturity when the entire principal amount comes due, payments on
certain mortgage-backed securities, for example, include both interest and a
partial payment of principal. Besides the scheduled repayment of principal,
payments of principal may result from the voluntary prepayment, refinancing, or
foreclosure of the underlying mortgage loans.
Securities subject to prepayment are less effective than other types of
securities as a means of "locking in" attractive long-term interest rates. One
reason is the need to reinvest prepayments of principal; another is the
possibility of significant unscheduled prepayments resulting from declines in
interest rates. These prepayments would have to be reinvested at lower rates. As
a result, these securities may have less potential for capital appreciation
during periods of declining interest rates than other securities of comparable
maturities, although they may have a similar risk of decline in market value
during periods of rising interest rates. Prepayments may also significantly
shorten the effective maturities of these securities, especially during periods
of declining interest rates. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective maturities of these
securities, subjecting them to a greater risk of decline in market value in
response to rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of the Bond Fund.
-10-
<PAGE>
At times, some of the mortgage-backed securities in which the Bond Fund may
invest will have higher than market interest rates and therefore will be
purchased at a premium above their par value. Prepayments may cause losses in
securities purchased at a premium, as unscheduled prepayments, which are made at
par, will cause the Bond Fund to experience a loss equal to any unamortized
premium.
NON-PRINCIPAL INVESTMENT POLICIES
TEMPORARY DEFENSIVE POSITIONS. Each Fund may, from time to time, take temporary
defensive positions that are inconsistent with its principal investment
strategies in attempting to respond to adverse market, economic, political or
other conditions. Such investments include various short-term instruments. If
any Fund takes a temporary defensive position at the wrong time, the position
would have an adverse impact on that Fund's performance. The Fund may not
achieve its investment objective. The Funds reserve the right to invest all of
their assets in temporary defensive positions.
SECURITIES LENDING. Each Fund may lend its portfolio securities to
broker-dealers in amounts equalling no more than 33 1/3% of that Fund's net
assets for money management purposes. These transactions will be fully
collateralized at all times with cash and/or high quality, short-term debt
obligations. These transactions involve risk to a Fund if the other party should
default on its obligation and the Fund is delayed or prevented from recovering
the securities lent. In the event the original borrower defaults on its
obligation to return lent securities, the Fund will seek to sell the collateral,
which could involve costs or delays. To the extent proceeds from the sale of
collateral are less than the repurchase price, a Fund would suffer a loss and
you could lose money on your investment..
BORROWING. Each Fund may borrow money from banks for temporary or emergency
purposes in order to meet redemption requests. To reduce its indebtedness, a
Fund may have to sell a portion of its investments at a time when it may be
disadvantageous to do so. In addition, interest paid by a Fund on borrowed funds
would decrease the net earnings of the Fund
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements
collateralized by the securities in which it may invest. A repurchase agreement
involves the purchase by the Fund of securities with the condition that the
original seller (a bank or broker-dealer) will buy back the same securities
("collateral") at a predetermined price or yield. Repurchase agreements involve
certain risks not associated with direct investments in securities. In the event
the original seller defaults on its obligation to repurchase, the Fund will seek
to sell the collateral, which could involve costs or delays. To the extent
proceeds from the sale of collateral are less than the repurchase price, the
Fund would suffer a loss.
MANAGEMENT
The business of the Funds is managed under the direction of the Board of
Trustees (the "Board") of the Company. The Board formulates the general policies
of each Fund and meets periodically to review each Fund's performance, monitor
investment activities and practices, and discuss other matters affecting the
Funds.
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THE ADVISER
North Country Investment Advisers, Inc. (the "Adviser") has been retained under
an Investment Advisory Agreement with the Trust, on behalf of each Fund, to
serve as the investment adviser to each Fund, subject to the authority of the
Board of Trustees. The Adviser is registered as an investment adviser with the
U.S. Securities and Exchange Commission. The Adviser's principal office is
located at 250 Glen Street, Glens Falls, New York 12801.
The Adviser is a wholly owned subsidiary of Glens Falls National Bank & Trust
Company ("GFNB"), the adviser to the GFNB Special Equity Fund #1 and GFNB Fixed
Income Fund #1 ("Predecessor Funds"), the collective investment trusts sponsored
by GFNB which were converted into the Growth Fund and Bond Fund, respectively.
Founded in 1851, GFNB is a nationally-chartered commercial bank headquartered in
Glens Falls, New York which provides a wide variety of banking and advisory
service to private clients and collective investment trusts. As of the date of
this prospectus, GFNB provides personal, corporate and institutional banking,
investment management and custodial services for accounts having an aggregate
market value in excess of $700 million under active management through its Trust
and Investment Division.
Under the terms of the investment advisory agreements between the Company and
the Adviser, the Adviser conducts investment research and management for each
Fund and is responsible for the purchase and sale of securities for each Fund's
portfolio. The Adviser provides each Fund with investment advice, supervises
each Fund's management and investment programs and provides investment advisory
facilities and executive and supervisory personnel for managing the investments
and effectuating portfolio transactions. The Adviser also furnishes, at its own
expense, all necessary administrative services, office space, equipment and
clerical personnel for servicing the investments of each Fund. In addition, the
Adviser pays the salaries and fees of all officers of the Company who are
affiliated with the Adviser.
PORTFOLIO MANAGERS
MICHAEL S. DIER is the portfolio manager of the Growth Fund. Mr. Dier, a Vice
President of Glens Falls National Bank & Trust Company, serves as the Chief
Investment Officer of GFNB and the Adviser and is primarily responsible for the
management and day-to-day implementation of the Growth Fund's investment
strategies. Mr. Dier has served as portfolio manager for the Predecessor Funds,
as well as for many investment-sensitive, individually managed accounts for
retirement plans, foundations and not-for-profit organizations, and individuals
of high net worth. He serves on the Investment Committee of both GFNB and the
Adviser and also has responsibility for selecting and monitoring the performance
of the mutual funds offered by GFNB to 401(k) plan participants.
Mr. Dier joined the Investment Department of GFNB in 1989 after working
previously as a portfolio manager for growth and bond funds in the bank trust
department of a competing financial institution. Mr. Dier holds a Bachelor's
degree in Economics from Hobart College and is also a graduate of the New York
State Bankers Association Trust Investment School. He has completed various
American Institute of Banking courses as well as Level I and II of the Chartered
Financial Analyst Program.
ANITA R. MANOLT is the portfolio manager of the Bond Fund. Ms. Manolt, a Vice
President of Glens Falls National Bank & Trust Company, serves as an Investment
Officer of GFNB and the Adviser and is primarily responsible for the management
and day-to-day implementation of the Bond Fund's investment strategies. Ms.
Manolt has served as portfolio manager for many investment-sensitive,
individually managed accounts for retirement plans, foundations and
not-for-profit organizations, and individuals of high net worth. She serves on
the Investment Committee of both GFNB and the Adviser.
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<PAGE>
Ms. Manolt joined the Investment Department of GFNB in February, 2000. Ms.
Manolt worked from January, 1994 to January, 2000 for The Stratevest Group as a
portfolio manager for growth and bond funds. She began her investment career as
a Financial Consultant with Shearson Lehman Bros. Ms. Manolt has a Bachelor's
degree in English from Siena College, has completed various investment courses
at the Cannon Trust School and is an Adjunct Professor for the American
Institute of Banking.
ADVISORY FEE
Under each Investment Advisory Agreement, in consideration for the services
rendered by the Adviser, the Bond Fund and Growth Fund will each pay the Adviser
monthly in arrears an annual investment advisory fee equal to 0.50% and .75%,
respectively, of each Fund's average daily net assets.
OTHER EXPENSES
Each Fund pays certain operating expenses directly, including, but not limited
to custodian, audit and legal fees, costs of printing and mailing prospectuses,
statements of additional information, proxy statements, notices, and reports to
shareholders, insurance expenses, and costs of registering its shares for sale
under federal and state securities laws.
ADMINISTRATOR
The Administrator is American Data Services, Inc. ("ADS" or the
"Administrator"), which has its principal office at The Hauppauge Corporate
Center, 150 Motor Parkway, Hauppauge, New York 11788. ADS is primarily in the
business of providing administrative, fund accounting and stock transfer
services to retail and institutional mutual funds through its offices in New
York and Denver and as of the date of this Prospectus had assets under
administration in excess of $4 billion.
ADS provides administrative, executive and regulatory services to each Fund. It
supervises the preparation of each Fund's tax returns and coordinates the
preparation of reports to and filings with the Securities and Exchange
Commission and various state securities authorities, subject to the supervision
of the Company's Board of Directors.
DISTRIBUTOR
AmeriMutual Fund Distributors, Inc. ("the Distributor"), an affiliate of the
Administrator, has entered into a distribution agreement with the Company to
serve as the principal underwriter for each Fund and the distributor for each
Fund's shares.
YOUR ACCOUNT
[GRAPHIC OMITTED]
TYPES OF ACCOUNTS
If you are making an initial investment in a Fund, you will need to open an
account. You may establish the following types of accounts:
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS. Individual and sole
proprietorship accounts are owned by one person; joint accounts can have two or
more owners. All owners of the joint account must sign written instructions to
purchase or redeem shares or to change account information exactly as their
names appear on the account. If you elect telephone privileges, however,
redemption requests by telephone may be made by any one of the joint account
owners.
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<PAGE>
UNIFORM GIFT OR TRANSFER TO MINOR ACCOUNTS (UGMA, UTMA). Depending on the laws
of your state, you can set up a custodial account under the Uniform Gift (or
Transfers) to Minors Act. These custodial accounts provide a way to give money
to a child and obtain tax benefits. To open a UGMA or UTMA account, you must
include the minor's social security number on the application and the custodian,
or trustee, of the UGMA or UTMA must sign instructions in a manner indicating
trustee capacity.
CORPORATE AND PARTNERSHIP ACCOUNTS. To open a corporate or partnership account,
or to send instructions to the Fund, the following documents are required:
-- For corporations, a corporate resolution signed by an authorized person
with a signature guarantee.
-- For partnerships, a certification for a partnership agreement, or the
pages from the partnership agreement that identify the general
partners.
An authorized officer of the corporation or other legal entity must sign the
application.
TRUST ACCOUNTS. The trust must be established before you can open a trust
account. To open the account you must include the name of each trustee, the name
of the trust and provide a certification for trust, or the pages from the trust
document that identify the trustees.
RETIREMENT ACCOUNTS. Each Fund offers IRA accounts, including traditional IRA,
Roth IRA, Rollover IRA, SEP-IRA, SIMPLE IRA and Keogh accounts. Fund shares may
also be an appropriate investment for other retirement plans. Before investing
in any IRA or other retirement plan, you should consult your tax advisor.
Whenever making an investment in an IRA be sure to indicate the year in which
the contribution is made.
HOW TO OPEN AN ACCOUNT AND PURCHASE SHARES
Once you have chosen the type of account and a class of shares, you are ready to
establish an account.
GENERAL INFORMATION
The Funds do not issue share certificates.
You will receive quarterly statements and a confirmation of each transaction.
You should verify the accuracy of all transactions in your account as soon as
you receive your confirmation.
During unusual market conditions, a Fund may temporarily suspend or discontinue
any service or privilege.
MINIMUM INITIAL PURCHASES:
Each Fund accepts investments in the following minimum amounts:
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------------------------------------ ---------------- -------------------
TYPE OF ACCOUNT MINIMUN INITIAL MINIMUM SUBSEQUENT
INVESTMENT INVESTMENT
------------------------------------ ---------------- -------------------
Individual, Sole proprietorship or
Joint accounts $1,000 $250
------------------------------------ ---------------- -------------------
Corporate, partnership or trust
accounts $1,000 $250
------------------------------------ ---------------- -------------------
Uniform Gift or Transfer to a Minor
Accounts (UGMA, UTMA) $500 $100
------------------------------------ ---------------- -------------------
Individual Retirement Accounts (IRA)
$500 $100
------------------------------------ ---------------- -------------------
The Fund or Adviser may waive or lower these minimums in certain cases. YOU MUST
COMPLETE AND SIGN AN APPLICATION FOR EACH ACCOUNT YOU OPEN WITH EACH FUND.
METHOD OF PURCHASE
BY TELEPHONE
To open an account by telephone, call (888) 350-2990 to obtain an account number
and instructions. We will take information necessary to open your account,
including social security or tax identification number, over the phone.
After you have obtained an account number, you may purchase shares of the Fund
by wiring federal funds. Your bank may charge a fee for doing this. You should
instruct your bank to wire funds to:
Union Bank of California
ABA # 122000496
Attention: DOMESTIC CUSTODY
DDA 312-0000976
F/B/O: [NAME OF FUND]
Shareholder Account No. ___________________
You will then need to mail a signed account application to:
[NAME OF FUND] c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
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<PAGE>
BY MAIL
You may also open an account by mailing a completed and signed account
application, together with a check, to:
[NAME OF FUND] c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
AUTOMATIC INVESTMENT PLANS
You may invest a specified amount of money in a Fund once or twice a month on
specified dates. These payments are taken from your bank account by automated
clearinghouse ("ACH") payment.
To open an Automatic Investment Plan account ("AIP"), call or write to us to
request and "Automatic Investment" form. Complete and sign the form, and return
it to us along with a voided check for the bank account from which payments will
be made.
TRANSACTIONS THROUGH THIRD PARTIES
If you invest through a broker or other financial institution, the policies and
fees charged by that institution may be different than those of the Funds.
Banks, brokers, retirement plans and financial advisors may charge transaction
fees and may set different minimum investments or limitations on buying or
selling shares. Consult a representative of your financial institution or
retirement plan for further information.
HOW TO PAY FOR YOUR PURCHASE OF SHARES
You may purchase shares of a Fund by check, automated clearinghouse payment, or
wire. All payments must be in U.S. dollars.
CHECKS. All checks must be drawn on U.S. banks and made payable to "[NAME OF
FUND]." No other method of check payment is acceptable (for instance, you may
not pay by travelers check).
ACH PAYMENTS. Instruct your financial institution to make an ACH (automated
clearinghouse) payment to us. These payments typically take two days. Your
financial institution may charge you a fee for this service.
WIRES. Instruct your financial institution to make a Federal funds wire payment
to us. Your financial institution may charge you a fee for this service.
LIMITATIONS ON PURCHASES
Each Fund reserves the right to refuse any purchase request, particularly
requests that could adversely affect the Funds or their operations. This
includes those from any individual or group who, in either Fund's view, is
likely to engage in excessive trading (usually defined as more than four
exchanges out of a Fund within a calendar year).
CANCELED OR FAILED PAYMENTS
Each Fund accepts checks and ACH transfers at full value subject to collection.
If your payment for shares is not received or you pay with a check or ACH
transfer that does not clear, your purchase will be canceled. You will be
responsible for any losses or expenses incurred by the Fund whose shares you are
purchasing or the Transfer Agent, and the Fund may redeem other shares you own
in the account as reimbursement. If you purchase your shares by check, a Fund
may delay sending the proceeds from your redemption request until your check has
cleared. This could take up to 15 calendar days from the purchase date. Each
Fund and its agents has the right to reject or cancel any purchase or exchange
due to nonpayment. IF WE CANCEL YOUR PURCHASE DUE TO NON-PAYMENT, YOU WILL BE
RESPONSIBLE FOR ANY LOSS THE RELEVANT FUND INCURS. WE WILL NOT ACCEPT CASH OR
THIRD-PARTY CHECKS FOR THE PURCHASE OF SHARES.
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<PAGE>
HOW TO SELL (REDEEM) SHARES
You have the right to sell ("redeem") all or any part of your shares subject to
certain restrictions. Selling your shares in a Fund is referred to as a
"redemption" because the Fund buys back its shares. We will redeem your shares
at the net asset value next computed following receipt of your completed
redemption request as described below. See "Redemption Procedures" below.
We will mail your redemption proceeds to your current address or transmit them
electronically to your designated bank account. We will generally send your
redemption to you within seven days after we receive your redemption request.
During unusual market conditions, a Fund may suspend redemptions or postpone the
payment of redemption proceeds, to the extent permitted under the Federal
securities laws. If you purchase your shares by check, a Fund may delay sending
the proceeds from your redemption request until your check has cleared. This
could take up to 15 calendar days from the date of purchase.
Neither Fund can accept requests that specify a certain date for redemption or
which specify any other special conditions. Please call 888-350-2990 for
further information. WE WILL NOT PROCESS YOUR MAILED REDEMPTION REQUEST IF IT IS
NOT IN PROPER FORM ("REDEMPTION PROCEDURES"). HOWEVER, WE WILL NOTIFY YOU IF
YOUR REDEMPTION REQUEST IS NOT IN PROPER FORM.
REDEMPTION PROCEDURES
BY MAIL
To redeem shares by mail, prepare a written request in proper form which must
include:
-- Your name(s) and signature(s);
-- The name of the Fund, and your account number;
-- The dollar amount or number of shares you want to redeem;
-- How and where to send your proceeds;
-- A signature guarantee, if required (see "Signature Guarantee
Requirements" below); and
-- Any other legal documents required for redemption requests by
corporations, partnerships or trusts.
Mail your request and documentation to:
[NAME OF FUND] c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
BY WIRE
You may only request payment of your redemption proceeds by wire if you have
previously elected wire redemption privileges on your account application or a
separate form.
Wire requests are only available if your redemption is for $10,000 or more.
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<PAGE>
To request a wire redemption, mail or call us with your request (See "By Mail").
If you wish to make your wire request by telephone, however, you must have
previously elected telephone redemption privileges.
BY TELEPHONE
We accept redemption requests by telephone only if you have elected telephone
redemption privileges on your account application or a separate form.
To redeem shares by telephone, call us with your request. You will need to
provide your account number and the exact name(s) in which the account is
registered. We may also require a password or additional forms of
identification.
Your proceeds will be mailed to you or wired to you (if you have elected wire
redemption privileges - See "By Wire" above)
Telephone redemptions are easy and convenient, but this account option involves
a risk of loss from unauthorized or fraudulent transactions. We will take
reasonable precautions to protect your account from fraud. You should do the
same by keeping your account information private and by reviewing immediately
any account statement and transaction confirmations that you receive. Neither
the Funds nor the Transfer Agent will be responsible for any losses due to
telephone fraud, so long as we have taken reasonable steps to verify the
caller's identity.
AUTOMATIC REDEMPTION
If you own shares of a Fund with an aggregated value of at least $10,000, you
may request a specified amount of money from your account once a month or once a
quarter on a specified date. These payments are sent from your account to a
designated bank account by ACH payment. Automatic requests must be for at least
$100.
To set up periodic redemptions automatically, call or write us for an "Automatic
Redemption" form. You should complete the form and mail it to us with a voided
check for the account into which you would like the redemption proceeds
deposited.
SIGNATURE GUARANTEE REQUIREMENTS
To protect you and each Fund against fraud, signatures on certain requests must
have a "signature guarantee." For requests made in writing a signature guarantee
is required for any of the following:
-- Redemption of over $5,000 worth of shares;
-- Changes to a record name or address of an account;
-- Redemption from an account for which the address or account
registration has changed within the last 30 days;
-- Sending proceeds to any person, address, brokerage firm or bank account
not on record;
-- Sending proceeds to an account with a different registration (name or
ownership) from yours; or
-- Changes to automatic investment or redemption programs, distribution
options, telephone or wire redemption privileges, any other election in
connection with your account. A signature guarantee verifies the
authenticity of your signature. You can obtain one from most banking
institutions or securities brokers, but NOT from a notary public.
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<PAGE>
SMALL ACCOUNTS
If the value of your account falls below $500 ($250 for UGMA and IRA accounts),
a Fund may ask you to increase your balance. If the account value is still below
$500 after 30 days, the Fund may close your account and send you the proceeds.
The Funds will not close your account if it falls below $500 solely as a result
of a reduction in your account's market value.
REDEMPTION IN KIND
Each Fund reserves the right to make redemptions "in kind" -- payment of
redemption proceeds in portfolio securities rather than cash -- if the amount
requested is large enough to affect Fund operations (for example, if the amount
of the redemption is the greater of $250,000 or 1% of a Fund's net assets).
TRANSFERRING REGISTRATION
You can transfer the registration of your shares in a Fund to another owner by
completing a transfer form and sending to [NAME OF FUND] c/o American Data
Services, Inc., P.O. Box 5536, Hauppauge, New York 11788-0132.
LOST ACCOUNTS
The Transfer Agent will consider your account "lost" if correspondence to your
address of record is returned as undeliverable, unless the Transfer Agent
determines your new address. When an account is "lost," all distributions on the
account will be reinvested in additional shares of the Fund in which such lost
account is invested. In addition, the amount of any outstanding (unpaid for six
months or more) checks for distributions that have been returned to the Transfer
Agent will be reinvested and the checks will be canceled.
HOW TO CONTACT THE FUNDS
For more information about each Fund or your account, you may write to us at:
[NAME OF FUND FOR WHICH YOU ARE REQUESTING INFORMATION]
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
Or you may call us toll free at 888-350-2990
WHEN AND HOW NAV IS DETERMINED
The price per share of each Fund is known as the "net asset value" ("NAV") per
share. Each Fund's NAV per share is normally calculated as of the close of the
regular session of trading on the New York Stock Exchange ("NYSE") (normally
4:00 p.m. Eastern time) on each weekday, except days when the NYSE is closed.
The NYSE is closed for business on most national holidays and on Good Friday. We
will price your order at the NAV next calculated after the Fund receives your
order in proper form. A Fund's NAV may be calculated earlier, however, if
trading on the NYSE is restricted or as permitted by the Securities and Exchange
Commission ("SEC").
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<PAGE>
If a security or securities that a Fund owns are traded when the NYSE is closed
(for example, in an after-hours market) the value of the Fund's assets may be
affected on days when that Fund is not open for business. In addition, trading
in some of a Fund's assets may not occur on days when the Fund is open for
business.
Each Fund's NAV is determined by taking the market value of all securities owned
by the Fund (plus all other assets such as cash), subtracting all liabilities
and then dividing the result (net assets) by the number of shares outstanding.
Fund portfolio securities are valued primarily on the basis of market
quotations. Certain short-term securities are valued on the basis of amortized
cost. If market quotations are not readily available for a security or if a
security's value has been materially affected by events occurring after the
close of the exchange or market on which the security is principally traded that
security may be valued by another method that the Board of Trustees believes
accurately reflects fair value. A security's valuation may differ depending on
the method used for determining value.
DISTRIBUTIONS
As a shareholder, you are entitled to your share of a Fund's net income and
capital gains on its investments. Each Fund passes substantially all of its
earnings along to its investors as distributions. When a Fund earns dividends
from stocks and interest from bonds and other debt securities and distributes
these earnings to shareholders, it is called a dividend distribution. Each Fund
realizes capital gains when it sells securities for a higher price than it paid.
When net long-term capital gains are distributed to shareholders, it is called a
capital gain distribution. Net short-term capital gains are considered ordinary
income and are included in dividend distributions.
The Growth Fund intends to distribute dividends on an annual basis. The Bond
Fund intends to distribute dividends on a monthly basis. Each Fund will
distribute capital gains, if any, annually. All distributions are reinvested in
additional shares, unless you elect to receive distributions in cash. For
Federal income tax purposes, distributions are treated the same whether they are
received in cash or reinvested. Shares become entitled to receive distributions
on the day after the shares are issued.
If you have elected to receive distributions in cash, and the postal or other
delivery service returns your check to a Fund as undeliverable, you will not
receive interest on amounts represented by the uncashed checks.
LONG-TERM VS. SHORT-TERM CAPITAL GAINS:
---------------------------------------
o Long-term capital gains are realized on securities held by the Fund for
more than one year and are part of your capital gain distribution.
o Short-term capital gains are realized on securities held by the Fund less
then one year and are part of your dividend distributions
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<PAGE>
FEDERAL TAX CONSIDERATIONS
Your investment will have tax consequences that you should consider. Some of the
more common federal tax consequences are described here but you should consult
your tax consultant about your particular situation. Although it is not an
investment objective, each Fund's Adviser will attempt to take into account the
tax consequences of its investment decisions. However, there may be occasions
when the Adviser's investment decisions will result in a negative tax
consequence for a Fund's shareholders.
TAXES ON DISTRIBUTIONS. Each Fund operates in a manner such that it will not be
liable for Federal income or excise tax. Distributions, whether received in cash
or reinvested in additional shares of a Fund, may be subject to federal, state
and local tax. Distributions of net investment income or short-term capital gain
are taxable to you as ordinary income. Distributions of long-term capital gain
are taxable to you as long-term capital gain, regardless of how long you have
held your shares.
Each Fund will mail reports containing information about that Fund's
distributions during the year to you after December 31 of each year (by January
31st). Consult your tax advisor about the Federal, state and local tax
consequences in your particular circumstances.
TAXES ON REDEMPTIONS OF SHARES. The sale of Fund shares is a taxable transaction
for Federal income tax purposes. Your taxable gain or loss is computed by
subtracting your tax basis in the shares from the redemption proceeds. Because
your tax basis depends on the original purchase price and on the price at which
any dividends may have been reinvested, you should keep your account statement
so that you or your tax preparer will be able to determine whether a sale will
result in a taxable gain or loss.
TAXES ON EXCHANGES. An exchange is not a tax-free transaction. An exchange of
shares pursuant to a Fund's exchange privilege is treated the same as an
ordinary sale and purchase for Federal income tax purposes and you will realize
a capital gain or loss.
BUYING A DIVIDEND." All distributions reduce the net asset value of a Fund's
shares by the amount of the distribution. Unless your investment is in a
tax-deferred account, you may wish to avoid buying shares of a Fund shortly
before a distribution. If you purchase shortly before a distribution, you will
pay the full pre-distribution price for your shares and then receive part of
your investment back as a taxable distribution.
TAX WITHHOLDING. Each Fund may be required to withhold U.S. federal income tax
at the rate of 31 percent from all taxable distributions and form proceeds from
certain sales payable to shareholders who fail to provide a Fund with their
correct taxpayers identification number or to make required certifications, or
who have been notified by the IRS that they are subject to backup withholding.
Any such withheld amounts may be credited against the shareholder's U.S. federal
income tax liability.
PERFORMANCE COMPARISONS
Advertisements and other sales literature may refer to a Fund's total return.
The total return for the one, five and ten-year periods (or for the life of a
Fund until the Fund is in existence for such longer periods) through the most
recent calendar quarter represents the average annual compounded rate of return
on an investment of $1,000 in a Fund invested at the public offering price.
Total return may also be presented for other periods. All data are based on past
investment results and do not predict future performance. Investment
performance, which will vary, is based on many factors, including market
conditions, portfolio composition and Fund operating expenses. Investment
performance also often reflects the risks associated with a Fund's investment
objectives and strategies. These factors should be considered when comparing a
Fund's investment results with those of other mutual funds and other investment
vehicles.
Quotations of investment performance for any period when an expense limitation
is in effect will be greater than if the limitation had not been in effect. Fund
performance may be compared to that of various indexes.
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EXCHANGE PRIVILEGE
You may exchange your shares in either Fund for shares of the other Fund at no
charge. Be advised that exercising privilege is really two transactions: a sale
or shares in one Fund and the purchase of shares in another. Therefore,
exchanges will typically have certain tax consequences and you could realize
short- or long-term capital gains or losses. Exchanges are generally made only
between identically registered accounts unless you send written instructions
with a signature guarantee requesting otherwise.
Call 888-350-2990 to learn more about exercising your exchange
privilege.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Union Bank of California, located at 350 California Street, San Francisco,
California 94104, serves as custodian for each Fund's cash and securities. The
Custodian does not assist in, and is not responsible for, investment decisions
involving assets of either Fund. American Data Services, Inc., located at The
Hauppauge Corporate Center, 150 Motor Parkway, Hauppauge, New York 11788, the
Funds' Administrator, also acts as each Fund's transfer and dividend disbursing
agent.
COUNSEL AND INDEPENDENT AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of each Fund are passed upon by Ropes & Gray, 1301 K Street NW, Washington, D.C.
20005. McCurdy & Associates, CPAs, Inc., 27955 Clemens Road, Westlake, Ohio
44145, have been selected as independent auditors for each Fund.
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ORGANIZATION
Each of the Growth and Bond Funds has been organized as a series of The North
Country Funds, a Massachusetts business trust formed on June 1, 2000 and
registered with the SEC as an open-end, management investment company on
September 11, 2000. The shares of The North Country Funds may be offered in
series in addition to the Growth Fund and the Bond Fund. Each series has, and
each future series will have, its own investment objective, policies and
investment restrictions and is designed to meet different investment needs.
It is not intended that either Fund will hold meetings of its shareholders
except when required by Federal or Massachusetts state law. All shareholders of
each Fund are entitled to vote at shareholders' meetings. From time to time,
large shareholders may control a Fund. This means that the holders of more than
50% of the shares voting for the election of Trustees can elect 100% of the
Trustees if they choose to do so, and, in that event, the holders of the
remaining shares will be unable to elect any Trustees.
FINANCIAL HIGHLIGHTS
Because the Funds have been in operation for less than a year, no financial
highlights are being reported for either Fund at this time. However, audited
Financial Statements and certain supplementary information for 1998 and 1999 for
each of the predecessor collective investment trusts are provided in Appendix B
of the Trust's Statement of Additional Information and are available to
shareholders upon request. These statements have been audited by Edwards,
Williams, McManus and Ricciardelli, P.C. and are included herein in reliance
upon their authority as experts in accounting and auditing.
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<PAGE>
FOR MORE INFORMATION
ADVISER NORTH COUNTRY INVESTMENT ADVISERS, INC.
250 GLEN STREET
GLENS FALLS, NEW YORK 12801
LEGAL COUNSEL ROPES & GRAY
1301 K STREET N.W., SUITE 800 EAST
WASHINGTON D.C. 20005
INDEPENDENT AUDITORS MCCURDY AND ASSOCIATES CPA'S, INC.
27955 CLEMENS ROAD
WESTLAKE, OHIO 44145
ADMINISTRATOR,
TRANSFER AGENT AND FUND AMERICAN DATA SERVICES, INC.
ACCOUNTANT 150 MOTOR PARKWAY
HAUPPAUGE, NEW YORK 11788
CUSTODIAN UNION BANK OF CALIFORNIA, N.A.
350 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94104
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS. Additional information about each Fund's investments
is available in the Funds' annual and semi-annual reports to shareholders. In
the Funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected each Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI"). The SAI provides more detailed
information about each Fund and is incorporated by reference into this
Prospectus.
You may obtain free copies of both reports and the SAI, request other
information and discuss your questions about the Funds by contacting the Funds
at:
THE NORTH COUNTRY FUNDS
C/O AMERICAN DATA SERVICES, INC.
P.O. BOX 5536
HAUPPAUGE, NEW YORK 11788-0132
888-350-2990
You may review and obtain copies of The North Country Funds information
(including the SAIs) at the SEC Public Reference Room in Washington, D.C. Please
call 1-202-942-8090 for information relating to the operation of the Public
Reference Room. Reports and other information about each Fund are available on
the EDGAR Database on the SEC's Internet site at HTTP://WWW.SEC.GOV. Copies of
the information may be obtained, after paying a duplicating fee, by electronic
request at the following E-mail address: [email protected], or by writing the
Public Reference Section, Securities and Exchange Commission, Washington, D.C.
20549-0102.
Investment Company Act File Number: 811-10123
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<PAGE>
THE NORTH COUNTRY FUNDS
The Hauppauge Corporate Center
150 Motor Parkway
Hauppauge, New York 11788
(631) 951-0500
NORTH COUNTRY EQUITY GROWTH FUND
NORTH COUNTRY INTERMEDIATE BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
___________________, 2000
TABLE OF CONTENTS
PAGE
Investment Objective, Policies and Restrictions............................ 2
Trustees and Executive Officers............................................15
Investment Advisory and Other Services.....................................16
Portfolio Transactions and Allocation of Brokerage.........................20
Taxation...................................................................21
Ownership of Shares........................................................22
Purchase of Shares.........................................................22
Redemption of Shares.......................................................24
Dividends and Distributions................................................22
Net Asset Value ...........................................................22
Performance Comparisons....................................................23
Counsel and Independent Auditors...........................................25
Other Information..........................................................25
Appendix...................................................................25
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the Funds' Prospectus dated _____________. A copy of the
Prospectus may be obtained by sending your request in writing to American Data
Services, Inc. , The Hauppauge Corporate Center, 150 Motor Parkway, Hauppauge,
New York 11788 or by calling (631) 951-0500.
<PAGE>
ORGANIZATION
The North Country Equity Growth Fund (the "Growth Fund") and The North Country
Intermediate Bond Fund (the "Bond Fund") are each a series of The North Country
Funds (the "Trust"), a business trust organized pursuant to a Declaration of
Trust under the laws of the State of Massachusetts on June 1, 2000. The Trust's
principal office is located at The Hauppauge Corporate Center, c/o American Data
Services, Inc., 150 Motor Parkway, Hauppauge, New York 11788.
The Growth Fund and the Bond Fund were initially organized as Collective
Investment Trusts sponsored by the Glens Falls National Bank & Trust Company on
March 26, 1984 under New York law and the regulations of the United States
Comptroller of the Currency. Participation prior to their conversion into mutual
funds regulated by the Securities and Exchange Commission was limited to
qualified employee benefit plans, such as pension, profit sharing and 401(k)
plans. Prior to the commencement of operations (anticipated for February 1,
2001), the Collective Investment Trusts will be converted into series of the
Trust.
The Trust is a diversified, open-end management investment company. It is not
intended that either Fund will hold meetings of its shareholders except when
required by Federal or Massachusetts state law. All shareholders of each Fund
are entitled to vote at shareholders' meetings. From time to time, large
shareholders may control a Fund.
As of the date of this Statement of Additional Information ("SAI"), Glens Falls
National Bank & Trust Company (the "Bank") held discretionary authority and
voting control over all of the outstanding shares of the Funds by virtue of the
Bank's sponsorship of and control over the Collective Investment Trusts which
were converted into the Funds. As a result, as of such date, the Funds may be
deemed to be effectively controlled by the Bank.
The Board of Trustees may establish additional funds (with different investment
objectives and fundamental policies) and additional classes of shares at any
time in the future. Establishment and offering of additional funds will not
alter the rights of the Funds' shareholders. Shares do not have preemptive
rights or subscription rights. All shares when issued, will be fully paid and
non-assessable by the Trust. In liquidation of a Fund, each shareholder is
entitled to receive his pro rata share of the assets of the Fund.
INVESTMENT OBJECTIVES AND STRATEGIES
The following discussion describes the investment objective and principal
investment strategies of each Fund. Each investment objective is a fundamental
policy and cannot be changed without the approval of a majority of each Fund's
outstanding shares. As with any mutual fund, there can be no guarantee that the
investment objective of a Fund will be achieved.
THE GROWTH FUND
The Growth Fund seeks to provide investors with long-term capital appreciation.
The Growth Fund seeks to achieve its investment objective by investing at least
80% of the Growth Fund's net assets in a diversified portfolio of equity
securities of U.S. companies with mid to large-sized market capitalizations
which the Adviser believes have demonstrated fundamental investment value and
favorable growth prospects. The Growth Fund may utilize certain derivatives for
hedging purposes or to remain fully invested.
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The Adviser utilizes a "growth" approach to investing and selects portfolio
securities based on its analysis of various factors including, price/earnings
ratios, the strength or potential strength of a company's competitive position,
strength of management, marketing prowess and product development capabilities.
Portfolio securities may be sold as a result of various factors such as lack of
performance, change in business direction, or adverse changes in other factors
that were the basis for their purchase.
THE BOND FUND
The investment objective of the Bond Fund is to provide investors with current
income and total return with minimum fluctuation of principal value. The Bond
Fund seeks to achieve its investment objective by investing substantially all of
its net assets in U.S. dollar denominated investment grade bonds or debt
securities. These may include corporate and U.S. government bonds and
mortgage-backed securities. Portfolio securities shall be rated within the top
four ratings categories by nationally recognized ratings agencies such as
Moody's and Standard & Poor's. The Bond Fund intends to maintain an investment
portfolio with a dollar-weighted average quality of "A" or better and an average
dollar-weighted maturity between 1 and 10 years.
The Bond Fund will invest in corporate bonds without regard to industry or
sector based on the Adviser's analysis of each target security's structural and
repayment features, current pricing and trading opportunities as well as the
credit quality of the issuer.
If the rating on an obligation held by the Bond Fund is reduced below the Bond
Fund's ratings requirements, the Adviser will sell the obligation only when it
is in the best interests of the Bond Fund's shareholders to do so.
INVESTMENT POLICIES, RISKS AND RESTRICTIONS
INVESTING IN MUTUAL FUNDS
All mutual funds carry a certain amount of risk. You may lose money on your
investment in either Fund. The following describes investment policies, risks
and restrictions that are particular to each Fund as a result of each Fund's
specific investment objective and strategies. As all investment securities are
subject to inherent market risks and fluctuations in value due to earnings,
economic and political conditions and other factors, neither Fund can give any
assurance that its investment objective will be achieved.
ILLIQUID SECURITIES.
No Fund may invest more than 15% of the value of its net assets in securities
that at the time of purchase are illiquid. The Adviser will monitor the amount
of illiquid securities in each Fund's portfolio, under the supervision of the
Trust's Board of Trustees, to ensure compliance with each Fund's investment
restrictions.
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<PAGE>
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of each Fund's portfolio securities and the Funds
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption requests within seven days. The Funds might also have to register
such restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. The Adviser, acting on written guidelines set by the Trust's Board
of Trustees, may determine that such securities are not illiquid securities
notwithstanding their legal or contractual restrictions on resale. In all other
cases, however, securities subject to restrictions on resale will be deemed
illiquid.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements. A
repurchase agreement involves the purchase by a Fund of the securities with the
condition that after a stated period of time the original seller will buy back
the same securities at a predetermined price or yield. The Funds' custodian will
hold the securities underlying any repurchase agreement or such securities will
be part of the Federal Reserve Book Entry System. The market value of the
collateral underlying the repurchase agreement will be determined on each
business day. If at any time the market value of a Fund's collateral falls below
the repurchase price of the repurchase agreement (including any accrued
interest), that Fund will promptly receive additional collateral (so the total
collateral is an amount at least equal to the repurchase price plus accrued
interest).
SECURITIES LOANS. Each Fund may make secured loans of its portfolio securities,
on either a short-term or long-term basis, amounting to not more than 33 1/3% of
its total assets for money management purposes, thereby realizing additional
income. The risks in lending portfolio securities, as with other extensions of
credit, consist of possible delay in recovery of the securities or possible loss
rights in the collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to agreements
requiring that the loans be continuously secured by collateral consisting of
cash or short-term debt obligations at least equal at all times to the value of
the securities on loan, "marked-to-market" daily. The borrower pays to a
lender-Fund an amount equal to any dividends or interest received on securities
lent. Each Fund retains all or a portion of the interest received on the
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities may pass to the
borrower, each Fund retains the right to call the loans at any time on
reasonable notice, and it will do so to enable that Fund to exercise voting
rights on any matters materially affecting the investment. The Funds may also
call such loans in order to sell the securities.
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<PAGE>
BORROWING MONEY. Each Fund may borrow money from banks as a temporary measure
for emergency purposes, or to facilitate redemption requests. Each Fund may
borrow up to one-third of its total assets. The use of leverage involves special
risk considerations that may not be associated with other funds having similar
objectives and policies. Because substantially all of each Fund's assets
fluctuate in value, whereas the interest obligation resulting from a borrowing
is generally fixed, the net asset value per share of each Fund tends to increase
more when its portfolio assets decrease in value than would otherwise occur if
the Fund did not borrow funds. Interest costs on borrowings, however, may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions, a
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales.
INVESTMENT POLICIES SPECIFIC TO THE GROWTH FUND
The Growth Fund is subject to the general risks and considerations associated
with equity investing as well as additional risks and restrictions discussed
herein.
EQUITY INVESTING GENERALLY.
--------------------------
An investment in the Growth Fund should be made with an understanding of the
risks inherent in an investment in equity securities, including the risk that
the general condition of the stock market may deteriorate. Common stocks are
susceptible to general stock market fluctuations and to volatile increases and
decreases in value according to various unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction and global or
regional political, economic and banking crises. A decline in the general market
value of the equity securities held by the Fund may result in an adverse effect
on the value of your investment. There can be no assurances that the Fund will
be able to absorb (without significant loss of a portion of your investment) the
potentially negative effects of such market decline.
STOCK MARKET VOLATILITY
Stock markets can be volatile. In other words, the prices of stocks can rise or
fall rapidly in response to developments affecting a specific company or
industry, or to changing economic, political or market conditions. The Growth
Fund is subject to the general risk that the value of the Fund's investments may
decline if the stock markets perform poorly. There is a risk that the Fund's
investments will underperform either the securities markets generally or
particular segments of the securities markets.
COMMON STOCK
Common stock represents an equity (ownership) interest in a company, and usually
possesses voting rights and earns dividends. Dividends on common stock are not
fixed but are declared at the discretion of the issuer. Common stock generally
represents the riskiest investment in a company. In addition, common stock
generally has the greatest appreciation and depreciation potential because
increases and decreases in earnings are usually reflected in a company's stock
price.
5
<PAGE>
PREFERRED STOCK
Preferred stock is a class of stock having a preference over common stock as to
the payment of dividends and the recovery of investment should a company be
liquidated, although preferred stock is usually junior to the debt securities of
the issuer. Preferred stock typically does not possess voting rights and its
market value may change based on changes in interest rates.
The fundamental risk of investing in common and preferred stock is the risk that
the value of the stock might decrease. Stock values fluctuate in response to the
activities of an individual company or in response to general market and/or
economic conditions. Historically, common stocks have provided greater long-term
returns and have entailed greater short-term risks than preferred stocks,
fixed-income securities and money market investments. The market value of all
securities, including common and preferred stocks, is based upon the market's
perception of value and not necessarily the book value of an issuer or other
objective measures of a company's worth. If you invest in the Growth Fund, you
should be willing to accept the risks of the stock market and should consider an
investment in the Fund only as a part of your overall investment portfolio.
CONVERTIBLE SECURITIES
Convertible securities include debt securities, preferred stock or other
securities that may be converted into or exchanged for a given amount of common
stock of the same or a different issuer during a specified period and at a
specified price in the future. A convertible security entitles the holder to
receive interest on debt or the dividend on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Convertible
securities rank senior to common stock in a company's capital structure but are
usually subordinated to comparable nonconvertible securities. Convertible
securities have unique investment characteristics in that they generally: (1)
have higher yields than common stocks, but lower yields than comparable
non-convertible securities; (2) are less subject to fluctuation in value than
the underlying stocks since they have fixed income characteristics; and (3)
provide the potential for capital appreciation if the market price of the
underlying common stock increases. A convertible security may be subject to
redemption at the option of the issuer at a price established in the convertible
security's governing instrument. If a convertible security is called for
redemption, the Growth Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party.
Investment in convertible securities generally entails less risk than an
investment in the issuer's common stock. Convertible securities are typically
issued by smaller capitalized companies whose stock price may be volatile.
Therefore, the price of a convertible security may reflect variations in the
price of the underlying common stock in a way that nonconvertible debt does not.
The extent to which such risk is reduced, however, depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security.
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WARRANTS
A warrant gives the holder a right to purchase at any time during a specified
period a predetermined number of shares of common stock at a fixed price. Unlike
convertible debt securities or preferred stock, warrants do not pay a fixed
dividend. Investments in warrants involve certain risks, including the possible
lack of a liquid market for resale of the warrants, potential price fluctuations
as a result of speculation or other factors, and failure of the price of the
underlying security to reach or have reasonable prospects of reaching a level at
which the warrant can be prudently exercised (in which event the warrant may
expire without being exercised, resulting in a loss of the Growth Fund's entire
investment therein).
STANDARD & POOR'S DEPOSITORY RECEIPTS AND DIAMONDS
The Growth Fund may invest in Standard & Poor's Depositary Receipts ("SPDRs").
SPDRs are units of beneficial interest in an investment company sponsored by a
wholly-owned subsidiary of the American Stock Exchange, Inc. which represent
proportionate undivided interests in a portfolio of securities consisting of
substantially all of the common stocks, in substantially the same weighting, as
the component common stocks of the Standard & Poor's 500 Stock Index (the "S&P
500 Index"). SPDRs are listed on the American Stock Exchange (the "Exchange")
and traded in the secondary market on a per-SPDR basis.
The Growth Fund may also invest in DIAMONDS. DIAMONDS are units of beneficial
interest in an investment company representing proportionate undivided interests
in a portfolio of securities consisting of all the component common stocks of
the Dow Jones Industrial Average (the "DJIA"). DIAMONDS are listed on the
Exchange and may be traded in the secondary market on a per-DIAMONDS basis.
SPDRs are designed to provide investment results that generally correspond to
the price and yield performance of the component common stocks of the S&P 500
Index. DIAMONDS are designed to provide investors with investment results that
generally correspond to the price and yield performance of the component common
stocks of the DJIA. The value of both SPDRs and DIAMONDS are subject to change
as the values of their respective component common stocks fluctuate according to
the volatility of the market.
Investments in SPDRs and DIAMONDS involve certain inherent risks generally
associated with investments in a broadly based portfolio of common stocks,
including the risk that the general level of stock prices may decline, thereby
adversely affecting the value of each unit of SPDRs and/or DIAMONDS invested in
by the Growth Fund. Moreover, the Fund's investment in SPDRs and DIAMONDS may
not exactly match the performance of a direct investment in the respective
indices to which they are intended to correspond. For example, replicating and
maintaining price and yield performance of an index may be problematic for the
Fund due to transaction costs and other expenses. Additionally, the respective
investment company's may not fully replicate the performance of their respective
benchmark indices due to the temporary unavailability of certain index
securities in the secondary market or due to other extraordinary circumstances
such as discrepancies between the investment company and the indices with
respect to the weighting of securities or the number of, for example, larger
capitalized stocks held by an index and the investment company. Under these type
circumstances, the value of the SPDRs or DIAMONDS held by the Growth Fund will
have a negative impact on the net asset value of the Fund.
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DERIVATIVES
CALL OPTIONS
A call option is a contract pursuant to which the purchaser of the call option,
in return for a premium paid, has the right to buy the security (or index)
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security (or a
cash amount equal to the value of the index) against payment of the exercise
price during the option period.
PUT OPTIONS
A put option gives its purchaser, in return for a premium, the right to sell the
underlying security (or index) at a specified price during the term of the
option. The writer of the put option, who receives the premium, has the
obligation to buy the underlying security (or receive a cash amount equal to the
value of the index), upon exercise at the exercise price during the option
period.
The amount of premium received or paid for an option is based upon certain
factors, including the market price of the underlying security or index, the
relationship of the exercise price to the market price, the historical price
volatility of the underlying security or index, the option period and interest
rates.
There are a limited number of options contracts on securities indices and option
contracts may not be available on all securities that the Growth Fund may own or
seek to own.
OPTIONS ON FUTURES CONTRACTS
The Growth Fund may purchase and write call and put options on futures contracts
it may buy or sell and enter into closing transactions with respect to such
options to terminate existing positions. Options on futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
futures contract at the specified option exercise price at any time during the
period of the option. The Fund may use options on futures contracts in lieu of
writing or buying options directly on the underlying securities or purchasing
and selling the underlying futures contracts. For example, to hedge against a
possible decrease in the value of its portfolio securities, the Fund may
purchase put options or write call options on futures contracts rather than
selling futures contracts. Similarly, the Fund may purchase call options or
write put options on futures contracts as a substitute for the purchase of
futures contracts to hedge against a possible increase in the price of
securities which the Fund expects to purchase. Such options generally operate in
the same manner as options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be affected.
The Fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above in connection with the
discussion of futures contracts.
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OPTIONS ON STOCK INDEX FUTURES
Options on index futures are similar to options on securities except that
options on index futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
in the writer's futures margin account which represents the amount by which the
market price of the index futures contract, at exercise, exceeds (in the case of
a call) or is less than (in the case of a put) the exercise price of the option
on the index future. If an option is exercised on the last trading day prior to
its expiration date, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing level of the
index on which the future is based on the expiration date. Purchasers of options
who fail to exercise their options prior to the exercise date suffer a loss of
the premium paid.
OPTIONS ON INDICES
As an alternative to purchasing call and put options on index futures, the
Growth Fund may purchase and sell call and put options on the underlying indices
themselves. Such options would be used in a manner identical to the use of
options on index futures.
DEALER OPTIONS
The Growth Fund may engage in transactions involving dealer options as well as
exchange-traded options. Certain risks are specific to dealer options. While the
Fund might look to an exchange's clearing corporation to exercise
exchange-traded options, if the Fund purchases a dealer option it must rely on
the selling dealer to perform if the Fund exercises the option. Failure by the
dealer to do so would result in the loss of the premium paid by the Fund as well
as loss of the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while dealer
options may not. Consequently, the Growth Fund can realize the value of a dealer
option it has purchased only by exercising or reselling the option to the
issuing dealer. Similarly, when the Fund writes a dealer option, the Fund can
close out the option prior to its expiration only by entering into a closing
purchase transaction with the dealer. While the Fund will seek to enter into
dealer options only with dealers who will agree to and can enter into closing
transactions with the Fund, no assurance exists that the Fund will at any time
be able to liquidate a dealer option at a favorable price at any time prior to
expiration. Unless the Fund, as a covered dealer call option writer, can effect
a closing purchase transaction, it will not be able to liquidate securities (or
other assets) used as cover until the option expires or is exercised. In the
event of insolvency of the other party, the Fund may be unable to liquidate a
dealer option. With respect to options written by the Fund, the inability to
enter into a closing transaction may result in material losses to the Fund. For
example, because the Fund must maintain a secured position with respect to any
call option on a security it writes, the Fund may not sell the assets which it
has segregated to secure the position while it is obligated under the option.
This requirement may impair the Growth Fund's ability to sell portfolio
securities at a time when such sale might be advantageous.
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<PAGE>
The staff of the SEC takes the position that purchased dealer options are
illiquid securities. The Growth Fund may treat the cover used for written dealer
options as liquid if the dealer agrees that the Fund may repurchase the dealer
option it has written for a maximum price to be calculated by a predetermined
formula. In such cases, the dealer option would be considered illiquid only to
the extent the maximum purchase price under the formula exceeds the intrinsic
value of the option. With that exception, however, the Fund will treat dealer
options as subject to the Fund's limitation on illiquid securities. If the SEC
changes its position on the liquidity of dealer options, the Growth Fund will
change its treatment of such instruments accordingly.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the Growth Fund's options strategies depends on the
ability of the Adviser to forecast correctly interest rate and market price
movements. For example, if the Fund were to write a call option based on the
Adviser's expectation that the price of the underlying security would fall, but
the price were to rise instead, the Fund could be required to sell the security
upon exercise at a price below the current market price. Similarly, if the Fund
were to write a put option based on the Adviser's expectation that the price of
the underlying security would rise, but the price were to fall instead, the Fund
could be required to purchase the security upon exercise at a price higher than
the current market price.
When the Fund purchases an option, it runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the Fund
exercises the option or enters into a closing sale transaction before the
option's expiration. If the price of the underlying security does not rise (in
the case of a call) or fall (in the case of a put) to an extent sufficient to
cover the option premium and transaction costs, the Fund will lose part or all
of its investment in the option. This contrasts with an investment by the Fund
in the underlying security, since the Fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the Fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. There is
no assurance that the Growth Fund will be able to affect closing transactions at
any particular time or at an acceptable price.
FUTURES CONTRACTS AND RELATED OPTIONS
Subject to applicable law, and unless otherwise specified in the prospectus, the
Growth Fund may invest in futures contracts and related options for hedging
purposes, such as to manage the effective duration of the Fund's portfolio. A
financial futures contract sale creates an obligation by the seller to deliver
the type of financial instrument called for in the contract in a specified
delivery month for a stated price. A financial futures contract purchase creates
an obligation by the purchaser to take delivery of the type of financial
instrument called for in the contract in a specified delivery month at a stated
price. The specific instruments delivered or taken, respectively, at settlement
date are not determined until on or near that date. The determination is made in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made. Futures contracts are traded in the United States only on
commodity exchanges or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission merchant or brokerage
firm which is a member of the relevant contract market.
10
<PAGE>
Although futures contracts (other than index futures) by their terms call for
actual delivery or acceptance of commodities or securities, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery.
Closing out a futures contract sale is affected by purchasing a futures contract
for the same aggregate amount of the specific type of financial instrument or
commodity with the same delivery date. If the price of the initial sale of the
futures contract exceeds the price of the offsetting purchase, the seller is
paid the difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the seller realizes a
loss. If the Growth Fund is unable to enter into a closing transaction, the
amount of the Fund's potential loss is unlimited. The closing out of a futures
contract purchase is affected by the purchaser's entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
purchaser realizes a gain, and if the purchase price exceeds the offsetting sale
price, he realizes a loss. In general, 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved by the CFTC is
treated as short-term gain or loss, and 60% is treated as long-term gain or
loss.
Unlike when the Growth Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Upon
entering into a contract, the Fund is required to deposit with its custodian in
a segregated account in the name of the futures broker an amount of liquid
assets. This amount is known as "initial margin." The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
Funds to finance the transactions. Rather, initial margin is similar to a
performance bond or good faith deposit, which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin," to and
from the broker (or the custodian) are made on a daily basis as the price of the
underlying security or commodity fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as "marking to
the market." For example, when the Growth Fund has purchased a futures contract
on a security and the price of the underlying security has risen, that position
will have increased in value and the Fund will receive from the broker a
variation margin payment based on that increase in value. Conversely, when the
Fund has purchased a security futures contract and the price of the underlying
security has declined, the position would be less valuable and the Fund would be
required to make a variation margin payment to the broker.
The Growth Fund may elect to close some or all of its futures positions at any
time prior to their expiration in order to reduce or eliminate a hedge position
then currently held by the Fund. The Fund may close its positions by taking
opposite positions, which will operate to terminate the Fund's position in the
futures contracts. Final determinations of variation margin are then made,
additional cash is required to be paid by or released to a Fund, and the Fund
realizes a loss or a gain. Such closing transactions involve additional
commission costs.
11
<PAGE>
TEMPORARY INVESTMENTS
The Growth Fund may, as a temporary defensive measure, invest without
limitation, in short-term debt securities and money market securities with a
rating of A2-P2 or higher.
In order to have funds available for redemption and investment opportunities,
the Growth Fund may also hold a portion of its assets in cash or U.S. short-term
money market instruments. Certificates of deposit purchased by the Growth Fund
will be those of U.S. banks having total assets at the time of purchase in
excess of $1 billion, and bankers' acceptances purchased by the Growth Fund will
be guaranteed by U.S. banks having total assets at the time of purchase in
excess of $1 billion. The Growth Fund anticipates that not more than 10% of its
total assets will be so invested or held in cash at any given time, except when
the Growth Fund is in a temporary defensive posture.
INVESTMENT POLICIES SPECIFIC TO THE BOND FUND
FIXED INCOME INVESTMENTS
Yields on fixed income securities are dependent on a variety of factors,
including the general conditions of the money market and other fixed income
securities markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. An investment in the Bond Fund will be
subjected to risk even if all fixed income securities in the Fund's portfolio
are paid in full at maturity. All fixed income securities, including U.S.
Government Securities, can change in value when there is a change in interest
rates or the issuer's actual or perceived creditworthiness or ability to meet
its obligations.
There is normally an inverse relationship between the market value of securities
sensitive to prevailing interest rates and actual changes in interest rates. In
other words, an increase in interest rates produces a decrease in market value.
The longer the remaining maturity (and duration) of a security, the greater will
be the effect of interest rate changes on the market value of that security.
Changes in the ability of an issuer to make payments of interest and principal
and in the markets' perception of an issuer's creditworthiness will also affect
the market value of the debt securities of that issuer. Obligations of issuers
of fixed income securities (including municipal securities) are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of municipal issuers may become subject to laws
enacted in the future by Congress, state legislatures, or referenda extending
the time for payment of principal and/or interest, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of an issuer's creditworthiness will
also affect the market value of the debt securities of that issuer. The
possibility exists, therefore, that, the ability of any issuer to pay, when due,
the principal of and interest on its debt securities may become impaired.
12
<PAGE>
The corporate debt securities in which the Bond Fund may invest include
corporate bonds and notes and short-term investments such as commercial paper
and variable rate demand notes. Commercial paper (short-term promissory notes)
is issued by companies to finance their or their affiliate's current obligations
and is frequently unsecured. Variable and floating rate demand notes are
unsecured obligations redeemable upon not more than 30 days' notice. These
obligations include master demand notes that permit investment of fluctuating
amounts at varying rates of interest pursuant to a direct arrangement with the
issuer of the instrument. The issuer of these obligations often has the right,
after a given period, to prepay the outstanding principal amount of the
obligations upon a specified number of days' notice. These obligations generally
are not traded, nor generally is there an established secondary market for these
obligations. To the extent a demand note does not have a 7-day or shorter demand
feature and there is no readily available market for the obligation, it is
treated as an illiquid security.
GOVERNMENT OBLIGATIONS
The Bond Fund may invest in U.S. Government obligations. Such obligations
include Treasury bills, certificates of indebtedness, notes and bonds, and
issues of such entities as the Government National Mortgage Association
("GNMA"), Export-Import Bank of the United States, Tennessee Valley Authority,
Resolution Funding Corporation, Farmers Home Administration, Federal Home Loan
Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks, Federal
Land Banks, Federal Housing Administration, Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), and the
Student Loan Marketing Association ("SLMA").
Certain of these obligations, such as those of the GNMA, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the SLMA, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it were not obligated to do so by law.
MASTER DEMAND NOTES
The money market instruments in which the Bond Fund may invest may have variable
or floating rates of interest. These obligations include master demand notes
that permit investment of fluctuating amounts at varying rates of interest
pursuant to direct arrangement with the issuer of the instrument. The issuer of
these obligations often has the right, after a given period, to prepay the
outstanding principal amount of the obligations upon a specified number of days'
notice. These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a 7-day or shorter demand feature and there is no readily
available market for the obligation, it mistreated as an illiquid security.
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<PAGE>
MORTGAGE-BACKED SECURITIES.
--------------------------
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, pools of mortgage loans. They are, therefore,
classified as derivatives. Mortgage-backed securities may be issued or
guaranteed by a U.S. Government agency or instrumentality such as the GNMA,
FNMA, and FHLMC, though not necessarily backed by the full faith and credit of
the United States, or may be issued by private issuers. Private issuers are
generally originators of and investors in mortgage loans and include savings
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities. Private mortgage-backed securities may be supported by
U.S. Government Agency mortgage-backed securities or some form of
non-governmental credit enhancement.
Mortgage-backed securities may have either fixed or adjustable interest rates.
Tax or regulatory changes may adversely affect the mortgage securities market.
In addition, changes in the market's perception of the issuer may affect the
value of mortgage-backed securities. The rate of return on mortgage-backed
securities may be affected by prepayments of principal on the underlying loans,
which generally increase as market interest rates decline; as a result, when
interest rates decline, holders of these securities normally do not benefit from
appreciation in market value to the same extent as holders of other non-callable
debt securities.
Because many mortgages are repaid early, the actual maturity and duration of
mortgage-backed securities are typically shorter than their stated final
maturity and their duration calculated solely on the basis of the stated life
and payment schedule. In calculating its dollar-weighted average maturity and
duration, the Bond Fund may apply certain industry conventions regarding the
maturity and duration of mortgage-backed instruments. Different analysts use
different models and assumptions in making these determinations. The Bond Fund
uses an approach that the Adviser believes is reasonable in light of all
relevant circumstances. If this determination is not borne out in practice, it
could positively or negatively affect the value of the Bond Fund when market
interest rates change. Increasing market interest rates generally extend the
effective maturities of mortgage-backed securities, increasing their sensitivity
to interest rate changes.
Mortgage-backed securities may be issued in the form of collateralized mortgage
obligations ("CMOs") or collateralized mortgage-backed bonds ("CBOs"). CMOs are
obligations that are fully collateralized, directly or indirectly, by a pool of
mortgages on which payments of principal and interest are passed through to the
holders of the CMOs, although not necessarily on a pro rata basis, on the same
schedule as they are received. CBOs are general obligations of the issuer that
are fully collateralized, directly or indirectly, by a pool of mortgages. The
mortgages serve as collateral for the issuer's payment obligations on the bonds,
but interest and principal payments on the mortgages are not passed through
either directly (as with mortgage-backed "pass-through" securities issued or
guaranteed by U.S. Government agencies or instrumentalities) or on a modified
basis (as with CMOs). Accordingly, a change in the rate of prepayments on the
pool of mortgages could change the effective maturity or the duration of a CMO
but not that of a CBO (although, like many bonds, CBOs may be callable by the
issuer prior to maturity). To the extent that rising interest rates cause
prepayments to occur at a slower than expected rate, a CMO could be converted
into a longer-term security that is subject to greater risk of price volatility.
14
<PAGE>
Governmental, government-related, and private entities (such as commercial
banks, savings institutions, private mortgage insurance companies, mortgage
bankers, and other secondary market issuers), including securities
broker-dealers and special purpose entities that generally are affiliates of the
foregoing established to issue such securities may create mortgage loan pools to
back CMOs and CBOs. Such issuers may be the originators and/or servicers of the
underlying mortgage loans as well as the guarantors of the mortgage-backed
securities. Pools created by non-governmental issuers generally offer a higher
rate of interest than government and government-related pools because of the
absence of direct or indirect government or agency guarantees. Various forms of
insurance or guarantees, including individual loan, title, pool, and hazard
insurance, and letters of credit, may support timely payment of interest and
principal of non-governmental pools. The insurance and guarantees are issued by
governmental entities, private insurers, and the mortgage poolers. The Adviser
considers such insurance and guarantees, as well as the creditworthiness of the
issuers thereof, in determining whether a mortgage-backed security meets the
Bond Fund's investment quality standards. There can be no assurance that the
private insurers or guarantors can meet their obligations under the insurance
policies or guarantee arrangements. The Bond Fund may buy mortgage-backed
securities without insurance or guarantees, if the Adviser determines that the
securities meet the Bond Fund's quality standards. The Adviser will, consistent
with the Bond Fund's investment objectives, policies and limitations and quality
standards, consider making investments in new types of mortgage-backed
securities as such securities are developed and offered to investors.
INTEREST RATE RISK
Debt securities have varying levels of sensitivity to changes in interest rates.
In general, the price of a debt security can fall when interest rates rise and
can rise when interest rates fall. Securities with longer maturities and
mortgage securities can be more sensitive to interest rate changes although they
usually offer higher yields to compensate investors for the greater risks. The
longer the maturity of the security, the greater the impact a change in interest
rates could have on the security's price. In addition, short-term and long-term
interest rates do not necessarily move in the same amount or the same direction.
Short-term securities tend to react to changes in short-term interest rates and
long-term securities tend to react to changes in long-term interest rates.
CREDIT RISKS
Fixed income securities rated in the fourth classification by Moody's (BAA) and
S&P (BBB) may be purchased by the Bond Fund. These securities have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity of those issuers to make principal or
interest payments, as compared to issuers of more highly rated securities.
EXTENSION RISK
The Bond Fund is subject to the risk that an issuer will exercise its right to
pay principal on an obligation held by the Fund (such as mortgage-backed
securities) later than expected. This may happen when there is a rise in
interest rates. These events may lengthen the duration (i.e. interest rate
sensitivity) and potentially reduce the value of these securities.
PREPAYMENT RISK
Certain types of debt securities, such as mortgage-backed securities, have yield
and maturity characteristics corresponding to underlying assets. Unlike
traditional debt securities, which may pay a fixed rate of interest until
maturity when the entire principal amount comes due, payments on certain
mortgage-backed securities, for example, include both interest and a partial
payment of principal. Besides the scheduled repayment of principal, payments of
principal may result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans.
15
<PAGE>
Securities subject to prepayment are less effective than other types of
securities as a means of "locking in" attractive long-term interest rates. One
reason is the need to reinvest prepayments of principal; another is the
possibility of significant unscheduled prepayments resulting from declines in
interest rates. These prepayments would have to be reinvested at lower rates. As
a result, these securities may have less potential for capital appreciation
during periods of declining interest rates than other securities of comparable
maturities, although they may have a similar risk of decline in market value
during periods of rising interest rates. Prepayments may also significantly
shorten the effective maturities of these securities, especially during periods
of declining interest rates. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective maturities of these
securities, subjecting them to a greater risk of decline in market value in
response to rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of the Bond Fund.
At times, some of the mortgage-backed securities in which the Bond Fund may
invest will have higher than market interest rates and therefore will be
purchased at a premium above their par value. Prepayments may cause losses in
securities purchased at a premium, as unscheduled prepayments, which are made at
par, will cause the Bond Fund to experience a loss equal to any unamortized
premium.
INVESTMENT RESTRICTIONS
In addition to the principal investment objectives, policies and risks set forth
in the Prospectus and in this Statement of Additional Information, each of The
Growth Fund and The Bond Fund is subject to certain fundamental and
non-fundamental investment restrictions, as set forth below. Fundamental
investment restrictions may not be changed with respect to a Fund individually,
without the vote of a majority of that Fund's outstanding securities, as defined
in the Investment Company Act of 1940 ("1940 Act"), as amended. Non-fundamental
investment restrictions of a Fund may be changed by the Board of Trustees.
FUNDAMENTAL INVESTMENT RESTRICTIONS
As fundamental investment restrictions, the Funds will not:
1. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities), if, as a
result, as to 75% of a Fund's total assets, more than 5% of its net assets would
be invested in the securities of one issuer or the Fund would hold more than 10%
of the outstanding voting securities of any one issuer;
2. Issue any senior securities, as defined in the 1940 Act, except as set
forth in restriction number 3 below;
16
<PAGE>
3. Borrow amounts in excess of 33 1/3% of the market value of its total
assets, and then only from a bank and as a temporary measure for extraordinary
or emergency purposes. To secure any such borrowing, a Fund may pledge or
hypothecate all or any portion of the value of its total assets;
4. Act as an underwriter of securities of other issuers, except insofar
as the Trust may be technically deemed an underwriter under the federal
securities laws in connection with the disposition of each Fund's portfolio
securities;
5. Purchase or sell real estate or commodities, including oil, gas or other
mineral exploration or developmental programs or commodity futures contracts
(but the funds may invest in financial futures);
6. Make loans, in the aggregate, exceeding 33 1/3% of either Fund's total
assets or lend either Fund's portfolio securities to broker-dealers if the loans
are not fully collateralized;
7. Invest in other registered investment companies, except as permitted by
the 1940 Act;
8. Purchase from or sell to any officer or trustee of the Trust or its
Adviser any securities other than the shares of beneficial interest of either
Fund; or
9. Concentrate investments, or invest 25% or more of its assets, in any one
industry. This limitation shall not apply to securities issued or guaranteed by
the U.S. Government.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The Funds are each subject to the following restrictions that are not
fundamental and may therefore be changed by the Board of Trustees without
shareholder approval.
The Funds will not:
1. Acquire securities for the purpose of exercising control over
management;
2. Invest more than 15% of its net assets in illiquid securities. In the
event that such illiquid securities comprise more than 15% of a Fund's assets
due to appreciation or other like cause not related to direct investment, no
Fund shall purchase additional portfolio securities until such time as that Fund
holds 15% or less in such illiquid securities; or
3. Purchase additional portfolio securities if borrowings exceed 10%.
Unless otherwise indicated, percentage limitations included in the restrictions
apply at the time a Fund enters into a transaction. Accordingly, any later
increase or decrease beyond the specified limitation resulting from a change in
a Fund's net assets will not be considered in determining whether its has
complied with its investment restrictions.
17
<PAGE>
TRUSTEES AND OFFICERS
The business of the Funds is managed under the direction of the Board of
Trustees ("the Board") of the Trust. The Board formulates the general policies
of each Fund and meets periodically to review each Fund's performance, monitor
investment activities and practices, and discuss other matters affecting the
Funds. The Trustees are fiduciaries for the Funds' shareholders and are governed
by the laws of the State of Massachusetts in this regard. The names and
addresses of the Trustees are listed below along with a description of their
principal occupations over at least the last five years. Trustees who are
interested persons, as defined by the 1940 Act, are indicated by asterisk.
*Thomas L. Hoy, Trustee; Age 52; Address: 25 Pershing Road, Glens Falls, NY;
President, CEO and Director of Arrow Financial Corp. since 1996 and President &
Director of Glens Falls National Bank & Trust Company since January 1, 1995.
*Kenneth C. Hopper, M.D., Age 62; Address:257 Friends Lake Road, Chestertown,
NY; Chairman & CEO, Northeastern Clinical & Toxicology Laboratory, Inc.,
Chairman & CEO, Bay Optical, Inc., Director, Arrow Financial Corp. and Glens
Falls National Bank & Trust Company since prior to January 1, 1995.
Alan E. Redeker, Trustee; Age 56; Address: 23 Honey Hollow Road, Queensbury, NY;
Vice President, Medusa Corporation, January 1, 1995 to June 30, 1998; Regional
Vice President, Southdown Corp., July 1, 1998 to August 31, 1998; Vice
President, Operations, Roanoke Cement, Roanoke, VA, September 1, 1998 to
November 28, 1998; President, Glens Falls Lehigh Cement, Glens Falls, NY,
November 29, 1999 to present.
George R. Coughlan, III, Age 62; Address: 27 Twicwood Lane, Queensbury, NY;
Manager of Glens Falls Branch of Solomon Smith Barney from 1974 to February,
1998; Retired since February, 1998.
OFFICERS
Sean Kelly (43), President, Senior Vice President of Client Services, American
Data Services, Inc. (Mutual Fund Administrator), May, 2000 to Present;
President, Kel-Corp, Inc. (Awards Manufacturer), October, 1997 to Present;
Senior Vice President of Client Services, Concord Financial Group (Mutual Fund
Administrator), January, 1987 to January 1996.
Keith D. Kemp (40), Treasurer, Vice President and Chief Operations Officer,
Orbitex Management, Inc. and Assistant (February 1999 to present) (Investment
Adviser); Treasurer Vice-President, Fund Accounting and Administration, Bank of
New York (February 1998 to February 1999) (Bank); Senior Manager, Forum
Financial Group (November 1996 to February 1998) (Mutual Fund Administrator);
Business Unit Controller, First Data Investor Services Group (March 1995 to
November 1996) (Mutual Fund Administrator).
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<PAGE>
Ismael Lopez (52), Assistant Treasurer, Director of Administration, American
Data Services, Inc., January, 2000 to Present (Mutual Fund Administrator);
Assistant Controller, The Reserve Funds, September, 1997 to October, 1999;
Director of Operations, Christian Brothers Investment Services, January, 1996 to
June 1997, Consultant, The Reserve Funds, June 1995 to December 1995.
Giovanni Urena (32), Secretary, Senior Paralegal, American Data Services, Inc.
August, 2000 to Present (Mutual Fund Administrator); Senior Documentation
Specialist - Compliance/Risk Management, UBS AG, October 1999 to May, 2000
(Bank); Assistant Vice President - Paralegal, CITIGROUP, INC., August, 1995 to
October, 1999 (Bank).
AUDIT COMMITTEE
The members of the Audit Committee of the Board of Trustees are Messrs. Alan E.
Redeker and George R. Coughlan. Mr. Redeker acts as the chairperson of such
committee. The Audit Committee oversees each Fund's financial reporting process,
reviews audit results and recommends annually to the Trust a firm of independent
certified public auditors.
COMPENSATION
For their service as Trustees of the Trust, the Independent Trustees are
entitled to receive an aggregate fee of $500 per year and $100 per meeting
attended, as well as reimbursement for expenses incurred in connection with
attendance at such meetings. The "interested persons" who serve as Trustees of
the Trust receive no compensation for their service as Trustees. None of the
executive officers receive compensation from the Funds. As of the date of this
Statement of Additional Information, the Trust has not commenced operation and
no compensation has been paid. The following tables provide compensation
information for the Trustees, based on expectations for the fiscal year ending
2001.
<TABLE>
<CAPTION>
----------------------------- ------------------- -------------------- ---------------------- ------------------------
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM FUND AND FUND
COMPENSATION FROM AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
NAME AND POSITION FUND EXPENSES RETIREMENT TRUSTEES**
----------------------------- ------------------- -------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
*Thomas L. Hoy None None None None
*Kenneth C. Hopper None None None None
Alan E. Redeker $1,500 $1,500
George R. Coughlan $1,500 $1,500
<FN>
*"Interested person" as defined under the 1940 Act.
</FN>
</TABLE>
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<PAGE>
PORTFOLIO TURNOVER
In order to qualify for the beneficial tax treatment afforded regulated
investment companies, and to be relieved of Federal tax liabilities, the Funds
must distribute substantially all of their net income to shareholders generally
on an annual basis. Thus, the Funds may have to dispose of portfolio securities
under disadvantageous circumstances to generate cash or borrow cash in order to
satisfy the distribution requirement. The Funds do not trade in securities for
short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time they have been held.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
A control person is one who owns beneficially or through controlled companies
more than 25% of the voting securities of a company or acknowledges the
existence of control. As of the date of this SAI, each Fund could each be deemed
to be under the control of the Adviser, which had voting authority with respect
to approximately 100% of the value of the outstanding interests in the Trust on
such date. Any investor owning more than 50% of the value of the outstanding
interests in a Fund may take actions without the approval of any other investor
who invests in a Fund. As of the date of this Statement of Additional
Information, the Trust has not commenced operations and Glens Falls National
Bank controlled the Trust.
INVESTMENT ADVISORY AND OTHER SERVICES
THE ADVISER
North Country Investment Advisers, Inc. (the "Adviser") has been retained under
an Investment Advisory Agreement with the Trust, on behalf of each Fund, to
serve as the investment adviser to each Fund, subject to the authority of the
Board of Trustees. The Adviser is registered as an investment adviser with the
U.S. Securities & Exchange Commission. The address of the Adviser is at 250 Glen
Street, Glens Falls, New York 12801.
Under the terms of the Investment Advisory Agreement, the Adviser conducts
investment research and management for each Fund and is responsible for the
purchase and sale of securities for each Fund's portfolio. The Adviser provides
each Fund with investment advice, supervises each Fund's management and
investment programs and provides investment advisory facilities and executive
and supervisory personnel for managing the investments and effectuating
portfolio transactions. The Adviser also furnishes, at its own expense, all
necessary office space, equipment and clerical personnel for servicing the
investments of each Fund. In addition, the Adviser pays the salaries and fees of
all officers of the Trust who are affiliated with the Adviser.
Under the terms of the Investment Advisory Agreement, the Adviser is obligated
to manage each Fund in accordance with applicable laws and regulations of the
Securities and Exchange Commission regarding investment companies and investment
advisers. In accordance with these regulations, the Adviser will not invest the
Funds' assets in stock or obligations of, or property acquired from, the
Adviser, its affiliates or directors, officers or employees, and assets of the
Funds will not be sold or transferred, by loan or otherwise, to the Adviser or
persons connected with the Adviser as described above.
20
<PAGE>
The Investment Advisory Agreement remains in effect initially for a two year
term and continues in effect thereafter with respect to a Fund only if such
continuance is specifically approved at least annually by the Trustees or by
vote of a majority of the outstanding voting securities of the Funds (as defined
in the 1940 Act) and, in either case, by a majority of the Trustees who are not
interested persons of The North Country Funds or the Adviser. The Investment
Advisory Agreement provides that the Adviser shall not be liable to a Fund for
any error of judgment by the Adviser or for any loss sustained by the Fund
except in the case of the Advisor's willful misfeasance, bad faith, gross
negligence or reckless disregard of duty. The Investment Advisory Agreement also
provides that it shall terminate automatically if assigned and that it may be
terminated without penalty by vote of a majority of the outstanding voting
securities of the Funds or by either party upon 60 days' written notice. No
person other than the Adviser regularly furnishes advice to the Funds with
respect to the desirability of a Fund's investing in, purchasing or selling
securities.
CODE OF ETHICS
The Board of Trustees has determined that the personnel of The North Country
Funds may engage in personal trading in compliance with general fiduciary
principles that are incorporated into The North Country Funds' Code of Ethics.
This Code of Ethics substantially complies in all respects with Rule 17j-1 under
the 1940 Act. It is noted that under the Code: (1) the disinterested Trustees of
The North Country Funds are not required to pre-clear personal securities
transactions, and (2) the disinterested Trustees need not report transactions
where they were not provided with information about the portfolio transactions
contemplated for a Fund or executed for a Fund for a period of 15 days before
and after such transactions.
ADMINISTRATOR
The Administrator is American Data Services, Inc. ("ADS" or the
"Administrator"), which has its principal office at The Hauppauge Corporate
Center, 150 Motor Parkway, Hauppauge, New York 11788. ADS is primarily in the
business of providing administrative, fund accounting and stock transfer
services to retail and institutional mutual funds through its offices in New
York, Denver and Los Angeles and as of the date of this Prospectus had assets
under administration in excess of $4 billion.
Pursuant to an Administrative Service Agreement with the Trust on behalf of the
Funds, the Administrator provides all administrative services necessary for the
Funds, subject to the supervision of the Trust's Board of Trustees. The
Administrator will provide persons to serve as officers of the Trust. Such
officers may be directors, officers or employees of the Administrator or its
affiliates.
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<PAGE>
The Administrative Service Agreement is terminable by the Board of Trustees of
the Trust or the Administrator on sixty days' written notice and may be assigned
provided the non-assigning party provides prior written consent. The Agreement
shall remain in effect for two years from the date of its initial approval, and
is subject to annual approval of the Board of Trustees for one-year periods
thereafter. The Agreement provides that in the absence of willful misfeasance,
bad faith or negligence on the part of the Administrator or reckless disregard
of its obligations thereunder, the Administrator shall not be liable for any
action or failure to act in accordance with its duties thereunder.
Under the Administrative Service Agreement, the Administrator provides all
administrative services, including, without limitation: (i) provides services of
persons competent to perform such administrative and clerical functions as are
necessary to provide effective administration of each Fund; (ii) overseeing the
performance of administrative and professional services to the Fund by others,
including each Fund's Custodian; (iii) preparing, but not paying for, the
periodic updating of the Registration Statement and each Fund's Prospectus and
Statement of Additional Information in conjunction with Fund counsel, including
the printing of such documents for the purpose of filings with the Securities
and Exchange Commission and state securities administrators, preparing each
Fund's tax returns, and preparing reports to each Fund's shareholders and the
Securities and Exchange Commission; (iv) preparing , but not paying for, all
filings under the securities or "Blue Sky" laws of such states or countries as
are designated by the Distributor, which may be required to register or qualify,
or continue the registration or qualification, of each Fund and/or its shares
under such laws; (v) preparing notices and agendas for meetings of the Board of
Trustees and minutes of such meetings in all matters required by the 1940 Act to
be acted upon by the Board; and (vi) monitoring daily and periodic compliance
with respect to all requirements and restrictions of the 1940 Act, the Internal
Revenue Code and the Prospectus.
The Administrator, pursuant to a Fund Accounting Service Agreement in place with
the Trust, on behalf of the funds, provides each Fund with all accounting
services, including, without limitation: (i) daily computation of net asset
value; (ii) maintenance of security ledgers and books and records as required by
the 1940 Act; (iii) production of each Fund's listing of portfolio securities
and general ledger reports; (iv) reconciliation of accounting records; (v)
calculation of yield and total return for each Fund; (vi) maintaining certain
books and records described in Rule 31a-1 under the 1940 Act, and reconciling
account information and balances among each Fund's Custodian and Adviser; and
(vii) monitoring and evaluating daily income and expense accruals, and sales and
redemptions of shares of each Fund.
ADMINISTRATOR'S FEES
For the services rendered to the Funds by the Administrator, each Fund pays the
Administrator a monthly fee based on the Fund's average net assets as set forth
in the Prospectus. In addition, each Fund pays the Administrator for any
out-of-pocket expenses. These fees are set forth in the Funds' Prospectus.
22
<PAGE>
In return for providing the Funds with all accounting related services, each
Fund pays the Administrator a monthly fee based on the Fund's average net
assets, plus any out-of-pocket expenses for such services.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Union Bank of California (the "Custodian"), located at 350 California Street,
San Francisco, California 94104, serves as custodian for each Fund's cash and
securities. The Custodian does not assist in, and is not responsible for,
investment decisions involving assets of either Fund.
American Data Services, Inc., the Funds' Administrator, also acts as each Fund's
transfer and dividend disbursing agent. Each Fund pays American Data Services,
Inc. the greater of $900 per month or $9.00 per year per account, plus
out-of-pocket expenses, for rendering such transfer and dividend agency
services.
DISTRIBUTOR
AmeriMutual Fund Distributors, Inc. ("the Distributor"), an affiliate of the
Administrator, has entered into a distribution agreement with the Company to
serve as the principal underwriter for each Fund and the distributor for each
Fund's shares. The Distribution Agreement contains provisions with respect to
renewal and termination similar to those in the Investment Advisory Agreement
described above. Pursuant to the Distribution Agreement, the Trust has agreed to
indemnify the Distributor to the extent permitted by applicable law against
certain liabilities under the Securities Act of 1933.
OTHER EXPENSES
The Funds each pay certain operating expenses that are not assumed by the
Adviser, the Administrator or any of their respective affiliates. These
expenses, together with fees paid to the Adviser, the Administrator and the
Transfer Agent, are deducted from the income of each Fund, respectively, before
dividends are paid. These expenses include, but are not limited to,
organizational costs and expenses of officers and Trustees who are not
affiliated with the Adviser, the Administrator or any of their respective
affiliates, taxes, interest, legal fees, custodian fees, audit fees, brokerage
fees and commissions, fees and expenses of registering and qualifying the Funds
and their shares for distribution under federal and various state securities
laws, the expenses of reports to shareholders, shareholders' meetings and proxy
solicitations.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Each Fund's assets are invested by the Adviser in a manner consistent with its
investment objectives, policies, and restrictions and with any instructions the
Board of Trustees may issue from time to time. Within this framework, the
Adviser is responsible for making all determinations as to the purchase and sale
of portfolio securities and for taking all steps necessary to implement
securities transactions on behalf of a Fund.
23
<PAGE>
U.S. Government securities generally are traded in the over-the-counter market
through broker-dealers. A broker-dealer is a securities firm or bank that makes
a market for securities by offering to buy at one price and sell at a slightly
higher price. The difference between the prices is known as a spread.
In placing orders for the purchase and sale of portfolio securities for the
Fund, the Adviser will use its best efforts to obtain the best possible price
and execution and will otherwise place orders with broker-dealers subject to and
in accordance with any instructions the Board of Trustees may issue from time to
time. The Adviser will select broker-dealers to execute portfolio transactions
on behalf of the Fund primarily on the basis of best price and execution.
When consistent with the objectives of prompt execution and favorable net price,
business may be placed with broker-dealers who furnish investment research or
services to the Adviser. Such research or services include advice, both directly
and in writing, as to the value of securities; the advisability of investing in,
purchasing or selling securities; and the availability of securities, or
purchasers or sellers of securities; as well as analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. To the extent portfolio transactions are
effected with broker-dealers who furnish research services to the Adviser, the
Adviser receives a benefit, not capable of evaluation in dollar amounts, without
providing any direct monetary benefit to the Fund from these transactions. The
Adviser believes that most research services obtained by it generally benefit
several or all of the investment companies and private accounts that it manages,
as opposed to solely benefiting one specific managed fund or account.
Transactions on U.S. stock exchanges, commodities markets and futures markets
and other agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different brokers. A
particular broker may charge different commissions according to such factors as
the difficulty and size of the transaction. Transactions in foreign investments
often involve the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated commission in the
case of securities traded in the over-the-counter markets, but the price paid by
the Fund usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
It has for many years been a common practice in the investment advisory business
for advisers of investment companies and other institutional investors to
receive brokerage and research services (as defined in the Securities Exchange
Act of 1934, as amended (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from third parties
with which such broker-dealers have arrangements. Consistent with this practice,
the Adviser may receive brokerage and research services and other similar
services from many broker-dealers with which the Adviser may place the Fund's
portfolio transactions and from third parties with which these broker-dealers
have arrangements. These services include such matters as general economic and
market reviews, industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments, newspapers,
magazines, pricing services, quotation services, news services and personal
computers utilized by the Adviser. Where the services referred to above are not
used exclusively by the Adviser for research purposes, the Adviser, based upon
its own allocations of expected use, bears that portion of the cost of these
services which directly relates to their non-research use. Some of these
services are of value to the Adviser and its affiliates in advising a variety of
their clients (including the Fund), although not all of these services are
necessarily useful and of value in managing the Fund. The management fee paid by
the Fund is not reduced because the Adviser and its affiliates receive these
services even though the Adviser might otherwise be required to purchase some of
these services for cash.
24
<PAGE>
As permitted by Section 28(e) of the 1934 Act, the Adviser may cause the Fund to
pay a broker-dealer which provides "brokerage and research services" (as defined
in the 1934 Act) to the Adviser an amount of disclosed commission for effecting
securities transactions on stock exchanges and other transactions for the Fund
on an agency basis in excess of the commission which another broker-dealer would
have charged for effecting that transaction. The Adviser's authority to cause
the Fund to pay any such greater commissions is also subject to such policies as
the Trustees may adopt from time to time. The Adviser does not currently intend
to cause any Fund to make such payments. It is the position of the staff of the
Securities and Exchange Commission that Section 28(e) does not apply to the
payment of such greater commissions in "principal" transactions. Accordingly,
the Adviser will use its best effort to obtain the most favorable price and
execution available with respect to such transactions, as described above.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. and subject to seeking the most favorable price and execution
available and such other policies as the Trustees may determine, the Adviser may
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
TAXATION
Each of the Funds intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). By so qualifying, a Fund will not incur federal income or state
taxes on its net investment company taxable income and on net realized capital
gains (net long-term capital gains in excess of the sum of net short-term
capital losses and capital losses carryovers from the prior 8 years) to the
extent distributed as dividends to shareholders.
To qualify as a regulated investment company, a Fund must, among other things
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
(b) diversify its holdings so that, at the end of each quarter of the taxable
year, (i) at least 50% of the market value of a Fund's assets is represented by
cash, U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the value of a Fund's total assets and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies); and (c)
distribute to its shareholders at least 90% of its investment company taxable
income (which includes dividends, interest and net short-term capital gains in
excess of any net long-term capital losses) and 90% of its net exempt interest
income each taxable year.
25
<PAGE>
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, each Fund must distribute during each calendar
year an amount equal to the sum of (a) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (b) at
least 98% of its capital gains in excess of capital losses (adjusted for certain
ordinary losses) for a one-year period generally ending on October 31st of the
calendar year, and (c) all ordinary income and capital gains for previous years
that were not distributed during such years.
Under the Code, dividends derived from interest, and any short-term capital
gains, are taxable to shareholders as ordinary income for federal and state tax
purposes, regardless of whether such dividends are taken in cash or reinvested
in additional shares. Distributions made from each Fund's net realized long-term
capital gains (if any) and designated as capital gain dividends are taxable to
shareholders as long-term capital gains, regardless of the length of time Fund
shares are held. Corporate investors are not eligible for the dividends-received
deduction with respect to distributions derived from interest on short-or
long-term capital gains from either Fund but may be entitled to such a deduction
in respect to distributions attributable to dividends received by a Fund. A
distribution will be treated as paid on December 31st of a calendar year if it
is declared by the Fund in October, November or December of the year with a
record date in such a month and paid by each Fund during January of the
following year. Such distributions will be taxable to shareholders in the
calendar year the distributions are declared, rather than the calendar year in
which the distributions are received.
Distributions paid by each Fund from net long-term capital gains (excess of
long-term capital gains over long-term capital losses), if any, whether received
in cash or reinvested in additional shares, are taxable as long-term capital
gains, regardless of the length of time you have owned shares in the Fund.
Distributions paid by each Fund from net short-term capital gains (excess of
short-term capital gains over short-term capital losses), if any, whether
received in cash or reinvested in additional shares are taxable as ordinary
income. Capital gains distributions are made when either Fund realizes net
capital gains on sales of portfolio securities during the year.
Many of the options contracts used by the Funds are "section 1256 contracts."
Any gains or losses on section 1256 contracts are generally considered 60%
long-term and 40% short-term capital gains or losses ("60/40"). Also, section
1256 contracts held by a Fund at the end of each taxable year (and, for purposes
of the 4% excise tax, on certain other dates as prescribed under the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized and the resulting gain or loss is treated as
ordinary or 60/40 gain or loss, depending on the circumstances.
26
<PAGE>
Generally, the hedging transactions and certain other transactions in options
contracts undertaken by a Fund may result in "straddles" for U.S. federal income
tax purposes. The straddle rules may affect the character of gains (or losses)
realized by a Fund. In addition, losses realized by a Fund on positions that are
part of a straddle may be deferred under the straddle rules, rather than being
taken into account in calculating the investment company taxable income or net
capital gain for the taxable year in which such losses are realized. Because
limited regulations implementing the straddle rules have been promulgated, the
tax consequences of transactions in options and future contracts to a Fund are
not entirely clear. The transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income when
distributed to shareholders.
Each Fund may make one or more of the elections available under the code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under the rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions. Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.
Any redemption or exchange of a Fund's shares is a taxable event and may result
in a capital gain or loss. A gain or loss, if the shares are capital assets in
the shareholder's hands, and will be long-term, mid-term or short-term generally
depending upon the shareholder's holding period for the shares. Any loss
realized on a disposition will be disallowed by "wash sale" rules to the extent
the shares disposed of are replaced within a period of 61 days beginning 30 days
before and ending 30 days after the disposition. In such a case, the basis of
the shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of shares held by the shareholder for
six months or less will be treated as a long-term capital loss to the extent of
any distributions of capital gain dividends received by the shareholder with
respect to such shares.
Dividend distributions, capital gains distributions, and capital gains or losses
from redemptions and exchanges may also be subject to state and local taxes.
Ordinarily, distributions and redemption proceeds paid to Fund shareholders are
not subject to withholding of federal income tax. However, 31% of each of the
Fund's distributions and redemption proceeds must be withheld if a Fund
shareholder fails to supply the Fund or its agent with such shareholder's
taxpayer identification number or if the Fund shareholder who is otherwise
exempt from withholding fails to properly document such shareholder's status as
an exempt recipient.
The information above is only a summary of some of the tax considerations
generally affecting the Funds and their shareholders. No attempt has been made
to discuss individual tax consequences. To determine whether either of the Funds
is a suitable investment based on his or her tax situation, a prospective
investor may wish to consult a tax advisor.
27
<PAGE>
VOTING AND OWNERSHIP OF SHARES
Each share of each Fund has one vote in the election of Trustees. Cumulative
voting is not authorized for either Fund. This means that the holders of more
than 50% of the shares voting for the election of Trustees can elect 100% of the
Trustees if they choose to do so, and, in that event, the holders of the
remaining shares will be unable to elect any Trustees.
Shareholders of the Funds and any other future series of the Trust will vote in
the aggregate and not by series except as otherwise required by law or when the
Board of Trustees determines that the matter to be voted upon affects only the
interest of the shareholders of a particular series. Matters such as
ratification of the independent public accountants and election of Trustees are
not subject to separate voting requirements and may be acted upon by
shareholders of the Trust voting without regard to series.
PURCHASE OF SHARES
Shares of a Fund may be purchased at the net asset value per share next
determined after receipt of an order by the Fund's Transfer Agent in proper form
with accompanying check or other bank wire payment arrangements satisfactory to
the Fund. The minimum initial investment in each Fund is $1,000 (except for
individual retirement accounts for which the minimum initial investment is $500)
and the minimum subsequent investment is $250 (except for individual retirement
accounts for which the minimum subsequent investment is $100).
REDEMPTION OF SHARES
Redemption of shares, or payment for redemptions, may be suspended at times (a)
when the New York Stock Exchange is closed for other than customary weekend or
holiday closings, (b) when trading on said Exchange is restricted, (c) when an
emergency exists, as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable, or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (d) during any other
period when the Securities and Exchange Commission, by order, so permits,
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist.
Shareholders who purchased shares through a broker-dealer may also redeem such
shares by written request to the Transfer Agent which shares are held by the
Transfer Agent at the address set forth in the Prospectus. To be considered in
"good order", written requests for redemption should indicate the dollar amount
or number of shares to be redeemed, refer to the shareholder's Fund account
number, including either the social security or tax identification number. The
request should be signed in exactly the same way the account is registered. If
there is more than one owner of the shares, all owners must sign. If shares to
be redeemed have a value of $5,000 or more or redemption proceeds are to be paid
by someone other than the shareholder at the shareholder's address of record,
the signature(s) must be guaranteed by an "eligible guarantor institution,"
which includes a commercial bank that is a member of the Federal Deposit
Insurance Corporation, a trust company, a member firm of a domestic stock
exchange, a savings association or a credit union that is authorized by its
charter to provide a signature guarantee. The Transfer Agent may reject
redemption instructions if the guarantor is neither a member of nor a
participant in a signature guarantee program. Signature guarantees by notaries
public are not acceptable. The purpose of a signature guarantee is to protect
shareholders against the possibility of fraud. Further documentation will be
requested from corporations, administrators, executors, personal
representatives, trustees and custodians. Redemption requests given by facsimile
will not be accepted. Unless other instructions are given in proper form, a
check for the proceeds of the redemption will be sent to the shareholder's
address of record. Share purchases and redemptions are governed by Massachusetts
law.
28
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Net investment income, if any, is declared as dividends and paid annually.
Substantially all the realized net capital gains for each Fund, if any, are also
declared and paid on an annual basis. Dividends and distributions are payable to
shareholders of record at the time of declaration.
Distributions from each Fund are automatically reinvested in additional Fund
shares unless the shareholder has elected to have them paid in cash.
NET ASSET VALUE
The method for determining each Fund's net asset value is summarized in the
Prospectus in the text following the heading "WHEN AND HOW NAV IS DETERMINED".
The net asset value of a Fund's shares is determined on each day on which the
NYSE is open, provided that the net asset value need not be determined on days
when no Fund shares are tendered for redemption and no order for Fund shares is
received. The NYSE is not open for business on the following holidays (or on the
nearest Monday or Friday if the holiday falls on a weekend): New Year's Day,
President's Day, Good Friday, Martin Luther King, Jr. Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
PERFORMANCE COMPARISONS
Total return quoted in advertising and sales literature reflects all aspects of
each Fund's return, including the effect of reinvesting dividends and capital
gain distributions and any change in a Fund's net asset value during the period.
Each Fund's total return must be displayed in any advertisement containing the
Fund's yield. Total return is the average annual total return for the 1-, 5- and
10-year period ended on the date of the most recent balance sheet included in
the Statement of Additional Information, computed by finding the average annual
compounded rates of return over 1-, 5- and 10-year periods that would equate the
initial amount invested to the ending redeemable value according to the
following formula:
P(1 + T)n = ERV
Where:
P = a hypothetical initial investment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the
1-, 5- or 10-year periods at the end of the
1-, 5-or 10-year periods (or fractions
thereof).
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<PAGE>
Because the Funds have not had a registration in effect for 1, 5 or 10 years,
the period during which the registration has been effective shall be
substituted.
Average annual total return is calculated by determining the growth or decline
in value of a hypothetical historical investment in each Fund over a stated
period and then calculating the annual compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual total return of 7.18%, which is
the steady annual rate that would result in 100% growth on a compounded basis in
10 years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Fund's performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
In addition to average annual total returns, each Fund may quote unit asset
value or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments, or a series of redemptions over any
time period. Performance information may be quoted numerically or in a table,
graph, or similar illustration.
Each Fund's performance may be compared with the performance of other funds with
comparable investment objectives, tracked by fund rating services or with other
indexes of market performance. Sources of economic data that may be considered
in making such comparisons may include, but are not limited to, rankings of any
mutual fund or mutual fund category tracked by Lipper Analytical Services, Inc.
or Morningstar, Inc.; data provided by the Investment Company Institute; major
indexes of stock market performance; and indexes and historical data supplied by
major securities brokerage or investment advisory firms. The Funds may also each
utilize reprints from newspapers and magazines furnished by third parties to
illustrate historical performance.
The agencies listed below measure performance based on their own criteria rather
than on the standardized performance measures described in the preceding
section.
30
<PAGE>
Lipper Analytical Services, Inc. distributes mutual fund rankings
monthly. The rankings are based on total return performance calculated
by Lipper, generally reflecting changes in net asset value adjusted for
reinvestment of capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a variety of
performance periods, including year-to-date, 1-year, 5-year, and
10-year performance. Lipper classifies mutual funds by investment
objective and asset category.
Morningstar, Inc. distributes mutual fund ratings twice a month. The
ratings are divided into five groups: highest, above average, neutral,
below average and lowest. They represent the fund's historical
risk/reward ratio relative to other funds in its broad investment class
as determined by Morningstar, Inc. Morningstar ratings cover a variety
of performance periods, including 1-year, 3-year, 5-year, 10-year and
overall performance. The performance factor for the overall rating is a
weighted-average assessment of the fund's 1-year, 3-year, 5-year, and
10-year total return performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund. The ratings are
derived from a purely quantitative system that does not utilize the
subjective criteria customarily employed by rating agencies such as
Standard & Poor's and Moody's Investor Service, Inc.
CDA/Weisenberger's Management Results publishes mutual fund rankings
and is distributed monthly. The rankings are based entirely on total
return calculated by Weisenberger for periods such as year-to-date,
1-year, 3-year, 5-year and 10-year. Mutual funds are ranked in general
categories (e.g., international bond, international equity, municipal
bond, and maximum capital gain). Weisenberger rankings do not reflect
deduction of sales charges or fees.
Independent publications may also evaluate each Fund's performance. The Funds
may from time to time each refer to results published in various periodicals,
including Barrons, Financial World, Forbes, Fortune, Investor's Business Daily,
Kiplinger's Personal Finance Magazine, Money, U.S. News and World Report and The
Wall Street Journal.
COUNSEL AND INDEPENDENT AUDITORS
Legal matters in connection with the Trust, including the issuance of shares of
beneficial interest of each Fund, are passed upon by Ropes & Gray, 1301 K Street
NW, Washington, D.C. 20005. McCurdy & Associates, CPAs, Inc., 27955 Clemens
Road, Westlake, Ohio 44145 have been selected as independent auditors for each
Fund.
OTHER INFORMATION
The investment adviser for each Fund is North Country Investment Advisers, Inc.,
a recently formed New York corporation which was registered as an investment
adviser with the SEC on _________, 2000. The Trust has filed a registration
statement under the Securities Act of 1933 and the 1940 Act with respect to the
shares offered. Such registrations do not imply approval or supervision of
either Fund or the Adviser by the SEC.
31
<PAGE>
For further information, please refer to the registration statement and exhibits
on file with the SEC in Washington, D.C. These documents are available upon
payment of a reproduction fee. Statements in the Prospectus and in this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
FINANCIAL STATEMENTS
The Trust's balance sheet as of December 19, 2000 is set forth below. It has
been audited by the Trust's independent auditors, McCurdy & Associates, CPAs,
Inc., whose report thereon is set forth below. The balance sheet is included
herein in reliance upon their authority as experts in accounting and auditing.
32
<PAGE>
To The Shareholders and Directors
The North Country Funds:
We have audited the accompanying statement of assets and liabilities of The
North Country Funds (comprised of The North Country Equity Growth Fund and The
North Country Intermediate Bond Fund) as of December 19, 2000. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. Our procedures included
confirmation of cash held by the custodian as of December 19, 2000, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of The North
Country Funds as of December 19, 2000, in conformity with generally accepted
accounting principles.
McCurdy and Associates, CPA's, Inc
/s/ McCurdy & Associates CPA's, Inc.
------------------------------------
Westlake, Ohio
December 19, 2000
33
<PAGE>
<TABLE>
<CAPTION>
NORTH COUNTRY FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 19, 2000
================================================================================
EQUITY INTERMEDIATE
GROWTH BOND
FUND FUND
-------- -------
ASSETS
<S> <C> <C>
Cash $ 80,000 $20,000
======== =======
NET ASSETS $ 80,000 $20,000
======== =======
Shares of common stock outstanding
(Unlimited shares authorized, no par value) 8,000 2,000
======== =======
Net asset value, offering price and
redemption price per share. $ 10.00 $ 10.00
======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
34
<PAGE>
NORTH COUNTRY FUNDS
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 19, 2000
================================================================================
1. ORGANIZATION:
-------------
The North Country Funds was organized as a Massachusetts business trust
("the Trust") formed on June 1, 2000, and registered with the Securities
and Exchange Commission as an open-end, management investment company on
September 11, 2000. The Trust is a no-load, diversified, open-end
management investment company. 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"). Each
series has, and each future series will have, its own investment objective,
policies and investment restrictions, each designed to meet different
investment needs. The Growth Fund's principal investment objective is to
provide investors with long-term capital appreciation. The Bond Fund's
principal investment objective is to provide investors with current income
and total return with minimum fluctuation of principal value. On December
19, 2000, 8,000 and 2,000 shares of the Growth Fund and the Bond Fund,
respectively, were issued for cash at a purchase price of $10.00 per share.
The Funds have had no operations except for the initial issuance of shares.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Portfolio securities are valued at the last sale price on the exchange or
the over-the-counter market in which such securities are primarily traded,
or lacking any sales, the last available bid price. Foreign securities are
valued on the basis of market quotations from the primarily market in which
they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates. Certain short-term securities are
valued on the basis of amortized cost. Securities for which current market
quotations are not readily available are valued at fair value as determined
in good faith by and under the direction of the Fund's Board of Trustees.
Security transactions are recorded on trade date. Dividend income is
recognized on the ex-dividend date and interest income is recognized on the
accrual basis.
The Funds intents to comply with the provisions of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its net investment income and net realized capital
gains in order to relieve the Funds from all federal income taxes.
Expenses incurred in connection with the organization of the Funds and the
initial offering of shares will be permanently absorbed by North Country
Investment Adviser, Inc. (the "Adviser").
3. ADVISORY, TRANSFER AGENCY, DISTRIBUTION AND ADMINISTRATION:
-----------------------------------------------------------
The Funds have entered into an Investment Advisory Agreement with North
Country Investment Advisers, Inc. (the Adviser). The Adviser is responsible
for formulating the Funds' investment program, making day-to-day investment
decisions and engaging in portfolio transactions, subject to the authority
of the Board of Trustees. The Adviser also furnishes corporate offices,
provides office space, services and equipment and supervises all matters
relating to the Funds' operations. For its services, the Adviser will
receive an advisory fee calculated at an annual rate of 0.75% and 0.50% of
the average daily value of the net assets of Growth Fund and Bond Fund,
respectively.
The Funds have entered into an Administration and Transfer Agency Agreement
with American Data Services, Inc. Fees for these services will be paid on a
monthly basis.
35
<PAGE>
NORTH COUNTRY FUNDS
NOTES TO STATEMENT OF ASSETS & LIABILITIES
DECEMBER 19, 2000
(CONTINUED)
================================================================================
The Funds have entered into a Distribution Agreement with Amerimutual Funds
Distributors, Inc. which is an affiliate of the Administrator.
4. RELATED PARTY TRANSACTIONS
--------------------------
Certain officers and/or directors of North Country Advisers, Inc. and
American Data Services, Inc. are also officers/directors of the Fund.
5. CONTROL PERSONS
---------------
As of December 19, 2000, all of the outstanding shares of both funds were
owned by Arrow Financial Corporation. A shareholder who beneficially owns,
directly or indirectly, more than 25% of the fund's voting securities may
be deemed a "control person" (as defined in the 1940 Act) of the Fund.
6. CAPITAL STOCK DISTRIBUTIONS
---------------------------
At December 19, 2000 the authorized capitalization of the Funds consists of
unlimited shares without par value per share. Each share has equal
dividend, distribution and liquidation rights. There are no conversion,
subscription or preemptive rights applicable to any shares of the Funds.
All shares issued are fully paid and non-assessable. Each holder of common
stock has one vote for each share held. There are no restrictions on the
right of shareholders to retain or dispose of their shares. Voting rights
are non-cumulative. Transactions in capital stock were as follows:
Shares Sold:
North Country Equity Growth Fund 8,000
North Country Intermediate Bond Fund 2,000
Shares Redeemed:
North Country Equity Growth Fund 0
North Country Intermediate Bond Fund 0
Net Increase:
North Country Equity Growth Fund 8,000
North Country Intermediate Bond Fund 2,000
Shares Outstanding:
North Country Equity Growth Fund 8,000
North Country Intermediate Bond Fund 2,000
36
<PAGE>
APPENDIX A
SECURITY RATINGS
The following rating services describe rated securities as follows:
MOODY'S INVESTORS SERVICE, INC.
BONDS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
STANDARD & POOR'S
BONDS
AAA--Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
37
<PAGE>
AA--Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated 'A' has a strong capacity to pay interest and repay principal
although somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB-B-CCC-CC-C--Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree of speculation and 'C' the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB--Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B--Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC--Debt rated 'CCC' has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.
DUFF & PHELPS CORPORATION
LONG-TERM DEBT
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
38
<PAGE>
A+, A, A-Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB+, BBB, BBB--Below-average protection factors but still considered sufficient
for prudent investment. Considerable variability in risk during economic cycles.
BB+, BB, BB-Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B, B-Below investment grade and possessing risk that obligations will not be
met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.
CCC--Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
39
<PAGE>
APPENDIX B
GLENS FALLS NATIONAL BANK AND TRUST CO.
SPECIAL FIXED INCOME FUND #1
----------------------------
Independent Auditors' Report
Financial Statements and Supplementary
Information - December 31, 1999
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
----------------------------
Table of Contents
PAGE
Independent Auditors' Report 1
EXHIBIT
Statement of Net Assets.............................. A 2
Statement of Investments............................. B 3-5
Statement of Operations.............................. C 6
Statement of Changes in Net Assets................... D 7
Notes to Financial Statements 8-9
SCHEDULE
Investments Purchased................................ 1 10
Investments Sold or Matured.......................... 2 11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trust Committee
Glens Falls National Bank and Trust Company:
We have audited the accompanying statement of net assets of the Special
Fixed Income Fund #1 of Glens Falls National Bank and Trust Company, including
the statement of investments as of December 31, 1999, and the related statements
of operations and changes in net assets for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets of the Special Fixed Income
Fund #1 of Glens Falls National Bank and Trust Company as of December 31, 1999,
and the results of its operations and changes in net assets for the year then
ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedules 1 and 2 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ EDWARDS, WILLIAMS, McMANUS
AND RICCIARDELLI
------------------------------
EDWARDS, WILLIAMS, McMANUS
AND RICCIARDELLI, P.C.
March 8, 2000
Glens Falls, New York
-1-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
----------------------------
Statement of Net Assets
December 31, 1999
MARKET
ASSETS COST VALUE
------ ---- ------
Investments:
<S> <C> <C>
Cash and cash equivalents $ 742,625 742,625
U.S. Government obligations 3,059,755 2,977,159
Corporate bonds 7,168,765 7,058,034
----------- -----------
$10,971,145 10,777,818
===========
Interest and dividends receivable 165,582
Receivable for fund units sold 13,192
-----------
Net assets (equivalent to $22.133995 per unit
based on 495,012 units outstanding) $10,956,592
===========
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
-2-
<PAGE>
EXHIBIT B
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
----------------------------
Statement of Investments
December 31, 1999
NUMBER OF MARKET
UNITS OR FACE VALUE COST VALUE
------------------- -------- --------
U.S. GOVERNMENT OBLIGATIONS (27.62%)
-----------------------------------
FEDERAL AGENCIES (9.85%)
400,000 Federal National Mtg. Assn., 6.5% 11/22/04 $ 400,000 389,676
300,000 Federal Home Loan Mtg. 7.225%, 5/17/05 300,003 295,782
400,000 Federal National Mtg. Assn., 6.42%, 3/9/09 400,002 375,756
---------- ----------
Total Federal Agencies 1,100,005 1,061,214
---------- ----------
U.S. GOVERNMENT MORTGAGE POOLS (6.25%)
328,464 Federal Home Loan Mortgage, 6.5%,11/01/08 335,038 321,813
448 Federal Home Loan Mortgage, 9%, 5/01/01 447 453
1,772 Federal Home Loan Mortgage, 8.5%, 10/01/01 1,763 1,796
345,499 Federal National Mtg. Assn., 6.5%, 11/01/08 351,982 338,693
763 GNMA Pass Thru, 10%, 02/15/01 766 781
9,390 GNMA Pass Thru, 11%, 11/15/15 9,462 10,345
---------- ----------
Total U.S. Government Mortgage Pools 699,458 673,881
---------- ----------
U.S. TREASURY NOTES (11.52%)
200,000 U.S. Treasury Notes, 6.255%, 10/31/01 200,163 200,000
300,000 U.S. Treasury Notes, 6.375%, 08/15/02 312,523 300,564
300,000 U.S. Treasury Notes, 5.75%, 08/15/03 300,710 293,718
100,000 U.S. Treasury Notes, 5.875%, 02/15/04 97,007 98,344
150,000 U.S. Treasury Notes, 6.5%, 08/15/05 150,288 150,000
200,000 U.S. Treasury Notes, 6.5%, 10/15/06 199,601 199,438
---------- ----------
Total U.S. Treasury Notes 1,260,292 1,242,064
---------- ----------
Total U.S. Government Obligations $3,059,755 2,977,159
========== ==========
-3-
<PAGE>
EXHIBIT B (CONT'D)
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
----------------------------
Statement of Investments
December 31, 1999
NUMBER OF MARKET
UNITS OR FACE VALUE COST VALUE
------------------- ------- --------
CORPORATE BONDS (65.48%)
200,000 Alcan Aluminum Ltd., 5.875%, 04/01/00 201,269 199,850
400,000 Aluminum Co. Of America, 5,75%, 02/01/01 400,442 396,264
200,000 American General Finance, 6.75%, 11/15/04 198,998 194,956
250,000 Associates Corp. of NA, 6.5%, 08/15/02 247,667 247,018
100,000 Bear Stearns Co., 8.75%, 03/15/04 107,502 104,330
300,000 CNA Financial, 6.25%, 11/15/03 295,852 285,522
300,000 Citigroup Inc., 6.125%, 06/15/00 298,044 299,478
200,000 Ford Motor Co., 9%, 09/15/01 200,007 206,630
150,000 Ford Motor Credit Co., 6.125%, 04/28/03 150,019 145,479
40,000 GMAC, 7.125%, 05/01/03 39,797 39,862
360,000 GMAC Med. Term Nts., 6.625%, 01/09/04 368,957 352,354
300,000 G.T.E. of California, 6.75%, 03/15/04 287,254 295,755
200,000 G.T.E. Northwest Inc., 7.375%, 05/01/01 201,312 200,906
300,000 Heller Financial, 5.625%, 03/15/00 298,790 299,577
300,000 J.C. Penney, 6.375%, 09/15/00 297,101 297,036
200,000 Lehman Bros. Hldgs. Inc. Nts, 8.875%, 03/01/02 198,373 205,920
200,000 Lehman Bros. Hldgs. Inc. Nts., 7%, 05/15/03 199,046 197,176
70,000 Merrill Lynch & Co., 6.5%, 04/01/01 69,305 69,573
200,000 McDonnel Douglas Corp., 6.875%, 11/01/06 201,061 193,156
300,000 Nations Bank Corp Sr. Nts, 5.375%, 04/15/00 296,880 299,265
200,000 Nations Bank Corp., 7%, 05/15/03 201,055 199,374
100,000 Philip Morris Co. Nts, 7.125%, 08/15/02 99,266 98,381
300,000 Salomon Inc., 6.625%, 07/01/02 301,575 297,132
500,000 Salomon Inc., 6.25%, 06/15/05 503,737 470,730
300,000 Seagrams Co. Ltd., 6.5%, 04/01/03 303,080 291,906
300,000 Sears Roebuck Acceptance Corp. 6.95%, 05/15/02 299,429 296,469
395,000 Southern California Edison, 6.375%, 01/15/06 400,636 375,384
400,000 Transamerica Financial, 6.48%, 03/15/01 402,640 397,056
100,000 Wal-Mart Stores Inc., 9.1%, 07/15/00 99,671 101,495
--------- ---------
Total Corporate Bonds 7,168,765 7,058,034
--------- ---------
-4-
<PAGE>
EXHIBIT B (CONT'D)
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
----------------------------
December 31, 1999
NUMBER OF Market
UNITS OR FACE VALUE COST VALUE
------------------- --------- ----------
CASH EQUIVALENTS (6.90%)
742,625 Provident Temp Fund 742,625 742,625
---------- ----------
Total Cash Equivalents 742,625 742,625
---------- ----------
Total Investments $ 10,971,145 10,777,818
============ ==========
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
-5-
<PAGE>
EXHIBIT C
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
----------------------------
Statement of Operations
Year ended December 31, 1999
Net investment income:
Interest and dividends $ 644,989
Audit fee (4,200)
-----------
Net investment income 640,789
-----------
Realized gains and unrealized appreciation on investments:
Realized gains from investment transactions (Schedule 2):
Proceeds from sales $ 4,982,412
Cost of investments sold 4,960,979
-----------
Net realized gains 21,433
-----------
Unrealized appreciation of
investments:
Appreciation beginning of year 268,745
Depreciation end of year (193,326)
-----------
Unrealized depreciation during the year (462,071)
-----------
Net realized gains and unrealized
depreciation on investments (440,638)
-----------
Net increase from operations $ 200,151
===========
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
-6-
<PAGE>
Exhibit D
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
----------------------------
Statement of Changes in Net Assets
Year ended December 31, 1999
From operations:
Net investment income for the year $ 640,789
Net realized gains from investment transactions 21,433
Unrealized depreciation during the year (462,071)
------------
Increase in net assets derived from operations 200,151
------------
From unit transactions:
Net proceeds from sale of units (105,680 units) 2,310,618
Distributions for redemption of units (39,638 units) (867,531)
------------
Increase in net assets derived from
unit transactions 1,443,087
------------
Net increase in net assets 1,643,238
Net assets:
Beginning of year 9,313,354
------------
End of year $ 10,956,592
============
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
</TABLE>
-7-
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
----------------------------
Notes to Financial Statements
December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION:
----------------------------------------------------------------------
The Special Fixed Income Fund was established by the Bank for the collective
investment of funds in order to provide diversification of investments for
qualified pension, profit sharing trusts, and HR-10 plans. The following is
a summary of significant accounting policies, which are in conformity with
generally accepted accounting principles and the Trust for the plan:
INVESTMENT SECURITY VALUATION - Securities for which there have been sales
on recognized exchanges on the valuation date are valued at their last
sales prices on the valuation date. Securities for which there have been no
such sales are valued at the bid quotations for the valuation date.
FEDERAL INCOME TAXES - The fund is exempt from Federal income tax.
INVESTMENT SECURITY TRANSACTIONS AND INVESTMENT INCOME - Purchases and
sales are accounted for on the trade date. Dividend and interest income is
reported as earned. Cost of securities sold is determined by the identified
certificate method.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of principal
cash and money market funds.
UNIT SALES AND REDEMPTIONS - The net asset value of the fund is determined
semi-monthly at the middle and end of each month. Units are sold and
redeemed only at that time, at the mid-month and month end net asset value.
INCOME - The net investment income of the fund may be accumulated and
invested in the fund or may be distributed to participants, provided
however, that all participants are treated on a like basis. Currently, the
net investment income, realized and unrealized security gains and losses
are accumulated and invested in the fund.
EXPENSES - The trustee may charge the principal portion of the fund for
reasonable expenses incurred in administering the fund, including the cost
of annual audits.
DECLARATION OF TRUST - The Company maintains a Collective Trust for
qualified pension, profit sharing or other plans described in Section
401(a) of the Internal Revenue Code. The assets of the Collective Trust are
held in two separate Collective Investment Funds: the "Special Equity Fund"
and the "Fixed Income Fund". These Funds are reported as two separate
Collective Investment Funds operating under one Collective Trust Agreement.
-8-
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
----------------------------
Notes to Financial Statements
December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION,
CONTINUED: ACCOUNTING ESTIMATES - The preparation of financial statements
in accordance with 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 amount of income and expense during the reporting period. Actual
results could differ from those estimates.
(2) RELATED PARTY HOLDINGS AND TRANSACTIONS:
--------------------------------------------
The Bank's parent company, Arrow Financial Corporation, has invested funds
from their employee stock ownership plan into this Special Fixed Income
Fund. As of December 31, 1999 the Arrow Financial Corporation Employee
Stock Ownership Plan held 11,542 units. The Employee Stock Ownership Plan
did not purchase or sell any units during the year ended December 31, 1999.
-9-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
----------------------------
Investments Purchased
Year ended December 31, 1999
NUMBER OF
UNITS OR
FACE VALUE COST
------------ ------------
CASH EQUIVALENTS
<C> <S> <C>
3,989,808 Provident Temp Fund $ 3,989,808
U. S. GOVERNMENT OBLIGATION
GOVERNMENT MORTGAGE POOLS
400,000 Federal National Mtg. Assn., 6.42%, 03/09/09 400,002
CORPORATE BONDS
200,000 American General Finance, 6.75%, 11/15/04 198,998
250,000 Associates Corp. of NA, 6.5%, 08/15/02 247,667
150,000 Ford Motor Credit, 6.125%, 04/28/03 150,019
360,000 GMAC Med. Term Nts., 6.625%, 01/09/04 368,957
200,000 Lehman Bros. Hldgs., 7%, 05/15/03 199,046
200,000 McDonnel Douglas Corp., 6.875%, 11/01/06 201,061
200,000 Nations Bank Corp., 7%, 05/15/03 201,055
300,000 Salomon Inc., 6.625%, 07/01/02 301,575
500,000 Salomon Inc., 6.25%, 06/15/05 503,737
395,000 Southern California Edison, 6.375%, 01/15/06 400,636
----------
Total Investments Purchased $7,162,561
==========
-10-
<PAGE>
SCHEDULE 2
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
----------------------------
Investments Sold or Matured
Year ended December 31, 1999
NUMBER OF
UNITS OR GAIN
FACE VALUE COST PROCEEDS (LOSS)
---------- ---- -------- ------
CASH EQUIVALENTS
3,538,301 Provident Temp Fund $3,538,301 3,538,301 --
U.S. GOVERNMENT OBLIGATIONS
U.S. TREASURY NOTES
300,000 U.S. Treasury Notes, 7.125%, 09/30/99 299,382 300,000 618
200,000 U.S. Treasury Notes, 8.875%, 02/15/99 196,293 200,000 3,707
U.S. GOVERNMENT MORTGAGE POOLS
75,655 Federal Home Loan Mtg., 9%, 04/01/01 77,169 75,655 (1,514)
1,456 Federal Home Loan Mtg., 9%, 05/01/01 1,450 1,456 6
1,534 Federal Home Loan Mtg., 8.5%, 10/01/01 1,525 1,534 9
63,750 Federal Nat'l., Mtg. Assn., 6.5%, 11/01/08 64,946 63,750 (1,196)
1,514 Gov't. Nat'l Mtg. Assn., 10%, 02/15/01 1,518 1,514 (4)
202 Gov't. Nat'l. Mtg. Assn., 11%, 11/15/15 204 202 (2)
CORPORATE BONDS
300,000 MCI Communications, 6.25%, 03/23/99 298,975 300,000 1,025
100,000 Pennsylvania Electric, 7.43%, 07/15/02 100,004 100,000 (4)
400,000 Pennsylvania Electric, 6.7%, 10/13/05 381,212 400,000 18,788
---------- ---------- ----------
Total Investments Sold or Matured $4,960,979 4,982,412 21,433
========== ========== ==========
</TABLE>
-11-
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST CO.
SPECIAL EQUITY FUND #1
----------------------
Independent Auditors' Report
Financial Statements and Supplementary
Information - December 31, 1999
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Table of Contents
PAGE
Independent Auditors' Report 1
EXHIBIT
Statement of Net Assets........................ A 2
Statement of Investments....................... B 3-8
Statement of Operations........................ C 9
Statement of Changes in Net Assets............. D 10
Notes to Financial Statements 11-12
SCHEDULE
Investments Purchased.......................... 1 13
Investments Sold .............................. 2 14
<PAGE>
--------------------------
EDWARDS, WILLIAMS, MCMANUS
AND RICCIARDELLI, P.C.
--------------------------
CERTIFIED PUBLIC ACCOUNTANTS
82 GLENWOOD AVE., P.O. BOX 599, GLENS FALLS, NY 12801-0599
PHONE: 518-792-0926 FAX #: 518-792-3644
INDEPENDENT AUDITORS' REPORT
To the Trust Committee
Glens Falls National Bank and Trust Company:
We have audited the accompanying statement of net assets of the Special
Equity Fund #1 of Glens Falls National Bank and Trust Company, including the
statement of investments as of December 31, 1999, and the related statements of
operations and changes in net assets for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets of the Special Equity Fund #1
of Glens Falls National Bank and Trust Company as of December 31, 1999, and the
results of its operations and changes in net assets for the year then ended in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedules 1 and 2 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ EDWARDS, WILLIAMS, McMANUS
AND RICCIARDELLI, P.C.
--------------------------------
EDWARDS, WILLIAMS, McMANUS
AND RICCIARDELLI, P.C.
March 8, 2000
Glens Falls, New York
-1-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Net Assets
December 31, 1999
MARKET
ASSETS COST VALUE
------ ---- -------
Investments:
<S> <C> <C>
Cash and cash equivalents $ 333,476 333,476
Common stocks 19,765,054 42,636,604
----------- -----------
$20,098,530 42,970,080
===========
Interest and dividends receivable $ 26,420
Receivable for fund units sold 53,761
-----------
43,050,261
-----------
LIABILITIES
Payable for fund units redeemed 200,010
-----------
Net assets (equivalent to $127.3951 per unit
based on 336,357 units outstanding) $42,850,251
===========
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
-2-
<PAGE>
EXHIBIT B
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Investments
December 31, 1999
NUMBER OF SHARES
OR FACE VALUE COST MARKET VALUE
----------------- --------- --------------
COMMON STOCK
ELECTRICAL EQUIPMENT (3.13%)
8,000 General Electric Co. $ 112,324 1,238,000
---------- ---------
Total Electrical Equipment 112,324 1,238,000
---------- ---------
MANUFACTURING/DIVERSIFIED (4.31%)
19,000 Dover Corp. 801,907 862,125
25,400 Tyco International Ltd. 896,896 990,600
---------- ----------
Total Manufacturing/Diversified 1,698,803 1,852,725
---------- ----------
AUTO/TRUCK/BUSES (2.89%)
19,400 Harley Davidson Inc. 293,253 1,242,813
---------- ----------
Total Auto/Truck/Buses 293,253 1,242,813
---------- ----------
RETAIL SPECIALTY (8.13%)
27,000 GAP, Inc. 247,669 1,242,000
15,000 Home Depot 250,628 1,546,875
34,050 Staples, Inc. 628,384 706,538
---------- ----------
Total Retail Specialty 1,126,681 3,495,413
---------- ----------
ENTERTAINMENT/LEISURE (2.04%)
30,000 Walt Disney Corp. 939,514 877,500
---------- ----------
Total Entertainment/Leisure 939,514 877,500
---------- ----------
-3-
<PAGE>
EXHIBIT B, CONTINUED
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Investments
December 31, 1999
NUMBER OF SHARES
OR FACE VALUE COST MARKET VALUE
----------------- --------- -------------
BEVERAGES (1.72%)
21,000 PepsiCo Inc. $ 269,215 740,250
---------- ----------
Total Beverages 269,215 740,250
---------- ----------
FOODS (2.08%)
17,000 BestFoods, Inc. 499,398 893,562
---------- ----------
Total Foods 499,398 893,562
--------- ----------
FOOD RETAIL/WHOLESALE (1.35%)
18,000 Albertson's Inc. 987,327 580,500
---------- ----------
Total Food Retail/Wholesale 987,327 580,500
---------- ----------
HOUSEHOLD/CONSUMER PRODUCTS (2.98%)
10,000 Procter & Gamble Co. 130,465 1,095,625
---------- ---------
Total Household/Consumer Products 130,465 1,095,625
---------- ---------
OIL INTEGRATED DOMESTIC (2.56%)
18,526 Amoco Corp. 392,334 1,098,823
---------- ---------
Total Oil Integrated Domestic 392,334 1,098,823
---------- ---------
OIL INTEGRATED INTERNATIONAL (3.63%)
6,500 Chevron Corp. 550,491 563,063
12,409 Mobil Corp. 492,856 999,700
---------- ----------
Total Oil Integrated International 1,043,347 1,562,763
---------- ----------
-4-
<PAGE>
EXHIBIT B, CONTINUED
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Investments
December 31, 1999
NUMBER OF SHARES
OR FACE VALUE COST MARKET VALUE
----------------- ------- -------------
OIL SERVICE & DRILLING (1.17%)
9,000 Schlumberger Ltd. $ 687,142 505,125
---------- ----------
Total Oil Service & Drilling 687,142 505,125
---------- ----------
BANKS-REGIONAL (2.65%)
10,000 Fifth Third Bancorp. 630,635 733,750
10,000 Wells Fargo & Co. 365,943 404,375
---------- ----------
Total Banks-Regional 996,578 1,138,125
---------- ----------
BROKERAGE & INVESTMENT (4.65%)
27,000 Charles Schwab Co. 110,279 1,032,750
---------- ----------
Total Brokerage & Investment 110,279 1,032,750
---------- ----------
FINANCIAL SERVICES (2.00%)
15,400 Citigroup, Inc. 600,309 857,587
---------- ----------
Total Financial Services 600,309 857,587
---------- ----------
INSURANCE (3.23%)
8,750 American International Group 184,647 946,094
10,000 Hartford Life Inc. 539,347 440,000
---------- ----------
Total Insurance 723,994 1,386,094
---------- ----------
REAL ESTATE/MORTGAGE (2.18%)
15,000 Federal Nat'l Mortgage Assn. 460,163 936,562
---------- ----------
Total Real Estate/Mortgage 460,163 936,562
---------- ----------
-5-
<PAGE>
EXHIBIT B, CONTINUED
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Investments
December 31, 1999
NUMBER OF SHARES
OR FACE VALUE COST MARKET VALUE
----------------- -------- -------------
DRUGS (7.44%)
20,000 Bristol Myers Squibb $ 424,641 1,283,750
14,000 Merck & Co. 110,774 940,625
30,000 Pfizer, Inc. 726,840 973,125
------------ ----------
Total Drugs 1,262,255 3,197,500
------------ ----------
HOSPITAL SUPPLIES (1.91%)
8,800 Johnson & Johnson 389,919 820,600
------------ ----------
Total Hospital Supplies 389,919 820,600
------------ ----------
MEDICAL TECHNOLOGY (2.12%)
25,000 Medtronic, Inc. 932,551 910,937
------------ ----------
Total Medical Technology 932,551 910,937
------------ ----------
CHEMICAL (1.10%)
7,200 E.I. Dupont Denemours 247,943 474,300
------------ ----------
Total Chemical 247,943 474,300
------------ ----------
CHEMICAL SPECIALTY (1.76%)
15,000 Praxair Inc. 723,125 754,687
------------ ----------
Total Chemical Specialty 723,125 754,687
------------ ----------
METALS/INDUSTRIAL COMMODITIES (2.28%)
11,800 Aluminum Co. of America 376,129 979,400
------------ ----------
Total Metals/Industrial Commodities 376,129 754,687
------------ ----------
-6-
<PAGE>
EXHIBIT B, CONTINUED
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Investments
December 31, 1999
NUMBER OF SHARES
OR FACE VALUE COST MARKET VALUE
----------------- --------- -------------
ELECTRONICS/SEMICONDUCTORS (2.71%)
15,000 EMC Corp. $ 724,697 1,638,750
14,000 Intel Corp. 512,384 1,152,375
------------ ----------
Total Electronics/Semiconductors 1,237,081 2,791,125
------------ ----------
OFFICE & BUSINESS EQUIPMENT (8.16%)
20,000 Cisco Systems 332,781 2,142,500
12,000 Hewlett Packard Co. 417,635 1,365,000
------------ ----------
Total Office & Business Equipment 750,416 3,507,500
------------ ----------
SOFTWARE (12.00%)
23,600 Automatic Data Processing 433,961 1,271,450
18,000 Microsoft Corp. 106,565 2,101,500
15,900 Oracle 459,397 1,781,794
------------ ----------
Total Software 999,923 5,154,744
------------ ----------
TELECOMMUNICATION EQUIPMENT (2.45%)
14,000 Lucent Technologies Inc. 165,172 1,050,000
------------ ----------
Total Telecommunications Equipment 165,172 1,050,000
------------ ----------
TELECOMMUNICATIONS (0.92%)
5,000 MCI Worldcom 433,130 397,969
------------ -----------
Total Telecommunications 433,130 397,969
------------ ----------
-7-
<PAGE>
EXHIBIT B, CONTINUED
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Investments
December 31, 1999
NUMBER OF SHARES
OR FACE VALUE COST MARKET VALUE
----------------- -------- ------------
TELEPHONES (2.40%)
22,000 BellSouth Corp. $ 464,151 1,029,875
------------- ---------
Total Telephones 464,151 1,029,875
------------- ---------
ELECTRIC (1.17%)
10,000 Duke Energy Corp. 475,752 501,250
------------- ---------
Total Electric 475,752 501,250
------------- ---------
GAS (1.25%)
12,000 Enron Corp. 236,381 532,500
------------- ---------
Total Gas 236,381 532,500
------------- ---------
CASH EQUIVALENTS (0.78%)
333,476 Provident Temp Fund 333,476 333,476
------------- ---------
Total Cash Equivalents 333,476 333,476
------------- ---------
Total Investments $ 20,098,530 42,970,080
============= ===========
</TABLE>
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
-8-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT C
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Operations
Year ended December 31, 1999
Net investment income:
<S> <C>
Dividends $ 400,843
Audit fee (4,200)
------------
Net investment income 396,643
------------
Realized gains and unrealized appreciation
on investments:
Realized gains from investment
transactions (Schedule 2):
Proceeds from sales $ 11,107,659
Cost of investments sold 8,995,972
------------
Net realized gains 2,111,687
Unrealized appreciation
of investments:
Appreciation, beginning of year 16,765,066
Appreciation, end of year 22,871,550
------------
Unrealized appreciation during the year 6,106,484
------------
Net realized gains and unrealized
appreciation on investments 8,218,171
------------
Net increase from operations $ 8,614,814
============
</TABLE>
The accompanying notes and auditors' report should be read in conjunction with
these financial reports.
-9-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT D
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Changes in Net Assets
Year ended December 31, 1999
1999
----
From operations:
<S> <C>
Net investment income for the year $ 396,643
Net realized gains from investment transactions 2,111,687
Unrealized appreciation during the year 6,106,484
------------
Increase in net assets derived from operations 8,614,814
------------
From unit transactions:
Net proceeds from sale of units (51,763 units) 5,590,280
Distributions for redemption of units (21,934 units) (2,485,482)
------------
Increase in net assets derived from
unit transactions 3,104,798
------------
Net increase in net assets 11,719,612
Net assets:
Beginning of year 31,130,639
------------
End of year $ 42,850,251
============
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
</TABLE>
-10-
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Notes to Financial Statements
December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION:
---------------------------------------------------------------------
The Special Equity Fund was established by the Bank for the collective
investment of funds in order to provide diversification of investments
for qualified individual pension, profit sharing trusts, and HR-10
plans. The following is a summary of significant accounting policies,
which are in conformity with generally accepted accounting principles
and the Trust for the plan:
INVESTMENT SECURITY VALUATION - Investments in securities traded on a
national securities exchange are valued at the last reported sales price on
the valuation date. Securities traded in the over-the- counter market and
listed securities for which no sale was reported on that date are valued at
the mean between the last reported bid and asked prices.
FEDERAL INCOME TAXES - The fund is exempt from Federal income tax.
INVESTMENT SECURITY TRANSACTIONS AND INVESTMENT INCOME - Purchases and
sales are accounted for on the trade date. Dividend income is recorded on
the ex-dividend date. Interest income is reported as earned. Cost of
securities sold is determined by the identified certificate method.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of principal
cash and money market funds.
UNIT SALES AND REDEMPTIONS - The net asset value of the fund is determined
semi-monthly at the middle and end of each month. Units are sold and
redeemed only at that time, at the mid-month and month end net asset value.
INCOME - The net investment income of the Fund may be accumulated and
invested in the Fund or may be distributed to participants, provided
however, that all participants are treated on a like basis. Currently, the
net investment income, realized and unrealized security gains and losses
are accumulated and invested in the Fund.
EXPENSES - The trustee may charge the Fund for reasonable expenses incurred
by it in administering the Fund, including the cost of annual audits.
DECLARATION OF TRUST - The Company maintains a collective trust for
qualified pension, profit sharing or other plans described in Section
401(a) of the Internal Revenue Code. The assets of the collective trust are
held in two separate investment funds: The "Special Equity Fund" and the
"Fixed Income Fund". These funds are reported as two separate collective
investment funds operating under one collective trust agreement.
-11-
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND
Notes to Financial Statements, Continued
December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION,
CONTINUED: ACCOUNTING ESTIMATES - The preparation of financial statements
in accordance with 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 amount of income and expense during the reporting period. Actual
results could differ from those estimates.
(2) RELATED PARTY HOLDINGS AND TRANSACTIONS:
--------------------------------------------
The Bank's parent company, Arrow Financial Corporation, has invested funds
from their employee stock ownership plan into this Special Equity Fund. As
of December 31, 1999, the Arrow Financial Corporation Employee Stock
Ownership Plan held 3,872 units. The Employee Stock Ownership Plan had no
unit transactions during the year ended December 31, 1999.
-12-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Investments Purchased
Year ended December 31, 1999
NUMBER OF SHARES
OR FACE VALUE COST
----------------- ----------
CASH EQUIVALENTS
<C> <S> <C>
5,918,337 Provident Temp Fund $ 5,918,337
COMMON STOCK
18,000 Albertson's, Inc. 987,327
5,000 American Home Products 262,949
3,000 Bestfoods Inc. 145,880
11,600 Citigroup Inc. 600,309
30,500 Walt Disney Co. 939,514
19,000 Dover Corp. 801,907
9,000 EMC Corp. 724,697
10,000 Fifth Third Bancorp. 630,634
4,000 Hewlett Packard 320,005
5,000 MCI Worldcom 433,130
15,000 Medtronic 932,551
16,100 Oracle 574,969
9,000 Pfizer 306,072
15,000 Praxair 723,125
17,700 Tyco Ltd. 896,895
-------------
Total Investments Purchased $ 15,198,301
-13-
<PAGE>
SCHEDULE 2
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Investments Sold
Year ended December 31, 1999
NUMBER OF SHARES TOTAL GAIN
OR FACE VALUE COST PROCEEDS (LOSS)
----------------- ---- -------- ------
CASH EQUIVALENTS
5,749,913 Provident Temp Fund $ 5,749,913 5,749,913 --
COMMON STOCK
8,000 Air Products & Chemicals, Inc. 213,748 271,486 57,738
10,000 American Home Products 528,267 415,607 (112,660)
2,000 American International Group 52,756 238,362 185,606
0.333 BP Amoco 14 29 15
11,000 Bank One 382,598 436,544 53,946
7,000 Cisco Systems 116,473 657,312 540,839
16,000 Dover Corp. 553,145 559,417 6,272
0.41 Exxon Mobil 16 33 17
1,400 General Electric 19,657 202,453 182,796
5,000 Harley Davidson 75,581 306,860 231,279
3,200 Home Depot 53,467 276,456 222,989
3,000 Lucent Technologies 70,788 345,734 274,946
1,000 Microsoft 5,920 90,367 84,447
4,000 Oracle 115,572 190,489 64,917
11,850 Charles Schwab 96,801 800,523 703,722
22,900 Service Corp. International 714,500 364,096 (350,404)
8,500 Sherwin-Williams 246,756 211,978 (34,778)
----------- ----------- -----------
Total Investments Sold $ 8,995,972 11,107,659 2,111,687
=========== =========== ===========
</TABLE>
-14-
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST CO.
SPECIAL FIXED INCOME FUND #1
Independent Auditors' Report
Financial Statements and Supplementary
Information - December 31, 1998
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
Table of Contents
PAGE
Independent Auditors' Report 1
EXHIBIT
Statement of Net Assets.............................. A 2
Statement of Investments............................. B 3-4
Statement of Operations.............................. C 5
Statement of Changes in Net Assets................... D 6
Notes to Financial Statements 7-8
SCHEDULE
Investments Purchased................................ 1 9
Investments Sold or Matured.......................... 2 10
<PAGE>
--------------------------
EDWARDS, WILLIAMS, MCMANUS
AND RICCIARDELLI, P.C.
--------------------------
CERTIFIED PUBLIC ACCOUNTANTS
82 GLENWOOD AVE., P.O. BOX 599, GLENS FALLS, NY 12801-0599
PHONE: 518-792-0926 FAX #: 518-792-3644
INDEPENDENT AUDITORS' REPORT
To the Trust Committee
Glens Falls National Bank and Trust Company:
We have audited the accompanying statement of net assets of the Special
Fixed Income Fund #1 of Glens Falls National Bank and Trust Company, including
the statement of investments as of December 31, 1998, and the related statements
of operations and changes in net assets for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets of the Special Fixed Income
Fund #1 of Glens Falls National Bank and Trust Company as of December 31, 1999,
and the results of its operations and changes in net assets for the year then
ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedules 1 and 2 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ EDWARDS, WILLIAMS, McMANUS
AND RICCIARDELLI, P.C.
------------------------------
EDWARDS, WILLIAMS, McMANUS
AND RICCIARDELLI, P.C.
March 9, 1999
Glens Falls, New York
-1-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
Statement of Net Assets
December 31, 1998
MARKET
ASSETS COST VALUE
------ ---- ------
Investments:
<S> <C> <C>
Cash and cash equivalents $ 291,117 291,117
U.S. Government obligations 3,302,239 3,398,830
Corporate bonds 5,176,205 5,348,359
----------- -----------
$ 8,769,561 9,038,306
===========
Interest and dividends receivable 140,557
Receivable for fund units sold 146,020
-----------
9,324,883
LIABILITIES
-----------
Payable for fund units redeemed 11,529
-----------
Net assets (equivalent to $21.710968 per unit
based on 428,970 units outstanding) $ 9,313,354
===========
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
-2-
<PAGE>
EXHIBIT B
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
Statement of Investments
December 31, 1998
NUMBER OF MARKET
UNITS OR FACE VALUE COST VALUE
------------------- -------- --------
U.S. GOVERNMENT OBLIGATIONS (37.60%)
-----------------------------------
FEDERAL AGENCIES (7.94%)
400,000 Federal National Mtg. Assn., 6.5% 11/22/04 $ 400,000 409,256
300,000 Federal Home Loan Mtg. 7.225%, 5/17/05 300,003 307,968
---------- ----------
Total Federal Agencies 700,003 717,224
---------- ----------
U.S. GOVERNMENT MORTGAGE POOLS (9.35%)
404,119 Federal Home Loan Mortgage, 6.5%,11/01/08 412,207 410,686
1,360 Federal Home Loan Mortgage, 9%, 5/01/01 1,355 1,402
3,851 Federal Home Loan Mortgage, 8.5%, 10/01/01 3,830 3,957
409,249 Federal National Mtg. Assn., 6.5%, 11/01/08 416,927 415,899
2,277 GNMA Pass Thru, 10%, 02/15/01 2,284 2,376
9,593 GNMA Pass Thru, 11%, 11/15/15 9,666 10,817
---------- ----------
Total U.S. Government Mortgage Pools 846,269 845,137
---------- ----------
U.S. TREASURY NOTES (20.31%)
200,000 U.S. Treasury Notes, 8.875%, 02/15/99 196,293 200,938
300,000 U.S. Treasury Notes, 7.125%, 09/30/99 299,382 305,343
200,000 U.S. Treasury Notes, 6.25%, 10/31/01 200,163 208,312
300,000 U.S. Treasury Notes, 6.375%, 08/15/02 312,523 316,407
300,000 U.S. Treasury Notes, 5.75%, 08/15/03 300,710 313,125
100,000 U.S. Treasury Notes, 5.875%, 02/15/04 97,007 105,531
150,000 U.S. Treasury Notes, 6.5%, 08/15/05 150,288 164,813
200,000 U.S. Treasury Notes, 6.5%, 10/15/06 199,601 222,000
---------- ----------
Total U.S. Treasury Notes 1,755,967 1,836,469
---------- ----------
Total U.S. Government Obligations $3,302,239 3,398,830
========== ==========
-3-
<PAGE>
EXHIBIT B (CONT'D)
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
Statement of Investments
December 31, 1998
Number of MARKET
UNITS OR FACE VALUE COST VALUE
------------------- ------- --------
CORPORATE BONDS (59.18%)
200,000 Alcan Aluminum Ltd., 5.875%, 04/01/00 201,269 201,834
400,000 Aluminum Co. Of America, 5,75%, 02/01/01 400,443 404,612
100,000 Bear Stearns Co., 8.75%, 03/15/04 107,502 111,690
300,000 CNA Financial, 6.25%, 11/15/03 295,852 300,315
300,000 Citigroup Inc., 6.125%, 06/15/00 298,044 303,111
200,000 Ford Motor Co., 9%, 09/15/01 200,007 217,590
40,000 GMAC, 7.125%, 05/01/03 39,797 41,350
300,000 G.T.E. of California, 6.75%, 03/15/04 287,254 319,203
200,000 G.T.E. Northwest Inc., 7.375%, 05/01/01 201,312 209,584
300,000 Heller Financial, 5.625%, 03/15/00 298,790 298,440
300,000 J.C. Penney, 6.375%, 09/15/00 297,101 303,843
200,000 Lehman Bros. Hldgs. Inc. Nts, 8.875%, 03/01/02 198,373 213,464
300,000 MCI Communications Corp., 6.25%, 03/23/99 298,975 300,300
70,000 Merrill Lynch & Co., 6.5%, 04/01/01 69,304 71,262
300,000 Nations Bank Corp Sr. Nts, 5.375%, 04/15/00 296,880 300,411
100,000 Pennsylvania Electric, 7.43%, 07/15/02 100,004 105,682
400,000 Pennsylvania Electric, 6.7%, 10/13/05 381,212 419,152
100,000 Philip Morris Co. Nts, 7.125%, 08/15/02 99,266 104,849
300,000 Seagrams Co. Ltd., 6.5%, 04/01/03 303,080 299,643
400,000 Transamerica Financial, 6.48%, 03/15/01 402,640 404,748
100,000 Wal-Mart Stores Inc., 9.1%, 07/15/00 99,671 105,978
--------- ---------
Total Corporate Bonds 5,176,205 5,348,359
--------- ---------
-4-
<PAGE>
EXHIBIT B (CONT'D)
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
Statement of Investments
December 31, 1998
NUMBER OF MARKET
UNITS OR FACE VALUE COST VALUE
------------------- --------- ----------
CASH EQUIVALENTS (3.22%)
188,603 Provident Temp Fund 291,117 291,117
---------- ----------
Total Cash Equivalents 291,117 291,117
---------- ----------
Total Investments $ 8,769,561 9,038,306
============ ==========
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
-5-
<PAGE>
EXHIBIT C
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
Statement of Operations
Year ended December 31, 1998
Net investment income:
Interest and dividends $ 560,201
Audit fee (4,100)
Administrative filing fee (375)
-----------
Net investment income 555,726
-----------
Realized gains and unrealized appreciation on investments:
Realized gains from investment transactions (Schedule 2):
Proceeds from sales $ 2,606,610
Cost of investments sold 2,602,986
-----------
Net realized gains 3,624
-----------
Unrealized appreciation of
investments:
Appreciation beginning of year 167,363
Appreciation end of year 268,745
-----------
Unrealized appreciation during the year 101,382
-----------
Net realized gains and unrealized
appreciation on investments 105,006
-----------
Net increase from operations $ 660,732
===========
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
-6-
<PAGE>
Exhibit D
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
Statement of Changes in Net Assets
Year ended December 31, 1998
From operations:
Net investment income for the year $ 555,726
Net realized gains from investment transactions 3,624
Unrealized appreciation during the year 101,382
------------
Increase in net assets derived from operations 660,732
------------
From unit transactions:
Net proceeds from sale of units (66,445 units) 1,389,740
Distributions for redemption of units (46,113 units) (965,445)
------------
Increase in net assets derived from
unit transactions 424,295
------------
Net increase in net assets 1,085,027
Net assets:
Beginning of year 8,228,327
------------
End of year $ 9,313,354
============
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
</TABLE>
-7-
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
Notes to Financial Statements
December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION:
----------------------------------------------------------------------
The Special Fixed Income Fund was established by the Bank for the collective
investment of funds in order to provide diversification of investments for
qualified pension, profit sharing trusts, and HR-10 plans. The following is
a summary of significant accounting policies, which are in conformity with
generally accepted accounting principles and the Trust for the plan:
INVESTMENT SECURITY VALUATION - Securities for which there have been sales
on recognized exchanges on the valuation date are valued at their last
sales prices on the valuation date. Securities for which there have been no
such sales are valued at the bid quotations for the valuation date.
FEDERAL INCOME TAXES - The fund is exempt from Federal income tax.
INVESTMENT SECURITY TRANSACTIONS AND INVESTMENT INCOME - Purchases and
sales are accounted for on the trade date. Dividend and interest income is
reported as earned. Cost of securities sold is determined by the identified
certificate method.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of principal
cash and money market funds.
UNIT SALES AND REDEMPTIONS - The net asset value of the fund is determined
semi-monthly at the middle and end of each month. Units are sold and
redeemed only at that time, at the mid-month and month end net asset value.
INCOME - The net investment income of the fund may be accumulated and
invested in the fund or may be distributed to participants, provided
however, that all participants are treated on a like basis. Currently, the
net investment income, realized and unrealized security gains and losses
are accumulated and invested in the fund.
EXPENSES - The trustee may charge the principal portion of the fund for
reasonable expenses incurred in administering the fund, including the cost
of annual audits.
DECLARATION OF TRUST - The Company maintains a Collective Trust for
qualified pension, profit sharing or other plans described in Section
401(a) of the Internal Revenue Code. The assets of the Collective Trust are
held in two separate Collective Investment Funds: the "Special Equity Fund"
and the "Fixed Income Fund". These Funds are reported as two separate
Collective Investment Funds operating under one Collective Trust Agreement.
-8-
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
Notes to Financial Statements
December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION,
CONTINUED: ACCOUNTING ESTIMATES - The preparation of financial statements
in accordance with 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 amount of income and expense during the reporting period. Actual
results could differ from those estimates.
(2) RELATED PARTY HOLDINGS AND TRANSACTIONS:
--------------------------------------------
The Bank's parent company, Arrow Financial Corporation, has invested funds
from their employee stock ownership plan into this Special Fixed Income
Fund. As of December 31, 1998 the Arrow Financial Corporation Employee
Stock Ownership Plan held 11,542 units. The Employee Stock Ownership Plan
sold 2,426 units during the year ended December 31, 1998.
-9-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
Investments Purchased
Year ended December 31, 1998
NUMBER OF
UNITS OR
FACE VALUE COST
------------ ------------
CASH EQUIVALENTS
<C> <S> <C>
2,095,225 Provident Temp Fund $ 2,095,225
U. S. GOVERNMENT OBLIGATION
GOVERNMENT MORTGAGE POOLS
404,119 Federal Home Loan Mtg. Corp. Pool. 6.5%, 11/01/08 412,207
409,249 Federal National Mtg. Assn., 6.5%, 11/01/08 416,927
CORPORATE BONDS
400,000 Aluminum Co. of America, 5.75%, 02/01/01 400,443
----------
Total Investments Purchased $3,324,802
==========
-10-
<PAGE>
SCHEDULE 2
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL FIXED INCOME FUND #1
Investments Sold or Matured
Year ended December 31, 1998
NUMBER OF
UNITS OR GAIN
FACE VALUE COST PROCEEDS (LOSS)
---------- ---- -------- ------
CASH EQUIVALENTS
1,992,710 Provident Temp Fund $1,992,710 1,992,710 --
U.S. GOVERNMENT OBLIGATIONS
U.S. GOVERNMENT MORTGAGE POOLS
261 Federal Home Loan Mtg., 9%, 04/01/01 264 261 (3)
1,122 Federal Home Loan Mtg., 9%, 05/01/01 1,118 1,122 4
8,688 Federal Home Loan Mtg., 8.5%, 10/01/01 8,641 8,688 47
1,432 GNMA Pass Thru, 10%, 02/15/01 1,436 1,432 (4)
180 GNMA Pass Thru, 11%, 11/15/15 181 180 (1)
CORPORATE BONDS
400,000 Goldman Sachs Group 6.2%, 02/15/01 397,879 402,217 4,338
200,000 Ford Capital 9%, 08/15/98 200,757 200,000 (757)
---------- ---------- ----------
Total Investments Sold or Matured $2,602,986 2,606,610 3,624
========== ========== ==========
</TABLE>
-11-
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST CO.
SPECIAL EQUITY FUND #1
----------------------
Independent Auditors' Report
Financial Statements and Supplementary
Information - December 31, 1998
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Table of Contents
PAGE
Independent Auditors' Report 1
EXHIBIT
Statement of Net Assets........................ A 2
Statement of Investments....................... B 3-8
Statement of Operations........................ C 9
Statement of Changes in Net Assets............. D 10
Notes to Financial Statements 11-12
SCHEDULE
Investments Purchased.......................... 1 13
Investments Sold .............................. 2 14
<PAGE>
--------------------------
EDWARDS, WILLIAMS, MCMANUS
AND RICCIARDELLI, P.C.
--------------------------
CERTIFIED PUBLIC ACCOUNTANTS
82 GLENWOOD AVE., P.O. BOX 599, GLENS FALLS, NY 12801-0599
PHONE: 518-792-0926 FAX #: 518-792-3644
INDEPENDENT AUDITORS' REPORT
To the Trust Committee
Glens Falls National Bank and Trust Company:
We have audited the accompanying statement of net assets of the Special
Equity Fund #1 of Glens Falls National Bank and Trust Company, including the
statement of investments as of December 31, 1998, and the related statements of
operations and changes in net assets for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets of the Special Equity Fund #1
of Glens Falls National Bank and Trust Company as of December 31, 1998, and the
results of its operations and changes in net assets for the year then ended in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedules 1 and 2 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ EDWARDS, WILLIAMS, McMANUS
AND RICCIARDELLI, P.C.
--------------------------------
EDWARDS, WILLIAMS, McMANUS
AND RICCIARDELLI, P.C.
March 9, 1999
Glens Falls, New York
-1-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Net Assets
December 31, 1998
MARKET
ASSETS COST VALUE
------ ---- -------
Investments:
<S> <C> <C>
Cash and cash equivalents $ 165,052 165,052
Common stocks 13,731,149 30,496,215
----------- -----------
$13,896,201 30,661,267
===========
Interest and dividends receivable $ 24,239
Receivable for fund units sold 462,906
-----------
31,148,412
-----------
LIABILITIES
Payable for fund units redeemed 17,773
-----------
Net assets (equivalent to $127.3951 per unit
based on 336,357 units outstanding) $31,130,639
===========
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
-2-
<PAGE>
EXHIBIT B
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Investments
December 31, 1998
NUMBER OF SHARES
OR FACE VALUE COST MARKET VALUE
----------------- --------- --------------
COMMON STOCK
ELECTRICAL EQUIPMENT (3.13%)
9,400 General Electric Co. $ 131,981 958,800
---------- ---------
Total Electrical Equipment 131,981 958,800
---------- ---------
MANUFACTURING/DIVERSIFIED (1.91%)
16,000 Dover Corp. 553,145 586,000
---------- ----------
Total Manufacturing/Diversified 553,145 586,000
---------- ----------
AUTO/TRUCK/BUSES (3.77%)
24,400 Harley Davidson Inc. 368,833 1,155,950
---------- ----------
Total Auto/Truck/Buses 368,833 1,155,950
---------- ----------
HOUSING RELATED (.81%)
8,500 Sherwin-Williams Co. 246,756 249,687
---------- ----------
Total Housing Related 246,756 249,687
---------- ----------
RETAIL SPECIALTY (10.16%)
18,000 GAP, Inc. 247,669 1,010,250
18,200 Home Depot 304,095 1,113,612
22,700 Staples, Inc. 628,384 991,706
---------- ----------
Total Retail Specialty 1,180,148 3,115,568
---------- ----------
-3-
<PAGE>
EXHIBIT B, CONTINUED
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Investments
December 31, 1998
NUMBER OF SHARES
OR FACE VALUE COST MARKET VALUE
----------------- --------- ------------
BEVERAGES (2.80%)
21,000 PepsiCo Inc. $ 269,215 858,375
---------- ----------
Total Beverages 269,215 858,375
---------- ----------
FOODS (2.43%)
14,000 BestFoods, Inc. 353,519 745,500
---------- ----------
Total Foods 353,519 745,500
--------- ----------
HOUSEHOLD/CONSUMER PRODUCTS (2.98%)
10,000 Procter & Gamble Co. 130,465 913,125
---------- ---------
Total Household/Consumer Products 130,465 913,125
---------- ---------
FUNERAL SERVICES (2.84%)
22,900 Service Corp. International 714,501 871,631
---------- ---------
Total Funeral Services 714,501 871,631
---------- ---------
OIL INTEGRATED DOMESTIC (2.73%)
14,000 Amoco Corp. 392,348 838,250
---------- ---------
Total Oil Integrated Domestic 392,334 838,250
---------- ---------
OIL INTEGRATED INTERNATIONAL (4,43%)
6,500 Chevron Corp. 550,491 539,094
9,400 Mobil Corp. 492,872 818,975
---------- ----------
Total Oil Integrated International 1,043,363 1,358,069
---------- ----------
-4-
<PAGE>
EXHIBIT B, CONTINUED
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Investments
December 31, 1998
NUMBER OF SHARES
OR FACE VALUE COST MARKET VALUE
----------------- ------- -------------
OIL SERVICE & DRILLING (1.36%)
9,000 Schlumberger Ltd. $ 687,142 417,375
---------- ----------
Total Oil Service & Drilling 687,142 417,375
---------- ----------
BANKS-REGIONAL (3.13%)
11,000 Banc One Corp. 382,598 561,688
10,000 Wells Fargo & Co. 365,943 399,375
---------- ----------
Total Banks-Regional 748,541 961,063
---------- ----------
BROKERAGE & INVESTMENT (4.65%)
25,350 Charles Schwab Co. 207,080 1,424,353
---------- ----------
Total Brokerage & Investment 207,080 1,424,353
---------- ----------
INSURANCE (4.74%)
9,000 American International Group 237,403 869,625
10,000 Hartford Life Inc. 539,347 582,500
---------- ----------
Total Insurance 776,750 1,452,125
---------- ----------
REAL ESTATE/MORTGAGE (3.62%)
15,000 Federal Nat'l Mortgage Assn. 460,163 1,110,000
---------- ----------
Total Real Estate/Mortgage 460,163 1,110,000
---------- ----------
-5-
<PAGE>
EXHIBIT B, CONTINUED
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Investments
December 31, 1998
NUMBER OF SHARES
OR FACE VALUE COST MARKET VALUE
----------------- -------- -------------
DRUGS (11.5%)
5,000 American Home Products $ 265,317 281,875
10,000 Bristol Myers Squibb 424,641 1,338,125
7,000 Merck & Co. 110,774 1,032,500
7,000 Pfizer, Inc. 420,768 875,000
------------ ----------
Total Drugs 1,221,500 3,527,500
------------ ----------
HOSPITAL SUPPLIES (2.41%)
8,800 Johnson & Johnson 389,919 738,100
------------ ----------
Total Hospital Supplies 389,919 738,100
------------ ----------
CHEMICAL (1.25%)
7,200 E.I. Dupont Denemours 247,943 382,050
------------ ----------
Total Chemical 247,943 382,500
------------ ----------
CHEMICAL SPECIALTY (1.04%)
8,000 Air Products & Chemicals 213,748 320,000
------------ ----------
Total Chemical Specialty 213,748 320,000
------------ ----------
METALS/INDUSTRIAL COMMODITIES (1.43%)
5,900 Aluminum Co. of America 376,129 439,919
------------ ----------
Total Metals/Industrial Commodities 376,129 439,919
------------ ----------
-6-
<PAGE>
EXHIBIT B, CONTINUED
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Investments
December 31, 1998
NUMBER OF SHARES
OR FACE VALUE COST MARKET VALUE
----------------- --------- -------------
ELECTRONICS/SEMICONDUCTORS (2.71%)
7,000 Intel Corp. $ 512,384 829,937
------------ ----------
Total Electronics/Semiconductors 512,384 829,937
------------ ----------
OFFICE & BUSINESS EQUIPMENT (5.87%)
13,500 Cisco Systems 449,255 1,252,969
8,000 Hewlett Packard Co. 97,631 546,500
------------ ----------
Total Office & Business Equipment 546,886 1,799,469
------------ ----------
SOFTWARE (7.38%)
11,800 Automatic Data Processing 433,961 946,213
9,500 Microsoft Corp. 112,485 1,317,531
------------ ----------
Total Software 546,446 2,263,744
------------ ----------
TELECOMMUNICATION EQUIPMENT (3.59%)
10,000 Lucent Technologies Inc. 235,960 1,099,375
------------ ----------
Total Telecommunications Equipment 235,960 1,099,375
------------ ----------
-7-
<PAGE>
EXHIBIT B, CONTINUED
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Investments
December 31, 1998
NUMBER OF SHARES
OR FACE VALUE COST MARKET VALUE
----------------- -------- ------------
TELEPHONES (3.58%)
22,000 BellSouth Corp. $ 464,151 1,097,250
------------- ---------
Total Telephones 464,151 1,097,250
------------- ---------
ELECTRIC (2.09%)
10,000 Duke Energy Corp. 475,752 640,625
------------- ---------
Total Electric 475,752 640,625
------------- ---------
GAS (1.12%)
6,000 Enron Corp. 236,381 342,375
------------- ---------
Total Gas 236,381 342,375
------------- ----------
TOTAL COMMON STOCK 13,731,149 30,496,215
------------- ----------
CASH EQUIVALENTS (.54%)
165,052 Provident Temp Fund 165,052 165,052
------------- ---------
Total Cash Equivalents 165,052 165,052
------------- ---------
Total Investments $ 13,896,201 30,661,267
============= ===========
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
-8-
<PAGE>
EXHIBIT C
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Operations
Year ended December 31, 1998
Net investment income:
Dividends $ 322,717
Audit fee (4,294)
Administrative filing fee (375)
------------
Net investment income 318,048
------------
Realized gains and unrealized appreciation
on investments:
Realized gains from investment
transactions (Schedule 2):
Proceeds from sales $ 7,560,766
Cost of investments sold 6,178,859
------------
Net realized gains 1,381,907
Unrealized appreciation
of investments:
Appreciation, beginning of year 9,372,934
Appreciation, end of year 16,765,066
------------
Unrealized appreciation during the year 7,392,132
------------
Net realized gains and unrealized
appreciation on investments 8,774,039
------------
Net increase from operations $ 9,092,087
============
The accompanying notes and auditors' report should be read in conjunction with
these financial reports.
-9-
<PAGE>
EXHIBIT D
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Statement of Changes in Net Assets
Year ended December 31, 1998
1998
----
From operations:
Net investment income for the year $ 318,048
Net realized gains from investment transactions 1,381,907
Unrealized appreciation during the year 7,392,132
------------
Increase in net assets derived from operations 9,092,087
------------
From unit transactions:
Net proceeds from sale of units (51,763 units) 2,387,192
Distributions for redemption of units (21,934 units) (2,534,555)
------------
Increase in net assets derived from
unit transactions (147,363)
------------
Net increase in net assets 8,944,724
Net assets:
Beginning of year 22,185,915
------------
End of year $ 31,130,639
============
The accompanying notes and auditors' report should be read in conjunction with
these financial statements.
</TABLE>
-10-
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Notes to Financial Statements
December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION:
---------------------------------------------------------------------
The Special Equity Fund was established by the Bank for the collective
investment of funds in order to provide diversification of investments
for qualified individual pension, profit sharing trusts, and HR-10
plans. The following is a summary of significant accounting policies,
which are in conformity with generally accepted accounting principles
and the Trust for the plan:
INVESTMENT SECURITY VALUATION - Investments in securities traded on a
national securities exchange are valued at the last reported sales price on
the valuation date. Securities traded in the over-the- counter market and
listed securities for which no sale was reported on that date are valued at
the mean between the last reported bid and asked prices.
FEDERAL INCOME TAXES - The fund is exempt from Federal income tax.
INVESTMENT SECURITY TRANSACTIONS AND INVESTMENT INCOME - Purchases and
sales are accounted for on the trade date. Dividend income is recorded on
the ex-dividend date. Interest income is reported as earned. Cost of
securities sold is determined by the identified certificate method.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of principal
cash and money market funds.
UNIT SALES AND REDEMPTIONS - The net asset value of the fund is determined
semi-monthly at the middle and end of each month. Units are sold and
redeemed only at that time, at the mid-month and month end net asset value.
INCOME - The net investment income of the Fund may be accumulated and
invested in the Fund or may be distributed to participants, provided
however, that all participants are treated on a like basis. Currently, the
net investment income, realized and unrealized security gains and losses
are accumulated and invested in the Fund.
EXPENSES - The trustee may charge the Fund for reasonable expenses incurred
by it in administering the Fund, including the cost of annual audits.
DECLARATION OF TRUST - The Company maintains a collective trust for
qualified pension, profit sharing or other plans described in Section
401(a) of the Internal Revenue Code. The assets of the collective trust are
held in two separate investment funds: The "Special Equity Fund" and the
"Fixed Income Fund". These funds are reported as two separate collective
investment funds operating under one collective trust agreement.
-11-
<PAGE>
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND
Notes to Financial Statements, Continued
December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION,
CONTINUED: ACCOUNTING ESTIMATES - The preparation of financial statements
in accordance with 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 amount of income and expense during the reporting period. Actual
results could differ from those estimates.
(2) RELATED PARTY HOLDINGS AND TRANSACTIONS:
--------------------------------------------
The Bank's parent company, Arrow Financial Corporation, has invested funds
from their employee stock ownership plan into this Special Equity Fund. As
of December 31, 1998, the Arrow Financial Corporation Employee Stock
Ownership Plan held 3,872 units. The Employee Stock Ownership Plan redeemed
1,708 units during the year ended December 31, 1998.
-12-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Investments Purchased
Year ended December 31, 1998
NUMBER OF SHARES
OR FACE VALUE COST
----------------- -----------
CASH EQUIVALENTS
<C> <S> <C>
3,254,793 Provident Temp Fund $ 3,254,793
COMMON STOCK
5,000 American Home Products 265,317
2,000 Amoco 167,505
19,000 Callaway Golf 572,335
6,500 Chevron 550,491
6,500 Consolidated Stores 250,661
10,000 Hartford Life 539,347
3,000 Mobil Corp. 211,692
5,300 Schlumberger 391,072
22,700 Staples, Inc. 628,384
10,000 Wells Fargo & Co. 365,943
-------------
Total Investments Purchased $ 7,197,540
=============
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
GLENS FALLS NATIONAL BANK AND TRUST COMPANY
SPECIAL EQUITY FUND #1
----------------------
Investments Sold
Year ended December 31, 1998
NUMBER OF SHARES TOTAL GAIN
OR FACE VALUE COST PROCEEDS (LOSS)
----------------- ---- -------- ------
CASH EQUIVALENTS
<C> <S> <C> <C>
3,355,491 Provident Temp Fund $ 3,355,491 3,355,491 --
COMMON STOCK
1,200 American International Group 47,481 175,339 127,858
10,000 Amp 273,259 422,500 149,241
12,000 Boeing 445,323 515,223 69,900
19,000 Callaway 572,334 390,406 (181,928)
6,500 Consolidated Stores 250,661 234,800 (15,861)
1,750 Corn Products 26,131 55,231 29,100
6,000 Echlin, Inc. 191,255 298,863 107,608
15,000 Gap 309,587 646,514 336,927
3,000 General Electric 42,121 270,924 228,803
2,800 Home Depot 46,784 131,241 84,457
2,500 Microsoft 29,601 209,207 179,606
3,000 J.P. Morgan 246,313 328,279 81,966
6,000 Nike CIB 281,252 243,512 (37,740)
5,000 Charles Schwab 61,266 283,236 221,970
----------- ----------- -----------
Total Investments Sold $ 6,178,859 7,560,766 1,381,907
=========== =========== ===========
</TABLE>
-14-
<PAGE>
PART C
ITEM 23.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
(a) Agreement and Declaration of Trust (See Note 1)
(b) Form of Bylaws (See Note 1)
(c) Not Applicable.
(d)(1) Form of Investment Advisory Agreement (See Note 1)
(e) Form of Distribution Agreement (See Note 1)
(f) Not Applicable.
(g) Form of Custody Agreement (See Note 2)
(h)(1) Form of Administrative Service Agreement (See Note 1)
(h)(2) Form of Transfer Agency Agreement (See Note 1)
(i) Opinion of Ropes and Gray as to the legality of the
securities being registered, including their consent
to the filing thereof and as to the use of its name
in the Prospectus (See Note 1)
(i)(2) Consent of Ropes & Gray
(j) Consent of McCurdy & Associates, CPAs, Inc.,
independent auditors (See Note 2)
(j)(2) Consent of Edwards, Williams, McManus and Ricciardelli, P.C.,
independent auditors
(k) Not Applicable.
(l) Form of Purchase Agreement (See Note 2)
(m) Not Applicable
(n) Not Applicable.
(n) Not Applicable
(o) Not Applicable
(p) Form of Code of Ethics (See Note 1)
Other Exhibits Not Applicable
Notes to Exhibits:
(1) Filed with the Securities and Exchange Commission as an Exhibit to the
Registration Statement on September 12, 2000.
(2) Filed Herwith
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable
<PAGE>
ITEM 25. INDEMNIFICATION.
(a) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant, the Registrant has been
advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.
Besides serving as investment adviser to each Fund, the Adviser
is not currently (and has not during the past two years) engaged
in any other business, profession, vocation or employment of a
substantial nature. Information regarding the business, vocation
or employment of a substantial nature of the Adviser and its
officers is incorporated by reference to the information
contained in Part B of this Registration Statement.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The principal underwriter of the Trust's shares, AmeriMutual Fund
Distributors, Inc., currently acts as a principal underwriter, depositor or
investment adviser for the following other investment companies:
Canandaigua Funds
ICM Series Trust
iMillennium Capital Trust
MP 63 Fund
Alpha Funds
DCM Series Trust
Questar Funds, Inc.
Satuit Capital Management Trust
AmeriMutual Fund Distributors, Inc., is registered with the Securities
and Exchange Commission as a broker-dealer and is a member of the
National Association of Securities Dealers. AmeriMutual Fund
Distributors, Inc. is an indirect wholly-owned subsidiary of Orbitex
Financial Services Group, Inc.
(b) The following table contains information with respect to each
director, officer or partner AmeriMutual Fund Distributors, Inc.,:
<PAGE>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
BUSINESS ADDRESS* UNDERWRITER REGISTRANT
----------------- ----------- ----------
Christopher Klutch Director, President, CEO None
Vali Nasr General Principal, Financial None
and Operations Principal
Michael Miola Vice President None
Richard E. Stierwalt Director, Chief Operations None
Officer
* Unless otherwise indicated, all addresses are: c/o The Hauppauge
Corporate Center, 150 Motor Parkway, Hauppauge, NY 11788
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Trust required to be maintained by Section 31(a)
of the 1940 Act and the rules promulgated thereunder are located, in whole or in
part, at the offices of the Administrator, American Data Services, Inc., at The
Hauppauge Corporate Center, 150 Motor Parkway, Hauppauge, New York 11788 and
custodial records which are maintained at the offices of Union Bank of
California, the Custodian, are located at 350 California Street, San Francisco,
California 94104. Minutes of the meetings of the Board of Trustees of the Trust
are maintained in the offices of the Trust's legal counsel, Ropes & Gray, at
1301 K Street NW, Washington D.C. 20005.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Glens Falls and State of New York, on the 20th day of
December, 2000.
THE NORTH COUNTRY FUNDS
By: /S/ SEAN KELLY
-------------------------
Sean Kelly
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
*/S/ THOMAS L. HOY Trustee December 20, 2000
-------------------------
Thomas L. Hoy
*/S/ KEITH C. HOPPER Trustee December 20, 2000
-------------------------
Keith C. Hopper
/S/ ALAN E. REDEKER Trustee December 20, 2000
-------------------------
Alan E. Redeker
/S/ GEORGE R. COUGHLAN, III* Trustee December 20, 2000
----------------------------
George R. Coughlan, III
/S/ KEITH D. KEMP Treasurer December 20, 2000
--------------------
Keith D. Kemp
/S/ ALAN G. PRIEST * Attorney in Fact December 20, 2000
-------------------
Alan G. Priest *
<PAGE>
POWER OF ATTORNEY
Alan E. Redeker, whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa Albertelli, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The North Country
Funds (the "Trust"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee and/or officer of the Trust any and all such amendments
filed with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue thereof.
Dated: November 30, 2000 /S/ ALAN E. REDEKER
-------------------
Alan E. Redeker
