THE NORTH CAROLINA
TAX FREE BOND FUND
a series of the Albemarle Investment Trust
SEMI-ANNUAL REPORT 1996
FOR THE SIX MONTHS ENDED FEBRUARY 29
INVESTMENT ADVISOR
Boys, Arnold & Company
Post Office Drawer 5255
1272 Hendersonville Road
Asheville, North Carolina 28813-5255
1-800-286-8038
THE NORTH CAROLINA TAX FREE BOND FUND
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-3863
This Report has been prepared for shareholders
and may be distributed to others only if
preceded or accompanied by a current
prospectus.
<PAGE>
[BOYS, ARNOLD & COMPANY INVESTMENT COUNSEL Letterhead]
April 3, 1996
Dear Shareholder:
We are pleased to enclose your copy of the Semi-Annual report for the North
Carolina Tax Free Bond Fund for the period ended February 28, 1996.
Over the last six months your fund has performed well in a volatile but rising
bond market. After five consecutive months of positive returns, bonds fell in
February, but ended the period with solid positive returns. Demand and supply of
municipal bonds nationally and in North Carolina continued to be affected by
concerns about various flat tax proposals, which threaten the tax advantage of
municipal bonds on the one hand, and continued shortages of new municipal bond
issues on the other.
For the six month period ended February 29, 1996, the Fund had a total return of
+4.6% (which includes both income and price change) after all expenses. For the
same time period the Lehman Municipal Bond Index experienced a +4.9% return.
Your Fund had higher overall quality and a shorter average maturity than the
index for the period. The net asset value at February 29, 1996 was $10.59 and
income paid during the period was $.24 per share.
After Steve Forbes withdrew from the Republican primary the flat tax issue has
been removed from the spotlight. Although we anticipate some form of tax reform,
which may simplify the tax code and possibly reduce certain tax rates, we
believe the tax advantage of municipal bonds will be preserved. However, we
would not expect such changes until after the elections in November.
The Fund remains invested in a broadly diversified portfolio of high quality
North Carolina municipal bonds with an intermediate average maturity. The
portfolio's overall quality remains better than AA as measured by Standard and
Poors Corporation quality ratings and the current average maturity of the
portfolio is about fourteen and a half years.
Municipal bonds continue to provide one of the few remaining alternatives for
investors to reduce their tax obligations and we believe they continue to offer
good value relative to other taxable fixed income investments. We encourage
investors to maintain a long term outlook toward their investment and to
consider a plan of regular investment through dollar cost averaging.
We appreciate your continued trust and support and we welcome your questions and
comments.
Respectfully,
/s/ JOHN B. KUHNS /s/ JON L. VANNICE
John B. Kuhns Jon L. Vannice
<PAGE>
<TABLE>
<CAPTION>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
February 29, 1996
(Unaudited)
Principal Interest Maturity
Amount Rate Date Value
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
MUNICIPAL OBLIGATIONS - 94.81%
Appalachian State University, North
Carolina Utility System Revenue $150,000 5.90% 05-15-08 $161,688
Buncombe County, North Carolina
Public Improvement General Obligation 100,000 5.80% 02-01-09 107,052
Cary, North Carolina
General Obligation 100,000 5.50% 02-01-04 105,959
Catawba County, North Carolina
Hospital Revenue 100,000 6.20% 10-01-09 107,900
Charlotte-Mecklenburg Hospital
Authorized North Carolina Health Care
System Revenue 100,000 5.75% 01-01-12 100,649
Charlotte, North Carolina Series A
General Obligation 100,000 5.25% 07-01-03 105,740
Charlotte, North Carolina Water &
Sewer General Obligation 100,000 5.70% 02-01-06 108,087
Charlotte, North Carolina Law Enforcement
Facilities Project Series A Certificate
Participation 100,000 6.10% 12-01-15 104,854
Cleveland County, North Carolina
General Obligation 100,000 5.10% 06-01-03 104,585
Concord, North Carolina Utilities
System Revenue 100,000 5.75% 12-01-17 101,121
Concord, North Carolina Utilities
System Revenue 125,000 5.50% 12-01-14 125,580
Dare County, North Carolina Utilities
System Revenue 100,000 5.75% 06-01-14 103,137
Durham, North Carolina Public Improvement
General Obligation 100,000 5.10% 02-01-07 102,652
Durham, North Carolina
General Obligation Revenue 100,000 5.80% 02-01-12 105,921
Fayetteville, North Carolina Public
Works Commission Revenue 100,000 4.80% 03-01-07 99,535
Fayetteville, North Carolina Public
Works Commission Revenue 150,000 5.13% 03-01-10 147,195
Forsyth County, North Carolina
General Obligation 200,000 4.75% 02-01-13 188,762
Gaston, North Carolina
General Obligation 175,000 5.70% 03-01-11 183,402
Gastonia, North Carolina Combined
Utilities System Revenue 90,000 5.70% 05-01-06 96,775
(Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
February 29, 1996
(Unaudited)
(Continued)
Principal Interest Maturity
Amount Rate Date Value
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
MUNICIPAL OBLIGATIONS (Continued)
Gastonia, North Carolina Police Station
Project Certificate Participation 100,000 5.70% 08-01-15 101,378
Greensboro, North Carolina Public Improvement
Series A General Obligation 100,000 5.80% 04-01-07 108,251
Greenville, North Carolina Combined
Enterprise System Revenue 100,000 6.00% 09-01-10 104,298
Hickory, North Carolina
General Obligation 100,000 6.50% 05-01-10 108,231
High Point, North Carolina
General Obligation Revenue 100,000 5.60% 03-01-13 103,777
High Point, North Carolina
General Obligation 200,000 5.00% 03-01-15 191,138
Mecklenburg County, North Carolina
Public Improvement General Obligation 150,000 5.40% 04-01-04 160,374
Morganton, North Carolina Water
& Sewer General Obligation Revenue 100,000 5.70% 06-01-14 104,457
North Carolina Housing Finance Agency
Multifamily Series A Revenue 100,000 5.80% 07-01-13 100,901
North Carolina Medical Care Commission
Memorial Mission Hospital Project Revenue 100,000 6.00% 10-01-12 104,669
North Carolina Medical Care Commission
Carolina Medicorp Project Revenue 200,000 5.50% 05-01-15 198,510
North Carolina Municipal Power Agency -
Number 1 - Catawba Electric Revenue 100,000 6.00% 01-01-09 109,036
North Carolina Municipal Power Agency -
Number 1 - Catawba Electric Revenue 100,000 5.75% 01-01-15 100,862
North Carolina State Clean Water
Series A General Obligation 100,000 5.20% 06-01-10 101,351
North Carolina State Clean Water
Series A General Obligation 100,000 5.80% 06-01-16 104,852
Onslow County, North Carolina
General Obligation 100,000 5.70% 03-01-13 105,003
Pitt County, North Carolina
General Obligation 100,000 6.10% 06-01-08 108,516
Pitt County, North Carolina Memorial
Hospital Revenue 100,000 5.50% 12-01-15 99,336
Raleigh, North Carolina
General Obligation 100,000 6.50% 03-01-08 109,273
Rowan County, North Carolina
General Obligation 150,000 5.60% 05-01-10 156,475
(Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
February 29, 1996
(Unaudited)
(Continued)
Principal Interest Maturity
Amount Rate Date Value
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
MUNICIPAL OBLIGATIONS (Continued)
Salisbury, North Carolina Water & Sewer
General Obligation 100,000 5.30% 05-01-11 100,272
Union County, North Carolina
Series A General Obligation 100,000 5.20% 06-01-12 99,201
Wake County, North Carolina Industrial
Facilities & Pollution Control Financing
Authority Revenue, adjustable rate 100,000 6.90% 04-01-09 108,228
Wilmington, North Carolina Water
General Obligation Revenue 100,000 5.60% 06-01-11 103,649
Winston-Salem, North Carolina
General Obligation 100,000 5.50% 06-01-12 103,200
------------
Total Municipal Obligations (Cost $4,960,910) $5,155,832
------------
REPURCHASE AGREEMENT (a) - 7.30%
Wachovia Bank $397,340 5.32% 03-01-96 397,340
------------
(Cost $397,340)
Total Value of Investments (Cost $5,358,250) 102.11% 5,553,172
Liabilities In Excess of Other Assets (2.11%) (114,953)
------------ ------------
Net Assets 100.00% $5,438,219
============ ============
</TABLE>
(a) Joint repurchase agreement entered into February 29, 1996, with a
maturity value of $68,302,116 collateralized by $71,660,000 U.S.
Treasury Bills, due September 19, 1996. The aggregate market value of
the collateral at February 29, 1996 was $69,697,130. The Fund's pro
rata interest in the market value of the collateral at February 29,
1996 was $405,498. The Fund's pro rata interest in the joint
repurchase agreement collateral is taken into possession by the
Fund's custodian upon entering into the repurchase agreement. The
collateral is marked to market daily to ensure its market value is at
least 102 percent of the sales price of the repurchase agreement.
(b) Aggregate cost for federal income tax purposes is the same.
Unrealized appreciation (depreciation) of securities for federal
income tax purposes is as follow:
Unrealized appreciation $205,050
Unrealized depreciation (10,128)
-----------
Net unrealized appreciation/depreciation $194,922
===========
SEE ACCCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996
(Unaudited)
ASSETS
Investments at value (Cost $5,358,250) $5,553,172
Interest receivable 80,029
Due from advisor (note 2) 3,189
-------------
Total assets 5,636,390
-------------
LIABILITIES
Accrued expenses 786
Payable for investment purchases 194,339
Disbursements in excess of cash on demand deposit 3,046
-------------
Total liabilities 198,171
-------------
NET ASSETS
(applicable to 513,453 shares outstanding; unlimited
shares of no par value beneficial interest authorized) $5,438,219
=============
NET ASSET VALUE AND REPURCHASE PRICE PER SHARE
($5,438,219 / 513,453 shares) $ 10.59
=============
NET ASSETS CONSIST OF:
Paid-in capital $5,337,626
Undistributed net investment loss (578)
Undistributed net realized loss on investments (93,751)
Net unrealized appreciation on investments 194,922
-------------
$5,438,219
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENT OF OPERATIONS
Six months ended February 29, 1996
(Unaudited)
INVESTMENT INCOME
Income
Interest $122,272
------------
Total Income 122,272
------------
Expenses
Investment advisory fees (note 2) 7,899
Fund administration fees (note 2) 3,385
Professional fees 12,930
Fund accounting fees (note 2) 10,500
Shareholder servicing fees (note 3) 5,642
Custody fees 2,829
Securities pricing fees 1,883
Shareholder recordkeeping fees 819
Registration and filing administration fees 130
Other administration fees (note 2) 3,166
Operating expenses 2,562
Shareholder servicing expenses 2,372
Registration and filing expenses 916
Trustee fees and meeting expenses 4,459
Printing expenses 602
------------
Total expenses 60,094
------------
Less:
Expense reimbursements (note 2) (20,818)
Investment advisory fees waived (note 2) (7,899)
Fund administration fees waived (note 2) (3,385)
Other administration fees waived (note 2) (3,166)
Shareholder servicing fees waived (note 3) (5,642)
------------
Net expenses 19,184
------------
Net investment income 103,088
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions 8,543
Increase in unrealized appreciation on investments 74,428
------------
Net realized and unrealized gain on investments 82,971
------------
Net increase in net assets resulting from operations $186,059
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
Six months
ended
February 29, Year ended
1996 August 31,
(Unaudited) 1995
---------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment income $103,088 $134,527
Net realized gain (loss) from investment transactions 8,543 (83,088)
Increase in unrealized appreciation on investments 74,428 161,103
---------------- --------------
Net increase in net assets resulting from
operations 186,059 212,542
---------------- --------------
Distributions to shareholders from
Net investment income (105,187) (133,006)
---------------- --------------
Capital share transactions
(a) Increase in net assets resulting from
capital share transactions 1,174,198 174,560
---------------- --------------
Total increase in net assets 1,255,070 254,096
NET ASSETS
Beginning of period 4,183,149 3,929,053
---------------- --------------
End of period $5,438,219 $4,183,149
================ ==============
(a) A summary of capital share activity follows:
</TABLE>
<TABLE>
<CAPTION>
Six months ended Year ended
February 29, 1996 August 31, 1995
Shares Value Shares Value
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 149,267 $1,586,097 262,514 $ 2,637,430
Shares issued for reinvestment
of distributions 8,485 89,677 10,102 101,474
------------- ------------- ---------------- ----------------
157,752 1,675,774 272,616 2,738,904
Shares redeemed (47,971) (501,576) (261,060) (2,564,344)
------------- ------------- ---------------- ----------------
Net increase(decrease) 109,781 1,174,198 11,556 174,560
============= ============= ================ ================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
THE NORTH CAROLINA TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
For the
period from
January 13, 1993
Six months ended (commencement
February 29, Year ended Year ended of operations) to
1996 August 31, August 31, August 31,
(Unaudited) 1995 1994 1993
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.36 $ 10.02 $ 10.40 $ 10.00
Income from investment operations
Net investment income 0.24 0.45 0.42 0.24
Net realized and unrealized gain(loss)
on investments 0.23 0.34 (0.38) 0.40
---------------- ---------------- ---------------- ----------------
Total from investment operations 0.47 0.79 0.04 0.64
---------------- ---------------- ---------------- ----------------
Distributions to shareholders from
Net investment income (0.24) (0.45) (0.42) (0.24)
---------------- ---------------- ---------------- ----------------
Net Asset Value, End of Period $ 10.59 $ 10.36 $ 10.02 $ 10.40
================ ================ ================ ================
Total return 4.62% 8.16% 0.38% 10.43%(a)
Ratios/supplemental data
Net assets, end of period $5,438,219 $4,183,149 $3,929,053 $2,423,995
================ ================ ================ ================
Ratio of expenses to average net assets
Before expense reimbursements 2.67%(a) 2.76% 3.26% 3.50%(a)
After expense reimbursements 0.84%(a) 0.85% 0.84% 0.77%(a)
Ratio of net investment income to
average net assets
Before expense reimbursements 2.76%(a) 2.65% 1.67% 1.25%(a)
After expense reimbursements 4.59%(a) 4.56% 4.09% 3.98%(a)
Portfolio turnover rate 11.44% 83.12% 22.82% 0.00%
</TABLE>
(a) Annualized.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
February 29, 1996
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The North Carolina Tax Free Bond Fund (the "Fund") is a non-diversified
series of shares of beneficial interest of the Albemarle Investment
Trust (the "Trust"). The Trust is an open-end investment company which
was organized in 1992 as a Massachusetts Business Trust and is
registered under the Investment Company Act of 1940. The Fund began
operations on January 13, 1993. The following is a summary of
significant accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at market value. Securities listed on an exchange or
quoted on a national market system are valued at the last
sales price on the day of valuation. Other securities are
valued at the most recent bid price. Securities for which
market quotations are not readily available are valued by an
independent pricing service which takes into consideration
institutional bid and last sale prices, and securities prices,
yields, maturities, call features, ratings and institutional
trading in similar groups of securities; or if not available
from the pricing service, the value of a security is
determined following procedures approved by the Board of
Trustees. Short-term investments are valued at cost which
approximates market value.
The Fund invests in debt instruments of municipal issuers
within the state of North Carolina. The issuers' abilities to
meet their obligations may be affected by economic
developments in the state of North Carolina.
B. Federal Income Taxes - No provision has been made for federal
income taxes since it is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all federal
income taxes.
Net realized gains (losses) may differ for financial
statements and tax purposes primarily because of losses
incurred subsequent to October 31, which are deferred for tax
purposes.
C. Investment Transactions - Investment transactions are recorded
on the trade date. Realized gains and losses are determined
using the specific identification cost method. Interest income
is recorded daily on the accrual basis.
D. Distributions to Shareholders - Distributions to shareholders
are recorded on the ex-dividend date. The Fund generally
declares dividends daily, payable monthly on a date selected
by the Fund's Trustees. In addition, distributions may be made
annually in December out of net realized gains through October
31 of that year. The Fund may make a supplemental distribution
subsequent to the end of its fiscal year ending August 31. For
the six months ended February 29, 1996, 97% of the
distributions paid from net investment income qualify as
tax-exempt dividends to non-corporate shareholders.
(Continued)
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
February 29, 1996
(Unaudited)
(Continued)
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement (commenced April 1, 1994),
Boys, Arnold & Company, Inc. (the "Advisor") provides the Fund with a
continuous program of supervision of the Fund's assets, including the
composition of its portfolio, and furnishes advice and recommendations
with respect to investments, investment policies, and the purchase and
sale of securities. As compensation for its services, the Advisor
receives a fee at the annual rate of 0.35% of the Fund's average daily
net assets. Prior to April 1, 1994, T. Leavell & Associates acted as
investment advisor to the Fund and received a fee at the annual rate of
0.25% of the Fund's first $100 million of average daily net assets and
0.10% of average daily net assets over $100 million.
Currently, the Fund does not offer its shares for sale in states which
require limitations to be placed on its expenses. The Advisor has
voluntarily waived its fee amounting to $7,899 ($0.02 per share) and
has reimbursed a portion of the Fund's operating expenses for the six
months ended February 29, 1996. The total fees waived and expenses
reimbursed by the advisor amounted to $28,717.
The Fund's administrator, The Nottingham Company (the "Administrator"),
provides administrative services to and is generally responsible for
the overall management and day-to-day operations of the Fund pursuant
to an accounting and administrative agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.15% of the Fund's average daily net assets. The
Administrator also receives a monthly fee of $1,750 for accounting and
recordkeeping services. Additionally, the Administrator charges the
Fund for servicing of shareholder accounts and registration of the
Fund's shares. The Administrator's minimum fee is $3,000 per month for
all fees taken in the aggregate. The Administrator also charges the
Fund for certain expenses involved with the daily valuation of
portfolio securities.
The Administrator has voluntarily waived a portion of its fee amounting
to $6,551 ($0.02 per share).
Certain trustees and officers of the Trust are also officers of the
Advisor or the Administrator.
NOTE 3 - SHAREHOLDER SERVICING FEES
The Board of Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust as defined in the Investment Company
Act of 1940, adopted a Shareholder Servicing Fee Plan (the "Plan"). The
Plan regulates the manner in which a regulated investment company may
assume expenses from the servicing and maintenance of shareholder
accounts.
The Plan provides that the Fund may incur certain expenses for payment
to persons for providing services including, but not limited to,
responding to shareholder inquiries, providing information on
shareholders' investments in the Fund, and providing such other
shareholder services as the Trust may reasonably request. The basis for
amounts paid under the Plan is determined by the Board of Trustees.
Expenses pursuant to the Plan may not exceed 0.25% of the Fund's
average daily net assets per annum since inception of the Plan, nor
exceed 0.25% per annum of the average net assets of the shareholder
accounts being serviced. There were no shareholder servicing fees paid
during the six months ended February 29, 1996. The total fees waived by
the Plan amounted to $5,642 for the six month period ended February 29,
1996.
(Continued)
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
February 29, 1996
(Unaudited)
(Continued)
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $1,633,492 and $501,761, respectively, for the six months
ended February 29, 1996.
NOTE 5 - DISTRIBUTIONS TO SHAREHOLDERS
The Fund has capital loss carryforwards for federal income tax purposes
of $77,925 which expire in the year 2003. It is the intention of the
Board of Trustees of the Trust not to distribute any realized gains
until the carryforwards have been offset or expire.
Of the $105,187 of distributions to shareholders ($0.24 per share)
during the six months ended February 29, 1996, the Fund has determined
that $101,683 ($0.23 per share) qualify as exempt-interest dividends
for federal income tax purposes. Shareholders are advised to consult
with their professional tax advisor regarding the state income tax
implications of these distributions.
