----------------------------------------------------
THE NORTH CAROLINA
TAX FREE BOND FUND
----------------------------------------------------
a series of the Albemarle Investment Trust
ANNUAL REPORT 1996
FOR THE YEAR ENDED AUGUST 31
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 LOGO HERE
September 26, 1996
Dear Shareholder:
We are pleased to report that your Fund has performed very well again
this year. During the Fund's fiscal year ended August 31, 1996, the
municipal bond market fluctuated dramatically but ended the period
with positive returns. Long term interest rates declined early in the
period, rebounded to new highs and ended the year slightly lower than
where they started. Municipal bond prices were less affected by
interest rate changes than taxable bonds due to the very limited supply
of new municipal issues and strong demand.
During the year we focused on increasing the Fund's overall quality by
purchasing mostly AAA-rated issues (many of which are credit enhanced
with bond insurance). Our strategy has been to lengthen the average
maturity of the portfolio during periods when interest rates were
higher and invest in shorter term bonds when interest rates were at
low levels. We have emphasized purchasing higher coupon bonds which
tend to have more price stability and, consequently, are generally
more conservative.
The Fund had a total return of +4.3% (which includes both income and
price change) after all expenses for the fiscal year ended August 31,
1996. For the same period, the return for the Lehman Municipal Bond
Index was +5.3%. During the year, the Fund maintained a shorter
average maturity portfolio as well as higher overall quality than
the Index. The net asset value per share at year-end was $10.32 and
income paid during the year totaled $.48 per share. In addition to
the positive performance, several noteworthy things occurred this
past year.
In February, Morningstar, Inc. granted the Fund a 4 Star Rating for
the Fund's first three years of operations ended January 31, 1996.
Morningstar uses a risk-adjusted rating system that is expressed on
a scale of 1 to 5 Stars and is an indication of how well a fund has
balanced its risk and return in the past. The 4 Star rating indicates
that the Fund produced above average returns in relation to the risk it
incurred.* Morningstar evaluated 975 municipal bond funds, and of those,
fewer than one third received a 4 Star or better rating.
Starting this month, the Fund began investing overnight cash balances
in a North Carolina tax-free money market fund as a means of providing
shareholders with 100% tax-free income (with the exception of the
alternate minimum tax) to residents of North Carolina. In the past
we have not had access to North Carolina municipal money market funds
and, therefore, have used taxable overnight re-purchase obligations as
the means for investing such balances. We believe that shareholders
will find this new capability a significant enhancement. In calendar
1997 shareholders should be able to report virtually all income
from the Fund as tax-free income.
<PAGE>
The Nottingham Company, the Fund's Administrator, recently introduced
their Shareholder Hotline (1-800-773-3863) which provides toll-free
access to your personal account information and enables you to request
information on the Fund. This new enhancement provides you with the
capability to monitor the Fund and your account.
The objectives of the Fund remain to provide current income exempt
from federal and North Carolina income taxes, to preserve capital,
and to protect the portfolio against the effects of inflation.
Our continuing strategy is to maintain an intermediate average
maturity portfolio of high quality North Carolina municipal bonds.
We believe this will capture the majority of the income of longer
term bonds, but with less risk to principal.
Municipal bonds offer one of the few alternatives available for
investors to earn tax-free income. As always, we encourage investors
to maintain a long term perspective with their investment in the
Fund and to consider establishing or continuing a plan of regular
investment. Your fund, which has no sales charges or loads is an
efficient way to invest in a diversified portfolio of high quality
North Carolina tax-free bonds.
In addition to the direct purchase of the Fund through The
Nottingham Company, the Fund's Administrator, shareholders can
purchase and hold their shares through Wachovia Brokerage and
Charles Schwab & Co.
We appreciate your continued trust and support, and we welcome
your questions and comments. Please feel free to visit us if you
are in the Asheville area.
Respectfully,
/s/ John B. Kuhns /s/ Jon L. Vannice
- -------------------- -------------------
John B. Kuhns Jon L. Vannice
*Morningstar proprietary ratings reflect historical risk-adjusted
performance. Subject to change monthly, ratings are calculated
from a fund's 3, 5 and 10 year results (if available) in excess
of the 90 day Treasury Bill returns with appropriate fee adjustments,
and a risk factor that reflects fund performance below 90 day
T-Bill returns. 10% of the funds in an investment category receive
5 stars and 22.5% receive 4 stars. Past performance is no guarantee
of future results. During the period covered by the rating, the
Fund's Advisor and Administrator waived all or a portion of their
fees and reimbursed a portion of the Fund's expense, which increased
the total return and yield of the Fund.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
August 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity Value
Amount Rate Date (note 1)
--------- -------- -------- --------
<S> <C>
MUNICIPAL OBLIGATIONS - 96.85%
Appalachian State University, North
Carolina Utility System Revenue $150,000 5.90% 05-15-08 $157,673
Buncombe County, North Carolina
Public Improvement General Obligation 100,000 5.80% 02-01-09 103,327
Buncombe County, North Carolina
Solid Waste System Special Obligation Revenue 200,000 5.60% 03-01-11 201,573
Cary, North Carolina
General Obligation 100,000 5.50% 02-01-04 103,654
Catawba County, North Carolina
Hospital Revenue 100,000 6.20% 10-01-09 106,136
Charlotte-Mecklenburg Hospital
Authorized North Carolina Health Care
System Revenue 100,000 5.75% 01-01-12 99,488
Charlotte, North Carolina Series A
General Obligation 100,000 5.25% 07-01-03 102,824
Charlotte, North Carolina Water &
Sewer General Obligation 100,000 5.70% 02-01-06 105,024
Charlotte, North Carolina Law Enforcement
Facilities Project Series A Certificate
of Participation 100,000 6.10% 12-01-15 101,596
Cleveland County, North Carolina
General Obligation 100,000 5.10% 06-01-03 101,751
Concord, North Carolina Utilities
System Revenue 100,000 5.75% 12-01-17 99,176
Concord, North Carolina Utilities
System Revenue 125,000 5.50% 12-01-14 122,392
Dare County, North Carolina Utilities
System Revenue 100,000 5.75% 06-01-14 100,357
Durham, North Carolina Public Improvement
General Obligation 100,000 5.10% 02-01-07 99,874
Durham, North Carolina
General Obligation Revenue 100,000 5.80% 02-01-12 102,750
Fayetteville, North Carolina Public
Works Commission Revenue 100,000 4.80% 03-01-07 96,967
Fayetteville, North Carolina Public
Works Commission Revenue 150,000 5.13% 03-01-10 145,396
Forsyth County, North Carolina
General Obligation 200,000 4.75% 02-01-13 182,367
Gaston, North Carolina
General Obligation 175,000 5.70% 03-01-11 177,961
Gastonia, North Carolina Combined
Utilities System Revenue 90,000 5.70% 05-01-06 94,188
Gastonia, North Carolina Police Station
Project Certificate Participation 100,000 5.70% 08-01-15 98,741
<PAGE>
(Continued)
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
August 31, 1996
<CAPTION>
Principal Interest Maturity Value
Amount Rate Date (note 1)
--------- -------- -------- --------
<S> <C>
MUNICIPAL OBLIGATIONS (Continued)
Greensboro, North Carolina
General Obligation Unlimited $200,000 5.00% 03-01-12 $188,152
Greensboro, North Carolina Public Improvement
Series A General Obligation 100,000 5.80% 04-01-07 104,890
Greenville, North Carolina Combined
Enterprise System Revenue 100,000 6.00% 09-01-10 102,891
Hickory, North Carolina
General Obligation 100,000 6.50% 05-01-10 107,199
High Point, North Carolina
General Obligation Revenue 100,000 5.60% 03-01-13 99,120
High Point, North Carolina
General Obligation 200,000 5.00% 03-01-15 182,837
Mecklenburg County, North Carolina
Public Improvement General Obligation 150,000 5.40% 04-01-04 155,424
Mecklenburg County, North Carolina
Public Improvement General Obligation 200,000 5.50% 04-01-11 200,422
Morganton, North Carolina Water
& Sewer General Obligation Revenue 100,000 5.70% 06-01-14 100,033
North Carolina Central University
Housing System Revenue 200,000 5.80% 11-01-17 199,722
North Carolina Housing Finance Agency
Multifamily Series A Revenue 100,000 5.80% 07-01-13 101,620
North Carolina Medical Care Commission
Memorial Mission Hospital Project Revenue 100,000 6.00% 10-01-12 103,016
North Carolina Medical Care Commission
Carolina Medicorp Project Revenue 200,000 5.50% 05-01-15 191,226
North Carolina Municipal Power Agency -
Number 1 - Catawba Electric Revenue 100,000 6.00% 01-01-09 106,116
North Carolina Municipal Power Agency -
Number 1 - Catawba Electric Revenue 100,000 5.75% 01-01-15 99,972
North Carolina Municipal Power Agency -
Number 1 - Catawba Electric Revenue 100,000 6.00% 01-01-15 98,070
North Carolina State Clean Water
Series A General Obligation 100,000 5.20% 06-01-10 97,913
North Carolina State Clean Water
Series A General Obligation 100,000 5.80% 06-01-16 100,965
Onslow County, North Carolina
General Obligation 100,000 5.70% 03-01-13 100,673
Pitt County, North Carolina
General Obligation 100,000 6.10% 06-01-08 105,837
Pitt County, North Carolina Memorial
Hospital Revenue 100,000 5.50% 12-01-15 95,255
Raleigh, North Carolina
General Obligation 100,000 6.50% 03-01-08 108,624
(Continued)
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
August 31, 1996
<CAPTION>
Principal Interest Maturity Value
Amount Rate Date (note 1)
--------- -------- -------- --------
<S> <C>
MUNICIPAL OBLIGATIONS (Continued)
Raleigh, North Carolina
General Obligation Unlimited $200,000 5.25% 06-01-12 $194,060
Rowan County, North Carolina
General Obligation 150,000 5.60% 05-01-10 151,854
Salisbury, North Carolina Water & Sewer
General Obligation 100,000 5.30% 05-01-11 96,958
Union County, North Carolina
Enterprise System Revenue 100,000 5.35% 06-01-09 99,830
Union County, North Carolina
Series A General Obligation 100,000 5.20% 06-01-12 95,971
Wake County, North Carolina Industrial
Facilities & Pollution Control Financing
Authority Revenue 100,000 6.90% 04-01-09 108,191
Wilmington, North Carolina Water
General Obligation Revenue 100,000 5.60% 06-01-11 99,811
Winston-Salem, North Carolina
General Obligation 100,000 5.50% 06-01-12 99,065
----------
Total Municipal Obligations (Cost $6,142,439) 6,198,932
----------
REPURCHASE AGREEMENT (a) - 1.69%
Wachovia Bank 108,005 5.28% 09-03-96 108,005
----------
(Cost $108,005)
Total Value of Investments (Cost $6,250,444 (b)) 98.54% 6,306,937
Other Assets In Excess of Liabilities 1.46% 93,570
--------- -----------
Net Assets 100.00% $6,400,507
======== ==========
</TABLE>
(a) The repurchase agreement is fully collateralized by U. S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through
participation in a joint account with other Nottingham funds.
(b) Aggregate cost for financial reporting and federal income tax purposes is
the same. Unrealized appreciation (depreciation) of investments for
financial reporting and federal income tax purposes is as follows:
Unrealized appreciation $108,476
Unrealized depreciation (51,983)
----------
Net unrealized appreciation $56,493
==========
See accompanying notes to financial statements
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $6,250,444) $6,306,937
Interest receivable 104,985
Due from advisor (note 2) 83
----------
Total assets 6,412,005
==========
LIABILITIES
Accrued expenses 3,207
Disbursements in excess of cash on demand deposit 8,291
----------
Total liabilities 11,498
----------
NET ASSETS
(Applicable to 619,911 shares outstanding; unlimited
shares of no par value beneficial interest authorized) $6,400,507
==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE
($6,400,507 (divided by) 619,911 shares) $10.32
=========
NET ASSETS CONSIST OF
Paid-in capital $6,437,765
Undistributed net realized loss on investments (93,751)
Net unrealized appreciation on investments 56,493
----------
$6,400,507
==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENT OF OPERATIONS
Year ended August 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest $284,126
----------
Expenses
Fund accounting fees (note 2) 21,000
Investment advisory fees (note 2) 18,238
Professional fees 17,594
Shareholder servicing fees (note 3) 13,027
Fund administration fees (note 2) 7,816
Minimum operating fees (note 2) 5,667
Custody fees 5,628
Securities pricing fees 4,070
Shareholder recordkeeping fees 1,333
Registration and filing administration fees 184
Trustee fees and meeting expenses 6,360
Other operating expenses 5,470
Shareholder servicing expenses 5,118
Registration and filing expenses 2,652
Printing expenses 2,572
----------
Total expenses 116,729
----------
Less:
Expense reimbursements (note 2) (27,692)
Investment advisory fees waived (note 2) (18,238)
Fund administration fees waived (note 2) (7,816)
Minimum operating fees waived (note 2) (5,667)
Shareholder servicing fees waived (note 3) (13,027)
----------
Total waived fees (72,440)
----------
Net expenses 44,289
----------
Net investment income 239,837
----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized gain from investment transactions 8,543
Decrease in unrealized appreciation on investments (64,001)
----------
Net realized and unrealized loss on investments (55,458)
----------
Net increase in net assets resulting from operations $184,379
=========
See accompanying notes to financial statements
</TABLE>
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended Year ended
August 31, August 31,
1996 1995
------------ ----------
<S> <C>
INCREASE IN NET ASSETS
Operations
Net investment income $239,837 $134,527
Net realized gain (loss) from investment transactions 8,543 (83,088)
Increase (decrease) in unrealized appreciation on investments (64,001) 161,103
---------- ---------
Net increase in net assets resulting from operations 184,379 212,542
---------- ---------
Distributions to shareholders from
Net investment income (241,358) (133,006)
---------- ---------
Capital share transactions
Increase in net assets resulting from capital share transaction 2,274,337 174,560
---------- ---------
Total increase in net assets 2,217,358 254,096
NET ASSETS
Beginning of period 4,183,149 3,929,053
---------- ---------
End of period (including undistributed net investment income $6,400,507 $4,183,149
of $0 in 1996 and $1,521 in 1995) ========== ===========
</TABLE>
(a) A summary of capital share activity follows:
<TABLE>
<CAPTION>
Year ended Year ended
August 31, 1996 August 31, 1995
Shares Value Shares Value
------ ----- ------ -----
<S> <C>
Shares sold 273,835 $2,873,661 262,514 $2,637,430
Shares issued for reinvestment
of distributions 19,626 204,428 10,102 101,474
-------- --------- -------- -----------
293,461 3,078,089 272,616 2,738,904
Shares redeemed (77,223) (803,752) (261,060) (2,564,344)
-------- --------- -------- -----------
Net increase 216,238 $2,274,337 11,556 $174,560
========= ========== ======== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
For the
period from
January 13, 1993
(commencement
Year ended Year ended Year ended of operations) to
August 31, August 31, August 31, August 31,
1996 1995 1994 1993
----------- ---------- ----------- ------------------
<S> <C>
Net asset value, beginning of period $10.36 $10.02 $10.40 $10.00
Income from investment operations
Net investment income 0.48 0.45 0.42 0.24
Net realized and unrealized loss on investment (0.04) 0.34 (0.38) 0.40
------- -------- ------- -----
Total from investment operations 0.44 0.79 0.04 0.64
------- -------- ------- -----
Distributions to shareholders from
Net investment income (0.48) (0.45) (0.42) (0.24)
------- -------- ------- ------
Net asset value, end of period $10.32 $10.36 $10.02 $10.40
======= ======== ======= =======
Total return 4.33% 8.16% 0.38% 10.43%(a)
======= ======== ======= =========
Ratios/supplemental data
Net assets, end of period $6,400,507 $4,183,149 $3,929,053 $2,423,995
========= ========= ========= =========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 2.24% 2.76% 3.26% 3.50%(a)
After expense reimbursements and waived fees 0.85% 0.85% 0.84% 0.77%(a)
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees 3.21% 2.65% 1.67% 1.25%(a)
After expense reimbursements and waived fees 4.60% 4.56% 4.09% 3.98%(a)
Portfolio turnover rate 9.96% 83.12% 22.82% 0.00%(a)
(a) Annualized.
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
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 investment objective is to provide
current income exempt from Federal income taxes and from the personal
income taxes of North Carolina, to preserve capital, and to protect the
value of the portfolio against the effects of inflation. 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 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, 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 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 year ended August 31, 1996, 97% of the distributions paid
from net investment income qualify as tax-exempt dividends to
non-corporate shareholders.
The Fund has capital loss carryforwards for federal income tax
purposes of $69,382 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.
(Continued)
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
Of the $241,358 of distributions to shareholders ($0.48 per
share) during the fiscal year ended August 31, 1996, the Fund
has determined that $234,117 ($0.47 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.
E. Use of Estimates - The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the amounts of assets, liabilities,
expenses, and revenues reported in the financial statements.
Actual results could differ from those estimates.
F. Repurchase Agreements - The Fund may acquire U. S. Government
Securities or corporate debt securities subject to repurchase
agreements. A repurchase agreement transaction occurs when
the Fund acquires a security and simultaneously resells it to
the vendor (normally a member bank of the Federal Reserve or a
registered Government Securities dealer) for delivery on an
agreed upon future date. The repurchase price exceeds the
purchase price by an amount which reflects an agreed upon
market interest rate earned by the Fund effective for the
period of time during which the repurchase agreement is in
effect. Delivery pursuant to the resale typically will occur
within one to five days of the purchase. The Fund will not
enter into a repurchase agreement which will cause more than
10% of its net assets to be invested in repurchase agreements
which extend beyond seven days. In the event of the bankruptcy
of the other party to a repurchase agreement, the Fund could
experience delays in recovering its cash or the securities
lent. To the extent that in the interim the value of the
securities purchased may have declined, the Fund could
experience a loss. In all cases, the creditworthiness of the
other party to a transaction is reviewed and found
satisfactory by the Advisor. Repurchase agreements are, in
effect, loans of Fund assets. The Fund will not engage in
reverse repurchase transactions, which are considered to be
borrowings under the Investment Company Act of 1940.
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. For the fiscal
year ending August 31, 1996, the Advisor has voluntarily waived its
fees amounting to $18,238 ($0.04 per share) and has reimbursed the Fund
for operating expenses totalling $27,692 to limit those expenses to no
more than 0.85% of the average annual net assets of the Fund.
The Fund's administrator, The Nottingham Company, L.L.C. (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 contract with the Administrator provides that the
aggregate fees for
(Continued)
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
the aforementioned administrative, accounting and recordkeeping
services shall not be less than $3,000 per month. The Administrator
also charges the Fund for certain expenses involved with the daily
valuation of portfolio securities. The Administrator has voluntarily
waived fees of $13,483 ($0.02 per share) for the fiscal year ending
August 31, 1996.
Certain trustees and officers of the Trust are also officers or
directors 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. Such fees were waived in their entirety in the
current year.
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $2,815,020 and $501,761, respectively, for the fiscal year
ended August 31, 1996.
THE NORTH CAROLINA TAX FREE BOND FUND
Performance Update - $10,000 Investment
For the period from January 13, 1993 (commencement of
operations) to August 31, 1996
[GRAPH]
The North Carolina The Lehman Brothers
Date Tax Free Bond Fund Muni Bond Fund
01/13/93 10,000.00 10,000.00
01/31/93 10,085.00 10,128.76
02/28/93 10,366.28 10,494.99
03/31/93 10,214.84 10,384.09
04/30/93 10,239.00 10,489.04
05/31/93 10,290.93 10,547.62
06/30/93 10,470.17 10,724.00
07/31/93 10,457.25 10,737.78
08/31/93 10,655.97 10,961.47
09/30/93 10,785.32 11,086.47
10/31/93 10,777.06 11,107.77
11/30/93 10,727.07 11,009.71
12/31/93 10,870.98 11,242.17
01/31/94 10,970.77 11,370.61
02/28/94 10,724.26 11,076.13
03/31/94 10,494.49 10,625.00
04/29/94 10,517.04 10,715.23
05/30/94 10,589.09 10,807.96
06/30/94 10,524.93 10,744.99
07/31/94 10,670.45 10,938.91
08/31/94 10,696.41 10,976.82
09/30/94 10,504.00 10,815.79
10/31/94 10,357.86 10,623.75
11/30/94 10,228.52 10,431.39
12/31/94 10,430.91 10,661.03
01/31/95 10,709.17 10,965.85
02/28/95 11,019.31 11,284.77
03/31/95 11,114.20 11,414.47
04/30/95 11,140.00 11,427.94
05/31/95 11,475.72 11,792.61
06/30/95 11,341.49 11,689.54
07/31/95 11,447.43 11,800.13
08/31/95 11,568.85 11,949.87
09/30/95 11,614.06 12,025.38
10/31/95 11,782.58 12,200.19
11/30/95 11,962.87 12,402.88
12/31/95 12,091.30 12,521.93
01/31/96 12,204.96 12,616.54
02/29/96 12,102.77 12,531.33
03/31/96 11,884.98 12,371.24
04/30/96 11,850.86 12,336.15
05/31/96 11,804.47 12,331.45
06/30/96 11,920.41 12,465.85
07/31/96 12,059.26 12,578.63
08/31/96 12,069.76 12,575.81
This graph depicts the performance of The North Carolina Tax Free Bond Fund
versus the Lehman Brothers Muni Bond Index. It is important to note The
North Carolina Tax Free Bond Fund is a professionally managed mutual fund
while the index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
Average Annual Total Return
Since Inception One year ended Three years ended
January 13, 1993 to August 31, 1996 August 31, 1996
August 31, 1996
5.31% 4.33% 4.24%
. The graph assumes an initial $10,000 investment at January 13, 1993, and that
all dividends and distributions are reinvested.
. At August 31, 1996, the Fund would have grown to $12,069.76 - total
investment return of 20.70% since January 13, 1993.
. At August 31, 1996, a similar investment in the Lehman Brothers Muni Bond
Index would have grown to $12,575.81 - total investment return of 25.76%
since January 13, 1993.
. Past performance is not a guarantee of future performance. A mutual fund's
share price and investment return will vary with market conditions, and the
principal value of shares, when redeemed, may be worth more or less than the
original cost. Average annual returns are historical in nature and measure
net investment income and capital gain or loss from portfolio investments
assuming reinvestments of dividends.
