THE NORTH CAROLINA
TAX FREE BOND FUND
a series of the Albemarle Investment Trust
ANNUAL REPORT 1997
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>
October 14, 1997
Dear Shareholder:
For the fiscal year ended August 31, 1997, your Fund experienced good
performance with continued growth in assets. Interest rates declined during the
period, which led to price appreciation in addition to the interest income. The
Fund had a total return of +7.7% (including income and price appreciation) after
all expenses for the fiscal year ended August 31, 1997. At fiscal year end, the
Fund had an average maturity of 15 years and an average overall quality rating
of AAA. The net asset value per share at the beginning of the period of $10.32
increased to $10.63 by year end. Capital appreciation amounted to $.31 per share
while income paid during the year totaled $.47 per share.
Last year, the Fund's assets under management increased over 50% and recently
reached a new milestone exceeding $10 million. This increase in size affords the
Fund greater economies of scale to purchase and sell bonds in more efficient
block sizes which can enhance returns and lower operating costs as the Fund's
fixed costs are spread across a larger asset base. In an effort to obtain the
best service and lowest cost, the Fund's custodian and auditors were changed
during the year. The new custodian is Fifth Third Bank in Cincinnati, Ohio and
the new auditors are Deloitte & Touche LLP of Raleigh, NC.
The outstanding returns experienced in the stock market in recent years has
attracted large amounts of investors' capital, but has not diminished the
relative attractiveness of municipal bonds, in our opinion. The after-tax
returns available today offer very high real rates of return from an historical
perspective at a time when the risk in the equity markets is at lofty levels. We
believe that investors in municipal bonds will be well rewarded in times when
increased volatility returns to the equity markets.
The objectives of the Fund continue to be 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 strategy is to maintain an
intermediate-term 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 represent 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 respect to their investment in the Fund and to consider
establishing 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 may
purchase and hold their shares through either Wachovia Brokerage or 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 Vannice
John B. Kuhns Jon Vannice
Past performance is no guarantee of future results. During the period, 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
Performance Update - $10,000 Investment
For the period from January 13, 1993 (commencement of
operations) to August 31, 1997
LEHMAN BROTHERS
NC TAX FREE BOND FUND MUNI BOND INDEX
13-Jan-93 10,000.00 10,000.00
28-Feb-93 10,366.28 10,494.99
31-May-93 10,290.93 10,547.62
31-Aug-93 10,655.97 10,961.47
30-Nov-93 10,727.07 11,009.71
28-Feb-94 10,724.26 11,076.13
30-May-94 10,589.09 10,807.96
31-Aug-94 10,696.41 10,976.82
30-Nov-94 10,228.52 10,431.39
28-Feb-95 11,019.31 11,284.77
31-May-95 11,475.72 11,792.61
31-Aug-95 11,568.85 11,949.87
30-Nov-95 11,962.87 12,402.88
29-Feb-96 12,102.77 12,531.33
31-May-96 11,804.47 12,331.45
31-Aug-96 12,069.76 12,575.81
30-Nov-96 12,620.91 13,131.89
29-Feb-97 12,642.60 13,221.49
31-May-97 12,653.37 13,352.44
31-Aug-97 13,000.88 13,738.41
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
January 13, 1993 to One year ended Three years ended
August 31, 1997 August 31, 1997 August 31, 1997
5.83% 7.71% 6.72%
The graph assumes an initial $10,000 investment at January 13, 1993, and that
all dividends and distributions are reinvested.
At August 31, 1997, the Fund would have grown to $13,001 - total investment
return of 30.01% since January 13, 1993.
At August 31, 1997, a similar investment in the Lehman Brothers Muni Bond Index
would have grown to $13,738 - total investment return of 37.38% 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.
<PAGE>
<TABLE>
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THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
Principal Interest Maturity Value
Amount Rate Date (note 1)
MUNICIPAL OBLIGATIONS - 96.08%
Appalachian State University, North
Carolina Utility System Revenue ................................ $150,000 5.90% 05-15-08 $161,354
Asheville, North Carolina
Water System Revenue ........................................... 150,000 5.50% 08-01-11 154,991
Buncombe County, North Carolina
Public Improvement General Obligation .......................... 100,000 5.80% 02-01-09 106,517
Buncombe County, North Carolina
Solid Waste System Special Obligation Revenue .................. 200,000 5.60% 03-01-11 208,849
Cabarrus County, North Carolina
General Obligation ............................................. 250,000 5.40% 02-01-17 250,830
Charlotte-Mecklenburg Hospital
Authorized North Carolina Health Care
System Revenue ................................................. 100,000 5.75% 01-01-12 102,828
Charlotte, North Carolina Public Improvement
General Obligation ............................................. 400,000 5.30% 04-01-08 415,292
Charlotte, North Carolina Water &
Sewer General Obligation ....................................... 400,000 5.60% 05-01-20 408,925
Charlotte, North Carolina Law Enforcement
Facilities Project Series A Certificate
of Participation ............................................... 100,000 6.10% 12-01-15 105,363
Concord, North Carolina Utilities
System Revenue ................................................. 200,000 5.75% 12-01-17 205,335
Concord, North Carolina Utilities
System Revenue ................................................. 125,000 5.50% 12-01-14 127,271
Currituck County, North Carolina
General Obligation ............................................. 300,000 5.40% 04-01-14 303,266
Dare County, North Carolina Utilities
System Revenue ................................................. 100,000 5.75% 06-01-14 104,591
Durham, North Carolina Public Improvement
General Obligation ............................................. 100,000 5.10% 02-01-07 102,898
Durham, North Carolina
General Obligation Revenue ..................................... 200,000 5.80% 02-01-12 212,596
Fayetteville, North Carolina Public
Works Commission Revenue ....................................... 100,000 4.80% 03-01-07 99,886
Fayetteville, North Carolina Public
Works Commission Revenue ....................................... 150,000 5.13% 03-01-10 150,569
Forsyth County, North Carolina
General Obligation ............................................. 200,000 4.75% 02-01-13 191,402
Gaston County, North Carolina
General Obligation ............................................. 175,000 5.70% 03-01-11 184,042
Gastonia, North Carolina Police Station
Project Certificate of Participation ........................... 100,000 5.70% 08-01-15 101,775
(Continued)
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
Principal Interest Maturity Value
Amount Rate Date (note 1)
MUNICIPAL OBLIGATIONS - (Continued)
Gastonia, North Carolina Street Improvement
General Obligation Unlimited ............................... $200,000 5.50% 05-01-13 $205,872
Greensboro, North Carolina
General Obligation Unlimited ............................... 500,000 5.00% 03-01-12 492,663
Greensboro, North Carolina Public Improvement
Series A General Obligation ................................ 100,000 5.80% 04-01-07 107,022
High Point, North Carolina
General Obligation Revenue ................................. 100,000 5.60% 03-01-13 103,639
High Point, North Carolina
General Obligation ......................................... 200,000 5.00% 03-01-15 193,351
Lincolnton, North Carolina
Enterprise System Revenue .................................. 200,000 5.38% 05-01-16 200,094
Mecklenburg County, North Carolina
General Obligation ......................................... 500,000 4.70% 04-01-11 483,080
Mecklenburg County, North Carolina
Public Improvement General Obligation ...................... 150,000 5.40% 04-01-04 157,515
Mecklenburg County, North Carolina
Public Improvement General Obligation ...................... 200,000 5.50% 04-01-11 207,765
Morganton, North Carolina Water
& Sewer General Obligation Revenue ......................... 100,000 5.70% 06-01-14 103,964
North Carolina Central University
Housing System Revenue ..................................... 200,000 5.80% 11-01-17 207,906
North Carolina Housing Finance Agency
Multifamily Series A Revenue ............................... 100,000 5.80% 07-01-13 102,096
North Carolina Medical Care Commission
Memorial Mission Hospital Project Revenue .................. 100,000 6.00% 10-01-12 105,499
North Carolina Municipal Power Agency -
Number 1 - Catawba Electric Revenue ........................ 100,000 6.00% 01-01-09 109,366
North Carolina Municipal Power Agency -
Number 1 - Catawba Electric Revenue ........................ 100,000 5.75% 01-01-15 102,951
North Carolina State
Series A General Obligation ................................ 300,000 5.10% 03-01-07 308,628
North Carolina State
General Obligation ......................................... 400,000 5.10% 06-01-10 404,551
North Carolina State Clean Water
Series A General Obligation ................................ 100,000 5.20% 06-01-10 101,942
North Carolina State Clean Water
Series A General Obligation ................................ 100,000 5.80% 06-01-16 104,687
North Carolina State University
Centennial Campus B ........................................ 500,000 5.13% 12-15-16 485,447
Onslow County, North Carolina
General Obligation Unlimited ............................... 100,000 5.70% 03-01-13 104,430
(Continued)
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
Principal Interest Maturity Value
Amount Rate Date (note 1)
MUNICIPAL OBLIGATIONS - (Continued)
Pitt County, North Carolina Memorial
Hospital Revenue ......................................... $ 100,000 5.50% 12-01-15 $ 100,021
Raleigh, North Carolina
General Obligation Unlimited ............................. 200,000 5.25% 06-01-12 202,554
Raleigh, North Carolina
General Obligation Unlimited ............................. 400,000 5.25% 06-01-13 402,536
Rowan County, North Carolina
General Obligation ....................................... 150,000 5.60% 05-01-10 157,280
Salisbury, North Carolina Water & Sewer
General Obligation ....................................... 100,000 5.30% 05-01-11 100,812
Union County, North Carolina
Enterprise System Revenue ................................ 100,000 5.35% 06-01-09 103,305
Union County, North Carolina
Series A General Obligation .............................. 100,000 5.20% 06-01-12 100,285
Union County, North Carolina
Series B General Obligation .............................. 100,000 5.30% 05-01-15 99,784
Wilmington, North Carolina Water
General Obligation Revenue ............................... 100,000 5.60% 06-01-11 103,265
Winston-Salem, North Carolina
General Obligation ....................................... 100,000 5.50% 06-01-12 103,157
-------
Total Municipal Obligations (Cost $9,317,400) ............... 9,564,047
---------
INVESTMENT COMPANY - 2.32%
North Carolina Municipal Cash Trust ...................... 230,774 230,774
-------
(Cost $230,774 )
Total Value of Investments (Cost $9,548,174 (a)) ............... 98.40 % 9,794,821
Other Assets In Excess of Liabilities .......................... 1.60 % 159,474
------ ----------
Net Assets .................................................. 100.00 % $9,954,295
====== ==========
(a) 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 $268,481
Unrealized depreciation (21,834)
-------
Net unrealized appreciation $246,647
========
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1997
ASSETS
Investments, at value (cost $9,548,174) .................... $ 9,794,821
Cash ....................................................... 6,508
Interest receivable ........................................ 159,591
-------
Total assets ............................................ 9,960,920
---------
LIABILITIES
Accrued expenses ........................................... 4,913
Due to advisor (note 2) .................................... 1,712
-----
Total liabilities ....................................... 6,625
-----
NET ASSETS
(applicable to 936,344 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ..... $ 9,954,295
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER SHARE
($9,954,295 / 936,344 shares) .............................. $ 10.63
===========
NET ASSETS CONSIST OF
Paid-in capital ............................................ $ 9,768,746
Accumulated net realized loss on investments ............... (61,098)
Net unrealized appreciation on investments ................. 246,647
-------
$ 9,954,295
===========
See accompanying notes to financial statements
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENT OF OPERATIONS
Year ended August 31, 1997
INVESTMENT INCOME
Income
Interest ................................................... $ 400,724
Dividends .................................................. 5,870
-----
Total income ............................................ 406,594
-------
Expenses
Investment advisory fees (note 2) .......................... 26,663
Fund administration fees (note 2) .......................... 11,427
Shareholder service fees (note 3) .......................... 19,045
Custody fees ............................................... 5,555
Registration and filing administration fees (note 2) ....... 249
Fund accounting fees (note 2) .............................. 21,000
Audit fees ................................................. 9,151
Legal fees ................................................. 8,650
Securities pricing fees .................................... 6,019
Shareholder recordkeeping fees ............................. 974
Other fees ................................................. 2,350
Shareholder servicing expenses ............................. 4,246
Registration and filing expenses ........................... 333
Printing expenses .......................................... 3,340
Trustee fees and meeting expenses .......................... 5,814
Other operating expenses ................................... 3,525
-----
Total expenses .......................................... 128,341
-------
Less:
Expense reimbursements (note 2) ...................... (9,244)
Investment advisory fees waived (note 2) ............. (26,663)
Fund administration fees waived (note 2) ............. (8,718)
Shareholder service fees waived (note 3) ............. (19,045)
-------
Net expenses ............................................ 64,671
------
Net investment income ................................ 341,923
-------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions ................ 32,653
Increase in unrealized appreciation on investments ............ 190,154
-------
Net realized and unrealized gain on investments ............ 222,807
-------
Net increase in net assets resulting from operations .... $ 564,730
=========
See accompanying notes to financial statements
<PAGE>
<TABLE>
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THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year ended Year ended
August 31 August 31
1997 1996
INCREASE IN NET ASSETS
Operations
Net investment income ............................................................... $ 341,923 $ 239,837
Net realized gain from investment transactions ...................................... 32,653 8,543
Increase (decrease) in unrealized appreciation on investments ....................... 190,154 (64,001)
------- -------
Net increase in net assets resulting from operations ............................. 564,730 184,379
------- -------
Distributions to shareholders from
Net investment income ............................................................... (341,923) (241,358)
-------- --------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ................ 3,330,981 2,274,337
--------- ---------
Total increase in net assets .................................................. 3,553,788 2,217,358
NET ASSETS
Beginning of period .................................................................... 6,400,507 4,183,149
--------- ---------
End of period .......................................................................... $ 9,954,295 $ 6,400,507
=========== ===========
(a) A summary of capital share activity follows:
Year ended Year ended
August 31, 1997 August 31, 1996
Shares Value Shares Value
Shares sold .................................... 363,128 $ 3,821,326 273,835 $ 2,873,661
Shares issued for reinvestment
of distributions ............................. 25,239 266,015 19,626 204,428
------ ------- ------ -------
388,367 4,087,341 293,461 3,078,089
Shares redeemed ................................ (71,933) (756,360) (77,223) (803,752)
------- -------- ------- --------
Net increase ................................. 316,434 $ 3,330,981 216,238 $ 2,274,337
======= =========== ======= ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
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THE NORTH CAROLINA TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
For the
period from
January 13, 1993
(commencement of
Year ended Year ended Year ended Year ended operations) to
August 31, August 31, August 31, August 31, August 31,
1997 1996 1995 1994 1993
Net asset value, beginning of period ........................... $10.32 $10.36 $10.02 $10.40 $10.00
Income from investment operations
Net investment income .................................... 0.47 0.48 0.45 0.42 0.24
Net realized and unrealized gain (loss) on investments ... 0.31 (0.04) 0.34 (0.38) 0.40
---- ----- ---- ----- ----
Total from investment operations ...................... 0.78 0.44 0.79 0.04 0.64
---- ---- ---- ---- ----
Distributions to shareholders from
Net investment income .................................... (0.47) (0.48) (0.45) (0.42) (0.24)
----- ----- ----- ----- -----
Net asset value, end of period ................................. $10.63 $10.32 $10.36 $10.02 $10.40
====== ====== ====== ====== ======
Total return ................................................... 7.71% 4.33% 8.16% 0.38% 10.43%(a)
==== ==== ==== ==== =====
Ratios/supplemental data
Net assets, end of period ...................................$9,954,295 $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 ............ 1.68% 2.24% 2.76% 3.26% 3.50%(a)
After expense reimbursements and waived fees ............. 0.85% 0.85% 0.85% 0.84% 0.77%(a)
Ratio of net investment income to average net assets
Before expense reimbursements and waived fee ............. 3.65% 3.21% 2.65% 1.67% 1.25%(a)
After expense reimbursements and waived fees ............. 4.49% 4.60% 4.56% 4.09% 3.98%(a)
Portfolio turnover rate ..................................... 19.72% 9.96% 83.12% 22.82% 0.00%
(a) Annualized.
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
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-ended investment company
which was organized in 1992 as a Massachusetts Business Trust and is
registered under the Investment Company Act of 1940, (the "Act") as
amended. 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.
The Fund has capital loss carryforwards for federal income tax
purposes of $45,273 and $15,825 which expire in the year 2003
and 2005, respectively. 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 $341,923 of distributions to shareholders ($0.47 per
share) during the fiscal year ended August 31, 1997, the Fund
has determined that all distributions made qualify as
exempt-interest
(Continued)
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
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 generally accepted accounting principles
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 Act.
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, 1997, the Advisor has voluntarily waived its
fees amounting to $26,663 ($0.04 per share) and has reimbursed the Fund
for operating expenses totaling $9,244 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, (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 the aforementioned administrative, accounting, and
recordkeeping services shall not be less than $3,000 per
(Continued)
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
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 $8,718 ($0.01 per share)
for the fiscal year ended August 31, 1997.
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 Act, 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 $4,597,732 and $1,455,424, respectively, for the fiscal year
ended August 31, 1997.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Albemarle Investment Trust:
We have audited the accompanying statement of assets and liabilities of The
North Carolina Tax Free Bond Fund (a portfolio of the Albemarle Investment
Trust), including the portfolio of investments, as of August 31, 1997, and the
related statements of operations for the year then ended, and the statements of
changes in net assets and financial highlights for the two years then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for the three years in the period ended August 31, 1995 were audited
by other auditors, whose reports thereon dated September 29, 1995, expressed an
unqualified opinion.
We conducted our audits 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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
August 31, 1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of The North Carolina Tax Free Bond Fund as of August 31, 1997, the
results of its operations for the year then ended, the changes in its net assets
and its financial highlights for the two years then ended in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
September 19, 1997
