- --------------------------------------------------------------------------------
THE NORTH CAROLINA TAX FREE BOND FUND
-------------------------------------
A No-Load Mutual Fund
ANNUAL REPORT
August 31, 1998
INVESTMENT ADVISOR ADMINISTRATOR
------------------ -------------
BOYS, ARNOLD & COMPANY COUNTRYWIDE FUND SERVICES, INC.
Post Office Drawer 5255 312 Walnut Street
1272 Hendersonville Road P.O. Box 5354
Asheville, North Carolina 28813-5255 Cincinnati, Ohio 45201-5354
1.800.286.8038 1.800.841.0987
- --------------------------------------------------------------------------------
<PAGE>
October 7, 1998
We are pleased to enclose the annual report for The North Carolina Tax Free Bond
Fund for the year ended August 31, 1998.
Your Fund continued to perform very well for the fiscal year as interest rates
declined and the supply of newly issued bonds remained historically light. As a
result, bond prices moved higher and volatility stayed moderate. Municipal bond
returns for the period, although very attractive, lagged those of taxable bonds
as interest rates on Treasury securities declined more, causing the relative
attractiveness of municipal bonds to increase by the end of the year.
For the fiscal year ended August 31, 1998, your Fund had a total return (which
includes income and appreciation) of 8.92%, outperforming the 8.65% return for
the Lehman Brothers Municipal Bond Index during the same period. This ranked
your Fund seventh out of 40 North Carolina municipal debt funds as tracked by
Lipper Analytical Services, Inc. In fact, the Fund ranked second for the five
year period ended August 31, 1998, out of a group of 16 funds as measured by
Lipper. At the close of the fiscal year, the Fund's net asset value was $11.11
per share. The Fund paid tax-free income of $.45 per share during the year.
The Fund continues to maintain a portfolio of high quality North Carolina
municipal bonds with an average maturity of fifteen years. The portfolio's
overall quality, as measured by Standard & Poor's Corporation quality ratings,
is AA+.
Subsequent to the close of the Fund's fiscal year, interest rates declined at a
rapid rate reaching levels not seen since the 1960s. The plunge in some currency
values around the globe has fanned fears of a global recession and continued
deflationary pressures. This, coupled with concerns over the immediate future of
our President, the risk of our own domestic recession, and worries over further
surprise shocks, have caused considerable investor caution. The perception of
increased inflation as a probable risk has shifted to concern over potential
global deflation. Whether or not recession occurs in the U.S., we expect the
domestic economy to slow. With increased focus on safety and income, municipal
bonds should remain in demand by investors.
We expect inflation to remain subdued and the trend in municipal bond interest
rates to also stay flat to downward. High quality municipal bonds provide an
outstanding alternative for investors when safety, stability and steady tax-free
income are in demand. With many municipal bonds trading at higher yields than
Treasuries, municipals look very attractive relative to competitive investments.
We encourage investors to maintain a long term outlook toward their investment
in the Fund and to consider a plan of regular investment through dollar cost
averaging.
We appreciate your continued trust and support and welcome your questions and
comments.
Sincerely,
/s/ John B. Kuhns /s/ Jon L. Vannice
John B. Kuhns Jon L. Vannice
<PAGE>
The North Carolina Tax Free Bond Fund
Comparison of the Change in Value of a $10,000 Investment in the North Carolina
Tax Free Bond Fund and the Lehman Brothers Municipal Bond Index
- --------------------------------------------------------------------------------
THE NORTH CAROLINA TAX FREE BOND FUND
LEHMAN BROTHERS MUNICIPAL BOND INDEX: THE NORTH CAROLINA TAX FREE BOND FUND:
- ------------------------------------- --------------------------------------
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
- ------ ------ ------- ---- ------ -------
01/13/93 10,000 01/13/93 10,000
02/28/93 4.96% 10,496 02/28/93 3.70% 10,370
05/31/93 0.50% 10,548 05/31/93 -0.72% 10,296
08/31/93 3.92% 10,962 08/31/93 3.54% 10,660
11/30/93 0.44% 11,010 11/30/93 0.63% 10,727
02/28/94 0.60% 11,076 02/28/94 -0.06% 10,721
05/31/94 -2.42% 10,808 05/31/94 -1.25% 10,587
08/31/94 1.56% 10,977 08/31/94 1.03% 10,696
11/30/94 -4.97% 10,431 11/30/94 -4.53% 10,212
02/28/95 8.18% 11,285 02/28/95 7.94% 11,024
05/31/95 4.50% 11,792 05/31/95 4.15% 11,481
08/31/95 1.33% 11,949 08/31/95 0.76% 11,569
11/30/95 3.79% 12,402 11/30/95 3.41% 11,963
02/29/96 1.04% 12,531 02/29/96 1.17% 12,103
05/31/96 -1.59% 12,332 05/31/96 -2.46% 11,804
08/31/96 1.98% 12,576 08/31/96 2.25% 12,070
11/30/96 4.42% 13,132 11/30/96 4.56% 12,620
02/28/97 0.68% 13,221 02/28/97 0.17% 12,641
05/31/97 0.99% 13,352 05/31/97 0.09% 12,652
08/31/97 2.89% 13,738 08/31/97 2.75% 13,000
11/30/97 2.44% 14,073 11/30/97 2.33% 13,303
02/28/98 2.54% 14,431 02/28/98 3.08% 13,713
05/31/98 1.22% 14,607 05/31/98 0.75% 13,815
08/31/98 2.20% 14,928 08/31/98 2.49% 14,159
Past performance is not predictive of future performance.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The North Carolina Tax Free Bond Fund
Average Annual Total Returns
1 Year 5 Years Since Inception*
------ ------- ----------------
8.92% 5.84% 6.37%
- --------------------------------------------------------------------------------
* Commencement of operations was January 13, 1993.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investment securities, at value (cost $11,893,844) (note 1) $12,464,828
Interest receivable 185,930
Receivable for capital shares sold 650
Receivable for securities sold 373,543
Receivable from Advisor (note 3) 3,582
Other assets 3,238
-----------
TOTAL ASSETS 13,031,771
-----------
LIABILITIES:
Dividends payable 3,848
Payable for capital shares redeemed 67,000
Payable for securities purchased 517,062
Payable to affiliates (note 3) 3,450
Other accrued expenses and liabilities 4,103
-----------
TOTAL LIABILITIES 595,463
-----------
NET ASSETS $12,436,308
===========
NET ASSETS CONSIST OF:
Paid-in capital $11,749,790
Accumulated net realized gains from security transactions 115,534
Net unrealized appreciation on investments 570,984
-----------
NET ASSETS $12,436,308
===========
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 1,119,328
===========
Net asset value, offering price and redemption price per share (note 1) $ 11.11
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
INVESTMENT INCOME:
Interest $ 544,080
---------
EXPENSES:
Investment advisory fees (note 3) 38,230
Professional fees 22,841
Accounting services fees (note 3) 19,500
Administration fees (note 3) 14,208
Shareholder service fees (note 3) 27,318
Postage and supplies 7,884
Trustees' fees and expenses 7,308
Transfer agent fees (note 3) 5,019
Pricing expenses 4,374
Insurance expense 3,239
Custodian fees 3,232
Reports to shareholders 1,865
---------
TOTAL EXPENSES 155,018
Investment advisory fees waived (note 3) (36,891)
Shareholder service fees waived (note 3) (27,318)
---------
NET EXPENSES 90,809
---------
NET INVESTMENT INCOME 453,271
---------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains from security transactions 176,632
Net increase in unrealized appreciation on investments 324,337
---------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 500,969
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 954,240
=========
See accompanying notes to financial statements.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1998 1997
------------ -----------
FROM OPERATIONS:
<S> <C> <C>
Net investment income $ 453,271 $ 341,923
Net realized gains from security transactions 176,632 32,653
Net increase in unrealized appreciation on investments 324,337 190,154
------------ -----------
NET INCREASE IN NET ASSETS FROM OPERATIONS 954,240 564,730
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (453,271) (341,923)
------------ -----------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 3,362,112 3,821,326
Net asset value of shares issued in reinvestment
of distributions to shareholders 365,561 266,015
Payment for shares redeemed (1,746,629) (756,360)
------------ -----------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 1,981,044 3,330,981
------------ -----------
TOTAL INCREASE IN NET ASSETS 2,482,013 3,553,788
NET ASSETS:
Beginning of year 9,954,295 6,400,507
------------ -----------
End of year $ 12,436,308 $ 9,954,295
============ ===========
SUMMARY OF CAPITAL SHARE ACTIVITY:
Shares sold 309,619 363,128
Shares issued in reinvestment of distributions to shareholders 33,523 25,239
Shares redeemed (160,158) (71,933)
------------ -----------
Net increase in shares outstanding 182,984 316,434
Shares outstanding, beginning of year 936,344 619,910
------------ -----------
Shares outstanding, end of year 1,119,328 936,344
============ ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF YEAR $ 10.63 $ 10.32 $ 10.36 $ 10.02 $ 10.40
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.45 0.47 0.48 0.45 0.42
Net realized and unrealized gains
(losses) on investments 0.48 0.31 (0.04) 0.34 (0.38)
----------- ----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS 0.93 0.78 0.44 0.79 0.04
----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.45) (0.47) (0.48) (0.45) (0.42)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE AT END OF YEAR $ 11.11 $ 10.63 $ 10.32 $ 10.36 $ 10.02
=========== =========== =========== =========== ===========
TOTAL RETURN 8.92% 7.71% 4.33% 8.16% 0.38%
=========== =========== =========== =========== ===========
NET ASSETS AT END OF YEAR $12,436,308 $ 9,954,295 $ 6,400,507 $ 4,183,149 $ 3,929,053
=========== =========== =========== =========== ===========
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before expense reimbursements and waived fees 1.42% 1.68% 2.24% 2.76% 3.26%
After expense reimbursements and
waived fees (note 3) 0.83% 0.85% 0.85% 0.85% 0.84%
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 4.15% 4.49% 4.60% 4.56% 4.09%
PORTFOLIO TURNOVER RATE 36% 20% 10% 83% 23%
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
-------- ------- -------- -----------
MUNICIPAL OBLIGATIONS - 98.6%
<S> <C> <C> <C> <C>
Appalachian State University
Utility System Revenue $150,000 5.90% 05-15-08 $ 166,956
Asheville, North Carolina
Water System Revenue 150,000 5.50% 08-01-11 162,734
Buncombe County, North Carolina
Solid Waste System Special Obligation Revenue 200,000 5.60% 03-01-11 217,112
Buncombe County, North Carolina
Certificate of Participation 500,000 5.00% 12-01-12 513,345
Cabarrus County, North Carolina
General Obligation 250,000 5.40% 02-01-17 263,665
Charlotte, North Carolina
Public Improvements General Obligation 400,000 5.30% 04-01-08 430,584
Charlotte, North Carolina
Law Enforcement Facilities Project Series A
Certificate of Participation 100,000 6.10% 12-01-15 109,221
Charlotte, North Carolina
Water & Sewer General Obligation 400,000 5.60% 05-01-20 445,528
Concord, North Carolina
Utilities System Revenue 125,000 5.50% 12-01-14 133,680
Cumberland County, North Carolina
General Obligation 400,000 4.90% 03-01-12 411,724
Currituck County, North Carolina
General Obligation 300,000 5.40% 04-01-14 317,898
Durham, North Carolina
General Obligation Revenue 200,000 5.80% 02-01-12 219,372
Forsyth County, North Carolina
General Obligation 300,000 4.75% 02-01-13 303,744
Gaston County, North Carolina
General Obligation 500,000 5.00% 03-01-17 506,035
Gastonia, North Carolina
Street Improvements General Obligation 200,000 5.50% 05-01-13 216,478
Gastonia, North Carolina
Police Station Project Certificate of Participation 100,000 5.70% 08-01-15 107,589
Gastonia, North Carolina
Street Improvements General Obligation 400,000 5.50% 05-01-16 427,884
Greensboro, North Carolina
General Obligation 500,000 5.00% 03-01-12 519,430
Johnston County, North Carolina
General Obligation 500,000 5.00% 05-01-18 502,460
Lincolnton, North Carolina
Enterprise System Revenue 200,000 5.38% 05-01-16 210,304
</TABLE>
(CONTINUED)
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
-------- ------- -------- -----------
MUNICIPAL OBLIGATIONS - (Continued)
<S> <C> <C> <C> <C>
Mecklenburg County, North Carolina
Public Improvements General Obligation $200,000 5.50% 04-01-11 $ 214,328
Morganton, North Carolina
Water & Sewer General Obligation Revenue 500,000 5.70% 06-01-13 542,020
Morganton, North Carolina
Water & Sewer General Obligation Revenue 100,000 5.70% 06-01-14 108,197
North Carolina Central University
Housing System Revenue 200,000 5.80% 11-01-17 217,416
North Carolina Housing Finance Agency
Multifamily Series A Revenue 100,000 5.80% 07-01-13 105,502
North Carolina Medical Care Commission
Pitt County Memorial Hospital Series A Revenue 500,000 5.25% 12-01-12 517,335
North Carolina Medical Care Commission
Duke University Hospital Series C Revenue 500,000 5.25% 06-01-17 507,590
North Carolina Municipal Power Agency -
Number 1 - Catawba Electric Revenue 100,000 6.00% 01-01-09 113,253
North Carolina Municipal Power Agency -
Number 1 - Catawba Electric Revenue 100,000 5.75% 01-01-15 103,868
North Carolina State
Series A General Obligation 300,000 5.10% 03-01-07 321,795
North Carolina State
General Obligation 400,000 5.10% 06-01-10 425,752
North Carolina State
Clean Water Series A General Obligation 100,000 5.80% 06-01-16 108,647
North Carolina State University
Centennial Campus B Revenue 500,000 5.13% 12-15-16 509,175
Pitt County, North Carolina
Memorial Hospital Revenue 100,000 5.50% 12-01-15 104,639
Raleigh, North Carolina
General Obligation 500,000 5.25% 06-01-13 529,665
Transylvania County, North Carolina
General Obligation 400,000 4.75% 02-01-14 400,852
Union County, North Carolina
Series B General Obligation 100,000 5.30% 05-01-15 105,272
University of North Carolina
General Obligation Revenue 500,000 5.40% 05-15-16 527,245
Winston-Salem, North Carolina
Water & Sewer System Revenue 500,000 4.80% 06-01-10 512,890
Winston-Salem, North Carolina
General Obligation 100,000 5.50% 06-01-12 107,725
-----------
TOTAL MUNICIPAL OBLIGATIONS (COST $11,697,925) $12,268,909
-----------
</TABLE>
(CONTINUED)
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
-------- ------- -------- -----------
<S> <C> <C> <C> <C>
INVESTMENT COMPANY - 1.6%
Federated North Carolina Municipal Money Market Portfolio $195,919 $ 195,919
(COST $195,919) -----------
TOTAL VALUE OF INVESTMENT SECURITIES (COST $11,893,844 (A)) - 100.2% $12,464,828
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.2)% (28,520)
-----------
NET ASSETS - 100.0% $12,436,308
===========
</TABLE>
(a) As of August 31, 1998, the cost of investment securities for federal
income tax purposes was the same as that shown for financial reporting
purposes. The aggregate gross unrealized appreciation and depreciation
on investment securities was $570,987 and $3, respectively, resulting
in net unrealized appreciation for financial reporting and federal
income tax purposes of $570,984.
See accompanying notes to financial statements.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
The North Carolina Tax Free Bond Fund (the Fund) is a non-diversified, open-end
series of the Albemarle Investment Trust (the Trust), a management investment
company registered under the Investment Company Act of 1940 (the 1940 Act). The
Trust was organized in 1992 as a Massachusetts business trust. The Fund began
operations on January 13, 1993.
The investment objective of the Fund 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 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.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of the
close of business of the regular session of trading of the New York Stock
Exchange (currently 4:00 p.m., Eastern time). Municipal obligations are valued
by an independent pricing service which generally utilizes a computerized matrix
system with consideration given to security quality, maturity, coupon, call
features and the latest trading developments. On limited occasions, if the
valuation provided by the pricing service ignores certain market conditions
affecting the value of a security or the pricing service cannot provide a
valuation, the security is valued at fair value as determined in good faith in
accordance with consistently applied procedures established by and under the
general supervision of the Board of Trustees.
Share valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price per share and the redemption
price per share are equal to the net asset value per share.
Investment income -- Interest income is accrued as earned. Discounts and
premiums on securities purchased are amortized in accordance with income tax
regulations.
Distributions to shareholders -- Dividends arising from net investment income
are declared daily and paid on the last business day of each month. Net realized
short-term capital gains, if any, may be distributed throughout the year and net
realized long-term capital gains, if any, are distributed at least once each
year. Income distributions and capital gain distributions are determined in
accordance with income tax regulations.
Security transactions -- Security transactions are accounted for on trade date.
Securities sold are valued on a specific identification basis. The Fund may
purchase securities on a when issued or delayed delivery basis. These
transactions involve a commitment by the Fund to purchase securities for a
predetermined price or yield with payment and delivery taking place more than
three days in the future, or after a period longer than the customary settlement
period for that type of security. No interest will be earned by the Fund on such
purchases until the securities are delivered; however, the market value may
change prior to delivery.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1998
Estimates -- The preparation of financial statements in conformity 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 reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
In addition, the Fund intends to satisfy conditions which enable it to designate
the interest income generated by its investment in municipal securities, which
is exempt from federal income tax when received by the Fund, as exempt-interest
dividends upon distribution to shareholders. For the year ended August 31, 1998,
the Fund has designated its distributions paid to shareholders from net
investment income of $453,271, or $0.45 per share, as exempt-interest dividends
for federal income tax purposes.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
2. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales and maturities of investment
securities, other than short-term investments, amounted to $6,009,729 and
$3,801,429, respectively, for the year ended August 31, 1998.
3. TRANSACTIONS WITH AFFILIATES
Certain officers of the Trust are also officers of Boys, Arnold & Company, Inc.
(the Advisor), or of Countrywide Fund Services, Inc. (CFS), the administrative
services agent, shareholder servicing and transfer agent and accounting services
agent for the Fund.
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by the Advisor under the terms of an
Investment Advisory Agreement. Under the Investment Advisory Agreement, the Fund
pays the Advisor an investment advisory fee, which is computed and accrued daily
and paid monthly, at an annual rate of 0.35% of the Fund's average daily net
assets. The Advisor currently intends to voluntarily waive its investment
advisory fees and/or reimburse expenses of the Fund to the extent necessary to
limit the total operating expenses of the Fund to 0.85% of its average daily net
assets. For the year ended August 31, 1998, the Advisor waived $36,891 of its
investment advisory fees.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1998
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement effective March 1, 1998, CFS
supplies non-investment related administrative and compliance services for the
Fund. CFS supervises the preparation of tax returns, reports to shareholders,
reports to and filings with the Securities and Exchange Commission and state
securities commissions, and materials for meetings of the Board of Trustees. For
these services, CFS receives a monthly fee at an annual rate of 0.15% on the
Fund's average daily net assets up to $50 million; 0.125% on the next $50
million of such net assets; and 0.10% on such net assets in excess of $100
million, subject to a $1,000 minimum monthly fee. The foregoing fees were
subject to a 25% discount through August 31, 1998. For the year ended August 31,
1998, CFS earned $6,502 of fees under the Administration Agreement.
Prior to March 1, 1998, The Nottingham Company (Nottingham) provided
administrative services to and was generally responsible for the overall
management and day-to-day operations of the Fund pursuant to an accounting and
administrative agreement with the Trust. For these services, Nottingham received
a fee at the annual rate of 0.15% of the Fund's average daily net assets.
Nottingham also received a monthly fee of $1,750 for accounting and
recordkeeping services. Additionally, Nottingham charged the Fund for servicing
of shareholder accounts and registration of the Fund's shares. The accounting
and administrative agreement with Nottingham provided that the aggregate fees
for the aforementioned administrative, accounting and recordkeeping services
would not be less than $3,000 per month.
TRANSFER AGENT AGREEMENT
Under the terms of a Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement effective March 1, 1998, CFS maintains the records of each
shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of the Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, CFS receives a monthly fee based on the
number of shareholder accounts in the Fund, subject to a $1,000 minimum monthly
fee. The foregoing fees were subject to a 25% discount through August 31, 1998.
For the year ended August 31, 1998, CFS earned $4,500 of fees under the Transfer
Agent Agreement. In addition, the Fund pays out-of-pocket expenses including,
but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement effective March 1, 1998, CFS
calculates the daily net asset value per share and maintains the financial books
and records of the Fund. For these services, CFS receives a monthly fee, based
on current asset levels, of $2,000 per month from the Fund. The foregoing fees
were subject to a 25% discount through August 31, 1998. For the year ended
August 31, 1998, CFS earned $9,000 of fees under the Accounting Services
Agreement. In addition, the Fund pays certain out-of-pocket expenses incurred by
CFS in obtaining valuations of the Fund's portfolio securities.
SHAREHOLDER SERVICING FEES
The Trust has adopted a Shareholder Servicing Plan (the Plan) pursuant to which
the Fund may incur certain expenses for the compensation of persons providing
ongoing services and/or maintenance of the Fund's shareholder accounts, not
otherwise required to be provided by CFS. The basis for amounts paid under the
Plan must be approved by the Board of Trustees and may not exceed 0.25% of the
Fund's average daily net assets. For the year ended August 31, 1998, shareholder
service fees of $27,318 were waived in their entirety.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees and Shareholders of
The Albemarle Investment Trust:
We have audited the accompanying statement of assets and liabilities of The
North Carolina Tax Free Bond Fund (the Fund), a portfolio of the Albemarle
Investment Trust, including the portfolio of investments, as of August 31, 1998,
the related statement of operations for the year then ended and the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the three years in the period 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 year ended August 31, 1995 and August 31, 1994, were audited
by other auditors, whose report thereon dated September 29, 1995, expressed an
unqualified opinion.
We conducted our audits in accordance with generally accepted auditing standard.
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 securities owned as of August 31, 1998, by
correspondence with the Fund's 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The North Carolina
Tax Free Bond Fund at August 31, 1998, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Dayton, Ohio
October 2, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812073
<NAME> NORTH CAROLINA TAX-FREE BOND FUND
<S> <C>
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<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
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<INVESTMENTS-AT-VALUE> 12,464,828
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<PAID-IN-CAPITAL-COMMON> 11,749,790
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<NUMBER-OF-SHARES-REDEEMED> 160,158
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