Securities Act File No. 33-13133
Investment Company Act File No. 811-5098
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Post-Effective Amendment No. 28
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 30
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(Check appropriate box or boxes)
ALBEMARLE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
1272 Hendersonville Road
Asheville, NC 28813
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (828) 274-1542
John B. Kuhns
Boys, Arnold & Company, Inc.
1272 Hendersonville Road
Asheville, NC 28813
(Name and Address of Agent for Service)
Copies to:
Marcus L. Collins, Esq.
Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
It is proposed that this filing will become effective:
/X/ immediately upon filing pursuant to Rule 485(b)
/ / on (date) pursuant to Rule 485(b)
/ / 75 days after filing pursuant to Rule 485(a)
/ / on (date) pursuant to Rule 485(a)
<PAGE>
ALBEMARLE INVESTMENT TRUST
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
UNDER THE SECURITIES ACT OF 1933
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PART A
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Item No. Registration Statement Caption Caption in Prospectus
- -------- ------------------------------ ---------------------
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Information Financial Highlights;
Fee Table
4. General Description of Registrant Investment Objectives and
Policies; Investment
Limitations; Management of
of the Fund; Other
Information
5. Management of the Fund Management of the Fund;
Financial Highlights;
Other Information
6. Capital Stock and Other Cover Page; Investment
Securities Limitations; Dividends and
Distributions; Taxes; Other
Information
7. Purchase of Securities Being Offered How to Purchase Shares;
How Shares are Valued;
Application
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Inapplicable
PART B
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Caption in Statement
of Additional
Item No. Registration Statement Caption Information
- -------- ------------------------------ -----------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Description of the Trust
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13. Investment Objectives and Policies Investment Objectives and
Policies; Investment
Limitations; Appendix A;
Appendix B
14. Management of the Fund Trustees and Officers;
Description of the Trust
15. Control Persons and Principal Trustees and Officers
Holders of Securities
16. Investment Advisory and Other Services Investment Advisor;
Administrator;
Shareholder Servicing Plan;
Other Services;
17. Brokerage Allocation and Other Investment Objectives and
Practices Policies
18. Capital Stock and Other Securities Description of the Trust
19. Purchase, Redemption and Pricing of Special Shareholder
Securities Being Offered Services; Purchase of
Shares; Redemption of
Shares; Net Asset Value
Determination
20. Tax Status Additional Tax Information
21. Underwriters Inapplicable
22. Calculation of Performance Data Calculation of Performance
Data
23. Financial Statements Financial Statements and
Reports
PART C
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The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS Cusip Number 012688701
November 30, 1998 NASDAQ Symbol NCTFX
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THE NORTH CAROLINA
TAX FREE BOND FUND
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a NO-LOAD Series of Albemarle Investment Trust
The investment objectives of THE NORTH CAROLINA TAX FREE BOND FUND (the "Fund")
are 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. Capital appreciation
will be of secondary importance. While there is no assurance that the Fund will
achieve its investment objectives, it endeavors to do so by following the
investment policies described in this Prospectus.
INVESTMENT ADVISOR
LOGO GOES HERE
The Fund is a NO-LOAD non-diversified series of Albemarle Investment Trust, a
registered open-end management investment company. This Prospectus provides you
with the basic information you should know before investing in the Fund. The
Prospectus should be read and kept for future reference. A Statement of
Additional Information containing additional information about the Fund has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference in this Prospectus in its entirety. The Fund's address
is P.O. Box 5354, Cincinnati, Ohio 45201-5354, and its telephone number is
1-800- 841-0987. A copy of the Statement of Additional Information may be
obtained at no charge by calling the Fund. The SEC also maintains an Internet
Web site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference, and other information regarding
the Fund.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION, AND FUND SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. INVESTMENT IN THE FUND INVOLVES RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus and the Statement of Additional Information is
November 30, 1998.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY.........................................................
FEE TABLE .................................................................
FINANCIAL HIGHLIGHTS.......................................................
INVESTMENT OBJECTIVES AND POLICIES.........................................
RISK FACTORS...............................................................
INVESTMENT LIMITATIONS.....................................................
TAXES......................................................................
DIVIDENDS AND DISTRIBUTIONS................................................
HOW SHARES ARE VALUED......................................................
HOW TO PURCHASE SHARES. . .................................................
HOW TO REDEEM SHARES. . . .................................................
MANAGEMENT OF THE FUND.....................................................
OTHER INFORMATION..........................................................
APPENDIX A - Description of Municipal Obligations..........................
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS UNAUTHORIZED. NO SALES REPRESENTATIVE, DEALER OR
OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
PROSPECTUS SUMMARY
THE FUND. The North Carolina Tax Free Bond Fund (the "Fund") is a NO-LOAD
non-diversified series of Albemarle Investment Trust, a registered open-end
management investment company organized as a Massachusetts business trust. See
"Other Information - Description of Shares."
OFFERING PRICE. Shares in the Fund are offered at net asset value without a
sales charge. The minimum initial investment is $1,000. The minimum subsequent
investment is $500 ($100 for those participating in the Automatic Investment
Plan). See "How Shares May be Purchased."
INVESTMENT OBJECTIVES. The investment objectives of the Fund are 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. Capital appreciation will be of
secondary importance. See "Investment Objectives and Policies."
INVESTMENT ADVISOR. Subject to the general supervision of the Trust's Board of
Trustees and in accordance with the Fund's investment policies, Boys, Arnold &
Company, Inc. of Asheville, North Carolina (the "Advisor") manages the Fund's
investments. The Advisor manages over $575 million in 230 client accounts for
individuals and organizations in 12 states, mainly in the Southeast. For its
advisory services, the Advisor receives a monthly fee at the annual rate of
0.35% of the Fund's average daily net assets. See "Management of the Fund -
Advisor."
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DIVIDENDS. Income dividends, if any, are generally declared daily and paid
monthly; capital gains, if any, are generally distributed at least once each
year. Dividends and capital gains distributions are automatically reinvested in
additional shares at net asset value unless the shareholder elects to receive
cash. See "Dividends and Distributions."
REDEMPTION OF SHARES. There is no charge for redemptions, other than possible
charges associated with wire transfers of redemption proceeds. Shares may be
redeemed at any time at the net asset value next determined after receipt of a
redemption request by the Fund. A shareholder who submits appropriate written
authorization may redeem shares by telephone. See "How Shares May Be Redeemed."
INVESTMENT POLICIES AND RISKS. The Fund will invest primarily in municipal bonds
and notes and other debt instruments, the interest on which is exempt from
federal income taxes and from the personal income taxes of North Carolina. Some
of the Fund's investments may be subject to the alternative minimum tax. The
Fund's assets will generally be of investment grade or comparable quality, with
at least two-thirds of the Fund's total assets being "A" rated or better (or
comparable unrated securities). Some of the securities purchased for the
portfolio of the Fund may be purchased on a "when-issued" basis, which may
involve certain risks. The Fund has registered as a non-diversified investment
company so that it will be able to invest more than 5% of its assets in
obligations of each of one or more issuers. Prospective investors should also be
aware that the net asset value of the shares of the Fund will change as the
general levels of interest rates fluctuate. When interest rates decline, the
value of the Fund's portfolio securities can be expected to rise. Conversely,
when interest rates rise, the value of the Fund's portfolio securities can be
expected to decline. See "Investment Objectives and Policies," "Risk Factors,"
"Investment Limitations," and "Taxes."
MANAGEMENT. The Fund is a series of Albemarle Investment Trust (the "Trust"),
the Board of Trustees of which is responsible for overall management of the
Trust and the Fund. The Trust has employed Countrywide Fund Services, Inc. (the
"Administrator") to provide administration, accounting and transfer agent
services. (See "Management of the Fund.")
FEE TABLE
The following table sets forth certain information in connection with the
expenses associated with an investment in the Fund. The information is intended
to assist the investor in understanding the various costs and expenses borne by
the Fund, and therefore indirectly by its investors, the payment of which will
reduce an investor's return on an annual basis.
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Shareholder Transaction Expenses
--------------------------------
Sales load imposed on purchases
(as a percentage of offering price) NONE
Sales load imposed on reinvested dividends NONE
Deferred sales load NONE
Redemption fee* NONE
* A wire transfer fee is charged in the case of redemptions made by wire. Such
fee is subject to change and is currently $8. See "How to Redeem Shares."
Annual Fund Operating Expenses -
After Fee Waivers and Expense Reimbursements1
(as a percentage of average net assets)
---------------------------------------
Investment Advisory Fees .01%
Shareholder Servicing Fees .00%
Other Expenses .84%
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Total Fund Operating Expenses .85%
====
1 The Annual Fund Operating Expenses shown above are based upon actual operating
history for the fiscal year ended August 31, 1998, except that expenses have
been restated to reflect the anticipated level of fee waivers and expense
reimbursements for the current fiscal year. Absent fee waivers and expense
reimbursements, Investment Advisory Fees, Shareholder Servicing Fees, Other
Expenses and Total Fund Operating Expenses would have been .35%, .25%, .82% and
1.42%, respectively.
EXAMPLE: You would pay the following expenses on a $1,000 investment in the
Fund, whether or not you redeem at the end of the period, assuming 5% annual
return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$9 $27 $47 $105
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES IN THE FUTURE MAY BE GREATER OR LESS THAN THOSE
SHOWN.
See "Management of the Fund" below for more information about the fees and costs
of operating the Fund. THE EXAMPLE ASSUMES A 5% ANNUAL RETURN PURSUANT TO THE
REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION. THE HYPOTHETICAL RATE OF
RETURN IS NOT INTENDED TO BE REPRESENTATIVE OF PAST OR FUTURE PERFORMANCE OF THE
FUND. THE ANNUAL RATE OF RETURN MAY BE GREATER OR LESSER THAN 5%.
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FINANCIAL HIGHLIGHTS
The following audited financial information for the fiscal years ended August
31, 1996, 1997 and 1998 have been audited by Deloitte & Touche LLP, independent
accountants, whose report dated October 2, 1998 is contained in the Statement of
Additional Information. The following audited financial information for the
fiscal periods ended prior to August 31, 1996 was audited by other independent
accountants. This information should be read in conjunction with the Fund's
latest audited annual financial statements and notes thereto, which are also
contained in the Statement of Additional Information. Further information about
the performance of the Fund is contained in the Annual Report. The Statement of
Additional Information and the Annual Report may be obtained at no charge by
calling the Fund.
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE
OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995 1994 1993*
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.63 $ 10.32 $ 10.36 $ 10.02 $ 10.40 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.45 0.47 0.48 0.45 0.42 0.24
Net realized and unrealized gains
(losses) on investments 0.48 0.31 (0.04) 0.34 (0.38) 0.40
----------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.93 0.78 0.44 0.79 0.04 0.64
----------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.45) (0.47) (0.48) (0.45) (0.42) (0.24)
----------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE AT END OF PERIOD $ 11.11 $ 10.63 $ 10.32 $ 10.36 $ 10.02 $ 10.40(a)
=========== ========== ========== ========== ========== ==========
TOTAL RETURN 8.92% 7.71% 4.33% 8.16% 0.38% 10.43%
=========== ========== ========== ========== ========== ==========
NET ASSETS AT END OF PERIOD $12,436,308 $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 1.42% 1.68% 2.24% 2.76% 3.26% 3.50%(a)
After expense reimbursements
and waived fees (note 3) 0.83% 0.85% 0.85% 0.85% 0.84% 0.77%(a)
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 4.15% 4.49% 4.60% 4.56% 4.09% 3.98%(a)
PORTFOLIO TURNOVER RATE 36% 20% 10% 83% 23% 0%(a)
</TABLE>
* For the period from January 13, 1993 (commencement of operations) to August
31, 1993.
(a) Annualized.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES. The investment objectives of the Fund are 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. Capital appreciation will be of
secondary importance. Any investment involves risk, and there can be no
assurance that the Fund will achieve any of its investment objectives. The
Fund's investment objectives and fundamental investment limitations discussed
herein may not be altered without the prior approval of a majority of the Fund's
shareholders.
INVESTMENT POLICIES. As a fundamental policy, the Advisor seeks to achieve the
investment objectives of the Fund by investing the assets of the Fund primarily
(i.e., at least 80% of its assets under normal conditions) in municipal bonds
and notes and other debt instruments, the interest on which is exempt from
federal income taxes, including the alternative minimum tax, and from the
personal income taxes of North Carolina. These obligations are issued primarily
by North Carolina, its political subdivisions, municipalities, agencies,
instrumentalities, or public authorities and other qualifying issuers (including
Puerto Rico, the U.S. Virgin Islands, and Guam).
Although the Advisor seeks to invest all the assets of the Fund in the
obligations described in the preceding paragraph, market conditions may from
time to time limit the availability of such obligations. During periods when the
Advisor is unable to purchase obligations described in the preceding paragraph
for the portfolio of the Fund, the Advisor will seek to invest the assets of the
Fund in Municipal Obligations (as defined below), the
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interest on which would be exempt from federal income taxes, but which would be
subject to the personal income taxes of North Carolina. Also, as a temporary
defensive measure during times of adverse market conditions, up to 50% of the
assets of the Fund may be held in cash or invested in the short-term obligations
described in paragraphs 4, 5, and 6 below. All of the investments of the Fund
will be made in:
(1) Tax-exempt securities that are rated AAA, AA, or A by Standard & Poor's
Ratings Services ("S&P") or are rated Aaa, Aa, or A by Moody's Investors
Service, Inc. ("Moody's") (or of equivalent rating by any of the nationally
recognized statistical rating organizations) or which are unrated but are
considered by the Advisor to have essentially the same characteristics and
quality as securities having such ratings;
(2) Tax-exempt securities that are rated BBB by S&P or are rated Baa by Moody's
(or of equivalent rating by any of the nationally recognized statistical
rating organizations) or which are unrated but are considered by the
Advisor to have essentially the same characteristics and quality as
securities having such ratings. However, not more than one-third of the
Fund's total assets will be invested in such securities;
(3) Notes of issuers having an issue of outstanding Municipal Obligations rated
AAA, AA or A by S&P or Aaa, Aa or A by Moody's (or of equivalent rating by
any of the nationally recognized statistical rating organizations) or which
are guaranteed by the U.S. Government or which are rated A-1 or A-2 by S&P
or MIG-1 or MIG-2 by Moody's (or of equivalent rating by any of the
nationally recognized statistical rating organizations);
(4) Obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (collectively, "U.S. Government Securities") (including
U.S. Government Securities subject to repurchase agreements) (See "U.S.
Government Securities" and "Repurchase Agreements" below);
(5) Commercial paper that is rated A-1 or A-2 by S&P or P-1 or P-2 by Moody's
(or of equivalent rating by any of the nationally recognized statistical
rating organizations) or which is unrated but which is considered by the
Advisor to have essentially the same characteristics and qualities as
commercial paper having such ratings; obligations (including certificates
of deposit and bankers' acceptances) of domestic branches of U.S. banks
with at least $1 billion of assets; and cash (see "Money Market
Instruments" below); and
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(6) Securities of other investment companies (generally other mutual funds,
including money market mutual funds) whose investment objectives are
consistent with the Fund's investment objectives, subject to the
limitations described under "Investment Companies" below.
Interest income from the short-term obligations described in paragraphs 4, 5,
and 6 above may be taxable to shareholders as ordinary income for federal and
state income tax purposes. The Fund may purchase Municipal Obligations the
interest on which may be subject to the alternative minimum tax (for purposes of
this Prospectus, the interest thereon is nonetheless considered to be
tax-exempt). For a general discussion of Municipal Obligations, and the risks
associated with an investment therein, see Appendix A hereto. For a description
of the ratings of S&P and Moody's of Municipal Obligations and short-term
obligations permitted as investments, see Appendix B to the Statement of
Additional Information. As used in this Prospectus, the terms "Municipal
Obligations" and "tax-exempt securities" are used interchangeably to refer to
debt instruments issued by or on behalf of states, territories and possessions
of the United States and the District of Columbia and their political
subdivisions, agencies or instrumentalities, the interest on which is exempt
from federal income taxes (without regard to whether the interest thereon is
also exempt from the personal income taxes of any State). The term "North
Carolina Municipal Obligations" is used to refer to Municipal Obligations, the
interest on which is exempt from both federal income taxes and the personal
income taxes of North Carolina. In determining to invest in a particular
Municipal Obligation, the Advisor will rely on the opinion of bond counsel for
the issuer as to the validity of the security and the exemption of interest on
such security from federal and relevant state income taxes, and the Advisor will
not make an independent investigation of the basis for any such opinion.
The Fund's assets will generally be invested in securities of "investment grade"
or comparable quality, with at least two-thirds of the Fund's total assets being
invested in securities rated in the three highest grades used by the nationally
recognized statistical rating agencies (or comparable unrated securities). The
remaining one-third of the Fund's total assets may be invested in securities
rated in the fourth highest grade used by the nationally statistical securities
rating agencies (generally, BBB by S&P or Baa by Moody's) or comparable unrated
securities. Although considered to be of "investment grade" quality, securities
rated BBB by S&P or Baa by Moody's (or comparable unrated securities), while
normally exhibiting adequate protection parameters, have speculative
characteristics, and changes in economic conditions and other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher grade Municipal
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Obligations. Securities rated lower than BBB by S&P or Baa by Moody's (or
comparable unrated securities) are considered speculative and will not be
purchased by the Fund.
While the Advisor may refer to ratings issued by established credit rating
agencies, it is not a policy of the Fund to rely exclusively on ratings issued
by these agencies, but rather to supplement such ratings with the Advisor's own
independent and ongoing review of credit quality. With respect to those
Municipal Obligations which are not rated by a major rating agency, the Fund
will be more reliant on the Advisor's judgment, analysis and experience than
would be the case if such Municipal Obligations were rated. In evaluating the
creditworthiness of an issue, whether rated or unrated, the Advisor may take
into consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, the operating history of and the
community support for the facility financed by the issue, the ability of the
issuer's management and regulatory matters.
Although higher quality tax-exempt securities may produce lower yields, they are
generally more marketable. To protect the capital of shareholders of the Fund
under adverse market conditions, the Fund may from time to time deem it prudent
to hold cash or to purchase higher quality securities or taxable short-term
obligations for the Fund with a resultant decrease in yield or increase in the
proportion of taxable income.
The net asset value of the shares of the Fund changes as the general levels of
interest rates fluctuate. When interest rates decline, the value of the Fund's
portfolio securities can be expected to rise. Conversely, when interest rates
rise, the value of the Fund's portfolio securities can be expected to decline.
The Fund has registered as a non-diversified management investment company so
that more than 5% of the assets of the Fund may be invested in the obligations
of each of one or more issuers. Because a relatively high percentage of the
assets of the Fund may be invested in the obligations of a limited number of
issuers, the value of shares of the Fund may be more sensitive to any single
economic, political or regulatory occurrence than the shares of a diversified
investment company would be.
Certain Municipal Obligations may be entitled to the benefits of letters of
credit or similar credit enhancements issued by financial institutions. In such
instances, the Advisor will take into account in assessing the quality of such
bonds not only the creditworthiness of such bonds but also the creditworthiness
of the financial institution.
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The Advisor may invest the assets of the Fund in a relatively high percentage of
municipal bonds issued by entities having similar characteristics. The issuers
may pay their interest obligations from revenue of similar projects such as
multi-family housing, nursing homes, electric utility systems, hospitals or life
care facilities. Additional information about these types of investments and
their special risks is contained in the Statement of Additional Information.
This too may make the Fund more sensitive to economic, political, or regulatory
occurrences, particularly because such issuers would likely be located in the
same State. As the similarity in issuers increases, the potential for
fluctuation of the net asset value of the Fund's shares also increases. The
Advisor will only invest the assets of the Fund in securities of issuers which
it believes will make timely payments of interest and principal.
The Advisor may invest from time to time a portion of the Fund's assets in
industrial revenue bonds (referred to under current tax law as private activity
bonds), and also may invest a portion of the Fund's assets in revenue bonds
issued for housing, including multi-family housing, health care facilities or
electric utilities, at times when the relative value of issues of such a type is
considered, in the judgment of the Advisor, to be more favorable than that of
other available types of issues, taking into consideration the particular
restrictions on investment flexibility arising from the investment objective of
the Fund of providing current income exempt from personal income taxes of North
Carolina (as well as federal income taxes). Therefore, investors should also be
aware of the risks that these investments may entail. Industrial revenue bonds
are issued by various state and local agencies to finance various projects.
Additional information about these types of investments and their special risks
is contained in the Statement of Additional Information.
Municipal Obligations in which the Fund may invest also include zero coupon
bonds and deferred interest bonds. Zero coupon bonds and deferred interest bonds
are debt obligations that are issued at a significant discount from face value.
While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds provide for a period of delay before the regular payment
of interest begins. The discount approximates the total amount of interest the
bonds will accrue and compound over the period until maturity or the first
interest payment date at a rate of interest reflecting the market rate of the
security at the time of issuance. Zero coupon bonds and deferred interest bonds
benefit the issuer by mitigating its need for cash to meet debt service, but
they also require a higher rate of return to attract investors who are willing
to defer receipt of such cash. Such investments may experience greater
volatility in market value than debt obligations that make regular payments of
interest. The Fund will accrue income on such investments for
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<PAGE>
tax and accounting purposes, which is distributable to shareholders.
The Fund may invest in municipal lease obligations, installment purchase
contract obligations, and certificates of participation in such obligations
(collectively, "lease obligations"). A lease obligation does not constitute a
general obligation of the municipality for which the municipality's taxing power
is pledged, although the lease obligation is ordinarily backed by the
municipality's covenant to budget for the payments due under the lease
obligation. Certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease obligation
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. The Advisor will seek to minimize these risks by not investing
more than 10% of the net assets of the Fund in lease obligations that contain
"non-appropriation" clauses. In evaluating a potential investment in such a
lease obligation, the Advisor will consider: (1) the credit quality of the
obligor, (2) whether the underlying property is essential to a government
function, and (3) whether the lease obligation contains covenants prohibiting
the obligor from substituting similar property if the obligor fails to make
appropriations for the lease obligation. Municipal lease obligations may be
determined to be liquid in accordance with the guidelines established by the
Board of Trustees and other factors the Advisor may determine to be relevant to
such determination.
MONEY MARKET INSTRUMENTS. Under normal circumstances, money market instruments
will typically represent a portion of the Fund's portfolio, as funds awaiting
investment, to accumulate cash for anticipated purchases of portfolio securities
and to provide for shareholder redemptions and operational expenses of the Fund.
Money market instruments mature in thirteen months or less from the date of
purchase and may include U.S. Government Securities (including those subject to
repurchase agreements), bankers acceptances and certificates of deposit of
domestic branches of U.S. banks, and commercial paper (including variable amount
demand master notes) rated in one of the two highest rating categories by any of
the nationally recognized statistical rating organizations or, if not rated, of
equivalent quality in the Advisor's opinion. See the Statement of Additional
Information for a more detailed description of money market instruments. The
Fund may also invest in money market mutual funds subject to the limitations
described under "Investment Companies" below.
U.S. GOVERNMENT SECURITIES. The Fund may invest a portion of the portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury
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bonds, and U.S. Treasury bills, obligations guaranteed by the U.S. Government
such as Government National Mortgage Association ("GNMA") as well as obligations
of U.S. Government authorities, agencies and instrumentalities such as Federal
National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Home Administration ("FHA"), Federal Farm Credit Bank
("FFCB"), Federal Home Loan Bank ("FHLB"), Student Loan Marketing Association
("SLMA"), and The Tennessee Valley Authority. U.S. Government Securities may be
acquired subject to a repurchase agreement. While obligations of some U.S.
Government sponsored entities are supported by the full faith and credit of the
U.S. Government (e.g. GNMA), several are supported by the right of the issuer to
borrow from the U.S. Government (e.g. FNMA, FHLMC), and still others are
supported only by the credit of the issuer itself (e.g. SLMA, FFCB). The
guarantee of the U.S. Government does not extend to the yield or value of the
Fund's shares. No assurance can be given that the U.S. Government will provide
financial support to U.S. Government agencies or instrumentalities in the
future, since it is not obligated to do so by law.
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 and other illiquid securities. 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 (the "1940 Act").
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain in a segregated account until the settlement date, cash or liquid
securities in
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an amount sufficient to meet the purchase price. Purchasing securities on a
when-issued or forward commitment basis involves a risk of loss if the value of
the security to be purchased declines prior to the settlement date, which risk
is in addition to the risk of decline in value of the Fund's other assets.
Although the Fund would generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if the Advisor deems it appropriate to do so. The Fund may
realize short-term gains or losses upon such sales.
INVESTMENT COMPANIES. In order to achieve its investment objectives, the Fund
may invest up to 10% of the value of its total assets in securities of other
investment companies whose investment objectives are consistent with the Fund's
investment objectives. The Fund will not acquire securities of any one
investment company if, immediately thereafter, the Fund would own more than 3%
of such company's total outstanding voting securities, securities issued by such
company and held by the Fund would have an aggregate value in excess of 5% of
the Fund's total assets. To the extent the Fund invests in other investment
companies, the shareholders of the Fund would indirectly pay a portion of the
operating costs of the underlying investment companies. These costs include
management, advisory, brokerage, shareholder servicing and other operational
expenses. Shareholders of the Fund would then indirectly pay higher operational
costs than if they owned shares of the underlying investment companies directly.
RISK FACTORS
INVESTMENT POLICIES. Reference should be made to "Investment Objectives and
Policies" above for a description of special risks presented by the investment
policies of the Fund and the specific securities and investment techniques that
may be employed by the Fund. Additional information on these securities and
investment techniques and their associated risks is contained in Appendix A
hereto and in the Statement of Additional Information. Reference should also be
made to "Investment Objectives and Policies" above and "Investment Limitations"
below for a description of the implications and special risks associated with
the non-diversified status of the Fund. Because there is risk in any investment,
there can be no assurance that the Fund will meet its investment objectives.
FLUCTUATION IN VALUE. The Fund will be subject to market fluctuations based on
fluctuation in market interest rates. The value of the Fund's portfolio
securities will generally vary inversely with the direction of prevailing
interest rate movements. Should interest rates rise, the value of the Fund's
portfolio securities would decrease in value, which would cause
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the Fund's net asset value to decline. Fluctuations in value of the Fund's
portfolio securities may also result from changes in the creditworthiness of
issuers, which may result from adverse business and economic developments or
other factors.
ADDITIONAL FACTORS TO CONSIDER. Yields on North Carolina Municipal Obligations
depend on a variety of factors, including: the general conditions of the
municipal bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. Further, any adverse economic
conditions or developments affecting North Carolina or its municipalities could
impact the Fund's portfolio. The ability of the Fund to achieve its investment
objectives also depends on the continuing ability of the issuers of North
Carolina Municipal Obligations and participation interests, or the guarantors of
either, to meet their obligations for the payment of interest and principal when
due. Certain North Carolina constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could result
in adverse consequences affecting North Carolina Municipal Obligations. See
Appendix A of the Statement of Additional Information entitled "Special
Considerations Regarding Investment in North Carolina Municipal Obligations."
BORROWING. The Fund may borrow, temporarily, up to 5% of its total assets for
extraordinary purposes and may increase this limit to 15% of total assets to
meet redemption requests that might otherwise require untimely disposition of
portfolio holdings. To the extent the Fund borrows for these purposes, the
effects of market price fluctuations on the Fund's net asset value will be
exaggerated. If while such borrowing is in effect the value of the Fund's assets
declines, the Fund could be forced to liquidate portfolio securities when it is
disadvantageous to do so. The Fund would incur interest and other transaction
costs in connection with borrowings.
PORTFOLIO TURNOVER. The Fund sells portfolio securities without regard to the
length of time they have been held in order to take advantage of investment
opportunities. Nevertheless, by utilizing the approach to investing described
herein, portfolio turnover in the Fund will generally not exceed 100% annually.
The degree of portfolio activity affects transaction costs of the Fund. The
degree of portfolio activity may also cause the Fund to realize capital gains,
which are taxable to shareholders when distributed.
ILLIQUID INVESTMENTS. The Fund may invest up to 10% of its net assets in
illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, the Advisor determines the liquidity of the Fund's
investments.
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The absence of a trading market can make it difficult to ascertain a market
value for illiquid investments. Disposing of illiquid securities before maturity
may be time consuming and expensive, and it may be difficult or impossible for
the Fund to sell illiquid investments promptly at an acceptable price.
INVESTMENT LIMITATIONS
To limit the Fund's exposure to risk, the Fund has adopted certain fundamental
investment limitations which, together with its investment objectives, are
fundamental policies which may not be changed without shareholder approval. Some
of these restrictions are that the Fund will not: (1) issue senior securities,
borrow money or pledge its assets, except that it may borrow from banks as a
temporary measure (a) for extraordinary or emergency purposes, in amounts not
exceeding 5% of the Fund's total assets, or (b) in order to meet redemption
requests which might otherwise require untimely disposition of portfolio
securities in amounts not exceeding 15% of its total assets. The Fund will not
make any investments if borrowing exceeds 5% of its total assets; (2) make loans
of money or securities, except that the Fund may invest in repurchase agreements
(but repurchase agreements having a maturity of longer than seven days, together
with other illiquid securities, are limited to 10% of the Fund's net assets);
(3) invest in securities of issuers which have a record of less than three years
continuous operation (including predecessors and, in the case of bonds,
guarantors), if more than 5% of its total assets would be invested in such
securities; (4) write, purchase or sell commodities, commodities contracts,
futures contracts or related options; (5) invest in oil, gas or mineral leases
or exploration or development programs, or real estate or real estate mortgage
loans (except the Fund may invest in readily marketable securities of companies
that own or deal in such things); and (6) invest in restricted securities. See
"Investment Limitations" in the Fund's Statement of Additional Information for a
complete list of investment limitations.
If the Board of Trustees of the Trust determines that the Fund's investment
objectives can best be achieved by a substantive change in a non-fundamental
investment limitation, the Board can make such change without shareholder
approval and will disclose any such material changes in the then current
Prospectus. Any limitation that is not specified in this Prospectus or in the
Statement of Additional Information as being fundamental is non-fundamental. If
a percentage limitation is satisfied at the time of investment, a later increase
or decrease in such percentage resulting from a change in the value of the
Fund's portfolio securities will not constitute a violation of such limitation.
The Fund is classified as non-diversified within the meaning of the 1940 Act,
which means that the Fund is not limited by the 1940 Act in the proportion of
its assets that it may invest in
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obligations of a single issuer. However, the Fund's investments will be limited
so as to qualify as a "regulated investment company" for purposes of the
Internal Revenue Code of 1986. See "Taxes." To qualify, among other
requirements, the Trust will limit the Fund's investments so that, at the close
of each quarter of the taxable year, (i) not more than 25% of the market value
of the Fund's total assets will be invested in the securities of a single
issuer, and (ii) with respect to 50% of the market value of its total assets,
not more than 5% of the market value of its total assets will be invested in the
securities of a single issuer, and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer. For purposes of this
restriction, the Fund will regard each state and each political subdivision,
agency or instrumentality of such state and each multi-state agency of which
such state is a member and each public authority that issues securities on
behalf of a private entity, as a separate issuer, except that if the security is
backed only by the assets and revenues of a non-government entity, then the
entity with the ultimate responsibility for the payment of interest and
principal may be regarded as the sole issuer. These tax-related limitations may
be changed by the Trustees of the Trust to the extent necessary to comply with
changes to the Federal tax requirements. To the extent that the Fund assumes
large positions in the obligations of a small number of issuers, the Fund's
total return may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers.
TAXES
TAXATION OF THE FUND. The Fund has qualified in all prior years, and intends to
remain qualified, as a regulated investment company under the Internal Revenue
Code of 1986 (the "Code") by distributing substantially all of its "net
investment income" to shareholders and meeting other requirements of the Code.
For the purpose of calculating dividends, net investment income consists of
income accrued on portfolio assets, less accrued expenses. Upon qualification,
the Fund will not be liable for Federal income taxes to the extent earnings are
distributed. The Board of Trustees retains the right to determine for any
particular year if it is advantageous not to qualify the Fund as a regulated
investment company. The Fund is subject to a non-deductible 4% excise tax to the
extent it does not distribute the statutorily required amount of investment
income, determined on a calendar year basis, and capital gain net income, using
an October 31 year-end measuring period. The Fund intends to declare or
distribute dividends during the calendar year in an amount sufficient to prevent
imposition of the 4% excise tax.
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TAXATION OF SHAREHOLDERS. To the extent that the dividends distributed to the
Fund's shareholders are derived from interest income exempt from Federal income
tax under the Code and are properly designated as "exempt-interest dividends" by
the Trust, they will be excludable from a shareholder's gross income for Federal
income tax purposes. Exempt-interest dividends are included, however, in
determining the portion, if any, of a person's social security and railroad
retirement benefits subject to Federal income taxes. The portion of
exempt-interest dividends paid from interest received by the Fund from North
Carolina Municipal Obligations or from direct obligations of the U.S. Government
is excluded from the North Carolina taxable net income of individuals,
corporations, estates and trusts. Shareholders subject to income taxation by
states other than North Carolina will realize a lower after-tax rate of return
than North Carolina shareholders since the dividends distributed by the Fund
generally will not be exempt, to any significant degree, from income taxation by
such other states. The Fund will inform shareholders annually of the portion of
the Fund's distributions that constitutes exempt-interest dividends and the
portion that is excludable from taxable income for North Carolina income tax
purposes. Interest on indebtedness incurred or continued to purchase or carry
Fund shares is not deductible for Federal or North Carolina income tax purposes.
Persons who may be "substantial users" (or "related persons" of substantial
users) of facilities financed by industrial development bonds or private
activity bonds held by the Fund should consult their tax advisers before
purchasing Fund shares.
An investment in the Fund by a corporate shareholder would be included in the
capital stock, surplus and undivided profits base in computing the North
Carolina franchise tax. Distributions from investment income and capital gains
of the Fund, including exempt-interest dividends, may also be subject to state
taxes in states other than North Carolina and may be subject to local taxes.
Accordingly, investors in the Fund should consult their tax advisors with
respect to the application of such taxes to the receipt of Fund dividends and to
the holding of shares of the Fund.
To the extent that the Fund's distributions are derived from interest on its
taxable investments (including, for North Carolina income tax purposes, interest
on Municipal Obligations of other states) or from an excess of net short-term
capital gains over net long-term capital losses, such distributions are
considered ordinary income for Federal and North Carolina income tax purposes,
except, in the case of North Carolina income tax, for dividends that are
directly attributable to interest on obligations of the U.S. Government or to
gains from certain obligations of the State of North Carolina and its political
subdivisions that were issued before July 1, 1995. The Fund's distributions,
whether from exempt-interest income, ordinary
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<PAGE>
income, or capital gains, are not eligible for the dividends-received deduction
for corporations. Distributions, if any, from the excess of net long-term
capital gains over net short-term capital losses from the sale of securities
("capital gain dividends") are taxable as long-term capital gains for Federal
income tax purposes, regardless of the length of time the shareholder has owned
Fund shares. Such capital gain dividends are also subject to North Carolina
income taxes, except to the extent attributable to gains from certain
obligations of the State of North Carolina and its political subdivisions that
were issued before July 1, 1995.
All or a portion of the Fund's gain from the sale or redemption of tax-exempt
obligations purchased at a market discount will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary income
dividends received by shareholders. Distributions in excess of the Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains (assuming such shares are held as a capital asset).
The Code subjects interest received on certain otherwise tax-exempt securities
to the alternative minimum tax. This alternative minimum tax applies to interest
received on certain "private activity bonds" issued after August 7, 1986.
Private activity bonds are bonds which, although tax-exempt, are used for
purposes other than those generally performed by governmental units and which
benefit non-governmental entities (e.g., bonds used for industrial development
or housing purposes). Income received on such bonds is classified as an item of
"tax preference," which could subject investors in such bonds, including
shareholders of the Fund, to the alternative minimum tax. The Fund may purchase
such "private activity bonds," and the Trust will report to shareholders within
60 days after the Fund's taxable year-end the portion of the Fund's dividends
declared during the year that constitutes an item of tax preference for
alternative minimum tax purposes. The Code further provides that corporations
are subject to the alternative minimum tax based, in part, on certain
differences between taxable income as adjusted for other tax preferences and the
corporation's "adjusted current earnings" (which more closely reflect a
corporation's economic income). Because an exempt-interest dividend paid by the
Fund will be included in adjusted current earnings, a corporate shareholder may
be required to pay alternative minimum tax on exempt-interest dividends paid by
the Fund.
Redemptions of shares of the Fund are taxable events on which a shareholder may
realize a gain or loss. A loss realized on a redemption of shares of the Fund
will be disallowed if other Fund shares are acquired (whether through the
automatic reinvestment
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of dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss upon the redemption of Fund shares held for six months or less will be
treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. In addition, such loss will be disallowed for both
Federal and North Carolina income tax purposes to the extent of any
exempt-interest dividends received by the shareholder, even, in the case of
North Carolina, where all or a portion of such dividends is not excluded from
North Carolina taxable income. If the Fund pays a dividend in January that was
declared in the previous October, November or December to shareholders of record
on a specified date in one of such months, then such dividend will be treated
for tax purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.
Under certain provisions of the Code, some shareholders may be subject to a 31%
withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
The Code provides that every person required to file a tax return must include
for information purposes on such return the amount of exempt-interest dividends
received from all sources (including the Fund) during the taxable year.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code, Treasury regulations and North Carolina tax laws presently in
effect. For the complete provisions, reference should be made to the pertinent
Code sections, the Treasury regulations promulgated thereunder and the
applicable North Carolina income tax laws. The Code and the Treasury
regulations, as well as the North Carolina income tax laws, are subject to
change by legislative, judicial or administrative action either prospectively or
retroactively.
Shareholders are urged to consult their tax advisers regarding the availability
of any exemptions from state or local taxes (other than those imposed by North
Carolina) and with specific questions as to Federal, foreign, state or local
taxes.
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DIVIDENDS AND DISTRIBUTIONS
The Fund distributes substantially all of its net investment income, if any, in
the form of dividends. The Fund will generally declare income dividends, if any,
daily and pay them monthly, and will generally distribute net realized capital
gains, if any, at least annually.
Unless a shareholder elects to receive dividends and distributions in cash,
dividends and capital gains distributions will be automatically reinvested in
additional full and fractional shares of the Fund at the net asset value per
share next determined. Shareholders wishing to receive their dividends or
capital gains in cash may make their request in writing to the Fund at P.O. Box
5354, Cincinnati, Ohio 45201-5354. If cash payment is requested, checks will be
mailed within five business days after the last day of each month. Each
shareholder of the Fund will receive a monthly summary of his or her account,
including information as to reinvested dividends from the Fund. Tax consequences
to shareholders of dividends and distributions are the same whether received in
cash or in additional shares of the Fund.
In order to satisfy certain requirements of the Code, the Fund may declare
special year-end dividend and capital gains distributions during December. Such
distributions, if received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on December 31 of the prior
year.
There is no fixed dividend rate, and there can be no assurance regarding the
payment of any dividends or the realization of any gains.
HOW SHARES ARE VALUED
Net asset value is determined at the time trading closes on the New York Stock
Exchange (currently 4:00 p.m., New York Time, Monday through Friday), except on
business holidays when the New York Stock Exchange is closed. The net asset
value of the shares of the Fund for purposes of purchases and redemptions is
equal to the total market value of its investments and other assets, less all of
its liabilities, divided by the number of its outstanding shares.
Securities that are listed on a securities exchange are valued at the last
quoted sales price at the time the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded by the Fund. Securities that are listed on an exchange and which are not
traded on the valuation date are valued at the mean of the bid and asked prices.
Unlisted securities for which market quotations are
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readily available are valued at the latest quoted sales price, if available, at
the time of valuation, otherwise, at the latest quoted bid price. Securities for
which no current quotations are readily available are valued at fair value as
determined in good faith using methods approved by the Board of Trustees of the
Trust.
The Fund's securities will ordinarily be traded on the over-the-counter market.
When market quotations are not readily available, fixed income securities may be
valued based on prices provided by a pricing service. The prices provided by the
pricing service are generally determined with consideration given to
institutional bid and last sale prices and take into account securities prices,
yields, maturities, call features, ratings, institutional trading in similar
groups of securities, and developments related to specific securities. Such
fixed income securities may also be priced based upon a matrix system of pricing
similar bonds and other fixed income securities. Such matrix system may be based
upon the considerations described above used by other pricing services and
information obtained from the Advisor and other pricing sources deemed relevant.
HOW TO PURCHASE SHARES
Assistance in opening accounts may be obtained from the Fund by calling
1-800-841-0987, or by writing to the address shown below for purchases by mail.
Assistance is also available through any broker-dealer authorized to sell shares
in the Fund. Payment for shares purchased may also be made through your account
at the broker-dealer processing your application and order to purchase. Your
investment will purchase shares at the Fund's net asset value next determined
after your order is received by the Fund in proper form as indicated herein.
The minimum initial investment is $1,000. The minimum subsequent investment is
$500 ($100 for those participating in the Automatic Investment Plan). The Fund
may, in the Advisor's sole discretion, accept certain accounts with less than
the stated minimum initial investment. You may invest in the following ways:
PURCHASES BY MAIL. Shares may be purchased initially by completing the
application accompanying this Prospectus and mailing it, together with a check
payable to the Fund, to The North Carolina Tax Free Bond Fund, P.O. Box 5354,
Cincinnati, Ohio 45201-5354.
PURCHASES BY WIRE. To purchase shares by wiring federal funds, the Fund must
first be notified by calling 1-800-841-0987 to request an account number and
furnish the Fund with your tax identification number. Following notification to
the Fund,
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federal funds and registration instructions should be wired through the Federal
Reserve System to:
Fifth Third Bank
ABA # 042000314
For The North Carolina Tax Free Bond Fund
Acct # 99941635
For further credit to (shareholder's name and SS# or EIN#)
It is important that the wire contain all the information and that the Fund
receive prior telephone notification to ensure proper credit. A completed
Account Application must be mailed to the Fund immediately after the initial
wire as described under "Purchases by Mail" above. Investors should be aware
that some banks may impose a wire service fee.
GENERAL. All purchases of shares are subject to acceptance and are not binding
until accepted. The Fund reserves the right to reject any investment. Orders
received by the Fund and effective prior to the time trading closes on the New
York Stock Exchange (normally 4:00 p.m., Eastern time, Monday through Friday)
will purchase shares at the net asset value determined at that time. Orders
received by the Fund and effective after the close of trading, or on a day when
the New York Stock Exchange is not open for business, will purchase shares at
the net asset value next determined. For orders placed through a qualified
broker-dealer, such firm is responsible for promptly transmitting purchase
orders to the Fund. Investors that effect transactions in the Fund through a
broker or agent may be charged a fee by the broker or agent.
The Fund may enter into agreements with one or more brokers, including discount
brokers and other brokers associated with investment programs, including mutual
fund "supermarkets," pursuant to which such brokers may be authorized to accept
on the Fund's behalf purchase and redemption orders that are in "good form."
Such brokers may be authorized to designate other intermediaries to accept
purchase and redemption orders on the Fund's behalf. Under such circumstances,
the Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Such orders will be priced at the Fund's net asset value next determined
after they are accepted by an authorized broker or the broker's designee.
Should an order to purchase shares be cancelled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by the
Fund or the Transfer Agent in the transaction.
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Payment must be made by check or money order drawn on a U.S. bank and payable in
U.S. dollars. Under certain circumstances the Fund, at its sole discretion, may
allow payment in kind for Fund shares purchased by accepting securities in lieu
of cash. Any securities so accepted would be valued on the date received and
included in the calculation of the net asset value of the Fund. See the
Statement of Additional Information for additional information on purchases in
kind.
Due to Internal Revenue Service regulations, Applications without social
security or tax identification numbers will not be accepted. If, however, you
have already applied for a social security or tax identification number at the
time of completing your Account Application, the Application should so indicate.
The Fund is required to, and will, withhold taxes on all distributions and
redemption proceeds if the number is not delivered to the Fund within 60 days.
Investors should be aware that the Fund's Account Application contains
provisions in favor of the Fund, the Transfer Agent and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services made available to investors.
ADDITIONAL INVESTMENTS. You may add to your account by mail or wire (minimum
additional investment of $500) at any time by purchasing shares at the then
current net asset value. The Fund may, in the Advisor's sole discretion, accept
certain additional investments of less than the stated minimum amount. Before
making additional investments by bank wire, please call the Fund at
1-800-841-0987 to alert the Fund that your wire is to be sent. Follow the wire
instructions above to send your wire. When calling for any reason, please have
your account number ready, if known. Mail orders should include, when possible,
the "Invest by Mail" stub which is attached to your Fund confirmation statement.
Otherwise, be sure to identify your account in your letter.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan enables you to make
regular monthly or bimonthly investments in shares through automatic charges to
your checking account. With your authorization and bank approval, the Transfer
Agent will automatically charge the checking account for the amount specified
($100 minimum), which will be automatically invested in shares at the net asset
value on or about the fifteenth day and/or the last business day of the month,
as indicated on your Account Application. You may change the amount of the
investment or discontinue the plan at any time by writing to the Transfer Agent.
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EMPLOYEES AND AFFILIATES OF THE FUND. The minimum purchase requirement is not
applicable to accounts of Trustees, officers or employees of the Fund or certain
parties related thereto. See the Statement of Additional Information for further
details.
STOCK CERTIFICATES. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
which will show the number of shares owned.
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed by mail or telephone. Any redemption may be
for more or less than the purchase price of your shares depending on the market
value of the Fund's portfolio securities. Redemption orders received in proper
form, as indicated herein, by the Transfer Agent prior to the close of trading
on the New York Stock Exchange (normally 4:00 p.m., Eastern time) will redeem
shares at the net asset value next determined as of that business day's close of
trading. Otherwise, your order will redeem shares at the net asset value next
determined as of the close of trading on the next business day. There is no
charge for redemptions from the Fund, other than the charges for wiring
redemption proceeds.
You may also redeem your shares through a brokerage firm or financial
institution that has been authorized to accept orders on behalf of the Fund at
the Fund's net asset value next determined after your order is received by such
organization in proper order before 4:00 p.m., Eastern time, or such earlier
time as may be required by such organization. These organizations may be
authorized to designate other intermediaries to act in this capacity. Such an
organization may charge you transaction fees on redemptions of Fund shares
directly through the Fund or the Transfer Agent.
The Board of Trustees reserves the right to involuntarily redeem any account
having an account value of less than $1,000 (due to redemptions or transfers,
and not due to market action) upon 30 days' written notice. If you bring your
account value up to $1,000 or more during the notice period, the account will
not be redeemed.
If you are uncertain of the requirements for redemption, please contact the
Fund, at 1-800-841-0987, or write to the address shown below.
REGULAR MAIL REDEMPTIONS. Your request should be sent to The North Carolina Tax
Free Bond Fund, P.O. Box 5354, Cincinnati, Ohio 45201-5354. Your request for
redemption must include:
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1) Your letter of instruction specifying the account number, and the number of
shares or dollar amount to be redeemed. This request must be signed by all
registered shareholders in the exact names in which they are registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships and other
organizations.
Your redemption proceeds will be mailed to you within three business days after
receipt of your redemption request. However, the Fund may delay forwarding a
redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to 15 days from
the date of purchase) may be reduced or avoided if the purchase is made by
certified check or wire transfer.
In such cases, the net asset value next determined after receipt of the request
for redemption will be used in processing the redemption and your redemption
proceeds will be mailed to you upon clearance of your check to purchase shares.
The Fund may suspend redemption privileges or postpone the date of payment (i)
during any period that the New York Stock Exchange is closed, or trading on the
New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission (the "SEC"), (ii) during any period when an emergency exists
as defined by the rules of the SEC as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it, or to fairly
determine the value of its assets, and (iii) for such other periods as the SEC
may permit.
TELEPHONE AND BANK WIRE REDEMPTIONS. The Fund offers shareholders the option of
redeeming shares by telephone under certain limited conditions. The Fund will
redeem shares when requested by the shareholder if, and only if, the shareholder
confirms redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 513-629-2901). The confirmation instructions must include:
1) Shareholder name and account number;
2) Number of shares or dollar amount to be redeemed;
3) Instructions for transmittal of redemption proceeds to the shareholder; and
4) Shareholder signature as it appears on the application then on file with
the Fund.
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<PAGE>
The net asset value used in processing the redemption will be the net asset
value next determined after the telephone request is received. Redemption
proceeds will not be distributed until written confirmation of the redemption
request is received, per the instructions above. You may choose to have
redemption proceeds mailed to you at your address of record, your bank, or to
any other authorized person, or you can have the proceeds sent by bank wire to
your domestic bank ($5,000 minimum). Shares of the Fund may not be redeemed by
wire on days in which your bank is not open for business. You can change your
redemption instructions anytime you wish by filing a letter including your new
redemption instructions to the Fund. (See "Signature Guarantees" below.) The
Fund reserves the right to restrict or cancel telephone and bank wire redemption
privileges for shareholders, without notice, if the Fund believes it to be in
the best interest of the shareholders to do so.
If your instructions request a redemption by wire, you will be charged an $8
processing fee. The Fund reserves the right, upon thirty days' written notice,
to change the processing fee. All charges will be deducted from your account by
redemption of shares in your account. Your bank or brokerage firm may also
impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-841-0987. Redemption proceeds will only be sent to the domestic
bank account or person named on your Account Application currently on file with
the Fund. Telephone redemption privileges authorize the Fund to act on telephone
instructions from any person representing himself or herself to be the investor
and reasonably believed by the Fund to be genuine. The Fund will not be liable
for following telephone instructions reasonably believed to be genuine. The Fund
or the Transfer Agent, or both, will employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions are
genuine, and, if the Fund and/or the Transfer Agent do not follow such
procedures, they may be liable for any losses due to fraudulent or unauthorized
instructions.
SIGNATURE GUARANTEES. To protect your account and the Fund from fraud, signature
guarantees are required to be sure that you are the person who has authorized a
redemption in an amount over $25,000 or a change in registration or standing
instructions for your account. Signature guarantees are required for (1)
requests to redeem shares having a value of greater than $25,000, (2) change of
registration requests, and (3) requests to establish or change redemption
services other than through your initial Account Application. Signature
guarantees are acceptable from a member bank of the Federal Reserve System, a
savings and loan institution, credit union (if authorized under state law),
25
<PAGE>
registered broker-dealer, or a member firm of a U.S. Stock Exchange, and must
appear on the written request for redemption or change of registration.
AUTOMATIC WITHDRAWAL PLAN. If you own shares of the Fund valued at $10,000 or
more at the current net asset value, you may establish an Automatic Withdrawal
Plan to receive a monthly, quarterly or annual check in a stated amount of not
less than $100. Each month, quarter or year, as specified, the Fund will
automatically redeem sufficient shares from your account to meet the specified
withdrawal amount. You may establish this service whether dividends and
distributions are reinvested or paid in cash. Automatic withdrawals may be
deposited directly to your bank account by completing the applicable section on
the Account Application form accompanying this Prospectus, or by writing the
Fund. See the Statement of Additional Information for further details.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS. The Fund is a series of Albemarle Investment Trust (the
"Trust"), an investment company organized as a Massachusetts business trust in
1992. The Trustees and executive officers of the Trust and their principal
occupations for the last five years are set forth in the Statement of Additional
Information under "Management of the Fund - Trustees and Officers." The Board of
Trustees of the Trust is primarily responsible for overseeing the conduct of the
Trust's business. The Board of Trustees elects the officers of the Trust who are
responsible for its day-to-day operations.
ADVISOR. Subject to the authority of the Board of Trustees, 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, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with the Trust. An investment
committee of the Advisor has been primarily responsible for the day-to-day
management of the Fund's portfolio since April 1, 1994.
The Advisor was founded in 1977 as the G. Waring Boys Company. In 1983, Thomas
C. Arnold joined the firm, and in 1989, the name was changed to Boys, Arnold &
Company. In addition to acting as Advisor to the Fund, the Advisor manages
balanced, equity and fixed income portfolios for a limited number of retirement
plan sponsors, non-profit organizations and high-net worth individuals. The
Advisor's address is 1272 Hendersonville Road, Asheville, North Carolina 28813.
26
<PAGE>
The Advisor is controlled by an Employee Stock Ownership Plan maintained by the
Advisor for the benefit of its employees (the "ESOP"). The trustees of the ESOP
are Thomas C. Arnold, John B. Kuhns and Jon L. Vannice. Mr. Kuhns serves as the
President of the Trust and Mr. Vannice is a Trustee and Vice President of the
Trust.
Under the Advisory Agreement with the Fund, the Advisor receives a monthly
management fee equal to an annual rate of 0.35% of the average daily net assets
of the Fund. The Advisor may periodically voluntarily waive or reduce its
advisory fee and reimburse expenses of the Fund to increase the net income of
the Fund.
The Advisor supervises and implements the investment activities of the Fund,
including the making of specific decisions as to the purchase and sale of
portfolio investments. Among the responsibilities of the Advisor under the
Advisory Agreement is the selection of brokers and dealers through whom
transactions in the Fund's portfolio investments will be effected. The Advisor
attempts to obtain the best execution for all such transactions. If it is
believed that more than one broker is able to provide the best execution, the
Advisor may consider the receipt of quotations and other market services and of
research, statistical and other data and the sale of shares of the Fund in
selecting a broker. The Advisor may also utilize a brokerage firm affiliated
with the Trust or the Advisor if it believes it can obtain the best execution of
transactions from such broker. Research services obtained through the Fund's
brokerage transactions may be used by the Advisor for its other clients and,
conversely, the Fund may benefit from research services obtained through the
brokerage transactions of the Advisor's other clients. For further information,
see "Investment Objectives and Policies Investment Transactions" in the
Statement of Additional Information. It is anticipated that most securities
transactions of the Fund will be handled on a principal, rather than agency,
basis. Municipal Obligations, including North Carolina Municipal Obligations,
are normally traded on a net basis (without commission) through broker-dealers
and banks acting for their own account. Such firms attempt to profit from buying
at the bid price and selling at the higher asked price of the market, the
difference being referred to as the spread. The cost of portfolio securities
transactions of the Fund primarily consists of dealer or underwriter spreads.
ADMINISTRATOR AND TRANSFER AGENT. The Trust has retained Countrywide Fund
Services, Inc., P.O. Box 5354, Cincinnati, Ohio 45201 (the "Transfer Agent"), to
serve as the Fund's transfer agent, dividend paying agent and shareholder
service agent. The Transfer Agent is an indirect wholly-owned subsidiary of
Countrywide Credit Industries, Inc., a New York Stock Exchange listed company
principally engaged in the business of residential mortgage lending.
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<PAGE>
The Transfer Agent also provides accounting and pricing services to the Fund.
The Transfer Agent receives a monthly fee from the Fund for calculating daily
net asset value per share and maintaining such books and records as are
necessary to enable it to perform its duties. The Transfer Agent also charges
the Fund for certain costs involved with the daily valuation of investment
securities and is reimbursed for out-of-pocket expenses.
In addition, the Transfer Agent has been retained to provide administrative
services to the Fund. In this capacity, the Transfer Agent supplies executive,
administrative and regulatory services, supervises the preparation of tax
returns, and coordinates the preparation of reports to shareholders and reports
to and filings with the Securities and Exchange Commission and state securities
authorities. The Fund pays the Transfer Agent a fee for these administrative
services at the annual rate of .15% of the average value of its daily net assets
up to $50 million; .125% of such assets from $50 million to $100 million; and
.10% of such assets in excess of $100 million; provided, however, that the
minimum fee is $1,000 per month.
CUSTODIAN. The Fifth Third Bank (the "Custodian"), 38 Fountain Square Plaza,
Cincinnati, Ohio 45263, serves as Custodian of the Fund's assets. The Custodian
acts as the depository for the Fund, safekeeps its portfolio securities,
collects all income and other payments with respect to portfolio securities,
disburses monies at the Fund's request and maintains records in connection with
its duties.
SHAREHOLDER SERVING PLAN. The Trust has adopted a Shareholder Servicing Plan
(the "Plan") pursuant to which the Fund may compensate individuals, firms,
banks, or investment advisors directly or indirectly for personal services
and/or the maintenance of accounts of shareholders of the Fund and other
shareholder liaison services not otherwise provided by the Transfer Agent or the
Custodian, 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
expenditures to be made under the Plan and the basis for payment of such
expenditures must be approved by the Board of Trustees of the Trust and may not
exceed .25% per annum of the Fund's average daily net assets. In addition, in no
event may such expenditures paid to any person who sells Fund shares exceed .25%
of the average annual net asset value of such shares.
OTHER EXPENSES. The Fund is responsible for the payment of its expenses. These
include, for example, the fees payable to the Advisor, or expenses otherwise
incurred in connection with the management of the investment of the Fund's
assets, the fees and expenses of the Custodian, the fees and expenses of the
Transfer Agent, the fees and expenses of Trustees, outside auditing and
28
<PAGE>
legal expenses, all taxes and corporate fees payable by the Fund, Securities and
Exchange Commission fees, state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to shareholders, costs of shareholder reports and shareholder meetings, and any
extraordinary expenses. The Fund also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities.
OTHER INFORMATION
DESCRIPTION OF SHARES. The Trust was organized as a Massachusetts business trust
in 1992 under a Declaration of Trust. The Declaration of Trust permits the Board
of Trustees to issue an unlimited number of full and fractional shares and to
create an unlimited number of series of shares. When issued, the shares of the
Fund will be fully paid, nonassessable and redeemable. The Trust does not intend
to hold annual shareholder meetings; it may, however, hold special shareholder
meetings for purposes such as changing fundamental policies or electing
Trustees. The Board of Trustees shall promptly call a meeting for the purpose of
electing or removing Trustees when requested in writing to do so by the record
holders of a least 10% of the outstanding shares of the Trust. The term of
office of each Trustee is of unlimited duration. The holders of at least
two-thirds of the outstanding shares of the Trust may remove a Trustee from that
position either by declaration in writing filed with the Custodian or by votes
cast in person or by proxy at a meeting called for that purpose.
Shareholders of the Trust will vote by series except as otherwise required by
the 1940 Act. Shares have no subscription, preemptive or conversion rights.
Share certificates will not be issued. Each share is entitled to one vote (and
fractional shares are entitled to proportionate fractional votes) on all matters
submitted for a vote, and shares have equal voting rights except that only
shares of a particular series are entitled to vote on matters affecting only
that series. Shares do not have cumulative voting rights. Therefore, the holders
of more than 50% of the aggregate number of shares of the Trust may elect all
the Trustees.
As of November 6, 1998, Charles Schwab & Company, Inc., 101 Montgomery Street,
San Francisco, California 94104, owned of record for the benefit of its clients
61.6% of the Fund and, accordingly, may be deemed to be a "controlling person"
of the Fund within the meaning of the 1940 Act.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust, therefore, contains provisions which are
intended to
29
<PAGE>
mitigate such liability. See the Statement of Additional Information for further
information about the Trust and its shares.
REPORTING TO SHAREHOLDERS. The Fund will send to its shareholders annual and
semi-annual reports; the financial statements appearing in annual reports for
the Fund will be audited by independent accountants. In addition, the Fund will
send to each shareholder having an account directly with the Fund a monthly
statement showing transactions in the account, the total number of shares owned
and any dividends or distributions paid. Inquiries regarding the Fund may be
directed in writing to P.O. Box 5354, Cincinnati, Ohio 45201-5354 or by calling
1-800- 841-0987.
CALCULATION OF PERFORMANCE DATA. From time to time the Fund may advertise its
yield, tax-equivalent yield and average annual total return. The Fund's
performance quotations may be used in advertisements, sales literature,
shareholder reports, or other communications. Yield and total return figures are
based on historical earnings and are not intended to indicate future
performance. Such figures could be increased to the extent the Advisor waives
all or a portion of its fees or reimburses all or a portion of the Fund's
expenses. For further information, see "Calculation of Performance Data" in the
Statement of Additional Information.
The "average annual total return" of the Fund refers to the average annual
compounded rates of return over 1, 5 and 10 year periods that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation assumes the reinvestment of
all dividends and distributions, includes all recurring fees that are charged to
all shareholder accounts and deducts all nonrecurring charges at the end of each
period. If the Fund has been operating less than 1, 5 or 10 years, the time
period during which the Fund has been operating is substituted.
The "yield" of the Fund is computed by dividing the net investment income per
share earned during the most recent practicable period stated in the
advertisement by the maximum offering price per share on the last day of the
period (using the average number of shares entitled to receive dividends). For
the purpose of determining net investment income, the calculation includes among
expenses of the Fund all recurring fees that are charged to all shareholder
accounts and any nonrecurring charges for the period stated. A "tax-equivalent
yield" is computed by using the tax-exempt yield figure and dividing by 1 minus
the tax rate. Tax-equivalent yield demonstrates the yield from a taxable
investment necessary to produce an after-tax yield equivalent to that of a fund
that invests in tax-exempt obligations.
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<PAGE>
In addition, a Fund may advertise other total return performance data. This data
shows as a percentage rate of return encompassing all elements of return (i.e.
income and capital appreciation or depreciation); it assumes reinvestment of all
dividends and capital gain distributions. Such other total return data may be
quoted for the same or different periods as those for which the average annual
total return is quoted. This data may consist of a cumulative percentage rate of
return, actual year-by-year rates or any combination thereof. Cumulative total
return represents the cumulative change in value of an investment in the Fund
for various periods.
31
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL OBLIGATIONS
Municipal Obligations include bonds, notes and commercial paper issued by or on
behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from federal income taxes
(without regard to whether the interest thereon is also exempt from the personal
income taxes of any state). Municipal Obligation bonds are issued to obtain
funds for various public purposes, including the construction of a wide range of
public facilities such as bridges, highways, housing, hospitals, mass
transportation, schools, streets, and water and sewer works. Other public
purposes for which Municipal Obligation bonds may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses, and
obtaining funds to loan to other public institutions and facilities. In
addition, certain types of industrial development bonds, are issued by or on
behalf of public authorities to obtain funds to provide privately-operated
housing facilities, airport, mass transit or port facilities, sewage disposal,
solid waste disposal or hazardous waste treatment or disposal facilities and
certain local facilities for water supply, gas or electricity. Such obligations
are included within the term Municipal Obligations if the interest paid thereon
qualifies as exempt from federal income tax. Other types of industrial
development bonds, the proceeds of which are used for the construction,
equipment, repair or improvement of privately operated industrial or commercial
facilities, may constitute Municipal Obligations, although the current federal
tax laws place substantial limitations on the size of such issues.
The two principal classifications of Municipal Obligation bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its good faith, credit and taxing power for the payment of
principal and interest. The payment of the principal of and interest on such
bonds may be dependent upon an appropriation by the issuer's legislative body.
The characteristics and enforcement of general obligation bonds vary according
to the law applicable to the particular issuer. Revenue bonds are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise or other specific revenue
source. Industrial development bonds which are Municipal Obligations are in most
cases revenue bonds and do not generally constitute the pledge of the credit of
the issuer of such bonds.
Municipal Obligations also include participations in municipal leases. These are
undivided interests in a portion of an obligation in the form of a lease or
installment purchase which
32
<PAGE>
is issued by state and local governments to acquire equipment and facilities.
Municipal leases frequently have special risks not normally associated with
general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the governmental issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations are deemed to be inapplicable because of the inclusion
in many leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Accordingly, a risk
peculiar to these municipal lease obligations is the possibility that a
government issuer will not appropriate funds for lease payments. Although the
obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. There are, of course, variations in the
security of Municipal Obligations, both within a particular classification and
between classifications, depending on numerous factors.
Municipal Obligation notes generally are used to provide for short-term capital
needs and generally have maturities of one year or less. Municipal Obligation
notes include:
1. TAX ANTICIPATION NOTES. Tax Anticipation Notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various tax revenues, such as income, sales, use and
business taxes, and are payable from these specific future taxes.
2. REVENUE ANTICIPATION NOTES. Revenue Anticipation Notes are issued in
expectation of receipt of other kinds of revenue, such as federal revenues
available under Federal Revenue Sharing Programs.
3. BOND ANTICIPATION NOTES. Bond Anticipation Notes are issued to provide
interim financing until long-term bond financing can be arranged. In most
cases, the long-term bonds then provide the money for the repayment of the
Notes.
Issues of commercial paper typically represent short-term, unsecured, negotiable
promissory notes. These obligations are issued by agencies of state and local
governments to finance seasonal working capital needs of municipalities or to
provide interim construction financing and are paid from general revenues of
municipalities or are refinanced with long-term debt. In most cases, Municipal
Obligation commercial paper is backed by letters of credit, lending agreements,
note repurchase agreements or other credit facility agreements offered by banks
or other institutions.
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<PAGE>
The yields on Municipal Obligations are dependent on a variety of factors,
including general market conditions, supply and demand and general conditions of
the Municipal Obligation market, size of a particular offering, the maturity of
the obligation and rating (if any) of the issue.
34
<PAGE>
THE NORTH CAROLINA
TAX FREE BOND FUND
A No-Load Fund
PROSPECTUS
November 30, 1998
THE NORTH CAROLINA TAX FREE BOND FUND
P.O. Box 5354
Cincinnati, Ohio 45201-5354
1-800-841-0987
INVESTMENT ADVISOR
Boys, Arnold & Company, Inc.
1272 Hendersonville Road
Post Office Drawer 5255
Asheville, North Carolina 28813
1-800-286-8038
CUSTODIAN
The Fifth Third Bank
38 Fountain Square
Cincinnati, Ohio 45263
TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT
Countrywide Fund Services, Inc.
312 Walnut Street
21st Floor
Cincinnati, Ohio 45202
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2170 Courthouse Plaza, N.E.
Dayton, Ohio 45402
35
<PAGE>
THE NORTH CAROLINA TAX FREE ACCOUNT NO. G9- ___________________
BOND FUND (For Fund Use Only)
Account Application ===================================
FOR BROKER/DEALER USE ONLY
Please mail completed account Firm Name:_________________________
application to: Home Office Address:_______________
Countrywide Fund Services, Inc. Branch Address:____________________
P.O. Box 5354 Rep Name & No.:____________________
Cincinnati, Ohio 45201-5354 Rep. Signature:____________________
800-841-0987 ===================================
================================================================================
Initial Investment of $ __________________ ($1,000 minimum)
o Check or draft enclosed payable to The North Carolina Tax Free Bond Fund.
o Bank Wire From:
================================================================================
Account Name S.S. #/Tax l.D.#
__________________________________________ __________________________________
Name of Individual, Corporation, (In case of custodial account
Organization, or Minor, etc. please list minor's S.S.#)
__________________________________________ Citizenship: o U.S.
Name of Joint Tenant, Partner, Custodian o Other ___________
Address Phone
__________________________________________ __________________________________
Street or P.O. Box Business Phone
__________________________________________ __________________________________
City State Zip Home Phone
Check Appropriate Box: o Individual
o Joint Tenant (Right of survivorship presumed)
o Partnership
o Corporation
o Trust
o Custodial
o Other
Occupation and Employer Name/Address:___________________________________________
Are you an associated person of an NASD member? o Yes o No
================================================================================
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that the
Taxpayer Identification Number listed above is my correct number. The Internal
Revenue Service does not require my consent to any provision of this document
other than the certifications required to avoid backup withholding. Check box if
appropriate:
o I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends; or
the Internal Revenue Service has notified me that I am no longer subject to
backup withholding.
o I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do
not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
================================================================================
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Income Option -- Income distributions and short-term capital gains
distributions paid in cash, long-term capital gains
distributions reinvested in additional shares.
o Cash Option -- Income distributions and capital gains distributions paid
in cash.
o By Check o By ACH to my bank checking or savings account.
PLEASE ATTACH A VOIDED CHECK.
================================================================================
REDEMPTION OPTIONS
I (we) authorize Countrywide Fund Services, Inc. to act upon instructions
received by telephone to have amounts withdrawn from my (our) account in The
North Carolina Tax Free Bond Fund (see prospectus for limitations on this
option) and:
o WIRED ($5,000 minimum) OR MAILED to my (our) bank account designated below. I
(we) further authorize the use of automated cash transfers to and from the
account designated below.
NOTE: For wire redemptions, the indicated bank should be a commercial bank.
PLEASE ATTACH A VOIDED CHECK FOR THE ACCOUNT.
Bank Account Number__________________ Bank Routing Transit Number____________
Name of Account Holder__________________________________________________________
Bank Name____________________________ Bank Address___________________________
City State
================================================================================
SIGNATURES
By signature below each investor certifies that he has received a copy of the
Fund's current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints Countrywide Fund Services, Inc. as his agent to enter orders for
shares, to receive dividends and distributions for automatic reinvestment in
additional shares of the Fund for credit to the investor's account and to
surrender for redemption shares held in the investor's account in accordance
with any of the procedures elected above or for payment of service charges
incurred by the investor. The investor further agrees that Countrywide Fund
Services, Inc. can cease to act as such agent upon ten days' notice in writing
to the investor at the address contained in this Application. The investor
hereby ratifies any instructions given pursuant to this Application and for
himself and his successors and assigns does hereby release the Fund, Boys,
Arnold & Company, Inc., Countrywide Fund Services, Inc., and their respective
officers, employees, agents and affiliates from any and all liability in the
performance of the acts instructed herein. Neither the Fund, Countrywide Fund
Service, Inc., nor their respective affiliates will be liable for complying with
telephone instructions they reasonably believe to be genuine or for any loss,
damage, cost or expense in acting on such telephone instruction. The investor(s)
will bear risk of any such loss. The Fund or Countrywide Fund Services, Inc., or
both, will employ reasonable procedures to determine that telephone instructions
are genuine. If the Fund and/or Countrywide Fund Services, Inc. do not employ
such procedures,they may be liable for losses due to unauthorized or fraudulent
instructions. These procedures may include, among others, requiring forms of
personal identification prior to acting upon telephone instructions, providing
written confirmation of the transactions and/or tape recording telephone
instructions.
____________________________________ ______________________________________
Signature of Individual Owner, Signature of Joint Owner, if Any
Corporate Officer, Trustee, etc.
____________________________________ ______________________________________
Title of Corporate Officer, Date
Trustee, etc.
NOTE: Corporations, trusts and other organizations must complete the resolution
form on the reverse side. Unless otherwise specified, each joint owner shall
have full authority to act on behalf of the account.
<PAGE>
AUTOMATIC INVESTMENT PLAN (Complete for Investments into the Fund)
The Automatic Investment Plan is available for all established accounts of The
North Carolina Tax Free Bond Fund. There is no charge for this service, and it
offers the convenience of automatic investing on a regular basis. The minimum
investment is $100.00 per investment. For an account that is opened by using
this Plan, the minimum initial and subsequent investments must be $100.00.
Though a continuous program of 12 monthly investments is recommended, the Plan
may be discontinued by the shareholder at any time.
Please invest $_________ per month ABA Routing Number___________________
in the Fund.
FI Account Number____________________
o Checking Account o Savings Account
___________________________________
Name of Financial Institution (FI) Please make my automatic investment on:
o the last business day of each month
___________________________________ o the 15th day of each month
City State o both the 15th and last business day
X__________________________________ X______________________________________
(Signature of Depositor EXACTLY (Signature of Joint Tenant - if any)
as it appears on FI Records)
(Joint Signatures are required when bank account is in joint names. Please sign
exactly as signature appears on your FI's records.)
PLEASE ATTACH A VOIDED CHECK FOR THE AUTOMATIC INVESTMENT PLAN.
INDEMNIFICATION TO DEPOSITOR'S BANK
In consideration of your participation in a plan which Countrywide Fund
Services, Inc. ("CFS") has put into effect, by which amounts, determined by your
depositor, payable to the Fund, for purchase of shares of the Fund, are
collected by CFS, CFS hereby agrees:
CFS will indemnify and hold you harmless from any liability to any person or
persons whatsoever arising out of the payment by you of any amount drawn by the
Fund to its own order on the account of your depositor or from any liability to
any person whatsoever arising out of the dishonor by you whether with or without
cause or intentionally or inadvertently, of any such amount. CFS will defend, at
its own cost and expense, any action which might be brought against you by any
person or persons whatsoever because of your actions taken pursuant to the
foregoing request or in any manner arising by reason of your participation in
this arrangement. CFS will refund to you any amount erroneously paid by you to
the Fund if the claim for the amount of such erroneous payment is made by you
within six (6) months from the date of such erroneous payment; your
participation in this arrangement and that of the Fund may be terminated by
thirty (30) days written notice from either party to the other.
================================================================================
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund)
This is an authorization for you to withdraw $___________ ($100.00 minimum) from
my account beginning the last business day of the month of _______.
Please Indicate Withdrawal Schedule (Check One):
o Monthly -- Withdrawals will be made on the last business day of each month.
o Quarterly -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
o Annually -- Please make withdrawals on the last business day of the month of:
__________.
o CHECK: Please mail a check for my withdrawal proceeds to the mailing address
on this account.
o ACH TRANSFER: Please send my withdrawal proceeds via ACH transfer to my bank
checking or savings account as indicated below. I understand that the
transfer will be completed in two to three business days and that there is no
charge.
o BANK WIRE: Please send my withdrawal proceeds via bank wire, to the account
indicated below. I understand that the wire will be completed in one business
day and that there is an $8.00 fee.
Please attach a voided _______________________________________________
check for ACH or bank wire Bank Name Bank Address
_______________________________________________
Bank ABA# Account # Account Name
o SEND TO SPECIAL PAYEE (OTHER THAN APPLICANT): Please mail a check for my
withdrawal proceeds to the mailing address below:
Name of payee___________________________________________________________________
Please send to:_________________________________________________________________
Street address City State Zip
================================================================================
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of The
North Carolina Tax Free Bond Fund (the Fund) and that
____________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the Fund,
and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to sign
any documents necessary or appropriate to appoint Countrywide Fund Services,
Inc. as redemption agent of the corporation or organization for shares of the
Fund, to establish or acknowledge terms and conditions governing the redemption
of said shares and to otherwise implement the privileges elected on the
Application.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
____________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of _____________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on _______ at which a quorum
was present and acting throughout, and that the same are now in full force and
effect.
I further certify that the following is (are) duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the foregoing
resolutions.
Name Title
____________________________________ ______________________________________
____________________________________ ______________________________________
____________________________________ ______________________________________
Witness my hand and seal of the corporation or organization this ________ day of
_________, 19___
____________________________________ ______________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE NORTH CAROLINA TAX FREE BOND FUND
November 30, 1998
A series of
ALBEMARLE INVESTMENT TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Telephone 1-800-841-0987
TABLE OF CONTENTS
-----------------
INVESTMENT OBJECTIVES AND POLICIES.......................................... 2
INVESTMENT LIMITATIONS...................................................... 9
TRUSTEES AND OFFICERS....................................................... 11
INVESTMENT ADVISOR.......................................................... 13
ADMINISTRATOR............................................................... 14
SHAREHOLDER SERVICING PLAN.................................................. 15
OTHER SERVICES.............................................................. 16
SPECIAL SHAREHOLDER SERVICES................................................ 16
PURCHASE OF SHARES.......................................................... 19
REDEMPTION OF SHARES........................................................ 19
NET ASSET VALUE DETERMINATION............................................... 20
ADDITIONAL TAX INFORMATION.................................................. 20
DESCRIPTION OF THE TRUST.................................................... 24
CALCULATION OF PERFORMANCE DATA............................................. 25
FINANCIAL STATEMENTS AND REPORTS............................................ 29
APPENDIX A - SPECIAL CONSIDERATIONS REGARDING INVESTMENT
IN NORTH CAROLINA MUNICIPAL OBLIGATIONS................................... 30
APPENDIX B - DESCRIPTION OF MUNICIPAL BOND RATINGS.......................... 35
This Statement of Additional Information is not a prospectus and should only be
read in conjunction with the Prospectus of The North Carolina Tax Free Bond Fund
(the "Fund") dated November 30, 1998. The Fund's Prospectus may be obtained at
no charge by contacting the Fund at the address and phone number shown above.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the Fund are described in the
Prospectus. Supplemental information about these policies is set forth below.
Certain capitalized terms used herein are defined in the Prospectus.
ADDITIONAL INFORMATION ON NORTH CAROLINA INVESTMENTS. Attached to this
Additional Statement is Appendix A, "Special considerations Regarding Investment
in North Carolina Municipal Obligations," which contains a discussion of
investment considerations associated with North Carolina Municipal Obligations.
Additional information on various types of Municipal Obligations that may be
acquired by the Fund and the special risks associated with these types of
investments is set forth below.
The Advisor may invest the assets of the Fund in a relatively high percentage of
municipal bonds issued by entities having similar characteristics. The issuers
may pay their interest obligations from revenue of similar projects such as
multi-family housing, nursing homes, electric utility systems, hospitals or life
care facilities.
Housing revenue bonds typically are issued by a state, county or local housing
authority and are secured only by the revenues of mortgages originated by the
authority using the proceeds of the bond issue. Because of the impossibility of
precisely predicting demand for mortgages from the proceeds of such an issue,
there is a risk that the proceeds of the issue will be in excess of demand,
which would result in early retirement of the bonds by the issuer. Moreover,
such housing revenue bonds depend for their repayment upon the cash flow from
the underlying mortgages, which cannot be precisely predicted when the bonds are
issued. Any difference in the actual cash flow from such mortgages from the
assumed cash flow could have an adverse impact upon the ability of the issuer to
make scheduled payments of principal and interest on the bonds, or could result
in early retirement of the bonds. Additionally, such bonds depend in part for
scheduled payments of principal and interest upon reserve funds established from
the proceeds of the bonds, assuming certain rates of return on investment of
such reserve funds. If the assumed rates of return are not realized because of
changes in interest rate levels or for other reasons, the actual cash flow for
scheduled payments of principal and interest on the bonds may be inadequate. The
financing of multi-family housing projects is affected by a variety of factors,
including satisfactory completion of construction within cost constraints, the
achievement and maintenance of a sufficient level of occupancy, sound management
of the developments, timely and adequate increases in rents to cover increases
in operating expenses,
- 2 -
<PAGE>
including taxes, utility rates and maintenance costs, changes in applicable laws
and governmental regulations, and social and economic trends.
Electric utilities face problems in financing large construction programs in an
inflationary period, cost increases and delay occasioned by environmental
considerations (particularly with respect to nuclear facilities), difficulty in
obtaining fuel at reasonable prices, the cost of competing fuel sources,
difficulty in obtaining sufficient rate increases and other regulatory problems,
the effect of energy conservation and difficulty of the capital market to absorb
utility debt.
Healthcare facilities include life care facilities, nursing homes and hospitals.
Life care facilities are alternative forms of long-term housing for the elderly
which offer residents the independence of condominium life style and, if needed,
the comprehensive care of nursing home services. Bonds to finance these
facilities have been issued by various state industrial development authorities.
Because the bonds are secured only by the revenues of each facility, and not by
state or local government tax payments, they are subject to a wide variety of
risks. Primarily, the projects must maintain adequate occupancy levels to be
able to provide revenues adequate to maintain debt service payments. Moreover,
in the case of life care facilities, because a portion of housing, medical care
and other services may be financed by an initial deposit, there may be risk if
the facility does not maintain adequate financial reserves to secure estimated
actuarial liabilities. The ability of management to accurately forecast
inflationary cost pressures weighs importantly in this process. The facilities
may also be affected by regulatory cost restrictions applied to health care
delivery in general, particularly state regulations or changes in Medicare and
Medicaid payments or qualifications, or restrictions imposed by medical
insurance companies. They may also face competition from alternative health care
or conventional housing facilities in the private or public sector. Hospital
bond ratings are often based on feasibility studies which contain projections of
expenses, revenues and occupancy levels. A hospital's gross receipts and net
income available to service its debt are influenced by demand for hospital
services, the ability of the hospital to provide the services required,
management capabilities, economic developments in the service area, efforts by
insurers and government agencies to limit rates and expenses, confidence in the
hospital, service area economic developments, competition, availability and
expense of malpractice insurance, Medicaid and Medicare funding, and possible
federal legislation limiting the rates of increase of hospital charges.
- 3 -
<PAGE>
The Fund may also invest in bonds for industrial and other projects, such as
sewage or solid waste disposal or hazardous waste treatment facilities.
Financing for such projects will be subject to inflation and other general
economic factors as well as construction risks including labor problems,
difficulties with construction sites and the ability of contractors to meet
specifications in a timely manner. Because some of the materials, processes and
wastes involved in these projects may include hazardous components, there are
risks associated with their production, handling and disposal.
INVESTMENT TRANSACTIONS. Subject to the general supervision of the Trust's Board
of Trustees, the Advisor is responsible for, makes decisions with respect to,
and places orders for all purchases and sales of portfolio securities for the
Fund.
The portfolio turnover rate for the Fund is calculated by dividing the lesser of
purchases or sales of portfolio securities for the reporting period by the
monthly average value of the portfolio securities owned during the reporting
period. The calculation excludes all securities whose maturities or expiration
dates at the time of acquisition are one year or less. Portfolio turnover of the
Fund may vary greatly from year to year as well as within a particular year, and
may be affected by cash requirements for redemption of shares. Portfolio
turnover will not be a limiting factor in making Fund decisions, and the Fund
may engage in short-term trading to achieve its investment objectives.
Purchases of money market instruments by the Fund are made from dealers,
underwriters and issuers. The Fund currently does not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. The Fund's portfolio transactions will normally be municipal
transactions executed in over-the-counter markets and will be executed on a
"net" basis, which may include a dealer markup.
- 4 -
<PAGE>
The Fund may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. The Fund will
engage in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for the Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. The sale of Fund shares may
be considered when determining firms that are to execute brokerage transactions
for the Fund. In addition, the Advisor is authorized to cause the Fund to pay a
broker-dealer which furnishes brokerage and research services a higher spread or
commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Advisor determines in good
faith that such spread or commission is reasonable in relation to the value of
the brokerage and research services provided by such broker-dealer, viewed in
terms of either the particular transaction or the overall responsibilities of
the Advisor to the Fund. Such brokerage and research services might consist of
reports and statistics relating to specific companies or industries, general
summaries of groups of stocks or bonds and their comparative earnings and
yields, or broad overviews of the stock, bond and government securities markets
and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable by the Fund. The Trustees will periodically review any
spread or commissions paid by the Fund to consider whether the spreads or
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Fund. It is possible that certain of the
supplementary research or other services received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised by the Advisor. Conversely, the Fund may be the primary
beneficiary of the research or services received as a result of securities
transactions effected for such other account or investment company.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor if it believes it can obtain the best execution of transactions from
such broker. The Fund will not execute portfolio transactions through, acquire
securities issued
- 5 -
<PAGE>
by, make savings deposits in or enter into repurchase agreements with the
Advisor or an affiliated person of the Advisor, as such term is defined in the
Investment Company Act of 1940 (the "1940 Act"), acting as principal, except to
the extent permitted by the Securities and Exchange Commission ("SEC"). In
addition, the Fund will not purchase securities during the existence of any
underwriting or selling group relating thereto of which the Advisor, or an
affiliated person of the Advisor, is a member, except to the extent permitted by
the SEC. Under certain circumstances, the Fund may be at a disadvantage because
of these limitations in comparison with other investment companies that have
similar investment objectives but are not subject to such limitations.
Investment decisions for the Fund will be made independently from those for any
other investment companies and accounts advised or managed by the Advisor. Such
other investment companies and accounts may also invest in the same securities
as the Fund. To the extent permitted by law, the Advisor may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for other investment companies or accounts in executing transactions.
When a purchase or sale of the same security is made at substantially the same
time on behalf of the Fund and another investment company or account, the
transaction will be averaged as to price and available investments allocated as
to amount, in a manner which the Advisor believes to be equitable to the Fund
and such other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained or sold by the Fund.
During the past three fiscal years, no brokerage commissions were paid by the
Fund.
REPURCHASE AGREEMENTS. The Fund may acquire U.S. Government Securities or other
debt securities subject to repurchase agreements. A repurchase transaction
occurs when, at the time the Fund purchases a security (normally a U.S. Treasury
obligation), it also resells it to the vendor (normally a member bank of the
Federal Reserve or a registered Government Securities dealer) and must deliver
the security (and/or securities substituted for them under the repurchase
agreement) to the vendor on an agreed upon date in the future. Such securities,
including any securities so substituted, are referred to as the "Repurchase
Securities." The repurchase price exceeds the purchase price by an amount which
reflects an agreed upon market interest rate effective for the period of time
during which the repurchase agreement is in effect.
- 6 -
<PAGE>
The majority of these transactions run day to day, and the delivery pursuant to
the resale typically will occur within one to five days of the purchase. The
Fund's risk is limited to the ability of the vendor to pay the agreed upon sum
upon the delivery date; in the event of bankruptcy or other default by the
vendor, there may be possible delays and expenses in liquidating the instrument
purchased, decline in its value and loss of interest. These risks are minimized
when the Fund holds a perfected security interest in the Repurchase Securities
and can therefore sell the instrument promptly. Under guidelines issued by the
Trustees, the Advisor will carefully consider the creditworthiness of a vendor
during the term of the repurchase agreement. Repurchase agreements are
considered as loans collateralized by the Repurchase Securities, such agreements
being defined as "loans" under the 1940 Act. The return on such "collateral" may
be more or less than that from the repurchase agreement. The market value of the
resold securities will be monitored so that the value of the "collateral" is at
all times at least as equal to the value of the loan, including the accrued
interest earned thereon. All Repurchase Securities will be held by the Fund's
custodian either directly or through a securities depository.
DESCRIPTION OF MONEY MARKET INSTRUMENTS. Money market instruments may include
U.S. Government Securities or corporate debt obligations (including those
subject to repurchase agreements) as described herein, provided that they mature
in thirteen months or less from the date of acquisition and are otherwise
eligible for purchase by the Fund. Money market instruments also may include
Bankers' Acceptances and Certificates of Deposit of domestic branches of U.S.
banks, Commercial Paper and Variable Amount Demand Master Notes ("Master
Notes"). BANKERS' ACCEPTANCES are time drafts drawn on and "accepted" by a bank,
are the customary means of effecting payment for merchandise sold in
import-export transactions and are a source of financing used extensively in
international trade. When a bank "accepts" such a time draft, it assumes
liability for its payment. When the Fund acquires a Bankers' Acceptance, the
bank which "accepted" the time draft is liable for payment of interest and
principal when due. The Bankers' Acceptance, therefore, carries the full faith
and credit of such bank. A CERTIFICATE OF DEPOSIT ("CD") is an unsecured
interest-bearing debt obligation of a bank. CDs acquired by the Fund would
generally be in amounts of $100,000 or more. COMMERCIAL PAPER is an unsecured,
short-term debt obligation of a bank, corporation or other borrower. Commercial
Paper maturity generally ranges from two to 270 days and is usually sold on a
discounted basis rather than as an interest-bearing instrument. The Fund will
invest in Commercial Paper only if it is rated in one of the two highest rating
categories by any nationally recognized statistical rating organization
("NRSRO") or, if not
- 7 -
<PAGE>
rated, the issuer must have an outstanding unsecured debt issue rated in the
four highest categories by any NRSRO or, if not so rated, be of equivalent
quality in the Advisor's assessment. Commercial Paper may include Master Notes
of the same quality. MASTER NOTES are unsecured obligations which are redeemable
upon demand of the holder and which permit the investment of fluctuating amounts
at varying rates of interest. Master Notes are acquired by the Fund only through
the Master Note program of the Fund's custodian bank, acting as administrator
thereof. The Advisor will monitor, on a continuous basis, the earnings power,
cash flow and other liquidity ratios of the issuer of a Master Note held by the
Fund.
ILLIQUID INVESTMENTS. The Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees, the
Advisor determines the liquidity of the Fund's investments and, through reports
from the Advisor, the Board monitors investments in illiquid instruments. In
determining the liquidity of the Fund's investments, the Advisor may consider
various factors including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). Investments currently considered by the Fund to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. If through a change in values, net
assets or other circumstances, the Fund were in a position where more than 10%
of its net assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
Certain investments in lease obligations (defined and described in detail in the
Prospectus) may be illiquid. The Fund may not invest in illiquid lease
obligations if such investments, together with all other illiquid investments,
would exceed 10% of the Fund's net assets. The Fund may, however, invest without
regard to such limitation in lease obligations which the Advisor, pursuant to
guidelines adopted by the Board of Trustees and subject to the supervision of
the Board of Trustees, determines to be liquid. In determining the liquidity of
municipal lease obligations, the Advisor will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Advisor will
- 8 -
<PAGE>
consider factors unique to particular lease obligations affecting their
marketability. These include the general creditworthiness of the municipality,
the importance of the property covered by the lease to the municipality, and the
likelihood that the marketability of the obligation will be maintained
throughout the time the obligation is held by the Fund. The Board of Trustees is
responsible for determining the credit quality of unrated municipal lease
obligations on an ongoing basis, including an assessment of the likelihood that
the lease will not be canceled. The Advisor will deem lease obligations liquid
if they are publicly offered and have received an investment grade rating of Baa
or better by Moody's Investors Service, Inc. or BBB or better by Standard &
Poor's Ratings Group (or an equivalent rating by any of the other NRSROs).
Unrated lease obligations will be considered liquid if the obligations come to
the market through an underwritten public offering and at least two dealers are
willing to give competitive bids.
FORWARD COMMITMENT & WHEN-ISSUED SECURITIES. The Fund may purchase securities on
a when-issued basis or for settlement at a future date if the Fund holds
sufficient assets to meet the purchase price. In such purchase transactions the
Fund will not accrue interest on the purchased security until the actual
settlement. Similarly, if a security is sold for a forward date, the Fund will
accrue the interest until the settlement of the sale. When-issued security
purchases and forward commitments have a higher degree of risk of price movement
before settlement due to the extended time period between the execution and
settlement of the purchase or sale. As a result, the exposure to the
counterparty of the purchase or sale is increased. Although the Fund would
generally purchase securities on a forward commitment or when-issued basis with
the intention of taking delivery, the Fund may sell such a security prior to the
settlement date if the Advisor felt such action was appropriate. In such a case
the Fund could incur a short-term gain or loss.
INVESTMENT LIMITATIONS
The Fund has adopted the following investment limitations which cannot be
changed without approval by holders of a majority of the outstanding voting
shares of the Fund. A "majority" for this purpose, means the lesser of (i) 67%
of the Fund's outstanding shares represented in person or by proxy at a meeting
at which more than 50% of its outstanding shares are represented, or (ii) more
than 50% of its outstanding shares.
Under these limitations, the Fund MAY NOT:
1. Invest in the securities of any issuer if any of the officers or trustees
of the Trust or its Advisor who own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer together own more than 5% of the
outstanding securities of such issuer;
- 9 -
<PAGE>
2. Invest for the purpose of exercising control or management of another
issuer;
3. Invest in interests in real estate, real estate mortgage loans, oil, gas or
other mineral exploration leases or exploration or development programs,
except that the Fund may invest in the securities of companies (other than
those which are not readily marketable) which own or deal in such things;
4. Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter under the Federal securities laws, in
connection with the disposition of portfolio securities;
5. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions);
6. Make short sales of securities or maintain a short position, except short
sales "against the box;" (A short sale is made by selling a security the
Fund does not own. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain at no additional
cost securities identical to those sold short.);
7. Participate on a joint or joint and several basis in any trading account in
securities;
8. Make loans of money or securities, except that the Fund may invest in
repurchase agreements;
9. Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors), if more than 5% of its total assets would be invested
in such securities;
10. Issue senior securities, borrow money, or pledge its assets except, that it
may borrow from banks as a temporary measure (a) for extraordinary or
emergency purposes, in amounts not exceeding 5% of the Fund's total assets
or, (b) in order to meet redemption requests which might otherwise require
untimely disposition of portfolio securities in amounts not exceeding 15%
of its total assets. The Fund will not make any investments if borrowing
exceeds 5% of its total assets;
11. Invest more than 10% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others (a) securities for which
no readily available market exists, (b) fixed time deposits that are
subject to
- 10 -
<PAGE>
withdrawal penalties and have maturities of more than seven days, and (c)
repurchase agreements not terminable within seven days;
12. Invest in restricted securities; and
13. Write, purchase or sell commodities, commodities contracts, futures
contracts, or related options.
Percentage restrictions stated as an investment policy or investment limitation
apply at the time of investment; if a later increase or decrease in percentage
beyond the specified limits results from a change in securities values or total
assets, it will not be considered a violation. However, in the case of the
borrowing limitation (limitation number 10, above), the Fund will, to the extent
necessary, reduce its existing borrowing to comply with the limitation.
While the Fund has reserved the right to make short sales "against the box,"
(limitation number 6, above), the Advisor has no present intention of engaging
in such transactions at this time or during the coming year.
TRUSTEES AND OFFICERS
Following are the Trustees and executive officers of the Trust, their present
position with the Trust, age and their aggregate compensation from the Trust for
the fiscal year ended August 31, 1998:
COMPENSATION
NAME AGE POSITION HELD FROM THE TRUST
- ---- --- ------------- --------------
Edwin B. Armstrong+ 68 Trustee $2,550
J. Finley Lee, Jr.+ 59 Trustee $2,550
Jon L. Vannice* 41 Trustee and Vice President None
John B. Kuhns 44 President None
Mark J. Seger 36 Treasurer None
Marcus L. Collins 30 Secretary None
* Mr. Vannice is an affiliated person of the Advisor, and therefore an
"interested person" of the Trust within the meaning of Section 2(a)(19) of
the 1940 Act.
+ Member of Audit Committee.
The principal occupations of the Trustees and executive officers of the Trust
during the past five years are set forth below:
EDWARD B. ARMSTRONG, 2506 Pineway Drive, Burlington, North Carolina 27215, is an
International Management Consultant. He is also a Field Associate of
International Executive Services Corp. of Burlington, North Carolina.
- 11 -
<PAGE>
J. FINLEY LEE, JR., 614 Croom Street, Chapel Hill, North Carolina 27514, is a
Julian Price Professor of Business Administration, Emeritus, of the University
of North Carolina at Chapel Hill, North Carolina.
JON L. VANNICE, 1272 Hendersonville Road, Asheville, North Carolina 28813, is
President of Boys, Arnold & Company, Inc., the Advisor to the Fund.
JOHN B. KUHNS, 1272 Hendersonville Road, Asheville, North Carolina 28813, is
Senior Vice President of Boys, Arnold & Company, Inc.
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio 45202, is Vice
President and Chief Operating Officer of Countrywide Fund Services, Inc. and CW
Fund Distributors, Inc. He is also Treasurer of Countrywide Tax-Free Trust,
Countrywide Strategic Trust, Countrywide Investment Trust, Brundage, Story and
Rose Investment Trust, Williamsburg Investment Trust, Markman MultiFund Trust,
Maplewood Investment Trust, a series company, The Thermo Opportunity Fund, Inc.,
the New York State Opportunity Funds, the Dean Family of Funds, the Wells Family
of Real Estate Funds, the Lake Shore Family of Funds, Profit Funds Investment
Trust, Atalanta/Sosnoff Investment Trust, UC Investment Trust and The Winter
Harbor Fund and Assistant Treasurer of Schwartz Investment Trust, The Tuscarora
Investment Trust, The Gannett Welsh & Kotler Funds, Firsthand Funds, the
Westport Funds, Boyar Value Fund, Inc. and The James Advantage Funds, all of
which are registered investment companies.
MARCUS L. COLLINS, 312 Walnut Street, Cincinnati, Ohio 45202, is Counsel to
Countrywide Fund Services, Inc. He is also Secretary to United Investment Trust
and Assistant Secretary to Lake Shore Family of Funds, Wells Family of Real
Estate Funds, and Profit Funds Investment Trust.
Messrs. Armstrong and Lee constitute the Trust's Audit Committee. The Audit
Committee reviews annually the nature and cost of the professional services
rendered by the Trust's independent accountants, the results of their year-end
audit and their findings and recommendations as to accounting and financial
matters, including the adequacy of internal controls. On the basis of this
review, the Audit Committee makes recommendations to the Trustees as to the
appointment of independent accountants for the following year. The Trustees have
not appointed a compensation committee or a nominating committee.
PRINCIPAL HOLDERS OF VOTING SECURITIES. As of November 6, 1998, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) less than 1% of the then outstanding shares of the Fund. On
the same date, Charles Schwab & Company, Inc., 101 Montgomery Street, San
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Francisco, California 94104, owned of record 61.6% of the then outstanding
shares of the Fund. Charles Schwab & Co., Inc. may be deemed to control the Fund
by virtue of the fact that it owns of record more than 25% of its outstanding
shares.
INVESTMENT ADVISOR
Boys, Arnold & Company, Inc. (the "Advisor") supervises the Fund's investments
pursuant to an Investment Advisory Agreement (the "Advisory Agreement")
described in the Prospectus. The Advisory Agreement is effective until January
1, 2000 and will be renewed thereafter for one year periods only so long as such
renewal and continuance is specifically approved at least annually by the Board
of Trustees or by vote of a majority of the Fund's outstanding voting
securities, provided the continuance is also approved by a majority of the
Trustees who are not "interested persons" of the Trust or the Advisor by vote
cast in person at a meeting called for the purpose of voting on such approval.
The Advisory Agreement is terminable by the Fund without penalty on sixty days
notice by the Board of Trustees of the Trust or by the Advisor. The Advisory
Agreement provides that it will terminate automatically in the event of its
assignment.
Compensation of the Advisor is at the annual rate of 0.35% of the Fund's daily
average net assets. For the fiscal year ended August 31, 1998, the Fund paid the
Advisor advisory fees of $1,339 (which was net of voluntary waivers of $36,891).
For the fiscal year ended August 31, 1997, the Advisor voluntarily waived all of
its fees from the Fund in the amount of $26,663 and voluntarily reimbursed a
portion of the Fund's operating expenses in the amount of $9,244. For the fiscal
year ended August 31, 1996, the Advisor voluntarily waived all of its fees from
the Fund in the amount of $18,238 and voluntarily reimbursed a portion of the
Fund's operating expenses in the amount of $27,692.
The Advisor, organized as a North Carolina corporation, is controlled by an
Employee Stock Ownership Plan, the trustees of which are John B. Kuhns, Jon L.
Vannice and Thomas C. Arnold. Messrs. Kuhns, Vannice and Arnold are affiliates
of the Advisor and may directly or indirectly receive benefits from the advisory
fees paid to the Advisor. In addition to acting as Advisor to the Fund, the
Advisor also provides investment advice to corporations, trusts, pension and
profit sharing plans, other business and institutional accounts and individuals.
The Advisor provides a continuous investment program for the Fund, including
investment research and management with respect to all securities, investments,
cash and cash equivalents of the Fund. The Advisor determines what securities
and other investments will be purchased, retained or sold by the Fund, and
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does so in accordance with the investment objective and policies of the Fund as
described herein and in the Prospectus. The Advisor places all securities orders
for the Fund, determining with which broker, dealer, or issuer to place the
orders. The Advisor must adhere to the brokerage policies of the Fund in placing
all orders, the substance of which policies are that the Advisor must seek at
all times the most favorable price and execution for all securities brokerage
transactions.
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of such Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of its duties or from its reckless
disregard of its duties and obligations under the Agreement.
ADMINISTRATOR
Countrywide Fund Services, Inc. (the "Administrator") 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. The Administrator receives for such services a fee payable
monthly at an annual rate of $18 per account, subject to a minimum fee of $1,000
per month. In addition, the Fund pays out-of-pocket expenses, including but not
limited to, postage, envelopes, checks, drafts, forms, reports, records storage
and communication lines.
The Administrator has also been retained to provide administrative services to
the Fund. In this capacity, the Administrator supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services. The Administrator supervises the
preparation of tax returns, reports to shareholders of the Fund, reports to and
filings with the SEC and state securities commissions, and materials for
meetings of the Board of Trustees. For the performance of these administrative
services, the Fund pays the Administrator a fee at the annual rate of .15% of
the average value of its daily net assets up to $50 million; .125% of such
assets from $50 million to $100 million; and .10% of such assets in excess of
$100 million; provided, however, that the minimum fee is $1,000 per month.
The Administrator also provides accounting and pricing services to the Fund. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable the Administrator to perform its duties, the
Fund pays the Administrator a fee in accordance with the following schedule:
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<PAGE>
Asset Size of Fund Monthly Fee
-------------------------- -----------
$ 0 - $ 50,000,000 $2,000
50,000,000 - 100,000,000 2,500
100,000,000 - 200,000,000 3,000
200,000,000 - 300,000,000 4,000
Over 300,000,000 5,000*
* Subject to an additional fee of .001% per annum of average net assets
during such month over $300,000,000.
For the six months ended August 31, 1998, the Administrator received from the
Fund transfer agent fees of $4,500, accounting and pricing fees of $9,000 and
administrative fees of $6,502. All of the fees paid to the Administrator during
the fiscal year ended August 31, 1998 were discounted by 25% from its standard
fees.
Prior to March 1, 1998 the Trust engaged The Nottingham Company ("TNC") of Rocky
Mount, North Carolina to provide administration services and accounting and
pricing services to the Fund. TNC in turn sub-contracted transfer agency and
shareholder servicing functions for the Fund to NC Shareholder Services, LLC.
Compensation of TNC for administration services prior to March 1, 1998, based
upon the average daily net assets of the Fund, was at the annual rate of 0.15%.
For the six months ended February 28, 1998, TNC received administrative fees of
$7,706. For the fiscal year ended August 31, 1997, TNC received $2,709 of its
administrative fees and voluntarily waived the remaining amount of $8,718. For
the fiscal year ended August 31, 1996, TNC voluntarily waived its entire
administrative fee from the Fund. In addition, TNC also received a monthly fee
of $1,750 for accounting and recordkeeping services for the Fund. For the six
months ended February 28, 1998, TNC received $10,500 for such services to the
Fund. For the fiscal years ended August 31, 1997 and 1996, TNC received $21,000
each year for such services to the Fund.
SHAREHOLDER SERVICING PLAN
The Trust has adopted a Shareholder Servicing Plan (the "Plan") pursuant to
which the Fund may compensate individuals, firms, banks, or investment advisors
directly or indirectly for personal services and/or the maintenance of accounts
of shareholders of the Fund and other shareholder liaison services not otherwise
provided by the Administrator or the Custodian, 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.
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<PAGE>
The expenditures to be made under the Plan and the basis for payment of such
expenditures must be approved by the Board of Trustees of the Trust and may not
exceed in any fiscal year 0.25% of the Fund's average annual net assets. In
addition, in no event may such expenditures paid to any person who sells Fund
shares exceed 0.25% per annum of the average value of such shares. The Plan may
not be amended to increase materially the amount to be spent for service fees
pursuant to the Plan without shareholder approval.
The continuation of the Plan must be considered by the Board of Trustees
annually. At least quarterly the Board of Trustees must review a written report
of amounts expended pursuant to the Plan and the purposes for which such
expenditures were made.
During the past three fiscal years, the Fund paid no service fees pursuant to
the Plan.
OTHER SERVICES
The Fifth Third Bank (the "Custodian"), 38 Fountain Square Plaza, Cincinnati,
Ohio 45263, serves as custodian for the Fund's assets. The Custodian acts as the
depository for the Fund, safekeeps its portfolio securities, collects all income
and other payments with respect to portfolio securities, disburses monies at the
Fund's request and maintains records in connection with its duties as Custodian.
The firm of Deloitte & Touche LLP, 2170 Courthouse Plaza, N.E., Dayton, OH
45402, has been retained by the Board of Trustees to perform an independent
audit of the books and records of the Fund and to consult with the Fund on
matters of accounting and federal and state income taxation.
SPECIAL SHAREHOLDER SERVICES
As noted in the Prospectus, the Fund offers the following shareholder services:
REGULAR ACCOUNT. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, shareholders are free to make
additions and withdrawals to or from their account as often as they wish. When a
shareholder makes an initial investment in the Fund, a shareholder account is
opened in accordance with the shareholders's registration instructions. Each
time there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a confirmation statement showing the current transaction and all
prior transactions in the shareholder account during the
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calendar year-to-date, along with a summary of the status of the account as of
the transaction date. As stated in the Prospectus, shareholder certificates are
not issued.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan enables shareholders to
make regular monthly or bimonthly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Administrator will automatically charge the checking account for
the amount specified ($100 minimum) which will be automatically invested in
shares at the net asset value on or about the fifteenth and/or the last business
day of the month as indicated on the Account Application. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing to the Administrator.
AUTOMATIC WITHDRAWAL PLAN. Shareholders owning shares with a value of $10,000 or
more may establish an Automatic Withdrawal Plan. A shareholder may receive
monthly, quarterly or annual payments, in amounts of not less than $100 per
payment, by authorizing the Fund to redeem the necessary number of shares
periodically (each month, quarterly in the months of March, June, September and
December or annually as specified in the Account Application) in order to make
the payments requested. Payments may be made directly to an investor's account
with a commercial bank or other depository institution via an Automated Clearing
House ("ACH") transaction. Instructions for establishing this service are
included in the Application contained in the Prospectus or are available by
calling the Fund. Payment may also be made by check payable to the designated
recipient and mailed within three business days of the valuation date. If the
designated recipient is other than the registered shareholder, the signature of
each shareholder must be guaranteed on the application (see "Signature
Guarantees" in the Prospectus). A corporation (or partnership) must also submit
a "Corporate Resolution" (or "Certification of Partnership") indicating the
names, titles and required number of signatures authorized to act on its behalf.
The application must be signed by a duly authorized officer(s) and the corporate
seal affixed. No redemption fees are charged to shareholders under this plan.
Costs in conjunction with the administration of the plan are borne by the Fund.
Shareholders should be aware that such automatic withdrawals may deplete or use
up entirely their initial investment and may result in realized long-term or
short-term capital gains or losses. The Automatic Withdrawal Plan may be
terminated at any time by the Fund upon sixty days' written notice or by a
shareholder upon written notice to the Fund. Applications and further details
may be obtained by calling the Fund at 1-800-841-0987, or by writing to:
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The North Carolina Tax Free Bond Fund
Shareholder Services
P.O. Box 5354
Cincinnati, Ohio 45201-5354
PURCHASES IN KIND. The Fund may accept securities in lieu of cash in payment for
the purchase of shares of the Fund. The acceptance of such securities is at the
sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long term investment of the Fund, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "How Shares are Valued" in the Prospectus.
REDEMPTIONS IN KIND. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. The Trust has filed an irrevocable
election under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to
pay redemptions in cash, rather than in kind, to any shareholder of record of
the Fund who redeems during any ninety-day period, the lesser of (a) $250,000 or
(b) one percent (1%) of the Fund's net assets at the beginning of such period.
TRANSFER OF REGISTRATION. To transfer shares to another owner, send a written
request to the Administrator at the address shown herein. Your request should
include the following: (1) the existing account registration; (2) signature(s)
of the registered owner(s) exactly as the signature(s) appear(s) on the account
registration; (3) the new account registration, address, social security or
taxpayer identification number and how dividends and capital gains are to be
distributed; (4) signature guarantees (See the Prospectus under the heading
"Signature Guarantees"); and (5) any additional documents which are required for
transfer by corporations, administrators, executors, trustees, guardians, etc.
If you have any questions about transferring shares, call or write the
Administrator.
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<PAGE>
PURCHASE OF SHARES
The purchase price of shares of the Fund is the net asset value next determined
after the order is received. An order received prior to the close of trading on
the New York Stock Exchange (normally 4:00 p.m., Eastern time) will be executed
at the price computed on the date of receipt; and an order received after that
time will be executed at the price computed on the next Business Day. An order
to purchase shares is not binding on the Fund until confirmed in writing (or
unless other arrangements have been made with the Fund, for example in the case
of orders utilizing wire transfer of funds) and payment has been received.
The Fund reserves the right in its sole discretion (i) to suspend the offering
of its shares, (ii) to reject purchase orders when in the judgment of management
such rejection is in the best interest of the Fund and its shareholders, and
(iii) to reduce or waive the minimum for initial and subsequent investments
under some circumstances, including circumstances where certain economies can be
achieved in sales of Fund shares.
EMPLOYEES AND AFFILIATES OF THE FUND. The Fund has adopted initial investment
minimums for the purpose of reducing the cost to the Fund (and consequently to
the shareholders) of communicating with and servicing its shareholders. However,
the minimum initial investment requirement does not apply to Trustees, officers
and employees of the Fund, the Advisor and certain parties related thereto,
including clients of the Advisor or any sponsor, officer, committee member
thereof, or the immediate family of any of them. In addition, accounts having
the same mailing address may be aggregated for purposes of the minimum
investment if shareholders consent in writing to share a single mailing of
shareholder reports, proxy statements (but each such shareholder would receive
his/her own proxy) and other Fund literature.
REDEMPTION OF SHARES
The Fund may suspend redemption privileges or postpone the date of payment (i)
during any period that the New York Stock Exchange is closed, or trading on the
New York Stock Exchange is restricted as determined by the SEC, (ii) during any
period when an emergency exists as defined by the rules of the SEC as a result
of which it is not reasonably practicable for the Fund to dispose of securities
owned by it, or to fairly determine the value of its assets, and (iii) for such
other periods as the SEC may permit.
No charge is made by the Fund for redemptions, although the Trustees could
impose a redemption charge in the future. Any redemption may be more or less
than the amount of the shareholder's investment depending on the market value of
the securities held by the Fund.
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<PAGE>
NET ASSET VALUE DETERMINATION
Under the 1940 Act, the Trustees are responsible for determining in good faith
the fair value of the securities and other assets of the Fund, and they have
adopted procedures to do so, as follows. The net asset value per share of the
Fund is determined as of the close of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time) on each "Business Day." A Business Day means
any day, Monday through Friday, except for the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Fourth of July, Labor Day, Thanksgiving Day and Christmas. Net asset value per
share is determined by dividing the total value of all Fund securities and other
assets, less liabilities, by the total number of shares then outstanding. Net
asset value includes interest on fixed-income securities, which is accrued
daily.
ADDITIONAL TAX INFORMATION
GENERAL TAX CONSIDERATIONS. The following summarizes certain additional tax
considerations generally affecting the Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning and is based on tax laws and regulations that are in effect
on the date hereof; such laws and regulations may be changed by legislative,
judicial, or administrative action. Investors are advised to consult their tax
advisors with specific reference to their own tax situations.
The Fund intends to qualify as a "regulated investment company" under Subchapter
M of the Internal Revenue Code of 1986 (the "Code"). In order to qualify under
Subchapter M, the Fund must distribute annually at least 90% of its net taxable
income plus 90% of its net tax-exempt investment income. In addition to this
distribution requirement, the Fund must derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stocks, securities or foreign
currencies, and certain other income.
The Fund may not qualify as a regulated investment company for any taxable year
unless it satisfies certain requirements with respect to the diversification of
its investments at the close of each quarter of the taxable year. In general, at
least 50% of the value of its total assets must be represented by cash, cash
items, Government Securities, securities of other regulated investment companies
and other securities which, with respect to any one issuer, do not represent
more than 5% of the total assets of the investment company nor more than 10% of
the outstanding
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voting securities of such issuer. In addition, not more than 25% of the value of
the investment company's total assets may be invested in the securities (other
than Government Securities or the securities of other regulated investment
companies) of any one issuer. The Fund intends to satisfy all requirements on an
ongoing basis for continued qualification as a regulated investment company.
The Fund will designate any distribution of long-term capital gains as a capital
gain dividend in a written notice mailed to shareholders within sixty days after
the close of its taxable year. Shareholders should note that, upon the sale or
exchange of the Fund's shares, if the shareholder has not held such shares for
at least six months, any loss on the sale or exchange of the Fund's shares will
be treated as long-term capital loss to the extent of the capital gain dividends
received with respect to the shares.
A nondeductible 4% federal excise tax will be imposed on the Fund to the extent
it does not distribute at least 98% of its ordinary income for a calendar year,
plus 98% of its capital gain net taxable income for the one year period ending
each October 31, plus certain undistributed amounts from prior years. While the
Fund intends to distribute its taxable income and capital gains in a manner so
as to avoid imposition of the federal excise and income taxes, there can be no
assurance that the Fund indeed will make sufficient distributions to avoid
entirely the imposition of federal excise or income taxes.
If for any taxable year the Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the Fund's
current and accumulated earnings and profits, and may be eligible for the
dividends received deduction for corporations.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends or 31% of gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, or who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund that
they are not subject to backup withholding when required to do so or that they
are "exempt recipients."
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<PAGE>
Depending upon the extent of the Fund's activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, the
Fund may be subject to the tax laws of such states or localities. In addition,
in those states and localities that have income tax laws, the treatment of the
Fund and its shareholders under such laws may differ from their treatment under
federal income tax laws.
Should additional series, or funds, be created by the Trustees, each fund would
be treated as a separate tax entity for federal income tax purposes.
SPECIAL TAX CONSIDERATIONS. As indicated in the Prospectus, the Fund is designed
to provide North Carolina shareholders with current tax-exempt interest income.
The Fund is not intended to constitute a balanced investment program and is not
designed for investors seeking maximum capital appreciation or maximum
tax-exempt income irrespective of fluctuations in principal. Shares of the Fund
would not be suitable for tax-exempt institutions and may not be suitable for
retirement plans qualified under Section 401 of the Code, so-called Keogh or
H.R. 10 plans, and individual retirement accounts. Such plans and accounts are
generally tax exempt and, therefore, would not realize any additional benefit
from the dividends of the Fund being tax-exempt, and such dividends would be
ultimately taxable to the beneficiaries when distributed to them.
In addition, the Fund may not be an appropriate investment for shareholders who
are "substantial users" of facilities financed by private activity bonds or
"related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person who regularly uses a part of such
facilities in his trade or business, and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds represent more than
5% of the total revenues derived by all users of such facilities, or who
occupies more than 5% of the usable area of such facilities, or for whom such
facilities or a part thereof were specifically constructed, reconstructed, or
acquired. "Related person" includes certain related natural persons, affiliated
corporations, a partnership and its partners, and an S corporation and its
shareholders. Each shareholder who may be considered a "substantial user" should
consult a tax advisor with respect to whether exempt interest dividends would
retain the exclusion under Section 103 of the Code if the shareholder were
treated as a "substantial user" or a "related person."
The Code permits a regulated investment company which invests at least 50% of
its total assets in tax-exempt obligations (obligations exempt from federal
income tax) to pass through to
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its investors, tax-free, net tax-exempt obligations interest income. The policy
of the Fund is to pay each year as dividends substantially all of the Fund's
tax-exempt obligations interest income net of certain deductions. An
exempt-interest dividend is any dividend or part thereof (other than a capital
gain dividend) paid by the Fund and designated as an exempt-interest dividend in
a written notice mailed to shareholders within sixty days after the close of the
Fund's taxable year, but not to exceed in the aggregate the net tax-exempt
obligations interest received by the Fund during the taxable year. Although
exempt interest dividends are generally excludable from a shareholder's gross
income for federal income tax purposes, they will be included in determining the
portion, if any, of a person's social security benefits and railroad retirement
benefits subject to federal income taxes.
While the Fund does not expect to realize any significant amount of long-term
capital gains, any net realized long-term capital gains will be distributed
annually. The Fund will have no tax liability with respect to such distributed
gains, and the distributions will be taxable to shareholders as long-term
capital gains, regardless of how long a shareholder has held the shares of the
Fund. Such distributions will be designated as a capital gains dividend in a
written notice mailed by the Fund to shareholders within sixty days after the
close of the Fund's taxable year.
While the Fund does not expect to earn any significant amount of investment
company taxable income, taxable income earned by the Fund will be distributed to
shareholders. In general, the investment company taxable income will be the
taxable income of the Fund (for example, short-term capital gains) subject to
certain adjustments and excluding the excess of any net long-term capital gains
for the taxable year over the net short-term capital loss, if any, for such
year. Any such income will be taxable to shareholders as ordinary income
(whether paid in cash or reinvested in additional shares).
Distributions of exempt-interest dividends, to the extent attributable to
interest on North Carolina Municipal Obligations and to interest on direct
obligations of the United States (including territories thereof), are not
subject to North Carolina individual or corporate income tax. Distributions of
gains attributable to the disposition of certain obligations of the State of
North Carolina and its political subdivisions issued prior to July 1, 1995, are
not subject to North Carolina individual or corporate income tax; however, for
such obligations issued after June 30, 1995, distributions of gains attributable
to their disposition will be subject to North Carolina individual or corporate
income tax. Any loss upon the sale or exchange of shares of the Fund held for
six months or less will be disallowed for North Carolina income tax purposes to
the extent of any
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<PAGE>
exempt-interest dividends received by the shareholder, even though some portion
of such dividends actually may have been subject to North Carolina income tax.
Except for income exempted from North Carolina income tax as described herein,
the Fund's distributions will generally constitute taxable income for taxpayers
subject to North Carolina income tax.
An investment in the Fund by a corporate shareholder generally would be included
in the capital stock, surplus and undivided profits base in computing the North
Carolina franchise tax.
The foregoing is only a summary of some of the important tax considerations
generally affecting purchasers of shares of the Fund. No attempt has been made
to present a detailed explanation of the Federal or state income tax treatment
of the Fund or its shareholders, and this discussion is not intended as a
substitute for careful tax planning. Accordingly, potential purchasers of shares
of the Fund are urged to consult their tax advisors with specific reference to
their own tax situation. In addition, the foregoing discussion is based on tax
laws and regulations in effect on the date of this Statement of Additional
Information; such laws and regulations may be changed by legislative, judicial,
or administrative action.
DESCRIPTION OF THE TRUST
The Trust was organized as a Massachusetts business trust pursuant to an
Agreement and Declaration of Trust. Shares of the Fund, when issued, are fully
paid and non-assessable and have no preemptive or conversion rights.
Shareholders are entitled to one vote for each full share and a fractional vote
for each fractional share held. Shares have noncumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Trustees can elect 100% of the Trustees and, in this event, the holders of the
remaining shares voting will not be able to elect any Trustees. The Trustees
will hold office indefinitely, except that: (1) any Trustee may resign or retire
and (2) any Trustee may be removed with or without cause at any time (a) by a
written instrument, signed by at least two-thirds of the number of Trustees
prior to such removal; or (b) by vote of shareholders holding not less than
two-thirds of the outstanding shares of the Trust, cast in person or by proxy at
a meeting called for that purpose; or (c) by a written declaration signed by
shareholders holding not less than two-thirds of the outstanding shares of the
Trust and filed with the Trust's Custodian. Shareholders have certain rights, as
set forth in the Declaration of Trust, including the right to call a meeting of
the shareholders for the purpose of voting on the removal of one or more
Trustees. Shareholders holding not less than ten percent (10%) of the shares
then outstanding may require the Trustees to call such a meeting and the
Trustees are obligated to provide certain assistance to shareholders desiring
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<PAGE>
to communicate with other shareholders in such regard (e.g., providing access to
shareholder lists, etc.). Shareholder inquiries may be made in writing,
addressed to the Fund at the address contained in this Statement of Additional
Information. In case a vacancy or an anticipated vacancy shall for any reason
exist, the vacancy shall be filled by the affirmative vote of a majority of the
remaining Trustees, subject to the provisions of Section 16(a) of the 1940 Act.
The Trust does not expect to have an annual meeting of shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability.
CALCULATION OF PERFORMANCE DATA
From time to time, the total return and yield of the Fund may be quoted in
advertisements, sales literature, shareholder reports or other communications to
shareholders. The Fund computes its "average annual total return" by determining
the average annual compounded rates of return during specified periods that
equate the initial amount invested to the ending redeemable value of such
investment. This is done by determining the ending redeemable value of a
hypothetical $1,000 initial payment. This calculation is as follows:
n
P(1+T) = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms of years.
The average annual total return quotations for the Fund for the one year and
five year periods ended August 31, 1998 and for the period since inception
(January 13, 1993) to August 31, 1998 are 8.92%, 5.84% and 6.37%, respectively.
In addition, the Fund may advertise other total return performance data
("Nonstandardized Return"). Nonstandardized Return shows as a percentage rate of
return encompassing all elements of return (i.e., income and capital
appreciation or depreciation); it assumes reinvestment of all dividends and
capital gain distributions. Nonstandardized Return may consist of a cumulative
percentage of return, actual year-by-year rates or any combination thereof. The
Nonstandardized Returns of the Fund for each fiscal year since inception are as
follows:
- 25 -
<PAGE>
Fiscal Period Ended
- -------------------
August 31, 1993 10.43%*
August 31, 1994 0.38%
August 31, 1995 8.16%
August 31, 1996 4.33%
August 31, 1997 7.71%
August 31, 1998 8.92%
* Annualized. Inception date of the Fund was January 13, 1993.
From time to time, the Fund may advertise its yield and tax-equivalent yield. A
yield quotation is based on a 30-day (or one month) period and is computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
6
Yield = 2[a-b/cd + 1) - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Generally, interest earned (for the purpose of "a" above) on debt obligations is
computed by reference to the yield to maturity of each obligation held based on
the market value of the obligation (including actual accrued interest) at the
close of business on the last business day prior to the start of the 30-day (or
one month) period for which yield is being calculated, or, with respect to
obligations purchased during the month, the purchase price (plus actual accrued
interest). The Fund's yield for the 30-day period ended August 31, 1998 was
4.00%. Tax-equivalent yield is computed by dividing that portion of the Fund's
yield which is tax-exempt by one minus a stated income tax rate and adding the
product to that portion, if any, of the Fund's yield that is not tax-exempt.
Based on the highest combined marginal federal and North Carolina income tax
rate for individuals (44.28%), the Fund's tax-equivalent yield for the 30-day
period ended August 31, 1998 was 7.18%.
The Fund's performance may be compared in advertisements, sales literature and
other communications to the performance of other mutual funds having similar
objectives or to standardized indices or other measures of investment
performance. In particular, the Fund may compare its performance to the Lehman
Brothers Municipal Bond Index. Comparative performance may also be expressed by
reference to a ranking prepared by a mutual fund monitoring service, such as
Lipper Analytical Services, Inc. or Morningstar,
- 26 -
<PAGE>
Inc., or by one or more newspapers, newsletters or financial periodicals. The
Fund may also occasionally cite statistics to reflect its volatility and risk.
Performance comparisons may be useful to investors who wish to compare the
Fund's past performance to that of other mutual funds and investment products.
Of course, past performance is not a guarantee of future results.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above.
As indicated, from time to time, the Fund may advertise its performance compared
to similar funds or portfolios using certain indices, reporting services, and
financial publications. These may include the following:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific period
of time.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Investors may use such indices in addition to the Fund's Prospectus to obtain a
more complete view of the Fund's performance before investing. Of course, when
comparing the Fund's performance to any index, factors such as composition of
the index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for the Fund may quote total returns that are calculated
on non-standardized base periods. The total returns represent the historic
change in the value of an investment in the Fund based on monthly reinvestment
of dividends over a specified period of time.
From time to time the Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar,
- 27 -
<PAGE>
including the purchasing power of the dollar at various rates of inflation. The
Fund may also disclose from time to time information about its portfolio
allocation and holdings at a particular date (including ratings of securities
assigned by independent rating services such as S&P and Moody's). The Fund may
also depict the historical performance of the securities in which the Fund may
invest over periods reflecting a variety of market or economic conditions either
alone or in comparison with alternative investments, performance indices of
those investments, or economic indicators. The Fund may also include in
advertisements and in materials furnished to present and prospective
shareholders statements or illustrations relating to the appropriateness of
types of securities and/or mutual funds that may be employed to meet specific
financial goals, such as saving for retirement, children's education, or other
future needs.
Comparative information about the yield of the Fund and about average rates of
return on certificates of deposits, bank money market deposit accounts, money
market mutual funds, and other similar types of investments may be included in
Fund communications. A bank certificate of deposit, unlike the Fund's shares,
pays a fixed rate of interest and entitles the depositor to receive the face
amount of the certificate at maturity. A bank money market deposit account is a
form of savings account which pays a variable rate of interest. Unlike the
Fund's shares, bank certificates of deposit and bank money market deposit
accounts are insured by the Federal Deposit Insurance Corporation. A money
market mutual fund is designed to maintain a constant value of $1.00 per share
and, thus, a money market fund's shares are subject to less price fluctuation
than the Fund's shares.
Advertisements and other communications may also compare the tax equivalent
yield of the Fund taking into account federal income tax and North Carolina
income tax to after-tax yields of certificates of deposits, bank money market
accounts, money market mutual funds, and other investments over various combined
federal and state tax brackets.
In addition, the benefits of tax-free investments may be communicated in
advertisements or other communications. For example, the table below presents
the approximate yield that a taxable investment must earn at various income
brackets to produce after-tax yields equivalent to those of tax-exempt
investments yielding from 3% to 6%. The yields below are for illustration
purposes only and are not intended to represent current or future yields for the
Fund, which may be higher or lower than those shown. The rates shown in the
table below are subject to adjustment for the Internal Revenue Service inflation
indexation. Investors should consult their tax advisors with specific reference
to their own tax situation.
- 28 -
<PAGE>
APPROXIMATE YIELD TABLE: NORTH CAROLINA TAX FREE
------------------------------------------------
<TABLE>
<CAPTION>
1998 Taxable Combined Federal
Income Bracket and North Carolina
Single Return Joint Return Marginal Tax Bracket* 3.0% 4.0% 5.0% 6.0%
- --------------------- -------------------- -------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
$ 0 - 12,750 $ 0 - 21,250 20.10% 3.75% 5.01% 6.26% 7.51%
12,750 - 25,350 21,250 - 42,350 20.95% 3.80% 5.06% 6.33% 7.59%
25,350 - 60,000 42,350 - 100,000 33.04% 4.48% 5.97% 7.47% 8.96%
60,000 - 61,400 100,000 - 102,300 33.58% 4.52% 6.02% 7.53% 9.03%
61,400 - 128,100 102,300 - 155,950 36.35% 4.71% 6.28% 7.86% 9.43%
128,100 - 278,450 155,950 - 278,450 40.96% 5.08% 6.78% 8.47% 10.16%
Over 278,450 Over 278,450 44.28% 5.38% 7.18% 8.97% 10.77%
</TABLE>
* The taxable income brackets applicable to North Carolina do not correspond
to the Federal taxable income brackets. The taxable income brackets
presented in this table represent the breakpoints for both Federal and
North Carolina marginal tax rate changes. When applying these brackets,
Federal taxable income may be different than North Carolina taxable income.
No state tax credits, exemptions, or local taxes have been taken into
account in arriving at the combined marginal tax rate. The income amount
shown is income subject to Federal income tax reduced by adjustments to
income, exemptions, and itemized deductions (including the deduction for
state and local income taxes). If the standard deduction is taken for
Federal income tax purposes, the taxable equivalent yield required to equal
a specified tax-exempt yield is at least as great as that shown in the
table. It is assumed that the investor is not subject to the alternative
minimum tax. Where applicable, investors should consider that the benefit
of certain itemized deductions and the benefit of personal exemptions are
limited in the case of higher-income individuals. For 1998, taxpayers with
adjusted gross income in excess of $124,500 are subject to an overall
limitation on certain itemized deductions, requiring a reduction in such
deductions equal to the lesser of (i) 3% of adjusted gross income in excess
of $124,500 or (ii) 80% of the amount of such itemized deductions otherwise
allowable. The benefit of each personal exemption is phased out at a rate
of two percentage points for each $2,500 (or fraction thereof) of adjusted
gross income in the phase-out zone. For single taxpayers the range of
adjusted gross income comprising the phase-out zone for 1998 is from
$124,500 to $247,000, and for married taxpayers filing a joint return the
range is from $186,800 to $309,300. The Federal tax brackets, the threshold
amounts at which itemized deductions are subject to reduction, and the
range over which personal exemptions are phased out will be further
adjusted for inflation for each year after 1998.
FINANCIAL STATEMENTS AND REPORTS
The books of the Fund will be audited at least once each year by independent
public accountants. Shareholders will receive annual audited and semiannual
(unaudited) reports when published, and will receive written confirmation of all
confirmable transactions in their account. A copy of the Annual Report will
accompany the Statement of Additional Information ("SAI") whenever the SAI is
requested by a shareholder or prospective investor. The Financial Statements of
the Fund as of August 31, 1998, together with the report of the independent
accountants thereon, are included on the following pages.
- 29 -
<PAGE>
APPENDIX A
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN
NORTH CAROLINA MUNICIPAL OBLIGATIONS
The concentration of investments in North Carolina Municipal Obligations by
the Fund raises special investment considerations. In particular, changes in the
economic condition and governmental policies of North Carolina and its political
subdivisions, agencies, instrumentalities, and authorities could adversely
affect the value of the Fund and its portfolio securities. This section briefly
describes current economic trends in North Carolina and does not purport to be a
complete description of the economical and financial conditions in North
Carolina. The information set forth below is derived from official statements
prepared in connection with the issuance of North Carolina Municipal Obligations
and other sources that are generally available to investors. It has not,
however, been updated nor will it be updated during the year. The Trust has not
independently verified this information.
The State of North Carolina has three major operating funds: the General
Fund, the Highway Fund, and the Highway Trust Fund. North Carolina derives most
of its revenue from taxes, including individual income tax, corporation income
tax, sales and use taxes, corporation franchise tax, alcoholic beverage tax,
insurance tax, inheritance tax, tobacco products tax, and soft drink tax
(currently being phased out). North Carolina receives other non-tax revenues
which are also deposited in the General Fund. The most important are Federal
funds collected by North Carolina agencies, university fees and tuition,
interest earned by the North Carolina Treasurer on investments of General Fund
moneys and revenues from the judicial branch. The proceeds from the motor fuel
tax, highway use tax and motor vehicle license tax are deposited in the Highway
Fund and the Highway Trust Fund.
Fiscal year 1996 ended with a positive General Fund balance of
approximately $573.4 million. An additional $153.1 million was available from a
reserved fund balance. Of this aggregate amount, $77.3 million was reserved in
the Savings Reserve (bringing the total reserve to $500.9 million) and $130.0
million was reserved in the Reserve for Repair and Renovation of State
Facilities (bringing the total reserve to $151.3 million after prior
withdrawals). An additional $47.1 million was transferred to a newly-created
Clean Water Management Trust Fund, $39.5 million was reserved in a Capital
Improvement Reserve, and $26.2 million was transferred to newly-created Federal
Retiree Refund and Administration Accounts, leaving an unreserved General Fund
balance at June 30, 1996, of approximately $406.1 million.
- 30 -
<PAGE>
Fiscal year 1997 ended with a positive General Fund balance of
approximately $874.8 million. Along with additional reserves, $135 million was
reserved in the Reserve for Repair and Renovation of State Facilities, in
addition to a supplemental reserve of $39.3 million for repairs and renovations
(bringing the total reserve to $221.2 million after prior withdrawals). An
additional $49.4 million was transferred to the Clean Water Management Trust
Fund (bringing the total reserve to $49.4 million after prior withdrawals) and
$115 million and $156 million were reserved in newly-created Disaster Relief and
Intangible Tax Refund Reserves, respectively. The Disaster Relief Reserve was
used to cover disaster relief funds spent during fiscal year 1997. An additional
$61 million was reserved for the State to acquire the shares of the North
Carolina Railroad Company not held by the State. No additional amounts were
transferred to the Savings Reserve for the year (the existing balance of $500.9
million having met the statutory reserve requirements). After additional
reserves, the unreserved General Fund balance at the end of fiscal year 1997 was
approximately $318.7 million.
The foregoing results are presented on a budgetary basis. Accounting
principles applied to develop data on a budgetary basis differ significantly
from those principles used to present financial statements in conformity with
generally accepted accounting principles. Based on a modified accrual basis, the
General Fund balance at June 30, 1997 was $1,703.9 million.
On August 28, 1997, the North Carolina General Assembly adopted the
biennium budget for 1997 to 1999. The $11.4 billion budget for fiscal year 1998
included a 7.6% increase in spending over the fiscal year 1997 budget.
Highlights of the new budget included increased spending for education, with
$181 million in funding for teacher pay raises averaging 6.5% and $92 million to
implement the newly-enacted Excellent Schools Act, which raises teacher salaries
to the national average over four years and requires teachers at low-performing
schools to pass competency tests. Money was also reserved for schools that
achieve or surpass academic goals, school technology funds, new school buses,
staff development programs, community college job training programs, and other
education purposes. The General Assembly also passed a welfare reform program,
adopted a streamlined process for cleaning up brownfields for reuse as
industrial and commercial sites, and cut the North Carolina sales tax on food by
1% beginning in 1998.
- 31 -
<PAGE>
The General Assembly adjusted downward the General Fund appropriation
support for the continuation budgets by $425.4 million and $242.2 million in
fiscal years 1997 and 1998, respectively, and authorized continuation funding of
$10,439.4 million for fiscal year 1998 and $10,957.5 million for fiscal year
1999. The adjustments included reductions of expenditures resulting from
supporting revenue sources being reclassified from tax and nontax revenues to
departmental receipts, increases in departmental receipts and federal receipts,
reductions of projected operating costs, and other efficiencies and savings.
Increases of $798.7 million for fiscal year 1998 and $574.5 million for fiscal
year 1999 were approved for operating budgets.
The North Carolina budget is based upon a number of existing and assumed
State and non-State factors, including State and national economic conditions,
international activity, Federal government policies and legislation and the
activities of the State's General Assembly. Such factors are subject to change
which may be material and affect the budget. The Congress of the United States
is considering a number of matters affecting the Federal Government's
relationship with state governments that, if enacted, could affect fiscal and
economic policies of the states, including North Carolina.
During recent years North Carolina has moved from an agricultural to a
service and goods producing economy. According to the North Carolina Employment
Security Commission (the "Commission"), in July 1997, North Carolina ranked
tenth among the states in non-agricultural employment and eighth in
manufacturing employment. The Commission estimated North Carolina's seasonally
adjusted unemployment rate in March 1998 to be 3.9% of the labor force, as
compared with an unemployment rate of 4.7% nationwide.
The following are certain cases pending in which the State of North
Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure which, in the opinion of the North Carolina Department of State
Treasurer, would not materially adversely affect the State's ability to meet its
financial obligations:
Bailey case -- State Tax Refunds - State Retirees. On May 8, 1998, in
Bailey, et. al. v. State of North Carolina, the North Carolina Supreme Court
held that the act of the General Assembly that repealed a tax exemption on State
and local government retirement benefits was an unconstitutional impairment of
contract and a taking of property without just compensation. Accordingly,
retirement benefits that were vested before August 1989 were held to be exempt
from State income taxation. In addition, the North Carolina Supreme Court ruled
that recovery of taxes previously paid by retirees on those benefits was not
limited to retirees who paid the tax under protest or requested a refund within
the time periods specified by statute.
- 32 -
<PAGE>
Potential refunds and interest are estimated by the State to be $352.68
million through December 31, 1997, with respect to refunds, and through June 30,
1998, with respect to interest. Until this matter is resolved, any additional
potential refunds and interest will continue to accrue. In addition to refunds
and interest, the State will be unable to continue to tax the applicable
retirement benefits, thus reducing future revenue. The case was remanded by the
North Carolina Supreme Court for administration and further orders to carry out
the decision. Under the initial order of the trial judge, the State would offset
its liabilities to improperly taxed retirees by allowing tax credits to eligible
retirees to be applied against future State income taxes, or in the case of
eligible retirees who are deceased, no longer residents of the State, or who
have no tax liability, to be paid in whole to such retirees or their estates.
Patton Case -- Federal Retirees. Federal retirees filed a class action suit
in Wake County Superior Court in 1995 seeking monetary relief for taxes paid
since 1989. This case was brought in anticipation of a favorable outcome for the
plaintiffs in the Bailey case. The federal retirees allege that a result in the
Bailey case that exempts State and local retirement benefits from State income
taxes would require a similar exemption for federal retirement benefits under
the United States Supreme Court's 1989 decision in Davis v. Michigan. In Davis,
the United States Supreme Court ruled that a Michigan income tax statute that
taxed federal retirement benefits while exempting those paid by state and local
governments violated the constitutional doctrine of intergovernmental tax
immunity. At the time of the Davis decision, North Carolina law contained
similar exemptions in favor of state and local retirees. Those exemptions were
repealed prospectively, beginning with the 1989 tax year by the act of the
General Assembly held unconstitutional in Bailey. The Patton case was being held
in abeyance pending the outcome in Bailey. Now that Bailey has been decided, the
case is expected to proceed. Potential refunds and interest have been estimated
by the State to be $585.09 million through June 30, 1997. Until this matter is
resolved, any additional potential refunds and interest have continued and will
continue to accrue.
Smith Case -- This class action is related to litigation in Fulton
Corporation v. Faulkner, a case filed by a single taxpayer and decided by the
United States Supreme Court in 1996 regarding the constitutionality of certain
taxes previously collected by the State on intangible personal property. The
remaining class of plaintiffs in this action consist of taxpayers who paid the
tax in question, but failed to comply with the North Carolina tax refund
statute. On February 21, 1996, the United States Supreme Court held in Fulton
that the State's intangibles tax on shares of stock in non-North Carolina
corporations (by then repealed) violated the Commerce Clause of the United
States Constitution because it discriminated against stock issued by
corporations that do all or part of their business outside of North Carolina.
- 33 -
<PAGE>
In June 1997 the trial court dismissed the claims of this class of
plaintiffs. An appeal of the dismissal is now pending before the North Carolina
Supreme Court. The principal issue in the appeal is whether the plaintiffs are
entitled to a refund on the intangibles tax paid, notwithstanding their failure
to comply with the requirements of the tax refund statute. A second class action
was filed in January 1998 by the same plaintiffs, claiming an entitlement to a
refund under a separate theory. The plaintiffs claim that they are entitled to
refunds of $80,000,000 for tax year 1990 and $131,750,000 for tax years 1991-94.
In its 1996 Short Session, the North Carolina General Assembly approved
additional State general obligation bonds in the amount of $950 million for
highways and $1.8 billion for schools. These bonds were approved by the voters
of the State in November, 1996. In March 1997, North Carolina issued $450
million of the authorized school bonds (Public School Building Bonds). In
November 1997, North Carolina issued $250 million of the authorized highway
bonds (Highway Bonds). In March 1998, North Carolina issued an additional $450
million of the authorized school bonds (Public School Building Bonds). The
offering of the remaining $1.6 billion of these authorized bonds is anticipated
to occur over the next two to five years.
Currently, Moody's Investors Service, Inc., Standard & Poor's Ratings Group
and Fitch Investors Service, Inc. rate North Carolina general obligation bonds
Aaa, AAA, and AAA, respectively. See Appendix B to the Prospectus.
- 34 -
<PAGE>
APPENDIX B
DESCRIPTION OF MUNICIPAL BOND RATINGS
The ratings of the NRSROs (including Moody's Investors Service, Inc., Standard &
Poor's Ratings Group and Fitch Investors Service, Inc.) represent each firm's
opinions as to the quality of various Municipal Obligations. It should be
emphasized, however, that ratings are not absolute standards of quality.
Consequently, Municipal Obligations with the same maturity, coupon and rating
may have different yields while Municipal Obligations of the same maturity and
coupon with different ratings may have the same yield. The descriptions offered
by each individual rating firm may differ slightly, but the following offers a
description of each rating category by the NRSROs:
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
- 35 -
<PAGE>
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system; the
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months.
Issuers rated PRIME-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers (or supporting institutions) rated PRIME-2 OR P-2 have a strong ability
for repayment of senior short-term obligations. This will normally be evidenced
by many of the characteristics cited above, but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
- 36 -
<PAGE>
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE DEBT
AAA: Debt rated AAA has the highest rating assigned by S&P. The obligor's
capacity to meet its financial commitment on the obligation is extremely strong.
AA: Debt rated AA differs from the highest-rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Debt rated A is somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
However, the obligor's capacity to meet its financial commitment on the
obligation is still strong.
BBB: Debt rated BBB exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
NOTE: The foregoing ratings may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
COMMERCIAL PAPER
S&P's commercial paper ratings is a current assessment of the likelihood of
timely payment of debts having an original maturity of no more than 365 days.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payments is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
- 37 -
<PAGE>
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE DEBT
The four highest ratings of Fitch for tax-exempt bonds are AAA, AA, A and BBB.
Bonds rated AAA are regarded by Fitch as being of the highest quality, with the
obligor having an extraordinary ability to pay interest and repay principal
which is unlikely to be affected by reasonably foreseeable events. Bonds rated
AA are regarded by Fitch as high quality obligations. The obligor's ability to
pay interest and repay principal, while very strong, is somewhat less than for
AAA rated bonds, and more subject to possible change over the term of the issue.
Bonds rated A are regarded by Fitch as being of good quality. The obligor's
ability to pay interest and repay principal is strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings. Bonds rated BBB are regarded by Fitch as being of
satisfactory quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this ability than bonds with
higher ratings. Fitch ratings may be modified by the addition of a plus (+) or
minus (-) sign.
MUNICIPAL SHORT-TERM OBLIGATIONS
The ratings F-1+, F-1 and F-2 are the highest ratings assigned by Fitch for
tax-exempt notes. Notes assigned the F-1+ rating are regarded by Fitch as having
the strongest degree of assurance for timely payment. Notes assigned the F-1
rating reflect an assurance for timely payment only slightly less than the
strongest issues. Notes assigned the F-2 rating have a degree of assurance for
timely payment with a lesser margin of safety than higher-rated notes.
COMMERCIAL PAPER
Commercial paper rated Fitch-1 is regarded as having the strongest degree of
assurance for timely payment. Issues assigned the Fitch-2 rating reflect an
assurance of timely payment only slightly less in degree than the strongest
issues.
- 38 -
<PAGE>
- --------------------------------------------------------------------------------
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
<PAGE>
ALBEMARLE INVESTMENT TRUST
PART C. OTHER INFORMATION
- ------- -----------------
Item 24. Financial Statements and Exhibits.
- -------- ----------------------------------
(a) (1) Financial Statements contained in Part A:
Financial Highlights for The North Carolina Tax Free Bond
Fund from commencement of operations through the year ended
August 31, 1998.
(2) Financial Statements contained in Part B:
Portfolio of Investments, August 31, 1998
Statement of Assets and Liabilities, August 31, 1998
Statement of Operations for fiscal year ended August 31,
1998
Statement of Changes in Net Assets for fiscal years ended
August 31, 1998 and 1997
Financial Highlights for fiscal years ended August 31, 1998,
1997, 1996, 1995 and 1994
Notes to Financial Statements, August 31, 1998
Independent Auditors' Report
(b) Exhibits
(1) Amended and Restated Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Investment Advisory Agreement*
(6) Inapplicable
(7) Inapplicable
(8) Custodian Agreement*
<PAGE>
(9)(a) Administrative Agreement with Countrywide Fund
Services, Inc.
(b) Accounting Services Agreement with Countrywide Fund
Services, Inc.
(c) Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with Countrywide Fund Services,
Inc.
(10) Opinion and Consent of Counsel*
(11) Consent of Independent Auditors
(12) Inapplicable
(13) Agreement Relating to Initial Capital*
(14) Inapplicable
(15) Service Plan Pursuant to Rule 12b-1*
(16) Computation of Performance Calculations*
(17) Financial Data Schedule
(18) Inapplicable
- ----------------------------
* Incorporated by reference to the Trust's registration statement on Form
N-1A.
Item 25. Persons Controlled by or Under Common Control with Registrant.
- -------- --------------------------------------------------------------
No person is controlled by or under common control with Registrant.
Item 26. Number of Holders of Securities.
- -------- --------------------------------
As of October 31, 1998, there were 105 record holders of securities of
the North Carolina Tax Free Bond Fund .
Item 27. Indemnification.
- -------- ----------------
The Declaration of Trust and Bylaws of the Registrant contain
provisions covering indemnification of the officers and trustees. The
following are summaries of the applicable provisions.
The Registrant's Declaration of Trust provides that every person who
is or has been a trustee, officer, employee or agent of the Registrant
and every person who serves at the trustees' request as director,
officer,
<PAGE>
employee or agent of another enterprise will be indemnified by the
Registrant to the fullest extent permitted by law against all
liabilities and against all expenses reasonably incurred or paid by
him in connection with any debt, claim, action, demand, suit,
proceeding, judgment, decree, liability or obligation of any kind in
which he becomes involved as a party or otherwise or is threatened by
virtue of his being or having been a trustee, officer, employee or
agent of the Registrant or of another enterprise at the request of the
Registrant and against amounts paid or incurred by him in the
compromise or settlement thereof.
No indemnification will be provided to a trustee or officer: (i)
against any liability to the Registrant or its shareholders by reason
of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office
("disabling conduct"); (ii) with respect to any matter as to which he
shall, by the court or other body by or before which the proceeding
was brought or engaged, have been finally adjudicated to be liable by
reason of disabling conduct; (iii) in the absence of a final
adjudication on the merits that such trustee or officer did not engage
in disabling conduct, unless a reasonable determination, based upon a
review of the facts that the person to be indemnified is not liable by
reason of such conduct, is made by vote of a majority of a quorum of
the trustees who are neither interested persons nor parties to the
proceedings, or by independent legal counsel, in a written opinion.
Item 28. Business and Other Connections of the Investment Adviser.
- -------- ---------------------------------------------------------
See the Statement of Additional Information section entitled
"Management of the Fund-Trustees and Officers" and the Investment
Advisor's Form ADV filed with the Commission for the activities and
affiliations of the officers and directors of the Investment Advisor
of the Registrant. Except as so provided, to the knowledge of
Registrant, none of the directors or executive officers of the
Investment Advisor is or has been at any time during the past two
fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature. The Investment Advisor currently
serves as investment advisor to numerous institutional and individual
clients.
Item 29. Principal Underwriters.
- -------- -----------------------
Inapplicable.
<PAGE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
All account books and records not normally held by The Fifth Third
Bank, the Custodian to the Registrant, are held by the Registrant, in
the offices of Countrywide Fund Services, Inc., the Registrant's
administrator and transfer agent, or by Boys, Arnold & Company, Inc.,
the Advisor to the Registrant.
The address of Countrywide Fund Services is 312 Walnut Street, 21st
Floor, Cincinnati, Ohio 45202. The address of Boys, Arnold & Company
is 1272 Hendersonville Road, Asheville, North Carolina 28813. The
address of The Fifth Third Bank is 38 Fountain Square, Cincinnati,
Ohio 45263.
Item 31. Management Services.
- -------- --------------------
Inapplicable
Item 32. Undertakings.
- -------- -------------
(a) Inapplicable
(b) Inapplicable
(c) The Registrant undertakes to furnish each person to whom a Prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
(d) The Registrant undertakes to call a meeting of shareholders, if
requested to do so by holders of at least 10% of the Fund's
outstanding shares, for the purpose of voting upon the question of
removal of a trustee or trustees and to assist in communications with
other shareholders as required by Section 16(c) of the Investment
Company Act of 1940.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed below on its behalf by the undersigned,
thereunto duly authorized, in the City of Asheville, and State of North
Carolina, on the 30th day of November, 1998.
ALBEMARLE INVESTMENT TRUST
By:/s/ John B. Kuhns
--------------------
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John B. Kuhns President November 30, 1998
- ----------------------
John B. Kuhns
/s/ Mark J. Seger Treasurer November 30, 1998
- ----------------------
Mark J. Seger
Jon L. Vannice* Trustee November 30, 1998
- ----------------------
Edwin B. Armstrong* Trustee By: /s/ Marcus L. Collins
- ---------------------- ---------------------
Marcus L. Collins
Attorney-in-Fact*
November 30, 1998
J. Finley Lee, Jr.* Trustee
- ----------------------
<PAGE>
INDEX TO EXHIBITS
-----------------
(1) Agreement and Restated Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Investment Advisory Agreement*
(6) Inapplicable
(7) Inapplicable
(8) Custodian Agreement*
(9)(a) Administration Agreement with Countrywide Fund Services, Inc.
(b) Accounting Services Agreement with Countrywide Fund Services, Inc.
(c) Transfer, Dividend Disbursing, Shareholder Service and Plan Agency
Agreement with Countrywide Fund Services, Inc.
(10) Opinion and Consent of Counsel*
(11) Consent of Independent Auditors
(12) Inapplicable
(13) Agreement Relating to Initial Capital*
(14) Inapplicable
(15) Service Plan Pursuant to Rule 12b-1*
(16) Computation of Performance Calculations*
(17) Financial Data Schedule
(18) Inapplicable
- ----------------------------
* Incorporated by reference to the Trust's registration statement on Form
N-1A.
ADMINISTRATION AGREEMENT
AGREEMENT dated as of March 1, 1998 between Albemarle Investment Trust, a
Massachusetts business trust (the "Trust"), and Countrywide Fund Services, Inc.
("Countrywide"), an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust wishes to employ the services of Countrywide to serve as
its administrative agent; and
WHEREAS, Countrywide wishes to provide such services under the conditions
set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and Countrywide agree as follows:
1. APPOINTMENT.
------------
The Trust hereby appoints and employs Countrywide as agent to perform
those services described in this Agreement for the Trust. Countrywide shall act
under such appointment and perform the obligations thereof upon the terms and
conditions hereinafter set forth.
2. DOCUMENTATION.
--------------
The Trust will furnish from time to time the following documents:
A. Each resolution of the Board of Trustees of the Trust authorizing the
original issue of its shares;
B. Each Registration Statement filed with the Securities and Exchange
Commission (the "SEC") and amendments thereof;
C. A certified copy of each amendment to the Agreement and Declaration of
Trust and the Bylaws of the Trust;
D. Certified copies of each resolution of the Board of Trustees
authorizing officers to give instructions to Countrywide;
E. Specimens of all new forms of share certificates accompanied by Board
of Trustees' resolutions approving such forms;
<PAGE>
F. Such other certificates, documents or opinions which Countrywide may,
in its discretion, deem necessary or appropriate in the proper
performance of its duties;
G. Copies of all Underwriting and Dealer Agreements in effect;
H. Copies of all Investment Advisory Agreements in effect; and
I. Copies of all documents relating to special investment or withdrawal
plans which are offered or may be offered in the future by the Trust
and for which Countrywide is to act as plan agent.
3. TRUST ADMINISTRATION.
---------------------
Subject to the direction and control of the Trustees of the Trust,
Countrywide shall supervise the Trust's business affairs not otherwise
supervised by other agents of the Trust. To the extent not otherwise the primary
responsibility of, or provided by, other agents of the Trust, Countrywide shall
supply (i) office facilities, (ii) internal auditing and regulatory services,
and (iii) executive and administrative services. Countrywide shall coordinate
the preparation of (i) tax returns, (ii) reports to shareholders of the Trust,
(iii) reports to and filings with the SEC and state securities authorities
including preliminary and definitive proxy materials, post-effective amendments
to the Trust's registration statement, and the Trust's Form N-SAR, and (iv)
necessary materials for Board of Trustees' meetings unless prepared by other
parties under agreement with the Trust. Countrywide shall provide personnel to
serve as officers of the Trust if so elected by the Board of Trustees; provided,
however, that the Trust shall reimburse Countrywide for the reasonable
out-of-pocket expenses incurred by such personnel in attending Board of
Trustees' meetings and shareholders' meetings of the Trust.
4. RECORDKEEPING AND OTHER INFORMATION.
------------------------------------
Countrywide shall create and maintain all records required by
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act and the rules thereunder, as the same
may be amended from time to time, pertaining to the various functions performed
by it and not otherwise created and maintained by another party pursuant to
contract with the Trust. All such records shall be the property of the Trust at
all times and shall be available for inspection and use by the Trust. Where
applicable, such records shall be maintained by Countrywide for the periods and
in the places required by Rule 31a-2 under the 1940 Act. The retention of such
records shall be at the expense of the Trust. Countrywide shall
- 2 -
<PAGE>
make available during regular business hours all records and other data created
and maintained pursuant to this Agreement for reasonable audit and inspection by
the Trust, any person retained by the Trust, or any regulatory agency having
authority over the Trust.
5. FURTHER ACTIONS.
----------------
Each party agrees to perform such further acts and execute such
further documents as are necessary to effectuate the purposes hereof.
6. COMPENSATION.
-------------
For the performance of Countrywide's obligations under this Agreement,
each series of the Trust shall pay Countrywide, on the first business day
following the end of each month, a monthly fee at the annual rate of .15% of
such series' average daily net assets up to $50 million; .125% of such assets
from $50 to $100 million; and .10% of such assets in excess of $100 million;
provided, however, that the minimum fee shall be $1,000 per month for each
series. The foregoing fees will be discounted by 25% until August 31, 1998.
7. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
---------------------------------------------------
The parties hereto acknowledge and agree that nothing contained herein
shall be construed to require Countrywide to perform any services for the Trust
which services could cause Countrywide to be deemed an "investment adviser" of
the Trust within the meaning of Section 2(a)(20) of the 1940 Act or to supersede
or contravene the Trust's prospectus or statement of additional information or
any provisions of the 1940 Act and the rules thereunder. Except as otherwise
provided in this Agreement and except for the accuracy of information furnished
to it by Countrywide, the Trust assumes full responsibility for complying with
all applicable requirements of the 1940 Act, the Securities Act of 1933, as
amended, and any other laws, rules and regulations of governmental authorities
having jurisdiction.
8. REFERENCES TO COUNTRYWIDE.
--------------------------
The Trust shall not circulate any printed matter which contains any
reference to Countrywide without the prior written approval of Countrywide,
excepting solely such printed matter as merely identifies Countrywide as
Administrative Services Agent, Transfer, Shareholder Servicing and Dividend
Disbursing Agent and Accounting Services Agent. The Trust will submit printed
matter requiring approval to Countrywide in draft form, allowing sufficient time
for review by Countrywide and its counsel prior to any deadline for printing.
- 3 -
<PAGE>
9. INDEMNIFICATION OF COUNTRYWIDE.
-------------------------------
A. Countrywide may rely on information reasonably believed by it to be
accurate and reliable. Except as may otherwise be required by the 1940 Act and
the rules thereunder, neither Countrywide nor its shareholders, officers,
directors, employees, agents, control persons or affiliates of any thereof shall
be subject to any liability for, or any damages, expenses or losses incurred by
the Trust in connection with, any error of judgment, mistake of law, any act or
omission connected with or arising out of any services rendered under or
payments made pursuant to this Agreement or any other matter to which this
Agreement relates, except by reason of willful misfeasance, bad faith or gross
negligence on the part of any such persons in the performance of the duties of
Countrywide under this Agreement or by reason of reckless disregard by any of
such persons of the obligations and duties of Countrywide under this Agreement.
B. Any person, even though also a director, officer, employee,
shareholder or agent of Countrywide, or any of its affiliates, who may be or
become an officer, trustee, employee or agent of the Trust, shall be deemed,
when rendering services to the Trust or acting on any business of the Trust, to
be rendering such services to or acting solely as an officer, trustee, employee
or agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of Countrywide or any of its
affiliates, even though paid by one of these entities.
C. Notwithstanding any other provision of this Agreement, the Trust
shall indemnify and hold harmless Countrywide, its directors, officers,
employees, shareholders, agents, control persons and affiliates from and against
any and all claims, demands, expenses and liabilities (whether with or without
basis in fact or law) of any and every nature which Countrywide may sustain or
incur or which may be asserted against Countrywide by any person by reason of,
or as a result of: (i) any action taken or omitted to be taken by Countrywide in
good faith in reliance upon any certificate, instrument, order or share
certificate reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized person, upon the oral
instructions or written instructions of an authorized person of the Trust or
upon the opinion of legal counsel for the Trust or its own counsel; or (ii) any
action taken or omitted to be taken by Countrywide in connection with its
appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended or repealed. However, indemnification under this
subparagraph shall not apply to actions or omissions of Countrywide or its
directors, officers, employees, shareholders or agents in cases of its or their
own gross negligence, willful misconduct, bad faith, or reckless disregard of
its or their own duties hereunder.
- 4 -
<PAGE>
10. TERMINATION
-----------
A. The provisions of this Agreement shall be effective on the date
first above written, shall continue in effect for three years from that date and
shall continue in force from year to year thereafter, but only so long as such
continuance is approved (1) by Countrywide, (2) by vote, cast in person at a
meeting called for the purpose, of a majority of the Trust's trustees who are
not parties to this Agreement or interested persons (as defined in the 1940 Act)
of any such party, and (3) by vote of a majority of the Trust's Board of
Trustees or a majority of the Trust's outstanding voting securities.
B. Either party may terminate this Agreement on any date by giving the
other party at least sixty (60) days' prior written notice of such termination
specifying the date fixed therefor. Upon termination of this Agreement, the
Trust shall pay to Countrywide such compensation as may be due as of the date of
such termination, and shall likewise reimburse Countrywide for any out-of-pocket
expenses and disbursements reasonably incurred by Countrywide to such date.
C. In the event that in connection with the termination of this
Agreement a successor to any of Countrywide's duties or responsibilities under
this Agreement is designated by the Trust by written notice to Countrywide,
Countrywide shall, promptly upon such termination and at the expense of the
Trust, transfer all records maintained by Countrywide under this Agreement and
shall cooperate in the transfer of such duties and responsibilities, including
provision for assistance from Countrywide's cognizant personnel in the
establishment of books, records and other data by such successor.
11. SERVICES FOR OTHERS.
--------------------
Nothing in this Agreement shall prevent Countrywide or any affiliated
person (as defined in the 1940 Act) of Countrywide from providing services for
any other person, firm or corporation (including other investment companies);
provided, however, that Countrywide expressly represents that it will undertake
no activities which, in its judgment, will adversely affect the performance of
its obligations to the Trust under this Agreement.
12. LIMITATION OF LIABILITY.
------------------------
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust, personally, but bind only the trust property
of the Trust. The execution and delivery of this Agreement have been authorized
by the Trustees of the Trust and signed by an officer of the
- 5 -
<PAGE>
Trust, acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust.
13. SEVERABILITY.
-------------
In the event any provision of this Agreement is determined to be void
or unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
14. QUESTIONS OF INTERPRETATION.
----------------------------
This Agreement shall be governed by the laws of the State of Ohio. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to said 1940 Act. In addition, where the effect of a
requirement of the 1940 Act, reflected in any provision of this Agreement, is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
15. NOTICES.
--------
All notices, requests, consents and other communications required or
permitted under this Agreement shall be in writing (including telex and
telegraphic communication) and shall be (as elected by the person giving such
notice) hand delivered by messenger or courier service, telecommunicated, or
mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
To the Trust: Albemarle Investment Trust
c/o Boys, Arnold & Company
P.O. Drawer 5255
1272 Hendersonville Road
Asheville, North Carolina 28813
Attention: John B. Kuhns
To Countrywide: Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
- 6 -
<PAGE>
or to such other address as any party may designate by notice complying with the
terms of this Section 15. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
16. AMENDMENT.
----------
This Agreement may not be amended or modified except by a written
agreement executed by both parties.
17. BINDING EFFECT.
---------------
Each of the undersigned expressly warrants and represents that he has
the full power and authority to sign this Agreement on behalf of the party
indicated, and that his signature will operate to bind the party indicated to
the foregoing terms.
18. COUNTERPARTS.
-------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
19. FORCE MAJEURE.
--------------
If Countrywide shall be delayed in its performance of services or
prevented entirely or in part from performing services due to causes or events
beyond its control, including and without limitation, acts of God, interruption
of power or other utility, transportation or communication services, acts of
civil or military authority, sabotages, national emergencies, explosion, flood,
accident, earthquake or other catastrophe, fire, strike or other labor problems,
legal action, present or future law, governmental order, rule or regulation, or
shortages of suitable parts, materials, labor or transportation, such delay or
non-performance shall be excused and a reasonable time for performance in
connection with this Agreement shall be extended to include the period of such
delay or non-performance.
20. MISCELLANEOUS.
--------------
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
ALBEMARLE INVESTMENT TRUST
By: /s/ Jon L. Vannice
--------------------------
Its: President and Trustee
COUNTRYWIDE FUND SERVICES, INC.
By: /s/ Robert G. Dorsey
--------------------------
Its: President
- 8 -
ACCOUNTING SERVICES AGREEMENT
-----------------------------
AGREEMENT dated as of March 1, 1998 between Albemarle Investment Trust, a
Massachusetts business trust (the "Trust"), and Countrywide Fund Services, Inc.
("Countrywide"), an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust wishes to employ the services of Countrywide to provide
the Trust with certain accounting and pricing services; and
WHEREAS, Countrywide wishes to provide such services under the conditions
set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and Countrywide agree as follows:
1. APPOINTMENT.
------------
The Trust hereby appoints and employs Countrywide as agent to perform
those services described in this Agreement for the Trust. Countrywide shall act
under such appointment and perform the obligations thereof upon the terms and
conditions hereinafter set forth.
2. CALCULATION OF NET ASSET VALUE.
-------------------------------
Countrywide will calculate the net asset value of each series of the
Trust and the per share net asset value of each series of the Trust, in
accordance with the Trust's current prospectus and statement of additional
information, once daily as of the time selected by the Trust's Board of
Trustees. Countrywide will prepare and maintain a daily valuation of all
securities and other assets of the Trust in accordance with instructions from a
designated officer of the Trust or its investment adviser and in the manner set
forth in the Trust's current prospectus and statement of additional information.
In valuing securities of the Trust, Countrywide may contract with, and rely upon
market quotations provided by, outside services.
3. BOOKS AND RECORDS.
------------------
Countrywide will maintain and keep current the general ledger for each
series of the Trust, recording all income and expenses, capital share activity
and security transactions of the Trust. Countrywide will maintain such further
books and records
<PAGE>
as are necessary to enable it to perform its duties under this Agreement, and
will periodically provide reports to the Trust and its authorized agents
regarding share purchases and redemptions and trial balances of each series of
the Trust. Countrywide will prepare and maintain complete, accurate and current
all records with respect to the Trust required to be maintained by the Trust
under the Internal Revenue Code of 1986, as amended (the "Code"), and under the
rules and regulations of the 1940 Act, and will preserve said records in the
manner and for the periods prescribed in the Code and the 1940 Act. The
retention of such records shall be at the expense of the Trust.
All of the records prepared and maintained by Countrywide pursuant to this
Section 3 which are required to be maintained by the Trust under the Code and
the 1940 Act will be the property of the Trust. In the event this Agreement is
terminated, all such records shall be delivered to the Trust at the Trust's
expense, and Countrywide shall be relieved of responsibility for the preparation
and maintenance of any such records delivered to the Trust.
4. PAYMENT OF TRUST EXPENSES.
--------------------------
Countrywide shall process each request received from the Trust or its
authorized agents for payment of the Trust's expenses. Upon receipt of written
instructions signed by an officer or other authorized agent of the Trust,
Countrywide shall prepare checks in the appropriate amounts which shall be
signed by an authorized officer of Countrywide and mailed to the appropriate
party.
5. FORM N-SAR.
-----------
Countrywide shall maintain such records within its control and shall
be requested by the Trust to assist the Trust in fulfilling the requirements of
Form N-SAR.
6. COOPERATION WITH ACCOUNTANTS.
-----------------------------
Countrywide shall cooperate with the Trust's independent public
accountants and shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
7. FURTHER ACTIONS.
----------------
Each party agrees to perform such further acts and execute such
further documents as are necessary to effectuate the purposes hereof.
- 2 -
<PAGE>
8. FEES.
-----
For the performance of the services under this Agreement, each series
of the Trust shall pay Countrywide a monthly fee in accordance with the schedule
attached hereto as Schedule A. The fees with respect to any month shall be paid
to Countrywide on the last business day of such month. The Trust shall also
promptly reimburse Countrywide for the cost of external pricing services
utilized by Countrywide.
9. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
---------------------------------------------------
The parties hereto acknowledge and agree that nothing contained herein
shall be construed to require Countrywide to perform any services for the Trust
which services could cause Countrywide to be deemed an "investment adviser" of
the Trust within the meaning of Section 2(a)(20) of the 1940 Act or to supersede
or contravene the Trust's prospectus or statement of additional information or
any provisions of the 1940 Act and the rules thereunder. Except as otherwise
provided in this Agreement and except for the accuracy of information furnished
to it by Countrywide, the Trust assumes full responsibility for complying with
all applicable requirements of the 1940 Act, the Securities Act of 1933, as
amended, and any other laws, rules and regulations of governmental authorities
having jurisdiction.
10. REFERENCES TO COUNTRYWIDE.
--------------------------
The Trust shall not circulate any printed matter which contains any
reference to Countrywide without the prior written approval of Countrywide,
excepting solely such printed matter as merely identifies Countrywide as
Administrative Services Agent, Transfer, Shareholder Servicing and Dividend
Disbursing Agent and Accounting Services Agent. The Trust will submit printed
matter requiring approval to Countrywide in draft form, allowing sufficient time
for review by Countrywide and its counsel prior to any deadline for printing.
11. EQUIPMENT FAILURES.
-------------------
Countrywide shall take all steps necessary to minimize or avoid
service interruptions, and has entered into one or more agreements making
provision for emergency use of electronic data processing equipment. Countrywide
shall have no liability with respect to equipment failures beyond its control.
12. INDEMNIFICATION OF COUNTRYWIDE.
-------------------------------
A. Countrywide may rely on information reasonably believed by it to be
accurate and reliable. Except as may otherwise be required by the 1940 Act and
the rules thereunder, neither Countrywide nor its shareholders, officers,
directors, employees, agents, control persons or affiliates of any thereof
- 3 -
<PAGE>
shall be subject to any liability for, or any damages, expenses or losses
incurred by the Trust in connection with, any error of judgment, mistake of law,
any act or omission connected with or arising out of any services rendered under
or payments made pursuant to this Agreement or any other matter to which this
Agreement relates, except by reason of willful misfeasance, bad faith or gross
negligence on the part of any such persons in the performance of the duties of
Countrywide under this Agreement or by reason of reckless disregard by any of
such persons of the obligations and duties of Countrywide under this Agreement.
B. Any person, even though also a director, officer, employee,
shareholder, or agent of Countrywide, or any of its affiliates, who may be or
become an officer, trustee, employee or agent of the Trust, shall be deemed,
when rendering services to the Trust or acting on any business of the Trust, to
be rendering such services to or acting solely as an officer, trustee, employee
or agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of Countrywide or any of its
affiliates, even though paid by one of those entities.
C. Notwithstanding any other provision of this Agreement, the Trust
shall indemnify and hold harmless Countrywide, its directors, officers,
employees, shareholders, agents, control persons and affiliates from and against
any and all claims, demands, expenses and liabilities (whether with or without
basis in fact or law) of any and every nature which Countrywide may sustain or
incur or which may be asserted against Countrywide by any person by reason of,
or as a result of: (i) any action taken or omitted to be taken by Countrywide in
good faith in reliance upon any certificate, instrument, order or share
certificate reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized person, upon the oral
instructions or written instructions of an authorized person of the Trust or
upon the opinion of legal counsel for the Trust or its own counsel; or (ii) any
action taken or omitted to be taken by Countrywide in connection with its
appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended or repealed. However, indemnification under this
subparagraph shall not apply to actions or omissions of Countrywide or its
directors, officers, employees, shareholders or agents in cases of its or their
own gross negligence, willful misconduct, bad faith, or reckless disregard of
its or their own duties hereunder.
13. TERMINATION.
------------
A. The provisions of this Agreement shall be effective on the date
first above written, shall continue in effect for three years from that date and
shall continue in force from year to year thereafter, but only so long as such
continuance is approved (1) by Countrywide, (2) by vote, cast in person at a
meeting called for the purpose, of a majority of the
- 4 -
<PAGE>
Trust's trustees who are not parties to this Agreement or interested persons (as
defined in the 1940 Act) of any such party, and (3) by vote of a majority of the
Trust's Board of Trustees or a majority of the Trust's outstanding voting
securities.
B. Either party may terminate this Agreement on any date by giving the
other party at least sixty (60) days' prior written notice of such termination
specifying the date fixed therefor. Upon termination of this Agreement, the
Trust shall pay to Countrywide such compensation as may be due as of the date of
such termination, and shall likewise reimburse Countrywide for any out-of-pocket
expenses and disbursements reasonably incurred by Countrywide to such date.
C. In the event that in connection with the termination of this
Agreement a successor to any of Countrywide's duties or responsibilities under
this Agreement is designated by the Trust by written notice to Countrywide,
Countrywide shall, promptly upon such termination and at the expense of the
Trust, transfer all records maintained by Countrywide under this Agreement and
shall cooperate in the transfer of such duties and responsibilities, including
provision for assistance from Countrywide's cognizant personnel in the
establishment of books, records and other data by such successor.
14. SERVICES FOR OTHERS.
--------------------
Nothing in this Agreement shall prevent Countrywide or any affiliated
person (as defined in the 1940 Act) of Countrywide from providing services for
any other person, firm or corporation (including other investment companies);
provided, however, that Countrywide expressly represents that it will undertake
no activities which, in its judgment, will adversely affect the performance of
its obligations to the Trust under this Agreement.
15. LIMITATION OF LIABILITY.
------------------------
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust, personally, but bind only the trust property
of the Trust. The execution and delivery of this Agreement have been authorized
by the Trustees of the Trust and signed by an officer of the Trust, acting as
such, and neither such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the trust property of the Trust.
- 5 -
<PAGE>
16. SEVERABILITY.
-------------
In the event any provision of this Agreement is determined to be void
or unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
17. QUESTIONS OF INTERPRETATION.
----------------------------
This Agreement shall be governed by the laws of the State of Ohio. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Securities and Exchange Commission issued pursuant to said 1940 Act. In
addition, where the effect of a requirement of the 1940 Act, reflected in any
provision of this Agreement, is revised by rule, regulation or order of the
Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
18. NOTICES.
--------
All notices, requests, consents and other communications required or
permitted under this Agreement shall be in writing (including telex and
telegraphic communication) and shall be (as elected by the person giving such
notice) hand delivered by messenger or courier service, telecommunicated, or
mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
To the Trust: Albemarle Investment Trust
c/o Boys, Arnold & Company
P.O. Drawer 5255
1272 Hendersonville Road
Asheville, North Carolina 28813
Attention: John B. Kuhns
To Countrywide: Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
or to such other address as any party may designate by notice complying with the
terms of this Section 18. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
- 6 -
<PAGE>
19. AMENDMENT.
----------
This Agreement may not be amended or modified except by a written
agreement executed by both parties.
20. BINDING EFFECT.
---------------
Each of the undersigned expressly warrants and represents that he has
the full power and authority to sign this Agreement on behalf of the party
indicated, and that his signature will operate to bind the party indicated to
the foregoing terms.
21. COUNTERPARTS.
-------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
22. FORCE MAJEURE.
--------------
If Countrywide shall be delayed in its performance of services or
prevented entirely or in part from performing services due to causes or events
beyond its control, including and without limitation, acts of God, interruption
of power or other utility, transportation or communication services, acts of
civil or military authority, sabotages, national emergencies, explosion, flood,
accident, earthquake or other catastrophe, fire, strike or other labor problems,
legal action, present or future law, governmental order, rule or regulation, or
shortages of suitable parts, materials, labor or transportation, such delay or
non-performance shall be excused and a reasonable time for performance in
connection with this Agreement shall be extended to include the period of such
delay or non-performance.
23. MISCELLANEOUS.
--------------
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
ALBEMARLE INVESTMENT TRUST
By: /s/ Jon L. Vannice
-------------------------
Its: President and Trustee
COUNTRYWIDE FUND SERVICES, INC.
By: /s/ Robert G. Dorsey
-------------------------
Its: President
- 8 -
<PAGE>
Schedule A
----------
COMPENSATION
------------
Each series of the Trust will pay Countrywide a monthly fee, according to
the average monthly net assets of such series during such month, as follows:
Monthly Fee Average Net Assets During Month
----------- -------------------------------
$2,000 $0 - $ 50,000,000
$2,500 $50,000,000 - $100,000,000
$3,000 $100,000,000 - $200,000,000
$4,000 $200,000,000 - $300,000,000
$5,000 + .001% of Over $300,000,000
average net assets
over $300,000,000
Note: The foregoing fees will be discounted by 25% until August 31, 1998.
- 9 -
TRANSFER, DIVIDEND DISBURSING, SHAREHOLDER SERVICE
--------------------------------------------------
AND PLAN AGENCY AGREEMENT
-------------------------
AGREEMENT dated as of March 1, 1998 between Albemarle Investment Trust, a
Massachusetts business trust (the "Trust"), and Countrywide Fund Services, Inc.
("Countrywide"), an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust wishes to employ the services of Countrywide to serve as
its transfer, dividend disbursing, shareholder service and plan agent; and
WHEREAS, Countrywide wishes to provide such services under the conditions
set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and Countrywide agree as follows:
1. APPOINTMENT.
------------
The Trust hereby appoints and employs Countrywide as agent to perform
those services described in this Agreement for the Trust. Countrywide shall act
under such appointment and perform the obligations thereof upon the terms and
conditions hereinafter set forth.
2. DOCUMENTATION.
--------------
The Trust will furnish from time to time the following documents:
A. Each resolution of the Board of Trustees of the Trust authorizing the
original issue of its shares;
B. Each Registration Statement filed with the Securities and Exchange
Commission (the "SEC") and amendments thereof;
C. A certified copy of each amendment to the Agreement and Declaration of
Trust and the Bylaws of the Trust;
D. Certified copies of each resolution of the Board of Trustees
authorizing officers to give instructions to Countrywide;
E. Specimens of all new forms of share certificates accompanied by Board
of Trustees' resolutions approving such forms;
<PAGE>
F. Such other certificates, documents or opinions which Countrywide may,
in its discretion, deem necessary or appropriate in the proper
performance of its duties;
G. Copies of all Underwriting and Dealer Agreements in effect;
H. Copies of all Investment Advisory Agreements in effect; and
I. Copies of all documents relating to special investment or withdrawal
plans which are offered or may be offered in the future by the Trust
and for which Countrywide is to act as plan agent.
3. COUNTRYWIDE TO RECORD SHARES.
-----------------------------
Countrywide shall record the issuance of shares of the Trust and
maintain pursuant to applicable rules of the SEC a record of the total number of
shares of the Trust which are authorized, issued and outstanding, based upon
data provided to it by the Trust. Countrywide shall also provide the Trust on a
regular basis or upon reasonable request the total number of shares which are
authorized, issued and outstanding, but shall have no obligation when recording
the issuance of the Trust's shares, except as otherwise set forth herein, to
monitor the issuance of such shares or to take cognizance of any laws relating
to the issue or sale of such shares, which functions shall be the sole
responsibility of the Trust.
4. COUNTRYWIDE TO VALIDATE TRANSFERS.
----------------------------------
Upon receipt of a proper request for transfer and upon surrender to
Countrywide of certificates, if any, in proper form for transfer, Countrywide
shall approve such transfer and shall take all necessary steps to effectuate the
transfer as indicated in the transfer request. Upon approval of the transfer,
Countrywide shall notify the Trust in writing of each such transaction and shall
make appropriate entries on the shareholder records maintained by Countrywide.
5. SHARE CERTIFICATES.
-------------------
If the Trust authorizes the issuance of share certificates and an
investor requests a share certificate, Countrywide will countersign and mail, by
insured first class mail, a share certificate to the investor at his address as
set forth on the transfer books of the Trust, subject to any other instructions
for delivery of certificates representing newly purchased shares and subject to
the limitation that no certificates representing newly purchased shares shall be
mailed to the investor until the cash purchase price of such shares has
- 2 -
<PAGE>
been collected and credited to the account of the Trust maintained by the
Custodian. The Trust shall supply Countrywide with a sufficient supply of blank
share certificates and from time to time shall renew such supply upon request of
Countrywide. Such blank share certificates shall be properly signed, manually
or, if authorized by the Trust, by facsimile; and notwithstanding the death,
resignation or removal of any officers of the Trust authorized to sign share
certificates, Countrywide may continue to countersign certificates which bear
the manual or facsimile signature of such officer until otherwise directed by
the Trust. In case of the alleged loss or destruction of any share certificate,
no new certificates shall be issued in lieu thereof, unless there shall first be
furnished an appropriate bond satisfactory to Countrywide and the Trust, and
issued by a surety company satisfactory to Countrywide and the Trust.
6. RECEIPT OF FUNDS.
-----------------
Upon receipt of any check or other instrument drawn or endorsed to it
as agent for, or identified as being for the account of, the Trust or the
principal underwriter of the Trust (the "Underwriter"), Countrywide shall stamp
the check or instrument with the date of receipt, determine the amount thereof
due the Trust and shall forthwith process the same for collection. Upon receipt
of notification of receipt of funds eligible for share purchases in accordance
with the Trust's then current prospectus and statement of additional
information, Countrywide shall notify the Trust, at the close of each business
day, in writing of the amount of said funds credited to the Trust and deposited
in its account with the Custodian, and shall similarly notify the Underwriter of
the amount of said funds credited to the Underwriter and deposited in its
account with its designated bank.
7. PURCHASE ORDERS.
----------------
Upon receipt of an order for the purchase of shares of the Trust,
accompanied by sufficient information to enable Countrywide to establish a
shareholder account, Countrywide shall, as of the next determination of net
asset value after receipt of such order in accordance with the Trust's then
current prospectus and statement of additional information, compute the number
of shares due to the shareholder, credit the share account of the shareholder,
subject to collection of the funds, with the number of shares so purchased,
shall notify the Trust in writing or by computer report at the close of each
business day of such transactions and shall mail to the shareholder and/or
dealer of record a notice of such credit when requested to do so by the Trust.
- 3 -
<PAGE>
8. RETURNED CHECKS.
----------------
In the event that Countrywide is notified by the Trust's Custodian
that any check or other order for the payment of money is returned unpaid for
any reason, Countrywide will:
A. Give prompt notification to the Trust and the Underwriter of the
non-payment of said check;
B. In the absence of other instructions from the Trust or the
Underwriter, take such steps as may be necessary to redeem any shares purchased
on the basis of such returned check and cause the proceeds of such redemption
plus any dividends declared with respect to such shares to be credited to the
account of the Trust and to request the Trust's Custodian to forward such
returned check to the person who originally submitted the check; and
C. Notify the Trust and Underwriter of such actions and correct the
Trust's records maintained by Countrywide pursuant to this Agreement.
9. SALES CHARGE.
-------------
In computing the number of shares to credit to the account of a
shareholder, Countrywide will calculate the total of the applicable sales
charges with respect to each purchase as set forth in the Trust's current
prospectus and statement of additional information and in accordance with any
notification filed with respect to combined and accumulated purchases.
Countrywide will also determine the portion of each sales charge payable by the
Underwriter to the dealer of record participating in the sale in accordance with
such schedules as are from time to time delivered by the Underwriter to
Countrywide; provided, however, that Countrywide shall have no liability
hereunder arising from the incorrect selection by Countrywide of the gross rate
of sales charges except that this exculpation shall not apply in the event the
rate is specified by the Underwriter or the Trust and Countrywide fails to
select the rate specified.
10. DIVIDENDS AND DISTRIBUTIONS.
----------------------------
The Trust shall furnish Countrywide with appropriate evidence of
trustee action authorizing the declaration of dividends and other distributions.
Countrywide shall establish procedures in accordance with the Trust's then
current prospectus and statement of additional information and with other
authorized actions of the Trust's Board of Trustees under which it will have
available from the Custodian or the Trust any required information for each
dividend and other distribution. After deducting any amount required to be
withheld by any applicable laws, Countrywide shall, as agent for each
shareholder who so
- 4 -
<PAGE>
requests, invest the dividends and other distributions in full and fractional
shares in accordance with the Trust's then current prospectus and statement of
additional information. If a shareholder has elected to receive dividends or
other distributions in cash, then Countrywide shall disburse dividends to
shareholders of record in accordance with the Trust's then current prospectus
and statement of additional information. Countrywide shall, on or before the
mailing date of such checks, notify the Trust and the Custodian of the estimated
amount of cash required to pay such dividend or distribution, and the Trust
shall instruct the Custodian to make available sufficient funds therefor in the
appropriate account of the Trust. Countrywide shall mail to the shareholders
periodic statements, as requested by the Trust, showing the number of full and
fractional shares and the net asset value per share of shares so credited. When
requested by the Trust, Countrywide shall prepare and file with the Internal
Revenue Service, and when required, shall address and mail to shareholders, such
returns and information relating to dividends and distributions paid by the
Trust as are required to be so prepared, filed and mailed by applicable laws,
rules and regulations.
11. UNCLAIMED DIVIDENDS AND UNCLAIMED REDEMPTION PROCEEDS.
------------------------------------------------------
Countrywide shall, at least annually, furnish in writing to the Trust
the names and addresses, as shown in the shareholder accounts maintained by
Countrywide, of all shareholders for which there are, as of the end of the
calendar year, dividends, distributions or redemption proceeds for which checks
or share certificates mailed in payment of distributions have been returned.
Countrywide shall use its best efforts to contact the shareholders affected and
to follow any other written instructions received from the Trust concerning the
disposition of any such unclaimed dividends, distributions or redemption
proceeds.
12. REDEMPTIONS AND EXCHANGES.
--------------------------
A. Countrywide shall process, in accordance with the Trust's then
current prospectus and statement of additional information, each order for the
redemption of shares accepted by Countrywide. Upon its approval of such
redemption transactions, Countrywide, if requested by the Trust, shall mail to
the shareholder and/or dealer of record a confirmation showing trade date,
number of full and fractional shares redeemed, the price per share and the total
redemption proceeds. For each such redemption, Countrywide shall either: (a)
prepare checks in the appropriate amounts for approval and verification by the
Trust and signature by an authorized officer of Countrywide and mail the checks
to the appropriate person, or (b) in the event redemption proceeds are to be
wired through the Federal Reserve Wire System or by bank wire, cause such
proceeds to be wired in
- 5 -
<PAGE>
federal funds to the bank account designated by the shareholder, or (c)
effectuate such other redemption procedures which are authorized by the Trust's
Board of Trustees or its then current prospectus and statement of additional
information. The requirements as to instruments of transfer and other
documentation, the applicable redemption price and the time of payment shall be
as provided in the then current prospectus and statement of additional
information, subject to such supplemental instructions as may be furnished by
the Trust and accepted by Countrywide. If Countrywide or the Trust determines
that a request for redemption does not comply with the requirements for
redemptions, Countrywide shall promptly notify the shareholder indicating the
reason therefor.
B. If shares of the Trust are eligible for exchange with shares of any
other investment company, Countrywide, in accordance with the then current
prospectus and statement of additional information and exchange rules of the
Trust and such other investment company, or such other investment company's
transfer agent, shall review and approve all exchange requests and shall, on
behalf of the Trust's shareholders, process such approved exchange requests.
C. Countrywide shall notify the Trust, the Custodian and the
Underwriter on each business day of the amount of cash required to meet payments
made pursuant to the provisions of this Paragraph 12, and, on the basis of such
notice, the Trust shall instruct the Custodian to make available from time to
time sufficient funds therefor in the appropriate account of the Trust.
Procedures for effecting redemption orders accepted from shareholders or dealers
of record by telephone or other methods shall be established by mutual agreement
between Countrywide and the Trust consistent with the Trust's then current
prospectus and statement of additional information.
D. The authority of Countrywide to perform its responsibilities under
Paragraph 7, Paragraph 10, and this Paragraph 12 shall be suspended with respect
to any series of the Trust upon receipt of notification by it of the suspension
of the determination of such series' net asset value.
13. AUTOMATIC WITHDRAWAL PLANS.
---------------------------
Countrywide will process automatic withdrawal orders pursuant to the
provisions of the withdrawal plans duly executed by shareholders and the current
prospectus and statement of additional information of the Trust. Payments upon
such withdrawal order shall be made by Countrywide from the appropriate account
maintained by the Trust with the Custodian on approximately the last business
day of each month in which a payment has been requested, and Countrywide will
withdraw from a shareholder's account and present for repurchase or redemption
as
- 6 -
<PAGE>
many shares as shall be sufficient to make such withdrawal payment pursuant to
the provisions of the shareholder's withdrawal plan and the current prospectus
and statement of additional information of the Trust. From time to time on new
automatic withdrawal plans a check for payment date already past may be issued
upon request by the shareholder.
14. LETTERS OF INTENT.
------------------
Countrywide will process such letters of intent for investing in
shares of the Trust as are provided for in the Trust's current prospectus and
statement of additional information. Countrywide will make appropriate deposits
to the account of the Underwriter for the adjustment of sales charges as therein
provided and will currently report the same to the Underwriter.
15. WIRE-ORDER PURCHASES.
---------------------
Countrywide will send written confirmations to the dealers of record
containing all details of the wire-order purchases placed by each such dealer by
the close of business on the business day following receipt of such orders by
Countrywide or the Underwriter, with copies to the Underwriter. Upon receipt of
any check drawn or endorsed to the Trust (or Countrywide, as agent) or otherwise
identified as being payment of an outstanding wire-order, Countrywide will stamp
said check with the date of its receipt and deposit the amount represented by
such check to Countrywide's deposit accounts maintained with the Custodian.
Countrywide will compute the respective portions of such deposit which represent
the sales charge and the net asset value of the shares so purchased, will cause
the Custodian to transfer federal funds in an amount equal to the net asset
value of the shares so purchased to the Trust's account with the Custodian, and
will notify the Trust and the Underwriter before noon of each business day of
the total amount deposited in the Trust's deposit accounts, and in the event
that payment for a purchase order is not received by Countrywide or the
Custodian on the tenth business day following receipt of the order, will prepare
an NASD "notice of failure of dealer to make payment" and forward such
notification to the Underwriter.
16. OTHER PLANS.
------------
Countrywide will process such accumulation plans, group programs and
other plans or programs for investing in shares of the Trust as are now provided
for in the Trust's current prospectus and statement of additional information
and will act as plan agent for shareholders pursuant to the terms of such plans
and programs duly executed by such shareholders.
- 7 -
<PAGE>
17. RECORDKEEPING AND OTHER INFORMATION.
------------------------------------
Countrywide shall create and maintain all records required by
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act and the rules thereunder, as the same
may be amended from time to time, pertaining to the various functions performed
by it and not otherwise created and maintained by another party pursuant to
contract with the Trust. All such records shall be the property of the Trust at
all times and shall be available for inspection and use by the Trust. Where
applicable, such records shall be maintained by Countrywide for the periods and
in the places required by Rule 31a-2 under the 1940 Act. The retention of such
records shall be at the expense of the Trust. Countrywide shall make available
during regular business hours all records and other data created and maintained
pursuant to this Agreement for reasonable audit and inspection by the Trust, any
person retained by the Trust, or any regulatory agency having authority over the
Trust.
18. SHAREHOLDER RECORDS.
--------------------
Countrywide shall maintain records for each shareholder account
showing the following:
A. Names, addresses and tax identifying numbers;
B. Name of the dealer of record, if any;
C. Number of shares held of each series;
D. Historical information regarding the account of each shareholder,
including dividends and distributions in cash or invested in shares;
E. Information with respect to the source of all dividends and
distributions allocated among income, realized short-term gains and
realized long-term gains;
F. Any instructions from a shareholder including all forms furnished by
the Trust and executed by a shareholder with respect to (i) dividend
or distribution elections and (ii) elections with respect to payment
options in connection with the redemption of shares;
G. Any correspondence relating to the current maintenance of a
shareholder's account;
H. Certificate numbers and denominations for any shareholder holding
certificates;
I. Any stop or restraining order placed against a shareholder's account;
- 8 -
<PAGE>
J. Information with respect to withholding in the case of a foreign
account or any other account for which withholding is required by the
Internal Revenue Code of 1986, as amended; and
K. Any information required in order for Countrywide to perform the
calculations contemplated under this Agreement.
19. TAX RETURNS AND REPORTS.
------------------------
Countrywide will prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies and, if required, mail
to shareholders of the Trust such returns for reporting dividends and
distributions paid by the Trust as are required to be so prepared, filed and
mailed and shall withhold such sums as are required to be withheld under
applicable federal and state income tax laws, rules and regulations.
20. OTHER INFORMATION TO THE TRUST.
-------------------------------
Subject to such instructions, verification and approval of the
Custodian and the Trust as shall be required by any agreement or applicable law,
Countrywide will also maintain such records as shall be necessary to furnish to
the Trust the following: annual shareholder meeting lists, proxy lists and
mailing materials, shareholder reports and confirmations and checks for
disbursing redemption proceeds, dividends and other distributions or expense
disbursements.
21. ACCESS TO SHAREHOLDER INFORMATION.
----------------------------------
Upon request, Countrywide shall arrange for the Trust's investment
adviser to have direct access to shareholder information contained in
Countrywide's computer system, including account balances, performance
information and such other information which is available to Countrywide with
respect to shareholder accounts.
22. COOPERATION WITH ACCOUNTANTS.
-----------------------------
Countrywide shall cooperate with the Trust's independent public
accountants and shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
- 9 -
<PAGE>
23. SHAREHOLDER SERVICE AND CORRESPONDENCE.
---------------------------------------
Countrywide will provide and maintain adequate personnel, records and
equipment to receive and answer all shareholder and dealer inquiries relating to
account status, share purchases, redemptions and exchanges and other investment
plans available to Trust shareholders. Countrywide will answer written
correspondence from shareholders relating to their share accounts and such other
written or oral inquiries as may from time to time be mutually agreed upon, and
Countrywide will notify the Trust of any correspondence or inquiries which may
require an answer from the Trust.
24. PROXIES.
--------
Countrywide shall assist the Trust in the mailing of proxy cards and
other material in connection with shareholder meetings of the Trust, shall
receive, examine and tabulate returned proxies and shall, if requested by the
Trust, provide at least one inspector of election to attend and participate as
required by law in shareholder meetings of the Trust.
25. FURTHER ACTIONS.
----------------
Each party agrees to perform such further acts and execute such
further documents as are necessary to effectuate the purposes hereof.
26. COMPENSATION.
-------------
For the performance of Countrywide's obligations under this Agreement,
each series of the Trust shall pay Countrywide, on the first business day
following the end of each month, a monthly fee in accordance with the schedule
attached hereto as Schedule A. The Trust shall promptly reimburse Countrywide
for any out-of-pocket expenses and advances which are to be paid by the Trust in
accordance with Paragraph 27.
27. EXPENSES.
---------
Countrywide shall furnish, at its expense and without cost to the
Trust (i) the services of its personnel to the extent that such services are
required to carry out its obligations under this Agreement and (ii) the use of
data processing equipment. All costs and expenses not expressly assumed by
Countrywide under this Paragraph 27 shall be paid by the Trust, including, but
not limited to, costs and expenses of officers and employees of Countrywide in
attending meetings of the Board of Trustees and shareholders of the Trust, as
well as costs and expenses for postage, envelopes, checks, drafts, continuous
forms, reports, communications, statements and other materials, telephone,
telegraph and remote transmission lines, use of
- 10 -
<PAGE>
outside pricing services, use of outside mailing firms, necessary outside record
storage, media for storage of records (e.g., microfilm, microfiche, computer
tapes), printing, confirmations and any other shareholder correspondence and any
and all assessments, taxes or levies assessed on Countrywide for services
provided under this Agreement. Postage for mailings of dividends, proxies,
reports and other mailings to all shareholders shall be advanced to Countrywide
three business days prior to the mailing date of such materials.
28. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
---------------------------------------------------
The parties hereto acknowledge and agree that nothing contained herein
shall be construed to require Countrywide to perform any services for the Trust
which services could cause Countrywide to be deemed an "investment adviser" of
the Trust within the meaning of Section 2(a)(20) of the 1940 Act or to supersede
or contravene the Trust's prospectus or statement of additional information or
any provisions of the 1940 Act and the rules thereunder. Except as otherwise
provided in this Agreement and except for the accuracy of information furnished
to it by Countrywide, the Trust assumes full responsibility for complying with
all applicable requirements of the 1940 Act, the Securities Act of 1933, as
amended, and any other laws, rules and regulations of governmental authorities
having jurisdiction.
29. REFERENCES TO COUNTRYWIDE.
--------------------------
The Trust shall not circulate any printed matter which contains any
reference to Countrywide without the prior written approval of Countrywide,
excepting solely such printed matter as merely identifies Countrywide as
Administrative Services Agent, Transfer, Shareholder Servicing and Dividend
Disbursing Agent and Accounting Services Agent. The Trust will submit printed
matter requiring approval to Countrywide in draft form, allowing sufficient time
for review by Countrywide and its counsel prior to any deadline for printing.
30. EQUIPMENT FAILURES.
-------------------
Countrywide shall take all steps necessary to minimize or avoid
service interruptions, and has entered into one or more agreements making
provision for emergency use of electronic data processing equipment. Countrywide
shall have no liability with respect to equipment failures beyond its control.
31. INDEMNIFICATION OF COUNTRYWIDE.
-------------------------------
A. Countrywide may rely on information reasonably believed by it to be
accurate and reliable. Except as may otherwise be required by the 1940 Act and
the rules thereunder, neither Countrywide nor its shareholders, officers,
directors, employees, agents, control persons or affiliates of any thereof shall
be subject to any liability for, or any damages, expenses or losses incurred by
the Trust in connection with, any error of
- 11 -
<PAGE>
judgment, mistake of law, any act or omission connected with or arising out of
any services rendered under or payments made pursuant to this Agreement or any
other matter to which this Agreement relates, except by reason of willful
misfeasance, bad faith or gross negligence on the part of any such persons in
the performance of the duties of Countrywide under this Agreement or by reason
of reckless disregard by any of such persons of the obligations and duties of
Countrywide under this Agreement.
B. Any person, even though also a director, officer, employee,
shareholder or agent of Countrywide, or any of its affiliates, who may be or
become an officer, trustee, employee or agent of the Trust, shall be deemed,
when rendering services to the Trust or acting on any business of the Trust, to
be rendering such services to or acting solely as an officer, trustee, employee
or agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of Countrywide or any of its
affiliates, even though paid by one of these entities.
C. The Trust shall indemnify and hold harmless Countrywide, its
directors, officers, employees, shareholders, agents, control persons and
affiliates from and against any and all claims, demands, expenses and
liabilities (whether with or without basis in fact or law) of any and every
nature which Countrywide may sustain or incur or which may be asserted against
Countrywide by any person by reason of, or as a result of: (i) any action taken
or omitted to be taken by Countrywide in good faith in reliance upon any
certificate, instrument, order or share certificate reasonably believed by it to
be genuine and to be signed, countersigned or executed by any duly authorized
person, upon the oral instructions or written instructions of an authorized
person of the Trust or upon the opinion of legal counsel for the Trust or its
own counsel; or (ii) any action taken or omitted to be taken by Countrywide in
connection with its appointment in good faith in reliance upon any law, act,
regulation or interpretation of the same even though the same may thereafter
have been altered, changed, amended or repealed. However, indemnification under
this subparagraph shall not apply to actions or omissions of Countrywide or its
directors, officers, employees, shareholders or agents in cases of its or their
own gross negligence, willful misconduct, bad faith, or reckless disregard of
its or their own duties hereunder.
32. TERMINATION
-----------
A. The provisions of this Agreement shall be effective on the date
first above written, shall continue in effect for three years from that date and
shall continue in force from year to year thereafter, but only so long as such
continuance is approved (1) by Countrywide, (2) by vote, cast in person at a
meeting called for the purpose, of a majority of the
- 12 -
<PAGE>
Trust's trustees who are not parties to this Agreement or interested persons (as
defined in the 1940 Act) of any such party, and (3) by vote of a majority of the
Trust's Board of Trustees or a majority of the Trust's outstanding voting
securities.
B. Either party may terminate this Agreement on any date by giving the
other party at least sixty (60) days' prior written notice of such termination
specifying the date fixed therefor. Upon termination of this Agreement, the
Trust shall pay to Countrywide such compensation as may be due as of the date of
such termination, and shall likewise reimburse Countrywide for any out-of-pocket
expenses and disbursements reasonably incurred by Countrywide to such date.
C. In the event that in connection with the termination of this
Agreement a successor to any of Countrywide's duties or responsibilities under
this Agreement is designated by the Trust by written notice to Countrywide,
Countrywide shall, promptly upon such termination and at the expense of the
Trust, transfer all records maintained by Countrywide under this Agreement and
shall cooperate in the transfer of such duties and responsibilities, including
provision for assistance from Countrywide's cognizant personnel in the
establishment of books, records and other data by such successor.
33. SERVICES FOR OTHERS.
--------------------
Nothing in this Agreement shall prevent Countrywide or any affiliated
person (as defined in the 1940 Act) of Countrywide from providing services for
any other person, firm or corporation (including other investment companies);
provided, however, that Countrywide expressly represents that it will undertake
no activities which, in its judgment, will adversely affect the performance of
its obligations to the Trust under this Agreement.
34. LIMITATION OF LIABILITY.
------------------------
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust, personally, but bind only the trust property
of the Trust. The execution and delivery of this Agreement have been authorized
by the Trustees of the Trust and signed by an officer of the Trust, acting as
such, and neither such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the trust property of the Trust.
- 13 -
<PAGE>
35. SEVERABILITY.
-------------
In the event any provision of this Agreement is determined to be void
or unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
36. QUESTIONS OF INTERPRETATION.
----------------------------
This Agreement shall be governed by the laws of the State of Ohio. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to said 1940 Act. In addition, where the effect of a
requirement of the 1940 Act, reflected in any provision of this Agreement, is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
37. NOTICES.
--------
All notices, requests, consents and other communications required or
permitted under this Agreement shall be in writing (including telex and
telegraphic communication) and shall be (as elected by the person giving such
notice) hand delivered by messenger or courier service, telecommunicated, or
mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
To the Trust: Albemarle Investment Trust
c/o Boys, Arnold & Company
P.O. Drawer 5255
1272 Hendersonville Road
Asheville, North Carolina 28813
Attention: John B. Kuhns
To Countrywide: Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
or to such other address as any party may designate by notice complying with the
terms of this Section 37. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
- 14 -
<PAGE>
38. AMENDMENT.
----------
This Agreement may not be amended or modified except by a written
agreement executed by both parties.
39. BINDING EFFECT.
---------------
Each of the undersigned expressly warrants and represents that he has
the full power and authority to sign this Agreement on behalf of the party
indicated, and that his signature will operate to bind the party indicated to
the foregoing terms.
40. COUNTERPARTS.
-------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
41. FORCE MAJEURE.
--------------
If Countrywide shall be delayed in its performance of services or
prevented entirely or in part from performing services due to causes or events
beyond its control, including and without limitation, acts of God, interruption
of power or other utility, transportation or communication services, acts of
civil or military authority, sabotages, national emergencies, explosion, flood,
accident, earthquake or other catastrophe, fire, strike or other labor problems,
legal action, present or future law, governmental order, rule or regulation, or
shortages of suitable parts, materials, labor or transportation, such delay or
non-performance shall be excused and a reasonable time for performance in
connection with this Agreement shall be extended to include the period of such
delay or non-performance.
42. MISCELLANEOUS.
--------------
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
- 15 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
ALBEMARLE INVESTMENT TRUST
By: /s/ Jon L. Vannice
----------------------
Its: President and President
COUNTRYWIDE FUND SERVICES, INC.
By: /s Robert G. Dorsey
----------------------
Its: President
- 16 -
<PAGE>
Schedule A
----------
COMPENSATION
------------
Services FEE
- -------- ---
As Transfer Agent,
Dividend Disbursing Agent
and Shareholder Servicing Agent: (Per Account)
The North Carolina Tax Free Bond Fund Payable monthly at
rate of $18.00/year;
subject to a minimum
of $1,000 per month
Note: The foregoing fees will be discounted by 25% until August 31, 1998.
- 17 -
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Post-Effective Amendment No. 28 to the
Registration Statement of Albemarle Investment Trust under the Securities Act of
1933, filed under registration Statement No. 33-13133 of our report dated
October 2, 1998, relating to The North Carolina Tax Free Bond Fund, included in
the Statement of Additional Information, which is part of such Registration
Statement, and to the references to us under the captions "Financial Highlights"
and "Other Services" in such Registration Statement.
DELOITTE & TOUCHE, LLP
Dayton, Ohio
November 24, 1998
<TABLE> <S> <C>
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<NAME> NORTH CAROLINA TAX-FREE BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 11,893,844
<INVESTMENTS-AT-VALUE> 12,464,828
<RECEIVABLES> 563,705
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<OTHER-ITEMS-LIABILITIES> 78,401
<TOTAL-LIABILITIES> 595,463
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<APPREC-INCREASE-CURRENT> 324,337
<NET-CHANGE-FROM-OPS> 954,240
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<DISTRIBUTIONS-OF-INCOME> 453,271
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 309,619
<NUMBER-OF-SHARES-REDEEMED> 160,158
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 38,230
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<GROSS-EXPENSE> 155,018
<AVERAGE-NET-ASSETS> 10,927,397
<PER-SHARE-NAV-BEGIN> 10.63
<PER-SHARE-NII> .45
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