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. 30
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 32
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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:
Wade Bridge, Esq.
Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to Rule 485(b)
/X/ on January 1, 1999 pursuant to Rule 485(b)
/ / 60 days after filing pursuant to Rule 485(a)
/ / on (date) pursuant to Rule 485(a)
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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. Front and Back Cover Pages Cover Pages
2. Risk/Return Summary: Risk/Return Summary
Investments, Risks,
and Performance
3. Risk/Return Summary: Costs and Expenses
Fee Table
4. Investment Objectives, Additional Investment Information
Principal Investment Strategies,
and Related Risks
5. Management's Discussion of Inapplicable (contained in
Fund Performance and Analysis Annual Report)
6. Management, Organization, Management of the Fund
and Capital Structure
7. Shareholder Information How to Purchase Shares; How to
Dividends and Distributions; Redeem Shares; How Net Asset
Taxes; Value is Determined; Dividends
and Capital Gain Distributions;
Application; Tax Status
8. Distribution Arrangements Management of the Fund
9. Financial Highlights Financial Highlights
Information
PART B
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Caption in Statement
of Additional
Item No. Registration Statement Caption Information
- -------- ------------------------------ --------------------
10. Cover Page and Table Cover Page; Table of
of Contents Contents
11. Fund History Description of the Trust
(i)
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12. Description of the Fund and Investment Objective and,
Its Investments and Risks Policies; Investment Limitations;
Appendix A and Appendix B;
13. Management of the Fund Trustees and Officers
14. Control Persons and Principal Trustees and Officers
Holders of Securities
15. Investment Advisory and Other Investment Advisor; Shareholder
Services Servicing Plan; Other Services;
and Administrator
16. Brokerage Allocation and Other Brokerage Transactions
Practices
17. Capital Stock and Other Description of the Trust;
Securities Trustees and Officers
18. Purchase, Redemption and Net Asset Value Determination;
Pricing of Shares Purchase of shares; Redemption
of shares
19. Taxation of the Fund Additional Tax Information
20. Underwriters N/A
21. Calculation of Performance Calculation of Performance
Data Data
22. 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.
(ii)
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Cusip Number 012688701
NASDAQ Symbol NCTFX
THE NORTH CAROLINA
TAX FREE
BOND FUND
A NO-LOAD FUND
Prospectus
January 1, 2000
Investment Advisor
Boys, Arnold & Company, Inc.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Securities and Exchange Commission passed upon
the accuracy or adequacy of this Prospectus. Any representation to the contrary
is a criminal offense.
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PROSPECTUS
JANUARY 1, 2000
THE NORTH CAROLINA TAX FREE BOND FUND
A NO-LOAD FUND
The investment objectives of THE NORTH CAROLINA TAX FREE BOND 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.
INVESTMENT ADVISOR
Boys, Arnold & Company, Inc.
TABLE OF CONTENTS
Risk/Return Summary.......................................................... 3
Costs and Expenses........................................................... 5
How to Purchase Shares....................................................... 7
How to Redeem Shares......................................................... 9
How Net Asset Value is Determined............................................ 12
Management of the Fund....................................................... 13
Additional Investment Information............................................ 14
Dividend and Capital Gain Distributions...................................... 16
Tax Status................................................................... 16
Financial Highlights......................................................... 18
Application..................................................................
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RISK/RETURN SUMMARY
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
The Fund's investment objectives 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.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
The Fund invests 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 and from the personal
income taxes of North Carolina and not subject to the alternative minimum tax.
These obligations are issued primarily by the State of North Carolina, its
political subdivisions, municipalities, agencies, instrumentalities or public
authorities and other qualifying issuers.
Generally, the Fund invests in securities rated in the 3 highest grades used by
the recognized rating agencies (or unrated municipal securities that the Advisor
determines are of comparable quality). Under normal circumstances, the Fund's
average maturity is expected to be 7 to 15 years.
The Fund may also invest up to one-third of its assets in securities that are
rated BBB by Standard & Poor's Ratings Services ("S&P") or are rated Baa by
Moody's Investors Service, Inc. ("Moody's") or of equivalent rating by any other
nationally recognized statistical rating organization.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The net asset value of the shares of the Fund will change as the general levels
of interest rates fluctuate. When interest rates rise, the value of the Fund's
portfolio can be expected to decline. There is also the risk that the issuer of
a bond may not be able to make interest and principal payments when due.
Because the Fund invests primarily in bonds from the State of North Carolina, it
is particularly sensitive to political and economic factors that negatively
affect North Carolina. In addition, there is the risk that substantial changes
in federal income tax law could cause municipal bond prices to decline.
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This is because the demand for municipal bonds is strongly influenced by the
value of tax-exempt income to investors.
As a non-diversified fund, the Fund may be invested in fewer issuers than a
diversified fund. If the Fund concentrates in a particular segment of the bond
market, economic or political factors affecting one bond in that segment and may
affect other bonds within the same segment. These factors may cause greater
fluctuations in the Fund's value and may make the Fund more susceptible to any
single risk.
The Fund's investment in securities rated BBB by S&P or Baa by Moody's or
comparable unrated securities 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 securities.
The Fund is not intended to be a complete investment program and you could lose
money by investing in the Fund.
IS THIS FUND FOR YOU?
The Fund may be appropriate for you if you seek:
- Monthly tax free dividends;
- To reduce taxes on investment income;
- To preserve investment capital over time.
The Fund is not right for you if you seek to:
- Invest through a 401(k)plan;
- Invest through an IRA;
- pursue long-term growth.
PERFORMANCE SUMMARY
The bar chart and performance table shown below provide an indication of the
risks of investing in the Fund by showing the changes in the performance of the
Fund from year to since the Fund's inception and by showing how the average
annual returns of the Fund compare to those of a broad-based securities market
index. How the Fund has performed in the past is not necessarily an indication
of how the Fund will perform in the future.
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[bar chart}
- -3.99% 15.87% 3.78% 8.03% 6.21%
1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter
was 6.47% during the quarter ended March 31, 1995, and the lowest return
for a quarter was -3.44% during the quarter ended March 31, 1994.
The year-to-date return through September 30, 1999 is -3.58%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 1998
Since Inception
One Year Five Years (January 13, 1993)
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The North Carolina Tax Free
Bond Fund 6.21% 5.78% 6.30%
Lehman Brothers Municipal
Bond Index* 6.48% 6.22% 7.28%
Lehman Brothers 15-Year
Municipal Bond Index** 7.24% 6.93% 7.72%
Lipper Average North Carolina
Municipal Debt Funds*** 5.56% 5.13% 6.33%
*The Lehman Brothers Municipal Bond Index is an unmanaged index generally
representative of tax-exempt bonds.
**The Lehman Brothers 15-Year Municipal Bond Index is an unmanaged index
generally representative of 15-Year general obligation tax-exempt bonds.
***The Lipper Average North Carolina Municipal Debt Funds is an average of 40
North Carolina municipal debt funds tracked by Lipper Analytical Services, Inc.
COSTS AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
SHAREHOLDER FEES (fees paid directly from your investment).................None*
*A wire transfer fee is charged by the Fund's Custodian in the case of wire
redemptions. The current fee is $8 and this fee is subject to change.
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ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
Management Fee................................................... 0.35%
Shareholder Servicing Fees....................................... 0.25%
Other Expenses................................................... 0.81%
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Total Annual Fund Operating Expenses............................. 1.41%(1)
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(1) The Advisor has voluntarily agreed to waive all or a portion of its fee and
to reimburse certain expenses of the Fund necessary to limit total operating
expenses to 0.85% of the Fund's average net assets. The Advisor reserves the
right to terminate this waiver or any reimbursement at any time in the Advisor's
sole discretion.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 years $ 144
3 years 446
5 years 771
10 years 1,691
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HOW TO PURCHASE SHARES
There are NO SALES COMMISSIONS charged to investors. You may obtain assistance
in opening accounts from Countrywide Fund Services, Inc. (the "Administrator")
by calling 1-800-841-0987, or by writing to the Fund at the address shown below
for regular mail orders. You may also obtain assistance through any
broker-dealer authorized to sell shares of the Fund. The broker-dealer may
charge you a fee for its services.
Your investment will purchase shares at the Fund's net asset value next
determined after your order is received by the Fund in proper order as indicated
herein. The minimum initial investment in the Fund, unless stated otherwise
herein, is $1,000. The Fund may, in the Advisor's sole discretion, accept
certain accounts with less than the stated minimum initial investment.
Payment must be made by check or money order drawn on an U.S. bank and payable
in U.S. dollars. All orders received by the Administrator, whether by mail, bank
wire or facsimile order from a qualified broker-dealer, prior to 4:00 p.m.
Eastern time, will purchase shares at the net asset value next determined on
that business day. If your order is not received by 4:00 p.m. Eastern time, your
order will purchase shares at the net asset value determined on the next
business day.
You should be aware that the Fund's account application contains provisions in
favor of the Fund, the Administrator 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.
If an order to purchase shares were cancelled because your check does not clear,
you will be responsible for any resulting losses or fees incurred by the Fund or
the Administrator in the transaction.
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REGULAR MAIL ORDERS. Please complete and sign the Account Application form
accompanying this Prospectus and send it with your check, made payable to The
North Carolina Tax Free Bond Fund, to:
The North Carolina Tax Free Bond Fund
c/o Shareholder Services
P.O. Box 5354
Cincinnati, Ohio 45201-5354
BANK WIRE ORDERS. You may invest directly by bank wire. To establish a new
account or add to an existing account by wire, please call the Fund at
1-800-841-0987 before wiring funds to advise the Fund of the investment, the
dollar amount and the account registration. For initial purchases, you should be
prepared to provide us, by mail or facsimile, with a completed, signed Account
Application. This will ensure prompt and accurate handling of your investment.
Please have your bank use the following wiring instructions to purchase by wire:
Fifth Third Bank
ABA# 042000314
For The North Carolina Tax Free Bond Fund ACCT #485777056
(Shareholder name and account number or tax identification number)
It is important that the wire contain all the information and that the Fund
receive prior telephone notification to ensure proper credit. Once your wire is
sent you should, as soon as possible thereafter, complete and mail your Account
Application to the Fund as described under "Regular Mail Orders," above.
ADDITIONAL INVESTMENTS. You may add to your account by mail or wire at any time
by purchasing shares at the then current net asset value as aforementioned.
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 quarterly investment in shares through automatic charges to
your checking account. With your
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authorization and bank approval, the Administrator will automatically charge
your checking account for the amount specified ($100 minimum) which will be
automatically invested in shares at the net asset value on or about the 15th day
and/or the last business day of the month or both. You may change the amount of
the investment or discontinue the plan at any time by writing to the
Administrator.
HOW TO REDEEM SHARES
You may redeem shares of the Fund on each day that the Fund is open for business
by sending a written request to the Fund. The Fund is open for business on each
day the New York Stock Exchange (the "Exchange") is open for business. 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. All redemption
orders received in proper form, as indicated herein, by the Administrator prior
to 4:00 p.m. Eastern time will redeem shares at the net asset value determined
as of that business day's close of trading. Otherwise, your order will redeem
shares on the next business day. You may also redeem your shares through a
broker-dealer who may charge you a fee for its services.
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 the shareholder
brings his 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 addressed to The North Carolina
Tax Free Bond Fund, P.O. Box 5354, Cincinnati, Ohio 45201-5354. Your request for
redemption must include:
1) your letter of instruction or a stock assignment 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 name(s) in which they
are registered;
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2) any required signature guarantees (see "Signature Guarantees"); 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 3 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. You may reduce or avoid such delay (which may
take up to 15 days) if you purchase by certified check, government 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.
You can 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 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.
Redemption proceeds will only be sent to the bank account or person named in
your Account Application currently on file with the Fund. You can change your
redemption instructions anytime you wish by filing a letter including your new
redemption instructions and signature guarantee (see "SIGNATURE GUARANTEES")
with the Fund.
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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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
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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, (3) requests to establish or change redemption services other than
through your initial account application and (4) if the name(s) or the address
on your account has been changed within 30 days of your redemption request.
Signature guarantees are acceptable from a member bank of the Federal Reserve
System, a savings and loan institution, credit union, 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 your Fund shares are valued at $10,000 or more at
the current offering price, you may establish a Automatic Withdrawal Plan to
receive a monthly or quarterly check in a stated amount not less than $100. Each
month or quarter 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. Systematic withdrawals may be deposited directly to the your bank
account by completing the applicable section on the Account Application form
accompanying this Prospectus, or by writing the Fund.
HOW NET ASSET VALUE IS DETERMINED
The net asset value of the Fund is determined on each business day that the
Exchange is open for trading, as of the close of the Exchange (currently 4:00
p.m., Eastern time). Net asset value per share is determined by dividing the
total value of all Fund securities (valued at market value) 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.
Securities that are traded over-the-counter are priced at the last sale price,
if available; otherwise, at the last quoted bid price. Municipal Obligations
will ordinarily be traded in the over-the-counter market. When market quotations
are not readily available, Municipal Obligations may be valued on the basis of
prices provided by an independent pricing service. The prices provided by the
pricing service are 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. The Trustees will satisfy
themselves that such pricing services consider all appropriate factors relevant
to the value of such securities in determining their fair value. Securities and
other assets for which no quotations are readily available will be valued in
good faith at fair value using methods determined by the Board of Trustees.
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MANAGEMENT OF THE FUND
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.
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.
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 in order to limit the Fund's
total operating expenses to 0.85% per annum of its average daily net assets.
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, subject to
the brokerage policies established by the Trustees.
Jon L. Vannice and John B. Kuhns are primarily responsible for managing the
portfolio of the Fund. Mr. Vannice is President and Chief Operations Officer of
the Advisor and has been with
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the firm since 1992. Prior to joining the Advisor, Mr. Vannice spent nine years
in trust and investment management, in both private investment counsel and
national bank settings. Mr. Kuhns is Senior Vice President of the Advisor and
has been with the firm since 1987. Prior to joining the Advisor, Mr. Kuhns was
Vice President and Director of a closely held investment company and was
President of his own portfolio management firm.
YEAR 2000 READINESS. Computer users around the world are faced with the dilemma
of the Year 2000 issue, which stems from the use of two digits in most older
computer systems to designate the year. When the year advances from 1999 to
2000, many computers will not recognize "00" as the Year 2000. This issue could
potentially affect every aspect of computer-related activity, on an individual
and corporate level. The Fund could be adversely impacted if the computer
systems used by the Advisor and other service providers have not been converted
to meet the requirements of the new century. The Advisor has evaluated its
internal systems and expects them to handle the change of millennium. The
Advisor is monitoring on an ongoing basis the progress of the Fund's service
providers to convert their systems to comply with the requirements of the Year
2000. The Advisor currently has no reason to believe that these service
providers will not be fully and timely compliant. However, you should be aware
that there can be no assurance that all systems will be successfully converted
prior to January 1, 2000, in which case it would become necessary for the Fund
to enter into agreements with new service providers or to make other
arrangements.
ADDITIONAL INVESTMENT INFORMATION
The Fund invests primarily in:
(a) Tax-exempt securities which are rated AAA, AA, A or BBB by Standard & Poor's
Ratings Group ("S&P") or are rated Aaa, Aa, A or Baa by Moody's Investors
Service, Inc. ("Moody's") (or of equivalent rating by any of the nationally
recognized statistical rating organizations) or which are considered by the
Advisor to have essentially the same characteristics and quality as securities
having such ratings; and
(b) 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 which are guaranteed by the
U.S. Government or which are rated MIG-1 or MIG-2 by Moody's.
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Although the Fund normally invests all of its assets in obligations exempt from
federal and North Carolina state income taxes, market conditions may from time
to time limit availability. During periods when the Fund is unable to purchase
such obligations, the Fund will invest the assets of the Fund in municipal
obligations the interest on which is exempt from federal income taxes, but which
is subject to the personal income taxes of North Carolina.
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 taxable
short-term obligations. These may include:
(a) Obligations issued or guaranteed as to interest and principal by the U.S.
Government or its agencies or instrumentalities, which may be subject to
repurchase agreements; and
(b) Commercial paper which is rated A-1 or A-2 by S&P or P-1 or P-2 by Moody's
(or which is unrated but which is considered to have essentially the same
characteristics and qualities as commercial paper having such ratings),
obligations of banks with $1 billion of assets (including certificates of
deposit, bankers' acceptances and repurchase agreements), securities of other
investment companies, and cash.
Interest income from these short-term obligations may be taxable to shareholders
as ordinary income for federal and state income tax purposes. As a result of
engaging in these temporary measures, the Fund may not achieve its investment
objective.
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).
With respect to those Municipal Obligations that 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
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community support for the facility financed by the issue, the ability of the
issuer's management and regulatory matters.
For additional information about Municipal Obligations, see the Statement of
Additional Information.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
Each month the Fund distributes a dividend substantially equal to all the net
investment income of the Fund. The Fund's net investment income consists of
non-capital gain income, less expenses. The Fund will declare one or more
long-term capital gain distributions to the shareholders of the Fund during the
calendar year if the Fund's profits from the sale of securities held for longer
than the applicable period exceed losses from these transactions together with
any net capital losses carried forward from prior years (to the extent not used
to offset short-term capital gains). If the Fund realizes net short-term capital
gains, they will also be distributed at that time. You may elect to receive
dividends and capital gain distributions in either cash or additional shares.
The Fund expects that its distributions will consist primarily of investment
income.
TAX STATUS
Because the Fund intends to distribute to shareholders substantially all of its
net investment income and net realized capital gains in accordance with the
timing requirements imposed by the Code, it is expected that the Fund will not
be required to pay any federal income or excise taxes. The Fund also expects the
dividends it pays to shareholders of the Fund from interest on Municipal
Obligations generally to be exempt from federal income tax because the Trust
intends the Fund to satisfy certain requirements of the Code. One such
requirement is that at the close of each quarter of the taxable year of the
Fund, at least 50% of the value of its total assets consists of obligations
whose interest is exempt from federal income tax. Distributions of income from
investments in taxable securities and from certain other investments of the Fund
(including capital gains from the sale of securities) will be taxable to the
shareholder, whether distributed in cash or in additional shares. However, it is
expected that such amounts would not be substantial in relation to the
tax-exempt interest received by the Fund. An investment in the Fund by a
corporate shareholder would be included in the capital stock, surplus and
undivided profits
16
<PAGE>
base in computing the North Carolina franchise tax.
A statement will be sent to each shareholder of the Fund promptly after the end
of each calendar year setting forth the federal income tax status of all
distributions for each calendar year, including the portion exempt from federal
income taxes as "exempt-interest dividends;" the portion, if any, that is a tax
preference item under the federal alternative minimum tax; the portion taxable
as ordinary income; the portion taxable as capital gains; and the portion
representing a return of capital (which is free of current taxes but results in
a basis reduction). The Fund intends to withhold 30% on taxable dividends and
any other payments that are subject to such withholding and are made to persons
who are neither citizens nor residents of the U.S.
Current federal tax law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest and makes interest on certain
tax-exempt bonds and distributions by the Fund of such interest a tax preference
item for purposes of the individual and corporate alternative minimum tax. In
addition, all exempt-interest dividends may affect a corporate shareholder's
alternative minimum tax liability. Applicable tax law and changes therein may
also affect the availability of Municipal Obligations for investment by the Fund
and the value of the Fund's portfolio. The tax discussion in this Prospectus is
for general information only. Prospective investors should consult their own tax
advisors as to the tax consequences of an investment in the Fund.
Under existing North Carolina tax laws, as long as the Fund qualifies as a
"regulated investment company" under the Code, and provided the Fund is invested
in obligations the interest on which would be exempt from North Carolina
personal income taxes if held directly by an individual shareholder (such as
obligations of North Carolina or its political subdivisions, of the United
States or of certain territories or possessions of the United States), dividends
received from the Fund that represent interest received by the Fund on such
obligations will be exempt from North Carolina personal income taxes. To the
extent that distributions by the Fund are derived from long-term or short-term
capital gains on such obligations, or from dividends or capital gains on other
types of obligations, such distributions will not be exempt from North Carolina
personal income tax. In North Carolina, dividends that are directly attributable
to interest on obligations of the U.S. Government
17
<PAGE>
or to gains from certain obligations of the State of North Carolina and its
political subdivisions that were issued prior to July 1, 1995 are not considered
ordinary income for North Carolina income tax reporting.
Capital gains or losses realized from a redemption of shares of the Fund by an
North Carolina resident will be taxable for North Carolina personal income tax
purposes. Interest on indebtedness incurred (directly or indirectly) by a
shareholder of the Fund to purchase or carry shares of the Fund will not be
deductible for North Carolina income tax purposes.
This discussion of the federal and state income tax consequences of an
investment in the Fund is not exhaustive on the subject. Consequently, investors
should seek qualified tax advice.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP whose report, along with
the Fund's financial statements, are included in the Statement of Additional
Information, which is available upon request.
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,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF YEAR $ 11.11 $ 10.63 $ 10.32 $ 10.36 $ 10.02
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.44 0.45 0.47 0.48 0.45
Net realized and unrealized gains
(losses) on investments (0.58) 0.48 0.31 (0.04) 0.34
------------ ------------ ------------ ------------ ------------
TOTAL FROM INVESTMENT OPERATIONS (0.14) 0.93 0.78 0.44 0.79
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.44) (0.45) (0.47) (0.48) (0.45)
From net realized gains from
security transactions (0.10) -- -- -- --
------------ ------------ ------------ ------------ ------------
TOTAL DISTRIBUTIONS (0.54) (0.45) (0.47) (0.48) (0.45)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE AT END OF YEAR $ 10.43 $ 11.11 $ 10.63 $ 10.32 $ 10.36
============ ============ ============ ============ ============
TOTAL RETURN -1.36% 8.92% 7.71% 4.33% 8.16%
============ ============ ============ ============ ============
NET ASSETS AT END OF YEAR $ 13,907,787 $ 12,436,308 $ 9,954,295 $ 6,400,507 $ 4,183,149
============ ============ ============ ============ ============
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before expense reimbursements and waived fees 1.41% 1.42% 1.68% 2.24% 2.76%
After expense reimbursements and
waived fees 0.85% 0.83% 0.85% 0.85% 0.85%
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 4.08% 4.15% 4.49% 4.60% 4.56%
PORTFOLIO TURNOVER RATE 5% 36% 20% 10% 83%
</TABLE>
<PAGE>
[Back Cover]
THE NORTH CAROLINA TAX FREE BOND FUND
INVESTMENT ADVISOR
Boys, Arnold & Company, Inc.
1272 Hendersonville Rd
Post Office Drawer 5255
Asheville, North Carolina 28813
ADMINISTRATOR
Countrywide Fund Services, Inc.
312 Walnut Street
P.O. Box 5354
Cincinnati, Ohio 45201-5354
1-800-841-0987
CUSTODIAN
The Fifth Third Bank
38 Fountain Square
Cincinnati, Ohio 45263
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1700 Courthouse Plaza, N.E.
Dayton, Ohio 45402
Additional information about the Fund is included in the Statement of Additional
Information ("SAI"), which is incorporated by reference in its entirety.
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and strategies that
significantly affected the Fund's performance during its last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make inquiries about the Fund, please call
1-800-841-0987.
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's public reference room in Washington, D.C.
Information about the operation of the public reference room can be obtained by
calling the Commission at 1-202-942-8090. Reports and other information about
the Fund are available on the Commission's Internet site at HTTP://WWW.SEC.GOV.
Copies of information on the Commission's Internet site may be obtained, upon
payment of a duplicating fee, by electronic request at the following e-mail
address: [email protected], or by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102.
File No. 811-5098
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE NORTH CAROLINA TAX FREE BOND FUND
January 1, 2000
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........................................................11
TRUSTEES AND OFFICERS.........................................................13
INVESTMENT ADVISOR............................................................14
BROKERAGE.....................................................................15
ADMINISTRATOR.................................................................17
SHAREHOLDER SERVICING PLAN....................................................19
OTHER SERVICES................................................................20
SPECIAL SHAREHOLDER SERVICES..................................................20
PURCHASE OF SHARES............................................................22
REDEMPTION OF SHARES..........................................................23
NET ASSET VALUE DETERMINATION.................................................23
ADDITIONAL TAX INFORMATION....................................................24
DESCRIPTION OF THE TRUST......................................................28
CALCULATION OF PERFORMANCE DATA...............................................29
FINANCIAL STATEMENTS AND REPORTS..............................................33
APPENDIX A - SPECIAL CONSIDERATIONS REGARDING INVESTMENT
IN NORTH CAROLINA MUNICIPAL OBLIGATIONS.....................................34
APPENDIX B - DESCRIPTION OF MUNICIPAL BOND RATINGS............................37
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 January 1, 2000. 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.
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
- 2 -
<PAGE>
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 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.
- 3 -
<PAGE>
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.
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.
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
- 4 -
<PAGE>
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, 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
- 5 -
<PAGE>
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.
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.
VARIABLE RATE SECURITIES-exempt securities that bear interest at rates which are
adjusted periodically to market rates. The market value of fixed coupon
securities fluctuates with changes in prevailing interest rates, increasing in
value when interest rates decline and decreasing in value when interest rates
rise. The value of variable rate securities, however, is less affected by
changes in prevailing interest rates because of the periodic adjustment of their
coupons to a market rate. The shorter the period between adjustments, the
smaller the impact of interest rate fluctuations on the value of these
securities. The market value of tax exempt variable rate securities usually
tends toward par (100% of face value) at interest rate adjustment time.
ZERO COUPON BONDS. 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 which 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 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 needs 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 which make
regular payments of interest. The Fund will accrue income on such investments
for tax and accounting purposes, which is distributable to shareholders.
- 6 -
<PAGE>
MUNICIPAL LEASE OBLIGATIONS. The Fund may also 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. A risk peculiar to these
municipal lease obligations is the possibility that a municipality will not
appropriate funds for lease payments. 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 total 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. 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 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
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.
The Board of Trustees is responsible for determining the credit quality of
unrated municipal lease obligations on an ongoing
- 7 -
<PAGE>
basis, including an assessment of the likelihood that the lease will not be
cancelled.
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.
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.
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 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
- 8 -
<PAGE>
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.
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 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,
- 9 -
<PAGE>
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.
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 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
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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.
PORTFOLIO TURNOVER. 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. The Fund's portfolio turnover rate for the fiscal year
ended August 31, 1999 was 5%.
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;
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;
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<PAGE>
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 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.
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<PAGE>
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, 1999:
COMPENSATION
NAME AGE POSITION HELD FROM THE TRUST
- ---- --- ------------- --------------
Edwin B. Armstrong+ 69 Trustee $2,550
J. Finley Lee, Jr.+ 60 Trustee $2,550
Jon L. Vannice* 42 Trustee and Vice President None
John B. Kuhns* 45 President None
Robert L. Bennett 57 Treasurer None
Tina D. Hosking 31 Secretary None
* Mr. Vannice and Mr. Kuhns 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.
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.
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<PAGE>
JOHN B. KUHNS, 1272 Hendersonville Road, Asheville, North Carolina 28813, is
Senior Vice President of Boys, Arnold & Company, Inc.
ROBERT L. BENNETT, 312 Walnut Street, Cincinnati, Ohio 45202, is First Vice
President and Chief Operations Officer of Countrywide Fund Services, Inc.
(registered transfer agent and administrator to the Trust) and CW Fund
Distributors, Inc. (registered broker- dealer), Cincinnati, Ohio.
TINA D. HOSKING, 312 Walnut Street, Cincinnati, Ohio 45202, is Assistant Vice
President and Associate General Counsel of Countrywide Fund Services, Inc.
(registered transfer agent and administrator of the Trust) and CW Fund
Distributors, Inc., Cincinnati, Ohio.
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. The
Independent Trustees do not receive pension or retirement benefits for their
service to the Fund.
PRINCIPAL HOLDERS OF VOTING SECURITIES. As of December 10, 1999, 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, 101 Montgomery Street, San Francisco,
California 94104, owned of record 63.34% of the then outstanding shares of the
Fund. Charles Schwab 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, 2001 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
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<PAGE>
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 years ended August 31, 1999 and 1998, the
Fund paid the Advisor advisory fees of $5,741 (which was net of voluntary
waivers of $41,972) and $1,339 (net of voluntary waivers of $36,891),
respectively. In fiscal year ended August 31, 1997, the Advisor waived its
entire fee of $26,663.
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 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.
BROKERAGE
Subject to the general supervision of the Trust's Board of
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<PAGE>
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.
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.
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
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<PAGE>
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 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
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<PAGE>
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.
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:
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*
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<PAGE>
* Subject to an additional fee of .001% per annum of average net assets
during such month over $300,000,000.
For fiscal year ended August 31, 1999, the Administrator received from the Fund
$20,409 in administration fees, $24,000 in accounting fees and $12,000 in
transfer agent fees. 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 six months ended February 28, 1998, TNC received $10,500 for accounting and
recordkeeping services to the Fund. For the fiscal year ended August 31, 1997,
TNC received $21,000 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.
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.
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<PAGE>
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, 1700 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 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
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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:
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
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<PAGE>
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.
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.
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<PAGE>
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.
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,
- 23 -
<PAGE>
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 has qualified and intends to continue 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 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
- 24 -
<PAGE>
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."
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.
- 25 -
<PAGE>
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 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
- 26 -
<PAGE>
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 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.
- 27 -
<PAGE>
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 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
- 28 -
<PAGE>
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, 1999 and for the period since inception
(January 13, 1993) to August 31, 1999 are -1.36%, 5.48% and 5.17%, 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:
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%
- 29 -
<PAGE>
August 31, 1998 8.92%
August 31, 1999 -1.36%
* 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, 1999 was
4.46%. 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, 1999 was 8.00%.
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, 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
- 30 -
<PAGE>
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, 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
- 31 -
<PAGE>
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.
- 32 -
<PAGE>
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, 1999, together with the report of the independent
accountants thereon, are included on the following pages.
- 33 -
<PAGE>
================================================================================
THE NORTH CAROLINA TAX FREE BOND FUND
-------------------------------------
No Load Mutual Fund
ANNUAL REPORT
August 31, 1999
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>
September 29, 1999
Dear Shareholders:
We are pleased to enclose our annual report for The North Carolina Tax Free Bond
Fund.
The fiscal year ended August 31, 1999 proved to be a difficult environment for
bond owners. Toward the end of calendar 1998, the Federal Reserve was called
upon to restore confidence to the global markets following deterioration in
markets around the world. Interest rates were lowered to provide additional
liquidity and to reduce pressure on foreign currencies. These moves contributed
to the stabilization and turnaround in most of those economies. As the new year
unfolded, the Fed became increasingly concerned with the possibility of an
overheated U.S. economy and moved to reverse two of its three previous rate
cuts. The threat of a third increase only added further upward pressure on
interest rates, negatively impacting the price of bonds.
Despite a difficult environment, your Fund performed relatively well. For the
fiscal year ended August 31, 1999, the Fund's total return was negative 1.36%.
This return compared favorably to the average decline of 1.49% for the 40 North
Carolina Municipal Debt Funds ranked by Lipper Analytical Services, Inc. During
the same period, the Lehman Municipal Bond Index, a national bond index with a
shorter average maturity and lower average quality than your Fund, increased
0.50%. The Fund maintains a high-quality portfolio of North Carolina municipal
bonds, with an average maturity of approximately 14 years and an average credit
quality of AAA as measured by Standard & Poor's Corporation quality ratings.
Shortly after the close of the Fund's fiscal year, Hurricane Floyd pounded the
coastline of the eastern U.S. and left severe flooding in many of the coastal
counties of eastern North Carolina. Experts assessing the situation estimated
that this flood was considered to be of the magnitude that occurs once every 500
years. Despite the damage that may result in the permanent evacuation and
relocation of some of the inhabitants in the flood plain, North Carolina
government officials have indicated that they believe that the counties under
the influence of this storm will be able to meet all their future obligations.
We have assessed our portfolio's exposure to those counties that were affected
and are confident that there should be no impact from this event on your Fund.
Looking into the next millennium, we believe the domestic and, to a lesser
degree, global economies will continue to maintain above average growth without
significant inflationary pressures. We anticipate continued global competitive
pressures resulting from excess capacity and productivity increases from further
advances in communications and technological innovation. Although interest rates
may rise modestly from current levels in the short term, we continue to look for
interest rates to trend lower over the longer term.
High-quality municipal bonds are one of the few remaining alternatives in which
investors may enjoy safety, stability and tax-free income. We encourage
investors to consider a plan of dollar cost averaging as a disciplined
investment approach that takes advantage of the attractive yields municipal
bonds offer currently.
Thank you for your continued trust and support. We welcome your comments and
suggestions.
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
11/30/98 1.60% 15,167 11/30/98 1.27% 14,339
02/28/99 1.00% 15,318 02/28/99 0.70% 14,439
05/31/99 -0.19% 15,289 05/31/99 -0.90% 14,310
08/31/99 -1.87% 15,003 08/31/99 -2.39% 13,967
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*
------ ------- ----------------
-1.36% 5.48% 5.17%
- --------------------------------------------------------------------------------
* Commencement of operations was January 13, 1993.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1999
ASSETS:
Investment securities, at value
(amortized cost $13,965,890) (note 1) $ 13,749,639
Interest receivable 220,759
Receivable for capital shares sold 500
Other assets 3,364
------------
TOTAL ASSETS 13,974,262
------------
LIABILITIES:
Dividends payable 3,098
Payable for capital shares redeemed 52,185
Payable to Advisor (note 3) 2,159
Payable to Administrator (note 3) 4,740
Other accrued expenses and liabilities 4,293
------------
TOTAL LIABILITIES 66,475
------------
NET ASSETS $ 13,907,787
============
NET ASSETS CONSIST OF:
Paid-in capital $ 14,110,794
Accumulated net realized gains from security transactions 13,244
Net unrealized depreciation on investments (216,251)
------------
NET ASSETS $ 13,907,787
============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 1,333,178
============
Net asset value, offering price and
redemption price per share (note 1) $ 10.43
============
See accompanying notes to financial statements.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1999
INVESTMENT INCOME:
Interest $ 671,892
---------
EXPENSES:
Investment advisory fees (note 3) 47,713
Shareholder servicing fees (note 3) 34,081
Accounting services fees (note 3) 24,000
Administration fees (note 3) 20,409
Professional fees 14,600
Transfer agent fees (note 3) 12,000
Postage and supplies 7,697
Custodian fees 7,440
Insurance expense 6,602
Pricing costs 5,981
Trustees' fees and expenses 5,765
Reports to shareholders 4,218
Registration fees 1,421
---------
TOTAL EXPENSES 191,927
Investment advisory fees waived (note 3) (41,972)
Shareholder servicing fees waived (note 3) (34,081)
---------
NET EXPENSES 115,874
---------
NET INVESTMENT INCOME 556,018
---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains from security transactions 13,241
Net decrease in unrealized appreciation/
depreciation on investments (787,235)
---------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS (773,994)
---------
NET DECREASE IN NET ASSETS FROM OPERATIONS $(217,976)
=========
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, 1999 and 1998
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1999 1998
------------ ------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income $ 556,018 $ 453,271
Net realized gains from security transactions 13,241 176,632
Net increase (decrease) in unrealized appreciation/
depreciation on investments (787,235) 324,337
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (217,976) 954,240
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (556,018) (453,271)
From net realized gains from security transactions (115,531) --
------------ ------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (671,549) (453,271)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 3,423,074 3,362,112
Net asset value of shares issued in
reinvestment of distributions to shareholders 622,314 365,561
Payment for shares redeemed (1,684,384) (1,746,629)
------------ ------------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 2,361,004 1,981,044
------------ ------------
TOTAL INCREASE IN NET ASSETS 1,471,479 2,482,013
NET ASSETS:
Beginning of year 12,436,308 9,954,295
------------ ------------
End of year $ 13,907,787 $ 12,436,308
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold 311,082 309,619
Shares issued in reinvestment of distributions to shareholders 56,996 33,523
Shares redeemed (154,228) (160,158)
------------ ------------
Net increase in shares outstanding 213,850 182,984
Shares outstanding, beginning of year 1,119,328 936,344
------------ ------------
Shares outstanding, end of year 1,333,178 1,119,328
============ ============
</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,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF YEAR $ 11.11 $ 10.63 $ 10.32 $ 10.36 $ 10.02
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.44 0.45 0.47 0.48 0.45
Net realized and unrealized gains
(losses) on investments (0.58) 0.48 0.31 (0.04) 0.34
------------ ------------ ------------ ------------ ------------
TOTAL FROM INVESTMENT OPERATIONS (0.14) 0.93 0.78 0.44 0.79
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.44) (0.45) (0.47) (0.48) (0.45)
From net realized gains from
security transactions (0.10) -- -- -- --
------------ ------------ ------------ ------------ ------------
TOTAL DISTRIBUTIONS (0.54) (0.45) (0.47) (0.48) (0.45)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE AT END OF YEAR $ 10.43 $ 11.11 $ 10.63 $ 10.32 $ 10.36
============ ============ ============ ============ ============
TOTAL RETURN -1.36% 8.92% 7.71% 4.33% 8.16%
============ ============ ============ ============ ============
NET ASSETS AT END OF YEAR $ 13,907,787 $ 12,436,308 $ 9,954,295 $ 6,400,507 $ 4,183,149
============ ============ ============ ============ ============
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before expense reimbursements and waived fees 1.41% 1.42% 1.68% 2.24% 2.76%
After expense reimbursements and
waived fees (note 3) 0.85% 0.83% 0.85% 0.85% 0.85%
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 4.08% 4.15% 4.49% 4.60% 4.56%
PORTFOLIO TURNOVER RATE 5% 36% 20% 10% 83%
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
August 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
--------- -------- --------- ------------
MUNICIPAL OBLIGATIONS - 97.6%
<S> <C> <C> <C> <C>
Appalachian State University, North Carolina
Utility System Revenue $ 150,000 5.90% 05-15-08 $ 161,504
Asheville, North Carolina
Water System Revenue 150,000 5.50% 08-01-11 153,601
Buncombe County, North Carolina
Certificate of Participation 500,000 5.00% 12-01-12 483,040
Buncombe County, North Carolina
Solid Waste System Special Obligation Revenue 200,000 5.60% 03-01-11 205,578
Cabarrus County, North Carolina
General Obligation 250,000 5.40% 02-01-17 247,928
Charlotte, North Carolina
Law Enforcement Facilities Project Series A
Certificate of Participation 100,000 6.10% 12-01-15 105,061
Charlotte, North Carolina
Public Improvements 400,000 5.30% 04-01-08 414,204
Charlotte, North Carolina
Water & Sewer General Obligation 400,000 5.60% 05-01-20 426,952
Concord, North Carolina
Utility System Revenue 525,000 5.00% 12-01-17 493,804
Cumberland County, North Carolina
General Obligation 400,000 4.90% 03-01-12 387,928
Cumberland County, North Carolina
Hospital Facilities Revenue 500,000 5.25% 10-01-11 485,610
Currituck County, North Carolina
General Obligation 300,000 5.40% 04-01-14 301,794
Duke University Hospital
Community Hospital Revenue 500,000 5.25% 06-01-17 482,610
Durham, North Carolina
General Obligation Revenue 200,000 5.80% 02-01-12 208,660
Fayetteville, North Carolina
Public Works Revenue 500,000 5.10% 03-01-15 481,845
Forsyth County, North Carolina
General Obligation 300,000 4.75% 02-01-13 284,286
Gaston County, North Carolina
General Obligation 500,000 5.00% 03-01-17 473,745
Gastonia, North Carolina
Police Station Project Certificate of Participation 100,000 5.70% 08-01-15 101,624
Gastonia, North Carolina
Street Improvements General Obligation 200,000 5.50% 05-01-13 204,034
Gastonia, North Carolina
Street Improvements General Obligation 400,000 5.50% 05-01-16 402,140
</TABLE>
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
August 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
--------- -------- --------- ------------
MUNICIPAL OBLIGATIONS - 97.6% (continued)
<S> <C> <C> <C> <C>
Greensboro, North Carolina
General Obligation Unlimited $ 500,000 5.00% 03-01-12 $ 493,150
Johnston County, North Carolina
General Obligation 500,000 5.00% 05-01-18 469,905
Lincolnton, North Carolina
Enterprise System Revenue 200,000 5.38% 05-01-16 198,572
Mecklenburg County, North Carolina
Public Improvement General Obligation 200,000 5.50% 04-01-11 205,864
Morganton, North Carolina
Water & Sewer General Obligation Revenue 500,000 5.70% 06-01-13 517,815
Morganton, North Carolina
Water & Sewer General Obligation Revenue 100,000 5.70% 06-01-14 103,311
North Carolina Central University
Housing System Revenue 200,000 5.80% 11-01-17 204,170
North Carolina Housing Finance Agency
Home Ownership Series 2-B Revenue 500,000 5.10% 07-01-17 465,060
North Carolina Housing Finance Agency
Multifamily Series A Revenue 100,000 5.80% 07-01-13 102,712
North Carolina Housing Finance Agency
Multifamily Series B Revenue 50,000 6.00% 07-01-00 50,469
North Carolina Municipal Power Agency
Number 1 - Catawba Electric Revenue 100,000 6.00% 01-01-09 106,304
North Carolina Municipal Power Agency
Number 1 - Catawba Electric Revenue 100,000 5.75% 01-01-15 100,562
North Carolina State
Clean Water Series A General Obligation 100,000 5.80% 06-01-16 107,293
North Carolina State
General Obligation 500,000 5.10% 06-01-10 504,495
North Carolina State
Series A General Obligation 300,000 5.10% 03-01-07 307,701
North Carolina State University
Centennial Campus Series B Revenue 500,000 5.13% 12-15-16 480,880
Pitt County, North Carolina
Memorial Hospital Revenue 500,000 5.25% 12-01-12 494,320
Pitt County, North Carolina
Memorial Hospital Revenue 100,000 5.50% 12-01-15 101,735
Raleigh, North Carolina
General Obligation 500,000 5.25% 06-01-13 500,445
University of North Carolina
General Obligation Revenue 500,000 5.40% 05-15-09 495,940
</TABLE>
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
August 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
--------- -------- --------- ------------
MUNICIPAL OBLIGATIONS - 97.6% (continued)
<S> <C> <C> <C> <C>
Wake Forest University
Finance Agency Revenue $ 500,000 5.00% 11-01-17 $ 468,740
Winston-Salem, North Carolina
General Obligation 100,000 5.50% 06-01-12 102,950
Winston-Salem, North Carolina
Water & Sewer System Revenue 500,000 4.80% 06-01-10 487,665
------------
TOTAL MUNICIPAL OBLIGATIONS (amortized cost $13,792,257) $ 13,576,006
CASH EQUIVALENTS - 1.3%
Federated North Carolina Municipal Money Market Portfolio 173,633 173,633
(amortized cost $173,633) ------------
TOTAL VALUE OF INVESTMENT SECURITIES - 98.9% (amortized cost $13,965,890 (a)) $ 13,749,639
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.1% 158,148
------------
NET ASSETS - 100.0% $ 13,907,787
============
</TABLE>
(a) As of August 31, 1999, the cost of investment securities for federal
income tax purposes was the same as that shown for financial statement
purposes. Net unrealized depreciation of $216,251 was comprised of gross
unrealized appreciation and depreciation of $150,298 and $366,549,
respectively.
See accompanying notes to financial statements.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
The North Carolina Tax Free Bond Fund (the Fund) is a no-load, non-diversified
series of Albemarle Investment Trust (the Trust), an open-end management
investment company registered under the Investment Company Act of 1940 and
organized in 1992 as a Massachusetts business trust. The Fund began operations
on January 13, 1993.
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 is of secondary importance. The Fund invests
primarily in debt instruments of municipal issuers within the state of North
Carolina. The issuers' abilities to meet their obligations may be affected by
economic and legislative 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 (normally 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 determined 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, 1999
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 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.
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, 1999, the Fund has
designated 100% of its distributions paid to shareholders from net investment
income as exempt-interest dividends for federal income tax purposes.
In addition, on December 31, 1998, the Fund declared and paid a long-term
capital gain distribution of $75,767 or $0.0639 per share. In January of 1999,
shareholders were provided with Form 1099-DIV which reported the amounts and tax
status of capital gain distributions paid during calendar year 1998.
2. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales and maturities of investment
securities, other than short-term investments, amounted to $2,719,428 and
$630,173, respectively, for the year ended August 31, 1999.
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, 1999, the Advisor waived $41,972 of its
investment advisory fees.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1999
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement with the Trust, 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.
TRANSFER AGENT AGREEMENT
Under the terms of a Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement with the Trust, 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. In
addition, the Fund pays CFS out-of-pocket expenses including, but not limited
to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement with the Trust, 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. In addition, the
Fund pays CFS certain out-of-pocket expenses incurred by CFS in obtaining
valuations of the Fund's portfolio securities.
SHAREHOLDER SERVICING PLAN
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, 1999, the Fund
incurred and waived $34,081 of shareholder servicing fees under the Plan.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Albemarle Investment Trust:
We have audited the accompanying statement of assets and liabilities of The
North Carolina Tax Free Bond Fund (the Fund), a series of Albemarle Investment
Trust, including the portfolio of investments, as of August 31, 1999, 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 years 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
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1999, 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, 1999, 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 1, 1999
<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.
The North Carolina Constitution requires that total state expenditures for
any fiscal period not exceed the total receipts during that fiscal period plus
any surplus remaining in the State Treasury from previous fiscal periods. The
State operates on a fiscal year ending June 30th. The ending fund balance for
the State's General Fund at June 30, 1998 was $1,662.0 million. The budget for
fiscal year ending June 30, 2000, estimates an ending balance of approximately
$1,043 million. This number could be adversely affected as a result of several
lawsuits which could result in excess of $465 million paid out in intangible tax
refunds.
The economy of North Carolina has gradually been moving away from an
agricultural to a more service and goods producing economy. According to the
North Carolina Employment Security Commission (the "Commission"), in July 1997,
North Carolina
- 34 -
<PAGE>
ranked tenth among the states in non-agricultural employment and eighth in
manufacturing employment. The State's seasonally adjusted unemployment rate in
April 1999 was 2.9%. These numbers illustrate North Carolina's transition.
North Carolina leads the nation in the production of textiles, tobacco
products, furniture and fiber optic cable and is among the largest producers of
pharmaceuticals, electronics and telecommunications equipment. Agriculture is
dominated by poultry, pork and tobacco. In addition, the city of Charlotte is
now the second largest financial center in the nation, based on assets of banks
headquartered there.
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- Emory-Patton cases -- Federal, State and Local Tax Refunds - For
the respective Retirees. These cases involved State, Local and Federal
government retirees being taxed on their pension benefits. In 1998, the North
Carolina Supreme Court ruled that it was unconstitutional for the State to
collect taxes on the pensions of retired Federal, State and local government
employees. The required refunds were estimated at $1.1 billion. However, a
settlement has been reached and Consent Order approved in which the State will
pay a total of $799 million with $400 million to be paid in 1998 and the balance
due by July 1999. The balance is reserved in the State's budget for the year
ending June 30, 1999.
Smith-Shaver Cases -- 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. 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.
Refunds of the intangible tax have been made with interest to those
taxpayers who complied with the applicable State tax refund statues. Then in
1998, the Supreme Court of North Carolina held that the taxpayers who paid the
intangibles tax, but did not comply with the State refund statute, were
nonetheless entitled to intangibles tax refunds. The additional
- 35 -
<PAGE>
refunds are estimated at approximately $360 million. Due to on-going dispute
over the timing of the refund payments, the General Assembly has not
appropriated funds for their payment, and thus, are not included in the current
budget. Additional class action suits have been filed claiming approximately
$105 in intangible refunds. The State believes these claims are barred by the
statute of limitations, however, this defense has been dismissed by the Superior
Court.
Leandro Case - - the plaintiffs are requesting a declaration that the
public education system of North Carolina violates the State Constitution by
failing to provide adequate or substantially equal education opportunities, and
that the educational system also denies due process under the law. The
defendants' motion to dismiss was denied but the North Carolina Supreme Court
upheld the present funding system and remanded the case for trial on the premise
that the constitution guarantees every child the opportunity to obtain a sound
basic education. Five additional counties have intervened, due to their large at
risk student populations.
North Carolina School Boards Association - - this action was filed in
December 1998 by school boards of six North Carolina counties which are
requesting a declaration that certain payments to State administrative agencies
must be distributed to the public schools on the theory that such amounts are
fines which under the North Carolina Constitution must be paid to the public
schools. The plaintiffs allege they are due approximately $84 million while the
State believes their position is correct and the amounts may be retained by the
State Administrative agencies.
- 36 -
<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.
- 37 -
<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.
- 38 -
<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."
- 39 -
<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.
- 40 -
<PAGE>
ALBEMARLE INVESTMENT TRUST
PART C. OTHER INFORMATION
- ------- -----------------
Item 23. Exhibits
(a) Amended and Restated Declaration of Trust*
(b) Bylaws*
(c) Incorporated by reference to Declaration of Trust and Bylaws
(d) Investment Advisory Agreement*
(e) Inapplicable
(f) Inapplicable
(g) Custody Agreement with Fifth Third Bank*
(h) (i) Administrative Agreement with Countrywide Fund Services,
Inc.*
(ii) Accounting Services Agreement with Countrywide Fund
Services, Inc.*
(iii) Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement with Countrywide Fund Services, Inc.*
(i) Opinion and Consent of Counsel*
(j) Consent of Independent Auditor
(k) Inapplicable
(l) Agreement Relating to Initial Capital*
(m) Shareholder Servicing Plan*
(n) Financial Data Schedule*
(o) Inapplicable
- -------------------------
* Incorporated by reference to the Trust's registration statement on Form N-1A.
Item 24. Persons Controlled by or Under Common Control with Registrant.
- -------- --------------------------------------------------------------
No person is controlled by or under common control with Registrant.
Item 25. 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, 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
<PAGE>
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 26. 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 27. Inapplicable.
- -------- -------------
Item 28. Location of Accounts and Records.
- -------- ---------------------------------
All accounts books and records and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and
the Rules promulgated thereunder will be maintained by the Registrant
at its offices located 1272 Hendersonville Road, Asheville, North
Carolina 28813 or at the offices of Registrant's transfer agent
located 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202.
<PAGE>
Item 29. Management Services Not Discussed in Parts A and B
- -------- --------------------------------------------------
Inapplicable
Item 30. Undertakings.
- -------- -------------
Inapplicable
<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 29th day of December, 1999.
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 December 29, 1999
- ----------------------
John B. Kuhns
/s/ Robert L. Bennett Treasurer December 29, 1999
- ----------------------
Robert L. Bennett
/s/ Jon L. Vannice Trustee December 29, 1999
- ----------------------
Jon L. Vannice
Trustee By: /s/ Tina D. Hosking
- ---------------------- -------------------
Edwin B. Armstrong* Tina D. Hosking
Attorney-in-Fact*
December 29, 1999
Trustee
- ----------------------
J. Finley Lee, Jr.*
<PAGE>
INDEX TO EXHIBITS
-----------------
(a) Agreement and Restated Declaration of Trust*
(b) Bylaws*
(c) Incorporated by reference to Declaration of Trust and Bylaws
(d) Investment Advisory Agreement*
(e) Inapplicable
(f) Inapplicable
(g) Custody Agreement with Fifth Third Bank*
(h)(i) Administration Agreement with Countrywide Fund Services, Inc.*
(ii) Accounting Services Agreement with Countrywide Fund Services, Inc.*
(iii) Transfer, Dividend Disbursing, Shareholder Service and Plan Agency
Agreement with Countrywide Fund Services, Inc.*
(i) Opinion and Consent of Counsel*
(j) Consent of Independent Auditor
(k) Inapplicable
(l) Agreement Relating to Initial Capital*
(m) Shareholder Servicing Plan*
(n) Financial Data Schedules*
(o) Inapplicable
- ----------------------------
* Incorporated by reference to the Trust's registration statement
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 30 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 1, 1999, 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.
/s/ DELOITTE & TOUCHE LLP
Dayton, Ohio
December 28, 1999
