================================================================================
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*
------ ------- ----------------
-1.63%% 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.
Dayton, Ohio
October 1, 1999
