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THE NORTH CAROLINA
TAX FREE BOND FUND
[LOGO]
A No-Load Mutual Fund
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
February 29, 2000
(Unaudited)
- --------------------------------------------------------------------------------
[LOGO] BOYS, ARNOLD
& COMPANY, INC,
INVESTMENT ADVISOR
Post Office Drawer 5255
1272 Hendersonville Road
Asheville, North Carolina 28813-5255
1.800.286.8038
FUND ADMINISTRATOR
Countrywide Fund Services, Inc.
312 Walnut Street
P.O. Box 5354
Cincinnati, Ohio 45201-5354
1.800.841.0987
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<PAGE>
March 27, 2000
To the Shareholders of The North Carolina Tax Free Bond Fund:
We are pleased to report on the progress of your Fund in this semi-annual report
for the period ending February 29, 2000.
The last six months have been difficult for municipal bondholders, as interest
rates have continued to rise while the supply of new and secondary municipal
bonds remained erratic.
Interest rates increased due to action by the Federal Reserve predicated on the
exuberant growth of the domestic economy and the potential re-ignition of
inflation. Oil prices have climbed to the highest level in twenty years due to
OPEC's supply constraints, while labor availability tightened further leaving
unemployment at very low levels. In the face of these factors, inflation remains
tame albeit modestly drifting upward from its recent lows. The restraint of
inflation is due in part to deflationary effects from intense global
competition, corporate productivity improvements and the increasing benefits of
a computer networked economy.
Municipal bond supply fluctuated as investors moved from the safety of bonds to
the luring returns of technology stocks, causing bond mutual funds to liquidate
positions. On the other hand, municipalities had only modest new bond issuance
due to budget surpluses and, more recently, reluctance to issue bonds at higher
interest rates.
For the six months ended February 29, 2000, the Fund's total return declined
.59% (which includes both income and price change) after all expenses. The
Fund's total return compared favorably to the average total return for the 40
North Carolina Municipal Debt Funds which declined 1.17% as ranked by Lipper
Analytical Services, Inc. for the same period. The Fund's net asset value at the
end of day February 29, 2000 was $10.14 and the tax-free income and capital
gains paid for the period were $.23 and $.01 per share, respectively.
Most economists and market observers anticipate additional interest rate hikes
this year from the Federal Reserve with the goal of achieving the slowing of
domestic economic growth. The question remains how many more rate hikes are
ahead and the nature of their effect on the economy and the financial markets.
We believe that further rate hikes support the thesis that inflation will
continue to remain under control going forward. We have already seen some
positive impact on bond prices recently in the intermediate to long term
maturity range as bond yields have declined from their recent highs. Bond prices
can be expected to rise further as investors gain further confidence that
inflation will not accelerate and may likely subside from current levels. As a
result, we anticipate a soft landing scenario for the economy and expect
interest rates to modestly trend down over time. This should provide a more
favorable environment for bond investors.
On a tax equivalent basis, municipal bonds offer quite attractive returns
relative to taxable (Treasury and corporate) bonds. In addition, bonds can offer
relative stability at a time when the stock markets are increasingly more
volatile. We encourage investors to maintain a long-term outlook toward their
investment in the Fund and to consider a plan of regular investment through
dollar cost averaging.
We appreciate your continued trust and support and we welcome your questions and
comments.
Sincerely,
John B. Kuhns Jon L. Vannice
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
February 29, 2000
(Unaudited)
ASSETS:
Investment securities, at value
(amortized cost $14,128,520) (note 1) $ 13,637,460
Interest receivable 214,359
Receivable for capital shares sold 500
Other assets 4,200
------------
TOTAL ASSETS 13,856,519
------------
LIABILITIES:
Dividends payable 8,849
Payable for capital shares redeemed 59,395
Payable for securities purchased 103,380
Payable to Administrator (note 3) 3,061
Other accrued expenses and liabilities 4,054
------------
TOTAL LIABILITIES 178,739
------------
NET ASSETS $ 13,677,780
============
NET ASSETS CONSIST OF:
Paid-in capital $ 14,279,707
Accumulated net realized losses from security transactions (110,867)
Net unrealized depreciation on investments (491,060)
------------
NET ASSETS $ 13,677,780
============
Shares of beneficial interest outstanding
(unlimited number of shares
authorized, no par value) 1,349,199
============
Net asset value, offering price and
redemption price per share (note 1) $ 10.14
============
See accompanying notes to financial statements.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENT OF OPERATIONS
For the Six Months Ended February 29, 2000
(Unaudited)
INVESTMENT INCOME:
Interest $ 363,638
----------
EXPENSES:
Investment advisory fees (note 3) 23,918
Shareholder servicing fees (note 3) 17,084
Accounting services fees (note 3) 12,000
Administration fees (note 3) 10,229
Custodian fees 6,425
Transfer agent fees (note 3) 6,000
Professional fees 4,200
Insurance expense 3,364
Pricing costs 3,187
Trustees' fees and expenses 3,047
Reports to shareholders 2,532
Postage and supplies 2,410
Registration fees 97
----------
TOTAL EXPENSES 94,493
Investment advisory fees waived (note 3) (19,323)
Shareholder servicing fees waived (note 3) (17,084)
----------
NET EXPENSES 58,086
----------
NET INVESTMENT INCOME 305,552
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REALIZED AND UNREALIZED LOSSES ON INVESTMENTS:
Net realized losses from security transactions (110,867)
Net decrease in unrealized appreciation/
depreciation on investments (274,809)
----------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS (385,676)
----------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (80,124)
==========
See accompanying notes to financial statements.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31,
(UNAUDITED) 1999
------------ ------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income $ 305,552 $ 556,018
Net realized gains (losses) from security transactions (110,867) 13,241
Net change in unrealized appreciation/depreciation on investments (274,809) (787,235)
------------ ------------
NET DECREASE IN NET ASSETS FROM OPERATIONS (80,124) (217,976)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (305,552) (556,018)
From net realized gains (losses) from security transactions (13,244) (115,531)
------------ ------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (318,796) (671,549)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 2,307,095 3,423,074
Net asset value of shares issued in
reinvestment of distributions to shareholders 277,918 622,314
Payment for shares redeemed (2,416,100) (1,684,384)
------------ ------------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 168,913 2,361,004
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (230,007) 1,471,479
NET ASSETS:
Beginning of period 13,907,787 12,436,308
------------ ------------
End of period $ 13,677,780 $ 13,907,787
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold 224,827 311,082
Shares issued in reinvestment of distributions to shareholders 27,315 56,996
Shares redeemed (236,121) (154,228)
------------ ------------
Net increase in shares outstanding 16,021 213,850
Shares outstanding, beginning of period 1,333,178 1,119,328
------------ ------------
Shares outstanding, end of period 1,349,199 1,333,178
============ ============
</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 Period
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE YEARS ENDED AUGUST 31,
FEBRUARY 29, 2000 -----------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.43 $ 11.11 $ 10.63 $ 10.32 $ 10.36 $ 10.02
----------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.23 0.44 0.45 0.47 0.48 0.45
Net realized and unrealized gains
(losses) on investments (0.28) (0.58) 0.48 0.31 (0.04) 0.34
----------- ----------- ----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS (0.05) (0.14) 0.93 0.78 0.44 0.79
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.23) (0.44) (0.45) (0.47) (0.48) (0.45)
From net realized gains
from security transactions (0.01) (0.10) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
TOTAL DISTRIBUTIONS (0.24) (0.54) (0.45) (0.47) (0.48) (0.45)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE AT END OF PERIOD $ 10.14 $ 10.43 $ 11.11 $ 10.63 $ 10.32 $ 10.36
=========== =========== =========== =========== =========== ===========
TOTAL RETURN (0.49)% (1.36)% 8.92% 7.71% 4.33% 8.16%
=========== =========== =========== =========== =========== ===========
NET ASSETS AT END OF PERIOD $13,677,780 $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 1.38%(A) 1.41% 1.42% 1.68% 2.24% 2.76%
After expense reimbursements
and waived fees (note 3) 0.85%(A) 0.85% 0.83% 0.85% 0.85% 0.85%
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 4.47%(A) 4.08% 4.15% 4.49% 4.60% 4.56%
PORTFOLIO TURNOVER RATE 30%(A) 5% 36% 20% 10% 83%
</TABLE>
(A) Annualized.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
February 29, 2000
(Unaudited)
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
($) ($)
MUNICIPAL OBLIGATIONS - 96.1%
<S> <C> <C> <C> <C>
Appalachian State University, North Carolina
Utility System Revenue 150,000 5.90% 05-15-08 157,962
Asheville, North Carolina
Water System Revenue 150,000 5.50% 08-01-11 151,401
Buncombe County, North Carolina
Certificate of Participation 500,000 5.00% 12-01-12 472,435
Buncombe County, North Carolina
Solid Waste System Special Obligation Revenue 200,000 5.60% 03-01-11 202,442
Cabarrus County, North Carolina
General Obligation 250,000 5.40% 02-01-17 241,282
Charlotte, North Carolina
Law Enforcement Facilities Project Series A
Certificate of Participation 100,000 6.10% 12-01-15 101,591
Charlotte, North Carolina
Public Improvements 400,000 5.30% 04-01-08 404,964
Charlotte, North Carolina
Water & Sewer General Obligation 400,000 5.60% 05-01-20 416,740
Cumberland County, North Carolina
Hospital Facilities Revenue 500,000 5.25% 10-01-11 459,565
Currituck County, North Carolina
General Obligation 300,000 5.40% 04-01-14 296,202
Duke University Hospital
Community Hospital Revenue 500,000 5.25% 06-01-17 457,475
Durham, North Carolina
General Obligation Revenue 200,000 5.80% 02-01-12 207,366
Fayetteville, North Carolina
Public Works Revenue 500,000 5.10% 03-01-15 464,530
Gaston County, North Carolina
General Obligation 500,000 5.00% 03-01-17 455,605
<PAGE>
<CAPTION>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
February 29, 2000
(Unaudited)
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
($) ($)
MUNICIPAL OBLIGATIONS - 96.1%
<S> <C> <C> <C> <C>
Gaston, North Carolina
Memorial Hospital Project Revenue 600,000 5.50% 02-15-15 557,754
Gastonia, North Carolina
Police Station Project Certificate of Participation 100,000 5.70% 08-01-15 99,893
Gastonia, North Carolina
Street Improvements General Obligation 200,000 5.50% 05-01-13 200,728
Gastonia, North Carolina
Street Improvements General Obligation 400,000 5.50% 05-01-16 393,660
Greensboro, North Carolina
General Obligation Unlimited 500,000 5.00% 03-01-12 482,495
Johnston County, North Carolina
General Obligation 500,000 5.00% 05-01-18 450,715
Lincolnton, North Carolina
Enterprise System Revenue 200,000 5.38% 05-01-16 191,950
Mecklenburg County, North Carolina
Public Improvement General Obligation 200,000 5.50% 04-01-11 203,816
Morganton, North Carolina
Water & Sewer General Obligation Revenue 500,000 5.70% 06-01-13 511,170
North Carolina Central University
Housing System Revenue 200,000 5.80% 11-01-17 200,116
North Carolina Educational Facilities Finance Agency
Elon College Project Revenue 100,000 6.38% 01-01-14 102,282
North Carolina Housing Finance Agency
Home Ownership Series 2-B Revenue 500,000 5.10% 07-01-17 456,190
North Carolina Housing Finance Agency
Home Ownership Series 6-B Revenue 400,000 5.45% 01-01-11 400,376
North Carolina Housing Finance Agency
Multifamily Series A Revenue 100,000 5.80% 07-01-13 100,168
<PAGE>
<CAPTION>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
February 29, 2000
(Unaudited)
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
($) ($)
MUNICIPAL OBLIGATIONS - 96.1%
<S> <C> <C> <C> <C>
North Carolina Housing Finance Agency
Multifamily Series B Revenue 50,000 6.00% 07-01-00 50,122
North Carolina Municipal Power Agency
Number 1 - Catawba Electric Revenue 100,000 6.00% 01-01-09 104,165
North Carolina Municipal Power Agency
Number 1 - Catawba Electric Revenue 100,000 5.75% 01-01-15 99,400
North Carolina State
Clean Water Series A General Obligation 100,000 5.80% 06-01-04 104,960
North Carolina State
General Obligation 500,000 5.10% 06-01-10 495,555
North Carolina State University
Centennial Campus Series B Revenue 500,000 5.13% 12-15-16 462,120
Piedmont Triad Airport Authority
North Carolina Series A Revenue 300,000 5.63% 07-01-14 300,348
Piedmont Triad Airport Authority
North Carolina Series A Revenue 200,000 5.88% 07-01-19 200,392
Pitt County, North Carolina
Memorial Hospital Revenue 500,000 5.25% 12-01-12 476,270
Pitt County, North Carolina
Memorial Hospital Revenue 100,000 5.50% 12-01-15 98,747
Raleigh, North Carolina
General Obligation 500,000 5.25% 06-01-13 491,065
University of North Carolina
General Obligation Revenue 500,000 5.40% 05-15-09 481,150
Wake Forest University
Finance Agency Revenue 500,000 5.00% 11-01-17 448,955
Wilmington, North Carolina
Water & Sewer System Revenue 400,000 5.40% 06-01-13 394,752
<PAGE>
<CAPTION>
THE NORTH CAROLINA TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS
February 29, 2000
(Unaudited)
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
($) ($)
MUNICIPAL OBLIGATIONS - 96.1%
<S> <C> <C> <C> <C>
Winston-Salem, North Carolina
General Obligation 100,000 5.50% 06-01-12 101,777
------------
TOTAL MUNICIPAL OBLIGATIONS - 96.1% (AMORTIZED COST $13,641,711) $ 13,150,651
CASH EQUIVALENTS - 3.6%
Federated North Carolina Municipal Money Market Portfolio
(amortized cost $486,809) $ 486,809
------------
TOTAL VALUE OF INVESTMENT SECURITIES - 99.7% (AMORTIZED COST $14,128,520) (A) $ 13,637,460
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.3% 40,320
------------
NET ASSETS - 100.0% $ 13,677,780
============
</TABLE>
(a) As of February 29, 2000, the cost of investment securities for federal
income tax purposes was the same as that shown for financial statement
purposes. Net unrealized depreciation of $491,060 was comprised of gross
unrealized appreciation and depreciation of $79,502 and $570,562,
respectively.
See accompanying notes to financial statements.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
February 29, 2000
(Unaudited)
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.
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 six months ended February 29, 2000, 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 November 30, 1999, the Fund declared and paid a long-term
capital gain distribution of $12,396 or $0.0093 per share. In January of 2000,
shareholders were provided with Form 1099-DIV which reported the amounts and tax
status of capital gain distributions paid during calendar year 1999.
<PAGE>
THE NORTH CAROLINA TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
February 29, 2000
(Unaudited)
2. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales and maturities of investment
securities, other than short-term investments, amounted to $1,962,766 and
$2,004,742, respectively, for the six months ended February 29, 2000.
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 six months ended February 29, 2000, the Advisor waived $19,323
of its investment advisory fees.
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 six months ended February 29, 2000, the
Fund incurred and waived $17,084 of shareholder servicing fees under the Plan.
