BROWN CAPITAL MANAGEMENT FUNDS
105 NORTH WASHINGTON STREET
POST OFFICE BOX 69
ROCKY MOUNT, NORTH CAROLINA 27802-0069
Telephone 919-972-9922
U.S. WATTS 800-525-FUND
Facsimile 919-442-4226
April 15, 1996
Dear Shareholder:
Following last year's meteoric rise of the stock and bond markets, it would
have seemed only reasonable to have expected some pause in what had become
an almost uninterrupted pace of advance. After all, some of the major
fundamental economic underpinnings were becoming less robust. Both
capital spending and corporate profit growth appeared to be slackening at
the end of December and in the fourth quarter of fiscal 1996. But a pause
was not the case, at least in the equity markets. Demand for stocks
seemed insatiable in the fourth quarter of fiscal 1996. As a follow-up
to an extraordinary S&P 500 total return of 32.1% for all of fiscal 1996,
the index tacked on a fourth quarter fiscal 1996 total return of
5.4%. What's going on?
First of all, a growing segment of the American Public is acting decisively
with respect to their long-term financial needs by investing at record
levels in equity mutual funds. Second, Corporate America has added
significantly to the demand side of the equation by competing with
the public through a record level of share repurchase programs, or simply
acquiring whole companies at premium prices. Demand is up, supply
is down! What could be better? Furthermore, the Achilles
heel of Bull markets, namely inflationary expectations, seems to
be well contained in a box. Hopefully, not Pandora's box.
Investors often build market expectations looking in rear view mirrors
rather than over the horizon of uncertainty. Have we arrived at the point where
the stock market only goes up? One need only recall Dutch
tulip bulb mania as just on example of incorrectly extrapolating
into the future from the past. Current trends, either up or down, should
always be tempered by stepping back for sober considerations.
This time a year ago, we had a lot of conviction that the broad market
was fundamentally poised to move higher despite its stong showing in the
fourth quarter of fiscal 1996. There was growing evidence that the Federal
Reserve has achieved a "soft landing," corporate profit
growth was robust, and valuations seemed reasonable. At present, the S&P
500 is selling at a reasonable 16 times calendar 1996 estimated earnings.
Our fundamental outlook for fiscal 1997 remains relatively unchanged
from the views we have held for sometime, and that is, except for the
prospect for interest rates, we expect the macro environment to be
similar to calendar 1995.
We expect stock returns to be composed of an increased in S&P 500
earnings of 5-8%, and a modest expansion in P/E's as evidence of an
economic expansion in 1997 become clearer. We expect dividend
yield to provide a moderate return in fiscal 1997.
In view of our aforementioned expectations for annual inflation, stock and
bond returns, what are some of the inviting areas of investment opportunity? We
like to say that sector emphasis is a by-product of our "bottoms-up"
fundamental analysis process, though from time to time we may also
identify investable themes that will guide our search process. Our
investments in technology companies could be viewed in this
context in that we look to identify companies that provide "productivity
enhancing" differentiated products or services to their customers.
We find that such companies as EMC Corp., Cisco Systems, and Microsoft
fit this theme, as does R.P. Scherer, a technology-based provider of drug
delivery systems. Speaking of drugs, we also believe the aging population
trends bode well for the health care and long-term care industries.
In these areas, for example, we identified Cardinal Health, a distributor
of health care products, and Health Care and Retirement in the long-term
care segment. Another area that has attracted our attention from
the bottom up is the financial sector. We have identified a number of
exceptional companies that enjoy defensible positions of leadership in
their respective businesses including Aflac, Green Tree Financial, and T. Rowe
Price. We say we prefer to have the wind of the "macro" environment to our
backs, recognizing that sometimes this will not be the case. To this point,
during the fourth quarter of fiscal 1996, we reduced our investment in companies
likely to be adversely impacted by two potentially troubling developments, one
being the rising level of consumer installment debt service as a percent of
disposable income, and the other being the apparent slowdown in the growth of
personal computer shipments. Such companies include First USA, in the credit
card services business, and Adaptec, in the computer hardware industry.
Consistent with our fiscal 1997 outlook, which opines that stocks will capture
center stage with very little competition from bonds, stocks recorded
very respectable performance in the fiscal year-end quarter. The S&P 500 and
the Russell 2000, increased 5.4% and 5.1%, respectively. Unlike the year
ago fiscal fourth quarter in which falling interest rates helped stimulate
demand for stocks (S&P 500 increased 9.8%), the fear of rising inflation
pushed interest rates higher in the fourth quarter of fiscal 1996. As a result,
the bond market offered meager returns relative to stocks in the fiscal fourth
quarter as evidenced by the Lehman Government/Corporate Bond Index and the
Merrill Lynch 500 Municipal Bond Index, which declined 2.3% and 3.0%,
respectively.
Over the next 3-5 years, in the context of 3-5% inflation, we expect the broad
stock market to provide returns on the order of 10-12% and long term bonds on
the order of 6-8%.
As always, we are pleased to have you as a shareholder and thank you for your
confidence in Brown Capital Management.
Sincerely,
/s/ EDDIE C. BROWN
Eddie C. Brown
President
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
Performance Update - $10,000 Investment
For the period from September 30, 1992 to March 31, 1996
BCM Equity Fund S&P 500 w/Income
09/30/92 10,000 10,000
12/31/92 11,063 10,504
03/31/93 11,122 10,962
06/30/93 10,962 11,016
09/30/93 11,427 11,300
12/31/93 11,817 11,562
03/31/94 11,623 11,124
06/30/94 11,445 11,171
09/30/94 11,972 11,717
12/31/94 11,727 11,715
03/31/95 12,657 12,855
06/30/95 13,988 14,083
09/30/95 15,374 15,202
12/31/95 15,485 16,117
03/31/96 16,486 16,982
THIS GRAPH DEPICTS THE PERFORMANCE OF THE BROWN CAPITAL MANAGEMENT EQUITY FUND
VERSUS THE S&P 500 W/INCOME INDEX. IT IS IMPORTANT TO NOTE THE BROWN CAPITAL
MANAGEMENT EQUITY FUND IS A PROFESSIONALLY MANAGED MUTUAL FUND WHILE THE INDEX
IS NOT AVAILABLE FOR INVESTMENT AND ARE UNMANAGED. THE COMPARISON IS SHOWN FOR
ILLUSTRATIVE PURPOSES ONLY.
Average Annual Total Return
For the period One year ended Three years ended
9/30/92 through 3/31/96 3/31/96 3/31/96
15.35% 30.25% 14.00%
* The graph assumes an initial $10,000 investment at September 30, 1992. All
dividends and distributions are reinvested.
* At March 31, 1996, the Fund would have grown to $16,486 - total investment
return of 64.86% since September 30, 1992.
* At March 31, 1996, a similar investment in the S&P 500 w/Income Index would
have grown to $16,982 - total investment return of 69.82% since
September 30, 1992.
* Past performance is not a guarantee of future performance. A mutual fund's
share price and investment return will vary with market conditions, and the
principal value of shares, when redeemed, may be worth more or less than the
original cost. Average annual returns are historical in nature and measure
net investment income and capital gain or loss from portfolio investments
assuming reinvestments of dividends.
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
Number of Value
Shares (note 1)
---------- ----------
<S> <C>
COMMON STOCKS - 85.94%
Biopharmaceuticals - 2.37%
(a) Amgen, Inc. 800 $ 46,500
--------
Commercial Services - 2.66%
Equifax, Inc. 2,600 52,325
--------
Computers - 3.88%
(a) Bay Networks 1,200 36,900
(a) EMC Corporation 1,800 39,375
--------
76,275
--------
Computer Software & Services - 12.19%
(a) Cheyenne Software, Inc. 1,625 25,797
(a) Cisco Systems, Inc. 1,200 55,650
(a) Compuware Corporation 1,400 32,200
(a) Microsoft Corporation 400 41,250
(a) Oracle Corporation 750 35,344
(a) Sterling Software, Inc. 700 49,350
--------
239,591
--------
Electrical Equipment - 2.26%
(a) Vishay Intertechnology, Inc. 1,644 44,388
--------
Electronics - 4.02%
Motorola, Inc. 700 37,100
(a) Solectron Corporation 950 41,800
--------
78,900
--------
Entertainment - 2.73%
Carnival Corporation 1,950 53,625
--------
Financial - Banks, Money Center - 1.87%
Chase Manhattan Corporation 500 36,750
--------
Financial - Savings/Loans/Thrift - 2.40%
(a) Glendale Federal Bank FSB 2,600 47,125
--------
Financial Services - 6.11%
Green Tree Financial Corporation 1,800 61,875
T. Rowe Price Associates 1,100 58,300
--------
120,175
--------
</TABLE>
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
Number of Value
Shares (note 1)
--------- -----------
<S> <C>
COMMON STOCKS - (Continued)
Household Products & Housewares - 2.79%
Newell Company 2,050 $ 54,837
--------
Insurance - Life & Health - 2.48%
AFLAC, Inc. 1,562 48,812
--------
Medical - Hospital Management & Service - 4.90%
(a) Health Care and Retirement Corp. 900 33,975
Manor Care, Inc. 650 25,512
United Healthcare Corporation 600 36,900
--------
96,387
--------
Mining - 1.23%
Minerals Technologies, Inc. 700 24,238
--------
Pharmaceuticals - 7.78%
(a) Alza Corporation 500 15,375
Cardinal Health, Inc. 900 57,825
Pfizer, Inc. 600 40,350
(a) R.P. Scherer Corporation 900 39,487
--------
153,037
--------
Real Estate Investment Trust - 5.01%
General Growth Properties 2,000 47,000
Post Properties, Inc. 1,300 42,250
Prime Retail, Inc. 800 9,200
--------
98,450
--------
Restaurants & Food Service - 4.82%
(a) Cheesecake Factory (The) 1,700 45,900
Cracker Barrel Old Country Store, Inc. 2,100 48,825
--------
94,725
--------
Retail - Department Stores - 2.58%
Dollar General Corporation 1,750 50,750
--------
Retail - Drug Stores - 1.82%
Revco D.S., Inc. 1,300 35,750
--------
Retail - Grocery - 2.27%
Casey's General Stores, Inc. 1,900 44,650
--------
</TABLE>
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
Number of Value
Shares (note 1)
---------- -----------
<S> <C>
COMMON STOCKS - (Continued)
Retail - Specialty Line - 4.83%
(a) AutoZone, Inc. 2,100 $ 71,138
Home Depot, Inc. 500 23,875
---------
95,013
---------
Telecommunications - 1.23%
(a) Tellabs, Inc. 500 24,188
---------
Telecommunications Equipment - 1.65%
(a) DSC Communications Corporation 1,200 32,400
---------
Utilities - Gas - 2.06%
MCN Corporation 1,750 40,469
---------
Total Common Stocks (Cost $1,349,969) 1,689,360
---------
Principal
Amount
---------
REPURCHASE AGREEMENT (b) - 13.20%
Wachovia Bank
5.38%, due April 1, 1996 $259,502 259,502
(Cost $259,502) --------
Total Value of Investments (Cost $1,609,471 (c)) 99.14% 1,948,862
Other Assets Less Liabilities 0.86% 17,000
-------- ---------
Net Assets 100.00% $1,965,862
======== ==========
</TABLE>
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
(a) Non-income producing investment.
(b) Joint repurchase agreement entered into March 31, 1996, with a
maturity value of $54,221,391 collateralized by $46,275,000 U.S.
Treasury Notes, due February 15, 2020. The aggregate market value of
the collateral at March 31, 1996 was $54,871,024. The Fund's pro rata
interest in the market value of the collateral at March 31, 1996 was
$266,509. The Fund's pro rata interest in the joint repurchase
agreement collateral is taken into possession by the Fund's custodian
upon entering into the repurchase agreement.
(c) Aggregate cost for financial reporting and federal income tax purposes
is the same. Unrealized appreciation (depreciation) of investments for
financial reporting and federal income tax purposes is as follows:
Unrealized appreciation $367,773
Unrealized depreciation (28,382)
--------
Net unrealized appreciation $339,391
========
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
ASSETS
Cash $ 11,605
Investments in common stocks, at value
(cost $1,349,969) 1,689,360
Repurchase agreement (cost $259,502) 259,502
Dividends receivable 1,142
Interest receivable 957
Prepaid expenses 923
Due from advisor (note 2) 1,556
Other assets 1,491
----------
Total assets 1,966,536
----------
LIABILITIES
Accrued expenses 674
----------
NET ASSETS
(applicable to 124,364 Institutional Class shares
outstanding; unlimited shares of no par value
beneficial interest authorized) $1,965,862
==========
NET ASSET VALUE AND REPURCHASE PRICE PER
INSTITUTIONAL CLASS SHARE
($1,965,862 / 124,364 shares) $ 15.81
==========
NET ASSETS CONSIST OF
Paid-in capital $1,499,677
Undistributed net investment income 82
Undistributed net realized gain on investments 126,712
Net unrealized appreciation on investments 339,391
----------
$1,965,862
==========
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1996
INVESTMENT INCOME
Income
Dividends $ 14,828
Interest 9,091
---------
Total income 23,919
---------
Expenses
Fund accounting fees (note 2) 21,000
Professional fees 10,778
Investment advisory fees (note 2) 9,978
Other administration fees (note 2) 7,941
Custody fees 5,236
Fund administration fees (note 2) 3,828
Securities pricing fees 3,287
Registration and filing administration fees 2,773
Shareholder recordkeeping fees 458
Trustee fees and meeting expenses 5,617
Registration and filing expenses 5,403
Shareholder servicing expenses 4,090
Printing expenses 913
Other operating expenses 4,103
---------
Total expenses 85,405
---------
Less:
Expense reimbursements (note 2) (51,590)
Investment advisory fees waived (note 2) (9,978)
---------
Net expenses 23,837
---------
Net investment income 82
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions 162,208
Increase in unrealized appreciation on investments 224,377
---------
Net realized and unrealized gain on investments 386,585
---------
Net increase in net assets resulting from operations $ 386,667
=========
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended Year ended
March 31, March 31,
1996 1995
----------- -----------
INCREASE IN NET ASSETS
<S> <C>
Operations
Net investment income (loss) $ 82 ($ 1,010)
Net realized gain (loss) from investment transactions 162,208 (5,988)
Increase in unrealized appreciation on investments 224,377 94,343
----------- -----------
Net increase in net assets resulting from
operations 386,667 87,345
----------- -----------
Distributions to shareholders from
Net realized gain from investment transactions (29,243) (10,653)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share
transactions (a) 478,418 335,432
----------- -----------
Total increase in net assets 835,842 412,124
NET ASSETS
Beginning of year 1,130,020 717,896
----------- -----------
End of year (including undistributed net investment income of $ 1,965,862 $ 1,130,020
$82 in 1996) ============ ===========
</TABLE>
(a) A summary of capital share activity follows:
<TABLE>
<CAPTION>
Year ended Year ended
March 31, 1996 March 31, 1995
Shares Value Shares Value
--------- --------- --------- ---------
<S> <C>
Shares sold 35,834 $ 522,232 30,221 $ 351,502
Shares issued for reinvestment
of distributions 1,789 26,306 811 9,217
--------- --------- --------- ---------
37,623 548,538 31,032 360,719
Shares redeemed (4,695) (70,120) (2,144) (25,287)
--------- --------- --------- ---------
Net increase 32,928 $ 478,418 28,888 $ 335,432
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
For the
period from
August 4, 1992
(commencement
Year ended Year ended Year ended of operations)
March 31, March 31, March 31, to March 31,
1996 1995 1994 1993
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.36 $11.48 $11.05 $10.00
Income (loss) from investment operations
Net investment loss 0.00 0.00 (0.02) (0.02)
Net realized and unrealized gain on investments 3.72 1.01 0.52 1.07
----------- ----------- ----------- ------------
Total from investment operations 3.72 1.01 0.50 1.05
----------- ----------- ----------- ------------
Distributions to shareholders from
Net realized gain from investment transactions (0.27) (0.13) (0.07) 0.00
----------- ----------- ----------- ------------
Net asset value, end of period $15.81 $12.36 $11.48 $11.05
=========== =========== =========== ============
Total return 30.25% 8.90% 4.51% 10.51%
=========== =========== =========== ============
Ratios/supplemental data
Net assets, end of period $1,965,862 $1,130,020 $717,896 $263,814
=========== =========== =========== ============
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 5.58% 8.32% 11.86% 17.97%
After expense reimbursements and waived fees 1.56% 2.00% 2.00% 1.91%
Ratio of net investment income (loss)
to average net assets
Before expense reimbursements and waived fees (4.02)% (6.41)% (10.19)% (16.47)%
After expense reimbursements and waived fees 0.01% (0.11)% (0.36)% (0.51)%
Portfolio turnover rate 48.06% 7.29% 48.05% 3.26%
</TABLE>
(a) Annualized.
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Brown Capital Management Equity Fund (the "Fund") is a diversified
series of shares of beneficial interest of The Nottingham Investment Trust
II (the "Trust"). The Trust, an open-end investment company, was organized
on October 18, 1990 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940. The Fund began operations on
August 4, 1992. Pursuant to a plan approved by the Board of Trustees of the
Trust, the existing single class of shares of the Fund was redesignated as
the Institutional Class shares of the Fund on June 15, 1995, and an
additional class of shares, the Investor Class shares, was authorized. To
date, only Institutional Class shares have been issued by the Fund. The
Institutional Class shares are sold without a sales charge and bear no
distribution and service fees. The Investor Class shares will be sold
subject to a maximum sales charge of 3.50% and will bear distribution and
service fees which may not exceed 0.50% of the Investor Class shares'
average net assets annually. The following is a summary of significant
accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are carried
at value. Securities listed on an exchange or quoted on a national
market system are valued at 4:00 p.m., New York time on the day of
valuation. Other securities traded in the over-the-counter market and
listed securities for which no sale was reported on that date are
valued at the most recent bid price. Securities for which market
quotations are not readily available, if any, are valued by using an
independent pricing service or by following procedures approved by the
Board of Trustees. Short-term investments are valued at cost which
approximates value.
B. Federal Income Taxes - No provision has been made for federal income
taxes since it is the policy of the Fund to comply with the provisions
of the Internal Revenue Code applicable to regulated investment
companies and to make sufficient distributions of taxable income to
relieve it from all federal income taxes.
C. Investment Transactions - Investment transactions are recorded on the
trade date. Realized gains and losses are determined using the
specific identification cost method. Interest income is recorded daily
on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
D. Distributions to Shareholders - The Fund generally declares dividends
quarterly, payable in March, June, September and December, on a date
selected by the Trust's Trustees. In addition, distributions may be
made annually in December out of net realized gains through October 31
of that year. The Fund may make a supplemental distribution subsequent
to the end of its fiscal year ending March 31, 1996.
E. Use of Estimates - Management makes a number of estimates in the
preparation of the Fund's financial statements. Actual results could
differ significantly from those estimates.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Brown Capital Management,
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.
As compensation for its services, the Advisor receives a fee at the annual
rate of 0.65% of the Fund's first $25 million of average daily net assets
and 0.50% of average daily net assets over $25 million.
Currently, the Fund does not offer its shares for sale in states which
require limitations to be placed on its expenses. The Advisor intends to
voluntarily waive all or a portion of its fee and reimburse expenses of the
Fund to limit total Fund operating expenses to 1.20% of the average daily
net assets of the Fund in future years. This reflects a reduction during
the current year of the Advisor's voluntary expense limitation from 2.00%
to 1.20% of the average daily net assets of the Fund. There can be no
assurance that the foregoing voluntary fee waivers or reimbursements will
continue. The Advisor has voluntarily waived its fee amounting to $9,978
($0.09 per share) and has voluntarily agreed to reimburse $51,590 of the
Fund's operating expenses for the year ended March 31, 1996.
The Fund's administrator, The Nottingham Company (the "Administrator"),
provides administrative services to and is generally responsible for the
overall management and day-to-day operations of the Fund pursuant to an
accounting and administrative agreement with the Trust. As compensation for
its services, the Administrator receives a fee at the annual rate of 0.25%
of the Fund's first $10 million of average daily net assets, 0.20% of the
next $40 million of average daily net assets, 0.175% of the next $50
million of average daily net assets, and 0.15% of average daily net assets
over $100 million. The Administrator also receives a monthly fee of $1,750
for accounting and recordkeeping services. Additionally, the Administrator
charges the Fund for servicing of shareholder accounts and registration of
the Fund's shares. The contract with the Administrator provides that the
aggregate fees for the aforementioned administration, accounting and
recordkeeping services shall not be less than $3,000 per month. The
Administrator also charges the Fund for certain expenses involved with the
daily valuation of portfolio securities.
Certain Trustees and officers of the Trust are also officers of the
Advisor, the distributor or the Administrator.
At March 31, 1996, an officer of the Advisor held 7,466 shares or 6.00% of
the Fund shares outstanding.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $982,763 and $640,486, respectively, for the year ended March
31, 1996.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
NOTE 4 - DISTRIBUTIONS TO SHAREHOLDERS
For federal income tax purposes, the Fund must report distributions from
net realized gains from investment transactions that represent long-term
capital gain to its shareholders. Of the total $0.266 per share of such
distributions for the year ended March 31, 1996, $0.265 per share
represents long-term capital gain. The remaining short-term capital gain
distribution is taxable as ordinary income to shareholders for federal
income tax purposes. Shareholders should consult a tax advisor on how to
report distributions for state and local income tax purposes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders
The Nottingham Investment Trust II:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Brown Capital Management Equity Fund (the
"Fund"), a series of The Nottingham Investment Trust II, as of March 31, 1996,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
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
statements for the period from August 4, 1992 (commencement of operations) to
March 31, 1993 were audited by other auditors whose report thereon dated May 6,
1993 expressed an unqualified opinion on those statements.
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 March
31, 1996 by correspondence with the 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Brown Capital Management Equity Fund as of March 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and financial highlights for each of the
three years in the period then ended in conformity with generally accepted
accounting principles.
Richmond, Virginia
May 14, 1996
