[Zaske, Sarafa & Associates, Inc. Logo]
Dear Shareholder:
The fiscal year ending March 31, 1996, proved to be a very successful year for
the ZSA Asset Allocation Fund in several ways. First, the return on this fund
was excellent given its conservative investment policy. Secondly, all sectors of
the fund had excellent returns versus their indexes. And finally, the Fund moved
a step closer to achieving a status as true "one decision fund."
There are few choices for the well diversified investor who would rather not
track the performance of six or seven funds. It is a time consuming task to
decide how much should go into International Equities, Real Estate, or how much
should be in Long Term Bonds versus Short Term Bonds...AND WHEN TO CHANGE THE
MIX. The ZSA Asset Allocation Fund does all that for its shareholders.
During the beginning of the fiscal year, the Fund had near maximum weightings in
the skyrocketing U.S. stock market. There had not been a 10% correction for four
years (normally there is one each year) and we had not seen a bear market for
almost eight years (normally there is one every three years). As the year
progressed, profits on U.S. stocks were taken and reinvested into the major
foreign stock markets which had not risen as yet, and some dollars were held
aside in cash as opportunity money.
The following is the approximate individual asset class performance for the ZSA
Asset Allocation Fund versus common benchmarks:
U.S. Equities ZSA AA 35.13% S&P 500 32.11%
Fixed Income ZSA AA 11.98% Lehman Govt/Corp 9.65%
REITs ZSA AA 20.35% NAREIT 20.00%
International ZSA AA 14.06% Dow World ex. US 7.37%
(since 7/15/95)
As you can see, we had success in each asset class. If there is one area where
we did not have as impressive performance, it was in our allocation to cash.
Unfortunately, we were a little early and missed a portion of the U.S. stock
market's tremendous returns. But, that is the nature of a conservative
approach...we will not expose the fund to ever increasing risk in hopes of
getting the last dollar in an accelerating market.
Remember, it is not just the percentage return that is important...it is the
quality and sustainability of that return. The return on any double or nothing
bet is initially great and ultimately nothing. That is why good investors will
always arrive at the party early and leave early.
For more information and analyses please call us with your questions.
Respectfully,
/s/ Arthur E. Zaske
Arthur E. Zaske
Chief Investment Officer
355 South Woodward Ave., Ste. 200 (bullet) Birmingham, Michigan 48009
Telephone (810) 647-5990 (bullet) Fax (810) 647-0537
<PAGE>
ZSA ASSET ALLOCATION FUND
Performance Update - $10,000 Investment
For the period from August 10, 1992 (commencement
of operations) to March 31, 1996
[Graph below]
ZSA Equity Fund S&P 500
08/10/92 10,000 10,000
09/30/92 10,007 10,246
12/31/92 10,286 10,502
03/31/93 10,793 10,976
06/30/93 11,449 11,168
09/30/93 11,955 11,497
12/31/93 12,009 11,612
03/31/94 11,139 11,323
06/30/94 10,551 11,275
09/30/94 10,804 11,597
12/31/94 10,475 11,617
03/31/95 11,070 12,474
06/30/95 11,816 13,479
09/30/95 12,300 14,163
12/31/95 12,821 14,926
03/31/96 13,040 15,198
This graph depicts the performance of the ZSA Asset Allocation Fund versus a
combined index of 50% S&P 500 and 50% Lehman Government/Corporate Long Term
Index. It is important to note the ZSA Asset Allocation Fund is a professionally
managed mutual fund while the indexes are not available for investment and are
unmanaged. The comparison is shown for illustrative purposes only.
AVERAGE ANNUAL TOTAL RETURN
COMMENCEMENT OF ONE YEAR ENDED THREE YEARS ENDED
OPERATIONS THROUGH 3/31/96 3/31/96 3/31/96
7.56% 17.80% 6.50%
(bullet) The graph assumes an initial $10,000 investment at August 10, 1992. All
dividends and distributions are reinvested.
(bullet) At March 31, 1996, the Fund would have grown to $13,039-total
investment return of 30.40% since August 10, 1992.
(bullet) At March 31, 1996, a similar investment in a combined index of 50% S&P
500 and 50% Lehman Government/Corporate Long Term would have grown to
$15.198-total investment return of 51.98% since August 10, 1992.
(bullet) 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>
ZSA ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
Number of Value
Shares (note 1)
-------------- --------------
<S> <C>
COMMON STOCKS - 59.72%
Auto & Trucks - 1.00%
Ford Motor Company 2,800 $96,250
--------------
Beverages - 1.38%
The Coca-Cola Company 1,600 132,400
--------------
Broadcast - Radio & Television - 0.39%
E.W. Scripps Company 900 37,688
--------------
Computer Software & Services - 1.23%
Adobe Systems, Inc. 1,600 51,600
(a) Microsoft Corporation 650 67,031
--------------
118,631
--------------
Cosmetics & Personal Care - 0.86%
Gillette Company 1,600 82,600
--------------
Electrical Equipment - 0.52%
Linear Technology Corporation 1,200 50,100
--------------
Electronics - 1.19%
General Electric Company 1,000 77,875
Philips Electronics N.V. 1,000 36,375
--------------
114,250
--------------
Electronics - Semiconductor - 1.10%
(a) Adaptec, Inc. 2,200 106,150
--------------
Engineering & Construction - 0.85%
Fluor Corporation 1,200 81,900
--------------
Entertainment - 0.80%
Walt Disney Company 1,200 76,650
--------------
Financial Services - 1.00%
Green Tree Financial Corporation 2,800 96,250
--------------
Financial - Banks, Money Center - 0.82%
Chase Manhattan Corporation 1,075 79,012
--------------
Financial - Banks, Commercial - 0.78%
First Chicago NBD Corporation 1,800 74,700
--------------
Food - Processing - 0.45%
Philip Morris Companies, Inc. 500 43,812
--------------
</TABLE>
(Continued)
<PAGE>
ZSA ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
Number of Value
Shares (note 1)
------------- -------------
<S> <C>
COMMON STOCKS - Continued
Foreign Securities - 15.46%
ASEA AB 400 $41,300
Banco Bilbao Vizcaya 1,300 48,263
Bass PLC 1,850 42,550
Broken Hill Proprietary Company 700 39,638
Cadbury Schweppes plc 1,300 40,462
Canon, Inc. 400 38,250
Ciba-Geigy AG 1,000 62,250
Commerzbank AG 750 34,688
Elsevier NV 1,550 47,856
Empresa Nacional de Electridad SA 700 39,900
(a) Fletcher Challenge Building 362 8,745
(a) Fletcher Challenge Energy 362 7,748
Fletcher Challenge Ltd. 191 2,602
(a) Fletcher Challenge Paper 725 13,412
Grand Metropolitan PLC 1,300 34,125
Hitachi, Ltd. 350 34,169
Hong Kong Telecommunications Ltd. 1,000 20,000
HSBC Holdings plc 200 30,100
Ito-Yokado Company Ltd. 200 47,800
Koninlijke Ahold NV 1,150 55,200
LVMH Moet Hennessy Louis Vuitton 1,000 50,250
Luxottica Group S.p. 1,000 78,125
Mannesmann AG 110 39,985
Matsushita Electric Industrial
Company Ltd. 200 33,000
Norsk Hydro AS 850 37,188
Rank Organisation plc 2,700 40,838
Rhone-Poulenc 1,450 37,519
Roche Holdings LTD 550 45,375
Royal Dutch Petroleum Company 1,100 155,375
Siemens AG-ADR 350 38,325
Telefonaktiebolaget LM Ericsson 1,850 39,544
Telefonica de Espana 1,000 47,500
Tokio Marine & Fire Insurance
Company 600 39,000
Tomkins plc 2,300 36,225
Total SA 1,200 40,800
Toyota Motor Corporation 900 40,050
---------
1,488,157
---------
Forest Products & Paper - 0.19%
Willamette Industries, Inc. 300 18,075
---------
Household Products & Housewares - 0.88%
Procter & Gamble Company 1,000 84,750
---------
</TABLE>
(Continued)
<PAGE>
ZSA ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
Number of Value
Shares (note 1)
------------- -------------
<S> <C>
COMMON STOCKS - Continued
Insurance - Multiline - 1.12%
American International Group,
Inc. 1,150 $107,669
-------
Lodging - 0.34%
Marriott International, Inc. 700 33,250
--------
Machine - Construction & Mining - 0.99%
Caterpillar, Inc. 1,400 95,200
--------
Manufactured Housing - 0.88%
Clayton Homes, Inc. 4,062 84,794
--------
Medical - Biotechnology - 1.18%
Medtronic, Inc. 1,900 113,288
--------
Medical - Hospital Management
& Service - 0.82%
Manor Care, Inc. 2,000 78,500
--------
Medical Supplies - 0.26%
Becton, Dickinson & Company 300 24,562
--------
Metals - Diversified - 0.78%
Phelps Dodge Corporation 1,100 75,488
--------
Mining - 0.43%
WMC Limited 1,550 41,462
--------
Oil & Gas - Domestic - 1.03%
Enron Corporation 2,700 99,562
--------
Oil & Gas - International - 1.52%
Chevron Corporation 2,600 145,925
--------
Pharmaceuticals - 0.70%
Abbott Laboratories 1,650 67,238
--------
Real Estate Investment Trust - 14.18%
Avalon Properties, Inc. 1,000 21,500
Beacon Properties Corporation 2,800 73,850
BRE Properties, Inc. 1,475 52,362
Burnham Pacific Properties, Inc. 4,800 52,800
Campden Property Trust 1,000 23,125
Carr Realty Corporation 3,300 79,200
</TABLE>
(Continued)
<PAGE>
ZSA ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
Number of Value
Shares (note 1)
------------- -------------
<S> <C>
COMMON STOCKS - Continued
Real Estate Investment Trust - Continued
Chateau Properties, Inc. 3,500 $79,625
Cousins Properties, Inc. 3,300 64,350
Crescent Real Estate Equities,
Inc. 1,900 63,888
Crown American Realty Trust 6,150 46,894
Developers Diversified Realty
Corporation 1,300 38,188
Duke Realty Investments, Inc. 2,750 82,844
Eastgroup Properties 2,900 63,800
Equity Residential Properties
Trust 700 21,875
Federal Realty Investment Trust 900 20,025
General Growth Properties 900 21,150
Highwoods Properties, Inc. 2,400 66,900
IRT Property Company 2,000 18,500
Kimco Realty Corporation 2,250 60,750
Liberty Property Trust 2,900 59,812
Merry Land & Investment Company,
Inc. 900 19,575
New Plan Realty Trust 900 18,562
Oasis Residential, Inc. 900 21,150
Post Properties, Inc. 650 21,125
Security Capital Pacific Trust 1,000 22,000
Spieker Properties, Inc. 2,800 71,050
Taubman Centers, Inc. 4,000 39,500
United Dominion Realty Trust 2,800 40,950
Washington Real Estate Investment
Trust 1,300 20,800
Weingarten Realty Investors 600 21,525
Wellsford Residential Property
Trust 1,825 39,922
Western Investment Real Estate
Trust 1,600 17,800
---------
1,365,397
---------
Retail - Grocery - 0.77%
Albertson's, Inc. 2,000 74,250
---------
Retail - Specialty Line - 1.48%
(a) Borders Group, Inc. 5,000 142,500
---------
Toys - 1.37%
Mattel, Inc. 4,858 131,773
---------
Transportation - Rail - 0.43%
CSX Corporation 900 41,062
---------
</TABLE>
(Continued)
<PAGE>
ZSA ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
Number of Value
Shares (note 1)
------------- -------------
<S> <C>
COMMON STOCKS - Continued
Utilities - Telecommunications - 2.54%
A T & T Corporation 2,500 $152,812
GTE Corporation 2,100 92,138
---------
244,950
---------
Total Common Stocks (Cost $4,746,408) 5,748,245
---------
Principal
Amount
-------------
U. S. GOVERNMENT OBLIGATIONS - 22.42%
U. S. Treasury Notes
5.75%, due 8/15/2003 $1,250,000 1,208,008
7.25%, due 5/15/2004 900,000 949,782
---------
Total U. S. Government Obligations
(Cost $2,119,012) 2,157,790
---------
REPURCHASE AGREEMENT (b) - 17.27%
Wachovia Bank
5.38%, due April 1, 1996 1,662,675 1,662,675
(Cost $1,662,675)
Total Value of Investments
(Cost $8,528,095 (c)) 99.41% 9,568,710
Other Assets Less Liabilities 0.59% 57,183
---------- ---------
Net Assets 100.00% $9,625,893
========== =========
</TABLE>
(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 $1,682,839. 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 $1,199,235
Unrealized depreciation (158,620)
----------
Net unrealized appreciation $1,040,615
==========
See accompanying notes to financial statements
<PAGE>
ZSA ASSET ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
ASSETS
Investments, at value (cost $6,865,420) $ 7,906,035
Repurchase agreement (cost $1,662,675) 1,662,675
Interest receivable 39,746
Dividends receivable 18,987
Receivable for fund shares sold 3,476
Prepaid expenses 4,307
Deferred organization expenses, net (note 4) 12,307
Other assets 2,381
-----------
Total assets 9,649,914
-----------
LIABILITIES
Disbursements in excess of cash on demand deposit 15,545
Accrued expenses 7,560
Due to advisor 916
-----------
Total liabilities 24,021
-----------
NET ASSETS
(applicable to 777,936 shares outstanding; unlimited
shares of no par value beneficial interest authorized) $ 9,625,893
===========
NET ASSET VALUE AND REPURCHASE PRICE PER SHARE
($9,625,893 / 777,936 shares) $ 12.37
===========
NET ASSETS CONSIST OF
Paid-in capital $ 9,215,126
Undistributed net investment income 1,685
Accumulated net realized loss on investments (631,533)
Net unrealized appreciation on investments 1,040,615
-----------
$ 9,625,893
===========
See accompanying notes to financial statements
<PAGE>
ZSA ASSET ALLOCATION FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1996
INVESTMENT INCOME
Income
Interest $246,861
Dividends 198,954
---------
Total income 445,815
---------
Expenses
Investment advisory fees (note 2) 102,639
Distribution and service fees (note 3) 25,659
Fund administration fees (note 2) 25,545
Fund accounting fees (note 2) 21,000
Professional fees 16,470
Custody fees 8,339
Securities pricing fees 6,891
Shareholder recordkeeping fees 2,194
Registration and filing administration fees 2,095
Trustee fees and meeting expenses 5,617
Shareholder servicing expenses 5,161
Amortization of deferred organization expenses (note 4) 4,752
Registration and filing expenses 3,184
Printing expenses 1,073
Other operating expenses 4,650
---------
Total expenses 235,269
---------
Less investment advisory fees waived (note 2) (39,922)
---------
Net expenses 195,347
---------
Net investment income 250,468
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions 986,366
Increase in unrealized appreciation on investments 460,669
---------
Net realized and unrealized gain on investments 1,447,035
---------
Net increase in net assets resulting from operations $1,697,503
==========
See accompanying notes to financial statements
<PAGE>
ZSA ASSET ALLOCATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended Year ended
March 31, March 31,
1996 1995
------------ ------------
DECREASE IN NET ASSETS
<S> <C>
Operations
Net investment income $ 250,468 $ 166,480
Net realized gain (loss) from investment transactions 986,366 (1,599,897)
Increase in unrealized appreciation on investments 460,669 1,238,482
------------ ------------
Net increase (decrease) in net assets resulting from
operations 1,697,503 (194,935)
------------ ------------
Distributions to shareholders from
Net investment income (251,227) (158,526)
------------ ------------
Capital share transactions
Decrease in net assets resulting from capital share transactions (a) (2,385,161) (2,636,514)
------------ ------------
Total decrease in net assets (938,885) (2,989,975)
NET ASSETS
Beginning of year 10,564,778 13,554,753
------------ ------------
End of year (including undistributed net investment income
of $1,685 in 1996 and $2,444 in 1995) $ 9,625,893 $ 10,564,778
============ ============
</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 79,653 $ 936,518 480,530 $ 5,112,044
Shares issued for reinvestment
of distributions 20,475 245,030 14,525 152,278
----------- ----------- ----------- -----------
100,128 1,181,548 495,055 5,264,322
Shares redeemed (303,697) (3,566,709) (754,696) (7,900,836)
----------- ----------- ----------- -----------
Net decrease (203,569) ($2,385,161) (259,641) ($2,636,514)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
ZSA ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
For the
period from
August 10, 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>
Net asset value, beginning of period $10.76 $10.92 $10.77 $10.00
Income (loss) from investment operations
Net investment income (loss) 0.30 0.15 (0.01) 0.04
Net realized and unrealized gain (loss) on
investments 1.61 (0.17) 0.31 0.77
----------- ------------- ----------- ------------
Total from investment operations 1.91 (0.02) 0.30 0.81
----------- ------------- ------------- ------------
Distributions to shareholders from
Net investment income (0.30) (0.14) (0.01) (0.04)
Net realized gain from investment transactions 0 0 (0.14) 0
----------- ------------- ------------ ------------
Total distributions (0.30) (0.14) (0.15) (0.04)
----------- ------------- ----------- ------------
Net asset value, end of period $12.37 $10.76 $10.92 $10.77
=========== ============= ========= ============
Total return 17.80% (0.62%) 2.67% 7.93%
=========== ============= ========== ==============
Ratios/supplemental data
Net assets, end of period $9,625,893 $10,564,778 $13,554,753 $2,033,819
=========== ============= ============ ============
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 2.30% 2.03% 2.75% 4.11%(a)
After expense reimbursements and waived fees 1.91% 1.95% 1.92% 1.72%(a)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees 2.06% 1.18% (0.88)% (1.66)%(a)
After expense reimbursements and waived fees 2.45% 1.27% (0.05)% 0.73%(a)
Portfolio turnover rate 67.89% 130.53% 53.66% 22.26%
(a) Annualized.
</TABLE>
See accompanying notes to financial statements
<PAGE>
ZSA ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The ZSA Asset Allocation 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 10, 1992. 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 the last sales price as of 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.
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.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Zaske, Sarafa & Associates, 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 1.00% of the Fund's average
daily net assets.
(Continued)
<PAGE>
ZSA ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
Currently, the Fund does not offer its shares for sale in states which require
limitations to be placed on its expenses. The Advisor currently intends to
voluntarily waive all or a portion of its fee and reimburse expenses of the
Fund to limit total Fund operating expenses to 1.95% 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 a portion of its fee amounting to $39,922 ($0.04 per share) 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.
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust as defined in the Investment Company Act of
1940 (the "Act"), adopted a distribution plan pursuant to Rule 12b-1 of the
Act (the "Plan"). The Act regulates the manner in which a regulated
investment company may assume expenses of distributing and promoting the sales
of its shares and servicing of its shareholder accounts.
The Plan provides that the Fund may incur certain expenses, which may not
exceed 0.25% per annum of the Fund's average daily net assets for each year
elapsed subsequent to adoption of the Plan, for payment to the distributor and
others for items such as advertising expenses, selling expenses, commissions,
travel or other expenses reasonably intended to result in sales of shares of
the Fund or support servicing of shareholder accounts. The Fund incurred
$25,659 of such expenses under the Plan for the year ended March 31, 1996.
NOTE 4 - DEFERRED ORGANIZATION EXPENSES
All expenses of the Fund incurred in connection with its organization and the
registration of its shares have been assumed by the Fund.
(Continued)
<PAGE>
ZSA ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
The organization expenses are being amortized over a period of sixty months.
Investors purchasing shares of the Fund bear such expenses only as they are
amortized against the Fund's investment income.
In the event any of the initial shares of the Fund are redeemed during the
amortization period, the redemption proceeds will be reduced by a pro rata
portion of any unamortized organization expenses in the same proportion as the
number of initial shares being redeemed bears to the number of initial shares
of the Fund outstanding at the time of the redemption.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $5,843,245 and $9,505,799, respectively, for the year ended March
31, 1996.
NOTE 6 - DISTRIBUTIONS TO SHAREHOLDERS
The Fund has a capital loss carryforward for federal income tax purposes of
$631,533, which expires in the year 2003. It is the intention of the Board of
Trustees of the Trust not to distribute any realized gains until the
carryforward has been offset or expires.
<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 ZSA Asset Allocation 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 10, 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
ZSA Asset Allocation 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
