As filed with the Securities and Exchange Commission on July 12, 1996
Securities Act File No. 33-37458
Investment Company Act File No. 811-6199
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 28 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29 X
THE NOTTINGHAM INVESTMENT TRUST II
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
Telephone (919) 972-9922
AGENT FOR SERVICE:
Frank P. Meadows III
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
With copies to:
M. Guy Brooks, III, Esq.
Poyner & Spruill, L.L.P.
3600 Glenwood Avenue
Raleigh, North Carolina 27612
It is proposed that this filing will become effective:
X Immediately upon filing pursuant on , 1996 pursuant
-----------------
to Rule 485(b), or to Rule 485(b), or
60 days after filing pursuant on , 1996 pursuant
-----------------
to Rule 485(a)(1), to Rule 485(a)(1), or
75 days after filing pursuant on , 1996 pursuant
-----------------
to Rule 485(a)(2) to Rule 485(a)(2), or
The issuer has previously registered an indefinite number of shares of eight
classes: Capital Value Fund, Investek Fixed Income Trust, ZSA Social Conscience
Fund, ZSA Equity Fund, ZSA Asset Allocation Fund, The Brown Capital Management
Equity Fund, The Brown Capital Management Balanced Fund and The Brown Capital
Management Small Company Fund, under the Securities Act of 1933, as amended,
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended. The
Rule 24f-2 Notice for the year ended March 31, 1996 was filed on May 30, 1996.
<PAGE>
This filing includes the Prospectuses and Statements of Additional Information
of Capital Value Fund, ZSA Social Conscience Fund, ZSA Equity Fund, ZSA Asset
Allocation Fund, and Investek Fixed Income Trust, which are incorporated herein
by reference to Post-Effective Amendment Nos. 21, 23, 25, 26, and 27 to the
Registrant's Registration Statement on Form N-1A filed with the Commission on
September 9, 1994, June 2, 1995, July 5, 1995, August 1, 1995, and May 31, 1996.
<PAGE>
PART A
PROSPECTUS
THE BROWN CAPITAL MANAGEMENT FUNDS
INSTITUTIONAL CLASS
The investment objective of THE BROWN CAPITAL MANAGEMENT EQUITY FUND is to seek
capital appreciation principally through investments in equity securities, such
as common and preferred stocks and securities convertible into common stocks.
Current income will be of secondary importance. The investment objective of THE
BROWN CAPITAL MANAGEMENT BALANCED FUND is to provide its shareholders with a
maximum total return consisting of any combination of capital appreciation, both
realized and unrealized, and income. The Fund will seek to achieve this
objective by investing in a flexible portfolio of equity securities, fixed
income securities and money market instruments. The investment objective of THE
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND is to seek capital appreciation
principally through investment in the equity securities of those companies with
operating revenues of $250 million or less at the time of the initial
investment. Current income will be of secondary importance. While there is no
assurance that any of the Funds will achieve their particular investment
objective, they endeavor to do so by following the investment policies described
herein.
This Prospectus relates to shares ("Institutional Shares") representing
interests in the Funds. The Institutional Shares are offered to institutions
and certain other investors described herein without any sales or redemption
charges or shareholder servicing or distribution fees. See "Prospectus Summary
- - Offering Price."
INVESTMENT ADVISOR
BROWN CAPITAL MANAGEMENT, INC.
809 CATHEDRAL STREET
BALTIMORE, MARYLAND 21201
The Brown Capital Management Funds (the "Funds") are diversified series of The
Nottingham Investment Trust II (the "Trust"), a registered open-end management
investment company. This Prospectus sets forth concisely the information about
the Funds that a prospective investor should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Funds has been filed with the Securities and Exchange
Commission and is available upon request and without charge. You may request the
Statement of Additional Information dated July 12, 1996, as amended from time to
time, which is incorporated in this Prospectus by reference, by writing the
Funds at Post Office Drawer 69, Rocky Mount, North Carolina 27802- 0069, or by
calling 1-800-525-FUND. INVESTMENT IN THE FUNDS INVOLVES RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, AND SUCH SHARES ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 12, 1996.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY.................................................... 2
SYNOPSIS OF COSTS AND EXPENSES........................................ 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVE AND POLICIES..................................... 7
RISK FACTORS.......................................................... 12
INVESTMENT LIMITATIONS................................................ 14
FEDERAL INCOME TAXES.................................................. 14
DIVIDENDS AND DISTRIBUTIONS........................................... 15
HOW SHARES ARE VALUED................................................. 16
HOW SHARES MAY BE PURCHASED........................................... 16
HOW SHARES MAY BE REDEEMED............................................ 19
MANAGEMENT OF THE FUNDS............................................... 21
OTHER INFORMATION..................................................... 23
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS UNAUTHORIZED. NO SALES REPRESENTATIVE, DEALER OR
OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
1
<PAGE>
PROSPECTUS SUMMARY
The Funds The Brown Capital Management Funds (the "Funds") are diversified
series of The Nottingham Investment Trust II (the "Trust"), a
registered open-end management investment company organized as a
Massachusetts business trust. This Prospectus relates to
Institutional Shares of the Funds. See "Other Information -
Description of Shares."
Offering Price The Institutional Shares of each Fund are offered at net asset
value without a sales charge and are not subject to any
shareholder servicing or distribution fees. The Institutional
Shares are available only to the following classes of investors:
clients of the Advisor, and any other institutional investor.
The minimum initial investment is $10,000 ($2,000 for IRAs and
Keogh Plans). The minimum subsequent investment is $500. See
"How Shares May be Purchased."
Investment The investment objective of THE BROWN CAPITAL MANAGEMENT EQUITY
Objective and FUND (the "Equity Fund") is to seek capital appreciation
Special Risk principally through investments in equity securities, such as
Considerations common and preferred stocks and securities convertible into
common stocks. Current income will be of secondary importance.
In most instances the Equity Fund will be at least 90% invested
in equity securities. The investment objective of THE BROWN
CAPITAL MANAGEMENT BALANCED FUND (the "Balanced Fund") is to
provide its shareholders with a maximum total return consisting
of any combination of capital appreciation, both realized and
unrealized, and income. The Fund will seek to achieve this
objective by investing in a flexible portfolio of equity
securities, fixed income securities, and money market
instruments. Fixed income securities and money market
instruments will generally comprise not less than 25% and not
more than 75% of the portfolio. The investment objective of THE
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND (the "Small Company
Fund") is to seek capital appreciation principally through
investment in the equity securities of those companies with
operating revenues of $250 million or less at the time of the
initial investment. Current income will be of secondary
importance. In most instances the Small Company Fund will be at
least 90% invested in equity securities. See "Investment
Objective and Policies."
The Funds are not intended to be a complete investment program,
and there can be no assurance that any Fund will achieve its
investment objective. While the Funds will invest primarily in
common stocks traded in U.S. securities markets, some of each
Fund's investments may include foreign securities (in the form
traded domestically as American Depository Receipts), illiquid
securities, and securities purchased subject to a repurchase
agreement or on a "when-issued" basis, which involve certain
risks. A portion of the Balanced Fund will be invested in fixed
income securities, which will be subject to risks associated
with movements in interest rates. Since the Small Company Fund
will invest principally in small companies, it will be subject
to the greater volatility and risks associated with such
investments. See "Risk Factors."
Manager Subject to the general supervision of the Trust's Board of
Trustees and in accordance with the Funds' investment policies,
Brown Capital Management, Inc. of Baltimore, Maryland (the
"Advisor"), manages the Funds' investments. The Advisor
currently manages approximately $1.6 billion in assets. For its
advisory services, the Advisor receives a monthly fee, based on
each Fund's average daily net assets, at the annual rate of
0.65% of the first $25 million of net assets and 0.50% of all
assets over $25 million for the Equity and Balanced Funds, and
at the annual rate of 1.00% for the Small Company Fund. See
"Management of the Funds - The Advisor."
Dividends Income dividends, if any, are generally paid quarterly; capital
gains, if any, are generally paid at least once each year.
Dividends and capital gains distributions are automatically
reinvested in additional shares of the same Class at net asset
value unless the shareholder elects to receive cash. See
"Dividends and Distributions."
Distributor Capital Investment Group, Inc. (the "Distributor") serves as
distributor of shares of each Fund. See "How Shares May Be
Purchased - Distributor."
Redemption of There is no charge for redemptions. Shares may be redeemed at
Shares any time at the net asset value next determined after receipt of
a redemption request by a Fund. A shareholder who submits
appropriate written authorization may redeem shares by
telephone. See "How Shares May Be Redeemed."
SYNOPSIS OF COSTS AND EXPENSES
The following tables set forth certain information in connection with the
expenses of the Institutional Shares of the Funds for the current fiscal year.
The information is intended to assist the investor in understanding the various
costs and expenses borne by the Institutional Shares of the Funds, and therefore
indirectly by their investors, the payment of which will reduce an investor's
return on an annual basis.
SHAREHOLDER TRANSACTION EXPENSES FOR INSTITUTIONAL SHARES
Maximum sales load imposed on purchases
(as a percentage of offering price).......................None
Maximum sales charge imposed on reinvested dividends.........None
Deferred sales load..........................................None
Redemption fees..............................................None
Exchange fee.................................................None
ANNUAL FUND OPERATING EXPENSES FOR INSTITUTIONAL SHARES - AFTER FEE WAIVERS
AND EXPENSE REIMBURSEMENTS1
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Small
Equity Balanced Company
Investment advisory fees..............0.00% (1) 0.00% (1) 0.00% (1)
12b-1 fees............................0.00% 0.00% 0.00%
Other expenses........................1.20% (1) 1.20% (1) 1.50% (1)
----- ----- -----
Total operating expenses............1.20% (1) 1.20% (1) 1.50% (1)
===== ===== =====
2
<PAGE>
EXAMPLE: You would pay the following expenses on a $1,000 investment in
Institutional Shares of the Funds, whether or not you redeem at the end of the
period, assuming a 5% annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Equity $12 $38 $66 $145
Balanced $12 $38 $66 $145
Small Company $15 $47 $82 $179
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
(1) The "Total operating expenses" shown above are based upon contractual
amounts and actual operating expenses incurred by the Institutional Shares
of each Fund for the fiscal year ended March 31, 1996, which, after fee
waivers and expense reimbursements, were 1.56%, 1.59%, and 1.69% of average
daily net assets of the Institutional Shares of the Equity, Balanced, and
Small Company Funds, respectively, but restated to reflect the expenses
anticipated to be incurred by the Institutional Shares of each Fund for the
current fiscal year. Absent such waivers and reimbursements, the percentages
for "Investment advisory fees" and "Total operating expenses" for the
Institutional Shares for the fiscal year ended March 31, 1996 would have
been 0.65% and 5.58%, respectively, for the Equity Fund, 0.65% and 3.50%,
respectively, for the Balanced Fund, and 1.00% and 3.49%, respectively, for
the Small Company Fund. The Advisor has voluntarily agreed to a reduction in
the fees payable to it and to reimburse expenses of each Fund, if necessary,
in an amount that limits "Total operating expenses" (exclusive of interest,
taxes, brokerage fees and commissions, sales charges, and extraordinary
expenses) to not more than 1.20%, 1.20%, and 1.50%, respectively, of the
Institutional Shares' average daily net assets for the Equity, Balanced, and
Small Company Funds, respectively. There can be no assurance that the
Advisor's voluntary fee waivers and expense reimbursements will continue in
the future.
See "Management of the Funds" below for more information about the fees and
costs of operating the Funds. The assumed 5% annual return in the example is
required by the Securities and Exchange Commission. THE HYPOTHETICAL RATE OF
RETURN IS NOT INTENDED TO BE REPRESENTATIVE OF PAST OR FUTURE PERFORMANCE OF THE
FUNDS; THE ACTUAL RATE OF RETURN FOR THE FUNDS MAY BE GREATER OR LESS THAN 5%.
FINANCIAL HIGHLIGHTS
Pursuant to a plan approved by the Board of Trustees of the Trust, the existing
single Class of shares of each Fund was redesignated the "Institutional Shares"
of the Fund and a new Class of shares, the "Investor Shares," was created. This
Prospectus relates to Institutional Shares. See "Other Information - Description
of Shares." The financial data included in the tables below has been derived
from audited financial statements of the Funds. The financial data for the
fiscal years ended March 31, 1994, 1995, and 1996 has been audited by KPMG Peat
Marwick LLP, independent auditors, whose reports covering such periods are
included in the Statement of Additional Information. The financial data for
fiscal periods prior to April 1, 1993 was audited by another firm of independent
auditors. The information in the tables below should be read in conjunction with
each Fund's latest audited financial statements and notes thereto, which are
also included in the Statement of Additional Information, a copy of which may be
obtained at no charge by calling the Funds. Further information about the
performance of the Funds is contained in the Annual Report of the Funds, a copy
of which may be obtained at no charge by calling the Funds.
3
<PAGE>
INSTITUTIONAL CLASS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD REPRESENTED)
EQUITY FUND
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1996 1995 1994 1993(A)
---- ---- ---- -------
<S> <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 % (d)
After expense reimbursements and waived fees 1.56 % 2.00 % 2.00 % 1.91 % (d)
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE
NET ASSETS
Before expense reimbursements and waived fees (4.02)% (6.41)% (10.19)% (16.47)% (d)
After expense reimbursements and waived fees 0.01 % (0.11)% (0.36)% (0.51)% (d)
PORTFOLIO TURNOVER RATE 48.06 % 7.29 % 48.05 % 3.26 %
</TABLE>
BALANCED FUND
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1996 1995 1994 1993(B)
---- ---- ---- -------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.56 $11.02 $10.62 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.12 0.10 0.08 0.04
Net realized and unrealized gain on investments 2.98 0.77 0.43 0.62
------ ------- ------- -------
Total from investment operations 3.10 0.87 0.51 0.66
------ ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (0.12) (0.11) (0.08) (0.04)
Net realized gain from investment transactions (0.78) (0.22) (0.03) 0.00
-------- ------- ------- -------
TOTAL DISTRIBUTIONS (0.90) (0.33) (0.11) (0.04)
-------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $13.76 $11.56 $11.02 $10.62
====== ====== ====== ======
TOTAL RETURN 27.04 % 8.04 % 4.78 % 6.60 %
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $3,319,314 $2,296,206 $1,187,697 $761,645
RATIO OF EXPENSES TO AVERAGE NET ASSETS
Before expense reimbursements and waived fees 3.50 % 5.43 % 6.44 % 9.56 %(d)
After expense reimbursements and waived fees 1.59 % 2.00 % 2.00 % 1.58 %(d)
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE
NET ASSETS
Before expense reimbursements and waived fees (0.97)% (2.44)% (3.69)% (7.13)%(d)
After expense reimbursements and waived fees 0.94 % 1.00 % 0.74 % 0.85 %(d)
PORTFOLIO TURNOVER RATE 43.59 % 9.51 % 28.56 % 20.90 %
</TABLE>
4
<PAGE>
SMALL COMPANY FUND
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1996 1995 1994 1993(C)
---- ---- ---- -------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.24 $10.69 $10.67 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment loss (0.06) (0.06) (0.11) (0.03)
Net realized and unrealized gain on investments 4.00 1.86 0.59 0.70
TOTAL FROM INVESTMENT OPERATIONS 3.94 1.80 0.48 0.67
------ ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gain from investment transactions (1.05) (0.25) (0.46) 0.00
-------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $15.13 $12.24 $10.69 $10.67
====== ====== ====== ======
TOTAL RETURN 33.00 % 16.95 % 4.39 % 6.70 %
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $3,740,208 $2,609,361 $1,830,924 $1,225,645
RATIO OF EXPENSES TO AVERAGE NET ASSETS
Before expense reimbursements and waived fees 3.49 % 4.49 % 4.73 % 5.45 % (d)
After expense reimbursements and waived fees 1.69 % 2.00 % 2.00 % 1.89 % (d)
RATIO OF NET INVESTMENT LOSS TO AVERAGE NET ASSETS
Before expense reimbursements and waived fees (2.29)% (3.38)% (4.03)% (4.42)% (d)
After expense reimbursements and waived fees (0.50)% (0.90)% (1.34)% (0.86)% (d)
PORTFOLIO TURNOVER RATE 23.43 % 32.79 % 23.47 % 4.14 %
</TABLE>
(a) For the period from August 4, 1992 (commencement of operations) to March 31,
1993.
(b) For the period from August 11, 1992 (commencement of operations) to March
31, 1993.
(c) For the period from July 23, 1992 (commencement of operations) to March 31,
1993.
(d) Annualized.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE. The investment objective of THE BROWN CAPITAL MANAGEMENT
EQUITY FUND (the "Equity Fund") is to seek capital appreciation principally
through investments in equity securities, such as common and preferred stocks
and securities convertible into common stocks. Current income will be of
secondary importance. The investment objective of THE BROWN CAPITAL MANAGEMENT
BALANCED FUND (the "Balanced Fund") is to provide its shareholders with a
maximum total return consisting of any combination of capital appreciation, both
realized and unrealized, and income. The Fund will seek to achieve this
objective by investing in a flexible portfolio of equity securities, fixed
income securities, and money market instruments. The investment objective of THE
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND (the "Small Company Fund") is to
seek capital appreciation principally through investment in the common stock of
those companies with operating revenues of $250 million or less at the time of
the initial investment. Current income will be of secondary importance. Each
Fund's investment objective and
5
<PAGE>
fundamental investment limitations described herein may not be altered without
the prior approval of a majority of the Fund's shareholders.
INVESTMENT SELECTION
EQUITY FUND. The Advisor will seek to achieve capital appreciation
through an opportunistic stock investment strategy with a growth bias. The
Advisor will seek to purchase equity securities of those companies that the
Advisor feels are undervalued relative to their growth potential in the
securities markets, because the companies are presently out of favor, not well
known or possess value that is not currently recognized by the investment
community. The Advisor will utilize the equity securities of large and medium
capitalization companies. Up to 10% of the portfolio may be invested in small
capitalization companies.
The Advisor uses a "bottom up" approach to select specific securities, while
remaining cognizant of specific economic and industry outlooks. The Advisor
employs analysis that contains elements of traditional dividend discount and
earnings yield models, establishes predicted relative valuation for equity and
fixed income markets, and determines the attractiveness of individual securities
through evaluation of growth and risk characteristics of the underlying company
relative to the overall equity market.
While portfolio securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
a) the anticipated price appreciation has been achieved or is no longer
probable; b) alternative investments offer superior total return prospects; or
c) fundamentals change adversely.
The equity portion of the Fund's portfolio will be comprised of common stocks,
convertible preferred stocks, participating preferred stocks, preferred equity
redemption cumulative stocks, preferred stocks and convertible bonds traded on
domestic securities exchanges or on the over-the-counter markets. Foreign
securities, if held, will be held in the form of American Depository Receipts
("ADRs"). ADRs are foreign securities denominated in U.S. dollars and traded on
U.S. securities markets.
The Fund will invest in a variety of companies and industries as well as
economic sectors. For purposes of temporary investment of cash, and defensive
investment in certain situations, the percentage of assets invested in equities
and money market instruments will be determined by the valuation of securities
relative to alternative investments.
Money market instruments will typically represent a portion of the Fund's
portfolio, as funds awaiting investment, to accumulate cash for anticipated
purchases of portfolio securities and to provide for shareholder redemptions and
operational expenses of the Fund.
Under normal market conditions the portfolio allocation range for the Equity
Fund will be:
% of Total Assets
Equity securities 70 - 99%
Money market instruments 1 - 30%
Under certain conditions, the Advisor may choose to temporarily invest up to
100% of the Fund's assets in cash and cash equivalents as a temporary defensive
position.
6
<PAGE>
BALANCED FUND. The Advisor will vary the percentage of Fund assets
invested in equities, fixed income securities, and money market instruments
according to the Advisor's judgment of market and economic conditions, and based
on the Advisor's view of which asset class can best achieve the Fund's
objectives. The percentage invested in fixed income securities and money market
instruments will comprise not less than 25% and not more than 75% of the
portfolio. The investment objective will be to achieve the maximum total return,
consisting of any combination of capital appreciation, both realized and
unrealized, and income.
Selection of equity securities will be based primarily on the expected capital
appreciation potential. The expected income potential of those equity securities
is of secondary importance. Selection of fixed income securities will be
primarily for income. The capital appreciation potential of those fixed income
securities is of secondary importance.
The Advisor will continually review the macroeconomic environment and
alternative expected rates of return between fixed income securities and equity
securities in determining the asset allocation of the Fund. In structuring the
fixed income portion of the Fund, the Advisor examines spread relationships
between quality grades in determining the quality distribution, and assesses the
expected trends in inflation and interest rates in structuring the maturity
distribution. Not more than 20% of the total fixed income portion of the
portfolio (not more than 15% of the entire Fund) will be invested in bonds rated
below A by the nationally recognized securities rating organizations described
in the Statement of Additional Information.
With regards to the equity portion of the Fund, the Advisor will seek
diversification across a broad spectrum of economic sectors and industries. The
security selection approach will have an earnings growth bias, but will remain
flexible and opportunistic. The Advisor will continuously examine the portfolio,
seeking to replace those securities that may have become relatively overvalued
with securities which, in the view of the Advisor, are currently undervalued.
The equity portion of the Fund's portfolio will be comprised of common stocks,
convertible preferred stocks, participating preferred stocks, preferred equity
redemption cumulative stocks, preferred stocks and convertible bonds traded on
domestic securities exchanges or on the over-the-counter markets. Foreign
securities, if held, will be held in the form of ADRs.
The Advisor will base security selection on the following factors: financial
history of the firm, consistency of earnings, return on equity, cash flow, fixed
charge coverage, strength of management, ratios such as price/book value,
price/sales, price/cash flow, price/earnings, and dividend yield, all compared
to historical valuations and future prospects of the company as judged by the
Advisor.
While portfolio securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
(a) the anticipated price appreciation has been achieved or is no longer
probable; (b) alternative investments offer superior total return prospects; or
(c) fundamentals change adversely.
Money market instruments will typically represent a portion of the Fund's
portfolio, as funds awaiting investment, to accumulate cash for anticipated
purchases of portfolio securities and to provide for shareholder redemptions and
operating expenses of the Fund.
Under normal market conditions the portfolio allocation range for the Balanced
Fund will be:
7
<PAGE>
% of Total Assets
Equity securities 25 - 75%
Money market instruments
and fixed income securities 25 - 75%
Under certain conditions, the Advisor may choose to temporarily invest up to
100% of the Fund's assets in cash and cash equivalents as a temporary defensive
position.
SMALL COMPANY FUND. The Advisor will invest primarily in the equity
securities of those companies with total operating revenues of $250 million or
less at the time of the initial investment ("small companies"). The Advisor
employs an analysis that seeks to identify those small companies whose current
price to earnings ratio is below the Advisor's projection of that company's
prospective growth rate. The Advisor's analysis includes many factors that, in
the Advisor's view, are critical to the small company sector. These factors
include the assumptions that a sustained commitment to a portfolio of
exceptional small companies will, over time, produce a significant investment
return and that an investment analysis which identifies and evaluates
successfully those few small companies with the legitimate potential to become
large companies can be a very rewarding investment strategy.
The Advisor uses a "bottom up" approach to select specific securities, while
remaining cognizant of specific economic and industry outlooks. The Advisor
employs analysis that contains elements of traditional dividend discount and
earnings yield models, establishes predicted relative valuation for equity and
fixed income markets, and determines the attractiveness of individual securities
through evaluation of growth and risk characteristics of the underlying company
relative to the overall equity market.
The Advisor identifies small companies with the potential to become successful
large companies by analyzing the potential for: a) sustainable revenue stream;
b) adequate resources to establish and defend a viable product or service
market, and market share; c) sufficient profitability to support long term
growth; and d) management skills and resources necessary to plan and execute a
long term growth plan.
While portfolio securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
a) the anticipated price appreciation has been achieved or is no longer
probable; b) alternate investments offer superior total return prospects; or c)
fundamentals change adversely.
The equity portion of the Fund's portfolio will be comprised of common stocks,
convertible preferred stocks, participating preferred stocks, preferred equity
redemption cumulative stocks, preferred stocks and convertible bonds traded on
domestic securities exchanges or on the over-the-counter markets. Foreign
securities, if held, will be held in the form of ADRs. In most instances the
Fund will be at least 90% invested in equity securities.
Money market instruments will typically represent a portion of the Fund's
portfolio, as funds awaiting investment, to accumulate cash for anticipated
purchases of portfolio securities and to provide for shareholder redemptions and
operational expenses of the Fund.
Under normal market conditions the portfolio allocation range for the Small
Company Fund will be:
% of Total Assets
Equity securities 70 - 99%
Money market instruments 1 - 30%
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Under certain conditions, the Advisor may choose to temporarily invest up to
100% of the Fund's assets in cash and cash equivalents as a temporary defensive
position.
MONEY MARKET INSTRUMENTS. Money market instruments may be purchased when the
Advisor believes interest rates are rising, the prospect for capital
appreciation in the equity and longer term fixed income securities' markets are
not attractive, or when the "yield curve" favors short term fixed income
instruments versus longer term fixed income instruments. Money market
instruments may be purchased for temporary defensive purposes, to accumulate
cash for anticipated purchases of portfolio securities and to provide for
shareholder redemptions and operating expenses of each Fund. Money market
instruments mature in thirteen months or less from the date of purchase and may
include U.S. Government Securities, corporate debt securities (including those
subject to repurchase agreements), bankers acceptances and certificates of
deposit of domestic branches of U.S. banks, and commercial paper (including
variable amount demand master notes) rated in one of the two highest rating
categories by any of the nationally recognized statistical rating organizations
or if not rated, of equivalent quality in the Advisor's opinion. The Advisor
may, when it believes that unusually volatile or unstable economic and market
conditions exist, depart from each Fund's investment approach and assume
temporarily a defensive portfolio posture, increasing the Fund's percentage
investment in money market instruments, even to the extent that 100% of the
Fund's assets may be so invested.
U.S. GOVERNMENT SECURITIES. Each Fund may invest a portion of its portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury bonds, and U.S. Treasury bills, obligations
guaranteed by the U.S. Government such as Government National Mortgage
Association ("GNMA") as well as obligations of U.S. Government authorities,
agencies and instrumentalities such as Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Home
Administration ("FHA"), Federal Farm Credit Bank ("FFCB"), Federal Home Loan
Bank ("FHLB"), Student Loan Marketing Association ("SLMA"), Resolution Trust
Corporation, and The Tennessee Valley Authority. U.S. Government Securities may
be acquired subject to repurchase agreements. While obligations of some U.S.
Government sponsored entities are supported by the full faith and credit of the
U.S. Government (e.g. GNMA), several are supported by the right of the issuer to
borrow from the U.S. Government (e.g. FNMA, FHLMC), and still others are
supported only by the credit of the issuer itself (e.g. SLMA, FFCB). No
assurance can be given that the U.S. Government will provide financial support
to U.S. Government agencies or instrumentalities in the future, other than as
set forth above, since it is not obligated to do so by law. The guarantee of the
U.S. Government does not extend to the yield or value of the Fund's shares.
Investment by the Equity and Small Company Funds in U.S. Government Securities
will generally be limited to money market instruments as described above.
Securities issued by the U.S. Government may be acquired by the Balanced Fund in
the form of custodial receipts that evidence ownership of future interest
payments, principal payments or both on certain U.S. Treasury notes or bonds.
Such notes and bonds are held in custody by a bank on behalf of the owners.
These custodial receipts are known by various names, including "Treasury
Receipts," "Treasury Investment Growth Receipts" ("TIGRs"), and "Certificates of
Accrual on Treasury Securities" ("CATS"). The Balanced Fund may also invest in
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPS"). Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
CORPORATE DEBT SECURITIES. The Balanced Fund may invest in U.S. dollar
denominated corporate debt securities of domestic issuers limited to corporate
debt securities (corporate bonds, debentures, notes and other similar
9
<PAGE>
corporate debt instruments) that meet the minimum ratings criteria set forth for
the Balanced Fund, or, if unrated, are in the Advisor's opinion comparable in
quality to corporate debt securities in that the Fund may invest. The Equity and
Small Company Funds may invest in convertible bonds of domestic issuers meeting
such quality requirements and other corporate debt securities generally in the
form of money market instruments as described above.
REPURCHASE AGREEMENTS. Each Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
agreement transaction occurs when the Fund acquires a security and
simultaneously resells it to the vendor (normally a member bank of the Federal
Reserve or a registered Government Securities dealer) for delivery on an agreed
upon future date. The repurchase price exceeds the purchase price by an amount
that reflects an agreed upon market interest rate earned by the Fund effective
for the period of time during which the repurchase agreement is in effect.
Delivery pursuant to the resale typically will occur within one to five days of
the purchase. The Funds will not enter into any repurchase agreement that will
cause more than 10% of their net assets to be invested in repurchase agreements
that extend beyond seven days. In the event of the bankruptcy of the other party
to a repurchase agreement, the Fund could experience delays in recovering its
cash or the securities lent. To the extent that in the interim the value of the
securities purchased may have declined, the Fund could experience a loss. In all
cases, the creditworthiness of the other party to a transaction is reviewed and
found satisfactory by the Advisor. Repurchase agreements are, in effect, loans
of Fund assets. The Funds will not engage in reverse repurchase transactions,
which are considered to be borrowings under the 1940 Act.
FOREIGN SECURITIES. Each Fund may invest in the securities of foreign private
issuers. The same factors would be considered in selecting foreign securities as
with domestic securities. Foreign securities investment presents special
consideration not typically associated with investment in domestic securities.
Foreign taxes may reduce income. Currency exchange rates and regulations may
cause fluctuations in the value of foreign securities. Foreign securities are
subject to different regulatory environments than in the United States and,
compared to the United States, there may be a lack of uniform accounting,
auditing and financial reporting standards, less volume and liquidity and more
volatility, less public information, and less regulation of foreign issuers.
Countries have been known to expropriate or nationalize assets, and foreign
investments may be subject to political, financial, or social instability, or
adverse diplomatic developments. There may be difficulties in obtaining service
of process on foreign issuers and difficulties in enforcing judgments with
respect to claims under the U.S. Securities laws against such issuers. Favorable
or unfavorable differences between U.S. and foreign economies could affect
foreign securities values. The U.S. Government has, in the past, discouraged
certain foreign investments by U.S. investors through taxation or other
restrictions and it is possible that such restrictions could be imposed again.
Because of the inherent risk of foreign securities over domestic issues, the
Funds will limit foreign investments to those traded domestically as American
Depository Receipts (ADRs). ADRs are receipts issued by a U.S. bank or trust
company evidencing ownership of securities of a foreign issuer. ADRs may be
listed on a national securities exchange or may trade in the over-the-counter
market. The prices of ADRs are denominated in U.S. dollars while the underlying
security may be denominated in a foreign currency.
INVESTMENT COMPANIES. In order to achieve its investment objective, each Fund
may invest up to 10% of the value of its total assets in securities of other
investment companies whose investment objectives are consistent with the Fund's
investment objective. The Fund will not acquire securities of any one investment
company if, immediately thereafter, the Fund would own more than 3% of such
company's total outstanding voting securities, securities issued by such company
would have an aggregate value in excess of 5% of the Fund's assets, or
securities issued by such company and securities held by the Fund issued by
other investment companies would have an aggregate value in
10
<PAGE>
excess of 10% of the Fund's assets. Each Fund will only invest in other
investment companies by purchase of such securities on the open market where no
commission or profit to a sponsor or dealer results from the purchase other than
the customary broker's commissions or when the purchase is part of a plan of
merger, consolidation, reorganization, or acquisition. To the extent a Fund
invests in other investment companies, the shareholders of the Fund would
indirectly pay a portion of the operating costs of the underlying investment
companies. These costs include management, brokerage, shareholder servicing and
other operational expenses. Shareholders of the Fund would then indirectly pay
higher operational costs than if they owned shares of the underlying investment
companies directly. The Advisor will waive its advisory fee for that portion of
each Fund's assets invested in other investment companies, except when such
purchase is part of a plan of merger, consolidation, reorganization, or
acquisition.
REAL ESTATE SECURITIES. The Funds will not invest in real estate (including
mortgage loans and limited partnership interests), but may invest in readily
marketable securities issued by companies that invest in real estate or
interests therein. The Funds may also invest in readily marketable interests in
real estate investment trusts ("REITs"). REITs are generally publicly traded on
the national stock exchanges and in the over-the-counter market and have varying
degrees of liquidity. Although the Funds are not limited in the amount of these
types of real estate securities they may acquire, it is not presently expected
that within the next 12 months the Funds will have in excess of 10% of their
assets in real estate securities.
RISK FACTORS
INVESTMENT POLICIES AND TECHNIQUES. Reference should be made to "Investment
Objective and Policies" above for a description of special risks presented by
the investment policies of the Funds and the specific securities and investment
techniques that may be employed by the Funds, including the risks associated
with repurchase agreements and foreign securities. A more complete discussion of
certain of these securities and investment techniques and their associated risks
is contained in the Statement of Additional Information.
FLUCTUATIONS IN VALUE. To the extent that the major portion of the Funds'
portfolios consists of common stocks, it may be expected that their net asset
value will be subject to greater fluctuation than a portfolio containing mostly
fixed income securities. The fixed income securities in which the Balanced Fund
will invest are also subject to fluctuation in value. Such fluctuations may be
based on movements in interest rates or from changes in the creditworthiness of
the issuers, which may result from adverse business and economic developments or
proposed corporate transactions, such as a leveraged buy-out or recapitalization
of the issuer. The value of the Balanced Fund's fixed income securities will
generally vary inversely with the direction of prevailing interest rate
movements. Should interest rates increase or the creditworthiness of an issuer
deteriorate, the value of the Balanced Fund's fixed income securities would
decrease in value, which would have a depressing influence on the Balanced
Fund's net asset value. Although certain of the U.S. Government Securities in
which the Funds may invest are guaranteed as to timely payment of principal and
interest, the market value of the securities, upon which the Funds' net asset
value is based, will fluctuate due to the interest rate risks described above.
Additionally, not all U.S. Government Securities are backed by the full faith
and credit of the U.S. Government. Because there is risk in any investment,
there can be no assurance that the Funds will achieve their investment
objective.
SMALL COMPANY SECURITIES. To the extent that the Small Company Fund will consist
of companies with a smaller market capitalization, shorter operating history and
smaller level of annual gross revenues than would be common in a typical large
capitalization growth fund, and given that such companies have historically
exhibited greater volatility of share price, the Small Company Fund may be
subject to greater fluctuation than a portfolio of larger companies or a
portfolio containing mostly fixed income securities.
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<PAGE>
PORTFOLIO TURNOVER. Each Fund may sell portfolio securities without regard to
the length of time they have been held in order to take advantage of new
investment opportunities. Portfolio turnover generally involves some expense to
the Funds, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover may also have capital gains tax consequences. The
portfolio turnover rate for each Fund since inception is set forth under
"Financial Highlights" above.
ILLIQUID INVESTMENTS. Each Fund may invest up to 10% of its net assets in
illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, the Advisor determines the liquidity of each Fund's
investments. The absence of a trading market can make it difficult to ascertain
a market value for illiquid investments. Disposing of illiquid securities before
maturity may be time consuming and expensive, and it may be difficult or
impossible for the Funds to sell illiquid investments promptly at an acceptable
price. The Funds may not invest in restricted securities, which are securities
that cannot be sold to the public without registration under the federal
securities laws.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. Each Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. Each Fund is required to hold and
maintain in a segregated account until the settlement date, cash, U.S.
Government Securities or high-grade debt obligations in an amount sufficient to
meet the purchase price. Purchasing securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. In addition, no income
accrues to the purchaser of when-issued securities during the period prior to
issuance. Although a Fund would generally purchase securities on a when-issued
or forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if the Advisor deems it appropriate to do so. The Fund may
realize short-term gains or losses upon such sales.
INVESTMENT LIMITATIONS
To limit each Fund's exposure to risk, the Funds have adopted certain
fundamental investment limitations. Some of these restrictions are that the
Funds will not: (1) issue senior securities, borrow money or pledge their
assets; (2) make loans of money or securities, except that the Funds may invest
in repurchase agreements (but repurchase agreements having a maturity of longer
than seven days, together with other not readily marketable securities, are
limited to 10% of the Funds' net assets); (3) invest in securities of issuers
which have a record of less than three years' continuous operation (including
predecessors and, in the case of bonds, guarantors), if more than 5% of their
total assets would be invested in such securities; (4) purchase foreign
securities, except that the Funds may purchase foreign securities sold as ADRs
without limit; (5) write, purchase, or sell puts, calls, warrants or
combinations thereof, or purchase or sell commodities, commodities contracts,
futures contracts or related options, or invest in oil, gas, or mineral leases
or exploration programs, or real estate (but the Funds may invest in readily
marketable securities of REITs or other companies that own or deal in real
estate or oil, gas, or mineral leases or exploration programs); (6) invest more
than 5% of their total assets at cost in the securities of any one issuer nor
hold more than 10% of the voting stock of any issuer; and (7) invest in
restricted securities. See "Investment Limitations" in the Fund's Statement of
Additional Information for a complete list of investment limitations.
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<PAGE>
If the Board of Trustees of the Trust determines that the Funds' investment
objectives can best be achieved by a substantive change in a non-fundamental
investment limitation, the Board can make such change without shareholder
approval and will disclose any such material changes in the then current
Prospectus. Any limitation that is not specified in the Funds' Prospectus, or in
the Statement of Additional Information, as being fundamental, is non-
fundamental. If a percentage limitation is satisfied at the time of investment,
a later increase or decrease in such percentage resulting from a change in the
value of the Funds' portfolio securities will not constitute a violation of such
limitation. In order to permit the sale of the Funds' shares in certain states,
the Funds may make commitments that are more restrictive than the investment
policies and limitations described above and in the Statement of Additional
Information. Such commitments may have an effect on the investment performance
of the Funds. Should the Funds determine that any such commitment is no longer
in the best interests of the Funds, they may revoke the commitment and terminate
sales of their shares in the state involved.
FEDERAL INCOME TAXES
TAXATION OF THE FUNDS. The Internal Revenue Code of 1986, as amended (the
"Code"), treats each series in the Trust, including the Funds, as a separate
regulated investment company. Each series of the Trust, including the Funds,
intends to qualify or remain qualified as a regulated investment company under
the Code by distributing substantially all of its "net investment income" to
shareholders and meeting other requirements of the Code. For the purpose of
calculating dividends, net investment income consists of income accrued on
portfolio assets, less accrued expenses. Upon qualification, the Funds will not
be liable for federal income taxes to the extent earnings are distributed. The
Board of Trustees retains the right for any series of the Trust, including the
Funds, to determine for any particular year if it is advantageous not to qualify
as a regulated investment company. Regulated investment companies, such as each
series of the Trust, including the Funds, are subject to a non-deductible 4%
excise tax to the extent they do not distribute the statutorily required amount
of investment income, determined on a calendar year basis, and capital gain net
income, using an October 31 year end measuring period. The Funds intend to
declare or distribute dividends during the calendar year in an amount sufficient
to prevent imposition of the 4% excise tax.
For the fiscal year ended March 31, 1996, the Balanced Fund was considered a
"personal holding company" under the Code since 50% of the value of the Balanced
Fund's share were owned directly or indirectly by five or fewer individuals at
certain times during the last half of the year. As a result, the Balanced Fund
was unable to meet the requirements for taxation as a regulated investment
company and will be unable to meet such requirements as long as it is classified
as a personal holding company. As a personal holding company, the Balanced Fund
is subject to federal income taxes on undistributed personal holding company
income at the maximum individual income tax rate. For the fiscal year ended
March 3l, 1996, however, no provision was made for federal income taxes since
substantially all taxable income was distributed to shareholders. For the
current fiscal year, the Balanced Fund anticipates that either it will qualify
as a regulated investment company under the Code or, if still considered a
personal holding company, it will distribute substantially all of its taxable
income for the current fiscal year to shareholders in order to avoid individual
income taxes.
TAXATION OF SHAREHOLDERS. For federal income tax purposes, any dividends and
distributions from short-term capital gains that a shareholder receives in cash
from the Funds or which are re-invested in additional shares will be taxable
ordinary income. If a shareholder is not required to pay a tax on income, he
will not be required to pay federal income taxes on the amounts distributed to
him. A dividend declared in October, November or December of a year and paid in
January of the following year will be considered to be paid on December 31 of
the year of declaration.
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<PAGE>
Distributions paid by the Funds from long-term capital gains, whether received
in cash or reinvested in additional shares, are taxable as long-term capital
gains, regardless of the length of time an investor has owned shares in the
Funds. Capital gain distributions are made when the Funds realize net capital
gains on sales of portfolio securities during the year. Dividends and capital
gain distributions paid by the Funds shortly after shares have been purchased,
although in effect a return of investment, are subject to federal income
taxation.
The sale of shares of the Funds is a taxable event and may result in a capital
gain or loss. Capital gain or loss may be realized from an ordinary redemption
of shares or an exchange of shares between two mutual funds (or two series of a
mutual fund).
The Trust will inform shareholders of the Funds of the source of their dividends
and capital gains distributions at the time they are paid and, promptly after
the close of each calendar year, will issue an information return to advise
shareholders of the federal tax status of such distributions and dividends.
Dividends and distributions may also be subject to state and local taxes.
Shareholders should consult their tax advisors regarding specific questions as
to federal, state or local taxes.
Federal income tax law requires investors to certify that the social security
number or taxpayer identification number provided to the Funds is correct and
that the investor is not subject to 31% withholding for previous under-reporting
to the Internal Revenue Service (the "IRS"). Investors will be asked to make the
appropriate certification on their application to purchase shares. If a
shareholder of the Funds has not complied with the applicable statutory and IRS
requirements, the Funds are generally required by federal law to withhold and
remit to the IRS 31% of reportable payments (which may include dividends and
redemption amounts).
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to distribute substantially all of its net investment income,
if any, in the form of dividends. Each Fund will generally pay income dividends,
if any, quarterly, and will generally distribute net realized capital gains, if
any, at least annually.
Unless a shareholder elects to receive cash, dividends and capital gains will be
automatically reinvested in additional full and fractional shares of the same
Class of the Funds at the net asset value per share next determined. Reinvested
dividends and capital gains are exempt from any sales load. Shareholders wishing
to receive their dividends or capital gains in cash may make their request in
writing to the Funds at 105 North Washington Street, Post Office Drawer 69,
Rocky Mount, North Carolina 27802-0069. That request must be received by the
Funds prior to the record date to be effective as to the next dividend. If cash
payment is requested, checks will be mailed within five business days after the
last day of each quarter or each Fund's fiscal year end, as applicable. Each
shareholder of the Funds will receive a quarterly summary of his or her account,
including information as to reinvested dividends from the Funds. Tax
consequences to shareholders of dividends and distributions are the same if
received in cash or in additional shares of the Funds.
In order to satisfy certain requirements of the Code, the Funds may declare
special year-end dividend and capital gains distribution during December. Such
distributions, if received by shareholders by January 31, are deemed to have
been paid by the Funds and received by shareholders on December 31 of the prior
year.
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<PAGE>
There is no fixed dividend rate, and there can be no assurance as to the payment
of any dividends or the realization of any gains. Each Fund's net investment
income available for distribution to holders of Institutional Shares will be
reduced by the amount of any expenses allocated to the Institutional Shares.
HOW SHARES ARE VALUED
Net asset value for each Class of Shares of the Funds is determined at 4:00
p.m., New York time, Monday through Friday, except on business holidays when the
New York Stock Exchange is closed. The net asset value of the shares of each
Fund for purposes of pricing sales and redemptions is equal to the total market
value of its investments, less all of its liabilities, divided by the number of
its outstanding shares. Net asset value is determined separately for each Class
of Shares of a Fund and reflects any liabilities allocated to a particular Class
as well as the general liabilities of the Fund.
Securities that are listed on a securities exchange are valued at the last
quoted sales price at the time the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded by the Funds. Securities that are listed on an exchange and which are not
traded on the valuation date are valued at the mean of the bid and asked prices.
Unlisted securities for which market quotations are readily available are valued
at the latest quoted sales price, if available, at the time of valuation,
otherwise, at the latest quoted bid price. Temporary cash investments with
maturities of 60 days or less will be valued at amortized cost, which
approximates market value. Securities for which no current quotations are
readily available are valued at fair value as determined in good faith using
methods approved by the Board of Trustees of the Trust. Securities may be valued
on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
Fixed income securities will ordinarily be traded on the over-the-counter
market. When market quotations are not readily available, fixed income
securities may be valued based on prices provided by a pricing service. The
prices provided by the pricing service are generally determined with
consideration given to institutional bid and last sale prices and take into
account securities prices, yields, maturities, call features, ratings,
institutional trading in similar groups of securities, and developments related
to specific securities. Such fixed income securities may also be priced based
upon a matrix system of pricing similar bonds and other fixed income securities.
Such matrix system may be based upon the considerations described above used by
other pricing services and information obtained by the pricing agent from the
Advisor and other pricing sources deemed relevant by the pricing agent.
HOW SHARES MAY BE PURCHASED
Assistance in opening accounts and a purchase application may be obtained from
the Funds by calling 1-800-525- FUND, or by writing to the Funds at the address
shown below for purchases by mail. Assistance is also available through any
broker-dealer authorized to sell shares in the Funds. Payment for shares
purchased may also be made through your account at the broker-dealer processing
your application and order to purchase. Your investment will purchase shares at
each Fund's net asset value next determined after your order is received by the
Fund in proper form as indicated herein.
The minimum initial investment is $10,000 ($2,000 for IRAs and Keogh Plans). The
minimum subsequent investment is $500. The Funds may, in the Advisor's sole
discretion, accept certain accounts with less than the stated minimum initial
investment. You may invest in the following ways:
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<PAGE>
PURCHASES BY MAIL. Shares may be purchased initially by completing the
application accompanying this Prospectus and mailing it, together with a check
payable to the applicable Fund, to the Brown Capital Management Funds,
Institutional Shares, 105 North Washington Street, Post Office Drawer 69, Rocky
Mount, North Carolina 27802- 0069. Subsequent investments in an existing account
in the Funds may be made at any time by sending a check payable to the
applicable Fund, to the address stated above. Please enclose the stub of your
account statement and include the amount of the investment, the name of the
account for which the investment is to be made and the account number. PLEASE
REMEMBER TO ADD A REFERENCE TO THE APPLICABLE FUND AND TO "INSTITUTIONAL SHARES"
TO YOUR CHECK TO ENSURE PROPER CREDIT TO YOUR ACCOUNT.
PURCHASES BY WIRE. To purchase shares by wiring federal funds, each Fund must
first be notified by calling 1-800- 525-FUND to request an account number and
furnish the Fund with your tax identification number. Following notification to
a Fund, federal funds and registration instructions should be wired through the
Federal Reserve System to:
Wachovia Bank of North Carolina, N.A.
Winston-Salem, North Carolina
ABA # 053100494
For credit to the Rocky Mount Office
For credit to either:
The Brown Capital Management Equity Fund
Institutional Shares Acct #6767-061387
The Brown Capital Management Balanced Fund
Institutional Shares Acct #6765-061388
The Brown Capital Management Small Company Fund
Institutional Shares Acct #6763-061389
For further credit to (shareholder's name and SS# or EIN#)
It is important that the wire contain all the information and that the Funds
receive prior telephone notification to ensure proper credit. A completed
application with signature(s) of registrant(s) must be mailed to the applicable
Fund immediately after the initial wire as described under "Purchases by Mail"
above. Investors should be aware that some banks may impose a wire service fee.
GENERAL. All purchases of shares are subject to acceptance and are not binding
until accepted. Each Fund reserves the right to reject any application or
investment. Orders become effective, and shares are purchased at, the next
determined net asset value per share after an investment has been received by a
Fund, which is as of 4:00 p.m., New York time, Monday through Friday, exclusive
of business holidays. Orders received by a Fund and effective prior to such 4:00
p.m. time will purchase shares at the net asset value determined at that time.
Otherwise, your order will purchase shares as of such 4:00 p.m. time on the next
business day. For orders placed through a qualified broker-dealer, such firm is
responsible for promptly transmitting purchase orders to the Funds.
If checks are returned unpaid due to nonsufficient funds, stop payment or other
reasons, the Trust will charge $20. To recover any such loss or charge, the
Trust reserves the right, without further notice, to redeem shares of any fund
of the Trust already owned by any purchaser whose order is cancelled, and such a
purchaser may be prohibited from placing further orders unless investments are
accompanied by full payment by wire or cashier's check.
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<PAGE>
Payment must be made by check or money order drawn on a U.S. bank and payable in
U.S. dollars. Under certain circumstances the Funds, at their sole discretion,
may allow payment in kind for Fund shares purchased by accepting securities in
lieu of cash. Any securities so accepted would be valued on the date received
and included in the calculation of the net asset value of the applicable Fund.
See the Statement of Additional Information for additional information on
purchases in kind.
Each Fund is required by federal law to withhold and remit to the IRS 31% of the
dividends, capital gains distributions and, in certain cases, proceeds of
redemptions paid to any shareholder who fails to furnish the Fund with a correct
taxpayer identification number, who under-reports dividend or interest income or
who fails to provide certification of tax identification number. Instructions to
exchange or transfer shares held in established accounts will be refused until
the certification has been provided. In order to avoid this withholding
requirement, you must certify on your application, or on a separate W-9 Form
supplied by the Administrator, that your taxpayer identification number is
correct and that you are not currently subject to backup withholding or you are
exempt from backup withholding. For individuals, your taxpayer identification
number is your social security number.
DISTRIBUTOR. Capital Investment Group, Inc., Post Office Box 32249, Raleigh,
North Carolina 27622 (the "Distributor"), is the national distributor for the
Funds under a Distribution Agreement with the Trust. The Distributor may sell
Fund shares to or through qualified securities dealers or others. Richard K.
Bryant, a Trustee of the Trust and an officer of another series of the Trust,
and Elmer O. Edgerton, Jr., an officer of another series of the Trust, control
the Distributor. Messrs Bryant and Edgerton are not officers of the Funds.
The Distributor, at its expense, may provide compensation to dealers in
connection with sales of shares of the Funds. Compensation may include financial
assistance to dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising campaigns regarding
the Funds, and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Dealers may not use sales
of the Fund shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by the Funds or their shareholders.
EXCHANGE FEATURE. Investors will have the privilege of exchanging shares of a
Fund for shares of another Fund or shares of any other series of the Trust
established by the Advisor. An exchange is a taxable transaction that involves
the simultaneous redemption of shares of one series and purchase of shares of
another series at the respective closing net asset value next determined after a
request for redemption has been received plus applicable sales charge. Each
series of the Trust will have a different investment objective, which may be of
interest to investors in each series. Shares of a Fund may be exchanged for
shares of another Fund or shares of any other series of the Trust affiliated
with the Advisor at the net asset value plus the percentage difference between
that series' sales charge and any sales charge previously paid in connection
with the shares being exchanged. For example, if a 2% sales charge was paid on
shares that are exchanged into a series with a 3% sales charge, there would be
an additional sales charge of 1% on the exchange. Exchanges may only be made by
investors in states where shares of the other series are qualified for sale. An
investor may direct a Fund to exchange his shares by writing to the Fund at its
principal office. The request must be signed exactly as the investor's name
appears on the account, and it must also provide the account number, number of
shares to be exchanged, the name of the Fund or other series
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to which the exchange will take place and a statement as to whether the exchange
is a full or partial redemption of existing shares. Notwithstanding the
foregoing, exchanges of shares may only be within the same class or type of
class of shares involved. For example, Investor Shares may not be exchanged for
any other Class of Shares of the Funds.
A pattern of frequent exchange transactions may be deemed by the Advisor to be
an abusive practice that is not in the best interests of the shareholders of the
Funds. Such a pattern may, at the discretion of the Advisor, be limited by a
Fund's refusal to accept further purchase and/or exchange orders from an
investor, after providing the investor with 60 days prior notice. The Advisor
will consider all factors it deems relevant in determining whether a pattern of
frequent purchases, redemptions and/or exchanges by a particular investor is
abusive and not in the best interests of a Fund or its other shareholders.
A shareholder should consider the investment objectives and policies of any
other Fund or series into which the shareholder will be making an exchange, as
described in the prospectus for that other Fund or series. The Board of Trustees
of the Trust reserves the right to suspend or terminate, or amend the terms of,
the exchange privilege upon 60 days written notice to the shareholders.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan enables shareholders to
make regular monthly or quarterly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Administrator will automatically charge the checking account for
the amount specified ($100 minimum), which will be automatically invested in
shares at the public offering price on or about the 21st day of the month. The
shareholder may change the amount of the investment or discontinue the plan at
any time by writing to the Administrator.
STOCK CERTIFICATES. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
that will show the number of shares owned.
HOW SHARES MAY BE REDEEMED
Shares of each Fund may be redeemed (the Fund will repurchase them from
shareholders) by mail or telephone. Any redemption may be more or less than the
purchase price of your shares depending on the market value of the applicable
Fund's portfolio securities. All redemption orders received in proper form, as
indicated herein, by a Fund, whether by mail or telephone, prior to 4:00 p.m.
New York time, Monday through Friday, except for business holidays, will redeem
shares at the net asset value determined at that time. Otherwise, your order
will redeem shares as of such 4:00 p.m. time on the next business day. There is
no charge for redemptions from a Fund. You may also redeem your shares through a
broker-dealer or other institution, who may charge you a fee for its services.
The Board of Trustees reserves the right to involuntarily redeem any account
having a net asset value of less than $1,000 (due to redemptions, exchanges or
transfers, and not due to market action) upon 30 days written notice. If the
shareholder brings his account net asset value up to $1,000 or more during the
notice period, the account will not be redeemed. Redemptions from retirement
plans may be subject to tax withholding.
If you are uncertain of the requirements for redemption, please contact the
Funds, at 1-800-525-FUND, or write to the address shown below.
REGULAR MAIL REDEMPTIONS. Your request should be addressed to The Brown Capital
Management Funds, Institutional Shares, 105 North Washington Street, Post Office
Drawer 69, Rocky Mount, North Carolina 27802- 0069. Your request for redemption
must include:
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1) Your letter of instruction specifying the applicable Fund, the account
number, and the number of shares or dollar amount to be redeemed. This
request must be signed by all registered shareholders in the exact names in
which they are registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds will be sent to you within seven days after receipt of
your redemption request. However, each Fund may delay forwarding a redemption
check for recently purchased shares while it determines whether the purchase
payment will be honored. Such delay (which may take up to 15 days from the date
of purchase) may be reduced or avoided if the purchase is made by certified
check or wire transfer. In all cases the net asset value next determined after
the receipt of the request for redemption will be used in processing the
redemption. Each Fund may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission (the "Commission"), (ii) during any period
when an emergency exists as defined by the rules of the Commission as a result
of which it is not reasonably practicable for a Fund to dispose of securities
owned by it, or to fairly determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
TELEPHONE AND BANK WIRE REDEMPTIONS. Each Fund offers shareholders the option of
redeeming shares by telephone under certain limited conditions. A Fund will
redeem shares when requested by the shareholder if, and only if, the shareholder
confirms redemption instructions in writing.
A Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 919-972-1908). The confirmation instructions must include:
1) Designation of the Equity, Balanced, or Small Company Fund;
2) Shareholder name and account number;
3) Number of shares or dollar amount to be redeemed;
4) Instructions for transmittal of redemption funds to the shareholder; and
5) Shareholder signature as it appears on the application then on file with
the applicable Fund.
The net asset value used in processing the redemption will be the net asset
value next determined after the telephone request is received. Redemption
proceeds will not be distributed until written confirmation of the redemption
request is received, per the instructions above. You can choose to have
redemption proceeds mailed to you at your address of record, your bank, or to
any other authorized person, or you can have the proceeds sent by bank wire to
your bank ($5,000 minimum). Shares of the Funds may not be redeemed by wire on
days on which your bank is not open for business. You can change your redemption
instructions anytime you wish by filing a letter including your new redemption
instructions with the Funds. (See "Signature Guarantees" below.) Each Fund
reserves the right to restrict or cancel telephone and bank wire redemption
privileges for shareholders, without notice, if the Fund believes it to be in
the best interest of the shareholders to do so. During drastic economic and
market conditions, telephone redemption privileges may be difficult to
implement.
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There is currently no charge by the Administrator for wire redemptions. The
Administrator reserves, however, the right, upon thirty days' written notice, to
make reasonable charges for wire redemptions. All charges will be deducted from
the shareholder's account by redemption of shares in the account. The
shareholder's bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Funds at 1-800-525-FUND. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Funds. Telephone redemption privileges authorize the applicable Fund to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the Fund to be genuine. Each Fund will
employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine, and, if it does not
follow such procedures, the Fund will be liable for any losses due to fraudulent
or unauthorized instructions. The Fund will not be liable for following
telephone instructions reasonably believed to be genuine.
SYSTEMATIC WITHDRAWAL PLAN. A shareholder who owns shares of a Fund valued at
$10,000 or more at current net asset value may establish a Systematic Withdrawal
Plan to receive a monthly or quarterly check in a stated amount not less than
$100. Each month or quarter as specified, the Fund will automatically redeem
sufficient shares from your account to meet the specified withdrawal amount.
Call or write the Funds for an application form. See the Statement of Additional
Information for further details.
SIGNATURE GUARANTEES. To protect your account and the Funds from fraud,
signature guarantees are required to be sure that you are the person who has
authorized a change in registration, or standing instructions, for your account.
Signature guarantees are required for (1) change of registration requests, (2)
requests to establish or change exchange privileges or telephone redemption
service other than through your initial account application, and (3) requests
for redemptions in excess of $50,000. Signature guarantees are acceptable from a
member bank of the Federal Reserve System, a savings and loan institution,
credit union (if authorized under state law), registered broker-dealer,
securities exchange or association clearing agency, and must appear on the
written request for redemption, establishment or change in exchange privileges,
or change of registration.
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS. Each Fund is a diversified series of The Nottingham
Investment Trust II (the "Trust"), an investment company organized as a
Massachusetts business trust on October 25, 1990. The Board of Trustees of the
Trust is responsible for the management of the business and affairs of the
Trust. The Trustees and executive officers of the Trust and their principal
occupations for the last five years are set forth in the Statement of Additional
Information under "Management of the Funds - Trustees and Officers." The Board
of Trustees of the Trust is primarily responsible for overseeing the conduct of
the Trust's business. The Board of Trustees elects the officers of the Trust who
are responsible for its and the Funds' day-to-day operations.
THE ADVISOR. Subject to the authority of the Board of Trustees, Brown Capital
Management, Inc. (the "Advisor") provides each Fund with a continuous program of
supervision of the Fund's assets, including the composition of its portfolio,
and furnishes advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with the Trust.
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The Advisor is registered under the Investment Advisors Act of 1940.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission. The
Advisor, established as a Maryland corporation in 1983, is controlled by Eddie
C. Brown. The Advisor currently serves as investment advisor to approximately
$1.6 billion in assets. The Advisor has been rendering investment counsel,
utilizing investment strategies substantially similar to that of the Funds, to
individuals, banks and thrift institutions, pension and profit sharing plans,
trusts, estates, charitable organizations and corporations since its formation.
The Advisor's address is 809 Cathedral Street, Baltimore, Maryland 21201.
Compensation of the Advisor with regard to the Equity Fund, based upon the
Fund's daily average net assets, is at the annual rate of 0.65% of the first $25
million of net assets and 0.50% of all assets over $25 million. The Advisor has
voluntarily waived its fee and reimbursed a portion of the Fund's operating
expenses for the fiscal year ended March 31, 1996. The total fees waived
amounted to $9,978 and expenses reimbursed amounted to $51,590.
Compensation of the Advisor with regards to the Balanced Fund, based upon the
Fund's daily average net assets, is at the annual rate of 0.65% of the first $25
million of net assets and 0.50% of all assets over $25 million. The Advisor has
voluntarily waived its fee and reimbursed a portion of the Fund's operating
expenses for the fiscal year ended March 31, 1996. The total fees waived
amounted to $18,266 and expenses reimbursed amounted to $35,214.
Compensation of the Advisor with regards to the Small Company Fund, based upon
the Fund's daily average net assets, is at the annual rate of 1.00%. The Advisor
has voluntarily waived its fee and reimbursed a portion of the Fund's operating
expenses for the fiscal year ended March 31, 1996. The total fees waived
amounted to $30,755 and expenses reimbursed amounted to $24,506.
The Board of Trustees believes the investment advisory fee for the Small Company
Fund to be comparable to advisory fees paid by many funds having similar
objectives and policies, although the fee is higher than that paid by most other
investment companies. The Advisor may periodically voluntarily waive or reduce
its advisory fee to increase the net income of each Class of the Fund.
The Advisor supervises and implements the investment activities of each Fund,
including the making of specific decisions as to the purchase and sale of
portfolio investments. Among the responsibilities of the Advisor under the
Advisory Agreement is the selection of brokers and dealers through whom
transactions in each Fund's portfolio investments will be effected. The Advisor
attempts to obtain the best execution for all such transactions. If it is
believed that more than one broker is able to provide the best execution, the
Advisor will consider the receipt of quotations and other market services and of
research, statistical and other data and the sale of shares of the Fund in
selecting a broker. The Advisor may also utilize a brokerage firm affiliated
with the Trust or the Advisor if it believes it can obtain the best execution of
transactions from such broker. Research services obtained through Fund brokerage
transactions may be used by the Advisor for its other clients and, conversely,
the Funds may benefit from research services obtained through the brokerage
transactions of the Advisor's other clients. For further information, see
"Investment Objective and Policies - Investment Transactions" in the Statement
of Additional Information.
Eddie C. Brown, a director, executive officer, and controlling shareholder of
the Advisor and Trustee and executive officer of the Trust, has been responsible
for day-to-day management of each Fund's portfolio since its inception in 1992.
He has been with the Advisor since its inception.
THE ADMINISTRATOR. The Trust has entered into an Administration Agreement with
The Nottingham Company (the "Administrator"), 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069,
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pursuant to which the Administrator receives a fee at the annual rate of 0.25%
of the average daily net assets of the Fund on the first $10 million; 0.20% of
the next $40 million; 0.175% on the next $50 million; and 0.15% of its average
daily net assets in excess of $100 million. In addition, the Administrator
currently receives a base monthly fee of $1,750 for accounting and recordkeeping
services for the Fund and $750 for each Class of Shares beyond the initial Class
of Shares of the Fund. The Administrator also charges the Fund for certain costs
involved with the daily valuation of investment securities and is reimbursed for
out-of-pocket expenses. The Administrator charges a minimum fee of $3,000 per
month for all of its fees taken in the aggregate, analyzed monthly.
Subject to the authority of the Board of Trustees, the services the
Administrator provides to each Fund include coordinating and monitoring any
third parties furnishing services to the Fund; providing the necessary office
space, equipment and personnel to perform administrative and clerical functions
for the Fund; preparing, filing and distributing proxy materials, periodic
reports to shareholders, registration statements and other documents; and
responding to shareholder inquiries.
The Administrator was formed as a North Carolina corporation in 1988 and
converted to a North Carolina limited liability corporation in 1995. Together
with its affiliates and predecessors, the Administrator has been operating as a
financial services firm since 1985. Frank P. Meadows III, Chairman, Trustee and
Treasurer of the Trust, is the firm's Managing Director and controlling member.
THE CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTING/PRICING AGENT. Wachovia Bank
of North Carolina, N.A. (the "Custodian"), 301 North Main Street, Winston-Salem,
North Carolina 27102, serves as Custodian of each Fund's assets. The Custodian
acts as the depository for each Fund, safekeeps its portfolio securities,
collects all income and other payments with respect to portfolio securities,
disburses monies at the Fund's request and maintains records in connection with
its duties.
The Administrator also serves as each Fund's transfer agent. As transfer agent,
it maintains the records of each shareholder's account, answers shareholder
inquiries concerning accounts, processes purchases and redemptions of each
Fund's shares, acts as dividend and distribution disbursing agent and performs
other shareholder services functions.
The Administrator also performs certain accounting and pricing services for each
Fund as pricing agent, including the daily calculation of each Fund's net asset
value.
OTHER EXPENSES. Each Fund is responsible for the payment of its expenses. These
include, for example, the fees payable to the Advisor, or expenses otherwise
incurred in connection with the management of the investment of the Fund's
assets, the fees and expenses of the Custodian, the fees and expenses of the
Administrator, the fees and expenses of Trustees, outside auditing and legal
expenses, all taxes and corporate fees payable by the Fund, Securities and
Exchange Commission fees, state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to shareholders, costs of shareholder reports and shareholder meetings, and any
extraordinary expenses. Each Fund also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular series of the Trust, including
each Fund, will be charged to that series, and expenses not readily identifiable
as belonging to a particular series will be allocated by or under procedures
approved by the Board of Trustees among one or more series in such a manner as
it deems fair and equitable. Any expenses relating only to a particular Class of
Shares of the Funds will be borne solely by such Class.
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OTHER INFORMATION
DESCRIPTION OF SHARES. The Trust was organized as a Massachusetts business trust
on October 25, 1990 under a Declaration of Trust. The Declaration of Trust
permits the Board of Trustees to issue an unlimited number of full and
fractional shares and to create an unlimited number of series of shares. The
Board of Trustees may also classify and reclassify any unissued shares into one
or more classes of shares. The Trust currently has the number of authorized
series of shares, including the Funds, and classes of shares, described in the
Statement of Additional Information under "Description of the Trust." Pursuant
to its authority under the Declaration of Trust, the Board of Trustees has
authorized the issuance of an unlimited number of shares in each of two Classes
("Investor Shares" and "Institutional Shares") representing equal pro rata
interests in each Fund, except that the Classes bear different expenses that
reflect the differences in services provided to them. Investor Shares are sold
with a sale charge and bear potential distribution expenses and service fees.
Institutional Shares are sold without a sales charge and bear no shareholder
servicing or distribution fees. As a result of different charges, fees, and
expenses between the Classes, the total return on each Fund's Investor Shares
will generally be lower than the total return on the Institutional Shares.
Standardized total return quotations will be computed separately for each Class
of Shares of the Funds.
THIS PROSPECTUS RELATES TO EACH FUND'S INSTITUTIONAL SHARES AND DESCRIBES ONLY
THE POLICIES, OPERATIONS, CONTRACTS, AND OTHER MATTERS PERTAINING TO THE
INSTITUTIONAL SHARES. EACH FUND ALSO ISSUES A CLASS OF INVESTOR SHARES. SUCH
OTHER CLASS MAY HAVE DIFFERENT SALES CHARGES AND EXPENSES, WHICH MAY AFFECT
PERFORMANCE. INVESTORS MAY CALL THE FUNDS AT 1-800-525-FUND TO OBTAIN MORE
INFORMATION CONCERNING OTHER CLASSES AVAILABLE TO THEM THROUGH THEIR SALES
REPRESENTATIVE. INVESTORS MAY OBTAIN INFORMATION CONCERNING THOSE CLASSES FROM
THEIR SALES REPRESENTATIVE, THE DISTRIBUTOR, THE FUNDS, OR ANY OTHER PERSON
WHICH IS OFFERING OR MAKING AVAILABLE TO THEM THE SECURITIES OFFERED IN THIS
PROSPECTUS.
When issued, the shares of each series of the Trust, including the Funds, and
each class of shares, will be fully paid, nonassessable and redeemable. The
Trust does not intend to hold annual shareholder meetings; it may, however, hold
special shareholder meetings for purposes such as changing fundamental policies
or electing Trustees. The Board of Trustees shall promptly call a meeting for
the purpose of electing or removing Trustees when requested in writing to do so
by the record holders of a least 10% of the outstanding shares of the Trust. The
term of office of each Trustee is of unlimited duration. The holders of at least
two-thirds of the outstanding shares of the Trust may remove a Trustee from that
position either by declaration in writing filed with the Custodian or by votes
cast in person or by proxy at a meeting called for that purpose.
The Trust's shareholders will vote in the aggregate and not by series (fund) or
class, except where otherwise required by law or when the Board of Trustees
determines that the matter to be voted on affects only the interests of the
shareholders of a particular series or class. Matters affecting an individual
series, such as each Fund, include, but are not limited to, the investment
objectives, policies and restrictions of that series. Shares have no
subscription, preemptive or conversion rights. Share certificates will not be
issued. Each share is entitled to one vote (and fractional shares are entitled
to proportionate fractional votes) on all matters submitted for a vote, and
shares have equal voting rights except that only shares of a particular series
or class are entitled to vote on matters affecting only that series or class.
Shares do not have cumulative voting rights. Therefore, the holders of more than
50% of the aggregate number of shares of all series of the Trust may elect all
the Trustees.
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Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability. See "Description of the Trust" in the
Statement of Additional Information for further information about the Trust and
its shares.
REPORTING TO SHAREHOLDERS. Each Fund will send to its shareholders Annual and
Semi-Annual Reports; the financial statements appearing in Annual Reports for
each Fund will be audited by independent accountants. In addition, the
Administrator, as transfer agent, will send to each shareholder having an
account directly with the Funds a quarterly statement showing transactions in
the account, the total number of shares owned and any dividends or distributions
paid. Inquiries regarding the Funds may be directed in writing to 105 North
Washington Street, Post Office Drawer 69, Rocky Mount, North Carolina 27802-0069
or by calling 1-800-525-FUND.
CALCULATION OF PERFORMANCE DATA. From time to time each Fund may advertise its
average annual total return for each Class of Shares. The "average annual total
return" refers to the average annual compounded rates of return over 1, 5 and 10
year periods that would equate an initial amount invested at the beginning of a
stated period to the ending redeemable value of the investment. The calculation
assumes the reinvestment of all dividends and distributions, includes all
recurring fees that are charged to all shareholder accounts and deducts all
nonrecurring charges at the end of each period. If a Fund has been operating
less than 1, 5 or 10 years, the time period during which the Fund has been
operating is substituted.
In addition, each Fund may advertise other total return performance data other
than average annual total return for each Class of Shares. This data shows as a
percentage rate of return encompassing all elements of return (i.e. income and
capital appreciation or depreciation); it assumes reinvestment of all dividends
and capital gain distributions. Such other total return data may be quoted for
the same or different periods as those for which average annual total return is
quoted. This data may consist of a cumulative percentage rate of return, actual
year-by-year rates or any combination thereof. Cumulative total return
represents the cumulative change in value of an investment in a Fund for various
periods.
The total return of a Fund could be increased to the extent the Advisor may
waive all or a portion of its fees or may reimburse all or a portion of the
Fund's expenses. Total return figures are based on the historical performance of
the Fund, show the performance of a hypothetical investment, and are not
intended to indicate future performance. Each Fund's quotations may from time to
time be used in advertisements, sales literature, shareholder reports, or other
communications. For further information, see "Additional Information on
Performance" in the Statement of Additional Information.
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NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THE ADVISOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH AN OFFERING MAY
NOT LAWFULLY BE MADE.
EACH FUND RESERVES THE RIGHT IN ITS SOLE DISCRETION TO WITHDRAW ALL OR ANY PART
OF THE OFFERING MADE BY THIS PROSPECTUS OR TO REJECT PURCHASE ORDERS. ALL ORDERS
TO PURCHASE SHARES ARE SUBJECT TO ACCEPTANCE BY EACH FUND AND ARE NOT BINDING
UNTIL CONFIRMED OR ACCEPTED IN WRITING.
THE BROWN CAPITAL MANAGEMENT FUNDS
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-FUND
INVESTMENT ADVISOR
Brown Capital Management, Inc.
809 Cathedral Street
Baltimore, Maryland 21201
ADMINISTRATOR, FUND ACCOUNTANT, AND
DIVIDEND DISBURSING & TRANSFER AGENT
The Nottingham Company
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
DISTRIBUTOR
Capital Investment Group, Inc.
Post Office Box 32249
Raleigh, North Carolina 27622
CUSTODIAN
Wachovia Bank of North Carolina, N.A.
301 N. Main Street
Winston-Salem, North Carolina 27102
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
1021 East Cary Street, Suite 1900
Richmond, Virginia 23219-4023
THE BROWN CAPITAL
MANAGEMENT FUNDS
INSTITUTIONAL CLASS
PROSPECTUS
July 12, 1996
<PAGE>
PROSPECTUS
THE BROWN CAPITAL MANAGEMENT FUNDS
INVESTOR CLASS
The investment objective of THE BROWN CAPITAL MANAGEMENT EQUITY FUND is to seek
capital appreciation principally through investments in equity securities, such
as common and preferred stocks and securities convertible into common stocks.
Current income will be of secondary importance. The investment objective of THE
BROWN CAPITAL MANAGEMENT BALANCED FUND is to provide its shareholders with a
maximum total return consisting of any combination of capital appreciation, both
realized and unrealized, and income. The Fund will seek to achieve this
objective by investing in a flexible portfolio of equity securities, fixed
income securities and money market instruments. The investment objective of THE
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND is to seek capital appreciation
principally through investment in the equity securities of those companies with
operating revenues of $250 million or less at the time of the initial
investment. Current income will be of secondary importance. While there is no
assurance that any of the Funds will achieve their particular investment
objective, they endeavor to do so by following the investment policies described
herein.
This Prospectus relates to shares ("Investor Shares") representing interests in
the Funds. The Investor Shares are offered to the general public. See
"Prospectus Summary - Offering Price."
INVESTMENT ADVISOR
BROWN CAPITAL MANAGEMENT, INC.
809 CATHEDRAL STREET
BALTIMORE, MARYLAND 21201
The Brown Capital Management Funds (the "Funds") are diversified series of The
Nottingham Investment Trust II (the "Trust"), a registered open-end management
investment company. This Prospectus sets forth concisely the information about
the Funds that a prospective investor should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Funds has been filed with the Securities and Exchange
Commission and is available upon request and without charge. You may request the
Statement of Additional Information dated July 12, 1996, as amended from time to
time, which is incorporated in this Prospectus by reference, by writing the
Funds at Post Office Drawer 69, Rocky Mount, North Carolina 27802- 0069, or by
calling 1-800-525-FUND.
INVESTMENT IN THE FUNDS INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY FINANCIAL INSTITUTION, AND SUCH SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 12, 1996.
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TABLE OF CONTENTS
PROSPECTUS SUMMARY......................................... 2
SYNOPSIS OF COSTS AND EXPENSES............................. 3
FINANCIAL HIGHLIGHTS....................................... 4
INVESTMENT OBJECTIVE AND POLICIES.......................... 4
RISK FACTORS............................................... 9
INVESTMENT LIMITATIONS..................................... 10
FEDERAL INCOME TAXES....................................... 11
DIVIDENDS AND DISTRIBUTIONS................................ 11
HOW SHARES ARE VALUED...................................... 12
HOW SHARES MAY BE PURCHASED................................ 12
HOW SHARES MAY BE REDEEMED................................. 17
MANAGEMENT OF THE FUNDS.................................... 18
OTHER INFORMATION.......................................... 20
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS UNAUTHORIZED. NO SALES REPRESENTATIVE, DEALER OR
OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
EACH FUND RESERVES THE RIGHT IN ITS SOLE DISCRETION TO WITHDRAW ALL OR ANY PART
OF THE OFFERING MADE BY THIS PROSPECTUS OR TO REJECT PURCHASE ORDERS. ALL ORDERS
TO PURCHASE SHARES ARE SUBJECT TO ACCEPTANCE BY EACH FUND AND ARE NOT BINDING
UNTIL CONFIRMED OR ACCEPTED IN WRITING.
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PROSPECTUS SUMMARY
The Funds The Brown Capital Management Funds (the "Funds") are
diversified series of The Nottingham Investment Trust II
(the "Trust"), a registered open-end management
investment company organized as a Massachusetts business
trust. This Prospectus relates to Investor Shares of
the Funds. See "Other Information - Description of
Shares."
Offering Price The Investor Shares of each Fund are offered to the
general public at net asset value plus a 3.5% sales
charge, which is reduced or eliminated on purchases
involving larger amounts. The Investor Shares are also
subject to a 12b-1 distribution fee of up to 0.50% of
the Investor Shares' average net assets annually. See
"Distributor and Distribution Fee" below. The minimum
initial investment is $10,000 ($2,000 for IRAs and Keogh
Plans). The minimum subsequent investment is $500. See
"How Shares May be Purchased."
Investment Objective The investment objective of THE BROWN CAPITAL MANAGEMENT
and Special Risk EQUITY FUND (the "Equity Fund") is to seek capital
Considerations appreciation principally through investments in equity
securities, such as common and preferred stocks and
securities convertible into common stocks. Current
income will be of secondary importance. In most
instances the Equity Fund will be at least 90% invested
in equity securities. The investment objective of THE
BROWN CAPITAL MANAGEMENT BALANCED FUND (the "Balanced
Fund") is to provide its shareholders with a maximum
total return consisting of any combination of capital
appreciation, both realized and unrealized, and income.
The Fund will seek to achieve this objective by
investing in a flexible portfolio of equity securities,
fixed income securities, and money market instruments.
Fixed income securities and money market instruments
will generally comprise not less than 25% and not more
than 75% of the portfolio. The investment objective of
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND (the
"Small Company Fund") is to seek capital appreciation
principally through investment in the equity securities
of those companies with operating revenues of $250
million or less at the time of the initial investment.
Current income will be of secondary importance. In most
instances the Small Company Fund will be at least 90%
invested in equity securities. See "Investment Objective
and Policies."
The Funds are not intended to be a complete investment
program, and there can be no assurance that any Fund
will achieve its investment objective. While the Funds
will invest primarily in common stocks traded in U.S.
securities markets, some of each Fund's investments may
include foreign securities (in the form traded
domestically as American Depository Receipts), illiquid
securities, and securities purchased subject to a
repurchase agreement or on a "when-issued" basis, which
involve certain risks. A portion of the Balanced Fund
will be invested in fixed income securities, which will
be subject to risks associated with movements in
interest rates. Since the Small Company Fund will invest
principally in small companies, it will be subject to
the greater volatility and risks associated with such
investments. See "Risk Factors."
Subject to the general supervision of the Trust's Board
Manager of Trustees and in accordance with the Funds' investment
policies, Brown Capital Management, Inc. of Baltimore,
Maryland (the "Advisor"), manages the Funds'
investments. The Advisor currently manages approximately
$1.6 billion in assets. For its advisory services, the
Advisor receives a monthly fee, based on each Fund's
daily net assets, at the annual rate of 0.65% of the
first $25 million of net assets and 0.50% of all assets
over $25 million for the Equity and Balanced Funds, and
at the annual rate of 1.00% for the Small Company Fund.
See "Management of the Funds - The Advisor."
Income dividends, if any, are paid quarterly; capital
gains, if any, are paid at least once each year.
Dividends Dividends and capital gains distributions are
automatically reinvested in additional shares of the
same Class at net asset value unless the shareholder
elects to receive cash. See "Dividends and
Distributions."
Capital Investment Group, Inc. (the "Distributor")
serves as distributor of shares of each Fund. For its
Distributor and services, which include payments to qualified securities
Distribution Fee dealers for sales of Fund shares, the Distributor
receives commissions consisting of the portion of the
sales charge remaining after the discounts it allows to
securities dealers. Under each Fund's Distribution Plan
with respect to the Investor Shares, expenditures by
each Fund for distribution activities and service fees
may not exceed 0.50% of the Investor Shares' average net
assets annually. See "How Shares May Be Purchased -
Sales Charges" and "- Distribution Plan."
There is no charge for redemptions. Shares may be
Redemption of redeemed at any time at the net asset value next
Shares determined after receipt of a redemption request by a
Fund. A shareholder who submits appropriate written
authorization may redeem shares by telephone. See "How
Shares May Be Redeemed."
SYNOPSIS OF COSTS AND EXPENSES
The following tables set forth certain information in connection with the
expenses of the Investor Shares of the Funds for the current fiscal year. The
information is intended to assist the investor in understanding the various
costs and expenses borne by the Investor Shares of the Funds, and therefore
indirectly by their investors, the payment of which will reduce an investor's
return on an annual basis.
SHAREHOLDER TRANSACTION EXPENSES FOR INVESTOR SHARES
Maximum sales load imposed on purchases
(as a percentage of offering price)...........................3.50%(1)
Maximum sales charge imposed on reinvested dividends............None
Deferred sales load.............................................None
Redemption fees.................................................None
Exchange fee....................................................None
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ANNUAL FUND OPERATING EXPENSES FOR INVESTOR SHARES - AFTER FEE WAIVERS AND
EXPENSE REIMBURSEMENTS(2)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Small
Equity Balanced Company
Investment advisory fees...................0.00%(2) 0.00%(2) 0.00%(2)
12b-1 fees.................................0.50%(3) 0.50%(3) 0.50%(3)
Other expenses.............................1.20%(2) 1.20%(2) 1.50%(2)
----- ----- -----
Total operating expenses.................1.70%(2) 1.70%(2) 2.00%(2)
===== ===== =====
EXAMPLE: You would pay the following expenses (including the maximum initial
sales charge) on a $1,000 investment in Investor Shares of the Funds, whether or
not you redeem at the end of the period, assuming a 5% annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Equity $52 $87 $124 $229
Balanced $52 $87 $124 $229
Small Company $55 $96 $139 $260
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
(1) Reduced or eliminated for larger purchases. See "How Shares May Be
Purchased - Sales Charges."
(2) The "Total operating expenses" shown above are based upon contractual
amounts and actual operating expenses incurred by the Institutional Shares
of each Fund for the fiscal year ended March 31, 1996, which, after fee
waivers and expense reimbursements, were 1.56%, 1.59%, and 1.69% of average
daily net assets of the Institutional Shares of the Equity, Balanced, and
Small Company Funds, respectively, but restated to reflect the expenses
anticipated to be incurred by the Investor Shares of each Fund for the
current fiscal year (assuming payment of the distribution and service fees
described under footnote 3 below). Absent such waivers and reimbursements,
the percentages for "Investment advisory fees" and "Total operating
expenses" for the Institutional Shares for the fiscal year ended March 31,
1996 would have been 0.65% and 5.58%, respectively, for the Equity Fund,
0.65% and 3.50%, respectively, for the Balanced Fund, and 1.00% and 3.49%,
respectively, for the Small Company Fund. The Institutional Shares do not
bear the potential distribution and service fees described under footnote 3
below, which the Investor Shares may bear. Since the Investor Shares were
not offered prior to the date of this Prospectus, the actual operating
expenses incurred by the Institutional Shares of each Fund for the fiscal
year ended March 31, 1996 have been used for illustration purposes, subject
to restatement as provided above. The Advisor has voluntarily agreed to a
reduction in the fees payable to it and to reimburse expenses of each Fund,
if necessary, in an amount that limits "Total operating expenses" (exclusive
of interest, taxes, brokerage fees and commissions, sales charges, and
extraordinary expenses) to not more than 1.70%, 1.70%, and 2.00%,
respectively, of the Investor Shares' average daily net assets for the
Equity, Balanced, and Small Company Funds, respectively. There can be no
assurance that the Advisor's voluntary fee waivers and expense
reimbursements will continue in the future.
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(3) Each Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"), which provides
that the Fund may pay certain distribution expenses and service fees with
respect to the Investor Shares up to 0.50% of the Investor Shares' average
net assets annually. See "How Shares May Be Purchased - Distribution Plan."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers.
See "How Shares May Be Purchased" and "Management of the Funds" below for more
information about the fees and costs of operating the Funds. The assumed 5%
annual return in the example is required by the Securities and Exchange
Commission. THE HYPOTHETICAL RATE OF RETURN IS NOT INTENDED TO BE REPRESENTATIVE
OF PAST OR FUTURE PERFORMANCE OF THE FUNDS; THE ACTUAL RATE OF RETURN FOR THE
FUNDS MAY BE GREATER OR LESS THAN 5%.
FINANCIAL HIGHLIGHTS
Pursuant to a plan approved by the Board of Trustees of the Trust, the existing
single Class of shares of each Fund was redesignated the "Institutional Shares"
of the Fund and a new Class of shares, the "Investor Shares," was created. This
Prospectus relates to Investor Shares. See "Other Information - Description of
Shares." Since the public offering of Investor Shares of the Funds had not
commenced during the fiscal periods covered by the Funds' financial statements
and related Financial Highlights pertaining to the Institutional Shares of the
Funds, no financial statements or related Financial Highlights are available
pertaining to the Investor Shares of the Funds. Further information about the
performance of the Funds is contained in the Annual Report of the Funds, a copy
of which may be obtained at no charge by calling the Funds.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE. The investment objective of THE BROWN CAPITAL MANAGEMENT
EQUITY FUND (the "Equity Fund") is to seek capital appreciation principally
through investments in equity securities, such as common and preferred stocks
and securities convertible into common stocks. Current income will be of
secondary importance. The investment objective of THE BROWN CAPITAL MANAGEMENT
BALANCED FUND (the "Balanced Fund") is to provide its shareholders with a
maximum total return consisting of any combination of capital appreciation, both
realized and unrealized, and income. The Fund will seek to achieve this
objective by investing in a flexible portfolio of equity securities, fixed
income securities, and money market instruments. The investment objective of THE
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND (the "Small Company Fund") is to
seek capital appreciation principally through investment in the common stock of
those companies with operating revenues of $250 million or less at the time of
the initial investment. Current income will be of secondary importance. Each
Fund's investment objective and fundamental investment limitations described
herein may not be altered without the prior approval of a majority of the Fund's
shareholders.
INVESTMENT SELECTION
EQUITY FUND. The Advisor will seek to achieve capital appreciation
through an opportunistic stock investment strategy with a growth bias. The
Advisor will seek to purchase equity securities of those companies that the
Advisor feels are undervalued relative to their growth potential in the
securities markets, because the companies are presently out of favor, not well
known or possess value that is not currently recognized by the investment
community. The Advisor will utilize the equity securities of large and medium
capitalization companies. Up to 10% of the portfolio may be invested in small
capitalization companies.
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<PAGE>
The Advisor uses a "bottom up" approach to select specific securities, while
remaining cognizant of specific economic and industry outlooks. The Advisor
employs analysis that contains elements of traditional dividend discount and
earnings yield models, establishes predicted relative valuation for equity and
fixed income markets, and determines the attractiveness of individual securities
through evaluation of growth and risk characteristics of the underlying company
relative to the overall equity market.
While portfolio securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
a) the anticipated price appreciation has been achieved or is no longer
probable; b) alternative investments offer superior total return prospects; or
c) fundamentals change adversely.
The equity portion of the Fund's portfolio will be comprised of common stocks,
convertible preferred stocks, participating preferred stocks, preferred equity
redemption cumulative stocks, preferred stocks and convertible bonds traded on
domestic securities exchanges or on the over-the-counter markets. Foreign
securities, if held, will be held in the form of American Depository Receipts
("ADRs"). ADRs are foreign securities denominated in U.S. dollars and traded on
U.S. securities markets.
The Fund will invest in a variety of companies and industries as well as
economic sectors. For purposes of temporary investment of cash, and defensive
investment in certain situations, the percentage of assets invested in equities
and money market instruments will be determined by the valuation of securities
relative to alternative investments.
Money market instruments will typically represent a portion of the Fund's
portfolio, as funds awaiting investment, to accumulate cash for anticipated
purchases of portfolio securities and to provide for shareholder redemptions and
operational expenses of the Fund.
Under normal market conditions the portfolio allocation range for the Equity
Fund will be:
% of Total Assets
Equity securities 70 - 99%
Money market instruments 1 - 30%
Under certain conditions, the Advisor may choose to temporarily invest up to
100% of the Fund's assets in cash and cash equivalents as a temporary defensive
position.
BALANCED FUND. The Advisor will vary the percentage of Fund assets
invested in equities, fixed income securities, and money market instruments
according to the Advisor's judgment of market and economic conditions, and based
on the Advisor's view of which asset class can best achieve the Fund's
objectives. The percentage invested in fixed income securities and money market
instruments will comprise not less than 25% and not more than 75% of the
portfolio. The investment objective will be to achieve the maximum total return,
consisting of any combination of capital appreciation, both realized and
unrealized, and income.
Selection of equity securities will be based primarily on the expected capital
appreciation potential. The expected income potential of those equity securities
is of secondary importance. Selection of fixed income securities will be
primarily for income. The capital appreciation potential of those fixed income
securities is of secondary importance.
5
<PAGE>
The Advisor will continually review the macroeconomic environment and
alternative expected rates of return between fixed income securities and equity
securities in determining the asset allocation of the Fund. In structuring the
fixed income portion of the Fund, the Advisor examines spread relationships
between quality grades in determining the quality distribution, and assesses the
expected trends in inflation and interest rates in structuring the maturity
distribution. Not more than 20% of the total fixed income portion of the
portfolio (not more than 15% of the entire Fund) will be invested in bonds rated
below A by the nationally recognized statistical rating organizations described
in the Statement of Additional Information.
With regards to the equity portion of the Fund, the Advisor will seek
diversification across a broad spectrum of economic sectors and industries. The
security selection approach will have an earnings growth bias, but will remain
flexible and opportunistic. The Advisor will continuously examine the portfolio,
seeking to replace those securities that may have become relatively overvalued
with securities which, in the view of the Advisor, are currently undervalued.
The equity portion of the Fund's portfolio will be comprised of common stocks,
convertible preferred stocks, participating preferred stocks, preferred equity
redemption cumulative stocks, preferred stocks and convertible bonds traded on
domestic securities exchanges or on the over-the-counter markets. Foreign
securities, if held, will be held in the form of ADRs.
The Advisor will base security selection on the following factors: financial
history of the firm, consistency of earnings, return on equity, cash flow, fixed
charge coverage, strength of management, ratios such as price/book value,
price/sales, price/cash flow, price/earnings, and dividend yield, all compared
to historical valuations and future prospects of the company as judged by the
Advisor.
While portfolio securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
(a) the anticipated price appreciation has been achieved or is no longer
probable; (b) alternative investments offer superior total return prospects; or
(c) fundamentals change adversely.
Money market instruments will typically represent a portion of the Fund's
portfolio, as funds awaiting investment, to accumulate cash for anticipated
purchases of portfolio securities and to provide for shareholder redemptions and
operating expenses of the Fund.
Under normal market conditions the portfolio allocation range for the Balanced
Fund will be:
% of Total Assets
Equity securities 25 - 75%
Money market instruments
and fixed income securities 25 - 75%
Under certain conditions, the Advisor may choose to temporarily invest up to
100% of the Fund's assets in cash and cash equivalents as a temporary defensive
position.
SMALL COMPANY FUND. The Advisor will invest primarily in the equity
securities of those companies with total operating revenues of $250 million or
less at the time of the initial investment ("small companies"). The Advisor
employs an analysis that seeks to identify those small companies whose current
price to earnings ratio is below the Advisor's projection of that company's
prospective growth rate. The Advisor's analysis includes many
6
<PAGE>
factors that, in the Advisor's view, are critical to the small company sector.
These factors include the assumptions that a sustained commitment to a portfolio
of exceptional small companies will, over time, produce a significant investment
return and that an investment analysis which identifies and evaluates
successfully those few small companies with the legitimate potential to become
large companies can be a very rewarding investment strategy.
The Advisor uses a "bottom up" approach to select specific securities, while
remaining cognizant of specific economic and industry outlooks. The Advisor
employs analysis that contains elements of traditional dividend discount and
earnings yield models, establishes predicted relative valuation for equity and
fixed income markets, and determines the attractiveness of individual securities
through evaluation of growth and risk characteristics of the underlying company
relative to the overall equity market.
The Advisor identifies small companies with the potential to become successful
large companies by analyzing the potential for: a) sustainable revenue stream;
b) adequate resources to establish and defend a viable product or service
market, and market share; c) sufficient profitability to support long term
growth; and d) management skills and resources necessary to plan and execute a
long term growth plan.
While portfolio securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
a) the anticipated price appreciation has been achieved or is no longer
probable; b) alternate investments offer superior total return prospects; or c)
fundamentals change adversely.
The equity portion of the Fund's portfolio will be comprised of common stocks,
convertible preferred stocks, participating preferred stocks, preferred equity
redemption cumulative stocks, preferred stocks and convertible bonds traded on
domestic securities exchanges or on the over-the-counter markets. Foreign
securities, if held, will be held in the form of ADRs. In most instances the
Fund will be at least 90% invested in equity securities.
Money market instruments will typically represent a portion of the Fund's
portfolio, as funds awaiting investment, to accumulate cash for anticipated
purchases of portfolio securities and to provide for shareholder redemptions and
operational expenses of the Fund.
Under normal market conditions the portfolio allocation range for the Small
Company Fund will be:
% of Total Assets
Equity securities 70 - 99%
Money market instruments 1 - 30%
Under certain conditions, the Advisor may choose to temporarily invest up to
100% of the Fund's assets in cash and cash equivalents as a temporary defensive
position.
MONEY MARKET INSTRUMENTS. Money market instruments may be purchased when the
Advisor believes interest rates are rising, the prospect for capital
appreciation in the equity and longer term fixed income securities' markets are
not attractive, or when the "yield curve" favors short term fixed income
instruments versus longer term fixed income instruments. Money market
instruments may be purchased for temporary defensive purposes, to accumulate
cash for anticipated purchases of portfolio securities and to provide for
shareholder redemptions and operating expenses of each Fund. Money market
instruments mature in thirteen months or less from the date of purchase and may
include U.S. Government Securities, corporate debt securities (including those
subject to repurchase agreements), bankers acceptances and certificates of
deposit of domestic branches of U.S. banks, and commercial paper (including
7
<PAGE>
variable amount demand master notes) rated in one of the two highest rating
categories by any of the nationally recognized statistical rating organizations
or if not rated, of equivalent quality in the Advisor's opinion. The Advisor
may, when it believes that unusually volatile or unstable economic and market
conditions exist, depart from each Fund's investment approach and assume
temporarily a defensive portfolio posture, increasing the Fund's percentage
investment in money market instruments, even to the extent that 100% of the
Fund's assets may be so invested.
U.S. GOVERNMENT SECURITIES. Each Fund may invest a portion of its portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury bonds, and U.S. Treasury bills, obligations
guaranteed by the U.S. Government such as Government National Mortgage
Association ("GNMA") as well as obligations of U.S. Government authorities,
agencies and instrumentalities such as Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Home
Administration ("FHA"), Federal Farm Credit Bank ("FFCB"), Federal Home Loan
Bank ("FHLB"), Student Loan Marketing Association ("SLMA"), Resolution Trust
Corporation, and The Tennessee Valley Authority. U.S. Government Securities may
be acquired subject to repurchase agreements. While obligations of some U.S.
Government sponsored entities are supported by the full faith and credit of the
U.S. Government (e.g. GNMA), several are supported by the right of the issuer to
borrow from the U.S. Government (e.g. FNMA, FHLMC), and still others are
supported only by the credit of the issuer itself (e.g. SLMA, FFCB). No
assurance can be given that the U.S. Government will provide financial support
to U.S. Government agencies or instrumentalities in the future, other than as
set forth above, since it is not obligated to do so by law. The guarantee of the
U.S. Government does not extend to the yield or value of the Fund's shares.
Investment by the Equity and Small Company Funds in U.S. Government Securities
will generally be limited to money market instruments as described above.
Securities issued by the U.S. Government may be acquired by the Balanced Fund in
the form of custodial receipts that evidence ownership of future interest
payments, principal payments or both on certain U.S. Treasury notes or bonds.
Such notes and bonds are held in custody by a bank on behalf of the owners.
These custodial receipts are known by various names, including "Treasury
Receipts," "Treasury Investment Growth Receipts" ("TIGRs"), and "Certificates of
Accrual on Treasury Securities" ("CATS"). The Balanced Fund may also invest in
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPS"). Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
CORPORATE DEBT SECURITIES. The Balanced Fund may invest in U.S. dollar
denominated corporate debt securities of domestic issuers limited to corporate
debt securities (corporate bonds, debentures, notes and other similar corporate
debt instruments) that meet the minimum ratings criteria set forth for the
Balanced Fund, or, if unrated, are in the Advisor's opinion comparable in
quality to corporate debt securities in that the Fund may invest. The Equity and
Small Company Funds may invest in convertible bonds of domestic issuers meeting
such quality requirements and other corporate debt securities generally in the
form of money market instruments as described above.
REPURCHASE AGREEMENTS. Each Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
agreement transaction occurs when the Fund acquires a security and
simultaneously resells it to the vendor (normally a member bank of the Federal
Reserve or a registered Government Securities dealer) for delivery on an agreed
upon future date. The repurchase price exceeds the purchase price by an amount
that reflects an agreed upon market interest rate earned by the Fund effective
for the period of time during
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<PAGE>
which the repurchase agreement is in effect. Delivery pursuant to the resale
typically will occur within one to five days of the purchase. The Funds will not
enter into any repurchase agreement that will cause more than 10% of their net
assets to be invested in repurchase agreements that extend beyond seven days. In
the event of the bankruptcy of the other party to a repurchase agreement, the
Fund could experience delays in recovering its cash or the securities lent. To
the extent that in the interim the value of the securities purchased may have
declined, the Fund could experience a loss. In all cases, the creditworthiness
of the other party to a transaction is reviewed and found satisfactory by the
Advisor. Repurchase agreements are, in effect, loans of Fund assets. The Funds
will not engage in reverse repurchase transactions, which are considered to be
borrowings under the 1940 Act.
FOREIGN SECURITIES. Each Fund may invest in the securities of foreign private
issuers. The same factors would be considered in selecting foreign securities as
with domestic securities. Foreign securities investment presents special
consideration not typically associated with investment in domestic securities.
Foreign taxes may reduce income. Currency exchange rates and regulations may
cause fluctuations in the value of foreign securities. Foreign securities are
subject to different regulatory environments than in the United States and,
compared to the United States, there may be a lack of uniform accounting,
auditing and financial reporting standards, less volume and liquidity and more
volatility, less public information, and less regulation of foreign issuers.
Countries have been known to expropriate or nationalize assets, and foreign
investments may be subject to political, financial, or social instability, or
adverse diplomatic developments. There may be difficulties in obtaining service
of process on foreign issuers and difficulties in enforcing judgments with
respect to claims under the U.S. Securities laws against such issuers. Favorable
or unfavorable differences between U.S. and foreign economies could affect
foreign securities values. The U.S. Government has, in the past, discouraged
certain foreign investments by U.S. investors through taxation or other
restrictions and it is possible that such restrictions could be imposed again.
Because of the inherent risk of foreign securities over domestic issues, the
Funds will limit foreign investments to those traded domestically as American
Depository Receipts (ADRs). ADRs are receipts issued by a U.S. bank or trust
company evidencing ownership of securities of a foreign issuer. ADRs may be
listed on a national securities exchange or may trade in the over-the-counter
market. The prices of ADRs are denominated in U.S. dollars while the underlying
security may be denominated in a foreign currency.
INVESTMENT COMPANIES. In order to achieve its investment objective, each Fund
may invest up to 10% of the value of its total assets in securities of other
investment companies whose investment objectives are consistent with the Fund's
investment objective. The Fund will not acquire securities of any one investment
company if, immediately thereafter, the Fund would own more than 3% of such
company's total outstanding voting securities, securities issued by such company
would have an aggregate value in excess of 5% of the Fund's assets, or
securities issued by such company and securities held by the Fund issued by
other investment companies would have an aggregate value in excess of 10% of the
Fund's assets. Each Fund will only invest in other investment companies by
purchase of such securities on the open market where no commission or profit to
a sponsor or dealer results from the purchase other than the customary broker's
commissions or when the purchase is part of a plan of merger, consolidation,
reorganization, or acquisition. To the extent a Fund invests in other investment
companies, the shareholders of the Fund would indirectly pay a portion of the
operating costs of the underlying investment companies. These costs include
management, brokerage, shareholder servicing and other operational expenses.
Shareholders of the Fund would then indirectly pay higher operational costs than
if they owned shares of the underlying investment companies directly. The
Advisor will waive its advisory fee for that portion of each Fund's assets
invested in other investment companies, except when such purchase is part of a
plan of merger, consolidation, reorganization, or acquisition.
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REAL ESTATE SECURITIES. The Funds will not invest in real estate (including
mortgage loans and limited partnership interests), but may invest in readily
marketable securities issued by companies that invest in real estate or
interests therein. The Funds may also invest in readily marketable interests in
real estate investment trusts ("REITs"). REITs are generally publicly traded on
the national stock exchanges and in the over-the-counter market and have varying
degrees of liquidity. Although the Funds are not limited in the amount of these
types of real estate securities they may acquire, it is not presently expected
that within the next 12 months the Funds will have in excess of 10% of their
assets in real estate securities.
RISK FACTORS
INVESTMENT POLICIES AND TECHNIQUES. Reference should be made to "Investment
Objective and Policies" above for a description of special risks presented by
the investment policies of the Funds and the specific securities and investment
techniques that may be employed by the Funds, including the risks associated
with repurchase agreements and foreign securities. A more complete discussion of
certain of these securities and investment techniques and their associated risks
is contained in the Statement of Additional Information.
FLUCTUATIONS IN VALUE. To the extent that the major portion of the Funds'
portfolios consists of common stocks, it may be expected that their net asset
value will be subject to greater fluctuation than a portfolio containing mostly
fixed income securities. The fixed income securities in which the Balanced Fund
will invest are also subject to fluctuation in value. Such fluctuations may be
based on movements in interest rates or from changes in the creditworthiness of
the issuers, which may result from adverse business and economic developments or
proposed corporate transactions, such as a leveraged buy-out or recapitalization
of the issuer. The value of the Balanced Fund's fixed income securities will
generally vary inversely with the direction of prevailing interest rate
movements. Should interest rates increase or the creditworthiness of an issuer
deteriorate, the value of the Balanced Fund's fixed income securities would
decrease in value, which would have a depressing influence on the Balanced
Fund's net asset value. Although certain of the U.S. Government Securities in
which the Funds may invest are guaranteed as to timely payment of principal and
interest, the market value of the securities, upon which the Funds' net asset
value is based, will fluctuate due to the interest rate risks described above.
Additionally, not all U.S. Government Securities are backed by the full faith
and credit of the U.S. Government. Because there is risk in any investment,
there can be no assurance that the Funds will achieve their investment
objective.
SMALL COMPANY SECURITIES. To the extent that the Small Company Fund will consist
of companies with a smaller market capitalization, shorter operating history and
smaller level of annual gross revenues than would be common in a typical large
capitalization growth fund, and given that such companies have historically
exhibited greater volatility of share price, the Small Company Fund may be
subject to greater fluctuation than a portfolio of larger companies or a
portfolio containing mostly fixed income securities.
PORTFOLIO TURNOVER. Each Fund may sell portfolio securities without regard to
the length of time they have been held in order to take advantage of new
investment opportunities. Portfolio turnover generally involves some expense to
the Funds, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover may also have capital gains tax consequences. For
the fiscal years ended March 31, 1996 and 1995, the turnover ratio for the
Equity Fund was 48.06% and 7.29%, respectively, the turnover ratio for the
Balanced Fund was 43.59% and 9.51%, respectively, and the turnover ratio for the
Small Company Fund was 23.43% and 32.79%, respectively.
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<PAGE>
ILLIQUID INVESTMENTS. Each Fund may invest up to 10% of its net assets in
illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, the Advisor determines the liquidity of each Fund's
investments. The absence of a trading market can make it difficult to ascertain
a market value for illiquid investments. Disposing of illiquid securities before
maturity may be time consuming and expensive, and it may be difficult or
impossible for the Funds to sell illiquid investments promptly at an acceptable
price. The Funds may not invest in restricted securities, which are securities
that cannot be sold to the public without registration under the federal
securities laws.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. Each Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. Each Fund is required to hold and
maintain in a segregated account until the settlement date, cash, U.S.
Government Securities or high-grade debt obligations in an amount sufficient to
meet the purchase price. Purchasing securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. In addition, no income
accrues to the purchaser of when-issued securities during the period prior to
issuance. Although a Fund would generally purchase securities on a when-issued
or forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if the Advisor deems it appropriate to do so. The Fund may
realize short-term gains or losses upon such sales.
INVESTMENT LIMITATIONS
To limit each Fund's exposure to risk, the Funds have adopted certain
fundamental investment limitations. Some of these restrictions are that the
Funds will not: (1) issue senior securities, borrow money or pledge their
assets; (2) make loans of money or securities, except that the Funds may invest
in repurchase agreements (but repurchase agreements having a maturity of longer
than seven days, together with other not readily marketable securities, are
limited to 10% of the Funds' net assets); (3) invest in securities of issuers
which have a record of less than three years' continuous operation (including
predecessors and, in the case of bonds, guarantors), if more than 5% of their
total assets would be invested in such securities; (4) purchase foreign
securities, except that the Funds may purchase foreign securities sold as ADRs
without limit; (5) write, purchase, or sell puts, calls, warrants or
combinations thereof, or purchase or sell commodities, commodities contracts,
futures contracts or related options, or invest in oil, gas, or mineral leases
or exploration programs, or real estate (but the Funds may invest in readily
marketable securities of REITs or other companies that own or deal in real
estate or oil, gas, or mineral leases or exploration programs); (6) invest more
than 5% of their total assets at cost in the securities of any one issuer nor
hold more than 10% of the voting stock of any issuer; (7) invest in restricted
securities; and (8) invest more than 10% of their total assets in the securities
of one or more investment companies (except when the purchase is pursuant to a
plan of merger, consolidation, reorganization, or acquisition). See "Investment
Limitations" in the Fund's Statement of Additional Information for a complete
list of investment limitations.
If the Board of Trustees of the Trust determines that the Funds' investment
objectives can best be achieved by a substantive change in a non-fundamental
investment limitation, the Board can make such change without shareholder
approval and will disclose any such material changes in the then current
Prospectus. Any limitation that is not specified in the Funds' Prospectus, or in
the Statement of Additional Information, as being fundamental, is non-
fundamental. If a percentage limitation is satisfied at the time of investment,
a later increase or decrease in such percentage resulting from a change in the
value of the Funds' portfolio securities will not constitute a violation of
11
<PAGE>
such limitation. In order to permit the sale of the Funds' shares in certain
states, the Funds may make commitments that are more restrictive than the
investment policies and limitations described above and in the Statement of
Additional Information. Such commitments may have an effect on the investment
performance of the Funds. Should the Funds determine that any such commitment is
no longer in the best interests of the Funds, they may revoke the commitment and
terminate sales of their shares in the state involved.
FEDERAL INCOME TAXES
TAXATION OF THE FUNDS. The Internal Revenue Code of 1986, as amended (the
"Code"), treats each series in the Trust, including the Funds, as a separate
regulated investment company. Each series of the Trust, including the Funds,
intends to qualify or remain qualified as a regulated investment company under
the Code by distributing substantially all of its "net investment income" to
shareholders and meeting other requirements of the Code. For the purpose of
calculating dividends, net investment income consists of income accrued on
portfolio assets, less accrued expenses. Upon qualification, the Funds will not
be liable for federal income taxes to the extent earnings are distributed. The
Board of Trustees retains the right for any series of the Trust, including the
Funds, to determine for any particular year if it is advantageous not to qualify
as a regulated investment company. Regulated investment companies, such as each
series of the Trust, including the Funds, are subject to a non-deductible 4%
excise tax to the extent they do not distribute the statutorily required amount
of investment income, determined on a calendar year basis, and capital gain net
income, using an October 31 year end measuring period. The Funds intend to
declare or distribute dividends during the calendar year in an amount sufficient
to prevent imposition of the 4% excise tax.
For the fiscal year ended March 31, 1996, the Balanced Fund was considered a
"personal holding company" under the Code since 50% of the value of the Balanced
Fund's share were owned directly or indirectly by five or fewer individuals at
certain times during the last half of the year. As a result, the Balanced Fund
was unable to meet the requirements for taxation as a regulated investment
company and will be unable to meet such requirements as long as it is classified
as a personal holding company. As a personal holding company, the Balanced Fund
is subject to federal income taxes on undistributed personal holding company
income at the maximum individual income tax rate. For the fiscal year ended
March 3l, 1996, however, no provision was made for federal income taxes since
substantially all taxable income was distributed to shareholders. For the
current fiscal year, the Balanced Fund anticipates that either it will qualify
as a regulated investment company under the Code or, if still considered a
personal holding company, it will distribute substantially all of its taxable
income for the current fiscal year to shareholders in bids to avoid individual
income taxes.
TAXATION OF SHAREHOLDERS. For federal income tax purposes, any dividends and
distributions from short-term capital gains that a shareholder receives in cash
from the Funds or which are re-invested in additional shares will be taxable
ordinary income. If a shareholder is not required to pay a tax on income, he
will not be required to pay federal income taxes on the amounts distributed to
him. A dividend declared in October, November or December of a year and paid in
January of the following year will be considered to be paid on December 31 of
the year of declaration.
Distributions paid by the Funds from long-term capital gains, whether received
in cash or reinvested in additional shares, are taxable as long-term capital
gains, regardless of the length of time an investor has owned shares in the
Funds. Capital gain distributions are made when the Funds realize net capital
gains on sales of portfolio securities during the year. Dividends and capital
gain distributions paid by the Funds shortly after shares have been purchased,
although in effect a return of investment, are subject to federal income
taxation.
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<PAGE>
The sale of shares of the Funds is a taxable event and may result in a capital
gain or loss. Capital gain or loss may be realized from an ordinary redemption
of shares or an exchange of shares between two mutual funds (or two series of a
mutual fund).
The Trust will inform shareholders of the Funds of the source of their dividends
and capital gains distributions at the time they are paid and, promptly after
the close of each calendar year, will issue an information return to advise
shareholders of the federal tax status of such distributions and dividends.
Dividends and distributions may also be subject to state and local taxes.
Shareholders should consult their tax advisors regarding specific questions as
to federal, state or local taxes.
Federal income tax law requires investors to certify that the social security
number or taxpayer identification number provided to the Funds is correct and
that the investor is not subject to 31% withholding for previous under-reporting
to the Internal Revenue Service (the "IRS"). Investors will be asked to make the
appropriate certification on their application to purchase shares. If a
shareholder of the Funds has not complied with the applicable statutory and IRS
requirements, the Funds are generally required by federal law to withhold and
remit to the IRS 31% of reportable payments (which may include dividends and
redemption amounts).
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to distribute substantially all of its net investment income,
if any, in the form of dividends. Each Fund will pay income dividends, if any,
quarterly, and will distribute net realized capital gains, if any, at least
annually.
Unless a shareholder elects to receive cash, dividends and capital gains will be
automatically reinvested in additional full and fractional shares of the same
Class of the Funds at the net asset value per share next determined. Reinvested
dividends and capital gains are exempt from any sales load. Shareholders wishing
to receive their dividends or capital gains in cash may make their request in
writing to the Funds at 105 North Washington Street, Post Office Drawer 69,
Rocky Mount, North Carolina 27802-0069. That request must be received by the
Funds prior to the record date to be effective as to the next dividend. If cash
payment is requested, checks will be mailed within five business days after the
last day of each quarter or each Fund's fiscal year end, as applicable. Each
shareholder of the Funds will receive a quarterly summary of his or her account,
including information as to reinvested dividends from the Funds. Tax
consequences to shareholders of dividends and distributions are the same if
received in cash or in additional shares of the Funds.
In order to satisfy certain requirements of the Code, the Funds may declare
special year-end dividend and capital gains distribution during December. Such
distributions, if received by shareholders by January 31, are deemed to have
been paid by the Funds and received by shareholders on December 31 of the prior
year.
There is no fixed dividend rate, and there can be no assurance as to the payment
of any dividends or the realization of any gains. Each Fund's net investment
income available for distribution to holders of Investor Shares will be reduced
by the amount of any expenses allocated to the Investor Shares, including the
distribution and service fees under each Fund's Distribution Plan.
13
<PAGE>
HOW SHARES ARE VALUED
Net asset value for each Class of Shares of the Funds is determined at 4:00
p.m., New York time, Monday through Friday, except on business holidays when the
New York Stock Exchange is closed. The net asset value of the shares of each
Fund for purposes of pricing sales and redemptions is equal to the total market
value of its investments, less all of its liabilities, divided by the number of
its outstanding shares. Net asset value is determined separately for each Class
of Shares of a Fund and reflects any liabilities allocated to a particular Class
as well as the general liabilities of the Fund.
Securities that are listed on a securities exchange are valued at the last
quoted sales price at the time the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded by the Funds. Securities that are listed on an exchange and which are not
traded on the valuation date are valued at the mean of the bid and asked prices.
Unlisted securities for which market quotations are readily available are valued
at the latest quoted sales price, if available, at the time of valuation,
otherwise, at the latest quoted bid price. Temporary cash investments with
maturities of 60 days or less will be valued at amortized cost, which
approximates market value. Securities for which no current quotations are
readily available are valued at fair value as determined in good faith using
methods approved by the Board of Trustees of the Trust. Securities may be valued
on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
Fixed income securities will ordinarily be traded on the over-the-counter
market. When market quotations are not readily available, fixed income
securities may be valued based on prices provided by a pricing service. The
prices provided by the pricing service are generally determined with
consideration given to institutional bid and last sale prices and take into
account securities prices, yields, maturities, call features, ratings,
institutional trading in similar groups of securities, and developments related
to specific securities. Such fixed income securities may also be priced based
upon a matrix system of pricing similar bonds and other fixed income securities.
Such matrix system may be based upon the considerations described above used by
other pricing services and information obtained by the pricing agent from the
Advisor and other pricing sources deemed relevant by the pricing agent.
HOW SHARES MAY BE PURCHASED
Assistance in opening accounts and a purchase application may be obtained from
the Funds by calling 1-800-525- FUND, or by writing to the Funds at the address
shown below for purchases by mail. Assistance is also available through any
broker-dealer authorized to sell shares in the Funds. Payment for shares
purchased may also be made through your account at the broker-dealer processing
your application and order to purchase. Your investment will purchase shares at
each Fund's public offering price next determined after your order is received
by the Fund in proper form as indicated herein.
The minimum initial investment is $10,000 ($2,000 for IRAs and Keogh Plans). The
minimum subsequent investment is $500. The Funds may, in the Advisor's sole
discretion, accept certain accounts with less than the stated minimum initial
investment. You may invest in the following ways:
PURCHASES BY MAIL. Shares may be purchased initially by completing the
application accompanying this Prospectus and mailing it, together with a check
payable to the applicable Fund, to the Brown Capital Management Funds, Investor
Shares, 105 North Washington Street, Post Office Drawer 69, Rocky Mount, North
Carolina 27802-0069. Subsequent investments in an existing account in the Funds
may be made at any time by sending a check payable
14
<PAGE>
to the applicable Fund, to the address stated above. Please enclose the stub of
your account statement and include the amount of the investment, the name of the
account for which the investment is to be made and the account number. PLEASE
REMEMBER TO ADD A REFERENCE TO THE APPLICABLE FUND AND TO "INVESTOR SHARES" TO
YOUR CHECK TO ENSURE PROPER CREDIT TO YOUR ACCOUNT.
PURCHASES BY WIRE. To purchase shares by wiring federal funds, each Fund must
first be notified by calling 1-800- 525-FUND to request an account number and
furnish the Fund with your tax identification number. Following notification to
a Fund, federal funds and registration instructions should be wired through the
Federal Reserve System to:
Wachovia Bank of North Carolina, N.A.
Winston-Salem, North Carolina
ABA # 053100494
For credit to the Rocky Mount Office
For credit to either:
The Brown Capital Management Equity Fund
Investor Shares Acct #6767-061387
The Brown Capital Management Balanced Fund
Investor Shares Acct #6765-061388
The Brown Capital Management Small Company Fund
Investor Shares Acct #6763-061389
For further credit to (shareholder's name and SS# or EIN#)
It is important that the wire contain all the information and that the Funds
receive prior telephone notification to ensure proper credit. A completed
application with signature(s) of registrant(s) must be mailed to the applicable
Fund immediately after the initial wire as described under "Purchases by Mail"
above. Investors should be aware that some banks may impose a wire service fee.
GENERAL. All purchases of shares are subject to acceptance and are not binding
until accepted. Each Fund reserves the right to reject any application or
investment. Orders become effective, and shares are purchased at, the next
determined public offering price per share after an investment has been received
by a Fund, which is as of 4:00 p.m., New York time, Monday through Friday,
exclusive of business holidays. Orders received by a Fund and effective prior to
such 4:00 p.m. time will purchase shares at the public offering price determined
at that time. Otherwise, your order will purchase shares as of such 4:00 p.m.
time on the next business day. For orders placed through a qualified
broker-dealer, such firm is responsible for promptly transmitting purchase
orders to the Funds.
If checks are returned unpaid due to nonsufficient funds, stop payment or other
reasons, the Trust will charge $20. To recover any such loss or charge, the
Trust reserves the right, without further notice, to redeem shares of any fund
of the Trust already owned by any purchaser whose order is cancelled, and such a
purchaser may be prohibited from placing further orders unless investments are
accompanied by full payment by wire or cashier's check.
Payment must be made by check or money order drawn on a U.S. bank and payable in
U.S. dollars. Under certain circumstances the Funds, at their sole discretion,
may allow payment in kind for Fund shares purchased by accepting securities in
lieu of cash. Any securities so accepted would be valued on the date received
and included in the calculation of the net asset value of the applicable Fund.
See the Statement of Additional Information for additional information on
purchases in kind.
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<PAGE>
Each Fund is required by federal law to withhold and remit to the IRS 31% of the
dividends, capital gains distributions and, in certain cases, proceeds of
redemptions paid to any shareholder who fails to furnish the Fund with a correct
taxpayer identification number, who under-reports dividend or interest income or
who fails to provide certification of tax identification number. Instructions to
exchange or transfer shares held in established accounts will be refused until
the certification has been provided. In order to avoid this withholding
requirement, you must certify on your application, or on a separate W-9 Form
supplied by the Administrator, that your taxpayer identification number is
correct and that you are not currently subject to backup withholding or you are
exempt from backup withholding. For individuals, your taxpayer identification
number is your social security number.
SALES CHARGES. The public offering price of Investor Shares of each Fund equals
net asset value plus a sales charge. Capital Investment Group, Inc. (the
"Distributor") receives this sales charge as Distributor and may reallow it in
the form of dealer discounts and brokerage commissions as follows:
<TABLE>
<CAPTION>
Sales Sales
Charge As Charge As Dealers Discounts
% of Net % of Public and Brokerage
Amount of Transaction Amount Offering Commissions as % of
At Public Offering Price Invested Price Public Offering Price
<S> <C>
Less than $100,000................... 3.63% 3.50% 3.00%
$100,000 but less than $250,000...... 3.09% 3.00% 2.50%
$250,000 but less than $500,000...... 2.56% 2.50% 2.00%
$500,000 or more..................... 0.00% 0.00% 0.00%
</TABLE>
At times the Distributor may reallow the entire sales charge to dealers. From
time to time dealers who receive dealer discounts and brokerage commissions from
the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers. Pursuant to the terms of the
Distribution Agreement, the sales charge payable to the Distributor and the
dealer discounts may be suspended, terminated or amended. Dealers who receive
90% or more of the sales charge may be deemed to be "underwriters" under the
Securities Act of 1933, as amended.
The dealer discounts and brokerage commissions schedule above applies to all
dealers who have agreements with the Distributor. The Distributor, at its
expense, may also provide additional compensation to dealers in connection with
sales of shares of the Funds. Compensation may include financial assistance to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising campaigns regarding the Funds,
and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Dealers may not use sales
of the Fund shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by the Funds or their shareholders.
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<PAGE>
REDUCED SALES CHARGES
CONCURRENT PURCHASES. For purposes of qualifying for a lower sales
charge for Investor Shares, investors have the privilege of combining concurrent
purchases of the Funds and any other series of the Trust affiliated with the
Advisor and sold with a sales charge. For example, if a shareholder concurrently
purchases shares in a Fund or shares in another series of the Trust affiliated
with the Advisor and sold with a sales charge at the total public offering price
of $50,000, and Investor Shares in another Fund at the total public offering
price of $50,000, the sales charge would be that applicable to a $100,000
purchase as shown in the appropriate table above. This privilege may be modified
or eliminated at any time or from time to time by the Trust without notice
thereof.
RIGHTS OF ACCUMULATION. Pursuant to the right of accumulation, investors
are permitted to purchase shares at the public offering price applicable to the
total of (a) the total public offering price of the Investor Shares of the Fund
then being purchased plus (b) an amount equal to the then current net asset
value of the purchaser's combined holdings of the shares of all of the Funds and
any other series of the Trust affiliated with the Advisor and sold with a sales
charge. To receive the applicable public offering price pursuant to the right of
accumulation, investors must, at the time of purchase, provide sufficient
information to permit confirmation of qualification, and confirmation of the
purchase is subject to such verification. This right of accumulation may be
modified or eliminated at any time or from time to time by the Trust without
notice.
LETTERS OF INTENT. Investors may qualify for a lower sales charge for
Investor Shares by executing a letter of intent. A letter of intent allows an
investor to purchase Investor Shares of the Funds over a 13-month period at
reduced sales charges based on the total amount intended to be purchased plus an
amount equal to the then current net asset value of the purchaser's combined
holdings of the shares of all of the Funds and any other series of the Trust
affiliated with the Advisor and sold with a sales charge. Thus, a letter of
intent permits an investor to establish a total investment goal to be achieved
by any number of purchases over a 13-month period. Each investment made during
the period receives the reduced sales charge applicable to the total amount of
the intended investment.
The letter of intent does not obligate the investor to purchase, or the Funds to
sell, the indicated amount. If such amount is not invested within the period,
the investor must pay the difference between the sales charge applicable to the
purchases made and the charges previously paid. If such difference is not paid
by the investor, the Distributor is authorized by the investor to liquidate a
sufficient number of shares held by the investor to pay the amount due. On the
initial purchase of shares, if required (or subsequent purchases, if necessary)
shares equal to at least five percent of the amount indicated in the letter of
intent will be held in escrow during the 13-month period (while remaining
registered in the name of the investor) for this purpose. The value of any
shares redeemed or otherwise disposed of by the investor prior to termination or
completion of the letter of intent will be deducted from the total purchases
made under such letter of intent.
A 90-day back-dating period can be used to include earlier purchases at the
investor's cost (without a retroactive downward adjustment of the sales charge);
the 13-month period would then begin on the date of the first purchase during
the 90-day period. No retroactive adjustment will be made if purchases exceed
the amount indicated in the letter of intent. Investors must notify the
Administrator or the Distributor whenever a purchase is being made pursuant to a
letter of intent.
Investors electing to purchase shares pursuant to a letter of intent should
carefully read the letter of intent, which is included in the Fund Shares
Application accompanying this Prospectus or is otherwise available from the
Administrator or the Distributor. This letter of intent option may be modified
or eliminated at any time or from time to time by the Trust without notice.
17
<PAGE>
REINVESTMENTS. Investors may reinvest, without a sales charge, proceeds
from a redemption of Investor Shares of the Funds in Investor Shares of the
Funds or in shares of another series of the Trust affiliated with the Advisor
and sold with a sales charge, within 90 days after the redemption. If the other
class charges a sales charge higher than the sales charge the investor paid in
connection with the shares redeemed, the investor must pay the difference. In
addition, the shares of the class to be acquired must be registered for sale in
the investor's state of residence. The amount that may be so reinvested may not
exceed the amount of the redemption proceeds, and a written order for the
purchase of such shares must be received by the Fund, or the Distributor within
90 days after the effective date of the redemption.
If an investor realizes a gain on the redemption, the reinvestment will not
affect the amount of any federal capital gains tax payable on the gain. If an
investor realizes a loss on the redemption, the reinvestment may cause some or
all of the loss to be disallowed as a tax deduction, depending on the number of
shares purchased by reinvestment and the period of time that has elapsed after
the redemption, although for tax purposes, the amount disallowed is added to the
cost of the shares acquired upon the reinvestment.
PURCHASES BY RELATED PARTIES AND GROUPS. Reductions in sales charges
apply to purchases by a single "person," including an individual, members of a
family unit, consisting of a husband, wife and children under the age of 21
purchasing securities for their own account, or a trustee or other fiduciary
purchasing for a single fiduciary account or single trust estate.
Reductions in sales charges also apply to purchases by individual members of a
"qualified group." The reductions are based on the aggregate dollar value of
shares purchased by all members of the qualified group and still owned by the
group plus the shares currently being purchased. For purposes of this paragraph,
a qualified group consists of a "company," as defined in the 1940 Act, which has
been in existence for more than six months and which has a primary purpose other
than acquiring shares of the Funds at a reduced sales charge, and the "related
parties" of such company. For purposes of this paragraph, a "related party" of a
company is: (i) any individual or other company who directly or indirectly owns,
controls, or has the power to vote five percent or more of the outstanding
voting securities of such company; (ii) any other company of which such company
directly or indirectly owns, controls, or has the power to vote five percent of
more of its outstanding voting securities; (iii) any other company under common
control with such company; (iv) any executive officer, director or partner of
such company or of a related party; and (v) any partnership of which such
company is a partner.
SALES AT NET ASSET VALUE. Each Fund may sell shares at a purchase price
equal to the net asset value of such shares, without a sales charge, to
Trustees, officers, and employees of the Trust, the Fund, and the Advisor, and
to employees and principals of related organizations and their families and
certain parties related thereto, including clients and related accounts of the
Advisor and other investment advisors registered under the Investment Advisors
Act of 1940. The public offering price of shares of each Fund may also be
reduced to net asset value per share in connection with the acquisition of the
assets of or merger or consolidation with a personal holding company or a public
or private investment company.
DISTRIBUTION PLAN. Capital Investment Group, Inc., Post Office Box 32249,
Raleigh, North Carolina 27622 (the "Distributor"), is the national distributor
for the Funds under a Distribution Agreement with the Trust. The Distributor may
sell Fund shares to or through qualified securities dealers or others. Richard
K. Bryant, a Trustee of the Trust and an officer of another series of the Trust,
and Elmer O. Edgerton, Jr., an officer of another series of the Trust, control
the Distributor. Messrs Bryant and Edgerton are not officers of the Funds.
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<PAGE>
The Trust has adopted a Distribution Plan (the "Plan") for the Investor Shares
of each Fund pursuant to Rule 12b-1 under the 1940 Act. Under the Plan each Fund
may reimburse any expenditures to finance any activity primarily intended to
result in sale of the Investor Shares of the Fund or the servicing of
shareholder accounts, including, but not limited to, the following: (i) payments
to the Distributor, securities dealers, and others for the sale of Investor
Shares of the Fund; (ii) payment of compensation to and expenses of personnel
who engage in or support distribution of Investor Shares of the Fund or who
render shareholder support services not otherwise provided by the Administrator
or Custodian; and (iii) formulation and implementation of marketing and
promotional activities. The categories of expenses for which reimbursement is
made are approved by the Board of Trustees of the Trust. Expenditures by each
Fund pursuant to the Plan are accrued based on the Investor Shares' average
daily net assets and may not exceed 0.50% of the Investor Shares' average net
assets for each year elapsed subsequent to adoption of the Plan. Such
expenditures paid as service fees to any person who sells Fund shares may not
exceed 0.25% of the Investor Shares' average annual net asset value of such
shares.
The Plan for each Fund may not be amended to increase materially the amount to
be spent under the Plan without shareholder approval. The continuation of the
Plan must be approved by the Board of Trustees annually. At least quarterly the
Board of Trustees must review a written report of amounts expended pursuant to
the Plan and the purposes for which such expenditures were made.
EXCHANGE FEATURE. Investors will have the privilege of exchanging shares of a
Fund for shares of another Fund or shares of any other series of the Trust
established by the Advisor. An exchange is a taxable transaction that involves
the simultaneous redemption of shares of one series and purchase of shares of
another series at the respective closing net asset value next determined after a
request for redemption has been received plus applicable sales charge. Each
series of the Trust will have a different investment objective, which may be of
interest to investors in each series. Shares of a Fund may be exchanged for
shares of another Fund or shares of any other series of the Trust affiliated
with the Advisor at the net asset value plus the percentage difference between
that series' sales charge and any sales charge previously paid in connection
with the shares being exchanged. For example, if a 2% sales charge was paid on
shares that are exchanged into a series with a 3% sales charge, there would be
an additional sales charge of 1% on the exchange. Exchanges may only be made by
investors in states where shares of the other series are qualified for sale. An
investor may direct a Fund to exchange his shares by writing to the Fund at its
principal office. The request must be signed exactly as the investor's name
appears on the account, and it must also provide the account number, number of
shares to be exchanged, the name of the Fund or other series to which the
exchange will take place and a statement as to whether the exchange is a full or
partial redemption of existing shares. Notwithstanding the foregoing, exchanges
of shares may only be within the same class or type of class of shares involved.
For example, Investor Shares may not be exchanged for any other Class of Shares
of the Funds.
A pattern of frequent exchange transactions may be deemed by the Advisor to be
an abusive practice that is not in the best interests of the shareholders of the
Funds. Such a pattern may, at the discretion of the Advisor, be limited by a
Fund's refusal to accept further purchase and/or exchange orders from an
investor, after providing the investor with 60 days prior notice. The Advisor
will consider all factors it deems relevant in determining whether a pattern of
frequent purchases, redemptions and/or exchanges by a particular investor is
abusive and not in the best interests of a Fund or its other shareholders.
A shareholder should consider the investment objectives and policies of any
other Fund or series into which the shareholder will be making an exchange, as
described in the prospectus for that other Fund or series. The Board
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of Trustees of the Trust reserves the right to suspend or terminate, or amend
the terms of, the exchange privilege upon 60 days written notice to the
shareholders.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan enables shareholders to
make regular monthly or quarterly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Administrator will automatically charge the checking account for
the amount specified ($100 minimum), which will be automatically invested in
shares at the public offering price on or about the 21st day of the month. The
shareholder may change the amount of the investment or discontinue the plan at
any time by writing to the Administrator.
STOCK CERTIFICATES. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
that will show the number of shares owned.
<PAGE>
HOW SHARES MAY BE REDEEMED
Shares of each Fund may be redeemed (the Fund will repurchase them from
shareholders) by mail or telephone. Any redemption may be more or less than the
purchase price of your shares depending on the market value of the applicable
Fund's portfolio securities. All redemption orders received in proper form, as
indicated herein, by a Fund, whether by mail or telephone, prior to 4:00 p.m.
New York time, Monday through Friday, except for business holidays, will redeem
shares at the net asset value determined at that time. Otherwise, your order
will redeem shares as of such 4:00 p.m. time on the next business day. There is
no charge for redemptions from a Fund. You may also redeem your shares through a
broker-dealer or other institution, who may charge you a fee for its services.
The Board of Trustees reserves the right to involuntarily redeem any account
having a net asset value of less than $1,000 (due to redemptions, exchanges or
transfers, and not due to market action) upon 30 days written notice. If the
shareholder brings his account net asset value up to $1,000 or more during the
notice period, the account will not be redeemed. Redemptions from retirement
plans may be subject to tax withholding.
If you are uncertain of the requirements for redemption, please contact the
Funds, at 1-800-525-FUND, or write to the address shown below.
REGULAR MAIL REDEMPTIONS. Your request should be addressed to The Brown Capital
Management Funds, Investor Shares, 105 North Washington Street, Post Office
Drawer 69, Rocky Mount, North Carolina 27802-0069. Your
request for redemption must include:
1) Your letter of instruction specifying the applicable Fund, the account
number, and the number of shares or dollar amount to be redeemed. This
request must be signed by all registered shareholders in the exact names in
which they are registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds will be sent to you within seven days after receipt of
your redemption request. However, each Fund may delay forwarding a redemption
check for recently purchased shares while it determines whether the purchase
payment will be honored. Such delay (which may take up to 15 days from the date
of purchase) may be reduced or avoided if the purchase is made by certified
check or wire transfer. In all cases the net asset value next
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<PAGE>
determined after the receipt of the request for redemption will be used in
processing the redemption. Each Fund may suspend redemption privileges or
postpone the date of payment (i) during any period that the New York Stock
Exchange is closed, or trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission (the "Commission"), (ii)
during any period when an emergency exists as defined by the rules of the
Commission as a result of which it is not reasonably practicable for a Fund to
dispose of securities owned by it, or to fairly determine the value of its
assets, and (iii) for such other periods as the Commission may permit.
TELEPHONE AND BANK WIRE REDEMPTIONS. Each Fund offers shareholders the option of
redeeming shares by telephone under certain limited conditions. A Fund will
redeem shares when requested by the shareholder if, and only if, the shareholder
confirms redemption instructions in writing.
A Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 919-972-1908). The confirmation instructions must include:
1) Designation of the Equity, Balanced, or Small Company Fund;
2) Shareholder name and account number;
3) Number of shares or dollar amount to be redeemed;
4) Instructions for transmittal of redemption funds to the shareholder; and
5) Shareholder signature as it appears on the application then on file with
the applicable Fund.
The net asset value used in processing the redemption will be the net asset
value next determined after the telephone request is received. Redemption
proceeds will not be distributed until written confirmation of the redemption
request is received, per the instructions above. You can choose to have
redemption proceeds mailed to you at your address of record, your bank, or to
any other authorized person, or you can have the proceeds sent by bank wire to
your bank ($5,000 minimum). Shares of the Funds may not be redeemed by wire on
days on which your bank is not open for business. You can change your redemption
instructions anytime you wish by filing a letter including your new redemption
instructions with the Funds. (See "Signature Guarantees" below). Each Fund
reserves the right to restrict or cancel telephone and bank wire redemption
privileges for shareholders, without notice, if the Fund believes it to be in
the best interest of the shareholders to do so. During drastic economic and
market conditions, telephone redemption privileges may be difficult to
implement.
There is currently no charge by the Administrator for wire redemptions. The
Administrator reserves, however, the right, upon thirty days' written notice, to
make reasonable charges for wire redemptions. All charges will be deducted from
the shareholder's account by redemption of shares in the account. The
shareholder's bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Funds at 1-800-525-FUND. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Funds. Telephone redemption privileges authorize the applicable Fund to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the Fund to be genuine. Each Fund will
employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine, and, if it does not
follow such procedures, the Fund will be liable for any losses due to fraudulent
or unauthorized instructions. The Fund will not be liable for following
telephone instructions reasonably believed to be genuine.
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<PAGE>
SYSTEMATIC WITHDRAWAL PLAN. A shareholder who owns shares of a Fund valued at
$10,000 or more at current net asset value may establish a Systematic Withdrawal
Plan to receive a monthly or quarterly check in a stated amount not less than
$100. Each month or quarter as specified, the Fund will automatically redeem
sufficient shares from your account to meet the specified withdrawal amount.
Call or write the Funds for an application form. See the Statement of Additional
Information for further details.
SIGNATURE GUARANTEES. To protect your account and the Funds from fraud,
signature guarantees are required to be sure that you are the person who has
authorized a change in registration, or standing instructions, for your account.
Signature guarantees are required for (1) change of registration requests, (2)
requests to establish or change exchange privileges or telephone redemption
service other than through your initial account application, and (3) requests
for redemptions in excess of $50,000. Signature guarantees are acceptable from a
member bank of the Federal Reserve System, a savings and loan institution,
credit union (if authorized under state law), registered broker-dealer,
securities exchange or association clearing agency, and must appear on the
written request for redemption, establishment or change in exchange privileges,
or change of registration.
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS. Each Fund is a diversified series of The Nottingham
Investment Trust II (the "Trust"), an investment company organized as a
Massachusetts business trust on October 25, 1990. The Board of Trustees of the
Trust is responsible for the management of the business and affairs of the
Trust. The Trustees and executive officers of the Trust and their principal
occupations for the last five years are set forth in the Statement of Additional
Information under "Management of the Funds - Trustees and Officers." The Board
of Trustees of the Trust is primarily responsible for overseeing the conduct of
the Trust's business. The Board of Trustees elects the officers of the Trust who
are responsible for its and the Funds' day-to-day operations.
THE ADVISOR. Subject to the authority of the Board of Trustees, Brown Capital
Management, Inc. (the "Advisor") provides each Fund with a continuous program of
supervision of the Fund's assets, including the composition of its portfolio,
and furnishes advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with the Trust.
The Advisor is registered under the Investment Advisors Act of 1940.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission. The
Advisor, established as a Maryland corporation in 1983, is controlled by Eddie
C. Brown. The Advisor currently serves as investment advisor to approximately
$1.6 billion in assets. The Advisor has been rendering investment counsel,
utilizing investment strategies substantially similar to that of the Funds, to
individuals, banks and thrift institutions, pension and profit sharing plans,
trusts, estates, charitable organizations and corporations since its formation.
The Advisor's address is 809 Cathedral Street, Baltimore, Maryland 21201.
Compensation of the Advisor with regard to the Equity Fund, based upon the
Fund's daily average net assets, is at the annual rate of 0.65% of the first $25
million of net assets and 0.50% of all assets over $25 million. The Advisor has
voluntarily waived its fee and reimbursed a portion of the Fund's operating
expenses for the fiscal year ended March 31, 1996. The total fees waived
amounted to $9,978 and expenses reimbursed amounted to $51,590.
Compensation of the Advisor with regards to the Balanced Fund, based upon the
Fund's daily average net assets, is at the annual rate of 0.65% of the first $25
million of net assets and 0.50% of all assets over $25 million. The
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Advisor has voluntarily waived its fee and reimbursed a portion of the Fund's
operating expenses for the fiscal year ended March 31, 1996. The total fees
waived amounted to $18,266 and expenses reimbursed amounted to $35,214.
Compensation of the Advisor with regards to the Small Company Fund, based upon
the Fund's daily average net assets, is at the annual rate of 1.00%. The Advisor
has voluntarily waived its fee and reimbursed a portion of the Fund's operating
expenses for the fiscal year ended March 31, 1996. The total fees waived
amounted to $30,755 and expenses reimbursed amounted to $24,506.
The Board of Trustees believes the investment advisory fee for the Small Company
Fund to be comparable to advisory fees paid by many funds having similar
objectives and policies, although the fee is higher than that paid by most other
investment companies. The Advisor may periodically voluntarily waive or reduce
its advisory fee to increase the net income of each Class of the Fund.
The Advisor supervises and implements the investment activities of each Fund,
including the making of specific decisions as to the purchase and sale of
portfolio investments. Among the responsibilities of the Advisor under the
Advisory Agreement is the selection of brokers and dealers through whom
transactions in each Fund's portfolio investments will be effected. The Advisor
attempts to obtain the best execution for all such transactions. If it is
believed that more than one broker is able to provide the best execution, the
Advisor will consider the receipt of quotations and other market services and of
research, statistical and other data and the sale of shares of the Fund in
selecting a broker. The Advisor may also utilize a brokerage firm affiliated
with the Trust or the Advisor if it believes it can obtain the best execution of
transactions from such broker. Research services obtained through Fund brokerage
transactions may be used by the Advisor for its other clients and, conversely,
the Funds may benefit from research services obtained through the brokerage
transactions of the Advisor's other clients. For further information, see
"Investment Objective and Policies - Investment Transactions" in the Statement
of Additional Information.
Eddie C. Brown, a director, executive officer, and controlling shareholder of
the Advisor and Trustee and executive officer of the Trust, has been responsible
for day-to-day management of each Fund's portfolio since its inception in 1992.
He has been with the Advisor since its inception.
THE ADMINISTRATOR. The Trust has entered into an Administration Agreement with
The Nottingham Company (the "Administrator"), 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069, pursuant to which the
Administrator receives a fee at the annual rate of 0.25% of the average daily
net assets of the Fund on the first $10 million; 0.20% of the next $40 million;
0.175% on the next $50 million; and 0.15% of its average daily net assets in
excess of $100 million. In addition, the Administrator currently receives a base
monthly fee of $1,750 for accounting and recordkeeping services for the Fund and
$750 for each Class of Shares beyond the initial Class of Shares of the Fund.
The Administrator also charges the Fund for certain costs involved with the
daily valuation of investment securities and is reimbursed for out-of-pocket
expenses. The Administrator charges a minimum fee of $3,000 per month for all of
its fees taken in the aggregate, analyzed monthly.
Subject to the authority of the Board of Trustees, the services the
Administrator provides to each Fund include coordinating and monitoring any
third parties furnishing services to the Fund; providing the necessary office
space, equipment and personnel to perform administrative and clerical functions
for the Fund; preparing, filing and distributing proxy materials, periodic
reports to shareholders, registration statements and other documents; and
responding to shareholder inquiries.
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The Administrator was formed as a North Carolina corporation in 1988 and
converted to a North Carolina limited liability company in 1994. Together with
its affiliates and predecessors, the Administrator has been operating as a
financial services firm since 1985. Frank P. Meadows III, Chairman, Trustee and
Treasurer of the Trust, is the firm's Managing Director and controlling member.
THE CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTING/PRICING AGENT. Wachovia Bank
of North Carolina, N.A. (the "Custodian"), 301 North Main Street, Winston-Salem,
North Carolina 27102, serves as Custodian of each Fund's assets. The Custodian
acts as the depository for each Fund, safekeeps its portfolio securities,
collects all income and other payments with respect to portfolio securities,
disburses monies at the Fund's request and maintains records in connection with
its duties.
The Administrator also serves as each Fund's transfer agent. As transfer agent,
it maintains the records of each shareholder's account, answers shareholder
inquiries concerning accounts, processes purchases and redemptions of each
Fund's shares, acts as dividend and distribution disbursing agent and performs
other shareholder services functions.
The Administrator also performs certain accounting and pricing services for each
Fund as pricing agent, including the daily calculation of each Fund's net asset
value.
OTHER EXPENSES. Each Fund is responsible for the payment of its expenses. These
include, for example, the fees payable to the Advisor, or expenses otherwise
incurred in connection with the management of the investment of the Fund's
assets, the fees and expenses of the Custodian, the fees and expenses of the
Administrator, the fees and expenses of Trustees, outside auditing and legal
expenses, all taxes and corporate fees payable by the Fund, Securities and
Exchange Commission fees, state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to shareholders, costs of shareholder reports and shareholder meetings, and any
extraordinary expenses. Each Fund also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular series of the Trust, including
each Fund, will be charged to that series, and expenses not readily identifiable
as belonging to a particular series will be allocated by or under procedures
approved by the Board of Trustees among one or more series in such a manner as
it deems fair and equitable. Any expenses relating only to a particular Class of
Shares of the Funds will be borne solely by such Class.
OTHER INFORMATION
DESCRIPTION OF SHARES. The Trust was organized as a Massachusetts business trust
on October 25, 1990 under a Declaration of Trust. The Declaration of Trust
permits the Board of Trustees to issue an unlimited number of full and
fractional shares and to create an unlimited number of series of shares. The
Board of Trustees may also classify and reclassify any unissued shares into one
or more classes of shares. The Trust currently has the number of authorized
series of shares, including the Funds, and classes of shares, described in the
Statement of Additional Information under "Description of the Trust." Pursuant
to its authority under the Declaration of Trust, the Board of Trustees has
authorized the issuance of an unlimited number of shares in each of two Classes
("Investor Shares" and "Institutional Shares") representing equal pro rata
interests in each Fund, except that the Classes bear different expenses that
reflect the differences in services provided to them. Investor Shares are sold
with a sale charge and bear potential distribution expenses and service fees.
Institutional Shares are sold without a sales charge and bear no shareholder
servicing or distribution fees. As a result of different charges, fees, and
expenses between the Classes, the total return on each Fund's Investor Shares
will generally be lower than the total return on the
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<PAGE>
Institutional Shares. Standardized total return quotations will be computed
separately for each Class of Shares of the Funds.
THIS PROSPECTUS RELATES TO EACH FUND'S INVESTOR SHARES AND DESCRIBES ONLY THE
POLICIES, OPERATIONS, CONTRACTS, AND OTHER MATTERS PERTAINING TO THE INVESTOR
SHARES. EACH FUND ALSO ISSUES A CLASS OF INSTITUTIONAL SHARES. SUCH OTHER CLASS
MAY HAVE DIFFERENT SALES CHARGES AND EXPENSES, WHICH MAY AFFECT PERFORMANCE.
INVESTORS MAY CALL THE FUNDS AT 1-800-525-FUND TO OBTAIN MORE INFORMATION
CONCERNING OTHER CLASSES AVAILABLE TO THEM THROUGH THEIR SALES REPRESENTATIVE.
INVESTORS MAY OBTAIN INFORMATION CONCERNING THOSE CLASSES FROM THEIR SALES
REPRESENTATIVE, THE DISTRIBUTOR, THE FUNDS, OR ANY OTHER PERSON WHICH IS
OFFERING OR MAKING AVAILABLE TO THEM THE SECURITIES OFFERED IN THIS PROSPECTUS.
When issued, the shares of each series of the Trust, including the Funds, and
each class of shares, will be fully paid, nonassessable and redeemable. The
Trust does not intend to hold annual shareholder meetings; it may, however, hold
special shareholder meetings for purposes such as changing fundamental policies
or electing Trustees. The Board of Trustees shall promptly call a meeting for
the purpose of electing or removing Trustees when requested in writing to do so
by the record holders of a least 10% of the outstanding shares of the Trust. The
term of office of each Trustee is of unlimited duration. The holders of at least
two-thirds of the outstanding shares of the Trust may remove a Trustee from that
position either by declaration in writing filed with the Custodian or by votes
cast in person or by proxy at a meeting called for that purpose.
The Trust's shareholders will vote in the aggregate and not by series (fund) or
class, except where otherwise required by law or when the Board of Trustees
determines that the matter to be voted on affects only the interests of the
shareholders of a particular series or class. Matters affecting an individual
series, such as each Fund, include, but are not limited to, the investment
objectives, policies and restrictions of that series. Shares have no
subscription, preemptive or conversion rights. Share certificates will not be
issued. Each share is entitled to one vote (and fractional shares are entitled
to proportionate fractional votes) on all matters submitted for a vote, and
shares have equal voting rights except that only shares of a particular series
or class are entitled to vote on matters affecting only that series or class.
Shares do not have cumulative voting rights. Therefore, the holders of more than
50% of the aggregate number of shares of all series of the Trust may elect all
the Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability. See "Description of the Trust" in the
Statement of Additional Information for further information about the Trust and
its shares.
REPORTING TO SHAREHOLDERS. Each Fund will send to its shareholders Annual and
Semi-Annual Reports; the financial statements appearing in Annual Reports for
each Fund will be audited by independent accountants. In addition, the
Administrator, as transfer agent, will send to each shareholder having an
account directly with the Funds a quarterly statement showing transactions in
the account, the total number of shares owned and any dividends or distributions
paid. Inquiries regarding the Funds may be directed in writing to 105 North
Washington Street, Post Office Drawer 69, Rocky Mount, North Carolina 27802-0069
or by calling 1-800-525-FUND.
CALCULATION OF PERFORMANCE DATA. From time to time each Fund may advertise its
average annual total return for each Class of Shares. The "average annual total
return" refers to the average annual compounded rates of return
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over 1, 5 and 10 year periods that would equate an initial amount invested at
the beginning of a stated period to the ending redeemable value of the
investment. The calculation assumes the reinvestment of all dividends and
distributions, includes all recurring fees that are charged to all shareholder
accounts and deducts all nonrecurring charges at the end of each period. The
calculation further assumes the maximum sales load is deducted from the initial
payment. If a Fund has been operating less than 1, 5 or 10 years, the time
period during which the Fund has been operating is substituted.
In addition, each Fund may advertise other total return performance data other
than average annual total return for each Class of Shares. This data shows as a
percentage rate of return encompassing all elements of return (i.e. income and
capital appreciation or depreciation); it assumes reinvestment of all dividends
and capital gain distributions. Such other total return data may be quoted for
the same or different periods as those for which average annual total return is
quoted. This data may consist of a cumulative percentage rate of return, actual
year-by-year rates or any combination thereof. Cumulative total return
represents the cumulative change in value of an investment in a Fund for various
periods.
The total return of a Fund could be increased to the extent the Advisor may
waive all or a portion of its fees or may reimburse all or a portion of the
Fund's expenses. Total return figures are based on the historical performance of
the Fund, show the performance of a hypothetical investment, and are not
intended to indicate future performance. Each Fund's quotations may from time to
time be used in advertisements, sales literature, shareholder reports, or other
communications. For further information, see "Additional Information on
Performance" in the Statement of Additional Information.
<PAGE>
THE BROWN CAPITAL MANAGEMENT FUNDS
INVESTOR CLASS
PROSPECTUS
July 12, 1996
THE BROWN CAPITAL MANAGEMENT FUNDS
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-FUND
INVESTMENT ADVISOR
Brown Capital Management, Inc.
809 Cathedral Street
Baltimore, Maryland 21201
ADMINISTRATOR, FUND ACCOUNTANT, AND
DIVIDEND DISBURSING & TRANSFER AGENT
The Nottingham Company
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
DISTRIBUTOR
Capital Investment Group, Inc.
Post Office Box 32249
Raleigh, North Carolina 27622
CUSTODIAN
Wachovia Bank of North Carolina, N.A.
301 N. Main Street
Winston-Salem, North Carolina 27102
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
1021 East Cary Street, Suite 1900
Richmond, Virginia 23219-4023
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PART B
STATEMENT OF ADDITIONAL INFORMATION
THE BROWN CAPITAL MANAGEMENT FUNDS
July 12, 1996
A Series of
THE NOTTINGHAM INVESTMENT TRUST II
105 North Washington Street, Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
Telephone 1-800-525-FUND
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES................................................................. 2
INVESTMENT LIMITATIONS............................................................................ 4
NET ASSET VALUE................................................................................... 5
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................................... 6
DESCRIPTION OF THE TRUST.......................................................................... 7
ADDITIONAL INFORMATION CONCERNING TAXES........................................................... 8
MANAGEMENT OF THE FUNDS........................................................................... 9
SPECIAL SHAREHOLDER SERVICES...................................................................... 15
ADDITIONAL INFORMATION ON PERFORMANCE............................................................. 16
APPENDIX A - DESCRIPTION OF RATINGS............................................................... 19
ANNUAL REPORT OF THE FUNDS FOR THE YEAR ENDED MARCH 31, 1996................................ ATTACHED
This Statement of Additional Information (the "Additional Statement") is meant
to be read in conjunction with the Prospectus dated July 12, 1996 for The Brown
Capital Management Equity Fund, The Brown Capital Management Balanced Fund, and
The Brown Capital Management Small Company Fund (collectively the "Funds")
relating to the Funds' Institutional Shares and Investor Shares, as each
Prospectus may be amended or supplemented from time to time, and is incorporated
by reference in its entirety into each Prospectus. Because this Additional
Statement is not itself a prospectus, no investment in shares of the Funds
should be made solely upon the information contained herein. Copies of the
Funds' Prospectus may be obtained at no charge by writing or calling the Funds
at the address and phone number shown above. This Additional Statement is not a
prospectus but is incorporated by reference in each Prospectus in its entirety.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectus.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement each Fund's investment objective and policies
as set forth in the Prospectus for each Class of Shares of the Fund. The Funds,
organized in 1992, have no prior operating history.
ADDITIONAL INFORMATION ON FUND INSTRUMENTS. Attached to this Additional
Statement is Appendix A, which contains descriptions of the rating symbols used
by Rating Agencies for securities in which the Funds may invest.
INVESTMENT TRANSACTIONS. Subject to the general supervision of the Trust's Board
of Trustees, the Advisor is responsible for, makes decisions with respect to,
and places orders for all purchases and sales of portfolio securities for the
Funds.
The annualized portfolio turnover rate for each Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities whose maturities or
expiration dates at the time of acquisition are one year or less. Portfolio
turnover of each Fund may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements that enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making Fund
decisions, and each Fund may engage in short term trading to achieve its
investment objectives.
Purchases of money market instruments by the Funds are made from dealers,
underwriters and issuers. The Funds currently do not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, which may include a dealer mark-up, or otherwise involve
transactions directly with the issuer of an instrument.
Normally, most of the Funds' fixed income portfolio transactions will be
principal transactions executed in over the counter markets and will be executed
on a "net" basis, which may include a dealer mark-up. With respect to securities
traded only in the over the counter market, orders will be executed on a
principal basis with primary market makers in such securities except where
better prices or executions may be obtained on an agency basis or by dealing
with other than a primary market maker.
The Funds may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. A Fund will engage
in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for each Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. The sale of Fund shares may
be considered when determining the firms that are to execute brokerage
transactions for the Funds. In addition, the Advisor is authorized to cause the
Funds to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Advisor determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Advisor to the Funds. Such brokerage and research services might consist of
reports and statistics relating to specific companies or industries, general
summaries of groups of stocks or bonds and their comparative earnings and
yields, or broad overviews of the stock, bond and government securities markets
and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable by the Funds. The Trustees will periodically review
any commissions paid by the Funds to consider whether the commissions paid over
representative periods of time appear to be reasonable in
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relation to the benefits inuring to the Funds. It is possible that certain of
the supplementary research or other services received will primarily benefit one
or more other investment companies or other accounts for which investment
discretion is exercised by the Advisor. Conversely, the Funds may be the primary
beneficiary of the research or services received as a result of securities
transactions effected for such other account or investment company.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor if it believes it can obtain the best execution of transactions from
such broker. The Funds will not execute portfolio transactions through, acquire
securities issued by, make savings deposits in or enter into repurchase
agreements with the Advisor or an affiliated person of the Advisor (as such term
is defined in the 1940 Act) acting as principal, except to the extent permitted
by the Securities and Exchange Commission ("SEC"). In addition, the Funds will
not purchase securities during the existence of any underwriting or selling
group relating thereto of which the Advisor, or an affiliated person of the
Advisor, is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Funds may be at a disadvantage because of these limitations
in comparison with other investment companies that have similar investment
objectives but are not subject to such limitations.
Investment decisions for the Funds will be made independently from those for any
other Fund and any other series of the Trust, if any, and for any other
investment companies and accounts advised or managed by the Advisor. Such other
investment companies and accounts may also invest in the same securities as a
Fund. To the extent permitted by law, the Advisor may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for
another Fund or other investment companies or accounts in executing
transactions. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and Fund or another investment
company or account, the transaction will be averaged as to price and available
investments allocated as to amount, in a manner which the Advisor believes to be
equitable to the Funds and such other investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by a Fund.
For the fiscal years ended March 31, 1994, 1995, and 1996, the Equity Fund paid
brokerage commissions of $1,178, $694, and $1,901 respectively, the Balanced Fund
paid brokerage commissions of $973, $694, and $2,013 respectively, and the Small
Company Fund paid brokerage commissions of $734, $756, and $30 respectively.
REPURCHASE AGREEMENTS. Each Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
transaction occurs when, at the time the Fund purchases a security (normally a
U.S. Treasury obligation), it also resell it to the vendor (normally a member
bank of the Federal Reserve or a registered Government Securities dealer) and
must deliver the security (and/or securities substituted for them under the
repurchase agreement) to the vendor on an agreed upon date in the future. The
repurchase price exceeds the purchase price by an amount which reflects an
agreed upon market interest rate effective for the period of time during which
the repurchase agreement is in effect. Delivery pursuant to the resale will
occur within one to five days of the purchase.
Repurchase agreements are considered "loans" under the Investment Company Act of
1940, as amended (the "1940 Act"), collateralized by the underlying security.
The Trust will implement procedures to monitor on a continuous basis the value
of the collateral serving as security for repurchase obligations. Additionally,
the Advisor to the Funds will consider the creditworthiness of the vendor. If
the vendor fails to pay the agreed upon resale price on the delivery date, the
Fund will retain or attempt to dispose of the collateral. A Fund's risk is that
such default may include any decline in value of the collateral to an amount
which is less than 100% of the repurchase price, any costs of disposing of such
collateral, and any loss resulting from any delay in foreclosing on the
collateral. The Funds will not enter into any repurchase agreement which will
cause more than 10% of their net assets to be invested in repurchase agreements
which extend beyond seven days and other illiquid securities.
DESCRIPTION OF MONEY MARKET INSTRUMENTS. Money market instruments may include
U.S. Government Securities or corporate debt securities (including those subject
to repurchase agreements), provided that they mature in thirteen months or less
from the date of acquisition and are otherwise eligible for purchase by the
Funds. Money market instruments also may include Banker's Acceptances and
Certificates of Deposit of domestic branches of U.S. banks, Commercial Paper and
Variable Amount Demand Master Notes ("Master Notes"). Banker's Acceptances are
time drafts drawn on and "accepted" by a bank. When a bank "accepts" such a time
draft, it assumes liability for its payment. When a Fund acquires a Banker's
Acceptance the bank which "accepted" the time draft is liable for payment of
interest and principal when due. The Banker's Acceptance carries the full faith
and credit of such bank. A Certificate of Deposit ("CD") is an unsecured
interest bearing debt obligation of a bank. Commercial Paper is an unsecured,
short term debt obligation of a bank, corporation or other borrower.
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Commercial Paper maturity generally ranges from two to 270 days and is usually
sold on a discounted basis rather than as an interest bearing instrument. The
Funds will invest in Commercial Paper only if it is rated one of the top two
rating categories by Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group ("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff &
Phelps ("D&P") or, if not rated, of equivalent quality in the Advisor's opinion.
Commercial Paper may include Master Notes of the same quality. Master Notes are
unsecured obligations which are redeemable upon demand of the holder and which
permit the investment of fluctuating amounts at varying rates of interest.
Master Notes are acquired by the Funds only through the Master Note program of
the Funds' custodian bank, acting as administrator thereof. The Advisor will
monitor, on a continuous basis, the earnings power, cash flow and other
liquidity ratios of the issuer of a Master Note held by the Funds.
ILLIQUID INVESTMENTS. Each Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees, the
Advisor determines the liquidity of a Fund's investments and, through reports
from the Advisor, the Board monitors investments in illiquid instruments. In
determining the liquidity of a Fund's investments, the Advisor may consider
various factors including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). Investments currently considered by the Funds to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. If through a change in values, net
assets or other circumstances, a Fund were in a position where more than 10% of
its net assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity. The Funds may not purchase restricted
securities, which are securities that cannot be sold to the public without
registration under the federal securities laws.
INVESTMENT LIMITATIONS
Each Fund has adopted the following fundamental investment limitations, which
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. A "majority" for this purpose, means, with respect to
a Fund, the lesser of (i) 67% of the Fund's outstanding shares represented in
person or by proxy at a meeting at which more than 50% of its outstanding shares
are represented, or (ii) more than 50% of its outstanding shares. Unless
otherwise indicated, percentage limitations apply at the time of purchase.
As a matter of fundamental policy, each Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer (except that
securities of the U.S. Government, its agencies and instrumentalities are
not subject to these limitations);
(2) Invest 25% or more of the value of its total assets in any one industry or
group of industries (except that securities of the U.S. Government, its
agencies and instrumentalities are not subject to these limitations);
(3) Invest in the securities of any issuer if any of the officers or trustees
of the Trust or its Investment Advisor who own beneficially more than 1/2
of 1% of the outstanding securities of such issuer or together own more
than 5% of the outstanding securities of such issuer;
(4) Invest for the purpose of exercising control or management of another issuer;
(5) Invest in interests in real estate, real estate mortgage loans, real estate
limited partnerships, oil, gas or other mineral exploration or development
programs or leases, except that the Fund may invest in the readily
marketable securities of companies which own or deal in such things;
(6) Underwrite securities issued by others except to the extent the Fund may be
deemed to be underwriters under the federal securities laws, in connection
with the disposition of portfolio securities;
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(7) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions);
(8) Make short sales of securities or maintain a short position, except short
sales "against the box"; ( A short sale is made by selling a security the
Fund does not own. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain at no additional
cost securities identical to those sold short.)
(9) Participate on a joint or joint and several basis in any trading account in
securities;
(10) Make loans of money or securities, except that the Fund may invest in
repurchase agreements;
(11) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors), if more than 5% of its total assets would be invested
in such securities;
(12) Invest more than 10% of the value of its net assets in repurchase
agreements having a maturity of longer than seven days or other not readily
marketable securities; included in this category are any assets for which
an active and substantial market does not exist at the time of purchase or
subsequent valuation;
(13) Issue senior securities, borrow money, or pledge its assets;
(14) Purchase foreign securities, except the Fund may purchase foreign
securities sold as American Depository Receipts without limit; ("ADRS")
(15) Write, purchase, or sell puts, calls, warrants or combinations thereof, or
purchase or sell commodities, commodities contracts, futures contracts, or
related options; or
(16) Invest in restricted securities.
While each Fund has reserved the right to make short sales "against the box"
(limitation number 8, above), the Advisor has no present intention of engaging
in such transactions at this time or during the coming year.
With respect to investments permitted in other investment companies, see
"Investment Objective and Policies-Investment Companies" in the Prospectus,
which reflects certain limitations placed on such investments, including the
Advisor's waiver of duplicative advisory fees. During any time that shares of a
Fund may be registered in the State of California, it is a fundamental policy of
the Fund that fees incurred in connection with the purchase of shares of other
investment companies will not be duplicative, management fees will not be
duplicated, and initial sales charges incurred for such purchases will not
exceed one percent (1%).
Percentage restrictions stated as an investment policy or investment limitation
apply at the time of investment; if a later increase or decrease in percentage
beyond the specified limits results from a change in securities values or total
assets, it will not be considered a violation.
NET ASSET VALUE
The net asset value per share of each Class of each Fund is determined at 4:00
p.m., New York time, Monday through Friday, except on business holidays when the
New York Stock Exchange is closed. The New York Stock Exchange recognizes the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Fourth of July, Labor Day, Thanksgiving Day, and Christmas Day. Any other
holiday recognized by the New York Stock Exchange will be deemed a business
holiday on which the net asset value of each Class of the Funds will not be
calculated.
The net asset value per share of each Class of each Fund is calculated
separately by adding the value of the Fund's securities and other assets
belonging to the Fund and attributable to that Class, subtracting the
liabilities charged to the Fund and to that
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Class, and dividing the result by the number of outstanding shares of such
Class. "Assets belonging to" a Fund consist of the consideration received upon
the issuance of shares of the Fund together with all net investment income,
realized gains/losses and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Trust not belonging to a particular investment Fund. Income,
realized and unrealized capital gains and losses, and any expenses of a Fund not
allocated to a particular Class of such Fund will be allocated to each Class of
the Fund on the basis of the net asset value of that Class in relation to the
net asset value of the Fund. Assets belonging to a Fund are charged with the
direct liabilities of the Fund and with a share of the general liabilities of
the Trust, which are normally allocated in proportion to the number of or the
relative net asset values of all of the Trust's series at the time of allocation
or in accordance with other allocation methods approved by the Board of
Trustees. Certain expenses attributable to a particular Class of shares (such as
the distribution and service fees attributable to Investor Shares) will be
charged against that Class of shares. Certain other expenses attributable to a
particular Class of shares (such as registration fees, professional fees, and
certain printing and postage expenses) may be charged against that Class of
shares if such expenses are actually incurred in a different amount by that
Class or if the Class receives services of a different kind or to a different
degree than other Classes, and the Board of Trustees approves such allocation.
Subject to the provisions of the Declaration of Trust, determinations by the
Board of Trustees as to the direct and allocable liabilities, and the allocable
portion of any general assets, with respect to a Fund and the Classes of such
Fund are conclusive.
For the fiscal year ended March 31, 1994, the total expenses after fee waivers
and expense reimbursements for Institutional Shares were $10,174 for the Equity
Fund, $20,776 for the Balanced Fund and $30,304 for the Small Company Fund. For
the fiscal year ended March 31, 1995, the total expenses after fee waivers and
expense reimbursements for Institutional Shares were $18,132 for the Equity
Fund, $29,049 for the Balanced Fund and $40,781 for the Small Company Fund. For
the fiscal year ended March 31, 1996, the total expenses after fee waivers and
expense reimbursements for Institutional Shares were $23,837 for the Equity
Fund, $44,565 for the Balanced Fund, and $52,075 for the Small Company Fund.
Investor Shares of the Funds were not authorized for issuance during such period
and fiscal years.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
PURCHASES. Shares of each Fund are offered and sold on a continuous basis and
may be purchased through authorized investment dealers or directly by contacting
the Distributor or the Funds. Selling dealers have the responsibility of
transmitting orders promptly to the Funds. The public offering price of shares
of each Fund equals net asset value, plus a sales charge for the Investor
Shares. Capital Investment Group, Inc. (the "Distributor") receives this sales
charge as Distributor and may reallow it in the form of dealer discounts and
brokerage commissions. The current schedule of sales charges and related dealer
discounts and brokerage commissions is set forth in the Prospectus for the
Investor Shares, along with the information on current purchases, rights of
accumulation, and letters of intent. See "How Shares May Be Purchased" in the
Prospectus.
PLAN UNDER RULE 12B-1. The Trust has adopted a Plan of Distribution (the "Plan")
for the Investor Shares of each Fund pursuant to Rule 12b-1 under the 1940 Act
(see "How Shares May Be Purchased - Distribution Plan" in the Prospectus). Under
the Plan each Fund may expend up to 0.50% of the Investor Shares' average net
assets annually to finance any activity which is primarily intended to result in
the sale of shares of the Investor Shares of the Fund and the servicing of
shareholder accounts, provided the Trust's Board of Trustees has approved the
category of expenses for which payment is being made. Such expenditures paid as
service fees to any person who sells shares of a Fund may not exceed 0.25% of
the average annual net asset value of such shares. Potential benefits of the
Plan to the Funds include improved shareholder servicing, savings to the Funds
in transfer agency costs, benefits to the investment process from growth and
stability of assets and maintenance of a financially healthy management
organization.
All of the distribution expenses incurred by the Distributor and others, such as
broker-dealers, in excess of the amount paid by the Funds will be borne by such
persons without any reimbursement from the Funds. Subject to seeking best price
and execution, the Funds may, from time to time, buy or sell portfolio
securities from or to firms that receive payments under the Plan.
From time to time the Distributor may pay additional amounts from its own
resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
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The Plan for each Fund and the Distribution Agreement with the Distributor have
all been approved by the Board of Trustees of the Trust, including a majority of
the Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust and who have no direct or indirect financial interest in the Plan or
any related agreements, by vote cast in person or at a meeting duly called for
the purpose of voting on the Plan and such Agreement. Continuation of the Plan
and the Distribution Agreement must be approved annually by the Board of
Trustees in the same manner as specified above.
Each year the Trustees must determine whether continuation of the Plan with
respect to the Investor Shares of each Fund is in the best interest of
shareholders of that Class of each Fund and that there is a reasonable
likelihood of its providing a benefit to such Fund, and the Board of Trustees
has made such a determination for the current year of operations under the Plan.
The Plan and the Distribution Agreement may be terminated at any time without
penalty by a majority of those trustees who are not "interested persons" or by a
majority vote of the Investor Shares' outstanding voting stock. Any amendment
materially increasing the maximum percentage payable under the Plan must
likewise be approved with respect to any Fund by a majority vote of the Investor
Shares' outstanding voting stock, as well as by a majority vote of those
trustees who are not "interested persons." Also, any other material amendment to
the Plan must be approved by a majority vote of the trustees including a
majority of the noninterested Trustees of the Trust having no interest in the
Plan. In addition, in order for the Plan to remain effective, the selection and
nomination of Trustees who are not "interested persons" of the Trust must be
effected by the Trustees who themselves are not "interested persons" and who
have no direct or indirect financial interest in the Plan. Persons authorized to
make payments under the Plan must provide written reports at least quarterly to
the Board of Trustees for their review.
REDEMPTIONS. Under the 1940 Act, each Fund may suspend the right of redemption
or postpone the date of payment for shares during any period when (a) trading on
the New York Stock Exchange is restricted by applicable rules and regulations of
the SEC; (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. Each Fund may also suspend or
postpone the recordation of the transfer of shares upon the occurrence of any of
the foregoing conditions.
In addition to the situations described in the Prospectus under "How Shares may
be Redeemed," each Fund may redeem shares involuntarily to reimburse the Fund
for any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to Fund shares as provided in the Prospectus from time to time.
DESCRIPTION OF THE TRUST
The Trust is an unincorporated business trust organized under Massachusetts law
on October 25, 1990. The Trust's Declaration of Trust authorizes the Board of
Trustees to divide shares into series, each series relating to a separate
portfolio of investments, and to classify and reclassify any unissued shares
into one or more classes of shares of each such series. The Declaration of Trust
currently provides for the shares of eight series, as follows: the Capital Value
Fund managed by Capital Investment Counsel, Inc. of Raleigh, North Carolina;
Investek Fixed Income Trust managed by Investek Capital Management of Jackson,
Mississippi; ZSA Social Conscience Fund, ZSA Equity Fund and ZSA Asset
Allocation Fund managed by Zaske, Sarafa & Associates, Inc. of Bloomfield Hills,
Michigan; and The Brown Capital Management Equity Fund, The Brown Capital
Management Balanced Fund and The Brown Capital Management Small Company Fund
managed by Brown Capital Management of Baltimore, Maryland. The Board of
Trustees has authorized the classification of shares of all such series except
the ZSA Funds. The number of shares of each series shall be unlimited. The Trust
does not intend to issue share certificates.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as each Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust, including the Funds, will vote
together and not separately on a series-by-series or class-by-class basis,
except as otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular series or class. Rule 18f-2 under the 1940 Act
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provides that any matter required to be submitted to the holders of the
outstanding voting securities of an investment company such as the Trust shall
not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each series or class affected by the
matter. A series or class is affected by a matter unless it is clear that the
interests of each series or class in the matter are substantially identical or
that the matter does not affect any interest of the series or class. Under Rule
18f-2, the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to a
series only if approved by a majority of the outstanding shares of such series.
However, the Rule also provides that the ratification of the appointment of
independent accountants, the approval of principal underwriting contracts and
the election of Trustees may be effectively acted upon by shareholders of the
Trust voting together, without regard to a particular series or class.
When used in the Prospectus or this Additional Statement, a "majority" of
shareholders means the vote of the lesser of (1) 67% of the shares of the Trust
or the applicable series or class present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or (2)
more than 50% of the outstanding shares of the Trust or the applicable series or
class.
When issued for payment as described in the Prospectus and this Additional
Statement, shares of each Fund will be fully paid and non-assessable.
The Declaration of Trust provides that the Trustees of the Trust will not be
liable in any event in connection with the affairs of the Trust, except as such
liability may arise from his or her own bad faith, willful misfeasance, gross
negligence, or reckless disregard of duties. It also provides that all third
parties shall look solely to the Trust property for satisfaction of claims
arising in connection with the affairs of the Trust. With the exceptions stated,
the Declaration of Trust provides that a Trustee or officer is entitled to be
indemnified against all liability in connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting each Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof; such laws and
regulations may be changed by legislative, judicial, or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations.
Each series of the Trust, including each Fund, will be treated as a separate
corporate entity under the Code and intends to qualify or remain qualified as a
regulated investment company. In order to so qualify, each series must elect to
be a regulated investment company or have made such an election for a previous
year and must satisfy, in addition to the distribution requirement described in
the Prospectus, certain requirements with respect to the source of its income
for a taxable year. At least 90% of the gross income of each series must be
derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stocks, securities or foreign
currencies, and other income derived with respect to the series' business of
investing in such stock, securities or currencies. Any income derived by a
series from a partnership or trust is treated as derived with respect to the
series' business of investing in stock, securities or currencies only to the
extent that such income is attributable to items of income that would have been
qualifying income if realized by the series in the same manner as by the
partnership or trust.
Another requirement for qualification as a regulated investment company under
the Code is that less than 30% of a series' gross income for a taxable year must
be derived from gains realized on the sale or other disposition of the following
investments held for less than three months: (l) stock and securities (as
defined in Section 2(a) (36) of the 1940 Act); (2) options, futures and forward
contracts other than those on foreign currencies; or (3) foreign currencies (or
options, futures or forward contracts on foreign currencies) that are not
directly related to a series' principal business of investing in stocks or
securities (or options and futures with respect to stocks or securities).
Interest (including original issue discount and, with respect to certain debt
securities, accrued market discount) received by a series upon maturity or
disposition of a security held for less than three months will not be treated as
gross income derived from the sale or other disposition of such security within
the meaning of this requirement. However, any other income which is attributable
to realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
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An investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the investment
company nor more than 10% of the outstanding voting securities of such issuer.
In addition, not more than 25% of the value of the investment company's total
assets may be invested in the securities (other than government securities or
the securities of other regulated investment companies) of any one issuer. Each
Fund intends to satisfy all requirements on an ongoing basis for continued
qualification as a regulated investment company.
Each series of the Trust, including each Fund, will designate any distribution
of long term capital gains as a capital gain dividend in a written notice mailed
to shareholders within 60 days after the close of the series' taxable year.
Shareholders should note that, upon the sale or exchange of series shares, if
the shareholder has not held such shares for at least six months, any loss on
the sale or exchange of those shares will be treated as long term capital loss
to the extent of the capital gain dividends received with respect to the shares.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each series of the Trust, including each Fund, intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year to
avoid liability for this excise tax.
If for any taxable year a series does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the series'
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations.
Each series of the Trust, including each Fund, will be required in certain cases
to withhold and remit to the U.S. Treasury 31% of taxable dividends or 31% of
gross proceeds realized upon sale paid to shareholders who have failed to
provide a correct tax identification number in the manner required, or who are
subject to withholding by the Internal Revenue Service for failure properly to
include on their return payments of taxable interest or dividends, or who have
failed to certify to the Fund that they are not subject to backup withholding
when required to do so or that they are "exempt recipients."
Depending upon the extent of each Fund's activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, each
Fund may be subject to the tax laws of such states or localities. In addition,
in those states and localities that have income tax laws, the treatment of a
Fund and its shareholders under such laws may differ from their treatment under
federal income tax laws.
36
<PAGE>
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS. The Trustees and executive officers of the Trust, their
ages, and their principal occupations for the last five years are as follows:
Name, Age, Position(s) Principal Occupation(s)
and Address During Past 5 Years
F. Daniel Bell, III, 41 Partner
Trustee Wyrick, Robbins, Yates & Ponton
4101 Lake Boone Trail Raleigh, North Carolina
Suite 300
Raleigh, North Carolina 27619
Jack E. Brinson, 63 President, Brinson Investment Co.
Trustee President, Brinson Chevrolet, Inc.
1105 Panola Street Tarboro, North Carolina
Tarboro, North Carolina 27886
Eddie C. Brown, 55 President
Trustee* Brown Capital Management, Inc.
President Baltimore, Maryland
The Brown Capital Management Funds
809 Cathedral Street
Baltimore, Maryland 21201
Richard K. Bryant, 36 President
Trustee* Capital Investment Group
President Raleigh, North Carolina
Capital Value Fund Vice President
Post Office Box 32249 Capital Investment Counsel
Raleigh, North Carolina 27622 Raleigh, North Carolina
Elmer O. Edgerton, Jr., 54 President
Vice President Capital Investment Counsel
Capital Value Fund Raleigh, North Carolina
Post Office Box 32249 Vice President
Raleigh, North Carolina 27622 Capital Investment Group
Raleigh, North Carolina
Timothy L. Ellis, 40 Vice President
Trustee* Investek Capital Management
Vice President Jackson, Mississippi
Investek Fixed Income Trust since 1991; previously,
317 East Capitol Vice President
Jackson, Mississippi 39201 Graham Securities Company
Covington, Louisiana
R. Mark Fields, 43 Vice President
Vice President Investek Capital Management
Investek Fixed Income Trust Jackson, Mississippi
317 East Capital since 1991; previously,
Jackson, Mississippi 39201 Principal/Chief Operating Officer
Vector Money Management
Jackson, Mississippi
37
<PAGE>
John M. Friedman, 52 Vice President
Vice President Investek Capital Management
Investek Fixed Income Trust Jackson, Mississippi
317 East Capital
Jackson, Mississippi 39201
H. Kel Landis, III, 39 Regional Executive Vice President
Trustee Centura Bank
304 Stonybrook Road Rocky Mount, North Carolina
Rocky Mount, North Carolina 27803
Keith A. Lee, 35 Vice President
Vice President Brown Capital Management, Inc.
The Brown Capital Management Funds Baltimore, Maryland
309 Cathedral Street since 1991; previously
Baltimore, Maryland 21201 Vice President
Nexus Consulting Group, Ltd.
Charlottesville, Virginia
Michael T. McRee, 52 President
President Investek Capital Management, Inc.
Investek Fixed Income Trust Jackson, Mississippi
317 East Capital
Jackson, Mississippi 39201
Frank P. Meadows III, 35 Managing Director
Trustee, Chairman and Treasurer* The Nottingham Company
105 North Washington Street Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
Anmar K. Sarafa, 35 Executive Vice President
Vice President Zaske, Sarafa & Associates, Inc.
The ZSA Funds Bloomfield Hills, Michigan
Suite 310
1533 North Woodward Avenue
Bloomfield Hills, Michigan 48304
Thomas W. Steed, 38 Senior Corporate Attorney
Trustee Hardees Food Systems
101 Bristol Court Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
J. Buckley Strandberg, 36 Vice President
Trustee Standard Insurance and Realty
Post Office Box 1375 Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
C. Frank Watson III, 25 Vice President
Secretary The Nottingham Company
105 North Washington Street Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802 since 1992; previously,
Student
University of North Carolina
Chapel Hill, North Carolina
38
<PAGE>
Arthur E. Zaske, 48 President
Trustee* Zaske, Sarafa, & Associates, Inc.
President Bloomfield Hills, Michigan
The ZSA Funds
Suite 310
1533 North Woodward Avenue
Bloomfield Hills, Michigan 48304
- -------------------------------
* Indicates that Trustee is an "interested person" of the Trust for purposes of
the 1940 Act because of his position with one of the investment advisors or the
Administrator to the Trust.
The officers of the Trust will not receive compensation from the Trust for
performing the duties of their offices. Each Trustee who is not an "interested
person" of the Trust receives a fee of $2,000 each year plus $250 per series of
the Trust per meeting attended in person and $100 per series of the Trust per
meeting attended by telephone. All Trustees are reimbursed for any out-of-pocket
expenses incurred in connection with attendance at meetings.
COMPENSATION TABLE
</TABLE>
<TABLE>
<CAPTION>
Pension Total
Retirement Compensation
Aggregate Benefits Estimated from the
Compensation Accrued As Annual Trust
Name of Person, from the Part of Fund Benefits Upon Paid to
Position Trust Expenses Retirement Trustees
<S> <C>
F. Daniel Bell $7,950 None None $7,950
Trustee
Eddie C. Brown None None None None
Trustee
Richard K. Bryant None None None None
Trustee
Jack E. Brinson $7,950 None None $7,950
Trustee
Tim Ellis None None None None
Trustee
H. Kel Landis $7,950 None None $7,950
Trustee
Thomas W. Steed $6,200 None None $6,200
Trustee
J. Buckley Strandberg $7,950 None None $7,950
Trustee
Frank P. Meadows None None None None
Trustee
</TABLE>
Figures are for the fiscal year ended March 31, 1996.
39
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES. As of July 10, 1996, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) 8.89% of the then outstanding Institutional Shares of the
Equity Fund, 6.62% of the Balanced Fund and 4.07% of the Small Company Fund. On
the same date the following shareholders owned of record more than 5% of the
outstanding Institutional Shares of the Funds. Except as provided below, no
person is known by the Trust to be the beneficial owner of more than 5% of the
outstanding Institutional Shares of the Funds as of July 10, 1996.
EQUITY FUND
<TABLE>
<CAPTION>
<S> <C>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership* Percent
Alex Brown & Sons, Inc. FBO 17,247.547 shares 11.397%
Associated Black Charities
P.O. Box 96572
Washington, D.C. 20090
Calvin J. Williams, Jr. 10,295.835 shares 6.804%
8115 Milford Gardens
Rockdale, Maryland 21244
Richard J. and Diana R. Johnson 11,967.861 shares 7.908%
P.O. Box 820841
Houston, Texas 77282
Balter Grandchildrens Trust 11,433.028 shares 7.555%
9 Ridgeway Court
Baltimore, Maryland 21205
The Foundation for Spirituality 8,334.926 shares 5.508%
and Medicine, Inc.
c/o David C. Daneker, Chairman
10 Light Street
Baltimore, Maryland 21201
</TABLE>
BALANCED FUND
<TABLE>
<CAPTION>
<S> <C>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership* Percent
Edwin Gold IRA 57,492.800 shares 21.721%
2 Pomona North
Pikesville, Maryland 21208
Analytical Services, Inc. 33,008.293 shares 12.471%
Profit Sharing Pension Trust
7135 Minstrel Way, Suite 303
Columbia, Maryland 21045
Diana M. Epps Beneficiary UTA 36,743.389 shares 13.882%
1040 Deer Ridge Drive #144
Baltimore, Maryland 21210
40
<PAGE>
Total Health Care, Inc. 23,300.008 shares 8.803%
2305 N Charles Street
Baltimore, Maryland 21218
The Eddie C & C Sylvia Brown 17,521.624 shares 6.620%
Family Foundation
2 East Read St, 9th Floor
Baltimore, MD 21202
Jesse H. Hahn 14,901.024 shares 5.630%
10 Light Street
Baltimore, Maryland 21201
</TABLE>
SMALL COMPANY FUND
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent
<S> <C>
Robert E. Hall, IRA 35,820.492 shares 12.907%
3908 North Charles Street
Baltimore, Maryland 21217
Prince George County Police Pension Plan 36,066.808 shares 12.996%
Prince George County Fire Pension Plan 15,301.070 shares 5.513%
P.O. Box 96572
Washington, D.C. 20090
ROE PENCO CUSTODIAN Philadelphia Gas Works 20,765.737 shares 7.482%
Corestates Bank, NA
P.O. Box 7829
Philadelphia, PA 19101
</TABLE>
* The shares indicated are believed by the Trust to be owned both of record and
beneficially.
INVESTMENT ADVISOR. Information about Brown Capital Management, Inc.,
Baltimore, Maryland (the "Advisor") and its duties and compensation as Advisor
is contained in the Prospectus.
Compensation of the Advisor with regards to the Equity Fund, based upon the
Fund's average daily net assets, is at the annual rate of 0.65% of the first $25
million of net assets and 0.50% of all assets over $25 million. The Advisor
voluntarily waived its fee and reimbursed a portion of the Equity Fund's
operating expenses for the fiscal years ended March 31, 1994, 1995, and 1996.
The total fees waived amounted to $3,249, $5,813, and $9,978, respectively, and
expenses reimbursed amounted to $45,877, $46,778, and $51,590, respectively.
Compensation of the Advisor with regards to the Balanced Fund, based upon the
Fund's average daily net assets, is at the annual rate of 0.65% of the first $25
million of net assets and 0.50% of all assets over $25 million. The Advisor
voluntarily waived its fee and reimbursed a portion of the Balanced Fund's
operating expenses for the fiscal years ended March 31, 1994, l995, and 1996.
The total fees waived amounted to $6,711, $9,470, and $18,266, respectively, and
expenses reimbursed amounted to $38,951, $35,737, and $35,214, respectively.
Compensation of the Advisor with regards to the Small Company Fund, based upon
the Fund's average daily net assets, is at the annual rate of 1.00%. The Advisor
voluntarily waived its fee and reimbursed a portion of the Small Company Fund's
41
<PAGE>
operating expenses for the fiscal years ended March 31, 1994, 1995, and 1996.
The total fees waived amounted to $9,692, $20,295, and $30,755, respectively,
and expenses reimbursed amounted to $30,484, $24,351, and $24,506 respectively.
Restrictive limitations may be imposed on each Fund as a result of changes in
current state laws and regulations in those states where the Fund has qualified
its shares, or by a decision of the Trustees to qualify the shares in other
states having restrictive expense limitations.
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of such Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of its duties or from its reckless
disregard of its duties and obligations under the Agreement.
THE ADMINISTRATOR AND TRANSFER AGENT. The Trust has entered into a Fund
Accounting, Dividend Disbursing & Transfer Agent and Administration Agreement
with The Nottingham Company (the "Administrator"), 105 North Washington Street,
Post Office Drawer 69, Rocky Mount, North Carolina 27802-0069, pursuant to which
the Administrator receives a fee at the annual rate of 0.25% of the average
daily net assets of each Fund on the first $10 million; 0.20% of the next $40
million; 0.175% on the next $50 million; and 0.15% of its average daily net
assets in excess of $100 million. In addition, the Administrator currently
receives a base monthly fee of $1,750 for accounting and recordkeeping services
for each Fund and $750 for each Class of Shares beyond the initial Class of
Shares of each Fund. The Administrator also charges each Fund for certain costs
involved with the daily valuation of investment securities and is reimbursed for
out-of-pocket expenses. The Administrator charges a minimum fee of $3,000 per
month per Fund for all of its fees taken in the aggregate, analyzed monthly.
For the fiscal years ended March 31, 1994, 1995, and 1996, the Equity Fund paid
an administrative fee of $1,019, $10,739, and $11,769 respectively, the Balanced
Fund paid an administrative fee of $2,511, $11,121, and $12,812, respectively,
and the Small Company Fund paid an administrative fee of $4,286, $10,691, and
$11,110, respectively. For the fiscal year ended March 31, 1995, the
Administrator waived administrative fees of $1,910, $1,903, and $1,850,
respectively, for the Equity Fund, Balanced Fund, and Small Company Fund. For
the fiscal years ended March 31, 1994, 1995, and 1996, the Administrator
received $17,500, $21,000, and $21,000, respectively, from each Fund for
accounting and recordkeeping services.
The Administrator will perform the following services for each Fund: (1)
coordinate with the Custodian and monitor the services it provides to the Fund;
(2) coordinate with and monitor any other third parties furnishing services to
the Fund; (3) provide the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervise the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepare or supervise the preparation by third parties of all
federal, state and local tax returns and reports of the Fund required by
applicable law; (6) prepare and, after approval by the Trust, file and arrange
for the distribution of proxy materials and periodic reports to shareholders of
the Fund as required by applicable law; (7) prepare and, after approval by the
Trust, arrange for the filing of such registration statements and other
documents with the Securities and Exchange Commission and other federal and
state regulatory authorities as may be required by applicable law; (8) review
and submit to the officers of the Trust for their approval invoices or other
requests for payment of Fund expenses and instruct the Custodian to issue checks
in payment thereof; and (9) take such other action with respect to the Fund as
may be necessary in the opinion of the Administrator to perform its duties under
the agreement.
The Administrator also serves as each Fund's transfer agent and dividend
disbursing agent and will provide certain accounting and pricing services for
Fund.
DISTRIBUTOR. Capital Investment Group, Inc. (the "Distributor"), Post Office Box
32249, Raleigh, North Carolina 27622, acts as an underwriter and distributor of
each Fund's shares for the purpose of facilitating the registration of shares of
the Fund under state securities laws and to assist in sales of Fund shares
pursuant to a Distribution Agreement (the "Distribution Agreement") approved by
the Board of Trustees of the Trust.
42
<PAGE>
In this regard, the Distributor has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
each Fund shall from time to time identify to the Distributor as states in which
it wishes to offer its shares for sale, in order that state registrations may be
maintained for the Fund.
The Distributor is a broker-dealer registered with the Securities and Exchange
Commission and a member in good standing of the National Association of
Securities Dealers, Inc.
The Distribution Agreement may be terminated by either party upon 60 days prior
written notice to the other party.
CUSTODIAN. Wachovia Bank of North Carolina, N.A. (the "Custodian"), 301 North
Main Street, Winston-Salem, North Carolina 27102 serves as custodian for each
Fund's assets. The Custodian acts as the depository for each Fund, safekeeps its
portfolio securities, collects all income and other payments with respect to
portfolio securities, disburses monies at the Fund's request and maintains
records in connection with its duties as Custodian. For its services as
Custodian, the Custodian is entitled to receive from each Fund an annual fee
based on the average net assets of the Fund held by the Custodian.
INDEPENDENT AUDITORS. The firm of KPMG Peat Marwick LLP, 1021 East Cary Street,
Suite 1900, Richmond, Virginia 23219-4023, serves as independent auditors for
the Funds, and will audit the annual financial statements of the Funds and
prepare federal and state tax returns.
SPECIAL SHAREHOLDER SERVICES
Each Fund offers the following shareholder services:
REGULAR ACCOUNT. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. When
an investor makes an initial investment in the Fund, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a confirmation statement showing the current transaction and all
prior transactions in the shareholder account during the calendar year to date,
along with a summary of the status of the account as of the transaction date. As
stated in the Prospectus, share certificates are not issued.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Administrator will automatically charge the checking account for the amount
specified ($100 minimum) which will be automatically invested in shares at the
public offering price on or about the 21st day of the month. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing to the Administrator.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders owning shares with a value of $10,000
or more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $100 per payment, by
authorizing the Fund to redeem the necessary number of shares periodically (each
month, or quarterly in the months of March, June, September and December) in
order to make the payments requested. Each Fund has the capacity of
electronically depositing the proceeds of the systematic withdrawal directly to
the shareholder's personal bank account ($5,000 minimum per bank wire).
Instructions for establishing this service are included in the Fund Shares
Application, enclosed in the Prospectus, or available by calling the Funds. If
the shareholder prefers to receive his systematic withdrawal proceeds in cash,
or if such proceeds are less than the $5,000 minimum for a bank wire, checks
will be made payable to the designated recipient and mailed within 7 days of the
valuation date. If the designated recipient is other than the registered
shareholder, the signature of each shareholder must be guaranteed on the
application (see "Signature Guarantees" in the Prospectus). A corporation (or
partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles and required number of signatures
authorized to act on its behalf. The application must be signed by a duly
authorized officer(s) and the corporate seal affixed. No redemption fees are
charged to shareholders under this plan. Costs in conjunction with the
administration of the plan are borne by the Funds. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital
43
<PAGE>
gains or losses. The Systematic Withdrawal Plan may be terminated at any time by
the Funds upon sixty days written notice or by a shareholder upon written notice
to the Funds. Applications and further details may be obtained by calling the
Funds at 1-800-525-FUND, or by writing to:
The Brown Capital Management Funds
[INVESTOR SHARES] OR [INSTITUTIONAL SHARES]
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
PURCHASES IN KIND. Each Fund may accept securities in lieu of cash in payment
for the purchase of shares in the Fund. The acceptance of such securities is at
the sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long term investment of the Fund, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "How Shares are Valued" in the Prospectus. Transactions involving
the issuance of shares in a Fund for securities in lieu of cash will be limited
to acquisitions of securities (except for municipal debt securities issued by
state political subdivisions or their agencies or instrumentalities) which: (a)
meet the investment objectives and policies of the Fund; (b) are acquired for
investment and not for resale; (c) are liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (d) have a
value which is readily ascertainable (and not established only by evaluation
procedures) as evidenced by a listing on the American Stock Exchange, the New
York Stock Exchange, or NASDAQ.
REDEMPTIONS IN KIND. The Funds do not intend, under normal circumstances, to
redeem their securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Funds to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein each Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any ninety-day period, the lesser of (a) $250,000 or (b)
one percent (1%) of the Fund's net asset value at the beginning of such period.
TRANSFER OF REGISTRATION. To transfer shares to another owner, send a written
request to the applicable Fund at the address shown herein. Your request should
include the following: (1) the Fund name and existing account registration; (2)
signature(s) of the registered owner(s) exactly as the signature(s) appear(s) on
the account registration; (3) the new account registration, address, social
security or taxpayer identification number and how dividends and capital gains
are to be distributed; (4) signature guarantees (See the Prospectus under the
heading "Signature Guarantees"); and (5) any additional documents which are
required for transfer by corporations, administrators, executors, trustees,
guardians, etc. If you have any questions about transferring shares, call or
write the Fund.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each Class of each Fund may be quoted in
advertisements, sales literature, shareholder reports or other communications to
shareholders. Each Fund computes the "average annual total return" of each Class
of the Fund by determining the average annual compounded rates of return during
specified periods that equate the initial amount invested to the ending
redeemable value of such investment. This is done by determining the ending
redeemable value of a hypothetical $1,000 initial payment. This calculation is
as follows:
44
<PAGE>
P(1+T)n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made
at the beginning of the period.
P = hypothetical initial payment of $1,000 from which the
maximum sales load is deducted.
n = period covered by the computation, expressed in terms of
years.
Each Fund may also compute the aggregate total return of each Class of the Fund,
which is calculated in a similar manner, except that the results are not
annualized.
The calculation of average annual total return and aggregate total return assume
that the maximum sales load is deducted from the initial $1,000 investment at
the time it is made and that there is a reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. Each Fund may also quote other total
return information that does not reflect the effects of the sales load.
The average annual total return quotations for the Institutional Shares of the
Equity Fund, Balanced Fund and Small Company Fund for the fiscal year ended
March 31, 1996 are 30.25%, 27.04% and 33.00%, respectively. The average annual
total return quotations since inception of the Institutional Shares of each Fund
(September 30, 1992 to March 31, 1996) are 15.35%, 13.32% and 17.72%,
respectively. The cumulative total return quotations since inception of the
Institutional Shares of each Fund through March 31, 1996 are 64.86%, 54.93%, and
77.06%, respectively. These performance quotations should not be considered as
representative of the performance of the Institutional Shares of the Funds for
any specified period in the future. No Investor Shares of the Funds were issued
during any such period quoted above.
Each Fund's performance may be compared in advertisements, sales literature,
shareholder reports, and other communications to the performance of other mutual
funds having similar objectives or to standardized indices or other measures of
investment performance. In particular, each Fund may compare its performance to
the S&P 500 with Income Index. The Balanced Fund may also compare its
performance with a combination of the S&P 500 with Income Index and the Lehman
Government Corporate Bond Index. The Small Company Fund may compare its
performance, alone or in a combination, with the Russell 2000 Index, the NASDAQ
Composite Index, and the NASDAQ Industrials Index. Comparative performance may
also be expressed by reference to a ranking prepared by a mutual fund monitoring
service or by one or more newspapers, newsletters or financial periodicals. Each
Fund may also occasionally cite statistics to reflect its volatility and risk.
Each Fund may also compare its performance to other published reports of the
performance of unmanaged portfolios of companies. The performance of such
unmanaged portfolios generally does not reflect the effects of dividends or
dividend reinvestment. Of course, there can be no assurance that any Fund will
experience the same results. Performance comparisons may be useful to investors
who wish to compare a Fund's past performance to that of other mutual funds and
investment products. Of course, past performance is not a guarantee of future
results.
Each Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above.
As indicated, from time to time, each Fund may advertise its performance
compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific
period of time.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
45
<PAGE>
Investors may use such indices in addition to the Funds' Prospectus to obtain a
more complete view of each Fund's performance before investing. Of course, when
comparing a Fund's performance to any index, factors such as composition of the
index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for each Fund may quote total returns that are calculated
on non-standardized base periods. The total returns represent the historic
change in the value of an investment in the Fund based on monthly reinvestment
of dividends over a specified period of time.
From time to time each Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the reflects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. Each Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P and Moody's). Each Fund may also depict the historical performance
of the securities in which the Fund may invest over periods reflecting a variety
of market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
Each Fund may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
46
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Funds may acquire from time to time fixed income securities that meet the
following minimum rating criteria ("Investment Grade Debt Securities") or, if
unrated, are in the Advisor's opinion comparable in quality to Investment Grade
Debt Securities. The various ratings used by the nationally recognized
securities rating services are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed income
securities in which the Funds may invest should be continuously reviewed and
that individual analysts give different weightings to the various factors
involved in credit analysis. A rating is not a recommendation to purchase, sell
or hold a security, because it does not take into account market value or
suitability for a particular investor. When a security has received a rating
from more than one service, each rating is evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources that they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
STANDARD & POOR'S RATINGS GROUP. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Group ("S&P") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for debt in
higher rated categories.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
"Investment-Grade Debt Securities" and are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds may have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to municipal notes and
indicates very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given a
plus (+) designation.
47
<PAGE>
MOODY'S INVESTORS SERVICE, INC. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Debt which is rated A possesses many favorable investment attributes
and is to be considered as an upper medium grade obligation. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Debt which is rated Baa is considered as a medium grade obligation,
i.e., it is neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such debt lacks outstanding investment
characteristics and in fact has speculative characteristics as well.
Moody's applies numerical modifiers (l, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category.
Bonds which are rated Ba, B, Caa, Ca or C by Moody's are not considered
"Investment-Grade Debt Securities" by the Advisor. Bonds rated Ba are judged to
have speculative elements because their future cannot be considered as well
assured. Uncertainty of position characterizes bonds in this class, because the
protection of interest and principal payments often may be very moderate and not
well safeguarded.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period for time may be small. Bonds
which are rated Caa are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics of issuers rated
Prime-1 but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriated may be more affected by external conditions. Ample alternate
liquidity is maintained.
The following summarizes the highest rating used by Moody's for short-term notes
and variable rate demand obligations:
MIG-l; VMIG-l - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
48
<PAGE>
DUFF & PHELPS CREDIT RATING CO. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A - Bonds rated A have average but adequate protection factors. The risk
factors are more variable and greater in periods of economic stress.
BBB - Bonds rated BBB have below average protection factors but are still
considered sufficient for prudent investment. There is considerable
variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff l is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff l+, Duff 1 and
Duff 1- within the highest rating category. Duff l+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
FITCH INVESTORS SERVICE, INC. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc. ("Fitch") for bonds which are deemed to be
"Investment-Grade Debt Securities" by the Advisor:
AAA - Bonds are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds that are rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with
higher ratings.
BBB - Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category.
Bonds rated BB, B and CCC by Fitch are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
49
<PAGE>
The following summarizes the three highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+
F-2 - Instruments assigned this rating have satisfactory degree of
assurance for timely payment, but the margin of safety is not as great as
for issues assigned F-1+ and F-1 ratings.
50
<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
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
Number of Value
Shares (note 1)
--------- ---------
<S> <C>
COMMON STOCKS - 66.34%
Biopharmaceuticals - 1.75%
(a) Amgen, Inc. 1,000 $58,125
---------
Commercial Services - 1.82%
Equifax, Inc. 3,000 60,375
---------
Computers - 3.19%
(a) Bay Networks 1,800 55,350
(a) EMC Corporation 2,300 50,312
---------
105,662
---------
Computer Software & Services - 9.66%
(a) Cheyenne Software, Inc. 2,700 42,862
(a) Cisco Systems, Inc. 1,600 74,200
(a) Compuware Corporation 1,900 43,700
(a) Microsoft Corporation 500 51,562
(a) Oracle Corporation 950 44,769
(a) Sterling Software, Inc. 900 63,450
---------
320,543
---------
Electronics - 4.78%
Motorola, Inc. 930 49,290
(a) Solectron Corporation 1,200 52,800
(a) Vishay Intertechnology, Inc. 2,100 56,700
---------
158,790
---------
Entertainment - 2.03%
Carnival Corporation 2,450 67,375
---------
Financial - Banks, Commercial - 1.55%
Chase Manhattan Corporation 700 51,450
---------
Financial - Savings/Loans/Thrift - 2.51%
(a) Glendale Federal Bank FSB 4,600 83,375
---------
Financial Services - 4.93%
Green Tree Financial Corporation 2,600 89,375
T. Rowe Price Associates 1,400 74,200
---------
163,575
---------
Household Products & Housewares - 2.10%
Newell Company 2,600 69,550
---------
Insurance - Life & Health - 1.86%
AFLAC, Inc. 1,975 61,719
---------
</TABLE>
(Continued)
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
<PAGE>
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
Number of Value
Shares (note 1)
-------- --------
<S> <C>
COMMON STOCKS (Continued)
Medical - Hospital Management & Service - 3.70%
(a) Health Care and Retirement Corporation 1,150 $43,412
Manor Care, Inc. 850 33,362
United Healthcare Corporation 750 46,125
----------
122,899
----------
Mining - 0.83%
Minerals Technologies, Inc. 800 27,700
----------
Pharmaceuticals - 5.96%
(a) Alza Corporation 600 18,450
Cardinal Health, Inc. 1,100 70,675
Pfizer, Inc. 900 60,525
(a) R.P. Scherer Corporation 1,100 48,262
----------
197,912
----------
Real Estate Investment Trust - 3.78%
General Growth Properties 2,550 59,925
Post Properties, Inc. 1,700 55,250
Prime Retail, Inc. 900 10,350
----------
125,525
----------
Restaurants & Food Service - 3.93%
Cracker Barrel Old Country Store, Inc. 2,700 62,775
(a) The Cheesecake Factory 2,500 67,500
----------
130,275
----------
Retail - Department Stores - 1.92%
Dollar General Corporation 2,200 63,800
----------
Retail - Drug Stores - 0.58%
Revco D.S., Inc. 700 19,250
----------
Retail - Grocery - 1.70%
Casey's General Stores, Inc. 2,400 56,400
----------
Retail - Specialty Line - 3.95%
(a) AutoZone, Inc. 2,600 88,075
Home Depot, Inc. 900 42,975
----------
131,050
----------
Telecommunications - 1.02%
(a) Tellabs, Inc. 700 33,863
----------
Telecommunications Equipment - 1.26%
(a) DSC Communications Corporation 1,550 41,850
----------
</TABLE>
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
Number of Value
Shares (note 1)
--------- -----------
<S> <C>
COMMON STOCKS (Continued)
Utilities - Gas - 1.53%
MCN Corporation 2,200 $50,875
---------
Total Common Stocks (Cost $1,749,481) 2,201,938
---------
</TABLE>
<TABLE>
<CAPTION>
Interest Maturity
Principal Rate Date
---------- --------- ---------
<S> <C>
U.S. GOVERNMENT OBLIGATIONS - 11.84%
United States Treasury Bond $20,000 6.250% 8/15/2023 18,506
United States Treasury Note 70,000 6.375% 7/15/1999 70,798
United States Treasury Note 90,000 6.375% 8/15/2002 90,633
United States Treasury Note 100,000 7.500% 2/15/2005 107,391
United States Treasury Note 100,000 7.750% 1/31/2000 105,609
-----------
392,937
-----------
Total U.S. Government Obligations (Cost $382,618)
CORPORATE OBLIGATIONS - 7.33%
Alabama Power Company 15,000 7.750% 2/01/2023 14,826
Boston Edison Company 40,000 7.800% 5/15/2010 40,425
Chase Manhattan Corporation 30,000 6.500% 8/01/2005 28,388
Citicorp 15,000 7.125% 6/01/2003 15,113
Ford Motor Credit Corporation 40,000 7.250% 9/01/2010 38,700
NationsBank Corporation 15,000 6.875% 2/15/2005 14,864
Rouse Company 10,000 8.500% 1/15/2003 10,096
Time Warner, Inc. 20,000 9.150% 2/01/2023 21,300
USF&G Corporation 60,000 7.125% 6/01/2005 59,813
-----------
243,525
-----------
Total Corporate Obligations (Cost $245,768)
REPURCHASE AGREEMENT (b) - 13.85%
Wachovia Bank 459,799 5.380% 4/01/1996 459,799
-----------
(Cost $459,799)
Total Value of Investments (Cost $2,837,666 (c)) 99.36% 3,298,199
Other Assets Less Liabilities 0.64% 21,115
--------- ----------
Net Assets 100.00% $3,319,314
========= ==========
</TABLE>
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED 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
$472,165. 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 federal income tax purposes is the same as for
financial reporting purposes. Unrealized appreciation (depreciation)
of investments for financial reporting and federal income tax purposes
is as follows:
Unrealized appreciation $510,882
Unrealized depreciation (50,349)
---------
Net unrealized appreciation $460,533
=========
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
ASSETS
Cash $ 7,769
Investments, at value (cost $2,377,867) 2,838,400
Repurchase agreement (cost $459,799) 459,799
Interest receivable 10,241
Dividends receivable 1,501
Due from advisor (note 2) 2,059
Other assets 1,524
----------
Total assets 3,321,293
----------
LIABILITIES
Accrued custody fees 715
Accrued expenses 1,264
----------
Total liabilities 1,979
----------
NET ASSETS
(applicable to 241,178 Institutional Class shares
outstanding; unlimited shares of no par value
beneficial interest authorized) $3,319,314
==========
NET ASSET VALUE AND REPURCHASE PRICE PER INSTITUTIONAL
CLASS SHARE
($3,319,314 / 241,178 shares) $ 13.76
==========
NET ASSETS CONSIST OF
Paid-in capital $2,714,532
Undistributed net investment income 290
Undistributed net realized gain on investments 143,959
Net unrealized appreciation on investments 460,533
----------
$3,319,314
==========
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
INCOME
Interest $48,456
Dividends 22,376
--------------
TOTAL INCOME 70,832
--------------
EXPENSES
Fund accounting fees (note 2) 21,000
Investment advisory fees (note 2) 18,266
Professional fees 10,797
Fund administration fees (note 2) 7,025
Custody fees 6,000
Other administration fees (note 2) 5,787
Securities pricing fees 3,977
Registration and filing administration fees 2,938
Shareholder recordkeeping fees 445
Registration and filing expenses 6,504
Trustee fees and meeting expenses 5,617
Shareholder servicing expenses 4,358
Printing expenses 1,133
Other operating expenses 4,210
--------------
TOTAL EXPENSES 98,057
--------------
Less:
Expense reimbursements (note 2) (35,214)
Investment advisory fees waived (note 2) (18,266)
Fund administration fees waived (note 2) (12)
--------------
NET EXPENSES 44,565
--------------
NET INVESTMENT INCOME 26,267
--------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions 313,572
Increase in unrealized appreciation on investments 298,606
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 612,178
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $638,445
==============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended Year ended
March 31, March 31,
1996 1995
<S> <C>
----------- -----------
INCREASE IN NET ASSETS
Operations
Net investment income $ 26,267 $ 14,538
Net realized gain from investment transactions 313,572 6,896
Increase in unrealized appreciation on investments 298,606 129,906
----------- -----------
Net increase in net assets resulting from operations 638,445 151,340
----------- -----------
Distributions to shareholders from
Net investment income (26,177) (14,671)
Net realized gain from investment transactions (176,122) (27,167)
----------- -----------
Decrease in net assets resulting from distributions (202,299) (41,838)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) 586,962 999,007
----------- -----------
Total increase in net assets 1,023,108 1,108,509
NET ASSETS
Beginning of year 2,296,206 1,187,697
----------- -----------
End of year (including undistributed net investment income $ 3,319,314 $ 2,296,206
=========== ===========
of $290 in 1996 and $200 in 1995)
</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 43,696 $ 598,095 92,906 $ 1,021,047
Shares issued for reinvestment
of distributions 14,886 201,651 3,771 41,191
----------- ----------- ----------- -----------
58,582 799,746 96,677 1,062,238
Shares redeemed (16,078) (212,784) (5,751) (63,231)
----------- ----------- ----------- -----------
Net increase 42,504 $ 586,962 90,926 $ 999,007
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
AUGUST 11, 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 $11.56 $11.02 $10.62 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.12 0.10 0.08 0.04
Net realized and unrealized
gain on investments 2.98 0.77 0.43 0.62
---------------- ---------------- ---------------- -------------
TOTAL FROM INVESTMENT OPERATION 3.10 0.87 0.51 0.66
---------------- ---------------- ---------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (0.12) (0.11) (0.08) (0.04)
Net realized gain from investment
transactions (0.78) (0.22) (0.03) 0
---------------- ---------------- ---------------- -------------
TOTAL DISTRIBUTIONS (0.90) (0.33) (0.11) (0.04)
---------------- ---------------- ---------------- -------------
NET ASSET VALUE, END OF PERIOD $13.76 $11.56 $11.02 $10.62
================ ================ ================ =============
TOTAL RETURN 27.04% 8.04% 4.78% 6.60%
================ ================ ================ =============
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $3,319,314 $2,296,206 $1,187,697 $761,645
================ ================ ================ =============
RATIO OF EXPENSES TO AVERAGE NET ASSETS
Before expense reimbursements and waived fees 3.50% 5.43% 6.44% 9.56 (a)
After expense reimbursements and waived fees 1.59% 2.00% 2.00% 1.58 (a)
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS
Before expense reimbursements and waived fees (0.97)% (2.44)% (3.69)% (7.13) (a)
After expense reimbursements and waived fees 0.94 % 1.00 % 0.74 % 0.85 (a)
PORTFOLIO TURNOVER RATE 43.59 % 9.51 % 28.56 % 20.90
</TABLE>
(a) Annualized.
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Brown Capital Management Balanced 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 11, 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 subject to a maximum 3.50% sales charge 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 the last sales price as
of 4:00 p.m. New York time. 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 - The Fund is considered a personal holding
company as defined under Section 542 of the Internal Revenue
Code since 50% of the value of the Fund's shares were owned
directly or indirectly by five or fewer individuals at certain
times during the last half of the year. As a personal holding
company, the Fund is subject to federal income taxes on
undistributed personal holding company income at the maximum
individual income tax rate. No provision has been made for
federal income taxes since substantially all taxable income has
been distributed to shareholders. 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 may declare 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.
(CONTINUED)
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED 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 $18,266 ($0.09 per share)
and has voluntarily agreed to reimburse $35,214 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, the Advisor and its officers held 17,645 shares or
7.32% of the Fund shares outstanding.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $1,245,163 and $1,123,953, respectively, for
the year ended 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. All distributions from
net realized gains for the year ended March 31, 1996 represent
long-term capital gain. Shareholders should consult a tax advisor on
how to report distributions for state and local income tax purposes.
<PAGE>
<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 Balanced 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 11, 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 Balanced 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
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
Number of Value
Shares (note 1)
---------- -----------
COMMON STOCKS - 84.96%
Advertising - 3.24%
(a) Catalina Marketing Corporation 1,550 $121,094
-----------
Aerospace & Defense - 1.46%
OEA, Inc. 1,500 54,750
-----------
Commercial Services - 7.73%
(a) Insurance Auto Auctions, Inc. 900 8,325
(a) Medaphis Corporation 2,800 135,800
Paychex, Inc. 700 40,950
(a) Quintiles Transnational Corporation 1,600 104,000
-----------
289,075
-----------
Computers - 5.70%
(a) Bay Networks 2,250 69,188
Fair Issac & Company, Inc. 4,800 144,000
-----------
213,188
-----------
Computer Software & Services - 30.54%
(a) Acxiom Corporation 2,200 52,525
(a) Advent Software, Inc. 2,400 47,400
(a) American Business Information, Inc. 2,600 41,600
(a) BISYS Group, Inc. 3,900 129,188
(a) BMC Software, Inc. 2,400 131,400
(a) CFI Proservices, Inc. 2,200 33,275
(a) Cerner Corporation 1,300 30,225
(a) Cheyenne Software, Inc. 2,700 42,862
(a) GMIS, Inc. 300 4,388
(a) Hyperion Software Corporation 2,600 56,550
(a) Marcam Corporation 2,700 37,125
(a) Network General Corporation 1,000 40,000
(a) Parametric Technology Company 1,600 62,600
(a) Platinum Technology, Inc. 3,100 46,888
(a) Pyxis Corporation 2,100 53,944
(a) Quick Response Services, Inc. 2,800 72,100
(a) SPS Transaction Services, Inc. 2,500 77,188
(a) SPSS, Inc. 1,900 33,961
(a) Structural Dynamics Research Corporation 4,400 148,500
-----------
1,141,719
-----------
Electronics - 1.91%
(a) Sanmina Corporation 2,400 71,400
-----------
Financial Services - 3.68%
T. Rowe Price Associates 2,600 137,800
-----------
Furniture & Home Appliances - 2.35%
Juno Lighting, Inc. 6,400 88,000
-----------
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
Number of Value
Shares (note 1)
---------- ----------
COMMON STOCKS - (Continued)
Industrial Materials - Specialty - 0.19%
(a) Arden Industrial Products 1,800 $7,200
----------
Machine - Diversified - 0.69%
(a) Cognex Corporation 1,000 25,625
----------
Medical - Hospital Management & Service - 2.86%
(a) ABR Information Services, Inc. 2,300 106,950
----------
Medical Supplies - 12.06%
Ballard Medical Products 5,400 97,200
(a) Biomet, Inc. 4,100 57,400
Diagnostic Products Corporation 2,000 80,750
Life Technologies, Inc. 2,800 78,400
(a) Lynx Therapeutics, Inc. 81 648
(a) Molecular Dynamics, Inc. 3,900 22,425
(a) Perseptive Biosystems 3,900 29,738
(a) Techne Corporation 1,900 46,075
(a) TECNOL Medical Products, Inc. 2,200 38,533
----------
451,169
----------
Pharmaceuticals - 3.49%
(a) Alza Corporation 4,200 129,150
(a) Therapeutic Discovery Corporation 150 1,331
----------
130,481
----------
Real Estate Investment Trust - 2.85%
General Growth Properties 1,500 35,250
Post Properties, Inc. 2,200 71,500
----------
106,750
----------
Restaurants & Food Service - 5.39%
(a) Au Bon Pain Company, Inc. 8,800 74,800
(a) The Cheesecake Factory 4,700 126,900
----------
201,700
----------
Retail - Specialty Line - 0.82%
(a) Cosmetic Center, Inc. 5,600 30,800
----------
Total Common Stocks (Cost $2,283,271) 3,177,701
----------
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
Principal Value
Amount (note 1)
---------- -----------
REPURCHASE AGREEMENT (b) - 14.75%
Wachovia Bank
5.38%, due April 1, 1996 $551,733 $551,733
---------
Total Value of Investments (Cost $2,835,004(c)) 99.71% $3,729,434
Other Assets Less Liabilities 0.29% 10,774
---------- ----------
Net Assets 100.00% $3,740,208
=========== ==========
(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 $558,587. 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 $1,141,121
Unrealized depreciation (246,691)
-----------
Net unrealized appreciation $894,430
===========
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
ASSETS
Cash $ 4,217
Investments in common stocks, at value
(cost $2,283,271) 3,177,701
Repurchase agreement (cost $551,733) 551,733
Dividends receivable 2,818
Interest receivable 1,919
Prepaid expenses 1,079
Due from advisor (note 2) 756
Other assets 1,569
----------
Total assets 3,741,792
----------
LIABILITIES
Accrued expenses 1,584
----------
NET ASSETS
(applicable to 247,163 Institutional Class shares
outstanding; unlimited shares of no par value
beneficial interest authorized) $3,740,208
==========
NET ASSET VALUE AND REPURCHASE PRICE PER
INSTITUTIONAL CLASS SHARE
($3,740,208 / 247,163 shares) $ 15.13
==========
NET ASSETS CONSIST OF
Paid-in capital $2,723,432
Undistributed net realized gain on investments 122,346
Net unrealized appreciation on investments 894,430
----------
$3,740,208
==========
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest $24,084
Dividends 11,788
Other income 915
-----------
Total income 36,787
-----------
Expenses
Investment advisory fees (note 2) 30,755
Fund accounting fees (note 2) 21,000
Professional fees 10,834
Fund administration fees (note 2) 7,696
Custody fees 4,804
Securities pricing fees 3,911
Other administration fees (note 2) 3,414
Registration and filing administration fees 3,050
Shareholder recordkeeping fees 840
Trustee fees and meeting expenses 5,617
Registration and filing expenses 5,478
Shareholder servicing expenses 4,531
Printing expenses 1,179
Other operating expenses 4,227
-----------
Total expenses 107,336
-----------
Less:
Expense reimbursements (note 2) (24,506)
Investment advisory fees waived (note 2) (30,755)
-----------
Net expenses 52,075
-----------
Net investment loss (15,288)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions 310,770
Increase in unrealized appreciation on investments 591,974
-----------
Net realized and unrealized gain on investments 902,744
-----------
Net increase in net assets resulting from operations $887,456
===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended Year ended
March 31, March 31,
1996 1995
---------- ----------
<S> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss $ (15,288) $ (18,222)
Net realized gain from investment transactions 310,770 129,381
Increase in unrealized appreciation on investments 591,974 257,627
----------- -----------
Net increase in net assets resulting from operations 887,456 368,786
----------- -----------
Distributions to shareholders from
Net realized gain from investment transactions (232,386) (47,638)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) 475,777 457,289
----------- -----------
Total increase in net assets 1,130,847 778,437
NET ASSETS
Beginning of year 2,609,361 1,830,924
----------- -----------
End of year $ 3,740,208 $ 2,609,361
=========== ===========
</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 21,823 $309,573 39,457 $429,743
Shares issued for reinvestment
of distributions 16,876 232,386 4,455 47,638
-------- ---------- -------- ----------
38,699 541,959 43,912 477,381
Shares redeemed (4,737) (66,182) (1,946) (20,092)
-------- ---------- -------- ----------
Net increase 33,962 $475,777 41,966 $457,289
======== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
For the
period from
July 23, 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 $12.24 $10.69 $10.67 $10.00
Income (loss) from investment operations
Net investment loss (0.06) (0.06) (0.11) (0.03)
Net realized and unrealized gain on investments 4.00 1.86 0.59 0.70
----------- ----------- ----------- -----------
Total from investment operations 3.94 1.80 0.48 0.67
----------- ----------- ----------- -----------
Distributions to shareholders from
Net realized gain from investment transactions (1.05) (0.25) (0.46) 0.00
----------- ----------- ----------- -----------
Net asset value, end of period $15.13 $12.24 $10.69 $10.67
=========== =========== =========== ===========
Total return 33.00% 16.95% 4.39% 6.70%
=========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of period $3,740,208 $2,609,361 $1,830,924 $1,225,645
=========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 3.49% 4.49% 4.73% 5.45% (a)
After expense reimbursements and waived fees 1.69% 2.00% 2.00% 1.89% (a)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees (2.29%) (3.38%) (4.03%) (4.42%)(a)
After expense reimbursements and waived fees (0.50%) (0.90%) (1.34%) (0.86%)(a)
Portfolio turnover rate 23.43% 32.79% 23.47% 4.14%
</TABLE>
(a) Annualized.
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Brown Capital Management Small Company 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 July
23, 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 subject to a maximum 3.50%
sales charge 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.
As a result of the Fund's ability to offset a portion of its
short-term capital gains with its operating net investment
loss for income tax purposes, a reclassification adjustment
of $15,288 has been made on the statement of assets and
liabilities to decrease accumulated net investment loss,
bringing it to zero, and decrease undistributed net realized
gain on investments.
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.
(CONTINUED)
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
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.
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 1.00%
of the Fund's average daily net assets.
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 1.50% 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 1.50% 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 $30,755 ($0.14 per share) and has voluntarily
agreed to reimburse $24,506 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.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $813,539 and $621,147, respectively, for
the year ended March 31, 1996.
(CONTINUED)
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY 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 $1.045 per share of such distributions for the year ended
March 31, 1996, $1.042 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 Small Company 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 July 23, 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 Small Company 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
<PAGE>
PART C
THE NOTTINGHAM INVESTMENT TRUST II
FORM N1-A
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
a) Financial Statements:
Financial Highlights included in Part A for each series of the
Registrant through March 31, 1996
Annual Report for the fiscal year ended March 31, 1996 included in
Part B for each series of the Registrant
b) Exhibits
(1) Declaration of Trust - Amended and Restated Declaration of Trust;
Incorporated by reference; filed 6/2/95
(2) By-Laws - Amended and Restated By-Laws; Incorporated by reference; filed
6/2/95
(3) Not Applicable
(4) Not Applicable - the series of the Registrant do not issue certificates
(5) (a) Investment Advisory Agreement for the Capital Value Fund - Incorporated
by reference; filed on 10/29/90; Amendment to the Investment Advisory
Agreement - Incorporated by reference; filed on 8/1/95
(b) Investment Advisory Agreement for Investek Fixed Income Trust -
Incorporated by reference; filed on 9/20/91
(c) Investment Advisory Agreement for ZSA Social Conscience Fund -
Incorporated by reference; filed on 4/26/94
(d) Investment Advisory Agreement for ZSA Equity Fund - Incorporated by
reference; filed on 5/22/92; Amended and Restated Investment Advisory
Agreement - Incorporated by reference; filed 6/2/95
(e) Investment Advisory Agreement for ZSA Asset Allocation Fund -
Incorporated by reference; filed on 5/22/92; Amendment to the
Advisory Agreement - Incorporated by reference; filed 6/2/95
(f) Investment Advisory Agreement for The Brown Capital Management Equity
Fund - Incorporated by reference; filed on 5/27/92
(g) Investment Advisory Agreement for The Brown Capital Management Balanced
Fund - Incorporated by reference; filed on 5/27/92
(h) Investment Advisory Agreement for The Brown Capital Management Small
Company Fund - Incorporated by reference; filed on 5/27/92
(6) (a) Distribution Agreement for Capital Value Fund - Incorporated by
reference; filed on 8/1/95
(b) Distribution Agreement for Investek Fixed Income Trust - Enclosed
Exhibit 6(b)
(c) Distribution Agreement for ZSA Social Conscience Fund - Incorporated
by reference; filed on 4/26/94
(d) Distribution Agreement for ZSA Equity Fund - Incorporated by reference;
filed on 7/29/94
(e) Distribution Agreement for ZSA Asset Allocation Fund - Incorporated
by reference; filed on 7/29/94
(f) Distribution Agreement for The Brown Capital Management Equity Fund -
Incorporated by reference; filed 6/2/95
(g) Distribution Agreement for The Brown Capital Management Balanced Fund -
Incorporated by reference; filed 6/2/95
(h) Distribution Agreement for The Brown Capital Management Small Company
Fund - Incorporated by reference; filed 6/2/95
(7) Not Applicable
(8) Custodian Agreement - Incorporated by reference; filed on 5/26/93
(9) (a) Fund Accounting, Dividend Disbursing & Transfer Agent and Administration
Agreement -- Incorporated by reference; filed on 7/30/93
(b) Amendment to Fund Accounting, Dividend Disbursing & Transfer Agent
Administration Agreement Incorporated by reference; filed on 4/26/94
(c) Amendment to Fund Accounting, Dividend Disbursing & Transfer Agent
Administration Agreement Incorporated by reference - Incorporated by
reference; filed on 10/7/94
51
<PAGE>
(d) Amendment to Fund Accounting, Dividend Disbursing & Transfer Agent
Administration Agreement Incorporated by reference - Incorporated by
reference; filed 6/2/95
(10) Opinion and Consent of Counsel - Incorporated by reference; filed 5/30/96
(11) Consent of Auditors - Enclosed Exhibit 11
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) (a) Plan of Distribution under Rule 12b-1 for Capital Value Fund -
Incorporated by reference; filed on 8/1/95
(b) Plan of Distribution under Rule 12b-1 for Investek Fixed Income Trust -
Enclosed Exhibit 15(b)
(c) Plan of Distribution under Rule 12b-1 for ZSA Social Conscience
Fund - Incorporated by reference; filed on 4/26/94
(d) Plan of Distribution under Rule 12b-1 for ZSA Equity Fund -
Incorporated by reference; filed 7/29/94
(e) Plan of Distribution under Rule 12b-1 for ZSA Asset Allocation Fund -
Incorporated by reference; filed on 7/29/94
(f) Plan of Distribution under Rule 12b-1 for The Brown Capital
Management Equity Fund - Incorporated by reference; filed 6/2/95
(g) Plan of Distribution under Rule 12b-1 for The Brown Capital
Management Balanced Fund - Incorporated by reference; filed 6/2/95
(h) Plan of Distribution under Rule 12b-1 for The Brown Capital Management
Small Company Fund - Incorporated by reference; filed 6/2/95
(16) Computation of Performance - Enclosed Exhibit 16
(17) (a) Copies of Powers of Attorney - Incorporated by reference; filed on
10/29/90 and on 4/26/94
(b) Financial Data Schedules
(18) Plan Pursuant to Rule 18f-3 under the 1940 Act - Incorporated by reference;
filed on 8/1/95
ITEM 25. Persons Controlled by or Under Common Control with Registrant
No person is controlled by or under common control with Registrant.
ITEM 26. Number of Record Holders of Securities
As of July 10, 1996, the number of record holders of each class of
securities of Registrant was as follows:
Number of
Title of Class Record Holders
Capital Value Fund 242
Investek Fixed Income Trust 99
ZSA Social Conscience Fund 0
ZSA Equity Fund 67
ZSA Asset Allocation Fund 131
The Brown Capital Management Equity Fund - Institutional Shares 76
The Brown Capital Management Balanced Fund - Institutional Shares 43
The Brown Capital Management Small Company Fund - nstitutional Shares 134
ITEM 27. Indemnification
Reference is hereby made to the following sections of the following
documents filed or included by reference as exhibits hereto:
Article VIII, Sections 8.4 through 8.6 of the Registrant's
Declaration of Trust, Section 8(b), Section 8(b) of the Registrant's
Investment Advisory Agreements, Section 8(b) of the Registrant's
Administration Agreement, and Section (6) of the Registrant's
Distribution Agreements.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also
insured under the fidelity bond required by Rule 17g-1 under the
Investment Company Act of 1940.
52
<PAGE>
ITEM 28. Business and other Connections of Investment Advisor
See the Statement of Additional Information section entitled
"Trustees and Officers" for the activities and affiliations of the
officers and directors of the Investment Advisors of the Registrant.
Except as so provided, to the knowledge of Registrant, none of the
directors or executive officers of the Investment Advisors is or has
been at any time during the past two fiscal years engaged in any
other business, profession, vocation or employment of a substantial
nature. The Investment Advisors currently serve as investment
advisors to numerous institutional and individual clients.
ITEM 29. Principal Underwriter
(a) Capital Investment Group, Inc. is underwriter and distributor for The
Chesapeake Growth Fund, The Chesapeake Fund, Capital Value Fund, ZSA
Equity Fund, ZSA Asset Allocation Fund, ZSA Social Conscience Fund,
The Brown Capital Management Equity Fund, The Brown Capital
Management Balanced Fund, The Brown Capital Management Small Company
Fund, GrandView Realty Growth Fund, GrandView REIT Index Fund, and
GrandView Healthcare Realty Income Fund.
(b)
Name and Principal Position(s) and Offices Position(s) and Offices
Business Address with Underwriter with Registrant
Richard K. Bryant President Trustee and officer of
17 Glenwood Ave. Trust; President of
Raleigh, NC Capital Value Fund; no
position with other
series of Trust
E.O. Edgerton, Jr. Vice President Vice President of
17 Glenwood Ave. Capital Value Fund;
Raleigh, NC no position with other
series of Trust
(c) Not applicable
ITEM 30. Location of Accounts and Records
All account books and records not normally held by the Custodian and
the Investment Advisors are held by the Registrant, in the offices of
The Nottingham Company, Administrator and Transfer Agent to the
Registrant.
The address of The Nottingham Company is 105 North Washington Street,
P.O. Drawer 69, Rocky Mount, North Carolina 27802-0069.
ITEM 31. Management Services
The substantive provisions of the Fund Accounting, Dividend
Disbursing & Transfer Agent and Administration Agreement, as amended,
between the Registrant and The Nottingham Company are discussed in
Part B hereof.
ITEM 32. Undertakings
Registrant undertakes to furnish each person to whom a Prospectus is
delivered with a copy of the latest annual report of each series of
Registrant to shareholders upon request and without charge.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Amendment to Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Rocky Mount, State of North
Carolina on the 12th day of July, 1996.
THE NOTTINGHAM INVESTMENT TRUST II
By: /s/ FRANK P. MEADOWS III
Frank P. Meadows III
Chairman, Board of Trustees
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C>
* Trustee
F. Daniel Bell, III
* Trustee
Jack E. Brinson
* Trustee
Eddie C. Brown
* Trustee
Richard K. Bryant
* Trustee
Timothy L. Ellis
Trustee
H. Kel Landis, III
/s/ FRANK P. MEADOWS III Trustee, Principal Executive Officer, Principal
Frank P. Meadows III Financial Officer and Principal Accounting Officer
* Trustee
Thomas W. Steed, III
* Trustee
J. Buckley Strandberg
* Trustee
Arthur E. Zaske
* By:/s/ FRANK P. MEADOWS III
Frank P. Meadows III
Attorney-in-Fact Dated: July 12, 1996
</TABLE>
54
<PAGE>
THE NOTTINGHAM INVESTMENT TRUST II
EXHIBIT INDEX
SEQUENTIAL PAGE
EXHIBIT NUMBER DESCRIPTION NUMBER
EXHIBIT 6(B) DISTRIBUTION AGREEMENT FOR INVESTEK FIXED INCOME TRUST
EXHIBIT 15(B) PLAN OF DISTRIBUTION UNDER RULE 12B-1
FOR INVESTEK FIXED INCOME TRUST
EXHIBIT 11 CONSENT OF AUDITORS
EXHIBIT 16 COMPUTATION OF PERFORMACE DATA
EXHIBIT 17(B) FINANCIAL DATA SCHEDULES
55
EXHIBIT 6(B)
DISTRIBUTION AGREEMENT
AGREEMENT made effective as of the 1st day of August, 1996, by and between THE
NOTTINGHAM INVESTMENT TRUST II, an unincorporated business trust organized under
the laws of The Commonwealth of Massachusetts (the "Trust"), and CAPITAL
INVESTMENT GROUP, INC., a North Carolina corporation ("Distributor").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment
company and is so registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest (the "Shares"), in separate series representing the
interests in separate funds of securities and other assets; and
WHEREAS, the Trust offers a series of such Shares representing interests in the
INVESTEK FIXED INCOME TRUST (the "Fund") of the Trust, which Shares are divided
into two Classes of Investor and Institutional Shares, and has registered the
Shares under the Securities Act of 1933, as amended (the "1933 Act"), pursuant
to a registration statement on Form N-1A (the "Registration Statement"),
including a prospectus (the "Prospectus") and a statement of additional
information (the "Statement of Additional Information"); and
WHEREAS, the Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1
under the 1940 Act (the "Distribution Plan") with respect to the Investor Shares
of the Fund, and may enter into related agreements providing for the
distribution of Investor Shares of the Fund; and
WHEREAS, Distributor has agreed to act as distributor of the Shares of the Fund
for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. APPOINTMENT OF DISTRIBUTOR.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of the Shares of the Fund in jurisdictions wherein such
Shares may be legally offered for sale; provided, however, that the
Trust in its absolute discretion may issue Shares of the Fund in
connection with (i) the payment or reinvestment of dividends or
distributions; (ii) any merger or consolidation of the Trust or of the
Fund with any other investment company or trust or any personal holding
company, or the acquisition of the assets of any such entity or another
fund of the Trust; or (iii) any offer of exchange permitted by Section
11 of the 1940 Act.
(b) Distributor hereby accepts such appointment as exclusive agent for
the distribution of the Shares of the Fund and agrees that it will sell
the Shares as agent for the Trust at prices determined as hereinafter
provided and on the terms hereinafter set forth, all according to
applicable federal and state laws and regulations and to the Agreement
and Declaration of Trust of the Trust.
(c) Distributor may sell Shares of the Fund to or through qualified
securities dealers or others. Distributor will require each dealer or
other such party to conform to the provisions hereof, the Registration
Statement and the Prospectus and Statement of Additional Information,
and applicable law; and neither Distributor nor any such dealers or
others shall withhold the placing of purchase orders for Shares so as to
make a profit thereby.
(d) Distributor shall order Shares of the Fund from the Trust only to
the extent that it shall have received purchase orders therefor.
Distributor will not make, or authorize any dealers or others to make:
(i) any short sales of Shares; or (ii) any sales of Shares to any
Trustee or officer of the Trust or to any officer or director of
Distributor or of any corporation or association furnishing investment
advisory, managerial or supervisory services to the Trust, or to any
such corporation or association, unless such sales are made in
accordance with the then current Prospectus and Statement of Additional
Information.
(e) Distributor is not authorized by the Trust to give any information
or make any representations regarding the Shares of the Fund, except
such information or representations as are contained in the
<PAGE>
Registration Statement or in the current Prospectus or Statement of
Additional Information of the Fund, or in advertisements and sales
literature prepared by or on behalf of the Trust for Distributor's use.
(f) Notwithstanding any provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares of the Fund whenever, in its
sole discretion, it deems such action to be desirable.
2. OFFERING PRICE OF SHARES. All Fund Shares sold under this Agreement
shall be sold at the public offering price per Share in effect at the
time of the sale, as described in the then current Prospectus of the
Fund. The excess, if any, of the public offering price over the net
asset value of the Shares sold by Distributor as agent shall be retained
by Distributor as a commission for its services hereunder. Out of such
commission Distributor may allow commissions or concessions to dealers
and may allow them to others in its discretion in such amounts as
Distributor shall determine from time to time. Except as may be
otherwise determined by Distributor from time to time, such commissions
or concessions shall be uniform to all dealers. At no time shall the
Trust receive less than the full net asset value of the Shares,
determined in the manner set forth in the then current Prospectus and
Statement of Additional Information. Distributor shall also be entitled
to such commissions and other fees and payments as may be authorized by
the Trustees of the Trust from time to time under the Distribution Plan.
3. FURNISHING OF INFORMATION. The Trust shall furnish to Distributor
copies of any information, financial statements and other documents that
Distributor may reasonably request for use in connection with the sale
of Shares of the Fund under this Agreement. The Trust shall also make
available a sufficient number of copies of the Fund's current Prospectus
and Statement of Additional Information for use by the Distributor.
4. EXPENSES.
(a) The Trust will pay or cause to be paid the following expenses: (i)
preparation, printing and distribution to shareholders of the Prospectus
and Statement of Additional Information; (ii) preparation, printing and
distribution of reports and other communications to shareholders; (iii)
registration of the Shares under the federal securities laws; (iv)
qualification of the Shares for sale in certain states; (v)
qualification of the Trust as a dealer or broker under state law as well
as qualification of the Trust as an entity authorized to do business in
certain states; (vi) maintaining facilities for the issue and transfer
of Shares; (vii) supplying information, prices and other data to be
furnished by the Trust under this Agreement; and (viii) certain taxes
applicable to the sale or delivery of the Shares or certificates
therefor.
(b) Except to the extent such expenses are borne by the Trust pursuant
to the Distribution Plan, Distributor will pay or cause to be paid the
following expenses: (i) payments to sales representatives of the
Distributor and to securities dealers and others in respect of the sale
of Shares of the Fund; (ii) payment of compensation to and expenses of
employees of the Distributor and any of its affiliates to the extent
they engage in or support distribution of Fund Shares or render
shareholder support services not otherwise provided by the Trust's
transfer agent, administrator, or custodian, including, but not limited
to, answering routine inquiries regarding the Fund, processing
shareholder transactions, and providing such other shareholder services
as the Trust may reasonably request; (iii) formulation and
implementation of marketing and promotional activities, including, but
not limited to, direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising; (iv) preparation, printing
and distribution of sales literature and of Prospectuses and Statements
of Additional Information and reports of the Trust for recipients other
than existing shareholders of the Fund; and (v) obtaining such
information, analyses and reports with respect to marketing and
promotional activities as the Trust may, from time to time, reasonably
request.
(c) Distributor in connection with the Distribution Plan shall prepare
and deliver reports to the Trustees of the Trust on a regular basis, at
least quarterly, showing the expenditures with respect to the Fund
pursuant to the Distribution Plan and the purposes therefor, as well as
any supplemental reports as the Trustees of the Trust, from time to
time, may reasonably request.
5. REPURCHASE OF SHARES. Distributor as agent and for the account
of the Trust may repurchase Shares of the Fund offered for resale to it
and redeem such Shares at their net asset value.
57
<PAGE>
6. INDEMNIFICATION BY THE TRUST. In absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of Distributor, the Trust agrees to indemnify
Distributor and its officers and partners against any and all claims,
demands, liabilities and expenses that Distributor may incur under the
1933 Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in the
Registration Statement or any Prospectus or Statement of Additional
Information of the Fund, or in any advertisements or sales literature
prepared by or on behalf of the Trust for Distributor's use, or any
omission to state a material fact therein, the omission of which makes
any statement contained therein misleading, unless such statement or
omission was made in reliance upon and in conformity with information
furnished to the Trust in connection therewith by or on behalf of
Distributor. Nothing herein contained shall require the Trust to take
any action contrary to any provision of its Agreement and Declaration of
Trust or any applicable statute or regulation.
7. INDEMNIFICATION BY DISTRIBUTOR. Distributor agrees to indemnify the
Trust and its officers and Trustees against any and all claims, demands,
liabilities and expenses which the Trust may incur under the 1933 Act,
or common law or otherwise, arising out of or based upon (i) any alleged
untrue statement of a material fact contained in the Registration
Statement or any Prospectus or Statement of Additional Information of
the Fund, or in any advertisements or sales literature prepared by or on
behalf of the Trust for Distributor's use, or any omission to state a
material fact therein, the omission of which makes any statement
contained therein misleading, if such statement or omission was made in
reliance upon and in conformity with information furnished to the Trust
in connection therewith by or on behalf of Distributor; or (ii) any act
or deed of Distributor or its sales representatives, or securities
dealers and others authorized to sell Fund Shares hereunder, or their
sales representatives, that has not been authorized by the Trust in any
Prospectus or Statement of Additional Information of the Fund or by this
Agreement.
8. TERM AND TERMINATION.
(a) This Agreement shall become effective on the date hereof. Unless
terminated as herein provided, this Agreement shall continue in effect
for one year from the date hereof and shall continue in full force and
effect for successive periods of one year thereafter, but only so long
as each such continuance is approved (i) by either the Trustees of the
Trust or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund and, in either event, (ii) by vote
of a majority of the Trustees of the Trust who are not parties to this
Agreement or interested persons (as defined in the 1940 Act) of any such
party and who have no direct or indirect financial interest in this
Agreement or in the operation of the Distribution Plan or in any
agreement related thereto ("Independent Trustees"), cast at a meeting
called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time without the payment of
any penalty by vote of the Trustees of the Trust or a majority of the
Independent Trustees or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund or by Distributor,
on sixty days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9. LIMITATION OF LIABILITY. The obligations of the Trust hereunder shall
not be binding upon any of the Trustees, officers or shareholders of the
Trust personally, but shall bind only the assets and property of the
Trust. The term "The Nottingham Investment Trust II" means and refers to
the Trustees from time to time serving under the Agreement and
Declaration of Trust of the Trust, a copy of which is on file with the
Secretary of the Commonwealth of Massachusetts. The execution and
delivery of this Agreement has been authorized by the Trustees, and this
Agreement has been signed on behalf of the Trust by an authorized
officer of the Trust, acting as such and not individually, and neither
such authorization by such Trustees nor such execution and delivery by
such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the assets and property of the Trust as provided in the
Agreement and Declaration of Trust.
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be executed
as of the date first written above.
58
<PAGE>
THE NOTTINGHAM INVESTMENT TRUST II
Attest:
By:________________________________
INVESTEK FIXED INCOME TRUST
Attest:
By:________________________________
CAPITAL INVESTMENT GROUP, INC.
Attest:
By:________________________________
59
EXHIBIT 11
CONSENT OF AUDITORS
Independent Auditors' Consent
The Board of Trustees and Shareholders
The Nottingham Investment Trust II:
We consent to the use of our report dated May 14, 1996 included in the
registration statement on Form N-1A of The Brown Capital Management
Balanced Fund, The Brown Capital Management Equity Fund and The Brown
Capital Management Small Company Fund, each of which is a series of the
Nottingham Investment Trust II, and to the reference to our firm under
the heading "Financial Highlights" in the Institutional Class prospectus.
/s/ KPMG PEAT MARWICK LLP
Richmond, Virginia
July 1O, 1996
62
EXHIBIT 15(B)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
WHEREAS, The Nottingham Investment Trust II, an unincorporated business trust
organized and existing under the laws of the Commonwealth of Massachusetts (the
"Trust"), engages in business as an open-end management investment company and
is registered as such under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest (the "Shares"), in separate series representing the
interests in separate funds of securities and other assets; and
WHEREAS, the Trust offers a series of such Shares representing interests in the
INVESTEK FIXED INCOME TRUST (the "Fund") of the Trust, which Shares are divided
into two Classes of Investor and Institutional Shares;
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Non-Interested Trustees"), having determined, in
the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Section 36(a) and (b) of the 1940 Act, that
there is a reasonable likelihood that this Plan will benefit the Trust and its
shareholders, have approved this Plan by votes cast at a meeting called for the
purpose of voting hereon and on any agreements related hereto; and
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with Rule 12b-1
under the 1940 Act, on the following terms and conditions:
1. DISTRIBUTION AND SERVICING ACTIVITIES. Subject to the supervision of
the Trustees of the Trust, the Trust may, directly or indirectly, engage in any
activities primarily intended to result in the sale of Investor Shares of the
Fund, which activities may include, but are not limited to, the following: (a)
payments to the Trust's Distributor and to securities dealers and others in
respect of the sale of Investor Shares of the Fund; (b) payment of compensation
to and expenses of personnel (including personnel of organizations with which
the Trust has entered into agreements related to this Plan) who engage in or
support distribution of Investor Shares of the Fund or who render shareholder
support services not otherwise provided by the Trust's transfer agent,
administrator, or custodian, including but not limited to, answering inquiries
regarding the Trust, processing shareholder transactions, providing personal
services and/or the maintenance of shareholder accounts, providing other
shareholder liaison services, responding to shareholder inquiries, providing
information on shareholder investments in the Fund, and providing such other
shareholder services as the Trust may reasonably request; (c) formulation and
implementation of marketing and promotional activities, including, but not
limited to, direct mail promotions and television, radio, newspaper, magazine
and other mass media advertising; (d) preparation, printing and distribution of
sales literature; (e) preparation, printing and distribution of prospectuses and
statements of additional information and reports of the Trust for recipients
other than existing shareholders of the Trust; and (f) obtaining such
information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable. The Trust is
authorized to engage in the activities listed above, and in any other activities
primarily intended to result in the sale of Investor Shares of the Fund, either
directly or through other persons with which the Trust has entered into
agreements related to this Plan.
2. MAXIMUM EXPENDITURES. The expenditures to be made by the Trust
pursuant to this Plan and the basis upon which payment of such expenditures will
be made shall be determined by the Trustees of the Trust, but in no event may
such expenditures exceed an amount calculated at the rate of 0.25% per annum of
the average daily net asset value of the Investor Shares of the Fund for each
year or portion thereof included in the period for which the computation is
being made, elapsed since the inception of this Plan to the date of such
expenditures. Notwithstanding the foregoing, in no event may such expenditures
paid by the Trust as service fees exceed an amount calculated at the rate of
0.25% of the average annual net assets of the Investor Shares of the Fund, nor
may such expenditures paid as service fees to any person who sells Investor
Shares of the Fund exceed an amount calculated at the rate of 0.25% of the
average annual net asset value of such shares. Such payments for distribution
and shareholder servicing activities may be made directly by the Trust or to
other persons with which the Trust has entered into agreements related to this
Plan.
3. TERM AND TERMINATION. (a) This Plan shall become effective as of
the 1st day of August, 1996. Unless terminated as herein provided, this Plan
shall continue in effect for one year from the date hereof and shall
<PAGE>
continue in effect for successive periods of one year thereafter, but only so
long as each such continuance is specifically approved by votes of a majority of
both (i) the Trustees of the Trust and (ii) the Non-Interested Trustees, cast at
a meeting called for the purpose of voting on such approval.
(b) This Plan may be terminated at any time with respect to the Fund by
a vote of a majority of the Non-Interested Trustees or by a vote of a majority
of the outstanding voting securities of the Investor Class of the Fund as
defined in the 1940 Act.
4. AMENDMENTS. This Plan may not be amended to increase materially the
maximum expenditures permitted by Section 2 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting securities of the
Investor Class of the Fund as defined in the 1940 Act with respect to which a
material increase in the amount of expenditures is proposed, and no material
amendment to this Plan shall be made unless approved in the manner provided for
annual renewal of this Plan in Section 3(a) hereof.
5. SELECTION AND NOMINATION OF TRUSTEES. While this Plan is in
effect, the selection and nomination of the Non-Interested Trustees of the Trust
shall be committed to the discretion of such Non-Interested Trustees.
6. QUARTERLY REPORTS. The Treasurer of the Trust shall provide to
the Trustees of the Trust and the Trustees shall review quarterly a written
report of the amounts expended pursuant to this Plan and any related agreement
and the purposes for which such expenditures were made.
7. RECORDKEEPING. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 6 hereof, for a
period of not less than six years from the date of this Plan. Any such related
agreement or such reports for the first two years will be maintained in an
easily accessible place.
8. LIMITATION OF LIABILITY. Any obligations of the Trust hereunder shall
not be binding upon any of the Trustees, officers or shareholders of the Trust
personally, but shall bind only the assets and property of the Trust. The term
"The Nottingham Investment Trust II" means and refers to the Trustees from time
to time serving under the Agreement and Declaration of Trust of the Trust, a
copy of which is on file with the Secretary of The Commonwealth of
Massachusetts. The execution of this Plan has been authorized by the Trustees,
and this Plan has been signed on behalf of the Trust by an authorized officer of
the Trust, acting as such and not individually, and neither such authorization
by such Trustees nor such execution by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, but shall bind only the assets and property of the Trust as provided
in the Agreement and Declaration of Trust.
*
*
*
*
*
*
*
IN WITNESS THEREOF, the parties hereto have caused this Plan to be executed as
of the date written above.
THE NOTTINGHAM INVESTMENT TRUST II
Attest:
By__________________________________
Attest:
INVESTEK FIXED INCOME TRUST
By__________________________________
61
EXHIBIT 16
THE BROWN CAPITAL MANAGEMENT FUNDS
Each Fund computes the "average annual total return" of each Class of the Fund
by determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by determining the ending redeemable value of a
hypothetical $1,000 initial payment. This calculation is as follows:
P(1+T)n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made
at the beginning of the period.
P = hypothetical initial payment of $1,000 from which the
maximum sales load is deducted.
n = period covered by the computation, expressed in terms of
years.
Each Fund may also compute the aggregate total return of each Class of the Fund,
which is calculated in a similar manner, except that the results are not
annualized.
The calculation of average annual total return and aggregate total return assume
that the maximum sales load is deducted from the initial $1,000 investment at
the time it is made and that there is a reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. Each Fund may also quote other total
return information that does not reflect the effects of the sales load.
The average annual total return quotations for the Institutional Shares of the
Equity Fund, Balanced Fund and Small Company Fund for the fiscal year ended
March 31, 1996 are 30.25%, 27.04% and 33.00%, respectively. The average annual
total return quotations since inception of the Institutional Shares of each Fund
(September 30, 1992 to March 31, 1996) are 15.35%, 13.32% and 17.72%,
respectively. The cumulative total return quotations since inception of the
Institutional Shares of each Fund through March 31, 1996 are 64.86%, 54.93%, and
77.06%, respectively. These performance quotations should not be considered as
representative of the performance of the Institutional Shares of the Funds for
any specified period in the future. The Investor Shares of the Fund were not
authorized for issuance during any such period quoted above.
Cumulative Total Return
(ERV - P)/P = TR
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period
P = hypothetical initial payment of $1,000 from which the
maximum sales load is deducted
TR = total return
63
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
Average Annual Total Return for the 12 months ended March 31, 1996:
1,000(1+T)1 = 1,302.48
T = (1,302.48/1,000)1/1 - 1
T = 0.3025
T = 30.25%
ERV = $1,302.48
P = $1,000
n = 1
Average Annual Total Return since inception through March 31, 1996:
1,000(1+T)3.50 = 1,648.61
T = (1,648.61/1,000)1/3.50 - 1
T = 0.1535
T = 15.35%
ERV = $1,648.61
P = $1,000
n = 3.50
Cumulative Total Return since inception through March 31, 1996
(1,648.61 - 1,000)/1,000 = 0.6486
ERV = 1,648.61
P = 1,000
TR = 64.86%
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
Average Annual Total Return for the 12 months ended March 31, 1996:
1,000(1+T)1 = 1,270.45
T = (1,270.45/1,000)1/1 - 1
T = 0.2704
T = 27.04%
ERV = $1,270.45
P = $1,000
n = 1
Average Annual Total Return since inception through March 31, 1996:
1,000(1+T)3.50 = 1,549.30
T = (1,549.30/1,000)1/3.50 - 1
T = 0.1332
T = 13.32%
ERV = $1,549.30
P = $1,000
n = 3.50
64
<PAGE>
Cumulative Total Return since inception through March 31, 1996
(1,549.30 - 1,000)/1,000 = 0.5493
ERV = 1,549.30
P = 1,000
TR = 54.93%
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
Average Annual Total Return for the 12 months ended March 31, 1996:
1,000(1+T)1 = 1,330.03
T = (1,330.03/1,000)1/1 - 1
T = 0.3300
T = 33.00%
ERV = $1,330.03
P = $1,000
n = 1
Average Annual Total Return since inception through March 31, 1996:
1,000(1+T)3.50 = 1,770.58
T = (1,770.58/1,000)1/3.50 - 1
T = 0.1772
T = 17.72%
ERV = $1,770.58
P = $1,000
n = 3.50
Cumulative Total Return since inception through March 31, 1996
(1,770.58 - 1,000)/1,000 = 0.7706
ERV = 1,770.58
P = 1,000
TR = 77.06%
65
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> BROWN CAPITAL MGMT SMALL CO. FUND INSTIT CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 2,835,004
<INVESTMENTS-AT-VALUE> 3,729,434
<RECEIVABLES> 4,737
<ASSETS-OTHER> 7,621
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,741,792
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,584
<TOTAL-LIABILITIES> 1,584
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,723,432
<SHARES-COMMON-STOCK> 247,163
<SHARES-COMMON-PRIOR> 213,200
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 122,346
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 894,430
<NET-ASSETS> 3,740,208
<DIVIDEND-INCOME> 11,788
<INTEREST-INCOME> 24,084
<OTHER-INCOME> 915
<EXPENSES-NET> 52,075
<NET-INVESTMENT-INCOME> (15,288)
<REALIZED-GAINS-CURRENT> 310,770
<APPREC-INCREASE-CURRENT> 591,974
<NET-CHANGE-FROM-OPS> 887,456
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (232,386)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,823
<NUMBER-OF-SHARES-REDEEMED> (4,737)
<SHARES-REINVESTED> 16,876
<NET-CHANGE-IN-ASSETS> 1,130,847
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 59,250
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,755
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 107,336
<AVERAGE-NET-ASSETS> 3,075,515
<PER-SHARE-NAV-BEGIN> 12.24
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> 4.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.05)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.13
<EXPENSE-RATIO> 1.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> BROWN CAPITAL MGMT BALANCED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 2,837,666
<INVESTMENTS-AT-VALUE> 3,298,199
<RECEIVABLES> 11,742
<ASSETS-OTHER> 11,352
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,321,293
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,979
<TOTAL-LIABILITIES> 1,979
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,714,532
<SHARES-COMMON-STOCK> 241,178
<SHARES-COMMON-PRIOR> 198,674
<ACCUMULATED-NII-CURRENT> 290
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 143,959
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 460,533
<NET-ASSETS> 3,319,314
<DIVIDEND-INCOME> 22,376
<INTEREST-INCOME> 48,456
<OTHER-INCOME> 0
<EXPENSES-NET> 44,565
<NET-INVESTMENT-INCOME> 26,267
<REALIZED-GAINS-CURRENT> 313,572
<APPREC-INCREASE-CURRENT> 298,606
<NET-CHANGE-FROM-OPS> 638,445
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26,177)
<DISTRIBUTIONS-OF-GAINS> (176,122)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 43,696
<NUMBER-OF-SHARES-REDEEMED> (16,078)
<SHARES-REINVESTED> 14,886
<NET-CHANGE-IN-ASSETS> 1,023,108
<ACCUMULATED-NII-PRIOR> 200
<ACCUMULATED-GAINS-PRIOR> 6,509
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18,266
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 98,057
<AVERAGE-NET-ASSETS> 2,802,505
<PER-SHARE-NAV-BEGIN> 11.56
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 2.98
<PER-SHARE-DIVIDEND> (0.12)
<PER-SHARE-DISTRIBUTIONS> (0.78)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.76
<EXPENSE-RATIO> 1.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> BROWN CAPITAL MANAGEMENT EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 1,609,471
<INVESTMENTS-AT-VALUE> 1,948,862
<RECEIVABLES> 2,099
<ASSETS-OTHER> 15,575
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,966,536
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 674
<TOTAL-LIABILITIES> 674
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,499,677
<SHARES-COMMON-STOCK> 124,364
<SHARES-COMMON-PRIOR> 91,436
<ACCUMULATED-NII-CURRENT> 82
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 126,712
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 339,391
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<DIVIDEND-INCOME> 9,091
<INTEREST-INCOME> 14,828
<OTHER-INCOME> 0
<EXPENSES-NET> 23,837
<NET-INVESTMENT-INCOME> 82
<REALIZED-GAINS-CURRENT> 162,208
<APPREC-INCREASE-CURRENT> 224,377
<NET-CHANGE-FROM-OPS> 386,667
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (29,243)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,834
<NUMBER-OF-SHARES-REDEEMED> (4,695)
<SHARES-REINVESTED> 1,789
<NET-CHANGE-IN-ASSETS> 835,842
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 115,013
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,978
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 85,405
<AVERAGE-NET-ASSETS> 1,530,944
<PER-SHARE-NAV-BEGIN> 12.36
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 3.72
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.27)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.81
<EXPENSE-RATIO> 1.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
