Letter to the Shareholders of Investek Fixed Income Trust
Dear Fellow Shareholders:
We are pleased to present the report for Investek Fixed Income Trust for the
twelve month period ending March 31, 1997. The Trust achieved a total return of
5.38% for the period, ranking it 26th out of 540 funds in the intermediate term,
investment grade fixed income category as reported by Lipper Analytical
Services. For the quarter ending March 31, 1997 the Trust achieved a total
return of 0.41%, ranking it 4th out of 621 funds in the peer group. Dividends of
$0.65 per share were paid during the year.
Events during the year presented a challenging environment for managing fixed
income assets. Interest rates rose throughout the year for securities at all
maturities from three months to thirty years. Treasury securities with three,
five and ten year maturities saw their yields increase by 67, 67, and 58 basis
points respectively.
Calendar year 1997 actually started with a bang, as bonds rallied during the
first six weeks of the year on declining interest rates. But the trend soon
reversed due to worries about an upsurge in inflation. And when the Federal
Reserve raised the federal-funds rate to 5.5% for 5.25% on March 25, long term
interest rates rose above the psychologically important 7% mark, further eroding
investor confidence.
Many bond investors have become "Fed Watchers", positioning portfolios based on
their opinion that Fed Chairman Greenspan will continue his war on inflation
with further rate hikes (or not). This annual communication is a good time to
restate one of the primary principles or our management process. We do not
attempt to forecast the direction of interest rates. Few are able to get it
right and the penalty for being wrong is extreme. Instead, we add value through
individual security selection, with a focus on the high quality end of the
market. History has proven this style to be effective in achieving our stated
investment objective of the Trust, "to preserve capital and maximize total
returns through active management of investment grade fixed income securities".
Thank you for the confidence you have placed in us. We appreciate the
opportunity to be of service.
Sincerely,
Michael T. McRee
President
Investek Capital Management
<PAGE>
INVESTEK FIXED INCOME TRUST
PERFORMANCE UPDATE - $50,000 INVESTMENT
For the period from November 15, 1991
(commencement of operations) to March 31, 1997
Investek Fixed Income Trust Lehman Aggregate
15-Nov-91 50,000.00 50,000.00
31-Dec-91 50,355.00 51,720.00
31-Mar-92 50,612.00 51,059.00
30-Jun-92 55,345.00 53,119.00
30-Sep-92 53,918.00 55,401.00
31-Dec-92 54,275.00 55,548.00
31-Mar-93 56,875.00 57,844.00
30-Jun-93 58,672.00 59,378.00
30-Sep-93 60,027.00 60,928.00
31-Dec-93 60,004.00 60,964.00
31-Mar-94 57,698.00 59,216.00
30-Jun-94 57,065.00 58,606.00
30-Sep-94 57,281.00 58,963.00
31-Dec-94 57,736.00 59,186.00
31-Mar-95 60,426.00 62,171.00
30-Jun-95 64,300.00 65,959.00
30-Sep-95 64,918.00 67,254.00
31-Dec-95 67,446.00 70,120.00
31-Mar-96 66,892.00 68,877.00
30-Jun-96 67,836.00 69,268.00
30-Sep-96 68,958.00 70,549.00
31-Dec-96 70,199.00 72,665.00
31-Mar-97 70,487.00 72,259.00
This graph depicts the performance of the Investek Fixed Income Trust versus the
Lehman Brothers Aggregate Bond Index. It is important to note the Investek Fixed
Income Trust is a professionally managed mutual fund while the index is not
available for investment and is unmanaged. The comparison is shown for
illustrative purposes only.
Average Annual Total Return
- ------------------------------------------------------
Since Inception One Year Five Years
- ------------------------------------------------------
6.59% 5.38% 6.85%
- ------------------------------------------------------
The graph assumes an initial $50,000 investment at November 15, 1991. All
dividends and distributions are reinvested.
At March 31, 1997, the Fund would have grown to $70,487 - total investment
return of 40.97% since November 15, 1991.
At March 31, 1997, a similar investment in the Lehman Brothers Aggregate Bond
Index would have grown to $72,259 - total investment return of 44.52% since
November 15, 1991.
Past performance is not a guarantee of future performance. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
INVESTEK FIXED INCOME TRUST
PORTFOLIO OF INVESTMENTS
March 31, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
- -------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT AND AGENCY OBLIGATIONS - 64.53%
United States Treasury Note $125,000 5.750% 08/15/03 $117,788
A.I.D. - Equador 90,244 7.050% 05/01/15 88,907
A.I.D. - Ivory Coast 300,059 8.100% 12/01/06 304,542
A.I.D. - Peru 186,590 8.350% 01/01/07 189,993
A.I.D. - Zaire 5,010 7.375% 04/01/97 5,017
B.A.L.T. Conway Partnership Title XI 145,616 10.750% 11/15/03 148,714
Cambridge Tanker Title XI 209,630 8.450% 02/07/06 216,335
Chilbar Ship Co. Title XI 69,857 6.980% 07/15/01 70,130
Federal Home Loan Mortgage Corporation
REMIC 1553 Class E 500,000 6.250% 04/15/07 484,375
Pool #W10001 64,000 6.420% 12/01/05 59,743
REMIC Pac-1(11) Class J 500,000 7.500% 09/15/21 490,156
Pool #240001 D 32,271 9.500% 11/01/97 32,752
Federal National Mortgage Association
Pool #73401 495,404 6.440% 03/01/06 467,236
REMIC Series 1993-117 Class K 478,939 6.500% 07/25/08 449,155
REMIC Trust G93-20 Class PG 243,000 6.500% 02/25/19 237,077
REMIC Trust 1992-169 Class J 250,000 6.500% 03/25/21 232,969
REMIC Trust 1992-G52 Class C 29,590 7.250% 08/25/20 29,720
Pool #250138 108,423 7.500% 07/01/04 108,505
REMIC Trust G95-2 Class L 250,000 8.000% 05/17/04 252,109
Federal National Mortgage Association Strip
Series 66 Class 1 233,110 7.500% 01/01/20 229,040
Global Industries Ltd. Title XI 1,295,000 8.300% 07/15/20 1,320,698
Government National Mortgage Association
Pool #16402 268,025 8.500% 04/15/12 266,337
Pool #383137 415,078 7.750% 03/15/11 414,380
Marine Vessel Buffalo Title XI 383,380 7.270% 09/01/03 389,204
Moore McCormack Leasing - Series B 204,000 8.875% 07/15/01 203,259
Small Business Administration 111,475 7.365% 12/06/09 109,273
Small Business Administration 92-A 325,995 7.600% 01/01/12 326,787
---------
Total U. S. Government and Agency Obligations (Cost $7,282,182) 7,244,201
---------
U. S. GOVERNMENT INSURED OBLIGATIONS - 11.91%
Federal Housing Authority Project Loan
Crystal City 64,158 2.900% 01/01/06 53,539
Downtowner Apartments 169,900 8.375% 11/01/11 166,748
GMAC 32 88,024 7.430% 12/01/21 88,077
Kinswood Apartments 613,824 6.875% 10/01/14 606,898
USGI #87 423,997 7.430% 08/01/23 422,310
---------
Total U. S. Government Insured Obligations (Cost $1,352,417) 1,337,572
---------
(Continued)
<PAGE>
INVESTEK FIXED INCOME TRUST
PORTFOLIO OF INVESTMENTS
March 31, 1997
- -------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
- -------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 4.12%
GG1B Funding Corporation $478,333 7.430% 01/15/11 $462,396
(Cost $478,333)
CONVENTIONAL MORTGAGE BACKED SECURITIES - 12.62%
GE Capital Mortgage Services, Inc.
REMIC Series 1993-17 Class A6 650,000 6.500% 11/25/23 628,672
Prudential Home Mortgage Securities
REMIC Series 1992-50 Class A5 85,000 7.625% 02/25/23 82,291
REMIC Series 1994-2 Class A8 500,000 6.750% 02/25/24 467,188
Residential Funding Corporation
REMIC Series 1993-S16 Class A6 250,000 7.000% 05/25/23 238,828
---------
Total Conventional Mortgage Backed Securities (Cost $1,447,111) 1,416,979
---------
PRIVATE MORTGAGE BACKED SECURITIES - 2.36%
Krauss/Schwartz Properties, Ltd. 143,115 7.740% 02/18/04 137,577
National Housing Partnership 129,615 9.500% 05/01/03 127,812
---------
Total Private Mortgage Backed Securities (Cost $272,730) 265,389
---------
PRIVATE PLACEMENT CORPORATE SECURITIES - 2.40%
Rosewood Care Center Capital Funding Corporation
First Mortgage Bonds 295,489 7.250% 11/01/13 268,589
(Cost $288,174) ---------
Shares
--------
INVESTMENT COMPANY - 5.68%
Performance Funds Trust Money Market Fund "A" 638,512 638,512
(Cost $638,512)
Total Value of Investments (Cost $11,759,459 (a)) 103.62 % $11,633,638
Liabilities In Excess of Other Assets (3.62)% (406,497)
----- --------
Net Assets 100.00 % $11,227,141
====== ===========
(a) 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 $50,314
Unrealized depreciation (176,135)
--------
Net unrealized depreciation ($125,821)
=========
See accompanying notes to financial statements
</TABLE>
<PAGE>
INVESTEK FIXED INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
ASSETS
Investments, at value (cost $11,759,459) $11,633,638
Income receivable 111,969
Prepaid expenses 162
Other asset 2,659
-----------
Total assets 11,748,428
-----------
LIABILITIES
Accrued expenses 2,379
Payable for investment purchases 494,635
Disbursements in excess of cash on demand deposit 24,273
-----------
Total liabilities 521,287
-----------
NET ASSETS
(applicable to 1,124,668 Institutional Class Shares $11,227,141
outstanding; unlimited shares of no par value ===========
beneficial interest authorized)
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($11,227,141 / 1,124,668 shares) $9.98
===========
NET ASSETS CONSIST OF
Paid-in capital $11,875,396
Undistributed net investment income 170
Accumulated net realized loss on investments (522,604)
Net unrealized depreciation on investments (125,821)
-----------
$11,227,141
===========
See accompanying notes to financial statements
<PAGE>
INVESTEK FIXED INCOME TRUST
STATEMENT OF OPERATIONS
Year ended March 31, 1997
INVESTMENT INCOME
Income
Interest $828,391
Dividends 20,634
---------
Total income 849,025
---------
Expenses
Investment advisory fees (note 2) 52,526
Fund administration fees (note 2) 17,511
Custody fees 7,443
Registration and filing administration fees 2,252
Fund accounting fees (note 2) 21,000
Audit fees 11,808
Legal fees 5,288
Securities pricing fees 1,115
Shareholder recordkeeping fees 808
Shareholder servicing expenses 3,532
Registration and filing expenses 3,362
Printing expenses 1,416
Trustee fees and meeting expenses 6,751
Other operating expenses 5,293
----------
Total expenses 140,105
----------
Less Investment advisory fees waived (note 2) (35,023)
----------
Net expenses 105,082
----------
Net investment income 743,943
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions 40,347
Decrease in unrealized appreciation on investments (171,926)
----------
Net realized and unrealized loss on investments (131,579)
----------
Net increase in net assets resulting from operations $612,364
==========
See accompanying notes to financial statements
<PAGE>
INVESTEK FIXED INCOME TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
1997 1996
- ------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS
Operations
Net investment income $743,943 $905,819
Net realized gain (loss) from investment transactions 40,347 (30,968)
Increase (decrease) in unrealized appreciation on investments (171,926) 660,566
-------- -------
Net increase in net assets resulting from operations 612,364 1,535,417
------- ---------
Distributions to shareholders from
Net investment income (748,208) (905,271)
-------- --------
Capital share transactions
Decrease in net assets resulting from capital share transactions (a) (898,136) (3,352,499)
-------- ----------
Total decrease in net assets (1,033,980) (2,722,353)
NET ASSETS
Beginning of year 12,261,121 14,983,474
---------- ----------
End of year (including undistributed net investment income $11,227,141 $12,261,121
of $170 in 1997 and $4,435 in 1996) ----------- ----------
(a) A summary of capital share activity follows:
----------------------------------------------------------------
Year ended Year ended
March 31, 1997 March 31, 1996
----------------------------------------------------------------
Shares Value Shares Value
--------- --------- -------- ---------
Shares sold 90,260 $912,132 148,043 $1,503,798
Shares issued for reinvestment
of distributions 46,737 470,441 53,720 545,148
------ ------- ------ -------
136,997 1,382,573 201,763 2,048,946
Shares redeemed (225,604) (2,280,709) (526,499) (5,401,445)
-------- ---------- -------- ----------
Net decrease (88,607) $(898,136) (324,736) $(3,352,499)
======== ========== ======== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INVESTEK FIXED INCOME TRUST
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Year)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31, March 31,
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.11 $9.74 $9.93 $10.48 $9.92
Income (loss) from investment operations
Net investment income 0.65 0.66 0.63 0.61 0.65
Net realized and unrealized gain (loss) on investments (0.13) 0.37 (0.19) (0.43) 0.56
----- ---- ----- ----- ----
Total from investment operations 0.52 1.03 0.44 0.18 1.21
---- ---- ---- ---- ----
Distributions to shareholders from
Net investment income (0.65) (0.66) (0.63) (0.60) (0.64)
Net realized gain from investment transactions 0.00 0.00 0.00 (0.13) (0.01)
---- ---- ---- ----- -----
Total distributions (0.65) (0.66) (0.63) (0.73) (0.65)
----- ----- ----- ----- -----
Net asset value, end of year $9.98 $10.11 $9.74 $9.93 $10.48
===== ====== ===== ===== ======
Total return 5.38% 10.70% 4.73% 1.43% 12.49%
==== ===== ==== ==== =====
Ratios/supplemental data
Net assets, end of period $11,227,141 $12,261,121 $14,983,474 $17,641,814 $5,267,626
=========== =========== =========== =========== ==========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 1.20% 1.08% 1.08% 1.41% 1.69%
After expense reimbursements and waived fees 0.90% 0.87% 0.77% 0.77% 0.95%
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees 6.07% 6.20% 6.15% 5.45% 5.50%
After expense reimbursements and waived fees 6.37% 6.41% 6.45% 5.82% 6.24%
Portfolio turnover rate 32.94% 16.57% 19.64% 34.42% 59.78%
See accompanying notes to financial statements
</TABLE>
<PAGE>
INVESTEK FIXED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Investek Fixed Income Trust (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, as amended. The investment objective of the Fund is to preserve capital
and maximize total returns through active management of investment grade fixed
income securities. The Fund began operations on November 15, 1991.
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 Shares
of the Fund on August 1, 1996, and an additional class of shares, the Investor
Shares, was authorized. To date, only Institutional Shares have been issued by
the Fund. The Investor Shares will be sold with a sales charge and will bear
potential distribution expenses and service fees. The Institutional Shares are
sold without a sales charge and bears no shareholder servicing or distribution
fees. 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.
Securities for which market quotations are not readily available are valued
in good faith using a method approved by the Trust's Board of Trustees,
taking into consideration institutional bid and last sale prices, and
securities prices, yields, estimated maturities, call features, ratings,
institutional trading in similar groups of securities and developments
related to specific securities. Short-term investments are valued at cost
which approximates value.
The financial statements include securities valued at $11,633,638 (104% of
net assets) whose values have been estimated using a method approved by the
Trust's Board of Trustees. Such securities are valued by using a matrix
system, which is based upon the factors described above and particularly
the spread between yields on the securities being valued and yields on U.
S. Treasury securities with similar remaining years to maturity. Those
estimated values may differ from the values that would have resulted from
actual purchase and sale transactions.
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.
The Fund has capital loss carryforwards for federal income tax purposes of
$562,951, $492,567 of which expires in the year 2003 and $70,384 of which
expires in the year 2004. It is the intention of the Board of Trustees of
the Trust not to distribute any realized gains until the carryforwards have
been offset or expire.
(Continued)
<PAGE>
INVESTEK FIXED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and income tax purposes primarily because of losses incurred
subsequent to October 31, which are deferred for income tax purposes. The
character of distributions made during the year from net investment income or
net realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to the timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the year that the
income or realized gains were recorded by the Fund.
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 an accrual
basis.
D. Distributions to Shareholders - The Fund generally declares dividends
monthly, 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. Distributions to shareholders are recorded
on the ex-dividend date. The Fund may make a supplemental distribution
subsequent to the end of its fiscal year ending March 31.
E. Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Investek 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 0.45% 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 currently intends to
voluntarily waive all or a portion of its fee and reimburse expenses of the Fund
to limit total Fund operating expenses to 0.90% of the average daily net assets
of the Fund. There can be no assurance that the foregoing voluntary fee waivers
or reimbursements will continue. The Advisor has voluntarily waived a portion of
its fee amounting to $35,023 ($0.03 per share) for the year ended March 31,
1997.
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 0.15% of the Fund's average
daily net assets. 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.
(Continued)
<PAGE>
INVESTEK FIXED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
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 $3,692,489 and $4,305,406, respectively, for the year ended March 31,
1997.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
The Nottingham Investment Trust II:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Investek Fixed Income Trust (a portfolio of The
Nottingham Investment Trust II) as of March 31, 1997, and the related statements
of operations and changes in net assets, and financial highlights for the year
then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended March 31, 1996
and the financial highlights for the four years in the period ended March 31,
1996 were audited by other auditors, whose reports thereon dated May 14, 1996,
expressed an unqualified opinion.
We conducted our audit 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 the securities owned as of March 31, 1997 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Investek Fixed Income Trust as of March 31, 1997, the results of its operations,
the changes in its net assets and its financial highlights for the year then
ended in conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
April 25, 1997
