<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 84.52%
Aerospace & Defense - 3.41%
AlliedSignal, Inc. ................................................... 8,000 $283,000
----------
Beverages - 3.20%
PepsiCo, Inc. ........................................................ 9,000 264,938
----------
Chemicals - Specialty - 1.11%
Morton International ................................................. 4,200 91,875
----------
Computers - 1.92%
Hewlett-Packard Co. .................................................. 3,000 158,812
----------
Computer Software & Services - 3.86%
(a) Oracle Corporation ................................................... 11,000 320,375
----------
Cosmetics & Personal Care - 5.48%
Gilllette Company .................................................... 6,000 229,500
(a) Playtex Products, Inc. ............................................... 16,000 225,000
----------
454,500
----------
Direct Marketing - 4.01%
(a) TeleSpectrum Worldwide Inc. .......................................... 40,000 332,500
----------
Diversified Manufacturing - 0.96%
General Electric Company ............................................. 1,000 79,562
----------
Electronics - Semiconductor - 2.07%
Intel Corporation .................................................... 2000 171,500
----------
Financial - Banks, Commercial - 5.27%
NationsBank Corporation .............................................. 4,100 219,606
Resource Bank ........................................................ 11,800 217,563
----------
437,169
----------
Financial - Banks, Money Center - 3.69%
CCB Financial Corporation ............................................ 2,000 201,500
Chase Manhattan Corporation .......................................... 2,400 104,400
----------
305,900
----------
Financial Services - 5.68%
Equifax, Inc. ........................................................ 6,000 214,125
Fannie Mae ........................................................... 4,000 257,000
----------
471,125
----------
Holding Companies - Diversified - 3.27%
Mobil Corporation .................................................... 1,600 121,500
(a) Travelers Group, Inc. ................................................ 4,000 149,750
----------
271,250
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued) ......................................................
Insurance - Life & Health - 3.45%
AFLAC, Incorporated .................................................. 10,000 $ 285,625
----------
Insurance - Multiline - 2.80%
American International Group, Inc. ................................... 3,000 231,750
----------
Manufactured Housing - 1.42%
Oakwood Homes Corporation ............................................ 9,000 118,125
----------
Manufacturing - Miscellaneous - 2.80%
Tyco International Ltd. .............................................. 4,200 232,050
----------
Medical Supplies - 2.36%
Johnson & Johnson .................................................... 2,500 195,625
----------
Multimedia - 7.87%
The Walt Disney Company .............................................. 8,000 203,500
(a) Tele-Communications, Inc. ............................................ 7,000 273,875
Time Warner, Inc. .................................................... 2,000 175,125
----------
652,500
----------
Pharmaceuticals - 6.03%
American Home Products Corporation ................................... 4,600 240,925
Merck & Co., Inc. .................................................... 2,000 259,125
----------
500,050
----------
Restaurants & Food Service - 2.88%
McDonald's Corporation ............................................... 4,000 238,750
----------
Retail - Specialty Line - 1.92%
Lowe's Companies, Inc. ............................................... 5,000 159,063
----------
Telecommunications - 2.95%
(a) MCI WorldCom, Inc. ................................................... 5,000 244,375
----------
Tobacco - 0.54%
Standard Commercial Corporation ...................................... 6,000 44,625
----------
Toys - 2.53%
Mattel, Inc. ......................................................... 7,500 210,000
---------
Utilities - Electric - 3.04%
(a) CalEnergy Company, Inc. .............................................. 9,500 251,750
----------
Total Common Stocks (Cost $7,091,691) ...................................................... 7,006,794
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS - 3.34%
Insurance - Multiline - 1.65%
AICI CAPITAL TRUST, 9.00% ............................................ 5,500 $ 136,813
----------
Telecommunications - 1.69%
TCI Communications, 8.72% ............................................ 5,500 139,906
----------
Total Preferred Stocks (Cost $281,974) ..................................................... 276,719
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity
Principal Rate Date
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATION - 1.73%
Macsaver Financial Services ......... .............. $150,000 7.875% 8/01/03 143,484
(Cost $146,322) ----------
US GOVERNMENT OBLIGATION - 3.52%
US Government National Strip ....................... 400,000 0.000% 11/15/05 291,550
(Cost $270,335) ----------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 6.28%
Evergreen Money Market Treasury Institutional Money ....................... 373,777 373,777
Market Fund Institutional Service Shares
Evergreen Money Market Treasury Institutional Treasury Money .............. 147,062 147,062
Market Fund Institutional Service Shares ----------
Total Investment Companies (Cost $520,839) ........................... 520,839
----------
Total Value of Investments (Cost $8,311,161 (b)) ....................................................... 99.39 % $8,239,386
Other Assets Less Liabilities .......................................................................... 0.61 % 50,562
------ ----------
Net Assets ...................................................................................... 100.00 % $8,289,948
====== ==========
(a) Non-income producing investment.
(b) Aggregate cost for financial reporting and federal income tax purposes is the same. Unrealized appreciation
(depreciation) of investments for financial reporting and federal income taxes purposes is as follows:
Unrealized appreciation $ 787,566
Unrealized depreciation (859,341)
---------
Net unrealized depreciation ($71,775)
=========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
(Unaudited)
ASSETS
Investments, at value (cost $8,311,161) ........................................................... $ 8,239,386
Cash .............................................................................................. 10
Income receivable ................................................................................. 8,663
Receivable for fund shares sold ................................................................... 22,040
Deferred organization expense (note 4) ............................................................ 32,877
Other assets ...................................................................................... 6,008
-----------
Total assets ................................................................................. 8,308,984
-----------
LIABILITIES
Accrued expenses .................................................................................. 18,340
Other liabilities ................................................................................. 696
-----------
Total liabilities ............................................................................ 19,036
-----------
NET ASSETS ............................................................................................... $ 8,289,948
===========
NET ASSETS CONSIST OF
Paid-in capital ................................................................................... $ 8,741,092
Undistributed net investment income ............................................................... 5,083
Accumulated net realized loss on investments ...................................................... (384,452)
Net unrealized depreciation on investments ........................................................ (71,775)
-----------
$ 8,289,948
===========
INSTITUTIONAL CLASS
Net asset value, redemption and maximum offering price per share
($7,083,067 / 713,953 shares outstanding) ...................................................................... $ 9.92
=======
INVESTOR CLASS
Net asset value, redemption and offering price per share
($1,206,881 / 122,276 shares outstanding) ...................................................................... $ 9.87
=======
Maximum offering price per share (100 / 96.25% of $9.87) ....................................................... $ 10.25
=======
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
Period ended September 30, 1998
(Unaudited)
INVESTMENT INCOME
Income
Interest ..................................................................................... $ 30,925
Dividends .................................................................................... 48,934
----------
Total income ........................................................................... 79,859
----------
Expenses
Investment advisory fees (note 2) ............................................................ 30,902
Fund administration fees (note 2) ............................................................ 7,210
Audit fees ................................................................................... 4,276
Legal fees ................................................................................... 9,309
Fund accounting fees (note 2) ................................................................ 16,500
Distribution fees and service fees - Investor Class (note3) .................................. 2,733
Custody fees ................................................................................. 1,740
Securities pricing fees ...................................................................... 1,371
Shareholder recordkeeping fees ............................................................... 2,991
Registration and filing administration fees .................................................. 2,218
Shareholder servicing expenses ............................................................... 1,949
Registration and filing expenses ............................................................. 6,213
Trustee fees and meeting expenses ............................................................ 2,005
Printing expenses ............................................................................ 896
Amortization of deferred organization expenses (note 4) ...................................... 4,125
Other operating expenses ..................................................................... 616
----------
Total expenses ......................................................................... 95,054
----------
Less investment advisory fees waived (note 2) .......................................... (20,278)
----------
Net expenses ........................................................................... 74,776
----------
Net investment income ............................................................. 5,083
----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss from investment transactions .................................................... (342,266)
Decrease in unrealized appreciation on investments ................................................ (801,754)
----------
Net realized and unrealized loss on investments .............................................. (1,144,020)
----------
Net decrease in net assets resulting from operations ................................... $(1,138,937)
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
For the
period from
September 9, 1997
(commencement of
Period ended operations) to
September 30, March 31,
1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income ............................................................ $ 5,083 $ 1,567
Net realized loss from investment transactions ................................... (342,266) (42,186)
(Decrease) increase in unrealized appreciation on investments .................... (801,754) 729,979
----------- -----------
Net (decrease) increase in net assets resulting from operations .............. (1,138,937) 689,360
----------- -----------
Distributions to shareholders from
Net investment income - Institutional Class ...................................... 0 (2,096)
Net investment income - Investor Class ........................................... 0 (40)
----------- -----------
Decrease in net assets resulting from distributions .......................... 0 (2,136)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ............. 2,289,506 6,452,155
----------- -----------
Total increase in net assets ............................................ 1,150,569 7,139,379
NET ASSETS
Beginning of period ................................................................... 7,139,379 0
----------- -----------
End of period (including undistributed net investment income of
$5,083 at September 30, 1998) ......................................... $ 8,289,948 $ 7,139,379
=========== ===========
(a) A summary of capital share activity follows:
-----------------------------------------------------------------------------------
For the period from
September 9, 1997
Period ended (commencement of operations)
September 30, 1998 to March 31, 1998
Shares Value Shares Value
-----------------------------------------------------------------------------------
- ------------------------------------------------
INSTITUTIONAL CLASS
- ------------------------------------------------
Shares sold ............................................ 151,422 $ 1,706,201 564,741 $ 5,750,088
Shares issued for reinvestment of distributions ........ 0 0 191 2,096
----------- ----------- ----------- -----------
151,422 1,706,201 564,932 5,752,184
Shares redeemed ........................................ (2,270) (22,219) (131) (1,395)
----------- ----------- ----------- -----------
Net increase ...................................... 149,152 $ 1,683,982 564,801 $ 5,750,789
=========== =========== =========== ===========
- ------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------
Shares sold ............................................ 59,452 $ 662,320 67,766 $ 701,326
Shares issued for reinvestment of distributions ........ 0 0 4 40
----------- ----------- ----------- -----------
59,452 662,320 67,770 701,366
Shares redeemed ........................................ (4,946) (56,796) 0 0
----------- ----------- ----------- -----------
Net increase ...................................... 54,506 $ 605,524 67,770 $ 701,366
=========== =========== =========== ===========
- ------------------------------------------------
FUND SUMMARY
- ------------------------------------------------
Shares sold ............................................ 210,874 $ 2,368,521 632,507 $ 6,451,414
Shares issued for reinvestment of distributions ........ 0 0 195 2,136
----------- ----------- ----------- -----------
210,874 2,368,521 632,702 6,453,550
Shares redeemed ........................................ (7,216) (79,015) (131) (1,395)
----------- ----------- ----------- -----------
Net increase ...................................... 203,658 $ 2,289,506 632,571 $ 6,452,155
=========== =========== =========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
------------------------------ --------------------------------
INSTITUTIONAL CLASS INVESTOR CLASS
------------------------------ --------------------------------
For the For the
period from period from
September 30, October 3,
1997 (date of 1997 (date of
initial public initial public
Period ended offering) to Period ended offering) to
September 30, March 31, September 30, March 31,
1998 1998 1998 1998
------------------------------ ---------------------------------
Net asset value, beginning of period ............................ $11.29 $10.02 $11.26 $10.22
Income from investment operations
Net investment income (loss) ......................... 0.01 0.00 (0.01) (0.01)
Net realized and unrealized (loss) gain on investments (1.38) 1.27 (1.38) 1.05
---------- ---------- ---------- ----------
Total from investment operations ............... (1.37) 1.27 (1.39) 1.04
---------- ---------- ---------- ----------
Distributions to shareholders from
Net investment income ................................ (0.00) 0.00 (0.00) (0.00)
---------- ---------- ---------- ----------
Net asset value, end of period .................................. $ 9.92 $11.29 $ 9.87 $11.26
========== ========== ========== ==========
Total return (a) ................................................ (12.13)% 12.72 % (12.34)% 10.52 %
========== ========== ========== ==========
Ratios/supplemental data
Net assets, end of period ................................. $7,083,067 $6,376,193 $1,206,881 $ 763,186
========== ========== ========== ==========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ........ 2.31 %(b) 3.15 %(b) 2.31 %(b) 3.63 %(b)
After expense reimbursements and waived fees ......... 1.75 %(b) 1.75 %(b) 2.25 %(b) 2.25 %(b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees ........ (0.37)%(b) (1.31)%(b) (0.37)%(b) (1.70)%(b)
After expense reimbursements and waived fees ......... 0.19 %(b) 0.09 %(b) (0.32)%(b) (0.31)%(b)
Portfolio turnover rate ................................... 22.51 % 23.64 % 22.51 % 23.64 %
Average broker commission per share (c) ................... $0.0810 $0.0778 $0.0810 $0.0778
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
(c) Represents total commission paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
See accompanying notes to financial statements
</TABLE>
<PAGE>
WST GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The WST Growth & Income 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, as amended. The Fund began
operations on September 9, 1997. The investment objective of the 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 has an unlimited number of authorized
shares, which are divided into two classes - Institutional Shares and
Investor Shares.
Each class of shares has equal rights as to assets of the Fund, and the
classes are identical except for differences in their sales charge
structures and ongoing distribution and service fees. Income, expenses
(other than distribution and service fees, which are only attributable
to the Investor Class), and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its
relative net assets. Investor Shares purchased are subject to a maximum
sales charge of three and three-quarters percent. Both classes have
equal voting privileges, 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 class. 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. 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.
The Fund has capital loss carryforwards for federal income tax
purposes of $42,186, which expire in the year 2006. 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.
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 to shareholders 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 trade date. Realized gains and losses are determined using
the specific identification cost method. Interest income is
recorded daily on an accrual basis. Dividend income is
recorded on the ex-dividend date.
(Continued)
<PAGE>
WST GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
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. Distributions to
shareholders are recorded on the ex-dividend date. 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 - 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 estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Wilbanks, Smith & Thomas
Asset 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 0.75% of the first $250 million of
the Fund's average daily net assets and 0.65% of all assets over $250
million.
The Advisor currently intends to voluntarily waive all or a portion of
its fee and to reimburse expenses of the Fund to limit total Fund
operating expenses to a maximum of 1.75% of the average daily net
assets of the Fund's Institutional Class and a maximum of 2.25% of the
average daily net assets of the Fund's Investor Class. 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 $20,278 ($0.03 per share) for the period ended September
30, 1998.
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 0.175% of the Fund's first $50 million of average daily
net assets, 0.15% of the next $50 million, 0.125% of the next $50
million, and 0.10% of average daily net assets over $150 million. The
Administrator also receives a monthly fee of $2,000 for accounting and
record-keeping services for the initial class of shares and $750 per
month for each additional class of 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.
North Carolina Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing
agent. The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund's shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions.
(Continued)
<PAGE>
WST GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Certain Trustees and officers of the Trust are also officers or
directors of the Advisor, the Distributor, or the Administrator.
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including the Trustees who are not "interested
persons" of the Trust as defined in the Investment Company Act of 1940
(the "Act"), adopted a distribution and service plan pursuant to Rule
12b-1 of the Act (the "Plan") applicable to the Investor Shares. The
Act regulates the manner in which a regulated investment company may
assume costs of distributing and promoting the sales of its shares and
servicing of its shareholder accounts.
The Plan provides that the Fund may incur certain costs, which may not
exceed 0.50% per annum of the Investor Shares' average daily net assets
for each year elapsed subsequent to adoption of the Plan, for payment
to the Distributor and others for items such as advertising expenses,
selling expenses, commissions, travel, or other expenses reasonably
intended to result in sales of Investor Shares in the Fund or support
servicing of Investor Share shareholder accounts. Such expenditures
incurred as service fees may not exceed 0.25% per annum of the Investor
Shares' average daily net assets. The Fund incurred $2,733 of such
expenses under the Plan for the period ended September 30, 1998.
NOTE 4 - DEFERRED ORGANIZATION EXPENSES
All expenses of the Fund incurred in connection with its organization
and the registration of its shares have been assumed by the Fund. The
organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $4,287,445 and $1,641,207, respectively, for the period
ended September 30, 1998.
<PAGE>
Capital Value Fund
MANAGER'S COMMENTS
What a year! At a recent research meeting, one of our brokers commented
that if you had gone to sleep in June and woke up again in November, you would
have no idea that anything untoward had happened in the financial markets. I
wish those sentiments were true; however, the financial markets sustained a
great deal of damage in the second and third quarters of 1998. The market is
currently in a rebuilding phase. This window of reconstruction should give us an
upward bias into the first quarter of 1999. I do feel the worse is behind us.
With three rate cuts in six weeks, the Alan Greenspan has shown that he takes
the current crisis very seriously.
In preparation for this missive, I reread my comments from earlier this
year. At that time, my concern was a case of "too far, too fast" for the major
market indices. I felt we would get a pullback. Unfortunately, I had no idea it
would be of such magnitude. The Capital Value Fund (CVF) fared well in this
volatile environment. So well in fact that September saw us garner our first
ever number one Lipper ranking. September's seeds of success were sown in May,
June and early July. During these three months, I repositioned the portfolio,
and we boasted a large cash position going into early August. The large cash
accomplished two things. A. it lessened our losses and B. we had able to wade in
and take advantage of some the incredible bargains the market produced.
Going forward, my near term concentration has been in three sectors, the
financials, the airlines and the oil service group. All three areas are
substantially down from their yearly highs and have very attractive upside over
the next eighteen months. I feel the market will continue to be volatile, but
after our performance this summer, I am confident we can continue to produce
solid returns.
Hal Eddins
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 55.55%
Aerospace & Defense - 1.27%
The Boeing Company ............................................................ 3,500 $ 120,094
----------
Auto & Trucks - 0.66%
Chrysler Corporation .......................................................... 1,300 62,238
----------
Beverages - 0.62%
PepsiCo, Inc. ................................................................. 2,000 58,875
----------
Brewery - 0.97%
Adolph Coors Company .......................................................... 2,000 91,875
----------
Broadcast - Radio & Television - 0.94%
(a) MediaOne Group, Inc. .......................................................... 2,000 88,875
----------
Building Materials - 1.18%
Louisiana-Pacific Corporation ................................................. 5,500 112,063
----------
Chemicals - 0.56%
Engelhard Corporation ......................................................... 3,000 53,063
----------
Commercial Services - 1.16%
Automatic Data Processing, Inc. ............................................... 1,000 74,750
Crawford & Company ............................................................ 2,000 35,250
----------
110,000
----------
Computers - 6.85%
Compaq Computer Corporation ................................................... 11,500 363,687
(a) EMC Corporation ............................................................... 5,000 285,937
----------
649,624
----------
Computer Software & Services - 12.22%
(a) 3Com Corporation .............................................................. 4,500 135,280
Adobe Systems Incorporated .................................................... 1,000 34,687
(a) Brooktrout Technology ......................................................... 4,300 58,453
(a) Cisco Systems, Inc. ........................................................... 7,500 463,594
Hewlett-Packard Company ....................................................... 4,500 238,218
(a) Novell, Inc. .................................................................. 10,500 128,625
(a) Parametric Technology Corporation ............................................. 6,000 60,375
(a) Pomeroy Computer Resources, Inc. .............................................. 2,475 41,147
----------
1,160,379
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Electronics - 2.67%
AMP Incorporated .............................................................. 2,500 $ 89,375
(a) Cree Research, Inc. ........................................................... 8,000 124,000
(a) Integrated Device Technology, Inc. ............................................ 7,500 39,844
----------
253,219
----------
Financial - Banks, Commercial - 3.55%
First Union Corporation ....................................................... 2,000 102,375
NationsBank Corporation ....................................................... 1,200 64,275
Wachovia Corporation .......................................................... 2,000 170,500
----------
337,150
----------
Foreign Securities - 0.96% (b)
Norsk Hydro ASA - ADR ......................................................... 2,500 90,000
----------
Household Products & Housewares - 0.50%
Rubbermaid, Inc. .............................................................. 2,000 47,875
----------
Insurance - Multiline - 0.59%
Travelers Group Inc. .......................................................... 1,500 56,156
----------
Machine - Construction & Mining - 1.88%
Caterpillar Inc. .............................................................. 4,000 178,250
----------
Medical Supplies - 1.88%
(a) Datascope Corp. ............................................................... 6,000 132,750
(a) ThermoTrex Corporation ........................................................ 3,600 45,900
----------
178,650
----------
Oil & Gas - Equipment & Services - 0.60%
Halliburton Company ........................................................... 2,000 57,125
----------
Pharmaceuticals - 5.17%
Bristol-Myers Squibb Company .................................................. 1,000 103,875
Mylan Laboratories Inc. ....................................................... 6,000 177,000
(a) Perrigo Company ............................................................... 12,500 114,063
(a) Roberts Pharmaceutical Corporation ............................................ 5,000 95,625
----------
490,563
----------
Retail - Apparel - 0.27%
(a) Abercrombie & Fitch Co. ....................................................... 41 1,794
The Cato Corporation .......................................................... 2,000 23,250
----------
25,044
----------
Retail - Department Stores - 1.73%
Wal-Mart Stores, Inc. ......................................................... 3,000 163,875
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Retail - Grocery - 1.12%
Food Lion, Inc. ............................................................... 10,000 $ 106,250
----------
Telecommunications Equipment - 0.26%
(a) Premisys Communications, Inc. ................................................. 1,000 7,000
Wireless Telecom Group, Inc. .................................................. 9,000 17,438
----------
24,438
----------
Transportation - Freight - 1.09%
(a) FDX Corp. ..................................................................... 2,300 103,787
----------
Utilities - Electric - 2.29%
(a) The AES Corporation ........................................................... 2,500 92,656
Duke Energy Corporation ....................................................... 1,000 66,188
Southern Company .............................................................. 2,000 58,875
----------
217,719
----------
Utilities - Telecommunications - 4.56%
BellSouth Corporation ......................................................... 2,000 150,500
GTE Corporation ............................................................... 2,000 110,000
SBC Communications Inc. ....................................................... 2,194 97,633
Sprint Corporation ............................................................ 1,000 72,000
U S WEST, Inc. ................................................................ 54 2,832
----------
432,965
----------
Total Common Stocks (Cost $3,794,538) ........................................................ 5,270,152
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity
Principal Rate Date
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 21.94%
A T & T Corporation ................................ $ 50,000 7.500% 06/01/06 56,000
A T & T Corporation ................................ 50,000 8.125% 01/15/22 54,313
A T & T Corporation ................................ 50,000 8.125% 07/15/24 54,125
A T & T Corporation ................................ 100,000 8.625% 12/01/31 111,750
American Express Company ........................... 50,000 8.625% 05/15/22 56,589
Anheuser-Busch Companies, Inc. ..................... 25,000 9.000% 12/01/09 33,302
Anheuser-Busch Companies, Inc. ..................... 13,000 8.625% 12/01/16 13,260
Archer Daniels Midland Corporation ................. 100,000 6.250% 05/15/03 105,061
Archer Daniels Midland Corporation ................. 25,000 8.875% 04/15/11 32,022
BellSouth Telecommunications ....................... 50,000 6.250% 05/15/03 52,938
BellSouth Telecommunications ....................... 50,000 7.000% 02/01/05 54,438
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - (Continued)
BellSouth Telecommunications ....................... $ 25,000 7.875% 08/01/32 $ 26,938
BellSouth Telecommunications ....................... 125,000 6.750% 10/15/33 129,531
The Boeing Company ................................. 150,000 8.750% 09/15/31 202,280
The Coca-Cola Company .............................. 70,000 8.500% 02/01/22 87,072
Du Pont (E.I.) De Nemours & Company ................ 50,000 8.125% 03/15/04 56,823
Du Pont (E.I.) De Nemours & Company ................ 50,000 7.950% 01/15/23 56,073
Duke Power Company ................................. 20,000 6.375% 03/01/08 20,175
Duke Power Company ................................. 100,000 6.750% 08/01/25 101,000
General Electric Capital Corporation ............... 100,000 8.750% 05/21/07 124,272
International Business Machines .................... 50,000 8.375% 11/01/19 61,438
Morgan Stanley Group, Inc. ......................... 75,000 7.500% 02/01/24 78,594
Pacific Bell ....................................... 100,000 6.250% 03/01/05 105,750
United Parcel Service of America ................... 50,000 8.375% 04/01/20 65,349
U S West Communications Group ...................... 50,000 6.875% 09/15/33 51,292
Wachovia Corporation ............................... 75,000 6.375% 04/15/03 78,856
Wal-Mart Stores, Inc. .............................. 25,000 6.500% 06/01/03 26,761
Wal-Mart Stores, Inc. .............................. 150,000 8.875% 06/29/11 156,189
Wal-Mart Stores, Inc. .............................. 25,000 8.500% 09/15/24 29,871
----------
Total Corporate Obligations (Cost $1,807,248) ................................................ 2,082,062
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 10.22%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ....................................... 433,929 433,929
Evergreen Money Market Treasury Institutional Treasury Money
Market Fund Institutional Service Shares ....................................... 433,928 433,928
Standard and Poor's Depositary Receipts .............................................. 1,000 101,688
----------
Total Investment Companies (Cost $982,207) ..................................... 969,545
----------
Total Value of Investments (Cost $6,583,993 (c)) ........................................................ 87.71% $8,321,759
Other Assets Less Liabilities ........................................................................... 12.29% 1,166,200
------ ----------
Net Assets ......................................................................................... 100.00% $9,487,959
====== ==========
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
(a) Non-income producing investment.
(b) Foreign securities represent securities issued in the United States markets by non-domestic companies.
(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 $ 2,234,501
Unrealized depreciation (496,735)
-----------
Net unrealized appreciation $ 1,737,766
===========
The following acronym is used in this portfolio:
ADR - American Depository Receipt
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
(Unaudited)
ASSETS
Investments, at value (cost $6,583,993) ............................................................. $8,321,759
Cash ................................................................................................ 978,026
Income receivable ................................................................................... 44,267
Receivable for investments sold ..................................................................... 323,392
----------
Total assets ................................................................................... 9,667,444
----------
LIABILITIES
Accrued expenses .................................................................................... 8,812
Payable for investment purchases .................................................................... 170,673
----------
Total liabilities .............................................................................. 179,485
----------
NET ASSETS
(applicable to 673,632 Investor Class Shares outstanding; unlimited
shares of no par value beneficial interest authorized) ............................................ $9,487,959
==========
NET ASSET VALUE AND REDEMPTION PRICE PER INVESTOR CLASS SHARE
($9,487,959 / 673,632 shares) ....................................................................... $14.08
======
OFFERING PRICE PER INVESTOR CLASS SHARE
(100 / 96.5% of $14.08) ............................................................................. $14.59
======
NET ASSETS CONSIST OF
Paid-in capital ..................................................................................... $7,043,509
Undistributed net realized gain on investments ...................................................... 706,684
Net unrealized appreciation on investments .......................................................... 1,737,766
----------
$9,487,959
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
STATEMENT OF OPERATIONS
Period ended September 30, 1998
(Unaudited)
INVESTMENT INCOME
Income
Interest ....................................................................................... $ 74,864
Dividends ...................................................................................... 56,772
---------
Total income ............................................................................. 131,636
---------
Expenses
Investment advisory fees (note 2) .............................................................. 29,706
Fund administration fees (note 2) .............................................................. 12,372
Distribution and service fees - Investor Class Shares (note 3) ................................. 24,761
Custody fees ................................................................................... 2,051
Registration and filing administration fees (note 2) ........................................... 1,354
Fund accounting fees (note 2) .................................................................. 10,500
Audit fees ..................................................................................... 4,350
Legal fees ..................................................................................... 8,283
Securities pricing fees ........................................................................ 2,912
Shareholder recordkeeping fees ................................................................. 1,071
Shareholder servicing expenses ................................................................. 2,225
Registration and filing expenses ............................................................... 1,438
Printing expenses .............................................................................. 1,145
Trustee fees and meeting expenses .............................................................. 2,005
Other operating expenses ....................................................................... 745
---------
Total expenses ........................................................................... 104,918
---------
Net investment income ............................................................... 26,718
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions ...................................................... 706,952
Decrease in unrealized appreciation on investments .................................................. (992,793)
---------
Net realized and unrealized loss on investments ................................................ (285,841)
---------
Net decrease in net assets resulting from operations ..................................... $(259,123)
=========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended Year ended
September 30, March 31,
1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment income .................................................................. $ 26,718 $ 81,731
Net realized gain from investment transactions ......................................... 706,952 1,175,258
(Decrease) increase in unrealized appreciation on investments .......................... (992,793) 1,240,206
----------- -----------
Net (decrease) increase in net assets resulting from operations .................... (259,123) 2,497,195
----------- -----------
Distributions to shareholders from
Net investment income .................................................................. (26,989) (81,731)
Net realized gain from investment transactions ......................................... 0 (1,175,255)
----------- -----------
Decrease in net assets resulting from distributions ................................ (26,989) (1,256,986)
----------- -----------
Capital share transactions
(Decrease) increase in net assets resulting from capital share transactions (a) ........ (113,997) 909,604
----------- -----------
Total (decrease) increase in net assets ....................................... (400,109) 2,149,813
NET ASSETS
Beginning of period ......................................................................... 9,888,068 7,738,255
----------- -----------
End of period ............................................................................... $ 9,487,959 $ 9,888,068
=========== ===========
(a) A summary of capital share activity follows:
-----------------------------------------------------------------------
Period ended Year ended
September 30, 1998 March 31, 1998
Shares Value Shares Value
-----------------------------------------------------------------------
Shares sold ................................................. 31,987 $ 464,391 59,404 $ 887,599
Shares issued for reinvestment
of distributions ....................................... 1,864 26,907 86,177 1,254,982
----------- ----------- ----------- -----------
33,851 491,298 145,581 2,142,581
Shares redeemed ............................................. (41,805) (605,295) (82,958) (1,232,977)
----------- ----------- ----------- -----------
Net (decrease) increase ................................ (7,954) $ (113,997) 62,623 $ 909,604
=========== =========== =========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended Year ended Year ended Year ended Year ended
September 30, March 31, March 31, March 31, March 31,
1998 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..................... $14.51 $12.50 $11.92 $10.75 $10.42
(Loss) income from investment operations
Net investment income ......................... 0.04 0.13 0.15 0.19 0.17
Net realized and unrealized (loss) gain
on investments .......................... (0.43) 3.93 0.70 1.53 0.73
---------- ---------- ---------- ---------- ----------
Total from investment operations ........ (0.39) 4.06 0.85 1.72 0.90
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from
Net investment income ......................... (0.04) (0.13) (0.15) (0.20) (0.21)
Tax return of capital ......................... 0.00 0.00 (0.01) 0.00 0.00
Net realized gain from investment transactions (0.00) (1.92) (0.11) (0.35) (0.36)
---------- ---------- ---------- ---------- ----------
Total distributions ...................... (0.04) (2.05) (0.27) (0.55) (0.57)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........................... $14.08 $14.51 $12.50 $11.92 $10.75
========== ========== ========== ========== ==========
Total return (c) ......................................... (2.69)% 32.89% 7.08% 16.16% 8.66%
========== ========== ========== ========== ==========
Ratios/supplemental data
Net assets, end of period .......................... $9,487,959 $9,888,068 $7,738,255 $7,551,803 $6,775,562
========== ========== ========== ========== ==========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ..... 2.11%(a) 2.12% 2.38% 2.56% 2.58%
After expense reimbursements and waived fees ...... 2.11%(a) 2.12% 2.38% 2.33% 2.47%
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees ..... 0.54%(a) 0.91% 1.12% 1.44% 1.55%
After expense reimbursements and waived fees ...... 0.54%(a) 0.91% 1.12% 1.66% 1.66%
Portfolio turnover rate ................................ 20.71% 33.50% 7.31% 12.33% 24.67%
Average brokerage commissions per share (b) ............ $0.0984 $0.1000 $0.1000 -- --
(a) Annualized.
(b) Represents total commissions paid on portfolio securities divided by total portfolio shares purchased or sold on which
commissions were charged.
(c) Total return does not reflect payment of a sales charge.
See accompanying notes to financial statements
</TABLE>
<PAGE>
CAPITAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Capital Value Fund (the "Fund") is a diversified series of
shares of beneficial interest of The Nottingham Investment Trust
II (the "Trust"). The Trust, an open-ended 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 provide its
shareholders with a maximum total return consisting of any
combination of capital appreciation, both realized and unrealized,
and income under the constantly varying market conditions by
investing in a flexible portfolio of equity securities, fixed
income securities, and money market instruments. The Fund began
operations on November 16, 1990.
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 Investor Class of shares of the Fund on June 15, 1995 and
an additional class of shares, the Institutional shares, was
authorized. To date, only Investor Class shares have been issued
by the Fund. The Institutional Class shares will be sold without a
sales charge and will bear no distribution and service fees. The
Investor Class shares are subject to a maximum 3.50% sales charge
and 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 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 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.
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 the accrual basis.
Dividend income is recorded on the ex-dividend date.
(Continued)
<PAGE>
CAPITAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
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.
Distributions to shareholders are recorded on the
ex-dividend date. The Fund may make a supplemental
distribution 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 amount of assets, liabilities, expenses and
revenues reported in the financial statements. Actual
results could differ from those estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Capital Investment
Counsel, 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 0.60%
of the first $250 million of the average daily net assets of the
Fund and 0.50% of average daily net assets over $250 million.
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. 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 investment
securities.
North Carolina Shareholder Services, LLC (the "Transfer Agent")
serves as the Fund's transfer, dividend paying, and shareholder
servicing agent. The Transfer Agent maintains the records of each
shareholder's account, answers shareholder inquiries concerning
accounts, processes purchases and redemptions of the Fund shares,
acts as dividend and distribution disbursing agent, and performs
other shareholder servicing functions.
Capital Investment Group, Inc. (the "Distributor"), an affiliate
of the Advisor, serves as the Fund's principal underwriter and
distributor. The Distributor receives any sales charges imposed on
purchases of shares and re-allocates a portion of such charges to
dealers through whom the sale was made, if any. For the period
ended September 30, 1998, the Distributor retained sales charges
in the amount of $930.
Certain Trustees and officers of the Trust are also officers of
the Advisor, the Distributor or the Administrator.
(Continued)
<PAGE>
CAPITAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including a majority of the Trustees who
are not "interested persons" of the Trust as defined in the
Investment Company Act of 1940 (the "Act"), as amended, adopted a
distribution plan pursuant to Rule 12b-1 of the Act (the "Plan").
The Act regulates the manner in which a regulated investment
company may assume expenses of distributing and promoting the
sales of its shares and servicing of its shareholder accounts.
The Plan provides that the Fund may incur certain expenses, which
may not exceed 0.50% per annum of the Investor Class shares'
average daily net assets for each year elapsed subsequent to
adoption of the Plan, for payment to the Distributor and others
for items such as advertising expenses, selling expenses,
commissions, travel or other expenses reasonably intended to
result in sales of Investor shares of the Fund or support
servicing of shareholder accounts. Expenditures incurred as
service fees may not exceed 0.25% per annum of the Investor Class
shares' average daily net assets. The Fund incurred $24,761 of
such expenses under the Plan for the period ended September 30,
1998.
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $1,763,721 and $2,659,811, respectively,
for the period ended September 30, 1998.
<PAGE>
Dear Shareholders of Investek Fixed Income Trust:
Enclosed for your review is the semi-annual report for the period ended
30 September 1998, including a report entitled "Portfolio of Investments." The
fund was up 7.99% for the six-month period; a return that compares favorably to
the Lehman Aggregate index which was up 6.66%. The fund's return was comprised
of 3.24% dividend return and 4.75% price appreciation. The primary factor
driving the bond market for the period was the drop in yields. The yield on
3-month Treasury bills fell 77 basis points to 4.356%, while the yield on
30-year Treasury bonds fell 97 basis points to 4.965%. In the heart of the
curve, the yield on 5-year Treasury notes fell the most at 139 basis points to
end at 4.221%. At the end of the period, the fund's yield stood at 5.91%.
During the six-month period, we took steps to keep the fund's duration
from growing too short versus the Lehman Aggregate. We sold issues from the CMO
sector, which were shorter and more callable, and bought issues in the equipment
trust sector, which are longer and have more call protection. Not forsaking the
MBS sector, we added a longer FNMA DUS issue with better call protection and a
longer FHA pool.
The portfolio's weighted average rating remains AAA. Our effective
duration is 117% that of the Aggregate while our convexity is virtually the
same. Yet, we continue to have a portfolio with 68 basis points more yield. In
this time of global capital market uncertainty, we will continue to manage the
fund in our time-tested style to make it a worthy core holding in your
portfolios.
Very truly yours,
INVESTEK CAPITAL MANAGEMENT
Douglas Folk, CFA
Vice President
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INVESTEK FIXED INCOME TRUST
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT AND AGENCY OBLIGATIONS - 63.88%
United States Treasury Note ................................... $300,000 5.625% 05/15/08 $328,406
A.I.D. - Equador .............................................. 82,927 7.050% 05/01/15 93,206
A.I.D. - Ivory Coast .......................................... 269,481 8.100% 12/01/06 278,346
A.I.D. - Peru ................................................. 167,798 8.350% 01/01/07 174,124
Attransco Title XI ............................................ 500,000 6.120% 04/01/08 525,014
B.A.L.T. Conway Partnership Title XI .......................... 145,616 10.750% 11/15/03 146,527
Chilbar Ship Co. Title XI ..................................... 55,375 6.980% 07/15/01 55,717
Federal Agricultural Mortgage Corporation
Series AM-1003 ............................................ 665,483 6.822% 04/25/13 727,414
Series AM-1002 ............................................ 242,827 6.922% 12/25/12 264,197
Federal National Mortgage Association
Pool #73401 ............................................... 487,832 6.440% 03/01/06 514,570
Pool #380484 .............................................. 998,378 6.390% 07/01/16 1,065,969
Federal National Mortgage Association Strip
Series 66 Class 1 ......................................... 148,602 7.500% 01/01/20 158,420
Global Industries Ltd. Title XI ............................... 1,177,000 8.300% 07/15/20 1,285,202
Government National Mortgage Association
Pool #16402 ............................................... 254,138 8.500% 04/15/12 269,148
Pool #383137 .............................................. 389,364 7.750% 03/15/11 406,277
Lawrence Steamship Company Title XI ........................... 312,825 7.270% 09/01/03 326,683
Moore McCormack Leasing - Series B - Title XI ................. 139,000 8.875% 07/15/01 139,348
Small Business Administration 98-B ............................ 985,326 6.150% 02/01/18 1,033,089
Small Business Administration 97-E ............................ 240,292 6.600% 09/01/07 254,160
Small Business Administration 97-H ............................ 240,709 6.800% 08/01/17 257,945
Small Business Administration 97-F ............................ 292,155 7.200% 06/01/17 318,234
Small Business Administration 92-A ............................ 267,895 7.600% 01/01/12 284,023
-----------
Total U. S. Government and Agency Obligations (Cost $8,390,838) .................................... 8,906,019
-----------
U. S. GOVERNMENT INSURED OBLIGATIONS - 8.82%
Federal Housing Authority Project Loan
Downtowner Apartments ..................................... 159,963 8.375% 11/01/11 172,303
GMAC 32 ................................................... 85,833 7.430% 12/01/21 90,301
Reilly #046 ............................................... 487,077 6.970% 06/01/14 525,507
USGI #87 .................................................. 415,821 7.430% 08/01/23 440,537
-----------
Total U. S. Government Insured Obligations (Cost $1,158,126) ....................................... 1,228,648
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INVESTEK FIXED INCOME TRUST
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 19.86%
California Infrastructure SDG&E Series 1997-1 ................. $500,000 6.370% 12/26/09 $531,966
Federal Express Corporation ................................... 500,000 6.720% 01/15/22 538,125
GG1B Funding Corporation ...................................... 445,890 7.430% 01/15/11 497,725
Great Northern Railroad Series Q .............................. 646,000 2.625% 01/01/10 494,998
Monon Railroad ................................................ 175,000 6.000% 01/01/07 175,000
Union Pacific Corporation ..................................... 491,427 7.280% 04/30/15 530,455
-----------
Total Corporate Obligations (Cost $2,583,909) ....................................................... 2,768,269
-----------
CONVENTIONAL MORTGAGE BACKED SECURITIES - 3.74%
Prudential Home Mortgage Securities
REMIC Series 1994-2 Class A8 .............................. 500,000 6.750% 02/25/24 521,719
(Cost $488,670) -----------
PRIVATE MORTGAGE BACKED SECURITIES - 0.47%
National Housing Partnership .................................. 65,770 9.500% 05/01/03 66,055
(Cost $65,770) -----------
PRIVATE PLACEMENT CORPORATE SECURITIES - 1.73%
Rosewood Care Center Capital Funding Corporation
First Mortgage Bonds ...................................... 268,842 7.250% 11/01/13 240,614
(Cost $262,511) -----------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY - 5.20%
AIM Short Term Prime Fund A .................................................................. 725,040 725,040
(Cost $725,040) -----------
Total Value of Investments (Cost $13,674,864 (a)) ........................................................ 103.70 % $14,456,364
Liabilities in Excess of Other Assets .................................................................... (3.70)% (515,469)
------ -----------
Net Assets .......................................................................................... 100.00 % $13,940,895
====== ===========
(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 $807,030
Unrealized depreciation (25,530)
--------
Net unrealized appreciation $781,500
========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INVESTEK FIXED INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
(Unaudited)
ASSETS
Investments, at value (cost $13,674,864) ....................................................... $14,456,364
Income receivable .............................................................................. 170,454
Other assets ................................................................................... 2,527
-----------
Total assets .............................................................................. 14,629,345
-----------
LIABILITIES
Accrued expenses ............................................................................... 8,122
Disbursements in excess of cash on demand deposit .............................................. 680,328
-----------
Total liabilities ......................................................................... 688,450
-----------
NET ASSETS
(applicable to 1,290,617 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ........................................ $13,940,895
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER SHARE
($13,940,895 / 1,290,617 shares) ............................................................... $10.80
======
NET ASSETS CONSIST OF
Paid-in capital ................................................................................ $13,583,021
Undistributed net investment income ............................................................ 698
Accumulated net realized loss on investments ................................................... (424,324)
Net unrealized appreciation on investments ..................................................... 781,500
-----------
$13,940,895
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INVESTEK FIXED INCOME TRUST
STATEMENT OF OPERATIONS
Period ended September 30, 1998
(Unaudited)
INVESTMENT INCOME
Income
Interest ..................................................................................... $ 480,432
Dividends .................................................................................... 8,624
----------
Total income ........................................................................... 489,056
----------
Expenses
Investment advisory fees (note 2) ............................................................ 31,490
Fund administration fees (note 2) ............................................................ 10,497
Custody fees ................................................................................. 2,115
Registration and filing administration fees (note 2) ......................................... 1,343
Fund accounting fees (note 2) ................................................................ 10,500
Audit fees ................................................................................... 4,600
Legal fees ................................................................................... 7,409
Securities pricing fees ...................................................................... 1,014
Shareholder recordkeeping fees ............................................................... 322
Shareholder servicing expenses ............................................................... 1,613
Registration and filing expenses ............................................................. 1,591
Printing expenses ............................................................................ 686
Trustee fees and meeting expenses ............................................................ 2,126
Other operating expenses ..................................................................... 2,263
----------
Total expenses ......................................................................... 77,569
----------
Less investment advisory fees waived (note 2) .......................................... (14,675)
----------
Net expenses ........................................................................... 62,894
----------
Net investment income ............................................................. 426,162
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions .................................................... 87,322
Increase in unrealized appreciation on investments ................................................ 560,639
----------
Net realized and unrealized gain on investments .............................................. 647,961
----------
Net increase in net assets resulting from operations ................................... $1,074,123
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INVESTEK FIXED INCOME TRUST
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended Year ended
September 30, March 31,
1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income ................................................................ $ 426,162 $ 766,830
Net realized gain from investment transactions ....................................... 87,322 10,958
Increase in unrealized appreciation on investments ................................... 560,639 346,682
----------- -----------
Net increase in net assets resulting from operations ............................. 1,074,123 1,124,470
----------- -----------
Distributions to shareholders from
Net investment income ................................................................ (425,464) (767,000)
----------- -----------
Capital share transactions
(Decrease) increase in net assets resulting from capital share transactions (a) ...... (606,993) 2,314,618
----------- -----------
Total increase in net assets ................................................ 41,666 2,672,088
NET ASSETS
Beginning of period ....................................................................... 13,899,229 11,227,141
----------- -----------
End of period (including undistributed net investment income .............................. $13,940,895 $13,899,229
of $698 in 1998) =========== ===========
(a) A summary of capital share activity follows:
-------------------------------------------------------------------------
Period ended Year ended
September 30, 1998 March 31, 1998
Shares Value Shares Value
-------------------------------------------------------------------------
Shares sold .............................................. 78,169 $ 823,959 282,314 $ 2,930,727
Shares issued for reinvestment
of distributions .................................... 28,322 296,565 51,625 530,895
----------- ----------- ----------- -----------
106,491 1,120,524 333,939 3,461,622
Shares redeemed .......................................... (163,577) (1,727,517) (110,904) (1,147,004)
----------- ----------- ----------- -----------
Net (decrease) increase ............................. (57,086) $ (606,993) 223,035 $ 2,314,618
=========== =========== =========== ===========
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 Period)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended Year ended Year ended Year ended Year ended
September 30, March 31, March 31, March 31, March 31,
1998 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ................... $10.31 $ 9.98 $10.11 $ 9.74 $ 9.93
Income from investment operations
Net investment income ....................... 0.32 0.64 0.65 0.66 0.63
Net realized and unrealized gain (loss)
on investments ......................... 0.49 0.33 (0.13) 0.37 (0.19)
----------- ----------- ----------- ----------- -----------
Total from investment operations ....... 0.81 0.97 0.52 1.03 0.44
----------- ----------- ----------- ----------- -----------
Distributions to shareholders from
Net investment income ....................... (0.32) (0.64) (0.65) (0.66) (0.63)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period ......................... $10.80 $10.31 $ 9.98 $10.11 $ 9.74
=========== =========== =========== =========== ===========
Total return ........................................... 7.99% 9.91% 5.38% 10.70% 4.73%
=========== =========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of period ........................ $13,940,895 $13,899,229 $11,227,141 $12,261,121 $14,983,474
=========== =========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ...... 1.12%(a) 1.10% 1.20% 1.08% 1.08%
After expense reimbursements and waived fees ....... 0.90%(a) 0.90% 0.90% 0.87% 0.77%
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees ...... 5.88%(a) 6.01% 6.07% 6.20% 6.15%
After expense reimbursements and waived fees ....... 6.08%(a) 6.21% 6.37% 6.41% 6.45%
Portfolio turnover rate ................................. 27.45% 38.46% 32.94% 16.57% 19.64%
(a) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
INVESTEK FIXED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
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
$10,964,307 (79% 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 - 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 $510,600, $492,567 of which expires in the year
2003 and $18,033 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.
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.
(Continued)
<PAGE>
INVESTEK FIXED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
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 estimates.
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.
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 $14,675 ($0.01 per share) for
the period ended September 30, 1998.
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. 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.
NC Shareholder Services, LLC (the "Transfer Agent") has been retained
by the Trust to serve as the Fund's transfer, dividend paying, and
shareholder servicing agent. The Transfer Agent maintains the records
of each shareholder's account, answers shareholder inquiries concerning
accounts, processes purchases and redemptions of Fund shares, acts as
dividend and distribution disbursing agent, and performs other
shareholder servicing functions.
(Continued)
<PAGE>
INVESTEK FIXED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
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 $3,739,340 and $4,150,799, respectively, for the period
ended September 30, 1998.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ZSA ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 73.93%
Beverages - 0.49%
The Coca-Cola Company .................................................... 425 $ 24,491
----------
Chemicals - 1.12%
Monsanto Company ......................................................... 1,000 56,375
----------
Commercial Services - 0.90%
Ecolab Inc. .............................................................. 1,600 45,500
----------
Computers - 4.92%
(a) 3Com Corporation ......................................................... 1,400 42,088
(a) Adaptec, Inc. ............................................................ 5,700 54,150
(a) Micron Electronics, Inc. ................................................. 5,000 87,500
Sun Microsystems, Inc. ................................................... 1,300 64,755
----------
248,493
----------
Computer Software & Services - 1.42%
(a) Microsoft Corporation .................................................... 650 71,541
----------
Cosmetics & Personal Care - 0.99%
Gillette Company ......................................................... 1,300 49,725
----------
Electrical Equipment - 0.59%
Linear Technology Corporation ............................................ 600 30,000
----------
Electronics - 0.95%
General Electric Company ................................................. 600 47,738
----------
Entertainment - 0.60%
The Walt Disney Company ................................................. 1,200 30,525
----------
Financial - Banks, Commercial - 0.88%
First Chicago NBD Corporation ............................................ 650 44,525
----------
Financial - Banks, Money Center - 0.89%
The Chase Manhattan Corporation ......................................... 1,036 45,066
----------
Financial Services - 1.22%
Conseco, Inc. ............................................................ 2,016 61,614
----------
Food - Processing - 0.99%
Campbell Soup Company .................................................... 1,000 50,187
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ZSA ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Foreign Securities - 24.51% (b)
ABB AB - ADR ............................................................. 200 $ 17,575
Akzo Nobel N.V. - ADR .................................................... 400 14,050
Amvescap Plc - ADR ....................................................... 1,650 47,850
Australia & New Zealand Banking Group Limited - ADR ...................... 600 15,938
Banco Bilbao Vizcaya, S.A. - ADR ......................................... 1,350 14,850
The Bank of Tokyo-Mitsubishi, Ltd. - ADR ................................. 2,400 15,750
Bass PLC - ADR ........................................................... 1,600 19,500
British Airways plc - ADR ................................................ 250 15,375
British Petroleum Company plc - ADR ...................................... 352 30,712
British Telecommunications plc - ADR ..................................... 200 26,613
Commerzbank AG - ADR ..................................................... 800 23,000
Daimler-Benz AG - ADR .................................................... 400 32,775
(a) Elan Corporation plc - ADR ............................................... 1,000 72,062
Endesa S.A. - ADR ........................................................ 900 19,800
Fuji Photo Film - ADR .................................................... 750 25,594
Fujitsu Limited - ADR .................................................... 800 36,200
Glaxo Wellcome plc - ADR ................................................. 450 25,763
Honda Motor Co., Ltd. - ADR .............................................. 500 30,344
Hong Kong Telecommunications Ltd. - ADR .................................. 2,233 42,706
HSBC Holdings plc - ADR .................................................. 150 27,150
Koninklijke Ahold NV - ADR ............................................... 673 19,559
Kyocera Corporation - ADR ................................................ 400 17,400
Luxottica Group S.p.A. - ADR ............................................. 2,000 22,375
LVMH (Louis Vuitton Miet Hennessy) - ADR ................................. 850 23,162
Minebea Company Ltd. - ADR ............................................... 1,800 30,600
Nestle SA - ADR .......................................................... 600 60,750
Novartis - ADR ........................................................... 496 40,052
Pioneer Electronic Corporation - ADR ..................................... 1,800 30,600
Rhone-Poulenc S.A. - ADR ................................................. 750 31,312
Rio Tinto Limited - ADR .................................................. 350 17,150
Roche Holding AG - ADR ................................................... 375 40,500
Royal Dutch Petroleum Company ............................................ 1,400 66,675
RWE AG - ADR ............................................................. 500 24,062
Siemens AG - ADR ......................................................... 500 27,625
Smith (Howard) Limited - ADR ............................................. 1,100 11,138
TDK Corporation - ADR .................................................... 400 26,600
Telecom Italia SpA - ADR ................................................. 400 26,800
Telefonaktiebolaget LM Ericsson - ADR .................................... 1,100 20,213
Telefonica S.A. - ADR .................................................... 218 23,530
Total SA - ADR ........................................................... 800 50,250
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ZSA ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Foreign Securities - (Continued)
Toyota Motor Corporation - ADR ........................................... 500 $ 22,438
Unilever plc - ADR ....................................................... 1,500 51,000
----------
1,237,398
----------
Household Products & Housewares - 2.05%
Libbey Inc. .............................................................. 1,700 50,150
The Procter & Gamble Company ............................................. 750 53,202
----------
103,352
----------
Insurance - Multiline - 1.38%
American International Group, Inc. ....................................... 900 69,525
----------
Machine - Construction & Mining - 0.97%
Caterpillar Inc. ......................................................... 1,100 49,019
----------
Manufactured Housing - 0.78%
Clayton Homes, Inc. ...................................................... 2,327 39,413
----------
Medical - Biotechnology - 1.55%
Medtronic, Inc. .......................................................... 1,350 78,130
----------
Metal Fabrication & Hardware - 0.83%
Kaydon Corporation ....................................................... 1,600 42,100
----------
Metals - Diversified - 0.93%
Phelps Dodge Corporation ................................................. 900 46,969
----------
Oil & Gas - Domestic - 1.31%
Enron Corporation ........................................................ 1,250 66,016
----------
Oil & Gas - International - 1.33%
Chevron Corporation ...................................................... 800 67,250
----------
Pharmaceuticals - 0.95%
Abbott Laboratories ...................................................... 1,100 47,781
----------
Real Estate Investment Trusts - 14.52%
Archstone Communities Trust .............................................. 1,000 20,375
Avalon Bay Communities, Inc. ............................................. 326 11,104
BRE Properties, Inc. ..................................................... 1,000 25,125
Burnham Pacific Properties, Inc. ......................................... 2,000 27,875
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ZSA ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Real Estate Investment Trusts - (Continued)
Camden Property Trust .................................................... 879 $ 24,557
CarrAmerica Realty Corporation ........................................... 1,800 41,063
Chateau Communities, Inc. ................................................ 1,722 48,108
Cousins Properties, Inc. ................................................. 1,000 28,063
Developers Diversified Realty Corporation ................................ 1,300 23,319
Duke Realty Investments, Inc. ............................................ 1,900 44,056
EastGroup Properties Inc. ................................................ 1,900 35,625
Equity Office Properties Trust ........................................... 1,401 34,325
Equity Residential Properties Trust ...................................... 231 9,745
Federal Realty Investment Trust .......................................... 500 11,313
General Growth Properties, Inc. .......................................... 350 12,469
Great Lakes REIT, Inc. ................................................... 2,800 46,550
Highwoods Properties, Inc. ............................................... 750 20,812
IRT Property Company ..................................................... 1,000 10,125
Kimco Realty Corporation ................................................. 1,050 39,900
Liberty Property Trust ................................................... 1,400 33,338
Mack-Cali Realty Corporation ............................................. 700 21,000
Merry Land & Investment Company, Inc. .................................... 500 11,188
New Plan Excel Realty Trust .............................................. 500 11,656
Post Properties, Inc ..................................................... 275 10,605
Simon Property Group, Inc. ............................................... 800 23,800
Spieker Properties, Inc. ................................................. 1,000 36,750
Taubman Centers, Inc. .................................................... 1,950 27,300
United Dominion Realty Trust, Inc. ....................................... 800 9,100
Washington Real Estate Investment Trust .................................. 650 10,522
Weingarten Realty Investors .............................................. 275 11,275
Western Investment Real Estate Trust ..................................... 900 11,531
----------
732,574
----------
Retail - Specialty Line - 0.93%
(a) Borders Group, Inc. ...................................................... 2,100 46,725
----------
Telecommunications - 1.66%
Lucent Technologies, Inc. ................................................ 700 48,300
(a) Qwest Communications International Inc. .................................. 1,125 35,227
----------
83,527
----------
Toys - 0.94%
Mattel, Inc. ............................................................. 1,700 47,600
----------
Transportation - Miscellaneous - 1.08%
CSX Corporation .......................................................... 1,300 54,680
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ZSA ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Utilities - Electric - 1.32%
Edison International ..................................................... 2,600 $ 66,788
----------
Utilities - Telecommunications - 0.93%
AT&T Corp. ............................................................... 800 46,750
----------
Total Common Stocks (Cost $3,098,918) ............................................................... 3,731,377
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity
Principal Rate Date
- ------------------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT OBLIGATIONS - 19.96%
United States Treasury Note ............................. $575,000 7.25% 05/15/04 657,027
United States Treasury Note ............................. 300,000 7.00% 07/15/06 350,016
----------
Total U. S. Government Obligations (Cost $878,299) .................................................. 1,007,043
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 5.58%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ................................. 231,153 231,153
Evergreen Money Market Treasury Institutional Treasury Money
Market Fund Institutional Service Shares ................................. 50,518 50,518
----------
Total Investment Companies (Cost $281,671) .......................................................... 281,671
----------
Total Value of Investments (Cost $4,258,888 (c)) ........................................................... 99.47% $5,020,091
Other Assets Less Liabilities .............................................................................. 0.53% 26,608
------ ----------
Net Assets .......................................................................................... 100.00% $5,046,699
====== ==========
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ZSA ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
(a) Non-income producing investment.
(b) Foreign securities represent securities issued in the United States markets by non-domestic companies.
(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 $1,050,559
Unrealized depreciation (289,356)
----------
Net unrealized appreciation $ 761,203
==========
The following acronyms are used throughout this portfolio:
ADR - American Depository Receipt
PLC - Public Liability Company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ZSA ASSET ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
(Unaudited)
ASSETS
Investments, at value (cost $4,258,888) .......................................................... $5,020,091
Income receivable ................................................................................ 31,484
Receivable for fund shares sold .................................................................. 1,900
Prepaid expenses ................................................................................. 841
----------
Total assets ................................................................................ 5,054,316
----------
LIABILITIES
Accrued expenses ................................................................................. 7,446
Disbursements in excess of cash on demand deposit ................................................ 171
----------
Total liabilities ........................................................................... 7,617
----------
NET ASSETS
(applicable to 365,642 shares outstanding; unlimited
shares of no par value beneficial interest authorized) .......................................... $5,046,699
==========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER SHARE
($5,046,699 / 365,642 shares) .................................................................... $13.80
======
NET ASSETS CONSIST OF
Paid-in capital .................................................................................. $3,470,004
Undistributed net investment income .............................................................. 1,590
Undistributed net realized gain on investments ................................................... 813,902
Net unrealized appreciation on investments ....................................................... 761,203
----------
$5,046,699
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ZSA ASSET ALLOCATION FUND
STATEMENT OF OPERATIONS
Period ended September 30, 1998
(Unaudited)
INVESTMENT INCOME
Income
Interest ...................................................................................... $ 40,169
Dividends ..................................................................................... 56,290
---------
Total income ............................................................................ 96,459
---------
Expenses
Investment advisory fees (note 2) ............................................................. 27,890
Fund administration fees (note 2) ............................................................. 6,973
Audit fees .................................................................................... 4,075
Legal fees .................................................................................... 3,895
Fund accounting fees (note 2) ................................................................. 10,500
Distribution fees (note 3) .................................................................... 6,973
Custody fees .................................................................................. 2,054
Securities pricing fees ....................................................................... 3,471
Shareholder recordkeeping fees ................................................................ 426
Registration and filing administration fees ................................................... 1,654
Shareholder servicing expenses ................................................................ 1,543
Registration and filing expenses .............................................................. 4,231
Trustee fees and meeting expenses ............................................................. 1,517
Printing expenses ............................................................................. 2,006
Other operating expenses ...................................................................... 670
---------
Total expenses .......................................................................... 77,878
---------
Less investment advisory fees waived (note 2) ........................................... (23,463)
---------
Net expenses ............................................................................ 54,415
---------
Net investment income .............................................................. 42,044
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions ..................................................... 135,669
Decrease in unrealized appreciation on investments ................................................. (648,365)
---------
Net realized and unrealized loss on investments ............................................... (512,696)
---------
Net decrease in net assets resulting from operations .................................... $(470,652)
=========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ZSA ASSET ALLOCATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended Year ended
September 30, March 31,
1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS
Operations
Net investment income ............................................................ $ 42,044 $ 118,040
Net realized gain from investment transactions ................................... 135,669 845,982
(Decrease) increase in unrealized appreciation on investments .................... (648,365) 365,346
----------- -----------
Net (decrease) increase in net assets resulting from operations .............. (470,652) 1,329,368
----------- -----------
Distributions to shareholders from
Net investment income ............................................................ (40,729) (117,765)
Net realized gain from investment transactions ................................... 0 (306,295)
----------- -----------
Decrease in net assets resulting from distributions .......................... (40,729) (424,060)
----------- -----------
Capital share transactions
Decrease in net assets resulting from capital share transactions (a) ............. (23,974) (3,495,735)
----------- -----------
Total decrease in net assets ........................................... (535,355) (2,590,427)
NET ASSETS
Beginning of period ................................................................... 5,582,054 8,172,481
----------- -----------
End of period (including undistributed net investment income of $275 ................. $ 5,046,699 $ 5,582,054
at March 31, 1998 and $1,590 at September 30, 1998) =========== ===========
(a) A summary of capital share activity follows:
-----------------------------------------------------------------------------
Period ended Year ended
September 30, 1998 March 31, 1998
Shares Value Shares Value
-----------------------------------------------------------------------------
Shares sold ........................................... 40,085 $ 608,774 32,396 $ 479,312
Shares issued for reinvestment
of distributions ................................. 2,769 40,338 29,260 421,062
----------- ----------- ----------- -----------
42,854 649,112 61,656 900,374
Shares redeemed ....................................... (45,834) (673,086) (300,509) (4,396,109)
----------- ----------- ----------- -----------
Net decrease ..................................... (2,980) $ (23,974) (238,853) $(3,495,735)
=========== =========== =========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ZSA ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended Year ended Year ended Year ended Year ended
September 30, March 31, March 31, March 31, March 31,
1998 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................... $15.14 $13.45 $12.37 $10.76 $10.92
(Loss) income from investment operations
Net investment income ........................ 0.11 0.25 0.29 0.30 0.15
Net realized and unrealized (loss) gain
on investments .......................... (1.34) 2.39 1.08 1.61 (0.17)
----------- ----------- ----------- ----------- -----------
Total from investment operations ........ (1.23) 2.64 1.37 1.91 (0.02)
----------- ----------- ----------- ----------- -----------
Distributions to shareholders from
Net investment income ........................ (0.11) (0.25) (0.29) (0.30) (0.14)
Net realized gain from investment transactions 0 (0.70) 0 0 0
----------- ----------- ----------- ----------- -----------
Total distributions ..................... (0.11) (0.95) (0.29) (0.30) (0.14)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period .......................... $13.80 $15.14 $13.45 $12.37 $10.76
=========== =========== =========== =========== ===========
Total return ............................................ (8.16)% 20.09% 11.20% 17.80% (0.62)%
=========== =========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of period ......................... $ 5,046,699 $ 5,582,054 $ 8,172,481 $ 9,625,893 $10,564,778
=========== =========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ... 2.79%(a) 2.60% 2.37% 2.30% 2.03%
After expense reimbursements and waived fees .... 1.95%(a) 1.95% 1.95% 1.91% 1.95%
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees ... 0.68%(a) 1.00% 1.77% 2.06% 1.18%
After expense reimbursements and waived fees .... 1.52%(a) 1.65% 2.18% 2.45% 1.27%
Portfolio turnover rate .............................. 7.44% 53.54% 9.57% 67.89% 130.53%
Average broker commissions per share (b) ............. $0.0859 $0.1006 $0.9686 -- --
(a) Annualized.
(b) Represents total commissions paid on portfolio securities divided by total portfolio shares purchased or sold on which
commissions were charged.
See accompanying notes to financial statements
</TABLE>
<PAGE>
ZSA ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The ZSA Asset Allocation Fund (the "Fund") is a diversified series
of shares of beneficial interest of The Nottingham Investment
Trust II (the "Trust"). The Trust, an open-ended 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 Fund began operations on August 10, 1992.
The investment objective of the Fund is to seek total return
consisting of a combination of capital appreciation, both realized
and unrealized, and current income. The following is a summary of
significant accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities
are carried at value. Securities listed on an exchange or
quoted on a national market system are valued at the last
sales price as of 4:00 p.m., New York time on the day of
valuation. Other securities traded in the over-the-counter
market and listed securities for which no sale was reported
on that date are valued at the most recent bid price.
Securities for which market quotations are not readily
available, if any, are valued by using an independent
pricing service or by following procedures approved by the
Board of Trustees. Short-term investments are valued at cost
which approximates value.
B. Federal Income Taxes - No provision has been made for
federal income taxes since 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.
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 the accrual basis.
Dividend income is 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.
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 estimates.
(Continued)
<PAGE>
ZSA ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Zaske, Sarafa &
Associates, Inc. (the "Advisor") provides the Fund with a
continuous program of supervision of the Fund's assets, including
the composition of its portfolio, and furnishes advice and
recommendations with respect to investments, investment policies
and the purchase and sale of securities. As compensation for its
services, the Advisor receives a fee at the annual rate of 1.00%
of the Fund's average daily net assets.
The Advisor currently intends to voluntarily waive all or a
portion of its fee and reimburse expenses of the Fund to limit
total Fund operating expenses to 1.95% of the average daily net
assets of the Fund. There can be no assurance that the foregoing
voluntary fee waivers or reimbursements will continue. The Advisor
has voluntarily waived a portion of its fee amounting to $23,463
($0.06 per share) for the period ended September 30, 1998.
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. 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.
NC Shareholder Services, LLC (the "Transfer Agent") has been
retained by the Trust to serve as the Fund's transfer, dividend
paying, and shareholder servicing agent. The Transfer Agent
maintains the records of each shareholder's account, answers
shareholder inquiries concerning accounts, processes purchases and
redemptions of Fund shares, acts as dividend and distribution
disbursing agent, and performs other shareholder servicing
functions.
Certain Trustees and officers of the Trust are also officers of
the Advisor, the distributor or the Administrator.
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including a majority of the Trustees who
are not "interested persons" of the Trust as defined in the
Investment Company Act of 1940 (the "Act"), as amended, adopted a
distribution plan pursuant to Rule 12b-1 of the Act (the "Plan").
The Act regulates the manner in which a regulated investment
company may assume expenses of distributing and promoting the
sales of its shares and servicing of its shareholder accounts.
(Continued)
<PAGE>
ZSA ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
The Plan provides that the Fund may incur certain expenses, which
may not exceed 0.25% per annum of the Fund's average daily net
assets for each year elapsed subsequent to adoption of the Plan,
for payment to the distributor and others for items such as
advertising expenses, selling expenses, commissions, travel or
other expenses reasonably intended to result in sales of shares of
the Fund or support servicing of shareholder accounts. The Fund
incurred $6,973 of such expenses under the Plan for the period
ended September 30, 1998.
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $398,308 and $693,713, respectively, for
the period ended September 30, 1998.
<PAGE>
________________________________________________________________________________
THE BROWN CAPITAL MANAGEMENT FUNDS
________________________________________________________________________________
a series of the Nottingham Investment Trust II
Semi-Annual Report 1998
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
INVESTMENT ADVISOR
Brown Capital Management, Inc.
809 Cathedral Street
Baltimore, Maryland 21201
THE BROWN CAPITAL MANAGEMENT FUNDS
107 North Washington Street
Post Office Drawer 4365
Rocky Mount, North Carolina 27803-0365
1-800-773-3863
<PAGE>
October 15, 1998
Dear Shareholder:
Is the cup half full or half empty? The financial markets can't seem to decide.
After first calendar quarter performance that can be considered nothing short of
spectacular, second calendar quarter results, compared to recent history,
returned to more normal levels. The performance of the markets in June was the
essence of "bigger is better", as large market capitalization stocks led the
rally. The investor "flight to safety/quality" left the mid and small caps
behind. In addition, as has been the case over the last few years, little to no
attention was paid to valuations. As a consequence, what to some were considered
high valuations were bid up to even loftier levels in June. In a few short weeks
during the second calendar quarter the market went from being concerned that the
economy was too strong to being concerned that it was too weak. And just when we
began to witness the restoration of confidence, the August fiasco reminded us of
the frailty of one's conviction...Oh, by the way, the stock market was a fiasco,
too.
The broad market, as measured by the S&P 500 index, also created a crisis of
confidence in August with its one day plunge of 6.8%, which left it, as well as
many other major indices, in negative territory for the first time this year.
The culprits, at least as the media would have us believe, are as follows: Asia
was misdiagnosed with the flu, when in fact it has pneumonia; the Russian ruble
was a misnomer, they mean rubble; and the rumble heard in Latin America was not
related to music, but is the sound of their economies hitting a sink hole on the
road to recovery. Toward the end of the third calendar quarter, we learned that
hedge funds have nothing to do with landscaping, and Long-Term Capital--which
seemingly has nothing to do with investing--was in need of an immediate short-
and long-term fix. The Federal Reserve thought it was delivering good news by
cutting its key interest rate, the fed fund rate, but investors demanded more
than was given. What does all this mean? In a word, "volatility." Continued
volatility is the expectation for the market over the next quarter or two.
But, what's changed? Certainly, the magnitude of the volatility is surprising.
The good news, however, is that we have discussed in our earlier letters this
year many of the factors contributing to this so-called crisis of confidence.
Indeed, the economic problems encountered by Asia, Russia, and Latin America can
have serious consequences for the U.S. economy. Their economic conditions aren't
new, however. The problems in these three countries have persisted for some
time. The overwhelming concern for the U.S. economy is that reduced demand for
U.S. exports will severely slow domestic economic growth for the remainder of
this year as well as 1999, and lead the economy into a recession. While we
expect (and have expected) the economy to slow, we are not overly concerned that
a recession will result. Our view is that the Fed will cut interest rates
further to facilitate a soft landing for the U.S. economy.
The broad market is still on track to return 10-11% for the year, and bonds'
year-to-date returns are better than stocks. We are still patiently awaiting
mid-cap and small companies' stocks to match the returns of their large
capitalization siblings. More simply, our forecast remains intact. The large
market capitalization performance trend persevered in the third calendar
quarter. Bigger was relatively better as large market capitalization stocks
outperformed mid-cap stocks, which outdistanced small companies' stocks. For the
<PAGE>
third quarter, the S&P 500 was down 9.9%, the Russell 1000 dropped 10.3%, the
Russell 1000 Growth fell 9.1%, the S&P 400 Mid-Cap declined 14.5%, the Russell
Mid-Cap decreased 16.7%, while the Russell 2000 and Russell 2000 Growth
plummeted 20.9% and 22.4%, respectively.
The sell-off in the market was indiscriminate. As a result of these declines,
there is some good news. We think the market is now reasonably valued.
Consequently, we are continuing to invest in companies with superior
fundamentals and attractive valuations. Fortunately, many of these companies are
already in your portfolio, and we added to these positions during the period.
EQUITY and BALANCED FUNDS
Of note this period were announcements of several megadeals: AT&T/TCI,
Citicorp/Travelers, Wells Fargo/Norwest Bank, Nationsbank/BankAmerica, Banc
One/First Chicago, and American Home Products/Monsanto. The overriding theme
seems to be the desire for revenue growth through product enhancement rather
than the more typical cost cutting opportunities. This points to the difficulty
many companies have maintaining growth in a globally competitive environment. We
are also sensitive to the execution risks of these strategies and are concerned
that expectations may be too high for some of these deals. Of course, these
types of deals slowed significantly in the latter part of the third quarter.
Technology, Financials, Health Care and Consumer Cyclicals made a positive
contribution to portfolio performance in the second calendar quarter. Leading
the way in technology were ADC Technologies and Microsoft. ADC, a manufacturer
of telecommunications equipment is seen as a beneficiary of the AT&T/TCI merger
as demand for its products should rise. Microsoft recovered after briefly
sagging under the pressure of a zealous Justice Department investigation. BMC
Software delivered superior results due to several new business wins and new
product proliferation.
The takeover frenzy was very beneficial to the portfolio in the second calendar
quarter as well. Greentree Financial, a large financier of manufactured housing
was taken over by Conseco at a significant premium to its market price. R.P.
Scherer, a drug delivery technology company was purchased at a premium by
another one of our major holdings, Cardinal Health, a pharmaceutical
manufacturer service firm.
In the third calendar quarter the sectors hardest hit were Consumer Staples,
Consumer Cyclicals and Financials. Selectron, in the Capital Goods sector, made
a positive contribution and Home Depot continued to do so, confirming the
company's dominance of the home building supply business. We have initiated
positions in several new stocks over the past six months. They include, Mellon
Bank, a large financial services firm and Sallie Mae, the government-sponsored
enterprise that underwrites the majority of student loans. We have also added
Network Associates, a network management software company, and Tellabs, a
telecom equipment technology company. Robert Half International, a temporary
staffing company, and Merck, a large pharmaceutical firm, rounded out our
additions to the Equity and Balanced portfolios.
The fixed income portion of the Balanced Fund currently emphasizes high quality
holdings and intermediate term maturities. We think fixed income markets will be
relatively calm over the next several months. The yield curve remains very flat
and spread relationships narrow.
<PAGE>
SMALL COMPANY FUND
Small companies did not perform as well as large market capitalization companies
during the second calendar quarter. In fact, no "small cap" sector in the
Russell 2000 posted a gain in the second quarter, and on a contribution basis,
health care and technology were the worst areas. However, several positions
contributed to our relatively strong performance for the period. BMC software
delivered superior results due to several new business wins and new product
proliferation. Marcam Solutions, a provider of integrated resource planning
applications for manufacturing companies, and Dendrite International, a
developer of comprehensive electronic territory management systems, are being
recognized by the market for their productivity enhancement capabilities.
In the calendar third quarter, while small companies sold-off across the board,
relatively, our holdings in information/knowledge management and business
services performed quite well and significantly contributed to outperformance of
relevant small company indices. The portfolio also benefited by the acquisition
of Molecular Dynamics, a manufacturer and marketer of systems that aid
scientists in the acceleration of genetic discovery and analysis. Amersham
Pharmacia Biotech purchased the company for what amounts to a 77 percent
increase over the stock price at the beginning of the quarter.
Our GARP philosophy and bottom up stock selection skills helped us to weather
the recent storm and to continue to outperform the average fund in our
respective categories. We continue to invest for the long term.
Sincerely,
Eddie C. Brown
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 91.94%
Beverages - 1.24%
The Coca-Cola Company .................................................. 1,600 $ 92,200
----------
Biopharmaceuticals - 1.47%
Perkin-Elmer Corporation ............................................... 1,600 109,900
----------
Building Materials - 2.48%
Illinois Tool Works Inc. ............................................... 3,400 185,300
----------
Computers - 6.67%
(a) EMC Corporation ........................................................ 4,000 228,750
International Business Machines Corporation ............................ 2,100 269,194
----------
497,944
----------
Computer Software & Services - 15.67%
(a) Acxiom Corporation ..................................................... 7,200 178,650
(a) BMC Software, Inc. ..................................................... 2,600 156,162
(a) Fiserv, Inc. ........................................................... 1,500 69,094
(a) Microsoft Corporation .................................................. 1,700 187,106
(a) Network Associates, Inc. ............................................... 3,650 129,575
(a) Oracle Corporation ..................................................... 2,587 75,346
(a) Sterling Commerce, Inc. ................................................ 4,972 172,156
(a) Sterling Software, Inc. ................................................ 7,300 201,206
----------
1,169,295
----------
Cosmetics & Personal Care - 1.90%
Gillette Company ....................................................... 3,700 141,525
----------
Electrical Equipment - 0.16%
Belden, Inc. ........................................................... 900 12,094
----------
Electronics - 4.41%
General Electric Company ............................................... 1,300 103,431
(a) Solectron Corporation .................................................. 4,700 225,600
----------
329,031
----------
Entertainment - 4.28%
Carnival Corporation ................................................... 5,620 178,786
The Walt Disney Company ................................................ 5,500 139,906
----------
318,692
----------
Financial - Banks, Money Center - 2.76%
Chase Manhattan Corporation ............................................ 4,740 206,190
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Financial - Savings/Loans/Thrifts - 2.21%
Mellon Bank Corporation ................................................ 3,000 $ 165,187
----------
Financial - Securities Brokers - 2.48%
SLM Holding Corporation ................................................ 5,700 184,894
----------
Financial Services - 4.25%
Equifax Inc. ........................................................... 3,450 123,122
T. Rowe Price Associates, Inc. ......................................... 6,600 193,875
----------
316,997
----------
Hand & Machine Tools - 0.96%
Danaher Corporation .................................................... 2,400 72,000
----------
Household Products & Housewares - 2.25%
Newell Company ......................................................... 3,650 168,128
----------
Human Resources - 0.69%
Robert Half International Inc. ......................................... 1,200 51,825
----------
Insurance - Life & Health - 1.39%
AFLAC Incorporated ..................................................... 3,624 103,511
----------
Leisure Time - 1.77%
Harley-Davidson, Inc. .................................................. 4,500 132,188
----------
Medical - Biotechnology - 2.95%
Merck & Co., Inc. ...................................................... 1,700 220,256
----------
Medical - Hospital Management & Service - 2.92%
(a) HCR Manor Care, Inc. ................................................... 3,450 101,128
(a) Health Management Associates, Inc. ..................................... 6,375 116,344
----------
217,472
----------
Medical Supplies - 2.83%
Johnson & Johnson ...................................................... 2,700 211,275
United States Surgical Corporation ..................................... 1 42
----------
211,317
----------
Oil & Gas - Equipment & Services - 2.03%
Schlumberger Limited ................................................... 3,000 151,125
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Pharmaceuticals - 7.39%
(a) ALZA Corporation ....................................................... 4,200 $ 182,175
Cardinal Health, Inc. .................................................. 3,575 369,119
----------
551,294
----------
Real Estate - 1.48%
The Rouse Company ...................................................... 4,100 110,444
----------
Restaurants & Food Service - 2.34%
(a) The Cheesecake Factory Incorporated .................................... 1,150 17,825
Craker Barrel Old Country Store, Inc. .................................. 6,900 156,975
----------
174,800
----------
Retail - Department Stores - 1.31%
Dollar General Corporation ............................................. 3,663 97,527
----------
Retail - Grocery - 1.61%
Casey's General Stores, Inc. ........................................... 8,000 120,000
----------
Retail - Specialty - 6.04%
(a) AutoZone, Inc. ......................................................... 6,800 167,450
Fastenal Company ....................................................... 3,100 77,500
The Home Depot, Inc. ................................................... 5,200 205,400
----------
450,350
----------
Telecommunications - 1.33%
(a) Tellabs, Inc. .......................................................... 2,500 99,531
----------
Telecommunications Equipment - 2.29%
(a) ADC Telecommunications, Inc. ........................................... 3,900 82,388
Northern Telecom Limited ............................................... 2,760 88,320
----------
170,708
----------
Transportation - Rail - 0.38%
(a) Wisconsin Central Transportation Corporation ........................... 2,000 28,000
----------
Total Common Stocks (Cost $5,986,570) ................................................... 6,859,725
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 8.23%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ............................... 345,115 $ 345,115
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares ......................... 268,989 268,989
----------
Total Investment Companies (Cost $614,104) .............................................. 614,104
----------
Total Value of Investments (Cost $6,600,674 (b)) .................................................... 100.17 % $7,473,829
Liabilities in Excess of Other Assets ............................................................... (0.17)% (12,579)
------ ----------
Net Assets ................................................................................... 100.00 % $7,461,250
====== ==========
(a) Non-income producing investment.
(b) Aggregate cost for financial reporting and federal income tax purposes is the same. Unrealized appreciation of
investments for financial reporting and federal income tax purposes is as follows:
Unrealized appreciation $1,481,778
Unrealized depreciation (608,623)
----------
Net unrealized appreciation $ 873,155
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
(Unaudited)
ASSETS
Investments, at value (cost $6,600,674) .............................................................. $7,473,829
Income receivable .................................................................................... 5,410
Receivable for investments sold ...................................................................... 35,632
Other assets ......................................................................................... 6,236
----------
Total assets .................................................................................... 7,521,107
----------
LIABILITIES
Accrued expenses ..................................................................................... 2,945
Payable for investment purchases ..................................................................... 48,181
Disbursements in excess of cash on demand deposit .................................................... 8,731
----------
Total liabilities ............................................................................... 59,857
----------
NET ASSETS
(applicable to 384,492 Institutional Class shares outstanding; unlimited
shares of no par value beneficial interest authorized) .............................................. $7,461,250
==========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($7,461,250 / 384,492 shares) ........................................................................ $19.41
==========
NET ASSETS CONSIST OF
Paid-in capital ...................................................................................... $6,184,739
Undistributed net realized gain on investments ....................................................... 403,356
Net unrealized appreciation on investments ........................................................... 873,155
----------
$7,461,250
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENT OF OPERATIONS
Period ended September 30, 1998
(Unaudited)
INVESTMENT LOSS
Income
Dividends .................................................................................... $ 31,646
-----------
Expenses
Investment advisory fees (note 2) ............................................................ 25,931
Fund administration fees (note 2) ............................................................ 9,974
Custody fees ................................................................................. 2,495
Registration and filing administration fees (note 2) ......................................... 2,156
Fund accounting fees (note 2) ................................................................ 10,500
Audit fees ................................................................................... 4,075
Legal fees ................................................................................... 8,233
Securities pricing fees ...................................................................... 1,539
Shareholder recordkeeping fees ............................................................... 576
Shareholder servicing expenses ............................................................... 2,129
Registration and filing expenses ............................................................. 2,018
Printing expenses ............................................................................ 1,504
Trustee fees and meeting expenses ............................................................ 2,006
Other operating expenses ..................................................................... 644
-----------
Total expenses ......................................................................... 73,780
-----------
Less:
Expense reimbursements (note 2) ................................................... (2,860)
Investment advisory fees waived (note 2) .......................................... (23,037)
-----------
Net expenses ........................................................................... 47,883
-----------
Net investment loss ............................................................... (16,237)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions .................................................... 433,328
Decrease in unrealized appreciation on investments ................................................ (1,311,121)
-----------
Net realized and unrealized loss on investments .............................................. (877,793)
-----------
Net decrease in net assets resulting from operations ................................... $ (894,030)
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended Year ended
September 30, March 31,
1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment loss ............................................................... $ (16,237) $ (10,254)
Net realized gain from investment transactions .................................... 433,328 603,519
(Decrease) increase in unrealized appreciation on investments ..................... (1,311,121) 1,740,209
---------- ----------
Net (decrease) increase in net assets resulting from operations ............... (894,030) 2,333,474
---------- ----------
Distributions to shareholders from
Net realized gain from investment transactions .................................... 0 (660,547)
Distributions in excess of net realized gains ..................................... 0 (13,735)
---------- ----------
Decrease in net assets resulting from distributions ........................... 0 (674,282)
---------- ----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ............. 205,510 2,085,558
---------- ----------
Total (decrease) increase in net assets .................................. (688,520) 3,744,750
NET ASSETS
Beginning of period .................................................................... 8,149,770 4,405,020
---------- ----------
End of period .......................................................................... $7,461,250 $8,149,770
========== ==========
(a) A summary of capital share activity follows:
-----------------------------------------------------------------------
Period ended Year ended
September 30, 1998 March 31, 1998
Shares Value Shares Value
-----------------------------------------------------------------------
Shares sold ................................................ 34,011 $ 696,129 120,211 $2,302,970
Shares issued for reinvestment
of distributions ...................................... 0 0 31,855 669,689
---------- ---------- ---------- ----------
34,011 696,129 152,066 2,972,659
Shares redeemed ............................................ (22,089) (490,619) (44,640) (887,101)
---------- ---------- ---------- ----------
Net increase .......................................... 11,922 $ 205,510 107,426 $2,085,558
========== ========== ========== ==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended Year ended Year ended Year ended Year ended
September 30, March 31, March 31, March 31, March 31,
1998 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................... $21.87 $16.61 $15.81 $12.36 $11.48
(Loss) income from investment operations
Net investment (loss) income ................. (0.04) (0.03) 0.05 0.00 0.00
Net realized and unrealized (loss) gain
on investments .......................... (2.42) 7.31 1.36 3.72 1.01
---------- ---------- ---------- ---------- ----------
Total from investment operations ........ (2.46) 7.28 1.41 3.72 1.01
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from
Net investment income ........................ (0.00) 0.00 (0.05) 0.00 0.00
Net realized gain from investment transactions (0.00) (1.98) (0.56) (0.27) (0.13)
Distributions in excess of net realized gains 0.00 (0.04) 0.00 0.00 0.00
---------- ---------- ---------- ---------- ----------
Total distributions ..................... (0.00) (2.02) (0.61) (0.27) (0.13)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period .......................... $19.41 $21.87 $16.61 $15.81 $12.36
========== ========== ========== ========== ==========
Total return ............................................ (11.25)% 44.68 % 8.91 % 30.25 % 8.90 %
========== ========== ========== ========== ==========
Ratios/supplemental data
Net assets, end of period ......................... $7,461,250 $8,149,770 $4,405,020 $1,965,862 $1,130,020
========== ========== ========== ========== ==========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ... 1.85 %(a) 1.98 % 3.37 % 5.58 % 8.32 %
After expense reimbursements and waived fees .... 1.20 %(a) 1.20 % 1.20 % 1.56 % 2.00 %
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees ... (1.06)%(a) (0.94)% (1.85)% (4.20)% (6.41)%
After expense reimbursements and waived fees .... (0.40)%(a) (0.16)% 0.32 % 0.01 % (0.11)%
Portfolio turnover rate .............................. 22.35 %(a) 38.42 % 34.21 % 48.06 % 7.29 %
Average brokerage commission per share (b) ........... $0.0504 $0.0507 -- -- --
(a) Annualized.
(b) Represents total commissions paid on portfolio securities divided by total portfolio shares purchased or sold on which
commissions were charged.
See accompanying notes to financial statements
</TABLE>
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
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-ended 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 seek capital appreciation principally
through investments in equity securities, such as common and
preferred stocks and securities convertible into common stocks.
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 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 an accrual basis.
Dividend income is 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.
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 estimates.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
7 NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
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.
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. There can be no assurance that the foregoing voluntary fee
waivers or reimbursements will continue. The Advisor has
voluntarily waived its fee amounting to $23,037 ($.06 per share)
and has voluntarily agreed to reimburse $2,860 of the Fund's
operating expenses for the period ended September 30, 1998.
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. 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.
NC Shareholder Services, LLC (the "Transfer Agent") has been
retained by the Trust to serve as the Fund's transfer, dividend
paying, and shareholder servicing agent. The Transfer Agent
maintains the records of each shareholder's account, answers
shareholder inquiries concerning accounts, processes purchases and
redemptions of Fund shares, acts as dividend and distribution
disbursing agent, and performs other shareholder servicing
functions.
Certain Trustees and officers of the Trust are also officers of
the Advisor, the distributor or the Administrator.
At September 30, 1998, the Advisor and its officers held 37,030
shares or 9.63% of the Fund shares outstanding.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $1,808,997 and $1,668,418, respectively,
for the period ended September 30, 1998.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 70.38%
Beverages - 0.87%
The Coca-Cola Company .................................................... 900 $ 51,863
----------
Building Materials - 0.76%
Fastenal Company ......................................................... 1,800 45,000
----------
Commercial Services - 1.38%
Equifax Inc. ............................................................. 2,300 82,081
----------
Computers - 5.11%
(a) EMC Corporation .......................................................... 2,400 137,250
International Business Machines Corporation .............................. 1,300 166,644
----------
303,894
----------
Computer Software & Services - 11.83%
(a) Acxiom Corporation ....................................................... 4,000 99,250
(a) BMC Software, Inc. ....................................................... 1,600 96,100
(a) Fiserv, Inc. ............................................................. 1,050 48,366
(a) Microsoft Corporation .................................................... 1,000 110,062
(a) Network Associates, Inc. ................................................. 2,250 79,875
(a) Oracle Corporation ....................................................... 1,537 44,765
(a) Sterling Commerce, Inc. .................................................. 3,011 104,256
(a) Sterling Software, Inc. .................................................. 4,400 121,275
----------
703,949
----------
Cosmetics & Personal Care - 1.48%
Gillette Company ......................................................... 2,300 87,975
----------
Electronics - 3.23%
Belden Inc. .............................................................. 500 6,719
General Electric Company ................................................. 700 55,694
(a) Solectron Corporation .................................................... 2,700 129,600
----------
192,013
----------
Entertainment - 3.32%
Carnival Corporation ..................................................... 3,500 111,344
The Walt Disney Company .................................................. 3,400 86,487
----------
197,831
----------
Financial Services - 3.93%
SLM Holding Corporation .................................................. 3,400 110,287
T. Rowe Price Associates, Inc. ........................................... 4,200 123,375
----------
233,662
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Financial - Banks, Money Center - 3.76%
Mellon Bank Corporation .................................................. 1,800 $ 99,113
The Chase Manhattan Corporation .......................................... 2,856 124,236
----------
223,349
----------
Hand & Machine Tools - 0.71%
Danaher Corporation ...................................................... 1,400 42,000
----------
Household Products & Housewares - 1.70%
Newell Co. ............................................................... 2,200 101,337
----------
Human Resources - 0.44%
(a) Robert Half International Inc. ........................................... 600 25,912
----------
Insurance - Life & Health - 1.08%
AFLAC Incorporated ....................................................... 2,250 64,266
----------
Leisure Time - 1.48%
Harley-Davidson, Inc. .................................................... 3,000 88,125
----------
Manufacturing - 2.96%
Illinois Tool Works, Inc. ................................................ 2,100 114,450
The Perkin-Elmer Corporation ............................................. 900 61,819
----------
176,269
----------
Medical - Hospital Management & Service - 2.27%
HCR Manor Care, Inc. ..................................................... 2,325 68,152
Health Management Associates, Inc. ....................................... 3,675 67,069
----------
135,221
----------
Medical Supplies - 2.50%
(a) Johnson & Johnson ........................................................ 1,900 148,675
(a) United States Surgical Corporation ....................................... 1 42
----------
148,717
----------
Oil & Gas - Equipment & Services - 1.61%
Schlumberger Limited ..................................................... 1,900 95,713
----------
Pharmaceuticals - 8.02%
(a) Alza Corporation ......................................................... 2,600 112,775
Cardinal Health, Inc. .................................................... 2,150 221,987
Merck & Co., Inc. ........................................................ 1,100 142,519
----------
477,281
----------
Real Estate - 1.18%
The Rouse Company ........................................................ 2,600 70,037
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Restaurants & Food Service - 1.86%
Cracker Barrel Old Country Store, Inc. ................................... 4,400 $ 100,100
(a) The Cheesecake Factory Incorporated ...................................... 675 10,462
----------
110,562
----------
Retail - Department Stores - 0.95%
Dollar General Corporation ............................................... 2,121 56,472
----------
Retail - Grocery - 1.11%
Casey's General Stores, Inc. ............................................. 4,400 66,000
----------
Retail - Specialty Line - 3.87%
(a) AutoZone, Inc. ........................................................... 4,300 105,887
The Home Depot, Inc. ..................................................... 3,150 124,425
----------
230,312
----------
Telecommunications - 1.07%
(a) Tellabs, Inc. ............................................................ 1,600 63,700
----------
Telecommunications Equipment - 0.82%
(a) ADC Telecommunications, Inc. ............................................. 2,300 48,587
----------
Transportation - Rail - 0.24%
(a) Wisconsin Central Transportation Corporation ............................. 1,000 14,000
----------
Utilities - Telecommunications - 0.84%
Northern Telecom Limited ................................................. 1,560 49,920
----------
Total Common Stocks (Cost $3,504,322) ...................................................... 4,186,048
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity
Principal Rate Date
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 7.32%
United States Treasury Note ........................... $ 20,000 6.250% 08/15/23 22,984
United States Treasury Note ........................... 70,000 6.375% 07/15/99 70,908
United States Treasury Note ........................... 90,000 6.375% 08/15/02 96,385
United States Treasury Note ........................... 100,000 7.500% 02/15/05 117,250
United States Treasury Note ........................... 100,000 7.750% 01/31/00 104,125
Federal Home Loan Bank ................................ 100,000 0.000% 07/14/17 23,505
----------
Total U.S. Government and Agency Obligations (Cost $406,084) ............................... 435,157
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 9.23%
Alabama Power Company ................................. $15,000 7.750% 02/01/23 $ 15,739
Boston Edison Company ................................. 40,000 7.800% 05/15/10 46,715
Chase Manhattan Corporation ........................... 30,000 6.500% 08/01/05 30,750
Chesapeake & Potomac Telephone of Virginia ............ 50,000 7.250% 06/01/12 50,437
Citicorp .............................................. 15,000 7.125% 06/01/03 16,053
Ford Motor Credit Corporation ......................... 40,000 7.250% 09/01/10 46,526
ITT Corporation ....................................... 50,000 7.375% 11/15/15 46,375
Merrill Lynch ......................................... 75,000 7.150% 07/30/12 79,800
Monsanto Company ...................................... 45,000 6.210% 02/05/08 47,578
Nationsbank Corporation ............................... 15,000 6.875% 02/15/05 16,141
The Rouse Company ..................................... 10,000 8.500% 01/15/03 10,772
The Walt Disney Company ............................... 50,000 7.750% 09/30/11 51,250
Time Warner, Inc. ..................................... 20,000 9.150% 02/01/23 25,100
U. S. F. & G. Corporation ............................. 60,000 7.125% 06/01/05 65,635
----------
Total Corporate Obligations (Cost $511,406) ................................................ 548,871
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 9.16%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ................................. 272,546 272,546
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Shares ................................... 272,546 272,546
----------
Total Investment Companies (Cost $545,092) ................................................. 545,092
----------
Total Value of Investments (Cost $4,966,904 (b)) ....................................................... 96.09% $5,715,168
Other Assets Less Liabilities .......................................................................... 3.91% 232,732
------ ----------
Net Assets ...................................................................................... 100.00% $5,947,900
====== ==========
(a) Non-income producing investment.
(b) 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 $1,124,354
Unrealized depreciation (376,090)
----------
Net unrealized appreciation $ 748,264
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
(Unaudited)
ASSETS
Investments, at value (cost $4,966,904) .......................................................... $5,715,168
Cash ............................................................................................. 215,829
Income receivable ................................................................................ 17,847
Receivable for investments sold .................................................................. 1,382
Other assets ..................................................................................... 6,578
----------
Total assets ................................................................................ 5,956,804
----------
LIABILITIES
Accrued expenses ................................................................................. 1,938
Payable for investment purchases ................................................................. 6,966
----------
Total liabilities ........................................................................... 8,904
----------
NET ASSETS
(applicable to 383,378 shares outstanding; unlimited
shares of no par value beneficial interest authorized) .......................................... $5,947,900
==========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($5,947,900 / 383,378 shares) .................................................................... $15.51
==========
NET ASSETS CONSIST OF
Paid-in capital .................................................................................. $4,929,872
Undistributed net investment income .............................................................. 2,798
Undistributed net realized gain on investments ................................................... 266,966
Net unrealized appreciation on investments ....................................................... 748,264
----------
$5,947,900
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
STATEMENT OF OPERATIONS
Period ended September 30, 1998
(Unaudited)
INVESTMENT INCOME
Income
Interest ...................................................................................... $ 34,782
Dividends ..................................................................................... 29,105
---------
Total income ............................................................................ 63,887
---------
Expenses
Investment advisory fees (note 2) ............................................................. 20,687
Fund administration fees (note 2) ............................................................. 7,956
Custody fees .................................................................................. 2,418
Registration and filing administration fees (note 2) .......................................... 2,106
Fund accounting fees (note 2) ................................................................. 10,500
Audit fees .................................................................................... 4,313
Legal fees .................................................................................... 8,107
Securities pricing fees ....................................................................... 2,103
Shareholder recordkeeping fees ................................................................ 268
Shareholder servicing expenses ................................................................ 1,663
Registration and filing expenses .............................................................. 2,018
Printing expenses ............................................................................. 410
Trustee fees and meeting expenses ............................................................. 2,041
Other operating expenses ...................................................................... 679
---------
Total expenses .......................................................................... 65,269
---------
Less:
Expense reimbursements (note 2) .................................................... (6,396)
Investment advisory fees waived (note 2) ........................................... (20,687)
---------
Net expenses ............................................................................ 38,186
---------
Net investment income .............................................................. 25,701
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions ..................................................... 266,968
Decrease in unrealized appreciation on investments ................................................. (765,785)
---------
Net realized and unrealized loss on investments ............................................... (498,817)
---------
Net decrease in net assets resulting from operations .................................... $(473,116)
=========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended Year ended
September 30, March 31,
1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment income ............................................................ $ 25,701 $ 54,147
Net realized gain from investment transactions ................................... 266,968 493,452
(Decrease) increase in unrealized appreciation on investments .................... (765,785) 949,181
---------- ----------
Net (decrease) increase in net assets resulting from operations .............. (473,116) 1,496,780
---------- ----------
Distributions to shareholders from
Net investment income ............................................................ (22,843) (54,255)
Distribution in excess of net investment income .................................. 0 (60)
Net realized gain from investment transactions ................................... (16,737) (476,740)
---------- ----------
Decrease in net assets resulting from distributions .......................... (39,580) (531,055)
---------- ----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ............. 382,859 1,237,359
---------- ----------
Total (decrease) increase in net assets ................................. (129,837) 2,203,084
NET ASSETS
Beginning of period ................................................................... 6,077,737 3,874,653
---------- ----------
End of period (including undistributed net investment ................................. $5,947,900 $6,077,737
income of $2,798 at September 30, 1998) ========== ==========
(a) A summary of capital share activity follows:
------------------------------------------------------------------------------------
Period ended Year ended
September 30, 1998 March 31, 1998
Shares Value Shares Value
------------------------------------------------------------------------------------
Shares sold .................................... 34,973 $ 590,777 111,277 $1,757,479
Shares issued for reinvestment
of distributions .......................... 2,337 39,178 32,554 529,963
---------- ---------- ---------- ----------
37,310 629,955 143,831 2,287,442
Shares redeemed ................................ (14,971) (247,096) (67,688) (1,050,083)
---------- ---------- ---------- ----------
Net increase .............................. 22,339 $ 382,859 76,143 $1,237,359
========== ========== ========== ==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended Year ended Year ended Year ended Year ended
September 30, March 31, March 31, March 31, March 31,
1998 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..................... $16.83 $13.60 $13.76 $11.56 $11.02
Income (loss) from investment operations
Net investment income ......................... 0.07 0.17 0.21 0.12 0.10
Net realized and unrealized (loss) gain
on investments ........................... (1.29) 4.65 0.76 2.98 0.77
---------- ---------- ---------- ---------- ----------
Total from investment operations ......... (1.22) 4.82 0.97 3.10 0.87
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from
Net investment income ......................... (0.06) (0.17) (0.21) (0.12) (0.11)
Net realized gain from investment transactions (0.04) (1.42) (0.92) (0.78) (0.22)
---------- ---------- ---------- ---------- ----------
Total distributions ...................... (0.10) (1.59) (1.13) (0.90) (0.33)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........................... $15.51 $16.83 $13.60 $13.76 $11.56
========== ========== ========== ========== ==========
Total return ............................................. (7.27)% 36.19 % 7.01 % 27.04 % 8.04 %
========== ========== ========== ========== ==========
Ratios/supplemental data
Net assets, end of period .......................... $5,947,900 $6,077,737 $3,874,653 $3,319,314 $2,296,206
========== ========== ========== ========== ==========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ........ 2.05 %(a) 2.22 % 2.85 % 3.50 % 5.43 %
After expense reimbursements and waived fees ......... 1.20 %(a) 1.20 % 1.20 % 1.59 % 2.00 %
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees ........ (0.04)%(a) 0.05 % (0.13)% (0.97)% (2.44)%
After expense reimbursements and waived fees ......... 0.80 %(a) 1.08 % 1.51 % 0.94 % 1.00 %
Portfolio turnover rate ................................... 19.70 % 33.54 % 45.58 % 43.59 % 9.51 %
Average brokerage commission per share (b) ................ $0.0507 $0.0509 $0.0509 -- --
(a) Annualized
(b) Represents total commissions paid on portfolio securities divided by total portfolio shares purchased or sold on which
commissions were charged.
See accompanying notes to financial statements
</TABLE>
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
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-ended 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 provide its shareholders with a
maximum total return consisting of any combination of capital
appreciation by investing in a flexible portfolio of equity
securities, fixed income securities and money market instruments.
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 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 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.
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.
Dividend income is recorded on the ex-dividend date.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
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.
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 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 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.
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. There can be no assurance that the foregoing voluntary fee
waivers or reimbursements will continue. The Advisor has
voluntarily waived its fee amounting to $20,687 ($0.05 per share)
and has voluntarily agreed to reimburse $6,396 of the Fund's
operating expenses for the period ended September 30, 1998.
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. 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.
North Carolina Shareholder Services, LLC (the "Transfer Agent")
serves as the Fund's transfer, dividend paying, and shareholder
servicing agent. The Transfer Agent maintains the records of each
shareholder's account, answers shareholder inquiries concerning
accounts, processes purchases and redemptions of the Fund shares,
acts as dividend and distribution disbursing agent, and performs
other shareholder servicing functions.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Certain Trustees and officers of the Trust are also officers of
the Advisor, the distributor or the Administrator.
At September 30, 1998, the Advisor and its officers held 23,930
shares or 6.396% of the Fund shares outstanding.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $1,220,787 and $1,074,954, respectively,
for the period ended September 30, 1998.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 93.02%
Advertising - 1.84%
(a) Catalina Marketing Corporation ......................................... 4,200 $ 197,400
-----------
Chemicals - 0.88%
(a) Synthetech, Inc. ....................................................... 19,300 94,088
-----------
Commercial Services - 4.23%
Paychex, Inc. .......................................................... 3,562 183,666
(a) Quintiles Transnational Corp. .......................................... 6,200 271,250
-----------
454,916
-----------
Computers - 1.29%
(a) RadiSys Corporation .................................................... 10,300 139,050
-----------
Computer Software & Services - 45.87%
(a) Acxiom Corporation ..................................................... 17,700 439,181
(a) Advent Software, Inc. .................................................. 8,300 283,756
(a) American Software, Inc. ................................................ 26,900 68,931
(a) Best Software, Inc. .................................................... 8,800 211,200
(a) BMC Software, Inc. ..................................................... 9,646 579,363
(a) Boole & Babbage, Inc. .................................................. 7,500 174,375
(a) Cerner Corporation ..................................................... 10,500 281,531
(a) CFI ProServices, Inc. .................................................. 12,100 124,025
(a) Concord Communications, Inc. ........................................... 4,000 159,000
(a) Datastream Systems, Inc. ............................................... 8,600 149,962
(a) Dendrite International, Inc. ........................................... 28,400 678,050
Fair, Isaac and Company, Incorporated .................................. 9,200 307,050
(a) Hyperion Software Corporation .......................................... 7,410 160,704
(a) infoUSA Inc. Class A ................................................... 8,200 58,425
(a) infoUSA Inc. Class B ................................................... 8,200 47,663
(a) Manugistics Group, Inc. ................................................ 10,400 99,450
(a) Network Associates, Inc. ............................................... 8,587 304,839
(a) Platinum Technology, Inc. .............................................. 5,600 100,800
(a) QRS Corporation ........................................................ 4,100 130,687
(a) SPSS Inc. .............................................................. 4,600 105,225
(a) Structural Dynamics Research Corporation ............................... 10,400 117,000
(a) The BISYS Group, Inc. .................................................. 6,700 295,638
(a) Tripos, Inc. ........................................................... 7,600 55,100
-----------
4,931,955
-----------
Electronics - 2.14%
(a) Sanmina Corporation .................................................... 8,200 230,625
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Electronics - Semiconductor - 0.97%
(a) Medialink Worldwide Incorporated ....................................... 6,200 $ 103,850
-----------
Financial Services - 2.84%
T. Rowe Price Associates, Inc. ......................................... 10,400 305,500
-----------
Furniture & Home Appliances - 1.44%
Juno Lighting, Inc. .................................................... 6,900 154,388
-----------
Hand & Machine Tools - 1.75%
(a) Flow International Corporation ......................................... 20,300 187,775
-----------
Machine - Diversified - 1.10%
(a) Cognex Corporation ..................................................... 10,200 118,575
-----------
Medical - Biotechnology - 1.95%
(a) Affymetrix, Inc. ....................................................... 1,500 38,625
(a) Human Genome Sciences, Inc. ............................................ 1,100 33,000
(a) Incyte Pharmaceuticals, Inc. ........................................... 1,200 25,500
(a) Pharmacopeia, Inc. ..................................................... 11,200 112,000
-----------
209,125
-----------
Medical - Hospital Management & Services - 2.34%
(a) ABR Information Services, Inc. ......................................... 18,400 251,850
-----------
Medical Supplies - 12.84%
Ballard Medical Products ............................................... 7,400 148,000
Biomet, Inc. ........................................................... 3,900 135,281
(a) CN Biosciences, Inc. ................................................... 6,320 154,840
(a) Crescendo Pharmaceuticals Corporation .................................. 420 5,539
Diagnostic Products Corporation ........................................ 13,000 346,937
Life Technologies, Inc. ................................................ 9,700 323,737
(a) Techne Corporation ..................................................... 18,200 266,175
-----------
1,380,509
-----------
Miscellaneous - Manufacturing - 0.06%
(a) Panavision Inc. ........................................................ 395 6,814
-----------
Pharmaceuticals - 5.69%
(a) ALZA Corporation ....................................................... 9,600 416,400
(a) Applied Analytical Industries, Inc. .................................... 13,300 194,513
(a) Lynx Therapeutics, Inc. ................................................ 81 658
-----------
611,571
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Real Estate Investment Trust - 1.36%
Post Properties, Inc. .................................................. 3,800 $ 146,538
-----------
Restaurants & Food Services - 3.13%
(a) Au Bon Pain Company, Inc. .............................................. 29,300 178,548
(a) The Cheesecake Factory Incorporated .................................... 10,200 158,100
-----------
336,648
-----------
Retail - Specialty Line - 0.79%
Fastenal Company ....................................................... 3,400 85,000
-----------
Telecommunications Equipment - 0.51%
(a) Applied Digital Access, Inc. ........................................... 19,200 55,200
-----------
Warrants - 0.00%
(a) ALZA Corporation, expiration date December 31, 1999 .................... 150 56
(a) The Perkin-Elmer Corporation, expiraton date September 11, 2003 ........ 27 113
-----------
169
-----------
Total Common Stocks (Cost $8,072,415) ..................................................... 10,001,546
-----------
INVESTMENT COMPANIES - 7.09%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares .................................... 281,752 281,752
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares .............................. 480,139 480,139
-----------
Total Investment Companies (Cost $761,891) ................................................ 761,891
-----------
Total Value of Investments (Cost $8,834,306 (b)) ...................................................... 100.11 % $10,763,437
Liabilities In Excess of Other Assets ................................................................. (0.11)% (11,390)
------ -----------
Net Assets ..................................................................................... 100.00 % $10,752,047
====== ===========
(a) Non-income producing investment.
(b) Aggregate cost for financial reporting and federal income tax purposes is the same. Unrealized appreciation of
investments for financial reporting and federal income tax purposes is as follows:
Unrealized appreciation $ 3,106,350
Unrealized depreciation (1,177,219)
-----------
Net unrealized appreciation $ 1,929,131
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
(Unaudited)
ASSETS
Investments, at value (cost $8,834,306) .............................................................. $10,763,437
Cash ................................................................................................. 466
Income receivable .................................................................................... 7,737
Other assets ......................................................................................... 4,276
-----------
Total assets .................................................................................... 10,775,916
-----------
LIABILITIES
Accrued expenses ..................................................................................... 3,456
Payable for investment purchases ..................................................................... 20,413
-----------
Total liabilities ............................................................................... 23,869
-----------
NET ASSETS
(applicable to 595,859 Institutional Class shares outstanding; unlimited
shares of no par value beneficial interest authorized) .............................................. $10,752,047
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($10,752,047 / 595,859 shares) ....................................................................... $18.04
===========
NET ASSETS CONSIST OF
Paid-in capital ...................................................................................... $ 8,363,360
Undistributed net realized gain on investments ....................................................... 459,556
Net unrealized appreciation on investments ........................................................... 1,929,131
-----------
$10,752,047
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENT OF OPERATIONS
Period ended September 30, 1998
(Unaudited)
INVESTMENT LOSS
Income
Dividends .................................................................................... $ 26,476
-----------
Expenses
Investment advisory fees (note 2) ............................................................ 57,223
Fund administration fees (note 2) ............................................................ 13,951
Custody fees ................................................................................. 1,972
Registration and filing administration fees (note 2) ......................................... 3,848
Fund accounting fees (note 2) ................................................................ 10,500
Audit fees ................................................................................... 4,075
Legal fees ................................................................................... 8,233
Securities pricing fees ...................................................................... 1,777
Shareholder recordkeeping fees ............................................................... 878
Shareholder servicing expenses ............................................................... 2,459
Registration and filing expenses ............................................................. 5,014
Printing expenses ............................................................................ 1,504
Trustee fees and meeting expenses ............................................................ 2,006
Other operating expenses ..................................................................... 747
-----------
Total expenses ......................................................................... 114,187
-----------
Less investment advisory fees waived (note 2) .......................................... (28,319)
-----------
Net expenses ........................................................................... 85,868
-----------
Net investment loss ............................................................... (59,392)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions .................................................... 452,691
Decrease in unrealized appreciation on investments ................................................ (2,099,548)
-----------
Net realized and unrealized loss on investments .............................................. (1,646,857)
-----------
Net decrease in net assets resulting from operations ................................... $(1,706,249)
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended Year ended
September 30, March 31,
1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment loss ...................................................... $ (59,392) $ (63,196)
Net realized gain from investment transactions ........................... 452,691 264,971
(Decrease) increase in unrealized appreciation on investments ............ (2,099,548) 3,029,081
----------- -----------
Net (decrease) increase in net assets resulting from operations ...... (1,706,249) 3,230,856
----------- -----------
Distributions to shareholders from
Net realized gain from investment transactions ........................... 0 (122,662)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ..... 892,352 1,939,063
----------- -----------
Total (decrease) increase in net assets ......................... (813,897) 5,047,257
NET ASSETS
Beginning of period ........................................................... 11,565,944 6,518,687
----------- -----------
End of period ................................................................. $10,752,047 $11,565,944
=========== ===========
(a) A summary of capital share activity follows:
----------------------------------------------------------------------------------------
Period ended Year ended
September 30, 1998 March 31, 1998
Shares Value Shares Value
----------------------------------------------------------------------------------------
Shares sold ............................... 63,227 $ 1,256,669 127,445 $ 2,137,857
Shares issued for reinvestment
of distributions ..................... 0 0 6,686 122,282
----------- ----------- ----------- -----------
63,227 1,256,669 134,131 2,260,139
Shares redeemed ........................... (17,496) (364,317) (18,185) (321,076)
----------- ----------- ----------- -----------
Net increase ......................... 45,731 $ 892,352 115,946 $ 1,939,063
=========== =========== =========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended Year ended Year ended Year ended Year ended
September 30, March 31, March 31, March 31, March 31,
1998 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..................... $21.02 $15.01 $15.13 $12.24 $10.69
(Loss) income from investment operations
Net investment loss ........................... (0.10) (0.11) (0.03) (0.06) (0.06)
Net realized and unrealized (loss) gain
on investments ........................... (2.88) 6.36 0.27 4.00 1.86
----------- ----------- ----------- ----------- -----------
Total from investment operations ......... (2.98) 6.25 0.24 3.94 1.80
----------- ----------- ----------- ----------- -----------
Distributions to shareholders from
Net realized gain from investment transactions (0.00) (0.24) (0.36) (1.05) (0.25)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period ........................... $18.04 $21.02 $15.01 $15.13 $12.24
=========== =========== =========== =========== ===========
Total return ............................................. (14.18)% 41.84 % 1.56 % 33.00 % 16.95 %
=========== =========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of period ........................ $10,752,047 $11,565,944 $ 6,518,687 $ 3,740,208 $ 2,609,361
=========== =========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ..... 1.99 %(a) 2.05 % 2.70 % 3.49 % 4.49 %
After expense reimbursements and waived fees ...... 1.50 %(a) 1.50 % 1.50 % 1.69 % 2.00 %
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees ..... (1.54)%(a) (1.23)% (1.50)% (2.29)% (3.38)%
After expense reimbursements and waived fees ...... (1.04)%(a) (0.68)% (0.30)% (0.50)% (0.90)%
Portfolio turnover rate ................................ 8.31 % 11.64 % 13.39 % 23.43 % 32.79 %
Average brokerage commission per share (b) ............. $0.0530 $0.0520 $0.0482 -- --
(a) Annualized.
(b) Represents total commissions paid on portfolio securities divided by total portfolio shares purchased or sold on which
commissions were charged.
See accompanying note to financial statements
</TABLE>
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
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, as amended. The investment
objective of the 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. 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 operating net investment loss, a
reclassification adjustment of $59,392 has been made on the
statement of assets and liabilities to decrease accumulated
net investment loss, bringing it to zero, and decrease
paid-in capital.
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 is 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.
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.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
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 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.
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. There can be no assurance that the foregoing
voluntary fee waivers or reimbursements will continue. The Advisor
has voluntarily waived its fee amounting to $28,319 (0.05 per
share) for the period ended September 30, 1998.
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. 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.
NC Shareholder Services, LLC (the "Transfer Agent") has been
retained by the Trust to serve as the Fund's transfer, dividend
paying, and shareholder servicing agent. The Transfer Agent
maintains the records of each shareholder's account, answers
shareholder inquiries concerning accounts, processes purchases and
redemptions of Fund shares, acts as dividend and distribution
disbursing agent, and performs other shareholder servicing
functions.
Certain Trustees and officers of the Trust are also officers of
the Advisor, the distributor or the Administrator.
At September 30, 1998, the Advisor and its officers held 46,211
shares or 7.76% of the Fund shares outstanding.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $1,381,954 and $896,106, respectively, for
the period ended September 30, 1998.
<PAGE>
________________________________________________________________________________
THE BROWN CAPITAL MANAGEMENT FUNDS
________________________________________________________________________________
a series of the Nottingham Investment Trust II
This Report has been prepared for
shareholders and may be distributed to
others only if preceded or accompanied by
a current prospectus.
