As filed with the Securities and Exchange Commission on February 24, 1999
Securities Act File No. 33-37458
Investment Company Act File No. 811-06199
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 35 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 36 [X]
(Check appropriate box or boxes.)
NOTTINGHAM INVESTMENT TRUST II
------------------------------
(Exact Name of Registrant as Specified in Charter)
105 North Washington Street, Rocky Mount, North Carolina 27802-0069
-------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (252) 972-9922
--------------
C. Frank Watson, III
105 North Washington Street, P.O. Drawer 69, Rocky Mount, NC 27802-0069
-----------------------------------------------------------------------
(Name and Address of Agent for Service)
With Copies to:
---------------
Jane A. Kanter
Dechert Price & Rhoads.
1775 Eye Street, N.W.
Washington, DC 20006-2401
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this filing
-----------------------------
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
<PAGE>
PART A
======
________________________________________________________________________________
THE BROWN CAPITAL MANAGEMENT FUNDS
Series of the
NOTTINGHAM INVESTMENT TRUST II
INSTITUTIONAL SHARES
________________________________________________________________________________
PROSPECTUS
May 10, 1999
This prospectus includes information about the four Brown Capital Management
Funds (the "Funds") - three equity funds, and one balanced fund. The equity
funds seek long-term capital appreciation. Current income is a secondary
consideration in selecting portfolio investments. In seeking to achieve their
objective, the equity funds will invest primarily in equity securities. The
balanced fund seeks a maximum total return consisting of capital appreciation,
both realized and unrealized, and income. The balanced fund will seek to achieve
this objective by investing in a flexible portfolio of equity securities, fixed
income securities, and money market instruments.
Advisor
-------
Brown Capital Management, Inc.
809 Cathedral Street
Baltimore, Maryland 21201
1-800-525-3863
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
----
THE FUNDS......................................................................2
- ---------
Investment Objectives....................................................2
Principal Investment Strategies..........................................2
Brown Capital Management Equity Fund.................................2
Brown Capital Management Small Company Fund..........................3
Brown Capital Management International Equity Fund...................4
Brown Capital Management Balanced Fund...............................5
Principal Risks Of Investing In The Funds................................6
All Funds............................................................6
Specific Risk Factors................................................7
Bar Charts and Performance Tables.......................................11
Fees and Expenses of the Funds..........................................14
MANAGEMENT OF THE FUNDS.......................................................15
- -----------------------
The Investment Advisor..................................................15
The Administrator.......................................................17
The Transfer Agent......................................................17
The Distributor.........................................................17
INVESTING IN THE FUNDS........................................................18
- ----------------------
Minimum Investment......................................................18
Purchase And Redemption Price...........................................18
Purchasing Shares.......................................................19
Redeeming Your Shares...................................................21
OTHER IMPORTANT INVESTMENT INFORMATION........................................23
- --------------------------------------
Dividends, Distributions And Taxes......................................23
Financial Highlights....................................................24
Additional Information..........................................Back Cover
<PAGE>
THE FUNDS
---------
INVESTMENT OBJECTIVES
The investment objective of the Brown Capital Management Equity Fund, the Brown
Capital Management Small Company Fund and the Brown Capital Management
International Equity Fund to seek long-term capital appreciation. Current income
is a secondary consideration in selecting portfolio investments for the equity
funds. The investment objective of the Brown Capital Management Balanced Fund is
total return, consisting of realized and unrealized capital appreciation, and
current income. Each of the Funds is a diversified series of the Nottingham
Investment Trust II.
PRINCIPAL INVESTMENT STRATEGIES
Brown Capital Management Equity Fund
The Brown Capital Management Equity Fund (the "Equity Fund") seeks capital
appreciation through an opportunistic stock investment strategy with a growth
bias. The Advisor seeks to purchase equity securities of those companies that
the Advisor feels are undervalued relative to their growth potential in the
securities markets, because the companies are presently out of favor, not well
known or possess value that is not currently recognized by the investment
community. The Equity Fund generally consists of the equity securities of medium
and large capitalization companies, generally defined as those companies with a
market capitalization of $1 billion or more.
The Advisor uses a fundamentalist "bottom up" approach to select specific
securities, while remaining cognizant of specific economic and industry
outlooks. The Advisor employs analysis that:
o contains elements of traditional dividend discount and earnings yield
models;
o establishes predicted relative valuation for equity and fixed income
markets; and
o determines the attractiveness of individual securities through evaluation
of growth and risk characteristics of the underlying company relative to
the overall equity market.
The Advisor generally expects to hold securities for the long term, although
securities will be sold when the Advisor feels their potential for future growth
is diminished.
The Fund invests in a variety of companies and industries as well as economic
sectors.
Under normal market conditions the portfolio allocation range for the Equity
Fund will be:
% of Total Assets
-----------------
Equity securities 70 - 99%
Money market instruments 1 - 30%
<PAGE>
When market or financial conditions warrant, the Equity Fund may invest in U.S.
Government and agency securities, cash, money market securities and other
fixed-income securities for temporary or defensive purposes. Such investment
strategies are inconsistent with the Equity Fund's investment objective and
could result in the Equity Fund not achieving it investment objective.
Brown Capital Management Small Company Fund
The Brown Capital Management Small Company Fund (the "Small Company Fund")
invests primarily in the equity securities of those companies with total
operating revenues of $250 million or less at the time of the initial
investment, ("small companies"). The Advisor seeks to build a portfolio of
exceptional small companies with the following overall portfolio
characteristics:
o price-to-earnings ratio to prospective earnings per share growth rate that
is less than an appropriate market benchmark (on twelve month forward
estimated earnings); and
o profitability that is greater than that market benchmark
Currently, the Fund uses the Russell 2000 Index as its market benchmark. The
Russell 2000 Index is a widely-recognized, unmanaged index of 2,000 common
stocks of domestic companies with market capitalizations ranging between $100
million and $1 billion.
This analysis includes many factors that, in the Advisor's view, are critical to
the small company sector. The Advisor believes that:
o a sustained commitment to a portfolio of exceptional small companies will,
over time, produce a significant investment return; and
o an investment analysis that identifies and successfully evaluates those few
small companies with the legitimate potential to become large companies can
be a very rewarding investment strategy.
The Advisor uses a fundamentalist "bottom up" approach to select specific
securities, while remaining aware of specific economic and industry outlooks.
The Advisor employs analysis that:
o contains elements of traditional dividend discount and earnings yield
models;
o establishes predicted relative valuation for equity and fixed income
markets; and
o determines the attractiveness of individual securities through evaluation
of growth and risk characteristics of the underlying company relative to
the overall equity market.
The Advisor identifies small companies with the potential to become successful
large companies by analyzing the potential for:
o sustainable revenue growth;
o adequate resources to establish and defend a viable product or service
market, and market share;
o sufficient profitability to support long term growth; and
o management skills and resources necessary to plan and execute a long-term
growth plan.
<PAGE>
The Advisor generally expects to hold securities for the long term, although
securities will be sold when the Advisor feels their potential for future growth
is diminished.
Under normal market conditions the portfolio allocation range for the Small
Company Fund will be:
% of Total Assets
-----------------
Equity securities 70 - 99%
Money market instruments 1 - 30%
When market or financial conditions warrant, the Small Company Fund may invest
in U.S. Government and agency securities, cash, money market securities and
other fixed-income securities for temporary or defensive purposes. Such
investment strategies are inconsistent with the Small Company Fund's investment
objective and could result in the Small Company Fund not achieving it investment
objective.
Brown Capital Management International Equity Fund
The Brown Capital Management International Equity Fund (the "International
Equity Fund") invests primarily in the equity securities of non-U.S. based
companies. The Advisor seeks to purchase equity securities of those companies
that the Advisor feels are undervalued relative to their long-term potential in
the securities markets. The Advisor utilizes an analysis that seeks to identify
those companies trading at the deepest discount to their long-term earnings
potential and/or present value of assets held by the company which may be
realized.
The Advisor uses a fundamentalist "bottom up" approach to select specific
securities, while remaining aware of specific economic and industry sector
conditions in various foreign countries. In evaluating companies for investment
the Adviser will focus on:
o relative valuation, within an industry sector, and between countries or
economic markets
o fundamental analysis of the company
o long term forecasting of earnings and asset values
o fundamental analysis of the country in which the company operates, taking
into consideration the macroeconomic, regulatory and political trends
within that country
o use of investment industry research
o use of direct local contacts in various countries, investment industry
research, discussions with company personnel, and company visits
<PAGE>
In constructing and managing the fund, the following criteria are used:
o following the Advisors "bottom up" stock screening process, country and
industry weightings are considered in order to maintain proper
diversification
o no country will represent more than 25% of the Funds total assets
o no more than 15% of the Fund's total assets will be invested in emerging
market securities
o no industry will represent more than 20% of the Fund's total assets
o no individual security will represent more than 5% of the Fund's total
assets
Under normal market conditions the portfolio allocation range for the
International Equity Fund will be:
% of Total Assets
-----------------
Equity securities 70 - 99%
Money market instruments 1 - 30%
When market or financial conditions warrant, the International Equity Fund may
invest, without limitation, in securities of any kind, including securities
trade primarily in U.S. markets, cash and money market instruments for temporary
or defensive purposes. Such investment strategies are inconsistent with the
International Equity Fund's investment objective and could result in the
International Equity Fund not achieving it investment objective.
Brown Capital Management Balanced Fund
The Brown Capital Management Balanced Fund (the "Balanced Fund") varies the
percentage of its assets invested in equities and fixed income securities,
including money market instruments, according to the Advisor's judgment of
market and economic conditions and its view of which asset class can best
achieve the Balanced Fund's objectives.
The percentage invested in fixed income securities (including money market
instruments) will comprise not less than 25% and not more than 75% of the
portfolio.
Key elements of the Advisor's management of the Balanced Fund include:
o The equity portion of the Balanced Fund will be managed using the same
investment strategies as described above for the Equity Fund.
o Fixed income securities will be selected primarily for income. The capital
appreciation potential of those fixed income securities is of secondary
importance.
o The Advisor will continually review the macroeconomic environment and
alternative expected rates of return between fixed income securities and
equity securities in determining the asset allocation of the Fund.
o In structuring the fixed income portion of the Fund, the Advisor examines
spread relationships between quality grades in determining the quality
distribution, and assesses the expected trends in inflation and interest
rates in structuring the maturity distribution.
o Not more than 20% of the total fixed income portion of the portfolio (not
more than 15% of the entire Fund) will be invested in bonds rated below "A"
by the nationally recognized securities rating organizations described in
the Statement of Additional Information.
<PAGE>
Under normal market conditions the portfolio allocation range for the Balanced
Fund will be:
% of Total Assets
-----------------
Equity securities 25 - 75%
Money market instruments 25 - 75%
Principal Risks of Investing in the FundS
All Funds
An investment in the Funds is subject to investment risks, including the
possible loss of the principal amount invested.
Generally, the Funds will be subject to the following risks:
o Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Funds' performances per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
each Fund's investment portfolio, national and international economic
conditions and general market conditions.
o Year 2000 Risk: Like other mutual funds, financial and business
organizations and individuals around the world, the Trust and the Funds
could be adversely affected if the computer systems used by the Advisor,
other service providers, or persons with whom they deal, do not properly
process and calculate date-related information and data dated on and after
January 1, 2000. This possibility is commonly known as the "Year 2000
Problem." Virtually all operations of the Trust and the Funds are computer
reliant. The Advisor, Administrator, Transfer Agent, Distributor and
Custodian have informed the Trust that they are actively taking steps to
address the year 2000 Problem with regard to their respective computer
systems and the interfaces between their respective computer systems. The
Trust and the Funds are also taking measures to obtain assurances from
necessary persons that comparable steps are being taken by the key service
providers to the Advisor, Administrator, Transfer Agent, Distributor, and
Custodian. There can be no assurance that the Trust and the Funds' key
service providers will be year 2000 compliant. If not adequately addressed,
the Year 2000 Problem could result in the inability of the Trust and the
Funds to perform its mission critical functions, including trading and
settling trades of the Funds' securities, pricing of portfolio securities
and processing shareholder transactions, and the net asset value of the
Funds' shares may be materially affected.
<PAGE>
In addition, because the Year 2000 Problem affects virtually all issuers, the
companies or entities in which the Funds may invest also could be adversely
impacted by the Year 2000 Problem. For example, issuers may incur substantial
costs to address the Year 2000 Problem. The extent of such impact cannot be
predicted and there can be no assurances that the Year 2000 Problem will not
have an adverse effect on the issuers whose securities are held by the Funds.
The Advisor has assured the Trust and the Funds that it considers such issues in
making investment decisions for the Funds. Furthermore, the International Equity
Fund's international investments may expose it to operations, custody and
settlement processes outside the United States. In many countries outside the
United States the Year 2000 Problem has not been adequately addressed and
concerns have been raised that capital flight, among other issues, may be
triggered by full disclosure of the Year 2000 Problem on countries outside the
United States. Additional information on the impact of the Year 2000 Problem on
emerging market countries is provided in this section, under "International
Equity Fund - Foreign Securities--Emerging Market Risk."
Specific Risk Factors
International Equity Fund
Foreign Securities. The International Equity Fund will invest primarily in
foreign securities that involve investment risks different from those associated
with domestic securities. Foreign markets, particularly emerging markets, may be
less liquid, more volatile and subject to less government supervision than
domestic markets. There may be difficulties enforcing contractual obligations,
and it may take more time for trades to clear and settle. The specific risks of
investing in foreign securities among others, include:
Currency Risk: The risk that changes in currency exchange rates will
negatively affect securities denominated in, and/or receiving revenues
in, foreign currencies. Adverse changes in currency exchange rates
(relative to the U.S. dollar) may erode or reverse any potential gains
from a Portfolio's investment in securities denominated in a foreign
currency or may widen existing losses.
Emerging Market Risk: The International Equity Fund may invest a
portion of its assets in countries with less developed securities
markets. However, no more than 15% of its portfolio will be invested in
emerging markets securities. There are greater risks involved in
investing in emerging markets countries and/or their securities
markets. Generally, economic structures in these countries are less
diverse and mature than those in developed countries, and their
political systems are less stable. Investments in emerging markets
countries may be affected by national policies that restrict foreign
investment in certain issuers or industries. The small size of their
securities markets and low trading volumes can make investments
illiquid and more volatile than investments in developed countries and
such securities may be subject to abrupt and severe price declines. As
a result, the International Equity Fund, when investing in emerging
markets countries, may be required to establish special custody or
other arrangements before investing.
<PAGE>
The Year 2000 Problem may also be especially acute in emerging market
countries. Many emerging market countries are currently lagging behind
more developed countries in their Year 2000 preparedness because they
lack the financial resources to undertake the necessary remedial
actions. A lack of Year 2000 preparedness may adversely affect the
health, security and economic well-being of emerging market countries
and could, obviously, adversely affect the value of the International
Equity Fund's investments in emerging market countries. More
information on the Year 2000 Problem is provided in this section under
"All Funds --Year 2000 Risk."
Euro Risk: The International Equity Fund may invest in securities
issued by European issuers. On January 1, 1999, 11 of the 15 member
states of the European Monetary Union ("EMU") introduced the "Euro" as
a common currency. During a three-year transitional period, the Euro
will coexist with each participating state's currency and, on July 1,
2002, the Euro is expected to become the sole currency of the
participating states. The introduction of the Euro will result in the
redenomination of European debt and equity securities over a period of
time, which may result in various legal and accounting differences
and/or tax treatments that otherwise would not likely occur. During
this period, the creation and implementation of suitable clearing and
settlement systems and other operational problems may cause market
disruptions that could adversely affect investments quoted in the Euro.
The consequences of the Euro conversion for foreign exchange rates,
interest rates and the value of European securities eligible for
purchase by the International Equity Fund are presently unclear and it
is not possible to predict the eventual impact of the Euro
implementation plan. There are a number of significant risks associated
with EMU. Monetary and economic union on this scale has never been
attempted before. There is a significant degree of uncertainty as to
whether participating countries will remain committed to EMU in the
face of changing economic conditions. The conversion may adversely
affect the International Equity Fund if the Euro does not take effect
as planned or if a participating state withdraws from the EMU. Such
actions may adversely affect the value and/or increase the volatility
of securities held by the International Equity Fund.
<PAGE>
Political/Economic Risk: Changes in economic and tax policies,
government instability, war or other political or economic actions or
factors may have an adverse effect on the International Equity Fund's
foreign investments.
Regulatory Risk: Less information may be available about foreign
companies. In general, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies.
Transaction Costs Risk: The costs of buying and selling foreign
securities, including tax, brokerage and custody costs, generally are
higher than those involving domestic transactions.
Please see the Statement of Additional Information for more information about
these investment policies.
Small Company Fund
The Small Company Fund is intended for aggressive investors seeking
above-average gains and willing to accept the risks involved in investing in the
securities of small companies.
Investing in the securities of small companies generally involves greater risk
than investing in larger, more established companies. This greater risk is, in
part, attributable to the fact that the securities of small companies usually
have more limited marketability and therefore, may be more volatile than
securities of larger, more established companies or the market averages in
general. Because small companies normally have fewer shares outstanding than
larger companies, it may be more difficult to buy or sell significant amounts of
such shares without an unfavorable impact on prevailing prices. Another risk
factor is that small companies often have limited product lines, markets or
financial resources and may lack management depth. Additionally, small companies
are typically subject to greater changes in earnings and business prospects than
are larger, more established companies and there typically is less publicly
available information concerning small companies than for larger, more
established companies.
Although investing in securities of small companies offers potential
above-average returns if the companies are successful, the risk exists that the
companies will not succeed and the prices of the companies' shares could
significantly decline in value. Therefore, an investment in the Small Company
Fund may involve a greater degree of risk than an investment in other mutual
funds that seek capital growth by investing in more established, larger
companies.
<PAGE>
Balanced Fund
In addition to the risks outlined above with regards to the equity portion of
the Balanced Fund, there will be additional risks for the fixed income portion
of the portfolio.
o Credit Risk: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to the Balanced Fund's transactions will be unable
or unwilling to make timely principal and/or interest payments, or
otherwise will be unable or unwilling to honor its financial obligations.
The Balanced Fund may be subject to credit risk to the extent that it
invests in debt securities or engages in transactions, such as securities
loans, which involve a promise by a third party to honor an obligation to
the Balanced Fund. Credit risk is particularly significant to the Balanced
Fund when investing a portion of its assets in "junk bonds" or lower-rated
securities.
o Interest Rate Risk: The price of a bond or a fixed income security is
dependent upon interest rates. Therefore, the share price and total return
of the Balanced Fund, when investing a significant portion of its assets in
bonds or fixed income securities, will vary in response to changes in
interest rates. A rise in interest rates causes the value of a bond to
decrease, and vice versa. There is the possibility that the value of the
Balanced Fund's investment in bonds or fixed income securities may fall
because bonds or fixed income securities generally fall in value when
interest rates rise. The longer the term of a bond or fixed income
instrument, the more sensitive it will be to fluctuations in value from
interest rate changes. Changes in interest rates may have a significant
effect on the Balanced Fund holding a significant portion of its assets in
fixed income securities with long term maturities.
In the case of mortgage-backed securities, rising interest rates tend to
extend the term to maturity of the securities, making them even more
susceptible to interest rate changes. When interest rates drop, not only
can the value of fixed income securities drop, but the yield can drop,
particularly where the yield on fixed income securities is tied to changes
in interest rates, such as adjustable mortgages. Also when interest rates
drop, the holdings of mortgage-backed securities by the Balanced Fund can
reduce returns if the owners of the underlying mortgages pay off their
mortgages sooner than expected since the funds prepaid must be reinvested
at the then lower prevailing rates. This is known as prepayment risk. When
interest rates rise, the holdings of mortgage-backed securities the
Balanced Fund can reduce returns if the owners of the underlying mortgages
pay off their mortgages later than anticipated. This is known as extension
risk.
o Investment-Grade Securities Risk: Debt securities are rated by national
bond ratings agencies. Securities rated BBB by Standard & Poor's ("S&P") or
Baa by Moody's Investors Services, Inc. ("Moody's") are considered
investment grade securities, but are somewhat riskier than higher rated
investment-grade obligations because they are regarded as having only an
adequate capacity to pay principal and interest, and are considered to lack
outstanding investment characteristics and may be speculative.
o Junk Bonds or Lower rated Securities Risk: Bonds rated below investment
grade by S&P and Moody's are speculative in nature and may be subject to
certain risks with respect to the issuing entity and to greater market
fluctuations than higher rate fixed-income securities. They are usually
issued by companies without long track records of sales and earnings, or by
those companies with questionable credit strength. These bonds are
considered "below investment grade." The retail secondary market for these
"junk bonds" may be less liquid than that of higher rated securities and
adverse conditions could make it difficult at times to sell certain
securities or could result in lower prices than those used in calculating
the Balanced Fund's net asset value.
<PAGE>
BAR CHARTS AND PERFORMANCE TABLES
The bar charts and tables shown below provide an indication of the risks of
investing in the Brown Capital Management Funds by showing (on a calendar year
basis) changes in the Funds' average annual total returns from year to year and
by showing (on a calendar year basis) how the Funds' average annual returns for
one year, five year, and since inception compare to those of a broad-based
securities market index. How the Funds have performed in the past is not
necessarily an indication of how the Funds will perform in the future.
Equity Fund
[Calendar Year Returns Bar Chart Included Here]
Calendar Year Return
--------------------
1993 6.81%
1994 (0.75)%
1995 32.04%
1996 19.04%
1997 22.65%
1998 29.15%
o During the 6-year period shown in the bar chart, the highest return for a
quarter was 26.64% (quarter ended December 31, 1998).
o During the 6-year period shown in the bar chart, the lowest return for a
quarter was -14.57% (quarter ended September 30, 1998).
- ----------------------------------------- ------------ ------------ ------------
Average Annual Total Returns Past 1 Past 5 Since
Period ended December 31, 1998 Year Year Inception*
- ----------------------------------------- ------------ ------------ ------------
Brown Capital Management Equity Fund 29.15% 19.82% 18.69%
- ----------------------------------------- ------------ ------------ ------------
S&P 500 ** 28.58% 24.05% 21.60%
- ----------------------------------------- ------------ ------------ ------------
* The Equity Fund commenced operations on September 30, 1992.
** The S&P 500 is the Standard & Poor's Composite Index of 500 stocks and is a
widely recognized, unmanaged index of common stock prices.
<PAGE>
Small Company Fund
[Calendar Year Returns Bar Chart Included Here]
Calendar Year Return
--------------------
1993 5.74%
1994 4.76%
1995 33.96%
1996 17.08%
1997 15.78%
1998 18.39%
o During the 6-year period shown in the bar chart, the highest return for a
quarter was 20.03% (quarter ended December 31, 1998).
o During the 6-year period shown in the bar chart, the lowest return for a
quarter was -14.87% (quarter ended September 30, 1998).
- ----------------------------------------- ------------ ------------ ------------
Average Annual Total Returns Past 1 Past 5 Since
Period ended December 31, 1998 Year Year Inception*
- ----------------------------------------- ------------ ------------ ------------
Brown Capital Management Small Company Fund
Company Fund 18.39% 17.62% 15.55%
- ----------------------------------------- ------------ ------------ ------------
Russell 2000 Index** -2.26% 11.44% 12.34%
- ----------------------------------------- ------------ ------------ ------------
* The Small Company Fund commenced operations on December 31, 1992.
** The Russell 2000 Index is a widely-recognized, unmanaged index of 2,000
common stocks of domestic companies with market capitalizations ranging
between $100 million and $1 billion.
<PAGE>
Balanced Fund
[Calendar Year Returns Bar Chart Included Here]
Calendar Year Return
--------------------
1993 9.75%
1994 -1.22%
1995 29.75%
1996 13.84%
1997 18.87%
1998 24.40%
o During the 6-year period shown in the bar chart, the highest return for a
quarter was 19.63% (quarter ended December 31, 1998).
o During the 6-year period shown in the bar chart, the lowest return for a
quarter was -10.33% (quarter ended September 30, 1998).
- ----------------------------------------- ------------ ------------ ------------
Average Annual Total Returns Past 1 Past 5 Since
Period ended December 31, 1998 Year Year Inception*
- ----------------------------------------- ------------ ------------ ------------
Brown Capital Management Balanced Fund 24.40% 16.62% 15.81%
- ----------------------------------------- ------------ ------------ ------------
Benchmark of 75% S&P 500 / 25% Lehman
Government & Corporate Bond Index** 25.63% 20.78% 18.85%
- ----------------------------------------- ------------ ------------ ------------
* The Balanced Fund commenced operations on September 30, 1992.
** The S&P 500 is the Standard & Poor's Composite Index of 500 stocks and is a
widely recognized, unmanaged index of common stock prices. The Lehman
Government & Corporate Bond Index represents an unmanaged group of
securities widely regarded by investors as representative of the bond
market.
<PAGE>
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds:
Shareholder Fees For Institutional Shares
(fees paid directly from your investment)
-----------------------------------------
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) .................................None
Redemption fee ....................................................None
Annual Fund Operating Expenses For Institutional Shares
(expenses that are deducted from Fund assets)
---------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Small International
Equity Balanced Company Equity
------ -------- ------- -------------
Management Fees...............................................0.65% 0.65% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees.......................None None None None
Other Expenses................................................1.33%^1 1.57%^1 1.05%^1 1.05%^2
----- ----- ----- -----
Total Annual Fund Operating Expenses..........................1.98% 2.22% 2.05% 2.05%
Fee Waiver and/or Expense Reimbursement...........(0.78%) (1.02%) (0.55%) (0.05%)
----- ----- ----- -----
Net Expenses.......................................1.20% 1.20% 1.50% 2.00%
===== ===== ===== =====
</TABLE>
1. Other Expenses shown above are based upon actual expenses incurred by
each of the Funds for the fiscal year ended March 31, 1998. The
Advisor has entered into an Expense Limitation Agreement with the
Funds under which it has agreed to waive or reduce its fees and to
assume other expenses of the Funds, if necessary, in an amount that
limits Total Fund Operating Expenses (exclusive of interest, taxes,
brokerage fees and commissions, and extraordinary expenses, and
payments, if any, under a Rule 12b-1 Plan to not more than 1.20% of
the average daily net assets for the Equity and Balanced Funds. With
respect to the Small Company Fund, the Expense Limitation Agreement
provides a limit of 1.50%. See "Expense Limitation Agreement" for
more detailed information.
2. Since the International Equity Fund will commence operations on May
10, 1999, Other Expenses and Total Annual Operating Expenses for that
Fund are based on amounts estimated for the current fiscal year. The
Advisor has entered into an Expense Limitation Agreement with the
Fund under which it has agreed to waive or reduce its fees and to
assume other expenses of the Fund, if necessary, in an amount that
limits Total Fund Operating Expenses (exclusive of interest, taxes,
brokerage fees and commissions, extraordinary expenses, and payments,
if any, under a Rule 12b-1 plan) to not more than 2.00% of the
Institutional Shares average daily net assets. See "Expense
Limitation Agreement" for more detailed information.
<PAGE>
Example: This Example shows you the expenses you may pay over time by investing
in each of the Funds. Since all Funds use the same hypothetical conditions, it
should help you compare the costs of investing in the Funds versus other funds.
The Example assumes the following conditions:
(1) You invest $10,000 in a Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return; and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above.
- ---------------------------- ------------ ------------ ------------ ------------
Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------------- ------------ ------------ ------------ ------------
Equity $122 $381 $660 $1,455
- ---------------------------- ------------ ------------ ------------ ------------
Balanced $122 $381 $660 $1,455
- ---------------------------- ------------ ------------ ------------ ------------
Small Company $153 $474 $818 $1,791
- ---------------------------- ------------ ------------ ------------ ------------
International Equity $203 $627 $1,078 $2,327
- ---------------------------- ------------ ------------ ------------ ------------
MANAGEMENT OF THE FUNDS
-----------------------
THE INVESTMENT ADVISOR
The Funds' Advisor is Brown Capital Management, Inc., 809 Cathedral Street,
Baltimore, Maryland 21201. The Advisor serves in that capacity pursuant to an
advisory contract with the Trust on behalf of the Fund. Subject to the authority
of the Trustees, the Advisor provides guidance and policy direction in
connection with its daily management of the Funds' assets. The Advisor manages
the investment and reinvestment of the Funds' assets. The Advisor is also
responsible for the selection of broker-dealers through which the Funds execute
portfolio transactions, subject to the brokerage policies established by the
Trustees, and it provides certain executive personnel to the Fund.
The Advisor, organized as a Maryland corporation in 1983, is controlled by Eddie
C. Brown. The Advisor has been managing each of the Fund since their inception
and has been providing investment advice to investment companies, individuals,
corporations, pension and profit sharing plans, endowments, and other business
and private accounts since the firm was founded in 1983. The Advisor currently
has approximately $4.5 billion in assets under management.
<PAGE>
The Advisor's Compensation. As full compensation for the investment advisory
services provided to the Funds, the Advisor receives monthly compensation based
on each Fund's average daily net assets at the annual rate of:
Equity and Balanced Funds:
0.65% of the first $25 million
0.50% on all assets over $25 million
Small Company Fund:
1.00% on all assets
International Equity Fund:
1.00% of the first $100 million
0.75% on all assets over $100 million
During the last fiscal year ending March 31, 1998, the Advisor waived a portion
of the advisory fees for the Equity Fund and the Small Company Fund and all of
its fees for the Balanced Fund. Accordingly, the amount of compensation received
as a percentage of assets of each Fund during the last fiscal year was as
follows:
Fee Paid to Advisor
Fund as a Percentage of Assets
---- -------------------------
The Equity Fund 0.0039%
The Small Company Fund 0.4474%
The Balanced Fund 0.0000%
Expense Limitation Agreement. In the interest of limiting expenses of the Funds,
the Advisor has entered into an expense limitation agreement with the Trust,
with respect to each of the Funds ("Expense Limitation Agreement"), pursuant to
which the Advisor has agreed to waive or limit its fees and to assume other
expenses so that the total annual operating expenses of the Funds (other than
interest, taxes, brokerage commissions, other expenditures which are capitalized
in accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of each Fund's
business, and amounts, if any, payable pursuant to a Rule 12b-1 Plan) are
limited to 1.20% of the average daily assets of the Equity Fund and the Balanced
Fund, 1.50% of the average daily assets of the Small Company Fund, and 2.00% of
the average daily net assets of the International Equity Fund.
Each of the Funds may at a later date reimburse the Advisor the management fees
waived or limited and other expenses assumed and paid by the Advisor pursuant to
the Expense Limitation Agreement, provided the particular Fund has reached a
sufficient asset size to permit such reimbursement to be made without causing
the total annual expense ratio of the particular Fund to exceed the percentage
limits stated above. Consequently, no reimbursement by Fund will be made unless:
(i) the Fund's assets exceed $20 million; (ii) the particular Fund's total
annual expense ratio is less than the percentage stated above; and (iii) the
payment of such reimbursement has been approved by the Trust's Board of Trustees
on a quarterly basis.
<PAGE>
Brokerage Practices. In selecting brokers and dealers to execute portfolio
transactions, the Advisor may consider research and brokerage services furnished
to the Advisor or its affiliates. Subject to seeking the most favorable net
price and execution available, the Advisor may also consider sales of shares of
the Fund as a factor in the selection of brokers and dealers.
The Investment Company Act of 1940, as amended ("1940 Act") generally prohibits
the Fund from engaging in principal securities transactions with an affiliate of
the Advisor. Thus, the Funds do not engage in principal transactions with any
affiliate of the Advisor. The Funds have adopted procedures, under Rule 17e-1
under the 1940 Act, that are reasonably designed to provide that any brokerage
commission the Funds pay to an affiliate of the Advisor does not exceed the
usual and customary broker's commission. In addition, the Funds will adhere to
Section 11(a) of the 1934 Act and any applicable rules thereunder governing
floor trading.
THE ADMINISTRATOR
The Nottingham Company, Inc. (the "Administrator") assists the Trust in the
performance of its administrative responsibilities to the Funds, coordinates the
services of each vendor of services to the Funds, and provides the Funds with
other necessary administrative, fund accounting and compliance services. In
addition, the Administrator makes available the office space, equipment,
personnel and facilities required to provide such services to the Funds.
THE TRANSFER AGENT
NC Shareholder Services, LLC ("NCSS") serves as the transfer agent and dividend
disbursing agent of the Funds. As indicated later in the section of this
Prospectus, "Investing in the Funds," NCSS will handle your orders to purchase
and redeem shares of the Funds, and will disburse dividends paid by the Funds.
THE DISTRIBUTOR
Capital Investment Group, Inc. is the principal underwriter and distributor of
the Funds' shares and serves as the Funds' exclusive agent for the distribution
of Fund shares. Capital Investment Group may sell the Funds' shares to or
through qualified securities dealers or others.
<PAGE>
Other Expenses. The Funds pay all expenses not assumed by the Funds' Advisor,
including, without limitation: the fees and expenses of its independent
accountants and of its legal counsel; the costs of printing and mailing to
shareholders annual and semi-annual reports, proxy statements, prospectuses,
statements of additional information and supplements thereto; the costs of
printing registration statements; bank transaction charges and custodian's fees;
any proxy solicitors' fees and expenses; filing fees; any federal, state or
local income or other taxes; any interest; any membership fees of the Investment
Company Institute and similar organizations; fidelity bond and Trustees'
liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of each
separate series of the Trust, such as the Funds, on a basis that the Trustees
deem fair and equitable, which may be on the basis of relative net assets of
each series or the nature of the services performed and relative applicability
to each series.
INVESTING IN THE FUNDS
----------------------
MINIMUM INVESTMENT
Institutional Class shares are sold and redeemed at net asset value. Shares may
be purchased by any account managed by the Advisor and any other institutional
investor or any broker-dealer authorized to sell shares in the Funds. The
minimum initial investment is $10,000 ($2,000 for IRA and Keogh Plans) and the
minimum additional investment is $500. Each of the Funds may, in the Advisor's
sole discretion, accept certain accounts with less than the minimum investment.
PURCHASE AND REDEMPTION PRICE
Determining a Fund's Net Asset Value. The price at which you purchase or redeem
shares is based on the next calculation of net asset value after an order is
accepted in good form. The Fund's net asset value per share is calculated by
dividing the value of the Fund's total assets, less liabilities (including Fund
expenses, which are accrued daily), by the total number of outstanding shares of
that Fund. The net asset value per share of each Fund is normally determined at
the time regular trading closes on the New York Stock Exchange (currently 4:00
p.m. Eastern time, Monday through Friday), except on business holidays when the
New York Stock Exchange is closed.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of 60 days or less are valued at
amortized cost, which approximates market value. Securities and assets for which
representative market quotations are not readily available are valued at fair
value as determined in good faith under policies approved by the Board of
Trustees.
<PAGE>
Other Matters. Purchases and redemptions of shares of the same class by the same
shareholder on the same day will be netted for each of the Funds. All redemption
requests will be processed and payment with respect thereto will normally be
made within seven days after tenders. Each of the Funds may suspend redemption,
if permitted by the 1940 Act, for any period during which the New York Stock
Exchange is closed or during which trading is restricted by the Securities
Exchange Commission ("SEC") or if the SEC declares that an emergency exists.
Redemptions may also be suspended during other periods permitted by the SEC for
the protection of each Fund's shareholders. Additionally, during drastic
economic and market changes, telephone redemption privileges may be difficult to
implement. Also, if the Trustees determine that it would be detrimental to the
best interest of the Fund's remaining shareholders to make payment in cash, each
Fund may pay redemption proceeds in whole or in part by a distribution-in-kind
of readily marketable securities.
PURCHASING SHARES
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, each Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the applicable
fund to:
Brown Capital Management Funds
[Name of Fund]
Institutional Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Please remember to add a reference to the applicable Fund and to "Institutional
Shares" to your check to ensure proper credit to your account.
The application must contain your social security number and Taxpayer
Identification Number ("TIN"). If you have applied for a social security number
or TIN at the time of completing your account application but do not have such
number yet, please indicate this on the application. Taxes are not withheld from
distributions to U.S. investors if certain IRS requirements regarding the TIN
are met.
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or add to an existing account by wire, please call the
Fund at 1-800-525-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
<PAGE>
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219 For credit to either:
The Brown Capital Management Equity Fund
Account # 2000000861768
OR
The Brown Capital Management Balanced Fund
Account # 2000000861917
OR
The Brown Capital Management Small Company Fund
Account # 2000000861904
OR
The Brown Capital Management International Equity Fund
Account # 200000_______
For further credit to (shareholder's name and SS# or EIN#)
Additional Investments. You may also add to your account by mail or wire at any
time by purchasing shares at the then current public offering price. The minimum
additional investment is $500. Before adding funds by bank wire, please call the
Fund at 1-800-525-3863 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub which is attached
to your confirmation statement. Otherwise, please identify your account in a
letter accompanying your purchase payment.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval,
each of the Funds will automatically charge the checking account for the amount
specified ($100 minimum), which will be automatically invested in shares at the
public offering price on or about the 21st day of the month. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing the Funds.
Exchange Feature. You may exchange shares of any of the Brown Capital Management
Funds for shares of any other series of the Trust advised by the Advisor and
offered for sale in the state in which you reside. Shares may be exchanged for
shares of any other series of the Trust at the net asset value. Prior to making
an investment decision or giving us your instructions to exchange shares, please
read the prospectus for the series in which you wish to invest.
<PAGE>
A pattern of frequent purchase and redemption transactions is considered by the
Advisor to not be in the best interest of the shareholders of the Funds. Such a
pattern may, at the discretion of the Advisor, be limited by a Fund's refusal to
accept further purchase and/or exchange orders form an investor, after providing
the investor with 60 days prior notice.
The Board of Trustees reserves the right to suspend or terminate, or amend the
terms of, the exchange privilege upon 60 days written notice to the
shareholders.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption request should be addressed
to:
The Brown Capital Management Funds
[Name of Fund]
Institutional Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption request should include:
1) Your letter of instruction specifying the applicable Fund, account
number and number of shares, or the dollar amount, to be redeemed. This
request must be signed by all registered shareholders in the exact names
in which they are registered;
2) Any required signature guarantees (see "Signature Guarantees" below);
and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships,
pension or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within 7 days after
receipt of your redemption request. However, the Funds may delay forwarding a
redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to 15 days from
the date of purchase) may be reduced or avoided if the purchase is made by
certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
<PAGE>
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. Each of the Funds will redeem shares
in this manner when so requested by the shareholder only if the shareholder
confirms redemption instructions in writing.
Each of the Funds may rely upon confirmation of redemption requests transmitted
via facsimile (FAX# 252-972-1908). The confirmation instructions must include:
1) Designation of Institutional Class Shares and name of Fund (Equity,
Balanced, Small Company, or International Equity Fund),
2) Shareholder name and account number,
3) Number of shares or dollar amount to be redeemed,
4) Instructions for transmittal of redemption funds to the shareholder,
and
5) Shareholder signature as it appears on the application then on file
with the Fund.
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($5,000 minimum). Shares of each of the Funds may not be redeemed
by wire on days in which your bank is not open for business. You can change your
redemption instructions anytime you wish by filing a letter including your new
redemption instructions with the Fund.
See "Signature Guarantees" below.
Each of the Funds in its discretion may choose to pass through to redeeming
shareholders any charges imposed by the Custodian for wire redemptions. The
Custodian currently charges each of the Funds $10.00 per transaction for wiring
redemption proceeds. If this cost is passed through to redeeming shareholders by
the Fund, the charge will be deducted automatically from your account by
redemption of shares in your account. Your bank or brokerage firm may also
impose a charge for processing the wire. If wire transfer of funds is impossible
or impractical, the redemption proceeds will be sent by mail to the designated
account.
You may redeem shares, subject to the procedures outlined above, by calling the
Funds at 1-800-525-3863. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Fund. Telephone redemption privileges authorize the Funds to act on
telephone instructions from any person representing himself or herself to be the
investor and reasonably believed by the Fund to be genuine. Each of the Funds
will employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine, and if it does not
follow such procedures, each of the Funds will be liable for any losses due to
fraudulent or unauthorized instructions. The Funds will not be liable for
following telephone instructions reasonably believed to be genuine.
<PAGE>
Redemptions in Kind. The Funds do not intend, under normal circumstances, to
redeem their securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for a Fund to pay for all redemptions in cash. In such case,
the Board of Trustees may authorize payment to be made in readily marketable
portfolio securities of a Fund. Securities delivered in payment of redemptions
would be valued at the same value assigned to them in computing the net asset
value per share. Shareholders receiving them would incur brokerage costs when
these securities are sold. An irrevocable election has been filed under Rule
18f-1 of the 1940 Act, wherein each Fund committed itself to pay redemptions in
cash, rather than in kind, to any shareholder of record of that Fund who redeems
during any ninety-day period, the lesser of (a) $250,000 or (b) one percent (1%)
of the Fund's net asset value at the beginning of such period.
Signature Guarantees. To protect your account and each of the Funds from fraud,
signature guarantees are required to be sure that you are the person who has
authorized a change in registration or standing instructions for your account.
Signature guarantees are required for (1) change of registration requests, (2)
requests to establish or to change exchange privileges or telephone and bank
wire redemption service other than through your initial account application, and
(3) redemption requests in excess of $50,000. Signature guarantees are
acceptable from a member bank of the Federal Reserve System, a savings and loan
institution, credit union (if authorized under state law), registered
broker-dealer, securities exchange, or association clearing agency and must
appear on the written request for change of registration, establishment or
change in exchange privileges, or redemption request.
Systematic Withdrawal Plan. A shareholder who owns shares of one or more of the
Funds valued at $10,000 or more at the current offering price may establish a
Systematic Withdrawal Plan to receive a monthly or quarterly check in a stated
amount not less than $100. Each month or quarter, as specified, the particular
Fund(s) will automatically redeem sufficient shares from your account to meet
the specified withdrawal amount. The shareholder may establish this service
whether dividends and distributions are reinvested in shares of the Fund or paid
in cash. Call or write the Funds for an application form.
OTHER IMPORTANT INVESTMENT INFORMATION
--------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under current federal income tax law, each of the Funds believes that it is
entitled, and each of the Funds intends that it shall be treated as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended. As RICs, the Funds will not be subject to federal tax on its
net investment income and net realized capital gains to the extent such income
and gains are timely distributed to its shareholders. Accordingly, each of the
Funds intends to distribute all of its net investment income and net realized
capital gains to its shareholders. Unless otherwise instructed by shareholders,
all dividend distributions will be reinvested in full and fractional shares of
each Fund to which they relate.
<PAGE>
Although each of the Funds intends that it will be operated so that there will
be no federal income or excise tax liability, if any such liability is incurred
as a result of failing to qualify as a RIC, the investment performance will be
adversely affected by the tax liability incurred and paid. In addition,
investing in foreign securities and currencies may be subject to foreign taxes
which could reduce the investment performance of each of the Funds.
Certain additional tax information appears in the Statement of Additional
Information.
FINANCIAL HIGHLIGHTS
The financial data included in the table below has been derived from audited
financial statements of the Equity Fund, the Small Company Fund, and the
Balanced Fund. Because the International Equity Fund did not commence operations
until May 10, 1999, there are no financial statements for that Fund. The
financial data for the fiscal years ended March 31, 1998 and 1997, has been
audited by Deloitte & Touche LLP, independent auditors, whose report covering
such periods is included in the Statement of Additional Information. The
financial data for the prior fiscal years were audited by other independent
auditors. This information should be read in conjunction with the Funds' latest
audited annual financial statements and notes thereto, which are also included
in the Statement of Additional Information, a copy of which may be obtained at
no charge by calling the Funds. Further information about the performance of the
Funds is contained in the Annual Report of the Funds, a copy of which may be
obtained at no charge by calling the Funds.
<TABLE>
<S> <C> <C> <C> <C> <C>
EQUITY FUND
Institutional Class
-------------------
(For a Share Outstanding Throughout each Period Represented)
Years ended March 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value, Beginning of Period $16.61 $15.81 $12.36 $11.48 $11.05
Income (loss) from investment operations
Net investment income (loss) (0.03) 0.05 0.00 0.00 (0.02)
Net realized and unrealized gain on investments 7.31 1.36 3.72 1.01 0.52
---- ---- ---- ---- -----
Total from investment operations 7.28 1.41 3.72 1.01 0.50
---- ---- ---- ---- -----
Distributions to shareholders from
Net investment income 0.00 (0.05) 0.00 0.00 0.00
Net realized gain from investment transactions (1.98) (0.56) (0.27) (0.13) (0.07)
Distributions in excess of net realized gains (0.04) 0.00 0.00 0.00 0.00
------ ---- ---- ---- ----
Total distributions (2.02) (0.61) (0.27) (0.13) (0.07)
------ ------ ------ ------ ------
Net Asset Value, End of Period $21.87 $16.61 $15.81 $12.36 $11.48
====== ====== ====== ====== ======
Total return 44.68 % 8.91 % 30.25 % 8.90 % 4.51 %
Ratios/supplemental data
Net Assets, End of Period (in thousands) $8,150 $4,405 $1,966 $1,130 $718
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 1.98 % 3.37 % 5.58 % 8.32 % 11.86 %
After expense reimbursements and waived fees 1.20 % 1.20 % 1.56 % 2.00 % 2.00 %
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (0.94)% (1.85)% (4.20)% (6.41)% (10.19)%
After expense reimbursements and waived fees (0.16)% 0.32 % 0.01 % (0.11)% (0.36)%
Portfolio turnover rate 38.42 % 34.21 % 48.06 % 7.29 % 48.05 %
Average commission rate paid (a) $0.0507 $0.0505
(a) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure was not required for fiscal years of the Funds ended prior to
March 31, 1997.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
SMALL COMPANY FUND
------------------
Institutional Class
(For a Share Outstanding Throughout each Period Represented)
Years ended March 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value, Beginning of Period $15.01 $15.13 $12.24 $10.69 $10.67
Income (loss) from investment operations
Net investment loss (0.11) (0.03) (0.06) (0.06) (0.11)
Net realized and unrealized gain on investments 6.36 0.27 4.00 1.86 0.59
---- ---- ---- ---- ----
Total from investment operations 6.25 0.24 3.94 1.80 0.48
---- ---- ---- ---- ----
Distributions to shareholders from
Net realized gain from investment transactions (0.24) (0.36) (1.05) (0.25) (0.46)
------ ------ ------ ------ ------
Net Asset Value, End of Period $21.02 $15.01 $15.13 $12.24 $10.69
====== ====== ====== ====== ======
Total return 41.84 % 1.56 % 33.00 % 16.95 % 4.39 %
Ratios/supplemental data
Net Assets, End of Period (in thousands) $11,566 $6,519 $3,740 $2,609 $1,831
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 2.05 % 2.70 % 3.49 % 4.49 % 4.73 %
After expense reimbursements and waived fees 1.50 % 1.50 % 1.69 % 2.00 % 2.00 %
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees (1.23)% (1.50)% (2.29)% (3.38)% (4.03)%
After expense reimbursements and waived fees (0.68)% (0.30)% (0.50)% (0.90)% (1.34)%
Portfolio turnover rate 11.64 % 13.39 % 23.43 % 32.79 % 23.47 %
Average commission rate paid (a) $0.0520 $0.0482
(a) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure was not required for fiscal years of the Funds ended prior to
March 31, 1997.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
BALANCED FUND
-------------
Institutional Class
(For a Share Outstanding Throughout each Period Represented)
Years ended March 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value, Beginning of Period $13.60 $13.76 $11.56 $11.02 $10.62
Income from investment operations
Net investment income 0.17 0.21 0.12 0.10 0.08
Net realized and unrealized gain on investments 4.65 0.76 2.98 0.77 0.43
---- ---- ---- ---- ----
Total from investment operations 4.82 0.97 3.10 0.87 0.51
---- ---- ---- ---- ----
Distributions to shareholders from
Net investment income (0.17) (0.21) (0.12) (0.11) (0.08)
Net realized gain from investment transactions (1.42) (0.92) (0.78) (0.22) (0.03)
------ ------ ------ ----- -----
Total distributions (1.59) (1.13) (0.90) (0.33) (0.11)
------ ------ ------ ------ ------
Net Asset Value, End of Period $16.83 $13.60 $13.76 $11.56 $11.02
====== ====== ====== ====== ======
Total return 36.19 % 7.01 % 27.04 % 8.04 % 4.78 %
Ratios/supplemental data
Net Assets, End of Period (in thousands) $6,078 $3,875 $3,319 $2,296 $1,188
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 2.22 % 2.85 % 3.50 % 5.43 % 6.44 %
After expense reimbursements and waived fees 1.20 % 1.20 % 1.59 % 2.00 % 2.00 %
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees 0.05 % (0.13)% (0.97)% (2.44)% (3.69)%
After expense reimbursements and waived fees 1.08 % 1.51 % 0.94 % 1.00 % 0.74 %
Portfolio turnover rate 33.54 % 45.58 % 43.59 % 9.51 % 28.56 %
Average commission rate paid (a) $0.0509 $0.0506
(a) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure was not required for fiscal years of the Funds ended prior to
March 31, 1997.
</TABLE>
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
BROWN CAPITAL MANAGEMENT FUNDS
INSTITUTIONAL SHARES
________________________________________________________________________________
Additional information about the Funds is available in the Fund's Statement of
Additional Information. The Funds' Annual and Semi-annual Reports include a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
These Reports and the Statement of Additional Information are available free of
charge upon request by contacting us:
By telephone: 1-800-525-3863
By mail: Brown Capital Management Funds
Institutional Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, NC 27803-0365
By e-mail: [email protected]
On the Internet: www.ncfunds.com
---------------
Information about the Funds can also be reviewed and copied at the Securities
Exchange Commission's ("Commission") Public Reference Room in Washington, D.C.
Inquiries on the operations of the public reference room may be made by calling
the Commission at 1-800-SEC-0330. Reports and other information about each Fund
are available on the Commission's Internet sit at http://www.sec.gov and copies
of this information may be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-6009.
Investment Company Act file number 811-06199
<PAGE>
PART B
======
STATEMENT OF ADDITIONAL INFORMATION
THE BROWN CAPITAL MANAGEMENT FUNDS
May 10, 1999
Series of the
NOTTINGHAM INVESTMENT TRUST II
107 North Washington Street, Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Telephone 1-800-525-3863
Table of Contents
-----------------
INVESTMENT OBJECTIVES AND POLICIES......................................B-1
INVESTMENT LIMITATIONS..................................................B-3
NET ASSET VALUE.........................................................B-5
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..........................B-6
DESCRIPTION OF THE TRUST................................................B-6
ADDITIONAL INFORMATION CONCERNING TAXES.................................B-7
MANAGEMENT OF THE FUNDS.................................................B-9
SPECIAL SHAREHOLDER SERVICES...........................................B-15
ADDITIONAL INFORMATION ON PERFORMANCE..................................B-16
APPENDIX A - DESCRIPTION OF RATINGS....................................B-19
ANNUAL REPORT OF THE FUNDS FOR THE YEAR ENDED MARCH 31,1998 .......ATTACHED
This Statement of Additional Information (the "Additional Statement") is meant
to be read in conjunction with the Prospectus, dated May 10, 1999, for The Brown
Capital Management Equity Fund ("Equity Fund"), The Brown Capital Management
Balanced Fund ("Balanced Fund"), The Brown Capital Management Small Company Fund
("Small Company Fund"), and The Brown Capital Management International Equity
Fund ("International Equity Fund") (collectively the "Funds") and is
incorporated by reference in its entirety into each Prospectus. Because this
Additional Statement is not itself a prospectus, no investment in shares of the
Funds should be made solely upon the information contained herein. Copies of the
Funds' Prospectus may be obtained at no charge by writing or calling the Funds
at the address and phone number shown above. Capitalized terms used but not
defined herein have the same meanings as in the Prospectus.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Fund Instruments. Attached to this Additional
Statement is Appendix A, which contains descriptions of the rating symbols used
by Rating Agencies for securities in which the Funds may invest.
Investment Transactions. Subject to the general supervision of the Trust's Board
of Trustees, the Advisor is responsible for, makes decisions with respect to,
and places orders for all purchases and sales of portfolio securities for the
Funds.
The annualized portfolio turnover rate for each Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities whose maturities or
expiration dates at the time of acquisition are one year or less. Portfolio
turnover of each Fund may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements that enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making Fund
decisions, and each Fund may engage in short-term trading to achieve its
investment objectives.
Purchases of money market instruments by the Funds are made from dealers,
underwriters and issuers. The Funds currently do not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, which may include a dealer mark-up, or otherwise involve
transactions directly with the issuer of an instrument.
Normally, most of the Funds' fixed income portfolio transactions will be
principal transactions executed in over-the-counter markets and will be executed
on a "net" basis, which may include a dealer mark-up. With respect to securities
traded only in the over-the-counter market, orders will be executed on a
principal basis with primary market makers in such securities except where
better prices or executions may be obtained on an agency basis or by dealing
with other than a primary market maker.
The Funds may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. A Fund will engage
in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for each Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. The sale of Fund shares may
be considered when determining the firms that are to execute brokerage
transactions for the Funds. In addition, the Advisor is authorized to cause the
Funds to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Advisor determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Advisor to the Funds. Such brokerage and research services might consist of
reports and statistics relating to specific companies or industries, general
summaries of groups of stocks or bonds and their comparative earnings and
yields, or broad overviews of the stock, bond and government securities markets
and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable by the Funds. The Trustees will periodically review
any commissions paid by the Funds to consider whether the commissions paid over
representative periods of time appear to be reasonable in relation to the
benefits inuring to the Funds. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised by the Advisor. Conversely, the Funds may be the primary beneficiary
of the research or services received as a result of securities transactions
effected for such other account or investment company.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor if it believes it can obtain the best execution of transactions from
such broker. The Funds will not execute portfolio transactions through, acquire
securities issued by, make savings deposits in or enter into repurchase
agreements with the Advisor or an affiliated person of the Advisor (as such term
is defined in the 1940 Act) acting as principal, except to the extent permitted
by the Securities and Exchange Commission ("SEC"). In addition, the Funds will
not purchase securities during the existence of any underwriting or selling
group relating thereto of which the Advisor, or an affiliated person of the
Advisor, is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Funds may be at a disadvantage because of these limitations
in comparison with other investment companies that have similar investment
objectives but are not subject to such limitations.
Investment decisions for the Funds will be made independently from those for any
other Fund and any other series of the Trust, if any, and for any other
investment companies and accounts advised or managed by the Advisor. Such other
investment companies and accounts may also invest in the same securities as a
Fund. To the extent permitted by law, the Advisor may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for
another Fund or other investment companies or accounts in executing
transactions. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and another investment company
or account, the transaction will be averaged as to price and available
investments allocated as to amount, in a manner which the Advisor believes to be
equitable to the Funds and such other investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by a Fund.
For the fiscal years ended March 31, 1996, 1997, and 1998, the Equity Fund paid
brokerage commissions of $1,901, $4,382, and $4,598, respectively, the Balanced
Fund paid brokerage commissions of $2,013, $3,719, and $3,019, respectively, and
the Small Company Fund paid brokerage commissions of $30, $1,873, and $1,715,
respectively.
Repurchase Agreements. Each Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
transaction occurs when, at the time the Fund purchases a security (normally a
U.S. Treasury obligation), it also resells it to the vendor (normally a member
bank of the Federal Reserve or a registered Government Securities dealer) and
must deliver the security (and/or securities substituted for them under the
repurchase agreement) to the vendor on an agreed upon date in the future. The
repurchase price exceeds the purchase price by an amount which reflects an
agreed upon market interest rate effective for the period of time during which
the repurchase agreement is in effect. Delivery pursuant to the resale will
occur within one to seven days of the purchase.
Repurchase agreements are considered "loans" under the Investment Company Act of
1940, as amended (the "1940 Act"), collateralized by the underlying security.
The Trust will implement procedures to monitor on a continuous basis the value
of the collateral serving as security for repurchase obligations. Additionally,
the Advisor to the Funds will consider the creditworthiness of the vendor. If
the vendor fails to pay the agreed upon resale price on the delivery date, the
Fund will retain or attempt to dispose of the collateral. A Fund's risk is that
such default may include any decline in value of the collateral to an amount
which is less than 100% of the repurchase price, any costs of disposing of such
collateral, and any loss resulting from any delay in foreclosing on the
collateral. The Funds will not enter into any repurchase agreement which will
cause more than 10% of their net assets to be invested in repurchase agreements
which extend beyond seven days and other illiquid securities.
Money Market Instruments. The Fund may invest in money market instruments may
include U.S. Government Securities or corporate debt securities (including those
subject to repurchase agreements), provided that they mature in thirteen months
or less from the date of acquisition and are otherwise eligible for purchase by
the Funds. Money market instruments also may include Banker's Acceptances and
Certificates of Deposit of domestic branches of U.S. banks, Commercial Paper and
Variable Amount Demand Master Notes ("Master Notes"). Banker's Acceptances are
time drafts drawn on and "accepted" by a bank. When a bank "accepts" such a time
draft, it assumes liability for its payment. When a Fund acquires a Banker's
Acceptance the bank which "accepted" the time draft is liable for payment of
interest and principal when due. The Banker's Acceptance carries the full faith
and credit of such bank. A Certificate of Deposit ("CD") is an unsecured
interest-bearing debt obligation of a bank. Commercial Paper is an unsecured,
short-term debt obligation of a bank, corporation or other borrower. Commercial
Paper maturity generally ranges from two to 270 days and is usually sold on a
discounted basis rather than as an interest-bearing instrument. The Funds will
invest in Commercial Paper only if it is rated one of the top two rating
categories by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps
("D&P") or, if not rated, of equivalent quality in the Advisor's opinion.
Commercial Paper may include Master Notes of the same quality. Master Notes are
unsecured obligations which are redeemable upon demand of the holder and which
permit the investment of fluctuating amounts at varying rates of interest.
Master Notes are acquired by the Funds only through the Master Note program of
the Funds' custodian bank, acting as administrator thereof. The Advisor will
monitor, on a continuous basis, the earnings power, cash flow and other
liquidity ratios of the issuer of a Master Note held by the Funds.
Illiquid Investments. Each Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees, the
Advisor determines the liquidity of a Fund's investments and, through reports
from the Advisor, the Board monitors investments in illiquid instruments. In
determining the liquidity of a Fund's investments, the Advisor may consider
various factors including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). Investments currently considered by the Funds to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. If through a change in values, net
assets or other circumstances, a Fund were in a position where more than 10% of
its net assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity. The Funds may not purchase restricted
securities, which are securities that cannot be sold to the public without
registration under the federal securities laws.
INVESTMENT LIMITATIONS
Each Fund has adopted the following fundamental investment limitations, which
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. A "majority" for this purpose, means, with respect to
a Fund, the lesser of (i) 67% of the Fund's outstanding shares represented in
person or by proxy at a meeting at which more than 50% of its outstanding shares
are represented, or (ii) more than 50% of its outstanding shares. Unless
otherwise indicated, percentage limitations apply at the time of purchase.
As a matter of fundamental policy, the Equity Fund, Small Company Fund and
Balanced Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities
of any one issuer or purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer (except that
securities of the U.S. Government, its agencies and instrumentalities
are not subject to these limitations);
(2) Invest 25% or more of the value of its total assets in any one industry
or group of industries (except that securities of the U.S. Government,
its agencies and instrumentalities are not subject to these
limitations);
(3) Invest in the securities of any issuer if any of the officers or
trustees of the Trust or its Investment Advisor who own beneficially
more than 1/2 of 1% of the outstanding securities of such issuer or
together own more than 5% of the outstanding securities of such issuer;
(4) Invest for the purpose of exercising control or management of another
issuer;
(5) Invest in interests in real estate, real estate mortgage loans, real
estate limited partnerships, oil, gas or other mineral exploration or
development programs or leases, except that the Fund may invest in the
readily marketable securities of companies which own or deal in such
things;
(6) Underwrite securities issued by others except to the extent the Fund
may be deemed to be an underwriter under the federal securities laws,
in connection with the disposition of portfolio securities;
(7) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions);
(8) Make short sales of securities or maintain a short position, except
short sales "against the box"; (A short sale is made by selling a
security the Fund does not own. A short sale is "against the box" to
the extent that the Fund contemporaneously owns or has the right to
obtain at no additional cost securities identical to those sold short.)
(9) Participate on a joint or joint and several basis in any trading
account in securities;
(10) Make loans of money or securities, except that the Fund may invest in
repurchase agreements;
(11) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors), if more than 5% of its total assets would be
invested in such securities;
(12) Invest more than 10% of the value of its net assets in repurchase
agreements having a maturity of longer than seven days or other not
readily marketable securities; included in this category are any assets
for which an active and substantial market does not exist at the time
of purchase or subsequent valuation;
(13) Issue senior securities, borrow money, or pledge its assets;
(14) With respect to the Balanced Fund and the Equity Fund, purchase foreign
securities (except the Fund may purchase foreign securities sold as
American Depository Receipts without limit);
(15) With respect to the International Equity Fund Invest 25% or more of the
value of its total assets in any one country;
(16) Write, purchase, or sell puts, calls, warrants or combinations thereof,
or purchase or sell commodities, commodities contracts, futures
contracts, or related options; or
(17) Invest in restricted securities.
As a matter of fundamental policy, the International Equity Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities
of any one issuer or purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer (except that
securities of the U.S. Government, its agencies and instrumentalities
are not subject to these limitations);
(2) Invest 25% or more of the value of its total assets in any one industry
or group of industries (except that securities of the U.S. Government,
its agencies and instrumentalities are not subject to these
limitations);
(3) Invest for the purpose of exercising control or management of another
issuer;
(4) Invest in interests in real estate, real estate mortgage loans, real
estate limited partnerships, oil, gas or other mineral exploration or
development programs or leases, except that the International Equity
Fund may invest in the readily marketable securities of companies which
own or deal in such things;
(5) Underwrite securities issued by others except to the extent the
International Equity Fund may be deemed to be an underwriter under the
federal securities laws, in connection with the disposition of
portfolio securities;
(6) Make loans of money or securities, except that the Fund may invest in
repurchase agreements;
(7) Issue senior securities, borrow money, or pledge its assets, except in
accordance with the 1940 Act;
(8) Invest 25% or more of the value of its total assets in any one country;
or
(9) Write, purchase, or sell puts, calls, warrants or combinations thereof,
or purchase or sell commodities, commodities contracts, futures
contracts, or related options.
The following are the International Equity Fund's non-fundamental operating
policies, which may be changed by the Board of Trustees without shareholder
approval.
(1) Invest in the securities of any issuer if any of the officers or
trustees of the Trust or its Investment Advisor who own beneficially
more than 1/2 of 1% of the outstanding securities of such issuer or
together own more than 5% of the outstanding securities of such issuer;
(2) Purchase securities on margin (but the International Equity Fund may
obtain such short-term credits as may be necessary for the clearance of
transactions);
(3) Make short sales of securities or maintain a short position, except
short sales "against the box"; (A short sale is made by selling a
security the International Equity Fund does not own. A short sale is
"against the box" to the extent that the International Equity Fund
contemporaneously owns or has the right to obtain at no additional cost
securities identical to those sold short.)
(4) Participate on a joint or joint and several basis in any trading
account in securities;
(5) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors), if more than 5% of its total assets would be
invested in such securities;
(6) Invest more than 10% of the value of its net assets in repurchase
agreements having a maturity of longer than seven days or other not
readily marketable securities; included in this category are any assets
for which an active and substantial market does not exist at the time
of purchase or subsequent valuation;
(7) Invest in restricted securities.
Percentage restrictions stated as an investment policy or investment limitation
apply at the time of investment; if a later increase or decrease in percentage
beyond the specified limits results from a change in securities values or total
assets, it will not be considered a violation.
NET ASSET VALUE
The net asset value per share of each Class of each Fund is determined at the
time trading closes on the New York Stock Exchange (currently 4:00 p.m., New
York time), Monday through Friday, except on business holidays when the New York
Stock Exchange is closed. The New York Stock Exchange recognizes the following
holidays: New Year's Day, Martin Luther King, Jr., Day, President's Day, Good
Friday, Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, and Christmas
Day. Any other holiday recognized by the New York Stock Exchange will be deemed
a business holiday on which the net asset value of each Class of the Funds will
not be calculated.
The net asset value per share of each Class of each Fund is calculated
separately by adding the value of the Fund's securities and other assets
belonging to the Fund and attributable to that Class, subtracting the
liabilities charged to the Fund and to that Class, and dividing the result by
the number of outstanding shares of such Class. "Assets belonging to" a Fund
consist of the consideration received upon the issuance of shares of the Fund
together with all net investment income, realized gains/losses and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds, and a portion of any general assets of the Trust not belonging to a
particular investment Fund. Income, realized and unrealized capital gains and
losses, and any expenses of a Fund not allocated to a particular Class of such
Fund will be allocated to each Class of the Fund on the basis of the net asset
value of that Class in relation to the net asset value of the Fund. Assets
belonging to a Fund are charged with the direct liabilities of the Fund and with
a share of the general liabilities of the Trust, which are normally allocated in
proportion to the number of or the relative net asset values of all of the
Trust's series at the time of allocation or in accordance with other allocation
methods approved by the Board of Trustees. Certain expenses attributable to a
particular Class of shares (such as the distribution and service fees
attributable to Investor Shares) will be charged against that Class of shares.
Certain other expenses attributable to a particular Class of shares (such as
registration fees, professional fees, and certain printing and postage expenses)
may be charged against that Class of shares if such expenses are actually
incurred in a different amount by that Class or if the Class receives services
of a different kind or to a different degree than other Classes, and the Board
of Trustees approves such allocation. Subject to the provisions of the
Declaration of Trust, determinations by the Board of Trustees as to the direct
and allocable liabilities, and the allocable portion of any general assets, with
respect to a Fund and the Classes of such Fund arc conclusive.
For the fiscal year ended March 31, 1996, the total expenses after fee waivers
and expense reimbursements for Institutional Shares were $23,837 for the Equity
Fund, $44,565 for the Balanced Fund, and $52,075 for the Small Company Fund. For
the fiscal year ended March 31, 1997, the total expenses after fee waivers and
expense reimbursements for Institutional Shares were $36,085 for the Equity
Fund, $45,873 for the Balanced Fund and $76,033 for the Small Company Fund. For
the fiscal year ended March 31, 1998, the total expenses after fee waivers and
expense reimbursements for Institutional Shares were $76,747 for the Equity
Fund, $60,276 for the Balanced Fund and $139,847 for the Small Company Fund.
Investor Shares of the Funds were either not authorized for issuance or were not
issued during such fiscal years.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases. Shares of each Fund are offered and sold on a continuous basis and
may be purchased through authorized investment dealers or directly by contacting
the Distributor or the Funds. Selling dealers have the responsibility of
transmitting orders promptly to the Funds. The public offering price of shares
of each Fund equals net asset value. Capital Investment Group, Inc. (the
"Distributor") serves as distributor of shares of the Funds.
Plan Under Rule 12b-1. The Trust has adopted a Plan of Distribution (the "Plan")
for the Investor Shares of the Funds pursuant to Rule 12b-1 under the 1940 Act.
At this time, however, the Investor shares are not being offered publicly.
Redemptions. Under the 1940 Act, each Fund may suspend the right of redemption
or postpone the date of payment for shares during any period when (a) trading on
the New York Stock Exchange is restricted by applicable rules and regulations of
the SEC; (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. Each Fund may also suspend or
postpone the recordation of the transfer of shares upon the occurrence of any of
the foregoing conditions.
In addition to the situations described in the Prospectus under "How Shares may
be Redeemed," each Fund may redeem shares involuntarily to reimburse the Fund
for any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to Fund shares as provided in the Prospectus from time to time.
DESCRIPTION OF THE TRUST
The Trust, which is an unincorporated business trust organized under
Massachusetts law on October 25, 1990 is an open-end diversified management
investment company. The Trust's Declaration of Trust authorizes the Board of
Trustees to divide shares into series, each series relating to a separate
portfolio of investments, and to classify and reclassify any unissued shares
into one or more classes of shares of each such series. The Declaration of Trust
currently provides for the shares of nine series, as follows: the Capital Value
Fund managed by Capital Investment Counsel, Inc. of Raleigh, North Carolina;
Investek Fixed Income Trust managed by Investek Capital Management, Inc. of
Jackson, Mississippi; ZSA Asset Allocation Fund managed by Zaske, Sarafa &
Associates, Inc. of Birmingham, Michigan; The Brown Capital Management Equity
Fund, The Brown Capital Management Balanced Fund, The Brown Capital Management
Small Company Fund, and The Brown Capital Management International Equity Fund
managed by Brown Capital Management, Inc. of Baltimore, Maryland; The WST Growth
& Income Fund managed by Wilbanks, Smith & Thomas Asset Management, Inc. of
Norfolk, Virginia; and The Carolinas Fund managed by Morehead Capital Advisors,
LLC, of Charlotte, North Carolina. The number of shares of each series shall be
unlimited. The Trust does not intend to issue share certificates.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as each Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust, including the Funds, will vote
together and not separately on a series-by-series basis except as otherwise
required by law or when the Board of Trustees determines that the matter to be
voted upon affects only the interests of the shareholders of a particular series
or class. Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series or class affected by the matter. A series or class is affected by a
matter unless it is clear that the interests of each series or class in the
matter are substantially identical or that the matter does not affect any
interest of the series or class. Under Rule 18f-2, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a series only if approved by a majority
of the outstanding shares of such series. However, the Rule also provides that
the ratification of the appointment of independent accountants, the approval of
principal underwriting contracts and the election of Trustees may be effectively
acted upon by shareholders of the Trust voting together, without regard to a
particular series or class.
When used in the Prospectus or this Additional Statement, a "majority" of
shareholders means the vote of the lesser of (1) 67% of the shares of the Trust
or the applicable series or class present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or (2)
more than 50% of the outstanding shares of the Trust or the applicable series or
class.
When issued for payment as described in the Prospectus and this Additional
Statement, shares of each Fund will be fully paid and non-assessable.
The Declaration of Trust provides that the Trustees of the Trust will not be
liable in any event in connection with the affairs of the Trust, except as such
liability may arise from his or her own bad faith, willful misfeasance, gross
negligence, or reckless disregard of duties. It also provides that all third
parties shall look solely to the Trust property for satisfaction of claims
arising in connection with the affairs of the Trust. With the exceptions stated,
the Declaration of Trust provides that a Trustee or officer is entitled to be
indemnified against all liability in connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting each Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof, such laws and
regulations may be changed by legislative, judicial, or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations.
Each series of the Trust, including each Fund, will be treated as a separate
corporate entity under the Code and intends to qualify or remain qualified as a
regulated investment company. In order to so qualify, each series must elect to
be a regulated investment company or have made such an election for a previous
year and must satisfy, in addition to the distribution requirement described in
the Prospectus, certain requirements with respect to the source of its income
for a taxable year. At least 90% of the gross income of each series must be
derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stocks, securities or foreign
currencies, and other income derived with respect to the series' business of
investing in such stock, securities or currencies. Any income derived by a
series from a partnership or trust is treated as derived with respect to the
series' business of investing in stock, securities or currencies only to the
extent that such income is attributable to items of income that would have been
qualifying income if realized by the series in the same manner as by the
partnership or trust.
An investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the investment
company nor more than 10% of the outstanding voting securities of such issuer.
In addition, not more than 25% of the value of the investment company's total
assets may be invested in the securities (other than government securities or
the securities of other regulated investment companies) of any one issuer. Each
Fund intends to satisfy all requirements on an ongoing basis for continued
qualification as a regulated investment company.
Each series of the Trust, including each Fund, will designate any distribution
of long-term capital gains as a capital gain dividend in a written notice mailed
to shareholders within 60 days after the close of the series' taxable year.
Shareholders should note that, upon the sale or exchange of series shares, if
the shareholder has not held such shares for at least six months, any loss on
the sale or exchange of those shares will be treated as long-term capital loss
to the extent of the capital gain dividends received with respect to the shares.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each series of the Trust, including each Fund, intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year to
avoid liability for this excise tax.
If for any taxable year a series does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the series'
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations.
Each series of the Trust, including each Fund, will be required in certain cases
to withhold and remit to the U.S. Treasury 31% of taxable dividends or 31% of
gross proceeds realized upon sale paid to shareholders who have failed to
provide a correct tax identification number in the manner required, or who are
subject to withholding by the Internal Revenue Service for failure properly to
include on their return payments of taxable interest or dividends, or who have
failed to certify to the Fund that they are not subject to backup withholding
when required to do so or that they are "exempt recipients."
Depending upon the extent of each Fund's activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, each
Fund may be subject to the tax laws of such states or localities. In addition,
in those states and localities that have income tax laws, the treatment of a
Fund and its shareholders under such laws may differ from their treatment under
federal income tax laws.
MANAGEMENT OF THE FUNDS
Trustees and Officers. The Trustees and executive officers of the Trust, their
addresses and ages, and their principal occupations for the last five years are
as follows:
<TABLE>
<S> <C> <C>
TRUSTEES
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Principal Occupation(s)
Name, Age and Address Position During Past 5 Years
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Jack E. Brinson, 65 Trustee and Chairman President, Brinson Investment Co.,
1105 Panola Street President, Brinson Chevrolet, Inc.,
Tarboro, North Carolina 27886 Tarboro, North Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Thomas W. Steed, 40 Trustee Senior Corporate Attorney
101 Bristol Court Hardees Food Systems, Rocky Mount, North
Rocky Mount, North Carolina 27802 Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
J. Buckley Strandberg, 38 Trustee Vice President, Standard Insurance and
Post Office Box 1375 Realty, Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 58 Trustee* President, Brown Capital Management, Inc.,
809 Cathedral Street Baltimore, Maryland
Baltimore, Maryland 21201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 39 Trustee* President, Capital Investment Group,
Post Office Box 32249 Raleigh, North Carolina; Vice President
Raleigh, North Carolina 27622 Capital Investment Counsel, Raleigh, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
*Indicates that Trustee is an "interested person" of the Trust for purposes of
the 1940 Act because of his position with one of the investment advisors to the
Trust.
</TABLE>
<TABLE>
<S> <C> <C>
OFFICERS
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Principal Occupation(s)
Name, Age and Address Position During Past 5 Years
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Michael T. McRee, 55 President, Investek Fixed President, Investek Capital Management,
317 East Capitol Income Trust Inc., Jackson, Mississippi
Jackson, Mississippi 39201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Wayne F. Wilbanks, 38 President, The WST Growth & President, Wilbanks, Smith & Thomas
One Commercial Place, Suite 1150 Income Fund Asset Management, Inc., Norfolk, Virginia
Norfolk, Virginia 25510
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 58 President, The Brown Capital President, Brown Capital Management, Inc.,
809 Cathedral Street Management Funds Baltimore, Maryland
Baltimore, Maryland 21201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 39 President, Capital Value Fund; President, Capital Investment Group,
Post Office Box 32249 Vice President, The Raleigh, North Carolina, Vice President,
Raleigh, North Carolina 27622 CarolinasFund Capital Investment Counsel, Raleigh, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Arthur E. Zaske, 51 President, The ZSA Funds Chairman/Chief Investment Officer, Zaske,
Suite 200, 355 South Woodward Avenue Sarafa, & Associates, Inc., Birmingham,
Birmingham, Michigan 48009 Michigan
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Elmer O. Edgerton, Jr., 57 Vice President, Capital Value President, Capital Investment Counsel
Post Office Box 32249 Fund Raleigh, North Carolina; Vice President
Raleigh, North Carolina 27622 Capital Investment Group, Raleigh, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Doug S. Folk, 38 Vice President, Investek Fixed Vice President, Investek Capital
317 East Capitol Income Trust Investment, Inc., Jackson, Mississippi,
Jackson, Mississippi 39201 since 1996; previously, Portfolio Manager,
Southern Farm Bureau Life Insurance
Company, Jackson, Mississippi
- ----------------------------------------------- -------------------------------- ---------------------------------------------
R. Mark Fields, 46 Vice President, Investek Fixed Vice President, Investek Capital
317 East Capitol Income Trust Management, Inc., Jackson, Mississippi
Jackson, Mississippi 39201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
John M. Friedman, 55 Vice President, Investek Fixed Vice President, Investek Capital
317 East Capitol Income Trust Management, Inc., Jackson, Mississippi
Jackson, Mississippi 39201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Keith A. Lee, 38 Vice President, The Brown Vice President, Brown Capital Management,
309 Cathedral Street Capital Management Funds Inc., Baltimore, Maryland
Baltimore, Maryland 21201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Anmar K. Sarafa, 38 Vice President, The ZSA Funds President, Zaske, Sarafa & Associates, Inc.
Suite 200, 355 South Woodward Avenue Birmingham, Michigan
Birmingham, Michigan 48009
- ----------------------------------------------- -------------------------------- ---------------------------------------------
C. Frank Watson, III, 28 Secretary Vice President, The Nottingham Company
105 North Washington Street Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Julian G. Winters, 30 Treasurer and Assistant Legal and Compliance Director, The
105 North Washington Street Secretary Nottingham Company, Rocky Mount, North
Rocky Mount, North Carolina Carolina, since 1996; previously Operations
Manager, Tar Heel Medical, Nashville, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
</TABLE>
Compensation. The officers of the Trust will not receive compensation from the
Trust for performing the duties of their offices. Each Trustee who is not an
"interested person" of the Trust receives a fee of $2,000 each year plus $250
per series of the Trust per meeting attended in person and $100 per series of
the Trust per meeting attended by telephone. All Trustees are reimbursed for any
out-of-pocket expenses incurred in connection with attendance at meetings.
<TABLE>
<S> <C> <C> <C> <C>
Compensation Table
Pension Retirement
Aggregate Benefits Accrued As Estimated Annual Total Compensation
Name of Person, Compensation Part of Fund Benefits Upon from the Trust Paid
Position from the Trust Expenses Retirement to Trustees
- ---------------- -------------- ---------------- ---------- -----------
Eddie C. Brown None None None None
Trustee
Richard K. Bryant None None None None
Trustee
Jack E. Brinson $8,500 None None $8,500
Trustee
Thomas W. Steed $8,500 None None $8,500
Trustee
J. Buckley Strandberg $7,600 None None $7,600
Trustee
Figures are for the fiscal year ended March 31, 1998.
</TABLE>
Principal Holders of Voting Securities. As of January 19, 1999, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) 10.979% of the then outstanding Institutional Shares of the
Equity Fund, 6.380% of the Balanced Fund, and 4.175% of the Small Company Fund.
On the same date the following shareholders owned of record more than 5% of the
outstanding Institutional Shares of the Funds. Except as provided below, no
person is known by the Trust to be the beneficial owner of more than 55 of the
outstanding Institutional Shares of the Fund as of January 19, 1999.
<TABLE>
<S> <C> <C>
EQUITY FUND
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership* Percent
- ---------------- -------------------- -------
Chris E. Dishman 85,124.958 shares 21.575%
Karen T. Dishman
5019 Mariposa Circle
Fresno, Texas 77545
Great West Life & Annuity 56,782.093 shares 14.391%
401(k) Plan
8515 E. Orchard Road
Englewood, Colorado 80111-5097
Brown Family Limited Partnership 27,666.379 shares 7.012%
11102 Old Carriage Road
Glen Arm, Maryland 21057
Alex Brown & Sons, Inc. 25,517.356 shares 6.46%
FBO 201-68870-16
P.O. Box 1346
Baltimore, Maryland 21203
BALANCED FUND
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership* Percent
- ---------------- -------------------- -------
City of Baltimore 74,898.988 shares 19.931%
c/o Great West Life & Annuity
8515 E. Orchard Road
Englewood, Colorado 80111
First Union National Bank, NC 57,275.854 shares 15.241%
Raymond Haysbert IRA
3300 Hillen Road
Baltimore, Maryland 21218
Diana M. Epps Beneficiary UTA 40,821.737 shares 10.863%
Charles Schwab & Co., Inc. IRA
1040 Deer Ridge Drive #144
Baltimore, Maryland 21210
Total Health Care, Inc. 28,544.762 shares 7.596%
2305 N. Charles Street
Baltimore, Maryland 21218
Jesse H. Hahn 28,451.297 shares 7.571%
10 Light Street
Baltimore, Maryland 21202-1487
The Eddie C. & C. Sylvia Brown 23,975.481 shares 6.380%
Family Foundation, Inc.
2 East Read St, 9the Floor
Baltimore, Maryland 21202
SMALL COMPANY FUND
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership* Percent
- ---------------- -------------------- -------
T. Rowe Price Trust Co. 466,339.207 shares 37.956%**
FBO King Co. Deferred Compensation Plan
4555 Painters Mill Rd.
Owings Mill, Maryland 21117
Woods Fund of Chicago 130,180.572 shares 10.596%
3 First National Plaza
Suite 2010
Chicago, Illinois 60602
Louisville Presbyterian Theological 129,272.186 shares 10.522%
Seminary
1044 Alta Vista Rd.
Louisville, Kentucky 40205-1798
* The shares indicated are believed by the Trust to be owned both of record
and beneficially, except shares held of record by Alex Brown & Sons, Inc.
and Great West Life & Annuity Insurance Company for the benefit of their
clients.
** Deemed a "control person" of the Fund as defined by applicable SEC
regulations.
</TABLE>
Investment Advisor. Information about Brown Capital Management, Inc., Baltimore,
Maryland (the "Advisor") and its duties and compensation as Advisor is contained
in the Prospectus.
Compensation of the Advisor with regards to the Equity Fund, based upon the
Fund's average daily net assets, is at the annual rate of 0.65% of the first $25
million of net assets and 0.50% of all assets over $25 million. The Advisor
voluntarily waived its fee and reimbursed a portion of the Equity Fund's
operating expenses for the fiscal years ended March 31, 1996, 1997, and 1998.
The total fees waived amounted to $9,978, $19,581, and $41,375 (the Advisor
received $248 of its fee), respectively, and expenses reimbursed amounted to
$51,590, $45,950, and $8,549, respectively.
Compensation of the Advisor with regards to the Balanced Fund, based upon the
Fund's average daily net assets, is at the annual rate of 0.65% of the first $25
million of net assets and 0.50% of all assets over $25 million. The Advisor
voluntarily waived its fee and reimbursed a portion of the Balanced Fund's
operating expenses for the fiscal years ended March 31, 1996, 1997, and 1998.
The total fees waived amounted to $18,266, $24,852, and $32,686, respectively,
and expenses reimbursed amounted to $35,214, $38,061, and $18,899, respectively.
Compensation of the Advisor with regards to the Small Company Fund, based upon
the Fund's average daily net assets, is at the annual rate of 1.00%. The Advisor
voluntarily waived all or a portion of its fee and reimbursed a portion of the
Small Company Fund's operating expenses for the fiscal years ended March 31,
1996, 1997, and 1998. The total fees waived amounted to $30,755, $50,549 (the
Advisor received $205 of its fee), and $51,594 (the Advisor received $41,776 of
its fee), respectively, and expenses reimbursed amounted to $24,506, $10,610,
and $0, respectively.
Compensation of the Advisor with regards to the International Equity Fund, based
upon the Fund's average daily net assets, is at the annual rate of 1.00%. The
Advisor has entered into an expense limitation agreement with the Trust, with
respect to the International Equity Fund, pursuant to which the Advisor has
agreed to waive or limit its fees and to assume other expenses so that the total
annual operating expenses of the Fund (other than interest, taxes, brokerage
commissions, other expenditures which are capitalized in accordance with
generally accepted accounting principles, other extraordinary expenses not
incurred in the ordinary course of the Fund's business, and amounts, if any,
payable pursuant to a Rule l2b-1 Plan) are limited to 2.00% of the average daily
assets of the Fund.
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of such Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of its duties or from its reckless
disregard of its duties and obligations under the Agreement.
Administrator. The Trust has entered into a Fund Accounting and Compliance
Administration Agreement with The Nottingham Company (the "Administrator"), a
North Carolina corporation, whose address is 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069.
The Administrator will perform the following services for the Fund: (1)
coordinate with the Custodian and monitor the services it provides to the Fund;
(2) coordinate with and monitor any other third parties furnishing services to
the Fund; (3) provide the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervise the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepare or supervise the preparation by third parties of all
federal, state and local tax returns and reports of the Fund required by
applicable law; (6) prepare and, after approval by the Trust, file and arrange
for the distribution of proxy materials and periodic reports to shareholders of
the Fund as required by applicable law; (7) prepare and, after approval by the
Trust, arrange for the filing of such registration statements and other
documents with the Securities and Exchange Commission and other federal and
state regulatory authorities as may be required by applicable law; (8) review
and submit to the officers of the Trust for their approval invoices or other
requests for payment of Fund expenses and instruct the Custodian to issue checks
in payment thereof; and (9) take such other action with respect to the Fund as
may be necessary in the opinion of the Administrator to perform its duties under
the agreement. The Administrator will also provide certain accounting and
pricing services for the Fund.
Compensation of the Administrator, based upon the average daily net assets of an
equity or balanced fund, is at the following annual rates: 0.175% of the Fund's
first $50 million, 0.150% on the next $50 million, 0.125% on the next $50
million, and 0.100% on average daily net assets over $150 million. In addition,
the Administrator currently receives a monthly fee of $2,000 per Fund for
accounting and recordkeeping services. The Administrator charges a minimum fee
of $4,000 per month per Fund for all of its fees taken in the aggregate,
analyzed monthly. The Administrator also charges the Trust for certain costs
involved with the daily valuation of investment securities and is reimbursed for
out-of-pocket expenses.
Transfer Agent. The Trust has entered into a Dividend Disbursing and Transfer
Agent Agreement with NC Shareholder Services, LLC (the "Transfer Agent"), a
North Carolina limited liability company, to serve as transfer, dividend paying,
and shareholder servicing agent for the Funds. The address of the Transfer Agent
is 107 North Washington Street, Post Office Box 4365, Rocky Mount, North
Carolina 27803-0365. The Transfer Agent is compensated for its services based
upon a $15 fee per shareholder per year, subject to a minimum fee of $750 per
month, per fund.
Distributor. Capital Investment Group, Inc. (the "Distributor"), Post Office Box
32249, Raleigh, North Carolina 27622, acts as an underwriter and distributor of
each Fund's shares for the purpose of facilitating the registration of shares of
the Fund under state securities laws and to assist in sales of Fund shares
pursuant to a Distribution Agreement (the "Distribution Agreement") approved by
the Board of Trustees of the Trust.
In this regard, the Distributor has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
each Fund shall from time to time identify to the Distributor as states in which
it wishes to offer its shares for sale, in order that state registrations may be
maintained for the Fund.
The Distributor is a broker-dealer registered with the Securities and Exchange
Commission and a member in good standing of the National Association of
Securities Dealers, Inc.
The Distribution Agreement may be terminated by either party upon 60 days prior
written notice to the other party.
Custodian. First Union National Bank of North Carolina (the "Custodian"), Two
First Union Center, Charlotte, North Carolina 28288-1151, serves as custodian
for each Fund's assets. The Custodian acts as the depository for each Fund,
safekeeps its portfolio securities, collects all income and other payments with
respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties as Custodian. For its services
as Custodian, the Custodian is entitled to receive from each Fund an annual fee
based on the average net assets of the Fund held by the Custodian.
Independent Auditors. The firm of Deloitte & Touche LLP, 2500 One PPG Place,
Pittsburgh, Pennsylvania 15222-5401, serves as independent auditors for the
Funds, and will audit the annual financial statements of the Funds, prepare each
Fund's federal and state tax returns, and consult with each Fund on matters of
accounting and federal and state income taxation.
The audited financial statements of the Funds for the fiscal year ended March
31, 1998, including the financial highlights, appearing in the Funds annual
report to shareholders are incorporated by reference and made a part of this
document.
Legal Counsel. Dechert Price & Rhoads serves as legal counsel to the Nottingham
Investment Trust II and the Funds.
SPECIAL SHAREHOLDER SERVICES
Each Fund offers the following shareholder services:
Regular Account. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. When
an investor makes an initial investment in the Fund, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a confirmation statement showing the current transaction and all
prior transactions in the shareholder account during the calendar year-to-date,
along with a summary of the status of the account as of the transaction date. As
stated in the Prospectus, share certificates are not issued.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Funds will automatically charge the checking account for the amount specified
($100 minimum) which will be automatically invested in shares at the public
offering price on or about the 21st day of the month. The shareholder may change
the amount of the investment or discontinue the plan at any time by writing to
the Funds.
Systematic Withdrawal Plan. Shareholders owning shares with a value of $10,000
or more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $100 per payment, by
authorizing the Funds to redeem the necessary number of shares periodically
(each month, or quarterly in the months of March, June, September and December)
in order to make the payments requested. Each Fund has the capacity of
electronically depositing the proceeds of the systematic withdrawal directly to
the shareholder's personal bank account ($5,000 minimum per bank wire).
Instructions for establishing this service are included in the Fund Shares
Application, enclosed in the Prospectus, or available by calling the Funds. If
the shareholder prefers to receive his systematic withdrawal proceeds in cash,
or if such proceeds are less than the $5,000 minimum for a bank wire, checks
will be made payable to the designated recipient and mailed within 7 days of the
valuation date. If the designated recipient is other than the registered
shareholder, the signature of each shareholder must be guaranteed on the
application (see "Signature Guarantees" in the Prospectus). A corporation (or
partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles and required number of signatures
authorized to act on its behalf. The application must be signed by a duly
authorized officer(s) and the corporate seal affixed. No redemption fees are
charged to shareholders under this plan. Costs in conjunction with the
administration of the plan are borne by the Funds. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the
Funds upon sixty days written notice or by a shareholder upon written notice to
the Funds. Applications and further details may be obtained by calling the Funds
at 1-800-525-3863, or by writing to:
The Brown Capital Management Funds
[Name of fund]
Institutional Shares
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Purchases in Kind. Each Fund may accept securities in lieu of cash in payment
for the purchase of shares in the Fund. The acceptance of such securities is at
the sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long term investment of the Fund, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "How Shares are Valued" in the Prospectus.
Redemptions in Kind. The Funds do not intend, under normal circumstances, to
redeem their securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Funds to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein each Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any ninety-day period, the lesser of (a) $250,000 or (b)
one percent (1%) of the Fund's net asset value at the beginning of such period.
Transfer of Registration. To transfer shares to another owner, send a written
request to the applicable Fund at the address shown herein. Your request should
include the following: (1) the Fund name and existing account registration; (2)
signature(s) of the registered owner(s) exactly as the signature(s) appear(s) on
the account registration; (3) the new account registration, address, social
security or taxpayer identification number and how dividends and capital gains
are to be distributed; (4) signature guarantees (See the Prospectus under the
heading "Signature Guarantees"); and (5) any additional documents which are
required for transfer by corporations, administrators, executors, trustees,
guardians, etc. If you have any questions about transferring shares, call or
write the Funds.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each Class of each Fund may be quoted in
advertisements, sales literature, shareholder reports or other communications to
shareholders. Each Fund computes the "average annual total return" of each Class
of the Fund by determining the average annual compounded rates of return during
specified periods that equate the initial amount invested to the ending
redeemable value of such investment. This is done by determining the ending
redeemable value of a hypothetical $ 1,000 initial payment. This calculation is
as follows:
P(1+T)^n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered by the
computation of a hypothetical $1,000 payment made at the beginning
of the period.
P = hypothetical initial payment of $1,000 from which the maximum
sales load is deducted.
n = period covered by the computation, expressed in terms of years.
Each Fund may also compute the aggregate total return of each Class of the Fund,
which is calculated in a similar manner, except that the results are not
annualized.
The calculation of average annual total return and aggregate total return assume
that the maximum sales load is deducted from the initial $1,000 investment at
the time it is made and that there is a reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. Each Fund may also quote other total
return information that does not reflect the effects of the sales load. The
average annual total return quotations for the Institutional Shares of the
Equity Fund, Balanced Fund and Small Company Fund for the fiscal year ended
March 31, 1998 are 44.68%, 36.19%, and 41.84%, respectively. The average annual
total return quotations for the Institutional Shares of each Fund for the five
fiscal years ended March 31, 1998 are 18.48%, 15.94%, and 18.53%, respectively.
The average annual total return quotations since inception (September 30, 1992
for the Equity Fund and Balanced Fund and December 31, 1992 for the Small
Company Fund) of the Institutional Shares of each Fund to March 31, 1998 are
18.95%, 15.96%, and 17.31%, respectively. The cumulative total return quotations
since inception of the Institutional Shares of each Fund through March 31, 1998
are 159.78%, 125.82%, and 131.19%, respectively. These performance quotations
should not be considered as representative of the performance of the
Institutional Shares of the Funds for any specified period in the future. No
Investor Shares of the Funds were issued during any such period quoted above.
Each Fund's performance may be compared in advertisements, sales literature,
shareholder reports, and other communications to the performance of other mutual
funds having similar objectives or to standardized indices or other measures of
investment performance. In particular, each Fund may compare its performance to
the S&P 500 with Income Index. The Balanced Fund may also compare its
performance with a combination of the S&P 500 with Income Index and the Lehman
Government Corporate Bond Index. The Small Company Fund may compare its
performance, alone or in a combination, with the Russell 2000 Index, the NASDAQ
Composite Index, and the NASDAQ Industrials Index. Comparative performance may
also be expressed by reference to a ranking prepared by a mutual fund monitoring
service or by one or more newspapers, newsletters or financial periodicals. Each
Fund may also occasionally cite statistics to reflect its volatility and risk.
Each Fund may also compare its performance to other published reports of the
performance of unmanaged portfolios of companies. The performance of such
unmanaged portfolios generally does not reflect the effects of dividends or
dividend reinvestment. Of course, there can be no assurance that any Fund will
experience the same results. Performance comparisons may be useful to investors
who wish to compare a Fund's past performance to that of other mutual funds and
investment products. Of course, past performance is not a guarantee of future
results.
Each Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above.
As indicated, from time to time, each Fund may advertise its performance
compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
o Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific period
of time.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Investors may use such indices in addition to the Funds' Prospectus to obtain a
more complete view of each Fund's performance before investing. Of course, when
comparing a Fund's performance to any index, factors such as composition of the
index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for each Fund may quote total returns that are calculated
on nonstandardized base periods. The total returns represent the historic change
in the value of an investment in the Fund based on monthly reinvestment of
dividends over a specified period of time.
From time to time each Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the reflects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. Each Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P and Moody's). Each Fund may also depict the historical performance
of the securities in which the Fund may invest over periods reflecting a variety
of market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
Each Fund may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Funds may acquire from time to time fixed income securities that meet the
following minimum rating criteria ("Investment Grade Debt Securities") or, if
unrated, are in the Advisor's opinion comparable in quality to Investment Grade
Debt Securities. The various ratings used by the nationally recognized
securities rating services are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed income
securities in which the Funds may invest should be continuously reviewed and
that individual analysts give different weightings to the various factors
involved in credit analysis. A rating is not a recommendation to purchase, sell
or hold a security, because it does not take into account market value or
suitability for a particular investor. When a security has received a rating
from more than one service, each rating is evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources that they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
Standard & Poor's Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Services ("S&P") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity of the obligor to meet its
financial commitment on the obligation.
AA - Debt rated AA differs from AAA issues only in a small degree. The
obligor's capacity to meet its financial commitment on the obligation
is very strong.
A - Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB - Debt rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
"Investment-Grade Debt Securities" and are regarded, on balance, as having
significant speculative characteristics with respect to the obligor's capacity
to meet its financial commitment on the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation. While such bonds
may have some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-I+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to short term notes and
indicates strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation. The rating SP-2 indicates a satisfactory capacity to pay principal
and interest, with some vulnerability to adverse financial and economic changes
over the term of the notes.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A - Debt which is rated A possesses many favorable investment
attributes and is to be considered as an upper medium grade obligation.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa - Debt which is rated Baa is considered as a medium grade
obligation, i.e., it is neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such debt
lacks outstanding investment characteristics and in fact has
speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. Bonds which are rated Ba, B, Caa, Ca or C by
Moody's are not considered "Investment-Grade Debt Securities" by the Advisor.
Bonds rated Ba are judged to have speculative elements because their future
cannot be considered as well assured. Uncertainty of position characterizes
bonds in this class, because the protection of interest and principal payments
often may be very moderate and not well safeguarded.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period for time may be small. Bonds
which are rated Caa are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or supporting institutions) are considered to have a
superior ability for repayment of short-term promissory obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternative liquidity. Issuers rated Prime-2 (or supporting institutions) are
considered to have a strong ability for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings' trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriated may be more affected by external
conditions. Ample alternate liquidity is maintained.
The following summarizes the two highest ratings used by Moody's for short-term
notes and variable rate demand obligations:
MIG-1; VMIG-1 - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2; VMIG-2 - Obligations bearing these designations are of a high
quality with ample margins of protection.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A - Bonds rated A have average but adequate protection factors. The
risk factors are more variable and greater in periods of economic
stress.
BBB - Bonds rated BBB have below-average protection factors but are
still considered sufficient for prudent investment. There is
considerable variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff 1 is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff 1+, Duff 1 and
Duff 1- within the highest rating category. Duff 1+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff l- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc. ("Fitch") for bonds which are deemed to be
"Investment-Grade Debt Securities" by the Advisor:
AAA - Bonds are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated
AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term
debt of these issuers is generally rated F-1+.
A - Bonds that are rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds
with higher ratings.
BBB - Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category. A "ratings outlook" is used to describe the
most likely direction of any rating change over the intermediate term. It is
described as "Positive" or "Negative." The absence of a designation indicates a
stable outlook.
Bonds rated BB, B and CCC by Fitch are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the two highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+.
The term symbol "LOC" indicates that the rating is based on a letter of credit
issued by a commercial bank.
Bonds rated BB, B and CCC by Fitch are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the three highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-l+
F-2 - Instruments assigned this rating have satisfactory degree of
assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
<PAGE>
Brown Capital Management Funds
105 North Washington Street
Post Office Box 69
Rocky Mount, North Carolina 27802-0069
Telephone 919-972-9922
U. S. WATTS 800-525- FUND
Facsimile 919-442-4226
April 15, 1998
Dear Shareholder:
I am sure you're tired of hearing about the unprecedented series of consecutive
years of 20+% gains in the broad stock market. Perhaps what isn't as widely
known, is that we have experienced an unprecedented streak of six years of
earnings increases for the S&P 500. The only period that has come close in the
last 50 years is 1962-1966. We expect the streak to continue, albeit at a slower
pace in 1998.
While the Washington press corps was ensconced in nosing out scandals (don't
worry this letter will not go there), the economy and the market continued its
upward trend. The S&P 500 Index increased 48.0%, on a total return basis, during
the fiscal year. Large capitalization indices still outperformed smaller
capitalization indices (the Russell 2000 Index was up 42.0%). The Lehman
Government/Corporate Bond Index returned 12.4% for the same period.
What hasn't been adequately discussed is the explanation behind the
unprecedented gains in the stock market. For the past couple of years, we (like
many others) have stated, at the beginning of the year, that we expect market
gains to revert to the historic norm of 10-11%. It hasn't happened, and the
reason can be traced to two primary factors-- greater than expected declines in
interest rates and an expansion in price earnings ratios. At the risk of
sounding redundant, in 1998 we expect - (1) the broad stock market to return the
historical returns of 10-11%, (2) the small and mid-cap companies to play
catch-up, and (3) bonds to offer very competitive returns with stocks.
The table below is helpful in providing some insights into the narrow and skewed
market performance in calendar year 1997.
- ------------------------- ----------------- ---------------- ------------------
12/31/96- 6/30/97- 10/27/97-
6/30/97 10/26/97 12/31/97
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
S&P 500 20.6% 6.9% 11.0%
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
Russell 1000 Growth 19.6% 6.4% 10.3%
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
Russell 2000 10.2% 13.4% 4.3%
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
Russell 2000 Growth 5.2% 14.4% 1.5%
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
Russell Mid-Cap Growth 10.5% 12.5% 6.5%
- ------------------------- ----------------- ---------------- ------------------
Clearly, the first half of calendar 1997 was dominated by large capitalization
companies, and the S&P 500 outperformed the Russell 2000 by 1040 basis points.
More specifically, what cannot be gleaned from the chart, but as indicated
above, the performance was fueled by the highly liquid "super market caps".
However, from mid-year up to the market setback on October 27, the tables
reversed just as dramatically. The Russell 2000 and Russell Mid-Cap Growth index
outperformed the S&P 500 by 650 and 750 basis points respectively. But, the
unexpected happened after the October 27 market setback. One would have expected
the leadership to have remained with the small and mid-cap companies that derive
the major portion of their sales and earnings domestically. It is clear from the
chart that this didn't occur. Rather, the S&P 500 outperformed the Russell 2000
and Russell 2000 Mid-Cap Growth indices by 670 and 950 basis points respectively
from October 27 through calendar year-end. Obviously to date, in the aftermath
of the Asian crisis, the perceived safety of the very large companies has
overwhelmed the international exposure of many of these companies.
<PAGE>
Calendar 1997 proved to be a challenging year for bottom-up stock pickers with a
growth investment approach for a couple of reasons. First, the gains in the
market were narrow and were fueled by the very large companies, referred to by a
newly coined term, "super market caps". Second, "bombs going off". Companies
reporting or "signaling" disappointing earnings were severely punished in the
marketplace. How did these phenomena directly affect the performance results
achieved in the Equity Fund and the equity portion of the Balanced Fund? With
respect to the first item, for the first six months of the year we considered
most of the companies (e.g., Coca Cola, Gillette, Proctor and Gamble), even
though growth companies, to be overvalued. Directionally, we were right on the
mark with respect to market capitalization in managing the Equity Fund. The
weighted market capitalization of the portfolio increased from approximately $10
billion at the beginning of 1997 to $26 billion by the end of the calendar year.
With respect to the second item, we were fortunate during the first nine months
of 1997 in that we escaped the "bombs" (instant price declines of 20% or more in
response to a news item--our definition) experienced by many investors. However,
we were not as fortunate in the third fiscal quarter. In fact, three stocks that
can be classified as "bombs" by the above definition explain almost all of the
underperformance in the third fiscal quarter. These three stocks declined by the
following amounts from the date of the specific news announcement to calendar
year-end: Green Tree Financial down 35%, Fastenal down 24%, and Wisconsin
Central Transportation down 22%. Our job of course is to assess whether anything
has changed fundamentally with these or any other holdings in your portfolio. We
are hard at work making these assessments, and evaluating new investment
opportunities that will produce superior returns in 1998 and beyond.
The Asian woes and their implications are serious, but not fatal. It is highly
likely that they will cause our GDP growth to be lower by an estimated 1/2-1%.
The good news is that the market's narrow focus and the Asian crisis will pass.
Additionally, we will have modest domestic real GDP accompanied by modest
inflation (not deflation in our opinion), and low interest rates. El Nino may
actually have aided the economy in the most recent quarter--lower energy costs,
due to warmer than usual weather, helped retail spending. The other good news is
that we have a portfolio of companies with superior characteristics relative to
the performance benchmark that are attractively priced. We have found that over
time this is a winning combination that translates into superior performance.
As usual, some economic sectors in the portfolio contributed to the performance
and others hindered the performance. For the mid/large capitalization equities
in the Equity and Balanced Funds, the top contributing sectors were Technology,
Consumer Cyclical and Consumer Staples, while the drags were Utilities and Basic
Materials. For the small companies in the Small Company Fund, the top
contributing sectors were Technology and Consumer Discretionary, while Energy
was the worst performing sector.
During the most recent quarter, we made few strategic changes. Outsourcing
continues to be a major trend. We took the following actions to increase our
exposure to an area that we have invested in for quite a while:
In the Equity Fund and the equity portion of the Balanced Fund, we sold Intel
Corp and we bought IBM. While both are technology companies, we decided to trim
our exposure to a hardware component-related company that may come under some
pricing pressure and to add a company that will benefit from outsourcing and
information technology. IBM has a stated goal to "turn IBM into the world's
premier knowledge management company". In 1997, 49.1% of IBM's revenue came from
Services, Software and Maintenance and we believe IBM can play a major role in
outsourcing by other companies. We added FiServ, a company that provides
financial data processing systems and information management services and
products to financial entities. While the Energy sector is traditionally not
thought of as a growth sector, we believe the current valuations of some
growth-oriented oil service companies are compelling. We added Schlumberger to
the portfolio.
<PAGE>
In the Small Company Fund, we added Applied Digital Access, a company that
provides network management software and services, Best Software, a company that
provides human resources and payroll management software solutions, and, Concord
Communications, a software-based company that provides performance analysis and
reporting solutions for the management of computer networks. Additionally, we
purchased Applied Analytical Industries, a company that provides product
development and support services to the pharmaceutical and biotechnology
industries.
The fixed income portion of the Balanced Fund found fixed income markets fairly
quiet in the most recent quarter. At the end of the quarter, the long-term
Treasury bond at 5.93% was about the same as at year-end. Considering the yield
curve, the spread relationships extant in the marketplace, and the fact that we
don't expect a significant decline in interest rates near-term, we think the
current portfolio structure is appropriate. Currently, we are emphasizing
intermediate-term maturity and high quality bonds.
Our overall view on the market has not changed. We still believe the market
(using the S&P500 as a proxy) to be fairly fully valued - trading at 21 times
estimated forward twelve months earnings. While P/E's may have expanded as far
as they can in the current interest rate environment, we believe steady earnings
growth and a low inflation environment create an upside potential at least equal
to the growth in earnings. However, the economic expansion is in its eighth year
and most to the benefits of restructuring are behind us. Rising labor costs may
limit margins, and earnings growth may be tied solely to revenue growth.
Companies may not be able to increase prices in the current environment of
inter-global competition and low inflation. We continue to believe stock
selection is key.
Sincerely,
Eddie C. Brown
President
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
Performance Update - $10,000 Investment
For the period from September 30, 1992 to March 31, 1998
BCM Equity S&P 500 w/Income
Fund Index
9/30/92 10,000 10,000
12/31/92 11,063 10,504
3/31/93 11,122 10,962
6/30/93 10,962 11,016
9/30/93 11,427 11,300
12/31/93 11,817 11,562
3/31/94 11,623 11,124
6/30/94 11,445 11,171
9/30/94 11,972 11,717
12/31/94 11,727 11,715
3/31/95 12,657 12,855
6/30/95 13,988 14,083
9/30/95 15,374 15,202
12/31/95 15,485 16,117
3/31/96 16,486 16,982
6/30/96 17,018 17,744
9/30/96 17,591 18,293
12/31/96 18,433 19,818
3/31/97 17,955 20,349
6/30/97 20,615 23,901
9/30/97 22,658 25,692
12/31/97 22,608 26,429
3/31/98 25,978 30,116
This graph depicts the performance of The Brown Capital Management Equity Fund
versus the S&P 500 w/Income Index. It is important to note that The Brown
Capital Management Equity Fund is a professionally managed mutual fund while the
index is not available for investment and are unmanaged. The comparison is shown
for illustrative purposes only.
Average Annual Total Return
- -------------------------------------------------
Since Inception One Year Five Years
- -------------------------------------------------
18.95% 44.68% 18.48%
- -------------------------------------------------
The graph assumes an initial $10,000 investment at September 30, 1992. All
dividends and distributions are reinvested.
At March 31, 1998, the Fund would have grown to $25,978 - total investment
return of 159.78% since September 30, 1992.
At March 31, 1998, a similar investment in the S&P 500 w/Income Index would have
grown to $30,116 - total investment return of 201.16% since September 30, 1992.
Past performance is not a guarantee of future performance. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 93.22%
Beverages - 2.09%
The Coca-Cola Company .............................................. 2,200 $ 170,088
----------
Biopharmaceuticals - 1.42%
Perkin-Elmer Corporation ........................................... 1,600 115,700
----------
Building Materials - 2.07%
Illinois Tool Works, Inc. .......................................... 2,600 168,350
----------
Computers - 6.31%
(a) Bay Networks, Inc. ................................................. 2,800 75,950
(a) EMC Corporation .................................................... 5,100 192,844
Hewlett-Packard Company ............................................ 1,900 120,412
International Business Machines .................................... 1,200 124,650
----------
513,856
----------
Computer Software & Services - 15.39%
(a) Acxiom Corporation ................................................. 7,200 184,500
(a) BMC Software, Inc. ................................................. 2,000 167,625
(a) Cisco Systems, Inc. ................................................ 1,150 78,631
(a) Fiserv, Inc. ....................................................... 1,000 63,375
(a) Microsoft Corporation .............................................. 2,600 232,700
(a) Oracle Corporation ................................................. 4,787 151,090
(a) Sterling Commerce, Inc. ............................................ 3,672 170,289
(a) Sterling Software, Inc. ............................................ 3,650 206,225
----------
1,254,435
----------
Cosmetics & Personal Care - 1.02%
Gillette Company ................................................... 700 83,081
----------
Electrical Equipment - 3.78%
Belden, Inc. ....................................................... 3,600 150,750
Honeywell, Inc. .................................................... 1,900 157,106
----------
307,856
----------
Electronics - 3.81%
General Electric Company ........................................... 1,300 111,800
(a) Solectron Corporation .............................................. 4,700 198,575
----------
310,375
----------
Entertainment - 4.31%
Carnival Corporation ............................................... 2,610 180,743
The Walt Disney Company ............................................ 1,600 170,800
----------
351,543
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Financial - Banks, Money Center - 2.76%
Chase Manhattan Corporation ........................................ 1,670 $ 225,241
----------
Financial Services - 6.92%
Equifax Inc. ....................................................... 3,450 125,925
Green Tree Financial Corporation ................................... 7,250 206,172
T. Rowe Price Associates, Inc. ..................................... 3,300 232,237
----------
564,334
----------
Hand & Machine Tools - 1.12%
Danaher Corporation ................................................ 1,200 91,275
----------
Household Products & Housewares - 2.17%
Newell Company ..................................................... 3,650 176,797
----------
Insurance - Life & Health - 1.41%
AFLAC Incorporated ................................................. 1,812 114,609
----------
Leisure - 1.01%
Harley-Davidson, Inc. .............................................. 2,500 82,500
----------
Medical - Hospital Management & Service - 3.31%
(a) Health Care and Retirement Corporation ............................. 3,450 148,134
(a) Health Management Associates, Inc. ................................. 4,250 121,656
----------
269,790
----------
Medical Supplies - 1.88%
Johnson & Johnson .................................................. 2,100 153,431
----------
Oil & Gas - Equipment & Services - 2.04%
Schlumberger Limited ............................................... 2,200 166,513
----------
Pharmaceuticals - 8.33%
(a) ALZA Corporation ................................................... 4,200 188,212
Cardinal Health, Inc. .............................................. 3,575 315,270
(a) R.P. Scherer Corporation ........................................... 2,600 175,500
----------
678,982
----------
Real Estate - 1.58%
The Rouse Company .................................................. 4,100 129,150
----------
Restaurants & Food Service - 3.61%
(a) The Cheesecake Factory ............................................. 2,700 89,944
Craker Barrel Old Country Store, Inc. .............................. 5,100 204,000
----------
293,944
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Retail - Department Stores - 1.39%
Dollar General Corporation ......................................... 2,931 $ 113,393
----------
Retail - Grocery - 1.92%
Casey's General Stores, Inc. ....................................... 9,800 156,800
----------
Retail - Specialty Line - 7.74%
(a) AutoZone, Inc. ..................................................... 6,800 230,350
Fastenal Company ................................................... 3,100 134,463
The Home Depot, Inc. ............................................... 3,950 265,638
----------
630,451
----------
Telecommunications Equipment - 1.32%
(a) ADC Telecommunications, Inc. ....................................... 3,900 107,494
----------
Transportation - Rail - 1.87%
(a) Wisconsin Central Transportation Corporation ....................... 5,400 152,044
----------
Utilities - Gas - 2.64%
MCN Energy Group, Inc. ............................................. 5,750 214,906
----------
Total Common Stocks (Cost $5,412,662) .............................. 7,596,938
----------
INVESTMENT COMPANIES - 6.65%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ........................... 360,293 360,293
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares ..................... 182,012 182,012
----------
Total Investment Companies (Cost $542,305) ......................... 542,305
----------
Total Value of Investments (Cost $5,954,967 (b)) ............................... 99.87% $8,139,243
Other Assets Less Liabilities .................................................. 0.13% 10,527
------ ----------
Net Assets .............................................................. 100.00% $8,149,770
====== ==========
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
(a) Non-income producing investment.
(b) Aggregate cost for federal income tax purposes is $5,969,342. Unrealized appreciation (depreciation) appreciation of
investments for federal income tax purposes in as follows:
Unrealized appreciation $2,197,294
Unrealized depreciation (27,393)
----------
Net unrealized appreciation $2,169,901
==========
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
March 31, 1998
ASSETS
Investments, at value (cost $5,954,967) ...................................................... $8,139,243
Cash ......................................................................................... 21,584
Income receivable ............................................................................ 4,396
----------
Total assets ............................................................................ 8,165,223
----------
LIABILITIES
Accrued expenses ............................................................................. 5,420
Payable for investment purchases ............................................................. 10,033
----------
Total liabilities ....................................................................... 15,453
----------
NET ASSETS
(applicable to 372,570 Institutional Class shares outstanding; unlimited
shares of no par value beneficial interest authorized) ...................................... $8,149,770
==========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($8,149,770 / 372,570 shares) ............................................................... $ 21.87
==========
NET ASSETS CONSIST OF
Paid-in capital .............................................................................. $5,979,229
Distributions in excess of net realized gains ................................................ (13,735)
Net unrealized oappreciation on investments .................................................. 2,184,276
----------
$8,149,770
==========
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
Year ended March 31, 1998
INVESTMENT LOSS
Income
Interest ................................................................................ $ 22,473
Dividends ............................................................................... 44,020
----------
Total income ....................................................................... 66,493
----------
Expenses
Investment advisory fees (note 2) ....................................................... 41,626
Fund administration fees (note 2) ....................................................... 16,010
Custody fees ............................................................................ 4,413
Registration and filing administration fees (note 2) .................................... 5,169
Fund accounting fees (note 2) ........................................................... 21,000
Audit fees .............................................................................. 9,663
Legal fees .............................................................................. 5,103
Securities pricing fees ................................................................. 2,811
Shareholder recordkeeping fees .......................................................... 914
Shareholder servicing expenses .......................................................... 3,796
Registration and filing expenses ........................................................ 4,709
Printing expenses ....................................................................... 3,480
Trustee fees and meeting expenses ....................................................... 4,243
Other operating expenses ................................................................ 3,734
----------
Total expenses ..................................................................... 126,671
----------
Less:
Expense reimbursements (note 2) .............................................. (8,549)
Investment advisory fees waived (note 2) ..................................... (41,375)
----------
Net expenses ....................................................................... 76,747
----------
Net investment loss .......................................................... (10,254)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realizedo gain from investment transactions .............................................. 603,519
Increase in unrealized appreciation on investments ........................................... 1,740,209
----------
Net realized and unrealized gain on investments ......................................... 2,343,728
----------
Net increase in net assets resulting from operations ............................... $2,333,474
==========
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
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment (loss) income ............................................... $ (10,254) $ 9,751
Net realized gain from investment transactions ............................. 603,519 64,344
Increase in unrealized appreciation on investments ......................... 1,740,209 104,676
---------- ----------
Net increase in net assets resulting from operations .................. 2,333,474 178,771
---------- ----------
Distributions to shareholders from
Net investment income ...................................................... 0 (9,794)
Net realized gain from investment transactions ............................. (660,547) (123,813)
Distributions in excess of net realized gains .............................. (13,735) 0
---------- ----------
Decrease in net assets resulting from distributions ................... (674,282) (133,607)
---------- ----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ....... 2,085,558 2,393,994
---------- ----------
Total increase in net assets ..................................... 3,744,750 2,439,158
NET ASSETS
Beginning of year .............................................................. 4,405,020 1,965,862
---------- ----------
End of year (including undistributed net investment income of $39 in 1997) .... $8,149,770 $4,405,020
========== ==========
(a) A summary of capital share activity follows:
--------------------------------------------------------
Year ended Year ended
March 31, 1998 March 31, 1997
Shares Value Shares Value
--------------------------------------------------------
Shares sold ........................................................... 120,211 $2,302,970 151,410 $2,576,321
Shares issued for reinvestment
of distributions ................................................. 31,855 669,689 8,025 133,540
---------- ---------- ---------- ----------
152,066 2,972,659 159,435 2,709,861
Shares redeemed ....................................................... (44,640) (887,101) (18,655) (315,867)
---------- ---------- ---------- ----------
Net increase ..................................................... 107,426 $2,085,558 140,780 $2,393,994
========== ========== ========== ==========
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 Year)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31, March 31,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .............................. $16.61 $15.81 $12.36 $11.48 $11.05
Income from investment operations
Net investment income (loss) ......................... (0.03) 0.05 0.00 0.00 (0.02)
Net realized and unrealized gain on investments ...... 7.31 1.36 3.72 1.01 0.52
---------- ---------- ---------- ---------- ----------
Total from investment operations ................. 7.28 1.41 3.72 1.01 0.50
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from
Net investment income ................................ (0.00) (0.05) 0.00 0.00 0.00
Net realized gain from investment transactions ....... (1.98) (0.56) (0.27) (0.13) (0.07)
Distributions in excess of net realized gains ........ (0.04) 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- ----------
Total distributions .............................. (2.02) (0.61) (0.27) (0.13) (0.07)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year .................................... $21.87 $16.61 $15.81 $12.36 $11.48
========== ========== ========== ========== ==========
Total return .................................................... 44.68% 8.91% 30.25% 8.90% 4.51%
========== ========== ========== ========== ==========
Ratios/supplemental data
Net assets, end of year ................................... $8,149,770 $4,405,020 $1,965,862 $1,130,020 $ 717,896
========== ========== ========== ========== ==========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ........ 1.98% 3.37% 5.58% 8.32% 11.86%
After expense reimbursements and waived fees ......... 1.20% 1.20% 1.56% 2.00% 2.00%
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees ........ (0.94)% (1.85)% (4.20)% (6.41)% (10.19)%
After expense reimbursements and waived fees ......... (0.16)% 0.32% 0.01% (0.11)% (0.36)%
Portfolio turnover rate ................................... 38.42% 34.21% 48.06% 7.29% 48.05%
Average broker commissions per share (a) ................. $0.0507 $0.0505 - - -
(a) 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>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
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 - The Fund is considered a personal
holding company as defined under Section 542 of the Internal
Revenue Code since 50% of the value of the Fund's shares
were owned directly or indirectly by five or fewer
individuals at certain times during the last half of the
year. As a personal holding company, the Fund is subject to
federal income taxes on undistributed personal holding
company income at the maximum individual income tax rate. No
provision has been made for federal income taxes since
substantially all taxable income has been distributed to
shareholders. It is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all
federal income taxes.
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.
As a result of the Fund's operating net investment loss, a
reclassification adjustment of $10,215 has been made on the
statement of assets and liabilities to decrease accumulated
net investment loss, bringing it to zero, and decrease net
realized short-term gains on investments.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
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 estimated.
F. Repurchase Agreements - The Fund may acquire U. S.
Government Securities or corporate debt securities subject
to repurchase agreements. A repurchase agreement transaction
occurs when the Fund acquires a security and simultaneously
resells it to the vendor (normally a member bank of the
Federal Reserve or a registered Government Securities
dealer) for delivery on an agreed upon future date. The
repurchase price exceeds the purchase price by an amount
which reflects an agreed upon market interest rate earned by
the Fund effective for the period of time during which the
repurchase agreement is in effect. Delivery pursuant to the
resale typically will occur within one to five days of the
purchase. The Fund will not enter into a repurchase
agreement which will cause more than 10% of its net assets
to be invested in repurchase agreements which extend beyond
seven days. In the event of the bankruptcy of the other
party to a repurchase agreement, the Fund could experience
delays in recovering its cash or the securities lent. To the
extent that in the interim the value of the securities
purchased may have declined, the Fund could experience a
loss. In all cases, the creditworthiness of the other party
to a transaction is reviewed and found satisfactory by the
Advisor. Repurchase agreements are, in effect, loans of Fund
assets. The Fund will not engage in reverse repurchase
transactions, which are considered to be borrowings under
the Investment Company Act of 1940, as amended.
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 $41,375 ($0.13 per share)
and has voluntarily reimbursed $8,549 of the Fund's operating
expenses for the year ended March 31, 1998.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 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. Additionally, the Administrator charges the Fund for
servicing of shareholder accounts and registration of the Fund's
shares. The contract with the Administrator provides that the
aggregate fees for the aforementioned administration, accounting
and recordkeeping services shall not be less than $3,000 per
month. The Administrator also charges the Fund for certain
expenses involved with the daily valuation of portfolio
securities.
NC Shareholder Services, LLC (the "Transfer Agent") has been
retained by the Administrator 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. The Transfer Agent is compensated for its services by
the Administrator and not directly by the Fund.
Certain Trustees and officers of the Trust are also officers of
the Advisor, the distributor or the Administrator.
At March 31, 1998, the Advisor and its officers held 32,095 shares
or 8.61% of the Fund shares outstanding.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $3,322,120 and $2,289,072, respectively,
for the year ended March 31, 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of The Nottingham Investment Trust II and Shareholders
of The Brown Capital Management Equity Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Brown Capital Management Equity Fund (a
portfolio of The Nottingham Investment Trust II) as of March 31, 1998 and the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended March 31, 1998 and 1997, and financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
March 31, 1998 by correspondence with the custodian and brokers; where replies
were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Brown Capital
Management Equity Fund as of March 31, 1998, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 24, 1998
<PAGE>
Brown Capital Management Funds
105 North Washington Street
Post Office Box 69
Rocky Mount, North Carolina 27802-0069
Telephone 919-972-9922
U. S. WATTS 800-525- FUND
Facsimile 919-442-4226
April 15, 1998
Dear Shareholder:
I am sure you're tired of hearing about the unprecedented series of consecutive
years of 20+% gains in the broad stock market. Perhaps what isn't as widely
known, is that we have experienced an unprecedented streak of six years of
earnings increases for the S&P 500. The only period that has come close in the
last 50 years is 1962-1966. We expect the streak to continue, albeit at a slower
pace in 1998.
While the Washington press corps was ensconced in nosing out scandals (don't
worry this letter will not go there), the economy and the market continued its
upward trend. The S&P 500 Index increased 48.0%, on a total return basis, during
the fiscal year. Large capitalization indices still outperformed smaller
capitalization indices (the Russell 2000 Index was up 42.0%). The Lehman
Government/Corporate Bond Index returned 12.4% for the same period.
What hasn't been adequately discussed is the explanation behind the
unprecedented gains in the stock market. For the past couple of years, we (like
many others) have stated, at the beginning of the year, that we expect market
gains to revert to the historic norm of 10-11%. It hasn't happened, and the
reason can be traced to two primary factors-- greater than expected declines in
interest rates and an expansion in price earnings ratios. At the risk of
sounding redundant, in 1998 we expect - (1) the broad stock market to return the
historical returns of 10-11%, (2) the small and mid-cap companies to play
catch-up, and (3) bonds to offer very competitive returns with stocks.
The table below is helpful in providing some insights into the narrow and skewed
market performance in calendar year 1997.
- ------------------------- ----------------- ---------------- ------------------
12/31/96- 6/30/97- 10/27/97-
6/30/97 10/26/97 12/31/97
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
S&P 500 20.6% 6.9% 11.0%
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
Russell 1000 Growth 19.6% 6.4% 10.3%
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
Russell 2000 10.2% 13.4% 4.3%
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
Russell 2000 Growth 5.2% 14.4% 1.5%
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
Russell Mid-Cap Growth 10.5% 12.5% 6.5%
- ------------------------- ----------------- ---------------- ------------------
Clearly, the first half of calendar 1997 was dominated by large capitalization
companies, and the S&P 500 outperformed the Russell 2000 by 1040 basis points.
More specifically, what cannot be gleaned from the chart, but as indicated
above, the performance was fueled by the highly liquid "super market caps".
However, from mid-year up to the market setback on October 27, the tables
reversed just as dramatically. The Russell 2000 and Russell Mid-Cap Growth index
outperformed the S&P 500 by 650 and 750 basis points respectively. But, the
unexpected happened after the October 27 market setback. One would have expected
the leadership to have remained with the small and mid-cap companies that derive
the major portion of their sales and earnings domestically. It is clear from the
chart that this didn't occur. Rather, the S&P 500 outperformed the Russell 2000
and Russell 2000 Mid-Cap Growth indices by 670 and 950 basis points respectively
from October 27 through calendar year-end. Obviously to date, in the aftermath
of the Asian crisis, the perceived safety of the very large companies has
overwhelmed the international exposure of many of these companies.
<PAGE>
Calendar 1997 proved to be a challenging year for bottom-up stock pickers with a
growth investment approach for a couple of reasons. First, the gains in the
market were narrow and were fueled by the very large companies, referred to by a
newly coined term, "super market caps". Second, "bombs going off". Companies
reporting or "signaling" disappointing earnings were severely punished in the
marketplace. How did these phenomena directly affect the performance results
achieved in the Equity Fund and the equity portion of the Balanced Fund? With
respect to the first item, for the first six months of the year we considered
most of the companies (e.g., Coca Cola, Gillette, Proctor and Gamble), even
though growth companies, to be overvalued. Directionally, we were right on the
mark with respect to market capitalization in managing the Equity Fund. The
weighted market capitalization of the portfolio increased from approximately $10
billion at the beginning of 1997 to $26 billion by the end of the calendar year.
With respect to the second item, we were fortunate during the first nine months
of 1997 in that we escaped the "bombs" (instant price declines of 20% or more in
response to a news item--our definition) experienced by many investors. However,
we were not as fortunate in the third fiscal quarter. In fact, three stocks that
can be classified as "bombs" by the above definition explain almost all of the
underperformance in the third fiscal quarter. These three stocks declined by the
following amounts from the date of the specific news announcement to calendar
year-end: Green Tree Financial down 35%, Fastenal down 24%, and Wisconsin
Central Transportation down 22%. Our job of course is to assess whether anything
has changed fundamentally with these or any other holdings in your portfolio. We
are hard at work making these assessments, and evaluating new investment
opportunities that will produce superior returns in 1998 and beyond.
The Asian woes and their implications are serious, but not fatal. It is highly
likely that they will cause our GDP growth to be lower by an estimated 1/2-1%.
The good news is that the market's narrow focus and the Asian crisis will pass.
Additionally, we will have modest domestic real GDP accompanied by modest
inflation (not deflation in our opinion), and low interest rates. El Nino may
actually have aided the economy in the most recent quarter--lower energy costs,
due to warmer than usual weather, helped retail spending. The other good news is
that we have a portfolio of companies with superior characteristics relative to
the performance benchmark that are attractively priced. We have found that over
time this is a winning combination that translates into superior performance.
As usual, some economic sectors in the portfolio contributed to the performance
and others hindered the performance. For the mid/large capitalization equities
in the Equity and Balanced Funds, the top contributing sectors were Technology,
Consumer Cyclical and Consumer Staples, while the drags were Utilities and Basic
Materials. For the small companies in the Small Company Fund, the top
contributing sectors were Technology and Consumer Discretionary, while Energy
was the worst performing sector.
During the most recent quarter, we made few strategic changes. Outsourcing
continues to be a major trend. We took the following actions to increase our
exposure to an area that we have invested in for quite a while:
In the Equity Fund and the equity portion of the Balanced Fund, we sold Intel
Corp and we bought IBM. While both are technology companies, we decided to trim
our exposure to a hardware component-related company that may come under some
pricing pressure and to add a company that will benefit from outsourcing and
information technology. IBM has a stated goal to "turn IBM into the world's
premier knowledge management company". In 1997, 49.1% of IBM's revenue came from
Services, Software and Maintenance and we believe IBM can play a major role in
outsourcing by other companies. We added FiServ, a company that provides
financial data processing systems and information management services and
products to financial entities. While the Energy sector is traditionally not
thought of as a growth sector, we believe the current valuations of some
growth-oriented oil service companies are compelling. We added Schlumberger to
the portfolio.
<PAGE>
In the Small Company Fund, we added Applied Digital Access, a company that
provides network management software and services, Best Software, a company that
provides human resources and payroll management software solutions, and, Concord
Communications, a software-based company that provides performance analysis and
reporting solutions for the management of computer networks. Additionally, we
purchased Applied Analytical Industries, a company that provides product
development and support services to the pharmaceutical and biotechnology
industries.
The fixed income portion of the Balanced Fund found fixed income markets fairly
quiet in the most recent quarter. At the end of the quarter, the long-term
Treasury bond at 5.93% was about the same as at year-end. Considering the yield
curve, the spread relationships extant in the marketplace, and the fact that we
don't expect a significant decline in interest rates near-term, we think the
current portfolio structure is appropriate. Currently, we are emphasizing
intermediate-term maturity and high quality bonds.
Our overall view on the market has not changed. We still believe the market
(using the S&P500 as a proxy) to be fairly fully valued - trading at 21 times
estimated forward twelve months earnings. While P/E's may have expanded as far
as they can in the current interest rate environment, we believe steady earnings
growth and a low inflation environment create an upside potential at least equal
to the growth in earnings. However, the economic expansion is in its eighth year
and most to the benefits of restructuring are behind us. Rising labor costs may
limit margins, and earnings growth may be tied solely to revenue growth.
Companies may not be able to increase prices in the current environment of
inter-global competition and low inflation. We continue to believe stock
selection is key.
Sincerely,
Eddie C. Brown
President
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
Performance Update - $10,000 Investment
For the period from September 30, 1992 to March 31, 1998
BCM Balanced 75% S&P 500 w/Income Index
Fund 25% Lehman Gov/Corp Bond Index
9/30/92 10,000 10,000
12/31/92 10,579 10,380
3/31/93 10,774 10,840
6/30/93 10,779 10,959
9/30/93 11,208 11,262
12/31/93 11,611 11,450
3/31/94 11,297 11,034
6/30/94 11,168 11,036
9/30/94 11,644 11,459
12/31/94 11,468 11,467
3/31/95 12,195 12,456
6/30/95 13,417 13,559
9/30/95 14,593 14,456
12/31/95 14,880 15,285
3/31/96 15,493 15,859
6/30/96 15,887 16,445
9/30/96 16,339 16,912
12/31/96 16,938 18,159
3/31/97 16,579 18,529
6/30/97 18,557 21,312
9/30/97 20,114 22,773
12/31/97 20,136 23,439
3/31/98 22,582 26,259
This graph depicts the performance of The Brown Capital Management Balanced Fund
versus a combined index of 75% S&P 500 w/Income Index and 25% Lehman
Government/Corporate Bond Index. It is important to note that The Brown Capital
Management Balanced Fund is a professionally managed mutual fund while the
indexes are not available for investment and are unmanaged. The comparison is
shown for illustrative purposes only.
Average Annual Total Return
- -----------------------------------------------
Since Inception One Year Five Years
- -----------------------------------------------
15.96% 36.19% 15.94%
- -----------------------------------------------
The graph assumes an initial $10,000 investment at September 30, 1992. All
dividends and distributions are reinvested.
At March 31, 1998, the Fund would have grown to $22,582 - total investment
return of 125.82% since September 30, 1992.
At March 31, 1998, a similar investment in a combined index of 75% S&P 500
w/Income and 25% Lehman Government/Corporate Bond Index would have grown to
$26,259 - total investment return of 162.59% since September 30, 1992.
Past performance is not a guarantee of future performance. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 74.36%
Beverages - 1.78%
The Coca-Cola Company ................................................ 1,400 $ 108,238
----------
Building Materials - 1.28%
Fastenal Company ..................................................... 1,800 78,075
----------
Commercial Services - 1.38%
Equifax, Inc. ........................................................ 2,300 83,950
----------
Computers - 5.13%
(a) Bay Networks, Inc. ................................................... 1,600 43,400
(a) EMC Corporation ...................................................... 3,000 113,438
Hewlett-Packard Company .............................................. 1,300 82,388
International Business Machines ...................................... 700 72,713
----------
311,939
----------
Computer Software & Services - 11.92%
(a) Acxiom Corporation ................................................... 4,000 102,493
(a) BMC Software, Inc. ................................................... 1,100 92,194
(a) Cisco Systems, Inc. .................................................. 650 44,444
(a) Fiserv, Inc. ......................................................... 700 44,363
(a) Microsoft Corporation ................................................ 1,400 125,300
(a) Oracle Corporation ................................................... 2,837 89,543
(a) Sterling Commerce, Inc. .............................................. 2,211 102,535
(a) Sterling Software, Inc. .............................................. 2,200 124,300
----------
725,172
----------
Cosmetics & Personal Care - 0.78%
Gillette Company ..................................................... 400 47,475
----------
Electronics - 5.95%
Belden, Inc. ......................................................... 2,100 87,938
General Electric Company ............................................. 700 60,200
Honeywell Inc. ....................................................... 1,200 99,225
(a) Solectron Corporation ................................................ 2,700 114,075
----------
361,438
----------
Entertainment - 3.35%
Carnival Corporation ................................................. 1,550 107,338
The Walt Disney Company .............................................. 900 96,075
----------
203,413
----------
Financial - Banks, Money Center - 2.28%
Chase Manhattan Corporation .......................................... 1,028 138,652
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Financial Services - 4.40%
Green Tree Financial Corporation ..................................... 4,200 $ 119,438
T. Rowe Price Associates, Inc. ....................................... 2,100 147,788
----------
267,226
----------
Hand & Machine Tools - 0.88%
Danaher Corporation .................................................. 700 53,244
----------
Household Products & Housewares - 1.75%
Newell Company ....................................................... 2,200 106,563
----------
Insurance - Life & Health - 0.96%
AFLAC Incorporated ................................................... 925 58,506
----------
Leisure - 0.76%
Harley-Davidson, Inc. ................................................ 1,400 46,200
----------
Medical - Hospital Management & Service - 2.80%
(a) Health Care and Retirement Corporation ............................... 2,325 99,830
(a) Health Management Associates, Inc. ................................... 2,450 70,131
----------
169,961
----------
Medical Supplies - 1.56%
Johnson & Johnson .................................................... 1,300 94,981
----------
Manufacturing - 2.78%
Illinois Tool Works, Inc. ............................................ 1,600 103,600
The Perkin-Elmer Corporation ......................................... 900 65,081
----------
168,681
----------
Oil & Gas - Equipment & Services - 1.50%
Schlumberger Limited ................................................. 1,200 90,900
----------
Pharmaceuticals - 6.81%
(a) Alza Corporation ..................................................... 2,600 116,513
Cardinal Health, Inc. ................................................ 2,150 189,603
(a) R.P. Scherer Corporation ............................................. 1,600 108,000
----------
414,116
----------
Real Estate - 1.35%
The Rouse Company .................................................... 2,600 81,900
----------
Restaurants & Food Service - 2.33%
(a) The Cheesecake Factory ............................................... 1,850 61,628
Cracker Barrel Old Country Store, Inc. ............................... 2,000 80,000
----------
141,628
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Retail - Department Stores - 1.08%
Dollar General Corporation ........................................... 1,697 $ 65,653
----------
Retail - Grocery - 1.74%
Casey's General Stores, Inc. ......................................... 6,600 105,600
----------
Retail - Specialty Line - 5.30%
(a) AutoZone, Inc. ....................................................... 4,300 145,663
The Home Depot, Inc. ................................................. 2,625 176,531
----------
322,194
----------
Telecommunications Equipment - 1.04%
(a) ADC Telecommunications, Inc. ......................................... 2,300 63,394
----------
Transportation - Rail - 1.44%
(a) Wisconsin Central Transportation Corporation ......................... 3,100 87,285
----------
Utilities - Gas - 2.03%
MCN Energy Group Inc. ................................................ 3,300 123,338
----------
Total Common Stocks (Cost $3,042,927) ..................................... 4,519,722
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity
Principal Rate Date
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 6.91%
United States Treasury Note ...................... $ 20,000 6.250% 08/15/23 20,634
United States Treasury Note ...................... 70,000 6.375% 07/15/99 70,722
United States Treasury Note ...................... 90,000 6.375% 08/15/02 92,489
United States Treasury Note ...................... 100,000 7.500% 02/15/05 110,141
United States Treasury Note ...................... 100,000 7.750% 01/31/00 103,750
Federal Home Loan Bank ........................... 100,000 0.000% 07/14/17 21,983
----------
Total U.S. Government and Agency Obligations (Cost $404,593) ......... 419,719
----------
CORPORATE OBLIGATIONS - 9.58%
Alabama Power Company ............................ 15,000 7.750% 02/01/23 15,417
Boston Edison Company ............................ 40,000 7.800% 05/15/10 43,156
Chase Manhattan Corporation ...................... 30,000 6.500% 08/01/05 30,150
Chesapeake & Potomac Telephone of Virginia ....... 50,000 7.250% 06/01/12 50,250
Citicorp ......................................... 15,000 7.125% 06/01/03 15,551
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - (Continued)
Colgate-Palmolive Company ........................ $ 50,000 7.150% 11/29/11 $ 52,508
Ford Motor Credit Corporation .................... 40,000 7.250% 09/01/10 42,055
ITT Corporation .................................. 50,000 7.375% 11/15/15 47,875
Merrill Lynch .................................... 75,000 7.150% 07/30/12 76,380
Monsanto Company ................................. 45,000 6.210% 02/05/08 44,986
Nationsbank Corporation .......................... 15,000 6.875% 02/15/05 15,436
The Rouse Company ................................ 10,000 8.500% 01/15/03 10,293
The Walt Disney Company .......................... 50,000 7.750% 09/30/11 51,128
Time Warner, Inc. ................................ 20,000 9.150% 02/01/23 24,400
U. S. F. & G. Corporation ........................ 60,000 7.125% 06/01/05 62,371
----------
Total Corporate Obligations (Cost $559,828) .......................... 581,956
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 8.06%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ............................. 269,802 269,802
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Shares ............................... 220,219 220,219
----------
Total Investment Companies (Cost $490,021) ........................... 490,021
----------
Total Value of Investments (Cost $4,497,369 (b)) ................................. 98.91% $6,011,418
Other Assets Less Liabilities .................................................... 1.09% 66,319
------ ----------
Net Assets ................................................................ 100.00% $6,077,737
====== ==========
(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 $1,547,924
Unrealized depreciation (33,875)
-----------
Net unrealized appreciation $1,514,049
==========
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
March 31, 1998
ASSETS
Investments, at value (cost $4,497,369) ....................................................... $6,011,418
Cash .......................................................................................... 11,449
Income receivable ............................................................................. 16,018
Receivable for investments sold ............................................................... 51,998
----------
Total assets ............................................................................. 6,090,883
----------
LIABILITIES
Accrued expenses .............................................................................. 5,590
Payable for investment purchases .............................................................. 7,556
----------
Total liabilities ........................................................................ 13,146
----------
NET ASSETS
(applicable to 361,039 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ....................................... $6,077,737
==========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($6,077,737 / 361,039 shares) ................................................................. $ 16.83
==========
NET ASSETS CONSIST OF
Paid-in capital ............................................................................... $4,547,013
Distribution in excess of net investment income ............................................... (60)
Undistributed net realized gain on investments ................................................ 16,735
Net unrealized appreciation on investments .................................................... 1,514,049
----------
$6,077,737
==========
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
Year ended March 31, 1998
INVESTMENT INCOME
Income
Interest ..................................................................................... $ 67,266
Dividends .................................................................................... 47,157
----------
Total income ............................................................................ 114,423
----------
Expenses
Investment advisory fees (note 2) ............................................................ 32,686
Fund administration fees (note 2) ............................................................ 12,572
Custody fees ................................................................................. 3,993
Registration and filing administration fees (note 2) ......................................... 5,030
Fund accounting fees (note 2) ................................................................ 21,000
Audit fees ................................................................................... 9,200
Legal fees ................................................................................... 4,390
Securities pricing fees ...................................................................... 3,751
Shareholder recordkeeping fees ............................................................... 469
Shareholder servicing expenses ............................................................... 3,190
Registration and filing expenses ............................................................. 4,220
Printing expenses ............................................................................ 3,362
Trustee fees and meeting expenses ............................................................ 4,243
Other operating expenses ..................................................................... 3,755
----------
Total expenses .......................................................................... 111,861
----------
Less:
Expense reimbursements (note 2) ................................................... (18,899)
Investment advisory fees waived (note 2) .......................................... (32,686)
----------
Net expenses ............................................................................ 60,276
----------
Net investment income ............................................................. 54,147
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions ..................................................... 493,452
Increase in unrealized appreciation on investments ................................................. 949,181
----------
Net realized and unrealized gain on investments ............................................... 1,442,633
----------
Net increase in net assets resulting from operations ..................................... $1,496,780
==========
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
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income ............................................................. $ 54,147 $ 57,822
Net realized gain from investment transactions .................................... 493,452 105,701
Increase in unrealized appreciation on investments ................................ 949,181 104,335
---------- ----------
Net increase in net assets resulting from operations ......................... 1,496,780 267,858
---------- ----------
Distributions to shareholders from
Net investment income ............................................................. (54,255) (58,004)
Distribution in excess of net investment income ................................... (60) 0
Net realized gain from investment transactions .................................... (476,740) (249,637)
---------- ----------
Decrease in net assets resulting from distributions .......................... (531,055) (307,641)
---------- ----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) .............. 1,237,359 595,122
---------- ----------
Total increase in net assets ............................................ 2,203,084 555,339
NET ASSETS
Beginning of year ..................................................................... 3,874,653 3,319,314
---------- ----------
End of year (including undistributed net investment income of $108 in 1997) ......... $6,077,737 $3,874,653
========== ==========
(a) A summary of capital share activity follows:
-----------------------------------------------------------------------
Year ended Year ended
March 31, 1998 March 31, 1997
Shares Value Shares Value
-----------------------------------------------------------------------
Shares sold ............................................ 111,277 $1,757,479 69,993 $ 990,406
Shares issued for reinvestment
of distributions .................................. 32,554 529,963 22,002 306,322
---------- ---------- ---------- ----------
143,831 2,287,442 91,995 1,296,728
Shares redeemed ........................................ (67,688) (1,050,083) (48,277) (701,606)
---------- ---------- ---------- ----------
Net increase ...................................... 76,143 $1,237,359 43,718 $ 595,122
========== ========== ========== ==========
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 Year)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31, March 31,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ............................. $13.60 $13.76 $11.56 $11.02 $10.62
Income from investment operations
Net investment income ............................... 0.17 0.21 0.12 0.10 0.08
Net realized and unrealized gain on investments ..... 4.65 0.76 2.98 0.77 0.43
---------- ---------- ---------- ---------- ----------
Total from investment operations ................ 4.82 0.97 3.10 0.87 0.51
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from
Net investment income ............................... (0.17) (0.21) (0.12) (0.11) (0.08)
Net realized gain from investment transactions ...... (1.42) (0.92) (0.78) (0.22) (0.03)
---------- ---------- ---------- ---------- ----------
Total distributions ............................. (1.59) (1.13) (0.90) (0.33) (0.11)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ................................... $16.83 $13.60 $13.76 $11.56 $11.02
========== ========== ========== ========== ==========
Total return ................................................... 36.19% 7.01% 27.04% 8.04% 4.78%
========== ========== ========== ========== ==========
Ratios/supplemental data
Net assets, end of year .................................. $6,077,737 $3,874,653 $3,319,314 $2,296,206 $1,187,697
========== ========== ========== ========== ==========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ....... 2.22% 2.85% 3.50% 5.43% 6.44%
After expense reimbursements and waived fees ........ 1.20% 1.20% 1.59% 2.00% 2.00%
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees ....... 0.05% (0.13)% (0.97)% (2.44)% (3.69)%
After expense reimbursements and waived fees ........ 1.08% 1.51% 0.94% 1.00% 0.74%
Portfolio turnover rate .................................. 33.54% 45.58% 43.59% 9.51% 28.56%
Average broker commissions per share (a) ................ $0.0509 $0.0506 - - -
(a) 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>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
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 - The Fund is considered a personal
holding company as defined under Section 542 of the Internal
Revenue Code since 50% of the value of the Fund's shares
were owned directly or indirectly by five or fewer
individuals at certain times during the last half of the
year. As a personal holding company, the Fund is subject to
federal income taxes on undistributed personal holding
company income at the maximum individual income tax rate. No
provision has been made for federal income taxes since
substantially all taxable income has been distributed to
shareholders. It is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all
federal income taxes.
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
March 31, 1998
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 estimated.
F. Repurchase Agreements - The Fund may acquire U. S.
Government Securities or corporate debt securities subject
to repurchase agreements. A repurchase agreement transaction
occurs when the Fund acquires a security and simultaneously
resells it to the vendor (normally a member bank of the
Federal Reserve or a registered Government Securities
dealer) for delivery on an agreed upon future date. The
repurchase price exceeds the purchase price by an amount
which reflects an agreed upon market interest rate earned by
the Fund effective for the period of time during which the
repurchase agreement is in effect. Delivery pursuant to the
resale typically will occur within one to five days of the
purchase. The Fund will not enter into a repurchase
agreement which will cause more than 10% of its net assets
to be invested in repurchase agreements which extend beyond
seven days. In the event of the bankruptcy of the other
party to a repurchase agreement, the Fund could experience
delays in recovering its cash or the securities lent. To the
extent that in the interim the value of the securities
purchased may have declined, the Fund could experience a
loss. In all cases, the creditworthiness of the other party
to a transaction is reviewed and found satisfactory by the
Advisor. Repurchase agreements are, in effect, loans of Fund
assets. The Fund will not engage in reverse repurchase
transactions, which are considered to be borrowings under
the Investment Company Act of 1940, as amended.
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 $32,686 ($0.10 per share)
and has voluntarily agreed to reimburse $18,899 of the Fund's
operating expenses for the year ended March 31, 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
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
services, the Administrator receives a fee at the annual rate of
0.25% of the Fund's first $10 million of average daily net assets,
0.20% of the next $40 million of average daily net assets, 0.175%
of the next $50 million of average daily net assets, and 0.15% of
average daily net assets over $100 million. The Administrator also
receives a monthly fee of $1,750 for accounting and recordkeeping
services. Additionally, the Administrator charges the Fund for
servicing of shareholder accounts and registration of the Fund's
shares. The contract with the Administrator provides that the
aggregate fees for the aforementioned administration, accounting
and recordkeeping services shall not be less than $3,000 per
month. The Administrator also charges the Fund for certain
expenses involved with the daily valuation of portfolio
securities.
North Carolina Shareholder Services, LLC (the "Transfer Agent")
serves as the Funds' transfer, dividend paying, and shareholder
servicing agent. The Transfer Agent, subject to the authority of
the Board of Trustees, provides transfer agency services pursuant
to an agreement with the Administrator, which has been approved by
the Trust. 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. The Transfer Agent is
compensated for its services by the Administrator and not directly
by the Funds.
Certain Trustees and officers of the Trust are also officers of
the Advisor, the distributor or the Administrator.
At March 31, 1998, the Advisor and its officers held 24,959 shares
or 6.913% of the Fund shares outstanding.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $2,203,989 and $1,515,195, respectively,
for the year ended March 31, 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of The Nottingham Investment Trust II and Shareholders
of The Brown Capital Management Balanced Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Brown Capital Management Balanced Fund (a
portfolio of The Nottingham Investment Trust II) as of March 31, 1998 and the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended March 31, 1998 and 1997, and financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
March 31, 1998 by correspondence with the custodian and brokers; where replies
were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Brown Capital
Management Balanced Fund as of March 31, 1998, the results of its operations,
the changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 24, 1998
<PAGE>
Brown Capital Management Funds
105 North Washington Street
Post Office Box 69
Rocky Mount, North Carolina 27802-0069
Telephone 919-972-9922
U. S. WATTS 800-525- FUND
Facsimile 919-442-4226
April 15, 1998
Dear Shareholder:
I am sure you're tired of hearing about the unprecedented series of consecutive
years of 20+% gains in the broad stock market. Perhaps what isn't as widely
known, is that we have experienced an unprecedented streak of six years of
earnings increases for the S&P 500. The only period that has come close in the
last 50 years is 1962-1966. We expect the streak to continue, albeit at a slower
pace in 1998.
While the Washington press corps was ensconced in nosing out scandals (don't
worry this letter will not go there), the economy and the market continued its
upward trend. The S&P 500 Index increased 48.0%, on a total return basis, during
the fiscal year. Large capitalization indices still outperformed smaller
capitalization indices (the Russell 2000 Index was up 42.0%). The Lehman
Government/Corporate Bond Index returned 12.4% for the same period.
What hasn't been adequately discussed is the explanation behind the
unprecedented gains in the stock market. For the past couple of years, we (like
many others) have stated, at the beginning of the year, that we expect market
gains to revert to the historic norm of 10-11%. It hasn't happened, and the
reason can be traced to two primary factors-- greater than expected declines in
interest rates and an expansion in price earnings ratios. At the risk of
sounding redundant, in 1998 we expect - (1) the broad stock market to return the
historical returns of 10-11%, (2) the small and mid-cap companies to play
catch-up, and (3) bonds to offer very competitive returns with stocks.
The table below is helpful in providing some insights into the narrow and skewed
market performance in calendar year 1997.
- ------------------------- ----------------- ---------------- ------------------
12/31/96- 6/30/97- 10/27/97-
6/30/97 10/26/97 12/31/97
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
S&P 500 20.6% 6.9% 11.0%
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
Russell 1000 Growth 19.6% 6.4% 10.3%
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
Russell 2000 10.2% 13.4% 4.3%
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
Russell 2000 Growth 5.2% 14.4% 1.5%
- ------------------------- ----------------- ---------------- ------------------
- ------------------------- ----------------- ---------------- ------------------
Russell Mid-Cap Growth 10.5% 12.5% 6.5%
- ------------------------- ----------------- ---------------- ------------------
Clearly, the first half of calendar 1997 was dominated by large capitalization
companies, and the S&P 500 outperformed the Russell 2000 by 1040 basis points.
More specifically, what cannot be gleaned from the chart, but as indicated
above, the performance was fueled by the highly liquid "super market caps".
However, from mid-year up to the market setback on October 27, the tables
reversed just as dramatically. The Russell 2000 and Russell Mid-Cap Growth index
outperformed the S&P 500 by 650 and 750 basis points respectively. But, the
unexpected happened after the October 27 market setback. One would have expected
the leadership to have remained with the small and mid-cap companies that derive
the major portion of their sales and earnings domestically. It is clear from the
chart that this didn't occur. Rather, the S&P 500 outperformed the Russell 2000
and Russell 2000 Mid-Cap Growth indices by 670 and 950 basis points respectively
from October 27 through calendar year-end. Obviously to date, in the aftermath
of the Asian crisis, the perceived safety of the very large companies has
overwhelmed the international exposure of many of these companies.
<PAGE>
Calendar 1997 proved to be a challenging year for bottom-up stock pickers with a
growth investment approach for a couple of reasons. First, the gains in the
market were narrow and were fueled by the very large companies, referred to by a
newly coined term, "super market caps". Second, "bombs going off". Companies
reporting or "signaling" disappointing earnings were severely punished in the
marketplace. How did these phenomena directly affect the performance results
achieved in the Equity Fund and the equity portion of the Balanced Fund? With
respect to the first item, for the first six months of the year we considered
most of the companies (e.g., Coca Cola, Gillette, Proctor and Gamble), even
though growth companies, to be overvalued. Directionally, we were right on the
mark with respect to market capitalization in managing the Equity Fund. The
weighted market capitalization of the portfolio increased from approximately $10
billion at the beginning of 1997 to $26 billion by the end of the calendar year.
With respect to the second item, we were fortunate during the first nine months
of 1997 in that we escaped the "bombs" (instant price declines of 20% or more in
response to a news item--our definition) experienced by many investors. However,
we were not as fortunate in the third fiscal quarter. In fact, three stocks that
can be classified as "bombs" by the above definition explain almost all of the
underperformance in the third fiscal quarter. These three stocks declined by the
following amounts from the date of the specific news announcement to calendar
year-end: Green Tree Financial down 35%, Fastenal down 24%, and Wisconsin
Central Transportation down 22%. Our job of course is to assess whether anything
has changed fundamentally with these or any other holdings in your portfolio. We
are hard at work making these assessments, and evaluating new investment
opportunities that will produce superior returns in 1998 and beyond.
The Asian woes and their implications are serious, but not fatal. It is highly
likely that they will cause our GDP growth to be lower by an estimated 1/2-1%.
The good news is that the market's narrow focus and the Asian crisis will pass.
Additionally, we will have modest domestic real GDP accompanied by modest
inflation (not deflation in our opinion), and low interest rates. El Nino may
actually have aided the economy in the most recent quarter--lower energy costs,
due to warmer than usual weather, helped retail spending. The other good news is
that we have a portfolio of companies with superior characteristics relative to
the performance benchmark that are attractively priced. We have found that over
time this is a winning combination that translates into superior performance.
As usual, some economic sectors in the portfolio contributed to the performance
and others hindered the performance. For the mid/large capitalization equities
in the Equity and Balanced Funds, the top contributing sectors were Technology,
Consumer Cyclical and Consumer Staples, while the drags were Utilities and Basic
Materials. For the small companies in the Small Company Fund, the top
contributing sectors were Technology and Consumer Discretionary, while Energy
was the worst performing sector.
During the most recent quarter, we made few strategic changes. Outsourcing
continues to be a major trend. We took the following actions to increase our
exposure to an area that we have invested in for quite a while:
In the Equity Fund and the equity portion of the Balanced Fund, we sold Intel
Corp and we bought IBM. While both are technology companies, we decided to trim
our exposure to a hardware component-related company that may come under some
pricing pressure and to add a company that will benefit from outsourcing and
information technology. IBM has a stated goal to "turn IBM into the world's
premier knowledge management company". In 1997, 49.1% of IBM's revenue came from
Services, Software and Maintenance and we believe IBM can play a major role in
outsourcing by other companies. We added FiServ, a company that provides
financial data processing systems and information management services and
products to financial entities. While the Energy sector is traditionally not
thought of as a growth sector, we believe the current valuations of some
growth-oriented oil service companies are compelling. We added Schlumberger to
the portfolio.
<PAGE>
In the Small Company Fund, we added Applied Digital Access, a company that
provides network management software and services, Best Software, a company that
provides human resources and payroll management software solutions, and, Concord
Communications, a software-based company that provides performance analysis and
reporting solutions for the management of computer networks. Additionally, we
purchased Applied Analytical Industries, a company that provides product
development and support services to the pharmaceutical and biotechnology
industries.
The fixed income portion of the Balanced Fund found fixed income markets fairly
quiet in the most recent quarter. At the end of the quarter, the long-term
Treasury bond at 5.93% was about the same as at year-end. Considering the yield
curve, the spread relationships extant in the marketplace, and the fact that we
don't expect a significant decline in interest rates near-term, we think the
current portfolio structure is appropriate. Currently, we are emphasizing
intermediate-term maturity and high quality bonds.
Our overall view on the market has not changed. We still believe the market
(using the S&P500 as a proxy) to be fairly fully valued - trading at 21 times
estimated forward twelve months earnings. While P/E's may have expanded as far
as they can in the current interest rate environment, we believe steady earnings
growth and a low inflation environment create an upside potential at least equal
to the growth in earnings. However, the economic expansion is in its eighth year
and most to the benefits of restructuring are behind us. Rising labor costs may
limit margins, and earnings growth may be tied solely to revenue growth.
Companies may not be able to increase prices in the current environment of
inter-global competition and low inflation. We continue to believe stock
selection is key.
Sincerely,
Eddie C. Brown
President
<PAGE>
THE BROWN CAPITAL MANAGEMENT
SMALL COMPANY FUND
Performance Update - $10,000 Investment
For the period from December 31, 1992 to March 31, 1998
BCM Small Co Russell 2000 NASDAQ Industrials
Fund Index Index
12/31/92 10,000 10,000 10,000
3/31/93 9,877 10,371 9,843
6/30/93 9,855 10,558 10,063
9/30/93 10,325 11,445 10,761
12/31/93 10,574 11,700 11,116
3/31/94 10,311 11,340 10,746
6/30/94 9,680 10,872 9,852
9/30/94 10,307 11,589 10,724
12/31/94 11,077 11,328 10,398
3/31/95 12,066 11,816 11,079
6/30/95 13,037 12,882 12,251
9/30/95 14,266 14,164 13,607
12/31/95 14,839 14,453 13,391
3/31/96 16,048 15,188 14,244
6/30/96 16,706 15,968 15,450
9/30/96 17,098 16,020 15,429
12/31/96 17,374 16,838 15,474
3/31/97 16,299 15,973 14,214
6/30/97 18,742 18,550 16,536
9/30/97 20,860 21,300 19,239
12/31/97 20,116 20,577 17,101
3/31/98 23,119 22,695 19,090
This graph depicts the performance of The Brown Capital Management Small Company
Fund versus the Russell 2000 Index and the NASDAQ Industrials Index. It is
important to note that The Brown Capital Management Small Company Fund is a
professionally managed mutual fund while the indexes are not available for
investment and are unmanaged. The comparison is shown for illustrative purposes
only.
Average Annual Total Return
- ---------------------------------------------------
Since Inception One Year Five Years
- ---------------------------------------------------
17.31% 41.84% 18.53%
- ---------------------------------------------------
The graph assumes an initial $10,000 investment at December 31, 1992. All
dividends and distributions are reinvested.
At March 31, 1998, the Fund would have grown to $23,119 - total investment
return of 131.19% since December 31, 1992.
At March 31, 1998, a similar investment in the Russell 2000 Index would have
grown to $22,695 - total investment return of 126.95% and the NASDAQ Industrials
Index would have grown to $19,090 - total investment return of 90.90%, since
December 31, 1992.
Past performance is not a guarantee of future performance. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 96.51%
Advertising - 1.90%
(a) Catalina Marketing Corporation ....................................... 4,200 $ 220,237
-----------
Biopharmaceuticals - 1.50%
The Perkin-Elmer Corporation ......................................... 2,397 173,333
-----------
Chemicals - 0.97%
(a) Synthetech, Inc. ..................................................... 18,200 112,612
-----------
Commercial Services - 3.81%
Paychex, Inc. ........................................................ 2,375 137,008
(a) Quintiles Transnational Corp. ........................................ 6,200 298,762
(a) Walsh International Inc. ............................................. 300 4,650
-----------
440,420
-----------
Computers - 0.96%
(a) RadiSys Corporation .................................................. 4,400 110,550
-----------
Computer Software & Services - 44.89%
(a) Acxiom Corporation ................................................... 17,700 453,563
(a) Advent Software, Inc. ................................................ 8,300 394,250
(a) American Business Information, Inc. Cl-A ............................. 8,200 107,625
(a) American Business Information, Inc. Cl-B ............................. 8,200 116,850
(a) American Software, Inc. .............................................. 13,500 106,313
(a) Best Software, Inc. .................................................. 8,800 133,100
(a) BMC Software, Inc. ................................................... 7,573 634,746
(a) Cerner Corporation ................................................... 10,500 225,094
(a) CFI ProServices, Inc. ................................................ 12,100 178,475
(a) Concord Communications, Inc. ......................................... 4,000 104,500
(a) Datastream Systems, Inc. ............................................. 8,600 190,275
(a) Dendrite International, Inc. ......................................... 14,200 408,250
Fair, Isaac and Company, Incorporated ................................ 9,200 346,725
(a) Hyperion Software Corporation ........................................ 7,800 345,150
(a) Network Associates, Inc. ............................................. 5,725 379,281
(a) Platinum Technology, Inc. ............................................ 5,600 144,900
(a) QuickResponse Services, Inc. ......................................... 4,100 219,350
(a) SPSS, Inc. ........................................................... 4,600 108,100
(a) Structural Dynamics Research Corporation ............................. 10,400 260,650
(a) The BISYS Group, Inc. ................................................ 6,700 236,175
(a) Tripos, Inc. ......................................................... 7,600 98,800
-----------
5,192,172
-----------
Electronics - 2.48%
(a) Sanmina Corporation .................................................. 4,100 286,744
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Financial Services - 3.16%
T. Rowe Price Associates, Inc. ....................................... 5,200 $ 365,950
-----------
Furniture & Home Appliances - 1.26%
Juno Lighting, Inc. .................................................. 6,900 145,762
-----------
Hand & Machine Tools - 1.79%
(a) Flow International Corporation ....................................... 20,300 206,806
-----------
Machine - Diversified - 1.89%
(a) Cognex Corporation ................................................... 10,200 218,025
-----------
Medical - Biotechnology - 3.13%
(a) Affymetrix, Inc. ..................................................... 1,500 52,219
(a) Human Genome Sciences, Inc. .......................................... 1,100 43,794
(a) Incyte Pharmaceuticals, Inc. ......................................... 1,200 56,100
(a) Pharmacopeia, Inc. ................................................... 11,200 210,000
-----------
362,113
-----------
Medical - Hospital Management & Service - 3.40%
(a) ABR Information Services, Inc. ....................................... 14,000 393,750
-----------
Medical Supplies - 11.62%
Ballard Medical Products ............................................. 7,400 199,800
Biomet, Inc. ......................................................... 7,200 216,000
Diagnostic Products Corporation ...................................... 8,800 245,300
Life Technologies, Inc. .............................................. 9,700 373,450
(a) Molecular Dynamics, Inc. ............................................. 6,700 96,731
(a) Techne Corporation ................................................... 11,000 213,125
-----------
1,344,406
-----------
Miscellaneous - Manufacturing - 1.89%
(a) Panavision Inc. ...................................................... 8,300 218,394
-----------
Pharmaceuticals - 4.79%
(a) ALZA Corporation ..................................................... 9,600 430,200
(a) Applied Analytical Industries, Inc. .................................. 7,300 117,712
(a) Crescenco Pharmaceuticals Corporation ................................ 420 5,303
(a) Lynx Therapeutics, Inc. .............................................. 81 810
-----------
554,025
-----------
Real Estate Investment Trust - 1.31%
Post Properties, Inc. ................................................ 3,800 151,762
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Restaurants & Food Service - 4.10%
(a) Au Bon Pain Company, Inc. ............................................ 29,300 $ 247,219
(a) The Cheesecake Factory ............................................... 6,800 226,525
-----------
473,744
-----------
Retail - Specialty Line - 1.28%
Fastenal Company ..................................................... 3,400 147,475
-----------
Telecommunications Equipment - 0.38%
(a) Applied Digital Access, Inc. ......................................... 5,500 44,000
-----------
Warrants - 0.00%
(a) ALZA Corporation, expiration date December 31, 1999 .................. 150 145
(a) The Perkin-Elmer Corporation, expiraton date September 11, 2003 ...... 27 130
-----------
275
-----------
Total Common Stocks (Cost $7,133,876) ................................ 11,162,555
-----------
INVESTMENT COMPANY - 3.49%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ............................ 403,845 403,845
(Cost $403,845) -----------
Total Value of Investments (Cost $7,537,721 (b)) ................................. 100.00 % 11,566,400
Liabilities In Excess of Other Assets ............................................ (0.00)% (456)
------ -----------
Net Assets ................................................................ 100.00 % $11,565,944
====== ===========
(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 $4,163,722
Unrealized depreciation (135,043)
----------
Net unrealized appreciation $4,028,679
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
ASSETS
Investments, at value (cost $7,537,721) ..................................................... $11,566,400
Income receivable ........................................................................... 6,303
Other assets ................................................................................ 6,109
-----------
Total assets ........................................................................... 11,578,812
-----------
LIABILITIES
Accrued expenses ............................................................................ 5,873
Payable for investment purchases ............................................................ 1,859
Other liabilities ........................................................................... 5,136
-----------
Total liabilities ...................................................................... 12,868
-----------
NET ASSETS
(applicable to 550,128 Institutional shares outstanding; unlimited
shares of no par value beneficial interest authorized) ..................................... $11,565,944
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($11,565,944 / 550,128 shares) .............................................................. $ 21.02
===========
NET ASSETS CONSIST OF
Paid-in capital ............................................................................. $ 7,495,546
Undistributed net realized gain on investments .............................................. 41,719
Net unrealized appreciation on investments .................................................. 4,028,679
-----------
$11,565,944
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BROWN CAPTIAL MANAGEMENT SMALL COMPANY FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1998
INVESTMENT LOSS
Income
Dividends .................................................................................... $ 74,036
Miscellaneous ................................................................................ 2,615
----------
Total income ............................................................................ 76,651
----------
Expenses
Investment advisory fees (note 2) ............................................................ 93,370
Fund administration fees (note 2) ............................................................ 23,279
Custody fees ................................................................................. 4,810
Registration and filing administration fees (note 2) ......................................... 5,798
Fund accounting fees (note 2) ................................................................ 21,000
Audit fees ................................................................................... 9,200
Legal fees ................................................................................... 4,390
Securities pricing fees ...................................................................... 3,671
Shareholder recordkeeping fees ............................................................... 1,698
Shareholder servicing expenses ............................................................... 4,288
Registration and filing expenses ............................................................. 7,931
Printing expenses ............................................................................ 3,672
Trustee fees and meeting expenses ............................................................ 4,261
Other operating expenses ..................................................................... 4,073
----------
Total expenses .......................................................................... 191,441
----------
Less investment advisory fees waived (note 2) ........................................... (51,594)
----------
Net expenses ............................................................................ 139,847
----------
Net investment loss ............................................................... (63,196)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions .................................................... 264,971
Increase in unrealized appreciation on investments ................................................ 3,029,081
----------
Net realized and unrealized gain on investments .............................................. 3,294,052
----------
Net increase in net assets resulting from operations .................................... $3,230,856
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss ............................................................... $ (63,196) $ (15,062)
Net realized gain (loss) from investment transactions ............................. 264,971 (66,449)
Increase in unrealized appreciation on investments ................................ 3,029,081 105,168
----------- -----------
Net increase in net assets resulting from operations ......................... 3,230,856 23,657
----------- -----------
Distributions to shareholders from
Net realized gain from investment transactions .................................... (122,662) (121,632)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) .............. 1,939,063 2,876,454
----------- -----------
Total increase in net assets ............................................ 5,047,257 2,778,479
NET ASSETS
Beginning of year ..................................................................... 6,518,687 3,740,208
----------- -----------
End of year ........................................................................... $11,565,944 $ 6,518,687
=========== ===========
(a) A summary of capital share activity follows:
------------------------------------------------------------------------
Year ended Year ended
March 31, 1998 March 31, 1997
Shares Value Shares Value
------------------------------------------------------------------------
Shares sold ............................................. 127,445 $ 2,137,857 215,413 $ 3,325,355
Shares issued for reinvestment
of distributions ................................... 6,686 122,282 7,902 121,296
----------- ----------- ----------- -----------
134,131 2,260,139 223,315 3,446,651
Shares redeemed ......................................... (18,185) (321,076) (36,296) (570,197)
----------- ----------- ----------- -----------
Net increase ....................................... 115,946 $ 1,939,063 187,019 $ 2,876,454
=========== =========== =========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BROWN CAPTIAL MANAGEMENT SMALL COMPANY FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Year)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31, March 31,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ........................ $15.01 $15.13 $12.24 $10.69 $10.67
Income from investment operations
Net investment loss ............................ (0.11) (0.03) (0.06) (0.06) (0.11)
Net realized and unrealized gain on investments 6.36 0.27 4.00 1.86 0.59
----------- ----------- ----------- ----------- -----------
Total from investment operations ........... 6.25 0.24 3.94 1.80 0.48
----------- ----------- ----------- ----------- -----------
Distributions to shareholders from
Net realized gain from investment transactions (0.24) (0.36) (1.05) (0.25) (0.46)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year .............................. $21.02 $15.01 $15.13 $12.24 $10.69
=========== =========== =========== =========== ===========
Total return .............................................. 41.84% 1.56% 33.00% 16.95% 4.39%
=========== =========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of year ............................. $11,565,944 $ 6,518,687 $ 3,740,208 $ 2,609,361 $ 1,830,924
=========== =========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 2.05% 2.70% 3.49% 4.49% 4.73%
After expense reimbursements and waived fees 1.50% 1.50% 1.69% 2.00% 2.00%
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees (1.23)% (1.50)% (2.29)% (3.38)% (4.03)%
After expense reimbursements and waived fees (0.68)% (0.30)% (0.50)% (0.90)% (1.34)%
Portfolio turnover rate ............................. 11.64% 13.39% 23.43% 32.79% 23.47%
Average broker commissions per share (a) ............ $0.0520 $0.0482 - - -
(a) 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 SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
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-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 of those companies with
operating revenues of $250 million or less at the time of 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 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.
As a result of the Fund's operating net investment loss, a
reclassification adjustment of $34,855 has been made on the
statement of assets and liabilities to decrease accumulated
net investment loss, brining it to zero, and decrease
undistributed net realized gain on investments.
C. Investment Transactions - Investment transactions are
recorded on the trade date. Realized gains and losses are
determined using the specific identification cost method.
Interest income is recorded daily on 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
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
revenues reported in the financial statements. Actual
results could differ from those estimated.
F. Repurchase Agreements - The Fund may acquire U. S.
Government Securities or corporate debt securities subject
to repurchase agreements. A repurchase agreement transaction
occurs when the Fund acquires a security and simultaneously
resells it to the vendor (normally a member bank of the
Federal Reserve or a registered Government Securities
dealer) for delivery on an agreed upon future date. The
repurchase price exceeds the purchase price by an amount
which reflects an agreed upon market interest rate earned by
the Fund effective for the period of time during which the
repurchase agreement is in effect. Delivery pursuant to the
resale typically will occur within one to five days of the
purchase. The Fund will not enter into a repurchase
agreement which will cause more than 10% of its net assets
to be invested in repurchase agreements which extend beyond
seven days. In the event of the bankruptcy of the other
party to a repurchase agreement, the Fund could experience
delays in recovering its cash or the securities lent. To the
extent that in the interim the value of the securities
purchased may have declined, the Fund could experience a
loss. In all cases, the creditworthiness of the other party
to a transaction is reviewed and found satisfactory by the
Advisor. Repurchase agreements are, in effect, loans of Fund
assets. The Fund will not engage in reverse repurchase
transactions, which are considered to be borrowings under
the Investment Company Act of 1940, as amended.
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. There can be no assurance that the foregoing voluntary fee
waivers or reimbursements will continue. The Advisor has
voluntarily waived its fee amounting to $51,594 ($0.10 per share)
for the year ended March 31, 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. Additionally, the Administrator charges the Fund for
servicing of shareholder accounts and registration of the Fund's
shares. The contract with the Administrator provides that the
aggregate fees for the aforementioned administration, accounting
and recordkeeping services shall not be less than $3,000 per
month. The Administrator also charges the Fund for certain
expenses involved with the daily valuation of portfolio
securities.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
NC Shareholder Services, LLC (the "Transfer Agent") has been
retained by the Administrator 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. The Transfer Agent is compensated for its services by
the Administrator and not directly by the Fund.
Certain Trustees and officers of the Trust are also officers of
the Advisor, the distributor or the Administrator.
At March 31, 1998, the Advisor and its officers held 29,970 shares
or 5.448% of the Fund shares outstanding.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $3,135,262 and $949,029, respectively, for
the year ended March 31, 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of The Nottingham Investment Trust II and Shareholders
of The Brown Capital Management Small Company Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Brown Capital Management Small Company Fund
(a portfolio of The Nottingham Investment Trust II) as of March 31, 1998 and the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended March 31, 1998 and 1997, and financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
March 31, 1998 by correspondence with the custodian and brokers; where replies
were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Brown Capital
Management Small Company Fund as of March 31, 1998, the results of its
operations, the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 24, 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.
<PAGE>
PART C
======
FORM N-1A
OTHER INFORMATION
ITEM 23. Exhibits
--------
(a)(1) Amended and Restated Declaration of Trust.^9
(a)(2) Certificate of Establishment and Designation.^14
(b) Amended and Restated By-Laws.^9
(c) Certificates for shares are not issued. Articles V, VI, VIII, IX and
X of the Amended and Restated Declaration of Trust, previously filed
as Exhibit (a)(1) hereto, define the rights of holders of Shares.^9
(d)(1) Investment Advisory Agreement between the Nottingham Investment Trust
II and Capital Investment Counsel, Inc., as Advisor to the Capital
Value Fund.^1
(d)(2) Amendment to the Investment Advisory Agreement between the Nottingham
Investment Trust II and Capital Investment Counsel, Inc., as Advisor
to the Capital Value Fund.^10
(d)(3) Investment Advisory Agreement between the Nottingham Investment Trust
II and Investek Capital Management, Inc., as Advisor to the Investek
Fixed Income Trust.^2
(d)(4) Investment Advisory Agreement between the Nottingham Investment Trust
II and Zaske, Sarafa, & Associates, Inc., as Advisor to the ZSA Asset
Allocation Fund.^3
(d)(5) Investment Advisory Agreement between the Nottingham Investment Trust
II and Zaske, Sarafa, & Associates, Inc., as Advisor to the ZSA
Social Conscience Fund.^6
(d)(6) Amendment to the Investment Advisory Agreement between the Nottingham
Investment Trust II and Zaske, Sarafa, & Associates, Inc., as Advisor
to the ZSA Asset Allocation Fund.^9
(d)(7) Form of Amended and Restated Investment Advisory Agreement between
the Nottingham Investment Trust II and Brown Capital Management,
Inc., as Advisor to the Brown Capital Management Funds.
(d)(8) Investment Advisory Agreement between the Nottingham Investment Trust
II and Wilbanks, Smith & Thomas Asset Management, Inc., as Advisor to
the WST Growth & Income Fund.^12
(d)(9) Investment Advisory Agreement between the Nottingham Investment Trust
II and Morehead Capital Advisor, LLC, as Advisor to The
CarolinasFund.^13
(d)(10) Investment Sub-Advisory Agreement between the Nottingham Investment
Trust II and Capital Investment Counsel, Inc., as Sub-Advisor to The
CarolinasFund.
(e)(1) Distribution Agreement between the Nottingham Investment Trust II and
Capital Investment Group, Inc., as Distributor for the Capital Value
Fund.^10
(e)(2) Distribution Agreement between the Nottingham Investment Trust II and
Capital Investment Group, Inc., as Distributor for the Investek Fixed
Income Trust.^11
(e)(3) Distribution Agreement between the Nottingham Investment Trust II and
Capital Investment Group, Inc., as Distributor for the ZSA Asset
Allocation Fund.^7
(e)(4) Distribution Agreement between the Nottingham Investment Trust II and
Capital Investment Group, Inc., as Distributor for the ZSA Social
Conscience Fund Fund.^6
<PAGE>
(e)(5) Form of Amended and Restated Distribution Agreement between the
Nottingham Investment Trust II and Capital Investment Group, Inc., as
Distributor for the Brown Capital Management Funds.
(e)(6) Distribution Agreement between the Nottingham Investment Trust II and
Capital Investment Group, Inc., as Distributor for The WST Growth &
Income Fund.^12
(e)(7) Distribution Agreement between the Nottingham Investment Trust II and
Capital Investment Group, Inc., as Distributor for The
CarolinasFund.^13
(f) Not Applicable.
(g) Custodian Agreement between the Nottingham Investment Trust II and
First Union National Bank of North Carolina, as Custodian.^12
(h)(1) Fund Accounting and Compliance Administration Agreement between the
Nottingham Investment Trust II and The Nottingham Company, Inc., as
Administrator.
(h)(2) Dividend Disbursing and Transfer Agent Agreement between Capital
Management Investment Trust and NC Shareholder Services, LLC, as
Transfer Agent.
(h)(3) Expense Limitation Agreement between Nottingham Investment Trust II
and Brown Capital Management, Inc., as Advisor.^14
(i)(1) Opinion and Consent of Counsel for the CarolinasFund.^13
(i)(2) Opinion and Consent of Dechert Price & Rhoads regarding the legality
of the securities being registered with respect to the Brown Capital
Management International Equity Fund.
(j) Consent of Deloitte & Touche LLP, Independent Public Accountants.
(k) Not applicable.
(l) Initial Capital Agreement.^1
(m)(1) Distribution Plan under Rule 12b-1 for the Capital Value Fund.^10
(m)(2) Distribution Plan under Rule 12b-1 for the Investek Fixed Income
Trust.^11
(m)(3) Distribution Plan under Rule 12b-1 for the ZSA Asset Allocation
Fund.^7
(m)(4) Distribution Plan under Rule 12b-1 for the ZSA Social Conscience
Fund.^6
(m)(5) Distribution Plan under Rule 12b-1 for the Brown Capital Management
Equity Fund.^9
(m)(6) Distribution Plan under Rule 12b-1 for the Brown Capital Management
Balanced Fund.^9
(m)(7) Distribution Plan under Rule 12b-1 for the Brown Capital Management
Small Company Fund Fund.^9
(m)(8) Distribution Plan under Rule 12b-1 for the WST Growth & Income
Fund.^12
(m)(9) Distribution Plan under Rule 12b-1 for The CarolinasFund.^13
(n) Financial Data Schedules.
(o) Amended and Restated Rule 18f-3 Multi-Class Plan.^13
(p) Copy of Powers of Attorney.^6
<PAGE>
- -----------------------
1. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on October 29, 1990 (File No. 33-37458).
2. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on September 20, 1991 (File No. 33-37458).
3. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on May 22, 1992 (File No. 33-37458).
4. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on May 27, 1992 (File No. 33-37458).
5. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on July 30, 1993 (File No. 33-37458).
6. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on April 26, 1994 (File No. 33-37458).
7. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on July 29, 1994 (File No. 33-37458).
8. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on October 7, 1994 (File No. 33-37458).
9. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on June 2, 1995 (File No. 33-37458).
10. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on August 1, 1995 (File No. 33-37458).
11. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on July 12, 1996 (File No. 33-37458).
12. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on July 24, 1997 (File No. 33-37458).
13. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on April 20, 1998 (File No. 33-37458).
14. To be filed by Amendment.
ITEM 24. Persons Controlled by or Under Common Control with the Registrant
-----------------------------------------------------------------
No person is controlled by or under common control with the
Registrant.
ITEM 25. Indemnification
---------------
Reference is hereby made to the following sections of the following
documents filed or included by reference as exhibits hereto:
Article VIII, Sections 8.4 through 8.6 of the Registrant's
Declaration of Trust, Section 8(b), Section 8(b) of the
Registrant's Investment Advisory Agreements, Section 8(b) of the
Registrant's Administration Agreement, and Section (6) of the
Registrant's Distribution Agreements.
The Trustees and officers of the Registrant and the personnel of
the Registrant's administrator are insured under an errors and
omissions liability insurance policy. The Registrant and its
officers are also insured under the fidelity bond required by Rule
17g-1 under the Investment Company Act of 1940.
ITEM 26. Business and other Connections of the Investment Advisor
--------------------------------------------------------
See the Statement of Additional Information section entitled
"Trustees and Officers" for the activities and affiliations of the
officers and directors of the Investment Advisors of the
Registrant. Except as so provided, to the knowledge of Registrant,
none of the directors or executive officers of the Investment
Advisors is or has been at any time during the past two fiscal
years engaged in any other business, profession, vocation or
employment of a substantial nature. The Investment Advisors
currently serve as investment advisors to numerous institutional
and individual clients.
<PAGE>
ITEM 27. Principal Underwriter
---------------------
(a) Capital Investment Group, Inc. is underwriter and distributor for
The Chesapeake Aggressive Growth Fund, The Chesapeake Growth Fund,
The Chesapeake Core Growth Fund, Capital Value Fund, Investek Fixed
Income Trust, ZSA Asset Allocation Fund, The Brown Capital
Management Equity Fund, The Brown Capital Management Balanced Fund,
The Brown Capital Management Small Company Fund, The Brown Capital
Management International Equity Fund, WST Growth & Income Fund,
Blue Ridge Total Return Fund, SCM Strategic Growth Fund, and The
CarolinasFund.
(b)
Name and Principal Position(s) and Offices Position(s) and Offices
Business Address with Underwriter with Fund
================== ======================= =======================
Richard K. Bryant President Trustee and officer of Trust;
17 Glenwood Ave. President of Capital Value
Raleigh, NC Fund; no positional with
other series of Trust
E.O. Edgerton, Jr. Vice President Vice President of Capital
17 Glenwood Ave. Value Fund; no position with
Raleigh, NC other series of the Trust
(c) Not applicable
ITEM 28. Location of Accounts and Records
--------------------------------
All account books and records not normally held by First Union
National Bank of North Carolina, the Custodian to the Nottingham
Investment Trust II, are held by the Nottingham Investment Trust
II, in the offices of The Nottingham Company, Inc., Fund Accountant
and Administrator, NC Shareholder Services, LLC, Transfer Agent to
the Nottingham Investment Trust II, or by the Advisors to the
Nottingham Investment Trust II.
The address of The Nottingham Company, Inc. is 105 North Washington
Street, P.O. Drawer 69, Rocky Mount, North Carolina 27802-0069. The
address of NC Shareholder Services, LLC is 107 North Washington
Street, Post Office Box 4365, Rocky Mount, North Carolina
27803-0365. The address of First Union National Bank of North
Carolina is Two First Union Center, Charlotte, North Carolina
28288-1151. The address of Capital Investment Counsel, Inc.,
Advisor to the Capital Value Fund and Sub-Advisor to The
CarolinasFund, is Glenwood Avenue, Raleigh, North Carolina 27622.
The address of Investek Capital Management, Inc., Advisor to
Investek Fixed Income Trust, is 317 East Capitol Street, Jackson,
Mississippi 39207. The address of Zaske, Sarafa, & Associates,
Inc., Advisor to the ZSA Asset Allocation Fund, is 355 South
Woodard Avenue, Birmingham, Michigan 48009. The address of Brown
Capital Management, Inc., Advisor to The Brown Capital Management
Equity Fund, The Brown Capital Management Balanced Fund and The
Brown Capital Management Small Company Fund, and The Brown Capital
Management International Equity Fund is 809 Cathedral Street,
Baltimore, Maryland 21201. The address of Wilbanks, Smith and
Thomas Asset Management, Inc., Advisor to the WST Growth & Income
Fund, is One Commercial Place, Suite 1450, Norfolk, Virginia 23510.
The address of Morehead Capital Advisors LLC, Advisor to The
CarolinasFund, is 1712 East Boulevard, Charlotte, North Carolina,
28203.
ITEM 29. Management Services
-------------------
None
ITEM 30. Undertakings
------------
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of (the Securities Act of 1933 and) the Investment
Company Act of 1940, the Registrant (certifies that it meets all of the
requirement for effectiveness of this registration statement under rule 485(a)
under the Securities Act of 1933 and) has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Rocky Mount, and State of North Carolina on the 24th
day of February, 1999.
THE NOTTINGHAM INVESTMENT TRUST II
By: /s/ C. Frank Watson, III
________________________________
C. Frank Watson, III
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
* Trustee
______________________________________________
Jack E. Brinson Date
* Trustee
______________________________________________
Eddie C. Brown Date
* Trustee
______________________________________________
Richard K. Bryant Date
* Trustee
______________________________________________
Thomas W. Steed, III Date
* Trustee
______________________________________________
J. Buckley Strandberg Date
/s/ Julian G. Winters February 24, 1999 Treasurer
______________________________________________
Julian G. Winters Date
* By: /s/ C. Frank Watson, III Dated: February 24, 1999
________________________________________
C. Frank Watson, III
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
-----------------
(FOR POST-EFFECTIVE AMENDMENT NO. 35)
EXHIBIT NO.
UNDER PART C
OF FORM N-1A NAME OF EXHIBIT
- --------------- -----------------------
(d)(7) Form of Amended and Restated Investment Advisory Agreement
(d)(10) Investment Sub-Advisory Agreement
(e)(5) Form of Amended and Restated Distribution Agreement
(h)(1) Fund Accounting and Compliance Administration Agreement
(h)(2) Dividend Disbursing and Transfer Agent Agreement
(i)(2) Opinion and Consent of Counsel
(j) Consent of Independent Accountants
(n) Financial Data Schedules
FORM OF AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT, entered into as of the____ day of ________,
1999, by and between THE NOTTINGHAM INVESTMENT TRUST II (the "Trust"), a
Massachusetts business trust, and BROWN CAPITAL MANAGEMENT, INC., a Maryland
corporation (the "Advisor"), registered as an investment advisor under the
Investment Advisors Act of 1940, as amended (the "Advisors Act").
WHEREAS, the Trust is registered as a diversified, open-end management
investment company of the series type under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain the Advisor to furnish investment advisory
and administrative services to each series of the Trust set forth in Exhibit A
(each a "Fund," collectively the "Funds"), as amended from time to time, and the
Advisor is willing to so furnish such services;
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Advisor to act as Investment
Advisor to each Fund for the period and on the terms set forth in this
Agreement. The Advisor accepts such appointment and agrees to furnish
the services herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Trust will furnish the Advisor with copies
properly certified or authenticated of each of the following:
(a) The Trust's Declaration of Trust, as filed with the State of
Massachusetts (such Declaration, as presently in effect and as
it shall from time to time be amended, is herein called the
"Declaration");
(b) The Trust's By-Laws (such By-Laws, as presently in effect and
as they shall from time to time be amended, are herein called
the "By-Laws");
(c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Advisor and approving this Agreement;
(d) The Trust' Registration Statement on Form N-1A under the 1940
Act and under the Securities Act of 1933 as amended, (the
"1933 Act"), relating to shares of beneficial interest of each
Fund (herein called the "Shares") as filed with the Securities
and Exchange Commission ("SEC") and all amendments thereto;
(e) The Funds' Prospectus (such Prospectus, as presently in effect
and all amendment and supplements thereto are herein called
the "Prospectus").
<PAGE>
The Trust will furnish the Advisor from time to time with copies,
properly certified or authenticated, of all amendments of or
supplements to the foregoing at the same time as such documents are
required to be filed with the SEC.
3. Management. Subject to the supervision of the Trust's Board of
Trustees, the Advisor will provide a continuous investment program for
each Fund, including investment research and management with respect to
all securities, investments, cash and cash equivalents in each Fund.
The Advisor will determine from time to time what securities and other
investments will be purchased, retained or sold by each Fund. The
Advisor will provide the services under this Agreement in accordance
with the Fund's investment objectives, policies and restrictions as
stated in the Prospectus. The Advisor further agrees that it:
(a) Will conform its activities to all applicable Rules and
Regulations of the Securities and Exchange Commission and
will, in addition, conduct its activities under this Agreement
in accordance with regulations or any other Federal or State
agencies which may now or in the future have jurisdiction over
its activities under this Agreement.
(b) Will place orders pursuant to its investment determination for
each Fund either directly with the issuer or with any broker
or dealer. In placing orders with brokers or dealers, the
Advisor will attempt to obtain the best net price and the most
favorable execution of its orders. Consistent with this
obligation, when the Advisor believes two or more brokers or
dealers are comparable in price and execution, the Advisor may
prefer: (i) brokers or dealers who provide research advice and
other services for each Fund, or who recommend or sell shares
of each Fund, and (ii) brokers who are affiliated with the
Trust or its Advisor(s), provided, however, that in no
instance will portfolio securities be purchased from or sold
to the Advisor or any affiliated person of the Advisor in
principal transactions;
(c) Will provide certain executive personnel for the Trust as may
be mutually agreed upon from time to time with the Board of
Trustees, the salaries and expenses of such personnel to be
borne by the Advisor unless otherwise mutually agreed upon;
and
(d) Will provide, at its own cost, all office space, facilities
and equipment necessary for the conduct of its advisory
activities on behalf of each Fund.
4. Services Not Exclusive. The advisory services furnished by the Advisor
hereunder are not to be deemed exclusive, and the Advisor shall be free
to furnish similar services to others so long as its services under
this Agreement are not impaired thereby provided, however, that without
the written consent of the Trustees, the Advisor will not serve as
investment Advisor to any other investment company having a similar
investment object to that of each Fund.
<PAGE>
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Advisor hereby agrees that all records which it
maintains for the benefit of the Trust are the property of the Trust
and further agrees to surrender promptly to the Trust any of such
records upon the Fund's request. The Advisor further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by it pursuant to Rule 31a-1 under the Act
that are not maintained by others on behalf of the Trust.
6. Expenses. During the term of this Agreement, the Advisor will pay all
expenses incurred by it in connection with its investment advisory
services pertaining to each Fund. In the event that there is no
distribution plan under Rule 12b-1 of the 1940 Act in effect for a
particular Fund, the Advisor will pay, out of the Advisor's resources
generated from sources other than fees received from the Trust, the
entire cost of the promotion and sale of that Fund's shares.
Notwithstanding the foregoing, the Trust shall pay the expenses and
costs of the following (as they pertain to the Funds):
(a) Taxes, interest charges and extraordinary expenses;
(b) Brokerage fees and commissions with regard to portfolio transaction
of each Fund;
(c) Fees and expenses of the custodian of each Fund's portfolio
securities;
(d) Fees and expenses of the Trust's administrator, transfer and
dividend disbursing agent and the Trust's fund accounting agent or,
if the Trust performs any such services without an agent, the costs
of the same;
(e) Auditing and legal expenses;
(f) Cost of maintenance of the Trust's existence as a legal entity;
(g) Compensation of trustees who are not interested persons of the
Advisor as that term is defined by law;
(h) Costs of Trust meetings;
(i) Federal and State registration or qualification fees and expenses;
(j) Costs of setting in type, printing and mailing Prospectuses,
reports and notices to existing shareholders;
(k) The investment advisory fee payable to the Advisor, as provided in
paragraph 7 herein; and
(l) Plan of Distribution expenses, but only in accordance with the Plan
of Distribution as approved by the shareholders of each Fund.
It is understood that the Trust may desire to register each Fund's
shares for sale in certain states which impose expense limitations on
mutual funds. The Trust agrees that it will register each Fund's shares
in such states only with the prior written consent of the Advisor.
<PAGE>
7. Compensation. The Trust will pay the Advisor and the Advisor will
accept as full compensation an investment advisory fee, based upon the
average daily net assets of each Fund, computed at the end of each
month and payable within five (5) business days thereafter, based upon
the schedule attached hereto as Exhibit A.
8(a) Limitation of Liability. The Advisor shall not be liable for any error
of judgment, mistake of law or for any other loss whatsoever suffered
by the Trust in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the
Advisor in the performance of its duties or from reckless disregard by
it of its obligations and duties under this Agreement.
8(b) Indemnification of Advisor. Subject to the limitations set forth in
this Subsection 8(b), the Trust shall indemnify, defend and hold
harmless (from the assets of the Trust or Trusts to which the conduct
in question relates) the Advisor against all loss, damage and
liability, including reasonable accountants' and counsel fees, incurred
by the Advisor in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, related to or resulting
from this Agreement or the performance of services hereunder, except
with respect to any matter as to which it has been determined that the
loss, damage or liability is a direct result of (i) a breach of
fiduciary duty with respect to the receipt of compensation for
services, or (ii) willful misfeasance, bad faith or gross negligence on
the part of the Advisor in the performance of its duties or from
reckless disregard by it of its duties under this Agreement (either and
both of the conduct described in clauses (i) and (ii) above being
referred to hereinafter as "Disabling Conduct"). A determination that
the Advisor is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before whom the
proceeding was brought that the Advisor was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against the Advisor for insufficiency of
evidence of Disabling Conduct, or (iii) a reasonable determination,
based upon a review of the facts, that the Advisor was not liable by
reason of Disabling Conduct by, (a) vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Trust as the
quoted phrase is defined in Section 2(a)(19) of the 1940 Act nor
parties to the action, suit or other proceeding on the same or similar
grounds that is then or has been pending or threatened (such quorum of
such Trustees being referred to hereinafter as the "Independent
Trustees"), or (b) an independent legal counsel in a written opinion.
Expenses, including accountants' and counsel fees so incurred by the
Advisor (but excluding amounts paid in satisfaction of judgment, in
compromise or as fines or penalties), may be paid from time to time by
the Fund or Funds to which the conduct in question related in advance
of the final disposition of any action, suit or proceeding; provided,
that the Advisor shall have undertaken to repay the amounts so paid if
it is ultimately determined that indemnification of such expenses is
not authorized under this Subsection 8(b) and if (i) the Advisor shall
have provided security for such undertaking, (ii) the Trust shall be
insured against losses arising by reason of any lawful advances, or
(iii) a majority of the Independent Trustees, or an independent legal
counsel in a written opinion, shall have determined, based on a review
of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Advisor ultimately will be
entitled to indemnification hereunder.
<PAGE>
As to any matter disposed of by a compromise payment by the Advisor
referred to in this Subsection 8(b), pursuant to a consent decree or
otherwise, no such indemnification either for said payment or for any
other expenses shall be provided unless such indemnification shall be
approved (i) by a majority of the Independent Trustees or (ii) by an
independent legal counsel in a written opinion. Approval by the
Independent Trustees pursuant to clause (i) shall not prevent the
recovery from the Advisor of any amount paid to the Advisor in
accordance with either of such clauses as indemnification of the
Advisor is subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the reasonable belief
that the Advisor's action was in or not opposed to the best interests
of the Funds or to have been liable to the Funds or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in its conduct under the Agreement.
The right of indemnification provided by this Subsection 8(b) shall not
be exclusive of or affect any of the rights to which the Advisor may be
entitled. Nothing contained in this Subsection 8(b) shall affect any
rights to indemnification to which Trustees, officers or other
personnel of the Trust, and other persons may be entitled by contract
or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
The Board of Trustees of the Trust shall take all such action as may be
necessary and appropriate to authorize the Trust hereunder to pay the
indemnification required by this Subsection 8(b) including, without
limitation, to the extent needed, to determine whether the Advisor is
entitled to indemnification hereunder and the reasonable amount of any
indemnity due it hereunder, or employ independent legal counsel for
that purpose.
8(c) The provisions contained in Section 8 shall survive the expiration or
other termination of this Agreement, shall be deemed to include and
protect the Advisor and its directors, officers, employees and agents
and shall inure to the benefit of its/their respective successors,
assigns and personal representatives.
9. Duration and Termination. With respect to any new series of the Trust
that is advised by the Advisor, this Agreement shall continue in effect
for an initial two year period from the date such new series is added
to this Agreement, as set forth in Exhibit A, unless sooner terminated
as provided herein. Unless terminated as herein provided, this
Agreement shall continue in effect, with respect to each Fund (after
its initial two year term), for successive periods of one year each,
provided such continuance is specifically approved annually:
a. By the vote of a majority of those members of the Board of
Trustees who are not parties to this Agreement or interested
persons of any such party (as that term is defined in the 1940
Act), cast in person at a meeting called for the purpose of
voting on such approval; and
b. By vote of either the Board or a majority (as that term is
defined in the 1940 Act) of the outstanding voting securities
of each Fund.
<PAGE>
Notwithstanding the foregoing, this Agreement may be terminated, with
respect to any series, by The Trust or by the Advisor at any time on
sixty (60) days' written notice, without the payment of any penalty,
provided that termination by The Trust must be authorized either by
vote of the Board of Trustees or by vote of a majority of the
outstanding voting securities of each Fund. This Agreement will
automatically terminate in the event of its assignment (as that term is
defined in the 1940 Act).
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by a written
instrument signed by the party against which enforcement of the change,
waiver, discharge or termination is sought. No material amendment of
this Agreement shall be effective as to any Fund until approved by vote
of the holders of a majority of that Fund's outstanding voting
securities (as defined in the 1940 Act).
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby. This Agreement shall be
binding and shall inure to the benefit of the parties hereto and their
respective successors.
12. Applicable Law. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of North Carolina.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
ATTEST: THE NOTTINGHAM INVESTMENT TRUST II
By: __________________________ By: __________________________
Title: _______________________ Title: _______________________
ATTEST: BROWN CAPITAL MANAGEMENT, INC.
By: __________________________ By: __________________________
Title: _______________________ Title: _______________________
<PAGE>
EXHIBIT A
to the
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISOR'S COMPENSATION SCHEDULE
For the services set forth in the AMENDED AND RESTATED INVESTMENT ADVISORY
AGREEMENT, the Investment Advisor shall be compensated monthly, as of the last
day of each month, within five business days of the month end, a fee based upon
average daily net assets according to the following schedule.
The Brown Capital Management Equity Fund
Date added to this Agreement - December 10, 1992
Net Assets Annual Fee
---------- ----------
On the first $25 million 0.65%
On all assets over 25 million 0.50%
The Brown Capital Management Balanced Fund
Date added to this Agreement - December 10, 1992
Net Assets Annual Fee
---------- ----------
On the first $25 million 0.65%
On all assets over 25 million 0.50%
The Brown Capital Management Small Company Fund
Date added to this Agreement - December 10, 1992
Net Assets Annual Fee
---------- ----------
On all assets 1.00%
The Brown Capital Management International Equity Fund
Date added to this Agreement - [ ], 1999
Net Assets Annual Fee
---------- ----------
On all assets 1.00%
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, entered into as of the date the registration statement of the
CAROLINASFUND of the The Nottingham Investment Trust II becomes effective with
the Securities and Exchange Commission, by and between THE NOTTINGHAM INVESTMENT
TRUST II (the "Trust"), a Massachusetts Business Trust, MOREHEAD CAPITAL
ADVISORS, LLC, a North Carolina limited liability company (the "Advisor"),
registered as an investment advisor under the Investment Advisors Act of 1940,
as amended (the "Advisors Act"), and CAPITAL INVESTMENT COUNSEL, INC., a North
Carolina corporation (the `Sub-Advisor"), registered as an investment advisor
under the Advisors Act.
WHEREAS, the Trust is registered as a diversified, open-end management
investment company of the series type under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, the Trust has retained the Advisor to furnish investment advisory
services to the CAROLINASFUND series of the Trust;
WHEREAS, the Trust and Advisor desire to retain the Sub-Advisor to furnish
investment advisory and administrative services to the CAROLINASFUND series of
the Trust, and the Sub-Advisor is willing to so furnish such services;
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust and the Advisor hereby appoint the Sub-Advisor
to act as Sub-Advisor to the CAROLINASFUND (the "Fund") series of the
Trust for the period and on the terms set forth in this Agreement. The
Sub-Advisor accepts such appointment and agrees to furnish the services
herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Trust has furnished the Sub-Advisor with
copies properly certified or authenticated of each of the following:
(a) The Trust's Declaration of Trust, as filed with the State of
Massachusetts (such Declaration, as presently in effect and as
it shall from time to time be amended, is herein called the
"Declaration");
(b) The Trust's bylaws (such bylaws, as presently in effect and as
they shall from time to time be amended, are herein called the
"bylaws");
(c) Resolutions of the Trust's Board of Trustees and the resolution
approved by a majority of the outstanding shares of the Fund
authorizing the appointment of the Sub-Advisor and approving
this Agreement;
(d) The Trust's Registration Statement on Form N-1A under the 1940
Act and under the Securities Act of 1933 as amended, (the "1933
Act"), relating to shares of beneficial interest of the Fund
(herein called the "Shares") as filed with the Securities and
Exchange Commission ("SEC") and all amendments thereto;
(e) The Fund's Prospectus (such Prospectus, as presently in effect
and all amendments and supplements thereto are herein called the
"Prospectus").
The Trust will furnish the Sub-Advisor from time to time with copies,
properly certified or authenticated, of all amendments of or
supplements to the foregoing at the same time as such documents are
required to be filed with the SEC.
<PAGE>
3. Management. Subject to the supervision of the Trust's Board of Trustees
and the Advisor, the Sub-Advisor will provide a continuous investment
program for the Fund, including investment research and management with
respect to all securities, investments, cash and cash equivalents in
the Fund. Subject to any limitations established from time to time by
the Advisor, the Sub-Advisor will determine from time to time what
securities and other investments will be purchased, retained or sold by
the Fund. The Sub-Advisor will provide the services under this
Agreement in accordance with the Fund's investment objectives, policies
and restrictions as stated in its Prospectus. The Sub-Advisor further
agrees that it:
(a) Will conform its activities to all applicable Rules and
Regulations of the Securities and Exchange Commission and will,
in addition, conduct its activities under this Agreement in
accordance with regulations of any other Federal and State
agencies which may now or in the future have jurisdiction over
its activities under this Agreement;
(b) Will place orders pursuant to its investment determinations for
the Fund either directly with the issuer or with any broker or
dealer. In placing orders with brokers or dealers, the
Sub-Advisor will attempt to obtain the best net price and the
most favorable execution of its orders. Consistent with this
obligation, when the Sub-Advisor believes two or more brokers or
dealers are comparable in price and execution, the Sub-Advisor
may prefer: (i) brokers and dealers who provide the Fund with
research advice and other services, or who recommend or sell
Trust shares, and (ii) brokers who are affiliated with the Fund
or its Advisors; provided, however, that in no instance will
portfolio securities be purchased from or sold to the
Sub-Advisor or any affiliated person of the Sub-Advisor in
principal transactions; and
(c) Will provide, at its own cost, all office space, facilities and
equipment necessary for the conduct of its advisory activities
on behalf of the Fund.
4. Services Not Exclusive. The advisory services furnished by the
Sub-Advisor hereunder are not to be deemed exclusive, and the
Sub-Advisor shall be free to furnish similar services to others so long
as its services under this Agreement are not impaired thereby;
provided, however, that without the written consent of the Trustees,
the Sub-Advisor will not serve as investment advisor to any other
investment company having a similar investment objective to that of the
Fund. The Trust hereby approves the services of the Sub-Advisor as
investment advisor to the Capital Value Fund series of the Trust.
<PAGE>
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Advisor hereby agrees that all records
which it maintains for the benefit of the Fund are the property of the
Fund and further agrees to surrender promptly to the Fund any of such
records upon the Fund's request. The Sub-Advisor further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by it pursuant to Rule 31a-1
under the 1940 Act that are not maintained by others on behalf of the
Fund.
6. Expenses. During the term of this Agreement, the Sub-Advisor will pay
all expenses incurred by it in connection with its investment advisory
services pertaining to the Fund.
Notwithstanding the foregoing, the Fund shall pay the expenses and
costs of the following:
(a) Taxes, interest charges and extraordinary expenses;
(b) Brokerage fees and commissions with regard to portfolio
transactions of the Fund;
(c) Fees and expenses of the custodian of the Fund's portfolio
securities;
(d) Fees and expenses of the Fund's administrator, transfer and
dividend disbursing agent and the Fund's fund accounting agent
or, if the Fund performs any such services without an agent, the
costs of the same;
(e) Auditing and legal expenses;
(f) Cost of maintenance of the Fund's existence as a legal entity;
(g) Compensation of trustees who are not interested persons of the
Advisor or Sub-Advisor as applicable law defines that term;
(h) Costs of Trust meetings;
(i) Federal and State registration or qualification fees and
expenses;
(j) Costs of setting in type, printing and mailing Prospectuses,
reports and notices to existing shareholders;
(k) The investment advisory fee payable to the Advisor; and
(l) Plan of Distribution expenses, but only in accordance with the
Plan of Distribution as approved by the shareholders of the
Fund.
7. Compensation. For the services provided and the expenses assumed by the
Sub-Advisor hereunder, the Advisor will pay the Sub-Advisor and the
Sub-Advisor will accept as full compensation an investment advisory fee
payable by the Advisor, based upon the daily average net assets of the
Fund, computed at the end of each month and payable within five (5)
business days thereafter, based upon the schedule attached hereto as
Exhibit A.
<PAGE>
8.(a) Limitation of Liability. The Sub-Advisor shall not be liable for any
error of judgment, mistake of law or for any other loss whatsoever
suffered by the Fund in connection with the performance of this
Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of
the Sub-Advisor in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
8.(b) Indemnification of Sub-Advisor. Subject to the limitations set forth in
this Subsection 8(b), the Fund shall indemnify, defend and hold
harmless (from the assets of the Trust or Trusts to which the conduct
in question relates) the Sub-Advisor against all loss, damage and
liability, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees, incurred by the
Sub-Advisor in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, related to or resulting
from this Agreement or the performance of services hereunder, except
with respect to any matter as to which it has been determined that the
loss, damage or liability is a direct result of (i) a breach of
fiduciary duty with respect to the receipt of compensation for
services; or (ii) willful misfeasance, bad faith or gross negligence on
the part of the Sub-Advisor in the performance of its duties or from
reckless disregard by it of its duties under this Agreement (either and
both of the conduct described in clauses (i) and (ii) above being
referred to hereinafter as "Disabling Conduct"). A determination that
the Sub-Advisor is entitled to indemnification may be made by (i) a
final decision on the merits by a court or other body before whom the
proceeding was brought that the Sub-Advisor was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against the Sub-Advisor for insufficiency of
evidence of Disabling Conduct, or (iii) a reasonable determination,
based upon a review of the facts, that the Sub-Advisor was not liable
by reason of Disabling Conduct by, (a) vote of a majority of a quorum
of Trustees who are neither "interested persons" of the Fund as the
quoted phrase is defined in Section 2(a)(19) of the 1940 Act nor
parties to the action, suit or other proceeding on the same or similar
grounds that is then or has been pending or threatened (such quorum of
such Trustees being referred to hereinafter as the "Independent
Trustees"), or (b) an independent legal counsel in a written opinion.
Expenses, including accountants' and counsel fees so incurred by the
Sub-Advisor (but excluding amounts paid in satisfaction of judgments,
in compromise or as fines or penalties), may be paid from time to time
by the Fund or Trust to which the conduct in question related in
advance of the final disposition of any such action, suit or
proceeding; provided, that the Sub-Advisor shall have undertaken to
repay the amounts so paid if it is ultimately determined that
indemnification of such expenses is not authorized under this
Subsection 8(b) and if (i) the Sub-Advisor shall have provided security
for such undertaking, (ii) the Fund shall be insured against losses
arising by reason of any lawful advances, or (iii) a majority of the
Independent Trustees, or an independent legal counsel in a written
opinion, shall have determined, based on a review of readily available
facts (as opposed to a full trial-type inquiry), that there is reason
to believe that the Sub-Advisor ultimately will be entitled to
indemnification hereunder.
<PAGE>
As to any matter disposed of by a compromise payment by the Sub-Advisor
referred to in this Subsection 8(b), pursuant to a consent decree or
otherwise, no such indemnification either for said payment or for any
other expenses shall be provided unless such indemnification shall be
approved (i) by a majority of the Independent Trustees or (ii) by an
independent legal counsel in a written opinion. Approval by the
Independent Trustees pursuant to clause (i) shall not prevent the
recovery from the Sub-Advisor of any amount paid to the Sub-Advisor in
accordance with either of such clauses as indemnification of the
Sub-Advisor is subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the reasonable belief
that the Sub-Advisor's action was in or not opposed to the best
interest of the Fund or to have been liable to the Fund or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in its conduct
under the Agreement.
The right of indemnification provided by this Subsection 8(b) shall not
be exclusive of or affect any of the rights to which the Sub-Advisor
may be entitled. Nothing contained in this Subsection 8(b) shall affect
any rights to indemnification to which Trustees, officers or other
personnel of the Fund, and other persons may be entitled by contract or
otherwise under law, nor the power of the Fund to purchase and maintain
liability insurance on behalf of any such person.
The Board of Trustees of the Trust shall take all such action as may be
necessary and appropriate to authorize the Fund hereunder to pay the
indemnification required by this Subsection 8(b) including, without
limitation, to the extent needed, to determine whether the Sub-Advisor
is entitled to indemnification hereunder and the reasonable amount of
any indemnity due it hereunder, or employ independent legal counsel for
that purpose.
8.(c) The provisions contained in Section 8 shall survive the expiration or
other termination of this Agreement, shall be deemed to include and
protect the Sub-Advisor and its directors, officers, employees and
agents and shall inure to the benefit of its/their respective
successors, assigns and personal representatives.
9. Duration and Termination. This Agreement shall become effective upon
the date the registration statement of the Trust containing the Fund's
Prospectus is declared effective by the Securities and Exchange
Commission and, unless sooner terminated as provided herein, shall
continue in effect for two years. Thereafter, this Agreement shall be
renewable for successive periods of one year each, provided such
continuance is specifically approved annually:
(a) By the vote of a majority of those members of the Board of
Trustees who are not parties to this Agreement or interested
persons of any such party (as that term is defined in the 1940
Act), cast in person at a meeting called for the purpose of
voting on such approval; and
(b) By vote of either the Board of Trustees or a majority (as that
term is defined in the 1940 Act) of the outstanding voting
securities of the Fund.
Notwithstanding the foregoing, this Agreement may be terminated by the
Fund or by the Sub-Advisor at any time on sixty (60) days' written
notice, without the payment of any penalty, provided that termination
by the Fund must be authorized either by vote of the Board of Trustees
or by vote of a majority of the outstanding voting securities of the
Fund. This Agreement will automatically terminate in the event of its
assignment (as that term is defined in the 1940 Act).
<PAGE>
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by a written
instrument signed by the party against which enforcement of the change,
waiver, discharge or termination is sought. No material amendment of
this Agreement shall be effective until approved by vote of the holders
of a majority of the Fund's outstanding voting securities (as defined
in the 1940 Act).
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby. This Agreement shall be
binding and shall inure to the benefit of the parties hereto and their
respective successors.
12. Applicable Law. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of North Carolina.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
ATTEST: THE NOTTINGHAM INVESTMENT TRUST II
By: By:
________________________ ____________________________
Title: Title:
_____________________ _________________________
ATTEST: MOREHEAD CAPITAL ADVISORS, LLC
By: By:
________________________ ____________________________
Title: Title:
_____________________ _________________________
ATTEST: CAPITAL INVESTMENT COUNSEL, INC.
By: By:
________________________ ____________________________
Title: Title:
_____________________ _________________________
<PAGE>
EXHIBIT A
SUB-ADVISOR'S COMPENSATION SCHEDULE
For the services delineated in the SUB-ADVISORY AGREEMENT, the Sub-Advisor shall
be compensated monthly by the Advisor, as of the last day of each month, within
five business days of the month end, a fee based upon net assets according to
the following schedule.
Annual
Net Assets Fee
-------------- ------
On the first $250 million 0.25%
On all assets over $250 million 0.25%
FORM OF AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT, entered into as of [ ], 1999, by and
between Nottingham Investment Trust II (the "Trust"), an unincorporated business
trust organized under the laws of The Commonwealth of Massachusetts and Capital
Investment Group, Inc., a North Carolina corporation ("Distributor").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment
company and is so registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest (the "Shares"), in separate series representing the
interests in separate funds of securities and other assets; and
WHEREAS, the Shares of the Trust are registered under the Securities Act of
1933, as amended (the "1933 Act"), pursuant to a registration statement on Form
N-1A (the "Registration Statement"), including a prospectus (the "Prospectus")
and a statement of additional information (the "Statement of Additional
Information"); and
WHEREAS, the Trust offers separate series of shares (the "Shares") representing
interests in the Trust; and
WHEREAS, the separate series of the Trust advised by Brown Capital Management,
Inc., which are set forth in Schedule A, as amended from time to time, (each a
"Fund" and collectively the "Funds") consists, of two classes of Shares (the
Institutional Class Shares and the Investor Class Shares); and
WHEREAS, the Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1
under the 1940 Act (the "Distribution Plan") with respect to the Investor Shares
of the Funds; and
WHEREAS, Distributor has agreed to act as distributor of the Shares of each Fund
for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. Appointment of Distributor.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of the Shares of each Fund in jurisdictions wherein such Shares may
be legally offered for sale; provided, however, that the Trust in its absolute
discretion may issue Shares of each Fund in connection with (i) the payment or
reinvestment of dividends or distributions; (ii) any merger or consolidation of
the Trust or of each Fund with any other investment company or trust or any
personal holding company, or the acquisition of the assets of any such entity or
another fund of the Trust; or (iii) any offer of exchange permitted by Section
11 of the 1940 Act.
<PAGE>
(b) Distributor hereby accepts such appointment as exclusive agent for
the distribution of the Shares of each Fund and agrees that it will sell the
Shares as agent for the trust at prices determined as hereinafter provided and
on the terms hereinafter set forth, all according to applicable federal and
state laws and regulations and to the Agreement and Declaration of Trust of the
Trust.
(c) Distributor may sell Shares of each Fund to or through qualified
securities dealers or others. Distributor will require each dealer or other such
party to conform to the provisions hereof, the Registration Statement and the
Prospectus and Statement of Additional Information, and applicable law; and
neither Distributor nor any such dealers or others shall withhold the placing of
purchase orders for Shares so as to make a profit thereby.
(d) Distributor shall order Shares of each Fund from the Trust only to
the extent that it shall have received purchase orders therefor. Distributor
will not make, or authorize any dealers or others to make: (i) any short sales
of Shares; or (ii) any sales of Shares to any Trustee or officer of the Trust or
to any officer or director of Distributor or of any corporation or association
furnishing investment advisory, managerial or supervisory services to the Trust,
or to any such corporation or association, unless such sales are made in
accordance with the then current Prospectus and Statement of Additional
Information.
(e) Distributor is not authorized by the Trust to give any information
or make any representations regarding the Shares of each Fund, except such
information or representations as are contained in the Registration Statement or
in the current Prospectus or Statement of Additional Information of the Funds,
or in advertisements and sales literature prepared by or on behalf of the Trust
for Distributor's use.
(f) Notwithstanding any provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares of each Fund whenever, in its sole
discretion, it deems such action to be desirable.
2. Offering Price of Shares. All Shares of each Fund sold under
this Agreement shall be sold at the public offering price per Share in effect at
the time of the sale, as described in the then current Prospectus of the Funds.
The excess, if any, of the public offering price over the net asset value of the
Shares sold by Distributor as agent shall be retained by Distributor as a
commission for its services hereunder. Out of such commission Distributor may
allow commissions or concessions to dealers and my allow them to others in its
discretion in such amounts as Distributor shall determine from time to time.
Except as may be otherwise determined by Distributor from time to time, such
commissions or concessions shall be uniform to all dealers. At no time shall the
Trust receive less than the full net asset value of the Shares, determined in
the manner set forth in the then current Prospectus and Statement of Additional
Information. Distributor shall also be entitled to such commissions and other
fees and payments as may be authorized by the Trustees of the Trust from time to
time under the Distribution Plan.
<PAGE>
3. Furnishing of Information. The Trust shall furnish to
Distributor copies of any information, financial statements and other documents
that Distributor may reasonably request for use in connection with the sale of
Shares of each Fund under this Agreement. The Trust shall also make available a
sufficient number of copies of the Funds' current prospectus and Statement of
Additional Information for use by the Distributor.
4. Expenses.
(a) The Trust will pay or cause to be paid the following expenses: (i)
preparation, printing and distribution to shareholders of the Prospectus and
Statement of Additional Information; (ii) preparation, printing and distribution
of reports and other communications to shareholders; (iii) registration of the
Shares under the federal securities laws; (iv) qualification of the Shares for
sale in certain states; (v) qualification of the Trust as a dealer or broker
under state law as well as qualification of the Trust as an entity authorized to
do business in certain states; (vi) maintaining facilities for the issue and
transfer of Shares; (vii) supplying information, prices and other data to be
furnished by the Trust under this Agreement; and (viii) certain taxes applicable
to the sale or delivery of the Shares or certificates therefor.
(b) Except to the extent such expenses are borne by the Trust pursuant
to the Distribution Plan, Distributor will pay or cause to be paid the following
expenses: (i) payments to sales representatives of the Distributor and to
securities dealers and others in respect of the sale of Shares of each Fund;
(ii) payment of compensation to and expenses of employees of the Distributor and
any of its affiliates to the extent they engage in or support distribution of
each Fund's Shares or render shareholder support services not otherwise provided
by the Trust's transfer agent, administrator, or custodian, including, but not
limited to, answering routine inquiries regarding each Fund, processing
shareholder transactions, and providing such other shareholder services as the
Trust may reasonably request; (iii) formulation and implementation of marketing
and promotional activities, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising; (iv) preparation, printing and distribution of sales literature and
of Prospectuses and Statements of Additional Information and reports of the
Trust for recipients other than existing shareholders of each Fund; and (v)
obtaining such information, analyses and reports with respect to marketing and
promotional activities as the Trust may, from time to time, reasonably request.
(c) Distributor in connection with the Distribution Plan shall prepare
and deliver reports to the Trustees of the Trust on a regular basis, at least
quarterly, showing the expenditures with respect to each Fund pursuant to the
Distribution Plan and the purposes therefor, as well as any supplemental reports
as the Trustees of the Trust, from time to time, may reasonably request.
5. Repurchase of Shares. Distributor as agent and for the account
of the Trust may repurchase Shares of each Fund offered for resale to it and
redeem such Shares at their net asset value.
<PAGE>
6. Indemnification by the Trust. In absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties hereunder on the part of Distributor, the Trust agrees to indemnify
Distributor and its officers and partners against any and all claims, demands,
liabilities and expenses that Distributor may incur under the 1933 Act, or
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or any
Prospectus or Statement of Additional Information of the Funds, or in any
advertisements or sales literature prepared by or on behalf of the Trust for
Distributor's use, or any omission to state a material fact therein, the
omission of which makes any statement contained therein misleading, unless such
statement or omission was made in reliance upon and in conformity with
information furnished to the Trust in connection therewith by or on behalf of
Distributor. Nothing herein contained shall require the Trust to take any action
contrary to any provision of its Agreement and Declaration of Trust or any
applicable statute or regulation.
7. Indemnification by Distributor. Distributor agrees to
indemnify the Trust and its officers and Trustees against any and all claims,
demands, liabilities and expenses which the Trust may incur under the 1933 Act,
or common law or otherwise, arising out of or based upon (i) any alleged untrue
statement of a material fact contained in the Registration Statement or any
Prospectus or Statement of Additional Information of the Funds, or in any
advertisements or sales literature prepared by or on behalf of the Trust for
Distributor's use, or any omission to state a material fact therein, the
omission of which makes any statement contained therein misleading, if such
statement or omission was made in reliance upon and in conformity with
information furnished to the trust in connection therewith by or on behalf of
Distributor; or (ii) any act or deed of Distributor or its sales
representatives, or securities dealers and others authorized to sell Shares of
each Fund hereunder, or their sales representatives, that has not been
authorized by the Trust in any Prospectus or Statement of Additional Information
of the Funds or by this Agreement.
8. Term and Termination.
(a) With respect to any new Fund of the Trust that is advised by Brown
Capital Management, Inc., this Agreement shall continue in effect for an initial
two year period from the date such new Fund is added to this Agreement, as set
forth in Exhibit A, unless sooner terminated as provided herein. Unless
terminated as herein provided, this Agreement shall continue in effect, with
respect to each Fund (after its initial two year term), for one year from the
date hereof and shall continue in full force and effect for successive periods
of one year thereafter, but only so long as each such continuance is approved
(i) by either the Trustees of the Trust or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund and, in
either event, (ii) by vote of a majority of the Trustees of the Trust who are
not parties to this Agreement or interested persons (as defined in the 1940 Act)
of any such party and who have no direct or indirect financial interest in this
Agreement or in the operation of the Distribution Plan or in any agreement
related thereto ("Independent Trustees"), cast at a meeting called for the
purpose of voting on such approval.
(b) This Agreement may be terminated at any time without the payment of
any penalty by vote of the Trustees of the Trust or a majority of the
Independent Trustees or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of any of the Funds or by Distributor,
on sixty days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
<PAGE>
9. Limitation of Liability. The obligations of the Trust
hereunder shall not be binding upon any of the Trustees, officers or
shareholders of the Trust personally, but shall bind only the assets and
property of the Trust. The term "The Nottingham Investment Trust II" means and
refers to the Trustees from time to time serving under the Agreement and
Declaration of Trust of the Trust, a copy of which in on file with the Secretary
of the Commonwealth of Massachusetts. The execution and delivery of this
Agreement has been authorized by the Trustees, and this Agreement has been
signed on behalf of the Trust by an authorized officer of the Trust, acting as
such and not individually, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally,
but shall bind only the assets and property of the Trust as provided in the
Agreement and Declaration of Trust.
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be executed
as of the date first written above.
THE NOTTINGHAM INVESTMENT TRUST II
Attest: _________________________
By: __________________________
CAPITAL INVESTMENT GROUP, INC.
Attest: __________________________
By: __________________________
<PAGE>
SCHEDULE A
The list below, which shall be amended from time to time, sets forth
the Funds of the Nottingham Trust II which are advised by Brown Capital
Management, Inc., and the shares of which are distributed by Capital Investment
Group, Inc.
- ---------------------------------------------- ---------------------------------
FUNDS DATE ADDED TO THE AGREEMENT
- ----- ---------------------------
- ---------------------------------------------- ---------------------------------
The Brown Capital Management Equity Fund [insert date]
- ---------------------------------------------- ---------------------------------
The Brown Capital Management Balanced [insert date]
Fund
- ---------------------------------------------- ---------------------------------
The Brown Capital Management Small [insert date]
Company Fund
- ---------------------------------------------- ---------------------------------
The Brown Capital Management International [insert date]
Equity Fund
- ---------------------------------------------- ---------------------------------
FUND ACCOUNTING
AND COMPLIANCE ADMINISTRATION
AGREEMENT
THIS AGREEMENT, made and entered into as of the 23rd day of SEPTEMBER, 1998, by
and between NOTTINGHAM INVESTMENT TRUST II, a Massachusetts business trust (the
"trust"), and THE NOTTINGHAM COMPANY, INC., a North Carolina corporation (the
"Administrator").
WHEREAS, the trust is an open-end management investment company of the series
type which is registered under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Administrator is in the business of providing administrative
services to investment companies.
NOW THEREFORE, the trust and the Administrator do mutually promise and agree as
follows:
1. Employment. The trust hereby employs the Administrator, The Nottingham
Company ("TNC"), to act as fund accountant and fund administrator for
each fund of the trust. Administrator, at its own expense, shall render
the services and assume the obligations herein set forth subject to
being compensated therefore as herein provided.
2. Delivery of Documents. The trust has furnished the Administrator with
copies properly certified or authenticated of each of the following:
a) The trust's Declaration of Trust, as filed with the State of
Massachusetts (such Declaration, as presently in effect and as
it shall from time to time be amended, is herein called the
"Declaration");
b) The trust's by-laws (such by-laws, as presently in effect and
as they shall from time to time be amended, are herein called
the "by-laws");
c) Resolutions of the trust's board of trustees authorizing the
appointment of the Administrator and approving this Agreement;
and
d) The trust's Registration Statement on Form N-1A under the 1940
Act and under the Securities Act of 1933 as amended, (the
"1933 Act"), including all exhibits, relating to shares of
beneficial interest of, and containing the Prospectus of, each
fund of the trust (herein called the "Shares") as filed with
the Securities and Exchange Commission and all amendments
thereto.
The trust will furnish the Administrator with copies, properly certified or
authenticated, of all amendments of or supplements to the foregoing.
3. Duties of the Administrator. Subject to the policies and direction of
the trust's board of trustees, the Administrator will provide a
continuous executive management program and day to day supervision for
each of the trust's funds. Services to be provided shall be in
accordance with the trust's organizational and registration documents
as listed in paragraph 2 hereof and with the Prospectus of each fund of
the trust. The Administrator further agrees that it:
a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission and will, in addition,
conduct its activities under this Agreement in accordance with
regulations of any other Federal and State agencies which may
now or in the future have jurisdiction over its activities;
<PAGE>
b) will maintain, except as may be required to be maintained by
third parties hired by the trust under Rule 31a-3 of the 1940
Act, the account books and records of the trust and each fund
of the trust as required by Rule 31a-1 of the 1940 Act and
will preserve such records in accordance with Rule 31a-2 of
the 1940 Act;
c) will provide, at its expense, the necessary non-executive
personnel and data processing equipment and software to
perform the Portfolio Accounting Services, Expense Accrual and
Payment Services, fund Valuation and Financial Reporting
Services (with the exception of pricing data services as
specified in Exhibit B), Tax Accounting Services, Compliance
Control Services, Registration Services, SEC Filing Services,
and Proxy Material Services shown on Exhibit A hereof;
d) will provide, at its expense, certain executive personnel for
the trust as may be agreed upon from time to time with the
board of trustees; and
e) will provide all office space and general office equipment
necessary for the activities of the trust except as may be
provided by third parties pursuant to separate agreements with
the trust.
Notwithstanding anything contained in this Agreement to the contrary, the
Administrator (including its directors, officers, employees and agents) shall
not be required to perform any of the duties of, assume any of the obligations
or expenses of, or be liable for any of the acts or omissions of, any investment
advisor of a fund of the trust or other third party subject to separate
agreements with the trust. The Administrator shall not be responsible hereunder
for the administration of the Code of Ethics of the trust which shall be under
the responsibility of the investment advisors, except insofar as the Code of
Ethics applies to the personnel of the Administrator. It is the express intent
of the parties hereto that the Administrator shall not have control over or be
responsible for the placement, investment or reinvestment of the assets of any
fund of the trust. The Administrator may from time to time, subject to the
approval of the trustees (other than with respect to TNC), obtain at its own
expense the services of consultants or other third parties to perform part or
all of its duties hereunder, and such parties may be affiliates of the
Administrator.
4. Services Not Exclusive. The management and administrative services
furnished by the Administrator hereunder are not to be deemed
exclusive, and the Administrator shall be free to furnish similar
services to others so long as its services under this Agreement are not
impaired thereby.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Administrator hereby agrees that all records
which it maintains for the trust are the property of the trust and
further agrees to surrender promptly to the trust any of such records
upon the trust's request.
6. Expenses. During the term of this Agreement, the Administrator will pay
all expenses incurred by it in connection with the performance of its
obligations under this Agreement.
Notwithstanding the foregoing, the trust shall pay the expenses and
costs of the following:
a) Taxes
b) Brokerage fees and commissions with regard to portfolio
transaction of the funds
c) Interest charges, fees and expenses of the custodian of the
funds' portfolio securities
d) Fees and expenses of the trust's dividend disbursing and
transfer agent
<PAGE>
e) Fees and expenses of the trust's fund accounting agent and
administrator, in accordance with paragraph 7 herein
f) Costs, as may be allocable to and agreed upon in advance by
the trustees and the Administrator, of all non-executive and
clerical personnel and all data processing equipment and
software in connection with the provision of fund accounting
and recordkeeping services functions as contemplated herein
g) Auditing and legal expenses of the trust
h) Cost of maintenance of the trust's existence as a legal entity
i) Cost of special forms, stationery and telephone services (but
not telephone equipment) for the trust;
j) Compensation of independent trustees who are not interested
persons of the trust as that term is defined by law
k) Costs of trust meetings
l) Federal and state registration fees and expenses
m) Costs of setting in type, printing and mailing prospectuses,
reports and notices to existing shareholders
n) Advisory fees payable to each funds' investment advisor
o) Direct out-of-pocket costs in connection with trust
activities, such as the costs of long distance telephone and
wire charges, postage and the printing of special forms and
stationery, copying charges, financial publications used in
connection with trust activities, etc., and
p) Other actual out-of-pocket expenses of the Administrator as
may be agreed upon in writing from time to time by the
Administrator and the trustees
7. Compensation. For the services provided and the expenses assumed by the
Administrator pursuant to this Agreement, the trust will pay the
Administrator and the Administrator will accept as full compensation
the administrative fees and expenses as set forth on Exhibit B attached
hereto. Special projects, not included herein and requested in writing
by the trustees, shall be completed by the Administrator and invoiced
to the trust as mutually agreed upon.
8.(a) Limitation of Liability. The Administrator shall not be liable for
any loss, damage or liability related to or resulting from the
placement, investment or reinvestment of assets in any fund of the
trust or the acts or omissions of any fund's investment advisor or any
other third party subject to separate agreements with the trust.
Further, the Administrator shall not be liable for any error of
judgment or mistake of law or for any loss or damage suffered by the
trust in connection with the performance of this Agreement or any
agreement with a third party, except a loss resulting directly from (i)
a breach of fiduciary duty on the part of the Administrator with
respect to the receipt of compensation for services; or (ii) willful
misfeasance, bad faith or gross negligence on the part of the
Administrator in the performance of its duties or from reckless
disregard by it of its duties under this Agreement.
<PAGE>
(b) Indemnification of Administrator. Subject to the limitations set forth
in this Subsection 8(b), the trust shall indemnify, defend and hold
harmless (from the assets of the fund or funds to which the conduct in
question relates) the Administrator against all loss, damage and
liability, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees, incurred by the
Administrator in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, related to or resulting
from this Agreement or the performance of services hereunder, except
with respect to any matter as to which it has been determined that the
loss, damage or liability is a direct result of (i) a breach of
fiduciary duty on the part of the Administrator with respect to the
receipt of compensation for services; or (ii) willful misfeasance, bad
faith or gross negligence on the part of the Administrator in the
performance of its duties or from reckless disregard by it of its
duties under this Agreement (either and both of the conduct described
in clauses (i) and (ii) above being referred to hereinafter as
"Disabling Conduct"). A determination that the Administrator is
entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before whom the proceeding was brought
that the Administrator was not liable by reason of Disabling Conduct,
(ii) dismissal of a court action or an administrative proceeding
against the Administrator for insufficiency of evidence of Disabling
Conduct, or (iii) a reasonable determination, based upon a review of
the facts, that the Administrator was not liable by reason of Disabling
Conduct by, (a) vote of a majority of a quorum of trustees who are
neither "interested persons" of the trust as the quoted phrase is
defined in Section 2(a)(19) of the 1940 Act nor parties to the action,
suit or other proceeding on the same or similar grounds that is then or
has been pending or threatened (such quorum of such trustees being
referred to hereinafter as the "Independent trustees"), or (b) an
independent legal counsel in a written opinion. Expenses, including
accountants' and counsel fees so incurred by the Administrator (but
excluding amounts paid in satisfaction of judgments, in compromise or
as fines or penalties), shall be paid from time to time by the fund or
funds to which the conduct in question related in advance of the final
disposition of any such action, suit or proceeding; provided, that the
Administrator shall have undertaken to repay the amounts so paid unless
it is ultimately determined that it is entitled to indemnification of
such expenses under this Subsection 8(b) and if (i) the Administrator
shall have provided security for such undertaking, (ii) the trust shall
be insured against losses arising by reason of any lawful advances, or
(iii) a majority of the Independent trustees, or an independent legal
counsel in a written opinion, shall have determined, based on a review
of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Administrator ultimately will
be entitled to indemnification hereunder.
<PAGE>
As to any matter disposed of by a compromise payment by the
Administrator referred to in this Subsection 8(b), pursuant to a
consent decree or otherwise, no such indemnification either for said
payment or for any other expenses shall be provided unless such
indemnification shall be approved (i) by a majority of the Independent
trustees or (ii) by an independent legal counsel in a written opinion.
Approval by the Independent trustees pursuant to clause (i) shall not
prevent the recovery from the Administrator of any amount paid to the
Administrator in accordance with either of such clauses as
indemnification of the Administrator is subsequently adjudicated by a
court of competent jurisdiction not to have acted in good faith in the
reasonable belief that the Administrator's action was in or not opposed
to the best interests of the trust or to have been liable to the trust
or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in its conduct
under the Agreement.
The right of indemnification provided by this Subsection 8(b) shall not
be exclusive of or affect any of the rights to which the Administrator
may be entitled. Nothing contained in this Subsection 8(b) shall affect
any rights to indemnification to which trustees, officers or other
personnel of the trust, and other persons may be entitled by contract
or otherwise under law, nor the power of the trust to purchase and
maintain liability insurance on behalf of any such person.
The board of trustees of the trust shall take all such action as may be
necessary and appropriate to authorize the trust hereunder to pay the
indemnification required by this Subsection 8(b) including, without
limitation, to the extent needed, to determine whether the
Administrator is entitled to indemnification hereunder and the
reasonable amount of any indemnity due it hereunder, or employ
independent legal counsel for that purpose.
8.(c) The provisions contained in Section 8 shall survive the expiration
or other termination of this Agreement, shall be deemed to include and
protect the Administrator and its directors, officers, employees and
agents and shall inure to the benefit of its/their respective
successors, assigns and personal representatives.
9. Duration and Termination. This Agreement shall become effective as of
the date hereof and shall thereafter continue in effect unless
terminated as herein provided. This Agreement may be terminated by
either party hereto at any time by giving not less than 60 days' prior
written notice to the other party hereto. If such termination is `with
cause', then such termination is without penalty. The Administrator
will charge a full month's fees for the period during which all records
are transferred, plus appropriate out of pocket expenses. If such
termination is without cause, a fee equal to one-fourth of the most
recent annual fee paid by each fund of the trust shall be paid to the
Administrator for its services during the transition. Upon termination
of this Agreement, the trust shall pay to TNC such compensation as may
be due as of the date of such termination, and shall likewise reimburse
TNC for any out-of-pocket expenses and disbursements reasonably
incurred by TNC to such date.
<PAGE>
10. Amendment. This Agreement may be amended by mutual written consent of
the parties. If, at any time during the existence of this Agreement,
the trust deems it necessary or advisable in the best interests of the
trust that any amendment of this Agreement be made in order to comply
with the recommendations or requirements of the Securities and Exchange
Commission or state regulatory agencies or other governmental
authority, or to obtain any advantage under state or federal laws, and
shall notify the Administrator of the form of Amendment which it deems
necessary or advisable and the reasons therefor, and if the
Administrator declines to assent to such amendment, the trust may
terminate this Agreement forthwith.
11. Notice. Any notice that is required to be given by the parties to each
other under the terms of this Agreement shall be in writing, addressed
or delivered, or mailed postpaid to the other party at the principal
place of business of such party.
12. Construction. This Agreement shall be governed and enforced in
accordance with the laws of the State of North Carolina. If any
provision of this Agreement, or portion thereof, shall be determined to
be void or unenforceable by any court of competent jurisdiction, then
such determination shall not affect any other provision of this
Agreement, or portion thereof, all of which other provisions and
portions thereof shall remain in full force and effect. If any
provision of this Agreement, or portion thereof, is capable of two
interpretations, one of which would render the provision, or portion
thereof, void and the other of which would render the provision, or
portion thereof, valid, then the provision, or portion thereof, shall
have the meaning which renders it valid.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized officers effective as of the date indicated above.
NOTTINGHAM INVESTMENT TRUST II
By: /S/ Jack E. Brinson (SEAL)
___________________________
THE NOTTINGHAM COMPANY, INC.
By: /s/ Frank P. Meadows, III (SEAL)
____________________________
<PAGE>
Exhibit A
---------
FUND ACCOUNTING AND RECORDKEEPING SERVICES
Portfolio Accounting Services:
- ------------------------------
(1) Maintain portfolio records using security trade information
communicated from the investment manager on a timely basis.
(2) For each valuation date, obtain prices from a pricing source approved
by the board of trustees and apply those prices to the portfolio
positions. For those securities where market quotations are not readily
available, the board of trustees shall approve, in good faith, the
method for determining the fair market value for such securities.
(3) Identify interest and dividend accrual balances as of each valuation
date.
(4) Determine gain/loss on security sales. Account for periodic
distributions of gain to shareholders and maintain undistributed gain
or loss balances as of each valuation date.
Expense Accrual and Payment Services:
- -------------------------------------
(5) For each valuation date, calculate the expense accrual amounts as
directed by the trust as to methodology, rate, or dollar amount.
(6) Issue payments for fund expenses upon receipt of funds from the trust's
custodian.
(7) Account for fund expenditures and maintain expense accrual balances at
the level of accounting detail specified by the fund.
(8) Support periodic expense accrual review, i.e., comparison of actual
expense activity versus accrual amounts.
(9) Provide expense accrual and payment reporting.
Fund Valuation and Financial Reporting Services:
- ------------------------------------------------
(10) Account for fund share purchases, sales, exchanges, transfers, dividend
reinvestments, and other fund share activity, for each of the funds, as
reported by the trust on a timely basis.
(11) Determine net investment income (earnings) for each of the funds as of
each valuation date. Account for periodic distributions of earnings to
shareholders and maintain undistributed net investment income balances
as of each valuation date.
(12) Maintain a general ledger for each of the funds in the form defined by
the trust and assist in producing a set of financial statements as may
be agreed upon from time to time as of each valuation date.
(13) For each day the funds are opened as defined in the prospectuses,
determine the net asset value of each of the funds according to the
accounting policies and procedures set forth in the prospectuses.
(14) Calculate per share net asset value, per share net earnings, and other
per share amounts reflective of fund operation at such time as required
by the nature and characteristics of the funds. Perform the
calculations using the number of shares outstanding reported by the
trust to be applicable at the time of calculation.
(15) Communicate, at an agreed upon time, the per share price for each
valuation date to parties as agreed upon from time to time.
(16) Prepare monthly reports which document the adequacy of accounting
detail to support month-end ledger balances.
<PAGE>
Tax Accounting Services:
- ------------------------
(17) Maintain tax accounting records for each of the funds' investment
portfolios so as to support tax reporting required for IRS defined
regulated investment companies.
(18) Maintain tax lot detail for the investment portfolio.
(19) Calculate taxable gain/loss on security sales using the tax cost basis
defined for each fund.
(20) Report the taxable components of income and capital gains distributions
to the trust to support tax reporting to the shareholders.
Compliance Control Services:
- ----------------------------
(21) Maintain accounting records to support compliance monitoring by the
trust.
(22) Support reporting to regulatory bodies and support financial statement
preparation by making the fund accounting records available to the
trust, the Securities and Exchange Commission, and the outside
auditors.
(23) Maintain accounting records according to the Investment Company Act of
1940 and regulations provided thereunder.
Registration Services:
- ----------------------
(24) Assist in the preparation of all reports and filings required to
maintain the registration and qualification of the fund and its shares
under federal and state securities laws, including the annual amendment
to its Registration Statement on From N-1A containing an updated
Prospectus and Statement of Additional Information.
SEC Filing Services:
- --------------------
(25) Assist in the preparation of periodic SEC filings, including Form
N-SAR, annual and semi-annual shareholder reports, other shareholder
reports, and fidelity bond amendments but not including preparation and
filing of any sales literature and preparation of President's letter
contained in shareholder reports.
Proxy Material Services:
- ------------------------
(26) Assist in the preparation of any proxy material and related shareholder
meetings and records.
<PAGE>
Exhibit B
---------
ADMINISTRATOR'S COMPENSATION SCHEDULE
For the services delineated in the FUND ACCOUNTING AND COMPLIANCE ADMINISTRATION
AGREEMENT, the Administrator shall be compensated monthly, as of the last day of
each month, within five business days of the month end, a base fee plus a fee
based upon net assets according to the following schedule. The fee is calculated
based upon the average daily net assets of each fund:
Base fee: $2,000 per month
--------
Class Fee: $ 750 per month for each additional Class
---------
Asset based fee:
---------------
Equity and Balanced funds
Annual
Net Assets Fee
-------------------- ------
On the first $50 million 0.175%
On the next $50 million 0.150%
On the next $50 million 0.125%
On all assets over $150 million 0.100%
Fixed Income funds
On all assets 0.125%
Securities pricing:
------------------
$0.20 per equity per pricing day priced
$0.70 per foreign security per pricing day
$0.20 per U.S. Treasury
$1.00 per asset backed security per pricing day
$0.40 per corporate bond per pricing day
$2.00 per equity per month for corporate action
Blue Sky administration:
-----------------------
$160 per registration per state per year
Minimum Aggregate Fee:
---------------------
Minimum fee of $4,000 per fund of the trust per month for all fees paid
to the Administrator (excluding securities pricing and blue sky
administration), analyzed monthly.
DIVIDEND DISBURSING
AND TRANSFER AGENT
AGREEMENT
THIS AGREEMENT, made and entered into as of the 23rd day of SEPTEMBER, 1998, by
and between THE NOTTINGHAM INVESTMENT TRUST II, a Massachusetts business trust
(the "trust"), and NC SHAREHOLDER SERVICES, LLC, a North Carolina limited
liability company (the "Transfer Agent").
WHEREAS, the trust is an open-end management investment company of the series
type which is registered under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Transfer Agent is in the business of providing dividend disbursing,
transfer agent, and shareholder services to investment companies.
NOW THEREFORE, the trust and the Transfer Agent do mutually promise and agree as
follows:
1. Employment. The trust hereby employs Transfer Agent to act as dividend
disbursing and transfer agent for each fund of the trust. Transfer
Agent, at its own expense, shall render the services and assume the
obligations herein set forth subject to being compensated therefore as
herein provided.
2. Delivery of Documents. The trust has furnished the Transfer Agent with
copies properly certified or authenticated of each of the following:
a) The trust's Declaration of Trust, as filed with the State of
Massachusetts (such Declaration, as presently in effect and as
it shall from time to time be amended, is herein called the
"Declaration");
b) The trust's by-laws (such by-laws, as presently in effect and
as they shall from time to time be amended, are herein called
the "by-laws");
c) Resolutions of the trust's board of trustees authorizing the
appointment of the Transfer Agent and approving this
Agreement; and
d) The trust's Registration Statement on Form N-1A under the 1940
Act and under the Securities Act of 1933 as amended, (the
"1933 Act"), including all exhibits, relating to shares of
beneficial interest of, and containing the Prospectus of, each
fund of the trust (herein called the "Shares") as filed with
the Securities and Exchange Commission and all amendments
thereto.
The trust will furnish the Transfer Agent with copies, properly certified or
authenticated, of all amendments of or supplements to the foregoing.
3. Duties of the Transfer Agent. Subject to the policies and direction of
the trust's board of trustees, the Transfer Agent will provide day to
day supervision for the dividend disbursing, transfer agent, and
shareholder servicing operations of each of the trust's funds. Services
to be provided shall be in accordance with the trust's organizational
and registration documents as listed in paragraph 2 hereof and with the
Prospectus of each fund of the trust. The Transfer Agent further agrees
that it:
<PAGE>
a) will conform with all applicable rules and regulations of the
Securities andExchange Commission and the National Association
of Securities Dealers, and will conduct its activities under
this Agreement in accordance with regulations of any other
federal and state agency which may now or in the future have
jurisdiction over its activities.
b) will provide, at its expense the non-executive personnel and
data processing equipment and software necessary to perform
the Shareholder Servicing functions shown on Exhibit A hereof;
and
c) will provide all office space and general office equipment
necessary for the dividend disbursing, transfer agent, and
shareholder servicing activities of the trust except as may be
provided by third parties pursuant to separate agreements with
the trust.
Notwithstanding anything contained in this Agreement to the contrary,
the Transfer Agent (including its directors, officers, employees and
agents) shall not be required to perform any of the duties of, assume
any of the obligations or expenses of, or be liable for any of the acts
or omissions of, any investment advisor of a fund of the trust or other
third party subject to separate agreements with the trust. The Transfer
Agent shall not be responsible hereunder for the administration of the
Code of Ethics of the trust which shall be under the responsibility of
the investment advisors, except insofar as the Code of Ethics applies
to the personnel of the Transfer Agent. It is the express intent of the
parties hereto that the Transfer Agent shall not have control over or
be responsible for the placement (except as specifically directed by a
shareholder of the trust), investment or reinvestment of the assets of
any fund of the trust. The Transfer Agent may from time to time,
subject to the approval of the trustees, obtain at its own expense the
services of consultants or other third parties to perform part or all
of its duties hereunder, and such parties may be affiliates of the
Transfer Agent.
4. Services Not Exclusive. The services furnished by the Transfer Agent
hereunder are not to be deemed exclusive, and the Transfer Agent shall
be free to furnish similar services to others so long as its services
under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Transfer Agent hereby agrees that all records
which it maintains for the trust are the property of the trust and
further agrees to surrender promptly to the trust any of such records
upon the trust's request.
6. Expenses. During the term of this Agreement, the Transfer Agent will
pay all expenses incurred by it in connection with the performance of
its obligations under this Agreement.
7. Compensation. For the services provided and the expenses assumed by the
Transfer Agent pursuant to this Agreement, the trust will pay the
Transfer Agent and the Transfer Agent will accept as full compensation
the fees and expenses as set forth on Exhibit B attached hereto.
Special projects, not included herein and requested by an officer of
the trust, shall be completed by the Transfer Agent and invoiced to the
trust as appropriate.
8.(a) Limitation of Liability. The Transfer Agent shall not be liable for any
loss, damage or liability related to or resulting from the placement
(except as specifically directed by a shareholder of the trust),
investment or reinvestment of assets in any fund of the trust or the
acts or omissions of any fund's investment advisor or any other third
party subject to separate agreements with the trust. Further, the
Transfer Agent shall not be liable for any error of judgment or mistake
of law or for any loss or damage suffered by the trust in connection
with the performance of this Agreement or any agreement with a third
party, except a loss resulting directly from (i) a breach of fiduciary
duty on the part of the Transfer Agent with respect to the receipt of
compensation for services; or (ii) willful misfeasance, bad faith or
gross negligence on the part of the Transfer Agent in the performance
of its duties or from reckless disregard by it of its duties under this
Agreement.
<PAGE>
8.(b) Indemnification of Transfer Agent. Subject to the limitations set forth
in this Subsection 8(b), the trust shall indemnify, defend and hold
harmless (from the assets of the fund or funds to which the conduct in
question relates) the Transfer Agent against all loss, damage and
liability, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees, incurred by the
Transfer Agent in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, related to or resulting
from this Agreement or the performance of services hereunder, except
with respect to any matter as to which it has been determined that the
loss, damage or liability is a direct result of (i) a breach of
fiduciary duty on the part of the Transfer Agent with respect to the
receipt of compensation for services; or (ii) willful misfeasance, bad
faith or gross negligence on the part of the Transfer Agent in the
performance of its duties or from reckless disregard by it of its
duties under this Agreement (either and both of the conduct described
in clauses (i) and (ii) above being referred to hereinafter as
"Disabling Conduct"). A determination that the Transfer Agent is
entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before whom the proceeding was brought
that the Transfer Agent was not liable by reason of Disabling Conduct,
(ii) dismissal of a court action or an administrative proceeding
against the Transfer Agent for insufficiency of evidence of Disabling
Conduct, or (iii) a reasonable determination, based upon a review of
the facts, that the Transfer Agent was not liable by reason of
Disabling Conduct by, (a) vote of a majority of a quorum of trustees
who are neither "interested persons" of the trust as the quoted phrase
is defined in Section 2(a)(19) of the 1940 Act nor parties to the
action, suit or other proceeding on the same or similar grounds that is
then or has been pending or threatened (such quorum of such trustees
being referred to hereinafter as the "Independent trustees"), or (b) an
independent legal counsel in a written opinion. Expenses, including
accountants' and counsel fees so incurred by the Transfer Agent (but
excluding amounts paid in satisfaction of judgments, in compromise or
as fines or penalties), shall be paid from time to time by the fund or
funds to which the conduct in question related in advance of the final
disposition of any such action, suit or proceeding; provided, that the
Transfer Agent shall have undertaken to repay the amounts so paid
unless it is ultimately determined that it is entitled to
indemnification of such expenses under this Subsection 8(b) and if (i)
the Transfer Agent shall have provided security for such undertaking,
(ii) the trust shall be insured against losses arising by reason of any
lawful advances, or (iii) a majority of the Independent trustees, or an
independent legal counsel in a written opinion, shall have determined,
based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the Transfer
Agent ultimately will be entitled to indemnification hereunder.
<PAGE>
As to any matter disposed of by a compromise payment by the Transfer
Agent referred to in this Subsection 8(b), pursuant to a consent decree
or otherwise, no such indemnification either for said payment or for
any other expenses shall be provided unless such indemnification shall
be approved (i) by a majority of the Independent trustees or (ii) by an
independent legal counsel in a written opinion. Approval by the
Independent trustees pursuant to clause (i) shall not prevent the
recovery from the Transfer Agent of any amount paid to the Transfer
Agent in accordance with either of such clauses as indemnification of
the Transfer Agent is subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the reasonable belief
that the Transfer Agent's action was in or not opposed to the best
interests of the trust or to have been liable to the trust or its
shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in its conduct
under the Agreement.
The right of indemnification provided by this Subsection 8(b) shall not
be exclusive of or affect any of the rights to which the Transfer Agent
may be entitled. Nothing contained in this Subsection 8(b) shall affect
any rights to indemnification to which trustees, officers or other
personnel of the trust, and other persons may be entitled by contract
or otherwise under law, nor the power of the trust to purchase and
maintain liability insurance on behalf of any such person.
The board of trustees of the trust shall take all such action as may be
necessary and appropriate to authorize the trust hereunder to pay the
indemnification required by this Subsection 8(b) including, without
limitation, to the extent needed, to determine whether the Transfer
Agent is entitled to indemnification hereunder and the reasonable
amount of any indemnity due it hereunder, or employ independent legal
counsel for that purpose.
The provisions contained in Section 8 shall survive the expiration or
other termination of this Agreement, shall be deemed to include and
protect the Transfer Agent and its directors, officers, employees and
agents and shall inure to the benefit of its/their respective
successors, assigns and personal representatives.
<PAGE>
9. Duration and Termination. This Agreement shall become effective as of
the date hereof and shall thereafter continue in effect unless
terminated as herein provided. This Agreement may be terminated by
either party hereto (without penalty) at any time by giving not less
than 60 days' prior written notice to the other party hereto. Upon
termination of this Agreement, the trust shall pay to NCSS such
compensation as may be due as of the date of such termination, and
shall likewise reimburse NCSS for any out-of-pocket expenses and
disbursements reasonably incurred by NCSS to such date.
10. Amendment. This Agreement may be amended by mutual written consent of
the parties. If, at any time during the existence of this Agreement,
the trust deems it necessary or advisable in the best interests of the
trust that any amendment of this Agreement be made in order to comply
with the recommendations or requirements of the Securities and Exchange
Commission or state regulatory agencies or other governmental
authority, or to obtain any advantage under state or federal laws, and
shall notify the Transfer Agent of the form of Amendment which it deems
necessary or advisable and the reasons therefor, and if the Transfer
Agent declines to assent to such amendment, the trust may terminate
this Agreement forthwith.
11. Notice. Any notice that is required to be given by the parties to each
other under the terms of this Agreement shall be in writing, addressed
or delivered, or mailed postpaid to the other party at the principal
place of business of such party.
12. Construction. This Agreement shall be governed and enforced in
accordance with the laws of the State of North Carolina. If any
provision of this Agreement, or portion thereof, shall be determined to
be void or unenforceable by any court of competent jurisdiction, then
such determination shall not affect any other provision of this
Agreement, or portion thereof, all of which other provisions and
portions thereof shall remain in full force and effect. If any
provision of this Agreement, or portion thereof, is capable of two
interpretations, one of which would render the provision, or portion
thereof, void and the other of which would render the provision, or
portion thereof, valid, then the provision, or portion thereof, shall
have the meaning which renders it valid.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized officers effective as of the date indicated above.
THE NOTTINGHAM INVESTMENT TRUST II
By: /s/ Jack E. Brinson (SEAL)
__________________________
NC SHAREHOLDER SERVICES, LLC
By: /s/ John D. Marriott (SEAL)
__________________________
<PAGE>
Exhibit A
---------
SHAREHOLDER SERVICING FUNCTIONS
(1) Process new accounts.
(2) Process purchases, both initial and subsequent in accordance with
conditions set forth in the fund's prospectus.
(3) Transfer shares of capital stock to an existing account or to a new
account upon receipt of required documentation in good order.
(4) Distribute dividends and/or capital gain distributions. This includes
disbursement as cash or reinvestment and to change the disbursement
option at the request of shareholders.
(5) Process exchanges between funds, (process and direct purchase/redemption
and initiate new account or process to existing account).
(6) Make miscellaneous changes to records, including, but not necessarily
limited to, address changes and changes in plans (such as systematic
withdrawal, dividend reinvestment, etc.).
(7) Prepare and mail a year-to-date confirmation and statement as each
transaction is recorded in a shareholder account as follows: original to
shareholder. Duplicate confirmations to be available on request within
current year.
(8) Handle telephone calls and correspondence in reply to shareholder
requests except those items otherwise set forth herein.
(9) Daily control and reconciliation of fund shares.
(10) Prepare address labels or confirmations for four reports to shareholders
per year.
(11) Mail and tabulate proxies for one Meeting of shareholders annually,
including preparation of certified shareholder list and daily report to
fund management, if required.
(12) Prepare and mail annual Form 1099, Form W-2P and 5498 to shareholders to
whom dividends or distributions are paid, with a copy for the IRS.
(13) Provide readily obtainable data which may from time to time be requested
for audit purposes.
(14) Replace lost or destroyed checks.
(15) Continuously maintain all records for active and closed accounts
according to the Investment Company Act of 1940 and regulations provided
thereunder.
(16) Furnish shareholder data information for a current calendar year in
connection with IRA and Keogh Plans in a format suitable for mailing to
shareholders.
<PAGE>
Exhibit B
---------
TRANSFER AGENT'S COMPENSATION SCHEDULE
For the services delineated in the DIVIDEND DISBURSING AND TRANSFER AGENT
AGREEMENT, the Transfer Agent shall be compensated monthly, as of the last day
of each month, within five business days of the month end. Any partial month
will be billed as a full month. The fee is calculated based upon 1/12 of the
annual fee calculated using the then current number of shareholders:
Shareholder Servicing Fee:
- -------------------------
$15 per shareholder per year; minimum fee of $750 per month
IRA Accounts:
- ------------
$15 per year (billed directly to the shareholder)
February 19, 1999
Opinion and Consent of Counsel
Nottingham Investment Trust II
105 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Dear Gentlemen:
This opinion is given in connection with the filing by Nottingham
Investment Trust II, a Massachusetts business trust (the "Trust"), of
Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A
("Registration Statement") under the Securities Act of 1933, as amended and
Amendment No. 36 under the Investment Company Act of 1940, as amended, relating
to an indefinite amount of authorized shares of beneficial interest, at par
value of $.01 per share, of the separate series of the Trust, The Brown Capital
Management International Equity Fund (the "International Equity Fund"). The
authorized shares of beneficial interest of the International Equity Fund are
hereinafter referred to as the "Shares."
We have examined the following Trust documents: the Amended and
Restated Declaration of Trust; the Amended and Restated By-Laws; Post-Effective
Amendment No. 34 on Form N-1A filed on July 31, 1998; pertinent provisions of
the laws of the Commonwealth of Massachusetts; and such other corporate records,
certificates, documents and statutes that we have deemed relevant in order to
render the opinion expressed herein.
Based on such examination, we are of the opinion that:
1. The Trust is a Massachusetts business trust duly organized, validly
existing, and in good standing under the laws of the Commonwealth of
Massachusetts; and
2. The Shares to be offered for sale by the Trust, when issued in the
manner contemplated by the Registration Statement, will be legally
issued, fully-paid and non-assessable.
This letter expresses our opinion as to the Massachusetts business
trust law governing matters such as the due organization of the Trust and the
authorization and issuance of the Shares, but does not extend to the securities
or "Blue Sky" laws of the Commonwealth of Massachusetts or to federal securities
or other laws.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to Dechert Price & Rhoads under the caption
"Legal Counsel" in the Statement of Additional Information, which is
incorporated by reference into the Prospectus comprising a part of the
Registration Statement.
Very truly yours,
/s/ DECHERT PRICE & RHOADS
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees and Shareholders of
The Nottingham Investment Trust II:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 35 to Registration Statement No. 33-37458 of The Brown Capital Management
Equity Fund, The Brown Capital Management Balanced Fund, The Brown Capital
Management Small Company Fund and The Brown Capital Management International
Equity Fund (each a series of The Nottingham Investment Trust II) of our report
dated April 24, 1998, relating to The Brown Capital Management Equity Fund, The
Brown Capital Management Balanced Fund, The Brown Capital Management Small
Company Fund incorporated by reference in the Statement of Additional
Information, which is part of such Registration Statement, and to the reference
to us under the caption "Independent Auditor's" in such Registration Statement.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
February 22, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869351
<NAME> NOTTINGHAM INVESTMENT TRUST II
<SERIES>
<NUMBER> 1
<NAME> BROWN EQUITY FUND
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 5,954,967
<INVESTMENTS-AT-VALUE> 8,139,243
<RECEIVABLES> 4,396
<ASSETS-OTHER> 21,584
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,165,223
<PAYABLE-FOR-SECURITIES> 10,033
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,420
<TOTAL-LIABILITIES> 15,453
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,979,229
<SHARES-COMMON-STOCK> 372,570
<SHARES-COMMON-PRIOR> 265,144
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 13,735
<ACCUM-APPREC-OR-DEPREC> 2,184,276
<NET-ASSETS> 8,149,770
<DIVIDEND-INCOME> 44,020
<INTEREST-INCOME> 22,473
<OTHER-INCOME> 0
<EXPENSES-NET> 76,747
<NET-INVESTMENT-INCOME> (10,254)
<REALIZED-GAINS-CURRENT> 603,519
<APPREC-INCREASE-CURRENT> 1,740,209
<NET-CHANGE-FROM-OPS> 2,333,474
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 660,547
<DISTRIBUTIONS-OTHER> 13,735
<NUMBER-OF-SHARES-SOLD> 120,211
<NUMBER-OF-SHARES-REDEEMED> 44,640
<SHARES-REINVESTED> 31,855
<NET-CHANGE-IN-ASSETS> 3,744,750
<ACCUMULATED-NII-PRIOR> 39
<ACCUMULATED-GAINS-PRIOR> 67,243
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 41,626
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 126,671
<AVERAGE-NET-ASSETS> 6,404,810
<PER-SHARE-NAV-BEGIN> 16.61
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 7.31
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 2.02
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 21.87
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869351
<NAME> NOTTINGHAM INVESTMENT TRUST II
<SERIES>
<NUMBER> 2
<NAME> BROWN BALANCED FUND
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 4,497,369
<INVESTMENTS-AT-VALUE> 6,011,418
<RECEIVABLES> 68,016
<ASSETS-OTHER> 11,449
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,090,883
<PAYABLE-FOR-SECURITIES> 7,556
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,590
<TOTAL-LIABILITIES> 13,146
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,547,013
<SHARES-COMMON-STOCK> 361,039
<SHARES-COMMON-PRIOR> 284,896
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 60
<ACCUMULATED-NET-GAINS> 16,735
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,514,049
<NET-ASSETS> 6,077,737
<DIVIDEND-INCOME> 47,157
<INTEREST-INCOME> 67,266
<OTHER-INCOME> 0
<EXPENSES-NET> 60,276
<NET-INVESTMENT-INCOME> 54,147
<REALIZED-GAINS-CURRENT> 493,452
<APPREC-INCREASE-CURRENT> 949,181
<NET-CHANGE-FROM-OPS> 1,496,780
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 54,255
<DISTRIBUTIONS-OF-GAINS> 476,740
<DISTRIBUTIONS-OTHER> 60
<NUMBER-OF-SHARES-SOLD> 111,277
<NUMBER-OF-SHARES-REDEEMED> 67,688
<SHARES-REINVESTED> 32,554
<NET-CHANGE-IN-ASSETS> 2,203,084
<ACCUMULATED-NII-PRIOR> 108
<ACCUMULATED-GAINS-PRIOR> 23
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 32,686
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 111,861
<AVERAGE-NET-ASSETS> 5,028,667
<PER-SHARE-NAV-BEGIN> 13.60
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 4.65
<PER-SHARE-DIVIDEND> 0.17
<PER-SHARE-DISTRIBUTIONS> 1.42
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.83
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869351
<NAME> NOTTINGHAM INVESTMENT TRUST II
<SERIES>
<NUMBER> 3
<NAME> BROWN SMALL COMPANY
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 7,537,721
<INVESTMENTS-AT-VALUE> 11,566,400
<RECEIVABLES> 6,303
<ASSETS-OTHER> 6,109
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,578,812
<PAYABLE-FOR-SECURITIES> 1,859
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,009
<TOTAL-LIABILITIES> 12,868
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,495,546
<SHARES-COMMON-STOCK> 550,128
<SHARES-COMMON-PRIOR> 434,182
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 41,719
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,028,679
<NET-ASSETS> 11,565,944
<DIVIDEND-INCOME> 74,036
<INTEREST-INCOME> 2,615
<OTHER-INCOME> 0
<EXPENSES-NET> 139,847
<NET-INVESTMENT-INCOME> (63,196)
<REALIZED-GAINS-CURRENT> 264,971
<APPREC-INCREASE-CURRENT> 3,029,081
<NET-CHANGE-FROM-OPS> 3,230,856
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 122,662
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 127,445
<NUMBER-OF-SHARES-REDEEMED> 18,185
<SHARES-REINVESTED> 6,686
<NET-CHANGE-IN-ASSETS> 5,047,257
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (65,735)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 93,370
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 191,441
<AVERAGE-NET-ASSETS> 9,336,974
<PER-SHARE-NAV-BEGIN> 15.01
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> 6.36
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.24
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 21.02
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
