The CarolinasFund
1712 East Boulevard
Charlotte, NC 28203
Telephone: 704-344-1012
Facsimile: 704-333-9366
April 26, 1999
Dear CarolinasFund Shareholder,
Attached you will find the Annual Report, which reports results and portfolio
holdings, sector breakdowns, and related statistics for our fiscal year ended
February 28, 1999.
Calendar year 1998 proved to be a challenging year in terms of performance for
many of the companies within the region and for The CarolinasFund. Performance
through December 31, 1998 was as follows: Investor Shares: 7.04% and
Institutional Shares 7.51%.
Throughout most of 1998, our performance lagged the major indices such as: the
Standard & Poor's 500, the Dow Jones Industrial Average, and the NASDAQ. During
the Dow's blue chip sell-off from July 17 through August 31, a number of
Carolinas stocks did experience significant losses and failed to finish the year
strong relative to those indices.
The CarolinasFund focuses in on the 50 largest publicly traded companies in
North and South Carolina based on market capitalization (number of shares
outstanding times market price). On balance, the median market capitalization of
all holdings within The CarolinasFund has been between $1 billion and $5
billion, which is generally regarded by investment professionals as a small to
mid-cap range.
The relative performance for The CarolinasFund remained strong as our Benchmark
Index, The Russell 2000 fell, -3.45% during 1998. Small and Mid-Cap stocks
continued to underperform as sectors, and the performance divergence between
small and large-cap stock widened to a record level, according to analysts at
Saloman Smith Barney.
According to Bloomberg News, one of the world's leading vendors of business
news, stock data, and financial information, there are some 146 publicly held
companies based in the Carolinas with a market capitalization of $15 million or
more. Performance for the Bloomberg Carolinas Index, published weekly in The
Charlotte Observer, declined -5.52% during calendar year 1998.
<PAGE>
April 26, 1999
Page Two
With the US economy continuing to grow at a modest rate, many investors are
cautious about the fact that stock prices are simply too high. The S&P 500"...is
near the highest price to earnings ratios ever, 28 times the last twelve months
earnings..." according to First Call, a Wall Street financial reporting firm.
"The 50 issues with the highest ratios recently accounted for 25% of the value
of the S&P 500, and had a P/E ratio of 51. The P/E on the other 450 was 20,"
according to Morgan Stanley Dean Witter.
"Last October small-cap (price) multiples fell below the one-to-one ratio (to
the S&P's ratio), and now they are at an all-time low," states W. Whitfield
Gardener, of Gardner Lewis Asset Management. It should be noted that the
Price/Earnings ratios for many of the stocks within The CarolinasFund has been
and is now well below that of the The Standard & Poors 500 stock index.
The economy in North and South Carolina remains strong, which will help the
stocks within our portfolio over the long run. Many of these companies have
exceptionally strong balance sheets, and are rated as "long term hold" or "buy"
by analysts.
Companies within The CarolinasFund's portfolio will generally account for more
than eighty percent of the entire market capitalization of publicly held
companies within North and South Carolina. Hence, performance of The
CarolinasFund should be considered to be a rough proxy for overall stock
performance within the two-state region.
We believe that the demographic and economic characteristics of North and South
Carolina, are such that companies headquartered in the two states have a greater
than average potential for capital appreciation. The fact of the matter is that
"...every time we have had five years of small-cap underperformance, it's been
followed by five years of outperformance " according to Bert Boksen, as
small-cap fund manager for Raymond James & Associates Inc.
Access to daily price information (NAV, etc.) is provided via toll free number
800-773-3863 and NASDAQ listings are now published in the major newspapers. The
symbol for Investor Shares is CARVX - for Institutional Shares CARTX. Should you
have questions about The CarolinasFund or the attached report, please do not
hesitate to contact us at 704-344-1012.
Sincerely,
J. C. Blucher Ehringhaus, III
Managing Director
<PAGE>
________________________________________________________________________________
The CarolinasFund
________________________________________________________________________________
a series of the Nottingham Investment Trust II
Annual Report 1999
FOR THE PERIOD ENDED FEBRUARY 28
INVESTMENT ADVISOR
Morehead Capital Advisors LLC
1712 East Boulevard
Charlotte, NC 28203
The CarolinasFund
107 North Washington Street
Post Office Drawer 4365
Rocky Mount, North Carolina 27803-0365
1-800-773-3863
<PAGE>
The CarolinasFund
INSTITUTIONAL SHARES
Performance Update - $10,000 Investment
For the period from May 22, 1995 (commencement of operations)
to February 28, 1999
------------------------------------------------------
Institutional S&P 500 Russell 2000
Shares Index Index
------------------------------------------------------
5/22/95 10,000 10,000 10,000
5/31/95 10,064 10,193 9,956
8/31/95 11,125 10,802 11,286
11/30/95 11,284 11,710 11,449
2/29/96 11,768 12,457 12,098
5/31/96 12,330 13,091 13,523
8/31/96 11,843 12,825 12,527
11/30/96 12,480 14,933 13,340
2/28/97 12,687 15,716 13,616
5/31/97 12,949 16,942 14,460
8/31/97 14,307 18,039 16,134
11/30/97 15,159 19,243 16,429
2/28/98 16,695 21,217 17,705
5/31/98 16,844 22,141 17,555
8/31/98 14,092 19,499 13,033
11/30/98 16,273 23,796 15,389
2/28/99 15,582 25,405 15,228
This graph depicts the performance of The CarolinasFund Institutional Shares
versus the Russell 2000 Index and the S&P 500 Total Return Index. It is
important to note that The CarolinasFund 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 Three Years
- -------------------------------------------------------
12.50% (6.66)% 9.81%
- -------------------------------------------------------
The graph assumes an initial $10,000 investment at May 22, 1995. All dividends
and distributions are reinvested.
At February 28, 1999, the Institutional Shares of The CarolinasFund would have
grown to $15,582 - total investment return of 55.82% since May 22, 1995.
At February 28, 1999, a similar investment in the Russell 2000 Index would have
grown to $15,228 - total investment return of 52.28%; and the S&P 500 Total
Return Index would have grown to $25,405 - total investment return of 154.05%,
since May 22, 1995.
Past performance is not a guarantee of future results. 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>
The CarolinasFund
INVESTOR SHARES
Performance Update - $10,000 Investment
For the period from January 3, 1995 (commencement of operations)
to February 28, 1999
------------------------------------------------
Investor S&P 500 Russell 2000
Shares Index Index
------------------------------------------------
1/3/95 9,650 10,000 10,000
2/28/95 10,171 10,663 10,377
5/31/95 10,432 11,752 10,942
8/31/95 11,516 12,455 12,404
11/30/95 11,671 13,502 12,583
2/29/96 12,066 14,362 13,297
5/31/96 12,628 15,094 14,863
8/31/96 12,124 14,788 13,769
11/30/96 12,764 17,217 14,661
2/28/97 12,959 18,120 14,964
5/31/97 13,202 19,534 15,892
8/31/97 14,579 20,799 17,732
11/30/97 15,423 22,187 18,057
2/28/98 16,956 24,463 19,459
5/31/98 17,092 25,528 19,294
8/31/98 14,288 22,482 14,324
11/30/98 16,481 27,436 16,914
2/28/99 15,750 29,291 16,736
This graph depicts the performance of The CarolinasFund Investor Shares versus
the Russell 2000 Index and the S&P 500 Total Return Index. It is important to
note that The CarolinasFund 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 Three Years
- --------------------------------------------------------------
No Sales Load 12.51% (7.11)% 9.29%
- --------------------------------------------------------------
With 3.50% Sales Load 11.55% (10.36)% 8.00%
- --------------------------------------------------------------
The graph assumes an initial $10,000 investment at January 3, 1995 ($9,650 after
maximum sales load of 3.50%). All dividends and distributions are reinvested.
At February 28, 1999, the Investor Shares of The CarolinasFund would have grown
to $15,750 - total investment return of 57.50% since January 3, 1995. Without
the deduction of the 3.50% maximum sales load, the Investor Shares of The
CarolinasFund would have grown to $16,322 - total investment return of 63.22%
since January 3, 1995. The sales load may be reduced or eliminated for larger
purchases.
At February 28, 1999, a similar investment in the Russell 2000 Index would have
grown to $16,736 - total investment return of 67.36%; and the S&P 500 Total
Return Index would have grown to $29,291 - total investment return of 192.91%,
since January 3, 1995.
Past performance is not a guarantee of future results. 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>
The CarolinasFund
PORTFOLIO OF INVESTMENTS
February 28, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 95.24%
Basic Materials - 5.73%
Bowater Incorporated ..................................................... 2,900 $122,163
Sonoco Products Company .................................................. 3,728 91,336
--------
213,499
--------
Consumer, Cyclical - 14.08%
Family Dollar Stores, Inc. ............................................... 5,600 112,000
Lowe's Companies, Inc. ................................................... 2,600 154,212
Oakwood Homes Corporation ................................................ 5,200 83,850
(a)Ryan's Family Steak Houses, Inc. ......................................... 5,000 56,875
(a)Speedway Motorsports, Inc. ............................................... 3,300 117,769
--------
524,706
--------
Consumer, Non-Cyclical - 7.91%
Coca-Cola Bottling Co. ................................................... 600 33,600
Food Lion, Inc. - Class A ................................................ 9,100 86,735
Lance, Inc. .............................................................. 3,100 51,150
(a)Personnel Group of America, Inc. ......................................... 3,900 51,431
Ruddick Corporation ...................................................... 3,900 71,906
--------
294,822
--------
Financial Services - 26.64%
BankAmerica Corporation .................................................. 2,000 130,625
BB&T Corporation ......................................................... 3,244 122,867
Carolina First Corporation ............................................... 1,800 37,125
CCB Financial Corporation ................................................ 1,800 93,488
Centura Banks, Inc. ...................................................... 1,600 102,400
First Citizen's BancShares, Inc. ......................................... 800 63,900
First Union Corporation .................................................. 2,000 106,625
(a)Insignia Financial Group, Inc. ........................................... 933 12,187
Jefferson-Pilot Corporation .............................................. 1,675 113,481
Resource Bancshares Mortgage Group, Inc. ................................. 2,745 38,430
(a)Triad Guaranty Inc. ...................................................... 1,500 27,750
Triangle Bancorp, Inc. ................................................... 2,100 33,600
Wachovia Corporation ..................................................... 1,300 110,581
--------
993,059
--------
Holding Companies - Diversified - 2.57%
The Liberty Corporation .................................................. 1,900 95,831
--------
Industrial - 19.38%
AVX Corporation .......................................................... 5,100 69,806
(a)Burlington Industries, Inc. .............................................. 6,600 40,838
(a)Collins & Aikman ......................................................... 7,200 36,000
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
The CarolinasFund
PORTFOLIO OF INVESTMENTS
February 28, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Industrial - (Continued)
(a)Coltec Industries, Inc. .................................................... 5,000 $ 90,000
Guilford Mills, Inc. ....................................................... 2,900 35,888
Martin Marietta Materials, Inc. ............................................ 2,100 107,756
Nucor Corporation .......................................................... 2,400 106,950
(a)Quintiles Transnational Corporation ........................................ 2,100 90,562
Springs Industries, Inc. - Class A ......................................... 900 29,925
Unifi, Inc. ................................................................ 3,900 47,044
United Dominion Industries ................................................. 3,500 67,594
---------
722,363
---------
Real Estate - 2.89%
Highwoods Properties, Inc. ................................................. 2,900 69,419
Summit Properties, Inc. .................................................... 2,300 38,237
---------
107,656
---------
Technology - 5.96%
(a)Glenayre Technologies, Inc. ................................................ 7,225 25,514
(a)Kemet Corporation .......................................................... 4,600 50,600
(a)Pharmaceutical Product Development, Inc. ................................... 2,100 72,975
(a)Policy Management Systems Corporation ...................................... 2,000 73,125
---------
222,214
---------
Utilities - 10.08%
Carolina Power & Light Company ............................................. 2,500 99,687
Duke Energy Corporation .................................................... 1,800 102,375
Piedmont Natural Gas Company, Inc. ......................................... 1,800 61,425
Public Service Company of North Carolina ................................... 1,500 44,344
SCANA Corporation .......................................................... 2,900 68,150
---------
375,981
---------
Total Common Stocks (Cost $3,112,771) ...................................... 3,550,131
---------
INVESTMENT COMPANY - 4.47%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ................................... 166,477
---------
(Cost $166,477)
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
The CarolinasFund
PORTFOLIO OF INVESTMENTS
February 28, 1999
Total Value of Investments (Cost $3,279,248 (b)) .................................. 99.71% $3,716,608
Other Assets Less Liabilities ..................................................... 0.29% 10,824
--------- ----------
Net Assets ................................................................. 100.00% $3,727,432
========= ==========
(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 ................... $ 844,430
Unrealized depreciation ................... (407,070)
---------
Net unrealized appreciation $ 437,360
=========
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<S> <C>
The CarolinasFund
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1999
ASSETS
Investments, at value (cost $3,279,248) .................................................................. $3,716,608
Cash ..................................................................................................... 65
Income receivable ........................................................................................ 5,575
Deferred organizational expenses (net) ................................................................... 7,769
Due from advisor (note 2) ................................................................................ 4,014
Other assets ............................................................................................. 1,382
----------
Total assets ........................................................................................ 3,735,413
----------
LIABILITIES
Accrued expenses ......................................................................................... 7,781
Payable for fund shares redeemed ......................................................................... 200
----------
Total liabilities ................................................................................... 7,981
----------
NET ASSETS ...................................................................................................... $3,727,432
==========
NET ASSETS CONSIST OF
Paid-in capital .......................................................................................... $3,171,408
Undistributed net realized gain on investments ........................................................... 118,664
Net unrealized appreciation on investments ............................................................... 437,360
----------
$3,727,432
==========
INSTITUTIONAL CLASS
Net asset value, offering and redemption price per share ($1,071,567 / 76,489 shares) .................... $ 14.01
==========
INVESTOR CLASS
Net asset value, offering and redemption price per share ($2,655,865 / 195,079 shares) ................... $ 13.61
==========
Maximum offering price per share (100 / 96.5% of $13.61) ................................................. $ 14.10
==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<S> <C>
The CarolinasFund
STATEMENT OF OPERATIONS
Year ended February 28, 1999
INVESTMENT LOSS
Income
Interest ........................................................................................ $ 7,229
Dividends ....................................................................................... 89,186
-----------
Total income .............................................................................. 96,415
-----------
Expenses
Investment advisory fees (note 2) ............................................................... 47,197
Fund administration fees (note 2) ............................................................... 9,500
Distribution and service fees - Investor class (note 3) ......................................... 17,605
Custody fees .................................................................................... 3,067
Registration and filing administration fees (note 2) ............................................ 2,368
Fund accounting fees (note 2) ................................................................... 30,000
Audit fees ...................................................................................... 9,500
Legal fees ...................................................................................... 18,439
Securities pricing fees ......................................................................... 2,778
Shareholder recordkeeping fees .................................................................. 13,250
Other fees ...................................................................................... 3,308
Shareholder servicing expenses .................................................................. 5,048
Registration and filing expenses ................................................................ 5,094
Printing expenses ............................................................................... 3,629
Amortization of deferred organization expenses (note 6) ......................................... 9,303
Trustee fees and meeting expenses ............................................................... 5,089
Other operating expenses ........................................................................ 9,642
-----------
Total expenses ............................................................................ 194,817
-----------
Less:
Expense reimbursements (note 2) ...................................................... (36,205)
Investment advisory fees waived (note 2) ............................................. (47,197)
Distribution and service fees waived - Investor Class (note 3) ....................... (10,982)
-----------
Net expenses .............................................................................. 100,433
-----------
Net investment loss .................................................................. (4,018)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions ....................................................... 864,496
Decrease in unrealized appreciation on investments ................................................... (1,206,312)
-----------
Net realized and unrealized loss on investments ................................................. (341,816)
-----------
Net decrease in net assets resulting from operations ...................................... $ (345,834)
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
The CarolinasFund
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
February 28, February 28,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment loss ..................................................................... $ (4,018) $ (1,335)
Net realized gain from investment transactions .......................................... 864,496 3,640
(Decrease) increase in unrealized appreciation on investments ........................... (1,206,312) 1,186,197
---------- ----------
Net (decrease) increase in net assets resulting from operations .................... (345,834) 1,188,502
---------- ----------
Distributions to shareholders from
Net realized gain from investment transactions .......................................... (692,322) 0
---------- ----------
Decrease in net assets resulting from distributions ................................ (692,322) 0
---------- ----------
Capital share transactions
(Decrease) increase in net assets resulting from capital share transactions (a) ......... (531,597) 667,382
---------- ----------
Total (decrease) increase in net assets ....................................... (1,569,753) 1,855,884
NET ASSETS
Beginning of year ........................................................................... 5,297,185 3,441,301
---------- ----------
End of year ................................................................................. $ 3,727,432 $ 5,297,185
========== ==========
(a) A summary of capital share activity follows:
Year ended Year ended
February 28, 1999 February 28, 1998
Shares Value Shares Value
----------------- ----------------- ----------------- -----------------
- ------------------------------------------------------
INSTITUTIONAL CLASS
- ------------------------------------------------------
Shares sold 7,615 $ 127,042 18,697 $ 289,131
Shares issued from reinvestment of distributions 13,319 197,642 0 0
Shares redeemed (10,198) (154,777) (7,178) (106,422)
----------------- ----------------- ----------------- -----------------
Net increase 10,736 $ 169,907 11,519 $ 182,709
================= ================= ================= =================
- ------------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------------
Shares sold 39,215 $ 686,284 67,713 $ 977,120
Shares issued from reinvestment of distributions 34,155 493,202 0 0
Shares redeemed (114,228) (1,880,990) (34,329) (492,447)
----------------- ----------------- ----------------- -----------------
Net (decrease) increase (40,858) $ (701,504) 33,384 $ 484,673
================= ================= ================= =================
- ------------------------------------------------------
FUND SUMMARY
- ------------------------------------------------------
Shares sold 46,830 $ 813,326 86,410 $ 1,266,251
Shares issued from reinvestment of distributions 47,474 690,844 0 0
Shares redeemed (124,426) (2,035,767) (41,507) (598,869)
----------------- ----------------- ----------------- -----------------
Net (decrease) increase (30,122) $ (531,597) 44,903 $ 667,382
================= ================= ================= =================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
The CarolinasFund
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
INSTITUTIONAL CLASS
For the
period from
May 22, 1995
(commencement
Year ended Year ended Year ended of operations) to
February 28, February 28, February 28, February 29,
1999 1998 1997 1996
----------- ----------- ---------- -----------
Net asset value, beginning of period $17.83 $13.55 $12.57 $10.72
(Loss) income from investment operations
Net investment income 0.05 0.05 0.01 0.02
Net realized and unrealized (loss) gain on investments (1.08) 4.23 0.97 1.88
----------- ----------- ---------- -----------
Total from investment operations (1.03) 4.28 0.98 1.90
----------- ----------- ---------- -----------
Distributions to shareholders from
Net investment income 0.00 0.00 0.00 (0.02)
Net realized gain from investment transactions (2.79) 0.00 0.00 (0.03)
----------- ----------- ---------- -----------
Total distributions (2.79) 0.00 0.00 (0.05)
----------- ----------- ---------- -----------
Net asset value, end of period $14.01 $17.83 $13.55 $12.57
=========== =========== ========== ===========
Total return (a) (6.66)% 31.59 % 7.81 % 17.68 %
=========== =========== ========== ===========
Ratios/supplemental data
Net assets, end of period $1,071,567 $1,172,074 $735,087 $24,576
=========== =========== ========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 3.75 % 3.61 % 4.85 % 8.40 % (b)
After expense reimbursements and waived fees 1.75 % 1.75 % 1.73 % 1.69 % (b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (1.67)% - - (6.07)% (b)
After expense reimbursements and waived fees 0.33 % 0.36 % 0.22 % 0.64 % (b)
Portfolio turnover rate 22.24 % 7.00 % 5.00 % 16.00 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
The CarolinasFund
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
INVESTOR CLASS For the
period from
January 3, 1995
(commencement
of operations)
Year ended Year ended Year ended Year ended to
February 28, February 28, February 28, February 29, February 28,
1999 1998 1997 1996 1995
----------- ----------- ----------- ------------ ---------
Net asset value, beginning of period $17.48 $13.36 $12.44 $10.54 $10.00
(Loss) income from investment operations
Net investment (loss) income (0.04) (0.02) (0.02) 0.01 0.04
Net realized and unrealized (loss) gain on investments (1.04) 4.14 0.94 1.95 0.50
----------- ----------- ----------- ------------ ---------
Total from investment operations (1.08) 4.12 0.92 1.96 0.54
----------- ----------- ----------- ------------ ---------
Distributions to shareholders from
Net investment income 0.00 0.00 0.00 (0.03) 0.00
Net realized gain from investment transactions (2.79) 0.00 0.00 (0.03) 0.00
----------- ----------- ----------- ------------ ---------
Total distributions (2.79) 0.00 0.00 (0.06) 0.00
----------- ----------- ----------- ------------ ---------
Net asset value, end of period $13.61 $17.48 $13.36 $12.44 $10.54
=========== =========== =========== ============ =========
Total return (a) (7.11)% 30.84 % 7.41 % 18.59 % 5.40 %
=========== =========== =========== ============ =========
Ratios/supplemental data
Net assets, end of period $2,655,865 $4,125,111 $2,706,214 $1,897,814 $272,383
=========== =========== =========== ============ =========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 4.26 % 4.12 % 5.33 % 9.45 % 37.10 %(b)
After expense reimbursements and waived fees 2.25 % 2.25 % 2.22 % 2.17 % 2.21 %(b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (2.23)% - - (7.21)% (32.27)%(b)
After expense reimbursements and waived fees (0.22)% (0.14)% (0.20)% 0.06 % 2.62 %(b)
Portfolio turnover rate 22.24 % 7.00 % 5.00 % 16.00 % 0.00 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
The CarolinasFund
NOTES TO FINANCIAL STATEMENTS
February 28, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The CarolinasFund (the "Fund") is a diversified, open-end 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. Prior to July 1,
1998, the Fund was operating as an open-end series of the Maplewood
Investment Trust. The Board of Trustees of the Maplewood Investment
Trust approved an agreement and plan of reorganization providing for
the transfer of all of the assets and liabilities of the CarolinasFund
to the New CarolinasFund in exchange for shares of the New
CarolinasFund. In connection with the reorganization the New
CarolinasFund shares were distributed to shareholders in liquidation of
the CarolinasFund and the CarolinasFund was terminated. As a result of
the reorganization, the Fund assumed the financial history of the
predecessor fund.
For federal income tax purposes, the reorganization qualified as a
tax-free reorganization with no tax consequences to the predecessor
fund, the Fund, or its shareholders. The holding period and aggregate
tax basis of the New CarolinasFund shares received by a shareholder of
the CarolinasFund will be the same as the holding period and aggregate
tax basis of the shareholder's CarolinasFund shares. The holding period
and tax basis of the assets in the hands of the New CarolinasFund as a
result of the reorganization will be the holding period and tax basis
of those assets in the CarolinasFund's hands immediately prior to the
reorganization.
The investment objective of the Fund is to provide long-term capital
growth by investing primarily in common stocks of publicly traded
companies headquartered in North and South Carolina. Current income is
of secondary importance.
The Fund has an unlimited number of authorized shares, which are
divided into two classes Institutional and Investor Shares. Each class
of shares has equal rights of the assets of the Fund, and the classes
of shares are identical except for differences in their sales charge
structures and ongoing distribution and service fees. Income, expenses
(other than distribution and service fees, which are only attributable
to the Investor Class), and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its
relative net assets. Investor Shares purchased are subject to a maximum
sales charge of three and one-half percent. Both classes have equal
voting privileges, except where otherwise required by law or when the
Board of Trustees determines that the matter to be voted on affects
only the interests of the shareholders of a particular class. The
following is a summary of significant accounting policies followed by
the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted
on a national market system are valued at 4:00 p.m., New York
time. Other securities traded in the over-the-counter market
and listed securities for which no sale was reported on that
date are valued at the most recent bid price. Securities for
which market quotations are not readily available, if any, are
valued by using an independent pricing service or by following
procedures approved by the Board of Trustees. Short-term
investments are valued at cost which approximates value.
(Continued)
<PAGE>
The CarolinasFund
NOTES TO FINANCIAL STATEMENTS
February 28, 1999
B. Federal Income Taxes - No provision has been made for federal
income taxes since it is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all federal
income taxes.
The Fund files a tax return annually using tax accounting
methods required under provisions of the Code which may differ
from generally accepted accounting principles, the basis on
which these financial statements are prepared. Accordingly,
the character of distributions to shareholders reported in the
financial highlights may differ from that reported to
shareholders for Federal income tax purposes. Distributions
which exceed net investment income and net realized gains for
financial reporting purposes but not for tax purposes, if any,
are shown as distributions in excess of net investment income
and net realized gains in the accompanying statements.
C. Investment Transactions - Investment transactions are recorded
on trade date. Realized gains and losses are determined using
the specific identification cost method. Interest income is
recorded daily on an accrual basis. Dividend income is
recorded on the ex-dividend date.
D. Distributions to Shareholders - The Fund may declare dividends
at least annually on a date selected by the Trust's Trustees.
Distributions to shareholders are recorded on the ex-dividend
date. In addition, distributions may be made annually in
December out of net realized gains through October 31 of that
year. The Fund may make a supplemental distribution subsequent
to the end of its fiscal year ending February 28.
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.
F. Risk Factors - The Fund's concentration in companies
headquartered in North and South Carolina generally will tie
the performance of the Fund to the economic environment of the
two states and the surrounding area. There is no assurance
that the demographic and economic characteristics and other
factors that the Advisor believes favor companies in North and
South Carolina will continue in the future.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Morehead Capital Advisors
LLC (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. The Advisor is the same entity serving as investment
advisor since the Fund's inception on January 3, 1995. As compensation
for its services, the Advisor receives a fee at the annual rate of
1.00% of the Fund's average daily net assets.
(Continued)
<PAGE>
The CarolinasFund
NOTES TO FINANCIAL STATEMENTS
February 28, 1999
The Advisor currently intends to voluntarily waive all or a portion of
its fee and to reimburse expenses of the Fund to limit total Fund
operating expenses to a maximum of 1.75% of the average daily net
assets of the Fund's Institutional Class and a maximum of 2.25% of the
average daily net assets of the Fund's Investor Class. There can be no
assurance that the foregoing voluntary fee waivers or reimbursements
will continue. The Advisor has voluntarily waived a portion of its fee
amounting to $47,197 ($0.17 per share) and has reimbursed expenses
amounting to $36,205 for the period ended February 28, 1999.
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 a fund accounting and compliance agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.175% of the Fund's first $50 million of average daily
net assets, 0.15% of the next $50 million, and 0.125% of average daily
net assets over $100 million. The Administrator also receives a monthly
fee of $2,000 for accounting and record-keeping services for the
initial class of shares and $750 per month for each additional class of
shares. The contract with the Administrator provides that the aggregate
fees for the aforementioned administration, accounting, and
recordkeeping services shall not be less than $4,000 per month. The
Administrator also charges the Fund for certain expenses involved with
the daily valuation of portfolio securities.
The Nottingham Company became the Fund's administrator on July 1, 1998.
Prior to that date, Countrywide Fund Services ("CFS") served as the
Fund's Administrator and received for its services fees at the annual
rate of 0.15% of the Fund's first $50 million of average daily net
assets, 0.125% of the next $50 million, and 0.10% of average daily net
assets over $100 million, subject to a $1,000 minimum monthly fee. CFS
also received a monthly fee of $2,000 for accounting and record-keeping
services for the Fund.
North Carolina Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing
agent. The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund's shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions.
North Carolina Shareholder Services, LLC became the Fund's transfer
agent on July 1, 1998. Prior to that date, CFS served as the Fund's
transfer agent and received for its services fees based on the number
of shareholder accounts in the Fund, subject to a $2,000 minimum
monthly fee.
Capital Investment Group, Inc. (the "Distributor"), serves as the
Fund's principal underwriter and distributor. The Distributor receives
any sales charges imposed on purchases of Investor Shares and
re-allocates a portion of such charges to dealers through whom the sale
was made, if any. For the period from July 1, 1998, to February 28,
1999, the Distributor retained sales charges in the amount of $610.
Certain Trustees and officers of the Trust are also officers or
directors of the Advisor, the Distributor, or the Administrator.
(Continued)
<PAGE>
The CarolinasFund
NOTES TO FINANCIAL STATEMENTS
February 28, 1999
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including the Trustees who are not "interested
persons" of the Trust as defined in the Investment Company Act of 1940
(the "Act"), as amended, adopted a distribution and service plan
pursuant to Rule 12b-1 of the Act (the "Plan") applicable to the
Investor Shares. The Act regulates the manner in which a regulated
investment company may assume costs of distributing and promoting the
sales of its shares and servicing of its shareholder accounts.
The Plan provides that the Fund may incur certain costs, which may not
exceed 0.50% per annum of the Investor Shares' average daily net assets
for each year elapsed subsequent to adoption of the Plan, for payment
to the Distributor and others for items such as advertising expenses,
selling expenses, commissions, travel, or other expenses reasonably
intended to result in sales of Investor Shares in the Fund or support
servicing of Investor Share shareholder accounts. Such expenditures
incurred as service fees may not exceed 0.25% per annum of the Investor
Shares' average daily net assets. The Fund incurred $17,605 of such
expenses under the Plan for the year ended February 28, 1999. The
Distributor has waived a portion of its fee amounting to $10,982.
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $993,623 and $1,904,019 respectively, for the year ended
February 28, 1999.
NOTE 5 - DISTRIBUTIONS TO SHAREHOLDERS
For federal income tax purposes, the Fund must report distributions
from net realized gain from investment transactions that represent
long-term capital gain to its shareholders. The total $2.79 per share
distribution for the year ended February 28, 1999 represents long-term
capital gain. Shareholders should consult a tax advisor on how to
report distributions for state and local income tax purposes.
NOTE 6 - DEFERRED ORGANIZATION EXPENSES
Expenses totaling $13,968 incurred in connection with its organization
on January 3, 1995, and the registration of its shares have been
assumed by the Fund.
The organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Nottingham Investment Trust II and Shareholders of
The CarolinasFund:
We have audited the accompanying statement of assets and liabilities of The
CarolinasFund, including the schedule of investments, as of February 28, 1999,
and the related statements of operations and changes in net assets, and
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the year ended February 28, 1998 and the financial highlights for the four
years in the period ended February 28, 1998 were audited by other auditors,
whose reports thereon dated March 27, 1998 expressed an unqualified opinion.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of February 28,
1999, by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
CarolinasFund as of February 28, 1999, the results of its operations for the
year then ended, the changes in its net assets and the financial highlights for
the year then ended in conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 19, 1999
